[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                         TEN YEARS IN THE WTO:
                      HAS CHINA KEPT ITS PROMISES?

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

                                HEARING

                               before the

              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 13, 2011

                               __________

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              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    LEGISLATIVE BRANCH COMMISSIONERS

House

                                     Senate

CHRISTOPHER H. SMITH, New Jersey,    SHERROD BROWN, Ohio, Cochairman
Chairman                             MAX BAUCUS, Montana
FRANK WOLF, Virginia                 CARL LEVIN, Michigan
DONALD A. MANZULLO, Illinois         DIANNE FEINSTEIN, California
EDWARD R. ROYCE, California          JEFF MERKLEY, Oregon
TIM WALZ, Minnesota                  SUSAN COLLINS, Maine
MARCY KAPTUR, Ohio                   JAMES RISCH, Idaho
MICHAEL HONDA, California

                     EXECUTIVE BRANCH COMMISSIONERS

                  SETH D. HARRIS, Department of Labor
                    MARIA OTERO, Department of State
              FRANCISCO J. SANCHEZ, Department of Commerce
                 KURT M. CAMPBELL, Department of State
     NISHA DESAI BISWAL, U.S. Agency for International Development

                     Paul B. Protic, Staff Director

                 Lawrence T. Liu, Deputy Staff Director

                                  (ii)











                             CO N T E N T S

                               STATEMENTS

                                                                   Page
Opening statement of Hon. Chris Smith, a U.S. Representative from 
  New Jersey; Chairman, Congressional-Executive Commission on 
  China..........................................................     1
Brown, Hon. Sherrod, a U.S. Senator from Ohio; Cochairman, 
  Congressional-Executive Commission on China....................     4
Reade, Claire, Assistant U.S. Trade Representative for China 
  Affairs, Office of the U.S. Trade Representative...............     7
Kaptur, Hon. Marcy, a U.S. Representative from Ohio, Member, 
  Congressional-Executive Commission on China....................    19
Aldonas, Grant D., Principal Managing Director, Split Rock 
  International; former Under Secretary of Commerce for 
  International Trade (2001-2005)................................    25
Price, Alan H., Partner and Chair, the International Trade 
  Practice, Wiley Rein, LLP......................................    27
Prestowitz, Jr., Clyde V., Founder and President, Economic 
  Strategy Institute.............................................    29
Wei, Jingsheng, Overseas Chinese Democracy Coalition.............    31

                                APPENDIX
                          Prepared Statements

Reade, Claire....................................................    44
Aldonas, Grant D.................................................    46
Price, Alan H....................................................    62
Wei, Jingsheng...................................................    77

Smith, Hon. Chris................................................    78
Brown, Hon. Sherrod..............................................    80
Levin, Hon. Carl.................................................    81

                       Submission for the Record

Article submitted by Hon. Marcy Kaptur, U.S. Representative from 
  Ohio; Member, Congressional-Executive Commission on China, 
  titled, ``China's 10-Year Ascent to Trading Powerhouse,'' by 
  Keith Bradsher, from the New York Times, dated December 8, 2011    83

 
                         TEN YEARS IN THE WTO:
                      HAS CHINA KEPT ITS PROMISES?

                              ----------                              


                       TUESDAY, DECEMBER 13, 2011

                            Congressional-Executive
                                       Commission on China,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:34 p.m., 
in room 2211, Rayburn House Office Building, Representative 
Chris Smith, Chairman, presiding.
    Also present: Senator Sherrod Brown; Representative Marcy 
Kaptur.

 OPENING STATEMENT OF HON. CHRIS SMITH, A U.S. REPRESENTATIVE 
 FROM NEW JERSEY; CHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION 
                            ON CHINA

    Chairman Smith. The Commission will come to order, and good 
afternoon to everybody.
    Ten years ago this week, China acceded to the World Trade 
Organization [WTO]. Prior to that, the United States granted 
China permanent normal trade relations, or PNTR. This 
Commission was formed in that process with a mandate to monitor 
human rights and the development of the rule of law, or the 
lack of progress thereof, in China.
    In 1998, two years before China joined the WTO, I chaired a 
hearing of the Subcommittee on International Operations and 
Human Rights of the Foreign Affairs Committee which examined 
whether bringing China into the WTO would improve its human 
rights record.
    At the time, I noted reports from the State Department and 
Amnesty International citing serious problems in several key 
areas of China's human rights record, such as the imprisonment 
and abuse of prisoners of conscience, including those who 
sought genuine independent representation for China's workers, 
restrictions on religious freedom, and the implementation of 
coercive population control, including forced abortion and 
coercive organ harvesting, among other abuses.
    As a member of the WTO, China has experienced tremendous 
economic growth and integration into the global economy. But as 
this Commission's most recent annual report documents, China 
continues to massively violate the basic human rights of its 
own people and systematically undermines the rule of law.
    Lawyers and activists who stand up for individual rights 
are detained, often under deplorable conditions, and tortured. 
Chen Guangcheng, a blind, self-taught legal activist is 
imprisoned in his own home after spending time in prison. Both 
he and his wife had been beaten, often to the point of 
unconsciousness.
    Nobel Laureate Liu Xiaobo continues to serve an 11-year 
prison sentence for peacefully advocating for political reform. 
Web sites that do not adhere to the government line are shut 
down. Freedom of religion is denied to those who worship 
outside of state-sanctioned institutions, and believers are 
systematically harassed, incarcerated, and tortured. Ethnic 
minorities are persecuted as well.
    This hearing, asking whether China has kept its promises as 
a member of the WTO, will also revisit a hearing the Commission 
held in June 2002, six months after China joined the WTO. That 
hearing was titled, ``WTO: Will China Keep Its Promises, and 
Can It? '' There was optimism by some at the time, but even 
that was tempered by caution. China was liberalizing. It was a 
vast and promising market and foreign businesses were eager to 
see the imposition of the WTO's set of rules and principles 
bring some order to the Chinese investment and legal system.
    It seemed at the time that China's leadership envisioned a 
market economy more similar to ours than that of a Communist 
state. However, some people, including me and some of our 
Commissioners, were highly skeptical that the Chinese WTO 
ascension would lead to the rule of law. Would China change the 
WTO or would the WTO change China? Judging by the expressions 
of the past 10 years, I think the answer to the first question, 
whether China has and will keep its promises, is sadly, no.
    Arguably, the Chinese people now have more freedom to 
participate in China's changing economy, but the Chinese 
Government continues to place harsh restrictions on that 
participation. More Chinese citizens are able to travel, but 
many dissidents are barred from leaving the country.
    The deplorable state of workers' rights in the PRC not only 
means that Chinese men, women, and children in the workforce 
are exploited and put at risk, but also that U.S. workers are 
severely hurt as well by profoundly unfair advantages that go 
to those corporations who benefit from China's heinous labor 
practices.
    Human rights abuses abroad have the direct consequence of 
robbing Americans of their jobs and livelihoods here at home. 
Charlie Wowkanech, the president of the New Jersey State AFL-
CIO, testified at my hearing in 1998. It was one of a series 
that we had in the late nineties on the WTO and human rights.
    But at that particular one his words are as true today as 
what he said then. He said, ``Chinese economic policy depends 
on maintenance of a strategy of aggressive exports and 
carefully restricted foreign access to its home market. They 
systematically violate internationally recognized workers' 
rights, and it's a strategically necessary component of that 
policy.
    Chinese labor activists are regularly jailed or imprisoned 
in reeducation camps for advocating free and independent trade 
unions, for protesting corruption and embezzlement, for 
insisting that they be paid wages that they are owed--the so-
called arrearage problem--and for talking to journalists about 
working conditions in China.''
    On the one hand, the Internet seemingly gives Chinese 
citizens greater access to information than was possible 
before, but it is heavily censored, restricting access by 
Chinese citizens to information about U.S. companies to the 
Chinese market. Moreover, the Internet has become a ubiquitous, 
potent weapon of suppression, employed with devastating impact.
    In 2006, I held the first major hearing ever on Internet 
freedom in response to Yahoo's turning over the personally 
identifying information of an email account holder named Xier 
Tao to the Chinese Government, who tracked him down and 
sentenced him to 10 years for sending abroad emails that 
revealed the details of the Chinese Government's press 
controls.
    At that hearing, Yahoo, Google, Microsoft, and Cisco 
testified as to what we might ruefully call their worst 
practices of cooperation with the Internet police of a 
totalitarian government, by China. Since then, China has 
further transformed what should have been a Freedom Plaza to 
Big Brother's best friend.
    The technologies that the Chinese Government uses to track, 
monitor, block, filter, trace, remove, attack, hack, and 
remotely take over the Internet activity, content and end users 
has exploded.
    Last week I introduced the Global Online Freedom Act, a 
bill that requires the State Department to beef up its 
reporting on Internet freedom in the annual country reports on 
human rights practices, and to identify by name Internet-
restricting countries.
    The bill requires Internet companies listed on the U.S. 
Stock Exchange to disclose to the Securities and Exchange 
Commission how they conduct their human rights due diligence, 
including with regard to the collection and sharing of 
personally identifiable information with repressive governments 
and the steps they take to notify users when they remove 
content or block access to content. That would, of course, 
cover Chinese corporations like Baidu and others who do 
business here in the United States and list on the Exchange.
    Finally, in response to many reports that we have all seen 
in the papers recently of U.S. technology being used to track 
down or conduct surveillance of activists through the Internet 
or mobile devices, the barrier to prohibit the export of 
hardware or software that can be used for potentially illicit 
activity, such as surveillance, tracking, and blocking to the 
governments of Internet-restricting countries, especially 
China.
    So could China have kept its promises of a decade ago? Of 
course it could have, though doing so would have meant the 
Chinese Communist Party would have had to submit to the rule of 
law. China faced many challenges when it joined the WTO, 
however, given its economic success and clout, as well as the 
immense resources it has poured into the expansion of the 
state's--on its economy, China certainly could have kept its 
promises if it had wished to do so.
    So how is China doing by WTO standards? Awful. China has 
agreed to abide by the WTO principles of non-discrimination and 
transparency, however, U.S. exporters face many barriers when 
trying to sell products to China, starting with customs delays 
and other problems at the border. Those problems extend into 
China's markets.
    Companies in the large and growing state-owned sector 
operate under a set of policies that favor Chinese producers. 
Also, it is extremely difficult for our companies to access 
government procurement.
    Some of these barriers are obvious, such as China's 
indigenous innovation policy, which has created strong 
incentives to condition market access on the transfer of 
valuable technology, contrary to WTO rules.
    Others, such as directed purchasing of China's main 
products by Chinese state-owned companies are harder to prove, 
notwithstanding China's agreements that state-owned companies 
would operate on a market basis.
    There is no reciprocity--not strictly speaking a WTO 
requirement, but certainly a principle underlying the WTO. It 
is much more difficult for American companies to access the 
Chinese market than it is for Chinese companies to reach buyers 
in the United States. Even China's Internet censorship serves 
to keep American products and services out of the Chinese 
market, blocking access to China and U.S. Web sites, in many 
cases.
    China's record of protection of intellectual property 
rights, a fundamental WTO obligation, is abysmal. Infringement 
of our companies' intellectual property [IP] leads to lost 
sales to China from the United States and other countries, lost 
royalty payments, and damaged reputations, and presents a risk 
to consumers here and in China of unwittingly buying 
counterfeit pharmaceuticals or unsafe, fake products.
    The level playing field promised as part of China's WTO 
ascension has not arrived. WTO membership has resulted in a 
massive shift of jobs and wealth from the United States to 
China, which has come, again, at a huge cost to us.
    Let us not forget the trade deficit is in China's favor and 
it has tripled over the past 10 years. In 2010, it was a 
whopping $273 billion. It also has come at a cost to the 
credibility of the WTO itself, raising the question: Is China 
killing the WTO? Given China's state capitalism and poor 
governance, the impact of China's failure to comply with WTO 
norms is compounded by the WTO's relative inability to deal 
effectively with a mercantilist state-directed economy such as 
China's. The WTO presupposes transparency and rule of law. 
These do not exist.
    I'd like to yield now to Cochairman Sherrod Brown.

  STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM OHIO; 
    COCHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Senator Brown. Thank you, Mr. Chairman. A special thank 
you, Assistant U.S. Trade Representative Claire Reade. Thank 
you for joining us. We look forward to hearing your comments.
    Ten years ago, this Commission grew out of the passage of 
PNTR in the House and Senate and signature from the President. 
This Commission was created to monitor human rights and rule of 
law in development in China. Today we're here to talk about 
what the last 10 years have meant. Chairman Smith, I think, 
outlined that well. We want to understand better whether we're 
better off, whether China's kept its promises, where we are 
headed.
    At the time it joined the WTO, China made many promises. 
Chinese leaders pledged to reduce trade barriers and open up 
markets. They promised to increase transparency, to protect 
intellectual property rights, and to reform their legal system.
    China's supporters, from CEOs to Members of the House and 
Senate, to editorial writers, argued that WTO membership would 
bring human rights and freedom and the rule of law into China, 
magically perhaps. Those of us on the other side of the 
spectrum, including my friend Wei Jingsheng, who is with us 
here today, raised serious doubts about China's WTO membership. 
We did not prevail.
    Yet after 10 years it is clear that China is not living up 
to its promises or to the expectations, as unrealistic as many 
of us thought they were, or the expectations of its supporters. 
Far from becoming freer, the Chinese people are burdened with 
limited rights to basic freedoms of speech, religion, and 
assembly, and it's getting worse.
    From the harsh crackdown on human rights lawyers and 
activists after the Arab Spring, to the brutal policies in 
Tibet that have led to a recent wave of self-immolations, 
China's Communist Party shows no signs of easing its tight grip 
on the Chinese people. There is no better example of this than 
Liu Xiaobo.
    At this time last year Liu was being awarded the Nobel 
Peace Prize, but the dissident writer couldn't travel to Oslo 
to receive the award. He was stuck in a Chinese prison, another 
victim of a system that silences anyone who speaks out for 
human rights.
    At last count, the Commission had documented some 1,500 
cases of political prisoners in China, and those are just the 
ones we know about. Those are innocent people like Liu who are 
being punished for peacefully exercising fundamental human 
rights.
    Not only did WTO not bring freedom and democracy to China, 
it so certainly didn't bring fair trade either. Instead, China 
has flouted WTO rules, rules which they said they would accept 
under the rule of law, and gamed the system to its unending 
advantage.
    While China has chosen to comply with some WTO rules, 
overall the list of WTO violations is a long one: Rampant 
intellectual property theft; massive subsidies for China's 
exports; hoarding of rare earths and other raw materials. China 
has refused to commit to the WTO's agreement on government 
procurement. These violations not only show China's lack of 
respect for the rule of law, they also cost us dearly in lost 
American jobs and a stalled economic recovery.
    U.S. intellectual property-intensive firms alone have lost 
almost $50 billion to intellectual property right violations, 
with those same firms reporting that better enforcement can 
lead to some 1 million new U.S. jobs. Some of the worst 
violations affect Ohio companies forced to compete against a 
country that manipulates its currency and subsidizes its 
manufacturers.
    Given our own companies' well-founded fears of retaliation 
by Chinese regulators and companies if they speak up, we in 
government should be charged with the responsibility to give 
voice to their concerns. We know of petitions at ITC [U.S. 
International Trade Commission] and the Commerce Department 
where unions would petition and companies would be afraid to 
join those petitions because of potential retaliation in the 
business they are doing in China.
    The most damaging of China's unfair trade practices is its 
currency manipulation. By deliberately holding down the value 
of its currency to boost exports, China has built the largest 
trade surplus in history, to the detriment of the United States 
and other trading partners. Currency manipulation provides an 
unfair subsidy to Chinese exports of up to 40 percent, by the 
estimate of some economists.
    One of those economists is here today with us, Clyde 
Prestowitz, who has estimated that the percentage of the unfair 
subsidy to China is up to 40 percent. It practices the most 
protectionist policy of any major country since World War II, 
according to economist Fred Bergsten of the Peterson Institute.
    Additionally, American manufacturers seeking to sell their 
products to China, our Nation's fastest-growing export market--
from a fairly small base, I would add--are hit with the same 
percentage in what amounts to an unfair tariff. The advantages 
enjoyed by Chinese manufacturers cost American jobs not just in 
traditional industries like steel and autos and textiles, but 
jobs in wind, solar, and clean energy sectors, critical to our 
recovery.
    There is no indication it will get better. In fact, China's 
state-owned sector is growing, further skewing the playing 
field in favor of China's heavily subsidized state-owned 
enterprises. With no end in sight, we have got to do something.
    I applaud the U.S. Trade Representative for more aggressive 
efforts to challenge China in the WTO in everything from 
Internet censorship to raw materials. I look forward to hearing 
from Assistant U.S. Trade Representative Reade on her office's 
plans going forward. There is much more we can do.
    That's why the Senate voted this fall to address currency 
manipulation by a resounding vote of 63 to 35. We passed the 
Currency Exchange Rate Oversight Reform Act of 2011, 
legislation I authored with several colleagues. It represents 
the biggest bipartisan jobs legislation the Senate has passed 
this year. I encourage the House to bring the currency bill to 
a vote. The House has passed that bill overwhelmingly in 
similar legislation from a couple of years ago.
    American workers and American manufacturers can compete 
with anyone. Over the last 10 years though, China has sought to 
sidestep and reshape the WTO to benefit China at our expense. 
That is not competing, that's cheating. We must act now while 
we still have a chance.
    Thank you, Mr. Chairman.
    Representative Smith. Chairman Brown, thank you very much.
    I'd like to now introduce and thank Claire Reade, who is 
Assistant U.S. Trade Representative for China Affairs at the 
Office of the U.S. Trade Representative [USTR]. She is 
responsible for developing and implementing U.S. trade policy 
toward China, Hong Kong, Macau, Taiwan, and Mongolia. 
Previously, Ms. Reade served as Chief Counsel for China Trade 
Enforcement at USTR in the beginning of 2006.
    Before joining USTR, Ms. Reade was a senior partner at 
Arnold & Porter, where she was an international trade litigator 
and counselor. Thank you so very much for being here today and 
we look forward to your testimony.

