[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
U.S.-CHINA BILATERAL TRADE AGREEMENT AND THE ACCESSION OF CHINA TO THE
WTO
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
FEBRUARY 16, 2000
__________
Serial 106-78
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
67-129 CC WASHINGTON : 2001
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut 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
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2
WITNESSES
Office of United States Trade Representative, Hon. Charlene
Barshefsky, United States Trade Representative................. 37
______
American Farm Bureau Federation, Steve Appel..................... 163
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 15
Business Roundtable, Michael R. Bonsignore....................... 86
Business Software Alliance, John Chen............................ 106
Cargill, Incorporated, Ernest S. Micek........................... 112
CF Industries, Inc., Robert C. Liuzzi............................ 157
Delaware County Farm Bureau, Dave Kronlage....................... 139
Dooley, Hon. Calvin M., a Representative in Congress from the
State of California............................................ 29
Emergency Committee for American Trade, Ernest S. Micek.......... 112
Family Farms Pork, Richard Erisman............................... 103
Fertilizer Institute, Robert C. Liuzzi........................... 157
Hoffman, Ann, Union of Needletrades, Industrial & Textile
Employees...................................................... 143
Honeywell International, Inc., Michael R. Bonsignore............. 86
Human Rights Watch, Mike Jendrzejczyk............................ 151
International Brotherhood of Teamsters, Chuck Mack............... 95
Jendrzejczyk, Mike, Human Rights Watch........................... 151
Knollenberg, Hon. Joe, a Representative in Congress from the
State of Michigan.............................................. 5
Kronlage, Dave, Delaware County Farm Bureau...................... 139
Liuzzi, Robert C., CF Industries, Inc., and Fertilizer Institute. 157
Mack, Chuck, International Brotherhood of Teamsters.............. 95
Micek, Ernest S., Cargill, Incorporated, and Emergency Committee
for American Trade............................................. 112
Missouri Farm Bureau Federation, Richard Erisman................. 103
Moran, Hon. James P., a Representative in Congress from the State
of Virginia.................................................... 9
Pelosi, Hon. Nancy, a Representative in Congress from the State
of California.................................................. 18
Smith, Hon. Christopher H., a Representative in Congress from the
State of New Jersey............................................ 22
Sybase, Incorporated, John Chen.................................. 106
Tramco, Incorporated, Leon Trammell.............................. 118
Union of Needletrades, Industrial and Textile Employees, Ann
Hoffman........................................................ 143
U.S. Chamber of Commerce, Leon Trammell.......................... 118
U.S.-China Business Council, Michael R. Bonsignore............... 86
Walden, Hon. Greg, a Representative in Congress from the State of
Oregon......................................................... 13
Washington State Farm Bureau, Steve Appel........................ 163
SUBMISSIONS FOR THE RECORD
American Apparel Manufacturers Association, Arlington, VA,
statement...................................................... 168
American International Group, Inc., New York, NY, Maurice R.
Greenberg...................................................... 169
American Textile Manufacturers Institute, statement and
attachments.................................................... 173
Blackwelder, Brent, Friends of the Earth, statement.............. 180
Bunn, J.T., Tobacco Association of United States, and Leaf
Tobacco Exporters Association, Raleigh, NC, joint statement.... 190
CIGNA Corporation, Philadelphia, PA, statement................... 176
FedEx Corporation, Memphis, TN, Frederick W. Smith............... 177
Footwear Industries of America, Inc., statement.................. 179
Friends of the Earth, Brent Blackwelder, statement............... 180
Hoberman Designs, Inc., New York, NY, Chuck Hoberman, statement
and attachment................................................. 181
International Mass Retail Association, Arlington, VA, statement.. 182
Laogai Research Foundation, Harry Wu, letter..................... 27
Leaf Tobacco Exporters Association, Raleigh, NC, J.T. Bunn, joint
statement...................................................... 190
Mattel, Inc., and St. Maxens & Company, Thomas F. St. Maxens,
joint statement................................................ 185
National Association of Wheat Growers, joint statement........... 195
National Retail Federation, statement............................ 188
NPES, The Association for Suppliers of Printing, Publishing and
Converting Technologies, Reston, VA, statement................. 186
St. Maxens & Company, Thomas F. St. Maxens, joint statement...... 185
Tobacco Association of United States, Raleigh, NC, J.T. Bunn,
joint statement................................................ 190
U.S. High-Tech Industry Coalition on China, statement and
attachments.................................................... 191
U.S. Wheat Associates, Wheat Export Trade Education Committee,
and National Association of Wheat Growers, joint statement..... 195
Wheat Export Trade Education Committee, joint statement.......... 195
Wei Jingsheng Foundation, Inc., New York, NY, statement.......... 150
Wu, Harry, Laogai Research Foundation, letter.................... 27
U.S-CHINA BILATERAL TRADE AGREEMENT AND THE ACCESSION OF CHINA TO THE
WTO
----------
WEDNESDAY, FEBRUARY 16, 2000
House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:28 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Archer,
(Chairman of the Committee) presiding.
[The advisories announcing the hearing follow:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
FOR IMMEDIATE RELEASE CONTACT: (202) 225-1721
January 31, 2000
FC-16
Archer Announces Hearing on
U.S.-China Bilateral Trade Agreement and
the Accession of China to the WTO
Congressman Bill Archer (R-TX), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
the recently concluded bilateral trade agreement between the United
States and China and on the pending accession of China to the World
Trade Organization (WTO). The hearing will take place on Wednesday,
February 16, 2000, in the main Committee hearing room, 1100 Longworth
House Office Building, beginning at 10:00 a.m.
Oral testimony at this hearing will be from both invited and public
witnesses. 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:
China applied for accession to the General Agreement on Tariffs and
Trade (GATT) in July 1986, and work has proceeded in the China Working
Party since that time to negotiate the conditions upon which China will
enter the WTO.
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.
On November 15, 1999, Ambassador Barshefsky announced the
successful completion of bilateral talks on China's accession to the
World Trade Organization. The expansive market access agreement will
provide broad market openings for U.S. agriculture, manufactured
products and services, along with Chinese commitments to adopt WTO
rules relating to such issues as technology transfer and offsets,
subsidies, product safeguards, and State enterprises. In a separate
agreement signed in April 1999, China agreed to end sanitary and
phytosanitary bans on the importation of U.S. wheat, meat, and citrus
products.
The Agreement represents a crucial step in China's WTO accession
process. Other steps that remain ahead include the conclusion of
bilateral negotiations with a number of other WTO members, as well as
the multilateral negotiations on China's accession protocol. China then
must complete its domestic process for implementing the country's WTO
commitments.
Congressional approval of permanent normal trade relations (NTR) is
not necessary for China to accede to the WTO. However, in order for
American businesses, farmers, and workers to be guaranteed an
opportunity to benefit from the trade concessions and better compete in
China's markets, China's name must be removed from Title IV of the
Trade Act of 1974, the so-called Jackson-Vanik amendment, which
provides for an annual review of China's trade status based on freedom
of emigration.
Otherwise, the United States would be in violation of Article I of
the GATT, which requires the extension of ``unconditional'' most
favored nation (or NTR) status, and subject to trade sanctions. If the
United States does not remove the conditions imposed by Jackson-Vanik,
the United States would have to invoke the non-application clause of
the GATT, meaning that China would be able to withhold benefits of the
1999 bilateral agreement from the United States.
In response to progress achieved in China's WTO commitments
represented by the bilateral agreement with the United States,
President Clinton announced that he will work with other WTO member
countries to gain China's entry in the WTO as soon as possible and will
seek the legislation from Congress to grant permanent NTR status to
China.
In announcing the hearing, Chairman Archer said: ``One of the most
important items for American workers, farmers and businesses this year
is expanding trade with the most populous nation in the world. Whether
we can actually capture these gains depends in large measure on the
President's commitment to push for passage of legislation necessary to
grant China permanent NTR trade status. I look forward to working with
the President on opening China's borders to American-made products and
services. As history has repeatedly shown, our economy and quality of
life only grow stronger when we embrace international trade, not close
our borders to it.''
FOCUS OF THE HEARING:
The focus of the hearing will be to examine: (1) the opportunities
and issues associated with the entry of China into the WTO, and (2) the
potential benefits of the U.S.--China bilateral trade agreement for
U.S. firms, workers, farmers, ranchers, and other interested parties.
The Committee would also welcome testimony on how progress of China's
accession to the WTO affects the pending application of Taiwan to join
the WTO and the potential impact on the United States, China, Taiwan,
and Hong Kong of normalized trade relations between the United States
and China.
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, Tuesday, February 8, 2000. 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 Committee 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 Committee on staff at
(202) 225-1721.
In view of the limited time available to hear witnesses, the
Committee 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 Committee are required to submit 300 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 Committee office, room 1102 Longworth
House Office Building, no later than 10:00 a.m., Monday, February 14,
2000. 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, Wednesday,
March 1, 2000, 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 Committee office, room 1102 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://waysandmeans.house.gov''.
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.
NOTICE--CHANGE IN TIME
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
FOR IMMEDIATE RELEASE CONTACT: (202) 225-1721
February 11, 2000
No. FC-16-Revised
Time Change for Full Committee Hearing on
Wednesday, February 16, 2000, on
U.S.-China Bilateral Trade Agreement and
the Accession of China to the WTO
Congressman Bill Archer (R-TX), Chairman of the Committee on Ways
and Means, today announced that the full Committee hearing on the
recently concluded bilateral trade agreement between the United States
and China and on the pending accession of China to the World Trade
Organization, previously scheduled for Wednesday, February 16, 2000, at
10:00 a.m., in the main Committee hearing room, 1100 Longworth House
Office Building, will begin instead at 10:30 a.m.
All other details for the hearing remain the same. (See full
Committee press release ``fc-16.htm'' No. FC-16, dated January 31,
2000.)
Chairman Archer. The committee will come to order. Opening
statements will be suspended until the special trade
representative, Ms. Barshefsky, arrives.
We will go ahead with our opening panel of House members:
Chris Smith of New Jersey, Nancy Pelosi of California, Cal
Dooley of California, Jim Moran of Virginia, Joe Knollenberg of
Michigan, Earl Blumenauer of Oregon, and Greg Walden of Oregon.
If those members will come to the witness table, we will be
ready to hear from you.
Pending the arrival of the others, Congressman Knollenberg,
would you lead off.
STATEMENT OF HON. JOE KNOLLENBERG, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MICHIGAN
Mr. Knollenberg. Mr. Chairman, I would be delighted to if
that would be appropriate.
Mr. Chairman, I want to thank you for holding this hearing
and, obviously, thanks also to all of the members of this
committee. I appreciate the opportunity to testify here today
because there are important benefits that the United States
will receive from China's entry into the World Trade
Organization. I also commend you for holding this hearing,
which I hope will provide members and the American people with
a greater understanding of why this agreement is essential to
level the playing field for U.S. interests, including an
industry particularly important to my constituents, which is
the U.S. automotive industry.
At long last, China has agreed to play by the global
trading rules, and all U.S. industries that export to China
will benefit from broad reductions in Chinese barriers to
trade. The WTO Agreement provides the greatest access to the
Chinese market that American businesses have ever enjoyed
without requiring any, any reduction in any U.S. tariff or
trade barrier. In other words, China has agreed to a unilateral
reduction in its trade barriers, while U.S. industries remain
protected. They do everything; we, in effect, do nothing.
In addition, China has also agreed to eliminate barriers
which have encumbered specific U.S. industries including, not
just including, but also including the auto industry,
insurance, financial services, agriculture and many others. As
we evaluate the significance of this agreement, it is important
for all of us to understand what these changes will do to
create new business opportunities for these exporting
industries. As an example, however, today, I would like to
focus just on the automotive industry.
In the case of the automotive industry, China is, by far,
the world's largest emerging market and one of the last
automotive frontiers. As a result, the auto market in China is
expected to more than double to 4.6 million vehicles by the
year 2010. This increase is expected to account for 25 percent
of the world's growth in vehicle demand over the next decade.
Currently, due to Chinese trade barriers, U.S. car
companies are practically locked out of this market. However,
under the U.S.--China WTO Agreement, these barriers will be
eliminated and American companies will be able to expand their
exports as Chinese demand grows.
Here are a few specifics:
First of all, under current Chinese trading laws, tariffs
on U.S. automobiles equal 80 to 100 percent--I will repeat
that--they equal 80 to 100 percent of the price of the car.
This alone effectively prices out the vast majority of U.S.
models. However, under the WTO Agreement, this tariff rate will
be reduced to 25 percent by the year 2006. Moreover, the phase-
in of the reduction is front-loaded to provide steeper declines
in the earlier years. Duties on parts will also drop from 25
percent to an average of 10 percent. These tariff reductions
will break down the wall that U.S. auto companies have faced
and increase access to Chinese markets for U.S. exports.
Secondly, current Chinese law contains a variety of
subsidies and special preferences for local Chinese firms which
give them artificial advantages in the Chinese market. To make
matters worse, there are also unique requirements for U.S.
firms such as separate inspection regimes, technology transfer
requirements and content restrictions. These further prevent
U.S. auto companies from competing on a level playing field.
Under the WTO Agreement, all of these barriers will be
eliminated. This provides the auto industry, as well as
industries across the board, a more level, competitive business
environment.
Third, under current Chinese practices, U.S. automotive
companies are prohibited from distributing their vehicles. They
cannot engage in wholesale, direct sales, retail advertising or
even transportation of their vehicles. U.S. car companies can't
even perform maintenance and repair on the vehicles that they
produce. However, under the WTO Agreement, American business
will be able to participate freely in the distribution of their
products. With these restrictions eliminated, American
companies will be able to improve their sales due to their
ability to respond more effectively to the variations in the
Chinese market.
Fourth, U.S. auto companies currently are not permitted to
provide financing for the purchase of vehicles in China. For
that matter, not even U.S. financial firms are allowed to
participate or provide auto financing in China. The only type
of financing allowed in China is through state-run banks, and
they don't even make loans for cars.
However, under the WTO Agreement, both U.S. financial firms
and U.S. auto companies will be able to provide the service.
For the first time, the Chinese people will be allowed to
borrow money to buy a car--something that most Americans take
for granted. Again, this creates increased business
opportunities for American products, and we should also note
that this financing provision is a major improvement from the
April agreement.
As we can all see, the U.S.--China WTO Agreement represents
an incredible opportunity for all U.S. exporting industries,
including the auto industry. By breaking down the longstanding
Chinese barriers to U.S. products, we create improvements to
our own economy, while strengthening our relationship with this
growing world power.
In closing, I would just like to remind my colleagues that
in order for the Chinese to play fairly, we need a referee.
That is why China's involvement in the WTO is essential to
break down the barriers to economic opportunity and create a
fair opportunity for everybody.
And, Mr. Chairman, once again, I much appreciate your
allowing me to testify here today, and I appreciate the early
appropriateness of my being able to come on first.
Thank you very much. I look forward to working with you.
[The prepared statement follows:]
Statement of the Hon. Joe Knollenberg, a Representative in Congress
from the State of Michigan
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to testify here today about the important benefits
the United States will receive from China's entry into the
World Trade Organization. I also commend you for holding this
hearing, which I hope will provide Members and the American
people with a greater understanding of why this Agreement is
essential to level the playing field for U.S. interests,
including an industry particularly important to my
constituents: the U.S. automotive industry.
At long last, China has agreed to play by the global
trading rules and all U.S. industries that export to China will
benefit from broad reductions in Chinese barriers to trade. The
WTO Agreement provides the greatest access to the Chinese
market that American businesses have ever enjoyed, without
requiring ANY reduction in ANY U.S. tariff or trade barrier. In
other words, China has agreed to a UNILATERAL reduction in its
trade barriers while U.S. industries remain protected.
In addition, China has also agreed to eliminate barriers
which have encumbered specific U.S. industries, including the
auto industry, insurance, financial services, agriculture, and
many others. As we evaluate the significance of this Agreement,
it's important for all of us to understand what these changes
will do to create new business opportunities for these
exporting industries.
In the case of the automotive industry, China is by far the
world's largest emerging market and one of the last automotive
frontiers. As a result, the auto market in China is expected to
more than double to 4.6 million vehicles a year by 2010. This
increase is expected to account for 25 percent of the world's
growth in vehicle demand over the next decade.
Currently, due to Chinese trade barriers, U.S. car
companies are practically locked out of this market. However,
under the U.S.--China WTO Agreement, these barriers will be
eliminated and American companies will be able to expand their
exports as Chinese demand grows.
Here are a few specifics:
First of all, under current Chinese trading laws, tariffs
on U.S. automobiles equal 80 to 100 percent of the price of the
car. This alone effectively prices out the vast majority of
U.S. models.
However, under the WTO Agreement, this tariff rate will be
reduced to 25 percent by the year 2006. Moreover, the phase-in
of the reduction is front-loaded to provide steeper declines in
the early years. Duties on parts will also drop from 25 percent
to an average of 10 percent.
These tariff reductions will break down the wall that U.S.
automobile companies have faced and increase access to Chinese
markets for U.S. exports.
Secondly, current Chinese law contains a variety of
subsidies and special preferences for local Chinese firms which
give them artificial advantages in the Chinese market. To make
matters worse, there are also unique requirements for U.S.
firms, such as separate inspection regimes, technology transfer
requirements, and content restrictions, which further prevent
U.S. automobile companies from competing on a level playing
field.
Under the WTO Agreement, all of these barriers will be
eliminated. This provides the auto industry, as well as
industries across the board, a more level, competitive business
environment.
Third, under current Chinese practices, U.S. automotive
companies are prohibited from distributing their vehicles. They
cannot engage in wholesale, direct sales, retail, advertising,
or even transportation of their vehicles. U.S. car companies
can't even perform maintenance and repair on the vehicles they
produce.
However, under the WTO Agreement, American businesses will
be able to participate freely in the distribution of their
products. With these restrictions eliminated, American
companies will be able to improve their sales through their
ability to respond more effectively to the variations in the
Chinese market.
Fourth, U.S. automobile companies currently are not
permitted to provide financing for the purchase of vehicles in
China. For that matter, not even U.S. financial firms are
allowed to provide auto financing in China. The only type of
financing allowed in China is through state-run banks, and they
don't even make loans for cars.
However, under the WTO Agreement, both U.S. financial firms
and U.S. auto companies will be able to provide this service.
For the first time, the Chinese people will be allowed to
borrow money to buy a car--something that most Americans take
for granted. Again, this creates increased business
opportunities for American products.
We should also note this financing provision is a major
improvement from the April agreement.
As we can all see, the U.S.--China WTO Agreement represents
an incredible opportunity for all U.S. exporting industries,
including the automotive industry. By breaking down the long-
standing Chinese barriers to U.S. products, we create
improvements to our own economy while strengthening our
relationship with this growing world power.
In closing, I'd like to remind my colleagues that in order
for the Chinese to play fairly, we need a referee. That's why
China's involvement in the WTO is essential to break down the
barriers to economic opportunity and create a fair opportunity
for everyone.
Mr. Chairman, thank you once again for allowing me to
testify here today and I look forward to working with you on
this issue.
Chairman Archer. Thank you, Congressman Knollenberg.
Our next witness is another one of our colleagues,
Congressman Jim Moran. I am sure all of you gentleman realize
that we operate under a 5-minute rule. Without objection, your
entire printed statement will be put into the record.
Congressman Moran?
STATEMENT OF HON. JAMES P. MORAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Moran. Thank you very much, Mr. Chairman. I do
appreciate the opportunity to testify in what I think is going
to be the most important issue that this Congress will decide
all year. At the outset, I want to commend you, Mr. Archer, as
well as the ranking minority member, Mr. Rangel, for the
bipartisan progressive approach that this committee has taken
with respect to trade policy.
These are obviously difficult and contentious issues, and
there have been times when the House has been unable to form a
consensus on important trade legislation. The failure of the
Congress to grant Fast Track authority for the President in
1997 was a case in point, and we will never know how much
business we lost. Fortunately, it is a booming economy, and we
have not felt the potential effects of such a wrong decision.
But it is the members of the Ways and Committee who best
understand the complexities and the conflicts in trade policy,
and so we are well served when we have bipartisan leadership on
issues like this. Let's hope that we are going to be more
successful on this issue.
Our service-based industries is what I want to particularly
focus on because they have an enormous stake in open trade in
China. The November 15th agreement between the U.S. and China
on WTO accession stands as a victory for many parts of our
economy, but particularly for the service sector. I represent
particularly that industry in Northern Virginia, and the reason
why we are doing so well is because of the increased
productivity, the technology, all of the things that provide us
with more jobs and greater economic growth. But when you talk
about an industry with such growth, you recognize we can never
sustain the rate of growth we are experiencing today and that
is propelling our stock market because of the rates of
productivity if we cannot open up new markets. That is a
reality.
The thing we have to concern ourselves the most, in terms
of sustaining the prosperity we are experiencing, is finding
marketplaces for the products we are capable of producing
because this Nation will never be able to consume what we are
capable of producing. And that is why a nation with 1.25
billion people and an annual rate of growth that exceeded 11
percent between 1990 and 1997 is so critical.
The WTO Basic Telecommunications Agreement marks the first
time China has agreed to open its telecommunications sector to
direct foreign investment and to implement regulatory policies
that foster more competition. This part of the agreement
specifies that the Internet will become available at the same
rate as other telecommunication services are made to the China
people. And equally encouraging, tariff reductions on
computers, semiconductors and other information technology
equipment will fall from an average tariff barrier now of 13.3
percent to zero by the year 2005. That is going to result in
profound changes, not just within the Chinese economy, but
within the Chinese society as well because information is
empowering and transforming. And I think that opening up the
Internet to the Chinese people is a greater threat to that
Chinese Government than anything else we could do, far more
than any kind of ballistic weapon because it opens up the world
of ideas to the people, and they are not going to be--no way
they can control the information going through the Internet.
We also have market-opening concessions in financial
services, banking, insurance, securities. It is going to give
American companies a greater ability to own their own
distribution chains, which is essential if our domestic
manufacturers are to build and sustain markets in China for
their goods. They have got to be able to get insurance, they
have got to be able to borrow capital. They need these
investment companies to be able to have their own distribution
chains not controlled by the Government. So when you have those
distribution networks for goods, retaining ownership, you can
also recruit locally, and you are going to be creating
corporate capitalism that will have profound changes in Chinese
society. The Chinese people are going to be wanting those jobs,
and they are going to be paying a lot more than any industrial
sector that the Government is running today.
In professional services, expanded access in accounting,
engineering, management consulting, law, all of our expertise
in these areas is going to further accelerate the pace of
change in China by helping to develop modern management,
transparent financial systems, encouraging a uniform body of
business law, all to our interests.
What is perhaps most remarkable, Mr. Chairman, is this
agreement is a one-way street. The Chinese are the ones that
are dropping their tariff and their nontariff barriers. It is
not us because we have the freest economy, in terms of a large
country, in the world. And all they are looking for is
accession to the WTO. It makes eminent sense, it is in our
interests. I know virtually nothing, I can't imagine anything
in this agreement that doesn't ultimately revert to our
interests. And that is why I find it difficult to understand
why some people are so adamantly opposed to it because, it
seems to me, when you open up trade, commerce and particularly
information and ideas, it cannot be long before democracy, and
free enterprise and human rights flourish.
China was one of the founding members of the WTO, right
after the war. They were an ally of us. It was when Mao, in
1949, brought them back into the Dark Ages, but that is current
enough that it is going to take a very short period of time
before they are able to be competitive to create the kind of
marketplace that we need for our goods. I don't want to belabor
this, Mr. Chairman. But the fact is that we are on the verge of
a whole new economy, a whole new global society, where we are
going to be the leaders. We are going to benefit the most. We
are going to have the highest quality of life, the most new
products, the highest profit margins. And this is the first
step in doing that.
China should be, must be an ally of ours in a world of free
enterprise, and democracy and individual liberties. If we
isolate them, all we are going to do is encourage the
repression of human rights and Government control. The worst
time in China during the Cultural Revolution was when we were
trying to isolate China. The best times are now. We have got to
encourage those people who get it, who see the future and are
not so bound by the past. We can't be bound by the past. We
have to see the future vision that many members on this
committee, certainly the White House, and I think the vast
majority of the American people recognize. We need an economic
interdependency not just for our own military security, but for
our economic prosperity.
It's a great opportunity. I hope we seize it, Mr. Chairman.
And I appreciate the leadership of the Ways and Means Committee
in that regard.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of the Hon. James P. Moran, a Representative in Congress from
the State of Virginia
I appreciate the opportunity to testify this morning about
whether this nation should establish Permanent Normal Trade
Relations (PNTR) with the People's Republic of China. This may
be the most important issue this Congress will decide all year.
At the outset, I want to commend you, Chairman Archer, as
well as our ranking minority member, Mr. Rangel, for the
bipartisan approach that this Committee has taken with respect
to trade policy. These are obviously difficult and contentious
issues. There have been times when the House has been unable to
form a consensus on important trade legislation. The failure of
Congress to grant Fast Track authority to the President in 1997
is a case in point. It is the members of the Ways and means
Committee who best understand the complexities and the
conflicts in trade policy. The House would have been well
served by following the bipartisan leadership of this
Committee. Let us hope that we will be more successful this
year with CBI, Africa and China.
Mr. Chairman, I am privileged to represent a region with
one of the strongest and most vibrant economies anywhere in the
United States. The Greater Washington Metropolitan region and
Northern Virginia in particular are quickly becoming the
Silicon Valley of the east. More than half the Internet traffic
in the world is routed through Northern Virginia. In the last
30 years, our region has created 1.7 million new jobs with 95
percent of them in the private sector. This is during the same
period that saw a cut of 50,000 Federal employees in our area.
These new jobs are almost entirely in the service sector,
particulary in information technology. More than 3,000 regional
Information Technology companies have sales greater than $1
million. The unemployment rate in my district is below two
percent.
We are just one part of a larger service sector that
provides 86 million private sector jobs nationwide and accounts
for $5.5 trillion worth of production. That equals more than 75
percent of our nation's private sector economic production and
is a major contributing factor to our unprecedented levels of
sustained productivity growth.
Our service-based industries have an enormous stake in open
trade with China. The November 15th agreement between the US
and China on WTO accession stands as a victory for many parts
of our economy, but it is particulary good news for the service
sector. It presents industries like those I represent with new
opportunities to succeed in a market with 1.25 billion people
and an annual rate of growth that exceeded 11 percent between
1990 and 1997. The Chinese people want the services we sell
them.
The agreement provides that China will adhere to the WTO's
Basic Telecommunications Agreement. This marks the first time
China has agreed to open its telecommunications sector to
direct foreign investment and to implement regulatory policies
that foster more competition. This part of the agreement
specifies that the Internet will become available at the same
rate as other telecommunications services are made available to
the Chinese people. Equally encouraging tariffs on computers,
semiconductors and other information technology equipment will
fall from an average of 13.3 percent to zero by 2005. These
changes should result in more Chinese receiving more
information through the Internet than ever before. Information
is empowering and transforming.
The agreement contains market-opening concessions by the
Chinese in financial services, banking insurance and
securities. It will give American companies a greater ability
to own their own distribution chains, which is essential if our
domestic manufactures are to build and sustain markets in China
for their goods. Currently, foreigners may only own
distribution networks for goods made in China. But while we
will be retaining ownership, we will be recruiting locally, and
creating corporate capitalism that will have profound changes
on Chinese society.
In the professional services, the agreement will allow
expanded access in a broad range of areas, including
accounting, engineering, management consulting, and law.
Western expertise in these areas will further accelerate the
pace of change in China by helping to develop modern management
and financial systems, transparency of transactions, and
encouraging a uniform body of business law.
What perhaps is most remarkable about this agreement is
that it is largely a one way street for the United States. The
Chinese agreed to these and other far reaching trade
concessions in exchange for a commitment by the United states
to keep our markets open and to support Chinese accession to
the WTO. Assuming that China does enter the WTO, the agreement
allows us to take action in the event of an import surge from
China. That authority lasts for 12 years after accession.
China's membership in the WTO would also carry with it all of
the reciprocal responsibilities that are attendant to any
member nation, thus providing the United States a level playing
field and an objective multinational forum within which to
enforce agreements.
Many will oppose Permanent Normal Trade Relations with
China. They no doubt will be motivated by a deep and sincere
concern over China's record on human rights. I think all of us
share their concerns. The recent brutal oppression of
practitioners of Falun Gong, the detention of protesters, and
the thousands that remain imprisoned simply because of their
political beliefs underscore the fact that the United States
must remain extremely vigilant in pressing China whenever and
however we can to improve its record of human rights.
This is, however, a debate that is more about the means to
achieving an objective than it is about the objective itself. I
am convinced that the best way of effecting change in China is
through engagement, which will lift more of the Chinese people
out of poverty, spread our values and increase the
interdependence of nations. The alternative of isolating China
will only exacerbate the suffering and deprivation of their
people.
There is a danger in viewing China through the snapshot of
today's headlines. To look only at China in the present is to
see a nation beset with human rights abuses, municipal
corruption and inefficiency. To look at China over the span of
twenty years or even five years is to see a dynamic nation
moving inexorably toward a market oriented economy and genuine
reform. With economic change will come prosperity, and with
this broader prosperity the people will demand political
change.
It is no coincidence that some of the biggest proponents of
change support PNTR. The leader of Hong Kong's Democratic
Party, Martin Lee, supports the agreement, as do others who
support reform and change. They all want constructive,
permanent change--not destructive, political conflict.
Mr. Chairman, earlier this morning I hosted an
informational breakfast in Arlington for several dozen business
leaders from throughout Northern Virginia. This morning's
breakfast featured a presentation by Ambassador Barshefsky. As
she has been doing all over the world, Ambassador Barshefsky
briefed the group on the administration's trade agenda,
discussed the enormous opportunities in the global economy,
listened to audience concerns, and answered questions.
The men and women that Ambassador Barshefsky and I met with
this morning were but a small sample of the New Economy in
Northern Virginia. They were drawn from the high technology
sector, telecommunications, and professional services. They
understand perhaps better than any of us the realities of
globalization in the 21st century.
They understand that in a world of dynamic change, real
time communication, and intense competition, it is no longer
possible for the United States to ``go it alone.'' There is no
way that this country alone can possibly consume what we are
capable of producing. To sustain the growth that we have
enjoyed in Northern Virginia, we must compete and succeed
everywhere--including China.
Extending Permanent Normal Trade Relations to China gives
our country its fullest opportunity to compete and succeed. I
urge this Committee to support PNTR.
Thank you.
Chairman Archer. Thank you, Congressman Moran. The chair,
again, informs members who are witnesses that we are operating
under the 5-minute rule, and we would appreciate your limiting
your oral testimony to five minutes. And without objection,
your entire printed statement will be put in the record.
Congressman Walden, I believe you were the next to arrive,
and Congressman Blumenauer will follow you.
Congressman Walden, welcome.
STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OREGON
Mr. Walden. Thank you very much, Mr. Chairman, and members
of the committee for affording me the opportunity to speak here
today on the significance of the bilateral trade agreement
reached last year with China.
I appreciate the opportunity to discuss significant gains
for the United States under this agreement, as well as what
China's accession into the World Trade Organization would mean
for my State, that of Oregon.
Poised on the Pacific Ocean, bordered by the Columbia
River, Oregon has long been a gateway for trade with Asia.
Oregonians are savvy and experienced traders who see the
potential for trade with our friends across the Pacific Ocean
as an opportunity to share with them the quality products that
we either design, produce or grow. Trade agreements, such as
the bilateral agreement signed with China, are critical to
their success in the burgeoning world marketplace.
The bilateral agreement negotiated last year between the
U.S. and China made great strides toward improving trade
between our two countries and sets the stage for China's
accession into the WTO. I applaud the agreement that was made
with China during these negotiations to drop their sanitary and
phytosanitary barriers on Pacific Northwest wheat, for example.
For 26 years, China kept wheat from the Pacific Northwest out
of their country by use of the sanitary and phytosanitary
barriers. The wheat farmers in my district, indeed throughout
the Pacific Northwest, pride themselves on their high-quality
wheat and applaud China's lifting of these unfair barriers.
The Market Access Agreement negotiated by the U.S. and
China further benefits farmers and ranchers by slashing China's
overall tariff on agricultural products to 17.5 percent, with
further reductions to many specific commodities upon China's
accession into WTO. It establishes a tariff rate quota for many
bulk commodities such as wheat, which guarantees low tariff
access for specific quantities.
Under this agreement, China further agreed to eliminate
direct export subsidies for their agricultural products,
leveling the playing field for U.S. ag producers. Farmers and
ranchers in the Northwest understand the vast potential of
China's market. For example, the Oregon Potato Commission
estimates they could see a reduction in the tariff on frozen
french fries from 25 percent to 13, should China be admitted
into the WTO. The Commission further projects exports of U.S.
frozen french fries to grow exponentially under the 13-percent
tariff rate, and indicates they could exceed 250,000 metric
tons by 2005. This is an amazing figure when compared with
15,000 metric tons exported in 1997.
The Market Access Agreement is also important to many
businesses that help fuel Oregon's economy. With high
technology exports accounting for 41 percent of Oregon's trade
with China in 1998, it is indeed encouraging to see tariffs on
products such as computers, semiconductors and all Internet-
related equipment fall from an average of 13.3 percent to zero
by 2005 under the Market Access Agreement. Oregon's diverse
manufacturing industry would also be helped by the industrial
tariff reduction from 24.6 percent in 1997, an average of 9.4
percent by 2005.
Our businesses are also concerned about the piracy of
intellectual property rights in China. Piracy of American
intellectual property rights for business software and
trademarks is widespread and costing businesses countless
dollars each year. Should China be admitted to the WTO, our
businesses will finally have a solid foundation from which
these issues can be resolved through the rule of law, through
the dispute settlement mechanisms built into the WTO and the
other enforcement mechanisms agreed to in this agreement.
Currently, U.S. markets are open to China, but numerous
obstacles still exist for American access to the Chinese
marketplace. Congress has a limited chance to balance the
scales and provide vast opportunities for American enterprise
when we vote to extend permanent normal trade relation status
to China.
This is a critical time for us all. Should we fail to enact
PNTR status on China, we will face an extreme trading
disadvantage with other countries around the world, countries
who will be more than eager to see the U.S. default on the
opportunity to fill China's demand for quality products. So
let's seize this golden opportunity for the United States.
Mr. Chairman, members of the committee, thank you for the
opportunity to state these significant benefits that are so
important in our trading relationship with China and the
security, both economic and otherwise, for America.
[The prepared statement follows:]
Statement of the Hon. Greg Walden, a Representative in Congress from
the State of Oregon
Thank you Chairman Archer and members of the committee for
affording me the opportunity to speak here today on the
significance of the bilateral trade agreement reached last year
with China. I appreciate the opportunity to discuss significant
gains for the U.S. under this agreement, as well as what
China's accession into the World Trade Organization (WTO) would
mean for the state of Oregon.
Poised on the Pacific Ocean, and bordered by the Columbia
River, Oregon has long been a gateway for trade with Asia.
Oregonians are savvy and experienced traders who see the
potential for trade with our friends across the Pacific Ocean
as an opportunity to share with them the quality products that
we design, produce and grow. Trade agreements, such as the
bilateral agreement signed with China, are critical to their
success in the burgeoning world marketplace.
The bilateral agreement negotiated last year between the
U.S. and China made great strides toward improving trade
between our two countries and sets the stage for China's
accession into the WTO. I applaud the agreement that was made
with China during these negotiations to drop their sanitary and
phytosanitary barriers on Pacific Northwest wheat. For 26 years
China kept wheat from the Pacific Northwest out of their
country by the use of sanitary and phytosanitary barriers. The
wheat farmers in my district, and throughout the Pacific
Northwest, pride themselves on their high quality wheat, and
applaud China's lifting of these unfair barriers.
The market access agreement negotiated by the U.S. and
China further benefits our farmers and ranchers by slashing
China's overall tariff on agricultural products to 17.5%, with
further reductions to many specific commodities upon China's
accession into the WTO. It establishes a Tariff Rate Quota for
many bulk commodities, such as wheat, which guarantees low
tariff access for specified quantities. Under this agreement
China further agreed to eliminate direct export subsidies for
their agricultural products, leveling the playing field for
U.S. agricultural producers.
Farmers and ranchers in Oregon understand the vast
potential of China's market. The Oregon Potato Commission
estimates that they could see a reduction in the tariff on
frozen french fries from 25% to 13% should China be admitted
into the WTO. The Commission further projects exports of U.S.
frozen french fries to grow exponentially under the 13% tariff-
rate, and indicate that they could exceed 250,000 metric tons
by 2005. This is an amazing figure when compared with 15,000
metric tons exported in 1997.
The market access agreement is also important to the many
businesses that help fuel Oregon's economy. With high
technology exports accounting for 41% of Oregon's trade with
China in 1998, it is encouraging to see tariffs on products
such as computers, semiconductors, and all internet-related
equipment fall from an average of 13.3% to 0% by 2005 under the
market access agreement. Oregon's diverse manufacturing
industry would also be helped by the industrial tariff
reduction from 24.6% in 1997 to an average of 9.4% by 2005.
Oregon's businesses are also concerned about the piracy of
their intellectual property rights in China. Piracy of American
intellectual property rights for business software and
trademarks is widespread and is costing our businesses
countless dollars each year. Should China be admitted to the
WTO, Oregon's businesses will finally have a solid foundation
from which these issues can be resolved through the dispute
settlement mechanisms built into the WTO.
Currently, U.S. markets are open to China but numerous
obstacles still exist for American access to the Chinese
marketplace. Congress will have a limited chance to balance the
scales and provide vast opportunities for American enterprise
when we vote to extend Permanent Normal Trade Relations (PNTR)
status to China. This is a critical time for us all. Should we
fail to bestow PNTR status on China, we will face an extreme
trading disadvantage with other countries around the world--
countries who will be more than eager to see the U.S. default
on the opportunity to fill China's demand for quality products.
Let's not let this golden opportunity for the United States
slip by.
Mr. Chairman and members of the committee, thank you for
the opportunity to reiterate the significant benefits at stake
in our trading relationship with China.
Chairman Archer. Thank you Congressman Walden.
Congressman Blumenauer, welcome.
STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Mr. Chairman and members of the
committee. I, too, applaud your leadership and appreciate the
opportunity to share some observations with you about the
challenge of trade with China and its entry into the WTO.
Trade is clearly a major component of our dynamic economy,
and China is a large piece of that equation now and will be
more significant in the future. I, for one, will not dwell on
the facts and figures since the record is already clear and the
statistics staggering. Instead, I would wish to make three
points about the importance of trade with China, the economic
future of the Pacific Northwest, where Congressman Walden and I
share adjacent districts and the economic future of America.
First, this agreement advances United States economic
interests with little or no risk to us;
Second, the best approach to improving China's appalling
record on human rights and democracy is through freer, more
open trade promoted by this agreement;
And, third, of special interest to me, is the potential for
this agreement for improving the economy and promoting livable
communities around the globe.
If we are to enhance or even maintain our economic growth,
we must be able to protect our markets and find areas of
expansion. Our adoption of the trade agreement with China and
its entry into the WTO offers tremendous upside benefits,
expanding new markets by eliminating tariffs and structural
barriers to the United States commerce. The risks are minimal,
and you will hear this over and over again, and I risk
repeating it. But I think there is no more important point for
us to stress. Our markets are already open. So we give away
very little.
The products that the Chinese offer are, by and large,
those for which there is already significant competition with
other developing countries in Asia and Latin America. And as I
said, the upside potential for the United States is huge. The
risk is minimal.
The Chinese record on human rights and democracy is,
frankly, appalling. And you are going to hear some people today
suggest that we turn our backs on this opportunity in order to
further punish the Chinese. I am here to applaud the leadership
and the advocacy of my colleagues who are going to join me on
the panel, even though I don't necessarily agree with their
approach.
We need to continue to shine the spotlight on Chinese
behavior, and I will continue to join them and you to do so,
regardless of the fate of this legislation and the WTO
Agreement. We simply have no other choice than to be true to
our convictions. But from the bottom of my heart, I believe
that we have more tools to hasten the advent of democracy in
China by forcing them to play by international economic rules.
The quarter-century has seen real progress in China.
Despite continued abuses, we are seeing the power of human
exchange through the entry of missionaries, through the growing
number of Chinese being educated abroad and now through the
Internet. All of these trends will only be advanced by China's
admission to the WTO and playing by economic international
rules of the rest of us.
Finally, and most important from my perspective, we cannot
afford to allow China to follow the United States' pattern of
economic development. In this country, it has taken us decades
to develop the technology, the will and the financial resources
to clean up the environment. China's economic development has
the potential to wreak havoc on the world's environmental base.
Think of what would happen if China's 1.1 billion people used
energy at the rate of the United States. We have ten times
their per capita use of energy; eight times the carbon monoxide
emissions; twelve times the electricity use. Reaching those
levels would be environmentally devastating, not only for
China, but for the world. But it doesn't have to be that way.
Including China in the WTO can put the world's most populace
nation on the right track: modernizing their markets and
generating the wealth to pay for environmental protection, to
say nothing of providing a market for United States'
technologies and services for clean air, clean water and energy
conservation.
Let me say in closing that the role the United States
business has played in leading the way for the environment and
workplace safety in China has too often been overlooked. A
small Oregon shoe company, Nike, has required its overseas
contractors to meet OSHA clean air standards in facilities
abroad. Nike has even held seminars for its contractors and its
competitors on the advantages of less toxic and cheaper water-
based solvents, which are not only better for the environment,
but which build better products.
If we believe that the market can improve living conditions
and change behavior here at home, we should offer the same
choice to 1.1 billion Chinese.
I thank you for the opportunity to share my opinions with
you and look forward to working with you as we move this
forward.
[The prepared statement follows:]
Statement of the Hon. Earl Blumenauer, a Representative in Congress
from the State of Oregon
Mr. Chairman and members of the Committee, I appreciate the
opportunity to share some observations with you about the
challenge of trade with China and its entry into the WTO. Trade
is clearly a major component of our dynamic economy. China is a
large piece of that equation now, and will be more significant
in the future.
I will not dwell on the facts and figures, since the record
is clear and the statistics staggering. Instead, I will make
three points about the importance of trade with China to the
economic future of the Pacific Northwest, which I represent,
and to the economic future of America.
First, this agreement advances U.S. economic interests with
little or no risk to us.
Second, the best approach to improving China's appalling
record on human rights and democracy is through the freer, more
open trade promoted by this agreement.
Third, and of special interest to me, is the potential for
this agreement for improving the economy and promoting livable
communities around the globe.
To the first point. If we are to enhance or even
maintain our economic growth, we must be able to protect our
markets and find areas of expansion. Our adoption of the trade
agreement with China and its entry into the WTO offers
tremendous upside benefits, expanding new markets by
eliminating tariffs and structural barriers to United States
commerce. The risks are minimal. Our markets are already open,
so we give away very little. The products the Chinese offer are
ones where there is already significant competition with other
developing countries in Asia and Latin America. As I said, the
upside potential for the US is huge; the risk is minimal.
The Chinese record on human rights and democracy
is frankly appalling. I applaud my colleagues on all sides of
the China issue for shining the spotlight on Chinese behavior,
and I will continue to join with them to do so regardless of
the fate of this legislation and the WTO agreement. We simply
have no other choice than to be true to our convictions. But
from the bottom of my heart, I believe that we will have more
tools to hasten the advent of democracy in China by forcing
them to play by international economic rules. The last quarter
century has seen real progress in China. Despite continued
abuses, we are seeing the power of human exchange: through the
entry of missionaries, through the growing numbers of Chinese
being educated abroad, and now, through the internet. All these
trends will only be advanced by China's admission to the WTO
and playing by international economic rules.
We simply cannot afford for China to follow the
United States' pattern of development. Here, it has taken us
decades to develop the technology, the will and the financial
resources to clean up the environment. China's economic
development has the potential to wreak untold economic and
environmental havoc. Think of what would happen if China's 1.1
billion people used energy at our rate: we have 9 times their
per capita energy use; 8 times the carbon emissions; 12 times
the electricity use. Reaching these levels would be
environmentally devastating, not only for China but for the
world.
It doesn't have to be that way. Including China in the WTO
can put the world's most poulous nation on the right track:
modernizing their markets and generating the wealth to pay for
environmental protection, to say nothing of providing a market
for US technologies and services for clean air and water and
energy conservation.
Let me say in closing that the role US businesses can play
in leading the way on environmental and workplace safety in
China is too often overlooked. A small Oregon shoe company,
Nike, has required its overseas contractors to meet OSHA clean
air standards. Nike has even held seminars for its contractors
and its competitors on the advantages of less toxic and cheaper
water based solvents, which are not only better for the
environment, but which build a better product.
We believe that the market can improve living conditions
and change behavior here at home. We should offer the same
choice for the Chinese.
Chairman Archer. Thank you, Congressman Blumenauer.
Our next witness is Congresswoman Nancy Pelosi, from
California. Welcome. We will be happy to hear your comments.
STATEMENT OF HON. NANCY PELOSI, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Ms. Pelosi. Thank you very much, Mr. Chairman, for the
opportunity to testify before the members of the committee
today. Thank you all for the courtesies over these 10 years,
when we have come in and had this conversation. Since we began
the conversation in 1989, when the trade deficit for 1989 was
$6 billion, as you know, it has grown in 1999 to $70 billion,
over 1,000-percent increase in the trade deficit.
Our relationship, I believe, with any country, should make
the trade fairer, the people freer and the world safer. Indeed,
the current U.S.--China relationship has ignored three pillars
of our foreign policy: promoting democratic values, stopping
the proliferation of weapons of mass destruction and growing
our economy by promoting U.S. exports abroad.
For the past 10 years, as you know, Mr. Chairman, the
debate in Congress on U.S.--China policy has focused on these
three areas of human rights, proliferation of weapons of mass
destruction and trade. Advocates of unconditional most-favored
nation status or NTR, as it is now called, have argued that
economic reform would lead to political reform in China.
Unfortunately, just the opposite is the case. While the Chinese
Government negotiates bilateral trade agreements, it escalates
a crackdown on peaceful activity in the area of religion, the
Internet and on any organization perceived to be a threat to
their rule. Of course, the brutal crackdown in Tibet also
continues.
China continues to make the world a more dangerous place by
its cooperation with Pakistan's missile program, its
cooperation with Iran in the Persian Gulf and threatening the
Middle East peace, and threats to the democracy in Taiwan.
But putting aside all of those concerns, let's put aside
the concerns of the ongoing human rights violations and the
continuing proliferation of weapons of mass destruction. Let's
just look at this on a strictly trade-for-trade basis. I
believe the decision to oppose permanent normal trade relations
at this time is justified on trade concerns alone, for the
following reason:
Again, when we started this debate 10 years ago, the trade
deficit was $6 billion for 1989. I think that bears repeating;
that it has now grown to almost $70 billion for 1999. China
continues to violate our trade agreements, and we continue to
reward them for it. The debate before us is of critical
importance to our economy and the global trading system.
Permanent NTR must not be rushed, and we must have a full and
open debate on all aspects of this decision.
In light of China's pattern of violation of trade
agreements and the rapidly increasing trade deficit, I believe
the U.S. Congress should not give up its authority to review
annually China's trade record at this time. Of course, it would
be to renew annually, as well. We should wait to see if China
takes the steps necessary, even the beginning steps. I know
they can't implement the Bilateral immediately, even the
initial steps to implement the bilateral agreement before we
consider permanent NTR. The WTO Agreement with China will be
phased in over 5 years, but we will give up our leverage if
permanent NTR is passed now, before we have evidence that the
agreement will be implemented.
My colleague said that this is of no risk to us. I think
there are risks to our economy, and I would like to take a
moment to elaborate on them. Let's stipulate to something,
though; that there are three options before us. One is the
status quo; China outside the WTO, not abiding by any rules and
certainly not complying with any of our bilateral trade
agreements with them. That is not good. We all agree. I mean, I
hope we all agree that is not good. It seems to be acceptable,
but I don't think it is good.
Secondly, we have the option of China, inside the WTO,
complying. That would be better. That is what we all hope to
have. But there is no reason for us to think, on the basis of
China's performance of broken promises and broken trade
agreements, that they will comply within the WTO.
So the third option is China, inside the WTO, not
complying. China is already organizing against the U.S. with
countries within the WTO against any conflicts, any
disagreement we may have with them once they get in, and I am
very concerned that once they get in, they will use their
strength to block Taiwan from entering WTO. So I would hope
that any consideration of WTO would almost be simultaneous for
China and Taiwan.
But let's talk about the risks that some have not seen to
our economy with China going into the WTO with no guarantees of
their compliance. Already there is reason to be concerned that
Chinese officials are backing away from the bilateral
agreement.
For example, on wheat, the USTR fact sheet states, and I
quote, that ``China will establish large and increasing tariff
rate quotas for wheat, with a substantial share reserved for
private trade.'' But only a few days later, China's chief WTO
negotiator stated that it is a complete misunderstanding to
expect this grain to enter the country. Beijing only conceded a
theoretical opportunity for the export of grain.
On insurance, the USTR fact sheet specifically states that
China agrees to award licenses to U.S. insurance forms solely
on the basis of prudential criteria, with no economic needs
test or quantitative limits. But Ma Youngwei, chairman of
China's Insurance Regulatory Commission, sees things
differently. He states that even after accession to the WTO,
Beijing reserved the right to block licenses for foreign
insurance companies if their approval seemed to threaten
stability of economic policy.
Any possible WTO Agreement must be viewed against the
background of the Chinese Government not complying with
agreements it has signed. China's compliance for a well-
conceived, commercially acceptable and enforceable WTO
Agreement would be an improvement over China's wholesale
violation of international trade practices. However, with
China's pattern of refusing to play by the rules, a WTO
Agreement that is not realistic or enforceable, enforceable,
will wreak havoc on the international trade regime.
As events leading up to Seattle and the administerial
itself illustrate, the WTO is on shaky ground. Unless China's
WTO's accession is done properly, it will further weaken the
organization. Enforcement is key. There is little evidence that
the Chinese Government will honor the commitment it makes in
either bilateral or multilateral form. Examples of Chinese
violations are as follows--
Chairman Archer. Ms. Pelosi, are you about to wind up your
comments? You have exceeded the 5-minute rule by about 2.5
minutes. If you are about to conclude, the chair will be glad
to have you do so. Otherwise the chair would like for you to
put the balance of your comments into the record.
Ms. Pelosi. Mr. Chairman, I was just following the lead of
Mr. Moran. And you were generous with the gavel then and the
many more members in testifying on that side of the issue.
Chairman Archer. The other members did not exceed by more
than one minute.
Ms. Pelosi. Not true. Mr. Chairman, then I will wrap up by
saying, and I thank you, again, for your courtesy once again
this year. China has violated the Market Access Agreement, the
Intellectual Property Agreement, the Forced Labor Agreement,
and we continue to reward them for that.
I will submit, heeding the admonition of the chairman, I
will submit the rest of my statement for the record. In
conclusion, though, I would say one sentence and that is I
would like to submit legislation which says China can have
permanent NTR once it takes the initial steps to implement our
bilateral agreement. Once we give up permanent MFN, we have
lost all leverage on China's trade behavior with the United
States, and I am saying this just strictly on the basis of
trade.
Once again, Mr. Chairman and members of the committee,
thank you for your courtesy, for your time and your
consideration of my remarks.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of the Hon. Nancy Pelosi, a Representative in Congress from
the State of California
Our relationship with any country should make trade fairer,
the world safer and people freer. Indeed, the current U.S.--
China relationship has ignored three pillars of foreign
policy--promoting democratic values, stopping the proliferation
of weapons of mass destruction and growing our economy by
promoting U.S. exports abroad.
For the past decade, the debate in Congress on U.S.--China
policy has focused on human rights, proliferation and trade.
Advocates of unconditional Most Favored Nation (MFN) status
have argued that economic reform would lead to political reform
in China. Unfortunately, just the opposite is the case. While
the Chinese government negotiates bilateral trade agreements,
it escalates a crackdown on peaceful activity in the areas of
religion, the Internet and on any organization perceived to be
a threat to their rule.
China continues to make the world a more dangerous place by
its cooperation with Pakistan's missile program, cooperation
with Iran and threats to the democracy in Taiwan. But putting
aside concerns of ongoing human rights violations and the
continued proliferation of weapons of mass destruction, I
believe the decision to oppose permanent Normal Trade Relations
(NTR) at this time is justified on trade concerns alone.
When we started this debate ten years ago the trade deficit
was $6 billion for 1989. Now it has grown to almost $70 billion
for 1999. China continues to violate our trade agreements and
we continue to reward them for it.
The debate before us is of critical importance to our
economy and the global trading system. Permanent NTR must not
be rushed and we must have a full and open debate on all
aspects of this decision. In light of China's pattern of
violation of trade agreements and the rapidly increasing trade
deficit, I believe that the U.S. Congress should not give up
its authority to review annually China's trade record at this
time.
We should wait to see if China takes steps to implement the
bilateral agreement before we consider permanent NTR. The WTO
agreement with China will be phased in over five years, but we
will give up our leverage if permanent NTR is passed now,
before we have evidence that the agreement will be implemented.
Already there is reason to be concerned that Chinese
officials are backing away from the bilateral agreement. For
example, on wheat, the USTR Fact Sheet states that ``China will
establish large and increasing tariff rate quotas for wheat . .
. with a substantial share reserved for private trade.'' But,
only a few days later, China's chief WTO negotiator stated that
``it is a complete misunderstanding to expect this grain to
enter the country . . . Beijing only conceded a theoretical
opportunity for the export of grain.'' (South China Morning
Post, January 7, 2000)
On insurance, the USTR Fact Sheet specifically states that
``China agrees to award licenses [to U.S. insurance firms]
solely on the basis of prudential criteria, with no economic
needs test or quantitative limits.'' But Ma Yongwei, chairman
of the China Insurance Regulatory Commission sees things
differently. He states that ``even after accession to the WTO,
Beijing reserved the right to block licenses for foreign
insurance companies if their approval seemed to threaten
stability of economic policy.'' (Financial Times, November 19,
1999)
Any possible WTO agreement must be viewed against the
background of the Chinese government not complying with
agreements it has signed.
China's compliance with a well-conceived, commercially
acceptable and enforceable WTO agreement would be an
improvement over China's wholesale violations of international
trade practices. However, with China's pattern of refusing to
play by the rules, a WTO agreement that is not realistic or
enforceable will wreak havoc on the international trade regime.
As events leading up to the Seattle Ministerial and the
Ministerial itself illustrate, the WTO is on shaky ground.
Unless China's WTO accession is done properly, it will further
weaken the organization. Enforcement is key.
There is little evidence that the Chinese government will
honor the commitments it makes in either a bilateral or
multilateral forum. Examples of China's trade violations are as
follows:
Market Access
Despite negotiating a 1992 MOU on market access,
China has clearly violated the agreement by instituting non-
tariff barriers, import/export licenses, import quotas, import
substitution policies, and measures which prohibit imports of
U.S. citrus, plums and wheat. (1999 Trade Estimate Report on
Foreign Trade Barriers)
Intellectual Property
China has been named three times under the
``Special 301'' trade law for failing to provide adequate
protection of copyrights, patents and trade secrets.
``Of particular concern is the significant level
of unauthorized use of software by both private enterprises and
government ministries.'' (1999 Trade Estimate Report on Foreign
Trade Barriers)
Forced Labor
In 1992 and 1994, China signed agreements that it
would not export products of forced labor to the U.S. and would
allow visits of U.S. officials to suspected sites.
But, the State Department's 1998 Report on Human
Rights specifically finds that: `` In all cases [of forced
labor identified by U.S. Customs], the [Chinese] Ministry of
Justice refused the request, ignored it, or simply denied the
allegations without further elaboration.''
The Laogai Research Foundation has also documented
nearly 1,100 forced labor camps in China. In these camps there
is no due process, no compensation for work, conditions are
severe and physical punishment is rampant.
The Chinese government has a remarkably consistent record
of violating its international commitments. Some argue that
allowing China into the WTO will force them to play by the
rules. The reality is that the Chinese government will not
abide by their agreements if it is not in their interest to do
so.
Even if we ignore China's continuing violation of human
rights,
Even if we ignore China's ongoing proliferation of weapons
of mass destruction,
On the basis of trade issues alone, Congress should not
surrender its authority to review China's trade status.
Congress should insist that China take steps to implement the
bilateral agreement before permanent NTR is adopted. I am
preparing legislation to that effect.
This decision is too important to our economic future to
base it on a litany of broken promises instead of a record of
performance.
Chairman Archer. Thank you, Congresswoman Pelosi.
The chair could be more lenient on time if we did not have
so many witnesses and such a long day. So the chair will
appreciate the cooperation of the witnesses to stay within the
five minutes on their verbal presentation and submit their
entire printed statement for the record.
Congressman Smith?
STATEMENT OF HON. CHRISTOPHER H. SMITH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Smith. Thank you very much, Mr. Chairman. I would like
to ask, at the outset, that a letter from Harry Wu, who has
spent years in the Laogai and recently wrote a very strong
letter about the use of gulag labor be included in the record.
Chairman Archer. Without objection, so ordered.
Mr. Smith. Thank you, Mr. Chairman. The proposal before the
committee today is radically different from the MFN legislation
we have considered in the past. This year, Congress is no
longer being asked whether it objects to another one-year
extension of MFN. Rather, we are considering whether we should
sign away our right to ever object to MFN for the Beijing
regime. We are being asked to surrender our discretion in the
matter. We must resist that temptation.
We are all familiar with the history of the annual MFN
review for China. Whether we like it or not, everyone has come
to understand that China's annual MFN renewal is a safe bet,
notwithstanding virtually any outrage perpetrated by the
Chinese Government. A couple of years ago, the official name of
MFN was even changed to normal trade relations to spare members
of Congress from having to vote in broad daylight for a policy
which still legally entitles Beijing to most favored status
under our customs and trade laws. But even after this emergency
cosmetic surgery, MFN or NTR is still such an embarrassment
that many of its fondest supporters would prefer never to have
to vote on it again.
Mr. Chairman, the possibility of MFN revocation, even if it
is only a distant possibility, is critically important leverage
that we must not surrender. At an appearance before my
subcommittee shortly after his expulsion from China, former
prisoner of conscience, Wei Jingsheng, a man who shed his blood
on behalf of human rights and endured years of prison torture,
explained the importance of the annual review to the status of
human rights in China. He stated, and I quote, ``The Chinese
Communists will only tolerate anything as a result of pressure.
Once the pressure has lifted, then there is no question any
more of tolerance.'' He further explained that ``in the view of
the Chinese Communist authorities,'' the first and foremost
area where the U.S. Government can exert real pressure is ``in
the field of trade.''
Wei went on to explain the personal implications, the
paradox of the trade linkage for prisoners of conscience in
China, and he said, and I quote, ``Generally speaking, when
there is a worsening in the relationship between China and the
United States or other Western countries, we tend to get a bit
more protection inside the prisons. For example, when there was
a turn for the better in China-American relationships,
specifically when the United States declared its intention to
establish the strategic collaborative partnership with China,
immediately the prisoners were beaten and received other
abuses. At the same time the Chinese Communists stepped up
their purges, generally.''
Mr. Wei's experience is not unique, and his analysis is
confirmed by other testimony received by my Subcommittee on
International Operations and Human Rights. For example, in
October of 1997, a Uighur Muslim from Xinjiang Province
testified that our annual MFN review even helps Chinese
provincial authorities in that distant province decide whether
to kill people or to let them live.
Speaking about the killing and arrests that followed
demonstrations sparked by China's arrest of Muslim religious
leaders during Ramadan she stated, ``After the demonstration,
we were a little surprised about the patience of the Chinese
Government in making open executions. Everything was clear.
They were waiting for the United States to offer most favored
nation status to China. Right after the MFN was approved by
Congress, the Chinese Government made the first open execution
of seven Uighurs and sentenced 23 demonstrators ranging from 5
years to a lifetime.''
Mr. Chairman, whether or not we agree with how this
Administration has used trade leverage, and I do not, the
meaning of this testimony is clear. The Beijing dictators
change their conduct when they know they are being watched by
people whose decisions may affect their wallets. This makes
sense and is well understood even by those who argue for
permanent MFN.
For example, when big business and the Clinton
Administration really want to get China to respect
international copyrights, what do they do? They threaten
economic sanctions, the very same sanctions they say would be
counterproductive as a means of promoting worker rights and
politically religious freedom in China. On at least three
occasions since 1991, the U.S. trade representative has
threatened to impose billions of dollars in sanctions to
vindicate U.S. intellectual property rights interests. In each
of those cases, when faced with credible and imminent threat of
economic sanctions, the Chinese Government changed its
behavior.
I must reluctantly conclude that some business interests
and U.S. officials understand full well that unilateral
economic sanctions and the threat of such sanctions can and do
work to change the conduct of the PRC Government. But they also
know that sanctions may be subject to a law of diminishing
returns. For example, if certain punitive tariff rates were
already in effect because of egregious human rights violations,
then it would be no longer useful to threaten the same
punishment in order to vindicate intellectual property rights.
Big business would prefer to conserve the limited resources of
trade leverage for its own uses under the auspices of the WTO.
In other words, the selective use of rhetoric about unilateral
sanctions--demanding them to punish copyright violations,
denouncing them when it comes to torture and forced abortion or
religious persecution or abusive labor practices--appears to
reflect an implicit prioritization of profits above fundamental
human rights.
Mr. Chairman, the permanent surrender of our MFN leverage
ought to be unthinkable at this point. Conditions in the PRC
are probably the worst that they have been since the 1989
Tianamen Square massacre. The Chinese Government is at war with
religious liberty. Around midnight just last Thursday,
approximately 150 agents converged to arrest 80-year-old
Catholic Archbishop John Yang Shudao of Fujian Province.
Chinese prisons hold numerous other religious leaders ranging
from the 10-year-old Panchen Lama to Protestant Church pastors.
Chinese authorities summarily execute Uighur prisoners in
Xinjiang. They continue their brutal crackdown on the Falun
Gong, a nonviolent, meditative spiritual practice which
Beijing, right in the face of all of this, has vowed to
``smash.'' According to recent estimates, over 5,000 Falun Gong
practitioners have already been sent to labor camps and an
additional 2,000 have been rounded up in the last week and a
half alone.
The Communist Government of the PRC, Mr. Chairman, as we
know, and my subcommittee has had more than 12 hearings on
this, day-long hearings, where we look at the human rights
abuses in China, they violate those rights on a massive scale.
It does not allow political dissent, it harvests and sells the
internal organs of executed prisoners, it forces women who have
``unauthorized pregnancies,'' to abort their children and to
submit to sterilization, and it continues to brutalize the
indigenous peoples of Tibet and Xingjiang Province. And slave
labor continues in the Laogai all throughout China.
Chairman Archer. Congressman Smith, are you about to
conclude?
Mr. Smith. I will conclude, Mr. Chairman. I have much more
to say. But let me just say I would hope--
Chairman Archer. Well, you are 2 minutes over now.
Mr. Smith. I would hope that we would preserve the right,
minimally, every year to take a look at MFN, even if it is a
foregone conclusion it is going to be approved. And to use that
leverage to, at least on the margins, promote human rights in
China. Otherwise we give it all up, and they will crack down as
never before, as they are doing in the face of all of this
light and scrutiny with the Falun Gong as we meet.
Thank you, Mr. Chairman.
[The prepared statement and attachment follow:]
Statement of the Hon. Christopher H. Smith, a Representative in
Congress from the State of New Jersey
Thank you, Mr. Chairman. In addition to my prepared
statement, I would ask the Committee's consent to insert in the
record a brief letter from Harry Wu, the prominent Chinese-
American human rights activist, on the subject of forced labor
in China.
Mr. Chairman, a few months ago, I and some of our
colleagues appeared before you to argue against another annual
extension of Most Favored Nation status to the People's
Republic of China. Today's hearing will touch on some of the
same issues, Nevertheless, the proposal before the Committee
today is radically different from the MFN legislation we have
considered in the past.
This year, Congress is no longer being asked whether it
objects to another one-year extension of MFN. Rather, we are
considering whether we should sign away our right to object to
MFN for the Beijing regime. We are being asked to surrender our
discretion in the matter. We must resist that temptation.
We are all familiar with the history of the annual MFN
review for China. Whether we like it or not, everyone has come
to understand that China's annual MFN renewal is a safe bet,
barring some unforeseen outrage by the Chinese government. A
couple of years ago the official name of MFN was even changed
to ``normal trade relations,'' to spare Members of Congress
from having to vote in broad daylight for a policy which still
legally entitles Beijing to ``most favored'' status under our
customs and trade laws. But even after this emergency cosmetic
surgery, MFN or NTR is still such an embarrassment that many of
its fondest supporters would prefer never to have to vote on it
again.
Mr. Chairman, the possibility of MFN revocation--even if it
is only a distant possibility--is critically important leverage
that we must not surrender. At an appearance before my
Subcommittee shortly after his expulsion from China, former
prisoner of conscience Wei Jingsheng explained the importance
of the annual review to the status of human rights in China. He
stated: ``[T]he Chinese Communists will only tolerate anything
as a result of pressure. Once the pressure has lifted, then
there is no question of any tolerance.'' He further explained
that, ``in the view of the Chinese Communist authorities,'' the
first and foremost area where the U.S. Government can exert
real pressure is ``in the field of trade.''
Wei went on to explain the personal implications of the
trade linkage for prisoners of conscience in China:
Generally speaking, when there is a worsening in the
relationship between China and the United States or other
Western countries, we tend to get a bit more protection inside
the prisons. For example, when there is a turn for the better
in the Sino-American [relationship,] . . . specifically [in
1997] when the United States declared its intention to
establish this strategic collaborative partnership with China,
immediately the prisoners [were] beaten and received other
abuses.. . . At the same time, the Chinese Communists stepped
up [their] purges generally.
Mr. Wei's experience is not unique, and his analysis is
confirmed by other testimony received by my Subcommittee. For
example, in October 1997, a Uighur [WEE-grr] Muslim woman from
Xinjiang Province testified that our annual MFN review even
helps Chinese provincial authorities in that distant province
decide whether to kill people or to let them live. Speaking
about the killings and arrests that followed demonstrations
sparked by China's arrest of Muslim religious leaders during
Ramadan, she stated:
After the demonstration, we were a little surprised about
the patience of the Chinese Government in making open
executions. Everything was clear. They were waiting for the
United States to offer Most Favored Nation status to China.
Right after MFN was approved by the Congress, the Chinese
Government made the first open execution of seven Uighurs, and
sentenced 23 demonstrators [to terms] ranging from 5 years to
lifetime.
Whether or not we agree with how this Administration has
used trade leverage (and I do not), the meaning of this
testimony is clear: The Beijing dictators change their conduct
when they know they are being watched by people whose decisions
may affect their wallets. This makes sense, and is well
understood even by those who argue for permanent MFN. For
example, when big business and the Clinton Administration
really want to get China to respect international copyrights,
what do they do? They threaten economic sanctions--the very
same sanctions they say would be counterproductive as a means
of promoting political and religious freedom in China. On at
least three occasions since 1991, the U.S. Trade Representative
has threatened to impose billions of dollars in sanctions to
vindicate U.S. intellectual property interests. In each of
those cases, when faced with the credible and imminent threat
of economic sanctions, the Chinese government changed its
behavior.
I must reluctantly conclude that some business interests
and U.S. officials understand full well that unilateral
economic sanctions (and the threat of such sanctions) can and
do work to change the conduct of the PRC government. But they
also know that sanctions may be subject to a law of diminishing
returns. For example, if a certain punitive tariff rate were
already in effect because of egregious human rights violations,
then it would no longer be useful to threaten the same
punishment in order to vindicate intellectual property rights.
Big business would prefer to conserve the limited resource of
trade leverage for its own uses, under the auspices of the WTO.
In other words, the selective use of rhetoric about
``unilateral sanctions''--demanding them to punish copyright
violations, denouncing them when it comes to torture or forced
abortion or religious persecution--appears to reflect an
implicit prioritization of profits above fundamental human
rights.
Mr. Chairman, the permanent surrender of our MFN leverage
ought to be unthinkable at this point in time. Conditions in
the PRC are probably the worst they have been since the 1989
Tiananmen Square massacre.
The Chinese Government is at war with religious liberty.
