[Senate Hearing 106-634]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 106-634
 
    CHINA IN THE WTO: WHAT WILL IT MEAN FOR THE U.S. HIGH TECHNOLOGY 
                                SECTOR?

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

                             JOINT HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
                   POLICY, EXPORT AND TRADE PROMOTION

                                AND THE

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              APRIL 6, 2000

                               __________

       Printed for the use of the Committee on Foreign Relations





 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate





                  U.S GOVERNMENT PRINTING OFFICE
66-498 CC               WASHINGTON : 2000





                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota                 JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming                PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri              BARBARA BOXER, California
BILL FRIST, Tennessee                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

             SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY,
                       EXPORT AND TRADE PROMOTION

                    CHUCK HAGEL, Nebraska, Chairman
CRAIG THOMAS, Wyoming                PAUL S. SARBANES, Maryland
BILL FRIST, Tennessee                JOHN F. KERRY, Massachusetts
RICHARD G. LUGAR, Indiana            BARBARA BOXER, California

                                 ------                                

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                    CRAIG THOMAS, Wyoming, Chairman
JESSE HELMS, North Carolina          JOHN F. KERRY, Massachusetts
CHUCK HAGEL, Nebraska                RUSSELL D. FEINGOLD, Wisconsin
GORDON H. SMITH, Oregon              PAUL D. WELLSTONE, Minnesota
LINCOLN D. CHAFEE, Rhode Island      ROBERT G. TORRICELLI, New Jersey

                                  (ii)





                            C O N T E N T S

                              ----------                              
                                                                   Page

Carlucci, Hon. Frank, chairman of the board of directors, Nortel 
  Networks, Washington, DC.......................................    21
    Prepared statement...........................................    23

Eizenstat, Hon. Stuart E., Deputy Secretary of the Treasury, U.S. 
  Department of the Treasury, Washington, DC.....................     5
    Prepared statement...........................................     9

Thomas, Hon. Craig, U.S. Senator from Wyoming, prepared statement     4

Younts, Richard, executive vice president and senior advisor to 
  the CEO, Office on Asia Pacific Affairs, Motorola Inc., Austin, 
  TX.............................................................    26
    Prepared statement...........................................    28

                                 (iii)

  

 
   CHINA IN THE WTO: WHAT WILL IT MEAN FOR THE U.S. HIGH TECHNOLOGY 
                                SECTOR?

                              ----------                              


                        THURSDAY, APRIL 6, 2000

                       U.S. Senate,        
 Subcommittee on International Economic    
         Policy, Export and Trade Promotion
    Subcommittee on East Asian and Pacific Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittees met jointly, pursuant to notice, at 10:02 
a.m., in room SD-419, Dirksen Senate Office Building, Hon. 
Chuck Hagel and Hon. Craig Thomas, presiding.
    Present: Senators Hagel and Thomas.
    Senator Hagel. Good morning. Today's hearing is our second 
joint hearing with the Subcommittee on East Asian and Pacific 
Affairs. This hearing will focus on what China's accession into 
the World Trade Organization might mean for the United States' 
high-tech industry.
    On our first panel we welcome Deputy Secretary of the 
Treasury, Stuart Eizenstat. Mr. Eizenstat was sworn in as the 
office's Deputy Secretary in July 1999. Previous to becoming 
Deputy Secretary, he served as Under Secretary of State for 
Economic, Business, and Agricultural Affairs, and Under 
Secretary of Commerce for the International Trade 
Administration.
    While he was with the State Department, he was the State 
Department's senior economic official. He advised Secretary 
Albright on international economic policy, and led the work on 
issues ranging from trade negotiations to bilateral relations 
with major international partners.
    Welcome, Mr. Secretary. It is always good to have you with 
us.
    Secretary Eizenstat. Thank you, Mr. Chairman, Senator 
Thomas. Thank you very much.
    Senator Hagel. I am going to introduce the second panel as 
well, Mr. Secretary, and then explain a little bit about our 
vote predicament before I ask Senator Thomas to offer his 
thoughts.
    On the second panel we will hear from two distinguished 
private-sector witnesses. Although our first witness, the 
Honorable Frank Carlucci, has been a significant utility player 
across the broad spectrum of private and public life, one of 
the preeminent public servants of our time, Frank Carlucci is 
now chairman of the board of directors of Nortel Networks, a 
major multinational telecommunications firm. He is also a 
chairman and partner in the Carlisle Group, a Washington-based 
merchant bank, and is a member of the board of several 
multinational companies.
    Mr. Carlucci has served with distinction with the United 
States Government. He served as Secretary of Defense from 1987 
to 1989, as National Security Advisor in 1987, as Deputy 
Secretary of Defense from 1980 to 1982, Deputy Director of 
Central Intelligence from 1978 to 1980, and was Ambassador to 
Portugal from 1975 to 1978.
    I understand that Secretary Carlucci has just returned, as 
a matter of fact, this weekend, from a trip to China, where he 
met with the Chinese President, and also was in Taiwan, where 
he met with President Lee and President-elect Chen, so we 
obviously look forward to hearing Secretary Carlucci's 
thoughts.
    Between Eizenstat and Carlucci, I think we have essentially 
covered all Cabinet positions in the U.S. Government.
    Our third witness today, Mr. Rick Younts, will be the 
second member of the private-sector panel. Mr. Younts is 
executive vice president and senior advisor to the CEO for 
Asian Affairs at Motorola.
    Mr. Younts has been with Motorola since 1967. He has held 
many positions with the company, including president of Nippon 
Motorola in Japan. He was named executive vice president and 
president of the Asia Pacific region in 1997, and became senior 
advisor to the chief executive officer for Asian affairs in 
1998. He has extensive business experience in the Asia Pacific 
region.
    I understand that he, too, has just returned from China, so 
he will have some fresh insights as well. So welcome, Mr. 
Younts.
    Let me make a brief statement, then I will ask my friend 
and colleague, Senator Thomas, to make his opening statement.
    Today's hearing, as I mentioned at the opening, will focus 
primarily on China's accession to the World Trade Organization 
and what opportunities and challenges this may present to the 
U.S. high-tech industry.
    The United States and China signed a bilateral trade 
agreement last November as part of China's WTO accession 
process. China has yet to sign bilateral agreements with the 
European Union and a handful of other countries. Once that 
process is complete, China's accession protocol and the working 
party report will be issued, and China will be ready to accede 
to the WTO.
    The U.S. Congress will soon face a vote on whether to grant 
China permanent normal trade relations, [PNTR]. On Tuesday, the 
House leadership announced that the House will hold a vote on 
PNTR the week of May 22. The Senate leadership has not yet 
scheduled a vote.
    The PNTR vote, in my opinion, will be one of the most 
important votes of this Congress. It is more a question of 
whether we want our businesses, our farmers, and our workers to 
enjoy the benefits of the U.S.-China bilateral trade agreement 
that we negotiated last November.
    One of the most important international issues facing us 
today is how America will deal with the development of China as 
a new world power. We must engage China, but with our eyes wide 
open, and with a clear understanding of the limitations, the 
dangers, the realities, and certainly the possibilities of this 
relationship. To do otherwise would be unwise.
    We must not allow the United States to become economically 
and geopolitically isolated from the world's largest and 
fastest growing market. But more important for the long term, 
failing to engage China might encourage it to move along a path 
contrary to America's interest in Asia. This is something we 
must avoid.
    Granting China PNTR is clearly in the best interest of our 
country. China's entry into the World Trade Organization is 
inevitable. It will happen. World Trade Organization membership 
will force the Chinese Government to implement far-reaching 
domestic economic reforms and strengthen the rule of law. This 
is the China that we must encourage.
    The accession agreements that China has negotiated for WTO 
entry contain wide-reaching market access provisions. America 
must grant PNTR to China to enjoy the benefits of these 
provisions. American businesses and agricultural producers will 
be able to compete in every segment of the Chinese market for 
goods and services, which we already accord to China in our own 
market. We give up nothing, and we gain everything.
    If we fail to grant PNTR to China, our European and 
Japanese competitors will rush to fill the vacuum. We must not 
lock ourselves out.
    As Congress moves closer to voting on this issue, it is my 
hope that our witnesses today will help shed some light on what 
China's accession to the WTO might mean for our high-technology 
industry if we grant China PNTR. I also would like to hear our 
witnesses' views on what it would mean for the high-technology 
sector in America if China accedes to the WTO and the U.S. 
Congress does not grant PNTR to China.
    Again, I welcome our witnesses.
    Before I ask Senator Thomas, who is chairman of the East 
Asian and Pacific Affairs Subcommittee of the Foreign Relations 
Committee, to share with us his thoughts, we have scheduled, at 
least as of 10 minutes ago, a series of two votes, beginning at 
10:30.
    So what we will do is get some opening statements, then we 
will have to call a brief recess to the hearing, and we will go 
vote and come back with much dispatch and high anticipation.
    Like I said, this was 10 minutes ago. It has been moved to 
10:40 now. So, Mr. Secretary, you have even more time than 
originally allotted. So we will do the best we can with what we 
have, where we are.
    That is an old Teddy Roosevelt saying, Mr. Chairman.
    Now, my friend and colleague, the chairman of the East 
Asian and Pacific Affairs Subcommittee, Senator Thomas.
    Senator Thomas. Thank you. Good morning to you. I am 
pleased to participate together in this hearing this morning. I 
think it is important that we talk about the imports/exports 
trade as well as general foreign policy as we deal with these 
kinds of issues.
    It is no surprise, and you have already heard this, that I 
fully support China's accession to the WTO and the normal 
trading relationship. I think there are three reasons why we 
should do this, and without being a little duplicative here, 
but first of all, lots of folks, I think, in this country do 
not realize that we are the ones that are going to benefit.
    I happened to be in China last year before the Premier was 
on his way over here to make the arrangements, and we talked a 
great deal about it. Some great things have been done in 
agriculture, for example. All we have to do is implement those. 
So we are the ones that gain. We are already providing those 
kinds of things, as the chairman indicated.
    Of course, we will have to be very careful that there is, 
in fact, the dismantling of tariffs, the non-tariff barriers 
that we have in the past, intellectual kinds of things, and so 
on, so it will not be difficult.
    Second, I think entry into the WTO will have sort of a 
soothing effect on our whole relationship, and that will be 
good. It seems to me that many of the problems that we 
experience over in that part of the world are problems that are 
going to take time to resolve; and if we can simply hold sort 
of a steady course of that over time, maybe even a generational 
change, why, things will change a great deal. Of course, the 
trade deficit is of great concern to us, and it continues to 
grow. We need to do something about that.
    The third thing, and the thing that I feel very strongly 
about, is there are many things that are done in China that 
lots of people here do not agree with. They are certainly 
different than what we would do. We would like to see those 
changed, but I think the better way to do that is to open up 
with China, let them move into a new world of markets, a new 
world of more individual freedom. You can see that on the south 
China coast now. So we will do that.
    So in any event, I am glad to here. High tech is one of the 
factors. I am also very much interested in agriculture, which 
is equally as important.
    So thank you, Mr. Chairman, for sharing this, and I look 
forward to the testimony.

               Prepared Statement of Senator Craig Thomas

    Good morning. I am pleased to be participating in this joint 
hearing between our two subcommittees today. I'll keep my statement 
brief so that we can get to our witnesses.
    It will come as no surprise to the people in this hearing room 
today that I fully support China's accession into the WTO. I do so for 
three reasons. First, although there are some Members of Congress who 
appear not to grasp this basic fact, giving China permanent NTR status 
pursuant to the WTO regime is not a gift to the PRC. Rather, the 
agreement requires China to dismantle its present system of tariff and 
non-tariff barriers which prevent the entry of a whole range on U.S. 
goods and services into that country. We are the true beneficiaries in 
this deal.
    Second, getting China into the WTO will have a soothing effect on 
our relations. A major irritant in our bilateral relationship over the 
last several years has been disagreements with China over its inability 
to live up to its trade agreements with us. In joining the WTO, China 
will be multilateralizing any such disagreements. In addition, the 
trade deficit--another source of friction--will decrease since we will 
be able to export more goods and services to the PRC once tariffs and 
other barriers are lowered.
    Third, by drawing China further into the family of nations, I 
believe we speed the process of opening it up to world economic, 
democratic, and human rights norms.
    This is, of course, not the first Senate hearing on some aspect of 
the WTO agreement, nor will it be the last. But it is the first, I 
believe, to focus on its effects on the U.S. high technology, sector. 
It is a fitting topic, since clearly high tech is presently the fastest 
growing sector of our economy and promises to continue to be for the 
next several decades.

    Senator Hagel. Chairman Thomas, thank you.
    Secretary Eizenstat, thank you again for appearing, and we 
are always grateful to have you with us.