STATEMENT OF CLAIRE READE, ASSISTANT U.S. TRADE REPRESENTATIVE 
   FOR CHINA AFFAIRS, OFFICE OF THE U.S. TRADE REPRESENTATIVE

    Ms. Reade. Thank you very much. Chairman Smith, Chairman 
Brown, I appreciate very much the opportunity to testify today 
on China's efforts to fulfill the commitments it made when it 
joined the WTO 10 years ago. This is a matter of great priority 
for the administration and for U.S. Trade Representative, 
Ambassador Ron Kirk.
    When China acceded to the WTO, China's leaders took many 
impressive steps to implement a set of sweeping reforms in 
order to meet its commitments. These steps unquestionably 
strengthened both China's rule of law and the economic reforms 
that China had begun in 1978. Trade and investment also 
expanded dramatically, providing substantial opportunities for 
U.S. businesses, workers, farmers, and service suppliers, and a 
wealth of affordable goods for U.S. consumers.
    Despite this progress, the overall picture of China's 
actions to implement its WTO commitments remains complex, given 
a troubling trend in China toward intensified state 
intervention in the Chinese economy over the last five years.
    In short, even with the tremendous progress that China has 
made in the complex task of implementing its WTO commitments, 
critical work remains. Today I want to highlight four areas 
that continue to cause particular concern for the United 
States. For more details, I would refer the Commission to the 
2011 USTR Report on China's WTO Compliance that was issued 
yesterday by the USTR, and I will submit a copy of this for the 
record.
    The first area I want to focus on is effective enforcement 
of intellectual property rights in China. This remains a 
massive challenge. Counterfeiting and piracy in particular 
remain at unacceptably high levels in China and trade secret 
theft is also becoming very worrisome.
    Second, China's pursuit of an array of industrial policies 
raises serious concerns. Subsidies and other discriminatory 
policies benefit state-owned enterprises, as well as other 
favored companies.
    Third, even though China is now the United States' largest 
agricultural export market, this massive and beneficial trade 
does not flow as smoothly as it should, given problems with 
regulatory transparency and predictability.
    Finally, even though the United States continues to enjoy a 
substantial surplus in trade and services with China and the 
market for U.S. service suppliers remains promising, China's 
discriminatory regulatory processes and other similar problems 
frustrate efforts of foreign suppliers to achieve their full 
market potential in China. Going forward, Ambassador Kirk will 
continue to vigorously pursue increased benefits for U.S. 
stakeholders in all of these areas.
    Let me turn, now, to another important area: transparency. 
This is one of the core principles of the WTO agreement and is 
reflected throughout China's WTO accession commitments. These 
commitments required a profound shift in Chinese policies and 
China did make important strides to improve transparency. 
Nevertheless, it appears that China still has more work to do.
    Three areas of remaining work stand out. First, China 
committed to publish all of its trade-related laws, 
regulations, and other measures. While China has complied in 
many respects, it still does not appear that China publishes 
all its measures.
    Second, China committed to published trade-related measures 
for public comment before implementation. China has made 
important improvements in this area, but some agencies continue 
to promulgate final measures with little or no opportunity for 
public comment.
    Third, China committed to make its trade-related measures 
available in one or more WTO languages, but it appears China 
has made very limited progress in implementing this commitment.
    The administration will continue to push China to undertake 
further necessary steps to improve transparency. China's WTO 
membership offers an important tool for managing the 
increasingly complex U.S.-China trade relationship.
    A common WTO rulebook and an impartial body in Geneva have 
helped the two sides resolve differences and the United States 
has not hesitated to pursue its rights with China through WTO 
dispute settlement. In the last three years alone, the United 
States has brought five cases to the WTO on wind power 
subsidies, misuse of trade remedy law, discriminatory barriers 
in the service sector, and trade-distortive export restraints.
    These disputes, combined with the enforcement work we 
pursue in the Joint Commission on Commerce and Trade, the 
Strategic and Economic Dialogue, and other trade tools, 
including Special 301, help try to ensure that U.S. 
stakeholders derive the full promise of China's WTO membership.
    The importance of the WTO to the U.S.-China relationship 
highlights the fact that for China itself there is a critical 
stake in strengthening the WTO system. That means, for example, 
that at the upcoming WTO ministerial in Geneva, China should 
join in to help solve the Doha Round impasse and implement 
meaningful trade liberalization and credible trade rules to 
govern the WTO's system in the future.
    Thank you very much for the opportunity to testify today. I 
look forward to hearing your questions.
    [The report is retained in Commission files.]
    [The prepared statement of Ms. Reade appears in the 
appendix.]
    Senator Brown [presiding]. Thank you, Ms. Reade, very much.
    Let me start with one of the points you just made about the 
five WTO cases against China since Ambassador Kirk assumed his 
position, I believe in March 2009. There were some seven cases 
filed in the many more years than that prior to his taking that 
position. There are a number of us in the Senate and the House 
who have fought for more money for trade enforcement who would 
like to see a more aggressive USTR, not just on China issues 
with WTO and bilaterally, but with other countries, too.
    But speak, if you would. Does this increased frequency from 
seven cases over a several-year period to five cases in less 
than two-and-a-half years, does that reflect a change in the 
way the United States perceives China's role in the WTO, and is 
that something we can expect to continue, in your view?
    Ms. Reade. I think it's very clear that this administration 
has made enforcement a top priority, and that includes 
enforcement with regard to our rights vis-a-vis China. So not 
only do we have the five WTO cases that you mentioned, but we 
are the first administration to implement remedies in response 
to a Section 421 petition on Chinese tire imports, as well as 
the first administration to accept a Section 301 petition 
against China since China joined the WTO, which led, as you 
probably are aware, to the WTO case on wind power subsidies.
    So I think there's no question that this is a high priority 
and that the administration is extremely committed to ensuring 
that we enforce our rights vigorously in the WTO.
    When China first joined the WTO one could say that it took 
a watch-and-wait approach as it became more familiar with the 
WTO, so I think its role has changed over time. I would say 
this actually shows up both in China's dispute settlement 
activities and in its role in the Doha Round.
    I would say with regard to dispute settlement, we have no 
problem dealing with China's legitimate complaints. In fact, 
China brought a complaint against our use of the Section 421 
mechanism and the WTO completely vindicated our rights to 
impose those import tariffs on tires.
    We have seen troubling evidence of China increasing its 
intervention in the economy, and we have responded accordingly 
in our enforcement efforts, both against state-owned 
enterprises, for example, the pending electronic payments case, 
as well as a number of cases on troubling subsidies brought by 
China. So I would say that we are intensifying our efforts. 
This is a very important tool and we need to use it to its 
fullest.
    Senator Brown. Thank you.
    The 421 case on tires had several interesting aspects, 
starting with the petitioner, the United Steelworkers, formerly 
the Rubber Workers--they are now part of the Steelworkers. It's 
a company headquartered in Findlay, Ohio. What was interesting 
is that the company did not join in the petition for reasons, 
perhaps, of potential retribution on their operations in China.
    We know that the company didn't specifically say, to my 
knowledge, what all the reasons were that they were not part of 
that petition, but I think it speaks to the issue of the 
Chinese willing to intimidate and perhaps deny various kinds of 
services or business in China if they enter those kinds of 
cases.
    I would also add that after that decision was made, within 
a matter of days, I recall--weeks, certainly, it seems days--
that Cooper Tire hired about 100 more steelworkers in Findlay 
because clearly the Chinese were dumping tires before that.
    You mentioned 301. Before I get to a question about 301, 
let me ask a pretty simple question. During the whole PNTR 
process, one of the things we talked about was not just the 
differential in wages between China and the United States, but 
the whole issue of labor rights. Labor rights were not 
obviously considered in WTO accession for China. Has the 
absence of labor standards made it more difficult to level the 
playing field?
    Ms. Reade. The issue of labor rights is incredibly 
important and it's one that has to be dealt with using all of 
the tools that we have available. You are correct in indicating 
that the WTO framework does not deal directly with labor 
rights, however the U.S. Trade Representative's Office 
participates in several fora where these issues are dealt with. 
One is the labor dialogue, which also involves our Labor 
Department, which is an important venue for dealing with some 
of these issues.
    In addition, we participate in the human rights dialogue, 
which is led by the State Department, which also deals with 
these questions. I think there is no question that this was 
part of the reason why your Commission was created and that 
it's extremely important to continue to air these issues.
    The U.S. Trade Representative, in its own lane, is taking 
actions that are designed to ensure a level playing field. 
First, the issues of rule of law and transparency are extremely 
important. Issues of non-discrimination are also very 
important.
    The 12 WTO cases that we have taken against China, 
accepting and acting upon a Section 301 petition, and imposing 
remedies in response to a Section 421 petition, I think, are 
all testaments to the fact that we don't hesitate to use WTO 
dispute settlement and other enforcement tools in addition to 
bilateral dialogue, because there are instances when China has 
been willing to resolve situations without going to the WTO. 
The array of trade challenges with China are definitely things 
that we are working on night and day and that require all of 
our efforts together, and we welcome your continued help.
    Senator Brown. Thank you.
    You mentioned at the beginning of your answer to that 
question about labor rights, you said, ``with all the tools we 
have available.'' What tools do you wish you had available to 
enforce labor rights?
    Ms. Reade. I think----
    Senator Brown. Whether it's ILO standards or wherever your 
answer takes you.
    Ms. Reade [continuing]. I will have to defer that to the 
Labor Department, and to the extent it's human rights, to the 
State Department, that lead those dialogues because I think 
they are better positioned to answer that.
    Senator Brown. Okay. Fair enough.
    I want to talk about Section 301. Over the years, Members 
of Congress and groups of industry and unions have petitioned 
the USTR and China on labor rights, economic issues, currency 
issues, all kinds of things.
    The Bush administration, as you may remember, dismissed, I 
thought amazingly and perhaps infamously, the labor position in 
a matter of hours when some unions--I think it was the AFL--had 
offered petitions to USTR and China's currency manipulation in 
2005 and 2007.
    In a 301 investigation, USTR seeks consultation with the 
trading partner, which we would hope would resolve in a 
settlement, or USTR then would initiate a more formal process. 
There is broad discretion as to what that action might be, as 
you know, whether it's a case at the WTO or whether it's 
imposing duties.
    As you also know, a 301 can be self-initiated by an 
administration. I won't ask you whether you think China 
manipulates its currency, I think there's no question. The last 
three or more presidential administrations notwithstanding, I 
think it's pretty clear they do manipulate currency. But I 
won't ask you that question.
    We're waiting on the Treasury Department again to submit to 
Congress its biennial report on that issue, but I'm not holding 
my breath. It continues to amaze me that an administration that 
cares about what this one says it does would not do that, but 
that's another issue.
    Let me ask it this way. How would a Section 301 petition on 
currency be received if that were filed with USTR today?
    Ms. Reade. Other countries' currency policies are the 
responsibility of the U.S. Treasury Department within the 
administration. What I can say on the currency issue is that 
both President Obama and Secretary Geithner have said that 
China's progress to date is insufficient and that China needs 
to do more.
    Senator Brown. If there were petitions submitted--I'm not 
going to let you get off quite that easy, but nice try. And I 
appreciate your input on this and I know you're in a difficult 
position. But if this petition were received, the Section 301 
petition were sent to you, how would the decisionmaking process 
work at USTR? Is this a decision that would be--can you answer 
that, even? But give me your thoughts on that.
    Ms. Reade. Yes. I'm not sure I'm in a position to answer 
the question, unfortunately, because I'm not the person in 
charge of Section 301 at USTR, that is the office of general 
counsel. Second, it obviously very much depends on what the 
petition is as to what happens. So unfortunately I'm not going 
to be able to be helpful.
    Senator Brown. Why do you think 301 is not utilized more? 
Do you think that outside groups don't utilize it much because 
of its sort of wholesale rejection or almost unthinking 
rejection at times in the history of the USTR? Do you think 
it's not seen as effective? Do you think that groups think it's 
futile? Not the self-initiated 301, but 301 coming from 
petitioners.
    Ms. Reade. Let me say two things on that. First of all, 
this administration is the administration that accepted a 301 
petition, for the first time since China came into the WTO. So 
I think it's clear that this administration has a positive view 
toward the role that Section 301 can play.
    I think if you look at what happened through the Section 
301 petition you also see that it led to a WTO complaint and to 
resolution of a problem on a very serious subsidy in wind. It 
also resulted in progress at the JCCT [Joint Commission on 
Commerce and Trade], where we got another problematic wind-
related provision removed, as China recognized the problem. I 
have little doubt that the Section 301 petition assisted in 
that.
    The other initiative that I would tie to this situation is 
the work that was done to do the counter-notification in the 
World Trade Organization, where the United States notified more 
than 200 subsidies that China had not notified to the WTO, and 
a number of these were also in the clean energy sector.
    There is no question that there is a positive role to be 
played, and you can see the kinds of efforts that the 
administration has taken when a Section 301 petition is 
accepted.
    Senator Brown. How did USTR know about those 200-plus 
subsidies? What's the process to identify those and research 
those and identify them as a problem, research them and be able 
to conclusively say they're subsidies?
    Ms. Reade. There are a number of routes that are taken. We 
use our own resources, both inside USTR--it's a very small 
agency--as well as the other agencies in the administration. As 
you know, the Department of Commerce is tasked with 
investigating potential subsidies, so that is another source of 
information for us. They also have an obligation to create a 
library of subsidy practices.
    In addition, we use our very able embassy colleagues in 
Beijing, and we cannot do without our stakeholders. We take 
eyes and ears from everywhere in order to work on these 
problems.
    Senator Brown. How important is it in that panoply or array 
of places you get input from--sorry to mix a metaphor there--
how important is it that companies or unions come forward and 
say ``We think this is a subsidy?'' Is that a major part of the 
information you get?
    Ms. Reade. It's extremely important to get the facts. 
That's the key--I'm putting my former lawyer hat on--because 
that is what allows you to take action when you have a basis 
for doing so.
    Senator Brown. I'm not suggesting that a company or union 
come forward and say this is a problem and you're immediately 
going to say, oh, that's a fact, we'll move. I'm saying, do you 
find out about these subsidies in part because a company in 
Brunswick, Ohio, or a company in Toledo says I think they're 
cheating, can you look into this? Is that a big part of what 
you get?
    Ms. Reade. I would say it is a very valuable contribution. 
I can give you an example. We had a case at the WTO on famous 
export brands and some of the work on that actually came up 
from concerns that textile organizations had and that they 
brought to our attention. We also have had steel industry folks 
come to us with their concerns.
    Outside of the subsidies area, I can tell you that the 
issues of export restraints on raw materials is an area where 
stakeholders have come to us and helped us put the beads on the 
necklace to realize that this was a cross-cutting policy that 
was having a major effect on our stakeholders. So it's 
definitely a very valuable contribution.
    Senator Brown. Are you more likely to hear from a trade 
association, an individual company, or a union?
    Ms. Reade. I don't think that there's one organization or 
another that we're more likely to hear from. I would say that 
when you have an organization that has resources that are 
devoted to trying to track certain issues, that you obviously 
are going to be able to get more detailed information from that 
organization. So it is when organizations are committed to 
looking at issues, for example, like transparency or indigenous 
innovation or particular subsidies, that you will get the 
benefits of their research.
    Senator Brown. Do you make any effort--we try to in our 
State. Chris Slevin, sitting behind me, one of his jobs is to 
work with companies and if they see problems, help sort of 
funnel those issues that we can analyze. As good as Chris is, 
we don't have the staff or expertise to do what you can do on 
the ground in Beijing, and all that.
    So we do some proactive, ``Please come to us and tell us if 
you see problems and we will help you prove it or find out it's 
not true.'' Do you do that kind of proactive work at USTR? If 
the answer is ``a bit,'' or ``yes,'' or ``we'd like to do 
more''--we hope some of the additional funding we're trying to 
get you will help you do that--is there an effort? Is that a 
charge from Ambassador Kirk that you have a responsibility to 
do?
    Ms. Reade. We make as much of an effort as we can to be 
proactive in trying to look at possible issues. I should have 
added the Congress to the list of sources where we get 
important information. The input that we get from your 
constituents coming in and the information from your offices 
directly is extremely helpful to us.
    In addition, we are very grateful for the resources that 
are in the President's budget to enhance the efforts that we 
make. Right now, we are working around the clock to try to 
identify the problems we face with China, so it's something we 
take incredibly seriously. We welcome your assistance and your 
support.
    Senator Brown. Would it make sense for you to go to trade 
associations, particularly in industries that you suspect might 
be losing jobs and market share because of foreign competition 
that might or might not be fair? Would it make sense for the 
USTR to have a program to go to those trade association 
meetings and work with those industries and have them--
encourage them to come forward and talk to you about any of 
those potential problems?
    Ms. Reade. We have a great deal of interaction with our 
stakeholders. We have it through the Joint Commission on 
Commerce and Trade [JCCT] process. For example, the JCCT is a 
year-round process and we start that every year with meetings 
with stakeholders and as many industry associations as we can 
get together with to identify both WTO problems and problems 
that may not be, as well as challenging issues that we may be 
able to resolve before they become WTO problems. So that is an 
integral part of what it is we do.
    I should also indicate that prior to issuing our WTO 
compliance report to Congress every year we ask for input from 
all stakeholders, including a Federal Register notice asking 
for submissions and testimony at a public hearing that we hold, 
as well as a range of followup activities. So we are doing the 
best we can. We can always do more and we welcome your ideas 
about that.
    Senator Brown. I have one. I would like to ask you to 
encourage my colleagues, as I try to do, but you can do it from 
a more official, nonpartisan, outside way--or inside way, too, 
for that matter--to urge Members of Congress to work with you 
on that in a proactive sort of way.
    I don't think most Members of Congress think a lot--I mean, 
some of us worked on trade issues in China longer than others, 
just an issue we chose to work on. People have some 
entrepreneurial spirit around here in the sense of what they 
decide to do.
    But in any sort of constructive, methodical way that you 
can encourage House and Senate Members to encourage their 
businesses to come forward to help us enforce these trade 
laws--I mean, I could rattle off, which I do ad nauseam, 
probably, companies in Ohio that have done better and have done 
significant hiring because of enforcement that the Obama 
administration has done.
    While I don't think that you are aggressive enough as an 
administration, I don't think that your position on trade is 
always where it should be, I think you've been better than at 
least the last three or four of either party on enforcement of 
trade law and we want to continue to push you. Anything you can 
do to get my colleagues to enter that fray would be helpful.
    Ms. Reade. Thank you. I made a note, and we'll definitely 
follow up.
    Senator Brown. Good. Thank you.
    And I apologize for this. I will call a short recess until 
Chairman Smith comes back and then we'll continue. If you can 
remain a few more minutes, Ms. Reade, and then the second panel 
also can. I apologize for that. Thanks.
    [Whereupon, at 3:15 p.m. the hearing was recessed.]