Around midnight last Thursday, approximately 150 agents
converged to arrest 80-year-old Catholic Archbishop John Yang
Shudao of Fujian Province. Chinese prisons hold numerous other
religious leaders, ranging from the 10-year-old Panchen Lama to
Protestant house church pastors. Chinese authorities summarily
execute Uighur Muslim prisoners in the Xinjiang region. They
continue their brutal crackdown on Falun Gong, a nonviolent,
meditative spiritual practice, which Beijing has vowed to
``smash.'' According to recent estimates, over 5,000 Falun Gong
practitioners have already been sent to labor camps, and an
additional 2,000 have been rounded up in the last week and a
half alone.
The Communist government of the PRC systematically violates
other human rights on a massive scale. It does not allow
significant political dissent. It harvests and sells the
internal organs of executed prisoners. It forces women who have
``unauthorized'' pregnancies to abort their children and submit
to sterilization. It continues to brutalize the indigenous
peoples of Tibet and Xinjiang. It uses slave labor to
manufacture products for export. According to the State
Department, ``[i]ndependent trade unions remain illegal within
China.''
Gaining permanent MFN from the United States has been one
of Beijing's top priorities for several years. Regardless of
whether permanent MFN is required as part of China's WTO
accession package -and this assertion is vigorously disputed by
some experts on international trade law--the United States of
America must stand for more than the corporate bottom line.
Over the past five years, the Clinton Administration has
engaged in unparalleled appeasement of that Communist regime.
Permanent MFN would make that appeasement nearly complete,
surrendering one of our last important means (short of military
force) to affect Beijing's conduct.
I urge you, my colleagues, to resist this surrender. At the
very least, leave the United States Congress with the
possibility of a vote every year--a real vote, with teeth. The
Beijing dictators are not stupid. They understand the
difference between window-dressing and real consequences. This
is a time of crisis for freedom in China--political freedom,
freedom of conscience, of religion, of the press, of assembly.
A grant of permanent MFN now would send an unequivocal message
to the Beijing regime: We do not really care. Although we speak
many words about the importance of freedom and human rights,
when it comes to our actions, American ideals are not worth
nearly so much as corporate profits and feel-good diplomacy.
I believe that we do still care, and I hope that our
decisions in the coming weeks will reflect a continuing
commitment to the promotion of democracy and the protection of
fundamental human rights in China. Thank you, Mr. Chairman.
[GRAPHIC] [TIFF OMITTED] T7129.005
[GRAPHIC] [TIFF OMITTED] T7129.006
Chairman Archer. The chair would like to conclude with this
panel of our colleagues before we go vote, and then excuse them
so that they do not have to come back and interfere with the
rest of their days. And when we do return, Special Trade
Representative Barshefsky, will be our witness.
Our last witness on this panel is Congressman Cal Dooley.
Welcome. We would be pleased to hear your comments.
STATEMENT OF HON. CALVIN M. DOOLEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Dooley. Thank you, Chairman Archer, and thank you,
members of the committee, and I will not take my entire 5
minutes.
What I would like to say, first off, is to commend
Ambassador Barshefsky for the terrific job she did in
negotiating an agreement that was going to provide tremendous
benefits to the all of the working men and women in businesses
of the United States. And I think we see the tremendous
opportunity that we have when we look at the growth in the
trade between the United States just over the past 10 years or
so, when we have seen it grow from about $5 billion to over $7
billion. And really what the issue we are facing today is, is
are we going to ratify an agreement that, by passing permanent
normal trade relationships with China, that is going to allow
U.S. workers and businesses to benefit.
Ms. Pelosi made a comment that we have a serious concern
with a trade deficit of $70 billion. I would agree with that.
But I also feel very, very strongly that if we do not pass
permanent normal trade relations, it is U.S. workers and U.S.
companies that are going to be benefitting by these significant
reductions in tariffs, whether it is a reduction in wheat
tariffs from 40 percent to 12 percent, whether it is a
reduction in auto tariffs from 100 percent down to about 20
percent, I believe it is, and if you are worried about a trade
deficit, if you have only U.S. companies that cannot benefit
with the agreement that Ms. Barshefsky has negotiated, and you
have Canada, you have the European Union, and the companies are
located there that can benefit by that, I can guarantee you
that it is not going to be the wheat growers in Oregon or my
district that are going to be selling and exporting wheat to
China, it is going to be Canadian wheat growers, it is going to
be Australian wheat growers, it is going to be Argentine wheat
growers. And if you don't think that is going to have an
adverse impact on the trade deficit, I do not know what will.
I would also like to point out, when we look at the issue
in terms of how we can benefit even the human rights in the
advancement of democracy, I would even point out, just on the
issue in terms of what we have seen in the growth in Internet
use in China in the last year. In 1998, we had 5 million
Internet connections in China. Today we have 10 million. The
Internet is the greatest force and power for the advancement of
democracy than any tool we have seen in the history of mankind.
There is no way that China's Government can control the content
on the Internet. And by having an increased U.S. investment in
China, by ensuring that it is U.S.--based technology that is
going into China, we are going to be doing more to advance
democracy there than the alternative, which is, one, by trying
to keep the U.S. more isolated from China.
I would also like to just touch on the issue of compliance.
And, again, there was a reference made to a statement by a
Chinese official of dealing with wheat. I would point out that
every major agricultural organization, including the National
Wheat Growers Association, is supporting this agreement because
they have confidence that this agreement is going to ensure
that we are going to have increased access to these markets.
And when we talk about the leverage of the United States,
the United States might have had leverage 10 or 20 years ago,
but this is a different world today. The United States is not
the sole economic power in the world. And if we think that we,
alone, can leverage a change in behavior of China, we are
deluded. By allowing China to come into the WTO, what we are
ensuring is that it is not going to be the United States trying
to leverage compliance in China, it is going to be 140 nations
that comprise over 95 percent of the industrial GDP in the
world, 95 percent of the World Trade Organization are going to
be our partners in ensuing compliance in China. This is a great
deal, and we would be doing a disservice to U.S. workers and
U.S. businesses if we left them on the outside, not having the
ability to benefit from the significant tariff reductions that
this Administration has negotiated.
Thank you.
[The prepared statement follows:]
Statement of the Hon. Calvin M. Dooley, a Representative in Congress
from the State of California
Chairman Archer, Ranking-Member Rangel, 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.)
First, I would like to commend U.S. Trade Representative
Barshefsky and her negotiating team for reaching this historic
bilateral trade agreement with China, and paving the way for
China's accession into the WTO. The agreement is the
culmination of 13 years of negotiations to open up the Chinese
economy, and is stronger and more comprehensive than the set of
commitments China made last Spring.
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.
Under the WTO accession agreement, China has agreed to
dramatically lower tariffs, eliminate agricultural and
industrial export subsidies and quotas, and permit American
service exports in sectors including banking, insurance and
telecommunications. These tariff reductions and service access
provisions provide the U.S. with unlimited possibilities to
grow and improve our standard of living. Furthermore, it is
important to remember that in the course of negotiations, China
agreed to one-way market opening concessions. The United
States, on the other hand, made no concessions other than to
bring China under the rules-based system of the WTO.
My district in central California is the largest
agricultural district in the nation, and the benefits and
opportunities created by this agreement are not lost on my
constituents. 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 bilateral agreement would move to level the
playing field and allow U.S. agriculture tremendous access to
the world's largest agricultural market.
Under the terms of the agreement, 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 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.
In addition to the very tangible benefits this agreement
offers to U.S. farmers, it is also a key component to
continuing our nation's longest economic expansion--an economic
expansion that has raised the standard of living for working
Americans across the country. The technology sector has been a
driving force behind this period of unprecedented economic
growth, and the China WTO accession agreement will give U.S.
telecommunications, software and Internet companies access to
China's 1.2 billion people.
China is currently the sixth largest computer market and
the fourth largest computer chip market. It is expected to
become the number two market, after the United States, in the
very near future. Providing the U.S. high-tech sector with
access to this enormous, and largely untapped market, will help
to generate the fuel for continued economic growth and
opportunity for American workers and their families.
Expanding access to technology and the Internet is
important to the U.S. economy, but it is also key to promoting
personal freedoms in China. In 1998, five million Chinese
citizens had access to the Internet. In just one year that
number has doubled with ten million Chinese citizens now
enjoying access to the World Wide Web. While the growth in
Internet use certainly represents economic opportunity for U.S.
technology firms and the U.S. economy as a whole, it also
represents more than that. It provides the people of China with
unprecedented access to limitless information, and is a
tremendous tool helping to move the Chinese toward greater
personal and economic freedoms.
Without a doubt, the WTO agreement would certainly present
tremendous opportunities for U.S. workers and businesses. But
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 its trade practices and
subject to WTO enforcement actions.
The historic agreement is a classic win-win for the United
States, creating unlimited possibilities for American
businesses and workers and providing the fuel for a continued
economic expansion that has allowed American families to
improve their standard of living and quality of life. In
addition to expanding market opportunities, bringing China into
the WTO will mean that they play by the same ``rules of the
road'' as our other trading partners.
At this critical juncture, we would be foolish to abandon
the opportunity to enhance 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.
I look forward to working with my colleagues on the
committee and with the Administration to advance this important
policy.
Chairman Archer. Thank you, Congressman Dooley. And the
chair is grateful to all of the panelists. We appreciate your
input, and the committee will now stand in recess for members
to go vote. We will return as soon as possible, and at that
time we will have as our witness Special Trade Representative
Charlene Barshefsky.
[Recess.]
Chairman Archer. The committee will come to order. The
chair asks that guests and staff be seated as quickly as
possible. We are going to have a long day, and the chair will,
to the greatest degree possible, expedite the hearing. Prior to
the testimony of Trade Representative Barshefsky, we had
suspended the opening statements, and the chair will make an
opening statement at this point and the minority will make
their opening statement, and then, without objection, all
members will be entitled to insert written statements in the
record.
I intend to yield, for part of my statement, to the
chairman of the Trade Subcommittee, Mr. Crane, and I assume the
same thing will happen on the Democrats' side.
Mr. Levin. Yes.
Chairman Archer. Last year, the U.S. concluded trade
negotiations with China, and I congratulate our Trade
Representative, Ambassador Barshefsky and her deputy, Richard
Fisher, for their skill and their tenacity in these
negotiations. Today, Congress continues its very careful review
of that agreement to make sure that it helps American farmers,
workers, and consumers.
From what I have seen, it certainly does. In fact, the new
study says that in the area of agriculture alone, trade with
China will increase U.S. farm exports by over $2 billion a
year, nearly tripling the current pace. And last year, trade
with China directly supported over 200,000 jobs in the U.S.,
each paying an average of 17 percent higher wages than jobs for
our domestic market.
Lowering China's trade barriers further will create more
jobs, more farm exports, and more economic growth for the U.S.,
and as we heard earlier from some of our witnesses, while at
the same time not giving up anything with our tariffs or our
non-tariff barriers. The benefit of international trade is
simple. If we sell more American crops, computers, and cars to
the world, Americans get better jobs, make more money, and
enjoy a higher quality of life.
Trade with China also means more choices and lower prices
for American consumers, which especially helps lower-and
moderate-income families live within their budgets. That is
often overlooked. Once the American people and Congress have
reviewed this agreement to make sure it's good for America, the
U.S. should continue normal trade relations with China on a
permanent basis, and let's be clear what normal trade relations
really means.
Only a handful of rogue nations do not receive this normal
status, and those nations are Iran, Iraq, Libya, Afghanistan,
Laos, North Korea, Cuba, and Serbia-Montenegro. Although
China's movement toward American ideals of freedom and
democracy may have been sluggish in the past, they have made
slow progress, and I can testify to that, because I first went
to China in 1977, and the China of today is very, very
different than it was in 1977, very different than it was 10
years ago.
Rejecting this agreement and denying normal trade relations
would mean severing ties that would take generations to repair.
Trade has advanced China's economic reforms and trade will help
us advance America's most treasured export, and that is
individual liberty.
In summary, extending permanent normal trade relations to
China is good for America, because China will enter the WTO
with or without us. Contrary to a number of articles that have
been printed in the media, Congress has no role to play in
voting on whether or not China enters the WTO. They will enter
with or without us. The only issue is will we be able to take
advantage of the concessions that Ambassador Barshefsky has
negotiated while giving up nothing on our side.
This is perhaps, I think, the most important issue involved
in all of these deliberations, because if we do not take
advantage of this unlimited opportunity, certainly Germany,
Japan, France, and our other economic competitors will, and
then our trade deficit will get bigger instead of smaller. Once
more, America only stands to gain from this agreement, because
U.S. tariffs, trade laws, and other safeguards were kept
totally in place. All of the concessions were from the Chinese.
In effect, the Chinese, economically, unilaterally
disarmed, and that is exceedingly important. Unlike all other
types of trade negotiations, whether it be the Uruguay Round,
whether it be NAFTA, or whether it be the Canadian Free Trade
Agreement, where we are expected to give up something in order
to get something from the other side, in this agreement, we
gave up nothing. How can it be anything other than a win-win
for the United States of America? So I look forward to working
with President Clinton, Vice President Gore, and members of
both parties on a bipartisan basis to move forward with normal
trade with China, and I yield to the Chairman of the Trade
Subcommittee for any comments he would like to make.
Mr. Crane. Thank you, Mr. Chairman, and I will only add
that Ambassador Barshefsky has brought home a terrific
agreement. In fact, it will go down in the history books as one
of the most significant trade agreements reached in the span of
recorded history, and that in spite of the fact that the
President directed her to negotiate the deal twice, once in
April, then again in November, in the midst of preparations for
the Seattle WTO meeting.
The fact that she could put the pieces back together again
after the White House sent Zhu Rongji home empty-handed in
April is a tribute to her skill. At the same time, it reflects
the fact that reformist elements of the Chinese government are
strong and they are resolved to turn China in the direction of
free market reform. A deal that is as good for workers in
downtown Chicago as it is for peasant farmers in Xiangdu is a
compact that will bring this planet closer together in the
common pursuit of expanding commerce and lifetime economic
opportunities.
As we will see today and as the CRS report shows, this is a
deal that sells itself in every area. In one sector after
another, there is no question that United States workers and
Chinese citizens will be better off if Congress passes
permanent normal trade relations and puts these unilateral
concessions in place. In exchange for steep tariff reductions
and wholesale reforms of the Chinese trading system, the United
States gives up nothing.
As the chairman mentioned before, let me stress that, the
United States gives up nothing. All the concessions are one-
sided, and they are from the Chinese. I urge the administration
and China to tie up the multilateral aspects of this important
negotiation as soon as possible. There are areas, such as
fertilizer produced in my district, where we need further
progress so that the concessions that were advertised truly
result in real market access. At that point, I am committed to
working with the President to achieve permanent normal trade
relations for China, and I thank the chairman for yielding.
Chairman Archer. And I yield to the gentleman from New York
for any statement he might like to make on the part of the
minority and expect that he will yield to the ranking member of
the Trade Subcommittee, Mr. Levin.
Mr. Rangel. Thank you, Mr. Chairman. First, let me thank
Ambassador Barshefsky for the outstanding job that you have
done for our President and our country in reaching this
historic agreement with China. It certainly opens up
substantial new opportunities for farmers and business people
and workers in the United States. I was listening to the
complimentary statements by my Chairman and how this trade
would do so much for the United States. It is just hard for me
to see how the Communists in Cuba could be such a threat to our
national security and 1.1 billion Communists in China would be
great for our American way of life, but I guess that is the
politics that is involved with Cuba, and too, to some extent,
the politics that is involved in permanent normal relationships
with China.
I am very concerned about the timetable and a variety of
other things that I am certain that you and other witnesses
will be able to shed a lot more light on, but, as indicated by
the Chair, I would like to yield the balance of my time to the
ranking member of the Trade Subcommittee, Mr. Levin.
Mr. Levin. Thank you, Mr. Rangel and to the chairman of the
full committee and the Trade Subcommittee, and welcome,
Ambassador. The question before the committee today, as I see
it, is not whether we should stand in the way of globalization
or blindly embrace it. As the President stated in his, I think,
brilliant speech to the Davos World Economic Forum, and I
quote, ``Those who wish to roll back the forces of
globalization because they fear its disruptive consequences I
believe are plainly wrong. Those who believe globalization is
only about market economics, however, are wrong, too,'' end of
quote.
So, the question before the committee is whether we will
become active participants in an effort to shape globalization
so that it raises living standards and maximizes opportunities
for all Americans. China's potential accession to the WTO
challenges us to demonstrate our commitment to the principle of
active internationalism.
Because of its unique size and economic and political
structures far different from the model on which WTO is based,
China's potential accession to the WTO presents unique
opportunities and challenges. The agreement negotiated with
China would open to the U.S. one of the fastest growing markets
for American goods and American services. It would draw China,
with its very weak rule of law, into an international rules-
based system, but it's clearly not that simple.
China is the world's largest state-controlled economy,
where free markets and the rule of law are still in the
rudimentary stages of development. During the recent 10 days in
Beijing and Hong Kong, I saw graphically that change in China
is irreversible, but its direction is not inevitable. There is
certainly more economic freedom, and the Chairman mentioned
this, than 20 years ago. The Chinese leaders still describe
their course as market socialism.
There is more political freedom than 20 years ago, but
there remains, as we have seen, tight one-party control. The
President got it right, in my judgment, in his State of the
Union Address, when he said, and again I quote, ``We need to
know we did everything we possible could to maximize the chance
that China will choose the right future.''
This means, as I see it, we must do more than just say no,
which is basically a passive policy, but it also means we must
do more than just say yes, an equally passive approach. Neither
will work as an American policy, just standing in the way or
just looking the other way. The challenge, I realize, is to
propose specifics, a plan of action to help to impact the
direction in which China moves as it integrates into the world
trading system.
First, we should establish a special U.S. congressional
executive commission on China. This commission would maintain
pressure on China to improve its record in a number of vital
areas, including human rights, compliance with core labor
standards, and development of the rule of law. One model is the
so-called Helsinki Commission.
Such a China commission would place a permanent spotlight
on China. It would have a staff and a budget devoted
exclusively to monitoring China. Commission staff could
investigate allegations of human rights abuses, non-compliance
with WTO commitments or violations of core labor standards. It
could also serve as a formal channel of communication between
the U.S. government and non-governmental organizations
monitoring China. The Commission would be required to report to
Congress annually, presenting specific recommendations for
action by the Administration and Congress.
Second, we should seek, within the WTO, an annual review of
China's compliance with its WTO commitments. It would be done
through the WTO's trade policy review mechanism, the TPRM. That
board examines the policies and practices of member countries
based on reports provided by the members themselves and
analysis by the WTO Secretariat.
Currently, the most frequent review is every 2 years for
the U.S., the European Union, Japan and Canada. Special
scrutiny through an annual review is warranted in China's case
due to the size of its economy and the evolving, indeed,
rudimentary nature of its free market and rule of law.
Third, the Congress, in order to enhance enforcement of
China's commitments, should put into legislation procedures for
invoking the special anti-import surge provisions of the U.S.--
China bilateral agreement, provisions that a number have
strongly favored that were not, by the way, in the April
document and which I think are an important step forward. We
should take that opportunity to strengthen, consistent with WTO
rules, the general anti-import surge provisions in U.S. law,
Section 201, and the market-opening provisions in Section 301.
Further, we should commit resources to commerce in USTR for the
express purpose of monitoring and enforcing China's compliance
with its WTO obligations.
Fourth, the U.S. must be committed to pursuing the
establishment of a working group on labor within the WTO.
China's potential accession to the WTO makes it all the more
important that we begin to incorporate labor market issues into
trade policy-making. As China becomes increasingly integrated
into the world trading system, its lack of a free labor market
will have a growing impact on competition with producers and
workers in other countries, including the U.S. We can take,
immediately, several steps to implement labor market issues in
trade policy; for example, Section 307, that prohibits
importation of goods made from forced or prison labor.
Fifth, as we press China to become more open with the WTO,
the U.S. must lay out, must map out, how it will pursue
institutional reforms of the WTO to make its operation more
consistent with the principle of openness and rule of law,
including prompt release of documents, open meetings and
acceptance of amicus briefs. That was raised in Seattle. We hit
some stone walls, and we need to lay out how we are going to
proceed.
In recent decades, and I conclude on this, discussion of
trade issues has been beset by intense polarization. In the
1980s, efforts in our Nation to open markets of other
industrialized nations, particularly for our manufactured goods
into the Japanese market, were often labeled ``protectionism.''
In recent years, the trade debate has increasingly revolved
around how a developed economy, such as ours, should react to
growing trade and competition with evolving economies with
different, indeed, very different economic structures. It has
raised new issues, including the role in trade of core labor
and environmental standards. Some have dismissed what are
essentially economic concerns, such as core labor and
environmental standards as ``social issues'' or reinvoked the
cry of ``protectionism.'' But this time, some others have
parried by taking a leaf out of the polarization play book, in
vain, against ``the evils of globalization.'' The view is too
often that issues are simple; either yes, no, either/or, for or
against. The issues involved in China WTO are too important for
such polarization. We can do better. Surely it is worth the
effort.
Thank you, Mr. Chairman.
[The opening statement of Hon. Jim Ramstad follows:]
Statement of Hon. Jim Ramstad, a Representative of Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing
today to discuss the recently negotiated U.S.--China bilateral
trade agreement and China's accession into the World Trade
Organization.
For the past few years, trade--especially trade with
China--has come under heightened scrutiny. As a strong
supporter of free trade, I am asked to defend my pro-trade
stance. Today, however, I would like to turn the question back
to the nay-sayers and ask them to defend their recalcitrant
position. What does the status quo get you? How does saying
'NO' to an aggressive, forward-looking agreement with China
resolve concerns they may have over worker rights, religious
freedoms, environmental protection or fair trade?
If we basically repudiate the Chinese, how will we ever
influence the Chinese to respect worker rights and religious
freedoms? Turning away from this agreement will lead to a
deterioration in our bilateral relationship, and if we aren't
talking, how do we lead by example and show them the benefits
of our policies and employment practices? If U.S. missionaries
and family relief volunteers are kicked out of China, how will
we further the causes of religious and family freedoms?
The WTO ensures that trade is based on the rule of law and
advances American values of non-discrimination, due process,
fair play, transparency and openness. It resolves trade
disputes between countries with fairness and impartiality. It
locks in and further reduces trade barriers to U.S. exports and
fosters economic cooperation and stability among nations. So,
how will prohibiting the U.S. from enjoying the advantages of a
China under the multilateral, legal and rule-based structure of
the WTO, and the tariff-reducing benefits that accompany it,
help workers in the U.S.? How will it help consumers?
How will the status quo help the environment? By
eliminating tariffs and other barriers to trade in
environmental goods and services--such as clean coal
technology, waste-water treatment and pollution monitoring
equipment--we ease the task of providing people with clean air,
clean water and improved public health. By reducing trade
barriers in efficient energy technologies, nations can produce
more power with less emission of greenhouse gases. By
disciplining trade-distorting subsidies that can harm the
environment, we can move toward sustainable management of
natural resources. Would they have us forego these potential
environmental improvements?
Mr. Chairman, I worry not only about not moving forward; I
also worry about actually moving backward, losing ground in the
global marketplace. We need progress, not regress. I look
forward to learning more from today's witnesses on how we
achieve real progress for American workers and consumers.
Chairman Archer. Ambassador Barshefsky, welcome to the Ways
and Means Committee. And, again, my personal congratulations on
not just this agreement, but the continual work that you do.
Ambassador Barshefsky. Thank you very much, Mr. Chairman.
Chairman Archer. In an outstanding, professional way. And
the committee looks forward to hearing your testimony, and when
you are ready, you may proceed.
STATEMENT OF HON. CHARLENE BARSHEFSKY, OFFICE OF UNITED STATES
TRADE REPRESENTATIVE
Ambassador Barshefsky. Thank you, Mr. Chairman. It is a
great pleasure to be here. I look forward to testifying on
China's accession. May I ask that my full statement be
incorporated into the record.
Chairman Archer. Without objection.
Ambassador Barshefsky. Mr. Chairman and members of the
committee, Mr. Rangel, my written testimony lays out in detail
the reasons China's accession to the WTO, coupled with the
approval of permanent normal trade relations status, is so
vitally important to America's economic and strategic interests
and our ability to promote our values. Let me just simply
summarize the main points.
In China, we deal with the world's largest nation, the
world's fastest growing major economy over the past decade and
a country whose future course is central to our interest in a
peaceful, stable and prosperous Pacific Region. And as we
address these issues, we also deal with a Government that is
often repressive at home and with which we have significant
policy disagreements. This is, therefore, not a simple
relationship, and in it, we must take up a vast range of
issues, from broad strategic interests to regional security
issues in Korea, and Southeast Asia and elsewhere, human rights
and religious freedom, environmental protection, weapons
proliferation, labor rights, international crime and narcotics
trafficking and other issues as well.
When we disagree in these areas, we must be firm in the
defense of America's interests and values. That is true in
security, human rights and elsewhere. But at the same time, we
must also be aware of the profound importance of our
relationship with China to peace and stability across most of
the rest of the world. And, thus, we have a profound
responsibility to find and act upon areas of mutual interest
and benefit to support reform in China, advance our own
national interests and build a stable peace.
China's WTO accession is a case in point. Most directly, it
will address our full range of trade concerns. It will do so
through, as the chairman and others have pointed out, a series
of one-way trade concessions in which China opens its markets
across the broad spectrum of goods, services and agricultural
products in a way unprecedented since the 1940s, strengthen our
guarantees of fair trade and subject its decision to impartial
dispute settlement. In doing so, this agreement will help to
rectify a fundamentally imbalanced trade relationship. And if
China does this, we simply maintain our current market access
policies by making the normal trade relations we have granted
China in every year for the last 20 permanent.
WTO accession will also, however, complement and support
longstanding American humanitarian and strategic goals. It is
in America's strategic interest to have Congress approve
permanent NTR for China. WTO accession will integrate China
more firmly in the Pacific and in the global economy. It will
give China a stronger stake in the region's stability and
prosperity, helping ensure that throughout the region, China
plays the kind of constructive role it has in North Korea and
during the Asian financial crisis. Together with our military
presence and our alliance with Asia-Pacific democracies,
China's accession will be a factor in favor of a more stable
regional peace in the years to come.
And their accession and PNTR is in the interests of reform
and liberalization in China. China's commitments in the WTO
will open economic freedoms for Chinese citizens and promote
the rule of law in many fields now dominated by State power and
control. They go well beyond China's economic reforms to date,
and certainly well beyond the reform policies dating to the
earliest years of the Communist era. As it joins the WTO, for
the first time since the 1940s, China will permit foreigners
and Chinese firms to import freely into China, reduce and, in
some cases, remove entirely State control over internal
distribution of goods in the provision of services, enable
foreign businesses to participate directly in information
industries, such as telecom, including the Internet, and
subject its decisions in all areas covered by the WTO to
impartial dispute settlement, including retaliation, where that
is appropriate.
Of course, this agreement is not a human rights policy in
and of itself. Change in China will only come through a
combination of internal pressure and external validation of
those who struggle for political voice. That is why we are once
again sponsoring a resolution in the U.N. condemning China's
human rights record and why we have sanctioned China as a
country of particular concern under the International Religious
Freedom Act. But this agreement does represent a remarkable
victory for economic reformers within China and for our own
efforts to give the Chinese people more control over their own
destiny and more ability to meet and exchange ideas with the
outside world. And, thus, a number of leading Chinese and Hong
Kong advocates of democracy endorse WTO membership and PNTR,
not only for its economic value, but as a foundation for
broader future reform.
Let me take a moment, if I may, and turn to the specifics
of the agreement. To begin with, the bilateral WTO accession
agreement with China is comprehensive. It covers a full range
of industrial goods, services, farm products, unfair trade
practices, and it addresses the barriers that block American
exports. Let me give you a few examples: China will cut
industrial tariffs from an average of almost 25 percent to 9
percent by 2005; it will eliminate all quotas in discriminatory
taxes; it will cut tariffs on information technology-related
products to zero; it will participate in APEC's other zero-for-
zero initiatives on tariffs, as those are approved by the WTO;
it cuts tariffs on autos from the current rate of 80 to 100
percent to 25 percent and, of course, across a broad spectrum
of industries. Of equal importance, it will address other
barriers which have traditionally prevented us from exporting
to China; most notably, restrictions on trading rights and
distribution.
With respect to trading rights, China will grant American
companies rights to import and export most products without
Chinese middle men. The right to engage in trade is now
strictly limited. Only companies with specific authorization or
which import goods to be used in production in China have such
rights. This has always limited our ability to export to China,
and this will now be corrected under this agreement.
As in the case of trading rights, the right to distribute
our products is critical to our ability to export to China and
compete in China. This is one of the great lessons of our trade
with Japan. Distribution rights are absolutely essential. At
present, China generally prohibits companies from distributing
imported products or providing related services, like repair or
maintenance or after-sales service. After accession, China will
allow American firms to market wholesale, retail, repair and
transport their products, whether produced in China or imported
from the United States. China will permit enterprises to engage
in the full range of distribution services over a 3-year phase-
in for virtually all products.
In agriculture, on U.S. priority products, whether beef or
citrus or others, tariffs will drop to 14 percent by 2004. The
global average is 50. To cite a few examples: China will cut
tariffs on beef from 45 percent to 12; almonds, cherries,
peaches, other specialty crops from 30 to 12; wine from 65 to
20. China will also expand access for bulk agricultural
products like wheat, corn, cotton, rice, soybean oil and
others, through a system of tariff rate quotas that offer
dramatic opportunities to producers of these products. And for
the first time, China will permit private trade in these
products. This is very significant. We will no longer be
subject solely to State control over the importation and
distribution of these products.
China will also end all import bands, cap and reduce trade-
distorting domestic supports, eliminate export subsidies and
abide by the WTO Agreement on sanitary and phytosanitary
standards; meaning, science as a basis for agricultural and
food safety decisions.
In services, China will open its markets for distribution;
as I have said, telecom, financial services, professional
services, business and computer services, insurance, motion
pictures, environmental services, accounting, law,
architecture, construction, travel, tourism and a range of
other service sectors. In fields like distribution, telecom,
financial services and several others, this represents the
first direct foreign participation in these sectors since the
1950s. And the agreement strengthens the protection of American
workers and businesses against unfair trade practices, import
surges and investment practices that are intended to draw jobs
and technology to China.
So the agreement addresses State enterprise policies,
forced technology transfer, local content, offsets, export
performance requirements. It provides for a 12-year special
product safeguard to address market-disrupting import surges
from China. It allows for 15 years continued use of our
nonmarket economy dumping methodology; that is to say,
strengthening our anti-dumping law. In short, this agreement is
absolutely comprehensive.
Second, the results of the agreement will be rapid.
Immediately on accession, China will begin opening its market
in virtually every area. The phase-in of further concessions
will be limited to 5 years in almost all cases, and in many
cases, 1 to 3 years.
Finally, the agreement is fully enforceable. And let me, if
I may, take a moment on this point. All trade commitments
require full implementation and enforcement to be meaningful in
practice. Our previous experience with China in improving
intellectual property rights and enforcing textile commitments
demonstrate how critical constant oversight, monitoring and
strict enforcement are. And with China's WTO membership, we
gain a number of advantages in enforcement we do not have
today.
First, is WTO dispute settlement itself. In no previous
agreement of any kind, has China agreed to subject its
decisions to impartial review, judgment and ultimately the
imposition of trade sanctions, if necessary.
Second, of course, is a continued right to use all of our
trade laws. We make no changes in these laws, whatever, except
by way of improvement.
Third, we gain substantial new leverage because of anti-
import surge protections, as well as the guarantee of our right
to use nonmarket economy dumping methodology. These features of
the accession will significantly strengthen our ability to
ensure fair trading practices.
Fourth, we strengthen our enforcement capabilities through
multilateral nature of the WTO. The accession, to begin with,
will create a multilateral review mechanism to monitor China's
implementation. And as these commitments come into effect,
China will be subject to enforcement by all 135 WTO members.
This will significantly diminish China's ability to play its
trading partners off against one another, a favorite pastime.
In previous disputes over Chinese compliance with
agreements, most notably in intellectual property rights, the
United States had to act alone. With China in the WTO, we will
be able to work with the other 134 members, all of whom have an
interest in China abiding fully by the commitments it makes to
open its economy. This is unprecedented.
Fifth, the specificity of China's commitments in this
bilateral agreement will also help us ensure Chinese
compliance. Experience shows that agreements that are most
satisfactorily enforced are those where obligations are
concrete, specific and open to monitoring. The bilateral
agreement we have concluded includes highly-specific
commitments in all areas, a clear absolute timetable for
implementation and firm end dates for full compliance. These
allow us to monitor Chinese compliance and present clear
evidence of failure to comply.
Sixth, of course, enforcement of this agreement, like any
other, depends on U.S. commitment. We are already preparing for
the monitoring and enforcing effort this will require through
President Clinton's budget request, which I urge the committee
to act upon, for new enforcement and compliance resources at
USTR, Commerce, USDA and other Government agencies. The
President is requesting a range of resources to ensure that we
can fully monitor this agreement.
And last, under WTO rules, the U.S. retains the full right
to exclude products made from prison labor. We maintain all of
our export control laws--they are unaffected by this
agreement--and we have the full right to withdraw benefits from
China, including PNTR in the event of a national security
emergency.
Let me just take one minute to turn to the work ahead and
the critical importance of Congress voting for permanent normal
trade relation status with China.
As comprehensive as our agreement is with China, China has
some more work to do. Two steps remain: Completion of bilateral
agreements with other of China's major trading partners, most
notably the EU, and negotiation at the WTO of further rules-
related issues. These steps are both proceeding.
Now, by contrast to the one-way concessions China makes to
enter the WTO, we simply agree to maintain our present trade
policies toward China. As China enters the WTO, we make no
change, none, to our current market access policies. The
chairman emphasized this point repeatedly, but I would also
like to emphasize this point repeatedly. We make no change of
any sort, not a percentage point in any current market access
policy toward China. We change no laws concerning the export of
technology to China or the export of sensitive materials to
China. We amend none of our trade laws. Our one obligation is
that we provide, on a permanent basis, the trade status we have
accorded to China in every year for the last 22 years. And that
is by making normal trade relations status with China
permanent.
This, as I have said, is no change in our policy toward
China. This is the tariff status we have given China in every
year since, and including, 1979. But a legislative grant of
permanent NTR is critical if we are to guarantee that we can
receive the full benefits of the agreement we negotiated. It
would be an extraordinary irony if the United States had opened
the Chinese market for the rest of the world, but we were
unable to participate fully in the benefits of the very
agreement we negotiated. That, it seems to me, is an
unacceptable outcome. It is an irrational outcome, all in
exchange for merely confirming the 20-year trade status China
has had with the United States.
WTO accession, with permanent NTR, has the potential to
create a new and fundamentally transformed trade relationship
with the world's fastest growing major economy, a remarkable
set of new opportunities for American working people,
businesses and farmers. It can, and I will conclude with this,
promote deeper and swifter reform within China, strengthening
the rule of law, offering new opportunities to the Chinese
people. By speeding economic change, the agreement also has the
potential to encourage China to evolve into a more open
society. By advancing the flow of information, which this
agreement will do, by advancing the pace of privatization, by
advancing the force of competition, the agreement will
accelerate a process that is removing Government from vast
areas of people's lives in China, enabling them to farm their
own their land, to find their own jobs, to decide their own
futures in a more fundamental way and bring the information
revolution to cities and towns across China.
It can, therefore, increase the chance that in the new
century, China will be on the inside of the international
system playing by the rules, instead of on the outside denying
them. And it can offer the prospect of a relationship with the
world's largest nation which may have moments of tension,
surely will, but through which we also find common ground and
strength and hopes for peace. That is the prospect before all
of us and before you, the members of the Congress. These are
the stakes, as you consider permanent normal trade relation
status with China. This is an opportunity the United States
must embrace. I ask you for your support.
It is, as always, Mr. Chairman, Mr. Rangel, the greatest
pleasure to appear before you. Thank you.
[The prepared statement follows:]
Statement of the Hon. Charlene Barshefsky, Office of United States
Trade Representative
Mr. Chairman, Congressman Rangel, Members of the Committee,
thank you for this opportunity to testify on one of the most
important American trade policy goals in many years.
CHINA'S ONE-WAY TRADE CONCESSIONS AND BROADER STRATEGIC GOALS
Last November, after years of negotiation, we reached a
bilateral agreement with China on WTO accession. It secures
broad-ranging, comprehensive, one-way trade concessions on
China's part, granting the United States substantially greater
market access across the spectrum of industrial goods, services
and agriculture. This agreement strengthens our guarantees of
fair trade. And it gives us far greater ability to enforce
Chinese trade commitments. By contrast, we agree only to
maintain the market access policies we already apply to China,
and have for over twenty years, by making China's current
Normal Trade Relations status permanent.
China's WTO accession is a clear economic win for the
United States. Together with permanent NTR, it will open the
world's largest nation to our goods, farm products and services
in a way we have not seen in the modern era. Without permanent
NTR, our competitors in Asia, Latin America, Canada and Europe
will reap these benefits but American farmers and businesses
may well be left behind. That is the fundamental choice before
us as we debate permanent NTR.
But China's WTO accession also has deeper implications. Our
relationship with China, given China's size and economic
weight, affects all of America's foreign policy and security
goals in Asia: from broad strategic interests to regional
issues in Korea, Southeast Asia and elsewhere; human rights and
religious freedom; weapons proliferation; environmental issues;
labor rights; crime and narcotics trafficking; and many others.
We have serious differences with China in a number of these
issues, and have found areas of common ground as well. And we
have a fundamental responsibility to develop a stable, mutually
beneficial relationship in which we act upon areas of shared
benefit and mutual interest. WTO accession will allow us to do
so, as it complements and supports long-standing American goals
in China policy:
--By helping to open and liberalize China's economy, WTO
accession will create new economic freedoms for Chinese
citizens and promote the rule of law in many fields now
dominated by state power and control. A number of leading
Chinese and Hong Kong advocates of democracy thus endorse WTO
membership not only for its economic value, but as a foundation
for broader future reforms.
--By integrating China more firmly into the Pacific and
world economies, WTO accession will give China a greater stake
in regional stability and prosperity. It will thus, together
with our military presence in the Asia-Pacific and our regional
alliances, be a factor in favor of long-term regional peace.
AMERICA AND THE TRADING SYSTEM
Let me begin my detailed review by putting the WTO
accession in its historic context.
The World Trade Organization China now seeks to join has
its roots in the General Agreement on Trade and Tariffs, or
GATT. Its creation in 1948 reflected the personal experience of
President Truman and his European counterparts in Depression
and War. They had seen the Smoot-Hawley Act in America and
similar protectionist policies overseas deepen the Depression
and contribute to the political upheavals of the 1930s. Fifteen
years later, they believed that by reopening world markets they
could promote growth and raise living standards; and that, in
tandem with a strong and confident security policy, as open
markets gave nations greater stakes in stability and prosperity
beyond their borders, a fragile peace would strengthen.
The work they began has now continued for over fifty years,
and the faith they placed in open markets and the rule of law
has been abundantly vindicated. Through eight Rounds of
negotiations, and as 112 new members joined the 23 founders of
the GATT, we abandoned the closed markets of the Depression era
and helped to foster a fifty-year economic boom. America, as
the world's largest exporter, benefits perhaps most of all: the
efficiency of our industries and the high living standards of
our families reflect both the gains we receive from open
markets abroad, and the benefits of our own open-market
policies at home.
But the development of the trading system has had equally
important effects worldwide. As it has developed over the past
fifty years, the world economy has grown six-fold; per capita
income nearly tripled; and hundreds of millions of families
escaped from poverty. And perhaps the best testimony to this
success is that many of the new applicants to join the WTO are
nations which are abandoning the postwar experiment in
communist central planning.
CHINA'S ROAD: FROM REVOLUTION TO REFORM
And that brings me to China.
With the Communist revolution, China set out upon a very
different road than the one President Truman and his colleagues
had charted. After 1949, it shut doors it had once opened to
the world. Among its new leaders' first steps were to expel
foreign businesses from China and bar direct economic contact
between Chinese citizens and the outside world. Inside China
were similar policies: destruction of private internal trading
networks linking Chinese cities and villages, abolition of
private property and land ownership, and of course suppression
of the right to object to these policies.
In essence, one cannot separate postwar China's deepening
isolation from the outside world from its steadily increasing
internal repression and diminishing space for individual life
and freedom. Likewise, China's economic isolation had severe
consequences for regional peace and stability: Asia's largest
nation had little stake in prosperity and stability--in fact,
saw advantage in warfare and revolution--beyond its borders.
Every Pacific nation felt the consequences not only in
economics and trade but in peace and security.
China's domestic reforms since 1978 have helped to undo
this isolation, integrating China into the Pacific regional
economy as they opened opportunities for Chinese at home. The
results have been profoundly positive: as China's people
regained the right to farm their own land, open businesses and
choose their own places of employment, they have found new
opportunities both to raise their living standards and
determine their own futures. At the same time, China has moved
gradually from a revolutionary role in the region to a
willingness to play a positive and stabilizing role on issues
as various as the maintenance of peace on the Korean peninsula
and the Asian financial crisis.
A bipartisan American trade policy over the past thirty
years has contributed to these positive trends. Broadly
speaking, our goals have been to support Chinese domestic
economic reform, integrate China into the Pacific regional
economy, through a variety of means including commercially
meaningful agreements that open opportunities for Americas.
This has extended from the lifting of the trade embargo in
1972, to our Bilateral Commercial Agreement in 1980, trade
agreements in the 1980s; and to a series of more recent
agreements including:
--Intellectual Property--In the early 1990's, China's
failure to protect intellectual property rights was one of the
most problematic aspects in our trading relationship. Piracy of
films, software, CDs, and other intellectual property works
cost our industry hundreds of millions of dollars and led to
trade confrontations with China, including invocation of
sanctions on two occasions. The United States ultimately
negotiated agreements in 1992 and 1995, and then won further
commitments in 1996 that led China to pass world-class
copyright, patent and trademark laws; close the vast majority
of pirate production facilities; cease the export of pirated
products and significantly improve enforcement--the principal
focus of the agreements.
--Textiles--Likewise, textile transshipment and market
access barriers have historically been a problem in our textile
trade relationship with China. While problems remain, two
separate agreements, in 1994 and 1997, combined with sustained
enforcement efforts by the U.S. Customs Service and the
Administration, as well as imposition of triple charge
penalties, have helped to mitigate these problems. The 1997
agreement, in fact, committed China for the first time to
significantly reduce its textile import restrictions.
--Agriculture--Most recently, our Agreement on Agricultural
Cooperation in April of 1999 lifted long-standing bans on
exports of American citrus, meats and Pacific Northwest wheat,
imposed due to unscientific sanitary and phytosanitary
measures. As in the cases of intellectual property and
textiles, we are holding frequent consultations with the
Chinese authorities charged with implementing the agreement.
Taken as a whole, this work has helped to open the Chinese
economy; created a series of new opportunities for Americans;
and given the Chinese public a much broader array of contacts
with the outside world than at any time since the late 1940s.
But the work is only partly done. China's trade barriers remain
very high; a number of policies dating from the 1950s are still
unchanged; and China's integration with the world economy
remains insecure. Likewise, China's neighbors remain blocked
from an economy which--like Japan's--could be an engine of
growth. One index of this is our substantial trade deficit with
China. Another is that since we extended Normal Trade Relations
(formerly MFN status) to China in 1980, our exports to China
have grown by only $10 billion, a figure significantly less
than our total growth to most other major trading partners in
Europe, North America and East Asia.
WTO accession thus represents a potentially profound and
historic shift, building upon but going much further than
China's domestic reforms to date. As it joins the WTO, China
will do much more than reduce trade barriers at the border. For
the first time since the 1940s, it will:
--Permit foreigners and Chinese businesses to import and
freely into China;
--Reduce, and in some cases remove entirely, state control
over internal distribution of goods and the provision of
services;
--Enable foreign businesses to participate in information
industries such as telecommunications including the Internet;
and
--Subject its decisions in all areas covered by the WTO to
enforcement, including through formal dispute settlement when
necessary.
These commitments are a remarkable victory for economic
reformers in China. China's domestic reforms have moved away
from a number of policies from the era of the Cultural
Revolution and Great Leap Forward. Its WTO accession will go
further, helping to reform policies dating to the earliest
years of the communist era: absolute government control over
economic contact with foreigners, nationalization of major
industries, and destruction of private local commerce within
China.
Altogether, this will give China's people more access to
information, and weaken the ability of hardliners in government
to isolate China's public from outside influences and ideas.
More deeply, it reflects a judgment--although one still not
universally shared within China or its leadership--that
prosperity, security and international respect will not come
from the static nationalism, state power and state control over
the economy China adopted after the war. Rather, China is more
likely to gain these from the greater integration with the
world, rising economic freedom at home, and ultimately
development of the rule of law inherent in the initiative
President Truman began in 1948 with the founding of the GATT.
The WTO accession, therefore, has potential beyond
economics and trade: as a means to advance the rule of law in
China, and a precedent for willingness to accept international
standards of behavior in other fields. That is why many Hong
Kong and Chinese activists for democracy and human rights--
Martin Lee, the leader of Hong Kong's Democratic Party; Ren
Wanding, a dissident who has spent years of his life in
prison--see WTO accession as China's most important step toward
reform in twenty years. And it is why our support for WTO
accession rests on a broader long-term commitment to human
rights and freedoms, as well as new opportunities and
strengthened guarantees of fairness for Americans.
WTO ACCESSION AND AMERICAN TRADE INTERESTS
It also, of course, represents the achievement of specific
American economic interests. While China's principal concern is
the potential of WTO accession to create jobs and foster
sustainable growth through economic reform, we have sought
commercially meaningful and enforceable commitments that help
Americans on the farm and on the job export to China, by
addressing the many layers of trade barriers and policies which
limit access.
The bilateral WTO agreement builds upon and consolidates
reforms obtained in all our previous negotiations, and reflects
our experience with the enforcement of those agreements.
Clearly, to win its full benefits we must be vigilant in
monitoring and enforcing compliance. And the bilateral
agreement gives us all the tools necessary to do so. Thus, in
all respects, this bilateral agreement meets the high standards
President Clinton set years ago.
1. Overview
First, our bilateral agreement is comprehensive. It will
reduce Chinese trade barriers across the range of goods,
services and agricultural products; eliminate or sharply reduce
restrictions on freedom to import and distribute goods within
China; address industrial policies intended to draw jobs and
technology to China; and strengthen our guarantees of fair
trade practices. All these reflect the ideas, advice and
guidance we have received over years of negotiations from
Members of the Committee and Congress as a whole.
Second, it is fully enforceable. China's commitments in all
areas are specific and include timetables and final dates for
full implementation. These commitments are enforceable through
our trade laws, WTO dispute settlement and other special
mechanisms including periodic multilateral review of China's
implementation and compliance. These will, of course, require
vigilance and constant commitment to enforcement by the United
States as well as by China's other trading partners in the WTO.
We are committed to vigorous monitoring and enforcement, and
are already preparing for this through a number of different
means: for example, the President's budget this year requests a
tripling of the Commerce Department's budget for China trade
enforcement, and an additional full-time China officer at USTR.
And third, its results will be rapid. On accession to the
WTO, China will begin opening its market from day one in
virtually every sector. The phase-in of further concessions
will be limited to five years in almost all cases, and in many
cases one to three years.
Let me now offer some of the details in each major sector.
2. Industry
In industrial goods, China will cut tariffs from an average
of 24.6% in 1997 to 9.4% by 2005 and bind them at these new,
lower levels. It will eliminate quotas and other numerical
restrictions. And it will allow American firms to import and
distribute their products freely in China. This is essential,
as American companies, farmers and workers need the ability to
import, export and distribute goods in China to compete
effectively--rights currently denied but which will be
permitted under the agreement, allowing our businesses to
export to China from here at home, and to have their own
distribution networks in China, rather than being forced to set
up factories there to sell products through Chinese partners.
Some highlights include:
Trading Rights--China will grant American companies, over a
three-year phase-in period, rights to import and export most
products without Chinese middlemen. Currently, the right to
engage in trade (importing and exporting) is strictly limited;
only companies that receive specific authorization or who
import goods to be used in production have such rights. This
limits not only the ability of U.S. companies to do business in
China, but in particular has limited U.S. exports.
Distribution--As in the case of trading rights, the right
to distribute products is critical to our ability to export
successfully to China. After accession, China will allow
American firms to market, wholesale, retail, repair and
transport their products--whether produced in China or
imported. At present, China generally prohibits companies from
distributing imported products or providing related
distribution services such as repair and maintenance services.
China will permit enterprises to engage in the full range of
distribution services over a three-year phase-in period for
almost all products.
Tariffs--China will make substantial tariff cuts on
accession with further cuts phased in, two thirds of which will
be completed in three years and almost all of which will be
completed within five years. On U.S. priority industrial items,
tariffs will drop on average to 7.1%--a figure comparable to
those of most major U.S. trading partners. As in agriculture,
China will bind tariffs at these low levels. Some specific
examples include:
Information Technology Agreement--China will participate in
the Information Technology Agreement (ITA), eliminating all
tariffs on such information technology products as
semiconductors, telecommunications equipment, computer and
computer equipment and other items by 2003 in most cases and
2005 in a few others.
Autos--China will reduce tariffs on autos from rates of
80%-100% today to 25% in 2006, and on auto parts to an average
of 10% from an average of over 23%.
Wood and Paper Products--China will reduce high tariffs on
wood and paper to levels generally between 5% and 7.5%. As
noted below, China will also implement any sectoral APEC
Accelerated Tariff Liberalization initiative adopted by the WTO
in this sector.
Chemicals--China will commit to the vast bulk of chemical
harmonizations, reducing tariffs from present rates between
10%-35% to an average rate of 6.9%. These reductions include
reductions on all priority U.S. chemical exports.
Furniture--China will reduce its current average tariff
rate of 22% to 0% on all furniture items covered by the Uruguay
Round sectoral initiative, by 2005.
Accelerated Tariff Liberalization--China has agreed to
implement the Accelerated Tariff Liberalization initiative of
APEC now under consideration in the WTO, when consensus is
achieved. This would eliminate tariffs on forest products,
environmental goods and services, energy and energy equipment,
fish, toys, gems and jewelry, medical equipment and scientific
instruments, and also includes chemical harmonization.
Non-Tariff Barriers--China will eliminate all quotas and
other quantitative measures upon accession for top U.S.
priorities including certain fertilizers and fiber-optic cable
by 2002, and by 2005 in all cases.
3. Agriculture
In agriculture, China will make substantial reductions in
tariffs both on accession to the WTO and over time. It will
adopt tariff-rate quotas that provide significant market access
for bulk commodities of special importance to American farmers.
It will agree to apply science-based sanitary and phytosanitary
standards including in grains, meats and fruits. And it will
eliminate export subsidies. Notable achievements here include:
Tariffs--China's agricultural tariffs will fall from 31% to
14% for our priority items. All cuts occur over a maximum of
four years, and will be bound at the applied levels. To cite a
few examples:
Current Level Under the Agreement
Beef........................................................ 45% 12%
Citrus...................................................... 40% 12%
Apples...................................................... 30% 10%
Cheese...................................................... 50% 12%
Wine........................................................ 65% 20%
Beer........................................................ 70% 0%
TRQs--China will liberalize its purchase of bulk
agricultural commodities like wheat, corn, rice, cotton and so
on, through tariff-rate quotas--that is, very low tariffs (1%
for bulk commodities) on a set volume of commodities. We
include in this portion of the agreement provisions to maximize
the likelihood that these TRQs are filled. In particular, a
portion of each TRQ is reserved for importation through private
traders, and TRQs which have not been filled will be
redistributed to other end-users with an interest in importing
on a first-come, first-served basis. Some salient examples
include:
1998 Total Private
Imports Initial TRQ 2004 TRQ Share
Cotton.................................................. 200,000 mt 743,000 mt 894,000 mt 67%
Wheat................................................... 2,000,000 mt 7,300,000 mt 9,636,000 mt 10%
Corn.................................................... 250,000 mt 4,500,000 mt 7,200,000 mt 25%, grows
to 40%
Rice total.............................................. 250,000 mt 2,660,000 mt 5,320,000 mt ----
short/med grain......................................... ............ 1,330,000 mt 2,660,000 mt 50%
long grain.............................................. ............ 1,330,000 mt 2,660,000 mt 10%
Export Subsidies--China will eliminate agricultural export
subsidies. This is an important achievement in its own right,
and a step toward our goal of totally eliminating export
subsidies worldwide.
Domestic Support--China has committed to cap and reduce
trade-distorting domestic subsidies. China also committed to
provide greater transparency to make its domestic support
measures more predictable.
Sanitary & Phytosanitary Standards--China will agree to
apply sanitary and phytosanitary standards based on science.
Among other things, this will give us additional means of
enforcing the Agreement on Agricultural Cooperation and its
commitment to lift longstanding bans on American meats, citrus
fruit and Pacific Northwest wheat.
4. Services
In services, China will open markets across the spectrum of
distribution services, financial services, telecommunications,
professional, business and computer services, motion pictures,
environmental services, and other industries.
Grandfathering--China will protect the existing activities
and market access of all service providers operating in China
at the time of accession.
Distribution--As noted above, China now generally prohibits
firms from distributing products other than those they make in
China, or from controlling their own distribution networks.
Under the Agreement China has agreed to liberalize wholesaling
and retailing services for most products, including imported
goods, throughout China within three years. This will remove
all restrictions on wholesaling, retailing, maintenance and
repair, marketing, customer service and transportation, along
with restrictions on auxiliary services including trucking and
air express delivery, air courier, rental and leasing, storage
and warehousing, advertising and others. This is of immense
importance in its own right and as a step that will enable our
exporters to do business more easily in China.
Insurance--Currently only two U.S. insurers are operating
in China's market. With WTO accession, China agrees to award
licenses solely on the basis of prudential criteria, with no
economic-needs test or quantitative limits on the number of
licenses issued; progressively eliminate geographic limitations
within three years, and permit internal branching consistent
with the elimination of these restrictions; over five years
expand the scope of activities for foreign insurers to include
group, health and pension lines of insurance. For non-life
insurance, branch and joint-ventures at 51 percent equity share
are permitted on accession, and wholly-owned subsidiary
permitted within two years from date of accession. For life
insurance, joint ventures are permitted with the partner of
choice at 50 percent equity share upon accession.
Banking--Currently foreign banks are not permitted to do
local currency business with Chinese clients, and only a few
can engage in local currency business with their foreign
clients. China also imposes severe geographic restrictions on
the establishment of foreign banks. With this agreement, China
commits to full market access in five years for U.S. banks.
China will allow internal branching and provide national
treatment for all newly permitted activities. It will also
allow auto financing on accession, and allow local currency
business with Chinese enterprises starting two years after
accession, and allow local currency business with Chinese
individuals from five years after accession. Both geographic
and customer restrictions will be removed in five years.
Securities--China will permit minority foreign owned joint
ventures to engage in fund management on the same terms as
Chinese firms. Minority joint ventures will be allowed to
underwrite domestic equity issues and underwrite and trade
other securities (debt and equity). As the scope of business
expands for Chinese firms, foreign joint venture securities
companies will enjoy the same expansion in scope of business.
China has also agreed to hold regular consultations with the
U.S. Treasury Department under the auspices of our Joint
Economic Commission with China. The purpose of this is to
exchange information and assist the development of China's
financial and capital market.
Telecommunications--China now prohibits foreign investment
in telecommunications. With WTO accession, it will join the
Basic Telecommunications Agreement, implementing regulatory
principles including interconnection rights and regulatory
rules. It will end geographic restrictions for paging and
value-added services within two years, mobile and cellular
within five years, and domestic wireline and closed user groups
in six. It will also end its ban on foreign direct investment
in telecommunications services, allowing 49% foreign investment
in all services and 50% foreign ownership for value added and
paging services in two years.
Audiovisual--China does not now allow foreign participation
in distribution of sound recordings. Under the agreement, China
will allow 49% foreign equity for the distribution of video and
sound recordings, majority ownership in three years for
construction and ownership and operation of cinemas. China has
also agreed to allow the importation of 20 films per year on a
revenue-sharing basis.
Other--Also covered is a broad range of other services--
architecture, engineering, accounting, legal, travel and
tourism, computer and business services, environmental
services, franchising, express delivery and many more. In each,
China has made specific, enforceable commitments that open
markets and offer competitive American industries important new
opportunities.
5. Protocol Issues
Finally, our bilateral agreement deals, appropriately, with
the special and unusual characteristics of the Chinese economy.
These include the high degree of state participation in the
Chinese economy; a series of industrial policy measures
intended to draw jobs and technology from the U.S. and other
trading partners to China, such as local content, offset and
export performance requirements as well as forced technology
transfer; and special measures to address import surges from
China and unfair export practices like dumping.
Altogether, no agreement on WTO accession has ever
contained stronger measures to strengthen guarantees of fair
trade and to address practices that distort trade and
investment. China's major commitments in this regard include:
Import Surge Protection--China agrees to a twelve-year
product-specific safeguard provision, which ensures that the
U.S. can take effective action in case of increased imports
from China which cause market disruption in the United States.
This applies to all industries, permits us to act based on the
lowest showing of injury, and act specifically against imports
from China.
Non-Market Economy Dumping Methodology--China's WTO entry
will guarantee our right to continue using our current ``non-
market economy'' methodology in anti-dumping cases for fifteen
years after China's accession to the WTO.
Subsidies--Likewise, when we apply our countervailing duty
law to China, we will be able to take the special
characteristics of China's economy into account. Specifically,
where government benefits are provided to an industry sector
and state-owned enterprises are the predominant recipients or
receive a disproportionate share of those benefits, the United
States could take action under our unfair trade laws. The
agreement also establishes that the U.S. can determine whether
government benefits, such as equity infusions or soft loans,
have been provided to an industry using market-based criteria
rather than Chinese government benchmarks.
Investment Reforms--China will reform a large number of
policies intended to draw jobs and technology away from China's
trading partners. It will, for example, implement the WTO's
Agreement on Trade-Related Investment Measures agreement on
accession; eliminate mandated offsets, local content and export
performance requirements and refuse to enforce contracts
containing these requirements; and not condition investment
licenses on performance requirements of any kind. All of this
will make it significantly easier for Americans to export to
China from home, rather than seeing companies forced to set up
in China in order to sell products there.
Technology Transfer--China will abolish requirements for
technology transfer for U.S. companies to export or invest in
China. This will better protect our competitiveness and the
results of U.S. research and development.
State-Owned and State-Invested Companies--China commits
that state trading companies and state-invested enterprises
will make purchases and sales solely on commercial terms,
specify that purchases by these companies are not government
procurements and thus are not subject to any special or
different rules that could undercut the basic commitment, and
provide U.S. firms the opportunity to compete for sales and
purchases on non-discriminatory terms and conditions.
Textiles--Under our agreement, quotas will remain in effect
for Chinese textiles as for those of other WTO members until
2005. From then until January of 2009, we will have a special
safeguard enabling us to address market-disrupting import
surges from China in the textile sector. This is in addition to
the broader product-specific safeguard noted above.
CASE STUDY: THE AUTO INDUSTRY
To illustrate more clearly the cumulative effect of these
commitments, let me offer a case study of the present situation
and the changes WTO accession will make for the automobile
industry.
At present, a combination of trade barriers and industrial
policies adopted to draw auto investment to China makes it
virtually impossible to export cars to China. Typically, we
export about 600 cars a year to China, many of them used; last
year, the figure was likely below 400. This is far less than a
single average U.S. auto dealership sells in a year, and fewer
than the 688 motorized golf-carts we sold to China from January
to November 1999. Our bilateral agreement addresses the
policies which have limited our export capability as follows:
--We reduce barriers at the border: cutting tariffs from
80-100% today to 25% in 2006; forbidding discriminatory value-
added taxes; and raising the current virtually prohibitive
quota to $6 billion worth of autos and then eliminating it
entirely within five years.
--We commit China to open its distribution markets and
grant trading rights, ensuring that firms and dealerships in
China can import autos directly from the United States, and
that Americans can move their products freely within China to
the areas of greatest demand.
--We open up services essential to auto sales: China will
let auto firms provide financing, set up dealerships, advertise
their products, provide repair and maintenance, and import
parts.
--We abolish certain industrial policies intended to draw
auto jobs, investment and technology to China: China will
abandon requirements that require firms to set up factories in
China in order to sell in China, and abolish local purchase
requirements and forced technology transfer.
--We strengthen our guarantees that auto production and
jobs in the United States will be secure. On the import side,
we include in the agreement a ``product-specific safeguard''
available to all industries for 12 years--in this case, a
guarantee that if auto imports from China should rise so as to
cause market disruption, we can impose emergency limits; and a
guarantee we will be able to employ special ``non-market
economy'' methods of calculating and counteracting dumping for
fifteen years.
--And we have enforcement mechanisms for all of these
separate and overlapping commitments. This includes our own
American trade laws and the WTO's dispute settlement mechanism.
Thus, we in essence have a comprehensive agreement on
automobile trade; and we match it, although specific features
differ, in every industry of significant concern to the U.S.
economy.
ENFORCEMENT
Of course, trade commitments require full implementation
and enforcement to be meaningful in practice. Our previous
successes in improving intellectual property rights and
enforcing textile commitments demonstrate how crucial constant
oversight, monitoring, and strict enforcement are in the case
of China, and our trading partners in general. And with China's
WTO membership, we will gain a number of advantages in
enforcement we do not now enjoy.
First is the WTO dispute mechanism itself. In no previous
agreement has China agreed to subject its decisions to
impartial review, judgment and ultimately imposition of
sanctions if necessary.
Second, of course, is our continued right to use the full
range of American trade laws, including Section 301, Special
301, and our countervailing duty and anti-dumping laws.
Third, we gain substantial new leverage by creating the
product-specific safeguard, as well as guaranteeing our right
to use non-market economy antidumping methodologies. These
features of the accession will significantly strengthen our
ability to ensure fair trading practices.
Fourth, and very significant, we strengthen our enforcement
capabilities through the multilateral nature of the WTO. The
accession, to begin with, will create a multilateral review
mechanism to monitor all of China's implementation closely. And
as these commitments come into effect, China will be subject to
enforcement by all 135 WTO members, significantly diminishing
China's ability to play its trading partners off against one
another. In all previous disputes over Chinese compliance with
agreements, notably those over intellectual property, the
United States had to act alone. With China in the WTO, we will
be able to work with 134 other members, many of whom will be
concerned about the same issues we raise and all of whom will
have the legal right to enforce China's commitments.
Fifth, the specificity of China's commitments in this
bilateral agreement will help us ensure that China complies.
Experience shows that agreements with China are enforced most
satisfactorily when obligations are concrete, specific, and
open to monitoring. Our bilateral agreement therefore includes
highly specific commitments in all areas, clear time-tables for
implementation, and firm end-dates for full compliance. These
allow us carefully to monitor China's compliance and present
clear evidence of failure to comply.
Finally, however, enforcement as in any agreement depends
on U.S. commitment. We are already preparing for the monitoring
and enforcement effort this will require through President
Clinton's request for new enforcement and compliance resources
at the USTR, the Commerce Department, USDA and other branches
of government with enforcement responsibilities. The President
is requesting resources for the largest monitoring and
enforcement effort for any agreement ever, covering China's
obligations in the WTO and also import administration issues
such as dumping and countervailing duties.
NEXT STEPS
As comprehensive as this bilateral agreement is, China's
work to join the WTO is not yet done.
First, it must reach bilateral market access agreements
with other WTO members. While it has finished such agreements
with approximately 15 WTO members including Japan, Brazil,
Canada and other major trading partners, it must still complete
talks with the EU, India, Mexico and others. China must also
complete a multilateral negotiation at the WTO, principally
covering commitments on a range of WTO rules. Each of these
steps is proceeding, and upon completion, should strengthen the
already very strong accession agreement we negotiated.
PERMANENT NORMAL TRADE RELATIONS
By contrast to this comprehensive set of enforceable one-
way concessions on China's part, the U.S. commitment is merely
to continue our present policies. Thus, the U.S.:
--Makes no changes in our current market access policies.
--Preserves our right to withdraw market access for China
in the event of a national security emergency.
--Requires no changes in our laws controlling the export of
sensitive technology.
--Amends none of our fair trade laws.
But we do have one obligation: we must grant China
permanent NTR or risk losing the full benefits of the agreement
we negotiated, including broad market access, special import
protections, and rights to enforce China's commitments through
WTO dispute settlement.
This is, in terms of our policy toward China, no real
change. NTR is simply the tariff status we have given China
since normalization of diplomatic relations in 1979; which
Congress has reviewed every year since, and found to be in our
fundamental national interest. Thus permanent NTR represents
little real change in practice. But the legislative grant of
permanent NTR is critical. All WTO members, including
ourselves, pledge to give one another permanent NTR to enjoy
the benefits available in one another's markets. If Congress
were to refuse to grant permanent NTR, our Asian, Latin,
Canadian and European competitors will reap these benefits but
American farmers and businesses may well be left behind.
WTO ACCESSION AND AMERICAN STRATEGIC INTERESTS
From the perspective of trade policy, then, this choice is
absolutely clear. China offers a set of one-way, enforceable
trade concessions. In return, we are asked only to confirm the
normal trade status we already grant to China; and if we do
not, we run a substantial risk of permanently disadvantaging
hundreds of American industries and their American workers.
From the perspective of reform and liberalization in China,
the choice is equally clear. As it implements these
commitments, China will become a country which is more open to
the world, whose people enjoy more choices in daily life and
more contacts with the outside world, and whose government in a
number of important fields is more responsive to the rule of
law than it is today.
But we must also look to a still deeper issue. China is the
world's largest country, and over the past decade the world's
fastest-growing major economy. The future course of our
relationship will have great bearing on American security and
strategy in the 21st century, and in this regard WTO accession
offers us a great deal.
Our relationship with China today is free neither of deep-
seated policy disagreements nor moments of tension. These are
perhaps natural: we are great Pacific powers, and our
governments reflect vastly different political systems and
values. Such a relationship, however, poses profound questions
for future peace and stability across much of the earth.
We should not, of course, imagine that a trade agreement
will cure all our disagreements. Rather, as the President has
said, when we disagree with China we must act with candor and a
firm assertion of our interests and values. But as we do so, we
must also recognize how important a stable and peaceful
relationship with China is--for the world, the Chinese, and
ourselves. And thus we have a fundamental responsibility to
find and act upon areas of shared interest and benefit.
We saw this responsibility clearly, and acted upon it, in
the Asian financial crisis two years ago. We see it in the
maintenance of peace on the Korean peninsula; the search for
stability in the Taiwan Strait; the environmental problems of
the Asia-Pacific. And we have seen it in trade for over a
quarter century.
American trade initiatives in China stretch from the end of
the trade embargo in 1972 through our Commercial Agreement; the
renewal of NTR for the past 20 years; more specific trade
agreements in the 1980s; our support for China's participation
in APEC; and the market access, textile and intellectual
property rights agreements of the 1990s. Each step had a
foundation in concrete American interests; but each also helped
to promote reform and the rule of law within China, integrate
China in the Pacific economy, and strengthen China's stake in
prosperity and stability throughout Asia.
As such, together with our network of alliances and
military commitments, trade policy has helped to strengthen
guarantees of peace and security for us and for the world. And
China's WTO accession will be the most significant step in this
process for many years.
CONCLUSION
That is the fundamental meaning of this WTO accession.
It will create a new and fundamentally reformed trade
relationship with the world's fastest-growing major economy,
which offers practical, concrete benefits to cities and rural
areas throughout America: stronger guarantees of fairness for
our working people, farmers and businesses; new export
opportunities that mean jobs and growth for Americans.
It will promote deeper and swifter reform within China,
strengthening the rule of law and offering new opportunities
and hope for a better life to hundreds of millions of Chinese.
And it will offer the prospect of a relationship with the
world's largest nation which may have moments of tension and
volatility, but in which we also act to find common ground and
strengthen hopes for peace.
That is the opportunity before us; and it is one our
country must not miss. I thus ask for the Committee's support
as we seek permanent normal trade relations with China and its
accession to the World Trade Organization.
Thank you, Mr. Chairman and Members of the Committee.
Chairman Archer. Thank you, Ambassador Barshefsky. My
questions will be very brief. First, what options are available
to the Congress on this issue?
Ambassador Barshefsky. I don't see any options available to
Congress on this issue. We must grant permanent NTR to China in
order to have a WTO relationship with China and in order to
guarantee that we will receive the benefits of the agreement we
negotiated.
Chairman Archer. Do we have the ability to vary the
agreement that you have negotiated?
Ambassador Barshefsky. The bilateral agreement that we have
with China is final. There are additional countries, however,
that are still in negotiation with China.
