[Congressional Record Volume 146, Number 18 (Thursday, February 24, 2000)]
[Senate]
[Pages S790-S791]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     WHY CHINA SHOULD JOIN THE WTO

  Mr. GRASSLEY. Mr. President, the Senate will soon make a very 
important and historic decision about whether to grant permanent normal 
trade relations status to China. This decision would pave the way for 
China's accession to the WTO. China's likely accession to the WTO is 
one of the most pivotal trade developments of the last 150 years. It is 
also perhaps the single most significant application of the most-
favored-nation principle, or non-discrimination principle, in modern 
trade history.
  I believe we should approve permanent normal trade relations for 
China. I also strongly believe China should be admitted to the World 
Trade Organization. Because this is such an important matter, I would 
like to address this issue today in a careful and thorough way.
  I have two main points. First, The Core principle of the WTO, the 
principle of nondiscrimination, or most-favored-nation treatment, is 
the only way we have to keep markets open to everybody.
  We should seek the broadest possible acceptance of this basic 
principle of non-discrimination in trade. History shows that when 
countries trade with each other on a nondiscriminatory basis, everyone 
wins. History also shows that free and open trade is one of the most 
effective ways to keep the peace.
  Second and lastly I also support China's entry into the WTO because 
it is in our national self-interest to have a rules-based world trading 
system that includes China.
  Mr. President, I would like to say a few words about my first point, 
that everyone wins when we have nondiscriminatory trade, which gives us 
a better chance to keep the peace.
  Most-favored-nation treatment, or what we now call normal trade 
relations, started with Britain and France in the 1860s. These two 
nations negotiated free trade agreements based on the most-favored-
nation principle of nondiscrimination, which later became the 
cornerstone of the GATT, and, in 1993, the WTO.
  The results of these early international trade treaties was 
spectacular. It began a new era of free trade that led to a great 
increase in wealth around the world. Unfortunately, this hey-day of 
free trade didn't last long. It ended in about 1885, when Europe turned 
inward, and retreated from the free-trade principle.
  Just 30 years after Europe abandoned the nondiscrimination principle 
in trade, the war ``to end all wars'' ravaged most of the continent. 
Events following the First World War also massively disrupted 
international trading relationships. Many countries pursued beggar-thy-
neighbor trade policies, including harsh trade restrictions.
  When the Great Depression set in, many countries adopted extreme 
forms of protectionism in a misguided attempt to save jobs at home. The 
worst of these misguided laws was the Smoot-Hawley Tariff Act in 1930, 
which was enacted into law by the 71st Congress.
  The act started out with good intentions. Its aim was to help the 
American farmer with a limited, upward revision of tariffs on foreign 
produce. But it had the exact opposite result. It strangled foreign 
trade. It deepened and widened the severity of the Depression. Other 
countries faced with a deficit of exports to pay for their imports 
responded by applying quotas and embargoes on American goods.
  Mr. President, I went back to the historical record to see what 
happened to United States agricultural exports when other countries 
stopped buying our agricultural products after we enacted that tariff. 
I was shocked by the depth and severity of the retaliation.
  In 1930, the United States exported just over $1 billion worth of 
agricultural goods. By 1932, that amount had been cut almost in half, 
to $589 million. Barley exports dropped by half. So did exports of 
soybean oil. Pork exports fell 15 percent. Almost every American export 
sector was hit by foreign retaliation, but particularly agriculture.
  As U.S. agricultural exports fell in the face of foreign retaliation, 
farm prices fell sharply, weakening the solvency of many rural banks. 
Their weakened condition undermined depositor confidence, leading to 
depositor runs, bank failures, and ultimately, a contraction of the 
money supply.
  Mr. President, I'm not saying that if we hadn't abandoned the 
nondiscrimination principle we wouldn't have had a depression. But it 
wouldn't have lasted as long. It wouldn't have hit as hard. It wouldn't 
have destroyed as many lives.
  President Roosevelt attempted to correct this mistake with a major 
shift

[[Page S791]]