                        after recess [3:24 p.m.]


    Chairman Smith [presiding]. The Commission will come to 
order.
    I have a few questions and I thank you for your willingness 
to stay. We did have four votes on the floor of the House, so I 
apologize again.
    I know Senator Brown asked a few questions relative to 
workers' rights, and I would like to ask specifically, what 
efforts has USTR undertaken, or will undertake, to investigate 
labor rights violations in China? You might recall back on June 
8, 2006, I co-signed a 301 petition that was written by Mark 
Barenberg, Professor of Law at Columbia, on behalf of the AFL-
CIO.
    Frankly, it was one of the finest bits of investigative 
reporting, and in terms of the petition it was very heavily 
footnoted and I think got to a lot of the issues with regard to 
worker rights violations that have not really been focused upon 
anywhere sufficiently enough.
    For example, number six of the petition talks about the 
pattern of denying workplace rights and standards, denial of 
free association and rights of collective bargaining, the sub-
class of migrant factory workers, bonded labor. Failure to 
provide standards for minimum wages and maximum hours. Failure 
to provide standards for occupational safety and health.
    I would note parenthetically, he points out in this that 
even the government reports large numbers of people who die 
every year. I think the number he puts in there is close to 
130,000, and that's the reported figure, because there is no 
such thing as OSHA [Occupational Safety and Health 
Administration] in the PRC. Failure to provide child labor 
standards. Failure to enforce rights against forced labor in 
the penal system. It goes on and on with, again, heavily 
documented, heavily footnoted information.
    I remember asking USTR at the time, and we actually had a 
Foreign Affairs Committee hearing and I lifted up the petition 
which I had signed onto--Ben Cardin and I were the two, and the 
AFL-CIO, John Sweeney and Richard Trumka, secretary and 
treasurer of the AFL-CIO--and asked that at least an 
investigation be initiated and we were told no, that it would 
not happen. It seems to me that the barest minimal action 
should be to undertake an investigation like this.
    I meet with people involved with trade in China all the 
time. Even though they know my position with regard to human 
rights, many are very empathetic. I would just note 
parenthetically that Google was against the Global Online 
Freedom Act for the first year after I introduced it. It was a 
different version, but it was still so named.
    They came around and actually supported it because they 
finally realized they weren't opening up China, they were 
unwittingly closing it down. I've always argued there are two 
things necessary for a dictatorship to survive and prosper, 
propaganda and secret police, and certainly the Internet aided 
and abetted both of those parts of that equation.
    So I would ask you, I plan on doing a formal letter to 
USTR, asking that an unfair labor practice be investigated vis-
a-vis labor issues. We will be sending that letter over to your 
office very shortly. Hopefully some other Members--and I'm 
sure--will sign on. But it just seems, in a time when--in this 
report, the wages at 10 to 50 cents per hour, the wage issue 
where people don't even get paid, despite all of it there are 
all these wildcat strikes, as you know, and people suffer. The 
iron fist comes down.
    I've had hearings in the past where we had labor rights 
activists who were not going back, they had gotten asylum, tell 
how despite all of this they would still try to organize and 
achieve what the ILO would recognize as a minimum standard for 
labor rights.
    So I would ask you, please, to undertake an investigation. 
We'll do the letters, if you need additional push, as a 
Commission. But it seems to me this is an idea whose time has 
come. I met a man in New Jersey who was doing business in 
China, and he said when he got over there it was kind of like a 
company fair that China had put on.
    He got to talking to the Chinese leadership who were part 
of this effort and they got into wages, and what do I pay my 
salaried employees. They said, don't worry about it. For every 
one person, you can pay them the barest minimum because if that 
person doesn't want the job there's 99 in line that will take 
the job for a mere pittance.
    Again, no occupational protections whatsoever in many 
cases--not all certainly, but many. So it seems to me, as I 
said in my opening, how does our laborers, since foreign 
sourcing has become the--and you even said yourself that things 
have gotten worse in the last five years. There seems to be a 
deterioration. As they gin up even more on their exports, more 
people will be exploited.
    We all know if we're reading the papers, people are out on 
the streets, they get incarcerated, and they get beaten. And 
let's not forget, where did freedom come from? The trade unions 
and solidarity. Lech Walesa, the great leader in Poland. This 
is the linchpin, I think. So if you could undertake an 
investigation into labor exploitation as an unfair labor 
practice.
    Ms. Reade. Thank you very much, Congressman. This is an 
incredibly important issue and the work that you're doing on it 
to make it evident and to speak about it is very important. 
This administration believes this is an incredibly important 
issue and wants to take all avenues that are appropriate.
    This is a human rights issue and the State Department has 
the lead. We also can address many of these issues in the labor 
dialogue, a recent innovation, with China, led by the Labor 
Department. It is also, as I had mentioned earlier, a very 
important reason why this Commission was brought into being.
    So we think this is an incredibly important issue and are 
very appreciative of your continuing to air your concerns. I 
obviously will take back your concerns to the USTR and make 
sure to inform Ambassador Kirk.
    Chairman Smith. I appreciate that. Because at the time we 
were told they wouldn't. Again, I don't care who's in the White 
House. This was during the Bush administration and I'm a 
Republican. It was very critical and the USTR would not, or 
failed to even initiate a preliminary investigation.
    So I would hope, barest minimum, begin that investigation 
because this is Pandora's Box. As this gets opened up, we 
realize how cruelly exploited these people are. I would note 
parallel to this, since the days of George H.W. Bush and then 
was carried over into Clinton, carried over into George W. 
Bush, the whole idea of gulag labor, which is in violation of 
Smoot-Hawley, I can't tell you how many times over the years 
the administrations have trotted out, ``Oh, but we have an MOU 
[memorandum of understanding] with the PRC on importing goods 
made by prison labor.'' It sounds good on paper, but it's a 
Swiss cheese agreement, filled with huge, gaping holes.
    I've met with our Customs people every time I go to China 
in Beijing, wonderful Customs agents, and they are like the 
Maytag repairman because the way it reads, unless we have 
actionable information that we then give to the Chinese, they 
investigate, they tell us what they find and then we act from 
there. Good luck getting the Chinese Government, that makes 
money hand-over-fist from exploitation, to actually do it.
    So I know this is a State Department issue, but it's 
related to the unfair labor. As Harry Wu and Wei Jingsheng and 
so many others have pointed out, so many parts get produced in 
these factories with political prisoners, Falun Gong, 
Christians, Tibetans, all being reduced to slave labor and it 
ends up on our shelves.
    I would note parenthetically that Frank Wolf and I, right 
after Tiananmen Square, got into Beijing Prison Number One. 
While we were there we took some jelly shoes--we asked. We 
didn't steal them. We took them from Warden Jo, who actually 
said, okay, you can have them--and some socks that were being 
exported to the United States. He wondered why we wanted jelly 
shoes. They were the big craze, you might recall, back in the 
early 1990s.
    Sure enough, there were 40 Tiananmen Square activists in 
that prison camp, all with shaved heads. They looked like 
concentration camp victims that you would find in Nazi Germany 
or anywhere else. Although they weren't being killed, they were 
being exploited to the point of exhaustion, though. They 
wouldn't let us talk to them, but we did take back the shoes.
    Well, we gave them to Commerce and an import ban was put on 
that because we had verifiable information about its origin. It 
seems to me we need to revisit the whole MOU issue because so 
many products are being made, nobody knows how many, that end 
up on our shelves, being made by gulag labor. So I plan on a 
separate hearing on that, either in my subcommittee or here in 
the Commission, shortly because the time has come to end that 
practice.
    So I would ask you to factor that in, bring that back if 
you would, because these things are showing up on our shores 
and we had no idea what the proof of origin is, but we 
certainly can be suspect about it.
    Did you want to comment on the MOU at all, or not?
    Ms. Reade. No. You asked me to take it back and I'm making 
a note to be sure that I remember to take it back. It's another 
area that is incredibly important, and we really appreciate 
your keeping it in the spotlight.
    Chairman Smith. Let me just ask you, recently the USTR had 
requested, through the WTO, information on China's Internet 
censorship. Has the PRC responded to the United States? Do you 
foresee a case against China concerning that censorship? And 
again, I applaud you for initiating that in the first place.
    Ms. Reade. Because it's the WTO where we are looking at the 
trade and investment implications of China's policies, the 
purpose of this request was to respond to problems that our 
small- and medium-sized enterprises have had where their 
opportunities to provide services into China have been 
frustrated by having their Web sites blocked for reasons that 
they can't understand.
    So the purpose of this set of questions was to try to gain 
insight into what was going on and try to solve the problem. So 
in the first instance, that's what we're really trying to 
accomplish.
    China has provided a response recently and we think it is 
going to require followup, but at least it's the opening of an 
avenue for dialogue. We are hopeful that we will be able to 
deal with this problem effectively and eliminate the barriers 
facing our small- and medium-sized enterprises who are having 
enough difficulty in these economic times.
    Chairman Smith. Thank you.
    Let me just ask you, Wei Jingsheng will be testifying on 
the next panel, and I do hope you take his testimony and 
perhaps even stay to hear it. But I first met Wei in the early 
1990s when he was let out of the gulag to get the Olympics in 
2000.
    He was that high of a value of political dissident that 
they thought one man would be sufficient to overcome human 
rights concerns to procure the Olympics in 2000. We had dinner 
together very openly. I mean, there are fewer people who are as 
brave and courageous as this man. He was then rounded up after 
he met with me and interrogated once again and was re-arrested 
when Olympics 2000 didn't go the way of the Chinese.
    As you know, he's the father of the Democracy Web Movement. 
He was beaten severely, almost to the point of death, and then 
was finally, through a lot of the efforts on our government's 
side, the U.S. Government, got freedom here in the United 
States, rested up, healed all the broken bones and all the 
other problems he had, and then came to my hearing on December 
18, 1995, and just said things that I will never forget.
    He said, ``You Americans don't understand it. When you 
kowtow, when you are less than tough, transparent, look them in 
the eye and mean what you say and say what you mean, they take 
that as weakness, but they also beat us more in the laogai 
system. When you're tough, we see it with the guards. We always 
know how the Americans in particular, the Europeans to a lesser 
extent, are behaving vis-a-vis human rights, and that would 
include labor rights of course, by how they beat us in the 
prisons.'' I have never forgotten that. I've run that by other 
survivors of the laogai, including Harry Wu and many, many 
others, and they all say the same thing, that weakness is 
perceived as putting the imprimatur on cruelty to the 
dissidents and everyone else, and that would include labor 
rights activists.
    Wei says that the Chinese Government continues naked trade 
protection measures. Do you agree with that? That's brought 
from his testimony.
    Ms. Reade. As I said in my testimony, there definitely are 
areas where China has critical work left to do. They include 
areas such as favoritism toward state-owned enterprises and 
discriminatory subsidies, and service sectors where they are 
blocking our companies from participating in China's market. 
That's what you see reflected in the WTO compliance efforts 
that we've been making.
    That's why we have had five WTO disputes in the last three 
years. That's why we took the 421 actions that we took to 
impose remedies on the imports of Chinese tires, and that's why 
we accepted the Section 301 petition, the first administration 
to do that since China joined the WTO. It's precisely for those 
reasons, trying to respond to that. We are absolutely dedicated 
to continuing to vigorously enforcing U.S. trade rights 
whenever we see that kind of protectionism.
    Chairman Smith. Let me just ask one final question. Again, 
I thank you for your forbearance with the interruptions. 
Recently I held another hearing on the demographic winter that 
will overtake China in the not-too-distant future. Because of 
the one-child-per-couple policy, in effect since 1979, there 
are missing at least 100 million girls as a result of that 
gendercide.
    We had testimony in this Commission just recently where we 
heard from the woman who wrote Bare Branches, a heavily 
footnoted book, something that the Pentagon needs to be reading 
as well as diplomats, that by 2020, 37 to 50 million men will 
not be able to find wives in China because they've been 
systematically eliminated through sex selection abortion. It's 
ongoing. There's no sign of abatement whatsoever.
    There is talk sometimes, but certainly talk is cheap in 
Beijing and in Washington. It has just not shown any fruit 
whatsoever. There's even a group called All Girls Allowed, run 
by the great Chai Ling, trying to push governments, including 
Beijing, to stop its persecution of baby girls.
    The other side, too, of the equation is the missing 
children. They have a population increase, as does the world, 
but it's all about longevity, not about births and about 
children. I've seen data that suggests that there's going to be 
a huge implosion in a decade, decade and a half.
    I wonder how the Trade Representative, how our policy 
integrates the fact that China is heading toward ominous times 
because of a labor shortage that no one will acknowledge now, 
although there are some demographers in Beijing who do, but 
they are more aware than not.
    I'm wondering if our trade policy--and I would say our 
military as well, but that wouldn't be your purview--
incorporates that concern because China all of a sudden will 
find itself, I think, imploding because it'll have a senior 
population that is unsustainable vis-a-vis its worker 
population. Is that something that you're looking at very 
carefully, incorporating into our policy vis-a-vis China?
    Ms. Reade. You raise a fascinating aspect of China's policy 
choices. That's obviously not directly in the trade lane, but 
as you point out it has implications for the society and the 
economy. We are always trying to understand the fundamentals 
underneath China's economy as we are formulating our trade and 
economic policies, and I have made a note to see what our 
experts are thinking about that. Thank you very much.
    Chairman Smith. I appreciate that. If you'd like, we'll get 
you some of the latest hearing record. We had four learned 
demographers at one hearing, and it wasn't just on China, but 
even places like Russia. Nicholas Eberstadt from the American 
Enterprise Institute testified that in Russia, for the last 16 
years, there have been 3 deaths for every 2 births, an 
unsustainable situation for Russia. He said by 2050, they'll 
have half the army. By the end of the century, they'll have 
half the country. China, despite the caricature that's painted 
of a bulging population, will have the same lack of children. 
The economic implications are huge for the United States and 
the world, not to mention China.
    Ms. Kaptur?