Chairman Archer. I understand. But if the Congress made any
effort to change the terms of the agreement, what would happen?
Ambassador Barshefsky. I think that potentially presents us
with a serious situation. China has every reason to believe our
negotiation with them is final. We consulted very closely over
the past 7 years with industry, with Congress, with respect to
this agreement. There are some areas in the agreement, I will
use an example of fertilizer, where we would like to get a
little bit more. We know, for example, Europe is asking for
more. Any add-on to our agreement that any other country gets,
we will also get the benefit of, and we, of course, will
continue to work with China bilaterally to the extent members
indicate to us there are any particular deficiencies they would
like us to work on.
Chairman Archer. If we do not approve permanent NTR for
China, what would be the result?
Ambassador Barshefsky. First of all, we will have opened
the Chinese market for the rest of the world because China will
still enter the WTO, but we will not be able to have the full
benefits of what we negotiated.
Second of all, I think in terms of U.S./China relations,
that outcome would be exceptionally, exceptionally damaging.
Can you imagine for 13 years this negotiation has been going
on--actually 14 years now--for 14 years the United States has
asked China to do what they are willing to do now. Can you
imagine the effect on relations were they to say, yes, and we
say, no? I think this would be quite devastating to U.S./China
relations.
And, last, what would it do to our leverage on any other
issue in China? Human rights? Nonproliferation? Cooperation on
environmental related issues? What is the effect of the United
States turning away at this most critical juncture on our
ability to influence Chinese practices in a range of other
areas of fundamental concern to the United States. I think a
failure by Congress to grant permanent normal trade relations
would be of the utmost seriousness.
Chairman Archer. As our chief trade negotiator you share
with us concern about the trade deficits with China?
Ambassador Barshefsky. Yes.
Chairman Archer. If we fail to approve permanent NTR for
China, what would occur to our trade deficits?
Ambassador Barshefsky. We know from an ITC study, which
didn't take into account a number of factors in the agreement,
and from the CBO study that we are likely to see an important
increase in our exports to China. We also know from the ITC--
Chairman Archer. No, no. If we fail to approve NTR?
Ambassador Barshefsky. If we fail to, I have grave concerns
about our future export performance to China. I think that this
would undoubtedly increase the trade deficit without any
possible offset.
Chairman Archer. Well, it is clear to me in the most simple
logic that if China's trade barriers stay high against our
exports and are reduced for the exports from other countries in
the world, our trade deficit with China will increase.
Ambassador Barshefsky. Correct. That is what we believe.
Chairman Archer. There is no way that it can be reduced.
Ambassador Barshefsky. That is what we would expect.
Chairman Archer. And that is important to understand
because some of the opponents of this express concern about the
trade deficit as the reason for not giving permanent trade
relations with China and--
Ambassador Barshefsky. The reasoning is exactly the
reverse.
Chairman Archer. Thank you very much.
Again, thank you for appearing before us.
Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman.
This is really one of the most sensitive and, yet, historic
periods that I have ever been involved in. If we had hearings
in Manhattan and I stayed down below 42nd Street, everyone
would say why did it take so long to open up those markets in
China? The investment bankers, the insurance industries, the
whole financial districts they can see a billion people and all
they see is opportunity, the creation of more jobs, the
transfer of technology. And it is so exciting that on our watch
that we would be able to say that we were a part of doing this
and bringing them into a family so that we can provide some
oversight.
Then you get above 42nd Street, where people are working in
the factories, and they ask questions like, how many millions
of people work in China in State-owned and State-invested
enterprises? And some would say, millions. And they say, and
are these basically smart people or people that can learn fast?
You bet your life they can. And even if they couldn't, don't we
have the technology in terms of making things to teach them how
to do it? You bet your life we do.
Well, how do you explain that if we went over there and
taught them how to make automobiles, motorcycles, telephones,
computers, and our American entrepreneurs don't have to deal
with minimum wage and health control and environmental
conditions and standards at the work force, would it not make a
heck of a lot of sense to have these things made by competent
workers in China at a dollar a day than $20 an hour some place
in Detroit or New York, if you know you are going to get
quality?
And what is it that would prevent a person that is
concerned about getting a good return on the stock investment
and saying, given the options, China looks pretty good. How
would you answer that, Ambassador?
Ambassador Barshefsky. I would answer it by referring to, I
think, a central point. This is a series of one-way, market-
opening, trade concessions by China. There is no effect on
imports into the U.S. because of this agreement. That is to say
we are not altering our trade regime one iota. The whole focus
of this agreement is on our ability to export from the United
States to China. We did not alter Chinese investment rules to
make it massively easier to invest in China. That is not the
purpose of this agreement. The purpose is job creation in the
U.S., the increase in our export opportunities from the U.S. It
is one of the reasons, Congressman, that we focus so heavily on
trading rights, on the right to distribution, because we need
to get our products out of the United States and over there
from the United States. And the entire agreement, from soup to
nuts, is geared toward that end.
The one change we did make on the investment side which I
think is very important and goes to the same question you have
asked is that we don't want the Chinese to be able to have a
system that drains jobs or technology from the United States as
a condition of doing business in China or as a condition of
importing into China or as a condition of investing in China if
companies want to invest.
So, forced technology transfer will be prohibited. Local
content requirements in China prohibited. You don't have to set
up shop in China to sell into China.
Mr. Rangel. Okay. I understand that we are expanding our
markets in China and that is what the agreement is about. But
in terms of protecting our workers about things that they do in
China, how does that relate to the agreement with the
ridiculous hypothetical that I set up where near-to-nothing
wages--I mean I visited some of those State factories and they
look pretty good to me in terms of the work being produced. Of
course, the conditions in which they were working and the wages
that they were receiving did not compare to the United States.
And, so, if people are concerned that it is possible, with
hundreds of millions of people working in China, that all of
the jobs that we have in the United States could just be sucked
into China because they could produce a comparable product--I
am not talking about the high-tech stuff--at a cost that was
minuscule compared to what it is here. And I am just trying to
ask you how I can explain above 42nd Street why this is such a
good deal?
I mean I can see why it would be best to support permanent
trade relationship, I can see why we would want them in the WTO
so we can monitor them. I could see why progress causes some
pain and this is the adjustment you have to make and balance
the more jobs you get then you lose. But when I hear members
and people saying this is win-win-win, nobody loses, then I
just want you to give me that winning argument for the factory
workers and say, hey, you win, too. Now, how do they win?
Ambassador Barshefsky. As I have said--and I will answer
your full question--factory workers win because they will be
able to export products to China they can't export now and have
never been able to since 1949.
Mr. Rangel. Why would China want to import products that
they can make for a fraction of the cost?
Ambassador Barshefsky. Oh. Because many of their--because
their State-owned enterprises, by and large, are loss-making.
They are not modern. The quality produced is not good.
Mr. Rangel. That is good. Now, if I run the U.S. Widget
Company and I visit China and I find out that these millions of
people are not that good but they are hard-working and they are
ready to put in 15 hours a day, and I bring in my scientists
and my technicians from MIT and I say, look, you know, pretty
much we do in economic depressed areas in the United States and
I say, hey, these people need--like you do in the Army--these
people need some training, and they need some technology; can
you bring--like you do in other developed--can you bring them
up? And they say, yes, we can do it.
And I see all of these millions of people just doing what
we do here in the United States, maybe not as well. But you say
this is no threat at all.
Ambassador Barshefsky. I don't think a weak China, I don't
think a China in which per capita GDP is $600 a year is in our
interest. I don't think it has ever been U.S. policy to keep
poor countries poor or to stop them from developing the
industries that they need. Our policy, instead, has been a much
more mutually supportive policy; one which promotes prosperity.
They will be better countries as they gain on the income scale;
not if they stay where they are and certainly not if they fall
on the income scale.
Mr. Rangel. Well, that is my point. We would encourage
investment there, we would encourage the transfer of
technology, we would encourage productivity so that they would
have more disposable income so that they could buy more U.S.
exports.
Ambassador Barshefsky. But this agreement does not
encourage additional investment in China.
Mr. Rangel. But I mean it doesn't stop it.
Ambassador Barshefsky. It certainly doesn't stop it but I
don't think it is U.S. policy to stop private companies from
investing in other countries.
Mr. Rangel. Okay. I just asked for an answer to see how I
could tell the American workers that you are winners in this,
too. I think the way I had looked at it that there are winners
and there are losers. And on balance, I thought you would say
that there are far more winners in the long run, especially
since we cannot control the free market place. But if you are
saying that we should tell our labor leaders that they should
look for expanded membership because this is going to be a big
boom for them and that they ought to tell their kids to get out
and learn trade unionism because it is coming back like never
before, then I will try that. [Laughter.]
Ambassador Barshefsky. If I may say, just to reemphasize,
this agreement is geared towards exports from the U.S. Let me
use the auto sector as an example. Right now you can barely
export any cars from the U.S. to China at all. Some snow
mobiles, a couple of hundred cars, mainly used cars. That is
it. Why? Because you have no right to export to China. That
will be removed. You have high tariffs, 80-to-100 percent; that
will go down to 25. The Asian average is 40. You can't then set
up a dealership; you will be able to now. You can't distribute
your product; you will be able to now. You can't service the
product; you would be able to now.
Mr. Rangel. If they were operating in good faith, and they
are opening up their markets to us because they think it would
make sense, why would we have to deal with the WTO? Why
couldn't we have a bilateral agreement and let them buy the
cars?
Ambassador Barshefsky. Because China won't make--we are
talking about concessions across the entirety of the Chinese
economy.
Mr. Rangel. My side said we didn't give up anything to
China, we were win-win-win. We didn't give them anything. They
want to buy cars, they want to open up their markets and we
agreed with them and they just gave us everything we wanted.
Why do we have to be involved with the WTO? Why is the Congress
involved? Let the free market place work its will. Open up your
markets and buy what we got.
Ambassador Barshefsky. I would hope your argument isn't
that a rules-based trading system is of no value to the United
States because that is a proposition I couldn't possibly
accept. It is all the more important that China be bound by a
system of rules which are enforceable and which are monitored
by the countries of the world so it doesn't just fall on the
United States to try and make its way as best it can with
China.
I think it is very important, if we believe in economic
reform for China, if we believe in advancing a rule of law in
China, if we believe that China ought to be under some degree
of multilateral surveillance with respect to economic reform,
if we believe that there may be a positive spillover effects
from economic reform to reform in other fields, surely we want
China in the WTO bound by a set of enforceable rules.
I don't know how else one would go about trying to
encourage reform in China and at the same time trying to
advance our own fundamental interests, both economic as well as
human rights related.
Chairman Archer. Succinctly, compared to current law, which
is the only comparison we can really make--
Ambassador Barshefsky. Yes.
Chairman Archer.--there will be no losers in the U.S.?
Ambassador Barshefsky. Correct.
Chairman Archer. Mr. Crane?
Mr. Crane. Thank you, Mr. Chairman.
And, again, congratulations, Ambassador, you have done a
remarkable job as usual. I would like to remind our
distinguished colleague from New York that for all those people
north of 42nd Street, remind them that if we don't lower these
barriers there are great opportunities to open up business in
China and shut them down in New York City. And, in fact, we
have already suffered that in some instances because of the
artificial barriers to trade. And I would remind our Chairman,
too, that one of the big concerns--and we have heard some of it
expressed by witnesses already--is a huge surge in U.S. imports
and it is the Great Wall of China for the descendants of Smoot
& Hawley to put around the United States to prevent goods from
coming in.
I want to touch upon one issue that you mentioned earlier
and that has to do with the fertilizer sector and it is one of
the areas where I have got a parochial interest in my district
because we have one of the large fertilizer producers. But that
is our fourth largest export to China and it is over $1 billion
a year right now as I understand it.
Ambassador Barshefsky. Yes.
Mr. Crane. But we didn't get significant opportunities to
make further progress here. Have you got any update on that and
what the future may hold?
Ambassador Barshefsky. Well, we made good progress in
reducing fertilizer tariffs, lifting bans and full rights to
distribution over time. Where we have run into a problem is
with respect to trading rights on fertilizer. That is a serious
problem. I have talked about it to Zhu Rongji as well as others
in the Chinese leadership. China has agreed to try and work
this out with us and we are in the process of attempting to do
just that.
Mr. Crane. And the second question is in Section 1106 of
the Omnibus Trade and Competitiveness Act of 1988, that
requires the President to make certain determinations about
China's State trading enterprises before they accede to the WTO
including whether China's State trading enterprises are
adversely affecting U.S. foreign trade. And at what point in
the WTO negotiations with China will the President make a
determination on that issue?
Ambassador Barshefsky. Well, we have spent a considerable
amount of time on the State trading enterprise issue and there
will be further work on that done in Geneva. We have firm
commitments from China with respect to the manner in which
State trading enterprises will conduct their business, that is
to say on commercial terms. But we have expanded the definition
of State enterprise to include not only State trading
enterprises, not only State-owned enterprises but, most
importantly, State-invested enterprises.
So, that we have within the rules any form of State
involvement in enterprises which make goods or which provide
services. So, we will be making determinations on this in the
course as we proceed with the accession but we feel quite
comfortable in the way in which we are now able to handle much
better the State enterprise issue.
Mr. Crane. And my final question is--and we have it here in
the United States, too, divisions between those who support
expanding free trade and those who are opposed to it--but I
understand there are also disagreements within China proper
between reformers and nonreformers. And do you expect China to
have any difficulty in ratifying the WTO accession from within
their own ranks?
Ambassador Barshefsky. I would not expect any difficulty. I
think the fundamental decision to join the WTO has been made as
evidenced by China's agreement bilaterally with the United
States. But I would make this point and it really goes to the
question that Chairman Archer asked about the effect if PNTR
were not granted to China and that is this: There is clearly
still a leadership split in China. The majority favors economic
reform but there is, as you know, a strong minority which views
things quite differently.
We should do nothing that would strengthen the hands of the
hardliners in China, those who would rather see the population
cut off, more isolated. We should do everything we can to
strengthen the hands of the reformers in China who want to see
China modernize at a more rapid rate, providing not only
opportunity for us but much greater opportunity for the Chinese
people. And it is because that leadership split still exists
that PNTR becomes all the more important.
Mr. Crane. Now, we, as you know, have some of those same
divisions in our own ranks but we thank you for the outstanding
work that you have done, keep up.
Ambassador Barshefsky. Thank you.
Chairman Archer. Mr. Thomas?
Mr. Thomas. Thank you, Mr. Chairman.
I want to start by thanking our colleague Sandy Levin for
the very thoughtful statement that he has presented. Rarely do
we get specific, concrete proposals; rather we get general and
vague feelings, and I appreciate the specificity with which he
outlined his concerns.
I want to strongly support the first proposition. I
wouldn't ordinarily say this is something that would be useful
or necessary but in our ongoing need to bring China into the
rest of the world, this approach I think, if done correctly,
should be seen as a very positive review structure rather than
a negative one, and I think it is definitely worth pursuing.
On his second point about annual review, maybe it is too
difficult to change the structure. That does spotlight them.
But clearly if we can put it into the normal review process or
some nonextraordinary but not annual review process that might
be useful.
Again, also on the third point, I don't know that moving in
that direction right now creates the atmosphere that I think we
need. But I want to strongly support you on your fourth and
fifth point.
When democracies and Democrats, small ``d'', within those
democracies discuss labor, I think it is an entirely
appropriate process to say, do we want to export our labor
laws, our price structure to another country that maybe is
bootstrapping it if it is a fundamental democracy and they want
to invest and use what they have as an advantage which is cheap
labor and that they don't always want to be in that position,
they want to advance themselves.
But I want to underscore the fact that I don't think any of
us should be opposed to reviewing the world's largest nonmarket
economy's emergence into a market world and not get them to
understand that this is of critical concern. And that, both in
point four and five, China must show transparency. And the
documents, which is the fifth point, have to be governed by
transparency.
Someone told me the other day, well, at worst it is simply
going to be another European Union in the WTO. We don't need
another EU. Or, more specifically, it is just going to be
another France. We don't need another France. And if a little
earlier behavioral training can stop that from occurring,
especially as we begin to move in the area of intellectual
property rights where you get into cultural content and the
rest, it would certainly serve all of us to create these
monitoring, reporting, supportive and instructional aspects of
Sandy's proposal. And I want to thank you for that, Sandy.
As to my friend from New York. I enjoy listening to your
concern about above 42nd Street and below 42nd Street. West of
the Hudson there is a fairly large country.
[Laughter.]
Mr. Thomas. And I enjoy these discussions about what China
is going to do next, i.e., start importing cars and drive the
automobile market from the United States. I just want to remind
my friends that the United States is the cheapest country in
the world where you can drink water from a faucet in building
cars. Why else is Mercedes building SUVs here, why else is BMW
building SAV, a sports activity vehicle? When you look at
comparative magazines and look, say, for example, at the
product from Korea in the automotive business which is getting
better--originally they were using old patented copies of
Japanese products--it is always they are getting better but
they haven't met the Japanese standard. When, in fact, most
people don't realize that the Toyota Camry or the Honda Accord,
which is the Japanese standard, are manufactured in the United
States. So, it is the United States notwithstanding the
engineering and approach to production that the Japanese have
brought--which Americans have to a certain extent copied, which
is a word that is often used in the other direction--to produce
better products ourselves.
And then the last thing is a question to you, Ms.
Ambassador. I appreciate the work that you have done. I have
marveled at your willingness to stay with it, notwithstanding
the slings and arrows of everybody's outrageous fortune towards
you including those people who are supposed to be most
supportive of you. You said last week that in terms of the
Seattle situation the President made some off-the-cuff remarks.
We are in the eighth year of the Clinton Administration, the
last year. You placed an extraordinary importance on the
passage of this legislation. I agree with you. It is my hope
that we won't be hearing off-the-cuff remarks from the
President, that he be scripted as best you or whoever it is
that is going to advise him scripts him on what he says. But
more importantly it is what he does.
If he says it is up to the business community and others to
deliver Democratic votes on this issue, he hasn't been in my
opinion well scripted. If the President and the Vice President,
in fact, want this passed they are going to have to roll up
their sleeves and help deliver the Democrat votes.
We will do the best we can on our side. But it requires
everyone not passing the buck to someone else but everyone,
including the President and the Vice President, working as hard
as they can to deliver the vote, in my opinion, as soon as we
can. Time is our enemy and things happen that we don't
anticipate but that it is everyone's responsibility who wants
to see a better, more ordered world trading structure that
includes China, to get to work.
And my only message to you is I hope you can carry that
message to him: No unscripted remarks and really hard work from
the President and the Vice President in delivering the votes
necessary to pass.
Ambassador Barshefsky. If I might respond and you can
imagine that I would want to. I think the President has shown,
not only during the course of his Presidency but in his
campaign before he ever became President, a consistency of
purpose, a consistency of philosophy that really, particularly
on international economic matters, that I believe is unmatched
by any other President. I think the notion of the President
needing to be scripted, there aren't enough IQ points in this
room cumulatively to script the President. He knows where he
wants to go on these issues. On occasion, as he has said,
himself, he says some things that perhaps didn't come out quite
right. But I think that there is no question about his absolute
dedication to the international economic issues, his leadership
on those issues, his vision, his philosophy with respect to not
only trade issues but also with respect to what he views as
important additional components, whether labor rights,
environmental or other issues.
I think also it will be necessary that a comprehensive
effort is put forward to pass permanent NTR and certainly, and
I agree with you on this, this will involve all elements of
those who support PNTR: The Administration, led by the
President, and he is very clearly doing that already; the
business community, members of Congress, so on and so forth.
And I think that kind of comprehensive effort will bring
about a permanent normal trade relations for China.
Mr. Thomas. The past is prologue, words are cheap, we have
a very short time.
Thank you.
Mr. Crane [presiding]. Mr. Levin.
Does the gentleman want to yield to Mr. Matsui first?
Mr. Levin. Aren't you following--I do believe in seniority
now that I am number five on this side.
Mr. Crane. No. The only reason I called upon you, Mr.
Levin, was that you were here in the committee room before Mr.
Matsui. So, I am sorry, Mr. Matsui, we will yield to you first.
Mr. Levin. Okay. Please, go ahead.
Mr. Matsui. Thank you, Mr. Chairman.
I appreciate your yielding to me. First, I want to thank
Ambassador Barshefsky for being here today and congratulate her
on the tremendous agreement that she reached last November with
respect to the Chinese. I think it was far-reaching, I think it
was comprehensive and it certainly was one that I think the
entire country did not expect. It was much greater than anybody
could have imagined and I think it was due to your, obviously,
perseverance, but negotiating skills and we really appreciate
it very much.
I would like to associate myself only with the comments of
Mr. Thomas as it pertains to Mr. Levin, not with respect to Mr.
Rangel or the President. I think Mr. Levin's opening statement
and the five points that he raised really are things that we
need to look at. I think it is very comprehensive, it doesn't
touch upon the basic agreement, it doesn't require going back
to the Chinese and renegotiating and it is one that I think a
broad spectrum of members on both sides of the aisle would
really appreciate if we can find some way to approach this
issue with respect to incorporating some of the principles that
he stated in his opening statement. I want to thank you and I
think the thoughtful approach that you put to this has actually
helped further this debate and I want to tell you that I
associate myself with what you have done and what Mr. Thomas
said about your comments.
I would like to just make one observation and that is a lot
of members and certainly the American public does not know what
we are going to be voting on if the Europeans complete the
agreement with the Chinese and the other countries eventually,
too, and then we do the protocol and China is finally admitted
into the WTO. I think we need to really spend a moment on that
and other moments as well, beyond the committee room.
Ambassador, if you could help me; what exactly are we going
to be voting on and if we turn down the vote, that is the
waiver of the Jackson-Vanik on a permanent basis with respect
to China, what are the consequences of that in terms of the
Europeans, the Japanese, the Brazilians and others with respect
to the Chinese market and our ability to compete in the Chinese
market?
Ambassador Barshefsky. Members of Congress are not voting
on China's accession to the WTO. That is within the President's
prerogative after all the WTO requirements have been met. What
Congress will be voting on is providing permanent normal trade
status for China. PNTR is critical because without it we do not
have a WTO relationship with a country that accedes. A WTO
relationship in this instance would guarantee that we would
have the full benefits of the agreement that we negotiated.
Without that guarantee we run a very substantial risk, as I
said, that we would have opened China to our Japanese
competitors, European, Latin American, African competitors but
not be able to take full advantage of what we, ourselves,
negotiated in terms of market opening in China. This is acutely
the case with respect to the full range of service sectors,
with respect to trading rights and distribution rights, with
respect to all of the special safeguard provisions we have
negotiated on import surges, dumping, tech transfer and so on,
and with respect to dispute settlement. Every one of those
market opening and market protective initiatives would be cast
in very substantial doubt. Available to everyone else in the
world, but quite possibly and quite probably not available to
us.
Mr. Matsui. In terms of the amount of growth China will
have over the next decade I have heard a trillion worth of
infrastructure. They will probably have to build every year the
equivalent of a one Pacific Telesys unit in terms of just
trying to get the consumers to have, instead of currently maybe
two telephones in every home, five or six. Could you tell me
what the perspective is on China's growth and if we are not in
there what will happen with respect to the French and Germans
and others?
Ambassador Barshefsky. I can't give you precise numbers. I
see numbers all over the lot. But what we do know is that
China's rate of economic growth is among the strongest in the
world. Their infrastructure needs are among the highest in the
world. And the opportunities for us certainly over a number of
years amount in the trillions of dollars. These are not small
sums of money. These are massive sums of goods, services,
investment, agricultural products, which China will need over
time.
I think the CRS study, if memory serves, has indicated that
under the agreement we would, in effect, see our exports to
China almost double in the next five years. I think that is a
preliminary indication of the range of opportunity that would
be available to U.S. exporters over a very short period of
time.
Mr. Matsui. May I bring one specific issue up and that is
UPS. UPS has been trying to get into the China market for years
now.
Ambassador Barshefsky. Right.
Mr. Matsui. In fact, many of us on this committee and
others have written letters seeking opening the Chinese market
to United Parcel Service, UPS. Now, how does that create U.S.
jobs and how does that actually increase perhaps the membership
of the Teamsters Union?
Because my thinking on this is that if I have a package and
I want to send it to China somebody has to pick that package
up. And I would imagine if we have doubling or tripling of that
over the next ten years, that means doubling or tripling UPS
employees, thereby, doubling and tripling membership in the
Teamsters Union.
And it would seem to me that it would be in the interest of
the employees and the management and the country, at large, if,
in fact, we promoted growth and more employment and perhaps
stronger unions, as well.
Ambassador Barshefsky. Well, I don't disagree with anything
you have just said. Express delivery service are among the
services that will be further substantially opened upon
accession. That includes, of course, for example, UPS, as you
have indicated. And certainly enhancing opportunities for
express delivery in China and around the world necessarily
enhances the opportunities for those workers who would be
employed in picking up packages, sorting, all of the attendant
jobs related to transport services.
Mr. Matsui. Thank you very much.
Mr. Crane. Mrs. Johnson.
Mrs. Johnson. Thank you.
Ambassador, first, let me congratulate you and your team
for negotiating a truly remarkable agreement both for its
comprehensiveness and for its strength. And let me also
congratulate your Chinese counterparts because it took great
courage on their part to negotiate an agreement that will
immediately expose their market to an influx of goods from
around the world, not just from America, and that will have
some dislocating effects, without question. But it also
reflects great faith on their part that their people will be
able to be the quality employees that will capable of producing
goods at a cost and quality that will be competitive. So, in
return for market opening and a great opportunity to sell, we
do challenge ourselves as a society to continued excellence in
production.
And I think what I would say to Charlie's people above 42nd
Street is that we have succeeded in competing, their jobs are
there today with very limited market access on our part to not
only China but eventually to some other markets of the world,
and that the more we can sell the more secure their jobs are.
But without question they will have to learn and become better
and better producers because all those people in other
countries will also be learning and becoming better and better
producers. I think that is good for all of us. Finally it will
raise the standard of living across the world and secure
greater peace.
But what I want to give you a chance to address, because I
really am very pleased that you have retained the right to the
nonmarket methodology. That has been so critical in fundamental
areas like bearings--
Ambassador Barshefsky. Yes, of course.
Mrs. Johnson.--and it is really important to be able to
enforce our anti-dumping laws in countries where they don't
determine price in the way we do.
Ambassador Barshefsky. Correct.
Mrs. Johnson. So, I think the import surge protection and
some other things that you have negotiated I think you need to
go into a little greater depth as to how this agreement does--
and compare it to other agreements. With intellectual property
rights it took us several follow-on agreements to enforce that.
Ambassador Barshefsky. Yes.
Mrs. Johnson. And I think most of us understand how, in
general, a rules-based regimen which the WTO represents helps
us because then you have got all the countries joining with you
to enforce. But beyond that sort of rules-based structure which
is the big item here, nonetheless, below that you have
negotiated a number of very specific enforcement provisions
that do not exist in any other international trade agreement to
my knowledge.
Ambassador Barshefsky. Yes.
Mrs. Johnson. And I would like to have you go through some
of that because when we did NAFTA people never got the detail
of the tracing requirements which really did give us a very
great power to assure that components would be produced in the
free trade nations.
So, would you go into a little more detail with some of the
enforcement mechanisms that will guarantee that American jobs
will survive in a fair trade regimen.
Ambassador Barshefsky. Right. I think the important point
here that implementation of PNTR, in the case of every other
accession that the U.S. has ever done, we have either the
dispute settlement rules that apply under the international
body or we have our own trade laws but we don't really have any
other specific mechanisms designed either to be protective of
our own market or designed to act also as leverage on market
opening and compliance in the foreign market. And we rectified
that here in a number of ways which we have never done before
in an accession agreement.
One is the anti-import surge mechanism. If, for any reason,
Chinese imports into the U.S. surge, as for example, they did
on steel last year as you well know, we will be able to take
action and on a temporary basis, somewhere between two or three
years, block or otherwise reduce the volume of those imports.
Second of all, we have secured the right to continued use
of the nonmarket economy methodology in the dumping law. This
is very, very important because we don't yet know how prices
and costs are established in China except to say that they are
not on a market basis.
Obviously China will be able to demonstrate, as all
countries can under our existing regulations, that they are
operating on a market economy basis in a particular sector. But
findings after that, as under our law, are open for the
Commerce Department, and at this juncture the critical aspect
is that we have preserved in full our current nonmarket economy
dumping methodology, all of the regulations and so on.
Third, we have also negotiated a few special subsidy rules.
You know that our countervailing duty law does not apply to
nonmarket economies. This is because of a series of court
cases. This is not an administrative determination by either
this or the Bush Administration. This is a series of court
rulings. But we thought, well, we should think ahead and, so,
to the extent that countervail law is deemed to apply, first
off, preferential financing will be determined by market rates.
That is whether financing is preferential would be determined
by market rates in China, not by rates charged by the Chinese
Government. And, second of all, China will not be able to have
as a defense in a subsidies case the idea that it subsidizes
everything so nothing is a subsidy. We think we have closed
that loophole quite neatly.
This, again, is another series of provisions we have in
other accession agreement, nor did we ever have it in the case
of other nonmarket economies that have joined the WTO and the
GATT system before it, like Poland, Hungary, Romania. Poland
was, for example, plainly a nonmarket economy when it joined
and we had no such provisions at that time.
And, of course, we have also clarified the rules on things
like forced technology transfer, local content requirements and
the like to make clear these will be violations if they occur,
and this is quite clear and that is also of great assistance to
us and, again, never before negotiated.
Mrs. Johnson. Now, that means that they cannot require that
if an American company wants to sell into their market that
they must produce 10 percent of the product there?
Ambassador Barshefsky. Correct.
Mrs. Johnson. That is quite common now.
Ambassador Barshefsky. That is the rule now.
Mrs. Johnson. Right, it is really the rule. And it is one
of the reasons we are losing jobs sometimes just to be able to
meet the domestic production requirement. So, when that is
wiped out we will be able to sell without having to invest and
produce some of the product actually in China?
Ambassador Barshefsky. Correct. Absolutely correct.
Mrs. Johnson. And will this be implemented over time?
Ambassador Barshefsky. No. Effective upon accession.
Mrs. Johnson. That is extremely important. So, that is also
unique to this?
Ambassador Barshefsky. Yes. This is also unique. There a
number of other features but I think these are among the main
ones. We took special care because I think as Congressman
Rangel pointed out, you know, China's economy is not the norm
and we have to really be very careful about how we go about
this accession. We have to try and anticipate looking into the
future. We have to be sure that the commitments to which China
has agreed are very specific so there is no question what they
were supposed to do by what date. And these unique series of
enforcement mechanisms reflect also the fact that we want to be
absolutely as sure as we can be that we can preserve fully the
agreement that we negotiated in terms of benefits to the United
States and protect our own market in unforeseen events.
Mrs. Johnson. Is this not the first agreement to have that
many dates?
Ambassador Barshefsky. Yes, oh, yes.
Mrs. Johnson. And that very specific approach?
Ambassador Barshefsky. This is highly, highly specific. If
you could visualize in your own mind a grid with commitments
running along the left-hand side and on top dates, year by year
by year, and every box is filled in on the grid. What is it
that is supposed to be done in what time frame, that is how the
entire agreement looks.
Mrs. Johnson. That is very, very important and I thank you
for your good work.
Mr. Crane. Next is Mr. Levin, oh, excuse me, Mr. Ramstad is
next, then Mr. Levin.
Mr. Ramstad. Thank you, Mr. Chairman.
Ambassador Barshefsky, I, too, want to join in all the
laudatory things that have been said about you that are well
deserved and your leadership on these absolutely critical trade
issues is very much appreciated. I think there is no question
you have been a real star in this administration and along with
your leadership you have worked--or as part of your
leadership--in a bipartisan, pragmatic, common-sense way and it
has been a pleasure to work with you on these critical issues.
I just want to digress for a minute, if I may, Ambassador,
with reference to your exchange earlier with Chairman Crane. I
am certainly glad to hear that you are working diligently to
resolve the last-minute switch on the part of the Chinese with
respect to fertilizer and that you have gotten a political
commitment from them to address the issue before China joins
the WTO.
Ambassador Barshefsky. Yes.
Mr. Ramstad. I know representatives from Cargill and the
Fertilizer Institute will go more in-depth on this issue in the
later panels. But I want to just express my strong support for
your efforts to reach an agreement to improve our access into
the Chinese markets. Certainly you realize the importance of
this, I know.
It is our fourth-largest, the United States's fourth-
largest export and, of course, China consumes 30 percent of the
world's fertilizer. So, thank you, for your work on this and
your recognition of this problem and that it needs to be turned
around.
I now want to shift gears. By the way I have to say that I
was somewhat amused by your comment as to the cumulative
intelligence quotient in this room. I think your summary
statement was a bit prejudiced. You are looking forward. If you
turned around there is a lot of collective wisdom certainly in
this room and I am not in any way disparaging. We have a very,
very bright President but there is a lot of good wisdom in this
room and I think we have to all work together as Americans on
these trade issues, as you have long recognized.
Ambassador Barshefsky. I agree.
Mr. Ramstad. Let me just state another obvious factor. I
think there is so much--when it comes to these trade issues--so
much dogma, so much mythology and even worse, falsehoods, that
are perpetrated by some of the opponents and perhaps sometimes
in good faith, I am not questioning that. However, I think we
need to as soon as these myths, some of this dogma floated in
an attempt, in this instance, kill permanent NTR with China and
WTO accession, I think we need to explain the facts. And just
yesterday on the International Campaign for Tibet website, just
yesterday the following statement and I am quoting: ``The
Administration admits that permanent normal trade relations is
not legally necessary for satisfying international trade
agreements.''
Ambassador Barshefsky, my question to you, true or false?
Ambassador Barshefsky. China can enter the WTO without
permanent normal trade relations but the difficulty is that if
they do, recognizing--and this is true--that we are the only
country in the world that does not already give China permanent
normal trade relations, their entering the WTO may end up
denying to us the very benefits we negotiated. PNTR is the only
way to guarantee that we have the benefit of the bargain here.
Mr. Ramstad. So, in the most highly technical sense of the
word, legal necessity, it could be argued in the academic
theater perhaps--
Ambassador Barshefsky. It is legally necessary to give PNTR
to China if we wish to guarantee the benefits to us of the
agreement we negotiated.
Mr. Ramstad. Very, very well stated. And I think we need to
clarify the record when these false accusations are made.
Throughout this debate I think all of us who understand the
importance of this issue to growing our economy, to creating
jobs, to continuing to be an economic superpower we must do
that. And by the way I applaud the Business Coalition for U.S./
China Trade, Bob Papp, who has long been the leader of this
important coalition, for their efforts in correcting the record
on China trade issues. I think it behooves all of us to explain
the facts when certain misleading statements are forthcoming.
Ambassador Barshefsky. I agree.
Mr. Ramstad. Again, I want to thank you for your
leadership. It is a pleasure to work with you, and I look
forward to working with you in the future.
Ambassador Barshefsky. Thank you.
Mr. Ramstad. I yield back the balance of my time.
Mr. Crane. Thank you.
Mr. Levin?
Mr. Levin. Well, my comment, Mr. Ramstad, follows right on
yours. It seems to me that we need to be wary of dogma on all
sides on trade issues. Polarization has often suffocated
intelligent, informed, open discussion. Strike informed and
intelligent, open discussion.
And I want to pick up Mr. Rangel's question because I think
it was a very salient one. I want to make clear, I have been to
New York and I know where 42nd Street is but what he asked
relates to most main streets in America. So, to simply say, it
is New York, that is wrong. His question about the impact
relates to virtually every street in America.
So, I want to follow through on that. And in terms of
dogma, for people to say this trade agreement is win-win-win
and there will be no losers, in my judgment, isn't credible.
Any major trade agreement is likely to have winners and losers
by definition; trade and economics are that complex. Now, I
think you were referring to, in terms of tariffs and the like,
that all the action is on their side and none is on ours. And
that is true enough. But realistically one of the main impacts
of this will relate to investment. One of the problems with
investment in China today is that the rule of law is weak. When
I was there, there were stories about this lawyer who was
thrown into jail--
Ambassador Barshefsky. Yes.
Mr. Levin.--because he interviewed a witness alone. He
didn't have a second lawyer or somebody with him. And people I
talked to made it clear, including American business people,
they are worried about the opaqueness of law there, right?
Ambassador Barshefsky. Yes.
Mr. Levin. And you have bumped into that. So, we can't on
the one hand say that coming into the WTO will spark China to
move along in terms of the rule of law and then say it is not
going to affect investment in China. I mean it will. In fact,
one of its purposes is to stimulate investment or one of its
results will be because American businesses will have more of a
sense of security.
So, I just want to suggest then what that means is that
some of the investment there will have a positive impact on
American jobs and some will have a negative impact in all
likelihood. Trade flows both ways. In the automotive sector I
think considerable progress was made in terms of opening their
market, and in terms of shipment, for example, of auto parts
from here to there. We also have to recognize that auto parts
can be shipped from China to the United States. And as they
develop, as they become, they will become a competitor of the
United States as well as a market.
And I think we ought to just advantage that head-on and to
treat it as a serious issue. It is one reason I think that the
Working Group on Labor's, in response to Mr. Rangel's question,
pursuit of that is important. And, you know, we have been
talking about this for a number of years and the President has
had a consistent position the last year on pursuing this.
But also we need to talk about the surge provisions and you
did in answer to Mrs. Johnson. And I guess there was not time
in response to Mr. Rangel.
I think one factor is if we see that there is a major surge
in a particular product, the way I think the accession
provision is written, that we do have some defense. In fact,
there is criticism that the President did not agree in April
but there were weak anti-surge provisions and you negotiated
them after April. And the reason we have anti-surge provisions
is because trade flows both ways. Otherwise we wouldn't need
them.
So, I want to ask you one quick question and then I will
finish because I had time earlier. Now, I suggested that we
write the anti-surge provisions into legislation and the reason
I urged this committee to look at that is because it is going
to be important how they are written and it is going to be
important how much discretion the President has because to some
extent the anti-surge provision and the accession agreement
reflects present American law that hasn't been used very much.
So, I just wanted to ask you, if you would, to comment on
the anti-surge, the suggestion that the Administration and this
committee and the rest of Congress sit down and seriously
discuss how we are going to embed them and how they will impact
on this whole issue of our competition with this huge evolving
economy that, as Mr. Rangel points out, has very, very
different labor market provisions with no freedom and with a
very low wage at this point.
Thanks. So, if you would comment.
Ambassador Barshefsky. Yes. If I might say with respect to
surge, this is an area where again we are trying to look ahead.
We wanted to be sure we had strong anti-import surge mechanisms
for many of the reasons that Congressman Rangel has pointed
out. That is to say China will become a much more forceful
competitor in the future. We are already seeing that in steel
last year, as you may know. And we want to be sure that we can
take action--and under this provision we will be able to for 12
years after accession--to take action against import surges to
the extent they are causing market disruption in the United
States.
Mr. Levin. Treating them, in other words, with a different
standard than presently applies to--
Ambassador Barshefsky. This is a much different standard
than under 201 now. One, because we can take action just
against China. Two, because a market disruption standard is a
very low legal threshold as you know. And, third, because we
have also negotiated something that was missing and caused us
frankly some problems in the steel cases over the last two
years and that is this. Under current WTO rules--and this was
done in the Uruguay Round--countries cannot voluntarily agree
to hold back on their exports to another country. These are
called gray area measures, as you will recall.
This agreement allows us to, in fact, negotiate with China
for decreases in their exports without having to go through a
formal proceeding if the Chinese agree to do that. And I think
that this is also a very important addition, again, because as
Mr. Rangel and you have pointed out, China will become a much
more forceful competitor in the future.
With respect to the anti-surge provision, obviously, we
want to work with you and work with the Congress. We do believe
we have authority under current law, under the Trade Agreements
Act of 1974, to implement the provision. I would have a concern
that however implemented we do so in the most expeditious
manner possible so that these mechanisms take hold and can be
applied from the day of accession and we are obviously pleased
to work with you on that.
Mr. Levin. Just quickly. It is not clear, I think, there is
the administrative authority but there is also an advantage to
embedding them in legislation.
Chairman Archer [presiding]. Mr. Levin, your time has
expired.
Mr. Levin. After legislation I was going to put a period.
Chairman Archer. Okay.
Mr. Levin. Thank you.
Chairman Archer. Ms. Dunn.
Ms. Dunn. Thank you, Mr. Chairman.
Ambassador, thank you for spending as much time with us as
you have been lately. It is very useful for us to really
understand what we are talking about. The United States/China
trade agreement permits foreign investors to own up to 50
percent of a telecom venture in China. When you had previously
negotiated this treaty last April it said that we could own up
to 51 percent. So, that is really a difference between equal
partners versus controlling interest.
What do you think the implications are going to be to
allowing joint ownership. For instance, Internet service
provider companies as opposed to controlling ownership.
Ambassador Barshefsky. I don't think at the end of the day
there will be too much difference. First of all, regardless of
percentage joint ventures are typically done in a contractual
manner between the parties and in the context of contractual
joint ventures the parties can negotiate the percentage of
equity ownership which could exceed the general equity rules
outlined here and we have confirmed that with the Chinese
leadership.
But apart from that when we undertook to rebalance some of
these obligations at the Chinese request, we were always
careful that we were balanced in a way that ultimately would
still advantage us. So, in the case of telecom, we did four
things. First of all, we made absolutely sure that Internet and
satellite services were fully covered. There was some question
about that from April, that has been resolved.
Second of all, we accelerate the percentage of equity
participation, moved it way up, whereas, under the April
agreement 49 percent wouldn't have been reached for four or
five years; here it is reached in two.
And we moved up the elimination of all geographical
restrictions on service providers and on investment and by
doing that, of course, our companies have much greater access
to the whole country under this reformulated approach than they
would have had from the April agreement.
Ms. Dunn. Good, good. Thank you.
I want to ask you a question about a couple of things that
have happened in China recently. The Chinese Government has
done some things that are of concern to the high-tech market.
In October of last year, China's State Council approved
regulations to prohibit sales of foreign-produced encryption
technology--
Ambassador Barshefsky. Yes.
Mr. Dunn.--by domestic end-users in China. And, in
addition, the new rule would require foreign individuals or
organizations that used encryption products or equipment
containing encryption technology in China to report to the
Chinese Government for approval. There is some concern about
this.
Last month China published new regulations to, as they
said, control State secrets on the Internet and Internet
content providers are a little worried about this. I wonder if
there is some concern that you see as the proliferation of the
Internet, which I believe to be a very liberating force, moves
to China. Do you think the new regulations are going to cause a
problem? Are they an ominous sign for the growth of the
Internet in China?
Ambassador Barshefsky. I think certainly the Chinese
Government approaches the Internet with great trepidation but
it can't stop it. And ultimately the technology, I believe,
will have its day.
With respect to content regulations there is nothing new
there. This has always been China's rule with respect to the
Internet, that is no dissemination of State secrets. The
phrase, State secrets, is vaguely and broadly defined. It is
obviously a concern but our Internet providers have lived with
this now for some time and I think are able to handle it
sufficiently well.
The issue of encryption is actually a more serious issue.
We are very concerned about this. I have already raised it with
the Chinese Vice Premier who is in charge of this area. I had a
team out in China two weeks ago. They raised this issue again.
I have had the Chinese Ambassador in on this issue. Right now
the regulations are of a provisional nature. They are not
actually being enforced. And we will do everything that we can
to see that these regulations are altered so as not to create
the kind of problem that is presented.
May I correct my earlier answer to you just to be sure that
I was understood in the way in which I intended to say it. And
that is on telecom the 50 percent limitation won't change on
equity investment but what can be negotiated is control. That
is to say, for example, management control, which is at the
heart of the issue. And that is subject to individual
negotiation regardless of the percent of equity ownership in
the company, itself.
Chairman Archer. The gentlelady's time has expired.
The Chair will alert members that we still have two large
panels ahead of us today and, as a result of that, the Chair is
going to strictly enforce the five-minute rule from now on and
ask the cooperation of members in keeping their comments and
permitting answers also to come within the five minutes.
Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
Ambassador, I appreciate your presentation here today; I
thought it was very thorough and very good. I have some concern
in one area that I don't think is addressed in the list of
products or commodities that we have reached some concessions
in and that is in the area of textiles.
I do know we have the 1997 textile agreement which was
helpful to the U.S. But I, just as a word of caution, I am
afraid that is one area that we could have some further loss in
if we are not careful with our continuing negotiations and I
know that you are very much aware of this.
I do find encouragement in other areas that you were able
to negotiate and I think it will be very beneficial to us in
the long-run and I appreciate your presence here today.
Ambassador Barshefsky. Thank you.
Chairman Archer. Mr. Cardin.
Mr. Cardin. Thank you, Mr. Chairman.
Madam Ambassador, I am trying to put myself in the shoes of
the steelworkers in Baltimore or the auto workers or the bio-
tech workers or the truck drivers as they listen to this
hearing they may be reminded of prior hearings in this
committee. A year ago, two years ago, three years ago, four
years ago when we held hearings on whether we should extend NTR
or MFN to China. And at that time I vividly recall and I am
sure they do also, statements made that by extending the NTR to
China that would open up markets for American companies and it
would be good for our economy and it would create more job
opportunities here in the United States.
So, I am wondering using the Chairman's word and I
understand that this is a lopsided agreement that you
negotiated where it was unilateral concessions made by China,
but would it be correct to say that prior to this the United
States unilaterally disarmed by giving China access to our
market, by not challenging that access on a yearly basis when
the tariff situation was radically for U.S. manufacturers and
producers in order to get into the China market?
So, did we make a mistake in prior years by extending
normal trade relations to China without negotiating a more
level playing field for American manufacturers, producers and
farmers?
Ambassador Barshefsky. I don't think that we made a
mistake. I think to have denied annual NTR would have been to
breach entirely the economic relationship with China with very
far-reaching consequences including most likely devastation to
the Hong Kong economy which depends very heavily on the out-
flow of trade from China to points outside of Asia and, indeed,
within Asia. And as you, of course, know quite well, people
like Martin Lee, who is one of the chief democracy advocates in
Hong Kong, had urged that NTR be granted to China in all those
years.
Mr. Cardin. I am going to interrupt you only because of the
five-minute rule.
Ambassador Barshefsky. Yes.
Mr. Cardin. I will give you as much time as we have for the
five minutes but I want to make sure we focus on the issues. I
guess my concern is why didn't we negotiate before now for a
bilateral agreement with China that would reduce their barriers
so that U.S. manufacturers could get access? Why did we have to
wait until the WTO issue became at stake? We allowed China full
access to our markets.
Ambassador Barshefsky. We have been negotiating this
agreement in this administration for seven years.
Mr. Cardin. With no results, though.
Ambassador Barshefsky. Until now. It has been very
difficult because of the extent and nature of reform that would
be required by China.
Mr. Cardin. Maybe if China thought that they would lose
access to our market that we may have been able to do better
during that period of time.
Ambassador Barshefsky. I doubt it. I doubt it because I
don't think there would have been--I think it would have been
hard for China to negotiate with us under those circumstances.
I think you would have strengthened the hardliners in China in
the interim who would have viewed the United States as an enemy
of China or that China should be an enemy of the United States.
I don't think that would have helped trade negotiations in any
particular way.
Mr. Cardin. I appreciate that. Just the observation is that
if there is such a dependency now by China on U.S. consumers, a
$70-billion trade deficit, whatever it is, they need our
market. And we want open markets. We want to have access to
China by our companies. I agree with what you have negotiated.
It just seems to me that if we had an 80 percent tariff on
automobiles, for example, or we couldn't open up a dealership
without having a partner from China and all these other things
that you have now been able to negotiate, why didn't we do some
of this earlier?
Ambassador Barshefsky. We have been trying. It is very
difficult because you are asking a regime that, since the
1950s, has tried to keep things in as status quo a position as
possible, despite a variety of economic reform, to
fundamentally alter the way in which business is done in China
and to fundamentally alter the competitive market forces in
China.
All I am saying is we have pushed very hard over all these
years since the President took office at his direction, and it
is only now that Chinese reformers have somewhat of an upper
hand in China that we finally have the agreement that we have
reached.
Mr. Cardin. Thank you. And in my last 15 seconds let me
just underscore the point, I think Mr. Levin's comment about
adding more than just trusting China is absolutely essential if
you are going to get broad-based support for this initiative.
It is lop-sided, this agreement, I agree with you, but some of
us want to make sure that, in fact, American producers and
manufacturers get advantaged of these market conditions.
Ambassador Barshefsky. I agree with you fully on that.
Mr. Cardin. Thank you, Ma'am.
Chairman Archer. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman.
And, Ambassador, thank you for being here this morning, now
this afternoon, and for your continuous briefings of the
Committee on a tough issue.
China presents an enormous challenge to us. I think many
points Mr. Cardin made regarding trade barriers and the trade
deficit and so on are valid ones. China continues to have the
largest State-owned economy in the world. China continues to
have an approach to markets which is closer to socialism than
it is to capitalism. It is very difficult for us to imagine a
rule of law evolving even in the next decade in a way that
would enable us to be able to have confidence that U.S. or
multilateral rules were being enforced. They are just not there
yet.
These facts make China very hard to deal with and the
enormous market and the enormous market power that it has also
makes China very hard to deal with. But I think they mean we
cannot block Chinese entry into the WTO because it is a rules-
based organization and it is not so much the initial trade
concessions, which are very important to many of our districts,
but it is because WTO membership has the potential to
accelerate China's internal reforms which need acceleration and
to increase some leverage by imposing some new, now
international, rules on China. So, I believe that we cannot in
good faith block entry into the WTO which would in essence be
the road we are taking.
But at the same time I think what Mr. Levin said earlier is
accurate. We have to do a lot more than just say, yes. We have
some leverage here. There was discussion about institutional
reform of the WTO dispute settlement process--that is
absolutely critical--enforcement, the anti-surge provisions and
so on.
And short of changing the terms of the agreement which the
Chairman accurately stated was impossible to do at this point
without going back to the bargaining table, there is a lot
more, I think, we can and should do. This PNTR vote is in
essence the vote that gives China an enormous benefit. Yes, we
get some initial concessions but the reason China wants it so
much is because it will help the Chinese economy tremendously.
You said earlier in response to Mr. Rangel and I think I am
quoting that you believe this does not encourage investment in
China. I would disagree with that. I think this agreement will
encourage investment in China. And I think that is a potential
problem for us.
You also said that the agreement is--and I quote--``fully
enforceable''. And, yes, fully enforceable maybe in strict
legal terms is accurate but I look at the problems we have had
with some of our other trading partners in the context of WTO
and I think that over-states it. I worry that without getting
some additional guarantees and without adding to the rules-
based regime that is already there some more strict compliance
provisions that the U.S. is going to have a very hard time with
China responding to noncompliance. I hope I am wrong.
And it may not surprise you that I have that concern. And I
will ask you a hypothetical which may not surprise you either.
Let us say a U.S. multinational company's exports to China are
blocked and they are blocked by quotas in a licensing scheme,
which I think is not at all out of the question over the next
several years even.
Let us say, for instance, that half of that U.S.
multinational's exports markets were taken away. And let us say
instead there was preference given to a Hong Kong-based
multinational company and there are many that engage in the
same businesses that U.S. companies and businesses engage in.
And increasingly these global companies are dictating the terms
of economic development here and our future economic growth is
dependent on these multinational or global companies. Let us
say that the damage is in the hundreds of millions of dollars.
What would the U.S. response be? What could we do under the
WTO?
Ambassador Barshefsky. Well, I take it that you--I think
the facts that you have posited are fairly clearly the facts
with respect to bananas and I would say this, that, first of
all, we would do what we did in that case, which is to take
China to dispute settlement and we would undoubtedly win.
Mr. Portman. Let us say--our time is limited--let us say
that we not only win but we win big. Let us say that we have,
you know, over 20 violations, more than any other case in
history, and that we are on the right side, clearly on the
merits.
Ambassador Barshefsky. Hmm-hmm.
Mr. Portman. And that there is no question based on a
dispute panel that the United States is in the right. Then what
do we do?
Ambassador Barshefsky. Then if China didn't comply--and I
don't think one should necessarily assume China wouldn't comply
but--if China did not comply we would have the right to
retaliate and we would do our best to retaliate in a manner
that would force compliance. If it didn't force compliance, I
think we would try and look at all available means to see if
there were a way to get the foreign country at issue to comply.
And, if not, the retaliation, whether in the hundreds of
millions of dollars or more, would remain in effect.
Mr. Portman. I would just posit again as was said earlier
by Mr. Levin, this is very complicated stuff and there are no
easy answers and although I think that WTO membership by China
is something that we cannot block for all the reasons that I
stated, I think we cannot go into this blindly and we cannot go
into it thinking that this is going to work. It hasn't worked
with trading partners with whom we have a lot more in common,
with whom we don't have these challenges. And I would hope that
we use this leverage to try to enhance our ability to enforce
agreements.
Ambassador Barshefsky. Mr. Chairman, may I have one minute
to respond to just one other point that the Congressman raised?
Chairman Archer. Okay. But--
Mr. Portman. By the way I didn't raise bananas, you did.
Ambassador Barshefsky. No, no, no. I wanted to clarify one
thing.
Chairman Archer. We do have a long, long day and I would--
yes, you may have a minute.
Ambassador Barshefsky. Thank you.
And that is simply this, I want to clarify my response to
Mr. Rangel as follows: Certainly if China becomes a more
reliable trading partner one might envision that foreign
investment into China would increase, although it is already an
important site, it is the site after the U.S. and Europe for
inward direct investment already, even with an arbitrary trade
regime.
But my point was actually slightly different which is, we
did not negotiate in this agreement relaxation of China's
investment rules. There are many corporations that wanted us
to. We did not. And we didn't because the focus of this
agreement is designed, as much as possible, to be on exports
from the United States, not on the moving of production
facilities to China from the United States. That may happen as
happens when U.S. companies locate in Europe and elsewhere, as
well, but my comment to Mr. Rangel was designed not to indicate
that conditions may not change in China or that it may not
become a more desirable investment environment because of this
or other agreements, but merely that we did not in this
agreement negotiate any rules that relax investment regulations
in China.
Mr. Portman. I understand that. I just think again it would
be inaccurate to say that China's accession to WTO which was
the context that I heard it in is not going to encourage
investment. I think it will encourage investment in China and
we need to go into that with our eyes wide open.
Ambassador Barshefsky. I just took it--
Chairman Archer. The Chair is going to have to stop this
colloquy otherwise it can go back and forth for another five
minutes.
And in fairness to the witnesses that are waiting in the
wings, Mr. Hulshof.
Mr. Hulshof. I yield my time.
Chairman Archer. The gentleman yields his time.
Mr. McInnis.
Mr. McInnis. Thank you, Mr. Chairman.
Help me through this now. In the WTO there is a court,
right, for the legal provisions or violations of the treaty or
enforcement; is that correct?
Ambassador Barshefsky. Yes. There are dispute settlement
panels in the WTO. It is not a court but it operates in sort of
a quasi-juridical manner.
Mr. McInnis. Okay. Is there any way that China,
especially--it seems to me that once we take them off the one-
year status and give them permanent status that they are off
probation, so to speak--is there any way that China can utilize
the remedial process of the WTO to in any way impair the
relationships that exist trading or otherwise between the
United States and Taiwan?
Ambassador Barshefsky. No.
Mr. McInnis. You are confident of that?
Ambassador Barshefsky. Yes.
Mr. McInnis. No further questions, Mr. Chairman.
Chairman Archer. Does the gentleman yield back his time?
Mr. McInnis. That is correct, Mr. Chairman.
Chairman Archer. Mr. McDermott.
Is he here?
[No response.]
Chairman Archer. Mr. Kleczka.
Mr. Kleczka. I thought the Ambassador would say, is that
your final answer?
Ambassador Barshefsky. Pardon me, sir?
Mr. Kleczka. In answer to the previous questioner I thought
the way to frame it was, is that your final answer?
Ambassador Barshefsky. Yes.
Mr. Kleczka. You don't watch the show.
Ambassador Barshefsky. Now, I get it. [Laughter.]
Mr. Kleczka. Thirty million of us do, you don't.
I have a couple of quick questions and we are going to ask
for some quick answers. First of all, what action has to take
place for China to get into the WTO? At what point does this
happen? Quickly.
Ambassador Barshefsky. In terms of formal process, China
finishes bilaterally with its other trading partners, we finish
a rules discussion in Geneva, then China's working party on its
accession with its 30 or 35 major trading partners all say,
okay, we are done negotiating, it is finished. Then that is
taken the general body of the WTO, typically approved by
acclamation. China then ratifies the agreement as agreed by the
general body of the WTO and 30 days later they are in.
Mr. Kleczka. So, it is no act of this Congress that will
enable that China becomes a member of the WTO?
Ambassador Barshefsky. Yes.
Mr. Kleczka. So, that is number one. Number two, there are
those who say we still have to have the annual review because
we have to monitor prison labor, environmental, and, so, the
option they claim before us would be to continue our relations
with China on an annual basis versus permanent.
What would be the effect of China and the WTO if this
Congress would enact the annual normal trade relations versus
the permanent?
Ambassador Barshefsky. We cannot guarantee under that
circumstance that we will have the benefits of the agreement
that we negotiated. China would have no obligation to apply to
us our own agreement although they would have an obligation to
apply it to everybody else in the world. That would be a
ridiculous outcome for the United States.
Mr. Kleczka. So, those who are saying that Congress should
not grant permanent normal trading relations know full well at
that point this country could not avail themselves and the
businesses could not avail themselves to the agreement that you
struck with the Chinese Government?
Ambassador Barshefsky. Yes. In other words, the risk to us
is that China would not apply to us our own agreement and they
would have a perfect right not to do that.
Mr. Kleczka. And using autos as an example, if, in fact,
this Congress would not grant permanent trading status to China
they, in fact, could continue their tariff of 100 percent on
automobiles that we ship there, however, they would give the
current negotiated tariff of 25 percent to all other trading
partners?
Ambassador Barshefsky. We may have an argument under a
preexisting 1979 agreement with China that China would have to
give us the advantage of tariff reductions but we would have no
such claim in the case of trading rights, distribution, the
ability to service in China, setting up dealerships in China,
we would have no such claims.
Mr. Kleczka. Okay. Now, I have some feel for those who say
that we still must keep a short leash on this agreement know
full well that we have seen China and some of their practices
in the past years. What can we do either in the permanent trade
legislation that we will have before us or in existing WTO
legislation to provide for a more frequent review than what is
called for today under the trade policy review mechanism?
Ambassador Barshefsky. I think that Congressman Levin had
some very, very good suggestions in that regard. In other
words, certainly we are going to want to be able to have a very
strict monitoring regime on China's adherence to its
commitments. I think this is essential and China needs to know
we are watching that closely.
Mr. Kleczka. Monitoring and adherence and sanctions are 27
different things?
Ambassador Barshefsky. Yes. These are all different things
but I think that Congressman Levin has a number of very
positive suggestions in the opening statement that he made in
that regard.
Mr. Kleczka. Can the TPRM be moved to an annual review-type
process?
Ambassador Barshefsky. I don't know the answer to that. I
will tell you because we have been subjected to a TPRM, as are
all countries, this is massively time-consuming for a foreign
country. It takes us months and months to work through the TPRM
review. To be absolutely frank, I can't imagine having to go
through that every year.
Mr. Kleczka. Okay. Mr. Chairman, one final question of you.
Is there a timetable when legislation will come before the
Committee relative to granting permanent normal trade
relations?
Chairman Archer. There is currently no specific timetable.
We will be working with the Administration to seek the best
time for success.
Mr. Kleczka. Thank you.
Chairman Archer. Mr. Nussle.
Mr. Nussle. Thank you, Mr. Chairman and thank you again,
Madam Ambassador. I share, as Mr. Portman did, the concerns and
the compliments of Mr. Levin's opening comment. I think he
summed up a lot of the concerns and a lot of the compliments in
his statement. So, I would associate myself with what has been
said.
I have three questions. One, as I understand it, because
there are so many customers in China, last year's increase of
pork consumption in China equalled the total output of pork
production for Iowa in one year. Just their increase in what
they eat. And, yet, we sold them no pork chops. What will
happen under this agreement with regard to pork?
Ambassador Barshefsky. There has been a ban on meat, as you
may know, into China. China has agreed to lift the ban. The
tariffs will come way down. And I think we should see a
significant change in the current practice.
Mr. Nussle. The second has to do with what Mr. Portman was
suggesting. He spoke about a particular case that has been
brought through the dispute mechanism procedure. One concern
that I have again with regard to enforcement--and you mentioned
that this if fully enforceable, and I am not quibbling with
that at all, based on sound science--but these are all things,
as Mr. Portman said, we have also had with European Union and
they have also used political non-tariff barriers as well.
When you say sound science, my understanding is that the
European Union does not have a similar sound science procedure
comparable to what we have in the United States, FDA, et
cetera.
Ambassador Barshefsky. Correct.
Mr. Nussle. What do the Chinese have? Is it comparable to
anything else we have experienced in the past with other
trading partners?
Ambassador Barshefsky. The difficulty with Europe has been
not in their scientific analysis. Their scientists agree with
our scientists. It has been that the member States then vote on
a political basis on whether they want to accept the science or
not. Certainly we have to watch for that with respect to the
Chinese regime. I think there is no question about that. But I
do think we will have established a much stronger basis on
which to work with them.
Let me also say in every science-based case that we have
challenged in the WTO, that is to say where sound science was
not utilized, we have won.
Mr. Nussle. And then finally I sent you a letter in
December having to do with this particular agreement and my
understanding is that it is very favorable to auto financing
companies.
Ambassador Barshefsky. Yes.
Mr. Nussle. However it is not real clear on more of the
finance for agricultural equipment. And I am wondering, in
particular, if you have had an opportunity to review that and
are able to respond? It isn't clear what is your opinion about
whether or not these companies would be included in the
agreement?
Ambassador Barshefsky. Let me take a look at that. I can't
give you a direct answer at this point. The provision that we
negotiated with respect to consumer financing was specifically
auto-related and that had been specifically requested by the
auto industry not so much at the bank level, the issue was non-
bank financial institutions.
And, so, what was negotiated for autos was an agreement
that non-bank financial institutions, like GMAC Credit, could
provide financing. I would have to check with Treasury whether
bank financing of agricultural equipment is available and I
will get back to you on that.
Mr. Nussle. Well, there are some companies that do their
own financing similar to GMAC.
Ambassador Barshefsky. Right. I will check with the
Treasury Department and we will get back to you.
Mr. Nussle. If you would, I would appreciate that.
Ambassador Barshefsky. Yes.
Mr. Nussle. Thank you, Mr. Chairman.
Chairman Archer. Mr. Jefferson.
Mr. Jefferson. Thank you, Mr. Chairman.
Good afternoon, now.
I want to ask--I was out a little while so I hope I am not
asking anything that has already been covered. We have talked a
lot about how the provisions we are discussing here will
benefit business interests and Mr. Rangel asked questions about
labor interests. I want to ask about customers. And ask you to
tell me how U.S. customers will see themselves benefitting from
what we do here, assuming we pass permanent normal trade
relations?
Ambassador Barshefsky. Well, I think the situation for U.S.
customers is relatively unchanged. That is it is the position
of the Administration that customers benefit tremendously from
essentially an open import market here because you stretch the
value of the dollar, competitive pressure is high in the U.S.
market, prices stay low, inflation stays low and that is all to
the benefit of customers and working people not only in the
short run but in the longer run especially if they look to
finance a home purchase and so on, you want inflation to stay
low, you would like to have lower interest rates so on and so
forth.
The agreement doesn't alter the import mix except that to
the extent that Chinese imports are surging in any particular
area we are able to put a cap on that and, thus, preserve U.S.
jobs, and that similar to our current safeguard law only,
frankly, more effective a remedy in this particular case
because of the way it is structured and the legal standards
that would apply.
So, I think for customers you have the general benefit of
imports which in the case of China remain unchanged by this
agreement. That is to say we are not altering our trade regime
one iota for China. But in the case of customers and working
people to the extent there are surges not justified by
increases in demand here we are able to put a stop to that and
currently we are not able to do that very effectively.
Mr. Jefferson. Ms. Pelosi makes the argument that we are
losing leverage when we pass this permanent normal trading
relations status. She says that if we ever year have to go back
and renew and renew and keep the Chinese Government's feet to
the fire that in the long run it will be better economically,
better in every other way we can think of, human relations and
so on, human rights.
Is she right about that?
Ambassador Barshefsky. I disagree entirely. If the argument
is human rights in China have not improved then of what benefit
has the annual review been. If the argument is that human
rights in China have improved then why would one continue the
annual review? Why not provide permanent NTR. I think the
greatest leverage we have is by bringing China into a rules-
based system where it isn't merely the United States but 134
other countries who want the same level of commitment from
China on the question of economic reform.
And I think it is that kind of reform that has the
possibility of important spillover effects, particularly as one
looks at the development of rule of law in China. But I don't
believe one can argue that the annual policy we have had for
over 20 years has been overly effective with respect to the
question of human rights and with respect to the question of
religious freedom.
Mr. Jefferson. So, this effort doesn't abandon the
Government's pursuit of these outcomes relating to human rights
and the rest. It is simply in further pursuit of what the
Administration has called a policy that doesn't tie these
legitimate U.S. concerns together, particularly ties them into
the trading regimes.
Ambassador Barshefsky. Yes.
Mr. Jefferson. Now, let me ask you about a bill that has
been near and dear to my heart after CBI.
Ambassador Barshefsky. Yes.
Mr. Jefferson. I certainly hope that as we put the all-out
effort on PNTR that we don't have Africa in the dust on this
whole question. I look at the textile provisions as well as I
can in the China portfolio package, I guess is what you would
call it, and it seems to adopt our present bilateral agreement
with China on textiles.
Ambassador Barshefsky. Yes.
Mr. Jefferson. Which has an extension, it takes it through
2008, whereas normally the regime ends in 2005. And my question
was, we don't do anything to change the regime, do we? And I
was hoping that perhaps it did so that some of these issues
about China transshipments and all the other questions that we
talk about relating to Africa might be in some way or the other
affected by what we do here.
And, so, my question really is, even though it doesn't
appear to me that this particular protocol is changed in any
regard, whether by bringing China into the WTO and then the
rules that relate to our operating in that context, will give
us less concern, ought to give less concern, though I don't
have any now and we shouldn't have much because we have
stiffened the Africa bill with so many rules and so many
transshipment enforcement measures, unlike any other bill we
have done in this Committee, but will this help to assuage the
concerns of some of those who worry that China will be a
runaway transshipment outfit relating to Africa by doing what
you are asking us to do here and what the Administration has
worked out?
Ambassador Barshefsky. I do think that the China bilateral
agreement is a very strong one because it does have strict
rules against circumvention, against transshipment including
being able to triple-charge China's quotas if they transship.
And I do think the U.S. Customs Service has a much more
rigorous program with respect to transshipment, more personnel,
greater care, factory inspections in the foreign country, in
this case in China, a well as Hong Kong and elsewhere. I think
we have a vastly improved regime. That doesn't mean
transshipment from China doesn't occur but I think we have a
better handle on it now than say four or five years ago when
issues of transshipment were called to our attention.
My hope on the Africa and CBI bills is that they come up
early and that they pass, which is to say my hope is for an
early conference on these bills. I think that as you know these
bills remain a priority for the President. I just had a meeting
yesterday with a bunch of supporters of the African Growth and
Opportunity Act so I am, I have been and remain very focused on
that bill and on the CBI legislation. These are both very
important pieces of legislation that ought to pass and I think
in both with respect to textiles we ought to have a high degree
of confidence that the bills do as much as is possible with
respect to claims of transshipment and concerns about
transshipment and I think that the administration feels quite
comfortable that we will have in these bills important economic
gains for ourselves and for the countries involved, and we will
not see because of them an increase in transshipment problems.
Chairman Archer. The gentleman's time has expired.
Madam Ambassador, you commented on something that causes me
to say that the President has taken a position in favor of the
African Free Trade bill.
Ambassador Barshefsky. Yes.
Chairman Archer. He has also taken a position in favor of
permanent NTR for China. And, yet, word dribbles out of the
White House that the business community and agriculture is
being told it is their responsibility to deliver all the
Democrat votes. That will not work. And the message should be
very clear to the White House that the President needs to get
out front, full bore, with aggressive leadership for us to be
able to develop the bipartisan votes that are going to be
necessary to pass this permanent NTR for China.
And I see you nodding your head. That won't show up in the
record but--
Ambassador Barshefsky. I was going to say that the
President has already met with a number of members of Congress,
of both parties, and will continue to do so.
