[Congressional Record Volume 150, Number 82 (Tuesday, June 15, 2004)]
[Senate]
[Pages S6792-S6795]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ANNUAL REPORT OF THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
Mr. BYRD. Mr. President, today the U.S.-China Economic and Security
Review Commission issued its second major annual report to the
Congress, as mandated by the Congress in its enabling statute, P.L.
106-398, October 30, 2000, as amended by Division P of P.L. 108-7
February 20, 2003. I commend it to my colleagues as a comprehensive,
insightful and useful examination of the key trends, policies and
realities inherent in the U.S./China relationship, and featuring a
number of recommendations for the Congress to consider.
It is noteworthy that the Commission adopted this report by a
unanimous, bipartisan vote of 11-0. The commission is composed of an
equal number of Democratic and Republican appointees, three each by the
four leaders of the Senate and the House of Representatives. It is
refreshing, indeed, in an era characterized by far too much
partisanship and divisiveness, that in its treatment of the often
contentious and important issues regarding this growing bilateral
relationship, the Commission could reach a unanimous vote. Debates over
foreign policy, it has often been said, to be effective, should end at
the water's edge, and we should speak as a Nation with one voice to the
world. Mr. President, in this report, bipartisan unanimity has been
achieved, and by a very diverse group of thoughtful and independent
minded Commissioners. I would also point out that this is a purely
congressional body, in that all of the commissioners are appointed by
the congressional leadership, and the report which is issued is
intended to be exclusively advisory to the Congress.
The mandate of the U.S.-China Commission is to ``monitor,
investigate, and report to Congress on the national security
implications of the bilateral trade and economic relationship between
the United States and the People's Republic of China.'' The commission,
therefore, takes an expansive view of U.S. national security, which is
that our economic health and well-being are fundamental national
security matters, including the maintenance of a strong manufacturing
base, and the ability to maintain U.S. global competitiveness and a
healthy employment level and growth rate. These central economic
factors are just as essential to the national security and defense of
our Nation as are strong and ready standing armies, navies and air
forces equipped with the best weaponry, leadership and operational
doctrines.
In addition, the commission has treated, very thoroughly, a series of
specific topics mandated in amendments to its charter last year,
including China's proliferation practices, China's economic reforms and
U.S. economic transfers to China, China's energy needs, Chinese firms'
access to the U.S. capital markets, U.S. investments into China,
China's economic and security impacts in Asia, U.S.-China bilateral
programs and agreements, China's record of compliance with its World
Trade Organization, WTO, commitments, and the Chinese government's
media control efforts.
Mr. President, I will not recite all the many important conclusions
and recommendations for action contained in this timely report. But I
point out that the United States needs to be much more proactive and
clear-thinking in managing our overall relationship with China, and far
more focused on what our goals are in the relationship if we are to
advance our national economic and security interests.
The report concludes, overall, that the U.S.-China economic
relationship lacks active management. U.S. goals for specific elements
of the relationship are too vague or even nonexistent. This is
particularly highlighted in the enormous goods trade deficit, some $123
billion in 2003, and growing rapidly. The United States has the
capability to nudge the Chinese into more positive policies and
actions, thereby leveling a playing field which China has tilted in the
direction of mercantilist behavior, including, in some arenas,
intimidating tactics. Issues which have been festering in the WTO, for
instance, such as China's artificial manipulation of the value of her
currency, continued tolerance of high levels of Intellectual Property
Crimes, massive illegal subsidization of Chinese enterprises,
resistance to good faith compliance with important WTO procedures, and
with many pledges made for progress in proliferation of WMD, all
require heightened levels of attention and management by the United
States
The United States certainly has such influence at this period, and
for the next few years, because of the enormous dependence of China on
our good will, our consumer markets, our manufacturing capability, our
technology and our cooperation in many fields. Such dependence will not
last forever, however, and it is time that we begin to manage this
relationship in ways that will produce more positive and favorable
outcomes.
Lastly, Mr. President, this report is studded with recommendations
for Congressional action and for joint policy-making efforts between
the Congress and the Executive Branch. It recognizes that good policy
proceeds from building a strong consensus between our two branches, as
well as between our two countries. I encourage my colleagues, many of
whom have testified on these matters before the Commission, to examine
the recommendations offered for our consideration.
Mr. President, the Commission has today issued this fulsome report,
and I ask unanimous consent to have printed in the Record the
Commission's list of recommendations.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Recommendations to Congress
Chapter 1--China's Industrial, Investment, and Exchange Rate Policies
Recommendations for dealing with China's currency manipulation
The 1988 Omnibus Trade and Competitiveness Act requires the
Treasury Department to examine whether countries are
manipulating their exchange rates for purposes of gaining
international competitive advantage. The Treasury is to
arrive at its finding in consultation with the IMF, which
defines manipulation as ``protracted large-scale intervention
in one direction in the exchange market.'' The Treasury has
repeatedly evaded reporting on this test. The Commission
recommends that Congress require the Treasury to explicitly
address this test in its required report to Congress.