  STATEMENT OF HON. MARCY KAPTUR, A U.S. REPRESENTATIVE FROM 
   OHIO; MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Representative Kaptur. Thank you very much. Thank you, Mr. 
Chairman. I am sorry to be a little bit late in joining here. I 
want to thank Representative Reade for being with us today. As 
with the Chairman today, I wanted to raise the issue--I want to 
focus on the economy and the economic relations with China.
    Obviously the hearing, has China kept its promises to the 
WTO, in my opinion the answer is an unmistakable no. Before 
China was granted permanent--I even hesitate to use the word 
``normal'' trade relations. I had a problem with that when it 
was originally debated here in the Congress because it's 
anything but normal. It's a very abnormal relationship.
    President Clinton argued, ``The agreement will create 
unprecedented opportunities for American farmers, workers, and 
companies to compete successfully in China's market.'' Well, 
today the trade deficit with China is mammoth. Last year, our 
total trade deficit was over a half a trillion dollars 
globally, but over half of that, $273 billion was with one 
country: China.
    Since PNTR was passed, over my objections, our total 
cumulative trade deficit with them was over $2 trillion. Two 
trillion dollars. A lot of people around here keep talking 
about the U.S. deficit and why our economy is not growing fast 
enough.
    Well, if you study recent history you can see. You can 
almost track directly where that wealth creation has gone, 
which markets are open and which markets are not open. Now, in 
many places, including the state that I represent, you can see 
money, people, and jobs literally flowing out of our country 
and you can watch the trains pass as they're bringing in 
containers full of Chinese merchandise. Those containers are 
stacked all the way around the Great Lakes.
    Dr. Clyde Prestowitz, who is testifying today, has 
estimated that every billion dollars in trade deficit 
translates to about 15,000 lost U.S. jobs. As I calculate the 
math, that means our country has lost over 4 million jobs just 
in recent history to China.
    For the people that I represent, job creation is their 
number-one priority. In fact, we have to create 28 million jobs 
in our country between now and 2018 to employ all Americans who 
want a job. That is why this Commission, since its creation, I 
think, has a very important mandate, and quite frankly, opening 
up the Chinese market and getting some type of transparency, in 
my opinion, is extraordinarily important.
    Now, I'm going to put some facts in the record, and I won't 
go through all this, Mr. Chairman, but the promises that U.S. 
manufactured products will gain real access to the Chinese 
market have never been kept. I'm going to give a couple of 
examples of that.
    One example that the New York Times reported on earlier 
this month, and I ask that the entire article be placed in the 
record, stated that a Jeep Grand Cherokee in China costs 
$85,000. That's about three times what it costs in this 
country. Why is that? According to the New York Times it is due 
to a clever and obvious set of protective tariffs.
    What have we done about that? Well, in Toledo, Ohio, which 
I represent, we make the Jeep Wrangler and I expect this 
Commission to take the issue of China's treatment of the U.S. 
auto industry seriously and to push our Trade Representatives 
to get a fair playing field. I would very much ask the U.S. 
Trade Representative's Office to develop a comprehensive 
strategy for addressing China's anti-competitive behavior.
    In the region that I represent also we've been looking very 
hard at creating new energy systems, including solar, where we 
are now one of the three leading platforms in the country. We 
are not next to Stanford and we are not next to MIT, but we are 
next to major silicate and sand deposits and a history of glass 
production that lends our region well to compete in this 
market.
    However, one domestic solar manufacturer has argued for 
some time that the Chinese are dumping photovoltaic cells on 
the U.S. market, and the recent U.S. International Trade 
Commission ruling in favor of the U.S. industry confirms it. I 
am going to ask that this Commission follow up on this issue 
and make it clear to the administration that we demand strong 
action in response.
    Everywhere I look, it's the same story. Dr. Pat Choate 
testified before this Commissioner earlier this year and said 
China is the world's leading infringer of U.S.-owned patents, 
copyrights, trademarks, and trade secrets, and noted in his 
testimony the challenge is beyond the capacity of the Office of 
the U.S. Trade Representative to address.
    We need to take the failure of China to live up to its 
commitment much more seriously, and I can guarantee you that if 
a company locates there in the solar industry, there are 
requirements that the Chinese Government places on them to 
produce--to co-produce, I should say--and to own a majority 
share of whatever investment is made there or to require that 
the company give away some of its independence in order to sell 
its product in the Chinese market.
    This is a very different arrangement than we had been used 
to dealing with with other major industrial powers. I found it 
very interesting, Mr. Chairman, and I will end with this. A 
couple of years ago I asked several economists who were 
testifying before this Commission, what kind of system is this 
that creates such imbalances, that is not a fair playing field, 
that doesn't have transparency, that has very irregular trading 
and investment rules? What kind of an economic system would you 
call that?
    The witnesses that day, 3 out of 4 on the panel, said we 
would call it ``market Leninism.'' I said, you know, that's an 
expression I haven't heard before. I just place that on the 
record again today because it is a very different system than 
we are used to dealing with.
    I would like to ask you, do you feel in your capacity that 
you actually have the power to address any of the concerns that 
I have noted, the trade imbalance, the investment requirements 
that the Chinese place on investment there, the theft of 
intellectual property, that you really have the ability to 
address that as USTR or do you think that's the responsibility 
of some entity in our government or the WTO itself?
    [The article appears in the appendix.]
    Ms. Reade. China represents a massive challenge, for the 
reasons you have cited as well as for a number of others. I 
will say that the Obama administration is committed to a 
comprehensive trade strategy with China and USTR spends nights, 
days, weekends working as hard and creatively as we can to deal 
with those challenges.
    I will say that we do have some tools at our disposal that 
I think are effective. At the WTO, we brought five cases in the 
last three years. Overall, the United States has brought 12 WTO 
cases against China, including cases that deal with these kinds 
of investment restrictions that you were referring to in 
certain sectors, as well as unfair subsidies and problems with 
IP standards in China.
    Is it enough? Have we solved the problem? The points that 
you make indicate that there is a lot of work that remains to 
be done. But I can promise you that the work that we aim to do 
as an administration, we will be as dedicated and as 
intelligent in trying to use the tools at our disposal to do 
that. In addition to the WTO rules, I will tell you that we 
also have the Joint Commission on Commerce and Trade.
    We just finished meetings in Beijing in November where we 
got some potentially promising signs with regard to 
intellectual property rights. It appears that China's leaders 
are willing now to commit to a very high-level leadership 
structure, to be run by a vice premier, to really enforce 
against intellectual property theft.
    We have made very strong statements to them about the 
importance of doing that, and obviously, as we say, the proof 
of the pudding is in the eating. So we are going to have to see 
what it is that they do, and we're going to be watching them 
very closely. We keep pushing, I promise you that.
    Representative Kaptur. Representative Reade, could I just 
ask you, in the automotive sector, if I look at our trade 
deficits with Asian nations, our trade competitors, I think 
today, even in Japan, less than 6 percent of the market is 
comprised of cars from anyplace in the world. They didn't even 
take Yugos.
    A lot of their manufacturing is done, back-doored into 
China. We look at Korea, now we look at China. These translate 
into real job losses in our country. What can we do with the 
specific example that I referenced regarding Jeep Cherokees? 
What can the USTR do to get a level playing field for our 
automotive industry? What structures, what initiatives do you 
have set up to effectively deal with real, two-way market 
access?
    Ms. Reade. On automobiles, there was a very important WTO 
case on auto parts where there were discriminatory tariffs that 
created an unlevel playing field for our auto parts exporters. 
Work was done at the WTO to create an enforcement mechanism and 
China removed those problematic restrictions. So, there are 
some tools.
    With regard to the issue of tariffs, that is what the Doha 
Round is focused on, trying to remove tariffs. That's another 
tool at our disposal. The other points that you're making 
though are, of course, incredibly important and we need to work 
very hard on trying to see what we can do at all times for such 
competitive industries and competitive U.S. exports, and that 
is our job and that's what we are trying hard to do. We welcome 
the opportunity to work with you on that.
    Representative Kaptur. You know, tariffs aren't the only 
means that keep products in or out. There are a lot of 
regulatory barriers and so forth. If we used Japan as a model 
of where we've not been able to gain access, what makes us 
think that our structures are effective relative to what will 
happen with China, or Korea? Why can't we get market access for 
the automotive industry? What's the problem?
    Ms. Reade. I am going to tell you very frankly that I am 
not an automotive industry expert. I am someone who knows 
China. I will be happy to take those notes down and try to see 
if I can get someone to give you a good and helpful response.
    Representative Kaptur. Mr. Chairman, I don't want to go 
over my time here. I really want to pursue this, because I've 
been around this place long enough to know that when the first 
President George Bush was President, the father, we had to 
create a special task force within USTR to try to brief up our 
negotiators because they knew nothing about the automotive 
industry. We had to send automotive executives to Tokyo to 
negotiate there.
    You might recall, the first President Bush became ill. He 
was jet-lagged from the trip. We had auto executives sitting 
outside the room. To this day, this government has not been 
serious about market access in any of those Asian Tigers. It 
seems to me that something is very wrong. We have problems 
across the Pacific. We have got problems here. We are not 
organized. We are not organized to win or to get a--I 
appreciate your candor.
    I think one of the major responsibilities USTR has is to 
take a look at the trade deficit numbers themselves and to look 
at just Japan, China, and Korea and ask yourself, which cars 
are on the roads there from anywhere else in the world? Really 
think hard about what we can do to open up market access for 
competitive products. We're not asking for the world here, just 
a fair playing field. But in the automotive sector we almost 
seem like we are de-fanged, like we don't either know what 
we're doing or we don't have the will to change this equation. 
The collateral damage is all over our country, and it's 
significant, very significant.
    So this trade issue, Mr. Chairman--I thank you so much for 
addressing it in your testimony as well, and I thank 
Representative Reade for being here. But I would appreciate a 
very formal response from the administration on what we are 
going to do to redress these severe trade imbalances.
    I would look at the automotive sector as an example of, 
we're not doing it right. It won't be any better in solar and 
it won't be any better in other fields. There is some trade, 
obviously, in agriculture. But if one looks at the deficits, 
they're staggering. It's harmed this country.
    I sort of thought to myself that what this actually is, 
it's an old theory, maybe, after World War II when we viewed 
ourselves as a country in a certain way and that we thought 
that through some type of economic set of relationships we 
could move countries along.
    But what has actually happened is that some of our 
fundamental political values have been compromised because we 
have basically given away the store and we haven't gotten more 
liberty for it in so many places around the world, including 
China. So I just wanted to implore you to please look at the 
automotive sector, look at it as one that you are to put your 
arms around. Look at Japan, look at Korea, and look at China 
and ask yourself, what is wrong with this equation? Thank you.
    Thank you, Mr. Chairman.
    Chairman Smith. Thank you very much.
    Just one final question. In our petition we noted that 
Section 301(d) of the Trade Act provides that a trading 
partner's persistent denial of workers' internationally 
recognized rights constitutes an unreasonable trade practice.
    Section 301(b) authorizes the USTR and the President to 
take all appropriate and feasible actions to end China's 
repression of workers' rights if that repression burdens or 
restricts United States commerce. The Chinese Government's 
repression of workers' rights burdens the U.S. commerce by 
lowering the costs of China-based production and displacing 
millions of United States' workers. Do you believe that to be 
an accurate statement?
    Ms. Reade. I believe that you are flagging a very important 
issue and that it's one that has to be looked at.
    Chairman Smith. Could you get back as quickly as possible, 
for the record, on that too, if you would? This is ongoing and 
the workers are being exploited as we meet.
    One final question. Your response to this, if this 
statement in your view is generally true or false. When 
migrants enter the factory system they often step into a 
nightmare of 12-hour to 18-hour work days, with no day of rest, 
earning minimum wages that may be withheld or unpaid 
altogether.
    The factories are often sweltering, dusty, and damp. 
Workers are widely exposed to chemical toxins and hazardous 
machines, and suffer sicknesses, disfiguration, and death at 
the highest rates in world history. Some multinationals 
operating in China, under pressure from labor and consumer 
activists, have showcased factories that are well-lit and 
ventilated, but the vast majority of foreign-invested 
enterprises in China, as well as domestically owned 
enterprises, have no safety or health controls whatsoever. Is 
that accurate or inaccurate?
    Ms. Reade. You obviously have some detailed information on 
that subject and I would welcome seeing your source material. I 
think you are raising very critical issues here that our 
administration takes very seriously.
    Chairman Smith. Okay. I do raise this because these were in 
our petition that we filed on June 8, 2006. I know you were 
there. I'm not sure if you were privy to this information. 
Okay. But some people were and it seems to me that this 
information not only continues, in my opinion, to be accurate, 
it has probably gotten worse. So we'll get back to you on more 
of this in the future. So, I thank you.
    I want to thank Ms. Reade for your testimony and for 
questions, and we look forward to your written responses. I 
would like to now welcome panel number two, beginning with 
Grant Aldonas, who is the principal managing director of Split 
Rock International, a Washington, DC based consulting and 
advisory firm he founded in 2006.
    He was, from 2001 to 2005, the U.S. Under Secretary of 
Commerce for International Trade. Before assuming his position 
as Under Secretary of Commerce, Mr. Aldonas served as Chief 
International Trade Counsel to the Senate Finance Committee. He 
was a partner with Miller & Chevalier, a Washington, DC, law 
firm, prior to joining the Finance Committee.
    We then will hear from Alan Price, partner and chair of the 
International Trade Practice of Wiley Rein. Mr. Price has more 
than 25 years of experience representing clients in high-
profile, complex, international trade regulatory matters, 
including trade litigation involving public and government 
relations issues.
    In addition to being chair of the firm's international 
trade practice, he heads the firm's antidumping and 
countervailing duty practice. He counsels clients on bilateral 
and multilateral agreements, trade legislation, Customs 
regulation, the Foreign Corrupt Practices Act, compliance 
issues, and Section 301 cases.
    We will then hear from Clyde Prestowitz, who is founder and 
president of the Economic Strategy Institute [ESI]. Prior to 
founding ESI, he served as counsel to the Secretary of Commerce 
in the Reagan administration, where he led many U.S. trade or 
investment negotiations with Japan, China, Latin America, and 
Europe.
    Before joining the Commerce Department he was a senior 
businessman in the United States, Europe, Japan, and throughout 
Asia and Latin America. He has served as vice chairman of the 
President's Committee on Trade and Investment in the Pacific, 
and sits on the Intel Policy Advisory Board and the U.S. 
Export-Import Bank Advisory.
    Finally, we'll hear from Mr. Wei Jingsheng, who is a 
Chinese human rights and democracy advocate who was sentenced 
to jail twice, for a total of more than 18 years, due to his 
democratization activities, including an essay he wrote in 1978 
entitled, ``The Fifth Modernization: Democracy.'' For more than 
a decade since his exile he has published numerous articles and 
interviews about human rights and democracy in China, as well 
as international relations, economics, and trade.
    Wei has received human rights and democracy awards, 
including the Robert F. Kennedy Memorial Human Rights Award, 
the European Parliament's Sakharov Prize for Freedom of 
Thought, and the National Endowment for Democracy's Award. He 
has been the chair of Overseas Chinese Democracy Coalition, 
OCDC, since 1998, president of Wei Jingsheng Foundation since 
1998 as well, and president of the Asia Democracy Alliance, 
2006.
    Grant, if you could begin.

  STATEMENT OF GRANT D. ALDONAS, PRINCIPAL MANAGING DIRECTOR, 
 SPLIT ROCK INTERNATIONAL; FORMER UNDER SECRETARY OF COMMERCE 
              FOR INTERNATIONAL TRADE (2001-2005)

    Mr. Aldonas. Thank you, Mr. Chairman, Congresswoman Kaptur. 
If I could, I'd like to submit my written statement for the 
record and simply summarize. I'll be very brief.
    Chairman Smith. Without objection, so ordered. Thank you.
    Mr. Aldonas. First, I want to say thanks. After having 
served on this Commission and having been a part of its 
creation actually when I was working on the Senate Finance 
Committee, I have enormous respect for the work and want to 
underscore the importance of what the Commission is doing.
    Ten years ago when I appeared as a witness as Under 
Secretary of Commerce before the Commission, I made the point--
two points, really. The first was that China's compliance with 
its WTO obligations was obviously the single most important 
factor in governing our bilateral trade relationship, and that 
we needed to see early, transparent, and measurable progress on 
compliance to satisfy ourselves that the deal we cut as a part 
of accession to the WTO, as well as the grant of permanent 
normal trade relationships, had served our interests.
    The second point I made, which I believed at the time and I 
think events over the years have underscored that for me is the 
more important of the two, is the link between WTO compliance 
and the development of the rule of law in China.
    I still think it's the more important measure, whether 
China's access to the WTO served our interests as well as that 
of the trading system, and I would suggest that China's future 
progress heavily depends on the extent to which it fosters a 
broader respect for the rule of law within China, a far lesser 
role for the state and the Communist Party, in the operation of 
the Chinese economy, and a steady erosion of the system of 
guanxi, the connections that dominate China's politics and its 
commerce. That, to me, is the acid test. I think you are 
focused on exactly the right issue.
    One thing I was concerned about at the time, and remain 
concerned about, is that most explanations of China's rise, 
even in China, tend to ignore the extent to which its opening 
and its success have actually paralleled respect for the rule 
of law, starting with the special economic zones, then moving 
into the rest of China. What I mean when I say that it's not 
necessarily human rights alone that matter, but property 
rights, enforcement of contracts, things of that nature.
    There is an underlying tension between the respect for the 
rule of law and the system of guanxi, or personal connections, 
that's formed a central institution of Chinese society since 
the days of Confucius. Guanxi is not necessarily a bad thing. 
In its most positive form it parallels much of Confucian 
thought with its heavy emphasis on reciprocal obligations in 
society, ren, and in that sense guanxi, can be taken to 
strengthen social cohesion.
    But, unfortunately, what it also does, as is oftentimes the 
case, is foster corruption, nepotism, and in the process 
undermines or obstructs the development of rule of law and not 
reinforce the development of the rule of law. In that sense, 
Guanxi practice in China--and I think that's still true today, 
maybe more so--can yield the opposite of ren in terms of 
Confucian thought.
    Relative to a system without laws, one can understand 
guanxi working efficiently as an economic matter, but the 
reverse isn't true. Sound laws with adequate processes for 
enforcement actually trump any system of guanxi, or personal 
connections, as a model of economic development. That is why I 
think China's future progress is linked directly to the extent 
to which it does choose to foster the rule of law. 
Unfortunately, there are a number of recent shifts that suggest 
China is not moving in that direction.
    First, properly understood, policies like indigenous 
innovation undercut property rights and the sanctity of 
contracts, to which China owes much of its economic rise. 
Second, there is a generational shift underway in China which 
will bring to power a generation of princelings that benefit 
from, and foster, the system of guanxi. In my view, they are 
unlikely to embrace the rule of law precisely because it 
undercuts the power they otherwise wield within China's 
political system.
    That leads me to a contradictory conclusion with respect to 
the central question before the Commission. The question was 
whether China's access to the WTO contributed to the 
development of the rule of law, and the answer in one sense is 
an unqualified yes. They obviously did change 2,000 laws at the 
national level, another 190,000 at the State and local levels.
    Early on in the process there was a very strong effort, 
including the creation of institutions like the Shanghai WTO 
Center, which were models for trying to encourage compliance 
that reached beyond the ostensible changes in the amendments.
    The problem is, that process began to degrade relatively 
quickly. In my own experience as Under Secretary of Commerce, 
it slowed down measurably. What had been a relatively open 
discussion and interest in implementing the WTO became a 
protracted negotiation that had to be driven toward an action-
forcing event, like the meeting of the Joint Commission on 
Commerce and Trade, to produce any kind of progress at all.
    Of course that led to the frustration that I think that 
then-USTR and now Senator Portman found when he was at USTR and 
launched the top-to-bottom review of our trade policy toward 
China, which I think reinforces many of the conclusions that 
both of you have made today, as well as the conclusions I'm 
stating here.
    So in one sense it did contribute to the rule of law, but 
whether that proved sufficient to fundamentally change a 
political dynamic in China and resolve this contest in one 
sense between guanxi and connections and rule of law is a 
different question. The answer to that is no.
    While I think the WTO rules have influenced China 
positively in terms of its legal development, I doubt whether 
they have the strength or the roots in Chinese society that, 
after only 10 years of somewhat halting implementation and 
observance, could offset this more powerful political shift 
that is currently under way in China.
    So when I appeared before the Commission 10 years ago, I 
made the point that observance of the law in any society must 
become habit. It has to be woven into the fabric of social 
relationships. Unfortunately, that does not describe China 
today. It is hard, moreover, to see how the observance of the 
law becomes a deeply ingrained habit throughout Chinese society 
if the political leadership of the country doesn't practice it 
as well.
    Let me stop there. I'd be happy to answer any questions you 
have. Thanks.
    Chairman Smith. Thank you so very much, Mr. Secretary.
    Mr. Price?
    [The prepared statement of Mr. Aldonas appears in the 
appendix.]