Chairman Archer. Thank you.
Mr. Levin. Mr. Chairman, will you yield for just 10
seconds?
Chairman Archer. Mr. Levin. I yield for 10 seconds.
Mr. Levin. I don't think that anybody can deliver votes. I
think we will tackle the issues and that is how the votes will
be influenced and determined.
Chairman Archer. Mr. Lewis of Kentucky.
The Chair would like very much, if possible, to conclude
Ambassador Barshefsky's testimony before we go to vote, if that
is at all possible. It may not be but perhaps members can
shorten their inquiries and we can get that done so she will
not have to come back.
Mr. Lewis.
Mr. Lewis of Kentucky. Thank you, Mr. Chairman.
Ambassador, although the tariff rates have fallen on
tobacco, tobacco was accepted along with fertilizer in regard
to trading rights. I know that you were going to do some more
negotiations in regard to fertilizer which I am very pleased
about. But what about tobacco?
Ambassador Barshefsky. I don't see the trading right
situation change with respect to tobacco. This, the issue of
tobacco from China's point of view has long been off the table.
You know that is a State monopoly. It is a complicated
situation in China. So, I will be honest with you, I don't see
that situation changing.
With respect to fertilizers we were given a commitment at
the political level in China that they would work with us to
resolve the problem.
Mr. Lewis of Kentucky. I, being from Kentucky, our tobacco
farmers have just experienced a 45 percent decrease in their
quota, 30 last year. They really need some open markets and if
there would be any way of readdressing this issue with the
Chinese, I am sure that they would greatly appreciate it. Thank
you.
Ambassador Barshefsky. Thank you.
Chairman Archer. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman.
Madam Ambassador, just a couple of quick questions. Could
you cite for me, considering that everybody here is really
antsy about nonperformance by the Chinese, some actions the
Chinese happen to be taking right now to implement this
agreement internally?
Ambassador Barshefsky. Certainly they have formed
committees internally among the agencies in China with respect
to implementation. They have sent out their top level
officials, as we understand it, to many of the provincial
governors and mayors making clear what the requirements would
entail. They have had meetings State-owned enterprises to make
clear what they would have to do in order to comply with the
agreements.
So, we have seen very substantial activity, actually over
the last five or six months, not just now, but over the last
five or six months, even while they were not negotiating with
us because of the accidental bombing of their embassy in
Belgrade, there were very substantial high-level meetings; that
is to say meetings attended by high level officials in the
Chinese Government all across the country building support for
accession but also alerting those in power as to what would be
required in order to comply.
Mr. Neal. Are they on track?
Ambassador Barshefsky. I think so. I think so.
Mr. Neal. How much more do they have to do?
Ambassador Barshefsky. It is going to be a continuing
process. This will be a never-ending process as it is, to be
frank, with most countries.
Mr. Neal. Okay. So, clearly, that is one of the issues here
as you can tell from members questions.
Ambassador Barshefsky. Yes, of course.
Mr. Neal. The whole notion of nonperformance is a big
issue.
Ambassador Barshefsky. Of course. I understand that which
is why we negotiated so many different kinds of enforcement
mechanisms in the agreement. It is why we negotiated rules with
such specificity, unusual for agreements of this nature but we
wanted to be sure China knew exactly what it had to do and by
when. It is why the President has asked for substantially
increased funding for monitoring and enforcement activities for
USTR, Commerce, USDA and other agencies in his budget request
that just came up here last week. And it is why we do have
substantial interest in a number of the ideas that Congressman
Levin put forward.
Mr. Neal. Thank you.
Ambassador Barshefsky. Thank you.
Chairman Archer. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman.
Ambassador, thank you, again for being with us. I want to
compliment you one more time on the work that you and your team
have done in trying to negotiate with China. They are tough
bargainers and certainly you have proven that you are as well.
Ambassador Barshefsky. Thank you.
Mr. Becerra. Let me also urge that you heed the words of
Mr. Levin as well and what he said earlier in his opening
statement and in some of his questions. I think that he is on
to something and certainly I think the sooner we are able to
come to some agreement that it could be a win-win but there
needs to be some discussion about how we get to that win-win
situation. I think that would be helpful.
What Mr. Neal asked deals with part of the questions that I
would have asked so I will avoid going into that other than to
say that implementation and enforcement, obviously, is very
important to many of us.
Ambassador Barshefsky. Key.
Mr. Becerra. TRIPS and TRIMS and all the other agreements
we are really interested in seeing how we will get compliance
and performance from China.
Ambassador Barshefsky. Yes.
Mr. Becerra. Let me spend just a little time asking you go
to through with me this argument that we cannot or that we can
do an annual NTR versus the permanent because I think it is
more a political argument made that we cannot live with
anything less than a permanent NTR which may ultimately be
important enough to cause us to have to go towards a permanent
if we find no other way to do this. But why not run the course
of the annual NTR as some are proposing? Give me the
explanation why it is that we cannot do that if you run it down
to its logical conclusion?
Ambassador Barshefsky. This is a legal issue. It is not a
political issue except obviously politically not providing
China permanent NTR I think is a substantial problem as we have
indicated before in testimony. But this is a legal issue. Under
WTO rules every WTO member must grant to every other member the
same rights and privileges and benefits unconditionally,
unconditionally and immediately in order to have a WTO
relationship with a member. In other words, in order that you
can guarantee the benefits will flow from what you have
negotiated.
Mr. Becerra. So, those who say you can do an annual say
unconditionally for that period of time, for that year, we have
granted China--
Ambassador Barshefsky. That is not unconditional in the
meaning of WTO rules. Unconditional in WTO rules doesn't mean
periodically unconditional. It means unconditional.
Mr. Becerra. So, the way you frame it then or the way you
think the Chinese would frame it is they would go back to the
base agreements and say that the fact that every year you have
to come back means there is a condition on that NTR status.
Ambassador Barshefsky. Correct. It is fundamental in the
WTO that no country can be treated differently from any other
country with respect to its import rights. We would be treating
China differently from the other 135 members of the WTO. This
is a fundamental violation.
Mr. Becerra. And the treatment that would be different is
the fact that there would be no certainty or predictability--
Ambassador Barshefsky. Correct.
Mr. Becerra.--to the status.
Ambassador Barshefsky. Correct.
Mr. Becerra. But in terms of the actual trade relationship
the treatment would be the same, it is just that because there
would be that aura hanging over your head that perhaps in 365
days you wouldn't have that status, the NTR status, that would
be a differentiated treatment from the rest of the world.
Ambassador Barshefsky. Correct. That is to say that annual
NTR is not only not unconditional it is discriminatory and both
of which violate fundamental precepts of the WTO.
Mr. Becerra. Is there any room that you see to have a less
than permanent, by time frame, NTR that would survive a
challenge by China or anyone within the WTO framework?
Ambassador Barshefsky. I don't see it. I don't see it. I
don't think this is an area where nuance can override the basic
illegality under WTO rules of treating different countries
differently.
Mr. Becerra. And in the President's statement that he would
vote the--what is the word, the non--
Ambassador Barshefsky. Nonapplication.
Mr. Becerra.--where he would invoke the nonapplication
himself if we got to the point of not granting permanent NTR,
that would be for the purpose of protecting us within the WTO,
itself, because otherwise if we are in the only other way to
challenge China's status would be to remove ourselves
completely from the WTO?
Ambassador Barshefsky. No. What he means is that he is
saying in that hypothetical situation if China were to enter he
would consider taking an exception to MFN, if you will. That is
exactly what we want to avoid because then China is under no
obligation to provide us the full benefits of what we
negotiated but they would be applying our agreement to everyone
else in the world.
Mr. Becerra. I will leave it there.
Thank you, Mr. Chairman.
Thank you, Madam Ambassador.
Ambassador Barshefsky. Thank you.
Chairman Archer. Thank you, Mr. Becerra.
Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman.
First, on tobacco, I am pleased it is off the table. Any
effort to expand tobacco markets for tobacco farmers here would
totally contradict what the President has said about this
deadly product. As you know, Ambassador, I fully support the
view that more international commerce means more good jobs,
more high-paying jobs here in America. But that is not our sole
concern, of course, and I applaud the comments that you and the
President made particularly with regard to the environment out
in Seattle.
Ambassador Barshefsky. Yes.
Mr. Doggett. And I am interested in the extent to which
those are being given real meaning in our trade policy. I know
that first in negotiating this agreement the groups that had an
opportunity to see it beforehand, other than members of
Congress, included your industry advisory committees or ISACs.
Ambassador Barshefsky. Yes.
Mr. Doggett. And that they routinely advised your agency on
a wide range of matters from forest products to global warming.
As you are well aware, there are industry representatives on
the environmental committee but no environmental
representatives on the industry committee. And this practice, I
believe, a Federal court has said you could not articulate any
reason why a single environmental representative on those
committees would impair either our trade negotiations or the
operations of the committees.
In view of that, doesn't the opposition of the trade
representatives office to environmental participation on these
advisory committees contradict what the President was saying
about his desire to use our trade policy to leverage
environmental protection up instead of down and, indeed,
doesn't it contradict the interest expressed in getting the WTO
to open its processes up to both environmentalists and other
forms of public participation?
Ambassador Barshefsky. No. And the reason is several fold.
First off, we, the Commerce Department and the Justice
Department have agreed to appeal the lower court ruling because
we believe the lower court fundamentally misconstrued the
statute under which we operate these advisory committees. This
is a broader point of law which we felt had to be clarified at
the appellate level.
It does not have to do with our preference whether certain
members serve on certain committees or not. There is a broader
point of statutory construction at issue here.
Second of all, we, as you know, have I think more than any
other Administration opened up the process of private sector
advisors to include environmental groups. Environmental groups
sit on our top tier advisory committee, the ACTIN. We also have
a trade and environment advisory committee which is statutory
and we are the first Administration to do that. And obviously--
Mr. Doggett. I am familiar with that committee but it has
not had the same level of involvement in consideration of this
agreement or other agreements that the industry advisory
committees have had, has it?
Ambassador Barshefsky. Well, they are certainly welcome to
because they are all cleared advisors and they have always had
access to all of the text.
And third, let me just say that we are looking at ways to
promote yet greater public input including from environmental
groups. We and Commerce are working on that now. Obviously we
will implement the lower court ruling. We have not asked for
injunctive relief of any sort. We will proceed to implement the
lower court ruling but the appeal, just to repeat, has to do
with a somewhat broader point of law with respect to statutory
construction.
Mr. Doggett. Which is the view that the Congress won't let
you do it?
Ambassador Barshefsky. Yes.
Mr. Doggett. Okay. And with looking specifically at this
China agreement, with the notable exception of the reduction of
environmentally harmful subsidies, which I know you have
discussed before, which have an ample nonenvironmental
justification as well as an environmental justification, what
specifics can you point to in this particular agreement that
you think will advance environmental interests?
Ambassador Barshefsky. Well, with respect particularly to
services market opening, we have commitments from China to open
up such services as sewage, solid waste disposal, noise
abatement, nature and landscape protection services, as well as
energy and transportation services. I think all of these will
have important side benefits.
In addition, as you know, we do have an extensive program
of cooperation with China on environmental initiatives through
a series of programs the Vice President inaugurated as well as
through programs that EPA and others in the Administration
participate in, whether global greenhouse gas reduction, urban
air quality or energy efficiency.
And those programs are continuing.
Mr. Doggett. Outside this agreement?
Ambassador Barshefsky. Yes. Those are outside the agreement
but the services market opening is in this agreement as well as
a pre-agreement by China that to the extent the WTO removes
tariffs on environmental goods and services and we would like
to do that to diffuse the technology, to diffuse these
products, China will agree.
Chairman Archer. The gentleman's time has expired.
Madam Ambassador, you are excused. The Committee will stand
in recess until we can complete the votes on the floor and then
return.
[Recess.]
Chairman Archer. The committee will come to order. The
Chair apologizes to our witnesses for the delay, but we have no
control over when they have votes on the floor of the House of
Representatives.
I am told that Mr. Trammell and Mr. Erisman would like to
be given the opportunity to move up to this panel, and that is
acceptable to the Chair, provided the other individuals on the
last panel are willing to stay and go in regular order. So, Mr.
Erisman, would you like to--
Mr. Stark. Mr. Chairman?
Chairman Archer. Mr. Stark, I will recognize you shortly.
Mr. Stark. Thank you, Mr. Chairman.
Chairman Archer. I want to first recognize Mr. Bonsignore,
who has another appointment and will have to leave, and so I
would welcome you and ask you to proceed with your statement.
As I mentioned earlier--and I know most of you were in the
room--we ask all witnesses to limit their oral statement to 5
minutes, and without objection, all of your printed statements
will be inserted in the record.
So you may commence, Mr. Bonsignore.
STATEMENT OF MICHAEL R. BONSIGNORE, CHIEF EXECUTIVE OFFICER,
HONEYWELL INTERNATIONAL, INC., MORRISTOWN, NEW JERSEY, ON
BEHALF OF U.S.-CHINA BUSINESS COUNCIL, AND BUSINESS ROUNDTABLE
Mr. Bonsignore. Thank you. Chairman Archer, Congressman
Rangel, members of the committee, distinguished colleagues on
the panel, ladies and gentlemen, it is my pleasure and honor
this afternoon to testify before this committee and share my
perspective on the benefits of China's accession to the WTO--
Chairman Archer. The Chair would ask you to identify
yourself for the record and whom you represent, and that would
apply to all of the witnesses. I forget to mention that.
Mr. Bonsignore. Thank you, Mr. Chairman. I am Michael
Bonsignore. I am the chief executive officer of Honeywell, and
I am here on behalf of my company, the U.S.--China Business
Council, and the Business Roundtable.
Chairman Archer. And if I could also ask you to suspend for
one more moment, I think Mr. Ramstad, my colleague, would like
to make a remark or two welcoming you to the committee.
Mr. Ramstad. Thank you, Mr. Chairman.
Just very briefly, I want to thank all the members of this
panel for your indulgence and for your patience and for being
here today. And I especially want to welcome the two
Minnesotans, my two Minnesota friends on this panel, Mr.
Chairman, and thank you for the recognition.
First I want to welcome back to the committee Ernie Micek,
chairman of the board at Cargill. He, more than anybody I know
in this country, has focused his energy, attention, and
expertise on efforts to feed the world through international
trade. Ernie also represents here the Emergency Committee for
American Trade, ECAT, so he is wearing two hats.
Then, Mr. Chairman, I also want to welcome Mike Bonsignore,
CEO of Honeywell, as you said, a company that started in
Minnesota 114 years ago, currently employs 8,500 people in
Minnesota and 120,000 people in 100 countries throughout the
world. Like Cargill, Honeywell has been a great corporate
citizen in Minnesota because of Mike's leadership, in large
part, and like Cargill, Honeywell extends its philanthropic
activities to its operations worldwide.
Mike also wears two hats, Mr. Chairman. He comes before us
today as chairman of the U.S.--China Business Council and as a
member--actually, three hats, a member of the Business
Roundtable's Trade and Investment Task Force.
So I want to welcome both Mike Bonsignore and Ernie Micek,
two great Minnesotans who are here today, and thank you for
being with us.
Thank you, Mr. Chairman. I yield back.
Chairman Archer. Now, Mr. Bonsignore, hopefully without any
further interruptions by the Chair, we would be pleased to
receive your testimony.
Mr. Bonsignore. Thank you, Mr. Chairman. My written
testimony today addresses five points: the commercial benefits
of the WTO bilateral agreement; the importance of the U.S.
policy of engagement with China; how U.S. companies are
catalysts for change in China; the opportunity to support
enforcement; and the leadership role of the United States on
labor, the environment, and human rights.
Because of my limited time today, I would like to focus on
two of these points: the commercial benefits and the positive
role of U.S. companies.
You have all heard a great deal about the many benefits of
China's accession to the WTO and the bilateral agreement. I
would like to make it more concrete for you today by showing
you how those benefits play out for my company, Honeywell.
This deal creates a great opportunity for us. China is a
huge market for U.S. business and for my company. We are
already seeing growth rates between 10 to 25 percent per year
in many of the key market segments that we serve in China.
Because of this agreement, Honeywell will have the ability
now to import directly anywhere into China, resell under our
own name, provide service, maintenance, and repair support, and
manage our own distribution process. This is an extremely
positive change because, in China today, foreign firms have no
right to distribute products other than those that they make in
China, or to own or manage the distribution network.
Direct control over our operations and sales process is
essential to our cost and service competitiveness. It increases
our exports to China. It creates more jobs at home in the
United States for the products that we produce here and more
jobs in China for those products that are applied in satisfying
the needs of Chinese customers.
Our story goes beyond the commercial benefits, however.
There are other significant aspects to U.S. businesses'
commercial engagement in China, aspects that complement and
support a range of U.S. policy objectives in China. American
companies and farmers see China as the single most promising
opportunity to expand markets for our products and services.
Growth in China will create a positive return for our
employees, for our shareholders, for our communities, and for
our suppliers. In fact, the economic benefit from any one U.S.
company's commercial engagement in China ripples across the
U.S. economy as part of an intricate supply chain of producers
and suppliers, small and large alike, allowing individual U.S.
workers to benefit as well.
But the benefits of U.S. commercial engagement are not
economic alone. The ripple effect of these other benefits
touches both U.S. and Chinese lives. These benefits are perhaps
not as well known or understood, so I would like to take a
moment to share with you something of the ``untold story'' of
U.S. business in China.
When U.S. companies export to China and establish
operations there, they bring not only their products and
services, but also our operating standards, best business
practices, corporate values, and guiding principles. In so
doing, U.S. companies set a positive example of corporate
citizenship and contribute to the evolution of norms within
Chinese society. Indeed, many of these practices are
increasingly being adopted by domestic enterprises in China.
For example, did you know that U.S. companies bring
literally tens of thousands of Chinese citizens to visit the
United States each year for a wide range of technical,
managerial, financial, environmental, and health and safety
training? For many Chinese visitors, these trips are not only
their first exposure to the United States and our way of life,
but their first time out of China. In addition, U.S. companies
provide extensive training and education in China.
Did you know that U.S. companies, through the voluntary
contributions of U.S. employees and their foundations, have
provided millions of dollars for flood relief in China? Did you
know that we build schools and health clinics and that our own
Chinese employees volunteer in these efforts?
Did you know that we provide home ownership programs for
our workers and their families, offer scholarships, donate
equipment and computers for training, teach classes, support
rule of law initiatives, and sponsor Little League baseball
teams in the communities where we operate in China?
And did you realize that in undertaking all of these
activities on our own, American companies are complementing
many of the policy aims toward China that Congress and the
Administration share?
These examples, and many others, are documented in a report
being released to the Congress today. This report, ``Corporate
Social Responsibility in China: Practices by U.S. Companies,''
was compiled and published under the leadership of The Business
Roundtable.
We acknowledge that trade is no quick fix to China's
problems. It encourages China to move in the right direction,
however. Through trade and investment, we can give the Chinese
people access to information and exposure to other cultures
from around the world.
In closing, let me say that the WTO agreement can be
evaluated on its economic merits alone and on that basis be
judged a win for the United States. But China's accession to
the WTO is not about economics alone. It is about seizing an
important opportunity to work with China on a shared objective
of accelerating China's economic transformation. It is about
expanding the ability of business to do good while doing well.
Thank you, Mr. Chairman, for this opportunity to testify. I
urge the committee to take a broad view of the importance of
bringing China into the WTO and lend its full support to
passing permanent normal trade relations this year.
Thank you, sir.
[The prepared statement follows:]
Statement of Michael R. Bonsignore, Chief Executive Officer, Honeywell
International, Inc., Morristown, New Jersey, on behalf of the U.S.--
China Business Council, and Business Roundtable
Good morning Chairman Archer, Congressman Rangel, members
of the Committee, my distinguished colleagues on the panel,
ladies and gentlemen. It is my pleasure and honor to have this
opportunity to testify before this committee to share my
perspective on the benefits of China's accession to the WTO and
the recently concluded bilateral agreement between the United
States and China.
I am Chief Executive Officer of Honeywell, a global
diversified manufacturing and technology company. As you know,
Honeywell and Allied Signal merged at the end of 1999 to form a
great new organization with almost $25 billion in revenue,
120,000 employees worldwide and a presence in almost 100
countries. I am extremely optimistic about the future of this
new enterprise--and very aware that much of our future growth
and business opportunities will come from markets outside the
United States--as it has in the past.
Today, Honeywell's business in China is approaching a half
a billion dollars in revenue--a substantial portion of which is
direct exports from the United States. On virtually every
Boeing aircraft shipped to China, Honeywell's avionics,
auxiliary power units, wheels and brakes are on board. We ship
industrial process control instruments and systems to help
modernize a wide range of Chinese industries--from pulp and
paper to petrochemicals. We ship energy efficient lighting
controls and energy management systems for Chinese buildings--
hotels, offices, airports, schools and hospitals. We export
amorphous metals to help improve the efficiency of transformers
in China, and also specialty chemicals, polymers and electronic
materials to support a wide range of Chinese manufacturing
needs. Finally, we provide turbochargers for diesel and gas
engines and truck air brake components for the automotive
market.
We also have a wide range of business operations in China.
The growth rate we are experiencing in the numerous markets we
serve in China ranges between 10-25%. We are deeply committed
to the China market and to the local communities in which we
operate.
I am proud to be serving this year as Chairman of the
U.S.--China Business Council. As you know, the Council was
founded in 1973 and represents 250 leading American companies
with business interests in China. I am also a member of The
Business Roundtable's Trade & Investment Task Force. The
Roundtable is an association of more than 200 CEOs of U.S.
corporations that together employ more than 10 million people.
It is dedicated to examining public policy issues that affect
the economy and developing positions that reflect sound
economic and social principles.
I would like to address five points in my remarks to you
today: (1) the commercial benefits of this agreement are
comprehensive; (2) the United States' consistent policy of
engagement with China is working and should continue; (3) U.S.
business is a catalyst for positive change in China; (4)
enforcement is essential; and (5) the United States must show
leadership by taking concrete steps with China to improve
labor, human rights and environmental conditions.
I. The Commercial Benefits of the WTO Deal Are Comprehensive
Because the overall commercial benefits have been amply
addressed by Ambassador Barshefsky and no doubt will be
addressed by many other representatives from a wide range of
the American business and agricultural community, I will not go
into them further here.
I have, however, attached to my written testimony a summary
of the benefits that Honeywell specifically anticipates from
the implementation of this agreement. I believe the benefits to
Honeywell paint a picture of how significant China's
concessions are when you put them all together and see how they
work in the real-world.
II. Engagement Works
For more than two decades now, U.S. Presidents from both
parties (Nixon, Ford, Carter, Reagan, Bush, and Clinton), who
have widely divergent ideas on economic policy, foreign
affairs, and social goals, have consistently determined that
the best way to increase America's influence with China is
through a policy of engagement. The four Presidential front-
runners now are no different: Bush, Bradley, Gore, and McCain
all support continuing our engagement with China by passing
PNTR.
Our Presidents' support for engagement has been so
consistent and bipartisan over the years because it works.
Engagement simply means building our economic and political
ties with China, bilaterally and multilaterally, so that we
provide constant pressure for China to be a constructive and
responsible member of the international community.
Strengthening our economic ties strengthens our voice by giving
China a vested interest in maintaining stable relations with us
and addressing our concerns.
Engagement does not mean that we are ratifying all of
China's policies or giving China any special treatment. I hear
those phrases bandied about in the debate, and they couldn't be
more wrong. This WTO deal gives China no special treatment. It
simply brings China into the international trading system where
China has to follow the same rules that everyone else follows,
instead of leaving China outside the system where China gets to
make its own rules.
Do we have more work to do? Absolutely. However, PNTR is
not a ratification of China's troubling human rights record. We
need to continue to press China to move toward an open and
democratic society that protects individuals' freedom and that
contributes to international peace and security. Bringing China
into the WTO is a positive step in this direction. It opens up
China's economy and society to the world, wider than ever
before. And it binds China more firmly into the international
community and the rule of law.
Opponents of PNTR would hold us back from realizing this
future.
Let us take a moment to examine what a future without PNTR
would look like. It's a picture without the United States in
it. While the rest of the world is engaging in deeper economic
ties with China through the WTO, the United States would be on
the sidelines. Europe and Japan would be increasing their
investments in China, increasing exports to China, and also
increasing their imports from China. Now when human rights or
other issues come up, which diplomats will China see first?
Ours because we demand it? Or Europe's because they have new
economic contacts, new investments, and new projects in China.
This isn't a matter of buying influence; it's a matter of
building the relationships to get things done. Relationships
are important everywhere, but especially in Asia. China is a
proud country. Isolating them and threatening them into
following our point of view is not an effective strategy to
influence them. Obviously we're no weakling, and China knows
that well. But if we want to have influence, we've got to be at
the table. PNTR helps puts us there.
III. U.S. Business is a Catalyst for Positive Change in China
The commercial interests U.S. companies hold in China are
well known. As I just stated, I believe the benefits of the WTO
deal to U.S. business interests are increasingly well
documented. What is perhaps not as well known or understood are
the non-commercial benefits that accrue both to the U.S. and
China through the engagement of U.S. business in China. I'd
like to take a few moments to share with you something of the
``untold story'' of U.S. business in China.
The fact is that when U.S. companies export to and
establish operations in China, they bring not only their
products and services, but also their operating standards,
their best business practices, their corporate values and their
guiding principles. In so doing, U.S. companies act as a
catalyst for positive change in China. Through the
dissemination of a broad range of practices, U.S. companies set
a positive example of corporate citizenship and contribute to
the evolution of norms within Chinese society.
Indeed, many of these practices are increasingly being
adopted by domestic enterprises in China.
Did you know that U.S. companies are helping to
lead the way for improved environmental, health and safety
conditions in China by engaging in government-to-government
initiatives, providing direct support to environmental NGOs,
establishing U.S.--based internal company standards and
practices, and introducing environmental technologies and
industrial systems that minimize waste, control emissions, and
enhance safety?
Did you know that literally tens of thousands of
Chinese citizens visit the United States each year as the U.S.
parent company brings them over for a wide range of technical,
managerial, financial, environmental, health and safety
training and education? For many Chinese visitors these trips
are not only their first visit to the United States, but their
first time out of China. Extensive training and education is
also provided by U.S. companies in China.
Did you know that U.S. companies--through the
voluntary contributions of U.S. employees and through their
foundations--have provided millions of dollars to support flood
relief and aid victims in China? Did you know that we build
schools and health clinics, and that our own Chinese employees
volunteer in these efforts? Did you know that we provide home
ownership assistance programs to our employees and their
families, offer scholarships, donate equipment and computers
for training, teach classes at Universities, support rule of
law initiatives and grassroots electoral reform programs, bring
western arts and entertainment, and sponsor Little League teams
in the communities in which we operate?
Did you realize that in undertaking all of these
activities, on our volition, we are complementing many of the
policy aims that Congress and the Administration share toward
China? We are, in fact, the major U.S. non-governmental
organization effecting concrete change in China.
These examples and more have been documented by a number of
U.S. companies in a report that is being released to Congress
today. This report, entitled ``Corporate Social Responsibility
in China: Practices by U.S. Companies,''was compiled and
published under the leadership of The Business Roundtable. I
commend it you as tangible evidence that U.S. companies do more
than sell goods in China.
In supporting commercial engagement with China--by securing
the benefits of the WTO deal through the extension of PNTR to
China--Congress supports the ability of U.S. business to make a
positive difference in China.
IV. Enforcement Is Essential
It is clear from the debate underway here in Washington
that there is a substantial amount of concern regarding China's
willingness to live up to its obligations under the WTO. Many
assert that China's record on trade accords is mixed. That's
true. We will need to be vigilant. As Ambassador Barshefsky has
outlined in her remarks, monitoring, compliance and dispute
settlement mechanisms are a built-in advantage of the WTO
system.
In order to ensure compliance by China with its
commitments, it is important to understand the extent of those
commitments. I would tell you that the breadth of commitments
that China has made in the WTO package is impressive. They
represent the conviction of Chinese leadership that their
future prosperity lies in moving to full-scale economic
liberalization and engagement in multilateral institutions--not
in the outmoded and unsuccessful model of isolationism, and a
command and control economy populated by state-owned
enterprises.
But the reforms and institutional changes implicit in
changing China's economic model and system are formidable. The
Chinese government is acutely conscious of these challenges -
and of the cost that will be born in terms of unemployment,
dislocations, failed enterprises, and the trial and error of
institution and capacity building that accompanies the
transformation from a central, planned economy to a
transparent, market based economy.
For example, the national treatment provisions of the WTO
accession package mean that China will have to revamp its
national, provincial, and local regulatory structure to treat
U.S. and other foreign participants in its markets no
differently than Chinese companies. Doing so will require
greater transparency in drafting, promulgating and implementing
administrative rules governing virtually every sector of the
economy.
The Chinese government has already begun a process of
administrative law reform, with support from U.S. legal and
academic institutions and experts, but this process inevitably
will need to accelerate.
There are two ways to deal with these implementation
challenges. First, when necessary there should be no hesitation
by the U.S. government to invoke the WTO dispute settlement
process. Second, we also need to realize that there are many
opportunities to facilitate and improve China's compliance
before trade disputes erupt. The greater the ability of China
to comply quickly and effectively, the lower the risk that we
end up in a situation where full blown trade disputes emerge.
In this regard, I strongly believe that part of our
strategy in optimizing the benefits of China's accession to the
WTO and ensuring that the system works, should be to provide
technical and other assistance to China to help it reach, and
to accelerate, the vigorous compliance that we expect.
V. The United States Must Show Leadership By Taking Concrete
Steps with China to Improve Labor, Human Rights, and
Environmental Conditions
We know that some of you are concerned that passing PNTR
will be bad for labor, the environment and human rights. These
are important issues. And PNTR will not adversely affect our
ability to be a positive influence on China in these areas.
While trade is no quick fix to China's problems, it
encourages China to move in the right direction. At its core,
bringing China into the WTO increases China's ties with the
international community. That is the best chance for bringing
change to China: it exposes China to international standards
and the rule of law, and it links China's prosperity to the
international system.
We can't dictate policy to China; it's a sovereign country
like us, and we don't respond well to other countries dictating
how we cope with some of our problems. But through trade, we
can expand the Chinese people's access to new information and
increase their exposure to cultures from around the world. Over
time, these indirect efforts have an impact.
The bottom line is that by building closer economic ties
with China, the United States increases its leverage with
China, and that helps us address these concerns. Isolating
China doesn't get us any closer to meeting these concerns.
It is also important for the Congress to recognize that
China has been taking constructive steps.
On labor, China's 1995 National Labor Law implemented a 40-
hour workweek. That law also permits workers to bargain
collectively. On the environment, China issued its first
environmental protection law in 1979. Today, China's State
Environmental Protection Agency has ministerial status, just as
our EPA has cabinet status. In addition, over the last two
decades, China has significantly lowered its energy intensity,
which is its total energy consumption divided by GDP. China's
energy intensity has dropped by over 55%, while U.S. energy
intensity fell by only 25% during the same period.
We need to encourage them, and provide assistance where we
can, to keep them moving in a positive direction.
Finally, we all need to be creative in identifying and
capitalizing on opportunities to provide tools to help China
meet its obligations and improve its labor, human rights, and
environmental conditions.
As this Committee is well aware, the economic, social and
political transformation that has been underway in Eastern
Europe and the former Soviet Union since the collapse of the
Berlin Wall continues to be an arduous journey for most of the
countries involved. The relative success of these efforts, to
date, is a function of multiple factors--including the United
States' leadership in supporting those efforts.
As you know, the Congress established a number of
constructive programs to support democratic and market-reform
initiatives as these regions began their transformation
process.
In November 1989, just weeks after the Berlin Wall fell,
the U.S. Congress in a bold act of recognition of the daunting
challenge facing the former Soviet satellite countries, passed
the SEED Act--Support of Eastern European Democracy. In 1992,
shortly after the dissolution of the Soviet Union, Congress
passed the Freedom Support Act. These initiatives were aimed at
helping these countries meet the wrenching adjustment
challenges ahead of them. Since 1990 the United States has
spent approximately $15 billion on this effort. Much of the
funding in these programs went to support fiscal, financial,
regulatory and legal reforms as well as to provide training and
technical assistance.
These programs demonstrated U.S. leadership and commitment
to democracy by providing concrete support to accelerate the
economic, social and political transition in these countries.
Now, Congress has the opportunity to demonstrate its commitment
to China's economic, social and political transformation--by
enacting permanent normal trade relations for China.
To further complement this achievement, Congress should
also consider whether there are comparable initiatives that
would build on the progress made in opening China up through
trade.
For example, there is the so-called ``rule of law
initiative'' on which the presidents of the United States and
China symbolically embarked during the November 1997 and June
1998 summit meetings. As I'm sure you would agree, U.S.--China
cooperation in the field of law is a valid, legitimate building
block both of closer U.S.--China relations, and of a better
world. Right now there is no significant U.S. funding to
support this effort.
The business community is mindful of doing its part in this
regard. As just one example, the U.S.--China Business Council
in 1998 invited its member companies to make voluntary
contributions to a new entity, the U.S.--China Legal
Cooperation Fund. The Council's companies have contributed
approximately $400,000 to the Fund, and we have since made 10
private-sector grants to worthy applicants from both the United
States and China in the broad field of legal cooperation.
The United States also has a high level U.S.--China Forum
on Sustainable Development that has an ambitious array of
working groups which address a range of issues related to
energy, environment, commercial cooperation, climate change and
other topics, and that meet on a regular basis to talk about
China's challenges. Yet, we do not extend the U.S.--Asia
Environmental Partnership Program to China.
I believe that these types of initiatives, which provide
technical and other practical assistance to China, are much
more effective vehicles for making progress than denying PNTR
to China.
Conclusion
As you consider whether to support PNTR, consider who it is
we want to strengthen in China. The old-guard that opposes the
WTO and wants to slow down economic reform? Or the reformers,
who have staked their reputations on bringing China into the
WTO? Failure to pass PNTR doesn't send the ``strong message''
that U.S. opponents of PNTR would have you believe. It doesn't
tell China that the United States is getting tough on human
rights, non-proliferation or other issues. Just the opposite.
It says the United States isn't a player; we don't want to be
at the table. And we don't stand by the agreement we made in
November.
The bottom line is that turning down PNTR doesn't move us
one inch closer to better human rights, environmental
standards, or any other goals. It moves us a mile in the other
direction. And it hurts our reputation worldwide. We should not
be reverting to isolationism at a time when it is more
important than ever to show leadership to the world.
I understand that at times it may seem easier to leave
things as they are and just renew China's NTR annually, even at
the price of passing up China's historic trade concessions. But
I urge you to focus on one question: Is America better off
under this deal or not? The answer is a resounding yes--we are
better off. This agreement doesn't get us to the finish line,
but it does move us farther along in the right direction. Yes,
we're going to have challenges, and we're going to have to be
vigilant to hold China to the agreement. And we're going to
have to raise our voice against the Chinese policies we oppose.
In closing, let me say that the WTO deal can be evaluated
on its economic merits alone and be judged a true win-win. But
let me also underscore that clearly the WTO deal is not about
economics alone. It's about expanding the ability of business
to do good, while doing well in China. It's about strengthening
a pillar of the bilateral relationship that in turn adds much
needed stability to the foundation of this strategically
important relationship. It's about seizing an important
opportunity to work with China on a shared objective of
accelerating and managing the transformation of China's
economic system--with all the attendant social and political
implications.
I thank you again, Mr. Chairman, for this opportunity to
testify on an issue of great importance to us all. And I urge
the Committee to take this broad view of the importance of the
WTO deal -and lend its full and immediate support to securing
PNTR for China this year.
The China WTO Accession Agreement and the Expected Benefits to
Honeywell in China
The WTO accession for China is an invaluable negotiating
vehicle through which to address a range of discriminatory
trade practices, regulatory processes, trade barriers, lack of
transparency, and other policies that limit US companies'
participation in the Chinese market.
The WTO deal as announced and summarized by USTR on
November 15th contains a number of very important elements that
will enhance Honeywell's ability to trade with and do business
in China. Honeywell will further review the terms of the
Agreement once the full text is published.
Key Benefits
I. Trading and Distribution Rights. Restrictions on trading
and distribution rights in the industrial sector will be
progressively phased out over three (3) years. At present,
China severely restricts trading rights (the right to import
and export) and distribution (wholesaling, retailing,
maintenance and repair, and transportation) by issuing very
restrictive business licenses.
Because of the WTO agreement, Honeywell will have the
ability to import directly anywhere into China, re-sell under
its own name, and provide service, maintenance and repair
support, and manage its own distribution process.
This is extremely important because in China today, foreign
firms have no right to distribute products other than those
they make in China, or to own or manage distribution networks.
This will impact virtually every business unit of Honeywell--
all of which serve the China market.
II. Tariffs. On high priority industrial products tariffs
will be reduced to an average of 7.1% with the majority of cuts
being achieved by 2003. Industrial tariffs overall will fall to
an average of 9.4% by 2005.
China will participate in the Information
Technology Agreement which means that Honeywell will see
tariffs on several major, high value-added information
technology products phased out completely over three (3) years.
China will be implementing the vast majority of
the chemical harmonization initiative that will bring tariffs
on important Honeywell product categories down to 0, 5.5, or
6.0%.
Accelerated tariff reduction down to 25% will
occur on autos by 2006, and on auto parts, tariffs will be cut
to an average of 10% by the same year. Honeywell serves the
auto market by providing consumer branded products for
automotive manufacturers and the aftermarket, turbochargers,
braking systems and electronics sensors for a range of
vehicles. Improvements in market access for China's auto sector
will help drive Honeywell's sales to our customers in China as
well as those exporting from the United States to China.
China will also bind its entire tariff schedule,
meaning it will accept a legal and enforceable commitment not
to raise tariffs in the future above the bound level.
The cumulative impact of these tariff cuts will have a
significantly beneficial impact on Honeywell's cost structure
in China.
III. Quotas and Licenses. WTO rules bar quotas and other
quantitative restrictions, and China has agreed to eliminate
these restrictions with phase-ins limited to five years.
Auto quotas will be phased out by 2005, and the quota
ceiling will grow by 15% each year until the phase out. Again,
this liberalization of the China auto market will be beneficial
for the new company.
IV. Other Restrictions. China currently requires a ``quid
pro quo'' for granting company access to its markets in the
form of either minimum investment levels, specified technology
transfer, or, local content requirements. Under the WTO
agreement, all such limitations will be lifted.
The elimination of these requirements for obtaining an
expanded business license will make it more efficient and cost-
effective for Honeywell to support its operations and therefore
enhance its competitiveness in China.
V. Services. China is among the most closed markets today
to services exports anywhere in the world. However, its
commitments on services are comparable to those of most WTO
members.
They include commitments in all major service categories
and reasonable transitions to eliminate most foreign equity
restrictions. The liberalization will benefit Honeywell since
it will provide us with greater choice and improved
efficiencies in service sectors on which we rely to do business
in China.
VI. Investment. China has agreed to implement the agreement
on Trade-Related Investment Measures (TRIMS) of the WTO upon
accession, and to cease enforcing trade and foreign exchange
balancing requirements, local content requirements, and to
refuse to enforce contracts imposing these requirements, unless
they are consistent with WTO rules.
Honeywell has nine joint ventures and six manufacturing
sites in China. We will enjoy greater protection of our
investments and greater freedoms in operating these ventures
due to these provisions in the WTO accession agreement.
VII. State-Owned/Invested Enterprises. Currently China's
government has an unusually high degree of involvement in the
economy and can exercise its own discretion toward the granting
of contracts by state-owned enterprises.
Under the WTO agreement, state-owned enterprises will be
required to make purchases solely on commercial considerations,
such as price, quality, availability, and marketability. In
addition, US firms will be allowed to compete for sales and
purchases on non-discriminatory terms and conditions. USTR has
clarified with the Chinese that the purchase of goods and
services by these entities does not constitute government
procurement, therefore these transactions will be subject to
WTO rules.
Because state-owned and state-invested enterprises have a
greater role in China's economy than in any other major
economy, this change we expect will materially benefit US
companies like Honeywell.
With the advent of the WTO accession Chinese companies will
need to invest more in upgrading and modernizing their
manufacturing processes and facilities to become more
competitive globally. As a leader in automation solutions,
Honeywell provides systems and products for the hydrocarbon
processing, chemical, pulp and paper process, and many other
industries. These industries are of strategic importance to
China. We expect that the WTO will in effect generate
substantial business opportunities for Honeywell as there will
be a tremendous need for China to promote energy efficiency
practices and adopt automation and control technologies which
are Honeywell's core industrial and building control
businesses.
Chairman Archer. Thank you, Mr. Bonsignore. The Chair
understands that you do have another engagement, and we would
like for you to stay as long as you can, but you may feel free
to leave whenever you have to.
Mr. Bonsignore. Thank you, Mr. Chairman.
Chairman Archer. Mr. Stark, I believe you would like to
introduce one of the panelists.
Mr. Stark. Thank you, Mr. Chairman. It is sort of like
introducing one of the family. Chuck Mack is the Western Region
Vice President for the Teamsters. When I first knew him and
first ran, he was head of Local 70, and I thought Local 70 was
going to win my congressional race. They had more signs around
than any other political candidate in the area. And I think it
is fitting. I notice, Mr. Chair, that those of us who stand for
human rights and oppose welcoming China prematurely into the
world of humane nations, we are outnumbered. But that is okay
because Chuck is going to hold his own. I think it is fair, one
against about five. He will take care of them because he knows
more about creating jobs and helping democracy and creating
help for the middle class and working people in the San
Francisco Bay area than any person I know.
I notice that Mr. Smith of FedEx has left, and, of course,
that is because if he had to sit next to Chuck Mack for more
than 5 minutes, FedEx would end up with a union contract and do
the right thing like United Parcel Service does, and then they
might be able to better compete in the Bay area. But he left
rather than be under Chuck's wonderful influence.
He does a great job, and those businesses in the Bay area
that have a contract with the Teamsters recognize that when
there is a problem, Chuck goes to bat to see that business
grows in the Bay area because he knows that is the way that he
will create jobs for his workers. He is unique in the union
movement today, and I am just pleased and proud to have a
friend and neighbor here against such odds, but I know he will
do a good job.
Thank you, Mr. Chairman.
Chairman Archer. Mr. Mack, after that beautiful
introduction, I think you should proceed with your testimony.
STATEMENT OF CHUCK MACK, INTERNATIONAL VICE PRESIDENT, WESTERN
REGION, INTERNATIONAL BROTHERHOOD OF TEAMSTERS, SAN FRANCISCO,
CALIFORNIA
Mr. Mack. Okay. Well, thank you very much. Mr. Chairman,
Mr. Rangel, members of the committee, my name is Chuck Mack,
and I am an international vice president, Western Region, for
the Teamsters Union. Thank you for the opportunity to testify
today. My statement will focus on the question of granting
permanent normal trade relations status to China.
The International Brotherhood of Teamsters strongly opposes
permanent NTR for the following reasons: Most important, China
does not deserve it. It is one of the most repressive countries
in the world. Its record on human rights and workers' rights is
outrageous. From the mid-1960s to the mid-1970s, we witnessed
Chinese citizens being persecuted, murdered, and forced into
labor, all in the name of the so-called Cultural Revolution.
In 1979, we witnessed the Chinese Government suppress the
Democracy Wall. Activists were arrested, including Wei
Jingsheng. In 1989, we witnessed the Beijing massacre at
Tiananmen Square, where hundreds of innocent civilians were
slaughtered, and tens of thousands arrested and imprisoned.
Every leader in China's pro-democracy movement has been
executed, exiled, or jailed.
Today we witness continued abuse of the Chinese people.
Thousands are detained or beaten for their worship of God, for
expressing their own views, for seeking freedom from
oppression. This is a country that does not allow freedom of
speech, does not tolerate dissent, will not permit freedom of
association, and persecutes those practicing religion.
Organizing a union in China is a crime against the state. It
guarantees a quick trip to jail; forced labor, prison labor, no
independent unions, only those controlled by the Communist
Party are the order of the day.
Does it make sense to reward a country so abnormal when it
comes to human rights with NTR status?
Right now, the only leverage existing to get China to do
the right thing is the annual NTR review. We buy 40 percent of
China's exports. That is powerful. It is a lot of clout if we,
in fact, want to use it. As long as we continue annual review,
we can debate and spotlight the issue of basic worker and human
rights in China.
Even further, we have the ability to predicate access to
U.S. markets on achievement of gains on these rights. However,
once China is given permanent NTR, the leverage is gone.
Congress has no ability or power to influence China on these
rights.
Worse yet, what kind of message do we send to the world if
the U.S. grants China NTR? That profit, open markets,
transnational business takes precedence? That human rights and
worker rights are for sale, or they are not allowed to get in
the way of economic expediency?
As democracy activists Harry Wu and Wei Jingsheng have
often stated, ``increased trade not linked to human rights
merely enriches the regime and the vast network of enterprises
it controls, increasing its stranglehold on the Chinese
people.''
Rather than turning our back, we should be demanding that
basic worker rights and human rights are the price for doing
business with the United States, because if it is not us, who?
I had an opportunity to read a summary of the U.S.--China
bilateral trade agreement. It takes care of everybody, almost:
agriculture, industrial production, banking, audio-visual,
securities, distribution, to name a few. The only thing
missing? Workers.
Now, the Teamsters are not opposed to trade. To the
contrary, many of our members' livelihoods are tied to it. But
trade has to have a human face. It has to be environmentally
sensitive. That is what the WTO Seattle protests were all
about. However, trade with China is about money, new markets,
low labor costs, little or no environmental regulation, and
nonexistent work safety regulations.
If NTR is okay, it is going to be a boon, a windfall, and a
proverbial gold mine for transnational corporations. But what
does it mean for the rest of us? Not much. There will be an
increasing trade deficit for the United States. Right now, that
deficit is around $70 billion annually. If China is granted NTR
and access to the WTO, the deficit, it is estimated, will go as
high as $104 billion by the year 2002.
Job loss--that is what trade deficit means. So does a trade
policy that forces American workers to compete with goods made
by workers whose rights are violated daily and have no power to
make change.
Think about it. What business wouldn't be interested in
relocating to a country that guarantees low wages, no worker
safety standards, no independent unions, and no strikes? I
can't think of any.
If the trade deficit moves as predicted, it will mean a
manufacturing job loss of 600,000. With what has already gone,
we are talking over a million jobs.
Yes, I know, business claims the agreement with create new
jobs. We heard the same promise during the NAFTA debate, and it
didn't happen. In fact, we lost jobs.
I would like to submit for the record, Mr. Chairman, a
letter by Teamsters President James Hoffa to John Welch, chief
executive officer of General Electric. It provides a concrete
example of U.S. jobs being shipped across the border as a
result of NAFTA. Interestingly enough, G.E. recently announced
they intend to make significant investments in China.
NTR also means a one-way street or, more accurately, a one-
sided agreement. They are going to get our money, our
technology, our jobs, and if past understanding is any
measure--
Chairman Archer. Mr. Mack, if you will suspend for a
moment, without objection, the letter will be inserted in the
record.
Mr. Mack. Thank you very much.
[The letter follows:]
February 4, 2000
Mr. John F. Welch
Chairman and CEO
General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431
Dear Mr. Welch:
I write on behalf of the 1.4 million members of the International
Brotherhood of Teamsters to ask you one question: How do you reconcile
General Electric's promises during the NAFTA debate to create jobs for
American workers, with your subsequent and ongoing campaign to move
thousands of positions--en masse--from the U.S. to Mexico?
I ask this question not merely to satisfy my own curiosity.
Rather, I ask it because the American people are being offered, once
again, the same bad deal for China's accession to the WTO that we were
offered during the NAFTA debate: removal of trade barriers for the
benefit of corporations, in exchange for promises of new jobs.
In October 1993--during the NAFTA debate--a representative from
General Electric testified before the House Committee on Foreign
Affairs that sales to Mexico ``could support 10,000 jobs for General
Electric and its suppliers.. . . these jobs depend on the success of
this agreement.'' Unfortunately, General Electric, through its
subsequent deeds, has swayed from those promises.
The fact is that since NAFTA was enacted more than 3,500 employees
at General Electric have lost their jobs and in each case the
Department of Labor ruled that those job losses were the result of
either a shift in production across the border or increased company
imports from Mexico.
To make matters worse, General Electric has embarked on a personal
crusade to strong-arm its suppliers to pile on to this NAFTA-sanctioned
march across the Rio Grande. A recent Business Week article (see
attached) outlines this concerted effort to move American jobs to
Mexico, noting that the number of workers employed by General Electric
in the U.S. has fallen by half over the past 15 years. In that same
time period, the number of foreign workers has doubled--all in the name
of increased profits.
And profit you have! While orchestrating the plight of thousands
of American working families, the corporation has realized tremendous
financial gains. Since the passage of NAFTA, General Electric stock has
risen from under $100 a share to over $130 a share, twice undergoing a
2-for-1 split. In 1998 alone, you personally received more than $37
million in salary, bonuses and other compensation. If you factor in
stock option grants, your take that year soars to more than $62
million, making you one of the highest paid CEO's in America. This
makes me wonder whether General Electric is more concerned with
bringing in big bucks for its shareholders and executives than it is
with ``bringing good things to life.''
Regardless, the pattern here is clear. Corporate America has
learned that it can coerce Congress and the American people into
passing new free trade agreements so long as it promises to create new
jobs. It is then free to use those same trade agreements to ship good
American jobs overseas in order to avoid important labor and
environmental standards and exploit low-wage, underprivileged workers.
And when that's not enough, Corporate America comes back for more--this
time, China's accession to the WTO.
Fortunately, the American people don't have to wait for the outcome
of the U.S.--China deal to see how General Electric intends to behave.
In one breath it promises that free trade with China will heap
tremendous benefits upon our workers, our farmers, and our children.
And in the other, its President of Medical Systems, Chih Chen,
announces the transfer of General Electrics' research, development and
manufacturing centers from the U.S. to Japan and Beijing. In addition,
General Electric has announced that it will embark on three ventures in
China, including construction of a $30 million facility in Shanghai.
It disturbs me that General Electric would be so cavalier to
declare its intention to move as an ``effort to search out and attract
the unlimited pool of talent that is available in the countries in
which we do business,'' while pointing to Mexico and China as targets
of that effort. I must inform you, Mr. Welch, that there is another
country that not only has an ``unlimited pool of talent,'' but also
ensures workers' and human rights, guarantees free speech, and protects
individual liberty: the United States.
In the upcoming battle against granting China permanent NTR, I am
committed to highlighting these facts -and General Electric's labor
record in particular--in worksites and in the halls of Congress. I
promise that the American people will know who really benefited from
NAFTA, and who will really prosper from granting China permanent NTR
status.
That is a promise that I intend to keep.
Sincerely,
James P. Hoffa
General President
JPH/bk
Attachment
[GRAPHIC] [TIFF OMITTED] T7129.001
[GRAPHIC] [TIFF OMITTED] T7129.002
Chairman Archer. You may continue.
Mr. Mack. It means a one-sided agreement. They are going to
get our money, our technology, our jobs, and if past
understanding is any measure, only live up to that part of the
deal they want to. In 1992, 1994, 1996, China violated
memorandums of understanding on property rights and market
access.
Eliminating annual review is not going to make this any
better. China can't be trusted, and that alone should be reason
to say no to NTR. And we are not talking about stopping trade.
We are talking about the annual review that we are currently
going through.
We are respectfully asking Congress to vote against a
proposal that smacks of corporate greed, one that benefits an
unholy alliance of transnational corporations and China's
repressive Communist dictatorship. We are asking Congress to
reject a proposal that perpetuates exploitation of workers
here, there, and everywhere around the world.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Chuck Mack, International Vice President, Western Region,
International Brotherhood of Teamsters, San Francisco, California
Mr. Chairman, Mr. Rangel, and members of the Committee, the
International Brotherhood of Teamsters thanks you for the
opportunity to appear here today on behalf of our 1.4 million
members.
Last fall, prior to the Seattle WTO Ministerial, the
Clinton Administration announced that it had reached a trade
deal with Communist China that will ease its accession to the
World Trade Organization (WTO) and grant it permanent Normal
Trade Relations (NTR) status. The Administration and its
business allies claim that this agreement will benefit the U.S.
But the Teamsters Union is here today to tell you that that
isn't true! This deal will hurt the U.S. Moreover, it will hurt
American workers and their counterparts in China and instead
will benefit large, multinational corporations that seek to
maximize profits no matter what the costs are to workers and
the communities in which they live.
Since 1980, the U.S. has gone from enjoying a small trade
surplus with China to suffering an enormous $60 billion trade
deficit. The deficit has doubled in the last few years alone,
as the Clinton Administration has opened the U.S. market to
more Chinese exports under the ``constructive engagement
policy'' which ignores both human rights and worker rights
considerations. Our trade deficit with China cannot be blamed
solely on the influx of cheap imports like shoes and toys. The
U.S. also sustains a trade deficit with China in the hi-tech
computer and electronics sectors, which in the case of the
former increased by more than 100% between 1996 and 1998. To
put these trade numbers in perspective, the U.S. trade deficit
with China is second only to our imbalance with Japan. And for
all the hoopla about our exports to China the fact that these
exports make up a miniscule portion of the U.S. total--we
export less to China than to Belgium. This deal will only lead
to further increases in this job destroying trade deficit.
Congress and this Administration must understand that the
basic problem is that our trade policy with China forces us to
compete with goods made by workers whose rights are violated on
a daily basis. Workers in China do not enjoy even the most
basic workplace safety protections. Forced labor is rampant,
with some seven million Chinese toiling away in prison labor
camps, the vast majority serving sentences for such political
``crimes'' as criticizing the Communist government. To try to
organize a union in China is to commit a crime against the
state. That is why China's workers, despite their relatively
high skill levels, earn some of the lowest wages in the world.
That is why American manufacturers like General Electric are so
eager to move production to China. Why pay a living wage when
starvation wages will do? Why pay the cost of maintaining a
safe workplace when the government doesn't care if you do or
not?
So let's talk about General Electric for a moment. In
October 1993--during the NAFTA debate--its representative
testified before the House Committee on Foreign Affairs that
sales to Mexico ``could support 10,000 jobs for General
Electric and its suppliersa. . . these jobs depend on the
success of this agreement.'' Unfortunately, General Electric
through its subsequent deeds, has swayed from those promises.
The fact is that since NAFTA was enacted more than 3,500
employees at General Electric have lost their jobs and in each
case the Department of Labor ruled that those job losses were
the result of either a shift in production across the border or
increased company imports from Mexico.
To make matters worse, General Electric has embarked on a
personal crusade to strong-arm its suppliers to pile on to this
NAFTA-sanctioned march across the Rio Grande. A recent Business
Week article outlines this concerted effort to move American
jobs to Mexico, noting that the number of workers employed by
General Electric in the U.S. has fallen by half over the past
15 years. In that same time period, the number of foreign
workers has doubled--all in the name of increased profits.
And profit they have! While orchestrating the plight of
thousands of American working families, the corporation has
realized tremendous financial gains. Since the passage of
NAFTA, General Electric stock has risen from under $100 a share
to over $130 a share, twice undergoing a 2-for-1 split. In 1998
alone, its CEO, John Welch, received more than $37 million in
salary, bonuses and other compensation. If you factor in stock
option grants, his take that year soars to more than $62
million, making him one of the highest paid CEO's in America.
This makes this Union wonder whether General Electric is more
concerned with bringing in big bucks for its shareholders and
executives than it is with ``bringing good things to life.''
Regardless, the pattern here is clear. Corporate America
has learned that it can coerce Congress and the American people
into passing new free trade agreements so long as it promises
to create new jobs. It is then free to use those same trade
agreements to ship good American jobs overseas in order to
avoid important labor and environmental standards and exploit
low-wage, underprivileged workers. And when that's not enough,
Corporate America comes back for more--this time, China's
accession to the WTO.
Fortunately, the American people don't have to wait for the
outcome of the U.S.--China deal to see how General Electric
intends to behave. In one breath it promises that free trade
with China will heap tremendous benefits upon our workers, our
farmers, and our children. And in the other, its President of
Medical Systems, Chih Chen, announces the transfer of General
Electrics' research, development and manufacturing centers from
the U.S. to Japan and Beijing. In addition, General Electric
has announced that it will embark on three ventures in China,
including construction of a $30 million facility in Shanghai.
What disturbs the Teamsters Union most is that General
Electric would be so cavalier to declare its intention to move
as an ``effort to search out and attract the unlimited pool of
talent that is available in the countries in which we do
business,'' while pointing to China as a target of that effort.
Someone should inform General Electric that there is another
country that not only has an ``unlimited pool of talent,'' but
also ensures workers' and human rights, guarantees free speech,
and protects individual liberty: the United States.
Please understand the Teamsters Union is not anti-trade. In
fact, we support trade that benefits people. We think American
workers should face fair competition, not competition based on
a race to the bottom: Fair trade--not free trade. But how can
we trade with China when even China, much less multinational
corporations, can't be trusted to keep its promises and to
trade on fair and equitable terms.
The fact is that since the U.S. began conferring MFN, now
NTR, benefits on China in 1980, it has violated every single
bilateral agreement it has entered into with the U.S. Some
examples: After signing three agreements on intellectual
property with the U.S. in four years, China continued to commit
massive copyright infringement of U.S. products, leading to the
completion of yet a fourth agreement in April 1999. As noted in
recent news reports, even as China eliminates barriers in some
sectors of the economy, it erects them in others--in clear
violation of the U.S. China Market Access Agreement. It
recently imposed duties on chemicals, motor vehicles and other
U.S. exports, imposed a total ban on foreign diesel and
gasoline, and prohibited the use of foreign equipment to
construct new power plants. The Chinese Ministry of Foreign
Trade and Economic Cooperation (MOFTEC) publicly advertised its
strategy to invest in Africa to circumvent U.S. quotas on
textiles and apparel. And the Department of Commerce recently
found that China continues to force U.S. joint ventures to
transfer valuable commercial technology to China in exchange
for market access.
Already, top Chinese officials are openly advertising the
regime's intention to disregard the commitments it made to the
U.S. in its deal to join the WTO.
If we then extend permanent NTR to China, which guarantees
permanent access to the U.S. market, we will be sending a
message that no matter what promises China has failed to
fulfill, there will be no consequences in terms of trade with
America. Moreover, if permanent NTR is granted, the U.S. will
have put a seal of approval on one of the most brutally
repressive regimes in the world. We will be turning our back on
China's democracy movement, on the thousands of people who have
fought and in many cases died for freedom in that nation. As
democracy activists Harry Wu and Wei Jingsheng have often
stated, increased trade that is not linked to human rights
merely enriches the regime and the vast network of enterprises
it controls, increasing its stranglehold on the Chinese people.
A no strings attached deal for permanent NTR would be a
disaster for people in China and the U.S. The only
beneficiaries will be the Chinese dictatorship and those
unscrupulous corporations like General Electric who are eager
to exploit China's repressed labor force and happy to do
business with its dictators.
Chairman Archer. Thank you, Mr. Mack.
Mr. Hulshof, you are recognized to introduce one of the
panelists.
Mr. Hulshof. I appreciate that, Mr. Chairman. I am going to
be brief because he has a plane to catch, and I know he will
want to provide his testimony. But I am happy to have a
constituent here and I will save my time for questions of Mr.
Mack. Mr. Mack, you said that trade has to have a human face.
The gentleman who is about to testify is that human face on how
trade is going to benefit especially American agriculture.
Mr. Chairman, it is my privilege to introduce to the
committee Richard Erisman. Mr. Erisman is a constituent of mine
from the 9th Congressional District of Missouri. He is a fifth-
generation farmer. He is also involved in various other
organizations, but he is here today to provide testimony as
simply that: an independent producer who has been trying to
make a living on the land.
So, Richard, we are happy to have you here and pleased to
have your testimony, and thank you, Mr. Chairman, for the
opportunity to introduce my constituent.
Chairman Archer. Mr. Erisman, with that send-off, we would
be pleased to receive your testimony.
STATEMENT OF RICHARD ERISMAN, FARMER, AUDRAIN COUNTY, MISSOURI,
MEMBER, MISSOURI FARM BUREAU FEDERATION, AND INTERIM BOARD OF
DIRECTORS, FAMILY FARMS PORK
Mr. Erisman. Mr. Chairman, I am Richard Erisman, as
Congressman Hulshof said, and I hope that I live up to his
billing.
You have all got my written testimony, and I guess that I
am going to assume that you can all read. That is kind of a
common assumption, I would assume here.
I am also going to use a little bit of the wit that we kind
of use in the Third Farm Bureau District whenever we are
talking about meetings, and sometimes we get to the point where
we all know that the brain can only understand and comprehend
as much as the bottom can endure. And I am sure there are a lot
of folks here today that maybe have already endured all they
can.
So I would like to just comment by saying, sir, that from
your opening comments and as a producer, I know that you
understand how important this issue is. This morning,
Congressman Dooley talked an made very succulent references to
all--or succinct, I think is the right word, references to all
of the issues that the Farm Bureau and myself as a producer
would have and I think summed up everything that I would have
wanted to have said.
I see Mr. Rangel sitting there, and he talked about Cuba
this morning. And maybe I am opening myself up, but most
farmers would definitely like to see an increase in trade to
Cuba because that is just another market that we can have.
Someone talked about standard of living and what is going
to happen with this issue. As a producer, I can only see that
having trade and being able to sell our products to other
countries will raise the standard of living in that country.
They have to be able to buy our products in order for us to
sell. And we have got to have trade to be able to do that.
I don't think that we can sit here and ignore 20 percent of
the world's population as traders. We have got to be able to
reach to that population.
Someone was concerned about winners and losers this
morning, and I think all of us, at least from my perspective,
as I deal with the John Deere dealer or as I deal with the
other folks that I deal with all the time, you have winners and
losers all the time. And I think it is your responsibility and
Madam Barshefsky's responsibility to be sure that there are
more winners than losers in this operation or in this bill. And
I think that it looks like that is going to happen.
Someone was concerned about consumers. I think from a
consumer standpoint, anytime you have got a market, the more
players you have in that market, the better choices you have.
And you have got to build a market to give consumers a better
choice, to give them the opportunity to buy what it is that
they want to spend their dollar on.
In agriculture, we have to have trade. We have a surplus in
nearly all of our commodities. Myself, I am a hog, corn and
bean farmer. That is the very worst you could be right now. You
wouldn't want to know how many dollars I lost in the last 2
years. But we have got to be able to sell our product.
In the 1996 farm bill, we were promised more trade, and
this is a step in the right direction. I would urge all of you
to take all of these comments, you know, for whatever they are
worth. Kenny has oftentimes heard me say these same things, but
we have just got to open this up so that in agriculture we can
sell our products, so that we can get rid of that pork that we
don't know what else to do with, so that we can sell those
soybeans and that soybean meal, so that we can move the corn
and bring those people along to our standard of living so that
everybody can benefit from this.
Sir, I think I would just stop right there and thank you
for the opportunity to be here.
[The prepared statement follows:]
Statement of Richard Erisman, Farmer, Audrain County, Missouri, Member,
Missouri Farm Bureau Federation, and Interim Board of Directors, Family
Farms Pork
Mr. Chairman, members of the Committee, my name is Richard
Erisman. My family and I raise hogs, corn and soybeans on our
farm in Audrain County, Missouri. My family has farmed for at
least five generations and I am proud to say that my mother
still works in our hog operation. In addition, my wife and I
have three children who play an integral role in our farm. My
oldest son graduated recently from the University of Missouri
with a degree in agricultural economics and we remain hopeful
he will be able to join our operation on a full-time basis.
I also serve on the State Board of the Missouri Farm Bureau
Federation and the interim board of directors of Family Farms
Pork, a new generation cooperative studying the feasibility of
building a pork processing plant in north central Missouri.
It is a pleasure to participate in this morning's hearing
regarding permanent Normal Trade Relations (NTR) status for
China. Last December, more than 500 voting delegates at
Missouri Farm Bureau's Annual Meeting approved policy stating:
``We support extending Normal Trade Relations status to
China to preserve and expand that agricultural market. China
should adhere to the rules set by the World Trade Organization
(WTO) and should not be granted access to the WTO unless they
agree to reduce barriers to trade.''
To put this policy in perspective, I will share some
thoughts relative to how the continued weakness of the US
agricultural economy is affecting our farm. The crisis facing
rural America is well understood by members of this Committee
and farmers are very thankful for the economic assistance
provided by Congress in 1998 and 1999. In Missouri, government
payments accounted for approximately 75 percent of net farm
income last year. While we cannot count on ad hoc disaster
assistance each year, it is important you understand the
situation is not improving.
Our farm produces about 3600 market hogs annually from 180
sows. Most of the corn we raise is fed to the hogs. Our
soybeans are sold and we in turn purchase soybean meal for
feed.
Aside from facing some of the lowest hog prices on record,
our farm was hit by a tornado on April 8th of last year. The
tornado destroyed our finishing barns, leaving only concrete
slabs in its wake. We have rebuilt the hog barns, which some
people might question, but we had to let our hired man go. My
wife works as a nurse in a nearby town, partly for the health
insurance benefits.
I am an independent hog producer, meaning that I do not
contract with a large production or processing corporation. My
hogs are sold through Excel, a division of Cargill, on a grade
and yield basis. To give you an idea of how our markets have
contracted, 15 years ago, I could take pigs to two different
markets on any given day and have 3-5 buyers making bids. For
about the past 3 years we have had only two marketing options.
I can receive a bid from Farmland or a bid from Excel. To sell
to Farmland I must have a minimum of a trailer load and the
hogs must be delivered to their plant in Monmouth, Illinois--a
5-hour drive. My operation doesn't produce enough hogs to fill
a trailer load a week, the equivalent of the production from
600 sows. And in my opinion, there are several environmental
reasons not to have that many sows at one location.
Last weekend, Senator John Ashcroft told a group of
Missouri young farmers that we now have freedom to farm but we
need freedom to market. I agree with this statement and while
the federal government bears some of this responsibility, so do
producers. In my case, I have joined many other farmers to form
a new generation cooperative. In the near future, we will
likely commit both hogs and capital to a new pork-processing
venture. I strongly believe that adding value to our products
is critical to our future success.
Ultimately, Family Farms Pork hopes to provide independent
hog producers with a market that captures a larger percentage
of the consumer food dollar. New generation cooperatives, such
as ours, could also help ensure that the benefits of increasing
consumer food demand do not fall simply to the largest
corporate hog producers.
We can raise the hogs, process the pork and even pay for
promotion programs. We cannot open foreign markets. Today, many
agricultural producers remain frustrated by the lack of
progress in expanding US exports since the passage of the 1996
farm bill. China represents a tremendous market for our
products. It is essential that we not simply stand aside and
wish our competitors well.
I can't sit here and tell this Committee exactly how my
farm will benefit from the bilateral agreement with China or
permanent NTR. But I believe US hog producers are well
positioned to take advantages of increased foreign demand. And
I strongly believe that China's ultimate participation in the
World Trade Organization will provide mutual benefits. As the
Chinese people are more fully integrated into the global
economy, US agricultural producers will certainly benefit from
access to this vast new market.
No doubt, trade with the Chinese is a controversial issue.
It is my understanding their record of compliance with past
agreements is less than stellar. Thus, it is very important our
trade officials monitor compliance carefully and be prepared to
act swiftly when disputes arise. Enforcement is critical; we
must not turn our heads to trade violations.
In the past, China has been an inconsistent market for US
agricultural products. This would have to change if China is
accepted into the WTO. Under the bilateral agreement, China has
agreed to accept USDA certification for meat safety for US
exports, allowing US meat access to all segments of the Chinese
market. For pork, tariffs will be reduced from the current
level of 20 percent to 12 percent. And China's commitment to
eliminate the use of export subsidies will benefit US producers
as we export to other markets.
Mr. Chairman, there is no ``silver bullet'' for the
problems US farmers and ranchers face. Yes, the combination of
tax relief, regulatory reform and trade expansion will
certainly help. And I can assure you that more and more
producers are taking innovative steps to help restore
profitability. But, the door must be opened before we can walk
through. Please keep this in mind as you move forward on this
very important issue.
Chairman Archer. Thank you for being with us, Mr. Erisman.
And I guess the other three panelists are on their own. I don't
think anybody up here is raising their hand to introduce you.
[Laughter.]
Chairman Archer. So, Mr. Chen, would you lead off and
proceed? We would be pleased to receive your testimony.