   STATEMENT OF STUART E. EIZENSTAT, DEPUTY SECRETARY OF THE 
   TREASURY, U.S. DEPARTMENT OF THE TREASURY, WASHINGTON, DC

    Secretary Eizenstat. Thank you, Mr. Chairman, and thank 
you, Chairman Thomas.
    China's accession into the WTO is in the fundamental 
interests of American security and reform. It is a decision of 
historic dimensions, and the legislation which we forwarded to 
Congress to grant PNTR to China once it has completed its 
accession makes sure its WTO accession is on terms at least as 
good as those in our bilateral agreement, which we concluded in 
November.
    In fact, Mr. Chairman, you mentioned the EU negotiations. 
As other countries complete their bilaterals, the terms can 
only get better, as we will benefit from all further 
concessions that China makes to other countries.
    I would like to divide my testimony into four parts: The 
commercial benefits of accession, our stake in market reforms 
in China, the broader strategic case for accession, and then 
specific answering of critiques.
    There are no sectors that will benefit more from China's 
accession than our high-tech telecommunications sector, as well 
as our agricultural sector.
    First, on the commercial benefits: The case is 
overwhelming. We make no commercial concessions. China makes 
them all. This is, frankly, the most one-sided agreement that I 
have ever been a part of on behalf of the United States.
    We will get unprecedented new access to China's markets for 
exports of American goods and services. Their tariffs on 
industrial and agricultural goods will fall by 50 percent or 
more in a space of 5 years. Tariffs on a broad range of 
agricultural goods will fall by roughly one-half, with even 
larger cuts for priority agricultural products in the United 
States. The role of state trading companies will be 
progressively reduced, allowing for more market-based trade.
    China is committed to eliminating agricultural export 
subsidies which displace American exports to third-country 
markets and reducing domestic agricultural subsidies, which 
also destroy trade.
    China's commitments, however, go way beyond tariff cuts, to 
include the elimination of sharp reduction in a wide range of 
non-tariff barriers. For example, American exporters will be 
able to import directly from China themselves, distribute 
within China, and offer after-sales service in ways they could 
not do before.
    China will phaseout a wide range of restrictions and a 
broad range of services. For example, in banking, China has 
accepted full market access for branches and subsidiaries of 
foreign institutions, and in insurance, the Chinese market will 
also be progressively more open.
    Some of China's biggest reductions in barriers come in the 
high-tech sector. This is a sector, Mr. Chairman, where China's 
demand will be explosive over the coming 2 years. Indeed, China 
may become the world's second-largest personal computer market 
by the end of this year, the third largest semi-conductor 
market by the end of next year. In 1999 alone, the number of 
Chinese Internet users quadrupled to 9 million, and by the end 
of this year may reach 20 million.
    China will participate fully in the information technology 
agreement, eliminating all tariffs on computers, semi-
conductors, and other high-tech products by 2005. This is 
obviously a market where the United States is highly 
competitive.
    In telecommunications, China has agreed for the first time 
to allow direct foreign investment. It will also participate in 
the basic telecommunications agreement, thereby accepting pro-
competition principles such as independent regulatory authority 
and interconnection rights without discrimination.
    The Chinese market for a broad range of computer, Internet, 
and software services, will for the first time, be open to 
American companies, either through joint ventures or direct 
service.
    Again, the opening of these sectors comes at a time of a 
powerful revolution in information and communications 
technology just beginning in China. There is an enormous 
potential, not just for increased American exports, but for the 
freer flow of information.
    Our own high-tech exports to China grew by 500 percent 
between 1990 and 1998, and that is without the kind of 
extensive market opening that they are granting through the WTO 
agreement. No amount of censorship or monitoring can completely 
control the explosion in information which this opening in 
telecommunications and high tech will provide.
    In addition to this new access to China's markets, we will 
benefit from unprecedented provisions to protect American 
workers and farmers from import surges, unfair trading, and 
abusive investment practices, such as offsets or forced 
technology transfers. There is no agreement that we have ever 
negotiated on WTO accession that has contained stronger 
measures.
    For example, there is a product-specific safeguard that 
would allow us to take measures focused directly on China in 
case of any import surge, including in the high-tech area, that 
threatens a particular industry. The agreement has very strong 
anti-dumping provisions, which would allow us for 15 years to 
treat China as a non-market economy.
    China is required to eliminate barriers to U.S. companies 
that cost American jobs, including technology transfer, 
mandated offsets, local content requirements, and other 
practices that were intended to drain jobs and technology away 
from the U.S.
    Indeed, I think in some respects, Senator Thomas and 
Senator Hagel, that the commitment that China has made to open 
up trading and distribution rights will be among the most 
important in protecting American workers.
    The reason is that companies will no longer be forced to 
set up factories in China or go through Chinese Government-
approved middlemen to sell their products. They can make them 
here in the United States. They can export them, using our own 
distribution networks.
    We also are preparing for the most intensive and extensive 
enforcement and compliance effort ever mounted for a single 
trade agreement. The President has requested, for example, an 
additional $22 million for enforcement and compliance in this 
year's budget. And for the first time, China's compliance will 
be subject to multilateral enforcement under the WTO dispute 
settlement mechanism, which will force China to comply with WTO 
rulings, including cases we might bring, or be subject to trade 
sanctions.
    The bottom line of this agreement is more U.S. exports to 
China, leading to more high-paying jobs for American workers.
    The second point is our stake in promoting successful 
market reforms. The WTO accession provides a powerful impetus 
for China's economic reforms at a critical juncture in its 
economic history. It will strengthen the hand of economic 
reformers in China and help lock in their reform path.
    For economic, strategic, and humanitarian reasons, we have 
an enormous stake in the successful continuation of China's 
economic reforms. China will be locking into place with their 
accession a more rapid progress of market opening and reform, 
and submitting themselves to global rules-based systems.
    In my meetings with U.S. business representatives in 
Shanghai and Beijing, when I asked them what was the single 
most important thing the U.S. Government could do to help, they 
said it was to promote the rule of law. WTO accession is the 
most powerful way of advancing this objective. It will serve as 
a catalyst for broader changes that will help promote core 
American interests and values, and it will serve to promote the 
cause of human rights, worker rights, and religious freedom.
    Obviously, this will not happen overnight. In the meantime, 
the U.S. will remain continually vigilant on human rights 
abuses in China, and we will continue to express our 
disapproval forcefully whenever rights are abused in China, as 
we are doing this very moment, in the Human Rights Commission.
    Some Members of Congress have considered the annual review 
of China's PNTR status as a useful opportunity to review the 
human rights situation in that country. We are committed to 
working with Congress to address concerns over granting PNTR, 
including opportunities to review China's human rights and 
religious freedoms record.
    I can assure you that we will work with Congress on this 
issue and consider constructive ideas that can garner broad and 
bipartisan support.
    My third point is the broader strategic case for supporting 
integration of China. PNTR advances our broader national 
interests by promoting a more responsible and constructive role 
for the Chinese state, both at home and abroad.
    No one can know, of course, where China will be in 10 or 20 
years. China will determine that. But what we can know is that 
they are more likely to be responsible reformists if they are 
integrated into the world economy.
    WTO membership will not only open Chinese markets. It will 
provide China's people with unprecedented openings to the 
outside world. Through greater international integration, 
improved telecommunications, and wider Internet access, the 
Chinese people will be empowered as never before.
    If the Internet has changed America, which is already an 
open society, imagine how much it can change China. The more 
open China is, the more likely it is to play a constructive 
role in the world.
    We have a vital stake strategically in China's continued 
economic progress and reform. Stagnation and disintegration 
would threaten their stability.
    Last, permit me to answer some of the critics. First, some 
say, ``Well, we have a 1979 agreement. Is that not enough?'' 
But I was in the Carter White House during the negotiations of 
that 1979 agreement, and I can tell you, it falls far short of 
providing anything like the full benefits we will get in this 
agreement if China accedes.
    The best we could do at that time in 1979 was a short 
three-page document, providing only limited rights and 
obligations. Relying on that agreement alone would deprive us 
of virtually all the commitments that China has made in this 
agreement.
    Second, some opponents ask, ``Are we not abandoning or 
turning our back on old friends in Taiwan by granting China 
PNTR?'' The answer is no. This in no way affects our 
commitments to Taiwan or our ability to back them up. Indeed, 
Taiwan itself wants to see China in the WTO.
    Taiwan is, itself, poised to join the WTO, and a 
combination of Taiwan and PRC accession would create strong 
opportunities for Taiwan to increase its economic ties with the 
PRC.
    A third critique is that opponents say, ``Will we not lose 
leverage over China on human rights by seeming to reward them 
despite their record?'' Fundamentally, we will have a much more 
positive influence over China's behavior--and I think, Senator 
Thomas, this is precisely the point you were making--if we are 
actually actively engaged with China, rather than trying to 
isolate it. This is not a reward for China. We are advancing 
our own national interests and values.
    Indeed, many human rights advocates have spoken out 
convincingly in favor of WTO accession, for example, Martin 
Lee, the leader of the Democratic Party of Hong Kong, and other 
leading dissidents on the Mainland.
    Some opponents also ask, ``Well, can we not get the same 
benefits by just granting China the annual extension?'' The 
answer is no. GATT Article I requires that all WTO members 
grant each other any advantage, favor, privilege, or immunity 
provided to other countries immediately and unconditionally. 
This requires permanent NTR at the time China joins the WTO.
    We cannot grant PNTR through an annual periodic renewal 
process and ensure that we will get the full benefits of 
China's accession commitments. Indeed, what we would be doing 
is, frankly, turning those benefits over to our Asian and 
European competitors.
    Some opponents also ask, ``How about China's compliance 
record? How do we know they will comply?'' Well, the WTO 
agreement is different from our bilateral agreements in two 
important respects. The obligations that China has accepted are 
far more specific in detail, and it is enforceable through the 
WTO dispute resolution process.
    Indeed, we found that in areas where we have bilateral 
agreements which are specific, like intellectual property 
protection, they are doing much better. China has implemented 
its bilateral agreements most successfully when its obligations 
are concrete, specific, and open to monitoring, and that is 
precisely what the situation will be under the WTO.
    China will be subject to the WTO's multilateral review and 
dispute resolution mechanisms. If they abide by panel 
decisions, and implement agreements, fine. If they do not, as 
the EU has not done, for example, with beef and bananas, we 
will retaliate, which we have the right to do under the WTO.
    Some opponents also ask, ``Why do we think this agreement 
will increase U.S. exports?'' China currently has high barriers 
to our exports. The improved access we will gain will lead, we 
believe, to a $2 billion-a-year increase in our agricultural 
exports, according to USDA estimates. And a recent study by 
Goldman Sachs estimates that U.S. exports in general to China 
by 2005, with this agreement, will increase by at least two-
thirds.
    Some opponents also ask, ``If the agreement is so one-
sided, what does China get from it? How can it be in the 
interest of both China and the U.S. at the same time?'' The 
answer is that China knows that it must ensure prosperity for 
12 million new workers coming into their market every year, and 
they cannot do it by maintaining the status quo.
    The WTO accession gives them an impetus to the kind of 
economic reform they need to support their reform, and that 
reform is in our interests as well.
    Some opponents also ask, ``Will not China's accession lead 
to more job losses in America?'' It is absolutely the opposite. 
How can it, when there is no increased access for China's 
imports to the U.S. market, which is already open to them? We 
already have a $69 billion deficit. What we are getting is 
access to their market.
    Indeed, the unprecedented protections against import surges 
and dumping will provide effective recourse in those cases 
where China's trade practices could threaten U.S. jobs.
    For all of these reasons, we think that it is critically 
important that China be granted PNTR so that accession can 
occur at the earliest possible date.
    Thank you very much.
    [The prepared statement of Secretary Eizenstat follows:]

             Prepared Statement of Hon. Stuart E. Eizenstat

      ``the case for permanent normal trade relations with china''
Introduction
    Chairman Hagel, Chairman Thomas, Ranking Member Sarbanes, Ranking 
Member Kerry, and Members of the Committee, I thank you for the 
opportunity to testify today on perhaps the most important 
international economic issue facing this Congress. As you know, the 
President has made it one of his highest priorities this year to work 
with Congress to grant China permanent Normal Trade Relations, commonly 
known as PNTR.
    When the President submitted legislation to Congress for PNTR, he 
argued that the choice is clear--China's accession to the WTO is in the 
fundamental interest of American security and reform in China. The 
economic, political, and strategic implications of this decision give 
it historic dimensions.
    This legislation enables the United States to grant PNTR to China 
once it has completed its accession, provided that it is on terms at 
least as good as those in our bilateral agreement concluded in November 
1999. In fact, the terms can only get better, as we benefit from all 
further concessions China makes to other countries.
    It is important to keep in mind that the agreement we concluded 
with China is a straight gain. Commercially, the agreement is one-sided 
in our favor, in that China opens its markets to an unprecedented 
degree while the United States simply maintains its current market 
access policies. There is no down-side, only an up side for American 
exporters, farmers, and workers.
    It is also important to keep in mind what granting PNTR to China is 
not:

  --It is not about whether China will enter the WTO, which can happen 
        in any case.

  --It is not about whether Chinese producers will have access to our 
        market. Our market is already open to China, which enjoys the 
        same access as nearly everyone else. Not granting PNTR will not 
        revoke this access.

  --It is not an endorsement of China's record on human rights or 
        workers rights. We will still express our disagreements 
        forcefully, including in the UN and other international fora, 
        with or without PNTR.

  --And it is not about China's policies toward Taiwan or other 
        strategic issues that concern us. We will continue to protect 
        our strategic interests, with or without PNTR, and nothing in 
        the WTO hampers our ability to do this.

    Passing PNTR merely ensures that we reap the full benefits of our 
bilateral agreement with China and its accession to the WTO. There are 
three crucial advantages to the United States in passing PNTR. Let me 
address each one in order.
    i. the commercial benefits to the united states of granting pntr
    First, the economic case for China WTO accession is overwhelmingly 
compelling. The commercial benefits of granting PNTR are significant 
and all one-sided for the United States. We make no commercial 
concessions; China makes them all.
    We would get unprecedented new access to China's market for exports 
of American goods and services, with benefits for American workers, 
farmers and companies. The scope of this new access is impressive, in 
tariff reductions on industrial and agricultural goods, reduction in 
barriers to American service providers, and especially in high-tech 
goods and services:

   Chinese tariffs on industrial and agricultural goods will 
        fall by 50 percent or more in the space of five years. For 
        example:

    --Industrial tariffs on U.S. products will fall from an average of 
            25 percent in 1997 to 9.4 percent in 2005.

    --In the automobile sector, tariffs will fall from 80-100 percent 
            to 25 percent by mid-2006, with the largest cuts in the 
            first years after WTO accession. Quotas on autos will be 
            phased out. And American auto companies will be allowed to 
            provide auto financing for the first time.

    --Tariffs on the broad range of agricultural goods will fall by 
            roughly one half, with larger cuts for U.S. priority goods. 
            The role of state trading companies will be progressively 
            reduced, allowing for more market-based trade. This 
            improved access will eventually result in an increase of $2 
            billion a year in our agricultural exports to China, 
            according to USDA estimates. In addition, China has 
            committed to eliminate agricultural export subsidies, which 
            displace American exports to third country markets, and to 
            reduce domestic agricultural subsidies, which also distort 
            trade.

    --Chinese commitments go way beyond tariff cuts to include the 
            elimination or sharp reduction in a wide range of non-
            tariff barriers. For example, American exporters will be 
            able to import directly into China themselves, distribute 
            within China, and offer after-sale service in ways they 
            never could before. While it is hard to estimate the effect 
            of lowering these barriers, many observers think that they 
            are critical to competing effectively in China and are at 
            least as important as the tariff cuts. With these rights, 
            U.S. firms and farmers will be better able to sell 
            American-made products directly to Chinese consumers.

   China would phase out a wide range of restrictions in a 
        broad range of services. For example:

    --China has agreed to liberalize wholesale and retail distribution 
            services throughout China in three years.

    --In banking, China has accepted full market access for branches 
            and subsidiaries of foreign institutions, to be phased in 
            progressively over five years.

    --In insurance, the Chinese market will also be progressively 
            opened over five years, with the elimination of limits on 
            the number of licenses for foreign firms and geographic 
            scope of operations for foreign firms. In non-life 
            insurance, wholly foreign owned subsidiaries will be 
            allowed two years after accession.

   Some of the biggest Chinese reduction in barriers come in 
        the high-tech sectors. For example:

    --China will participate fully in the Information Technology 
            Agreement (ITA), eliminating all tariffs by 2005 on 
            computers, semi-conductors and other high-tech products--
            markets in which the U.S. is highly competitive.

    --In telecommunications, China has agreed for the first time to 
            allow direct foreign investment. It will also participate 
            in the Basic Telecommunications Agreement, accepting pro-
            competition principles such as an independent regulatory 
            authority and interconnection rights.

    --The Chinese market for a wide range of computer, internet and 
            software services will be opened to American companies, 
            either through Joint Ventures or direct service.

    The opening of these sectors comes at the same time as the powerful 
        revolution in information and communications technology is just 
        beginning in China. There is an enormous potential for both 
        increased American exports and the freer flow of information. 
        American high technology exports to China grew 500 percent 
        between 1990 and 1998.

    China's telecommunications market is the world's fastest growing. 
        By the end of this year, some analysts predict that China will 
        become the world's second largest market in both 
        telecommunications and personal computers. And last year, the 
        number of Chinese Internet users quadrupled, from 2 million to 
        9 million. This year, it should more than double, to 20 
        million. No amount of censorship or monitoring can completely 
        control this explosion of information. The President has 
        compared it to trying to nail Jello to a wall.

    In addition to this new access to China's markets, we will benefit 
from unprecedented provisions to protect American workers and farmers 
from import surges, unfair pricing, and abusive investment practices 
such as offsets or forced technology transfer. No agreement on WTO 
accession has ever contained stronger measures:

   A ``product-specific'' safeguard that allows us to take 
        measures focused directly on China in case of an import surge 
        that threatens a particular industry. This protection, which 
        remains in effect for 12 years after accession, provides 
        stronger and more targeted relief than our current Section 201 
        law.

   Strong anti-dumping protections. The agreement includes a 
        provision recognizing that the U.S. may employ special methods, 
        designed for non-market economies, to counteract dumping by 
        Chinese exporters for 15 years after its accession.