      STATEMENT OF ALAN H. PRICE, PARTNER AND CHAIR, THE 
         INTERNATIONAL TRADE PRACTICE, WILEY REIN, LLP

    Mr. Price. Good afternoon, Chairman Smith, Chairman Brown, 
and Congresswoman Kaptur. I am Alan Price, head of the 
International Trade Practice at Wiley Rein. My testimony this 
afternoon represents my own personal views and is not offered 
on behalf of any client.
    In the 10 years since it acceded to the WTO, China has 
systematically engaged in a pattern of avoiding, delaying, and 
directly violating its WTO commitments. In fact, China is 
increasingly manipulating the WTO system, exploiting loopholes, 
and working around existing rules in violation of the spirit, 
if not the letter, of the WTO agreements. This behavior is 
adversely impacting the United States and global economies, and 
undermines the legitimacy of the international rules-based 
trading system.
    I have submitted lengthy written testimony for the record. 
I would like to focus my oral testimony on just three of the 
many areas where China has failed to comply with its WTO 
commitments.
    First, the Chinese Government continues to exercise 
significant government ownership and control over key segments 
of its economy and to heavily intervene in the commercial 
decisions of its state-owned enterprises [SOEs].
    This behavior is contrary to its WTO commitments to refrain 
from influencing the decisions of its SOEs and to require SOEs 
to operate based solely on commercial considerations. Moreover, 
I would add that to support its SOEs the Chinese Government 
continues to grant massive subsidies to these enterprises, as I 
have detailed, in the steel industry and in other industries.
    A second major area of Chinese WTO non-compliance is its 
imposition of market-distorting export restrictions. In clear 
violation of its WTO commitments, China imposes export quotas, 
export taxes, discretionary export licensing regimes, minimum 
export prices, and other measures designed to limit its exports 
of raw materials.
    In fact, in July 2011, a WTO dispute settlement panel found 
that China's maintenance of its export restrictions on various 
raw materials was inconsistent with its WTO obligations and 
recommended that China come into compliance with its 
commitments.
    Despite this ruling, China continues to impose WTO-
inconsistent export restrictions on a variety of raw materials, 
including the so-called rare earths. These measures are 
designed to keep raw materials in China and to advantage 
Chinese-consuming industries at the expense of consuming 
industries in the United States and around the globe.
    Third, China continues to manipulate its currency, in 
violation of its WTO commitments. Specifically, consistent with 
WTO rulings, China's currency manipulation appears to be a 
prohibited export subsidy because it is designed to principally 
benefit China's exporters.
    There can be little doubt that China's currency 
manipulation is the biggest subsidy of all. Currency is also 
actionable at the WTO because it nullifies and impairs the 
benefits accruing to the United States under GATT 1994, and 
because it frustrates the intent of the WTO agreements under 
GATT Article 15, Paragraph 4.
    China's repeated failures to comply with its WTO 
obligations have come at great cost to the U.S. and global 
economies. Indeed, China's status as the world's second-largest 
economy makes its failure to live up to many of its WTO 
obligations all the more troubling.
    Given its size and economic influence, China's refusal to 
abide by many of its WTO commitments not only harms the U.S. 
and third-country economic interests, but threatens to 
undermine the legitimacy of the WTO and the international 
rules-based trading system.
    To address these failures, the United States must take a 
more proactive approach. First, the United States should 
aggressively litigate China's WTO violations. Second, 
Congressman Smith, I agree with you that the United States 
should stress reciprocity as a guiding principal for all trade 
and investment issues related to China. Third, the United 
States should build bipartisan and multilateral coalitions with 
trading partners to limit China's artificial advantages.
    Fourth, the United States should press for a new, 
reconfigured round of WTO negotiations. The new round will be 
premised in large part on eliminating the loopholes in the 
existing system that China has used to its advantage. In order 
to motivate China to agree to a new round, we will need to 
succeed in many of the aforementioned items.
    In short, what is needed is a bold, concerted, and 
coordinated effort by Congress and the executive branch to send 
a clear signal to China that it must end its trade-distorting 
policies and practices. Thank you.
    Chairman Smith. Mr. Price, thank you very much. Your full 
statement will be made a part of the record, both the two 
witnesses'. Very incisive remarks, and I do thank you.
    Now we'll go to Mr. Prestowitz. Is that right? Thank you.
    [The prepared statement of Mr. Price appears in the 
appendix.]

 STATEMENT OF CLYDE V. PRESTOWITZ, JR., FOUNDER AND PRESIDENT, 
                  ECONOMIC STRATEGY INSTITUTE

    Mr. Prestowitz. I guess that if you had heard 10 years ago, 
if the people testifying 10 years ago had come in and told you 
that 10 years down the road the United States would have a $250 
billion trade deficit with China, that a couple of million jobs 
would have been off-shored from the United States to China, 
that the dynamics of the relationship would result in China 
holding a $3 trillion fund, effectively, solely under the 
control of the Chinese Communist Party, I guess that you would 
have been not terribly enthusiastic about the deal.
    But you didn't hear that. Rather, what you heard from 
Charlene Barshefsky, the U.S. Trade Representative, was that 
China is not at all like Japan. You remember that in the 1980s 
and 1990s we had had very similar issues with Japan, and 
Ambassador Barshefsky assured the Congress that China is not at 
all like Japan. At that time there were estimates of 800,000 
jobs possibly to be lost, and Ambassador Barshefsky said this 
was absurd.
    You heard from the Institute on International Economics 
that the then-trade deficit of $68 billion was really 
incorrectly counted, it was only $43 billion, and again that 
China was totally different than Japan, and that estimates of a 
rising trade deficit with China were absurd.
    You heard from the Brookings Institute the same thing. In 
other words, all of the think tanks in town, all of the 
officials that you talked to, with one or two exceptions, 
painted a rosy picture of rising U.S. exports, rising jobs, and 
a win-win. That was obviously wrong. Obviously everybody who 
came before you 10 years ago was profoundly wrong. Not 
everybody. A couple were correct, but not many.
    What was wrong? Why were they so wrong? The reason they 
were so wrong is because they were then, and we still today--
our policymakers today, still are operating on the basis of 
false premises. The premise of all of these discussions is that 
we and China and many other countries, of course, are members 
of the WTO and the IMF, and other regional and bilateral 
arrangements, and that we have all embraced the principles of 
free trade, according to Adam Smith and David Ricardo, and that 
we are all practicing these principles and that if there are 
problems it must be because somebody is cheating, and if we 
just enforce the rules then the whole thing will work properly.
    This is very much influenced by the faith--I would almost 
say the religion of free trade fundamentalism--that has gripped 
Washington for most of the past 30 years, which insists that 
simplistic, comparative advantage and unilateral free trade is 
somehow going to be a win-win for all the parties.
    It insists that, despite evidence mounting to the contrary. 
I could not help but think, as I was sitting and listening to 
the previous testimony, looking at Congresswoman Kaptur. Marcy, 
how many times have we heard this story? How many times have we 
heard the same comments? Yes, we're looking into it. Yes, give 
us the information. Japan, Korea, Taiwan, Singapore. We keep 
going through this and it's because if you keep banging your 
head against the wall and expecting a different result, you're 
crazy. Well, we're crazy.
    So this brings me then to, what can we do? What I want to 
say is that the discussion here today about, is China in 
compliance with WTO, how can we enforce the rules, can the USTR 
be more aggressive, in a way I think it's beside the point.
    I don't think that you can enforce the rules. For one 
reason, the rules are not that clear. Alan mentioned 
nullification and impairment, and I agree with him that there 
are provisions to deal with nullification and impairment. You 
can make an argument that some of the measures that China is 
engaging in are nullifying and impairing, but it's not at all 
clear that you could win that case actually in the WTO. So I 
don't think you can enforce the rules, number one.
    Number two, I think that you won't enforce the rules, or 
let's say no administration will enforce the rules, because 
enforcing the rules means that there's going to be conflict 
with China. We have a lot of fish to fry with China. We want 
China to help us with North Korea, with Iran, on climate 
change, all kinds of issues which are going to lead an 
administration--any administration--to hesitate to get involved 
in really massive conflict over trade and economics.
    Finally, even if you could and would enforce the rules, I 
don't think it'll make any difference because essentially 
what's going on here is a whole different approach to economic 
development. In the United States and in other parts of the 
globe, the notion of the market is, the market is an end in 
itself. If an outcome is a market-based outcome, it's accepted 
as legitimate. But in other parts of the world, in Germany, in 
Japan, in Korea, in China, the market is a tool to get you to 
an outcome.
    The outcome is, we want to build a steel industry, we want 
to build a high-speed rail industry, we want to build an 
aircraft industry, we want to build a semiconductor industry. 
If the market gets us there, great. If it doesn't get us there, 
what kind of subsidies do we need? So you are dealing with an 
entirely different mentality and it's not going to conform to 
any set of rules that will inhibit that progress toward 
economic development.
    So that leaves you, I think, only with the alternative that 
of course you can use the rules and use investigations as a way 
to stimulate negotiations, but really what the United States 
needs to do is to act more like China.
    The United States needs to have the same emphasis on its 
own economic development and on countering the distortions in 
the market that come from currency manipulation, financial 
investment packages, and binational policies in a way that will 
foster investment and development and competitiveness in the 
United States.
    Thank you.
    Chairman Smith. Thank you very much.
    Wei Jingsheng?