STATEMENT OF JOHN CHEN, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER, AND PRESIDENT, SYBASE, INCORPORATED, ON BEHALF OF
BUSINESS SOFTWARE ALLIANCE
Mr. Chen. Thank you, Mr. Chairman and distinguished members
of the committee. My name is John Chen. I am the chairman of
the board, chief executive officer, and president of Sybase,
one of the largest independent software companies in the world.
I thank you for the opportunity to present the views of both
Sybase and the Business Software Alliance. These views are also
consistent with those of the High-Technology Industry
Coalition, on China of which BSA is a member.
The Chinese markets offer extremely bright prospects to the
U.S. high-tech industry. Realizing these potentials will be
good for U.S. workers, competitiveness, and our balance of
trade. Bringing China into the WTO is the best way to reap that
harvest. So a vote for the PNTR is certainly a vote for the
high technologies.
Sybase has 10 years' experience in China, doing business in
China, and we maintain six offices in China, and it is among
the leading foreign firms in terms of software sales. Sybase's
commitment to trade with China is substantial and growing.
Allow me to share with you some statistics that I think you
will find interesting on the U.S. software industry. Our
industry is now currently growing three times as fast as the
U.S. economy. We are producing new jobs at a rate of more than
5 times as fast. We created $15 billion in tax revenue last
year. And yet 60 percent of our BSA companies' revenue comes
from international and exports. This years we will generate a
trade surplus of $20 billion, including a hefty trade surplus
with China.
The Chinese market is a huge market. It is an unsurpassed
opportunity. About $2 billion worth of software was sold in
China in 1998, and that market is growing at a phenomenal rate
of 30 percent annually.
U.S. is best suited to meet the demand. We are currently
shipping 80 percent, estimated 80 percent of all the software
sales in China. This translates into numerous U.S. jobs, and,
again, this is what PNTR and the Chinese accession to the WTO
means to our industry.
We do, however, have some challenges, and the chief
barriers to the Chinese software market fall into two main
categories; market access and copyright protections.
The first category are the traditional market access
barriers generally addressed through the WTO agreements today.
Tariffs are a simple prime example of that. Today, the duties
in China run about 30 to 40 percent. As part of the package,
China is agreeing to sign on to the ITA, Information Technology
Agreement, eliminating tariffs on software and a whole host of
IT products. China has also agreed over time to phase out
nontariff trade barriers.
Now, the second barriers is the lack of effective copyright
protections, and copyright piracy is a serious concern and a
problem to our industry. BSA estimated the piracy rate of 95
percent in 1998 in China. Software piracy in China cost U.S.
business roughly about $800 million of revenue just in 1998.
The strongest tool for promoting copyright in foreign
markets is the TRIPS Agreement. This agreement obligates the
WTO members to enact strong copyright laws, to put effective
enforcement provisions on the books, and to actually apply
these laws and take them into practice. Once China joins the
WTO, if it does not comply with the TRIPS Agreement, the U.S.
could invoke the WTO dispute settlement process. This process
has already brought other countries into compliance, and BSA
and the members are confident that this process will also work
in the case of China. Congress could help companies employ this
tool and providing us this weapon by approving the PNTR for
China.
Software piracy is a big concern of ours, yet there are
bases for optimism. It is clear that the protection of
copyright is important not only to us but also to China's own
economic development interest. The best way to harness that
self-interest is to bring China into the WTO and be a partner
of that.
So, in conclusion, as a WTO, China will have to be
committed to lowering their market barriers, leveling the
playing field for us, and providing strong copyright
protections.
Improved market access will also help to advance their
economic and social reform in China. So a vote granting PNTR to
China is critical to the American high-technology industry.
I thank you, everybody, for the opportunity to testify.
[The prepared statement follows:]
Statement of John Chen, Chairman of the Board, Chief Executive Officer,
and President, Sybase, Incorporated, on behalf of the Business Software
Alliance
Mr. Chairman, and members of the Committee:
Thank you for the opportunity to present the views of
Sybase and the Business Software Alliance on the recently
concluded bilateral trade agreement with the Peoples' Republic
of China, and the prospect of China's accession to the World
Trade Organization. The U.S.--China bilateral WTO accession
agreement reached on November 15, 1999 is a solid win for the
U.S. high-technology industry.
Specifically, the Chinese market offers bright prospects to
the U.S. software industry. If we are able to realize these
prospects, the gains for U.S. workers, U.S. competitiveness,
and the U.S. balance of trade will be overwhelmingly positive.
In the view of my company, as well the American software
industry, bringing China into the World Trade Organization as
soon as possible is the best way to reap that harvest.
Introduction
My name is John Chen. I am Chairman of the Board, Chief
Executive Officer and President of Sybase, Inc., one of the
largest independent software companies in the world. Our
company's mission is to help businesses manage and deliver
applications, content and data anywhere they are needed. Sybase
was founded in 1984, is headquartered in Emeryville,
California, and has over 4,200 employees worldwide. Our
software products are sold all over the world, including in
China, where we maintain six offices and are among the leading
foreign firms in terms of software sales. Markets in China that
Sybase has successfully entered include banking and finance,
telecommunications, security, government, transportation,
healthcare and the public sector of energy, TV stations and
retail. As another example of Sybase's commitment to building
our business in China, we have just opened the Asian Solutions
Center in January of this year in Hong Kong. Jointly sponsored
by Sybase and Hong Kong Productivity Council, the Asian
Solutions Center enables local and regional application
vendors, systems integrators, and industry service specialists
to take advantage of the center's marketing, technical,
business alliance and consulting resources to develop leading-
edge IT solutions for both local and regional businesses.
Sybase is also a member of the Policy Council of the
Business Software Alliance, on whose behalf I am testifying
today. BSA is the voice of the world's leading software
developers before governments and with consumers in the
international marketplace. Its members represent the fastest
growing industry in the world. BSA educates computer users on
software copyrights; advocates public policy that fosters
innovation and expands trade opportunities; and fights software
piracy. BSA members include Adobe, Apple Computer, Autodesk,
Bentley Systems, Compaq, Corel Corporation, IBM, Intel, Intuit,
Lotus Development, Macromedia, Microsoft, Network Associates,
Novell, Sybase, Symantec and Walker Digital. BSA Websites:
www.bsa.org;www.nopiracy.com.
I would also like to note that BSA is a member of the High-
Tech Industry Coalition on China. The coalition is comprised of
11 trade associations representing U.S. manufacturers of
semiconductors and semiconductor equipment and materials,
computers, electronics, software and telecommunications
equipment, as well as U.S. Internet companies. A list of
coalition members is attached and the coalition has submitted a
written statement for your review. The Coalition wholeheartedly
encourages the Congress to quickly move to grant PNTR for China
In the U.S., the software industry is growing three times
as fast, and producing new jobs at a rate more than five times
as fast, as the economy as a whole. One of the key ingredients
in this great success story has been sales outside the U.S.--in
a word, exports. The U.S. software industry as a whole brings
in 60 percent of its revenue from sales outside the U.S.
According to a recent study commissioned by BSA, the U.S.
software industry is expected to generate a trade surplus of
more than $20 billion this year. That includes a hefty trade
surplus with China, a country with whom most other sectors of
the economy are running a big trade deficit. Increasing trade
with China -and especially, increasing U.S. exports to China--
is a crucial goal for Sybase, for BSA companies generally, and
for the U.S. economy as a whole. That is why we in the software
industry are so enthusiastic about the prospect of China
joining the World Trade Organization. We also strongly support
the recently negotiated bilateral trade agreement with the PRC,
which is an essential factor in making China's WTO accession
possible. Bringing China into the WTO offers us the best policy
tools available for opening up the Chinese market, particularly
by reducing the widespread copyright piracy that acts as an
enormous market access barrier for our industry. For this
reason, we urge Congress to act as promptly as possible to
grant China permanent normal trade relations (PNTR), which is a
prerequisite to making WTO membership a reality.
China: The Opportunity
The Chinese market presents an unsurpassed opportunity for
Sybase and the entire U.S. software industry. According to the
most recent estimates I have seen, about $1 billion worth of
software was sold in China in 1998. That market is growing at a
phenomenal annual rate of 30 percent, according to the U.S.
Foreign and Commercial Service. If anything, that estimate may
be too conservative. When you reflect on the fact that the
number of Internet users in China quadrupled during 1999 alone
-and is expected to more than double again by the end of this
year--you can understand why the Chinese demand for computer
software of all kinds is growing by leaps and bounds. And,
Sybase has found that there is an emerging generation of
Chinese that are ready to embrace Sybase's powerful Enterprise
Portal solutions that help them deliver on the promise of e-
Business.
No country is better situated to meet that demand than the
United States. American software products are preeminent in
every market in every country around the world--including in
China--where U.S. firms account for an estimated 80 percent of
all software sold by foreign companies. Our software industry
is an unrivalled generator of U.S. jobs--nearly a million of
them--and good jobs, too, paying on average more than double
the average salary for non-software jobs in the private sector.
The more U.S. software is sold in China, the more good jobs are
created here at home. So opening the Chinese market as much as
possible to U.S. software exports is both good business for the
software industry, and good public policy for the United
States. For us, that is what PNTR and Chinese accession to the
WTO are all about. Leading software companies like Sybase can
only benefit, creating new high quality U.S. jobs, from China's
entering the WTO.
Of course, I am not saying that bringing China into the WTO
will be a panacea, or that it automatically guarantees that
U.S. companies will thrive in the Chinese market. There are a
number of significant obstacles that must be overcome. But
establishing permanent normal trade relations with China and
bringing China into the WTO are the best ways to help us deal
with those obstacles.
The chief barriers to the Chinese market for U.S. software
companies fall into two main categories: Market access and
copyright piracy. If China is brought into the WTO on the terms
contained in the new bilateral trade deal, we will be in a much
better position to attack barriers in both categories.
Market Access Barriers
In the first category are the traditional market access
barriers generally addressed through WTO agreements. Tariffs
are a prime example. Today, the duties, taxes and other fees
for importing software into China run about 30 to 40 percent.
Tariffs are high on other information technology products as
well. These tariffs make our products less competitive to
Chinese buyers. As part of the WTO accession package, China is
agreeing to sign on to the Information Technology Agreement
(ITA), which requires all signatories to zero out their tariffs
on computer software and a host of other information technology
products. Clearly, that will enhance our prospects in the
Chinese market.
China also maintains a number of non-tariff trade barriers,
ranging from import quotas to restrictions on the right of
foreign companies to establish businesses in China or to
undertake wholesale and retail distribution of products there.
In the bilateral agreement recently negotiated with China, many
of these barriers would be phased out. For instance, U.S.
software companies would be allowed to directly distribute
their products anywhere in China within two years (on the
wholesale level), and within three years (at retail). It is
notable that the Chinese have even agreed to allow some foreign
investment in the telecommunications infrastructure, and in
content services to be provided over these networks and via the
Internet. These opportunities would have been unthinkable for
China just a few years ago; they are of particular interest to
many U.S. software companies, and will become available to
Americans only once China joins the WTO.
Finally, as a WTO member, China will be subject to a number
of general obligations that will facilitate the market
prospects of U.S. software companies. These commitments include
national treatment obligations, so that U.S. companies cannot
be treated less favorably than domestic Chinese competitors,
and transparency, so that the rules of trade are publicly
available and known to all. Clearly the U.S. software industry
will benefit from a more level playing field in China.
The Major Barrier: Piracy
The second major type of market access barrier our
companies have faced in China is the lack of effective
intellectual property protection. Copyright piracy--the
unauthorized copying, distribution or sale of our copyrighted
computer programs--is an extremely serious problem for the
software industry in China. BSA estimates the piracy level for
packaged software applications at 95 percent for 1998. That
means that for every legitimate, licensed copy of such an
application in use in China, there are about 19 pirate copies.
Some of those pirate copies are counterfeit CD-ROM's sold
in a shopping arcade or on a street corner. Many others are
illegal, unlicensed copies, which are made within a business
enterprise, government agency, or other institution. A company
may buy one legitimate copy of the program and then, in
violation of its licensing agreement, make it available for use
on ten, twenty, or a hundred PC's, whether on a network or by
making unauthorized physical copies. In all, BSA conservatively
estimates that software piracy in China cost the U.S. business
software sector more than $800 million in revenue in 1998.
Piracy of U.S. software, in whatever form it takes, eats
into the market that U.S. software companies would otherwise
serve. BSA companies spend millions to research, develop, test,
market, distribute, support and service the best computer
programs in the world. Our licensing fees must allow us to
recover those costs and make a profit, in part to fund ongoing
research, development and testing. The pirate, whether on a
street corner or in an office suite, has none of those costs--
he just takes the product, and makes the copies available free
or for a small fraction of the legitimate price.
Competing with piracy is economically impossible. It's very
difficult to persuade a customer to buy a product when he can
readily take it for free without legal consequences. So when
piracy dominates a market as it does in China, it constitutes
an obstacle to market entry far more formidable than any
tariff, import quota, or other more traditional market access
barrier.
Impact of WTO Accession
How will China's entry into the WTO help in the fight
against software piracy? The strongest multilateral trade tool
we have for promoting good copyright protection in foreign
markets is the WTO Agreement on Trade Related Aspects of
Intellectual Property Rights--the TRIPS Agreement. This pact
obligates WTO member countries to enact strong copyright laws,
to put effective enforcement provisions on the books and to
actually apply those laws in practice. Indeed, to fulfill their
TRIPS obligations, countries must criminally prosecute those
who are committing copyright piracy on a commercial scale,
including unauthorized use in the corporate environment, and
must impose punishments on pirates that are sufficient to
create deterrence.
As part of the WTO accession package, China has promised to
come into compliance with the TRIPS Agreement immediately,
without any delay or transition period. That commitment gives
us a powerful tool in combating software piracy in China.
The TRIPS Agreement not only sets standards for
intellectual property protection and enforcement; it also
provides--for the first time--a strong multilateral mechanism
for ensuring that countries meet these standards. That
mechanism is the WTO dispute settlement process. Once China
joins the WTO, if it is not complying with the requirements of
the TRIPS Agreement, the U.S. (as well as its trading partners)
can invoke the dispute settlement process to strongly encourage
China into compliance.
WTO dispute settlement has already succeeded in bringing
countries into compliance with their TRIPS obligations relating
to copyright enforcement and has worked effectively for U.S.
copyright owners. BSA is confident that it will work in China,
too. But only if China joins the WTO can this effective tool be
used to deter the huge software piracy problem we face there.
Congress can help companies employ this tool by approving PNTR
for China.
Piracy: Recent Developments and Future Prospects
The software piracy picture in China is naturally a
concern. The numbers that have already been cited, for piracy
levels and for the resulting losses to U.S. software companies,
speak for themselves. Nevertheless, I believe there is some
basis for optimism about the future. Although China's problem
of copyright piracy is long-standing--this issue brought the
U.S. and China to the brink of a trade war twice in the mid-
1990's--we have made some progress in a few areas. Let me cite
three of them.
First, five years ago China was not only a major producer
of pirated software, but also a major exporter. Compilations of
illegal copies of business applications, made in China, were
polluting the markets in Hong Kong, in Southeast Asia, even in
Russia and Eastern Europe. That is no longer the case. Pirate
exports from China are minimal in volume. While the Chinese
market itself remains overrun with pirate product, at least
there has been progress in some of the neighboring markets,
which Chinese pirates used to supply.
Second, following the lead of the United States government,
the PRC has finally begun to tackle the enormous problem of
software piracy within the agencies and instrumentalities of
the Chinese government itself. Soon after President Clinton
issued an Executive Order on software asset management in the
federal government, China's State Council promulgated a decree
requiring all government agencies to use only legal, licensed
software. The follow-up on this decree has been uneven, and
much more remains to be done, but we are very gratified that
the Chinese government is addressing this problem.
For BSA member companies as a whole, and especially for
enterprise software companies like Sybase, the economic impact
of corporate end-user piracy is much greater than the damage
inflicted by the retail sale of counterfeit software programs.
We hope that the government legalization process in China will
be accompanied by strong enforcement actions against Chinese
corporations that engage in piracy.
Third, although anti-piracy enforcement through
administrative and criminal means is of paramount importance,
there are indications that the civil courts are becoming more
hospitable to infringement cases. Last year, one U.S. software
company obtained a civil judgment of over $100,000--a record--
against Chinese pirates. Another successful civil case, brought
by Chinese authors whose material was posted on the Internet
without their consent, has garnered widespread publicity in the
Chinese press. The world is watching with great interest the
way in which Chinese courts address the issue of corporate end
user piracy, which more than anything will reflect China's true
commitment to the protection of intellectual property rights.
Although software piracy remains a major issue with China,
I believe we are starting to see concrete signs of a change in
the attitude of the Chinese government to the entire question
of protection of intellectual property. A number of factors
have contributed to this change. One factor, certainly, has
been China's implementation of the 1995 bilateral agreement
with the United States on the enforcement of intellectual
property rights.
Another factor which cannot be underestimated is the
remarkable growth of China's own software industry. The U.S.
government estimates that there were 2,000 independent software
firms in China in 1998. A Price Waterhouse Coopers study
commissioned by BSA predicts that by 2001, the software and
supporting industries will account for 100,000 Chinese jobs,
will produce almost $600 million in direct tax revenues to the
Chinese government, and will stimulate some $6.2 billion in
total economic activity in China. These Chinese firms, just
like the American software firms doing business in China,
depend on strong copyright protection, and are extremely
vulnerable to piracy. In fact, according to Price Waterhouse
Coopers, reducing piracy levels by just ten percent in 1997
would have added over 13,000 additional Chinese jobs and
generated almost $80 million in tax revenues.
Conclusion
It is becoming increasingly clear that the protection of
copyright is extremely important to China's economic
development. The Chinese increasingly recognize their own
strong self-interest in reducing software piracy. The best way
to harness that self-interest for the benefit of our own
software industry is to bring China into the WTO. As a WTO
member, China will be committed to lowering market access
barriers, leveling the competitive playing field within its
market, and, most importantly, providing strong copyright
protection and meaningful mechanisms to enforce that
protection.
American software makers and the entire high-tech industry
have been at the forefront of U.S. economic expansion and
technological leadership. Granting China PNTR, coupled with the
significant market reforms in China embodied in its WTO
commitments, will enable US high technology companies to expand
their market presence and business opportunities in this
critical market.
Moreover, access to American commercial information
technology enables people worldwide to improve business
efficiency across all sectors, enhance educational and social
opportunities, and connect with one another. Improved market
access for U.S. commercial information technology in China will
help to advance economic and social reform in China. A timely
congressional vote granting PNTR to China is a critical and
necessary step toward securing this goal. Of course, there is a
danger that China may not live up to all its WTO commitments.
But WTO membership will also subject China to a proven dispute
procedure for enforcing those commitments, one that has worked
well in the recent past to create strong pressure on countries
to deliver on their commitments regarding copyright
enforcement.
Thank you once again for the chance to provide the
perspectives of Sybase and the BSA on this critical issue.
Chairman Archer. Thank you, Mr. Chen.
Our next witness is Mr. Micek, and I must say, Ernie, it is
good to see you again. It has been a while. Welcome to the
committee, and you may proceed.
STATEMENT OF ERNEST S. MICEK, CHAIRMAN, CARGILL, INCORPORATED,
MINNEAPOLIS, MINNESOTA, AND CHAIRMAN, EMERGENCY COMMITTEE FOR
AMERICAN TRADE
Mr. Micek. Thank you, Mr. Chairman, Mr. Rangel, Mr. Crane,
and to Mr. Ramstad for the very kind introduction.
I am Ernie Micek, chairman of Cargill. I am testifying
today as chairman of the Emergency Committee for American
Trade. ECAT urges the members of the committee and Congress to
make China's entry into the World Trade Organization and
America's extension of PNTR treatment to China the number one
priority on the U.S. trade agenda this year.
Cargill has been doing business in China for nearly 30
years and has witnessed firsthand the impact of trade and
expanded bilateral ties in supporting openness and individual
freedom, economic reform, and higher living standards in China.
As Mr. Bonsignore noted, American companies have played an
important role in encouraging these changes in China by
introducing American values and high standards in our Chinese
facilities and by providing our customers in China with cheaper
and higher-quality products, both through trade and investment.
We are also very aware that problems remain and that change
must occur before China is transformed into a pluralistic
society with a market economy. However, as I have testified to
this committee before, walling off a neighbor cuts off any
opportunity to change that neighbor's behavior and makes the
global neighborhood a dangerous place. Instead, we must make
China a full participant in the global neighborhood by bringing
China into the WTO.
America cannot open the door to these historic
opportunities in China's markets unless we extend PNTR status
to China.
A recent letter to Speaker Hastert in Roll Call says
simply, ``Opportunity knocks.'' I ask permission that this
letter be included in the record with my statement.
Chairman Archer. Without objection, so ordered.
[The letter follows:]
[GRAPHIC] [TIFF OMITTED] T7129.003
Mr. Micek. Mr. Chairman, in the aftermath of the Seattle
WTO Ministerial, what better way to begin rebuilding the
national and international consensus for trade than to rally as
a nation around an opportunity that knocks at our door.
The tremendous one-sided benefits for all sectors of the
United States have been amply documented. The United States
agricultural and business communities are especially indebted
to Ambassador Barshefsky and the outstanding U.S. negotiating
team whose hard work produced this historic agreement.
China has committed to begin implementation of its WTO
commitments upon its accession. Most importantly, China's WTO
commitments will be fully enforceable under the WTO dispute
settlement procedures.
Speaking on behalf of Cargill, I do want to direct your
attention to the administration's efforts to resolve a
remaining trading rights issue for U.S. fertilizer exports. A
witness on behalf of the Fertilizer Institute will be
testifying later today on this issue, which is vitally
important to the fertilizer industry. I urge this committee to
support the administration's efforts to seek a prompt and
favorable resolution of this matter.
China's WTO accession will help to ensure that U.S. trade
and investment remain powerful engines of economic growth,
especially for U.S. farmers and agriculture.
China's WTO accession will benefit U.S. companies and our
employees and their families and advance U.S. living standards.
For the agricultural sector, the removal of barriers on grain,
proteins, and agricultural commodities and the elimination of
restrictions on distribution and trading rights will open vast
new market opportunities.
China's WTO accession is also critical to the growth of
small- and medium-size American companies, like Leon Trammel's,
which now account for over 80 percent of U.S. exports to China.
Support for China's WTO accession does not mean that we condone
China's track record on human rights and individual and
religious freedoms. We must as a Government and as private
citizens do all we can to promote individual rights and the
rule of law in China. The record of the last quarter-century of
America's bipartisan policy of maintaining ties with China has
taught us that positive change is the product of engagement and
communication, not isolation.
To take advantage of the opportunity knocking at our door,
we must grant unconditional PNTR treatment to China. Chinese
negotiators themselves have made it clear that their
willingness to extend to the U.S. the benefits of the bilateral
agreement and WTO obligations is contingent on receiving PNTR
treatment from the United States. We will not be entitled to
all these benefits under the U.S.--China 1979 bilateral
commercial agreement. If we do not extend PNTR treatment to
China, U.S. goods, services, and farm products will be
seriously disadvantaged, if not shut out of the Chinese market.
In conclusion, Mr. Chairman, ECAT members urge the members
of this committee and the Congress to act early this year to
approve PNTR treatment for China without conditions. The
President is to be commended for making enactment of PNTR a top
priority and putting in place a top-flight team of
administration officials, headed by Secretary of Commerce Bill
Daley and Steve Richetti, to build a national consensus for
PNTR.
I am also encouraged by the continuing support for PNTR
from you, Mr. Chairman, the members of this committee, and
other members of the House.
Mr. Chairman, I want you to know that we are working flat
out, both here in Washington and in congressional districts
across the country, to make the case for China PNTR. We are
also supporting grass-roots efforts through ECAT's ``Trade:
Discover the Opportunity'' employee trade education program and
the business coalition's special website.
With the advent of our historic bilateral agreement with
China and China's WTO accession, opportunity knocks. America
must have the courage and the foresight to answer that knock at
the door by granting PNTR treatment to China.
I thank this committee for your leadership on this issue
and the opportunity to testify. Thank you.
[The prepared statement follows:]
Statement of Ernest S. Micek, Chairman, Cargill, Incorporated,
Minneapolis, Minnesota and Chairman, Emergency Committee for American
Trade
I am Ernie Micek, Chairman of Cargill, Incorporated.
Cargill is a privately held agribusiness company founded over
130 years ago in Iowa. Today the company is headquartered in
Minneapolis, Minnesota, and our 80,000 employees are engaged in
marketing, processing, and distributing agricultural, food,
financial, and industrial commodities throughout the world.
Cargill has been doing business in China for nearly 30
years and has witnessed first-hand the tremendous impact of
trade and expanded bilateral ties in supporting greater
openness and individual freedom, economic reform, and higher
living standards in China. As I have testified to this
Committee before, Cargill and other American companies have
played an important role in encouraging these changes in China
by introducing American values and high standards in our
Chinese facilities and by providing our customers in China with
better production technologies and higher quality products.
While we have seen great strides toward reform in China, we
also are very aware that serious problems remain and that vast
change must occur before China is transformed into a
pluralistic society with a market economy. However, walling off
a neighbor cuts off any opportunity to change that neighbor's
behavior and makes the global neighborhood a dangerous place.
Instead, we must make China a full participant in the global
neighborhood by bringing China into the WTO.
I am testifying before the Ways and Means Committee today
as Chairman of the Emergency Committee for American Trade,
comprised of the heads of major American companies with global
operations who represent all principal sectors of the U.S.
economy. The annual sales of ECAT companies total over one
trillion dollars, and the companies employ approximately four
million men and women.
ECAT joins the Administration, leading Republican and
Democratic members of Congress, and others in the U.S. business
and agriculture communities in urging Congress to make China's
entry into the World Trade Organization and America's extension
of permanent Normal Trade Relations (PNTR) treatment to China
the number-one priority on the U.S. trade agenda this year.
Never before have the American benefits of a trade agreement
been so clear and so one-sided. The U.S.--China bilateral WTO
market access agreement announced by Ambassador Barshefsky last
November would tear down major trade barriers in all sectors of
China's economy and create new opportunities for American
working men and women in the agricultural, manufacturing, and
services industries across the nation. While China's WTO
accession will give U.S. products and services better access to
China's market, China gains no new access to our market. In
fact, the United States will enjoy greater protection than we
have right now against surges of Chinese imports in the form of
tough new safeguard provisions and maintenance of strong
antidumping rules.
America cannot open the door to these historic
opportunities in China's market unless it extends permanent
Normal Trade Relations (PNTR) status to China. A recent
Business Coalition for U.S.--China Trade letter to Speaker
Hastert supporting PNTR treatment for China, signed by over 300
trade associations representing virtually every sector of the
economy, put the message very well. The headline in the letter,
which appeared in Roll Call and a copy of which accompanies my
testimony, reads simply, ``Opportunity Knocks.''
Mr. Chairman, in the aftermath of the Seattle WTO
Ministerial and efforts to rebuild a domestic and international
consensus on trade, what better way to encourage that consensus
than to rally as a nation around an opportunity that knocks at
our door. The extension of PNTR treatment to China and U.S.
support for China's WTO accession is also an important signal
to WTO member countries, particularly developing countries, of
U.S. support for the WTO and moving forward with the global
trade agenda.
I want to highlight a number of the reasons why moving
forward with China's WTO accession and the extension of PNTR
treatment to China is so critical to our nation.
China's WTO Accession Benefits America
Historic Market Access Opportunities for U.S. Agriculture,
Manufacturing and Services
The tremendous benefits for all sectors of the U.S. economy
from the removal of China's tariff and non-tariff barriers
under the U.S.--China bilateral WTO agreement that have been
amply documented in Administration testimony are undisputed.
The U.S. agricultural and business communities are especially
indebted to Ambassador Barshefsky and the outstanding U.S.
negotiating team whose hard work and perseverance produced this
historic agreement.
The comprehensive agreement provides for major reductions
in China's import tariffs on industrial goods from 25 percent
to just over 9 percent, and tariffs on information technology
products will fall to zero. In agriculture, China has made
commitments to reduce tariffs on priority products such as
beef, citrus, and dairy from over 30 percent to 12 percent,
eliminate export subsidies, provide greater market access for
wheat, cotton, and corn, and eliminate sanitary and
phytosanitary barriers to wheat and other major U.S. farm
products. In services, the agreement provides market access to
virtually all services sectors including distribution,
insurance, telecommunications, banking, and express delivery.
The bilateral agreement also addresses the problem of state
trading, prohibits forced technology transfer, and eliminates
discriminatory local content and export performance
requirements, as well as other discriminatory investment laws
and policies. The Congressional Research Service estimates that
the removal of tariff and non-tariff barriers under the
agreement could enable U.S. companies to boost their annual
sales to China by as much as $11.5 billion by 2005.
These benefits are not hypothetical. China has committed to
begin implementation of its WTO commitments upon its accession,
and the transition periods allowed under the agreement are in
most cases no more than three-to-five years. In the case of
agriculture, China has begun to implement its commitments even
prior to accession by starting to put in place the agreement to
eliminate its sanitary and phytosanitary trade barriers. Most
importantly, China's WTO commitments will be fully enforceable
under WTO dispute settlement procedures, as well as other
special periodic reviews such as the WTO's Trade Policy Review
Mechanism (TPRM). While China's record on abiding by its
commitments--like that of other countries--will not be perfect,
having the added leverage of multilateral enforcement through
the WTO dispute settlement and the TPRM will ensure that China
adheres to a high level of implementation.
Speaking on behalf of Cargill, I want to direct your
attention to Administration efforts to resolve a remaining
trading rights issue for U.S. fertilizer exports. A witness on
behalf of The Fertilizer Institute will be testifying before
this Committee later today on this issue that is vitally
important to the fertilizer industry. I urge the Committee to
support the Administration's efforts to seek a prompt and
favorable resolution of this matter.
Importance of China's WTO Accession to Promoting U.S. Economic
Growth and Standard of Living
China's WTO accession will help to ensure that U.S. trade
and investment remain powerful engines of economic growth. With
96 percent of the world's customers outside of the United
States, the future growth of the American economy depends on
expanding world markets. In agriculture, U.S. farmers are
depending on the Chinese market for future growth. The U.S.
Department of Agriculture projects that 75 percent of the
future growth of U.S. farm exports will be in Asia and that
China will account for half of that amount. The American Farm
Bureau has stated that China is ``the most important growth
market for U.S. agriculture in the 21st century.''
China's WTO accession will enable Cargill and other
American companies to continue to provide opportunity to their
employees and their families and advance U.S. living standards.
As documented in ECAT's study, Global Investments, American
Returns, American companies with global operations are able to
contribute more to U.S. growth and living standards than
companies with purely domestic operations through their
research and development, exports, and investments. Expanded
market access to China, the world's largest emerging economy
with the greatest market potential, is key to helping American
companies sustain these positive contributions to the U.S.
economy.
In Cargill's case, the removal of tariff and non-tariff
barriers on grain, proteins, and other agricultural commodities
and the elimination of restrictions on distribution and trading
rights under the U.S.--China bilateral WTO agreement will open
vast new market opportunities. These changes will mean
increased exports and sales for our animal feed and soybean
crushing facilities in China, and will open new investment
opportunities in Chinese agriculture. Cargill's working men and
women understand, both as employees and stakeholders, that
expanded exports and sales in the Chinese market will mean new
activity and opportunity for them here at home.
China's WTO accession is not just important to major
American companies like Cargill and other ECAT member
companies, it is also critical to the growth of small and
medium-size American companies which now account for over 80
percent of U.S. exports to China. Small and medium-size firms,
such as Leon Trammell's firm, which you will hear about today,
also stand to benefit as U.S. suppliers. As documented in
Global Investments, American Returns, American companies with
global operations buy over 90 percent of their intermediate
inputs from U.S. suppliers.
Importance of China's WTO Accession in Promoting Greater
Individual Freedom and Rule of Law in China
Support for China's WTO accession must not be mistaken in
any way as condoning China's track record on human rights and
individual and religious freedoms, or turning a blind eye to
other serious problems that exist in China. These issues must
be addressed, and we must continue as a government and as
private citizens to do all we can to promote individual rights
and the rule of law in China. The record of the last quarter
century of America's bipartisan policy of maintaining trade
ties with China has taught us that positive change is the
product of engagement, not isolation. While maintaining China's
NTR status has been the cornerstone of our engagement policy
with China, this policy and our relations with China have been
buffeted by the uncertainties of the annual NTR renewal
process. Achieving China's WTO accession and extending PNTR
treatment to China without any conditions or annual review will
provide a solid foundation that will allow our policy of
engagement to bear greater fruit.
PNTR Treatment for China: There is No Alternative
To take advantage of the opportunity knocking at our door
from China's WTO accession, we must grant PNTR treatment to
China. Once China becomes a WTO member, the United States is
obliged to provide unconditional most-favored-nation treatment
to China, as it does to all current 133 WTO member countries,
in compliance with Article I of the GATT/WTO agreement. As a
result, as noted by Professor John Jackson, a leading authority
on GATT/WTO law, the United States cannot comply with its WTO
obligations in extending WTO benefits to China unless it
extends Permanent Normal Trade Relations status (PNTR)
treatment to China.
China currently receives Normal Trade Relations (NTR)
treatment from the United States pursuant to the Jackson-Vanik
provisions of Title IV of the Trade Act of 1974, which governs
the extension of NTR treatment to non-market economy countries.
The Jackson-Vanik provisions provide conditional NTR treatment
because they tie extension of NTR to compliance with freedom of
emigration criteria and require that NTR be renewed annually.
As long as China's NTR status in the United States remains
subject to the Jackson-Vanik provisions, the United States will
not meet the requirements under Article I to provide
unconditional MFN treatment. Removing the freedom of emigration
provisions from Jackson-Vanik would not cure this defect, as
long as China's NTR treatment remained subject to the
discriminatory annual renewal requirements that the United
States does not impose on current WTO members.
Of equal importance to the legal arguments on the necessity
of extending PNTR treatment to China are very real political
considerations. In the course of the U.S. negotiations with
China on WTO accession, Chinese negotiators made it clear that
their willingness to extend the benefits of their bilateral WTO
agreement and WTO obligations to the United States is
contingent on receiving PNTR treatment from the United States.
U.S. failure to grant PNTR treatment to China would encourage
China to back off from its bilateral commitments and jeopardize
the tremendous market access gains that we have fought so hard
to achieve. Moreover, the failure of the United States to grant
PNTR to China could be used by anti-reform forces within China
as an excuse to backtrack from market-opening and economic
reform.
Some have argued that even if the United States decided not
to extend PNTR treatment and WTO privileges to China that the
United States would still be entitled to enjoy the benefits of
China's WTO accession under the U.S.--China 1979 bilateral
commercial agreement. This is inaccurate. The 1979 bilateral
agreement is far narrower in scope than the U.S.--China
bilateral WTO agreement. For example, it does not provide
comprehensive coverage for services, nor does it require the
elimination of state trading or discriminatory taxes and
regulations. The 1979 agreement also does not provide for the
enforcement of commitments through WTO dispute settlement. In
addition, the WTO Working Party on China's accession is
considering restricting the eligibility for China's
agricultural market access opportunities to only those
countries that apply the WTO to China.
Clearly if we do not extend PNTR treatment to China, U.S.
goods, services and farm products will be seriously
disadvantaged, if not virtually shut out of the Chinese market.
Failure to grant PNTR treatment to China would give a huge edge
to our Japanese, European, and Asian competitors in the Chinese
market. This is not a risk we should take, particularly when we
are being asked to do virtually nothing in our home market to
gain so much.
Conclusion
Mr. Chairman, to secure the far-reaching benefits of
China's WTO accession that are at our door, ECAT members urge
the members of this Committee and the Congress to act early
this year to approve PNTR treatment for China. We have all the
elements in place to achieve this objective. The President is
to be commended for making enactment of PNTR a top priority and
putting in place a top-flight team of Administration officials
headed by Secretary of Commerce Bill Daley and Deputy Chief of
Staff Steve Richetti to build a national consensus for PNTR. I
am also encouraged by the continuing support for PNTR from you,
Mr. Chairman, the members of this committee, and other members
of the House--fueled by the realization that China's WTO
accession is a national priority and must not become a partisan
issue. In addition, I and many other representatives of the
agriculture and business communities are working together to
bring the message home to all Americans of how international
trade and investment, including trade and investment with
China, contribute to our standard of living.
Mr. Chairman, I want you to know that we are working flat
out, both here in Washington and in congressional districts
across the country, to make the case for China PNTR. ECAT
member companies are out in full force contacting members here
in Washington and in their local districts. We are also
supporting grass roots efforts on China PNTR through ECAT's
Trade: Discover the Opportunity employee trade education
program. The business and agriculture coalitions for U.S.--
China trade are actively coordinating their efforts on China
PNTR and we have helped create a special web site at
www.business4chinatrade.org to help broaden our activities.
With the advent of our historic bilateral agreement with
China and China's WTO accession, ``Opportunity Knocks.''
America must have the courage and foresight to answer that
knock at the door by granting PNTR treatment to China. I thank
this committee for your leadership on this issue and this
opportunity to testify.
Chairman Archer. Thank you, Mr. Micek.
Our last witness in this panel is Mr. Trammell. Welcome and
you may proceed.
STATEMENT OF LEON TRAMMELL, CHAIRMAN AND FOUNDER, TRAMCO,
INCORPORATED, WICHITA, KANSAS, AND MEMBER, INTERNATIONAL POLICY
COMMITTEE, U.S. CHAMBER OF COMMERCE
Mr. Trammell. Mr. Chairman, thank you for allowing me to
move up.
Chairman Archer, members of the Committee on Ways and
Means, I am Leon Trammell, chairman and founder of Tramco,
Incorporated in Wichita, Kansas. I am here today on behalf of
the U.S. Chamber and small businesses.
Tramco is a 33-year-old company employing approximately 160
workers in Kansas, where we design and manufacture conveying
equipment. You can find our environmentally friendly systems
loading trains with grain in mid-America, transporting cement
in Morocco, or moving wood chips in a particle-board factory in
Canada. Thanks to the persistence of Tramco's sales force over
the last 15 years, you can find Tramco conveyors in China.
Today I am appearing on behalf of the U.S. Chamber of
Commerce. I am a representative of the tens of thousands small-
and medium-size chamber members whose future and whose workers'
jobs increasingly depend on sales to foreign markets like
China.
I am here to urge you to support permanent normal trading
relations for China. The U.S. Chamber, with the support from
companies across the nation like Tramco, is leading an
aggressive, nationwide, grass-roots initiative to explain the
benefits of the U.S.--China WTO agreement.
I arrived a day early so I could talk with my Member of
Congress, Congressman Tiahrt, about the importance of this
agreement to my business. I am confident that we are making
progress and that more and more Americans are getting the true
and full message.
I am here as a representative of small- and medium-size
businesses. Companies employing fewer than 500 workers account
for well over a third of the merchandise shipped to China.
When Tramco first went to China in 1985, the grain
industry's idea of transporting its product was one farmer, one
sack of grain, and one bicycle. Things are different today
thanks to 15 years of rapid development. Tramco is exporting
our product and supplying engineering expertise to cereal food
factories, ship loading and unloading facilities in China.
These opportunities create jobs. Every $125,000 in foreign
sales will support one employee for one year.
I will not dwell on the benefits of the U.S.--China WTO
agreement. You have heard them all before, and they are too
numerous to go into at this time.
Let me put the benefits of this agreement in the simplest
terms possible: China has some of the most restrictive barriers
of the 35 countries in which Tramco does business.
Remove those and China becomes a market of limitless
potential for small business across the country.
China accounts for approximately 10 percent of Tramco's
international sales. These sales not only support additional
workers, they mean a proportional increase in Tramco's
purchases of steel, paint, and other raw materials from our
American suppliers.
Many of our vendors may never have had their passports
stamped, but they enjoy increased business when Tramco has more
overseas sales.
I think the U.S.-China WTO agreement sells itself. China
makes all of the concessions, and companies like Tramco get
access to one of the most important markets in the world.
I hope the full text of the agreement will be released soon
so that all Americans can see for themselves how good this
historical agreement is.
However, the agreement will not help the small businesses
unless we grant permanent normal trading relations to China. If
Congress fails to act, other WTO members will reap the benefits
of the agreement that U.S. trade negotiators hammered out with
China. American companies will sit helplessly on the sidelines.
Some opponents of the deal have said that Congress will
lose leverage by extending PNTR to China. I believe this to be
false. Withholding PNTR would isolate Chinese officials such as
Prime Minister Zhu who argue for liberalization and improved
relationships with the United States. It would also isolate
those pressing for greater liberties.
Granting China PNTR will not deny any member the ability to
express his or her concerns about U.S.--China relations. If
China were to ever seriously threaten our interest in the
region, I am confident that Congress would take swift actions,
unimpeded by China's PNTR.
Finally, the annual NTR process handicaps American
businesses. This continues to add an element of uncertainty to
our business dealings with the Chinese that the Europeans and
the Japanese do not face.
We at Tramco need to stay engaged and keep building
relations with our customers, not be undermined by threats by
our Government to turn the relationship off and on like a light
switch.
The U.S. Chamber hopes that the House will not wait long to
vote on China's PNTR status. We already have a foundation on
which to take a vote. The U.S.--China WTO agreement contains
most of the major components that will be in the China final
accession protocol.
A few WTO members, like the EU, have yet to finalize their
WTO negotiations with China. WTO rules require that any
additional market-opening measures won by the Europeans or
others must be given to the U.S. companies as well. In other
words, in the final terms of China's accession, the WTO can
only get better. It is a win-win.
We have an historic opportunity to secure broad and more
consistent access to China's markets for small businesses like
Tramco. As a person who signs the paychecks that support 160
families, I know that opening China's markets means greater
sales and a more certain future for small businesses like us. I
hope we have the wisdom and insight to seize this historic
moment.
Thank you, Mr. Chairman. I will be happy to answer any
questions.
[The prepared statement follows:]
Statement of Leon Trammell, Chairman and Founder, Tramco, Incorporated,
Wichita, Kansas, and Member, International Policy Committee, U.S.
Chamber of Commerce
Thank you, Mr. Chairman, for the opportunity to testify
today on the critical issue of US-China trade relations. I am
Leon Trammell, Chairman and founder of Tramco, Incorporated of
Wichita, Kansas. We are a 33-year old company employing 160
workers in Kansas, where we design, manufacture and sell
conveying equipment. You can find our conveyors loading trains
with grain in the American Midwest, transporting cement in
Morocco or moving wood chips in a particle-board plant in
Canada. During the last decade, we entered a new market with
high growth potential for us--China.
Today, I am appearing on behalf of the US Chamber of
Commerce, where I serve as a member of the International Policy
Committee, which shapes 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. Almost 96
percent of the Chamber's members are businesses that employ 100
or fewer workers. I am delighted to have this chance to provide
you with a small business owner's perspective on why it is so
important for you to grant permanent normal trade relations
(PNTR) to China.
The US Chamber has long supported China's entry into the
WTO on commercially acceptable terms. By joining that
organization, China will have a stake in making the
multilateral trading system work and an incentive to adhere to
the rules. The US-China WTO agreement will provide a strong
commercial anchor for our bilateral relationship, which has
weathered some stormy moments in the last few years. In order
to bring home to American businesses, workers and farmers the
unprecedented concessions that China has made as part of its
bid to join the WTO, we must grant China PNTR. Doing so will
not only give an enormous boost to large and small businesses
engaged in trade with China, it will end an annual renewal
process that added uncertainty to business dealings with China.
Explaining the Benefits of China PNTR
Like many people here today, I was in Seattle for the WTO
Ministerial Meeting. I went as part of a US Chamber delegation.
The demonstrations by labor and environmental groups showed the
extent to which many segments of the public do not understand
the benefits of international trade. One of the starkest
examples of this was the decision by the men and women working
at Seattle's ports to walk off their jobs to join the anti-WTO
demonstrations. Most of these workers' jobs would not exist
without exports and imports moving through the ports. I believe
this lack of understanding of the benefits of trade contributed
to the failure of the Seattle WTO meeting. The American
business community has stiffened its resolve to make sure that
the same thing does not happen to China PNTR.
The US Chamber, together with coalitions across the country
made up on companies like Tramco, Inc., is leading an
aggressive nationwide initiative called TradeRoots China. This
initiative is rapidly building support around the country for
the US-China WTO agreement and China PNTR. The five principal
goals of the program are:
To shore up and sustain pro-China-trade coalitions
at the grassroots level in 66 congressional districts in 27
states;
To identify and mobilize community leaders as pro-
China-trade advocates in each district;
To partner with the governor of each state to
communicate the local benefits of China trade;
To share China trade success stories through local
media, using a vigorous communications campaign; and
To serve as a one-stop information resource on US-
China trade--on the web and off the web--from everything from
state and local trade statistics to success stories.
The TradeRoots China program leverages the federation of
state and local chambers of commerce and thousands of the US
Chamber's small business members to carry our message of
support for China PNTR to the public and Members of Congress. I
arrived a day early so that I could talk with my Member of
Congress about the importance of the US-China WTO agreement to
my business and workers. I am confident that we are making
progress and that more and more Americans are getting the true
and full message.
China's Accession to the WTO is a Win for Small Business
The Fortune 500 is well represented here today. You often
hear about what large U.S. corporations are doing in China.
What you do not hear so much about is how involved small and
medium-sized businesses are in trade with China.
Small and medium-sized companies are a growing share of US
exporters to China. The US Department of Commerce found that 82
percent of all US exporters employed under 500 workers. These
companies are also responsible for a growing share of total US
shipments to China. In 1992, small and medium-sized companies
accounted for 27 percent of all merchandise shipments to China.
In 1997, that figure was over 35 percent.
Like many small businesses, Tramco started doing business
in China because of the immense potential there. When we first
went to China in 1985, the grain industry's idea of
transporting its product was one farmer/gardener carrying one
sack of grain on one bicycle. There was no mechanized
conveying. In fact, when grain was loaded on to ships, it was
not unusual for the farmer to carry sacks of grain on to a ship
and dump them by hand into the ships' holds. Today, things are
different thanks to ten years of rapid development.
China has some of the most restrictive barriers of the 35
countries in which Tramco does business. The US-China WTO
agreement will tear down those barriers. China will make
enormous concessions to open its markets to America's leading
products and services, creating new opportunities for American
companies, workers and farmers. These new market opportunities
will support US jobs and US economic expansion into the new
century.
Because it is so comprehensive, there is not enough time
for me to go into all of the benefits of this landmark
agreement. I would like to highlight just a few that are
significant for us.
China's agricultural tariffs will be cut in half
by 2004. There will be even deeper cuts on US priority products
like beef and pork. In addition, barriers to US corn, cotton,
wheat, rice, barley, soybeans and other products will be
eliminated. We expect greater demand for our conveying
equipment to move American grains into China.
Industrial tariffs on US products will fall from
an average of 25 percent to 9.4 percent by 2005, making our
products more competitive within the Chinese market.
American companies will have full trading rights
to import and export without going through a local trading
company. Perhaps even more important, US companies will be
allowed to distribute their own products in China, and to own
and manage distribution networks, wholesaling outlets and
warehouses.
China will quickly phase out restrictions on the
right of US companies to perform their own independent
marketing, after-sales service, maintenance and repair
services, and customer support. This is especially important
for Tramco, which believes that repeat sales come from
maintaining close contact with the customer after the initial
sale.
This market-opening will create new sales opportunities in
China for small businesses like Tramco. Every $125,000 in
foreign sales can support a new job at our facilities. The
benefits do not end there, however. Tramco and other small
businesses also supply inputs and services to larger
corporations such as those represented here today. As we have
heard, these corporations expect to see much greater demand for
their products as China's market opens. Thus, even some small
businesses that do not export to China directly will be able to
attribute an increase in sales to the agreement by virtue of
their supplier relationship with companies that do.
A final point about the US-China WTO agreement. Although
the Administration has taken steps to make many details of the
agreement available, I hope that the full text will be released
soon so that the American public can see for itself how good
the agreement is. The agreement will sell itself.
China PNTR Locks in the Benefits of the US-China WTO Agreement
You have already heard this point before but it is worth
making again: The United States will not receive the benefits
of China's joining the WTO unless it grants China PNTR.
GATT/WTO principles and the leading WTO scholars are
crystal clear on the need to grant China, as a WTO member,
unconditional normal trade relations. If the United States does
not hold up its end of the deal, other WTO members will reap
the benefits of the agreement that US trade negotiators
hammered out with China, while American companies sit
helplessly on the sidelines.
I can think of no greater tragedy than to let this
opportunity slip through our fingers. It is somewhat like
standing at the railroad station waiting for the train, and as
it rumbles down the track, it does not stop for you. What's
worse, it has your foreign competitors on board.
I am not afraid that granting China PNTR is going to result
in a flood of cheap Chinese goods into the US market. Chinese
producers already have access to our market. Tramco has already
demonstrated that it can compete with foreign producers that
have low labor cost because we are more efficient and have a
more reliable product. What we cannot do is compete in the
foreign producers' own market if they are protected by high
tariff walls and non-tariff barriers.
Some critics argue that Congress will lose leverage by
extending PNTR to China. They claim that the annual NTR debate
is a useful way to prod China into improving its record on
human rights and religious tolerance. Unfortunately, neither is
true. The living conditions and freedoms of the average Chinese
citizen have improved faster during the last 25 years of US-
China engagement than during the period when no relations
existed. Withholding PNTR would isolate Chinese officials such
as Prime Minister Zhu Rongji who argue for liberalization and
an improved relationship with the United States.
I would also like to point out that any Member can at any
time express his or her concerns about China on the House
floor. Granting China PNTR does not deny Congress this ability.
If China seriously threatened American interests in the region,
I am confident that Congress would take swift action unimpeded
by PNTR.
The US Chamber hopes that Congress will not wait long after
this hearing to begin the debate on China PNTR. As you may
know, the Chinese must still complete their negotiations with
the Europeans, Brazilians and a handful of other WTO members.
However, it is not necessary to delay our consideration of
China PNTR based on Europe's time table. The US-China WTO
agreement contains most of the major components that will be in
China's final accession protocol. WTO rules require that any
additional market-opening measures negotiated by the Europeans
or others must be extended to US companies as well. Thus, the
final terms of China's accession to the WTO can only be
improved over the already remarkable US-China agreement.
Conclusion
The US Chamber believes that we have an historic
opportunity to secure broader and more consistent access to
China's markets. As the person who signs the paychecks that
support 160 families, I know that opening China's markets means
greater sales and a more certain future for small businesses
like my company. I hope that we have the insight and wisdom to
seize this moment.
Thank you, Mr. Chairman. I would be happy to respond to any
questions.
Chairman Archer. Thank you, Mr. Trammell.
Before I yield to members, the Chair observes that two
witnesses originally scheduled to be on this panel were forced
to leave to meet other engagements, and without objection,
their written statements will be inserted in the record. That
is Mr. Maurice Greenberg and Mr. Frederick Smith.
Now, does any member wish to inquire?
Mr. Rangel. I do.
Chairman Archer. Mr. Rangel.
Mr. Stark. Mr. Mack, after you have heard all of this
testimony this morning, haven't your views been changed
dramatically that this is just win-win? I mean, you are
surrounded.
Mr. Mack. My testimony, Mr. Rangel, did not mean to imply
that this deal was not good for business. We think that it is.
So, no, it has not changed at all. We think that even though it
is good for business, and even though it affords opportunities,
those that work in this country, the environment cannot be
given second place.
And, beyond that, the workers in China, we don't see the
elimination of the annual review is really going to do anything
for that workforce in China because they really have no ability
in that system to improve their conditions.
Mr. Rangel. Okay. So suppose we just jack it up a little
bit and say that there are tremendous opportunities for
business, for American business, for agriculture, for farmers,
for industrial goods, for insurance, financial services, that
it is just a tremendous opportunity, it is going to create a
lot of jobs, and assuming that you agree with all of that, then
I would agree with you, that it is not just win-win, that there
would be some losers in all of this because it just makes some
sense that if state-operated factories can do something in
China for less money and without a whole lot of union
standards, that somebody is going to lose their job. And I
think that is what progress is all about, but I would be here
to see what we could do to ease the pain or to protect those
people.
My question to you would be: A lot of these jobs that you
are agree that we could get if we made permanent the normal
trade relationship, would you agree that these opportunities
would not be available if we didn't go along with the
agreement; that the access that we negotiated would be denied
us even though other countries could enjoy it?
Mr. Mack. Mr. Rangel, that is not my understanding of
really what we are dealing with here.
Mr. Rangel. No, no, no. Listen. I am going to get back to
what really you are dealing with here. I am just saying, on the
other side where you and I agreed, that the winning part of it,
which you agreed, is there is going to be a tremendous amount
of jobs here. And the Teamsters, as I recall, have gone far
beyond trucks. I mean, you have professionals, white-collar
jobs. So--
Mr. Mack. I may have misspoke myself. I did not intend to
imply that there are going to be a tremendous number of jobs in
this country. There are going to be a tremendous number of jobs
in this country that we are performing now, as we see it, that
will be performed in China because of the disparity in the
labor rates.
Mr. Rangel. Do you challenge the fact that the markets in
China will be open to American businesses and services and that
there would be a tremendous number of new jobs created in the
United States of America as they provide financial service,
information technology, all types of insurance, that the
farmers in selling rice and beans and wheat and cotton, do you
really think that there is not going to be a tremendous surge
in exports to China, which are now restricted because of their
tariffs and the restrictions that they put on American exports?
Mr. Mack. I have no reason to believe that we are going to
see any great surge in exports to China. I mean, if we look at
NAFTA and Mexico as an example of that, that was the same story
that we heard there. There wasn't going to be a job loss in
this country.
Mr. Rangel. Okay.
Mr. Mack. Sixty-seven companies that testified on NAFTA
said they were going to increase jobs in this country if, in
fact, it was granted.
Mr. Rangel. Okay.
Mr. Mack. NAFTA was granted. Sixty of the 67 companies have
actually cut jobs in this country. So I don't buy the promise.
Mr. Rangel. Well, first of all, I am going to stick with
you to see what we can do about the job loss, but, quite
frankly, you have to walk with me in terms of seeing the
contracts that are ready to go if this deal goes down, which
will create a lot of jobs and, assuming that your union and
others continue to diversify, I would think a lot of new union
members.
But let's get back to the human rights violations, the
labor violations, the lack of standards in the environment, and
the dictatorial type of government. Assuming that this Congress
does nothing, how, Mr. Mack, do you think we can get a better
handle on those things that you and I are concerned with if we
just say we are not going to reward you, we are not going to
normalize the relationship, we are not going to support your
entry into the WTO? Do you think that gives us a better handle
to deal with some of these injustices that are in your
testimony?
Mr. Mack. Yes, I do.
Mr. Rangel. How?
Mr. Mack. I think the annual review continues pressure on
China to improve the freedoms in that country. Among the
freedoms is the right to organize and the right of workers to
improve their conditions through some form of bargaining or
some form of collective bargaining, contract negotiation.
Mr. Rangel. Why would we review it at all? I mean, suppose
they say that you can do what you want and we are going to do
what we want, you are not a party to our deal with the WTO, we
have no deal with you?
I will put it another way: What right would we have to
review what China would do?
Mr. Mack. Well, as I understand it, we have got the right
to review, at least now annually, progress or lack of progress
that is made with regards to China and the United States on
trade.
Mr. Rangel. And if they were not making progress, then what
sanctions would we have if we didn't okay any agreement with
them, anyway, we weren't doing business with them?
Mr. Mack. It is my understanding that we have got sanctions
under the bilateral trade agreement that currently exists.
I guess the point here is that we are not opposed to this
question of trade, and I don't want to convey that to this
committee. I think to a large degree we really have a lot in
common. There are jobs that will be created by trade. We are in
favor of trade. But in that whole process, what advantages or
what can--what path do we take to secure the maximum for all
that are involved in this process, not just--
Mr. Rangel. What path would you have us to take?
Mr. Mack. The annual review, continuation of the annual
review. It doesn't do--
Mr. Rangel. If we review it and don't make it permanent,
they can't go into WTO.
Mr. Mack. No--
Mr. Rangel. This agreement that we negotiated doesn't go
into effect.
Mr. Mack. No, Mr. Chairman, that is not my understanding.
China is going to go into the WTO whether there is annual
review or NTR. They are going to be--
Mr. Rangel. But we will not be the beneficiaries of the
agreement.
Mr. Mack. It is my understanding that we will be the
beneficiaries of any agreement that China strikes with any
member of WTO because we belong to WTO. The impression--
Mr. Rangel. There is a big difference of opinion here.
There is a big difference of opinion.
Mr. Mack. That is our opinion of the--we would like to--
Mr. Rangel. My time has expired, but I want you to know,
Mr. Mack, that I think this discussion warrants more than 5
minutes the way we are, and I would welcome a meeting with you
and other labor leaders and experts in the field to admit that
there are winners and there are losers, and a lot of your
people are going to be losers, and I know that. And I think
what we have to do is to see what we can do to prevent those
people from being hurt as we open up these new markets.
Thank you for being so lenient, Mr. Chairman.
Mr. Mack. We would welcome the opportunity.
Chairman Archer. Mr. Crane?
Mr. Crane. Mr. Mack, how many Teamsters jobs have been lost
in the last, say, 5 years?
Mr. Mack. I don't have the--I wouldn't have the specific
information with me, Mr. Crane.
Mr. Crane. Well, maybe not the specific figures, but--
Mr. Mack. I can--approximately?
Mr. Crane. Yes.
Mr. Mack. I would say somewhere in the neighborhood of
50,000 to 100,000.
Mr. Crane. 50,000 to 100,000 out of how many total?
Mr. Mack. Out of how many what?
Mr. Crane. How many total Teamsters?
Mr. Mack. We have 1.4 million.
Mr. Crane. All right. And what is the fundamental cause for
the loss of those jobs?
Mr. Mack. Most often, it is movement of work across the
border into Mexico, oftentimes in the maquiladoras, sometimes
into the interior. Jobs that are labor-intensive jobs that are
performed in this country are taken across the border where the
labor costs are cheaper and there is no protective collective
bargaining process that would change that.
Mr. Crane. So the Teamsters are not just the truckers?
Mr. Mack. Oh, no. Teamsters are food processing, warehouse,
production, trucking--a lot of different industries and crafts.
Cargill.
Mr. Crane. Because I would think that the truckers would
actually increase their membership with our expanded trade.
Mr. Mack. There probably has been a degree, at least
probably stable in terms of trucking. But, of course, we battle
on this whole question of cross-border trucking, too. I mean,
that is another issue that is before the Congress that we have
a deep interest in, which would be probably just the other side
of NAFTA. Instead of the exportation of jobs to Mexico because
of NAFTA, we would have the importation of workers for
transportation purposes into the United States.
Mr. Crane. You mentioned in your statement that if we
extend permanent NTR to China which guarantees permanent access
to the U.S. market, we will be sending a message that no matter
what promises China has failed to fulfill, there will be no
consequences in terms of trade with America.
Do you honestly believe we wouldn't retaliate?
Mr. Mack. That we would not retaliate?
Mr. Crane. Yes.
Mr. Mack. I think we are going to be very restricted
because you would be, I think, looking at this WTO process. And
as we know, WTO--are you talking about national security or
just regular trade items?
Mr. Crane. Well, any trading partner that is a member of
WTO that does not live up to WTO principles being a member, you
can retaliate against any country that doesn't measure up to
those standards. So if China is a permanent member of WTO, we
can retaliate anytime they don't live up to the standards.
Mr. Mack. Retaliation, you mean going through the WTO
dispute process?
Mr. Crane. Well, the dispute process, right. You can
retaliate then as we are reviewing, you know, retaliation
against the EU right now on bananas and beef hormones.
Mr. Mack. The United States, as I understand it, would have
the opportunity to go through that dispute process. We as an
organization do not have a lot of confidence in that process.
That is what Seattle was in large part about, the WTO.
Contrast the WTO to us here today. Here you have got a
tremendous, to the credit of the committee, diversity of
opinion on issues. You have people who come up and have the
right to speak and to have their say.
The WTO, on the other hand, is a closed process where only
certain individuals are allowed to participate. We don't really
understand who the judges are that make the decision. But those
that have an interest in that process can't be there, can't
make their statements, and can't offer their opinions.
Mr. Crane. Well, let me reassure you of one thing, and that
is, we can retaliate against anybody we want to retaliate
against, and that is without a WTO decision.
Now, if we take that kind of action without a WTO decision
in our favor, that country that we are taking that action
against can in turn retaliate against us. But, I mean, you can
do that anytime you want. You don't like the way they are
playing the game, say, okay, we are not going to play the game
with you. And we still retain the absolute authority to get out
of WTO anytime we want to get out of WTO.
So, there is nothing, you know, that is eternally binding,
and Congress can act based upon what it may determine to be the
offenses committed by a trading partner. And what we have done,
then, is to isolate ourselves.
But keep in mind that the beneficiaries of this are the
United States, not China. China continues as usual, except for
the fact that it suddenly has access on an increased basis to
about 140 trading partners worldwide. The United States is the
country that is the beneficiary out of this because suddenly,
with those reduced barriers to trade, we can access their
market. I mean, access it, the estimates are $2 billion a year
in increased agricultural exports to China.
So if we don't take advantage of that kind of an
opportunity, we are shooting ourselves in the foot.
Mr. Mack. I respectfully disagree. We have got the 1979
bilateral agreement here, and by this agreement, if NTR status
is not granted, any favored-nation agreements that China
reaches with any country under the WTO will be applied to the
United States. So it does not put this country, it does not put
business at a disadvantage if NTR is held off and we continue
annual review, in our opinion.
Mr. Crane. Thank you.
Chairman Archer. Mr. Hulshof?
Mr. Hulshof. Thank you, Mr. Chairman.
Mr. Erisman, I make this point not to embarrass you at all,
but I think you are probably the only witness on this panel who
lost money in this past year.
Mr. Erisman. Yes.
Mr. Hulshof. Let me first of all ask Congress, of course,
provided some assistance to the American farmer in Missouri. Do
you have an estimate as to how much that emergency assistance
provided as far as net farm income?
Mr. Erisman. Congressman, in my prepared remarks, I stated
that 75 percent of the net farm income in Missouri last year
was due to Federal Government payments. That is a very
unfortunate occurrence as far as most of us are concerned, but
it is what it takes to keep us out there.
Mr. Hulshof. Mr. Erisman, as an independent producer who
feeds 129 people in the world, do you want to farm for a
government check?
Mr. Erisman. Well, you already know the answer to that one,
sir. I would much rather work for the market in a free market
when we can trade with all the partners in the world and take
the profits that there are from the free economy than to have
to depend on the government. The only time that I would look to
government for assistance is when we are facing situations as
we did last year with a complete collapse of hog prices, or in
most of your district, the Ninth District this past year, we
had a half bean crop and less than a half corn crop, so we had
a natural disaster, as well.
Mr. Hulshof. Do you agree or disagree with the opinion that
Mr. Mack offered that reducing tariffs to China under this
bilateral agreement, especially regarding beef from 45 percent
under current law down to 12 percent, or as you noted in your
testimony, pork from 20 percent down to 12 percent, do you
agree or disagree that exports will not increase to any
substantial degree? I think I have paraphrased your testimony
correctly, Mr. Mack.
Mr. Erisman. I guess I fail to see how we can avoid having
any increase in exports when you are bringing the other 20
percent of the world's population on board. I mean, I know I
keep going back to that same thing, but how can we wall off
this part of the potential market and not be able to sell to
those folks that desperately, in some cases, need our products?
Mr. Hulshof. Mr. Mack, I appreciate very much the tone of
your testimony. I really do. I was not in Seattle, but having
watched what happened in Seattle, I think it is a benefit that
we have in a free society in this country that we can have an
exchange of ideas and maybe have disagreements. I really do. I
compliment you on the tone of your discourse today.
Part of what you have said, though, and Mr. Rangel asked
you some questions regarding, for instance, human rights and
labor rights, environmental concerns. Is it your belief that if
we isolate China, that is, that we have economic isolation,
that we would have more progress or less progress on those
areas that you have talked about?
Mr. Mack. I did not mean to imply economic isolation. We
have relations with China and I would expect those relations
would continue. So the gist of my testimony was not to provide
economic isolation. Really, the only thing that we are talking
about and arguing here for is a continued annual review of the
relations between China and the United States.
Mr. Hulshof. I know my time is short. Something that struck
me was Ms. Barshefsky, who said--first of all, do you think
that we have been making at least some progress regarding human
rights and labor and the environmental concerns in China?
Mr. Mack. Precious little.
Mr. Hulshof. Well, she says that if no progress is being
made, then we should not engage with China, that we should not
have normal trade relations, and then if progress is being
made, then why not have permanent NTR. In my time, I am not
going to be able to ask you to comment on that because my time
is drawing short.
Again, the only other comment I would have, with all due
deference to you, sir, this is not NAFTA. This is heard
periodically and through your testimony NAFTA and going back to
the failures of NAFTA. I mean, we probably have some agreement
among members here as to who were the winners and losers, as
Mr. Rangel points out, regarding trade agreements regarding
NAFTA. This is not NAFTA. This is a completely separate
bilateral agreement with the People's Republic that, as Ms.
Barshefsky says, has been going on since 1986, negotiations, 14
years, and that have brought this document forth.
I do appreciate, Mr. Chairman, the serious consideration
that has been given today and I appreciate all of your
testimonies today, recognizing my time has expired. And Mr.
Erisman, I particularly appreciate you making the trip from
your family farm in Audrain County, Missouri, to come here to
try to shed a little light and maybe some common sense on those
of us who have to grapple with this tough decision. Thank you.
Mr. Crane [presiding]. Thank you.
Mr. Levin?
Mr. Levin. Thank you, Mr. Chairman. I think, once again,
the questioning and the responses have brought a note of
realism to our discussion. There are going to be losers as well
as winners, and it is, I think, counterproductive for us to
just deny that.
One of the issues is what kind of balance there is going to
be between winners and losers and how do we minimize the number
of losers and maximize the number of gainers and what happens
to those who are impacted negatively and what steps we can take
to move China in the right direction and that a yes vote is no
magic wand. We had better be realistic.
Mr. Mack, I want to suggest, there does need to be some
further discussion about the 1979 agreement and its continuing
impact, because clearly, there would be no access by the U.S.
to the dispute settlement procedures if there is not permanent
NTR. I think there is serious question whether or not China
would have to provide us what they were providing every other
nation in most respects. The weight of the argument may be
except in limited areas, they would not. So again, I think we
need to be realistic on all sides of this, but surely there are
going to be some losers as well as winners. Mr. Mack, you are
right when you point out they are not just shipping toys to the
U.S. It is much beyond that already.
Now, I want to ask about another area, again urging
realism, so Mr. Chen, I am going to pick on you.
Mr. Chen. Okay.
Mr. Levin. You say 95 percent--where is that quote, that is
pretty striking--
Mr. Chen. Ninety-five percent piracy rate on software.
Mr. Levin. Yes. BSA estimates the piracy rate level for
packaged software applications at 95 percent in China. When I
was in Beijing in December, when I went out right away after
landing and I was walking with somebody, the first person I met
on the street wanted to sell me some pirated software.
Mr. Chen. Right.
Mr. Levin. We moved on. But then later on you say, the WTO
dispute settlement has already succeeded in bringing countries
into compliance with their TRIPs obligations relating to
copyright enforcement, has worked effectively for U.S.
copyright owners. This is why I think we need to consider
additional enforcement mechanisms within the United States and
probably within the WTO, because this settlement dispute system
has worked bringing countries into compliance, countries that
are not heavily engaged in this kind of counterfeiting, in most
instances, is that not true?
Mr. Chen. It is. I think we have to look at it at different
levels. What is exciting to us is it created a platform for us
to have international or global-wide discussions to bring the
issue on the table so that nobody could really duck the thing.
They do need to enforce it. They do need to put it on the
books. And if they put it on the books, whether they are going
to enforce it or not remains to be seen.
Mr. Levin. Okay, but that means, if I might interject, that
is why I think the tone, the words are not realistic, that the
dispute settlement system has already succeeded in bringing
countries into compliance. That makes it sound just like that.
Mr. Chen. No, it is--
Mr. Levin. My quarrel with so much of the argument is, it
is just like that in the eyes of too many people.
Mr. Chen. Right.
Mr. Levin. And I do not think that is realistic about
software in China, is it?
Mr. Chen. Probably not, but let me suggest a few things.
There has been excellent progress in the case of Sweden, for
example, that we use this process--
Mr. Levin. In Sweden?
Mr. Chen. Sweden, yes.