   Requiring China to eliminate barriers to U.S. companies that 
        cost American jobs. For the first time, Americans will have the 
        means, accepted under the WTO rules, to combat such measures as 
        forced technology transfer, mandated offsets, local content 
        requirements and other practices intended to drain jobs and 
        technology away from the U.S. Moreover, Chinese commitments to 
        open up trading and distribution rights will allow American 
        companies to export to China products made at home by American 
        workers, rather than seeing companies forced to set up 
        factories in China or go through Chinese government approved 
        middlemen in order to sell products there.

    We are already preparing for the most intensive enforcement and 
compliance effort ever mounted for a single trade agreement. The 
President has requested an additional $22 million for new enforcement 
and compliance efforts, which will focus in large part on China. The 
Administration's aggressive monitoring and enforcement efforts will 
include the private sector, other WTO partners, and Congress. For the 
first time, China's compliance will be subject to multilateral 
enforcement under the WTO dispute settlement mechanism--which will 
force China to comply with WTO rulings or be subject to trade 
sanctions. We want to work closely with Congress on this important 
issue.
    The bottom line of this agreement is more U.S. exports to China, 
leading to more, high-paying jobs for American workers. All we have to 
do is vote PNTR, so we can get the full benefits of the agreement, just 
as our competitors will.
   ii. america's stake in promoting successful market reform in china
    Second, WTO accession provides a powerful impetus for China's 
economic reforms at a critical juncture. It strengthens the hand of 
economic reformers in China and helps lock in their reform path. For 
economic, strategic, and humanitarian reasons, we have an enormous 
stake in the successful continuation of China's economic reforms.
    China has come a long way since the beginnings of market reforms 
two decades ago. Yet China has already reaped the easy gains of its 
reforms to date and now faces the complex challenges of reforming its 
bloated state-owned enterprise sector and restructuring its troubled 
banks. Economic growth is slowing, but the labor force is increasing 
even faster.
    But, as the President has said, the Chinese authorities face a 
dilemma: they realize that closer integration with the global economy 
risks unleashing forces that they cannot control. Opening China more 
fully to the revolution in communications and technology will provide 
ordinary Chinese with unprecedented freedom and access to information. 
But if China tries to shut its people off from international 
competition, integration, and information, it will not be able to 
attract the investment and know-how to build a modern economy and 
deliver rising living standards and stability for its 1.3 billion 
people.
    Reformers at the highest levels of the Chinese government appear to 
be embracing the WTO's impetus for change through initiatives to 
prepare for the new competition. The central bank is preparing for 
opening the banking sector. And the government is opening parts of the 
economy previously considered strategically important to international 
and private investors, with individuals already dominating the Chinese 
Internet industry and also being allowed to take ownership stakes in 
domestic banks for the first time.
    With WTO accession, China is locking into place a more rapid 
process of market opening and reform of its economy, and submitting 
itself to a global rules-based system. In my meetings with U.S. 
business representatives in Shanghai and Beijing, they told me the most 
important thing the U.S. government could do to help them was to 
promote the rule of law in China. WTO accession is the most powerful 
way of advancing this objective.
    We have an enormous national stake in supporting China's decision 
for WTO accession and greater integration:

   It helps support faster growth in pioductivity and wages in 
        China, leads to higher living standards for Chinese workers, 
        and promotes higher demand for our products.

   It serves as a catalyst for broader changes that will help 
        to promote core American interests and values. To thrive as a 
        WTO member, China will need to become more market-based; more 
        respectful of personal and commercial freedoms; and more open 
        to the free flow of information and ideas.

   China's accession to the WTO will serve to promote the 
        causes of human rights, workers' rights, and religious freedom, 
        laying the groundwork for progress in the future. WTO 
        membership will further the development of the rule of law and 
        the opening of China, which will advance our core values.

    This will not happen overnight, however. In the meantime, the 
United States will remain continuously vigilant on human rights abuses 
in China, and we will continue to express our disapproval forcefully 
whenever rights are abused in China. The Administration already 
monitors the situation continuously and issues an annual report. We 
also will make continuing use of the UN and other international fora, 
working with countries that share our core values. But let's keep in 
mind that we have much more positive influence over China's behavior if 
we are actively engaged with China, rather than trying to isolate it.
    Of course, we understand that Congress is concerned about these 
issues. Some Members of Congress have considered the annual review of 
China's NTR status a useful opportunity to review the human rights 
situation in that country, even though the connection is arguably 
tenuous. The Administration is committed to working with Congress to 
address concerns over granting PNTR, including opportunities to review 
China's rights record. I can assure you that we will work with Congress 
on this issue, considering constructive ideas that could garner broad, 
bipartisan support.
    iii. the broader national strategic case for supporting greater 
                          integration of china
    Third, and finally, PNTR advances our broader national interests by 
promoting a more responsible and constructive role for the Chinese 
state, both at home and abroad.
    We cannot know where China will be in 20 years, or even 10 years, 
what its economy will be like, how it will treat its people, what its 
role in Asia and the world will be like. China will determine that. But 
we do know that they are more likely to be a responsible, reformist 
power if they are more integrated into the world economy.
    A policy of welcoming China into the community of nations--rather 
than being a voice that keeps China out, even when it offers to live by 
the rules--is a policy that supports our deepest national security 
interests.
    WTO membership will not only open Chinese markets, but will also 
provide China's people with an unprecedented opening to the outside 
world. For example, accelerating the information revolution, through 
greater international integration, improved telecommunications and 
wider internet access, can only help empower the Chinese people. As the 
President has pointed out, if the Internet has changed America, which 
is already an open society, imagine how much it could change China. The 
more open China is, the more likely it will play a positive role in the 
world.
    By learning to play by the rules, both internationally and 
domestically, China will strengthen the rule of law, which will enable 
it to become a more reliable partner and a fairer society. It can even 
lay the groundwork for protection of core values in China, such as 
human rights, religious freedom, and workers rights.
    We also have a vital strategic stake in China's continued economic 
progress and reform. Stagnation and disintegration would threaten 
China's stability. If we have learned anything in the last few years, 
from events in Russia and elsewhere, it is that the weaknesses of great 
nations can pose as big a challenge to the United States as their 
strengths.
    We must not seek to cut China off from the economic and broader 
forces that are most likely to change it in the right direction. As the 
President has said, simply bringing China into the WTO does not 
guarantee that its government will take a responsible, constructive 
course. But it will lead the authorities to confront that choice 
sooner, and it will make stronger and more visible the imperative to 
make the right choice.
    And that, along with the compelling commercial benefits and the 
need to support economic reform, is the imperative for us to make the 
right choice on PNTR and fully welcome China into the WTO.
                       iv. answering the critics
    Opponents of PNTR and China's accession to the WTO have raised some 
important questions, which I would like to take the opportunity to 
address:

Some opponents ask--Why do we need PNTR? Isn't the 1979 agreement 
enough?

   I was in the Carter White House during the negotiation of 
        the 1979 Agreement, and I can tell you that it falls far short 
        of providing us with the full benefits of China joining the 
        WTO, based on our November 1999 agreement with them. Although 
        it was the best we could do at the time, the 1979 Agreement is 
        a short, three-page document that provides for only limited 
        rights and obligations, largely with respect to the treatment 
        of goods for import.

   Reliance on the 1979 Agreement would deprive the United 
        States of: virtually all market access provisions negotiated in 
        November for services; meaningful market access for goods; key 
        elements necessary to safeguard American workers from import 
        surges ana unfair trade from China; and special rules and vital 
        enforcement rights like access to WTO dispute settlement.

Some opponents ask--Are we not abandoning or turning our back on old 
friends in Taiwan by granting China PNTR and letting it into the WTO?

   China PNTR and WTO accession in no way affects our 
        commitments to Taiwan or our ability to back them up. In fact, 
        Taiwan itself wants to see China in the WTO.

   Taiwan is also poised to join the WTO. A combination of 
        Taiwan and PRC accessions to the WTO will create opportunities 
        for Taiwan to increase its economic ties with the PRC, build 
        trust and confidence through expanded trade and investment, and 
        lower barriers to freer flow of ideas between the two sides of 
        the Strait.

Some opponents ask--Don't we lose leverage over the Chinese on human 
rights by granting PNTR and appearing to reward them despite their 
human rights record?

   Fundamentally, we have much more positive influence over 
        China's behavior if we are actively engaged with China, rather 
        than trying to isolate it. This is true in a number of ways, 
        including strengthening of the rule of law, providing freer 
        access to information, and creating more economic freedom. We 
        are not granting PNTR to reward China, but because it advances 
        our national interests and values.

   Many human rights advocates have spoken out convincingly in 
        favor, of WTO accession. For example, Martin Lee, the leader of 
        the Democracy Party of Hong Kong, has said, ``The participation 
        of China in the WTO would not only have economic and political 
        benefits, but would also serve to bolster those who understand 
        that the country must embrace the rule of law.'' A Chinese 
        dissident, Ren Wanding, a leader of the 1978 Democracy Wall 
        Movement, sees it as ``a new beginning.''

Some opponents ask--Can't we just continue to grant China NTR status 
annually?

   The answer is no. GATT Article I requires that all WTO 
        members grant each other ``any advantage, favor, privilege or 
        immunity'' provided to other countries ``immediately and 
        unconditionally.'' This requires permanent NTR at the time 
        China joins the WTO. We cannot grant NTR through an annual or 
        periodic renewal process and ensure that we get the full 
        benefits of China's accession commitments. Our Asian, European 
        and other competitors would reap the benefits, however.

   Even if this were a WTO-consistent option, which it is not, 
        one must consider the uncertainty for American farmers, 
        businesses, and workers that would have committed resources to, 
        developing customers in China. The possibility that within a 
        certain period, the access on which they based their business 
        plans would be withdrawn could frustrate any meaningful 
        opportunities.

Some opponents ask--China has never followed through on past 
commitments--why would they do anything different now? Are there 
concrete examples of successful compliance and enforcement with past 
agreements?

   The WTO agreement is different from our bilateral agreements 
        in two important respects--the obligations that China has 
        accepted are far more specific and detailed, and it is 
        enforceable through the WTO dispute settlement process. The 
        Administration will aggressively monitor and enforce this 
        agreement, using WTO dispute settlement and the WTO's 
        monitoring mechanism.

   We will commit the necessary resources to ensure Chinese 
        compliance, and we are seeking new resources for the FY 2001 
        budget. Under President Clinton's proposal, the United States 
        would dramatically increase the resources of agencies that 
        monitor and ensure our trading partners' compliance with trade 
        agreements.

   China's record of compliance is admittedly somewhat mixed. 
        But vigorous enforcement of our bilateral agreements with China 
        has resulted in significant improvements in intellectual 
        property (IP) protection. Before our IP agreements in 1992 and 
        1995 and the enforcement action in 1996, China was one of the 
        world's largest IP pirates. Today, China has improved its legal 
        framework--and it has substantially eliminated the illegal 
        production and export of pirated music and video CDs and CD-
        ROMs.

   Generally, China has implemented its agreements most 
        satisfactorily when its obligations were concrete, specific, 
        and open to monitoring. Previous bilateral agreements have not 
        adequately dealt with the range of barriers and trade-
        restrictive practices our exporters face in China. The November 
        1999 bilateral agreement has far more specificity in terms of 
        well-defined commitments than we were able to achjeve in 
        earlier agreements.

   China's commitments are subject to the WTO's multilateral 
        review and dispute settlement mechanism. The U.S. monitoring 
        and enforcement efforts will be complemented and enhanced by 
        the 134 other WTO Members with a common interest in seeing 
        China's market opened.

Some opponents ask--Why do we think this agreement will increase U.S. 
exports? Why should China be any different from Japan, which is in the 
WTO and where we still have difficulty distributing our goods and 
providing services?

   China currently has high barriers to U.S. export. In our 
        November agreement, China made broad commitments to eliminate 
        both tariff and non-tariff barriers to American exports. On 
        U.S. priority agricultural products, for example, tariffs will 
        drop from an average of 31 percent to 14 percent by 2005. This 
        improved access will eventually result in an increase of $2 
        billion a year in our agricultural exports to China, according 
        to USDA estimates. Industrial tariffs on U.S. products will 
        fall from an average of 24.6 percent in 1997 to an average of 
        9.4 percent by 2005. A study by Goldman Sachs estimated that 
        U.S. exports to China could increase by at least two-thirds by 
        2005.

   But China's commitments extend well beyond tariff 
        reductions. For effective access, American companies, farmers 
        and workers need the ability to export, import and distribute 
        goods and services in China--these rights are currently denied, 
        but they will be permitted under the agreement. It was in part 
        because of our experience with Japan that we sought to ensure 
        strong commitments on these trading and distribution rights.

Some opponents ask--If the agreement is so one-sided, what does China 
get from it? How can it be in the interests of China and the U.S. at 
the same time?

   In the last 20 years, China has made remarkable progress, 
        but it faces daunting problems as well. China's economic growth 
        has slowed just when it needs to create more jobs and maintain 
        support for economic reform. For all the progress of China's 
        reforms, private enterprise still accounts for less than one-
        third of its GDP. In other words, China cannot maintain 
        stability or ensure prosperity by maintaining the status quo. 
        The U.S. shares a common interest with those in China's 
        leadership who support reform. Continuing stability and 
        economic growth in China supports America's security and 
        economic interests.

Some opponents ask--Won't China WTO accession just lead to more job 
losses in America?

   China's accession to the WTO will lead to increases in U.S. 
        exports, creating more high-paying jobs. But there will be no 
        increased access for Chinese imports to the U.S. market, which 
        might raise concerns over job losses. In fact, the 
        unprecedented protections against import surges and dumping 
        will provide effective recourse in those cases where Chinese 
        trade practices might threaten job losses.

   China's commitments will also make it easier for our 
        businesses to make their products with U.S. workers in America 
        and sell their products themselves in China. New investment 
        rules will prevent Chinese practices designed to force foreign 
        companies to move production to China, like forced technology 
        transfer or requirements for local content.

    Thank you for the opportunity to present the compelling case for 
China's accession to the World Trade Organization and granting it 
Permanent Normal Trade Relations status. I look forward to working with 
this Committee and the Senate on this issue, and I would be happy to 
answer any questions that you may have.