Furthermore, a condition for taking action against a country
that manipulates its currency is that an offending country be
running a material global current account surplus in addition
to a bilateral surplus. The Commission recommends that
Congress amend this provision so that a material global
current account surplus is not a required condition.
The administration should use all appropriate and available
tools at its disposal to address and correct the problem of
currency manipulation by China and other East Asian
countries. With regard to China, this means bringing about a
substantial upward revaluation of the yuan against the
dollar. Thereafter, the yuan should be pegged to a trade-
weighted basket of currencies, and provisions should be
established to guide future adjustments if needed. As part of
this process, the Treasury Department should engage in
meaningful bilateral negotiation with the Chinese government,
and it should also engage in meaningful bilateral
negotiations with Japan, Taiwan, and South Korea regarding
ending their long-standing exchange
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rate manipulation. The administration should concurrently
encourage our trading partners with similar interests to join
in this effort. The Commission recommends that Congress
pursue legislative measures that direct the administration to
take action--through the WTO or otherwise--to combat China's
exchange rate practices in the event that no concrete
progress is forthcoming.
Recommendations for addressing China's mercantilist industrial and FDI
policies
The Commission recommends that Congress direct the United
States Trade Representative (USTR) and the Department of
Commerce to undertake immediately a comprehensive
investigation of China's system of government subsidies for
manufacturing, including tax incentives, preferential access
to credit and capital from state-owned financial
institutions, subsidized utilities, and investment conditions
requiring technology transfers. The investigation should also
examine discriminatory consumption credits that shift demand
toward Chinese goods, Chinese state-owned banks' practice of
noncommercial-based policy lending to state-owned and other
enterprises, and China's dual pricing system for coal and
other energy sources. USTR and Commerce should provide the
results of this investigation in a report to Congress that
assesses whether any of these practices may be actionable
subsidies under the WTO and lays out specific steps the U.S.
government can take to address these practices.
The Commission recommends that Congress direct the
administration to undertake a comprehensive review and
reformation of the government's trade enforcement
infrastructure in light of the limited efforts that have been
directed at enforcing our trade laws. Such a review should
include consideration of a proposal by Senator Ernest
Hollings (D-SC) to establish an assistant attorney general
for international trade enforcement in the Department of
Justice to enhance our capacity to enforce our trade laws.
Moreover, the U.S. government needs to place an emphasis on
enforcement of international labor standards and appropriate
environmental standards.
The Commission recommends that Congress direct the
administration to work with other interested WTO members to
convene an emergency session of the WTO governing body to
extend the MFA at least through 2008 to provide additional
time for impacted industries to adjust to surges in imports
from China.
Chapter 2--China in the World Trade Organization: Compliance,
Monitoring, and Enforcement
The Commission recommends that Congress press the
administration to make more use of the WTO dispute settlement
mechanism and/or U.S. trade laws to redress unfair Chinese
trade practices. In particular, the administration should act
promptly to address China's exchange rate manipulation,
denial of trading and distribution rights, lack of IPR
protection, objectionable labor standards, and subsidies to
export industries. In pursuing these cases, Congress should
encourage USTR to consult with trading partners who have
mutual interests at the outset of each new trade dispute with
China.
The Commission recommends that Congress press the
administration to make better use of the China-specific
section 421 and textile safeguards negotiated as part of
China's WTO accession agreement to give relief to U.S.
industries especially hard hit by surges in imports from
China.
Notwithstanding China's commitments at the April 2004 JCCT
meeting, the Commission recommends that Congress press the
administration to file a WTO dispute on the matter of China's
failure to protect intellectual property rights. China's WTO
obligation to protect intellectual property rights demands
not only that China promulgate appropriate legislation and
regulations, including enacting credible criminal penalties,
but also that these rules be enforced. China has repeatedly
promised, over many years, to take significant action.
Follow-through and action have been limited and, therefore,
the Commission believes that immediate U.S. action is
warranted.
The Commission recommends that Congress urge the Department
of Commerce to make countervailing duty laws applicable to
nonmarket economies. If Commerce does not do so, Congress
should pass legislation to achieve the same effect. U.S.
policy currently prevents application of countervailing duty
laws to nonmarket economy countries such as China. This
limits the ability of the United States to combat China's
extensive use of subsidies that give Chinese companies an
unfair competitive advantage.
The Commission recommends that Congress encourage the
administration to make a priority of obtaining and ensuring
China's compliance with its WTO commitments to refrain from
forced technology transfers that are used as a condition of
doing business. The transfer of technology by U.S. investors
in China as a direct or indirect government-imposed condition
of doing business with Chinese partners remains an enduring
U.S. security concern as well as a violation of China's WTO
agreement. A WTO complaint should be filed when instances
occur.