Mr. Levin. But that is so--
Mr. Chen. Allow me to finish, please, Mr. Levin. There has
been progress, major progress in Hong Kong. There has been
major progress in China in not exporting, by shutting down the
CD-ROM whatever factory they produced the pirated software to
export to the other Southeast Asian countries. So there has
been progress, I mean, obviously not even close to our
satisfactions, and what we would like to do is to get more and
more weapons. I do not believe that is the panacea. I do not
believe that, therefore, just like that will happen. We are
going to continue to work it. We are going to be partners. We
are going to try to make our influence more felt, and we will
feel it on the world stage and that is what we want to do.
Mr. Levin. I will close. The red light is on. I just do
think that you and others need to work with some of us to see
if we can build in some--if this is going to happen as part of
it, it just cannot be assumed it will work like this.
Mr. Chen. No, I agree.
Mr. Levin. I think that statement about it has already
succeeded, people will misread it as if it is automatic in
application to China. No person I know who is close to it
really--I do not think you believe it. Thanks very much.
Mr. Crane. Mr. McCrery?
Mr. McCrery. Thank you, Mr. Chairman.
Mr. Chen, while you are hot, let me continue with you. Are
you concerned that if permanent NTR is not granted to China,
there will be a cost to our domestic high-tech sector?
Mr. Chen. There will be a cost to the--
Mr. McCrery. Our domestic high-tech sector?
Mr. Chen. Absolutely.
Mr. McCrery. Can you expound?
Mr. Chen. Absolutely. Thank you for the questions. I think,
as a matter of fact, that the uncertainty on an every-year
basis causes us to not, and especially the smaller companies,
not being able to really invest for the long-term in their
market. On the other hand, on the other side of the ocean, they
have this concern about uncertainty and, therefore, they are
not going to be true partners with us. So everything is going
to build on the very short-term. Forget about whether they
retaliate or not. I think they need our software, period,
whether they get it from somewhere else or not, but I think
they need our software, or other technology. So the point is,
yes, it will cost us jobs. It will cost us economic progress
inside the United States because we can invest long-term.
Mr. McCrery. Well, thank you, and Mr. Mack, I, too,
appreciate your testimony and the tone of your testimony, but I
do think it is somewhat disingenuous to continually point out
that jobs were lost under NAFTA. Yes, some jobs were lost under
NAFTA, and for those people who were affected by those job
losses, we certainly sympathize with them, and as Mr. Rangel
said, we want to find ways to try to help them get retrained,
reeducated, whatever is necessary to get them a new job.
But the fact is that more jobs were created in the United
States as a result of NAFTA than jobs were lost, and the
Department of Commerce and the Clinton administration has
pointed this out year after year. The fact is that United
States exports to Mexico have risen 90 percent since NAFTA was
enacted, 90 percent, almost doubled exports. That means we have
sold more to Mexico since NAFTA was enacted. That means jobs
were created here to produce those extra exports that have gone
to Mexico.
Trade is not a zero-sum game. The United States' share of
Mexico's imports has risen from 69 percent in 1993 to 74
percent in 1998. So, in other words, thanks to NAFTA, the
United States has become an even more important trading partner
with Mexico. We are selling them even more of their total
import pie than we were before NAFTA.
So I want you to work with us in a collaborative effort to
try to soften the impact in those areas that will be negatively
impacted, and we know there will be as a result of any trade
agreement and as a result, frankly, if there are no trade
agreements. You are going to continue to have this evolution of
the kinds of jobs that we have in this country.
So I would hope that your organization and others who
oppose these agreements for whatever reason would look at the
big picture and know that it is in the best interest of the
United States as a whole to move forward and not move backward
and then to be constructive in working with us to craft
legislation that can help alleviate the problems that are
associated with the progress that we are making. There are
always going to be problems associated with the progress that
we are making.
Now, I will give you a chance to respond, Mr. Mack, if you
choose.
Mr. Mack. Thank you very much, Mr. McCrery. We welcome your
views and the offer to work with us and the trade union
movement to soften the impact that is going to be felt as we
move down this road of trade. We are not attempting to stop
trade, hold it up, or prevent it. It is going to continue and
we are going to see, as has been described aptly here, winners
and losers, and there is a real need to take into consideration
the impact on the ``losers,'' those members of ours that belong
to organizations that have spent their lifetime in a job that
are going to lose that job because the company is picking up,
moving to Mexico, moving to China, or whatever it may be.
There needs to be a consideration of that impact, and in
almost this entire process, we talk trade. That is one of our
real frustrations, is there has not been, in our opinion, ample
consideration for the ``losers,'' and that we need, I think, to
look at. We need to try to do something with regards to that,
but there has been a tremendous reluctance on the part of
business in this country to be able to address that and deal
with it.
Now, the people who are sitting here are decent people.
They are good people and they run good businesses, obviously.
We have contracts with Cargill and they are good to work with.
But when these decisions are made about relocation and going
from one country to another, we have got to look at the impact
upon the people who are involved and we need to look at some
imaginative and valuable solutions to those problems that are
not going to destroy the livelihoods of those people and that
of their families. So we welcome the opportunity to work with
you as this process goes forward.
Mr. McCrery. Thank you.
Mr. Rangel. Will the gentleman yield on that?
Mr. McCrery. I do not have any time left, but if I did, I
would use it because I would like to follow up, but in the
interest of moving along and getting to the last panel, I will
say thank you to the chairman.
Mrs. Johnson [presiding]. We also have another panel after
this and five more questioners on this panel.
Mr. Rangel. I just wanted to congratulate the gentleman for
his line of questioning and also Mr. Mack's response, because I
almost had Mr. Mack talking about the tremendous new jobs that
would be created, but I gather his resistance is that nobody
else on the other side is talking about the dislocation and the
pain that could be caused by this.
I think more candid exchange, and you pointed out that
NAFTA, certain people got hurt, and so a lot of business people
do not want to talk about it. It did not happen. It did not
exist. Win, win, win, win. And he is saying, hey, let us take a
look and bring some balance to it and I think we do have time
to have that dialogue. Thank you.
Mrs. Johnson. I think it is--
Mr. McCrery. Well, while that is true, Mr. Mack's
testimony, with all due respect, was not, hey, trade is good
for America. Let us work together to minimize the effects, the
uneven effects of moving forward. His testimony was, doggone
it, let us not pass this NTR with China. Let us stop this
bilateral agreement with China--
Mr. Rangel. Until we can--
Mr. McCrery.--and I was trying to point out nicely that I
think he could have done better--
Mrs. Johnson. I would like to recognize Ms. Dunn.
Ms. Dunn. Thank you very much, Madam Chairman.
Mr. Chen, I wanted to follow up on your comments about the
TRIPs agreement. We know that China has a huge problem with
intellectual property piracy. The TRIPs agreement brought some
strong new intellectual property protections for United States
software and for entertainment, for pharmaceutical products,
and I am wondering how much of an impact it will have when
China is required to follow the TRIPs agreements. What kind of
impact will this have on the protection of intellectual
property, and could you also give us your thoughts on what kind
of legal reform would be required in China to accomplish this?
Mr. Chen. Okay. That is a pretty broad area, but first of
all, the TRIPs agreements, the reason why we are excited about
it again is it is a process. There is a documented process,
which kind of links to your second part of the question, is one
of the concerns of any businesses doing business in China--I am
sure that everybody knows that in this room--is that there is
an inconsistency in how the business law is being interpreted
and conducted in China. They could kind of change the legal
interpretation as it goes along. And that inconsistency will be
controlled in a very dramatic fashion by being WTO members.
So with that comes the TRIPs agreement as a weapon that we
could launch our complaint, address the dispute in a more
consistent manner that every nation in that agreement or WTO
membership would either adhere to, listen to, or understand. So
that gives us a little bit more powerful platform.
Now, is that all itself enough? Personally, I think there
is probably a lot more that needs to be done, and I think the
BSA and all the software organizations and companies will try
to rally with the Congress and try to figure out some other
weapons over time. But this is at least a major weapon for us,
a major first step.
So that, in addition to driving the legal system reform as
part of the WTO, driving their currency, they way they valuate
the currency, the trading, over time the legalization of RMB as
international trade instruments, all those are very important
aspects. Frankly speaking, without a WTO membership, that China
be in there, they are not going to change. They are going to do
whatever they want to do, as they want to do in the last ten
years.
Ms. Dunn. Thank you very much.
Mrs. Johnson. Would the gentlelady yield for a moment?
Ms. Dunn. Yes, I yield back to the chairwoman.
Mrs. Johnson. Mr. Mack has to leave to catch a plane. Mr.
Mack, I understand you have to leave to catch a plane, do you?
Mr. Mack. Yes, I do.
Mrs. Johnson. I just want to thank you for participating
and wish you a safe trip. I am sorry you will not be able to
stay, because I, too, am very concerned about, in general, the
labor movement's focus on the jobs that are lost without any
recognition of the jobs that are created. Many of us who worked
hard on benefits for people who lose their jobs are allies, but
you cannot ignore the benefits that are being achieved. Nothing
is achieved through our annual review. It is big politics, just
hot air, hot air on this side, hot air on that side.
I have never seen an annual review sift down to the guy on
the line. But when I visited a plant where the manager was a
long-time old friend of mine and heard how many months it took
him to convince his Chinese employees that it was they who were
going to reorganize the machinery and equipment and see what
happened to them when they finally got that and did that. I
will tell you, that is empowerment and it is having as much
effect on those Chinese workers as welfare reform has had on
women on welfare when they finally realized that getting the
opportunity to have a job where they could choose, where they
would have knowledge and education and advancement, I mean, I
really think your evaluation of what will foster freedom and
change in China simply on the ground running does not correlate
either with my experience in America or my experience in China.
So I hope we will have a greater opportunity to talk about
that, and then I am also concerned, which I know Jennifer is,
with the airplane industry. I do not want Airbus to be selling
into China. They will get so far ahead of us on profit, they
will be able to invest so much more in R&D in ten years, we
will be terminably behind in aerospace. And if we lose the
initiative in aerospace and autos and machinery and equipment
and software, we will not be the economy we are and the
standard of living and the number of jobs in the Teamsters
organization will be much diminished.
So I look forward to working with you on what about the
people who are going to be hit with transitions, and I think
the surge protection and everything is all right there for us
to be constructive about. So I am sorry you have to leave, but
I do know you have to leave, and taking the prerogative of the
chair, I just had to make those statements and then I return
the--
Mr. Mack. The parting shot, but--
Mrs. Johnson. I know.
Mr. Mack. We look forward to working with you, but we see
nothing, we see no negative for Congress continuing annual
reviews.
Mrs. Johnson. You see, you do not because you are assuming
that if other countries sign on to an agreement with the WTO
and China, that we will be part of it, and we believe that is
not true. We have had testimony from the experts that is not
true. So that means Airbus could sell into that market at ten
percent, 20 percent, 30 percent less cost because they do not
have the tariffs, and we will be stuck, just like in Chile,
with a loss of jobs--
Mr. Kleczka. Madam Chair--
Mrs. Johnson.--so I do not want to go on with that.
Mr. Kleczka. I thought I was next to question, and I have
time frames, too.
Mrs. Johnson. I will let Ms. Dunn finish. I put myself last
in the line of questioning when I was offered the chair, so I
am sorry.
Mr. Mack. Could I just make one other comment? The
bilateral trade agrement in 1979, we think gives us those
rights.
Mrs. Johnson. I know you do, and as my colleague, Mr.
Rangel, said, we will look at that more clearly, but the body
of expert opinion is against you. We need to straighten that
ought. And if, in fact, we are right and you are wrong, then I
hope you will work with us to rethink your opinion, because the
consequences if we are right would be really devastating.
Mr. Mack. And vice-versa, and I want to thank you for your
courtesy. Thank you very much.
Mrs. Johnson. Thank you. Congressman Dunn, you may finish
your time.
Ms. Dunn. I yielded back my time. Thank you.
Mrs. Johnson. Mr. Kleczka?
Mr. Kleczka. I also am sorry Mr. Mack has to leave, but in
your defense, Mr. Mack, before you leave, I thought your
testimony indicated that your recommendation to Congress was to
do the annual review and not the permanent, so I did not hear
what the acting chair heard, that it is no agreement at all, so
I just wanted to correct that for the record.
But as Mr. Mack was being questioned and as he was giving
his testimony, I saw some heads shaking no at the table, and so
although we are not talking about NAFTA today, I think there
are some analogies. I have to take issue with some of the facts
and figures of Mr. McCrery, but I do not have my facts and
figures here, but I am not going to stipulate at this point to
the net job increase contention that he indicated. And clearly,
we saw some increase in exports early on in NAFTA and that was
because raw materials and machine tools are going down. But I
think in the last couple years, that has shifted and now we are
seeing more imports coming in. But again, NAFTA is not the
issue here.
But I think what Mr. Mack is talking about is the fear of
massive job displacement in this country, and let me ask Mr.
Micek and Mr. Trammell to respond to that fear, to that concern
that is not only shared by Mr. Mack but the district I
represent in Milwaukee, Wisconsin, has that same fear. We have
G.E. Medical, which we have seen move jobs down to Mexico.
Master Lock, I met with the employees last week. There are 400
Master Lock employees today. Because of the operations of
Master Lock in Mexico, that is going to be decreased to 67 in a
couple of weeks. So that concern is real.
Could you two gentlemen allay the fears of Mr. Mack and
people like myself that we have no fear that we are going to
see massive U.S. job displacement if, in fact, we make this
agreement with China permanent? Mr. Micek first.
Mr. Micek. Thank you.
Mr. Kleczka. And we only have five minutes, so we are going
to have to try to--
Mr. Micek. Let me try to address that. First of all, the
agreement that has just been etched by Ambassador Barshefsky
really is all about us leveling the playing field toward the
United States. We have been disadvantaged in a very major way
for a number of years, and thanks to some very artful
negotiations, China has agreed to reduce tariffs on a whole
broad range of items. Agriculture is one of the largest
benefactors of this accession agreement. We have heard about
the difficulty that the farmer gentleman here was having--
Mr. Kleczka. Stick with the jobs, because right now, we
have had trade with China for years. But now, with the
agreement that has been negotiated, it will be easier for our
employers to set up operations within the country. They will
not lose their intelligence rights and those things that
Barshefsky talked about. So let us talk about the jobs. If I
were Honeywell, why not open a plant in China?
Mr. Micek. Mr. Bonsignore is not here, but what happens in
these cases is that if we set up a satellite operation, say, in
China or wherever, back home, the R&D takes place. The support
is here. Our business is somewhat different than theirs, which
is more highly technical, but for the jobs that are created
there, there are still jobs that are created back home.
Admittedly, they are more skilled jobs, whether it is R&D or
the planning, design of plants, what have you.
But I do not think that, from what I can see, that jobs
really are lost. They are different kinds of jobs. We get into
this business of winners and losers because jobs are being
changed. But when we invest in China, there is always activity
back home.
Mr. Kleczka. So are you saying that for every high-tech or
skilled job that is created here at the loss of a manufacturing
job, that ratio would be about one-to-one on average?
Mr. Micek. I could not make a comment, but given the kind
of unemployment statistics we are looking at today, that must
be happening.
Mr. Kleczka. Mr. Trammell, could you respond to the same
fears?
Mr. Trammell. Well, we are a small company of only 160
people, but we market in 35 foreign countries. I have yet to go
into a country that did not want Tramco to relocate there and
ship back into the United States. That persists all the time. I
cannot manufacture my product in China, in Mexico, and ship
back to the United States and be cost effective for the simple
reason the direct labor to build my product is about ten cents
on the dollar. It would cost that ten cents to ship it from
China or Mexico back into the United States.
Mr. Kleczka. So you think the fear that there will be
massive U.S. job displacement is totally unfounded?
Mr. Trammell. Well, no, I would say it depends on the
product they are building. If it is a pair or socks or
something that is high labor, low material cost, low freight,
then perhaps some of that is going to go.
I am an old guy. I remember 50 years ago it was Japan. Then
it was Taiwan. Now it is China. Ten years ago, I shipped one of
our largest orders to Taiwan, manufactured in Wichita, Kansas,
and shipped to Taiwan. Three years ago, we just finished the
largest order ever. It was a five-year project in Japan, in
Nagoya, Japan.
So the American worker can compete around the world. He
cannot compete with tariffs. The most favored nation status
hits me in the face every year. I have a window--
Mr. Kleczka. My time is expired, and I do not want to tick
off the chair.
Mr. Trammell. Thank you.
Mr. Kleczka. Thanks.
Mrs. Johnson. Mr. English?
Mr. English. Thank you, Madam Chair. I must say I am also
disappointed that Mr. Mack had to leave. I was intrigued by his
testimony, although I disagreed with some of his conclusions. I
think it is worth noting that his labor union, because of their
reputation for rigorous independence, enjoyed a certain measure
of bipartisan regard in this institution and I was hoping to be
able to pose a couple of questions to him, but I think that you
three remaining gentlemen probably could also answer them and
maybe provide a little different perspective.
Mr. Mack in his comments talked about the need to retain
annual NTR review for China. Many of us have questioned the
effectiveness of annual NTR since a phenomenon in the early
part of the last decade where candidate Clinton campaigned as a
strong advocate of sanctions and get tough policy with China
and then was transmogrified into the Clinton administration and
within a year or so had the exact opposite position.
My impression is that annual NTR review has very little
impact on Chinese behavior. Mr. Trammell, you obviously have
experience in China. What is your take on that?
Mr. Trammell. Well, here is the--I am afraid that a lot of
people do not understand how this annual normal trade, or we
used to call it most favored nation status, how that hurts a
capital manufacturing company like Tramco. We tell the Chinese,
you know, we are going to renew and that happens by June 3. But
China tells the Tramcos of the world, you have got from January
1 to December 31 to import into China duty-free. If it shows up
after December 31, they threaten to put a 40 percent duty.
Most of the projects and capital equipment is where the
United States is the most competitive all over the world,
manufacturing here and shipping abroad. But most of those
capital projects last three years, two or three years, when we
have only 12 months to get our equipment over, rarely, rarely
do we get involved or can we become even a playing partner
because of this annual renewal of most favored nation. The
Chinese threaten to impose 40 percent duty and there is not 40
percent profit. It takes you out of the picture.
Mr. English. Mr. Trammell, as a representative of the
Chamber of Commerce, is it your understanding, is it the
Chamber's understanding that we will not enjoy the benefits of
the agreement that Ambassador Barshefsky worked out with the
Chinese without carrying our end, which is to pass permanent
NTR? Is it your understanding that those two are locked
together, or do you agree with Mr. Mack that we will enjoy the
benefits regardless of what we do?
Mr. Trammell. I am sorry, I cannot agree with Mr. Mack at
all. My little company first ships more product into Mexico
because of NAFTA, because it removed 40 percent duty.
Secondly, yes, speaking on behalf of the Chamber, we want
permanent most favored nation status for China. It is
imperative.
Mr. English. Mr. Micek, any comment on any of those points?
Mr. Micek. Just to second what Mr. Trammell has said. The
annual review process is really quite ineffective. In fact, it
does more harm than it does good for the reasons that he
mentions. People have to plan on a longer term. Let us talk
about food, for example, just very quickly. Food is one of the
most basic of human rights. When you have a country as big as
China, with 1.2 or 1.3 billion people, their food supply cannot
be threatened on an annual basis. So the net effect is, rather
than, in recent years, increase their purchases from us, China
has actually become more self-sufficient than ever. And until
we get away from this uncertainty, I am afraid that they are
not going to see us as reliable suppliers. Permanent NTR would
accomplish that.
Mr. English. Mr. Chen, do you want to comment?
Mr. Chen. Yes. I would like to comment as our ability to
compete. There is an uncertainty in the potential inconsistency
of the relationships on an annualized basis. It does not apply
to our competitors in Japan or Europe. I used to work for a
German conglomerate and they will put multi-year power plant
projects together in China, multi-year airport plans together.
I cannot see how the Chinese would deal with us and give us one
of those contracts when every year they think we might yank the
plug on them.
Mr. English. Thank you. My time is up, Madam Chair. Thank
you for your indulgence, and I really want to compliment this
panel for making a significant contribution to our debate.
Mrs. Johnson. Mr. Nussle?
Mr. Nussle. Madam Chairman, I will pass. The last panel has
to catch some planes, so I think we should keep moving.
Mrs. Johnson. Thank you. I appreciate that. I thank this
panel very much for your input and your testimony, and having
heard the discussion, we welcome any follow-on comments you may
wish to make in writing.
Mrs. Johnson. Now let me call the last panel. You have been
very patient, indeed. David Kronlage, President of the Delaware
County Farm Bureau; Ann Hoffman, the Legislative Director for
the Union of Needletrades, Industrial and Textile Employees;
Mike Jendrzejczyk, the Washington Director of the Human Rights
Watch; Robert Liuzzi, President and CEO of CF Industries; and
Steve Appel, President of the State Farm Bureau of Washington
State and Co-Chairman of the American Farm Bureau Federation.
We welcome you gentlemen and gentlelady. We will lead off
with Mr. Kronlage, President of the Delaware County Farm Bureau
from--actually, let me first yield to Mr. Nussle, if I may.
Mr. Nussle. Thank you, Madam Chair. Mr. Kronlage is a
constituent of mine, and Dave, I had a 15-minute introduction
that was unbelievably glowing, but I think what I will do is I
will mail it to you because you and the other panelists have a
plane to catch.
Let me just tell the members that, first of all, he is from
Dyersville, Iowa, which many will remember is the field of
dreams in the movie. That is where that was filmed. But more
importantly, what I want to emphasize is that someone before
had mentioned that they have hundreds of thousands of employees
that are impacted. Dave has got one, himself, and his family,
his three kids, his wife, Sherry. And interestingly enough,
when we were preparing for this yesterday, I asked him, I said,
what do your kids want to do when they grow up, hoping that,
like his grandfather who came here from Germany and started the
farm outside of Dyersville and then his dad that took over the
century farm now, whether one of his kids, either Matt, who is
14, Callie, 11, Stephanie, 9, might be interested. He said, no,
except the nine-year-old has expressed some interest, but he
thought maybe she might grow out of it.
While that may sound funny, the unfortunate part is that we
are losing something. So it is more than just what trade
impacts today. It is also the future, and I am happy to have my
friend and constituent, Dave Kronlage, here and I invite him to
testify when the chair is ready.
Mrs. Johnson. Thank you, Mr. Nussle, and you may proceed,
Mr. Kronlage.
STATEMENT OF DAVE KRONLAGE, FARMER, AND PRESIDENT, DELAWARE
COUNTY FARM BUREAU, DYERSVILLE, IOWA
Mr. Kronlage. Thank you, Mr. Nussle. One thing that he did
not mention was he asked me if my children would like to farm.
One thing I did say, if things stay the way they are, I hope
they do not.
Thank you for the opportunity to testify today before the
House Ways and Means Committee on the potential benefits to
farmers from increased trade with China. I am a farmer from
Northeastern Iowa. My wife, Sherry, and I, along with our three
children, raise 500 acres of corn and soybeans. We also market
approximately 2,800 head of hogs a year from our farrow to
finish operation.
The last 18 months have not been easy ones for farmers. The
farm economy is not booming like the rest of the U.S. economy.
I would like to give you a picture of what has been happening
on my farm. In just six months' time, I lost about $60,000 in
income when prices for hogs fell to historic lows. This fall,
the average price for corn in my area was $1.60, but my cost of
production was $2.40, assuming no return to capital. The
average price for soybeans was $4.40, but my cost of production
was $5.25, again, assuming no return to capital.
As a farmer, I face many uncertainties on a day-to-day
basis. Most of these variables are out of my control. This has
been an abnormally dry winter, so I am worried about a drought.
A strong U.S. dollar makes our agricultural products more
expensive on the world market. The hog market crashed because
of lack of packer capacity for the supply. Continued
consolidation of agri-businesses makes me wonder if I will have
a competitive market for my commodities and for the inputs I
purchase.
In addition, government policies and actions can close or
open a market overnight. Risk management is the only tool that
I have available to protect myself from these uncertainties. I
believe that farmers have an obligation to manage their own
risk. I purchase a revenue assurance policy to protect my
revenue on my crop acres. This costs me about $12 an acres. I
also make limited use of the futures market to help manage the
price risk of selling my finished hogs.
I participate in a network of about 18 hog producers called
2020 Pork Producers. We collaborate to use the same genetics,
but raise our hogs individually. We collectively market these
hogs to Swift Packing Company under a contract that gives us a
certain amount above the base price for that day. I have also
networked with other producers to form a meat company called
Delaware County Meats. This company sells heat-and-serve meat
products to grocery stores and restaurants and is our attempt
to capture a larger share of the retail dollar.
As a producer, I am taking the steps to minimize the risk
and to provide a stable income from my farm. I expect the
government to do the same. Certainly, farmers are appreciative
of the extra financial assistance that Congress provided over
the last couple of years. However, I would prefer my income to
come from the marketplace. Trade with other nations plays an
important part in achieving that goal. Domestic markets alone
cannot consume all that farmers in this country produce. We
must expand our access for foreign markets to help farmers
achieve profitability.
Agriculture is very dependent on the export market. Iowa
farmers exported more than $4 billion in agriculture products
last year. Iowa ranked second in the nation's agricultural
exports, with 7.2 percent of all exports coming from my State.
In 1998, Iowa exported just over $1 billion in agricultural
products to China. Farmers in the U.S. export just over 30
percent of all soybeans produced and about 16 percent of all
corn. The U.S. accounts for just under 60 percent of the
world's soybean exports and nearly half the world's corn
exports. The value of U.S. farm exports is equivalent to 24
percent of farmers' gross cash income.
In 1996, Congress passed the Federal Agricultural
Improvement Act and made farmers three promises. Congress and
the administration promised to reduce taxes, reduce regulations
on family farmers, and increase our access to foreign markets.
In exchange, farmers agreed to shoulder more of the
responsibility for managing our own risk and making our own
production decisions. I have done that on my farm, but feel
like the government has not upheld its end of the bargain.
This year, Congress will decide whether or not to
permanently extend normal trade relation status to China. This
will implement our side of the bargain in the trade agreement
negotiated between our two countries last fall. This agreement
is an important first step in removing the barriers to trade
that farmers face in that market. All commodities, but in
particular pork, will benefit from this agreement.
For instance, China imposes significant restrictions on
pork imports through high tariffs, restrictive import
licensing, and complicated, arbitrary sanitary requirements.
Under the agreement negotiated last fall, these restrictions
will be phased out. I will benefit if the agreement with China
is implemented and Congress grants permanent normal trade
relation status for China. Based on an analysis by the Iowa
Farm Bureau Federation, the average farmer's net income will
increase by 7.7 percent because of increased trade with China.
On average, my net income would increase by $6,000 a year if
the promise of this market is reached.
As a pork producer, I believe this agreement and permanent
normal trade relations for China are critical. Pork is the
predominant source of meat protein consumed in China. Indeed,
China consumes more pork per capita than the United States.
Most analysts project this demand for pork will grow by six to
seven percent a year over the next several years. Increasing
our exports of pork means more utilization of the corn and
soybeans we produce. This improves the price prospects for corn
and soybeans because of the higher domestic use and reduces the
pressure on the Federal budget.
China holds great promise for Iowa farmers. With 1.2
billion people, this consumer market is the largest in the
world. We cannot afford to let this market slip away from our
hands. Using food as a weapon does not work. We must engage the
Chinese to move them toward democracy and to push them toward
playing by world trade rules. If we do not, farmers like myself
will be left out of this growing market.
I urge you to approve permanent normal trade relation
status for China and uphold your end of the bargain that was
made in 1996 when Freedom to Farm was passed. Thank you for the
opportunity to appear before this committee.
Mrs. Johnson. Thank you very much.
[The prepared statement follows:]
Statement of Dave Kronlage, Farmer and President, Delaware County Farm
Bureau, Dyersville, Iowa
Mr. Chairman, thank you for the opportunity to testify
today before the House Ways and Means Committee on the
potential benefits to farmers from increased trade with China.
I am a farmer from northeastern Iowa. My wife Sherry and I,
along with our three children, raise 500 acres of corn and
soybeans. We also market about 2,800 head of hogs a year from
our farrow to finish operation.
The last eighteen months have not been easy ones for
farmers. The farm economy is not booming like the rest of the
U.S. economy. I'd like to give you a picture of what has been
happening on my farm.
In just six months time, I lost about $60,000 in income
when prices for hogs fell to historic lows. This fall, the
average price for corn in my area was $1.60 but my cost of
production was $2.40 assuming no return to capital. The average
price for soybeans was $4.40 but my cost of production was
$5.25, again assuming no return to capital.
As a farmer, I face many uncertainties on a day to day
basis. Most of these variables are out of my control. This has
been an abnormally dry winter so I'm worried about a drought. A
strong U.S. dollar makes our agricultural products more
expensive on the world market. The hog market crashed because
of a lack of packer capacity for the supply.
Continued consolidation of agribusinesses makes me wonder
if I will have a competitive market for my commodities and for
the inputs I purchase. In addition, government policies and
actions can close, or open, a market overnight.
Risk management is the only tool that I have available to
protect myself from these uncertainties. I believe that farmers
have an obligation to manage their own risk. I purchase a
revenue assurance policy to protect my revenue on my crop
acres. This costs me about $12 an acre. I also make limited use
of the futures market to help manage the price risk of selling
my finished hogs. I participate in a network of about eighteen
hog producers called 2020 Pork Producers. We collaborate to use
the same genetics but raise our hogs individually. We
collectively market these hogs to Swift Packing Company under a
contract that gives us a certain amount above the base price
for that day. I have also networked with other producers to
form a meat company called Delaware County Meats. This company
sells heat and serve meat products to grocery stores and
restaurants and is our attempt to capture a larger share of the
retail dollar.
As a producer, I am taking the steps to minimize the risks
and to provide a stable income for my family. I expect the
government to do the same. Certainly, farmers are appreciative
of the extra financial assistance that Congress provided over
the last couple of years. However, I would prefer my income to
come from the marketplace. Trade with other nations plays an
important part in achieving that goal. Domestic markets alone
cannot consume all that farmers in this country produce. We
must expand our access for foreign markets to help farmers
achieve profitability.
Agriculture is very dependent on the export market. Iowa
farmers exported more than $4 billion in agricultural products
last year. Iowa ranks second in the nation in agricultural
exports with 7.2 percent of all exports coming from my state.
In 1998, Iowa exported just over $1 billion in agricultural
products to China.
Farmers in the U.S. export just over 30 percent of all
soybeans produced and about 16 percent of all corn. The U.S.
accounts for just under 60 percent of the world's soybean
exports and nearly half of the world's corn exports. The value
of U.S. farm exports is equivalent to 24 percent of farmers'
gross cash income.
In 1996, Congress passed the Federal Agriculture
Improvement Act (FAIR) and made farmers three promises.
Congress and the administration promised to reduce taxes,
reduce regulations on family farmers and increase our access to
foreign markets. In exchange, farmers agreed to shoulder more
of the responsibility for managing our own risk and making our
own production decisions. I have done that on my farm but feel
like the government has not upheld its end of the bargain.
This year, Congress will decide whether or not to
permanently extend normal trade relations status to China. This
will implement our side of the bargain in the trade agreement
negotiated between our two countries last fall. This agreement
is an important first step in removing the barriers to trade
that farmers face in that market. All commodities, but in
particular, pork will benefit from this agreement. For
instance, China imposes significant restrictions on pork
imports through high tariffs, restrictive import licensing and
complicated, arbitrary sanitary requirements. Under the
agreement negotiated last fall, these restrictions will be
phased out.
I will benefit if the agreement with China is implemented
and Congress grants permanent normal trade relations status for
China. Based on analysis by the Iowa Farm Bureau Federation,
the average farmer's net income will increase by 7.7 percent
because of increased trade with China. On average, my net
income would increase by $6,000 a year if the promise of this
market is reached.
As a pork producer, I believe this agreement and permanent
normal trade relations for China are critical. Pork is the
predominant source of meat protein consumed in China. Indeed,
China consumes more pork per capita than the United States.
Most analysts project this demand for pork will grow by six to
seven percent a year over the next several years. Increasing
our exports of pork means more utilization of the corn we
produce. This improves the price prospects for corn because of
the higher domestic use and reduces the pressure on the federal
budget.
China holds great promise for Iowa farmers. With 1.2
billion people, this consumer market is the largest in the
world. We cannot afford to let this market slip away from our
hands. Using food as a weapon does not work. We must engage the
Chinese to move them toward democracy and to push them toward
playing by world trade rules. If we do not, farmers like myself
will be left out of this growing market. I urge you to approve
permanent normal trade relations status for China and uphold
your end of the bargain that was made in 1996 when Freedom to
Farm was passed. Thank you for the opportunity to appear before
this committee today. I would be happy to answer any questions
you might have.
Mrs. Johnson. Ms. Hoffman?
STATEMENT OF ANN HOFFMAN, LEGISLATIVE DIRECTOR, UNION OF
NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES, NEW YORK, NEW
YORK, AFL-CIO, CLC
Ms. Hoffman. My name is Ann Hoffman. I am the Legislative
Director of UNITE, which represents 250,000 workers in the
textile, apparel, and related industries. Thank you for the
opportunity to present our views. They are laid out in greater
detail in the article in Foreign Affairs by our President, Jay
Mazur, which has been provided to all of you.
Very briefly, UNITE believes that the clear risks of
granting permanent normal trade relations to the People's
Republic of China at this time far outweigh the potential
advantages of doing so. We do so for all the reasons given by
Representatives Smith and Pelosi and by Mr. Mack. I would add
to that only that the CRS, in the report they released
yesterday, said that, ``Chinese compliance with its WTO
commitments is uncertain.''
We find it difficult to comment on the specifics of the
agreement of accession as it has not been published in this
country and is, therefore, not available to key members of
UNITE's staff nor to our members. If and when the complete text
of the agreement is available, we may have additional comments.
I would like to second Mr. Mack's belief that if Congress
votes no on permanent NTR but China proceeds to join the WTO,
China and the U.S. will continue to have a binding trade
relationship under international law. The trade relationship
will be governed by the rules in the 1979 trade agreement
between the two countries and several subsequent bilaterals.
The most favored nation provisions of those agreements require
that China afford to the United States any trade and non-trade
economic benefits that China grants to other countries. More
important, the U.S. will retain the right to use our own laws
to sanction China by withholding or limiting access to the U.S.
market for unfair trade practices, unfair labor practices,
unfair human rights activities, and the like, which we will
lose under WTO.
While only unions have been invited to testify today in
opposition to PNTR, it is not unions alone who oppose it. We
are joined in opposition by environmentalists, family farmers,
consumers, faith-based organizations, humane organizations,
supporters of a strong U.S. military, small businesses,
companies that manufacture textiles and apparel in the United
States, and human rights activists.
One of the best-known Chinese human rights activists is in
the hearing room with me today. Wei Jingsheng is one of the
heroes of China's democracy movement. For more than two
decades, Wei has fought for human rights and democracy in China
and against the vicious policies of the dictatorship. In 1978,
Wei joined other writers, artists, and intellectuals in writing
an impassioned plea for democratic change on the now-famous
Democracy Wall in Beijing. Wei's essay caused a sensation, in
part because he was willing to sign his name and address to his
words.
For this act and for helping to publish an underground
magazine, Wei was arrested, convicted of counter-revolution,
and sentenced to prison. Wei served 14 years, the first eight
months on death row and then five years in solitary
confinement. Released from prison in 1993, Wei refused to be
silent. Instead, he continued to write and speak his views.
Again, he was arrested and spent four more years in jail before
being released and forced into exile three years ago.
The recipient of several of the world's most prestigious
human rights awards and a nominee for the Nobel Peace Prize,
Wei Jingsheng is now a visiting scholar at Columbia University.
He continues to travel, speak, lobby, and write on behalf of
human rights and democracy in China, his homeland. Last
November, Wei Jingsheng announced his opposition to permanent
normal trade relations with China, arguing that granting
permanent NTR would strip Congress of its best weapon to fight
for change in China and would serve to bolster the dictatorship
and further endanger those Chinese citizens who were willing to
speak out as he did.
Madam Chairman, Wei Jingsheng has prepared brief remarks
that he would like to present to the committee, if you would
permit it.
Mrs. Johnson. I am sorry, if I would permit what?
Ms. Hoffman. Wei Jingsheng to speak.
Mrs. Johnson. Unfortunately, we are going to move through
the whole panel first because of the time, so we want our
invited people to testify, but we are happy to have him in the
hearing room and that you have referred to him in your
testimony.
Ms. Hoffman. I would like to present his statement for the
record.
Mrs. Johnson. That will be incorporated in the record.
Ms. Hoffman. Thank you.
Mrs. Johnson. Thank you.
[The prepared statement and an attachment follow:]
[An additional attachment is being retained in the
Committee files.]
Statement of Ann Hoffman, Legislative Director, Union of Needletrades,
Industrial and Textile Employees, New York, New York, AFL-CIO, CLC
My name is Ann Hoffman. I am the Legislative Director of
UNITE, which represents 250,000 workers in the textile
industry, apparel and other light manufacturing and related
industries. Thank you for the opportunity to present UNITE's
views at this hearing. UNITE's President, Jay Mazur, regrets
that a prior commitment has made it impossible for him to
present the union's views in person. Attached to my testimony,
however, is his article, entitled Labor's New Internationalism,
which appears in the current issue of Foreign Affairs.
UNITE believes the clear risks of granting Permanent Normal
Trade Relations to the People's Republic of China at this time
far outweigh the potential advantages of doing so. China
brutally suppresses the rights of its citizens and its workers.
China has violated its existing bilateral trade agreements with
the United States and has already signaled its intention to
violate the accession agreement. China's accession to the World
Trade Organization, with the blessings of the United States
Congress, is likely to impede efforts to reform that
organization. Even without Permanent NTR, trade between the
U.S. and China will continue and will expand. For all of these
reasons, the House should maintain the influence it now has by
denying Permanent Normal Trade Relations to China.
We find it difficult to comment authoritatively on the
specifics of the agreement of accession between the United
States and China. That agreement has not been published in this
country and is, therefore, not available to key members of
UNITE's staff nor to our members. Until the agreement is
published, my comments must be based solely on the
Administration's summary of the accession agreement. If and
when the complete text of the agreement is available, UNITE may
have additional comments.
UNITE does not oppose trade with China
UNITE does not oppose international trade. We simply oppose
the current trading regime. As President Mazur stated in his
article, citing the position of President Clinton, ``if the
global market is to survive, it must work for working
families.'' \1\ UNITE and the other organizations that gathered
last November in Seattle believe it is clear that the current
system of trade negotiations is not working for working
families. Trade negotiations today ``exalt deregulation, cater
to corporations, undermine social structures, and ignore
popular concerns.'' \2\ Our shared vision of international
trade is of a system that takes workers' rights, environmental
protection and public health and safety as seriously as it
takes commercial advantage.
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\1\ Mazur, Labor's New Internationalism, Foreign Affairs, January/
February 2000, 79.
\2\ Id.
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The same concerns lead us to oppose Permanent Normal Trade
Relations for China. The 1999 agreement of accession between
the U.S. and China deals solely with commercial relationships.
Human rights, labor rights, environmental standards and social
values are off the table. UNITE's members of Chinese extraction
constitute one of the largest of the many ethnic and racial
groups that make up the mosaic of our union. The relationship
that would be established under the bilateral would not serve
the interests of those and other working families in the U.S.
or their relatives and other working families in China.
Rejection of Permanent Normal Trade Relations with China
will not lead either to disengagement between the U.S. and
China in general, nor to interference with trade with that
nation. China and the U.S. will retain diplomatic, social,
cultural and educational ties. Trade will continue on the basis
of their existing bilaterals, their agreement of accession, the
other accession agreements China is currently negotiating and
China's Protocol of Accession to the WTO.
Even if little will change if Permanent Normal Trade
Relations is denied, UNITE still sees denial of NTR on a
permanent basis as a critical step in U.S. trade policy.
China suppresses workers' rights
China's accession to the WTO will seriously disrupt global
labor markets, because of China's unique regulation of its own
labor market and its sheer size. China has a population of 1.2
billion people. The population includes 800 million
underemployed peasants and a so-called ``floating population''
of unskilled migrant workers numbering between 80 and 130
million. No other case of WTO accession has caused the seismic
shock to supply and demand in worldwide labor markets that
China's accession entails.
The Chinese population suffers under one of the most
repressive regimes in the world. The most recent U.S.
Department of State Annual Report on Human Rights, the 1998
Report, devotes 49 single-spaced pages to a wide-ranging and
detailed catalogue of rights violations by the People's
Republic of China.\3\ The report notes that the country's
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\3\ References that follow are to pages in the 1998 Human Rights
Report on the web site of the U.S. Department of State.
``human rights record deteriorated sharply beginning in the
final months of [1998] with a crackdown against organized
political dissent.. . . Abuses included instances of
extrajudicial killings, torture and mistreatment of prisoners,
forced confessions, arbitrary arrest and detention, lengthy
incommunicado detention, and denial of due process.. . . The
Government infringed on citizens' privacy rights. The
Government continued restrictions on freedom of speech and of
the press, and tightened these toward the end of the year. The
Government severely restricted freedom of assembly, and
continued to restrict freedom of association, religion, and
movement. . . . The Government continued to restrict tightly
worker rights, and forced labor remains a problem. Serious
human rights abuses persisted in minority areas, including
Tibet and Xinjiang, where restrictions on religion and other
fundamental freedoms intensified.'' \4\
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\4\ Report, Page 2.
The Report's summary of human rights in China concludes
with some paragraphs on increased openness and positive changes
in law and practice. Even this optimistic note, however,
---------------------------------------------------------------------------
concludes:
``authorities did not hesitate to move quickly against
those it perceived to be a threat to government power or
national stability. Citizens who seek to express openly
dissenting political and religious views continue to live in an
environment filled with repression.'' \5\
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\5\ Report, Page 4.
The situation has not gotten better since 1998. As National
Security Chief Samuel Berger said at the Woodrow Wilson Center
---------------------------------------------------------------------------
on February 2 of this year:
``Over the past year, we have seen an increase in [China's]
crackdown on political activities and dissent; stepped-up
controls on unregistered churches; the suppression of ethnic
minority groups, especially Tibetans; and the imprisonment of
even more dissidents whose only crime is free speech.'' \6\
---------------------------------------------------------------------------
\6\ Berger's prepared remarks appear on the web site of the U.S.
Department of State.
Worker rights, like human rights, are severely repressed in
China. The Constitution of the People's Republic proclaims
``freedom of association,'' but only one workers' organization
is permitted: the All China Federation of Trade Unions, whose
head is a member of the Standing Committee of the Central
Committee of the Communist Party. ``Independent trade unions
are illegal.'' \7\ Among the government efforts against
independent union activity in 1998 reported by the State
Department were the arrest and, in some cases, Imprisonment of
several individuals in separate incidents. For example, Li
Qingxi was sentenced to one year of reeducation through labor
for putting up a poster calling for free and independent trade
unions. Tu Guangwen was sentenced to 3 years in prison for
leading a group of laid-off workers in a protest. Zhang
Shanguang was arrested for trying to create an organization to
defend the rights of laid-off workers. He was subsequently
sentenced to 10 years of imprisonment for talking to a reporter
from Radio Free Asia about a protest demonstration by
farmers.\8\ These examples are just some of those that have
been brought to the attention of U.S. officials.
---------------------------------------------------------------------------
\7\ Report, Page 38.
\8\ 1998 State Department Human Rights Report, page 39
---------------------------------------------------------------------------
The absence of labor rights makes it impossible for workers
in China to organize to improve wages, working conditions or
workplace health and safety.
In a serious understatement, the State Department China
Report notes that: ``Forced labor is a problem;'' \9\ It is a
problem that finds its way onto store shelves in the U.S. The
State Department quoted estimates of 230,000 persons in
``reeducation-through-labor'' camps, just one type of
confinement in which work is required, and whose products find
their way into the export market.\10\ According to the Report:
``In 1998 U.S. Customs unsuccessfully pursued eight standing
requests-seven of them dating back to at least 1995--to visit
sites suspected of exporting prison labor products'' and
referred three additional requests to Chinese authorities. The
failure of the Chinese government to cooperate in these
investigations occurred despite a Memorandum of Understanding
between the two governments signed n 1992 banning trade in
prison products and a statement of cooperation with respect to
that Memorandum signed in 1994.\11\
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\9\ Report, Page 40.
\10\ Report, Pages 12, 41.
\11\ Report, Page 40.
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Many multinational corporations have shuttered their plants
in the United States and relocated their production to China to
take advantage of lower wages and repressive labor policies.
The $57 billion trade deficit with China represents a loss of
some 600,000 U.S. jobs. In addition, companies remaining in the
U.S. threaten to move their production, creating downward
pressure on wages and working conditions here.
Supporters of Permanent Normal Trade Relations with China
claim that WTO accession will reverse or moderate the existing
imbalance in trade, by increasing U.S. exports to China. While
U.S. exports to China may well increase after WTO accession,
even the ITC acknowledges that China's exports to the U.S. will
increase even more, further tilting the balance.\12\ As Robert
Scott points out, those who are now predicting that the U.S.
will gain by China's WTO accession are those who predicted
similar gains for the U.S. from the North American Free Trade
Agreement.\13\ American workers surely will not trust those
prognosticators.
---------------------------------------------------------------------------
\12\ ITC Report, page.
\13\ Robert E. Scott, China Can Wait, Economic Policy Institute
Briefing Paper, May 1999, pages 4-5 (web edition).
---------------------------------------------------------------------------
Permanently normalizing trade relations with China while
such repressive labor practices continue is not in the
interests of workers. In addition to threatening jobs and
working conditions in the United States, a massive increase in
trade under these circumstances is likely to lock in the
repressive conditions in China. Furthermore, unless wages and
working conditions are improved in China, the vast majority of
its 1.2 billion people will be unable to afford to buy the
products they make, let alone the products made by workers in
the U.S. As the Ranking Member of the Trade Subcommittee noted
at its recent hearing on trade after Seattle, ``distortions [of
trade] result when workers are denied core rights.'' \14\
President Clinton declared in his June 12, 1999 address at the
University of Chicago, that the U.S. cannot continue to prosper
``if we don't have more customers.'' Customers, however, are
people with buying power, not just people.
---------------------------------------------------------------------------
\14\ Sweeney Calls for WTO Reforms; Democrats Address UAW
Conference, Bureaua of National Affairs Daily Report for Executives,
February 9, 2000.
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China is unlikely to comply with its new obligations
According to annual reports of the U.S. Trade
Representative,\15\ China has failed to live up to the trade
agreements it currently has with the United States. According
to press reports, several from the Chinese media, China has
already signaled its intention to flout its WTO accession
agreement.
---------------------------------------------------------------------------
\15\ 1999 Trade Estimate Report on Foreign Trade Barriers, pages
57-61.
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A few examples of past violations illustrate the point.
China and the U.S. signed a Memorandum of Understanding on
market access in 1992. Since then, China has maintained such
non-tariff barriers as import and export licenses, import
quotas, a requirement that telecommunications companies use
Chinese components and food standards that block the import of
U.S. citrus fruits, plums and wheat. U.S. industry estimates
that counterfeiting, piracy and illegal exports by China have
cost more than $2 billion, in violation of agreements signed in
1996 and later years on intellectual property rights. Repeated
violations of a 1994 agreement on textiles, by illegal
transshipment through third countries, caused the U.S. to
reduce quotas for China in a 1997 textile bilateral.
Transshipment continues. As noted above, Chinese officials have
stonewalled U.S. inquiries on prison labor exports, in
violation of a 1992 MOU.
Since signing the WTO accession agreement in November of
last year, a mere three months ago, Chinese government
officials have made it clear that their past pattern of non-
compliance will continue. Among other examples, they have
indicated that they will deny licenses to foreign insurance
companies if it is in China's economic interest to do so. They
have disagreed with the U.S.Trade Representative's report of
the percentage of foreign ownership of telecommunications
services that will be permitted. They have expressly disavowed
making ``any material concessions'' with respect to imports of
meat, and described their agreement with respect to wheat
imports as ``a theoretical opportunity.'' \16\ China also
stated that it will continue to control and, if necessary,
limit imports of foreign oil.
---------------------------------------------------------------------------
\16\ China trade envoy Long Yongtu, quoted in South China Morning
Post, January 7, 2000
---------------------------------------------------------------------------
In short, China has been an unreliable trading partner, and
has given every indication of continuing to be one following
its accession to the WTO.
China is a major threat to the U.S. textile and apparel
industries
China is a formidable player in the world apparel and
textile market. As of 1999, it was ``the world's largest
producer of apparel and has the largest production capacity for
textile mill products.'' It is also the world's largest
producer of cotton, manmade fibers and silk, and the world's
largest country-exporter of textile and apparel products.\17\
China has in recent years improved the efficiency of its
textile industry and increased the quality and value of its
apparel production.
---------------------------------------------------------------------------
\17\ Assessment of the Economic Effects on the United States of
China's Accession to the WTO (hereafter, ITC Report), Publication 3229,
September 1999, p. 8-3.
---------------------------------------------------------------------------
The U.S. International Trade Commission (ITC), which has a
record of underestimating the harm to the U.S. textile and
apparel industries from trade agreements,\18\ has nonetheless
predicted that China's share of the U.S. apparel market will
probably increase by 18 percent under the WTO accession
agreement, leaving China with 30 percent of the U.S. import
market.\19\ This anticipated increase will result if China is
freed from quotas on apparel and textile products at the same
time as the other members of the WTO, that is January 1, 2005.
Although the U.S. industry had sought an extension of quotas on
China, USTR did not negotiate any extension.
---------------------------------------------------------------------------
\18\ See Statement of Mark Levinson, Chief Economist, Union of
Needletrades, Industrial snd Textile Employees, AFL-CIO, on The African
Growth and Opportunity Act, Submitted to the House Ways and Means
Committee, Trade Subcommittee, February 3, 1999, page 6.
\19\ ITC Report, Executive Summary, page xv. While the report was
issued before the accession agreement was signed, the textile and
apparel provisions of the agreement were unchanged between the date of
USTR's initial summary in April, 1999 and the final summary in
November.
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The ITC took note of China's ``abundance of skilled, low-
cost labor,'' particularly useful in labor-intensive apparel
production.\20\ China's apparel wage rates are lower than most
other countries.\21\ Hourly labor costs in the apparel industry
in China (including social benefits and fringes) were $0.43 in
U.S. dollars in 1998. In the U.S., hourly labor costs in the
industry at the same time were $10.12.\22\
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\20\ ITC Report, Executive Summary, page xiv.
\21\ ITC Report, page 8-6.
\22\ ITC Report, Table 8-2, page 8-7.
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The American Textile Manufacturers Institute, the trade
association for the U.S. textile industry, has predicted the
loss of some 150,000 U.S. jobs and billions of dollars of
production as a result of the apparel and textile provisions of
the accession agreement.\23\ This job loss would be on top of
the 500,000 jobs lost in the textile and apparel industries
since January 1, 1994. Between the early 1970's and today, the
U.S. apparel and textile sector has been virtually cut in half,
from 2.4 million workers to 1.2 million at the close of 1999.
It is inexcusable that the workers and primarily small
businesses in one segment of the U.S. economy should bear such
an enormous burden from U.S. trade policy.
---------------------------------------------------------------------------
\23\ ATMI press release on China, November 15, 1999. The ITC also
predicted job loss in the apparel industry, but was unable to quantify
the loss, in part because of shortcomings in the data available to it.
Commissioner Stephen Koplan found the absence of such estimates
``extremely unfortunate,'' and urged further research. See Additional
Views of Commissioner Stephen Koplan, ITC Report. According to
Commission sources, no additional research has been done.
---------------------------------------------------------------------------
The overall U.S. trade deficit with China resulted in more
than 600,000 ``lost job opportunities'' in 1996, more than
250,000 of them in apparel, shoes and textiles.\24\ Job losses
to China occurred in all 50 states, but were concentrated in
California, New York, North Carolina, Pennsylvania and Georgia,
all states with sizeable apparel and textile industries. Women
suffered more than half of the job losses, and people of color
were disproportionately harmed, a reflection of their over-
representation in the apparel and textile industries.
---------------------------------------------------------------------------
\24\ Jesse Rothstein and Robert Scott, The Cost of Trade with
China, Economic Policy Institute Issue Brief # 122, October 28, 1997.
---------------------------------------------------------------------------
While apparel and textiles have suffered the greatest job
losses because of low-wage imports from China, other industries
are rapidly joining the ranks of the net losers. Machinery and
transport equipment and telephone equipment are now being
imported into the U.S. from China more than they are exported
to China from here. Even in the highest of high tech industries
the pattern is continuing: ``the U.S. exports computer parts to
China and imports assembled computers.'' \25\
---------------------------------------------------------------------------
\25\ Id., page 2.
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China's accession will slow reform of the WTO
Particularly since Seattle, the United States has pursued
an agenda seeking to make the WTO more transparent and more
democratic. Just prior to the 1999 WTO Ministerial, the U.S.
began vigorous efforts to elevate environmental and labor
concerns on the WTO agenda. Such changes are critical to the
future of the WTO. As Richard Trumka, Secretary-Treasurer of
the AFL-CIO told the Senate Finance Committee just last week:
``It's important for all in Congress to recognize that
[opposition to the current model of trade is] shared by a broad
and a growing majority, both in the United States, where voters
overwhelmingly believe that workers' rights and environmental
protections should be enforced in the global economy and across
the world by working people whose voices too often go
unheard.''
As President Mazur said in his Foreign Affairs article:
``If the WTO and other institutions cannot accommodate these
demands, it is they who will be weakened, not the movement to
fix the system.'' \26\
---------------------------------------------------------------------------
\26\ Mazur, page 92.
---------------------------------------------------------------------------
Reform efforts are likely to be stymied with China in the
WTO. The WTO operates by consensus, but the influence of the
largest powers in the organization cannot be overstated.
China's economy today, based on purchasing-power-parity, is the
second largest in the world, second only to the United States.
China may overtake the U.S. and become the world's largest
economy early in this century.\27\ China will, without
question, be a formidable force in the WTO.
---------------------------------------------------------------------------
\27\ ITC Report, page 2-1.
---------------------------------------------------------------------------
China's repressive labor standards have been thoroughly
documented above. China also has a deplorable record of
environmental abuse. It is well known as an illegal trader in
endangered species. Its Three Gorges Dam project is seen as so
destructive to the environment that the World Bank has
withdrawn financial support. In light of its own history of
abuse, China can be expected to resist strenuously any attempt
to incorporate labor and environmental standards into WTO
policies. Its resistance will, if anything, strengthen the
resolve of the other developing countries to do the same. The
result will be no progress in these critical arenas, to the
severe detriment of the WTO.
China can also be expected to be as resistant to
transparency and democracy in the WTO as it is in its dealings
with its own citizens. As news analyst Joseph Kahn reported
from the World Economic Conference in Davos, Switzerland:
``Leaders of developing countries, including India and
China, are . . . passionate when they insist on writing their
own labor and environmental laws and on not having such laws
decided in negotiations with rich countries. There are few
signs in the weeks since the Seattle collapse that poor
countries are rethinking that stance.'' \28\
---------------------------------------------------------------------------
\28\ Joseph Kahn, Clinton Shift on Trade: 'Wake-Up Call,' The New
York Times, January 31, 2000.
The opposition of the ``poor countries'' to including
worker rights in trade negotiations does not reflect the
thinking of workers in those poor countries, any more than the
same position in the United States reflects the views of our
workers. As Richard Trumka told the Senate Finance Committee:
``in Seattle, the workers from those developing nations marched
with American workers and workers around the world. They, too,
wanted workers' rights raised by their countries, and they were
frozen out of that process.'' \29\
---------------------------------------------------------------------------
\29\ Transcript of hearing, Federal News Service, Inc. page 40.
---------------------------------------------------------------------------
Permanent NTR is not required
Proponents of Permanent Normal Trade Relations make one
major argument. They claim that unless the United States grants
Permanent Normal Trade Relations, U.S.--based businesses and
farmers will be locked out of the deal. This is simply not
true.
If Congress declines to grant Permanent Normal Trade
Relations to China, there is a possibility that China will not
join the WTO. That will leave U.S.--based entities in the same
position as businesses and farmers in other WTO member
countries.
If Congress votes ``no'' but China proceeds to join the
WTO, China and the U.S. will not have a ``binding WTO
relationship,'' but the two countries will continue to have a
binding trade relationship under international law. The trade
relationship will be governed by the rules in the 1979 trade
agreement between the two and several subsequent bilateral
deals. The ``most favored nation'' provisions of those
agreements require that China afford to the United States any
trade and non-trade economic benefits that China grants to our
competitors.
It is true that the U.S. would not be able to file
complaints against China through the WTO dispute resolution
process. If other WTO countries invoke that process, however,
the U.S. will get the benefit of their resolution.
More important, the U.S. will retain the right to use our
own laws to sanction China--by withholding or limiting access
to the U.S. market--for unfair trade practices. ``Several times
in the past six years the U.S. has used the threat of huge,
punitive tariffs to compel China to abide by the terms of the
1992 MOU on intellectual property rights, and this pressure
resulted in the closure of several factories that were making
counterfeit compact discs.'' \30\ If China is in the WTO, the
U.S. will not be permitted to exert such economic leverage--or
even credibly threaten to exert such leverage--without itself
facing charges of violating the WTO. In effect, the United
States would be renouncing its sovereign authority to use any
leverage other than the WTO dispute process against the second
largest economy and one of the most repressive governments on
earth.
---------------------------------------------------------------------------
\30\ China Can Wait, note 13, page 3.
---------------------------------------------------------------------------
What is more, if the U.S. and China are not tied through
the WTO, the U.S. will be able to use its trade laws, if it so
chooses, to redress violations of human rights, worker rights
and the environment. The U.S. will be prohibited from taking
such actions if China is in the WTO.
By declining to endorse China's entry into the WTO, the
United States will, therefore, lose few if any substantial
benefits that our competitors might gain from China. At the
same time, we will retain our authority under international law
to use economic leverage to combat China's unrelenting
suppression of the rights of hundreds of millions of its
citizens. And we will not participate in China's campaign to
get a seat at the table where the rules of our emerging global
economy are written.
Congress must retain its prerogatives
Congress is at a crossroads. It can retain its ability to
invoke U.S. trade laws to redress abuses by the People's
Republic of China. Or it can relinquish that authority by
permanently granting Normal Trade Relations to China and
permitting that country, with all of its failings, to become
our peer in the World Trade Organization.
The business community is working hard to sell the China
deal. They say that the choice is between engaging China or
isolating it, between embracing the global economy or turning
our backs on it. That is nonsense.
The debate is not about whether to engage China, but about
the terms of that engagement. Is potential commercial advantage
all that matters in our trade relationships, or may the people
of the United States, working through their elected
representatives, export our values along with our products?
The real questions before this body and before the American
public are, what are the rules for the global economy and who
should make them. UNITE believes strongly that the rules for
the global economy must place human values at least on a par
with commercial advantage. We believe that our elected
representatives, and the elected representatives of free people
around the world, should be partners in making the rules. They
must not be made behind closed doors by the World Trade
Organization.
I close with this thought from former House Speaker Jim
Wright, who supported the North American Free Trade Agreement,
but has lived to see its dire results for working families in
both Mexico and the United States:
``Globalization is an irreversible fact. Our challenge for
the 21st century will be to control it, manage it and humanize
it. There must be some common rules to assure that it serves
rather than exploits ordinary people.'' \31\
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\31\ Jim Wright, Merger headlines hit at next century's great
struggle, Op Ed, The Houston Chronicle, December 30, 1999.
Thank you for your attention.
[Attachment is being retained in Committee files:]
Statement of WEI Jingsheng Foundation, Inc., New York, NY
The basic principle is simple. You do not reward children,
adults, employees, business partners, enterprises, or countries
for bad behavior. In the past two years, China has not become
more lenient in the treatment of its citizens but rather more
cruel.
Although many people are eager to separate business from
foreign policy or human rights, as large and influential a
country as the United States is obligated not to view trade in
isolation from other issues Whenever the United States relaxes
its stance on China, the Chinese regime seizes the opportunity
to crackdown on dissent domestically. While in prison, I could
myself measure the situation between the West and China based
upon the treatment I received. Better treatment meant MFN was
in question, that the USA was taking a more solid, critical
stance, worse treatment meant exactly the opposite. In recent
months the most salient example has been the repression of
Falun Gong practitioners, however the Communist regime's
cleanup campaign has certainly not been limited to this group
alone. While the number of political and religious dissidents
arrested rises, unemployment increases, and large numbers of
the ``floating population'' are violently repatriated to their
registered area of residence, the United States remains silent.
US negotiators might also have used their time in Beijing
to address labor abuses in China. The most basic human rights
of workers in China are not protected. Workers are not
permitted to form independent Labor Unions. They toil like
slaves, utterly unable to fight for better conditions and
reasonable compensation. They might have obtained a guarantee
that China will allow her workers to form unions, or to protect
child laborers, or to terminate its laogai system. Instead,
they are relying on the mechanisms within the WTO to
retroactively reprimand China should the country violate WTO
regulations. That China will violate regulations is certain,
how well equipped the WTO is to react is less so.
One argument we will hear today is that in addition to the
benefits the USA can attain from WTO entry, the ordinary people
of China will as well. It is true that a small number of
Chinese do stand to benefit from WTO entry--Why else would
these batch of leaders be pushing so hard for WTO entry and WTO
entry NOW? Should China enter the WTO, it would become easier
for this small group to divert and embezzle the country's money
and betray China's best interests. However, the corrupt elite
don't represent ordinary people. China is notoriously rife with
corruption. WTO entry will simply export that corruption into
the international marketplace. The country will be able to set
its own very poor president of non-compliance to WTO
regulations, and export further corruption into the WTO itself.
Domestically, ordinary Chinese businessmen, whether in
state-run or private companies, would face competition from
deep-pocketed and experienced businesses, and there will be an
increased number of failures and bankruptcies. Even more
Chinese workers will be laid off, and even more peasants will
flood into the cities. The people of China know that their
country's economy is already quite precarious. Many areas stand
on the brink of collapse. How can it possibly withstand the
shock of entering the WTO? Nearly everyone in China should be
able to foresee this outcome. It's incredibly simple. Even
those in power cannot deny it, and yet they do.
Mrs. Johnson. Mr. Jendrzejczyk?
STATEMENT OF MIKE JENDRZEJCZYK, WASHINGTON DIRECTOR, ASIA
DIVISION, HUMAN RIGHTS WATCH
Mr. Jendrzejczyk. Madam Chair, it is an honor to testify
before you. I grew up in New Britain, Connecticut, in your
district, in fact.
Mrs. Johnson. Well, good.
Mr. Jendrzejczyk. We appreciate the opportunity to testify
today on China's pending accession to the WTO and the
implication for human rights. Human Rights Watch does not take
a position on trade agreements per se and does not endorse any
particular agreement. However, we do believe that the WTO
process should be used to push for human rights improvements,
also, that broader trade with China can be consistent with
advancing human rights, but only if it is combined with
effective sustained pressure for China to respect civil and
political rights and also worker rights.
In my testimony, I analyze some of the recent deterioration
in human rights conditions in China, assess what may be the
long-term implications for human rights in China if China does
become a member of the WTO, and make some recommendations,
which I would like to refer to briefly at the end of my opening
comments.
As a WTO member, China will commit itself to respecting
global trading rules, and I believe this is a positive step
towards China's integration into the international system,
regulating not only trade relations, but also the way
governments treat their own citizens. Restructuring China's
economy to fit WTO standards will also give a boost to those
within China, arguing that it must open up further not only
economically but also politically if it wishes to be a
respected member of the international community.
However, I do not believe that WTO membership will, in
itself, lead to political change. It could be an important
catalyst over the long term if combined with consistent
pressure from outside China.
We believe, in fact, that the United States, as China is
about to enter the WTO, has an obligation, along with China's
other major trading partners, to increase the pressure on China
to respect international norms, commitments, and agreements
that it has already made. It makes little sense to bring China
into the WTO, expecting it to abide by global trading rules if
China routinely flaunts international human rights agreements
with impunity. China must be moved to go beyond opening its
markets to also open its jails, ease restrictions on the press
and the Internet, and protect the rights of workers.
We would like to make four recommendations for the
consideration of this committee, members of Congress
considering permanent NTR, and the administration. As you know,
China has lobbied for several years to end the annual renewal
of its trade status and President Clinton has pledged to give
China permanent NTR. We believe that in exchange for permanent
NTR, China should have to make first some very specific and
concrete human rights improvements. We, in fact, urge Congress
to set concrete, meaningful, and realistic human rights
conditions that China must meet before it receives permanent
NTR, and the President should be required to certify that these
conditions have been met.
I included in my written testimony some examples of the
kinds of conditions we think could be met, but I want to be
realistic here, as Mr. Levin has cautioned all day. I think it
would be difficult, but not impossible, if the administration
were to exert the kind of leverage and negotiating skills that
it used to get the trade agreement to bring China to abide by
these human rights conditions.
I also want to comment briefly on what Ambassador
Barshefsky said this morning about permanent NTR, and I say
this not pretending to be a trade expert. I understand, though,
while it is true that, as she said, if China does not receive
permanent NTR when it accedes to the WTO, it could invoke the
non-application clause of the GATT agreement and this would, in
fact, deny the U.S. certain benefits. But China is not required
to do this. In fact, I think there would be an enormous
incentive, both economic and political, for China not to do
this.
Let us face it. This agreement has advantages for them. The
Chinese Communist Party is more determined than ever to get
access not only to American markets, but American investment
and American technology. I think it is in their interest,
therefore, for this agreement to stick so that they get the
benefits as well as the United States.
Also, what if Congress in its wisdom decides not to vote
for permanent NTR this year, and I know there has already been
discussion about this, that if the votes are not there by June,
it could happen next year. What happens then? That is the kind
of question that Ambassador Barshefsky was not asked that I
wish she had been.
But once again, we do believe this is an opportunity not to
lose the leverage of permanent NTR but rather to use it to get
some concrete and significant human rights improvements in
exchange for permanent normal trade relations.
In addition, to replace the annual review, we strongly
support Mr. Levin's proposal for a commission, most likely a
commission set up of members of Congress, but also of
representatives of the executive branch, to issue an annual
report on China's compliance with its trade and human rights
obligations, as well as its labor rights obligations.
Secondly, we very much welcome the administration's
decision a few weeks ago to support a resolution critical of
China at the annual meeting of the U.N. Human Rights Commission
when it convenes in Geneva on March 20. However, for this to
have any chance of generating a debate and a vote on Chinese
human rights record, the administration must engage in high-
level lobbying now with our major trading partners and allies,
especially in Europe, Japan, Canada, and Australia.
At a speech a few weeks ago, Mr. Berger said that the
President, and I quote, ``will be actively and deeply engaged
in the WTO fight,'' and Ambassador Barshefsky repeated that
pledge this morning. We think the President must be equally
personally and actively involved in lobbying governments around
the world to support this resolution on human rights in Geneva.
China is already doing so. It is already urging other
governments not to support it, and the only way we are going to
have a chance of success is if the President himself puts the
weight of his office and personal clout behind it.
Thirdly, we support a legislative code of conduct--
Mrs. Johnson. Mr. Jendrzejczyk, may I interrupt you at this
point?
Mr. Jendrzejczyk.--for U.S. companies in China, and
finally, we hope this committee will urge U.S. Secretary of
Labor Alexis Herman to go to China to begin a dialogue on labor
rights concerns, as she has been invited to this spring.
Thank you very much.
Mrs. Johnson. Thank you very much.
[The prepared statement follows:]
Statement of Mike Jendrzejczyk, Washington Director, Asia Division,
Human Rights Watch
We appreciate the opportunity to testify today on China's
pending accession to the World Trade Organization (WTO), the
U.S.--China bilateral trade agreement, and the implications for
human rights. Human Rights Watch does not take a position on
trade agreements per se, and does not endorse any particular
trade agreement, including the one signed by the U.S. and China
last November. However, we believe that the WTO process should
be used to push for human rights improvements. Broader trade
with China can be consistent with advancing human rights, but
only if it is combined with effective, sustained pressure on
China to respect basic civil and political rights.
In my testimony today, I would like to describe the recent
deterioration of human rights conditions in China, assess the
possible long-term impact of WTO membership on China's human
rights performance, and present our recommendations to Congress
as you consider the question of extending permanent Normal
Trade Relations to China and the broader policy implications of
this important decision.