    Senator Hagel. Mr. Secretary, thank you.
    What Chairman Thomas and I will do is each take 7 minutes. 
I think that will get us close to a time when we will be 
serious about getting over to vote, if that is all right with 
you, Mr. Secretary.
    I would like to go back to a couple of points that you 
made. On the issue of permanent normal trade relations, which, 
as we all know, and we have talked about, the Congress will 
deal with in the next few weeks' votes, there has been some 
talk, speculation, that there may well be some conditions 
offered to permanent normal trade relations, maybe 
environmental, maybe labor, maybe other. Could you give us the 
administration's position on PNTR with conditions?
    Secretary Eizenstat. Yes. It is critically important to us 
and, indeed, it is the obligation that we would have under WTO 
and GATT requirements, that China's accession be unconditional. 
That is, not conditioned on annual reviews, not conditioned on 
any specific substantive area.
    Now, we know that there are a number of interests in the 
Congress on both sides of the aisle in religious freedom and 
human rights. We are entering into discussions with Members on 
both sides of the aisle on how to maintain continuing oversight 
on China's religious freedom and human rights records, but 
without making that a condition of PNTR.
    So these dialogs are continuing, but it is critically 
important--and I want to make it absolutely clear--that we 
cannot condition PNTR.
    Senator Hagel. Thank you. On a more specific area, as we 
know, the Chinese Government has not allowed its citizens free 
access to information generally, Internet, cable television, 
air waves.
    With the accession of China to the WTO, and if we are able 
to pass permanent normal trading relations with China, do you 
think this would improve the situation, where the citizens of 
China would have access, would be freed up, would be given a 
new sense to participate in viewing other points of view 
through the media, through the Internet?
    Secretary Eizenstat. There is no question that that would 
be the case. There is no amount of censorship, however powerful 
it may be, that can completely control the explosion in 
information which will be available if PNTR is granted and 
China accedes.
    The amount of access to information over the Internet, the 
degree to which China will open itself up to foreign investment 
in telecommunications, is quite astounding. We will, therefore, 
be able, for example, to have 50 percent foreign equity share 
participation in electronic mail, voice mail, Internet, on-line 
information, data base retrieval, 49 percent foreign equity 
shares for mobile voice and data services.
    Geographic restrictions will be eliminated. They will adopt 
norms for telecommunications regulation, which assure non-
discriminatory interconnection rights. So there is no question, 
even though they may try to do so, that censorship would be 
like, as President Clinton said, trying to tack Jell-O onto a 
wall.
    If I may also just give a personal anecdote: When I was in 
China and talking with some of our American business 
representatives there, IBM, and others, I asked them in terms 
of employing Chinese workers, ``Do they have access to the same 
kind of E-mail and Internet service that you have to have for 
American employees in connection with IBM and other factories 
around the world,'' and they said, ``Of course. It is the only 
way that that can happen.''
    So the dialog between Chinese engineers, Chinese 
scientists, and American engineers and scientists across the 
Pacific will exponentially increase.
    One last point: I mentioned the explosive growth in 
personal computers and the Internet. We expect literally by the 
end of this year that China could be the second largest market 
for personal computers, and the growth in the Internet is 
staggering. Last year, it quadrupled. This year, we expect it 
to at least double. That kind of geometric increase is going to 
increase the ability of the Chinese to access information and 
to empower the Chinese people.
    Senator Hagel. Do you believe this would also apply to 
radio and television broadcasts, allowing access to more 
information?
    Secretary Eizenstat. Yes. Absolutely.
    Senator Hagel. We have heard a rather joyous and positive 
outlook this morning so far on PNTR, WTO accession for the 
Chinese, from Senator Thomas, from me, from you. Tell us where 
the problems are.
    Secretary Eizenstat. Well, I tried to lay out seven or 
eight critiques that people have made, to rebut each one of 
them.
    There are some who say, for example, that somehow this is 
going to give an endorsement to China's human rights record. 
Nothing could be further from the case. We will continue to 
speak loudly and forcefully about their human rights 
violations, but this will give us an extra hook, by more 
engagement, to begin to change their conduct, to open China to 
new ideas. So that is one issue.
    The second, some suggest somehow this will hurt Taiwan. 
Again, quite the contrary. Taiwan itself wants to see both 
itself and China in. So that is a second rebuttal.
    I have tried, again, to suggest in all of these areas that 
we think the critiques are not well founded. The last, most 
basic critique is that somehow this is going to negatively 
affect U.S. jobs. This cannot happen. It cannot happen, because 
we are already running a $70 billion trade deficit with China.
    There is nothing in this agreement which in any way gives 
China any additional market access to the United States that 
they do not already enjoy. It is not a NAFTA agreement. China 
gets nothing from this agreement more than they already have.
    On the other hand, we get the opportunity to access a 
market that has been largely closed. We have only about $14 
billion in exports to China. They have $82 billion in exports 
to us. Again, it is estimated by Goldman Sachs that our exports 
could nearly double in 5 years.
    The distribution rights also help American workers, because 
no longer will U.S. companies have to, as a condition of doing 
business there, move a plant there, engage a middle man, 
transfer technology, deal with offsets. They will be able to 
manufacture in the United States using U.S. jobs, and export to 
China.
    Senator Hagel. Thank you.
    Senator Thomas.
    Senator Thomas. Thank you.
    Mr. Secretary, I think--of course, we have heard a lot 
about it, but today in the paper it talked about the transfer 
of some information that has to do with defense, Lockheed, in 
this instance.
    As we expand the use of technology and exporting it, what 
are we going to do to protect ourselves with respect to the 
military use of this kind of information?
    Secretary Eizenstat. We have very strict rules under the 
Arms Export Control Act to make sure that we do nothing that 
gives China any additional advantage in the missile or high-
tech area with respect to its military.
    The fact that we have already cited companies like Loral, 
and that just yesterday the State Department charged Lockheed 
with violating the Arms Export Control Act, shows that we have 
our thumb on this issue, that we are constantly looking to make 
sure that we do not relax our export controls in ways that 
would give China a military advantage.
    Senator Thomas. Well, apparently, your thumb was not on it 
entirely, if that has already happened.
    Secretary Eizenstat. Well, we often cannot prevent things 
in advance. What we can do is immediately try to respond----
    Senator Thomas. Mr. Secretary----
    Secretary Eizenstat [continuing]. To them, but certainly--
--
    Senator Thomas [continuing]. If you cannot do it in 
advance, then it is already gone.
    Secretary Eizenstat. We have very strict licensing 
requirements through the Commerce Department and through an 
interagency procedure, and if a company violates those 
licensing requirements, we certainly step down hard. But we do 
have preventive licensing.
    You cannot export anything that would help their missiles 
or space launch, and their military, without getting specific 
licenses, and that license is granted only after an interagency 
review.
    Senator Thomas. My understanding is----
    Secretary Eizenstat. It includes defense----
    Senator Thomas [continuing]. That that is going on right 
now in the Senate, is that the Defense Department does not have 
a role in that, nor the intelligence agencies, and so on, that 
it is----
    Secretary Eizenstat. Well, there is a role. There is a 
question----
    Senator Thomas. May I finish, please?
    Secretary Eizenstat. I am sorry. Yes, please.
    Senator Thomas. And that that is the controversy that goes 
on. And do you expect to change that?
    Secretary Eizenstat. Well, we always are looking for ways, 
Senator, to try to improve our licensing procedures. There is a 
new agency process in which Defense does have a role. Commerce 
does grant the licenses, but there is an interagency review, 
and we will continue to make sure we try to strengthen that 
process.
    Senator Thomas. I think that is one of the things that will 
probably be more open. In terms of investment, you talked about 
more investment. Will there be some requirements for joint 
ownership, or a certain percentage of domestic ownership with 
respect to investments by U.S. companies?
    Secretary Eizenstat. In the telecommunications sector, 
Senator, there are requirements for 50 percent foreign equity 
ownership, and no more, in certain value-added 
telecommunications services. But in other areas, like banking, 
insurance, there are no such requirements.
    Now, basically, in telecommunications there is a 
prohibition of any foreign investment. So going up to 50 
percent is a major, major improvement.
    But in most areas--and this is, I think, one of the great 
advantages of this agreement--you do not have to joint venture 
with a Chinese company; you do not have to use a Chinese 
middleman, or a state-owned enterprise to distribute your 
products, as you do now. And this will give U.S. companies the 
ability to manufacture here and export there, which is now not 
permitted.
    Senator Thomas. I see.
    Secretary Eizenstat. Also, there currently are very strict 
technology transfer and offset requirements for any business in 
China. These will be eliminated as well.
    Senator Thomas. One of the difficulties we have had over 
time in Japan was the enforcement, and you mentioned that, 
about more money there, but we have had agreements, and we have 
had hearings, and the enforcers said, ``Well, we just were not 
able to.''
    The evidence was that many of those agreements had not been 
enforced. Do you foresee that being a problem with these kinds 
of agreements that are made here?
    Secretary Eizenstat. You are correct that China does have a 
mixed record in terms of implementing bilateral agreements, but 
if I may respond in two ways. First, we have found that the 
more specific the obligation, the more likely they are to abide 
by it. This agreement is extremely specific.
    Second, we do not simply have to rely on a bilateral 
assurance here. We will have 134 countries who will have an 
interest in China is abiding by its agreements. We can bring, 
and we will bring--as we do against the European Union and 
others, if there is a violation of their obligation--we will 
bring a case to the WTO panel.
    The WTO panel has binding control over that case, and can 
force China to comply. If China does not, we have the right, 
under the WTO, to exact 100-percent tariffs, up to the level of 
the damage that may be caused by non-compliance.
    Senator Thomas. Japan is a member of the WTO, are they not?
    Secretary Eizenstat. Sir?
    Senator Thomas. Japan is a member of the WTO.
    Secretary Eizenstat. Yes.
    Senator Thomas. Have we brought any actions on their 
enforcement?
    Secretary Eizenstat. We have brought actions against the 
EU. I am not sure how many cases we have brought against Japan. 
I think there have been some.
    Senator Thomas. Maybe. You mentioned, I think, that some of 
these things would take place immediately. My understanding is, 
for instance, on anti-dumping, it takes 15 years to implement 
that.
    Secretary Eizenstat. No, sir; it is actually the opposite. 
We will have, uniquely for China, the right to enforce our 
anti-dumping laws for 15 years by treating them as a non-market 
economy. So it actually gives us a stronger hand for import 
surges or for unfair pricing, and they can be treated as a----
    Senator Thomas. The provision remains for 15 years.
    Secretary Eizenstat. That is correct.
    Senator Thomas. It does not take 15 years to----
    Secretary Eizenstat. That is correct. We can treat them--
and this was one of the most contentious issues, Senator. They 
wanted to be treated as a market economy. Treating them as a 
non-market economy gives us a much greater control in terms of 
very tough anti-dumping procedures, and they, in the end, 
allowed us to do that for 15 years.
    You mentioned again the Japan case. The biggest case we 
brought against Japan in WTO was the Kodak case.
    Senator Thomas. I see.
    Thank you.
    Senator Hagel. Senator Thomas, thank you.
    Mr. Secretary, we are going to dash off and vote. We have 
two votes back to back. We are running the clock down here, so 
we could get as much time with you. I do not know what your 
schedule is, but if it would be possible for you to stay, I 
have a couple more questions, and the committee would 
appreciate it very much, if that is possible.
    Secretary Eizenstat. I would be happy to.
    Senator Hagel. Thank you.
    The committee will then stand in recess until we vote.
    [Recess: 10:43 a.m.--11:15 a.m.]
    Senator Hagel. Ladies and gentlemen, thank you for your 
indulgence in allowing democracy's wheels to keep moving 
forward. We are grateful. Senator Thomas is now at another 
meeting, and is going to try to get back.
    But so as not to hold our distinguished Deputy Secretary 
any longer, let me ask Secretary Eizenstat: In the context of 
your testimony this morning and the issues we are talking about 
today--and you are particularly well-positioned to analyze this 
for us--Taiwan, China, the geopolitical and economic 
relationship across the Strait, WTO accession for each, and our 
relationship, would you broaden this out for us, and give us 
some sense of how you think the consequences may play out if we 
go forward and move favorably on PNTR?
    Secretary Eizenstat. Yes, sir. First, on the security side, 
we are carrying out our responsibility under the Taiwan 
Relations Act to provide defensive military equipment to 
Taiwan. That responsibility is unchanged and will remain 
unchanged.
    We have an interest in a peaceful resolution of the 
differences between China and Taiwan. That remains our 
position, and it will be our position. WTO accession does not 
affect that.
    Second, we believe that Taiwan wants to see China in the 
WTO. Taiwan is, itself, poised to join the WTO, and a 
combination of Taiwan and PRC accession would create 
opportunities for Taiwan to increase its economic influence in 
the PRC, to build trust and confidence through expanded trade 
and investment, and to lower barriers to freer flow of ideas 
between the two sides of the Strait.
    In terms of the process, we have completed our negotiations 
with Taiwan for accession, and essentially other countries have 
also resolved their bilateral differences. So Taiwan is poised 
to join.
    We anticipate that when the working parties on Taiwan and 
China accession reach a consensus on their respective accession 
packages, the WTO General Council would then approve both 
packages and invite both to become WTO members at the same 
meeting of the General Council. So neither could block the 
other's accession under that provision, and we would anticipate 
both coming in at the same time.
    Senator Hagel. Thank you. Let me ask a question that you 
referenced in your testimony regarding the balance of payment 
that we have currently with China. Would you range out for us 
and give us some assessment of what you believe the 
expectations should be, realistically, moving that balance of 
payment deficit down over the next few years, if China, in 
fact, accedes to the WTO, and we pass permanent normal trading 
relations with China?
    Secretary Eizenstat. Yes, sir. Of course, balance of 
payments with any country bilaterally depends on a whole host 
of issues. One of the reasons that we have a large trading 
balance is that we have a particular appetite for the consumer 
goods sector in which China is very strong, areas like toys.
    It is important to recognize, however, that if China were 
not exporting those products we would be getting them from 
other places in Asia, and actually our level of exports from 
China and Asia in those areas has remained constant for a good 
while.
    Second, what one can say with complete confidence is that 
on the export side of that trade deficit there is simply no 
question that there should be a very significant increase under 
the agreement. The reason is that the USDA, the Department of 
Agriculture, estimates that we will have $2 billion in 
additional agricultural exports annually by 2005, because of 
the marked increase in U.S. agricultural exports to China, 
particularly in areas that are important to us, like pork and 
grains.
    In addition, it has been estimated by Goldman Sachs, in a 
study that the Congressional Research Service has noticed, that 
by 2005, they anticipate that the $13 billion to $14 billion in 
U.S. exports to China could grow to on the order of $27 billion 
to $28 billion. Merrill Lynch and others have also done studies 
indicating a substantial increase in trade.
    So I think what we can say with some real confidence is 
that our exports to China will increase very substantially, and 
that China gets no greater rights to access our market than 
they already have.
    Senator Hagel. Mr. Secretary, again, we are grateful, 
especially that you would take a little extra time with us. It 
is always good to have you up here.
    Secretary Eizenstat. Thank you.
    Senator Hagel. So thank you very much for what you are 
doing for our country as well.
    Secretary Eizenstat. Thank you.
    Senator Hagel. Thank you.
    If we could have the second panel, Secretary Carlucci and 
Mr. Younts. Gentlemen, welcome.
    Mr. Secretary, it is good to see you again. We are grateful 
to both of you for sharing some of your thoughts with us this 
morning.
    Secretary Carlucci, we will begin with you.