    STATEMENT OF WEI JINGSHENG, OVERSEAS CHINESE DEMOCRACY 
                           COALITION

    Mr. Wei. Thank you to the Chairman and the Cochairman, and 
thank you to Representative Kaptur. Once the United States 
granted China PNTR status, China successfully joined the WTO 
shortly after. For the past decade, Chinese exports have grown 
substantially, leading to the rapid growth of its GDP.
    However, two results come out of this growth. On the U.S. 
side, the trade deficit with China has rapidly increased, along 
with rapidly increasing unemployment and national debt. 
Meanwhile, on the Chinese side the total consumption by the 
Chinese people did not grow synchronously, nor did the imports 
from the United States.
    From another view, in the past 10 years since China entered 
the WTO, gross United States manufacturing has been slow and 
China's consumption has grown slowly as well. A larger portion 
of the growth in both countries was exchanged into cash, which 
not only had an impact on the financial market, but also 
expanded the wealth gap between the rich and the poor in both 
countries. The normal development of these two giant economic 
entities is the root cause of the global economic recession in 
recent years.
    Further, the deformed economic development originated in an 
unfair trade relationship. In other words, the United States 
and Europe opened their markets to China, while China did not 
open its market to either the United States or Europe. 
Meanwhile, the Chinese Government has been using unfair methods 
for competition, especially by way of under-valuing the Chinese 
currency.
    Thus, China has been able to develop its manufacturing 
industry, while inhibiting the development of the United 
States' and Europe's manufacturing industry. At the same time, 
the Chinese consumer market was not expanded and its imports 
were not increased. The profit that was realized--from unfair 
trading mostly--fell into the pockets of multinational 
corporations and the Chinese Government.
    When people talk about the wonderful slogan of free trade, 
they forget that free trade needs some basic conditions. The 
domestic economy in China is neither ``free trade,'' nor a 
``free market.'' The Chinese Communist Government is always the 
biggest controller of the Chinese market.
    Regardless of whether you are a foreign company or a 
Chinese company, you can only obtain market share or market 
access with the permission of the Chinese Government. The 
condition for this access and share is defined by the Chinese 
Government's need and international politics, as well as the 
control of imports of foreign groups into China. The strategic 
purpose of this control is to keep most of the Chinese domestic 
market for Chinese enterprises, especially those state-owned, 
less-efficient businesses that lack world competition.
    In the past 10 years, the Chinese Communist Government 
continues naked trade protection measures. As China is not a 
free country both politically and economically, so the 
government will not use nor is it used to carry out terms 
according to the World Trade Organization law, or as it 
promised.
    Also, because Chinese law is not binding to the 
government--so there are a number of WTO conditions even though 
they were absorbed into Chinese law, they will not be enforced 
any more than the other laws. Chinese law is understood as 
tools for the officials, so they will be executed if they are 
considered favorably for officials and they will not be 
executed if they are not.
    That is, the WTO simply cannot restrain China's economic 
behavior. It is impossible to eliminate all forms of trade 
barriers in China, including the Chinese Government's 
manipulation of the Chinese currency. It is impossible to make 
China a free trade country.
    I will talk on this real quick, since our time is up. 
Basically, it's that the WTO laws will not be implemented by 
China, so therefore we must enforce it. So there are two 
possibilities for changing this massively unfair trading 
relationship. One, is to exclude China from the WTO. The other, 
is that you must do it on your own.
    Finally, I hope that the U.S. Congress and the U.S. 
administration can fully understand that because of the special 
rules in the Chinese legal system, as well as the irregularity 
of the market caused by the Chinese authoritarian political 
system, we should not use a normal way of thinking in the 
normal society of the United States to understand the Chinese 
affairs, which are totally different.
    [The prepared statement of Mr. Wei appears in the 
appendix.]
    Chairman Smith. Mr. Wei, thank you very much for your 
testimony.
    Let me just go to a couple of questions, because the hour 
is late. But I do thank you all for very incisive remarks.
    Secretary Aldonas, in your testimony you talked about the 
first case brought against China under WTO was during the Bush 
administration in 2004 with regard to semiconductor producers 
and the preferences that the Chinese market had or companies 
had. You said that China acted to preempt the need for a 
definitive ruling and implemented a plan to bring itself into 
compliance.
    It raises the question about enforcement in general. How 
many cases have been brought? Are there other cases where, 
realizing that they were clearly in the wrong, they move 
quickly and deftly to avoid a ruling from WTO? And in part of 
that, how many of the companies are fearful of retaliation if 
they were to press for protection from an unfair trading 
practice?
    Mr. Aldonas. Yes, that's a great question. I'd like to say, 
in defense of the WTO and the agreement that was reached, it 
has in fact worked in terms of the dispute settlement process 
when the cases have been brought to the WTO. China has been 
willing to engage in that process. The Chinese have adhered to 
the results when the results have gone against them.
    The 2004 case was an example that I cited for two reasons, 
Congressman. One was because it worked at the time, but what 
you began to see relatively quickly thereafter was the erosion 
of the willingness or the concern about seeing a ruling in an 
international body against China that would imply that it 
wasn't living up to its WTO obligations. We are well past that 
now. I don't think there's any embarrassment in China about 
indigenous innovation or any of the other policies that I would 
regard as potential violations of the WTO.
    But to the extent that the process has been one where we 
have submitted claims, China has engaged in the process and has 
adhered to the outcome as a part of that. That's the better 
part of what's happened inside the WTO, relative to the impact 
that China has had on negotiations, for example.
    To your second point, there are clearly instances where 
American companies have been unwilling to pursue not only what 
I thought were clear WTO violations, but more profoundly the 
theft of intellectual property by their own partners, because 
they were afraid of what the potential retaliation might be.
    It comes in subtle forms. If you think of General Motors, 
at a time when it was making no money in the United States and 
the UAW was bargaining for raises from General Motors, those 
raises were paid for by sales of GM vehicles in China, where 
the best-selling automobile in China is a Buick. General 
Motors' willingness to take on potential trade problems in 
China was, in part, compromised by the practical need to keep 
selling in China. You can see the dynamic that creates for the 
American economy.
    Now, my view of what Claire said, who's an old friend; 
we've known each other for 30 years. I know she's doing a great 
job at USTR, but one of the things that you have to do at that 
point as a member of the executive branch is be willing to go 
at the issue for the company. Right? Even without names.
    Because the reality is, oftentimes when you're at the JCCT 
relative to a WTO dispute settlement process, you can find a 
way to solve practical problems and try and move some measure 
along. I wouldn't call it WTO compliance, but I would say that 
looking after our commercial interests is just as important in 
that context, and throwing a brush-back pitch against the 
Chinese is always useful.
    The question is whether or not in those settings American 
officials are willing actually to take up their cudgels without 
having to force a company to name names, go public, or file a 
301 petition. I think the administration is doing a better job 
of trying to solicit actionable cases and trying to move ahead, 
but not aggressively enough.
    I liken it to what the Justice Department used to do with 
civil rights litigation. Even when they thought they might lose 
a case, they were very aggressive in pushing the point, even to 
the point of trying to make law as a part of it. Frankly, I'd 
like to see even more of that, and I think Claire is willing to 
do it at USTR. Many of the issues that China presents fall in 
the penumbra of the WTO obligations, and are not squarely 
violations. As Alan was pointing out, they can nonetheless 
result in nullification and impairment of our WTO rights.
    Unless we're really willing to take on that set of issues 
and start to make law, one way or another, either to illuminate 
the problem in the trading system or in fact to get the 
enforcement we want, we actually haven't done our job on behalf 
of those American companies.
    Chairman Smith. Mr. Price, you mentioned that currency is 
actionable at WTO. Why hasn't that been brought? And you also 
went through a number of others: Government procurement, 
indigenous innovation, intellectual property rights, 
circumvention of U.S. trade orders, transparency issues. It 
seems as if we've been asleep at the switch. Your statement?
    Mr. Price. There are a number of issues and problems out 
there. With regard to currency, I have been working on this 
issue for probably eight years now, and cutting across both 
administrations there has been an unwillingness to make the 
tough decisions.
    It's very easy to say it's a Treasury obligation and it's 
very easy to try to negotiate, but unless there is some attempt 
to move the ball forward in a more forceful way, we are simply 
not making any progress. Eight years is a long time to not make 
progress. Whatever minimal changes have happened in the 
exchange rate over the last 18 months are just that, minimal.
    I agree with Clyde that it is not clear that the current 
system can fully tackle this, but we haven't tried. We need to 
be more aggressive, we need to take these tough issues, and as 
Mr. Aldonas has said, we may win these, we may lose these, but 
we will not know unless we try. If we lose these, then we know 
what needs to be fundamentally changed in the system.
    There is absolutely a need for more aggressive enforcement. 
It cuts through currency; it cuts through a number of these 
other issues that you have named. Without tackling these 
broader issues, we are going to continue to lose in this trade 
relationship.
    Chairman Smith. Let me ask you, in terms of personal 
financial gain, we've had a number of instances--and I was 
involved with a few related to my own district--where, as part 
of their foreign sourcing, they just looked at the bottom line 
of labor costs and then uprooted and moved to China.
    In one case they actually moved to Mexico. It was the 
American Standard, where the toilets are made. It was in my 
district, and it's now in Mexico because they could pay much 
less to the workers. That CEO, by the way--one of the CEOs I'm 
talking about actually got a big raise right after.
    I mean, how much of this is just pure short-term gain for 
certain higher echelon people in business, very often who are 
the big donors and bundlers for political campaigns, 
particularly at the White House level, who then end up like GE 
is, moving all their health, technology manufacturing to China. 
It seems to me it's just a myopic, short-term view there. Some 
people get very rich in the short term.
    Second, why isn't the USTR and Department of Defense more 
concerned about dual-use items, especially since the conditions 
that China puts on market access and the transfer of 
intellectual property? The Global Online Freedom bill that I 
have is focusing, too, on export controls of surveillance 
equipment and the like that's not just used by the secret 
police to hunt down people like Wei Jingsheng, but also has 
dual applicability for their military, which now is growing 
exponentially, Blue Water navy, and all that. Why don't we get 
that?
    It seems to me that part of that short-mindedness or short 
focus doesn't understand how the government so effectively uses 
even the opium wars, the two opium wars, as a way of 
continually harping against the west--England in that case more 
than anyone else. But it just seems like we didn't get that. We 
misperceive the animosity there on the government level. The 
people, I think, unfortunately are subjected to that. If you 
could, whoever would like.
    Mr. Aldonas. Just to pick up your point on the export 
control side, I was actually thinking while you were talking 
earlier that the conditions you want to impose on the 
surveillance equipment that my first job back in the Department 
of State when I was a young Foreign Service officer was in an 
office called the Office of East-West Trade, which thankfully 
no longer exists. It died with the Cold War.
    But at the time, one of the things I had to do was approve 
the applications for exports to China of things like Texas 
Instruments 99As. The reality is, a lot of the things that we 
sent in the way of ICT technology exported have contributed to 
greater openness in China. No doubt about it, right?
    But we do have to be very concerned about the aspects of 
those technologies that can be used by the Chinese Government 
to reinforce their control. If you recall, under apartheid we 
controlled equipment like this to South Africa because we 
didn't want to support the idea that the South African police 
could snoop on their own people. I don't see that as different 
in China.
    So if you really want the value of the technology to work 
in favor of freedom and the rights that we value in our 
society, the kind of bill you're talking about makes a lot of 
sense. The idea that you don't have the State Department and 
the Commerce Department, which are much more concerned with the 
dual-use items than the Defense Department, thinking along 
those lines when our paramount goal should be to foster the 
freedom that being online encourages. There is even a 
commercial reason for encouraging freedom on the Internet in 
China. The reality is, that for our firms to export, they have 
to overcome high search costs in China. In the absence of 
having this conduit protected so that you can participate in 
the market through that venue openly, it's very difficult to 
enter any market around the world.
    So the irony is, the bill that you're talking about would 
serve our commercial interests, as well as saying in a 
demonstrable way that we're not accepting of what these tools 
could be used for, whether it's to head somebody to the laogai 
or whether it is something more nefarious in terms of 
industrial secrets.
    Mr. Wei. I have been a long-time supporter of the Online 
Freedom Act proposed by Representative Smith. I want to say one 
thing, that the companies have to lobby with the Chinese 
Government. So this bill is something the Chinese Government 
dislikes most, so it will be also the hardest to go through the 
U.S. Congress.
    We don't have the evidence to say directly, but indeed when 
we were advocating Internet freedom to supporters, 
Representative Smith's proposal, those aides and staff of some 
congressional Members say that they received tremendous 
pressure against it.
    So I want to say for the last 10 years since China entered 
the WTO, not only has the United States lost a lot of money 
economically, but they also lost quite a bit politically 
because you could see the control of the Chinese Government 
over the American politics.
    Chairman Smith. Thank you.
    Mr. Prestowitz. I just wanted to add one point.
    Chairman Smith. Yes.
    Mr. Prestowitz. Which is, you made the point about U.S. 
companies or executives making short-term decisions to move 
production, and maybe they get immediately a lower cost, but 
there's some long-term price. I think this is part of the 
problem. You have to put yourself in the position of, let's say 
the CEO of Intel or GE [General Electric], global companies. 
You have to remember that these companies are incorporated in 
America, but they're not really American companies.
    A company like GE has more employees outside the United 
States than it has in the United States. Its shareholders are 
global. Jeff Immelt, chairman of GE, has constituencies, 
political constituencies, investment constituencies all over 
the world. So even if he wanted to, he can't really make 
decisions that somehow, out of some patriotic fervor, are 
special for the United States. He's got to treat his employees 
kind of equally.
    Second, he operates in a world in which the incentives in 
the global economy are pretty much to move the production of 
tradeable goods and the provision of tradeable services out of 
the United States. What are those incentives? The incentives 
are that the dollar is over-valued and it's kept over-valued by 
the intervention or the manipulation policies not just of 
China. A number of other countries are manipulating their 
currency also.
    Second, many countries provide very aggressive investment 
incentives. Intel recently put a Pentium chip plant in China. 
Pentium chips cannot be produced on an operating cost lower in 
China than in the United States. The United States is the low-
cost, high-quality place to make Pentium chips.
    Why is the plant going to China? A number of reasons, but a 
big reason is that of the $5 or $7 billion investment, the 
Chinese Government is putting up a couple billion dollars. So 
that makes a big difference. We don't match that. The United 
States has no match to those kinds of investment incentives.
    A third incentive is that every time an executive goes to 
China and meets with Hu Jintao or Wen Jiabao or the janitor on 
the floor, all that executive hears is, ``When are you going to 
put a factory in China? When are you going to put technology 
and research and development in China? ''
    Now, there's a little threat in that question because we 
know China is not a society of rule of law. So the unspoken 
subtle undertone here is, if you don't put a factory here, who 
knows what might happen? The electricity is what Mr. Ray has 
been talking about, the informal power of a bureaucracy that is 
not transparent and has great discretionary authority. So 
they're scared.
    Now, in that kind of an environment, to ask a U.S. CEO to 
invest in the United States because he's American and that's 
the patriotic thing to do, this is fantasy. You've got to 
change the incentives. So you've got to change that incentive 
structure and that means you've got to deal with the currency 
issue, and the investment issue, and the pressure issue, and 
the binational issue, and some others.
    And while I am fully supportive of Alan and Grant in 
enforcing the rules, and let's be aggressive in enforcing the 
rules, to really change those incentives is going to require a 
lot more than just filing cases in the WTO or filing 
antidumping or countervailing duty cases in the United States.
    Chairman Smith. Just to follow up on that, when you talk 
about treating employees equally, and that there are 
constituent parts to an Intel and the like, the problem is that 
the laborers in China are not treated equally and that's why I 
asked the USTR, and will ask again, that they initiate an 
investigation pursuant to 301, that there's an unfair trading 
practice because of the massive exploitation of the individual, 
especially migrant folks.
    So I'm for free and fair trade, but not when it's unfair 
because of--I mean, our workers can't compete with that. So the 
CEO may be listening to other members of the board, but at some 
point you say, ``Hey, do we go in there and cruelly treat these 
people? '' And they are treated----
    Mr. Prestowitz. Well, I'm with you. But honestly, I don't 
believe that Jeff Immelt is consciously making decisions to 
mistreat Chinese workers.
    Chairman Smith. No. But is he aware? I mean, that's the 
issue.
    Mr. Prestowitz. Yes, I think he is.
    Chairman Smith. How aware is he? No, no.
    Mr. Prestowitz. Look, for example, if you said Wal-Mart, I 
think because they're out-sourcing a lot of the production 
through other companies, I'm not sure whether Wal-Mart would 
know what's happening. But in the case of a company like Intel 
or GE, I think they're pretty aware and I think they do treat 
their people pretty well, wherever they are.
    Chairman Smith. Let me just say very briefly that right 
before President Clinton capitulated on linking most-favored-
nation status with human rights, which he did the year before 
with great fanfare, and myself and so many others took to the 
floor and thanked him profusely, only to say that it is an 
insincere commitment to human rights.
    As you know, he de-linked on May 26, 1994, late on a Friday 
afternoon when nobody was watching. Everybody was out of town 
here, and it was like the big non-issue. As Wei has said, and 
Harry Wu has said, and so many others, that threw the 
dissidents right under the bus and they've never reclaimed it 
since.
    The issue of exploitation of labor has been a problem with 
successive administrations and nobody has addressed it. So just 
to look back, and I mentioned this but I will be very quick on 
this, every CEO should read the Cox Commission, where Loral and 
Hughes gave away or sold, and then lavishly funded, the 
presidential candidate that enabled all that, Bernie Schwartz 
and others. That was outrageous, in my opinion, for such a 
short-term, big payday for those two companies. But to give 
away satellite technology that is second to none--we know now 
that our satellites are in grave danger of some of those 
technologies--yes, Mr. Secretary?
    Mr. Aldonas. I want to go back to the labor point. You 
know, one thing that's always struck me is the way the trade 
and labor argument is postulated. It may be worth, particularly 
in the context of the discussion about China, to think about it 
the way it should be thought about. If you think about what 
free trade is designed to do, it's really designed to create 
the opportunities for specialization that allow you to raise 
your productivity.
    The irony is, in a system without sound labor rules that 
actually allow you to bargain freely for the full value of your 
labor, there's no incentive to take advantage of that 
opportunity for specialization. So if what you're saying is 
free trade, at least in my view, what you are talking about is 
also a system where the labor market is open and contestable, 
along with everything else.
    If you have a system, the danwei--that is, work units--and 
all the other things that are a part of the Chinese system of 
labor control over time--which remain strong in the 
countryside, although not necessarily in urban areas--the 
reality is you don't have a system that actually provides the 
advantage of free trade or WTO accession to the Chinese worker, 
and in the process you're denying a similar set of rights to an 
American worker as a part of the process.
    So the irony is, and in part it's because of the way our 
unions have argued the trade and labor issue, we have failed to 
think constructively about how trade and labor rights relate. 
Organized labor wants a tool inside the context of a trade 
agreement to be able to rap somebody on the knuckles and, 
oftentimes, to look for protection.
    But, there is a substantive reason why you would want labor 
rules to be discussed in the context of trade, and it leads to 
a broader point which I really think is where Clyde has been 
going. To be honest, what the last 10 years has demonstrated is 
there is a risk in negotiating simply about trade barriers, 
countervailing duties, government procurement, when in fact two 
countries have very different premises for the basis of 
organizing their economy and organizing production.
    What that suggests is, when you sit down to a negotiation 
you should be thinking very hard about making sure that you've 
either got the premises right or you've got the tools to offset 
the unfair advantages that may stem from those differences. 
Right now, to be honest with you we have an opportunity, if the 
President decides to use it, in the Trans-Pacific Partnership 
[TPP].
    President Obama describes the TPP as a 21st century trade 
agreement, which is literally true because we're in the 21st 
century and he's negotiating it. But, if what President Obama 
pressed for was more than a conventional trade agreement--one 
that required open and contestable markets across all factors 
of production, including labor, as a part of the process in 
this regional arrangement, what you may find, since I don't 
believe China will be pushed, is that the Chinese nonetheless 
may find that the incentive created by those rules for 
investment in Vietnam, investment in the United States, 
investment in other partners, makes them more competitive than 
China.
    It may finally create an incentive where the Chinese have 
to start moving in the same direction--i.e., toward the rule of 
law--of their own volition because they'll start to see that 
their ``Go-West'' strategy of encouraging investment beyond the 
Chinese coastline won't work, that Vietnam becomes the new 
south coast of China, and that this churn that allows people to 
come out of the hinterlands and to the coast for work starts to 
break down as an economic model for China.
    So in one sense we have a tool that's positive trade-wise 
to try and address this problem, but it requires a very 
different concept along the lines Clyde is talking about--a 
very different approach--to how you sit down and bargain about 
the rules in a trade agreement. What I would suggest is that, 
in a world in which we compete in a globalized economy, we will 
have fundamentally missed the direction that our trade policy 
has to go if we fail to adopt that approach.
    Chairman Smith. Just two final questions. The new round of 
negotiations. Is it a pipe dream at WTO or is it something that 
might happen? Whether or not Xi Jinping, who follows Hu 
Jintao--will he have any different take on human rights, rule 
of law, and trade?
    And finally, so three, Mr. Price, you mentioned that China 
has engaged in a consistent pattern of avoiding, delaying, and 
directly violating its WTO commitments. Yet if you turn on CNBC 
Tonight, they talk about China having the imprimatur of WTO. It 
just kind of puts a veneer and a protection over how well or 
poorly or not at all that China has lived up to its 
obligations.
    China has on so many international agreements--the 
International Covenant for Civil and Political Rights--they 
sign it, they talk about it as if they're following it, and 
they don't. I'm wondering, it seems like the best-kept secret 
on Wall Street, and maybe even in Washington, is that China has 
failed miserably to live up to its commitments on WTO. So, you 
might want to take a stab at that. Why does it remain such a 
secret?
    Mr. Prestowitz. Well, on that last point----
    Chairman Smith. Yes, please.
    Mr. Prestowitz [continuing]. Wall Street, and many of the 
global companies are benefiting from that. I mean, the under-
valuation of the Chinese currency is very beneficial to a lot 
of U.S. and other global companies who are operating in China. 
So they don't particularly object. In fact, they will lobby 
here against any response to the currency issue, so I think 
that's a very important reason why a lot of this doesn't go 
forward.
    The second reason it doesn't come forward is the one you 
mentioned earlier, which is that there is fear. They can be 
retaliated against. They don't like to be too public. You heard 
in the earlier testimony from Ms. Reade, companies don't 
necessarily volunteer to come in to see the USTR and talk about 
problems because then they become visible and they can be 
attacked.
    Mr. Price. I think Clyde has hit on a couple of the key 
issues. Clearly, there is a separation between our national 
economic interests and the discrete interests of individual 
companies there. Many companies are invested, and therefore 
compromising their ability to support a message here.
    In terms of how you get from where we are today to where we 
need to go, that is the difficult issue. That is really the 
hard question here. China is part of a club. We invited them 
into the clubhouse at this point. Essentially, it is impossible 
to force them out of the clubhouse unless they want to 
voluntarily withdraw from the WTO or we would voluntarily 
withdraw from the WTO, neither of which at this point seems 
terribly likely. Or you have to develop pressure points. You 
have to forcefully have a message.
    It has to be led by the administration and Congress. You 
have to look at your pressure points, emphasize reciprocity 
where you can so that you fight starting the game. Even if we 
may be in technical violation on some of the rules in the same 
way that they are, you have to be willing to aggressively 
litigate at the WTO, point out these fundamental flaws, and try 
to solve the problems. It may be that not every attempt works, 
but in totality if we are going to try to solve these problems 
we have to aggressively tackle them, and tackle them quickly.
    Next, the potential of getting to a new round that could 
work. The current formulation of the Doha Round does not work. 
With all due respect to the administration witness, it is 
widely acknowledged that the Doha Round has essentially failed 
at this point. It almost prevents realistic negotiations by 
trying to continue within that framework, but we have to take a 
number of steps to get to the point where we could get a new 
framework, where we can get enough international consensus to 
force China to the table. TPP is part of that. There are a 
variety of steps there but it is going to take a while and 
going to take fairly aggressive and concerted action to get 
there.
    Mr. Aldonas. I'd say, Mr. Chairman, it won't happen in the 
WTO. The reality is, Doha is dead. It has been dead for a 
longtime. The only question is how we're going to give it a 
decent burial.
    In terms of starting new negotiations, the logic is the 
same, China being the example today, but India is a problem. 
There are a variety of others. But if you think about China, 
China basically said, we paid at the office in our accession 
process. We're unwilling to engage in further liberalization.
    Under those circumstances, which are deeply inconsistent 
with the idea of launching a new round of negotiations and not 
bearing your part of the burden of contributing to the ongoing 
process in the WTO, the reality is that hasn't changed. In 
fact, it's going in the wrong direction.
    So, the idea that the system within the WTO where the 
individual players within the WTO are going to come to a 
different conclusionabout what they should be bargaining for, I 
really doubt. That's why I think all the pressure, not just in 
the United States'context but in all other contexts, is really 
moving toward bilateral and regional agreements.
    A second point is about Wall Street's impact on industrial 
organization. A lot of what I do in my business is work with 
companies and their global supply chains. You would be amazed 
at what Wall Street analysts say to companies.The pressure 
there is, why aren't you out-sourcing? There's a mantra, in 
effect, an assumption that out-sourcing is the answer tocutting 
your costs.
    As Clyde points out, there are plenty of industries, Intel 
being one of them, where the labor costs are minuscule in terms 
of whatthey produce relative to the value of the product, and 
so it can't be wages. Out-sourcing isn't necessarily the right 
strategy.Yet, the pressure from Wall Street analysts on your 
stock is to say, how come you don't have a plan for out-
sourcing? Ironically,whatever Dodd-Frank did, it certainly 
didn't change any of the pressure the companies that I deal 
with feel from Wall Street when they're thinking about 
sourcing.
    I do agree with Clyde that we have to get back to that 
level of thinking about the incentives in our system and what 
we're tryingto produce. Do we want an innovative economy with 
broadly shared prosperity or do we want one that's essentially 
a winner-take-all system?
    A last point about Hu's replacement. It's very hard to see 
how, given the other shift in terms of the generation that's 
comingon-stream, that his replacement could be like Zedillo in 
Mexico, in essence, rejecting the Party structure from which he 
sprang. Even though Hu's replacement saw his father sent to the 
hinterland during the Cultural Revolution, as did Bo Xilai and 
a number of the other princelings, the reality is, there is too 
much to ask of that one individual to run against the grain of 
his entire generation to say they're going to make that choice.
    To the extent change comes, it's going to have to come from 
the bottom because the Chinese people, like Mr. Wei, demand 
it.That is why many of the things you talk about trying to open 
up the vehicles for that type of protest to take place and 
whyyou need strong advocacy from the United States about the 
values we cherish and we want to see implemented around the 
world andshouldn't be shy about it.
    Chairman Smith. Mr. Wei?
    Mr. Wei. For the Chinese Government, it got great benefits 
from this one-way trade, so, of course, the Chinese Government 
would not want to give up this benefit. However, the question 
is why the American Government would let this kind of bleeding 
go on as it is.
    American big business has made lots of money, and then the 
politicians are influenced by those big businesses. I think 
that's the fundamental reason why the American Government is so 
weak on the China issue. Although some American businesses made 
money, the American people lost their jobs.
    The American economy is in terrible shape. So I really 
think that this is the time that the American people and 
American politicians really need to have more participation. To 
those people who do not follow the law or rule--you must have a 
really hardliner standard, including the upcoming Communist 
leader, Xi Jinping.
    According to my personal source, I know that Xi Jinping may 
be more open-minded, maybe a little newer than the old Chinese 
Communist leaders. However, if there is no strong stand or push 
by the U.S. Government, I am afraid that he's not going to take 
that stand either. So my conclusion is, the American Government 
must be very hard-lined and very strong. I agree with what the 
friends next to me have said. Thank you.
    Chairman Smith. Thank you.
    Anything else before we conclude?
    [No response].
    Chairman Smith. Without objection, I ask that a statement 
by Senator Levin be made a part of the record.
    Again, I want to thank our very distinguished witnesses for 
your very wise counsel and recommendations and analysis of the 
problem.
    The hearing is adjourned.
    [The prepared statement of Senator Levin appears in the 
appendix.]
    [Whereupon, at 5:06 p.m. the hearing was adjourned.]
                            A P P E N D I X

