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

                                


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[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.
---------------------------------------------------------------------------
    \1\ Mazur, Labor's New Internationalism, Foreign Affairs, January/
February 2000, 79.
    \2\ Id.
---------------------------------------------------------------------------
    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
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \9\ Report, Page 40.
    \10\ Report, Pages 12, 41.
    \11\ Report, Page 40.
---------------------------------------------------------------------------
    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.

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \20\ ITC Report, Executive Summary, page xiv.
    \21\ ITC Report, page 8-6.
    \22\ ITC Report, Table 8-2, page 8-7.
---------------------------------------------------------------------------
    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.

---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.