The WTO and China:
As a WTO member, China will commit itself to respecting
global trading rules. This is a step towards China's
integration into the international system regulating not only
trade relations but also governments' treatment of their own
citizens. Restructuring China's economy to fit WTO standards
will give a boost to those within China arguing that it must
open up further both politically and economically if it is to
be a respected member of the international community.
But WTO membership won't itself lead to political changes.
It could be an important catalyst for change over the long run
if combined with consistent pressure from outside China. For
instance, greater transparency in economic matters could
increase demands and expectations from within China for more
openness in other areas.
China is a long way from having a legal and court system
that functions independently of the Party and the State.
Demands to modernize China's legal system to handle commercial
disputes, protect contracts and combat corruption could help
lay the groundwork for an independent judiciary and the rule of
law that might extend to the political and security realms. As
the World Bank has pointed out, ``economic reforms have made
legal rules matter'' in China.
The closing of thousands of state-run enterprises--there
are currently about 300,000, nearly half of them industrial--
could push workers to insist on greater collective decision-
making on workplace issues and the need for a social safety
net. They may increasingly insist on exercising the worker
rights guaranteed in the UN International Covenant on Economic,
Social and Cultural Rights. (China signed this treaty in
October 1997, but has not yet ratified it.) The official
national employment rate is about eight percent, and in some
rural areas it's much higher. A rise in the unemployment rate
may create more instability in the short run, with the
authorities clamping down on attempts by workers to organize.
But eventually the government may be forced to create channels
for workers to negotiate over their grievances. The alternative
to allowing greater freedom of association is to risk
disaffected workers turning against the state.
But I must emphasize that WTO membership in itself will not
guarantee the rule of law, respect for worker rights, or
meaningful political reform. Economic openness could be
accompanied by tight restrictions on basic freedoms and a lack
of governmental accountability. The Chinese government might
seek to build the rule of law in the economic sphere while
simultaneously continuing to pervert and undermine the rule of
law elsewhere. For example, Chinese authorities claim to be
upholding the ``rule of law'' by arresting and throwing in jail
pro-democracy activists, and the nationwide crackdown on the
Falun Gong movement has been cloaked in rhetoric about the
``rule of law.''
We believe the U.S. and China's other major trading
partners must increase pressure on Beijing for significant
improvements in human rights. It makes little sense to bring
China into the WTO and expect it to abide by global trading
rules when Beijing flaunts international rules of human rights
with impunity. China must be moved to go beyond opening its
markets to opening its jails, easing restrictions on the press
and the Internet, and protecting the rights of workers.
Human Rights Developments in China:
There has been a clear deterioration of human rights
conditions in China. A tightening of controls on basic freedoms
began in late 1998, escalated throughout 1999, and has
continued into the new year. The range of the crackdown
suggests that a nationally coordinated campaign is underway to
shut down all peaceful opposition in the name of maintaining
``social stability.''
Among the elements of the crackdown are:
--an intensified attack on all organizations that the
Chinese Communist Party perceives as a threat to its rule;
--a series of regulations that constrain free association
and assembly and religious expression;
--the ongoing arrest of Tibet ``splittists'' and tightened
secular control of Tibetan Buddhism;
--the stepped up pace of arrests and executions of
activists in Xinjiang. Even a prominent Uighur businesswoman,
Ms. Rebiya Kadeer, who is well known in the U.S., has been
detained and may be given a long prison sentence;
--ongoing attempts to interfere with the free flow of
information at home and abroad, through new restrictions on the
Internet and threats against academic research in open sources.
We welcomed the release of the respected scholar, Song Yongyi,
but his arbitrary arrest and detention are a clear reminder of
the capriciousness of the ``rule of law'' in China and the
dangers of conducting research into sensitive subjects.
I would like to provide the Committee with a few examples
to illustrate the depth and breadth of the current crackdown.
On November 23, 1998, former premier Li Peng issued a
statement that effectively banned opposition political parties.
The following month, the courts gave heavy sentences to three
leading members of the China Democracy Party (CDP), an open,
peaceful opposition Party that had announced its formation
prior to President Clinton's visit to China in June 1998.
Veteran dissident Xu Wenli in Beijing, Qin Yongmin in Hubei
province, and Wang Youcai in Zhejiang were sentenced to
thirteen, twelve and eleven years respectively for ``conspiring
to subvert state power.'' The government's largely successful
attempts to destroy the CDP have resulted in long prison
sentences for its members in Beijing, Shanghai, and at least
eight other provinces. In all, some twenty-five China Democracy
Party members have been sentenced since December 1998 after
trials lacking adequate procedural safeguards and closed in all
but name. Others have been tried but not yet sentenced; at
least a dozen more are still in detention.
Other attempts to organize groups outside official control
have also been stifled. In November 1999, Aun Jun, an attorney
who formed an organization called ``Corruption Watch'' to
expose local corruption, was put on trial. The verdict has yet
to be announced. He had attempted to legally register the
organization with the Ministry of Civil Affairs, but it was
banned. The China Development Union, set up to promote
political and environmental reform, was quashed and its leader,
Peng Ming, was sentenced last February to an eighteen-month
term for allegedly soliciting prostitution.
Throughout China, leaders of worker and peasant protests
calling for workers rights have been detained. Also, those
trying to organize workers, or protesting against exorbitant
fees and taxes, corruption, or fixed local elections have been
arrested and given sentences of up to ten years. It's worth
noting that China has not ratified key ILO (International Labor
Organization) conventions protecting the rights of free
association (87), the right to organize and bargain
collectively (98), or on the abolition of forced labor (105).
Of these, I might add that the U.S. has only ratified the ILO
convention on forced labor.
Restrictions on religious freedom have increased. The
crackdown on Falun Gong clearly violates China's commitments to
respect internationally-guaranteed rights of freedom of belief,
expression, association and assembly. Members of Falun Gong
were detained by the thousands for reeducation after the group
was officially banned on July 22, 1999, though most have since
been released. Millions of Falun Gong books were confiscated
and destroyed. At least 111 Falun Gong members, according to
China's State Council, have been formally arrested though few
details are known at this time. Sentences officially confirmed
have ranged from three to eighteen years. President Jiang has
made it clear that the suppression of the Falun Gong remains a
high priority as part of the government's broader effort to
control all organizations. The number of Falun Gong members--
between two and seventy million in China--their ability to
organize, and their use of modern tools of communication have
made the Falun Gong movement especially threatening.
In early January 2000, Premier Zhu Rongji and State
Councillor Ismail Amat gave speeches stressing the importance
of control of religion to the stability of the state, and
resistance to ``hostile foreign forces'' which they say use
religion to undermine China's solidarity. Throughout the past
year, there have been sporadic reports of arrests and
detentions of Catholics and Protestants. Campaigns to register
Catholic congregations in Hebei and Zhejiang provinces forced
many worshipers into hiding. In an attempt to reaffirm the
independence from the papacy of the official Catholic Church in
China, the government's Religious Affairs Bureau and the
Bishops' Conference of the Catholic Church in China arranged
the ordination of five bishops last month, without seeking
papal approval. At least ninety-five Protestant house church
leaders were detained early in 1999.
Controls on the Internet:
The government's attempts to control the Internet have
ominous implications for U.S. businesses seeking to expand
operations in China under the terms of the new U.S.--China
trade agreement. In January 1999, new regulations were issued
requiring bars and cafes with Internet access to register and
inform the police about their customers. By May, the Ministry
of State Security was able to track individual E-mail accounts
through monitoring devices on Internet Service Providers.
Bulletin boards came in for round-the-clock monitoring; several
were closed for hosting political discussions or postings
critical of government policies.
Last month, Shanghai took the lead requiring corporate
Internet users to register with the police, or face a fine. On
January 26, 2000 new regulations retroactive to January 1
prohibited the transmittal of state secrets on the Web or
through E-mail. The restrictions make both users and Web site
owners liable for infractions. The broad language of the state
secrets law invites selective application against anyone out of
favor with the government. In addition, new regulations
prohibit websites from independently compiling news or
interviewing reporters; instead, they can only carry news
already compiled by domestic newspapers.
I should add that the publishing and print media have also
been more tightly supervised. Last fall, local newspapers and
magazines were put under Communist Party control. And the State
Press and Publications Administration banned foreign investment
in wholesale book publication and distribution, and limited the
right to distribute textbooks, political documents, and the
writing of China's leaders to a handful of enterprises.
Recommendations to Congress and the Administration:
We urge the Congress and the Administration to couple
efforts to make China a more reliable trading partner with
serious parallel pressure on China to comply with its
international human rights obligations. The WTO process itself
can be a useful source of leverage, along with other channels
of pressure.
1) Permanent NTR:
Mr. Chairman, China has lobbied for several years for an
end to the annual review of its trade status under the Jackson-
Vanik amendment of the Trade Act of 1974,
and as part of the WTO deal President Clinton has pledged
to give China permanent Normal Trade Relations status. We
believe that in exchange for PNTR, Congress should insist on
reciprocal concrete steps on human rights by China.
The Congress should set concrete, meaningful and realistic
human rights conditions that China must meet before receiving
permanent NTR. The president should be required to certify that
these conditions have been met, and this could happen any time
following China's accession to the WTO. For example, China
should be required to:
--ratify the two United Nations human rights treaties it
has signed: the International Covenant on Civil and Political
Rights, signed in October 1998, and the International Covenant
on Economic, Social and Cultural Rights;
--take steps to begin dismantling the huge system of
``reeducation through labor,'' which allows officials to
sentence thousands of citizens to labor camps each year for up
to three years without judicial review. A commission could be
established for this purpose, and the U.S. and the U.N. could
offer to provide support with technical assistance and rule of
law programs;
--open up Tibet and Xinjiang to regular, unhindered access
by U.N. human rights and humanitarian agencies, foreign
journalists, and independent monitors;
--review the sentences of more than 2,000
``counterrevolutionaries'' convicted under provisions of the
Chinese law repealed in March 1997, with a view towards
releasing most of them.
Getting China to meet these conditions is possible, Mr.
Chairman, if the Administration engages in the kind of
intensive, high level negotiations with Beijing it conducted to
finalize the trade agreement last November.
To replace the annual trade status review, we would
strongly support creation of a new mechanism, such as a special
commission appointed either by both houses of Congress or
jointly by Congress and the executive branch, to report
annually on China's compliance with human rights and labor
rights norms. This should be more than a pro forma process. An
annual report should trigger, at a minimum, debate and
recommendations for U.S. bilateral and multilateral policy
initiatives.
2) U.N. Commission on Human Rights:
We applauded the Administration's decision last month to
sponsor a critical resolution on China at the annual meeting of
the United Nations Commission on Human Rights in Geneva, which
convenes on March 20. In announcing this decision, the State
Department correctly noted that ``China's human rights record
has continued to deteriorate...Our goal in sponsoring a China
resolution is to foster increased respect for human rights in
China.''
Indeed, when confronted with a credible threat of a debate
and vote in Geneva in the past, China has taken limited but
important positive steps on human rights. It has also expended
major effort worldwide to keep any critical resolution off the
Commission's agenda--including by threatening to cut off trade
deals or investment opportunities to governments that might
support action. This effort has been stepped up since 1995,
when a China resolution came within only one vote of being
adopted. Last year, the Administration put forward a
resolution, under Congressional pressure, only at the very last
minute. The European Union (EU) refused to sponsor the measure,
and China succeeded in squelching any debate by getting the
Commission to adopt a ``no action'' motion (twenty two to
seventeen, with fourteen abstentions.)
In order to have any chance at getting a debate and vote
this year, the Administration will have to engage in serious,
high level lobbying of other Commission members and potential
cosponsors, such as Canada, Australia, and Japan. The European
Parliament recently adopted a strong resolution calling on the
EU to cosponsor action in Geneva. The European Union is likely
to make a decision later this month. Between now and then, we
hope President Clinton will match his commitment to WTO with a
similar commitment to wage an effective campaign in Geneva.
At a speech on WTO and China at the Wilson Center on
February 2, Sandy Berger, the president's national security
advisor, said that Mr. Clinton will be ``actively and deeply
engaged'' in the WTO fight. We urge the president to be just as
actively and personally engaged in lobbying other governments
at the highest levels on behalf of the U.N. Geneva resolution.
This is vitally needed to counter a diplomatic and media
campaign China has already begun to defeat it.
Members of Congress can also play a key role by contacting
officials in other governments to urge their support at the
Commission.
3) Code of Conduct for Companies:
China's entry into the WTO, and the implementation of the
new bilateral agreement with the U.S., will lead to greater
American private investment in China. We urge Congress to enact
legislation originally introduced as early as 1991, and most
recently in the House in 1995, outlining principles for a
``code of conduct'' for U.S. companies operating in China.
The legislation should express the sense of Congress that
U.S. companies should, among other things, prohibit the use of
forced labor in their factories or by their subcontractors in
China, prohibit a police or military presence in the workplace,
protect workers' rights of free association, assembly and
religion, discourage compulsory political indoctrination, and
promote freedom of expression by workers including their
freedom to seek and receive information of all kinds through
any media--in writing, orally, or through the Internet. The
``code of conduct'' bill should contain a registration and
reporting procedure, and require an annual report to Congress
and the OECD on the level of adherence to the principles by
U.S. companies.
4) Labor Secretary to China:
U.S. Secretary of Labor Alexis Herman was invited to visit
China by her counterpart, the Chinese labor minister, when he
came to Washington, DC last March. We hope the Committee will
urge her to travel to China this spring in order to conduct a
high-level dialogue on China's labor practices, including
protection of key worker rights, the cases of detained workers
and labor organizers, and the creation of social safety nets.
She would be the first U.S. labor secretary ever to visit
China.
Mrs. Johnson. Let me just recognize that Mr. Kronlage has
to catch a plane and has to leave. Thank you very much for
being with us. We appreciate your testimony.
Mr. Kronlage. Thank you, Madam Chairman.
Mrs. Johnson. Mr. Jendrzejczyk has concluded his testimony.
Mr. Liuzzi, Mr. Crane welcomes you. He is sorry that he
could not be here at this particular time in the hearing, but
it is a pleasure to have you with us. Proceed with your
testimony. Remember, all of your statements are entered in
their totality in the record.
STATEMENT OF ROBERT C. LIUZZI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CF INDUSTRIES, INC., LONG GROVE, ILLINOIS, ON BEHALF
OF THE FERTILIZER INSTITUTE
Mr. Liuzzi. Thank you, Madam Chairman. Thank you for the
opportunity to be here. My name is Robert Liuzzi and I am
President and Chief Executive Officer of CF Industries, which
is an inter-regional farmer-owned cooperative and also a major
manufacturer of nitrogen and phosphate fertilizer. I am
representing today The Fertilizer Institute, which is composed
of approximately 250 members who account for the manufacture of
over 90 percent of all fertilizer manufactured in the United
States.
The topic that the committee was discussing today is of
extreme importance to us, Madam Chairman, and I am reminded by
the many times that Congressman Rangel talked about win-win.
Right now, the fertilizer industry does not feel like a winner
under the bilateral agreement that was reached last November,
and the reason for that is that agreement did not contain
trading rights for fertilizer, which we view as the critical
element for meaningful market access to China's fertilizer
market. As Ambassador Barshefsky indicated this morning, I do
not know if I quote exactly, but certainly I paraphrase, this
is a serious problem, and we regard it as a serious problem.
While the agreement did contain certain provisions relating
to fertilizer, in our view, they are meaningless without market
access, which is now currently controlled by state-connected or
state-owned trading enterprises in China. Our hope is that,
based on recent developments, this situation will be corrected
in the near future.
Just in terms of what the fertilizer market in China means
to the U.S. industry, China is the largest fertilizer market in
the world. It accounts for almost 30 percent of the world's
annual consumption of both nitrogen and phosphate fertilizers.
Consequently, the way that the Chinese government or its state-
owned enterprises control access to that market can have a
profound effect on prices and production patterns all over the
world, including in the United States of America.
Currently, China is the largest importer of phosphate
fertilizers, taking each year about $1 billion worth. But since
1997, China has closed its borders to the importation of
nitrogen fertilizer, particularly urea, which is a dried
product and the most widely used nitrogen fertilizer product.
We understand that these trading rights could not be
resolved at the 11th hour when the bilateral agreement was
finally initialed. We also understand, as Ambassador Barshefsky
indicated this morning, that there is a high-level
understanding between the United States and Chinese governments
on the need to continue discussion on this issue and resolve
it. We further understand that the United States has a proposal
in the hands of the Chinese and is being considered by the
Chinese at this time. However, at the present time, the issue,
we think, is highly critical, has not been resolved.
Chairman Crane, Congressman Levin, as well as Speaker
Hastert have strongly communicated their concern on this matter
both to the administration and to the Chinese ambassador. In
addition, 70 United States Senators have also communicated
their concern to the Chinese government.
Because of the importance and the size of China's market
for fertilizer, the industry has always been a strong and
consistent supporter of normal trade relations with China.
However, to go forward, we think it is extremely important this
matter of trading rights be resolved between the two countries.
It is critical to the financial health and long-term well-being
of our industry.
As an industry, we are fully prepared to support permanent
normal trade relations in the context of China's WTO accession,
provided the trading rights issue for fertilizer can be
satisfactorily resolved. Thank you, Madam Chairman.
Mrs. Johnson. Thank you very much, Mr. Liuzzi.
[The prepared statement follows:]
Statement of Robert C. Liuzzi, President and Chief Executive Officer,
CF Industries, Inc., Long Grove, Illinois, on behalf of the Fertilizer
Institute
Introduction
My name is Robert C. Liuzzi and I am President and Chief
Executive Officer of CF Industries, Inc., a member of The
Fertilizer Institute (TFI). I appear before you today on behalf
of TFI, a voluntary, non-profit trade association of fertilizer
industry participants. TFI's nearly 250 member companies
manufacture more than 90 percent of domestically produced
fertilizer. TFI's membership includes producers, manufactures,
distributors, transporters, and retail dealers of fertilizer
and fertilizer materials.
CF Industries is one of North America's largest
interregional cooperatives, owned by and serving nine regional
cooperatives. Through its Members, the Company's nitrogen,
phosphate and other fertilizer products reach over one million
farmers and ranchers in 48 states and two Canadian provinces.
I appreciate the opportunity to appear before you today to
discuss the importance of China's WTO accession to the U.S.
fertilizer industry. I am here to express on behalf of the
industry both a concern and a hope with respect to China's
accession. While the November bilateral agreement included
several positive commitments that could help open China's
fertilizer market, including lower tariffs, elimination of
quotas and distribution
rights, our concern is that the Agreement did not contain
the critical element for meaningful market access for
fertilizer--trading rights. Trading rights are the rights of
private parties to import and export fertilizer outside the
control of China's state trading enterprises. The lack of
trading rights for private parties to import fertilizer
undermines the commercial value of all of China's commitments
on fertilizer. It means that the Agreement provides no assured
access to China's enormous fertilizer market. Our hope is that,
based on recent developments, this situation will be corrected
in the near future.
The Need for International Access to China's Fertilizer Market
First, it is essential to understand the importance of
fertilizers in feeding the world's expanding population. There
are three primary plant nutrients--nitrogen, phosphate and
potash. While all three occur naturally, they are not supplied
in sufficient quantity to support today's high yielding crop
production. It is conservatively estimated that, without
fertilizers, production of essential crops such as corn, wheat,
and rice would decline by as much as twenty-five percent.
China's fertilizer market is the largest in the world.
China accounts for almost 30 percent of the world's annual
consumption of nitrogen and phosphate fertilizers and
approximately 14% of the world's annual consumption of
potassium fertilizers (Exhibit 1--Chinese Fertilizer Demand).
Furthermore, China is the largest importer of U.S. phosphate
fertilizers. In fact, fertilizers are the fourth largest U.S.
export to China with sales of approximately a billion dollars
annually (Exhibit 2--Top U.S. Exports to China).
The bilateral accession agreement that was reached in
Beijing last November included some potentially meaningful
commitments on fertilizer, including the reduction of tariffs,
the elimination of certain quotas, and certain distribution
rights. Unfortunately, the Agreement contained nothing on
trading rights for fertilizer. Without having at least some
form of trading rights for fertilizer, U.S. and other countries
effectively have no guaranteed access to the Chinese fertilizer
market at any level. This renders meaningless the other
potentially market opening provisions on fertilizer that the
Chinese have agreed to.
I am pleased to say that the Clinton Administration is
sympathetic with our concerns and is working hard with China to
rectify this situation. We are grateful to them for their
efforts. We are also grateful for the support we have received
from the Congress on this matter, including Members of this
Committee, particularly Congressman Crane and Congressman
Levin.
At this point, I would like to describe for the Committee
in greater detail the importance of China's fertilizer market,
the content of November's bilateral agreement as it affects
fertilizer, and the current state of play.
The Importance of China's Fertilizer Market
China is the world's largest importer of diammonium
phosphate (DAP). DAP is the world's most widely used and traded
phosphate fertilizer product. China accounts for more than one-
third of total world trade in DAP, with almost all of the
imports purchased from U.S. producers. Each year the U.S.
exports approximately 5.5 million tons of DAP to China worth
almost $1 billion, which represents nearly half of total U.S.
DAP exports and more than one-third of total U.S. DAP
production.
The outlook for China's phosphate use remains strong.
Chinese phosphate consumption is expected to grow from
approximately 8 million metric tons today to 11 or 12 million
metric tons by the year 2005. The outlook for increased U.S.
DAP exports to China also looks positive, but any Chinese trade
restrictions on DAP imports would have a devastating impact on
these prospects and on the entire U.S. fertilizer industry.
China is also the world's largest consumer of urea. Urea is
a dry, solid product and is by far the world's most important
and widely used nitrogen fertilizer product. To put the role of
China's urea market into perspective, China accounts for one-
fourth of total world urea fertilizer demand and, up until
1997, China was the world's dominant importer of urea
accounting for as much as 40 percent of total world trade.
Furthermore, urea is the largest and one of the fastest growing
nitrogen fertilizer products used in China. From 1981 to 1996,
urea demand in China grew at an average annual rate of 7.0
percent, with the total volume increasing from 9.6 million
metric tons in 1981 to 26.5 million in 1996.
The Closing of China's Urea Market in 1997
In mid-1997, the Chinese government made a decision to
bolster the domestic Chinese urea industry and completely
closed its borders to urea imports by refusing to issue new
import licenses for urea. Imports immediately dropped from 6.4
million metric tons in 1996 to virtually zero in 1998. Given
the importance of China's demand, China's complete and sudden
withdrawal from the world urea market had and continues to have
an immediate and immense impact on world urea prices and on the
U.S. market. In the U.S., prices for granular urea at the Gulf
Coast (the key pricing point in the U.S.) dropped from $180 per
short ton at the beginning of 1997, to $100 in January 1998, to
$82 in January 1999. This is a price at which efficient U.S.
producers cannot return a profit. In addition to the drastic
drop in urea prices, the U.S. market has experienced an influx
of substantial quantities of urea displaced from the Chinese
market. U.S. imports of urea increased by approximately 30
percent in 1998, primarily due to an increase in volume from
Middle East production diverted from the Chinese market. U.S.
import statistics for 1999 are expected to approximate 1998's
record levels.
November 1999 Memorandum of Understanding and Fertilizer Trade
As this Committee is aware, after months and indeed years
of negotiations, the United States and China reached a
bilateral agreement in Beijing in November of 1999 with respect
to China's accession to the WTO. As we understand it, this
Agreement contains a number of potentially useful provisions
with respect to fertilizer. According to information provided
to us by USTR, these provisions include the following:
Tariffs--China will reduce tariffs on fertilizer
imports from a current average of 6% to an average of 4% upon
accession.
Quotas--China will eliminate quotas upon accession
for priority fertilizers and by January 1, 2002, for all other
fertilizers.
Distribution--China will permit foreign
enterprises to engage in the full range of distribution
services for chemical fertilizers after a 5-year transition
period.
Other commitments--China will apply all taxes and
tariffs uniformly to both domestic and foreign businesses to
eliminate uncertainty associated particularly with application
of the 17% VAT tax.
Unfortunately, the November Agreement did not include any
Chinese commitments to provide trading rights for fertilizer.
Without such trading rights, which would give privately owned
companies (both domestic and foreign) the right to import
fertilizer into China, the importation of fertilizer into the
Chinese market will remain entirely within the hands of state
enterprises or the state itself. Without trading rights, there
is no effective market access for fertilizer based on China's
accession to the WTO. As previously noted, the lack of trading
rights totally undercuts the value of China's other commitments
relating to fertilizer.
Current Efforts to Obtain Trading Rights for Fertilizer
The industry has been told that, when China failed to
provide trading rights for fertilizer in the November bilateral
agreement, there was an understanding at the highest levels of
the U.S. and Chinese governments that work would continue on
this important issue. Although the bilateral agreement would be
signed in Beijing, bilateral discussions would still continue
in an effort to find mutually acceptable means of ensuring
meaningful access to China's important fertilizer market. We
would like to believe that China understands that market access
for our fourth largest export must be assured. The effort to
come to an agreement on effective market access and trading
rights for fertilizer is underway. After an initial meeting in
Seattle on the margins of the WTO ministerial in December to
discuss the issue, U.S. and Chinese negotiators met again on
January 20 in Geneva where a U.S. proposal was presented to the
Chinese side. We understand that this U.S. proposal is
currently under consideration by the Chinese, but that at this
point this important issue remains unresolved.
We are, however, very hopeful that an agreement will be
reached in the near future. The Chairman of the Subcommittee on
Trade, Representative Crane, the ranking member, Representative
Levin, and Speaker Hastert, have strongly communicated their
concern to both the Administration and Chinese Ambassador Li.
In addition, more than 70 Senators have written to members of
the Administration, the President and to Ambassador Li
insisting that fertilizer market access be included in the
final WTO accession agreement. USTR Ambassador Barshefsky and
her negotiators are working tirelessly with the U.S. fertilizer
industry and with the Chinese to resolve this remaining issue
in an acceptable manner and we remain hopeful that they will do
so.
Conclusion
The U.S. fertilizer industry strongly urges this Committee
to ensure that there is assured access to China's important
fertilizer market within the context of a final WTO accession
agreement. Because of the importance of China's market to our
industry, we have consistently been a strong and vocal advocate
for normal trade relations with China and for China's accession
to the WTO. We continue to believe that China's entry into the
WTO is the best possible way to encourage bilateral trade and
investment and to open China's borders and its culture to the
world. However, we must ensure that effective market access for
fertilizer is among the commitments that China ultimately makes
as part of its WTO accession package in exchange for the many
benefits of WTO membership. We trust that an agreement on
fertilizer can be reached, and we will continue to seek your
help in obtaining a swift and favorable resolution of this
critical issue.
Thank you.
Exhibit 1
Chinese Fertilizer Demand 000 Metric Tons of Nutrients
----------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------------------
Nitrogen
China..................................... 19,529 22,264 24,123 23,493 22,933
% of World Total.......................... 26% 28% 29% 28% 27%
Phosphate
China..................................... 7,311 8,776 8,835 9,034 9,049
% of World Total.......................... 25% 28% 28% 27% 27%
Potassium
China..................................... 2,129 3,017 2,224 3,202 3,127
% of World Total.......................... 11% 14% 11% 14% 14%
----------------------------------------------------------------------------------------------------------------
[GRAPHIC] [TIFF OMITTED] T7129.004
Mrs. Johnson. Mr. Appel?
STATEMENT OF STEVE APPEL, PRESIDENT, WASHINGTON STATE FARM
BUREAU, OLYMPIA, WASHINGTON, AND CO-CHAIRMAN, TRADE ADVISORY
COMMITTEE, AMERICAN FARM BUREAU FEDERATION
Mr. Appel. Thank you, Madam Chair, and almost good evening.
I am Steve Appel. I am President of the Washington State Farm
Bureau and a wheat and barley farmer from Southeastern
Washington. I also serve on the Executive Committee of the
American Farm Bureau Federation and as Co-Chair of the American
Farm Bureau's Trade Advisory Committee.
AFBF represents more than 4.9 million member families in
all 50 States and Puerto Rico. Our members produce every type
of farm commodity grown in America and we depend on the access
to customers around the world for the sale of over one-third of
our production.
I appreciate the opportunity to speak before you today on
the important subject of the recently-signed U.S.--China
bilateral trade agreement and China's accession into WTO. The
Farm Bureau has long supported China's entry into the WTO on a
commercially meaningful basis. We now have an accession package
which is, indeed, commercially meaningful for both the U.S. and
the Chinese economies.
The agreement is good for the American people. Having
China, the largest emerging economy in the world, in WTO will
expand trade among all members, leading to increased global
economic prosperity. Also, having China in the WTO will bind
China to the rules of commercial law represented by the WTO,
and for China, this agreement will undoubtedly lead to
increased economic and political freedoms.
We urge Congress to grant permanent normal trading
relations for China as soon as the vote can be scheduled. There
are a host of reasons to do so, but none better than improving
the daily lives of both American and Chinese people.
This agreement is good for American farmers and ranchers.
China is broadly recognized as the most important growth market
for U.S. agricultural exports. The Department of Agriculture
estimates that China's admission into the WTO could lead to an
increase of $1.7 billion in sales of agricultural products
within one year, just about doubling our current exports to
that large country.
China has agreed to several major concessions regarding
agriculture. China has signed a bilateral agreement in which
they have agreed to solid market access commitments for
American food and fiber products. In some instances, they have
gone beyond what their minimum commitments would be under the
current WTO rules. Even the more conservative estimates point
to these commitments as placing China in the top five of U.S.
agricultural export markets by the close of the decade. This
agreement also ensures that American farmers and ranchers will
have strong protections against unfair trading practices.
These Chinese have offered American agriculture a historic
opportunity which will greatly enhance our export potential at
a time when it is drastically needed. It will positively impact
farm income in the United States. China has, however, offered
the equivalent of this bilateral negotiation to many of our
competitors. China will join the WTO and our competitors will
have the market to themselves unless Congress acts quickly to
grant China permanent normal trading relations.
The vote for permanent normal trading relations is about
trade. It is a vote for continuing the U.S. economic expansion
and, hopefully, having that expansion flow into the U.S.
agricultural sector. Farmers and ranchers are already hampered
in developing export markets by our own unilateral sanctions
and the unfair trading practices of other competing nations. We
must ensure that we do not unilaterally disengage from this
historic opportunity for American farmers and ranchers. Thank
you.
Mrs. Johnson. I thank you for your testimony.
[The prepared statement follows:]
Statement of Steve Appel, President, Washington State Farm Bureau, and
Co-Chairman, Trade Advisory Committee, American Farm Bureau Federation
Good morning, Mr. Chairman. I am Steve Appel, President of
the Washington State Farm Bureau and a wheat and barley farmer
from southeastern Washington. I also serve as co-chairman of
the American Farm Bureau Federation (AFBF) Trade Advisory
Committee. AFBF represents more than 4.9 million member
families in all 50 states and Puerto Rico. Our members produce
every type of farm commodity grown in America and depend on
access to customers around the world for the sale of over one-
third of our production.
I appreciate the opportunity to speak before you today on
the important subject of the recently signed U.S.--China
bilateral trade agreement and China's accession into the World
Trade Organization (WTO). Farm Bureau has long supported
China's entry into the WTO on a commercially meaningful basis.
There has been a long-standing concern that the U.S. and other
trading partners would consider China's entry into the WTO for
geopolitical reasons. Since we now have an accession package
which is indeed commercially meaningful for both the U.S. and
Chinese economies, we should accelerate this accession protocol
for precisely those geopolitical considerations.
This agreement is good for the American people. Having
China--the largest emerging economy in the world--in the WTO
will expand trade among all members leading to increased global
economic prosperity, the very foundation of trade
liberalization efforts. Having China in the WTO will advance
the rule of law within China, and more importantly, will bind
China to the rules of commercial law represented by the WTO.
For China, this agreement will undoubtedly lead to increased
economic and political freedoms. The promise, and premise, of
trade liberalization is more than just that. It is the exchange
of ideas and values that can lead to more fulfilling civic
institutions and citizens.
We urge Congress to grant permanent normal trading
relations for China as soon as the vote can be scheduled. There
are a host of reasons to do so, but none better than improving
the daily lives of the American and Chinese people.
This agreement is good for American farmers and ranchers.
China is broadly recognized as the most important growth market
for U.S. agricultural exports. The Department of Agriculture
estimates that China's admission into the WTO could lead to an
increase of $1.7 billion in sales of agricultural products
within one year, just about doubling our current exports to
that large country.
In addition, U.S. exports to the Asian region as a whole
are expected to increase in the next few years as a result of
China's accession into the WTO. This is likely to occur as
Chinese consumption levels increase, domestic production
patterns skew more to global prices, China ceases to employ
export subsidies, and there is a commensurate decline in
Chinese agricultural exports to the Asian region. This
agreement may be with China, but it will have impacts far
beyond Chinese borders.
China has agreed to several major concessions regarding
agriculture. Many of the commitments go beyond what is
currently mandated by the WTO.
1) China will begin to reduce tariffs immediately (upon
accession), from an average of over 31% to an average of 15%.
All tariff reductions are bound and will be fully implemented
by 2004.
2) China has agreed to establish sizeable tariff rate
quotas for bulk commodities such as wheat, corn, rice and
cotton, which will give U.S producers a chance to compete for
that market, without import licensing schemes or quantitative
restrictions.
3) China has agreed that sanitary and phytosanitary
disputes should, and will, be settled on a scientific basis.
--U.S. citrus exports to China will be phased in over a
period of two years. After that, citrus exports would be
permitted based on U.S. export standards.
--China will lift the ban on wheat and other grain exports
from the northwestern U.S. by raising the tolerance level on
TCK smut in bulk shipments.
--China has agreed to recognize the U.S. certification
system for meat and poultry which will allow these products
access to all segments of Chinese markets.
4) China has committed to eliminate use of export
subsidies. This will be especially beneficial to U.S. producers
as we export to third-country markets.
5) China has agreed to increase trading rights for the
private sector and will phase out the state trading of soy oil.
The right for importers to act on their own, without going
through a state agent or middleman, could lead to a sizeable
increase in imports.
China has signed a bilateral agreement in which they have
agreed to solid market access commitments for American food and
fiber products. In some instances, they have gone beyond what
their minimum commitments would be under current WTO rules.
Even the more conservatives estimates point to these
commitments as placing China in the ``top five'' of U.S.
agricultural export markets by the close of the decade.
I'd like to also mention the commitments that the U.S. has
retained, or strengthened, as a result of this agreement to
protect the U.S. market from unfair dumping of products by the
Chinese.
This agreement ensures that American farmers and ranchers
will have strong protections against unfair trading practices,
including dumping. The U.S. will retain our current antidumping
methodology, which treats China as a ``non-market economy'' in
the future, without the risk of a WTO challenge. This provision
will remain in force for 15 years after China's accession into
the WTO. Its important that we were able to retain this
provision given the production characteristics of an economy
dominated by state or quasi-state run operations.
This agreement also ensures that American farmers and
ranchers will have substantial protection against import surges
of Chinese products. This mechanism, labeled the Product--
Specific Safeguard, will address increased imports that cause,
or threaten, to cause market disruption to any U.S. industry or
sector. China is an agricultural exporter, and we have had
instances of Chinese agricultural exports disrupting the U.S.
internal market (e.g. apple juice concentrate, crawfish). While
the U.S. has had success through its own domestic dumping laws
in the past to address these issues, this new provision will
accelerate the review and adjudication process. This Product-
Specific Safeguard provision can be applied unilaterally by the
U.S. under legal standards that are lower than those of the
WTO. However, having a tool and using a tool are two different
matters. We urge the administration to continue to use all
tools available to combat the results of unfair production,
marketing, and trade practices used by any exporting country.
The Chinese have offered American agriculture an historic
opportunity which could greatly enhance our export potential at
a time when it is drastically needed. It can positively impact
farm income in the U.S. when the agreement goes into effect.
China has also offered the equivalent of this bilateral
negotiation to many of our competitors. China will join the
WTO, and our competitors will have the market to themselves
unless Congress acts quickly to grant China permanent normal
trading relations.
The vote for permanent normal trade relations is about
trade. It's a vote for continuing the U.S. economic expansion
and hopefully having that expansion flow into the U.S.
agricultural sector. Farmers and ranchers are already hampered
in developing export markets by our own unilateral sanctions
and the unfair trading practices of other competing nations. We
must ensure that we do not unilaterally disengage from this
historic opportunity for American farmers and ranchers.
Mrs. Johnson. I thank the panel, and I regret that it is so
late in the afternoon, but I recognize Mr. Rangel for
questions.
Mr. Rangel. I just want thank the panel for staying with us
so late. Thank you.
Mrs. Johnson. Mr. Houghton?
Mr. Houghton. I have got lots of questions, but I think I
will ask them individually. It is very late and you have been
very patient and I agree with Mr. Rangel. Thank you, Madam
Chairman.
Mrs. Johnson. Mr. Levin?
Mr. Levin. Well, maybe I will abide by precedent. You all
have been patient and some of us have had continuing
conversations. I hope they will continue.
One of the issues that has been raised today is the
effective earlier trade agreements if there is not permanent
NTR, and clearly, more considerable work has to be done on that
issue because there are differences of opinion.
And on the human rights issue, Mr. Jendrzejczyk, we have
talked before and let us talk further. I think, obviously, this
is an important component of our relationship and we welcome
your inputs.
And to the rest of you, I will follow the approach of my
colleagues and say thank you for your patience. Some of you
have been here all day. Thanks very much.
Mrs. Johnson. Mr. Collins?
Mr. Collins. Thank you, Madam Chairman. There has been a
lot said today about this being a win-win situation and then
there have been some who have expressed their concern that it
may not be entirely a win-win situation. Mr. Liuzzi, you are
very concerned about an area that has not been addressed yet,
and I emphasize yet because you emphasized it.
I mentioned to Ms. Barshefsky when she was here another
area of concern that has not been addressed in these
negotiations. Ms. Hoffman, I ask you, do you think, or what is
your opinion when it comes to the area of textiles and whether
or not the textile employees in this country and the textile
industry will be included in the win-win status?
Ms. Hoffman. We are already losers big time, not just the
workers, but the small companies that employ apparel workers
and many textile companies. We have lost, since the effective
date of NAFTA, January 1, 1994, in this country 500,000 jobs in
apparel and textiles. Our industry of apparel and textiles had
2.4 million workers in the mid-1970s. We are now down to 1.2
million, half.
Beyond my opinion, it is the opinion of the International
Trade Commission that China's exports of apparel to the United
States will soar if this agreement goes into effect. The ITC
suggested that, for the most part, those jobs will come from
other areas--Africa, the Caribbean, other countries in Asia.
But in earlier testimony before the committee that our union
has made and which I referred to in my written testimony, we
have documented that the ITC has always predicted that the jobs
would just move around in other producing countries and every
successive trade agreement has meant more and more lost jobs.
China is currently the single largest country exporter of
clothing to the United States and that will only increase.
Mr. Collins. I appreciate your position there and I
understand it fully, having a lot of textile people in Georgia.
I recall, you mentioned NAFTA, I recall in 1994 when the NAFTA
vote came up and several of us were summoned down to the White
House to be talked to about NAFTA, and even the President said
at that meeting that there are those who say that the textile
industry will lose jobs or textile jobs will be lost. There
will be, but we do not need to worry about those jobs.
I do worry about them, and I will tell you someone else who
is worried. We had a meeting here last year with some of the
Latin American countries, and in discussing textiles as part of
the trade, they, too, voiced their concern about China and
China's cheap labor versus the cheap labor in Latin America.
China's is cheaper, so they have some concern there, too.
I appreciate your comments. Hopefully, the USTR's office
will go back and look at these negotiations in the area of
textiles. There are a lot of winners in these negotiations.
There are a lot of commodities and products and services that
will gain benefits from it, but there is an old saying, a dog
that will not bark in his own backyard is not much of a dog.
Well, we have a lot of textiles in our backyard and those
people are just as important as the people who work down the
street in the high-tech industry. So we appreciate and hope the
USTR will go back to that.
Madam Chairman, I do not know if the American Textile
Manufacturers Institute testimony was received into the record
or not. They were a little late, a day late in calling back to
be a witness, and if not, I would like to submit their
testimony for the record. Thank you.
Mrs. Johnson. I would be happy to include their testimony
in the record, but we are having other hearings and it would be
likely--
Mr. Collins. I would like it entered into this hearing,
Madam Chairman.
Mrs. Johnson. We will do that, and if they would like to
speak at the other hearings, they certainly will be free to
contact the committee and indicate to that effect.
Mr. Collins. Very good. I would appreciate you passing that
along to the subcommittee chairman.
Mrs. Johnson. As we conclude the hearing, I do, just as a
matter of public information, since it has been brought up a
number of times, I just want to comment on the 1979 agreement.
It is very thin. It is small pages, there are only seven or
eight of them, and it has no enforcement provisions. It also
does not extend to services. It does not allow distribution
rights. One of the problems has been is for companies getting
into another market but then other countries blocking their
right to market and sell their products.
So I think it is important as we conclude this hearing to
recollect that, on the whole, the agreement that has been
negotiated with China is about dropping their tariffs, not
ours. We have already done that. It is about access to their
markets. They already have access to our markets, and
everything that is happening in textiles is happening because
they have access. And yet during the period when the textile
industry has been under enormous assault, they have modernized
the cotton industry so they are one of the best cotton
producers in the world, and if they had access to the Chinese
market, that might give them a greater opportunity.
But those are the things that we will look at more closely
in the days to come. But I think it really is important to
recognize that bilateral enforcement has not worked. That is
why we got into GATT. That is then why we got into WTO. In this
decade, we have worked hard on intellectual property rights and
had a very hard time enforcing our own agreements.
And part of what we have to think through at this
opportunity is not only what does this agreement with China
offer us in terms of decreased barriers into their market, but
what are going to be the consequences for us of having all the
nations of the world part of our team of enforcement? That is
going to make a very big difference not just in the ability of
American companies to have the right to trade in a fair trade
environment, but it is going to have an extraordinary impact on
the development of the concept of rule-governed trading
relations within China, and that itself is going to make a
difference over the years in our ability to support values that
I think the world shares.
Mr. Jendrzejczyk. Could I just comment briefly on your
last--
Mrs. Johnson. I appreciate that it is difficult not to be
able to answer, but I do have to conclude the hearing and I
will be happy to talk with you afterward. One of the problems
with hearings is that members do not have much time for
dialogue and neither do members of the panel.
But it was a very fruitful hearing. There have been a lot
of different opinions. But I think it is important to recognize
that the very limited nature of this agreement that has been
referred to, because it was written in a very different age, it
is not comprehensive and it is not enforceable. And for us to
imagine in the modern world that we could use this to govern
the future, I think would be a terrible cop out. That does not
mean that we do not have work to do together. Thank you.
Mrs. Johnson. The committee is adjourned.
[Whereupon, at 4:50 p.m., the hearings was adjourned.]
[Submissions for the record follow:]
Statement of American Apparel Manufacturers Association, Arlington, VA
Thank you for providing this opportunity to comment on the
U.S.-China Bilateral Trade Agreement and Accession of China to
the World Trade Organization.
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.
AAMA has been closely following the discussions regarding
China's accession to the World Trade Organization (WTO). Our
members have a strong interest in the provisions of the 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 consider doing so in the future. Many also sell, or are
beginning to sell, finished products into the Chinese market.
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. At the end of the day,
we believe it is vitally important that China accede to the WTO
soon so that they can quickly apply the disciplines of
international trade to their economy. We need to make sure that
the rules of international commerce apply to China as soon as
possible.
In general, AAMA is supportive of the new U.S.--China trade
agreement. Although we are still unsure how several of its
provisions will be administered, including those relating to
safeguards, the deal seems to strike an appropriate balance
among the various industries and interests that will be
affected by U.S.--China trade relations in the coming years.
Moreover, it paves the way for China's entry into the WTO--an
event that needs to occur soon.
Following is our understanding of some of the key points of
the deal, as described in summary papers that have been
circulated within the industry.
The agreement will end quotas on Chinese textile
and apparel imports on December 31, 2004, when they end for
other WTO partners. However, quotas can still selectively
restrain Chinese imports through a special 4-year post-2004
textile and apparel safeguard, lasting until the end of 2008,
and an overall 12-year product-specific safeguard, lasting
until 2012.
Although the deal does not permit the reduction of
U.S. tariffs on Chinese apparel imports into the United States,
it does reduce most duties on apparel imports into China. Most
apparel duties will drop from about 35 percent to between 17
and 24 percent. Including other sectors, China lowers its
average duties to about 9 percent.
Other provisions of the agreement open up the
Chinese market to provide more guaranteed market access,
distribution and investment rights for foreigners.
It remains to be seen if bilateral agreements struck with
other countries will provide further benefits for U.S.
companies in the trade relations with China.
To ensure that the United States is able to take full
advantage of this deal, and the overall Chinese accession
package, it is important that the United States accord
unconditional normal trade relations with China. Such a move is
also important to ensure that we live up to our obligations
under the WTO. We expect our trading partners to abide by their
commitments before the WTO. We should do no less.
A congressional vote on this matter is also important to
reconfirm to the world that the United States--in the post
Seattle world--wants to remain a strong participant in the
global economy. We have argued in other testimony that the
Congress should quickly pass CBI/Africa trade legislation and
reaffirm U.S. membership in the WTO (should that vote be
necessary) to help reassert US leadership of the global
economy. A strong vote in favor of permanent NTR for China is
also necessary to reassert US global leadership in the world's
trading system.
Statement of Maurice R. Greenberg, Chairman and Chief Executive
Officer, American International Group, Inc., New York, New York
Mr. Chairman, thank you for the opportunity to testify on
the issue of China's membership in the World Trade Organization
(WTO). As a CEO of an American company with operations
worldwide, I can think of no more important geo-economic policy
challenge facing the United States today.
How the Congress handles this issue will affect U.S.
interests for decades to come. I am convinced that a positive
vote to extend Permanent Normal Trade Relations (PNTR) status
to China will help build a legacy that will serve U.S. economic
and security interests in Asia and the world.
China is at an extraordinary moment in her history. Over
the last 25 years, China has built stronger economic and
diplomatic ties with her Asian neighbors and the West, and is
making an effort to become an increasingly integrated member of
the global community. There can be little doubt that China is
rising to great power status.
The broad policy question before the Congress today is
whether China should be encouraged to further integrate itself
into the community of nations, or whether it is ostracized and
isolated, unable to address the aspirations of its 1.3 billion
citizens, and becomes an unstable force in world affairs.
Regardless of what we do, China will continue to expand its
relations with other nations. Our national interest is served
by continuing to build our relations with China. Otherwise, we
just isolate ourselves.
The more specific question Congress must answer is whether
to allow the United States to enjoy the dramatic market opening
benefits China has offered by making Normal Trade Relations
status for China permanent. For twenty years, Congress has
renewed this status annually because it benefits both China and
the United States.
AIG's History in China
American International Group, Inc. (AIG) has a unique
history. We were founded by an American entrepreneur in 1919 in
Shanghai, China. AIG is the only major American corporation
that traces its roots directly to China. AIG was also the first
foreign insurer to return to China. We were granted a license
in 1992 to operate a wholly owned, non-life and life insurance
business in Shanghai. AIG's China operations today span a range
of insurance, financial services and investment activities,
with offices in Shanghai, Guangzhou, Foshan and Shenzhen. We
employ 1,100 Chinese citizens, and have an agency force of
nearly 10,000.
AIG's life insurance company in China, American
International Assurance Company, Ltd. (AIA), is the largest
life insurer covering the Asian region. When it was licensed in
China, AIA continued its longstanding tradition of innovation
by introducing the agency distribution system to the Chinese
life insurance industry. The system is now widely employed by
local insurance companies as a principal distribution channel.
In addition, AIA pioneered the introduction of professional
life insurance operations, including management information
systems, professional underwriting and world-class service
standards. For example, we were the first to introduce the auto
pay system for premium payments, the first to develop a bank
draft system for insurance company payments, and the first to
introduce professional examinations to help educate and train
insurance company staff in China. In fact, over 6,000 agents
currently employed by the domestic insurance industry were
trained by AIA.
AIG's presence in China provides a good example of how
expanded foreign trade and investment can be a win-win result
for both countries.
In our case, the introduction of new management practices,
training, technology, and marketing techniques has resulted in
a cadre of highly motivated and skilled Chinese personnel whose
lives today bear no resemblance to what existed only a few
years ago. They have readily adopted Western ``best business
practices,'' enjoy better living conditions, and a wider range
of freedoms to travel and to spend their growing financial
resources than have any of their countrymen during China's
5,000 year history.
While AIG's history is unique, the experiences of thousands
of other U.S. and foreign-owned companies doing business in
China today strongly suggest that similar, positive results are
occurring.
Simply stated, economic progress and expanded trade
opportunities in China are helping to create a new and
prosperous middle class while enhancing the quality of life for
hundreds of millions of people.
The Benefits of China's Entry into the WTO
I believe AIG's China story provides lessons for the future
ramifications of China's entry into the WTO.
First, if China joins the WTO on the commercially
attractive terms so ably negotiated for U.S. manufacturing,
agricultural and services industries by Ambassador Barshefsky,
considerable new employment opportunities will be created for
U.S. workers. U.S. competitiveness has never been stronger and
our businesses are positioned well to generate meaningful
results for the U.S. economy.
Secondly, the commitments China has made to the United
States as part of its WTO accession package are striking in
breadth and scope. In our industry, for example, China has
agreed to:
Open the entire insurance market within three
years to all foreign companies by expanding from the current,
limited access;
Permanently grandfather existing operations and
eliminate all restrictions on internal branching;
Open up to foreign ownership both non-life and
life insurance (including health and pension plans), and
eliminate existing restrictions on the placement of
reinsurance.
The U.S. insurance industry has been poised for many years
to expand into China. Limitations that have confronted us
geographically, and by product line, will be almost completely
eliminated, practically overnight. In fact, one of the great
challenges facing China's regulators will be to manage the
rapid opening of its market, given the many foreign companies
that will be allowed to do business there so suddenly. It is in
our interest that China manage this transition successfully.
Over time, the presence of U.S. and other foreign insurers
will bring to China the modern management tools necessary to
develop a competitive, world class insurance industry. This
will give China the ability to more efficiently manage risks
throughout its economy and society. And, with it will come the
benefits of choice, lower prices and product innovations to
meet the needs of Chinese consumers.
Because of the long-term liabilities involved, life
insurance is an especially effective stimulus to long-term
investments--investments that, by their very nature (i.e.,
bonds, housing, and infrastructure), help in the national
building process.
It is entirely possible that China will become the largest
insurance market in the world in the not-too-distant future.
Such a market holds forth tangible economic benefits to the
United States. Over time, successful American insurers in China
will generate new employment opportunities for support
personnel in their U.S. corporate headquarters. In addition,
they will transfer dividend income to their U.S. shareholders,
generate tax revenues for the U.S. Treasury, and will make
investments in bonds and other U.S. financial instruments.
Despite these benefits, I am aware of the various arguments
made to block China's WTO membership or to condition its entry.
Some of these arguments will be made because China and the U.S.
have different values and different political systems. We do,
and we probably always will. But for those who have not had the
benefit of seeing firsthand the remarkable changes that have
occurred over the last 25 years in China, it may be difficult
to appreciate how these values are converging. Bringing China
into the WTO will accelerate the process of helping to
understand the reason for those differences--differences that
can sometimes lead to mutual distrust, hostility, or even
conflict.
Moreover, we should not allow our trade relations to become
hostage to our differences. The U.S. has differences in values
and culture with many countries. What is important is that we
always try to work out our differences in a peaceful way.
Understanding China's Past
Over many years, I have had occasion to observe firsthand
post-war economic developments in many countries around the
world. I first visited China in 1975, and have been back just
about every year since. Compared with other countries, the
positive results of China's economic growth and development are
nothing short of miraculous. Continued progress can be expected
for the foreseeable future, particularly if China allows even
more open competition and trade.
We should not forget that it was not many years ago that,
with respect to China, the U.S. had no diplomatic relations, no
meaningful trade, no cultural exchanges, and certainly no
military cooperation. Just suspicion and isolation, and a cold
peace.
China's interests in Asia were often in conflict with our
own. The consequences for America were costly in political,
economic and human terms. The Korean conflict claimed over
50,000 American lives, and China supported insurgency movements
throughout the region, and provided moral and logistical
support for North Vietnam to prolong that tragic war.
During the period leading up to the Communist revolution,
and for much of her modern history, China was subjugated,
humiliated and exploited by foreign powers. The Opium Wars, the
partitioning of Shanghai, and Japan's military occupation are
examples. Understanding China's history helps explain China's
preoccupation today with stability, following hundreds of years
of internal turmoil, famine and bloodshed. Understanding
China's history also helps us appreciate and interpret China's
current needs and interests. Given where China has been,
feeding and clothing such a massive population represents
tremendous progress.
In this context, China's WTO commitments are all the more
significant. Beyond insurance, China has agreed to open up its
agricultural markets, its distribution systems, significantly
lower its tariffs, and has offered increased market access and
foreign ownership for financial services, telecommunications
and automobile companies, to name a few.
Once implemented, China's overall WTO concessions will far
surpass the level of market openness found today in many other
developed and developing WTO member countries. Importantly, the
package also represents a higher and wider level of market
liberalization toward which both existing and prospective WTO
members should now aspire.
These concessions are entirely one-way in nature (with no
reciprocal concessions by the U.S.). They are the result of
decisions the Chinese leadership has made to use WTO membership
to push ahead with domestic economic reforms and open the
economy to worldwide competition.
The Chinese leadership is taking a calculated risk that the
U.S. will help, and not exploit, their efforts to promote
competition with vested interests in their own country. Denying
China entry into the WTO would not only engender bitterness and
resentment, it would also undercut the gamble China's leaders
have made to modernize their economy.
U.S. and China: Shared Interests
The basis for any long-term, stable relationship between
the U.S. and China, as with any two countries, must be mutual
respect and understanding, coupled with a reasonable evaluation
of what is realistic and achievable. This relationship should
promote U.S. national interests in Asia. I would suggest that
among the most important U.S. foreign policy objectives are:
Promoting stability in Asia, including such
unstable areas as the Korean Peninsula and the Taiwan Strait;
Limiting the proliferation of weapons of mass
destruction;
Encouraging the continued expansion of open
electoral systems where the views of individual citizens can be
expressed, and;
Expanding trade, investment and access to markets
based on transparent legal structures and the rule of law.
To pursue these interests, we need a cooperative China, one
that accepts international obligations by integrating into the
rules-based economic and security arrangements that govern
global conduct.
It is clear that there are a broad number of areas where
the U.S. and China have common interests. We both want a
reliable partner. We have a common interest in a growing and
stable Asia. We both want to avoid tensions in Asia's potential
trouble spots. Our recent cooperation on Korea, for example,
has been more positive than many people appreciate. Our
economies complement each other, and trade has expanded some
400 percent over the last ten years, with a significant number
of high-wage U.S. jobs dependent on our exports to China.
Why PNTR Should Be Permanent
Some have argued that the annual ritual of granting normal
trade relations (NTR) to China has provided useful leverage in
affecting Chinese behavior. There is little evidence to support
this claim. To its credit, each year since 1980, the Congress
has extended NTR to China. After vigorous debate, successive
Congresses have concluded that withdrawing NTR would be
disruptive to the relationship and to our own interests in
seeing China play a more constructive role in the world.
Moreover, each year Congress has recognized that denial of NTR
would be devastating to Taiwan, as well as to Hong Kong, and
that the U.S. would simply be rewarding our competitors in
China.
Under WTO procedures, all WTO members are required to
extend unconditional NTR when China joins the WTO. With over
130 other WTO members, the U.S. has supported the principle of
non-discrimination, which rests at the heart of the
multilateral trading system. Any benefits granted to a WTO
member must be granted unconditionally (i.e., permanently) to
all other members.
Were China to join the WTO without receiving permanent NTR
from the United States, China would have the right, under WTO
rules, to deny to U.S. workers, businesses and agriculture the
extraordinary benefits the U.S. obtained as part of China's WTO
package. Instead, we would relinquish to French, German,
Japanese and other competitors the concessions that are
properly due the U.S. We are not doing our firms and workers
any favor by denying them what is clearly in their best self
interest.
This is not to suggest that the U.S. should refrain from
discussing differences we have with China over human liberties,
their form of government, freedom of speech, assembly and the
press. But, we should do so in other, more appropriate, fora.
Denying China PNTR based on our dissatisfaction with progress
in these areas will not make China share our values or adopt
our systems. In fact, as has been demonstrated in many
countries, the expansion of trade will lesson our differences
over time.
Some have argued that China should not be allowed to enter
the WTO now, because it cannot be trusted to live up to its
trade agreements. The commitments China has made to enter the
WTO, however, will be subjected, for the first time, to the
WTO's dispute settlement mechanism. Trade disputes will no
longer be governed by bilateral frameworks alone. Disputes will
be resolved according to standards China has accepted and, more
importantly, for the first time, the overall world trading
community will have the right and power to enforce them.
Therefore, the obligations China has made will be exposed to
much greater transparency and a multilateral, rules-based
regime as compared with those negotiated with individual
countries in the past.
Conclusion
In conclusion, I would respectfully urge the Congress to
support China's entry into the WTO and to grant Permanent NTR
to China as soon as possible. Your decision should be based on
the primary objective of promoting a sound U.S. foreign policy.
If you agree that it is in our geo-economic interest to engage
China on a broad strategic basis, we should not let our
differences on individual issues, as important as they may be,
distort the opportunity to accomplish our broad objectives.
The immediate post World War II experience of the United
States is instructive in this respect. The U.S. wisely chose to
expand trade ties with our former adversaries. The results were
more prosperous and free allies. China's entry into the WTO can
lead to the same result.
Moreover, the past 25 years demonstrates that there is much
good to come from a positive relationship with China. We have
everything to lose, alternatively, by pushing China into a
hostile role.
It is highly unlikely that the U.S. could have a realistic
policy for Asia if it excludes China. If our relations with
China were unsettled, it would be very difficult for other
Asian countries to openly side with the U.S. One only has to
look at a map to understand why. The U.S. would be the loser. I
sincerely hope that we never allow our relationship with China
to reach a point where that choice has to be made.
By joining the WTO, China deepens its stake in the
community of nations and the U.S. promotes its national
interests of peace and stability. When future generations look
back on this period in our history, I am confident Congress
will be judged as having made the right decision for the
American people.
Statement of American Textile Manufacturers Institute
This statement is submitted by the American Textile
Manufacturers Institute (ATMI), the national trade association
of the domestic textile mill products industry.
ATMI's member companies will be hurt by the China WTO
accession package agreed to on November 15, 1999 and the
enactment of permanent normal trading relations (NTR) will cost
the jobs of thousands of U.S. textile workers. This agreement
will give China preferential access to the U.S. market for its
vast subsidized textile and apparel sector while U.S. textile
and apparel access into the Chinese market will very likely
remain seriously impaired. In particular, the agreement gives
China an accelerated five-year quota phase-out that no other
WTO country has enjoyed, and does so at the expense of
thousands of U.S. workers in the textile sector.
A 1999 U.S. International Trade Commission (ITC) Study on
China's accession \1\ determined that the Chinese share of
apparel imports into the U.S. would more than triple under a
2005 phase-out. The ITC study reveals that the effect of the
Chinese quota phase-out on other regions, particularly on the
nations of the Caribbean nations and Mexico, will be equally
severe. These countries' growing apparel sectors, which exist
almost entirely to service U.S. markets, will be decimated by
an early Chinese phase-out.
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\1\ ASSESSMENT OF THE ECONOMIC EFFECTS ON THE UNITED STATES OF
CHINA'S ACCESSION TO THE WTO, Investigation 332-403, (Publication 3229;
September 1999).
---------------------------------------------------------------------------
While the ITC study did not assess the economic impact of
this tripling of China's share of imports to the United States,
a study by Nathan and Associates (Exhibit A) does. It revealed
that early removal of quotas imposed on Chinese textile and
apparel imports will cost the U.S. textile and apparel sector
154,500 jobs. It also found that U.S. textile shipments will
decline by $4 billion and U.S. apparel shipments will drop by
$7.6 billion.
At the same time that Congress is considering important
trade legislation to help both the CBI and African apparel
sectors, it should be aware that the preferential Chinese quota
phase-out would cancel most, if not all, of the benefits these
regions would receive.
During the WTO negotiations, the Clinton Administration
insisted that the U.S. textile industry needed ten years to
adjust to the phase-out of quotas for WTO members. With the
Chinese accession agreement, we now have the prospect of the
world's largest textile and apparel exporter, which has the
greatest power to wreak havoc on the domestic industry, getting
a phase-out of only five years. Some say there is nothing
unfair about the shorter phase-out because China's textile and
apparel imports were under quota control for the 1995-2000
period. Such an argument misses a fundamentally important
point. China decided not to join the WTO in 1995. China decided
it preferred to keep its own market closed. China decided not
to face the rules and disciplines of WTO membership until now.
So why should China be rewarded by the U.S. for five years of
operating outside of WTO rules by granting China a better deal
in textiles than other WTO members received in 1995?
Such a decision by the United States is even harder to
accept when one examines China's behavior between 1995-2000.
During that time, China:
Kept its textile and apparel market essentially
closed;
Illegally transshipped billions of textile and
apparel products annually through other countries to avoid
quotas;
Illegally copied textile designs in violation of
the U.S./China intellectual property agreement;
Subsidized its textile and apparel exports,
thereby increasing the economic damage to U.S. producers and
workers.
The shorter quota phase-out for China is not only wrong,
unjustified and unfair, but it is also bad trade policy because
it puts the livelihoods of more than 150,000 U.S. textile and
apparel workers at risk.
And while this agreement appears to some to be a magic
ticket into the growing Chinese market, ATMI feels obligated to
point out that the road to real market access in China will be
a long and bumpy one. As the U.S. textile industry well knows -
and as the U.S. government knows as well--China is not known
for keeping its agreements. Over the past 16 years, China has
signed six textile and apparel bilaterals with the U.S. -and
broken every one of them. It has signed four intellectual
property rights (IPR) agreements -and intellectual property
theft in China still remains rampant. In fact, the most recent
National Trade Estimates report compiled by the U.S. Trade
Representative's Office notes that ``U.S. industry estimates of
intellectual property losses in China due to counterfeiting,
piracy, and exports to third countries have exceeded USD 2
billion.'' \2\
---------------------------------------------------------------------------
\2\ 1999 National Trade Estimate Report on Foreign Trade Barriers,
USTR, p. 60.
---------------------------------------------------------------------------
So while much is being made about new Chinese
``commitments'' to do away with fraudulent customs activity,
eliminate local content laws, institute the rule of law
regarding commerce and trade and so on, ATMI wishes to note
that ``practice'' should speak louder than words and that all
concerned should take China's avowals of a ``new China'' with a
grain of salt.
In addition, we note that perhaps the most damaging of all
China's behaviors--its vast subsidization of its textile and
apparel sector--remains apparently untouched by this agreement.
Any U.S. industry and its workers must be concerned about the
lack of any provision in the bilateral agreement to deal with
China's export subsidies on manufactured products.
It is indisputable that China uses many different
government programs to subsidize its exports of industrial
goods. In fact, Chinese economists have identified ten new
subsidy programs to promote Chinese textile and apparel exports
alone (see Exhibit B). A copy of the report describing these
programs is attached. Yet, for some strange reason, the U.S./
China WTO accession agreement is silent about any commitments
on China's part to curb its industrial subsidies. Was this an
oversight? It defies belief to conclude that it was. Then, why?
ATMI has inquired of the Administration and we were not
told why, only that ``the WTO rules will apply.'' That may be
the case, but that answer provides little comfort to our
industry or any other industry in the U.S. worried about
subsidized Chinese exports of manufactured products. To rely on
WTO rules implies two assumptions. First, that the WTO rules on
export subsidies can be effectively used. And, second, that the
U.S. will act to use those rules and that it can resort to its
own countervailing duty laws and regulations in addition to, or
in place of, the WTO rules.
In fact, neither assumption is valid. The WTO rules,
including those that cover subsidies, let countries ``self-
elect'' whether to be considered developing or not. While the
U.S. may intend to treat China as a ``developed'' country, it
will likely discover that many WTO remedies are out of reach as
long as China elects itself to be developing. In regards to
export subsidies, preferential treatment is given to the
offending country even when export subsides are found to be
actionable -and even the WTO itself acknowledges that reaching
a finding is a long, difficult and intensive process. To make
matters more difficult, developing countries are demanding that
the eight-year timetable (until 2002) for ending developing
country export subsidies be extended still further as a
condition for their supporting future WTO negotiations.
In addition, under the current WTO rules, non-export
subsidies, which can be just as harmful as export subsidies,
are de facto permitted unless they can first be proven to have
caused injury to a member country. Thus production subsidies
are permitted pending the finding of a causal link between that
subsidy and injury of another member--an almost impossible task
given the length of time most of these subsidies have been in
place.
But more importantly, under current practice, the U.S.
countervailing duty (CVD) laws cannot be applied to China. To
repeat, U.S. countervailing duty laws do not apply to China.
Why? Because China is a non-market economy, the U.S. announced
that over a decade ago that CVD rules would not apply to non-
market economies. Why was this seemingly preposterous decision
taken by the Department of Commerce? The reasoning was
something like this: because China and other non-market
economies, by definition, subsidize nearly every aspect of
their economies--everything is subsidized, therefore the true
impact of subsidies cannot be known. And Commerce has stuck to
this startling conclusion ever since. Of course, the fact that
some industries were preparing to file massive CVD petitions
against China at the time of the decision may have also had
some impact.
In any case, the agreement contains no effective weapon
against Chinese export subsidies. There is no commitment by
China not to subsidize its industrial exports (as it has agreed
with its agricultural exports); there is a time-consuming and
uncertain WTO process (which is also subject to China's ability
to throw its substantial weight around); and, most importantly,
there is no remedy under U.S. countervailing duty law. This
crucial failure to deal with these subsidies is reason enough
to oppose the U.S./Chinese accession agreement.
Also, while much has been made of the notion of bringing
China into a ``rule-based'' WTO system, the Uruguay Round
agreements are, in a number of vital areas, sadly deficient in
terms of preventing trade-blocking behavior. These include IPR
enforcement, Customs valuation, standards, pre-shipment
inspection and marking rules, among others. Simply having China
within this system is no guarantee that Chinese trade barriers
will suddenly or even eventually disappear.
Indeed, having China as a full-fledged WTO member makes the
prospects for closing these loopholes even more unlikely in the
years ahead as China is sure to seek ways within the system to
slow down or derail any initiatives in these areas.\3\ Other
developing countries without China's geopolitical clout have
already defied their WTO commitments and are, in Geneva,
seeking extensions regarding compliance with their WTO
commitments in many areas. China can be expected to do the
same, but with an even greater likelihood of success.
---------------------------------------------------------------------------
\3\ The United States will also lose any leverage that an annual
NTR vote in Congress provides.
---------------------------------------------------------------------------
Five years into the Uruguay Round agreements, after all the
pronouncements about ``open markets,'' an analysis by ATMI has
found that no significant new market access for U.S. textile
and apparel products has occurred as a result of the
agreements. In fact, those markets that were closed at the end
of the Round are still just as tightly closed today. Indeed,
India, Argentina and Brazil are among the many countries that
have raised new barriers to U.S. textile and apparel
exports.\4\
---------------------------------------------------------------------------
\4\ While the U.S. has recently won trade barrier cases against
both India and Argentina, both countries instituted new trade blocking
measures--this time apparently WTO legal ones -and both markets remain
essentially closed to U.S. exports.
---------------------------------------------------------------------------
In the interim, the United States has kept its word and let
in billions of dollars worth of additional textile and apparel
imports from these countries at the cost of thousands of U.S.
textile and apparel jobs. Now the United States is poised to
make the same fundamental mistake with China--to open our
market to a flood of Chinese imports with no certainty that we
will get any real market access in return. Instead, history
virtually guarantees that more U.S. workers will lose their
jobs and that, in the next round of WTO deliberations, real
free trade issues will be forced to take a back seat.
In short, ATMI does not believe that the United States
should give China the kind of extraordinary preferential access
to its market that this accession package envisions. China has
not warranted such favoritism, nor do U.S textile workers and
companies deserve to face a huge onslaught of subsidized
imports from China. China's past practices should, if anything,
teach us not to award China any benefits until it has proven
that it can keep its word. We urge the Committee to reject
permanent NTR with China and send this agreement back to be
renegotiated on terms more equitable to U.S. textile firms and
U.S. workers.
[An attachment is being retained in the Committee files.]