  STATEMENT OF HON. FRANK CARLUCCI, CHAIRMAN OF THE BOARD OF 
           DIRECTORS, NORTEL NETWORKS, WASHINGTON, DC

    Mr. Carlucci. Thank you, Mr. Chairman. I would like to 
submit my entire testimony for the record.
    Senator Hagel. It will be submitted.
    Mr. Carlucci. I will summarize it. I am here, as you 
indicated earlier, in my capacity as chairman of the board of 
Nortel Networks, the world's largest supplier of digital 
network solutions, and a broad diversified developer of high-
capacity switching and optics technology. We employ 
approximately 60,000 people, 35,000 of whom are in the United 
States.
    While our operations in China were officially launched in 
1993, our first sale dates back to 1972. We employ 
approximately 2,000 people in China. Our long history there has 
given us a strong understanding of the obstacles foreign 
companies face in succeeding in China's marketplace.
    Nortel's experience and my own dealings with China led me 
to conclude that the United States should support PNTR and 
membership in the WTO for China. I firmly believe that bringing 
China into the global world-based system would bring positive 
economic change, protect our Nation's security interests, and 
lead to social reforms that benefit Chinese citizens.
    You have already heard the specific arguments about the 
critical need to grant China PNTR, and I am not going to repeat 
them; however, I would underscore a point that Stu made, that 
the agreement requires no concessions from the U.S.
    China must make deep and fundamental reforms that reach the 
core of every aspect of its economy. The question arises of: 
Why did China do this? During my recent visit there, they 
emphasized to me time and again, including the President, that 
they intend to enter into the new economy. They know that there 
is a price that must be paid to do this, and they are willing 
to accept that price.
    Nortel Networks and the U.S. high-tech industry stand to 
gain tremendously from China's accession into the WTO. As has 
been mentioned, it is the world's fastest growing telecomm 
market. Internet subscribers have more than quadrupled, and are 
expected to reach an astounding 20 million by the end of this 
year.
    At present, China's state-owned enterprises hold the 
majority of high-tech business in China. The Congress now holds 
the key to unlocking that market and opening it up to American 
business. Permanent normal trade relations with China will 
allow U.S. high-tech business unprecedented access to Chinese 
markets.
    By 2005, our products will no longer be subject to tariffs 
averaging 13 percent. Immediately upon accession, China will 
remove burdensome import quotas. China will no longer impose 
technology transfer requirements, and we will, as a result, 
have greater protection for our proprietary products.
    Those changes will allow the high-tech industry to export 
products directly to the U.S., rather than being forced to set 
up manufacturing facilities in China, and use a Chinese 
middleman, as we have to do now. This means increased jobs in 
the U.S.
    In one of the breakthroughs--you mentioned this as well--
China has agreed to sign onto the WTO basic telecommunications 
agreement. With this signature, the U.S. high-tech industry 
will finally gain access to the Chinese public telecomm network 
that will be regulated by an independent regulatory authority.
    I might say, I had a discussion with the ministry that is 
going to handle the regulation, and they are wrestling right 
now with how they will handle that regulatory responsibility. 
Increased competition in the telecomm industry means increased 
business for us.
    WTO membership will be a powerful positive and legally 
mandated force for dramatic social change in China. Since the 
U.S. engaged with China over 20 years ago, U.S. companies have 
improved wages and working conditions in China by providing 
high-paying jobs and promoting entrepreneurship in a manner 
state-owned enterprises never viewed as necessary.
    In November, Chinese negotiators agreed for the first time 
to allow American companies to play a central role in building 
Chinese information infrastructure. By making this concession, 
China is committed to an open Internet environment that allows 
its citizens more communication with each other and increased 
access to the world beyond China's borders.
    This moves China closer to a concept I have tried to 
promote throughout my career: Communication is the best 
mechanism for generating change in a country that has a history 
of repressing free speech.
    Three years ago, ten former secretaries of defense, 
including myself, sent this letter to President Clinton 
reaffirming our view that renewing most-favored nation trading 
status for China will promote the U.S. national security 
interests. In that letter, we recognized that the most 
promising way to reach the goal of a stable China is for the 
U.S. to continue to build a relationship of mutual engagement 
with China. That statement is truer today than ever before.
    If we deny PNTR, China will interpret it as the adoption of 
a policy of confrontation, and will exercise its legal right 
under the WTO to bar U.S. companies from reaping the benefits 
of its WTO accession. In turn, U.S. companies would be unable 
to compete against foreign competitors and enjoy the benefits 
of China's WTO accession.
    Denying PNTR for China will only irreversibly damage our 
oftentimes fragile relationship with our fourth largest trading 
partner. The policy of engagement with China is our best line 
of defense against this grave consequence.
    Stu spoke about supporting Taiwan for China's entry into 
the WTO. I spent 4 days in Taiwan last week in my capacity as 
chairman of the U.S.-ROC Business Council. I met with the 
President-elect, with the current leadership, and with the 
business leadership.
    The support for China's entry into the WTO is widespread. 
It stems from the fact that Taiwan is--it will depend on how 
you look at it--either the first or second largest investor in 
mainland China. According to the mainland Chinese, Taiwan has 
some $22 billion in paid-in investment in mainland China, and 
the total investment that is on the books is some $44 billion.
    They understand--the Taiwanese understand that it is better 
to have the PRC play by the rules of the game, and that it is 
in their interest to have the PRC open up their society that 
will help promote a cross-Strait dialog.
    As Stu indicated, it will also facilitate the entry of 
Taiwan into the WTO, and Taiwan has already met all the 
requirements. Conversely, if there is a confrontation with 
China on this issue, it will simply complicate relations 
between China and Taiwan.
    The bottom line is that granting PNTR to China will 
guarantee U.S. companies access to China on our terms. Denying 
PNTR will place the terms of our access in China's hands. 
Congress must now decide which alternative is best. From an 
economic and business perspective, it is an open-and-shut case. 
We hope you make the right decision.
    Thank you for inviting me to appear. I would be happy to 
answer any questions you might have, Mr. Chairman.
    Senator Hagel. Secretary Carlucci, thank you.
    [The prepared statement of Mr. Carlucci follows:]

               Prepared Statement of Hon. Frank Carlucci

    Mr. Chairman, and distinguished Members of the Committee. Thank you 
for inviting me here today to present the high-tech industry 
perspective. I am here today in my capacity as Chairman of the Board of 
Nortel Networks. I am also Chairman of the Board of the Carlyle Group. 
From 1987 to 1989, I was the Secretary of Defense and previously served 
as President Reagan's National Security Advisor in 1987 and was 
intimately involved with the shaping of the U.S.' unique and often 
complicated relations with foreign nations, including China.
    You invited me to speak today about granting permanent normal trade 
relations to China--the most contentious trade debate to hit Congress 
in the last two decades.
    Nortel Networks is one of the worlds largest suppliers of digital 
network solutions. It is the most broadly diversified developer of high 
capacity switching and optics technology. We are at the heart of the 
Internet. Over 75 percent of all Internet traffic in North America and 
more than half in Europe travels over Nortel Networks' backbone. We 
have a presence in over 150 countries where we work with customers to 
build and deliver communications and IP (Internet Protocol)--optimized 
products and networks or what we call ``Unified Networks.'' No other 
company in the world can deliver global applications and services that 
merge new and existing networking elements and technologies into a 
seamless open network. We have over 35,000 employees in the U.S. out of 
75,000 globally.
                nortel networks: a long history in china
    In China, we employ approximately 2,000 citizens and pay some of 
the highest wages in China. While Nortel Networks China was officially 
launched in 1993, our first sale there dates back to 1972. Our business 
operations include R&D, manufacturing, sales and service in the 
People's Republic of China, Hong Kong and Taiwan. We participate in 
four joint ventures in China and partner with the Beijing University of 
Posts and Telecommunications in the operation of one of Nortel 
Networks' global R&D centers.
    This long history of doing business in China has given us a strong 
understanding of the obstacles foreign companies must navigate to 
succeed in China's marketplace. Our most recent win--providing China's 
second largest telecommunications carrier with product solutions that 
will bring a new, high-performance Internet to thousands of users--is 
one of many we have had over the years. So it has been worth the 
effort.
    We witnessed the slow but meaningful reforms that have taken place 
in China over the past twenty years. These Nortel Networks experiences 
and my own dealings with China have led me to conclude that the United 
States must support PNTR and membership in the WTO for China. I firmly 
believe that bringing China into the global rules-based system will 
bring positive economic change, protect our national security interests 
and lead to social reforms that benefit Chinese citizens.
                  without pntr, the u.s. economy loses
    Current Chinese law requires the intimate involvement of a Chinese 
middleman in every import or export activity conducted by American and 
other foreign companies. This severely limits our ability to engage 
with and export to China, particularly now when high-tech companies 
must act at webspeed. As negotiated in the U.S.-China WTO accession 
agreement, China will phase out the mandatory middleman practice over a 
three-year period beginning upon its accession.
    While I am certain you have already heard the arguments from 
industry about the critical need to grant China PNTR, I believe a few 
warrant repeating because they illustrate how profoundly WTO accession 
will impact American industry's ability to do business in China:

   While the agreement does not require concessions from the 
        U.S., China must make deep and fundamental reforms that reach 
        the core of every aspect of its economy. I learned on my trip 
        to China last week that they understand this and accept it. 
        They are most anxious to enter the new economy and will pay the 
        price.

   Unilateral concessions will eliminate barriers prohibiting 
        the free export of U.S. goods and services in virtually every 
        industry sector.

   The U.S. will gain unprecedented access to a market of more 
        than one billion people.

   And China's accession will provide the U.S. with stronger 
        protection against China's unfair trade practices through a 
        safeguard that provides penalties against damaging import 
        surges.

    Considering its immediate and potential impact on the American 
economy, supporting China's WTO membership should be a top priority. 
According to the Institute for International Economics' conservative 
estimates, passage of China's WTO entry will result in an immediate 
increase in U.S. exports of $3.1 billion. While we cannot ignore the 
fact that U.S. exports to China have grown throughout the past twenty 
years from nothing to over $14 billion annually, China's WTO accession 
is the best cure for the U.S.-China trade deficit.
    According to Commerce Department figures, the U.S. imported a 
tremendous $71.2 billion from China in 1998 but exported a meager $14.3 
billion in the same year. That's a 5:1 ratio--in China's favor.
    With the WTO agreement, that ratio will shrink.
    A vote against PNTR for China will prevent this from happening. If 
we deny China PNTR, WTO rules allow China the right to legally prohibit 
U.S. access to the very benefits Republican and Democratic 
Administrations have worked to achieve for over thirteen years. Under 
this scenario, the U.S. economy--not the Chinese--will suffer the 
consequences.
            china's high-tech industry: a golden opportunity
    Nortel Networks and the U.S. high-tech industry stand to gain 
tremendously from China's accession to the WTO. China is the world's 
fastest growing telecom market. In fact, its cellular market is 
expected to be second only to the U.S. by the end of this year. China's 
telecommunications equipment market, valued at $19 billion last year, 
is anticipated to grow 20-40 percent annually. Internet subscribers in 
China have more than quadrupled and are expected to reach an astounding 
20 million by the end of the year. At present, China's state-owned 
enterprises represent the majority of business in China, but Congress 
holds the key to unlocking that market and opening it up to American 
business.

   Permanent normal trade relations with China will allow U.S. 
        high-tech businesses unprecedented access to Chinese markets. 
        By 2005, our products will no longer be subject to tariffs 
        averaging 13 percent and, immediately upon accession, China 
        will remove burdensome import quotas.

    China will no longer impose technology transfer requirements and we 
will, as a result, have greater protection for our proprietary 
products. Those changes will allow the high-tech industry to:

   Export products directly from the U.S. rather than being 
        forced to set up manufacturing facilities in China. This means 
        increased jobs in the U.S.

   Enjoy national treatment and no longer be faced with anti-
        competitive ``buy China'' requirements.

   And, one of the greatest breakthroughs--China has agreed to 
        sign onto the WTO Basic Telecommunications Agreement. With this 
        signature, the U.S. high-tech industry will finally gain access 
        to China's public telecom network that will be regulated by an 
        independent regulatory authority. Increased competition means 
        increased business for us.

    It is no secret that America's information technology industry is 
the catalyst for the tremendous economic growth the U.S. is witnessing. 
We are the largest manufacturing sector in the U.S. and we have fueled 
44 percent of our domestic economic growth since 1994. Our employees 
have profited from our success. IT workers earn an average of 77 
percent more than the average American worker.
    We have created positive and unparalleled change here at home and 
we should not be denied the opportunity to do the same in China.
       wto membership will be a positive force of change in china
    WTO membership will be a powerful, positive and legally mandated 
force for dramatic change in China. Since the U.S. re-engaged with 
China over twenty years ago, U.S. companies have improved wages and 
working conditions in China by providing high-paying jobs and promoting 
entrepreneurship in a manner state-owned enterprises never viewed as 
necessary.
    In November, Chinese negotiators agreed for the first time to allow 
American companies to play a central role in building China's 
information infrastructure. By making this concession, China has 
committed to an open Internet environment that allows its citizens more 
communication with each other and increased access to the world beyond 
China's border. This moves China closer to a concept I have promoted 
throughout my career--communication is the best mechanism for 
generating tangible change in a country that has a history of 
repressing free speech.
    Building bridges of communication always forges social, political 
and economic reforms.
    The changes will be felt in other areas as well. The business 
climate in China will go through a renaissance.
    China's concessions will bring an unprecedented level of 
competition in China. Most significantly, China's state-owned 
enterprises will compete on commercial terms. As it has done in all 
market-oriented economies, increased foreign competition and investment 
will foster lower prices and technological innovation, and will 
contribute to significant increases in wages and living standards.
      conclusion: engagement is our best line of defense in china
    Three years ago, ten former Secretaries of Defense, including 
myself, sent this letter to President Clinton reaffirming our view that 
renewing most favored nation trading status for China will promote the 
U.S.' national security interests. In that letter, we recognized that 
while there are ``several thorny and disturbing issues in the 
complicated [bilateral] relationship, . . . the most promising way to 
reach the goal of a stable China is for the U.S. to continue to build a 
relationship of mutual engagement with China.'' That statement is truer 
today than ever before.
    Our two countries have had their differences and we will continue 
to differ. Engagement, however, has enabled us to pursue our national 
security interests by building relationships between our militaries and 
governments. Regular meetings over the years have increased our 
understanding of one another's military strategies, cultures and 
politics.
    Congress has voted in favor of engagement with China for twenty 
years. This year, we have the opportunity to give industry a more 
predictable climate in which to operate, and assuage industry concern's 
that Congress will pull the plug on our bilateral relationship. Denying 
PNTR for China will irreversibly damage our often times fragile 
relationship with our fourth largest trading partner.
    China will interpret our denial of PNTR as the adoption of a policy 
of confrontation and will exercise its legal right under the WTO to bar 
U.S. companies from reaping the benefits of its WTO accession. In turn, 
the presence of U.S. companies in China will stagnate and we will be 
unable to compete against our competitors who enjoy the benefits of 
China's WTO accession. A policy of engagement with China is our best 
line of defense against this grave consequence.
    I strongly believe that PNTR and China's WTO accession will help 
the Chinese people gain increased access to communications tools like 
the Internet. These tools cannot be controlled and they will help 
connect the Chinese people to the rest of the world like never before. 
If the U.S. is to play any kind of role in this transformation, we must 
grant PNTR for China.
    Granting PNTR to China will guarantee U.S. companies access to 
China on our terms; denying PNTR will place the terms of our access in 
China's hands.
    Congress must decide which alternative to choose. From an economic 
and business perspective, it's an open and shut case. We hope you make 
the right decision.
    Thank you for inviting me to appear before you. I would be pleased 
to answer your questions.

    Senator Hagel. Mr. Younts.