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


                          Prepared Statements

                              ----------                              


                 Prepared Statement of Claire E. Reade

                           december 13, 2011
                              introduction
    Chairman Smith, Chairman Brown and members of the Commission, I 
appreciate the opportunity to testify today on issues surrounding the 
U.S.-China trade relationship and, in particular, China's efforts to 
fulfill the commitments that it made upon joining the World Trade 
Organization (WTO) ten years ago. This is a subject of considerable 
importance and a matter of great priority for the Administration and 
the U.S. Trade Representative (USTR) Ron Kirk.
    I would like to begin my testimony with USTR's assessment of 
China's first ten years of WTO membership, followed by a discussion of 
some specific areas of ongoing concern. I will then address the impact 
of China's WTO membership on the rule of law in China, with an emphasis 
on the issue of transparency. Finally, I will share my observations 
about what China's future participation in the WTO might look like.
              overall assessment of china's wto compliance
    When China acceded to the World Trade Organization on December 11, 
2001, the terms of its accession called for China to implement numerous 
specific commitments over time, with almost all of its commitments to 
be phased in completely within five years. Following China's accession, 
Chinese leaders took many impressive steps to implement a set of 
sweeping reforms in order to meet these commitments. China reduced 
tariffs, eliminated many non-tariff barriers that denied national 
treatment and market access for goods and services imported from other 
WTO members, and made legal improvements in intellectual property 
protections and in transparency. These steps unquestionably deepened 
China's integration into the international trading system, 
strengthening both China's rule of law and the economic reforms that 
China had begun in 1978. Trade and investment also expanded 
dramatically between China and its many trading partners, including the 
United States. Indeed, this expansion in trade and investment has 
provided numerous and substantial opportunities for U.S. businesses, 
workers, farmers and service suppliers, and a wealth of affordable 
goods for U.S. consumers.
    Despite this progress, the overall picture of China's actions to 
implement its WTO policy commitments remains complex, given a troubling 
trend in China toward intensified state intervention in the Chinese 
economy over the last five years. Increasingly, trade frictions with 
China can be traced to China's pursuit of industrial policies that rely 
on trade-distorting government actions to promote or protect China's 
state-owned enterprises and domestic industries. In fact, in recent 
years, China seems to be embracing state capitalism more strongly, 
rather than continuing to move toward the economic reform goals that 
originally drove its pursuit of WTO membership.
                       specific areas of concern
    In short, even with the tremendous progress China has made in the 
complex task of implementing its WTO commitments, critical work 
remains. Today, I will highlight four areas that continue to cause 
particular concern for the United States and U.S. stakeholders in terms 
of China's approach to the obligations of WTO membership. For more 
details about these matters, I would refer the Commission to the 2011 
USTR Report to Congress on China's WTO Compliance, which we issued 
yesterday. I will submit a copy for the record.
    The first area is effective enforcement of intellectual property 
rights in China. This remains a massive challenge. Counterfeiting and 
piracy in particular remain at unacceptably high levels in China and 
continue to cause serious harm to U.S. businesses across many sectors 
of the economy. Trade secret theft is also becoming very worrisome.
    Second, China's pursuit of an array of industrial policies raises 
serious concerns. Examples of these policies include excessive 
subsidies, discriminatory policies aimed at promoting ``indigenous 
innovation,'' export restraints on raw materials, the pursuit of unique 
national standards, and restrictions on foreign investment. These 
policies benefit state-owned enterprises, as well as other favored 
companies attempting to move up the economic value chain.
    Third, even though China is now the United States' largest 
agricultural export market, this massive and beneficial trade does not 
flow as smoothly as it could or should. China remains among the least 
transparent and predictable of the world's major markets for 
agricultural products, largely because of unpredictable and problematic 
interventions in the market by China's regulatory authorities.
    Finally, even though the United States continues to enjoy a 
substantial surplus in trade in services with China, and the market for 
U.S. service suppliers remains promising, China's discriminatory 
regulatory processes, informal bans on entry, overly burdensome and 
capricious licensing and operating requirements, and other similar 
problems frustrate efforts of foreign suppliers to achieve their full 
market potential in China.
    Going forward, Ambassador Kirk will continue to vigorously pursue 
increased benefits for U.S. stakeholders in all of these areas, using 
both bilateral and multilateral engagement, including dispute 
settlement at the WTO, where appropriate. We are committed to ensuring 
that the United States fully benefits from China's commitments to trade 
liberalization under the terms of its accession to the WTO.
                      transparency and rule of law
    Let me turn to the important area of transparency. This is one of 
the core principles of the WTO Agreement, and is reflected throughout 
China's WTO accession commitments. Transparency permits markets to 
function effectively and reduces opportunities for officials to engage 
in trade-distorting practices behind closed doors. China's WTO 
transparency commitments required a profound historical shift in 
Chinese policies, and China did make important strides to improve 
transparency across a wide range of national and provincial authorities 
following its accession to the WTO. Nevertheless, it appears that China 
still has more work to do.
    Three areas of remaining work stand out. First, China committed to 
publish all of its trade-related laws, regulations and other measures. 
While China has complied with this commitment in many respects, it 
still does not appear that China publishes all its measures. For 
example, China does not publish measures providing what China calls 
``internal guidance'' to its agencies. These measures can bind agencies 
just as fully as officially public measures do, and the public should 
be able to see them. Second, China committed to publish trade-related 
measures for public comment before implementing them. China has made 
important improvements in this area over the years, but some agencies 
continue to promulgate final measures with little or no opportunity for 
public comment. Third, China committed to all of its trade-related 
measures available in one or more WTO languages, but it appears that 
China has made only limited progress in implementing this commitment.
    The Administration will continue to monitor China's progress 
closely in this area and will push China to undertake further necessary 
steps to improve transparency.
                    china's future wto participation
    China's WTO membership offers an important tool for managing the 
increasingly complex U.S.China trade relationship. A common WTO ``rule 
book'' and an impartial body in Geneva have helped the two sides 
resolve differences when dialogue fails. The United States has not 
hesitated to pursue its rights with China through WTO dispute 
settlement. In the last 3 years alone, the United States has brought 
five cases to the WTO to address harmful subsidies in wind power, 
concerns about misuse of trade remedy law, discriminatory barriers in 
the electronic payments sector, and trade-distortive export restraints 
on crucial raw materials. These disputes--combined with the enforcement 
work we pursue in the Joint Commission on Commerce and Trade, the 
Strategic and Economic Dialogue, and through other trade tools like 
Special 301--help ensure that U.S. businesses, workers, farmers, 
ranchers, service suppliers, and consumers derive the full promise of 
China's WTO membership.
    The importance of the WTO to the U.S.-China trade relationship 
highlights the fact that China itself has a critical stake in 
participating in, and strengthening, the WTO system. That means, for 
example, that, at the upcoming WTO ministerial in Geneva, China should 
join in to help ``turn the page'' so that WTO Members can solve the 
Doha Round impasse and implement meaningful trade liberalization and 
credible trade rules to govern the WTO system in the future.
                               conclusion
    Mr. Chairman, Mr. Co-Chairman and members of the Commission, thank 
you for providing me with the opportunity to testify. I look forward to 
your questions.
                                 ______

                   

                                 
                  Prepared Statement of Wei Jingsheng

                           december 13, 2011
    Once the United States granted China PNTR (Permanent Normal Trade 
Relations) status, China successfully joined the World Trade 
Organization shortly after. For the past decade, Chinese exports have 
grown substantially, leading to the rapid growth of its GDP. However, 
two results came out of this growth. On the U.S. side, the trade 
deficit with China has rapidly increased, along with a rapid increase 
in unemployment and the national debt in the United States. Meanwhile, 
on the Chinese side, the total consumption by the Chinese people did 
not grow synchronously, nor did imports from the United States.
    From another view, in the past 10 years since China entered the WTO 
the growth of U.S. manufacturing has been slow, and China's consumption 
has grown slowly as well. A large portion of the growth in both 
countries was exchanged into cash, which not only had an impact on the 
financial market but also expanded the wealth gap between rich and poor 
in both countries. The abnormal development of these two giant economic 
entities, the United States and China, is the root cause of the global 
economic recession in recent years.
    This deformed economic development originated in unfair trade 
relations. In other words, the United States and Europe opened their 
markets to China, while China did not open its market to both the 
United States and Europe. Meanwhile, the Chinese government has been 
using unfair methods for competition, especially by way of undervaluing 
the Chinese currency RMB, etc. Thus, China has been able to rapidly 
develop its manufacturing industry, while inhibiting the development of 
the U.S. and European manufacturing industry. At the same time, the 
Chinese consumer market was not expanded and its imports were not 
increased synchronously. The profit realized through unfair trading 
mostly fell into the pockets of multinational corporations and the 
Chinese government.
    When people talk about that wonderful slogan of ``free trade'', 
they forget that free trade needs some basic conditions. The domestic 
economy in China is neither ``free trade'' nor a ``free market''. The 
Chinese Communist government is always the biggest controller of the 
Chinese market. Regardless of whether you are a foreign company or a 
Chinese company, you can only obtain market share or market access with 
the permission of the Chinese government. The condition of this access 
and share is defined by the Chinese government's needs in international 
politics, as well as the control of imports of foreign goods into 
China. The strategic purpose of this control is to keep most of the 
Chinese domestic market for the Chinese enterprises, especially those 
state-owned, less efficient businesses that lack competition.
    In the past 10 years, the Chinese Communist government continues 
naked trade protection measures. As China is not a free country both 
politically and economically, so the government will not unnecessarily 
use nor is it used to carrying out terms according to the World Trade 
Organization, or as it promised. Also, because Chinese law is not 
binding on the Communist government and the ruling party--even if there 
were a number of WTO conditions absorbed into the Chinese law--they 
will not be strictly enforced any more than other laws. Chinese laws 
are understood as tools for the officials: they will be executed if 
they are considered favorable circumstances for the officials, and will 
not be executed if they are not favorable. Thus, the WTO simply cannot 
restrain China's economic behavior; it is impossible to eliminate all 
forms of trade barriers in China, including the Chinese government's 
manipulation of the Chinese currency RMB exchange rate, and it is 
impossible to make China a free trade country.
    The result of allowing a country without a free market economy to 
trade with countries with a free market economy is to let one side hold 
its trade barriers while the other side is without trade barriers. This 
way of conducting an international trade is fundamentally unfair. The 
rules of the WTO are designed for countries with market economies. The 
current status after China entered WTO for 10 years illustrates that 
the WTO has neither the ability to cope with a huge non-market economic 
entity, nor the ability to force China's implementation of WTO norms.
    Therefore, there are only two possibilities for changing this 
massively unfair international trade relation. One is the exclusion of 
China outside the WTO. However, before one finds a way to exclude it, 
the other countries must build their own comparable trade barriers to 
force China into implementing the WTO norms for its own interests. 
Before China itself establishes a fair legal system, only the loss of 
interest can force the Chinese government to comply with the principle 
of fairness. All other treaties or agreements would be something that 
may or may not be complied with in the legal system in China according 
to the government's interest, and thus will be invalid.
    I hope the U.S. Congress and the U.S. Administration could fully 
understand the special rules in the Chinese legal system, as well the 
irregularities of the market caused by China's authoritarian political 
system. We should not to use the normal way of thinking in a normal 
society of the United States to understand the Chinese affairs which 
are totally different.
                                 ______
                                 

  Prepared Statement of Hon. Christopher Smith, a U.S. Representative 
 From New Jersey; Chairman, Congressional-Executive Commission on China

                           december 13, 2011
    Ten years ago this week, China acceded to the World Trade 
Organization. Prior to that, the United States granted China permanent 
normal trade relations. This Commission was formed in that process, 
with a mandate to monitor human rights and the development of the rule 
of law or the lack of progress thereof in China.
    In 1998, two years before China joined the WTO, I chaired a hearing 
of the Subcommittee on International Operations and Human Rights of the 
Committee on International Relations in which I examined whether 
bringing China into the WTO would improve its human rights record. At 
the time, I noted reports from the State Department and Amnesty 
International citing serious problems in several key areas of China's 
human rights record, such as the imprisonment and abuse of prisoners of 
conscience, including those who sought genuine, independent 
representation for China's workers; restrictions on religious freedom; 
and the implementation of coercive family planning including pervasive 
forced abortion and coercive organ harvesting; among others.
    As a member of the WTO, China has experienced tremendous economic 
growth and integration into the global economy, but as this 
Commission's most recent Annual Report documents, China continues to 
massively violate the basic human rights of its own people and 
systematically undermine the rule of law. Lawyers and activists who 
stand up for individuals' rights are detained, often under deplorable 
conditions--and tortured. Chen Guangcheng, a blind and self-taught 
legal activist, is imprisoned in his own home. Nobel laureate Liu 
Xiaobo continues to serve an 11-year prison sentence for peacefully 
advocating for political reform. Web sites that do not adhere to the 
government line are shut down. Freedom of religion is denied to those 
who worship outside state-sanctioned institutions and believers 
harassed, incarcerated and tortured. Ethnic minorities are persecuted.
    This hearing, asking whether China has kept its promises as a 
member of the WTO, will revisit a hearing the Commission held in June 
2002, six months after China joined the WTO. That hearing was titled, 
``WTO: Will China Keep its Promises? Can it?'' There was optimism by 
some at the time, but even that was tempered by caution. China was 
liberalizing. It was a vast and promising market and foreign businesses 
were eager to see the imposition of the WTO's set of rules and 
principles bring some order to the Chinese investment and legal 
systems. It seemed at the time that China's leadership envisioned a 
market economy more similar to ours than to that of a Communist state. 
However, some people, including me and some of our commissioners, were 
highly skeptical that China's WTO accession would lead to rule of law 
in China.
    Judging by the experiences of the past 10 years, I think the answer 
to the first question--whether China will keep its promises--is sadly, 
no. Arguably, the Chinese people now have more freedom to participate 
in China's changing economy, but the Chinese government continues to 
place harsh restrictions on that participation. More Chinese citizens 
are able to travel, while many dissidents are barred from leaving the 
country.
    The deplorable state of workers' rights in the PRC not only means 
that Chinese men, women and children in the work force are exploited 
and put at risk, but also that U.S. workers are severely hurt as well 
by profoundly unfair advantages that go to those corporations who 
benefit from China's heinous labor practices. Human rights abuses 
abroad have the direct consequence of robbing Americans of their jobs 
and livelihoods here at home.
    Charlie Wowkanech, the president of the New Jersey State AFL-CIO, 
testified at my hearing in 1998 and his words are as true today as 
then. He said, ``Chinese economic policy depends on maintenance of a 
strategy of aggressive exports and carefully restricted foreign access 
to its home market. The systematic violation of internationally 
recognized workers' rights is a strategically necessary component of 
that policy. Chinese labor activists are regularly jailed, or 
imprisoned in reeducation camps for advocating free and independent 
trade unions, for protesting corruption and embezzlement, for insisting 
that they be paid wages that they are owed, and for talking to 
journalists about working conditions in China.''
    On the one hand, the Internet seemingly gives Chinese citizens 
greater access to information than was possible before, but it is 
heavily censored, restricting access by Chinese citizens to information 
and by U.S. companies to the Chinese market. Moreover, the internet has 
become a ubiquitous, potent weapon of suppression employed with 
devastating impact.
    In 2006 I held the first major hearing on Internet freedom in 
response to Yahoo!'s turning over the personally identifying 
information of its e-mail account holder, Shi Tao, to the Chinese 
government--who tracked him down and sentenced him to 10 years for 
sending abroad e-mails that revealed the details of Chinese government 
press controls. At that hearing Yahoo!, Google, Microsoft, and Cisco 
testified as to what we might ruefully call their ``worst practices'' 
of cooperation with the Internet police of totalitarian governments 
like China's.
    Since then China has further transformed from what should have been 
a freedom plaza to big brother's best friend. The technologies the 
Chinese government uses to track, monitor, block, filter, trace, 
remove, attack, hack, and remotely take over Internet activity, content 
and users has exploded.
    Last week I introduced the Global Online Freedom Act, a bill which 
requires the State Department to beef up its reporting on Internet 
freedom in the annual Country Report on Human Rights Practices, and to 
identify by name Internet-restricting countries.
    The bill requires Internet companies listed on U.S. stock exchanges 
to disclose to the Securities and Exchange Commission how they conduct 
their human rights due diligence, including with regard to the 
collection and sharing of personally identifiable information with 
repressive countries, and the steps they take to notify users when they 
remove content or block access to content.
    Finally, in response to many reports that we've all seen in the 
papers recently of U.S. technology being used to track down or conduct 
surveillance of activists through the Internet or mobile devices, the 
bill will prohibit the export of hardware or software that can be used 
for potentially illicit activities such as surveillance, tracking and 
blocking to the governments of Internet-restricting countries, 
including China
    Could China have kept it promises? Of course it could have, though 
doing so would have meant the Communist Party would have had to submit 
to the rule of law. China faced many challenges when it joined the WTO. 
However, given its economic success and clout--as well as the immense 
resources it has poured into the expansion of the state's role in its 
economy--China certainly could have kept its promises if it wished to 
do so.
    So how is China doing by WTO standards? Awful. China had agreed to 
abide by the WTO principles of non-discrimination and transparency. 
However, U.S. exporters face many barriers when trying to sell products 
to China, starting with customs delays and other problems at the 
border. Those problems extend into China's markets. Companies in the 
large and growing state-owned sector [0]operate under a set of policies 
that favor Chinese producers. Also, it is extremely difficult for our 
companies to access government procurement.
    Some of these barriers are obvious, such as China's indigenous 
innovation policy, which has created strong incentives to condition 
market access on the transfer of valuable technology, contrary to WTO 
rules. Others, such as directed purchasing of Chinese-made products by 
China's state-owned companies, are harder to prove, notwithstanding 
China's agreements that state-owned companies would operate on a market 
basis.
    There is no reciprocity, not strictly speaking a WTO requirement, 
but certainly a principle underlying the WTO. It is much more difficult 
for American companies to access the Chinese market than it is for 
Chinese companies to reach buyers in the United States. Even China's 
Internet censorship serves to keep American products and services out 
of the Chinese market, by blocking access in China to U.S. Web sites in 
many cases.
    China's record of protection of intellectual property rights, a 
fundamental WTO obligation, is abysmal. Infringement of our companies' 
IP leads to lost sales in China, the United States, and other 
countries; lost royalty payments; and damaged reputations; and presents 
a risk to consumers here and in China of unwittingly buying counterfeit 
pharmaceuticals or unsafe fake products.
    The level playing field promised as part of China's WTO accession 
has not arrived. WTO membership has resulted in a massive shift of jobs 
and wealth from United States to China, which has come at a huge cost 
to us.
    The trade deficit in China's favor his tripled over the past 10 
years--in 2010 it was a whopping $273 billion.
    It also has come with a cost to the credibility of the WTO, raising 
the question `is China killing the WTO?' given China's state capitalism 
and poor governance.
    The impact of China's failure to comply with WTO norms is 
compounded by the WTO's relative inability to deal effectively with a 
mercantilist, state-directed economy such as China's. The WTO 
presupposes transparency and rule of law. These do not exist in China.
    The impact of China's failure to comply with WTO norms is 
compounded by the WTO's relative inability to deal effectively with a 
mercantilist, state-directed economy such as China's. The WTO 
presupposes transparency and rule of law. These do not exist in China.
                                 ______
                                 