Statement of CIGNA Corporation, Philadelphia, PA
Headquartered in Philadelphia, CIGNA is a leading provider
of health care, employee benefits, life insurance and financial
services with more than $95 billion in assets and operations in
30 countries. Domestically, CIGNA ranks among the largest
investor-owned insurance organizations, with shareholder equity
of $6.1 billion. CIGNA has 39,000 employees in the United
States.
CIGNA's operating subsidiaries offer one of the broadest
arrays of innovative, high-value products and services. These
include:
Managed medical and dental care products, group
indemnity health insurance and related services;
Group life, accident and disability insurance;
Retirement and investment products and services;
Life, accident and health reinsurance products and
services;
Investment management for CIGNA's insurance
businesses and customers; and,
For international clients, life, accident and
health insurance and employee benefits products and services.
CIGNA and one of its predecessor companies have a long
history in China. These ties go back as far as 1793 when the
Insurance Company of North America (``INA'') insured a ship
bound from Philadelphia to Canton. INA was also the first
American insurance company licensed to do business in China,
when it appointed the Yang-tze Insurance Association in
Shanghai as its representative in 1897. INA expanded and
operated in 20 cities throughout China through the 1940's. In
1994, CIGNA Corporation reestablished a representative office
in Beijing and subsequently opened representative offices in
Shanghai and Guangzhou. While the CIGNA organization sold most
of its property and casualty operations, including INA, in July
1999, CIGNA retained the employee benefits operations formerly
associated with INA and has applied for a license to write such
insurance coverages in China.
Since applying more than five years ago for a license to
operate in China, we have worked with China's Insurance
Regulatory Commission, the People's Bank of China, Chinese
academic institutions, domestic insurance companies and other
organizations on policy studies, exchanges and educational
programs. We undertook an unprecedented study with the Ministry
of Labor and Social Security on developing policy options for
an employee supplementary health insurance program that is now
being implemented. This new program paves the way for a major
role for the provision of private supplementary insurance for
urban workers. It is through these efforts that we have gained
a comprehensive understanding of the Chinese insurance market.
CIGNA regards China as a key priority in its overall
international strategy. China represents potentially the
largest single insurance market in the world with the World
Bank estimating that it will be the largest economy early in
this century. China's rising middle class is pressing for
improved health care, employee benefits, retirement programs
and life insurance. As a sign of our confidence in the Chinese
economy, CIGNA has invested approximately $200 million in China
related public and private investments.
Until now only a small handful of foreign insurance
companies have been granted limited licenses to operate in
Shanghai with only one such company permitted to operate in
Guangzhou and Shenzhen. Foreign life insurers have been limited
to mostly individual life insurance products as they have not
been permitted to offer group life, health insurance and
pension products.
When the U.S.--China market access agreement was signed on
November 15, 1999, CIGNA enthusiastically welcomed the
agreement as ``historic.'' In this agreement, China has
committed to open its markets across the broad spectrum of
industries, including insurance. When China accedes to the
World Trade Organization, China will subject itself to WTO
rules, regulations, and disciplines. It will also grant
American companies ``national treatment'' and open up access to
China's domestic market. China has never done this before.
The implementation of the U.S.--China market access
agreement and China's accession to the WTO will allow CIGNA to
offer a full range of products and services throughout the
country within five years. According to the agreement, China
will:
Award licenses solely on the basis of prudential
criteria, with no economic needs test or quantitative limits on
the number of licenses issued.
Open up more cities, including Shanghai and
Guangzhou, for foreign insurance licenses upon accession and
eliminate all geographic limitations within three years.
Expand the scope of activities for foreign
insurance companies to include group, health, pension and
annuities, phased in over a period of years.
Permit foreign property and casualty firms to
insure large-scale risks nationwide immediately upon China's
accession to the WTO.
Allow 50 percent foreign ownership for life
insurance and allow foreign insurers to choose their own
partners.
Allow foreign branches for non-life and 51 percent
foreign ownership of local subsidiaries upon accession and
wholly foreign-owned subsidiaries in two years.
Completely open reinsurance on accession.
This is precisely the kind of market access the U.S.
insurance industry needs. CIGNA strongly urges Congress to
extend permanent normal trade relations to China, the same
treatment that the United States grants to 132 other members of
the World Trade Organization. Unconditional and permanent NTR
is also a WTO requirement. Failure to enact PNTR for China into
law will mean that U.S. companies will not gain the benefits
from the agreement that the United States negotiated and will
be denied this broad and unprecedented access to China's
economy. It will mean that we will stand by and watch our
foreign competitors take advantage of our hard-won agreement.
Aside from the obvious benefits to the U.S. services
industry, manufacturing, and agriculture, China's accession to
the WTO and our bilateral agreement is a major step toward
strengthening Sino-U.S. relations. No one can deny that U.S.--
China relations have been strained at times over specific
incidents. With or without permanent normal trade relations
with the United States, China is emerging as a global economic
power. It is very much in our interests and the best interests
of the rest of the world that China becomes part of the rules-
based international trading system and that our two economies
continue to expand their trade ties with unfettered access to
each other's markets. This is good for both peoples. It brings
jobs to America and increases the standard of living for the
Chinese. It also increases understanding and helps us develop
regular and predictable ways of learning to live together. We
firmly believe that increased prosperity in China has been and
will continue to be a very positive force in expanding the
average person's freedom of choice and political awareness.
China is a huge country and change does not come easily for 1.3
billion people. China has opened its economy and society to the
outside world. This has made and will continue to make
political change inevitable.
CIGNA, therefore, strongly urges Congress to enact
legislation granting China permanent normal trade relations as
soon as possible.
Statement of Frederick W. Smith, Chairman, President and Chief
Executive Officer, FedEx Corporation, Memphis, Tennessee
Mr. Chairman and Members of the Committee,
I am pleased and honored to have the opportunity to appear
before you today on the critical issue of China's accession to
the World Trade Organization (WTO) and on the need for the U.S.
Congress to pass legislation to extend permanent Normal Trade
Relations (NTR) status to China. I appeared before you on June
8, 1999, and outlined why I strongly believe that these actions
are in the best economic interests of the U.S., including FedEx
and the air express industry.
As I stated last June, no single issue is of greater
importance to the U.S. economy than the long-term health and
viability of the world trading system. The direct and indirect
implications for American business and the American economy are
profound. This is even truer today than it was last summer, in
the aftermath of the failure to launch a new round of
multilateral trade negotiations at the Seattle ministerial
meeting in November. Protectionist forces are at work to turn
back the progress we have made to open foreign markets and
maintain a fair and open trading system under the auspices of
the WTO. Such forces have now set their sights on stopping
China from joining the WTO.
That course of action is clearly wrong, and I urge this
Committee to move swiftly to provide permanent NTR status to
China, helping to facilitate its becoming a member of the WTO.
The bilateral agreement negotiated between the U.S. and China
is a good one. It will substantially open China's markets to
U.S. exporters without requiring the U.S. to take any
additional market opening measures to China beyond providing,
on a permanent basis, the NTR status that we have provided to
China on an annual renewable basis for a number of years.
The position of FedEx is unequivocal. FedEx supports
China's accession to the WTO and, with it, the extension of
permanent Normal Trade Relations (NTR) rights by the U.S. 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.
WTO accession will also help FedEx be a more effective
competitor. For example, I am particularly encouraged at the
liberalization scheduled for the distribution field. With
China's WTO accession, FedEx would have the ability to sell its
services directly in the market place in four years, instead of
leaving it to agents. 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.
Mr. Chairman, we are facing both a challenge and
opportunity. It is high time that we focused our efforts on
making sure that Americans understand how and why free trade
works to their benefit. We need to show the country that we are
prepared to do everything we can to encourage export
opportunities for U.S. business in international markets. This
is particularly important in the case of China. We need to
review our tax and other policies to eliminate barriers to
competitive opportunities for U.S. businesses. You held
hearings on this subject last year. We support your efforts.
In addition, improved transportation and facilitation
services are critical to developing U.S. export opportunities.
I have made that a goal of our company and I am proud to state
that we carry nearly three times as many U.S. express export
shipments. as our nearest competitor. Put simply, where FedEx
flies, U.S. exports follow.
The U.S. recently concluded a new aviation agreement with
China, which was a step in the right direction. Nevertheless,
it was a disappointment for FedEx and its customers.
Notwithstanding the importance of promoting U.S. exports in
this market for the U.S. economy, FedEx is still the only
carrier that lacks the ability to provide twice-daily service
to China. Yet we serve more cities in China--Beijing Shanghai
and Shenzhen--than any other U.S. carrier. What we need is a
minimum of 24 weekly flights to China--instead of our current
10--that would allow us to provide daily service to each of
China's four major industrial centers--Beijing, Shanghai,
Shenzhen (in the South) and Dalian (in the North). That's what
we and our customers/exporters need.
The reason I point this out, Mr. Chairman is that we are
facing a crisis of confidence in our trading system. We need to
refocus our efforts on doing everything we can to make it
possible for American businesses to compete fairly in these
important new international markets. If we don't, the American
public will continue to lose confidence in the benefits of a
free and open international trading system. We simply cannot
afford to let that happen.
Let me try to explain 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 or 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 without regard to the commercial
considerations or whether such an arrangement improves the
ability to provide express delivery services.
Joint venture regulations raise further issues. 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 and have no guarantee that introduction
of new technology will yield optimum returns.
There may be good reasons to have an agent or Joint Venture
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 artificial limitations 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 U.S. 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 will 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 than at any time in modern
Chinese history.
American business has played an important role in this
transformation. The very presence of American business has
exposed the Chinese to a culture where individual rights are
respected and human dignity valued.
I am particularly proud that FedEx has actively
participated in this effort--through humanitarian missions
bringing critical medical and relief supplies to several
Chinese cities and provinces ravaged by floods and other
natural disasters.
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 U.S. of
permanent, normal bilateral trading relations with China is
fundamental to its achievement.
Thank you.
Statement of Footwear Industries of America, Inc.
This statement responds to the House Ways and Means
Committee's request for input on China's accession to the World
Trade Organization (WTO). It is submitted on behalf of Footwear
Industries of America, Inc. (FIA), a trade association
representing domestic manufacturers and distributors of
nonrubber footwear, and a substantial portion of their
suppliers. The domestic nonrubber footwear industry encompasses
men's, women's, children's, athletic, work, slippers, and other
footwear. The industry is located in 34 states where it
operates in over 300 footwear manufacturing establishments.
Given China's enormous population, and growing economy and
consumer class, the potential for sales of U.S. products in the
Chinese market is enormous, but not under current market access
conditions. Notwithstanding the prior MOUs signed with China on
market access and intellectual property, China is still clearly
a very difficult place to do business. U.S. products face high
tariffs and non-tariff barriers. Intellectual property rights
protection falls far short of what it should be and the Chinese
economy is riddled with subsidies. Moreover, distribution and
retail barriers make it extremely difficult for U.S. goods to
find their way to Chinese consumers. Additionally, Customs
procedures are arbitrary, irregular, non-transparent, and vary
from port to port.
In the WTO market access bilateral, China agreed to many
reforms of its nonmarket-based economy, including the phase out
of the most egregious barriers that block access to Chinese
consumers. While there is much to commend in the paper
agreement, Chinese implementation of these commitments and how
they will be policed are issues that Congress must thoroughly
address as it considers legislation to grant permanent Normal
Trade Relations (P-NTR) to China. After all, China's track
record with the United States on some key bilateral trade
agreements has not been a good one. And we will no longer have
the stick of NTR withdrawal to get China's cooperation. Nor can
our industry take particular comfort in the fact that China's
membership in the WTO will require adherence to WTO trading
rules. The long-standing and still unresolved U.S. dispute with
Argentina, which is being arbitrated at the WTO, over that
country's illegal footwear tariffs and subsequent unjustified
safeguard action does not persuade us that China's entry into
the WTO will be the ``magic bullet'' to market access and
Chinese internal reform that it is being made out to be.
Access to the Chinese market, protection of intellectual
property rights, national treatment for investment, lower
tariffs, and proper and timely customs procedures are key
issues for U.S. footwear companies and suppliers of footwear
components. Given the access and import penetration that China
has achieved in the U.S. footwear market, these demands by our
industry seem small indeed.
Footwear is extremely important to China's economy and
export performance. China's second leading export to the U.S.
market is footwear. China is also a major supplier of footwear
to France, Germany, Italy, Spain, and Canada, all of which have
some sort of restraints on Chinese footwear. As discussed
below, Chinese footwear has saturated the U.S. market, and
unlike Europe and other countries, the U.S. imposes no
restraints or other nontariff barriers to its entry.
China is the predominant supplier of footwear to the U.S.
market. In the ten-year period between 1989 and 1999, U.S.
imports of Chinese footwear rose from $694.4 million to an
astounding $7.5 billion. In quantity terms, the dominance of
Chinese footwear is even more commanding. Chinese footwear
represents around 76 percent of all U.S. footwear imports, and
nearly 70 percent of all shoes sold at retail. In 1999, U.S.
imports of Chinese footwear totaled 1.13 billion pairs,
dwarfing all other suppliers. By contrast, U.S. exports to
China in 1998 were a mere 158 thousand pairs.
Market reciprocity is a key issue for FIA members and China
has the potential to be an important market once current
barriers come down. To ensure that the promised access to
China's vast market is realized, Congress should consider
adding additional safeguards toward this end to legislation
that will implement P-NTR.
Statement of Brent Blackwelder, President, Friends of the Earth
Friends of the Earth is a national environmental advocacy
organization with affiliates in 63 countries around the world.
We do not oppose international trade, but believe it must go
hand-in-hand with environmental protection, human rights, and
labor rights. We do oppose granting permanent Most Favored
Nation trade status to China. Until China changes its ways and
begins respecting environmental, human rights, and labor
concerns, Congress should not relinquish this opportunity to
use the trade debate to shine a light on China's abuses. We
believe granting permanent Most Favored Nation status will
undermine environmental efforts to reform the World Trade
Organization (WTO), and think the United States should instead
focus on democratizing the domestic trade policymaking process.
By all accounts, China will eventually be admitted into the
WTO--Congress does not have the authority to approve or prevent
its accession. However, by granting China permanent Most
Favored Nation status, Congress will put a symbolic stamp of
approval on a trade deal whose implications run counter to
environmental, democratic, human rights and labor concerns.
The WTO already has more than enough problems. In the five
years since its creation, it has been used repeatedly to weaken
environmental regulations, including the Clean Air Act and
Endangered Species Act. What's worse, these decisions have been
made in closed-door sessions with no public input. Friends of
the Earth and other environmental groups have been calling on
the Clinton-Gore Administration to prioritize environmental and
democratic reform of the WTO. We've pointed to the need to make
sure WTO rules defer to environmental ones rather than
overturning them as barriers to trade. We've said the WTO needs
to make room at the negotiating table for the public. The
Administration says they'll push for these reforms, but the
deal with China belies their rhetoric.
Since the WTO operates by consensus, one country can thwart
reforms sought by others. We fear that China, with its anti-
democratic government and history of human rights abuses, will
take a leading role in blocking efforts to make the WTO more
open and to address its effects on the environment and workers'
rights.
China continually flouts international agreements and
strong-arms other countries. Consider our recent experience
with the World Bank, which had proposed a damaging resettlement
project that would harm ethnic Tibetan minorities. While the US
opposed the loan, China bullied other countries into approving
it, threatening to withdraw from the Bank if it didn't get its
way. If China uses this type of tactic at the WTO, the
environmental and democratic reforms we so sorely need will
never come to pass.
The deal to admit China to the WTO is environmentally
flawed in and of itself. The Clinton-Gore Administration issued
an Executive Order requiring environmental assessments of trade
deals just days before its negotiators sealed the China
agreement--a deal which totally ignores the substance and
spirit of the Executive Order. The agreement with China
confirms public perceptions that trade liberalization just
benefits corporations. It does not discuss environmental
issues, and does not require the US corporations who will
benefit the most to operate in an environmentally or socially
responsible manner. In fact, it leaves the door wide open for
US companies to move their business to China to avoid US
regulations.
At a minimum, right-to-know obligations that guide US
corporate behavior domestically should be extended to corporate
investments in China. This would give Chinese workers and
communities information about corporation's practices and also
give the US public and regulators a way to test company's
claims about their environmental practices in China. Similarly,
no matter what the outcome of the permanent Most Favored Nation
debate, the US should allow Chinese workers and community
members to sue US companies in US courts. US corporations
should announce a policy of not seeking to block lawsuits filed
in US courts based on allegations of misconduct in China.
Congress should also pass a law similar to the alien tort
claims act (which applies mainly to torture) that makes it
easier for foreign workers and community members to seek
redress in US courts for environmental or health implications
of US companies.
Instead of devoting all its energy into putting a stamp of
approval on a flawed trade deal, the United States should focus
on passing common-sense reforms of the domestic trade process.
Congress and the Administration have voiced concern about
China's lack of democracy and have echoed our call for a more
open, democratic WTO--but democracy starts at home. Giving the
public a greater voice in the domestic trade policymaking
process, currently dictated by the United States Trade
Representative (USTR) and beholden to corporate interests, will
lead to greener trade policy that inspires public confidence in
international trade.
As a first step, Friends of the Earth believes USTR's
numerous advisory committees must be opened to environmental
organizations. Approximately 700 business representatives sit
on 30 industry sector advisory committees that get special
access to information and advise USTR. There are no public
interest members on these committees. Even worse, the
Administration has appealed a recent court decision requiring
environmental representation on two advisory committees dealing
with forest products. These committees need to be opened to
diverse public interests or abolished.
Second, we believe Congress and the Administration should
shift decision-making authority over trade and environment
issues away from USTR and to environmental agencies. A decade
of advocacy on trade and environment issues has led us to the
inescapable conclusion that the main trade threat to the
environment USTR itself. Though USTR lacks environmental
expertise and is beholden to business interests, it plays the
lead role in setting US policies on trade and the environment.
Environmental agencies like the Environmental Protection Agency
(EPA) and the Council on Environmental Quality (CEQ) should
play the lead role in setting the environmental aspects of US
trade policy.
Statement of Chuck Hoberman, President, Hoberman Designs, Inc., New
York, NY
My wife and I founded our company, Hoberman Designs in 1995
to manufacture a line of toys based on my patented inventions.
Our product is manufactured in China by factories offering
high-quality production at competitive cost. We, in turn,
provide significant business to these factories, and look to
form long-term partnerships with them. Even as we build these
relationships with our manufacturing partners, other Chinese
manufacturers (not own factories!) copy our products with
impunity. Our most popular product (called the Hoberman Mini
Sphere) has been slavishly copied by, no less than 12 Chinese
factories that we have identified. These counterfeits are often
made in sweatshop conditions; are constructed of inferior
materials, easily broken and may be hazardous to the consumer.
Despite having worldwide patent and copyright protection
for my designs, we have no legal recourse in China to prevent
these ``knock-offs'' from being made and sold. Rogue factories
aggressively market their copies to customers in Europe, North
and South America and throughout Asia. Further, they make
extensive use of the internet to erase all boundaries in
offering their counterfeit goods. Often their own websites
offering counterfeits are under the umbrella of Chinese
government websites.
To be clear, we are not talking about goods sold in China
itself. While these counterfeits are, indeed, sold extensively
within China, we have no plans at this time to enter the
Chinese market. Our real problem is that the copies are sold in
every market around the world that we sell in. Despite having
crystal clear proprietary rights to the products, and despite
having an aggressive legal strategy to pursue anyone who
infringes those rights, we are at perpetual disadvantage
because we cannot reach the productive base itself.
The costs from this problem--legal fees, downward price
pressure to compete against cheap copies, lost business due to
confusion in the marketplace--are sometimes overwhelming.
Our experience clearly demonstrates that while we offer to
Chinese factories the benefits of high volumes orders and high
price points, we do not get any degree of protection from
counterfeiting by Chinese manufacturers of products covered by
proprietary rights in other countries.
The admission of China to the WTO and the extension to
China of normal trade relations should be accompanied by a
recognition that as a trading partner China must be obligated
to respect the intellectual rights of US and other countries.
In exchange for our willingness to treat Chinese factories
on an above-board basis and certainly in exchange for
normalization of trade relations, we need to secure the
reciprocal benefit of knowing that we can enforce our
proprietary rights against infringers in China.
Hoberman Designs, like many other American manufacturers
have a direct and import stake in this issue, whether they make
clothing, chip, recording, toys, or hi-tech devices. Even with
normalized trade relations, if it remains true that American
businesses cannot enforce their intellectual property rights
against Chinese infringers, then we will have lost, rather than
gained, ground.
As a quid pro quo for the further extension to China of
more normalized trade relations, it must be clearly understood
that reciprocity by the Chinese in honoring intellectual
property rights of other trading partner nations is a must.
Otherwise, welcoming China into the club of trading nations
represents a concession for which American businesses receive
little or no benefit; indeed, the responsibilities and
obligations may well outweigh the benefits of doing so.
The Berne convention, the New York convention, and other,
similar mutual or multi-lateral trading schemes have
demonstrated the benefits of reciprocity among trading
partners. We should be ardently working to demand the same
reciprocity from the Chinese in exchange for the normalization
of trade relations.
My wife and I have build our business, Hoberman Designs, by
offering unique products that enable the consumer to connect
with an individual inventor. I feel our business exemplifies
uniquely American values--a commitment to innovation and
individual initiative. Rather than permitting the Chinese to
undermine these values by ignoring the right to intellectual
property, it is my sincere hope that an equal and reciprocal
relationship may be created where such values may flourish.
Statement of International Mass Retail Association, Arlington, VA
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 strongly supports the U.S.--China bilateral
agreement on accession into the World Trade Organization (WTO)
that was completed last November along with permanent Normal
Trade Relations (PNTR) status. This agreement provides
significant new opportunities for American businesses to access
the Chinese market. In order for American companies to realize
the benefits of this deal, Congress must now grant China PNTR.
PNTR not only provides great opportunities for U.S. exporters,
but for those U.S. importers who rely on low tariffs on goods
from China, PNTR will alleviate the fear that importers have of
NTR being revoked and tariffs jumping from an average of 4% to
an average of 60%.
PNTR Benefits U.S. Retailers and Consumers
Since 1989, U.S. retailers have been extremely concerned
about China's NTR status being revoked by Congress. If this
were to occur, serious economic repercussions would result,
harming U.S. consumers, retailers and manufacturers. The loss
of NTR status would mean markedly higher import tariffs on a
wide range of products, from footwear to toys to consumer
electronics. 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%.
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 produce products at the same
value price. In the past, the NTR vote has occurred in June or
July, which are the peak months for importing Christmas
merchandise. Revocation of NTR would mean significantly higher
prices and shortages of key Christmas products. This obviously
would hurt American families more than it would the Chinese.
The 5 weeks of the Christmas shopping season account for about
25% of U.S. retail sales for the entire year.
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, and is 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.
IMRA's catalog and Internet members also depend upon the
annual renewal of NTR. 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. A
loss of NTR means that 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.
Granting China PNTR will end the concerns that retailers
have every year about loss of NTR tariff status on goods
imported from China. PNTR will also allow U.S. consumers to
enjoy the every day low prices they are accustomed to in IMRA
member stores. Consumers depend on these prices, especially
around the Christmas shopping season.
Benefits to U.S. Retailers Operating in China
Currently, American retailers face numerous obstacles in
opening stores in China. Chinese licensing requirements are
onerous and obtaining a license can take months or even years.
More important, large-scale retail operations, with many
stores, are impossible, because China requires that each store
location must be separately licensed and financed with unique
local partners.
Under the agreement, the ability to obtain licenses will be
made easier, although equity restrictions will still be placed
on stores larger than 20,000 square meters and retailers with
more than 30 stores. Unfortunately, those IMRA members wishing
to operate in China fit those categories. IMRA suggests that
the U.S. work out these restrictions as part of the broader WTO
Negotiations on Services.
Another key provision of the U.S.--China WTO accession deal
is China's agreement to liberalize restrictions on their
distribution system. Currently, 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 of an
American mass retailer. Under the current deal, the Chinese
agreed to phase out all restrictions on distribution services
within three years.
For retailers, this means removal of restrictions on
foreign equity share, geographic restrictions and number of
service suppliers. American retailers will now 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.
Rules and Safeguards
Many in Congress have expressed concern about the ability
to enforce the Chinese WTO accession agreement. It is important
to remember that once China becomes a member of the WTO, it
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 its
trade regime.
There are also those who claim that allowing China to join
the WTO will do nothing to further human rights or democratic
change. These individuals couldn't be more wrong. Inclusion in
the WTO will do just that. 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.
Progress can only be made when the rest of the world
decides to push for change, not just the U.S. The best example
of a failed attempt to bring about democratic change
unilaterally is the 40 plus years of isolationism between the
United States and Cuba. Cuba remains a Communist nation today
because the rest of the world has decided to maintain
commercial relations, while the United States, which could be
Cuba's closest trading partner, has decided to isolate Cuba in
an attempt to end Communism. This will never work. As a member
of the WTO, China will be forced to open its doors and allow
not only goods, but also ideas into its closed economy. This is
the greatest agent for change within China.
Some have expressed a fear that once China gains entrance
into the WTO, it will flood the U.S. market with cheap goods,
displacing U.S. workers. Because of this fear, the current
agreement includes a product-specific safeguard as well as a
special safeguard covering textiles and apparel.
IMRA has some concerns about how these safeguards will work
in conjunction with each other. The United States should not be
able to use both safeguards on the same product at the same
time. IMRA believes that while the special textile/apparel
safeguard exists (from 2005-2008), the general safeguard should
not apply to these products.
IMRA is also concerned about the process the United States
will be using to determine market disruption under the twelve-
year product-specific safeguard. IMRA strongly urges Congress
to use the procedures set forth in Section 406 of the Trade Act
of 1994, as amended, for determining market disruption. This
process ensures due process for all interested parties.
Conclusion
Granting China PNTR and allowing it to join the WTO is a
win-win for American businesses, both importers and exporters,
and U.S. consumers. WTO accession will open a Chinese market
that is currently closed. American retailers will be able to
open up stores and act as a beachhead for U.S. consumer
products in China. Only through PNTR will all of the benefits
of the accession deal be realized. Being a member of the WTO
will also force China to ``play by the rules'' as set by the
WTO. This is key for bringing about democratic change within
China.
Statement of Thomas F. St. Maxens, St. Maxens and Company, on behalf of
Mattel, Inc., El Segundo, CA
This statement is submitted on behalf of Mattel, Inc. in
connection with the February 16 hearing conducted by the House
Committee on Ways and Means regarding the U.S.--China bilateral
trade agreement on China's accession to the World Trade
Organization (WTO). Mattel strongly supports China's accession
to the WTO upon the terms reached under the U.S.--China
bilateral agreement on November 15, 1999, as well as
congressional approval of legislation granting permanent normal
trade relations (NTR) status to China.
Headquartered in El Segundo, California, Mattel is the
world's largest toy company with 1999 sales of $5.5 billion in
over 150 countries. Mattel has 31,000 employees, of whom 7,700
are in the United States.
China's accession to the WTO is a matter of major
importance to Mattel and the rest of the U.S. toy industry
given its exceptionally strong economic ties with China. The
American toy industry became the world's leader, as reflected
by its 50 percent share of the global toy market, by drawing on
the United States' competitive edge in such areas as product
conceptualization and design, design and development
engineering, and strategic marketing. In the case of Mattel,
virtually all of these critical functions are performed for
Mattel's worldwide operations by the 2,000 workers at the
company's El Segundo headquarters.
The other key to the U.S. toy industry's success has been
its ability to produce these innovative, high quality toys at
the most competitive cost. This has required a constant
adaptation to changing conditions of competition, which has
caused the industry to shift much of its manufacturing
operations through a series of countries and, eventually, to
China and other low-cost Asian suppliers. China has been the
dominant supplier of toys to the U.S. and foreign markets
throughout the 1990s, and is likely to remain so for the
foreseeable future. Sourcing product both from joint ventures
and unrelated vendors in China, U.S. toy companies imported
roughly $10 billion of toys from China in 1999, accounting for
two of every three toys purchased by American families. This
approach--combining high value-added American operations in
product conceptualization and design, design and development
engineering, and strategic marketing with low-cost, high
quality production overseas, mainly now in China--is the key to
the U.S. toy industry's global success.
China's accession to the WTO will further support the
interests of U.S. manufacturers and consumers of toys in three
ways: (1) it will give U.S. toy companies access to the large
Chinese toy market; (2) it will eliminate the uncertainty
regarding China's continued access to the U.S. toy market that
has been associated with the country's conditional NTR
treatment; and (3) it will help U.S. toy companies by
protecting the access of their China-origin products to third
country markets.
The U.S.--China bilateral agreement on China's accession
to the WTO achieves the U.S. toy industry's market access
objectives in China by requiring China to completely eliminate
its tariffs on toys (which currently range as high as 30-50
percent) by January 1, 2005. In addition, the U.S.--China
agreement addresses several non-tariff barriers facing U.S. toy
companies in China, such as the denial of trading rights that
prevents Mattel and other foreign companies from selling
directly to the Chinese market the toys they manufacture there.
In addition, China's accession to the WTO is a necessary
precondition to stabilizing China's access to the U.S. toy
market through the granting of permanent NTR status. The fact
that the United States does not accord China permanent NTR
status creates uncertainty for America's toy companies and
exposes them to unwelcome risk. While the risk that the United
States would withdraw NTR status from China may be small, if it
did occur the consequences would be catastrophic for U.S. toy
companies given the 70 percent non-MFN U.S. rate of duty
applicable to toys. As a result, Mattel strongly supports
congressional approval of legislation granting permanent NTR
status to China upon its WTO accession.
Finally, China's WTO accession will help protect the
access of China-origin products to third country markets, a
matter of major importance to Mattel and other U.S. toy
companies. As indicated above, U.S. toy companies are the most
competitive in the world, and they are a major factor in almost
all of the world's toy markets. In these countries, like in the
United States, a major portion of U.S. companies' sourcing
requirements is supplied by manufacturing operations in China.
The fact that Mattel's China-origin products are not
protected by WTO rules has proven to be a problem overseas. For
example, Mattel and other U.S. toy companies dedicated
substantial resources to defeating safeguard petitions filed by
the Argentine toy industry in recent years. The two
investigations were rigorous, and Mattel was pleased to see the
Argentine government abide by the WTO's disciplines for
considering import relief actions under the safeguard code.
However, in January 1999, less than four months after the
Argentine government had denied the second safeguard petition
filed in two years, Argentina's Ministry of Economy announced
substantial tariff increases for toys imported from China and
other non-WTO members. This was a unilateral action that was
not taken pursuant to any WTO-authorized procedures for
implementing import restrictions. Obviously, the Argentine
government would not have been able to take this unilateral
action against China had the country been a member of the WTO.
The Argentine example is not an isolated one. Until
recently, the EU subjected some categories of toys from China
to quotas, an action that would not have been allowed under the
WTO. Brazil currently maintains safeguard measures on toys and,
while these measures do not currently discriminate against
China as a non-WTO member, there is no assurance that that will
remain the case in the future.
In conclusion, Mattel believes that China's accession to
the WTO under the terms of the November 1999 bilateral
agreement will bring major benefits to U.S. toy companies. It
will help protect the ability of their cost-competitive Chinese
operations to continue to supply the toy markets of the United
States and other WTO member countries, to the benefit of
consumers throughout the world. At the same time, China's
accession also will open China's domestic toy market to the
products manufactured by Mattel and other U.S. toy companies,
presenting U.S. companies with significant opportunities for
increased sales over the longer term.
In each instance, while toy manufacturing operations in
China will benefit, less obvious but equally important
beneficiaries will be the thousands of U.S. workers employed by
Mattel and other U.S. toy companies in their high value-added
U.S. operations that form the basis for the U.S. toy industry's
position of global leadership. However, it is critical that
Congress enact legislation granting permanent NTR status to
China in order for Mattel and other U.S. companies to receive
the benefits of China's WTO accession.
Respectfully submitted,
Thomas F. St.Maxens
St.Maxens & Company
Statement of NPES, the Association for Suppliers of Printing,
Publishing and Converting Technologies, Reston, VA
Introduction
NPES is a United States national trade association
representing over 440 companies who are manufactures and/or
suppliers of printing, publishing and converting technologies.
NPES strongly supports free, fair trade. Because of our belief
in this philosophy, we support the People's Republic of China's
(China) accession to the World Trade Organization in order to
encourage China's efforts to reform its state enterprises and
banking system, and to continue lowering import duties.
Moreover, we urge Congress to adopt Permanent Normal Trade
Relations (PNTR) status for China, in order to implement the
recent WTO accession agreement between the United States and
China.
SINO-US Printing Technologies Training Center
Since September 1997 NPES, along with its joint venture
partner the Shanghai Printing Group Corporation, has developed
and manages the Sino-U.S. Printing Technologies Training Center
in Shanghai, China. The training center promotes the sale of
members' products in China. Together with its 30 Technology
Partners (member companies that have contributed equipment to
the center) NPES is an active leader in the Chinese printing
industry. Called ``a highly creative and innovative effort'' by
the United States Commerce Department, the training center has
produced more than $10 million in new export business for U.S.
Technology Partners, and is but one example of our efforts to
open up China to lucrative trade.
Direct Benefits to Printing, Publishing and Converting Equipment
Manufacturers of Chinese Accession to World Trade Organization
As the worlds' third largest economy and the fourth largest
U.S. trading partner, China is a nation that we cannot afford
to turn our back upon. Last year the American printing industry
exported more than $60 million worth of equipment and printed
material to China, an increase of 24% from the previous year,
and we are working hard to increase that total this year, and
in the years to come. As part of its Ninth Five-Year Plan,
China is committed to meeting the demand for modernizing its
printing and publishing industry. This policy represents a
great opportunity for American exporters of this technology.
The reductions in tariffs and other trade barriers, which China
would have to accede to under WTO protocols could only enhance
American exports in this industry.
China's accession to the WTO would provide a series of
direct benefits to the U.S. printing, publishing, and
converting equipment industry. NPES Members will be able to
offer their Chinese customers a leasing option for large
printing equipment, an option not currently available under
prevailing conditions. Chinese end-users would be able to have
direct access to parts and supplies of printing, publishing and
converting equipment and services. Finally, clear and
transparent rules governing imports into China would enable
U.S. manufacturers and suppliers to position and market their
products and services. This last point would be especially
useful, as NPES Members have reported experiencing great
difficulties exporting spare parts to China. One member
commented to us that, ``we have a hard time getting warranty
parts into China and an impossible time getting parts back to
the U.S. for evaluation and repair.'' NPES Members also report
that corruption and commission payments represent strong non-
tariff barriers to trade with China. While WTO accession would
not by itself solve the problem of Chinese corruption, the
rules under which China would be required to operate would
serve to throw the process open so that it would become more
difficult to unfairly deny American exporters access to the
Chinese market. NPES Members would also benefit from the ending
of arbitrary or non-scientific standards that represent a
significant non-tariff barrier to American imports.
American printing equipment manufacturers would also see a
direct benefit from the extension of intellectual property
rights enforcement in China. So far domestic competition within
China, while priced at around 20% the cost of American imports,
is of such poor quality that American-made printing equipment
is considered far superior and worth the expense. However,
should Chinese companies begin copying American designs and
marketing their own versions of American products, as has
happened in other industries, our members fear a significant
reduction in their Chinese business.
Chinese Membership in WTO Meaningless Without PNTR
It can clearly be seen that Chinese admission to the WTO
would have a significant, and positive, impact on the American
printing, publishing and converting equipment industry.
However, in order for these positive gains to be realized it is
necessary for Congress to grant China Permanent Normal Trade
Relations status. This is because unconditional normal trade
relations are required under WTO protocol, and even an
extension of the current annual review of NTR would violate WTO
rules. Without PNTR American manufacturers would have the worst
of both worlds, as China could still join the WTO, but American
manufacturers would reap none of the benefits of the U.S.--
China agreement.
Opponents have raised economic, social, and political
objections to PNTR for China. We believe, however, that these
objections should not sway Congress against granting PNTR. For
example, it has been stated that the current U.S. trade deficit
with China will only increase as inexpensive Chinese imports
flood the U.S. market. This objection is refuted, however, by
the fact that the agreement between China and U.S. is a litany
of almost completely one-sided concessions by the Chinese that
will serve to open the Chinese markets to more exports. The
printing, publishing and converting equipment industry would
expect to see little or no competition from Chinese imports.\1\
This is due to the vastly superior quality of American
equipment compared to its Chinese counterparts.
---------------------------------------------------------------------------
\1\ In 1999 American imports of Chinese printing products amounted
to only $9 million, compared with $60 million in exports.
---------------------------------------------------------------------------
Conclusion
NPES believes that the important technological integration
taking place both in China generally, and in the Chinese
printing industry specifically, is leading the way to Chinese
economic integration. This integration is an effective tool
with which to advance the broad range of U.S. national
interests in China and all of Southeast Asia. Our members would
benefit greatly from the implementation of the agreement
between the United States and China that allows for Chinese
accession to the World Trade Organization, and we encourage
Congress to pass PNTR needed to facilitate that outcome.
It has also been argued that poor working conditions in
China, China's poor overall human rights record, and its
proliferation of weapons to other parts of the world will be
tacitly endorsed and encouraged by the policy of engagement
that is embodied in this agreement. We believe, however, that
it is only through engagement with China that change will
occur. A poor and isolated China is a dangerous international
player, whereas an engaged China fully absorbed into the global
trading community will lead to a safer world.
NPES thanks the Committee for this opportunity to submit
testimony, and it is prepared to respond to questions or
requests for further information.
Statement of National Retail Federation
Introduction
The National Retail Federation (NRF) is the world's largest
retail trade association with membership that includes the
leading department, specialty, discount, mass merchandise, and
independent stores, as well as 32 national and 50 state
associations. NRF members represent an industry that
encompasses more than 1.4 million U.S. retail establishments,
employs more than 22 million people--about 1 in 5 American
workers -and registered 1999 sales of $3 trillion. NRF's
international members operate stores in more than 50 countries.
NRF strongly supports the accession of China to the World
Trade Organization (WTO) under the terms negotiated by the
United States as stipulated in the U.S.--China bilateral trade
agreement. That agreement offers substantial benefits to U.S.
consumers, farmers, companies, and workers. The agreement will
integrate China, the world's third-largest economy, into the
global trading system and help to bring about positive economic
and political change within China. China must undertake
substantial reforms to open its economy and liberalize its
domestic trade and economic policies and practices. But to
benefit from China's WTO membership and the provisions in the
landmark bilateral trade agreement, Congress must act swiftly
to approve permanent normal trade relations (NTR) status for
China.
II. Permanent NTR for China Is Needed to End the Disruptive
Annual NTR Renewal Process
For years, the annual NTR renewal process has created
instability in the U.S.--China relationship. This ongoing
instability has hampered opportunities to export to, import
from, and invest in China. Although Congress has granted China
annual NTR continuously since 1980, the cycle of annual
renewals and the uncertainty associated with the process result
in costly disruptions that hurt both American consumers and
U.S. businesses alike.
The uncertainty of the annual NTR renewal is particularly
disruptive for U.S. retailers, which typically place orders for
Chinese products 18 months prior to delivery. China offers
American consumers many value-priced goods such as clothing,
footwear, consumer electronics and toys, as well as products
like silk apparel that are simply not available from other
manufacturers in the United States. The continuing uncertainty
of China's NTR status forces retailers to gamble. Should they
pay other suppliers more to buy the goods they would have
gotten from China, which would, in turn, force them to pass the
higher prices on to their customers? Or should they risk the
uncertainty of sourcing from China, hoping that NTR will
continue, so they can realize cost savings which are passed on
to their customers? In either case, the uncertainty is
reflected in higher product prices for American families.
Opponents of permanent NTR for China have claimed that the
United States can maintain the annual renewal process once
China is a WTO member and still receive the benefits of the
bilateral agreement. This is not the case. As a member of the
WTO, the United States must grant China unconditional,
continuous NTR status. Even if the United States continues to
grant China continual annual NTR status, perpetuating a system
that limits NTR status to a length of time would violate the
requirement, because a time limit constitutes a condition in
and of itself. Moreover, it is a limitation to which no other
WTO member would be subject. Therefore, unless Congress grants
to China the same permanent NTR status enjoyed by other WTO
members, China would be within its right to deny to the United
States many of the benefits of China's WTO membership.
Under Article XIII 3. of the Marakesh Agreement
Establishing the World Trade Organization, PNTR legislation
must be passed by Congress and enacted into law, before the WTO
membership approves China's terms of accession. It should also
be emphasized that Congress cannot prevent China from joining
the WTO. That event will occur if two-thirds of the WTO members
vote to approve the terms of accession. All Congress can
achieve by failing to approve PNTR is to deny to U.S. companies
and American workers the benefits of the U.S.--China bilateral
trade agreement and Chinese membership in the WTO.
III. The Textile and Apparel Provisions in the Bilateral Trade
Agreement Will Benefit U.S. Consumers
Virtually all textile and apparel imports from China are
currently subject to some type of restrictive quota. These
quotas distort trade and lead to higher clothing prices for
American families. Under the provisions of the bilateral trade
agreement, China will be subject to the WTO Agreement on
Textile and Clothing (ATC), which requires that all quotas on
textile and apparel products be phased out over a 10-year
period ending in 2005.
A study by the U.S. International Trade Commission (ITC)
found that applying the ATC to China would have impressive
positive effects on the U.S. economy. The ITC predicts that
applying the ATC to China would increase U.S. GDP by $1.9
billion and economy-wide welfare gains could reach $2.4 billion
in 2006.
It must be remembered, however, that the benefits of
applying the ATC to China will take many years to materialize.
The United States has refused to integrate (release from quota)
any textile or apparel products of importance to American
consumers (save babies' wear) before 2005. Thus, even with the
ATC, U.S. quotas imposed on imports from China remain intact
for some time. Also the trade-weighted base growth rate of
Chinese apparel quotas is very low: 1.33 percent. The ATC's
accelerate growth provisions, which will apply to China once
China becomes a member of the WTO, increase this base growth
rate to just 2.0 percent in 2000. Thus, the accelerated growth
provisions of the ATC will not result in surges of apparel
imports from China.
The U.S.--China bilateral trade agreement governing the
terms of China's accession to the WTO also includes two
safeguard mechanisms that portend greater protection from
increased textile of clothing imports than apply to any imports
into the United States from any other WTO member. From 2005 to
2009, China will be subject to a special textile safeguard
mechanism under which it will be relatively easy for U.S.
textile and apparel producers to win extended quota protection
from imports. After that, this trade will be governed by
another stricter-than-Section 201 special safeguard that also
promises a continuation of quotas into the foreseeable future.
Although retailers are concerned that the protections afforded
by these safeguards mechanisms as well as the U.S. antidumping
laws will continue to restrict trade textile and apparel trade
with China for some time into the future, these protections
belie the dire scenarios painted by some of the PNTR opponents
about the adverse impact on the U.S. textile industry.
IV. The Bilateral Trade Agreement Will Improve the Ability of
Retailers to Open, Supply, and Operate Stores in China
Some American retailers are eager to open stores and sell
products to the Chinese market. Unfortunately, that market is
virtually closed to U.S. retailers. Foreign companies are only
allowed to conduct retail business through experimental joint
ventures. Stringent restrictions are also in place that
regulate the geographic locations of stores, limit foreign
ownership, and impose burdensome licensing procedures for new
stores. In this environment retailers are not able to easily
expand operations into the world's most populous market.
The good news for retailers is that the bilateral trade
agreement would dramatically open China's distribution
services. The agreement would allow foreign ownership,
eliminate geographic limits on stores and grant foreign
retailers full trading rights. In a recent study, the ITC
determined that the removal of distribution services
restrictions would allow U.S. retailers to boost trade and
investment in the Chinese market and facilitate the opening of
new stores. The liberalization of distribution services is also
important for U.S. producers of manufactured and agricultural
products that rely on retailers to sell their products in
stores in China.
If Congress does not approve permanent NTR for China before
its accession to the WTO, U.S. companies will be denied these
benefits and foreign retailers will gain a huge advantage in
the Chinese market. As U.S. companies miss out on the
opportunity to open and operate stores in China, huge amounts
of market share will be lost to foreign competitors, whose home
countries have granted China permanent NTR.
V. China's Membership in the WTO Will Promote the Kind of
Change that America Seeks in China's Trade and Other Policies
and Practices
Membership in the WTO, including U.S. extension of
permanent NTR, will promote the very change America seeks in
many of China's trade and other policies and practices. As a
member of the WTO, China will be held to its trade commitments
by the WTO's dispute settlement system. WTO membership will
make China subject to multilateral action by the organization's
135 members in trade disputes. The current U.S. tools, Section
301 and the annual threat of denial of NTR, have not achieved
the kind of success that the WTO process can promise. Moreover,
unilateral trade sanctions can threaten a similar action by the
target country that can escalate into a destructive trade war.
That threat is substantially diminished when the sanctions are
imposed and approved by the multilateral rules of the WTO.
Excluding China from the international economic system will
weaken, not strengthen, the position of courageous reformers in
China. The cost will be long-sought improvements in China's
human rights, nuclear proliferation, and other non-trade
practices that these reformers support. Approving permanent NTR
will send a strong sign to China that the United States is
committed to those who would reform China and will be a partner
in its transformation to a market economy.
VI. Conclusion
The importance of granting China permanent NTR status
cannot be understated. The consideration of this matter by
Congress later this year represents a historic opportunity that
will fundamentally affect the progress of reforms in China and
U.S. competitiveness in the global economy in the 21st Century.
When considering permanent NTR for China, members of
Congress must remember that they are not voting on the
admission of China to the WTO. China can become a member
without the nod of the United States. Rather, Congress will
decide whether or not the United States will receive the
benefits of China's WTO membership. The U.S.--China bilateral
trade agreement and the accession of China to the WTO offer
tremendous benefits to all Americans and NRF strongly
encourages Congress to act swiftly to approve permanent NTR for
China.
Statement of J.T. Bunn, Executive Vice President, Tobacco Association
of United States, Raleigh, NC, and Leaf Tobacco Exporters Association,
Raleigh, NC
Mr. Chairman and Members of the Committee,
I am presenting this statement on behalf of Tobacco Association of
United States and Leaf Tobacco Exporters Association. The members of
these two organizations purchase, process, handle, and export virtually
all U.S. leaf tobacco that enters foreign trade. These members supply
U.S. grown leaf tobacco to manufacturers around the world.
We are extremely concerned about a serious phytosanitary trade
barrier imposed by the government of China that prohibits the U.S.
tobacco growers from having access to China's market. China's
phytosanitary trade barrier prevents the importation of leaf tobacco
from selected countries where a disease known as tobacco blue mold
occurs.
In an effort to achieve the research of this non tariff trade
barrier, work began in 1992 between USDA officials and China's Ministry
of Agriculture to develop a research protocol and to conduct extensive
research to determine whether there was any scientific bases for the
ban on importing U.S. leaf to China. After protracted meetings and
discussions with China's Agricultural officials and the China Animal
and Plant Quarantine officials, the research protocol was finally
signed with China's officials in 1995.
The blue mold research project included cooperation between China's
scientists, U.S. Department of Agriculture scientists and North
Carolina State University scientists. World renowned blue mold
scientists from NC State University conducted the research work. Dr.
Harvey Spurr led the project which also included Dr. Charles Main. Both
are highly published authorities on the blue mold pathogen. According
to the research results, U.S. leaf tobacco that has been cured and
processed, which is the only form in which U.S. flue-cured leaf is
exported, poses no threat to China's tobacco industry. A copy of Dr.
Harvey Spurr's position statement is attached.
Before this research was conducted, many international scientific
authorities were convinced that China's phytosanitary restrictions on
cured processed leaf had no scientific basis because U.S. leaf tobacco
has been shipped around the world for many decades without a single
incident of blue mold being spread from imported U.S. leaf. Now the
definitive research has been done and confirms that China's
phytosanitary restriction on leaf tobacco is based on unsound science
and is being used to protect China's large domestic tobacco industry
from U.S. competition.
The U.S. tobacco growers desperately need access to the China
market. The growers' production quotas have been dramatically reduced
by one-half during the last three years and China as the largest
consumer of tobacco products in the world and has the potential for
being a significant market for millions of dollars of U.S. grown leaf.
The blue mold issue must be resolved now in the context of the U.S.
China Bilateral Trade Agreement and before China enters the WTO. China
has been purchasing tobacco from countries where blue mold occurs.
Obviously, China's selective use of this phytosanitary trade barrier
against U.S. growers is being done to prevent competition from high
quality U.S. leaf tobacco. We must use this opportunity of China's WTO
accession to eliminate this unfair non tariff trade barrier.
Once the China market is open for U.S. tobacco growers, the tobacco
state trading monopoly (China National Tobacco Corporation) must be
required to have transparent trading practices to ensure that CNTC
operates as a commercial enterprise according to WTO requirements.
Additional road blocks such as prohibitive duties and non tariff trade
barriers that may be used by China to impede trade must not be
tolerated by the United States. The Congress should not allow China's
protectionist trade policies and practices to continually distort our
trading relationship. U.S. tobacco growers should have the same access
to China's markets as tobacco growers from other competing countries.
Our Associations' thank the Chairman for the opportunity to present
our statement to the House Ways and Means Committee.
J.T. Bunn
[An attachment is being retained in the Committee files.]
Statement of the U.S. High-Tech Industry Coalition on China
Eleven trade associations representing U.S. high-technology
industries have joined together through the U.S. High-Tech
Industry Coalition on China to work together on one of our
highest priority public policy issues this year--China's
accession to the World Trade Organization (WTO). The coalition
represents U.S. manufacturers of semiconductors and
semiconductor equipment and materials, computers, electronics,
software, and telecommunications equipment, as well as U.S.
Internet companies. A list of coalition members is attached.
The U.S.--China bilateral WTO accession agreement reached
on November 15, 1999 is a solid win for U.S. high-technology
industries. In that agreement, China committed to comprehensive
reform of its economy, and to eliminate tariff and non-tariff
barriers to trade, regulatory requirements and investment
restrictions. As a result of this historic step, U.S. high-tech
industries are poised to expand exports to this rapidly growing
market, increase high-wage American jobs, and continue our
technological leadership and competitiveness in international
markets.
For our industry to reap the benefits of these market
opening concessions that China has made, however, Congressional
approval of permanent normal trade relations (PNTR) with China
is necessary.
Opportunities in the Chinese Market
In the next decade, China is expected to become one of the
largest markets in the world. Based on U.S. Commerce Department
data, China represented the 12th largest high-tech export
market in 1998, with electronics exports exceeding $3.0
billion. Electronics comprised 21 percent of total U.S. exports
to China in 1998. The following provides an overview of the
Chinese market for some of the key high-tech sectors.
Semiconductors and Semiconductor Equipment and Materials
The current semiconductor market in China is estimated to
be up to $8 billion per year. Some analysts expect it to become
the third largest semiconductor market by 2001 (ahead of
Germany, but behind Japan and the United States) and the second
largest by 2010. The current semiconductor equipment and
materials market in China is estimated to be over $1 billion
per year and is projected to reach almost $4 billion in 2003.
Computers
The market in China for computers is expanding rapidly,
averaging 37 percent growth per year for the past three years.
The Chinese market will continue to grow--International Data
Corporation predicts that by 2003, China will be the third
largest PC market after the US and Japan. More than 120 million
Chinese citizens plan on buying a computer in the next two
years.
Software
China's software market is growing at 28 percent a year.
High growth rates will continue as Internet use in China
continues to climb and piracy rates decrease. The Internet is
projected to reach an estimated 20 million people in China by
the end of 2000.
Telecommunications
China's market for cellular telecommunications is growing
at a tremendous rate. By the end of 1999, China boasted
approximately 40 million cellular subscribers, bringing it
closer to its target of becoming the world's second largest
cellular market with approximately 60 million subscribers. Only
the cellular market of the United States is projected to be
larger than China's by the end of this year. With the market
potential for 3rd generation mobile communications also taken
into consideration, China promises market opportunities for
years to come.
Internet
More than 9 million Chinese are already on-line, and in the
next few years China is expected to become one of the largest
Internet markets in the world. This growing market offers
tremendous commercial opportunities to U.S. firms. By
participating in this market, U.S. Internet service and content
providers can make sure that vital social services--such as
education, communications and telemedicine--are delivered
across the Internet. We can also lay the groundwork for e-
commerce and the economic growth, productivity and jobs it will
generate.
Benefits of China's WTO Accession
As the China accession negotiations began in earnest, the
High-Tech Industry Coalition on China set forth its objectives
for our negotiators. The package that they have come back with
meets those objectives.
Under the terms of the November 1999 bilateral agreement,
China's WTO accession would provide significant opportunities
and benefits to U.S. high-tech industries. A summary of some of
these key benefits follows.
Information Technology Agreement: China has agreed
to adopt the Information Technology Agreement (ITA), which
eliminates tariffs on products such as computers,
telecommunications equipment, semiconductors, semiconductor
manufacturing equipment, computer equipment and other high
technology products. China has agreed to eliminate nearly all
of its IT tariffs (which currently average 13%) by 2003, and
the remainder by 2005.
The benefits to U.S. high-tech industries are clear: duty-
free entry of U.S. products should result in increased exports,
sales and market share of U.S. products. In addition, American
high-tech companies producing in China will have access to
lower cost inputs. Finally, China's adoption of the ITA will
help to combat smuggling, since the incentive for the creation
a black market to circumvent tariff barriers will be removed.
Trading and Distribution Rights: China will, for
the first time, permit American and other foreign companies to
directly import and export products--so-called trading rights.
China has also, for the first time, agreed to permit American
and other foreign companies to directly distribute their
products, including wholesale and retail and after-sale
service, repair, maintenance, and transport.
For American high-tech industries, the right to provide
direct service is essential to control quality and ensure the
authenticity of the spare parts being delivered. Indeed, in
other important overseas markets, American firms increasingly
are using quality service as a strategic weapon against foreign
competitors to win customers and grow market share. The
inability to deal directly with end-users is a particular
problem in the semiconductor industry, where the design and
development of application-specific chips requires extensive
contact between semiconductor producers and the ultimate end-
users of the chips.
Since China has agreed that all restrictions on trading and
distribution rights will be eliminated three years after
accession for most sectors, the benefit will be the ability for
our industries to quickly excel in China's rapidly growing,
competitive information technology market.
Investment Restrictions: China has agreed to
implement the WTO Trade-Related Investment Measures (TRIMS)
Agreement upon accession. This means China will eliminate and
cease enforcing trade and foreign exchange balancing
requirements. China will also eliminate and cease enforcing
local content requirements, and refuse to enforce contracts
imposing these requirements. China will guarantee that laws or
regulations to the transfer of technology or other know-how
will be consistent with WTO obligations to protect intellectual
property rights and trade-related investment measures.
China has also agreed that, upon accession, it will not
condition investment approvals, import licenses, or any other
import approval process on performance requirements of any
kind, including: local content requirements, offsets, transfer
of technology, or requirements to conduct research and
development in China.
These provisions will help protect American firms against
efforts by some Chinese officials to force the transfer of U.S.
commercial technology to Chinese firms, which has been a
significant issue for U.S. high-tech companies seeking market
access or the right to invest in China.
State-Owned and State-Invested Enterprises: China
has agreed that it will ensure that state-owned and state-
invested enterprises will make purchases and sales based solely
on commercial considerations, providing U.S. firms with the
opportunity to compete for sales and purchases on non-
discriminatory terms and conditions. This is an important point
for U.S. high-tech industries, since state-owned and state-
invested enterprises currently control a significant share of
domestic and international trade in commercial high-tech goods
in China.
Telecommunications Services: Included in China's
concessions in the telecom sector, China agreed to open its
telecom market to foreign service providers according to the
following schedule:
Phase-in of foreign participation in paging/value-
added services in two years, allowing up to 50 percent
ownership by foreign investors;
Phase-in of foreign participation in mobile/
cellular services over five years, allowing up to 49 percent
ownership by foreign investors;
Phase-in of foreign participation in fixed line/
international long distance services over six years, allowing
up to 49 percent ownership by foreign investors.
In addition, China agreed to sign onto the WTO Agreement on
Basic Telecommunications Services (BTA). The BTA commits
participating countries to open their telecom services markets.
China has committed to a set of regulatory principles contained
in the so-called Reference Paper to the BTA, and has therefore
made specific commitments to open up its telecom services
markets. These include providing access to the public telecom
networks of incumbent suppliers under non-discriminatory terms
and at cost-oriented rates. China also agreed to technology-
neutral scheduling, meaning technology choices are made as
commercial decisions, rather than government mandate.
The Ministry of Information Industry (MII) is preparing
China for competition from foreign service providers after
China's accession to the WTO. To meet this goal, China's second
telecom carrier, China Unicom, is slated to buildout an
additional national cellular network in 2000 based on Code
Division Multiple Access (CDMA) technology. This development is
very positive for U.S. telecom equipment manufacturers, as they
are the world's leading suppliers of this technology. In
addition, China introduced a new service provider into the
market in 1999, China Netcom (CNC). This new company will focus
on the provision of Internet Protocol (IP) telephony, allowing
more efficient use of bandwidth on the Chinese networks.
Intellectual Property: By joining the WTO, China
will become subject to the Agreement on Trade Related Aspects
of Intellectual Property (TRIPs). Moreover, China has agreed to
be subject to all TRIPs obligations upon accession, without any
transition period. The TRIPs agreement is the best vehicle
available to high-tech industries to combat piracy of
intellectual property and to create a healthy environment for
the development of information technology in China.
Industry experts estimate that 95 percent of the business
applications software used in China was pirated in 1998 (the
last year for which data is available), depriving the software
industry of nearly $1.2 billion in licensing revenue. If China
were to bring its legal system into compliance with the
standards in the TRIPs Agreement, the U.S. software industry
should be much more able to enforce its rights in Chinese
courts and administrative tribunals. However, the United States
will be unable to ensure Chinese compliance with the TRIPs
Agreement absent the grant of PNTR to China.
Antidumping: The bilateral agreement enables the
United States to maintain strong protections against dumping.
Since China's economy is not fully market-oriented, it is
critical that the United States maintains its ability to
utilize its existing non-market economy methodology in the
application of U.S. antidumping laws. The United States and
China have agreed that the United States may maintain this
current methodology for 15 years after the date of China's
accession to the WTO.
PNTR is Necessary for the U.S. to Benefit from China's WTO
Accession
The United States must approve permanent normal trade
relations (PNTR) status for China in order for U.S. firms to
receive the benefits of China's accession to the World Trade
Organization (WTO). If China accedes to the WTO and the U.S.
Congress does not pass legislation granting China PNTR, it is
expected that the Administration would invoke its right of
``non-application'' under Article XIII of the WTO Agreement, as
has been done with respect to other countries subject to the
Jackson-Vanik Amendment. This would be done at the time China
formally accedes to the WTO. Even though China would become a
WTO member, the United States would not treat China as a WTO
member. Moreover, China would not be required to treat the
United States as a WTO member.
Without PNTR, an historic opportunity would be jeopardized
for U.S. companies and their workers. The terms of the landmark
U.S.--China bilateral agreement concluded in November and all
other terms of China's WTO accession package would not apply to
U.S.--China trade and investment, except to the extent that
existing bilateral agreements make the WTO agreement terms
binding between the two countries.
While the United States would receive some modest benefits,
such as tariff cuts, under the terms of the 1980 bilateral
agreement between the United States and China, many of the
hard-fought concessions by the Chinese are not covered by this
agreement. For example, China's agreement to eliminate forced
technology transfer and investment requirements would not be
extended to the United States. Nothing in the 1980 agreement
requires the Chinese government to ensure that its state-owned
and state-invested enterprises make their purchases solely on
commercial terms, while China agreed to this commitment in the
WTO accession agreement. Without PNTR, U.S. companies would not
benefit from China's agreements to allow distribution rights
for foreign companies and to allow investment in telecom and
Internet services. Additionally, the United States would not
have access to the WTO dispute settlement process to enforce
intellectual property and other rights in the case of any
noncompliance by China.
Annual NTR Extension is Not Sufficient
Article I of the General Agreement on Tariffs and Trade
(GATT) requires that WTO members provide ``unconditional'' MFN
treatment to other WTO members. This principle is a cornerstone
of the WTO and an open global trading system.
Some have argued that the United States can meet this
unconditional MFN obligation, and thus be entitled to China's
WTO concessions, as long as Congress renews NTR on a continual
basis. But under the Jackson-Vanik Amendment to the Trade Act
of 1974, China's MFN status is tied to annual Presidential
findings or waivers regarding freedom of emigration, which can
be overridden by Congress through a joint resolution of
disapproval. Continued annual renewal of China's NTR status
would violate WTO rules because it would be conditional (on
freedom of emigration per the Jackson-Vanik Amendment) and
discriminatory (requiring procedures for China that are not
applied to other WTO members). Approval for permanent NTR is
necessary to meet the WTO's unconditional MFN obligation.
Conclusion
The American high-tech industry has been at the forefront
of U.S. economic expansion and technological leadership.
Granting China PNTR, coupled with the significant market
reforms in China embodied in its WTO commitments, will enable
our industry to expand its market presence and business
opportunities in this critical market.
Moreover, access to American commercial information
technology enables people worldwide to improve business
efficiency across all sectors, enhance educational and social
opportunities, and connect with one another. Improved market
access for U.S. commercial information technology in China will
help to advance economic and social reform in China. A timely
congressional vote granting PNTR to China is a critical and
necessary step toward securing this goal.
U.S. HIGH-TECH INDUSTRY COALITION ON CHINA
American Electronics Association
Business Software Alliance
Computer Systems Policy Project
Computing Technology Industry Association
Electronic Industries Alliance
Information Technology Industry Council
Semiconductor Industry Association
Semiconductor Equipment & Materials International
Software & Information Industry Association
Telecommunications Industry Association
United States Information Technology Office
Statement of U.S. Wheat Associates, Wheat Export Trade Education
Committee, and National Association of Wheat Growers
Wheat producers across the United States strongly support
China's entry into the World Trade Organization (WTO) and the
immediate approval of permanent normal trade relations status
for China.
China is potentially the world's largest wheat market.
Unfortunately, it has maintained a non-tariff trade barrier on
U.S. wheat exported from Pacific Northwest ports since 1972,
and from Gulf ports since June of 1996, due to the perceived
threat of Tilletia Controversa Kuhn (TCK), a wheat fungus known
as TCK smut. This barrier to the Chinese market continues to
have a very negative economic impact on all U.S. wheat
producers.
In April of 1999, Prime Minister Zhu Rongji announced
China's intention to lift its long-standing restrictions on the
export of U.S. wheat from areas where TCK is known to occur.
This agreement allows U.S. wheat to be exported from any state
or any U.S. port to any Chinese port as long as these imports
do not exceed a tolerance level of 30,000 TCK spores per 50-
gram sample. This level can easily be met by U.S. wheat
exporters while acknowledging China's concerns about this
disease.
While the market access agreement is not tied to China's
entry into the World Trade Organization, the Chinese
unilaterally decided to link it to U.S. support for their WTO
entry that has now been agreed upon. We had expected China to
implement the TCK agreement immediately upon signing. We have
strongly encouraged the Chinese to implement this agreement as
a sign of good faith towards their WTO commitments.
This announcement followed more than 20 years of
extensive--at times frustrating--discussions between the U.S.
and China to resolve this issue. TCK restrictions were
instituted due to China's concerns that its own wheat crop
could become infected with TCK. It is significant that this
longstanding dispute over TCK smut was resolved based on a
framework that is consistent with the objectives of the Uruguay
Round Agreement on Sanitary/Phytosanitary Measures (SPS). The
SPS agreement is the heart of settling disputes of this type in
the WTO as it requires that sound science, not political or
other issues, determine whether products are safe to trade.
Together, the United States and China agreed to let science,
rather than political or other considerations, determine the
terms of trade between our two countries.
Likewise in November of 1999, the United States and China
completed negotiations on China's entry into the WTO. The
agreement was formalized when the Chinese language version of
the agreement was signed in Seattle last December.
In accordance with this agreement, China will liberalize
its purchase of bulk agricultural commodities like wheat, corn,
soybeans, rice and cotton. China will adopt tariff-rate
quotas--that is, very low tariffs on a set volume of these bulk
commodities. The wheat TRQ, for example, begins at 7.3 million
tons and rises to 9.3 million tons by 2004. (Present import
levels are below 2 million metric tons.) In all commodity TRQs,
private traders will be guaranteed a share of the TRQ and a
right to import using the portions of the shares given to state
trading companies that are not used by the state agencies. This
will help establish legitimate private-sector trade in China.
Taken together, the TCK resolution and the U.S.--Chinese trade
agreement, represent an important new commercial opportunity
for U.S. wheat producers at a critical time for the economic
health of the industry.
China is the world's largest wheat producing and largest
wheat consuming nation. The U.S. is the world's largest wheat
exporter. U.S. wheat exports to China have varied over the
years, contingent upon Chinese wheat production levels and
those of other wheat suppliers. Throughout the early 1990s,
China imported from one million metric tons to 5.6 million
metric tons of U.S. wheat each year. In recent marketing years,
Chinese imports of U.S. wheat have declined significantly due
to major increases in China's own production and the stringent
enforcement of the TCK zero tolerance restriction.
Nevertheless, we expect China to once again become a major
importer of U.S. wheat. We base our expectations on economic
developments and production constraints in China. China has a
huge and growing population, burgeoning coastal cities, growing
demand, declining stocks, stagnant acreage and reduced domestic
price supports. We anticipate that over a period of a few
years, increased China trade would have a significant impact on
the world supply and demand situation that should be positive
for prices. To put it plainly, nothing else on the horizon
could have such a big impact in the short term on U.S. wheat
exports and the economic stability of wheat producers or hold
such potential for expanded growth in the future.
USDA's baseline projection puts China's wheat imports at
4.2 mmt in five years. U.S. Wheat Associates estimates that the
U.S. market share could be one third to one half of total
Chinese imports. The U.S. market shares are very high in a
number of neighboring countries and we believe that our market
share with China has greater potential than most estimates.
This is based on work by U.S. Wheat Associates personnel
located in China who believes that China's wheat importers are
focusing on the need for ``quality'' wheat. The import demand
is projected to focus on wheat with qualities needed for better
consumer products that are not produced in large quantities in
China.
In order for U.S. wheat producers to realize the full
potential of the Chinese market, it is absolutely critical that
Congress approves legislation to grant China Permanent Normal
Trade Relations status (PNTR) as soon as possible. As
Ambassador Barshefsky said in her testimony before the House
Ways and Means Committee there is ``no option'' to addressing
PNTR now. There is no option for United States wheat producers
but to have the opportunity to participate in the Chinese
market. If we are to achieve the benefits of this long sought
agreement and give producers the opportunity to market into
this huge economy, China must be brought under the rules based
system of the WTO. We have that opportunity with the agreements
delivered in April.
By granting permanent normal trade relations for China
Congress will be giving nothing away to China, our market is
already open. However, you will be fulfilling one of the
``unmet promises'' of the 1996 Freedom To Farm Bill, that of
continuing to provide export markets for U.S. farmers and
ranchers. U.S. farmers would rather have open fair markets than
receive payments from the government. Farmers want to add to
the balance of payments by exporting their products.
This point is especially timely and crucial as the U.S.
trade deficit reaches an all-time high. Our trade deficit with
China, second highest after Japan, has ballooned to $68.67
billion in 1999 as reported by the U.S. Department of Commerce.
The only way to counter this trend is to open markets
throughout the world and facilitate the exportation of U.S.
products. Bulk commodities such as wheat can have a substantial
positive impact on the trade balance as demand for high quality
foods continues to rise. The Chinese economy is poised to reach
new heights and as their middle class swells it is imperative
for U.S. producers to have fair and unfettered access to this
market.
Various people including Ambassador Barshefsky, have stated
that it would indeed be ironic if the United States after over
14 years of negotiations to include China in a rules based
world trading system would decide not to grant them PNTR. By
doing so we would be allowing our competitors to have the
benefits of China opening its market--the most dynamic and
rapidly growing in the world. U.S. leverage and any means of
influencing China under the WTO rules system would be lost and
the United States would yield its leadership in the trade
arena.
The U.S. wheat industry is looking forward to working with
the Chairman, this committee, and others in Congress to make
permanent normal trade relations for China happen this year.
The wheat industry will do everything it can to mobilize
grassroots support, but it is necessary for supporters in
Congress and the Administration to exhibit strong leadership
and cooperation in order to deliver a positive vote for
America's farmers, laborers and industries. This is an
opportunity that we can not afford to let slip away. Thank you.