   STATEMENT OF RICHARD YOUNTS, EXECUTIVE VICE PRESIDENT AND 
  SENIOR ADVISOR TO THE CEO, OFFICE ON ASIA PACIFIC AFFAIRS, 
                   MOTOROLA, INC., AUSTIN, TX

    Mr. Younts. Thank you, Mr. Chairman. It is a pleasure to be 
here this morning representing Motorola.
    I am here today to add Motorola's voice to the chorus of 
support for the passage of permanent normal trade relations for 
China. I have spent the better part of my professional career 
building Motorola's businesses in the Asia-Pacific region, 
first in Japan, and then in the rest of the region.
    For the past 10 years, I have been building our business in 
China. I am proud to say that we are the largest American 
investor in China, and one of the, if not the most, successful 
companies operating in China.
    We derive more than $3 billion a year in sales from our 
China operations, and have exported from the United States to 
China about $5 billion over the last 5 years. So as you can 
tell, from Motorola, the China market is here and now.
    I will not dwell on the merits of the U.S.-China agreement. 
That is because it goes without saying that for most American 
companies, including Motorola, this is a great deal. The 
concessions are unilateral, and they are real. They include 
trading rights, distribution rights, trims, trips, elimination 
of import licensing and quota; in short, an open market.
    This is the best trade deal we have ever negotiated. It 
provides genuine market excess for American goods and services, 
and effective enforcement measures to ensure compliance.
    As I explain in my written statement, the agreement is 
especially important for American high-tech industries. I do 
not believe there is an issue before Congress this year that is 
more critical to the future and to our competitiveness.
    I just returned from China, spent 3 weeks there, and in the 
last couple of days had a series of meetings on Capitol Hill 
discussing the importance of PNTR. I would like to use my time 
today to address some of the arguments against PNTR, and I 
believe they fall into four categories.
    The first issue is jobs. We have heard all the arguments 
advanced by opponents of PNTR that the simple fact is that the 
failure to pass PNTR will have pronounced negative impact on 
American jobs. Why? Because the deal is about market access to 
China. It is not about market access to the United States.
    Make no mistake, China will join the WTO regardless of how 
Congress votes; and if Congress does not pass PNTR by that 
time, it will place American firms that sell and operate in 
China at risk. U.S. exports to China will fall at the cost of 
American jobs, and we and other American companies will see the 
benefits of expanded trade accrue to our foreign competitors. 
On the positive side, approval of PNTR would expand U.S. 
exports, and that means U.S. jobs.
    The second issue we hear is that of enforcement. Critics of 
China's accession argue that while it may be a great deal on 
paper, and it is, China does not and will not live up to their 
trade commitments. I do not believe this is a valid reason to 
oppose PNTR or China's accession to the WTO.
    The WTO gives us an opportunity for the first time to 
enforce a trade agreement with China, and for once, we will not 
stand alone and put U.S. exports at risk, and when we press a 
complaint with China, we will have the backup of 134 other 
nations.
    A third issue involves Taiwan and national security. I am a 
businessman, not an expert on foreign policy or national 
security, but I would like to point out that the President-
elect of Taiwan, as was mentioned by Frank, has made it clear 
in statements, that he supports PNTR for China and China's 
accession for WTO. If Taiwan sees this as a good thing for 
their national security and economic interests, I do not see 
this as a problem.
    Plus, Congress always reserves the right to rescind PNTR 
and take other actions to safeguard our national security 
interests, if circumstances warrant.
    Finally, I would like to address the human rights issue. I 
have worked in China for 10 years now, and I believe in my 
heart and in my head that Motorola, through its commercial 
engagement with China, has been a powerful and positive force 
for change. We have contributed in no small way to the process 
of reforming and transforming China. We do not only export 
American goods to China; we export American values.
    Our presence there sets important examples for the American 
way and our commitment to core principles, help promote a more 
open, responsible government, and a more open society. Those 
profound implications not only promote our commercial 
interests, but America's broad international interests.
    As one who has been there, I can attest: China is changing. 
I have seen it for the last 10 years, and I saw it when I was 
there last week. I see evidence of it every time I visit. No 
doubt, there are significant problems that remain, but further 
progress is best achieved through economic engagement, covered 
by established rules of global trade.
    I urge the Congress to recognize PNTR for what it is, an 
invitation to create new opportunities for American workers, 
for farmers, and for companies.
    To the extent that human rights, the environment, or 
national security concerns enter the debate, America's leverage 
is only enhanced, not weakened, by congressional approval of 
PNTR.
    It is not a question of rewarding China for policies that 
we find troublesome or even objectionable. It does not ignore 
the fact that U.S.-China relations remain very complicated, 
fraught with controversy that require constant attention, but 
these issues do not justify refusal by Congress to seize the 
benefit accorded by PNTR and WTO.
    We must remain cognizant of the problems that divide our 
two countries and exploit the promise of expanded commercial 
relations under global rules of trade as a way to address and 
resolve these differences.
    In closing, PNTR status is not a blanket endorsement of 
China's behavior. It is one of the most effective ways we can 
advance America's economic objectives and influence development 
inside China.
    At its core, however, is an issue of American jobs. PNTR 
costs us nothing. The failure to pass PNTR costs us much. We 
urge Congress to cast a vote that in every way supports the 
American workers, the American economy, and America's global 
interests by approving PNTR status for China.
    Thank you, Mr. Chairman.
    Senator Hagel. Mr. Younts, thank you.
    [The prepared statement of Mr. Younts follows:]

                   Prepared Statement of Rick Younts

    Chairmen Chuck Hagel and Craig Thomas, Senators John Kerry and Paul 
Sarbanes, Members of the Committee, thank you for this opportunity to 
appear before you and add Motorola's voice to the many others that have 
been raised in recognition of the importance of China's accession to 
the World Trade Organization (WTO). On behalf of our 130,000 employees, 
I urge swift approval of Permanent Normal Trade Relations (PNTR) status 
with China. This historic step would be good for Motorola and good for 
America. Approval of PNTR would institutionalize a trade relationship 
that Congress has ratified on an annual basis for the last 20 years. 
PNTR also would unlock enormous possibilities in China for U.S. high-
technology companies. As Motorola Chairman and CEO Chris Galvin 
testified in February before the Senate Finance Committee:

          No issue currently before Congress will have a greater impact 
        on the high-tech community, and America's ability to compete in 
        the New Economy, than China's accession to the WTO and the 
        market opening that brings.

    I intend to use this forum to address some of the arguments 
advanced by critics or opponents of PNTR. But before turning to what 
this issue is not about, let's be very clear about what it is about: 
American jobs. Today more than ever, American companies are looking to 
global markets for growth and competitive edge. In the New Economy, 
national borders and trade barriers give way to economic interaction 
and open markets. Though this transition is still under way, and its 
progress neither quick nor easy, this is the future--and where we and 
others will look to strengthen America's role in the global marketplace 
and create new opportunities that support American jobs. Permit me to 
reinforce what others have said: a failure to approve PNTR cedes those 
job-creating opportunities to America's foreign competitors. It also 
denies us the substantial benefits that China's accession to the WTO 
would have for America's economic and security interests.
                      motorola's history in china
    I believe that Motorola is uniquely positioned to comment on doing 
business in China and the judgment Congress has been asked to render on 
PNTR. We speak not only of hopes for the future, but from years of 
practical experience marked by commercial success that has helped 
encourage economic reform and create a better standard of living for 
China's people.
    Make no mistake: We have pursued our strategy of engagement in 
China with ``eyes wide open.'' Our experience as the leading U.S. 
investor in China has not been without its challenges, whether related 
to China's economic transition or the periodic ups and downs of our 
overall bilateral political relationship. But I can report to you today 
that our decision in 1986 to establish a commercial presence in China 
has been an unqualified success for Motorola, our employees and the 
many American companies that support our operations there.
    Motorola operates the largest wholly foreign-owned subsidiary in 
China, and we have another seven joint ventures in the country. Our 
U.S. exports to China amount to approximately $500 million a year, and 
sales from our China operations have been running about $3 billion a 
year, or around 10 percent of our total global sales.
    What has this meant beyond the balance sheet? A great deal that 
goes to the very heart of concerns some have raised in the debate over 
PNTR and WTO accession for China. Motorola has served as a force for 
positive change in China. We have contributed in no small way to a 
process that is reforming and transforming China. We export not only 
American products to China, but American values. Our presence there 
sets an important example of the American way. Through uncompromising 
integrity and best practices in the conduct of our business, Motorola 
demonstrates how China can cope with various contemporary challenges: 
creating a work environment that promotes creativity and harmony; 
balancing individual or corporate interests against the interests of 
society; and seeking efficiency while providing employees with an ever 
better standard of living.
    In doing so, Motorola does not attempt to assume a missionary role. 
But in China as throughout the world, we work to assure that our 
business activities reflect concern for all of our stakeholders, and 
that they maintain the highest standards in respect for the individual, 
responsibility to the consumer, protection of the environment, and 
support for open and fair markets.
    The products of this commitment to core principles are evident:

   We contribute to a more open and accountable government, 
        through steadfast policies forbidding conflicts of interest and 
        improper influence over bureaucratic regulators.

   We promote a cleaner environment by consistently exceeding 
        PRC environmental requirements.

   Through constant training from the top to the bottom of the 
        corporation, we enable our employees to exercise their own 
        judgment and to be innovative in their work.

   We promote personal responsibility by standing behind our 
        products in the marketplace and providing unconditional 
        guarantees to the customers.

   By providing a work environment with standards of 
        cleanliness, performance, remuneration, and fairness well 
        beyond those offered by almost any Chinese company, we have 
        helped raise the expectations of our Chinese employees, who 
        then become more assertive as employees and, perhaps, as 
        citizens.

   Our support for educational and career development programs 
        helps prepare men and women who, exposed to our values and 
        experience, will have key roles in the continuing economic and 
        social transformation we all want to see in China. That has 
        profound implications not only for our commercial interests, 
        but America's broad international interests.
                       effecting change in china
    China is changing. I see new evidence of that every time I visit 
the country. There is lively, open debate about capitalism, market 
reforms, police brutality, the rights of the accused, and the role of 
human rights in a socialist economy. No one questions the fact that 
significant problems remain. But I have witnessed laudable advances 
that can be further encouraged only through continued economic 
engagement governed by established rules of global trade. Motorola's 
activities in China have been guided by the firm belief that our role 
is not to render judgment of China's policies from the sidelines, but 
to be an active participant in the complicated process of modernization 
and hope we can bring the best of what we have learned at home to our 
operations overseas.
    I am attaching for the record (Attachment 1), a commentary that was 
published in the Wall Street Journal by Michael Santoro, a professor of 
business ethics at Rutgers University. Professor Santoro concludes that 
fostering further economic and political liberalization within China is 
most effectively achieved not through campaigning good business 
practice Professor Santoro said in his testimony last month before your 
colleagues on the Senate Finance Committee:

          Ratifying the World Trade Organization agreement with China 
        and granting it permanent normal trading relations advances 
        America's interest in promoting human rights and democratic 
        values. . . . As China opens itself more and more to the 
        outside world, its society will inevitably change as a result 
        of the contacts with foreigners. Indeed business people 
        constitute by far the single most important foreign source of 
        social change within China . . . [and] many of these changes 
        have important positive implications for democracy and human 
        rights. Granting China PNTR will accelerate these social 
        changes. Ultimately these social changes will pose a formidable 
        challenge to China's government, as profound contradictions 
        emerge between the Communist Party's authoritarian rule and 
        China's increasingly free economy and society being created by 
        private enterprise and the free market.''

    The issue of human rights remains a major point of contention in 
U.S.-China affairs. It is a concern shared by all of us and one that 
will require continued attention at the government-to-government level. 
But experience tells that that those most troubled by human rights 
should be among those most supportive of the expanded commercial 
relationship that would result from China's WTO accession and 
implementation of the many concessions China made in the bilateral 
market-access agreement that would flow from approval of PNTR.
         pntr: good for american workers and american high-tech
    In recent years, we have seen encouraging progress by China in 
removing various impediments common to global commerce. China has 
fostered protection for intellectual property, reductions in tariff and 
non-tariff barriers to trade, and the expansion of a legal and 
regulatory regime that governs commercial activity. At the same time, 
we know as well as anyone that problems remain and continued progress 
in trade liberalization and market reform must be made. Fortunately, 
Congress can make that happen--but only if it acts as soon as possible 
to realize the untold benefits represented by PNTR.
    It is nothing short of essential that the world's most populous 
nation be brought under the umbrella of the organization that sets and 
enforces the rules of global trade. Congress can decide whether that 
happens with the participation of the U.S. or without it. And we should 
be clear that this is the choice. China will join the WTO, but American 
firms and workers will reap the benefits of China's market-opening 
moves only if Congress approves PNTR and we agree to treat China no 
worse than we treat any other WTO member.
    The bilateral agreement reached in November is comprehensive in its 
scope, providing substantially greater market access for U.S. goods, 
and services, lower tariffs, and broad trading and distribution rights, 
for nearly every sector of the U.S. economy. This is especially true 
for American high-tech. American high-tech firms across the board--
manufacturers of semiconductors and semiconductor equipment and 
materials, computers, electronics, software and telecommunications 
equipment, as well as U.S. internet companies and telecom service 
providers--have much to gain from the commitments that China made last 
fall and now rest in Congress' hands.
    Several people have asked us why Motorola is so adamant about the 
need for WTO accession when it has achieved so much in China without 
it. The answer is simple. For all we have accomplished in China to 
date, PNTR and WTO accession are key to vast new opportunities that can 
make Motorola an even stronger global competitor, to the undeniable 
benefit of our American employees, suppliers, shareholders and the 
communities where they live and work.
    I am attaching (Attachment 2) our own comprehensive analysis of the 
benefits contained in the bilateral market-access agreement negotiated 
last fall. Of particular interest:

   Enhanced market access: Accomplished through the application 
        of national treatment to imported goods, tariff reductions, the 
        phase-out of non-tariff trade barriers--such as import 
        licensing and quotas--and the extension of trading and 
        distribution rights to all foreign and domestic firms. Tariff 
        rates on information technology equipment such as cellular 
        phones (currently 12 percent) and batteries (18 percent) will 
        fall to zero. Existing import quotas and licensing requirements 
        currently applied to telecom equipment will be phased out, and 
        the right to engage in importing and exporting will be extended 
        to all foreign and Chinese enterprises.

   Investment in telecommunications services: Rules permitting 
        increased foreign investment and management of telecom services 
        in China will accelerate the development of one of the world's 
        largest and fastest-growing telecom markets, creating new 
        opportunities for equipment manufacturers and service 
        providers.

   Greater transparency: Reduced uncertainty in U.S.-China 
        trade, through greater clarity in government regulation, the 
        formal binding of China's tariff schedule, and creation of a 
        process for effective multilateral dispute resolution.

   Accelerated transformation to a market economy: Locking in 
        and promoting further reforms that will accelerate China's 
        transformation from a non-market to a market economy.

    In short, while Motorola is proud of what it has achieved to date 
in China, that may a slice of what is possible under the more open, 
transparent, enforceable and reform-oriented trade regime that would 
come from China's accession to WTO.
          in summary: pntr an invitation to new opportunities
    We urge Congress to recognize PNTR for what it is: an invitation to 
create new opportunities for American workers, farmers and companies, 
and a positive force for change in China. To the extent that human 
rights, environmental or national security considerations enter this 
debate, progress on those issues--and others--is only enhanced, not 
weakened, by the leverage America stands to gain with congressional 
approval of PNTR. This is not a question of ``rewarding'' China for 
policies we may find troublesome or objectionable. It neither ignores 
nor glosses over the fact that the U.S.-China relationship remains a 
complicated one--fraught with controversies and requiring constant 
diplomatic stewardship. Nothing provided a more vivid reminder of that 
ongoing reality than the recent tension that surrounded the elections 
in Taiwan. Legitimate concerns over continued irritants to U.S.-China 
relations do not justify a refusal by Congress to seize the benefits 
accorded by PNTR. We must remain cognizant of the problems that divide 
our two countries and exploit the promise of expanded commercial 
relations--under global rules of fair trade--as a way to address and 
resolve our differences.
    In short, PNTR status is not a blanket endorsement of China's 
policies. Quite to the contrary, it is one of the most best tools we 
have at our disposal to advance America's economic and security 
objectives and influence developments inside China. At its core, 
however, this issue is about jobs. American jobs. PNTR costs us 
nothing. A failure to pass PNTR costs us much. We urge Congress to cast 
a vote that in every way supports American workers, the American 
economy and America's broad global interests by approving PNTR status 
for China.

[Attachments].