  Prepared Statement of Hon. Sherrod Brown, a U.S. Senator From Ohio; 
        Cochairman, Congressional-Executive Commission on China

                           december 13, 2011
    Ten years ago this month, China officially joined the World Trade 
Organization. It was a day of monumental importance to this country, 
fundamentally changing our relationship with China. It also led to the 
creation of this Commission, to monitor human rights and rule of law 
development in China.
    Today, we are here to talk about what the last ten years have 
meant. We've come here to understand whether we are better off, whether 
China has kept its promises, and where we are headed.
    At the time it joined the WTO, China made many promises. Chinese 
leaders pledged to reduce trade barriers and open up markets. They 
promised to increase transparency, protect intellectual property 
rights, and reform their legal system.
    China's supporters, many of them here in Congress and in the 
Administration at the time, argued that WTO membership would bring 
human rights, freedom, and the rule of law to China.
    Those of us on the other side of the spectrum, including my close 
friend Wei Jingsheng who is here with us today, raised serious doubts 
about China's WTO membership. We did not prevail.
    Yet, after ten years, it's clear that China is not living up to its 
promises or the unrealistic expectations of its supporters. Far from 
becoming freer, the Chinese people are burdened with limited or no 
rights to basic freedoms of speech, religion, and assembly.
    And it's getting worse. From the harsh crackdown on human rights 
lawyers and activists after the ``Arab Spring,'' to the brutal policies 
in Tibet that have led to a recent wave of self-immolations, China's 
Communist Party shows no signs of easing its tight grip on the Chinese 
people.
    There's no better example of this than Liu Xiaobo. At this time 
last year, Liu was being awarded the Nobel Peace Prize. But the 
dissident writer couldn't travel to Oslo, Norway to receive the award. 
He was stuck in a Chinese prison, another victim of a system that 
silences anyone who speaks out for human rights.
    At last count, the Commission had documented some 1,500 cases of 
political prisoners in China. And those are just the ones we know 
about. These are innocent people like Liu, who are being punished for 
peacefully exercising their fundamental rights.
    Not only did WTO not bring freedom and democracy to China, it 
didn't bring fair trade either. Instead, China has flouted WTO rules 
and gamed the system to its advantage.
    While China has chosen to comply with some WTO rules, overall, the 
list of China's WTO violations is a long one.
    Rampant intellectual property theft. Massive subsidies for China's 
exports. Hoarding of rare earths and other raw materials. China has 
also refused to commit to the WTO's Agreement on Government 
Procurement.
    These violations not only show China's lack of respect for the rule 
of law. They cost us dearly, in lost American jobs and a stalled 
economic recovery. U.S. IP-intensive firms alone have lost almost $50 
billion to Intellectual Property Right violations, with those same 
firms reporting that better enforcement could lead to almost one 
million new U.S. jobs.
    Some of the worst violations affect Ohio companies, forced to 
compete against a country that manipulates its currency and subsidizes 
its manufacturers.
    Given our companies' well-founded fear of retaliation by Chinese 
regulators and companies if they speak up, we in government must give 
voice to their concerns.
    The most damaging of China's unfair trade practices is currency 
manipulation. By deliberately holding down the value of its currency to 
boost exports, China has built the largest trading surplus in history 
to the detriment of the U.S. and other trading partners.
    Currency manipulation provides an unfair subsidy to Chinese exports 
- of up to 40 percent by the estimate of some economists. It practices 
the most protectionist policy of any major country since World War II, 
according to economist C. Fred Bergsten of the Peterson Institute.
    Additionally, American manufacturers seeking to sell their products 
to China--our nation's fastest growing export market-- are hit with the 
same percentage in what amounts to an unfair tariff.
    The advantages enjoyed by Chinese manufacturers cost American jobs, 
and not just jobs in steel, autos, and textiles but jobs in wind, 
solar, and clean energy sectors critical to our economic recovery.
    There's no indication that it will get any better. In fact, China's 
state-owned sector is actually growing, further skewing the playing 
field in favor of China's heavily subsidized state-owned enterprises.
    With no end in sight, we've got to do something. I applaud the 
United States Trade Representative's (USTR) more aggressive efforts to 
challenge China at the WTO on everything from Internet censorship to 
raw materials. I look forward to hearing from Assistant USTR Claire 
Reade on her office's plans going forward.
    There's still much more we can do. That's why the Senate acted this 
fall to address currency manipulation. By a resounding vote of 63-35, 
we passed the Currency Exchange Rate Oversight Reform Act of 2011, 
legislation I authored with several colleagues. This represents the 
biggest bipartisan jobs effort Congress has seen this session. I 
encourage the House to bring the currency bill to a vote.
    American workers and American manufacturers can compete with 
anyone. But they'll never be able to compete on a level playing field 
as long as we continue to let China do what it wants, without any 
repercussions.
    Over the last 10 years, China has sought to sidestep and reshape 
the WTO to benefit China, at our expense. That's not competing--that's 
cheating. We must act now, while we still have a chance.
    Thank you.
                                 ______
                                 

 Prepared Statement of Hon. Carl Levin, a U.S. Senator From Michigan; 
          Member, Congressional-Executive Commission on China

                           december 13, 2011
    I commend the Chairman and Cochairman of the CECC for holding this 
hearing. Despite nearly 10 years as a member of the WTO, China 
continues to engage in unfair trade practices. China's joining the WTO 
offered the promise of a significantly more effective tool for 
monitoring and changing the trade practices and human rights conditions 
in China. While it is true that China's being in the WTO obligates 
China to follow WTO rules, China continues to flout many of the WTO's 
basic principles in order to promote its domestic manufacturers and 
exports.
    One area of concern I would like the Commission to look at is 
China's lack of intellectual property rights protections and its 
failure to act against wide-spread counterfeiting. I am also concerned 
about the anti-competitive policies China is implementing to favor its 
domestic renewable energy technology sector and automotive industry.
    Earlier this year, the Senate Armed Services Committee, which I 
chair, began an investigation of counterfeit electronic parts finding 
their way into the systems that our military uses to defend us. On 
November 8th, we held our first hearing to look at what our 
investigation has discovered so far, and what we have found is 
shocking. There is a flood of counterfeit electronic parts entering the 
defense supply chain. It is endangering our troops and costing us a 
fortune. And the overwhelming share of these counterfeits comes from 
one country: China.
    Here is some of what we have found:

         Looking at just a slice of the defense contracting 
        universe, the committee reviewed approximately 1,800 cases of 
        electronic parts suspected to be counterfeit. Those 1,800 
        involve more than 1 million individual parts. Now, 1 million 
        parts is surely a huge number, but remember, we've only looked 
        at a portion of the defense supply chain. Those 1,800 cases are 
        just the tip of the iceberg.
         Staff selected more than 100 of those cases to trace 
        the suspect counterfeit parts back through the supply chain. In 
        more than 70 percent of cases, the trail led to China, where a 
        brazenly open market in counterfeit electronic parts thrives. 
        In most of the remaining cases, the trail led to known resale 
        points for parts coming from China.
         We also conducted detailed investigations of how 
        suspect counterfeit parts from China ended up in three key 
        defense systems. In each case, we traced the parts through a 
        complex web of subcontractors and suppliers back to Chinese 
        companies.
         It is stunning how far Chinese counterfeiters are 
        willing to go. We asked the Government Accountability Office 
        (GAO), acting undercover, to go online and buy electronic parts 
        used in military systems. Every single part the GAO has 
        received so far has been counterfeit. GAO found suppliers who 
        not only sold them counterfeit parts; suppliers were also 
        willing to sell them parts with nonexistent, made-up part 
        numbers. Every one of the counterfeit parts GAO has received so 
        far came from China.

    At the Committee's November 8th hearing, witnesses told us how 
counterfeiters in China remove electronic parts from scrapped computers 
and other electronic waste, how they wash the parts in dirty rivers, 
and dry them in the street. Counterfeiters make this scrap look like 
new parts and sell them openly in markets in Chinese cities and through 
the Internet to buyers around the world.
    We attempted to send Committee staff to mainland China to see 
counterfeits markets for themselves. But Chinese authorities impeded 
our investigation, refusing to issue visas to our investigators to even 
enter mainland China. At one point, a Chinese embassy official told 
staff that the issues we were investigating were ``sensitive'' and that 
the investigation could be ``damaging'' to U.S.-China relations.
    They got it backwards. What is damaging to U.S.-China relations is 
China's refusal to act against brazen counterfeiting.
    If China does not act promptly to end counterfeiting, then we will 
have no choice but to treat all electronic parts coming in from China--
whether for military or civilian use--as suspected counterfeits. That 
would mean requiring inspection of shipments of Chinese electronic 
parts to ensure that they are legitimate.
    We cannot afford to put our troops at risk by arming them with 
unreliable weapons or asking them to fly planes with fake parts on 
them. We cannot afford to spend needed defense dollars on fake parts. 
And we cannot allow our national security to depend on electronic scrap 
salvaged from electronic trash by counterfeiters in China.
    The Chinese government is not acting to stop the flood of 
counterfeits coming from their country. But we are. The Department of 
Defense authorization bill passed by the Senate contains critical 
provisions to enhance border inspections of suspect counterfeit goods 
and strengthen efforts to detect and avoid counterfeit electronic parts 
in the defense supply chain. I look forward to those provisions 
becoming law.
    I am also concerned about the counterfeiting of auto parts, 
concerns that extend beyond monetary losses to U.S. firms and directly 
impact human health and safety. A counterfeit auto part could be the 
wheel or the brakes on your car. Since counterfeit parts are often 
substandard and produced with inferior materials, they put lives at 
risk. The Motor & Equipment Manufacturers Association (MEMA) recently 
has found that most counterfeits appear to be made in China. For almost 
20 years the United States has been aggressively pressing China to 
improve its intellectual property protection regime. Yet China 
continues to be the number one source country for counterfeit and 
pirated goods.
    There are many other areas of Chinese policy that raise concern and 
that clearly violate the spirit and letter of the WTO. We should all be 
alarmed by China's attempts to dominate the renewable energy industry 
through measures that discriminate against foreign manufacturers. China 
does this by requiring the use of domestic suppliers and production for 
green and renewable technology. China also has designs to dominate 
clean car technology. According to the Wall Street Journal, China is 
preparing a 10-year plan to turn China into the world's leader in 
developing and producing battery-powered cars and hybrids.
    At a time when American manufacturers are working hard to compete 
in the emerging field of green technologies, China must not be allowed 
to unfairly or illegally undermine those efforts. The reality is that 
when American companies do business in the global marketplace, they are 
not competing against companies overseas; they are competing against 
foreign governments that support those companies.
    China's trade distorting practices need to be aggressively 
investigated by the USTR as we work to hold China to its WTO 
commitments in international trade.

                       Submission for the Record

                              ----------                              


              [From the New York Times, December 8, 2011]

              China's 10-Year Ascent to Trading Powerhouse

                          (By Keith Bradsher)

    HONG KONG--As China heads into a weekend of speeches celebrating 
its 10 years as an official member of the global trade community, the 
rest of the world may want to contemplate the exported $49 microwave 
oven and the imported $85,000 Jeep Grand Cherokee.
    Sunday is the 10th anniversary of China's joining the World Trade 
Organization--a membership that helped turn China into the world's 
biggest economy after the United States. Companies and consumers 
worldwide have benefited from China's emergence as a top trading 
partner. And yet, because of special breaks and loopholes for China 
when it joined the W.T.O., it still shields its domestic markets from 
foreign competition much more than any other big nation.
    Consider that $49 microwave oven and $85,000 Jeep.
    Microwave oven prices have plunged in the West over the past 
decade, largely because China has combined inexpensive labor, excellent 
infrastructure and heavy factory investment to produce the ovens and a 
wide range of other consumer goods for export, making creature comforts 
more affordable to customers around the world.
    Further, W.T.O. rules against protectionism have made it difficult 
for countries in the West to limit China's sixfold surge in exports 
during those 10 years, even as the Chinese flood of products has forced 
factory closings and layoffs elsewhere.
    But price tags on imported cars at dealerships in Beijing, Shanghai 
and other Chinese cities signal how China has continued to protect its 
home market under the special terms of the W.T.O. agreement it 
negotiated before joining the trade group.
    In the United States, prices for a Detroit-made Jeep Grand Cherokee 
start at $27,490. But in China, after tariffs and other protective 
fees, it sells for $85,000 or more. (It's no surprise that Chrysler has 
sold fewer than 2,500 of them so far this year in China.)
    Foreign trading partners often chafe at the way China uses the 
W.T.O. rules to its advantage.
    The Chinese economy's ``spectacular rise would not have been 
possible without the open global trading system that China was able to 
benefit from during the past 10 years,'' said Karel de Gucht, the 
European Union's trade commissioner.
    ``At the same time,'' he said, ``China is having to increasingly 
recognize and respect not only the legal responsibilities it now faces 
as a member of a global rules-based body, but also the W.T.O. `spirit' 
of promoting open markets and nondiscriminatory principles.''Chinese 
officials have been effusive in the run-up to their W.T.O. anniversary. 
``We believe that our 10-year arrangement has been successful--the 
results of the past 10 years are welcome and a valuable inspiration,'' 
Yu Jianhua, China's assistant minister of commerce, said at a news 
conference last month in Beijing.
    The roots of China's economic model trace to the singular terms 
under which the nation joined the World Trade Organization, which now 
has 153 members.
    Based in Geneva, the group was established in 1995 as the successor 
to an international framework called the General Agreement on Tariffs 
and Trade--GATT, as it was known--that had been mapped out in the early 
years after World War II.
    After negotiating for 15 years to be admitted to GATT and then to 
the W.T.O., China was finally let in after agreeing to accept the 
W.T.O.'s broad free trade rules. But as all new members do, Beijing 
also had to negotiate a lengthy document, known as an accession 
agreement. It spelled out thousands of details tailored to the 
specifics of the economy of China, which then was still very much a 
developing country.
    The agreement required China to lower its tariffs to levels below 
those of many other developing countries. But compared with most 
industrialized countries, China was allowed to impose considerably 
higher tariffs--tariffs China has retained even as its economy has 
subsequently grown to No. 2 in the world.
    The clearest example of W.T.O. ascendance China-style may be in 
automobiles. Even though China's auto manufacturing industry and car 
market are now both the world's largest, China continues to shelter 
them behind the highest trade barriers of any large industrial economy.
    It retains a prohibitive tariff of 25 percent on imported cars, for 
example, which helps explain why imports represent only 4 percent of 
the light vehicles sold in China. Japan, by comparison, no longer has 
any tariffs on imported cars, while South Korea has an 8 percent tariff 
and the European Union a 10 percent tariff. The United States, 
meantime, has a tariff of only 2.5 percent for imported cars, minivans 
and sport utility vehicles.
    But the 25 percent tariff is only one reason a Grand Cherokee costs 
three times as much in Chongqing as in Chicago. In the name of energy 
conservation, China also assesses a sales tax of up to 40 percent of 
the vehicle's price based on its engine size. Small, fuel-sipping 
Chinese cars pay the lowest rate, as little as 1 percent, while gas-
guzzlers from the United States and Europe pay the highest rate.
    China also collects a 17 percent value-added tax on almost 
everything sold in the country, whether imported or domestically 
produced. But like many European nations, China uses a W.T.O. provision 
that allows the tax to be fully refunded to China's export producers, 
who often pass along the saving to foreign buyers.
    What's more, China limits foreign manufacturers to no more than 50 
percent ownership of car assembly plants in China. That special rule, 
which China managed to negotiate for its W.T.O. accession agreement 
when its auto industry seemed tiny and vulnerable, has forced 
multinationals to set up numerous joint ventures in China and to 
transfer a wide range of technology to those Chinese partners.
    China's W.T.O. agreement did open many service sectors of the 
Chinese economy, like transportation, banking and retailing, to foreign 
competition. FedEx, for example, has expanded rapidly in China and now 
has 9,000 employees in the country. The company also relies heavily on 
American-made Boeing 777-Fs, with mostly American pilots, to ferry an 
ever-rising tide of Chinese goods to the FedEx hub in Memphis.
    And Wal-Mart has been able to open 353 retail stores in China, 
despite the hostility of many small, local retailers.
    China's W.T.O. agreement had some big omissions, including the 
thorny question of whether to let foreign companies bid on Chinese 
government projects--an issue that remains unresolved.
    China got many of its breaks because the W.T.O. and its members, 
including the United States, were eager to accept it into the 
international trade group to encourage Beijing's embrace of capitalism 
and to make it a more fully vested participant in the global community.
    But trade officials say that they never expected all the terms of 
China's accession agreement to last as long as they have.
    Instead, China and other trading nations had expected to reduce 
trade barriers further in the Doha Round of global trade talks. But the 
talks dragged on and then effectively collapsed in 2008--despite 
periodic efforts to revive it, including a meeting of ministers next 
week in Geneva.
    While China is acutely aware of other countries' concerns about its 
tariffs, it is leery of lowering them unilaterally without concessions 
from other countries, said He Weiwen, a council member of the China 
Society for W.T.O. Studies in Beijing.
    For the West, the open question is whether China's high tariffs and 
other market protections will be allowed to remain in place 
indefinitely. Just as worrisome: a few provisions in the agreement that 
were meant to blunt the competitive impact of Chinese exports on 
Western industries are starting to expire. The most notable of these is 
China's current designation under its W.T.O. agreement as a ``nonmarket 
economy.'' The label makes it fairly easy for overseas industries to 
accuse Chinese companies of dumping goods into their markets at prices 
below cost, and to seek steep tariffs on their shipments.
    That is just the sort of accusation, in fact, that American solar 
panel manufacturers have leveled at China in a trade case pending at 
the Commerce Department in Washington--a case the American industry is 
widely expected to win.
    But under the W.T.O. agreement, China will automatically be 
relabeled a market economy in 2016. That status will make it harder for 
companies in other countries to win antidumping decisions against 
China--and will probably clear the way for Chinese businesses to 
further increase their global market share.
    Ideally, that could mean a lot more products like $49 microwaves on 
Western shelves--even if it means a Grand Cherokee from Detroit may 
never be affordable in China.