in policy in 1934 with the Reciprocal Trade Agreements Act. This 
legislation authorized the President to negotiate trade liberalizing 
agreements on a bilateral basis with our trading partners.
  But the damage was done. The Reciprocal Trade Agreements Act was too 
little, too late.
  Although 31 bilateral agreements were signed, the outbreak of the 
Second World War completely shattered any hope of a more cooperative 
international trading environment. I don't think it is a coincidence 
that another World War closely followed the Depression. If political 
tensions were not inflamed by severe economic pressures, and made worse 
by unnecessary and destructive trade disputes, perhaps the history of 
the first half of the 20th century would have been different.
  Free trade alone may not keep the peace. But it makes it a lot harder 
to go to war.
  At the end of World War II, the United States led the effort to once 
again construct a world trading system based on the Most-Favored-Nation 
principle of nondiscrimination. We succeeded with the launch of the 
GATT, in 1947.
  Now, once again, we have a world trade system that increases our 
collective wealth through nondiscriminatory free trade. We also have a 
world trade system that helps keep the peace. The fact that the cold 
war never ignited to a hot conflict is due in large part to the success 
of the GATT in forging closer economic ties at a time when world 
political tensions were escalating over other issues.
  Mr. President, we finally got it just about right. But we still don't 
have a world trade system that includes the world's most populous 
nation, and one of its most dynamic economies. China's absence from the 
global trade forum matters because we still have not managed to rid the 
world of political tensions and destabilizing trade disputes.
  We could still easily lose it all, just as Europe did in 1885, and as 
we did in 1930. Increasingly, many of these disputes and tensions will 
involve, or at least affect, both China and the United States. There 
are a few Members here who may remember the pressures on the world 
trading system we had in the early 1970s. Back then, we had a major 
world recession and two major oil price shocks.
  These pressures led to the so-called ``New Protectionism,'' when 
countries increasingly resorted to non-tariff barriers to trade, such 
as quotas, voluntary export restraint agreements, industrial and 
agricultural subsidies, and orderly restraint agreements. The 
heightened tensions brought about by the ``New Protectionism'' were 
potentially very destabilizing.
  It was only with the conclusion of the Uruguay round of global trade 
negotiations in 1993 that we finally reversed the dangerous course of 
this ``New Protectionism,'' and got free trade back on track. Our 
experience in the 1970s, when we could have easily lost most of our 
progress in opening new global markets, demonstrates why it's so 
important to expand and strengthen the world trade system as much as we 
can.
  China was not a GATT member in the 1970s. The disciplines were much 
weaker. Important sectors like agriculture weren't covered. Dispute 
resolution was largely unenforceable.
  Today, that is all changed. Disciplines are stronger. Disputes can be 
settled and effectively enforced. For the first time, we now have rules 
that cover agriculture. And now China is ready to end a fifty-year 
period of going its own way on trade policy.
  Mr. President, rules and disciplines are meaningless unless they are 
widely accepted and broadly applied. We cannot have an effective, open 
world trade system that excludes China. It's as simple as that.
  There is one more reason why China's entry into the WTO is in our 
vital national interest. For the first time in history, China would be 
bound by enforceable international trade rules. I would like to briefly 
explain why this development is so important.
  Because of the economic reforms of the 1990s, China's leaders have 
sparked an economic renewal that has lead to growth rates of 7-10 
percent every year of the last decade, easily dwarfing the growth rates 
of our own super-heated economy. As a consequence of its new 
prosperity, China is buying a great deal of everything, especially 
agricultural products.
  But because about one-third of China's economic activity is generated 
and controlled by state-owned enterprises, if often manipulates its 
markets in a way that harms its trading partners. Take just one example 
well known to the soybean farmers in my own state of Iowa. In 1992, 
China's soybean oil consumption shot up from about 750,000 metric tons 
to about 1.7 million metric tons. Keeping pace with this increased new 
demand, soybean oil imports also more than doubled.
  In order to keep up with surging domestic demand, China imported more 
soybeans and soybean meal, much of it from the United States, and much 
of that amount from Iowa. When China's soybean imports hit their peak 
in 1997, soybean meal in the United States was trading at an average 
base of about $240.00 per ton. This means our farmers were getting 
between $7.00 and $8.50 per bushel for their soybeans. Everyone was 
better off. China's consumers got what they wanted. America's soybean 
growers prospered. This is the way trade is supposed to work.
  But suddenly, China's state-run trading companies arbitrarily shut 
off imports of soybeans. Soybean meal that was selling in 1997 for 
$240.00 per ton in the United States plummeted to $125.00 per ton by 
January 1999. Soybeans selling for $8.00 per bushel in 1997 fell to 
$4.00 per bushel by July 1999. You can imagine what happened on the 
farm. With the loss of that income, combined with other factors, 
farmers were unable to pay their bills. Many lost their farms. Many are 
still struggling to recover.
  Mr. President, what happened in China shows what occurs when 
protectionism, trade barriers, tariffs, and government-run controls 
take the place of free markets. Trade is distorted. Consumers abroad 
have less choice. American farm families suffer. It also demonstrated 
how important China's entry into the WTO is for America's farmers.
  With a new bilateral market access agreement in place, and with 
meaningful protocol agreements that should soon be in place, China 
won't be able to use state trading enterprises to arbitrarily restrict 
and manipulate agricultural trade--and trade in other products--once it 
enters the WTO.
  Let me say one final word. When we trade with other countries, we 
export more that farm equipment, soybeans, or computer chips. We export 
part of our society. Part of our American values and ideals. This is 
good for the WTO. It is good for China. It is good for the United 
States. And I believe it will help keep the peace.
  Mr. President, we seldom get a real change in Congress to make this a 
better and safer world. but this is one of those rare moments. I urge 
my colleagues to join me in supporting China's admission to the WTO.
  The PRESIDING OFFICER. Under the previous order, the Senator from 
Washington is recognized for 5 minutes.

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