                              Attachment 1

    [From the Wall Street Journal: Managers Journal, June 29, 1998]

            Promoting Human Rights in China Is Good Business

                        (By Michael A. Santoro)

    Contrary to what you may have heard, multinationals doing business 
in China can help foster democracy and human rights there.Indeed, by 
pursuing their own self-interests effectively, companies help the 
people of China. In fact, it is the best-run and most successful 
companies that make the biggest impact.
    The most obvious contribution foreign companies make is economic. 
Generally speaking, they pay better than domestic companies, helping to 
reduce poverty and create a middle class with power and interests 
independent of the state.
    But there are other, more subtle ways in which companies can help 
improve China's situation. According to research I've conducted with 
foreign managers and Chinese workers, foreign enterprises impart a 
wealth of formal and informal learning about values and behavior that 
can help to build and sustain democracy and foster support for 
individual rights.
    One way foreign companies make a decisive difference is simply by 
pursuing a policy that all good firms should be practicing at home 
anyway--namely hiring and promoting on the basis of merit. In Chinese 
companies, the best jobs typically go to those with the best guanxi, or 
connections. A typical anecdote: A Chinese woman working for an 
American investment bank in Shanghai told me that when she graduated 
from university she had wanted to work for a Chinese commercial bank, 
but her parents didn't have powerful connections. Now she is happy that 
her promotions will be based upon her performance.
    The reasons why foreign managers generally hire and fire on merit 
is obvious to Westerners: They must answer to owners who care first and 
foremost about the bottom line. By doing so, they foster what in China 
is a radical notion--that individual merit should be rewarded. This 
sense of the value of the individual and of fairness is intrinsic to 
capitalism. It is, at the same time, an essential characteristic of a 
culture that respects human rights. In other words, by simply doing 
what comes naturally, well-run firms can foster human rights.
    Another modern corporate practice that helps China's development is 
teamwork. Companies like Wall's, the ice cream subsidiary of Britain's 
Unilever PLC, understand that their commercial success depends upon 
teamwork, initiative and the sharing of information. Wall's general 
manager for China, Duncan Garood, is concerned about market share and 
profits, not politics. Recently he dispatched a team to cut the costs 
of a particular product. To accomplish this, the workers had to put 
their heads together and think creatively. Again teamwork, initiative 
and the sharing of information are hallmarks of a democratic culture. 
By teaching these skills, foreign companies are helping put in place 
values and practices that in the long run help foster democracy.
    The companies with the deepest commitment to China have set up 
elaborate training programs for their workers. One U.S.-based 
manufacturing company with more than 750 workers in Asia sends each of 
its employees through a training program coordinated from Hong Kong but 
conducted by locals in the local language. Listening to the company's 
regional director of training and education explain the training 
program, one can grasp right away how the training can have a political 
dimension: ``We change a lot and we change very quickly. We don't do 
things the same every time. We improve. We're not focused on the past. 
We value open and direct communication.'' Open communication and 
receptivity to change are ideas that can't be confined to the workplace 
once they're out there.
    The German-based chemical giant BASF, which employs more than 2,000 
people in China, has set up a management development center at 
Shanghai's elite Jiao Tong University. Seeking to teach ``leadership 
and communication,'' the BASF program calls for its local executives to 
``share their thoughts, insights and experiences in a distinctly 
proactive way.'' This emphasis on leadership and communication is in 
marked contrast to the management style prevailing in Chinese state-
owned enterprises, where, as the old Chinese proverb goes, the nail 
that sticks up will be hammered down.
    Such training does not take place only in China. Many foreign 
companies send their top employees on tours of their headquarters to 
develop better communication, or for MBA training at top schools.
    One must be careful not to overstate the impact that foreign 
companies can have on the development of democracy in China. It will be 
interesting to see, for example, whether state-owned enterprises will 
adopt state-of-the-art management techniques successfully to meet 
foreign competition. The spill-over effects of business activity on 
political and social change in China are limited initially to the 
people who work for multinationals and those who associate with them. 
Still, the potential is great. As Ken Grant of Hong Kong-based Market 
Access puts it: ``Who's to say what the impact will be when a couple of 
guys are talking over beer after work and comparing their experiences 
of working in a state-owned company with those in a foreign company?''

 [From the Wall Street Journal Asian and Europe Editions, June 1 & 12, 
                                 1998]

                  Doing Good While Doing Well in China

                        (By Michael A. Santoro)

    Contrary to what you may have heard, multinationals doing business 
in China can help foster democracy and human rights. But here is the 
best part: It is by pursuing their own self-interests effectively that 
companies do good. In fact, it is the best-run and most successful 
companies that make the biggest impact.
    The most obvious contribution foreign companies make is purely 
economic, of course. Generally speaking, they pay better than domestic 
companies, helping to create a middle class with power and interests 
independent of the state. The reduction of poverty alone is a step in 
the right direction in terms of human rights.
    But there are other, more subtle ways in which companies can help 
improve China's situation. According to research I've conducted with 
foreign managers and Chinese workers, there is a wealth of formal and 
informal learning at foreign enterprises about values and behaviors 
that can help to build and sustain democracy, and foster support for 
the rights of the individual.
    One way foreign companies make a decisive difference is simply by 
pursuing a policy that all good firms should be practicing at home 
anyway, namely hiring and promoting on the basis of merit. Sadly, among 
Chinese companies, this is seldom the case; the best jobs often go to 
those with the best connections, or guanxi. In a typical anecdote, a 
Chinese woman working for an American investment bank in Shanghai told 
me that when she graduated from university she had wanted to work for a 
Chinese commercial bank, but her parents ``didn't have powerful 
connections.'' Now she is happy that her promotions will be based upon 
her abilities rather than how well she gets along with her boss.
    The reasons why foreign firms generally tend to hire and fire on 
merit is that they must answer to owners who care first and foremost 
about the bottom line, so they simply cannot afford such a personal 
style. If they don't pay for performance, they will soon go out of 
business. By doing so, they foster the radical notion--radical at least 
in China and some other places around the globe--that individual merit 
matters and should be rewarded.
    This sense of the value of the individual and of fairness is 
intrinsic to capitalism. It is, at the same time, an essential 
characteristic of a culture which respects human rights. In other 
words, by simply doing what comes naturally, well-run firms can make a 
positive human-rights contribution.
    Another modern corporate practice that helps China's development is 
teamwork. Companies like Wall's, the ice cream subsidiary of U.K.-based 
Unilever, well understand that their commercial success depends upon 
teamwork, information-sharing, and initiative.
    Wall's general manager for China, Duncan Garood, is a businessman 
concerned about market share and profits, not politics. Recently he 
dispatched a cross-functional team to cut the costs of a particular 
product whose costs, he thought, were getting out of line. He was 
rewarded with a 10% cost reduction without loss of quality.
    To accomplish Mr. Garood's assignment, Wall's workers had to put 
their heads together and think creatively about re-engineering the 
product. These are, of course, the trendiest ideas in modern management 
science. Any firm not practicing them isn't likely to be competitive 
for very long. Again, though, teamwork, information-sharing and 
initiative are also the hallmarks of a democratic culture. By teaching 
these skills, foreign companies are helping to put in place values and 
practices which in the long run help to sustain a democracy.
    The firms with the deepest commitment to China, in fact, have set 
up elaborate training programs for their workers. One U.S.-based 
manufacturing company with more than 750 workers in Asia sends each of 
its employees through a training program coordinated from Hong Kong but 
conducted by local trainers in the local language. Listening to the 
company's regional director of training and education explain the 
training program, one can grasp right away how the training can have a 
political dimension: ``We change a lot and we change very quickly. We 
don't do things the same every time. We improve. We're not focused on 
the past. We value open and direct communication.'' Open communication 
and receptivity to change are ideas that can't be confined to the 
workplace once they're out there. Not for too long, anyway.
    German-based chemical giant BASF, which employs over 2,000 people 
in China, has set up a Management Development Center at Shanghai's 
elite Jiao Tong University. Seeking, among other things, to teach 
``leadership and communication,'' the BASF program calls for its local 
executives to ``share their thoughts, insights and experiences in a 
distinctly proactive way.'' This emphasis on leadership and proactive 
communication is, again, in marked contrast to the management style 
prevailing in Chinese state-owned enterprise where, as the old Chinese 
proverb goes, the nail that sticks up will be hammered down. The 
training, incidentally, does not take place only in China. Many foreign 
companies send their top employees on tours of headquarters to develop 
better communication, or for MBA training at top schools.
    One must be careful not to overstate the impact that foreign 
companies can have on the development of democracy in China. It will be 
interesting to see, for example, whether state-owned enterprises will 
adopt state-of-the-art management techniques successfully to meet 
foreign competition. The spillover effects of business activity on 
political and social change in China are limited initially to the 
people who work for cutting-edge multinationals and those who associate 
with them. Still, the potential is great. As Ken Grant of Hong Kong-
based Market Access puts it, ``Who's to say what the impact will be 
when a couple of guys are talking over beer after work and comparing 
their experiences of working in a state-owned company with those in a 
foreign company?''

                              Attachment 2

 Motorola Statement on China's Accession to the WTO and PNTR--January, 
                                  2000

    China's accession to the World Trade Organization is good for the 
United States, the world, China, and Motorola.

   The U.S. benefits by gaining better access to China's 
        markets for American manufactured goods, services, and 
        agricultural products.

   The world benefits by applying the rules and obligations to 
        one of the largest trading nations.

   China benefits by promoting and implementing economic, 
        legal, and regulatory reforms necessary to sustain and promote 
        further economic growth.

   Motorola benefits through expanded market opportunities in 
        China.

Specific benefits to Motorola are:

   Enhanced market access: Accomplished through the application 
        of national treatment to imported goods, tariff reductions, the 
        phase-out of non-tariff trade barriers--such as import 
        licensing and quotas--and the extension of trading and 
        distribution rights to all foreign and domestic firms. Tariff 
        rates on information technology equipment such as cellular 
        phones (currently 12 percent) and batteries (18 percent) will 
        fall to zero. Existing import quotas applied to telecom 
        equipment will be phased out, and the right to engage in 
        importing and exporting will be extended to all foreign and 
        Chinese enterprises.

   Investment in telecommunications services: Rules permitting 
        increased foreign investment and management of telecom services 
        in China will accelerate the development of one of the world's 
        largest and fastest-growing telecom markets, creating new 
        opportunities for equipment manufacturers and service 
        providers.

   Greater transparency: Reduced uncertainty in U.S.-China 
        trade, through greater clarity in government regulation, the 
        formal binding of China's tariff schedule, and creation of a 
        process for effective multilateral dispute resolution.

   Accelerated transformation to a market economy: Locking in 
        and promoting further reforms that will accelerate China's 
        transformation from a non-market to a market economy.

    Unconditional MFN is a cornerstone of the WTO. To secure the 
benefits of China's WTO commitments, the United States must recognize 
China as a full WTO Member by extending Permanent Normal Trade 
Relations (PNTR). If the United States withholds PNTR, the benefits of 
China's market-opening may go to our competitors in Europe and Japan, 
while U.S. products and services are excluded.


                                   Scorecard on Motorola's Priority WTO Issues
                                                 (January, 2000)
----------------------------------------------------------------------------------------------------------------
              ISSUE                        OBJECTIVE               CURRENT STATUS              ASSESSMENT
----------------------------------------------------------------------------------------------------------------
Tariff Reduction.................  Reduce and bind            China has agreed to       Very good in terms of
                                    industrial tariffs,        reduce and bind           scope, rates and
                                    Accession to Information   industrial tariffs at     timing. ITA commitments
                                    Technology Agreement       an average rate of 9.4%   will assist in sales of
                                    (ITA) upon WTO accession.  (7.1% for priority        Motorola telecom and
                                                               products). China has      semiconductor
                                                               further agreed to ITA     equipment. Motorola
                                                               with tariff reductions    currently faces PRC
                                                               commencing upon WTO       tariffs of 20% for
                                                               accession. Most ITA       pagers, 18% for
                                                               tariffs will be           batteries, and 12% for
                                                               eliminated by 2003, and   cell phones. All will
                                                               all by 2005.              fall to zero.
Trading and Distribution Rights..  The right to import and    China has committed to    Very good. Will promote
                                    sell the full range of     grant universal trading   Motorola's ability to
                                    Motorola products in       and distribution rights   sell the full family of
                                    China (not just products   to all foreign and        Motorola products and
                                    we make in China). To      domestic firms within 3   provide after-sales
                                    date, China has granted    years of WTO accession.   service with a ready
                                    trading rights to a        China has accepted a      supply of imported
                                    limited number of PRC      broad definition of       components.
                                    firms. Foreign invested    distribution rights to
                                    enterprises have the       cover all forms of
                                    right to import, but       distribution, including
                                    only the inputs            retail and wholesale,
                                    necessary for their        transportation,
                                    manufacturing in           logistics, and after-
                                    country, and to export     sale service.
                                    only those products they
                                    make in China.
National treatment for foreign     Removal of ``bad local''   National treatment is a   Good. Will help deal
 goods and services.                requirements and other     non-negotiable WTO        with ``buy local''
                                    import substitution        principle.                policies used for
                                    policies applied on                                  cellular equipment, and
                                    purchase of telecom                                  to standardize safety
                                    equipment. Imports                                   inspections, and
                                    currently subject to                                 standards criteria.
                                    separate inspection
                                    regimes than same
                                    products made in China.
Transparency.....................  Increased transparency in  China has committed to    Good, but expect
                                    rules and regulatory       enforce only those        continued problems at
                                    structures, and            rules that have been      the local and
                                    consistency in the         published, and to         provincial level.
                                    enforcement of rules.      establish procedures
                                                               for public comment.
                                                               China has further
                                                               committed to establish
                                                               procedures for judicial
                                                               review of
                                                               administrative actions
                                                               that implement the WTO
                                                               agreement.
----------------------------------------------------------------------------------------------------------------

    Senator Hagel. Each of you represent companies that have 
been very successful in China. You have done it right.
    I would like each of you to address some of the 
fundamentals on why you have been successful, why you have done 
it right, how you have done it right. And maybe you could then 
each talk a little about where the biggest challenges will come 
from--that is based, of course, on your experience--as we move 
forward and these things are put in place. I suspect we will 
get a positive vote on this here in the Congress.
    And what are the high-tech companies going to have to 
really focus on, namely the concerns, issues, and challenges? 
And then maybe round it out with your thoughts on what you 
think will be the biggest difficulties China will have in 
implementing their responsibilities as a member of the WTO.
    So however you want to take all that, just have at it, Mr. 
Secretary. We will begin with you.
    Mr. Carlucci. Well, one of the reasons that we have been 
able to grow in China is that we have been very careful to be 
responsive to Chinese needs. They have placed heavy emphasis on 
technology transfer. And in addition to four joint ventures, we 
have two R&D centers in China which have helped them work 
technology basically in the mobile phone area. We also are 
trying to develop a new technology for them, CDMA, but they 
have not yet decided whether they want to utilize that.
    While we have been responsive to their technological needs, 
we have also adhered very strictly to the values of our 
company, the high standards, merit-based employment. We follow 
the same environmental standards in China that we follow here 
in the United States.
    We have behaved in all respects like an American company, 
and that has been a good thing. The Chinese really do want to 
relate to the external world.
    They have decided, they have made a commitment, as I had 
mentioned earlier--this point was stressed to me--that they 
want to enter what he called the ``new economy.'' So they have 
made that commitment and are willing, as I said, to pay the 
price to enter into the new economy. They know this is going to 
be difficult.
    I visited with several of the ministries that will be 
implementing WTO regulations, and one minister said, ``There 
will be both challenges and opportunities, but I think the 
challenges are going to be greater than the opportunities.'' 
Well, that represents his personal point of view, but there has 
been a commitment at the top to do it.
    It is going to mean a large shift in their mentality, away 
from state-owned enterprises, into a market economy. My own 
view is--and Rick has had more experience than I have in 
China--but the Chinese, at the working level, will take very 
readily to a market economy.
    The shift in mentality is going to have to be at the 
political level, but I think that shift is happening, and PNTR 
will accelerate that shift.
    Senator Hagel. Thank you.
    Mr. Younts.
    Mr. Younts. Yes, Mr. Chairman. First, the question about 
success in China. Motorola entered China in 1992 on a contract 
that was signed with the Chinese in late 1991. We entered China 
as a wholly owned company. Still 85 to 90 percent of our sales 
in China come from our wholly owned activity. The majority of 
our technology is transferred through that organization.
    We do have eight joint ventures across China in various 
parts of our manufacturing process, several R&D facilities, all 
of which are wholly owned by Motorola. Today, we have 10,000 
employees working in Tianjin and Beijing.
    All elements of our operations have been installed in 
China, and like Frank said, we operate as an American company 
in China. All of our values are transferred to China, are 
expected to be lived up to by Chinese employees. The two major 
ones are constant respect for people and uncompromising 
integrity.
    We teach that to all of our people, to our suppliers, and 
to our distribution channels; therefore, my comment earlier 
about making a change in some fundamental beliefs in China. We 
have used that base of capability to serve the Chinese market 
in telecommunications, semi-conductor, two-way equipment, and 
other types of technology.
    We continue to grow quite rapidly. I mentioned that about 
10 percent of our corporate revenue for 1999 came out of our 
Chinese operations, and we expect that, with PNTR, to continue 
to grow as the market would open.
    The most difficult thing that I see, and it was mentioned 
by Frank, that China has to face is state owned enterprise 
[SOE] reform. At one time, they had about 370,000 SOE's, most 
of which were not competitive internal, much less external. And 
if China opens to the outside world, it is going to obviously 
put a lot of pressure on these SOE's to either perform or to go 
bankrupt.
    The Chinese have been reforming the SOE's for a number of 
years now. I believe they are down now to about 70,000 SOE's 
that are still on the books, and those are being combined with 
each other to try to make them strong enough to survive, and 
other parts of a reform program are going on.
    Obviously, I think that is going to be potentially a big 
issue, unless managed correctly. Unless reform is pulled off, 
it could create dramatic social issues, unemployment and other 
types of social issues for the Chinese. I see that as their 
biggest issue.
    Senator Hagel. Mr. Younts, just a footnote in history: I 
arrived in Beijing on New Year's Day of 1984 with a Motorola 
cellular telephone specialist at my side. These were in the 
days, as Frank knows, when I had a real job, and did not have 
the high honor of being a Government employee, as I do now.
    I had a cellular telephone company that my partners and I 
put together, and I formed an international company, it was not 
much of one, but we called it an international company. Back in 
1982 and 1983, when my partners and I got into this business of 
cellular telephony, most people thought it had something to do 
with your health.
    So I had a Motorola specialist with me, and we spent 10 
days all over China on trains and planes. It was a most 
enlightening experience for me, for many reasons, but I was 
interested when you said you had formed your company in 1991, 
1990 or 1991--it is not that I am taking credit for bringing 
Motorola to China, but it does tell a little story of how long 
it takes to break into that orbit, and how long it took. I 
suspect, in relative terms, it was a rather quick entry, 
considering.
    But I remember, as we would go into the various Chinese 
telecommunications entities--and I do not think there were any 
private sponsored organizations at that time--we would have 
sometimes 50 Chinese engineers that would be reading over that 
Motorola pamphlet. And being the crafty, agile marketers that 
we were, we had thought ahead and actually had that translated 
into Chinese, although somehow we brought the Saudi Arabian 
brochures with us, but those were minor problems.
    I thought at the time how interested the Chinese were in 
understanding the potential of what this was. And I suspect one 
of the first things I learned about this was, as I did in Latin 
America for the next few years and other places, is when you 
have a technology, it is kind of like D-day on June 6. It 
probably was not good to be on that first wave at Normandy. You 
would far prefer to be on the third wave, stepping over those 
who had gone down before you.
    We were on the first wave, so we were never very 
successful, but I watched Motorola develop over the years. What 
Frank's company has done, and it is instructive, because--as I 
asked the question, ``why have you been successful and other 
companies have not''--and what you said was very important for 
all companies to listen to.
    And the bottom line is: You focused on their needs. And 
when we talked over there in 1984, that was what we came away 
with as well. It is a pretty basic tenet of marketing--focus on 
their needs, and eventually you can break into the market.
    So not that I have added or contributed to the dialog that 
is going with that story, but I have learned a lot from that 10 
days in China, and I have been back many times since.
    Let me ask your opinion, both of you, concerning what 
Chairman Thomas brought up this morning, that is the Lockheed 
issue, which is an extension of the Loral/Hughes problem.
    Where do you break it down? How can you stop these 
components from getting into the hands of perceived bad guys, 
or real bad guys?
    You know we have been struggling up here trying to re-
authorize our Export Administration Act. We have not re-
authorized that since 1994, and we are having difficulty again 
for many reasons. One of the things that I think concerns many 
of us, and each of you have touched on it this morning, is that 
the world is changing at such a phenomenal rate, we cannot keep 
up with it through Government policy.
    I fear that in the process of us attempting to ensure, as 
much as we can, national security, we might, in fact, be 
screwing it down so tightly that we may well end up hurting 
terribly our high-tech industry, satellites being just one 
component of that. So I would be interested in each of your 
thoughts on that general issue.
    What are we not doing right? What should we be doing now 
that we are not doing?
    Mr. Carlucci. Well, in the area of information technology, 
dual-use technology, it is extraordinarily difficult in today's 
world to control exports.
    The administration has just eased up a bit on its 
requirements on computer technology, and I think that is a 
desirable thing. If you go too far, you do restrict the ability 
of American companies to compete. On the other hand, if they 
are too loose, it is inimical to our national security 
interests. So you have to strike a balance.
    I think Secretary Eizenstat emphasized the point that the 
administration intends to continue to enforce the export 
control regulations. There is certainly nothing in PNTR that 
would enhance the likelihood of technology transfer. On the 
contrary, PNTR removes the mandated technology transfer that 
China has insisted upon so far.
    We are now at liberty to move some of that technology back 
to the United States, and export from the United States, should 
we choose to do so. So I think while it is an important, and it 
is an important issue, it is not relevant to PNTR. PNTR would 
not affect technology transfer one way or another.
    Senator Hagel. Do you have any advice outside of the PNTR 
dynamic on this issue, Frank?
    Mr. Carlucci. No. Mr. Chairman, I have been out of 
Government now for 12 years or so, and my wisdom on those kinds 
of subjects is dwindling very fast.
    I can say from my own experience that it is an 
extraordinarily difficult issue that has gotten more difficult 
with the passage of time. In an information society, it is 
perhaps the single most difficult issue that we face in dealing 
with countries overseas.
    Senator Hagel. Thank you.
    Mr. Younts.
    Mr. Younts. Well, unlike Frank, I have not had the wisdom 
to dwindle in this area, but we have had two experiences of 
late through Motorola. One was the transfer of a technology for 
satellite launches on the iridium system that were licensed by 
Commerce, and approved by DOD, and actually monitored by DOD 
onsite.
    And we felt that process was fair to us, and did, in fact, 
protect the technology that was of concern to both Defense and 
Commerce. So our belief is that that system worked pretty well, 
although it had been flawed since that time.
    Recently, semi-conductor technology transfer to China also 
became an issue. We have had that process licensed now through 
Commerce, and again approved by the Department of Defense on 
semi-conductor processing technologies. That is being 
coordinated well, and we think the process seems to work both 
in our favor as well as protecting the technology. But this 
comes from a business guy, not an expert in this area.
    Senator Hagel. You each have just returned from China and 
Taiwan. Frank, I think you were in both, is that right?
    Mr. Carlucci. That is correct.
    Senator Hagel. And Mr. Younts, you went to Taiwan.
    Mr. Younts. Just in PRC.
    Senator Hagel. I would be interested in each of your 
thoughts on what you perceive to be the Chinese expectations 
regarding what they will get out of joining the WTO, and out of 
permanent normal trade relations with the United States? What 
do they believe? What are their expectations on this?
    Mr. Carlucci. My experience was that it was the single-most 
discussed topic in China. They are very keen on entry into the 
WTO, perhaps, as I said earlier, best expressed to me by the 
President of China when he said they were going to enter into 
the new economy. They see it as their opening to the world. 
They see it as their opportunity to develop their country much 
faster, and they see it as an opportunity to deal with some of 
the complicated issues that they face.
    My sense is that they are very much committed to the WTO 
process, recognizing that it is going to entail sacrifices, 
particularly as far as the SOE's are concerned, but it can be 
boiled down to one sentence: They want to be part of the world, 
and they do not want to live any more in isolation. They made 
that decision, and they are going to live with it.
    Senator Hagel. Mr. Younts.
    Mr. Younts. I think that is really two basic gets for 
China. It is, in fact, a continuation of something that Deng 
Xiaoping started in 1978, with an open market economy push for 
China, which has been re-endorsed in the MPC meetings that were 
held last month in China. So it is a continuation of that 
process, and a major step in that direction, because it opens 
China now to the world, and makes them part of the world 
trading community.
    I think there is also a face issue, that China is ready to 
be a full member of the world, and wants to take their rightful 
position as one of the world leaders, and this gives them that 
opportunity.
    As Frank said, I think they are ready for the down side, as 
well as the up side. I was there right after the announcement 
was made. And most of the ministries, if not all, went into a 
one- or 2-week closed session to figure out what they had to do 
to get compliant in their own areas, a very strong process of 
reviewing all of their procedures and processes to make sure 
that they would be compliant by the time WTO was ready to be 
offered and assessed by China.
    So I think those are the primary gets for China, and I do 
not see any down sides at all for the U.S.
    Senator Hagel. Thank you. Let me ask each of you one more 
question. This was brought up directly and tangentially this 
morning in some of the testimony.
    From what I understand, part of the breakdown with the 
European Union and the Chinese has centered around, to some 
extent, the percentage of foreign ownership of 
telecommunications firms. How did each of your companies deal 
with that and get around that issue?
    Mr. Carlucci. Well, it does not really apply to us, because 
we are a manufacturer. It deals with the telephone service 
companies, so we have not been part of that negotiating 
process. We would benefit by increased competition, as China 
adheres to the WTO agreement on telecommunications as a 
manufacturer, but we are not--we do not get into the service 
business.
    Senator Hagel. But, Frank, why do you think that this has 
been a particularly big problem for the Europeans? Obviously, 
we would all like to have a 51 percent controlling interest in 
everything, but there is a phase-in to this, and I have been a 
little surprised that they have allowed this to get somewhat 
out of the box. Are there any other thoughts you have on this?
    Mr. Carlucci. Well, at the risk of sounding cynical, I 
think they would have to have a better agreement than we 
negotiated when they focused on this particular aspect. My own 
sense is that our companies can perfectly well live with the 50 
percent requirement.
    Senator Hagel. Thank you.
    Mr. Younts.
    Mr. Younts. We are also an equipment supplier, so it does 
not directly apply. It is my sensing that all American 
companies who are, are happy with the agreement that we have, 
and would be satisfied if the Europeans get 51 percent, that we 
would also get that deal, as was stated by the Secretary this 
morning. So it is really not a lose situation for us at all.
    Senator Hagel. Is that a general area that you had to deal 
with in any way when you first negotiated your entry into the 
Chinese market, and established your manufacturing bases there?
    Mr. Carlucci. Not in our case.
    Mr. Younts. There was an issue in China in the early 
nineties that most joint ventures, and maybe Frank can address 
it as well, that required many of the ministries to have 
Chinese majority ownership. All of our joint ventures, we have 
majority ownership, and we have control of the board. So that 
was an issue we went into. Those were some very long 
negotiations, but that was an issue that we would not 
relinquish.
    I think that is changing today, where China is becoming 
more flexible, because they are finding they have to in order 
to be able to get the kinds of partners that they are looking 
for.
    Mr. Carlucci. We, too, went through joint ventures. I 
thought you were referring to the service industry, the 50-
percent requirement.
    We established joint ventures. You are required to 
establish joint ventures. Now, with PNTR, assuming it passes, 
that requirement will no longer exist, so it allows more 
latitude to export directly from the United States.
    Senator Hagel. Since you both represent manufacturing 
companies, how big a problem was technology transfer when you 
were negotiating your deals with China?
    Mr. Carlucci. The Chinese insist on that. It is a big issue 
with them, and it is a question of how much technology do you 
want to transfer prudently? We have fortunately been successful 
in doing that.
    Senator Hagel. Mr. Younts.
    Mr. Younts. Well, we are wholly owned. Activity for a 
number, and all the technology that we transferred initially, 
was into our wholly owned activities. So once we started doing 
joint ventures, one of the concerns that we had, and the reason 
we asked for more than the controlling majority ownership was a 
technology issue, but it was also a business control issue.
    Technology is a very broad area, so we have transferred 
technology to those joint ventures in ways of manufacturing 
technologies and manufacturing processes, and management 
skills, and so forth.
    But in terms of technologies that would be a problem for 
national security, or that type of thing, that has not been the 
issue, and the technology that China really needs these days to 
be competitive in the world market and those markets that they 
are in is really on the low end of the technology spectrum.
    Senator Hagel. Gentlemen, would either one of you like to 
present any last parting word?
    Mr. Carlucci. Just that we hope that the Congress passes 
PNTR. I think it is terribly important. I think it is one of 
the more important issues that I have seen in my career with 
government and business.
    Let me echo what Rick said and what Stu said: This is a 
very one-sided agreement. I have seldom seen an agreement in my 
long career that has redounded so much to the benefit of the 
United States as the agreement that our STR negotiated, and I 
think PNTR is absolutely essential for the future of our 
relationships with China.
    Senator Hagel. Frank, thank you.
    Mr. Younts.
    Mr. Younts. A personal comment to your early trip: I would 
like to inform you that China will surpass Japan as the second 
largest cellular market in the world this year. We expect that 
there will be approximately 75 million users in China by the 
end of the year 2000, and that continues to grow, to push the 
U.S. as one of the world's leading cellular marketplaces. 
Another factor, in the year 2002, cellular will outstrip wire 
line as the primary use for telephone service.
    The other issue came up this morning about the Internet. We 
are starting to see many companies put out wireless Web access 
devices into China, and that is starting to occur this year, 
and that will become one of the primary factors in the Web 
access marketplace. So we think that is going to help 
significantly.
    In closing, just to say, as Frank said, that PNTR is 
extremely important and whatever you Mr. Chairman can do to 
push that both in the Senate and the House, we would sure 
appreciate it.
    Senator Hagel. Well, again, this committee is grateful for 
your contributions. We appreciate it very much.
    We will leave the record open for a couple of days. 
Secretary Eizenstat is going to furnish some additional answers 
to questions I think some of my colleagues want as well, and if 
you have any additional comments, we would insert those into 
the record.
    Finally, I appreciate the fact that Motorola has finally 
associated itself with some successful crack marketers to get 
into China, and I applaud that. Not all of us have a Frank 
Carlucci.
    Thank you all very much.
    [Whereupon, at 12:02 p.m., the hearing was adjourned.]

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