The Commission recommends that Congress encourage USTR and
other appropriate U.S. government officials to take action to
ensure that the WTO's Transitional Review Mechanism process
is a meaningful multilateral review that measures China's
compliance with its WTO commitments. If China continues to
frustrate the TRM process, the U.S. government should
initiate a parallel process that includes a specific and
comprehensive measurement system. The United States should
work with the European Union, Japan, and other major trading
partners to produce a separate, unified annual report that
measures and reports on China's progress toward compliance
and coordinates a plan of action to address shortcomings.
This report should be provided to Congress. In addition,
independent assessments of China's WTO compliance conducted
by the U.S. government, such as USTR's annual report, should
be used as inputs in the multilateral forum evaluating
China's compliance, whether that forum is a reinvigorated
and effective TRM or a new process.
The Commission recommends that Congress consider options to
assist small- and medium-sized business in pursuing trade
remedies under U.S. law, such as through section 421 cases.
Chapter 3--China's Presence in the Global Capital Markets
The Commission recommends that Congress reinstate the
reporting provision of the 2003 Intelligence Authorization
Act [P.L. 107-306, Sec 827] directing the director of Central
Intelligence (DCI) to prepare an annual report identifying
Chinese or other foreign companies determined to be engaged
or involved in the proliferation of weapons of mass
destruction or their delivery systems that have raised, or
attempted to raise, funds in the U.S. capital markets. The
Commission further recommends that Congress expand this
provision to require the DCI to undertake a broader review of
the security-related concerns of Chinese firms accessing, or
seeking to access, the U.S. capital markets. This should
include the establishment of a new interagency process of
consultations and coordination among the National Security
Council, the Treasury Department, the State Department, the
SEC, the Federal Bureau of Investigation (FBI), and the
intelligence community regarding Chinese companies listing or
seeking to list in the U.S. capital markets. The aim of such
an interagency process should be to improve collection
management and assign a higher priority to assessing any
linkages between proliferation and other security-related
concerns and Chinese companies, including their parents and
subsidiaries, with a presence in the U.S. capital markets.
The Commission recommends that Congress require mutual
funds to more fully disclose the specific risks of
investments in China. This should include disclosure to
investors of the identities of any local firms subcontracted
by funds to perform due diligence on Chinese firms held in
their portfolios. Subcontractors' principal researchers,
location, experience, and potential conflicts of interest
should all be disclosed.
The Commission recommends that Congress direct the Commerce
Department and USTR to evaluate whether Chinese state-owned
banks' practice of noncommercial-based policy lending to
state-owned and other enterprises constitutes an actionable
WTO-inconsistent government subsidy and include this
evaluation in the report on subsidies recommended in Chapter
1.
In its 2002 Report, the Commission recommended that
Congress prohibit debt or equity offerings in U.S. capital
markets by any Chinese or foreign entity upon which the State
Department has imposed sanctions for engaging in the
proliferation of weapons of mass destruction (WMD) or
ballistic missile delivery systems. The Commission further
believes that Congress should bar U.S. institutional or
private investors from making debt or equity investments,
directly or indirectly, in firms identified and sanctioned by
the U.S. government for weapons proliferation-related
activities, whether they are listed and traded in the United
States or in the Chinese or other international capital
markets. For example, NORINCO, a company sanctioned by the
U.S. government, is currently available for purchase on the
Chinese A share market. U.S.-based qualified foreign
institutional investors that have rights to trade on this
exchange should not be permitted to invest in NORINCO or any
other firm officially determined to have engaged in the
proliferation of WMD or ballistic missiles.
Chapter 4--China's Regional Economic and Security Impacts and the
Challenges of Hong Kong and Taiwan
Regional engagement
The Commission recommends that Congress revitalize U.S.
engagement with China's Asian neighbors by encouraging U.S.
diplomatic efforts to identify and pursue initiatives to
demonstrate the United States' firm commitment to
facilitating the economic and security needs of the region.
These initiatives should have a regional focus and complement
bilateral efforts. The Asia-Pacific Economic Cooperation
forum (APEC) offers a ready mechanism for pursuit of such
initiatives. The United States should consider further
avenues of cooperation by associating with regional forums of
which it is not a member.
Hong Kong
The Commission recommends that Congress consult with the
administration to assess jointly whether the PRC's recent
interventions impacting Hong Kong's autonomy constitute
grounds for invoking the terms of the U.S.-Hong Kong Policy
Act with regard to Hong Kong's separate treatment. This
includes U.S. bilateral relations with Hong
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Kong in areas such as air services, customs treatment,
immigration quotas, visa issuance, and export controls. In
this context, Congress should assess the implications of the
National People's Congress Standing Committee's intrusive
interventions with regard to matters of universal suffrage
and direct elections. Congress and the administration should
continue to keep Hong Kong issues on the U.S.-PRC bilateral
agenda and work closely with the United Kingdom on Hong Kong
issues.
Cross-strait issues
The Commission recommends that Congress enhance its
oversight role in the implementation of the Taiwan Relations
Act. Executive branch officials should be invited to consult
on intentions and report on actions taken to implement the
TRA through the regular committee hearing process of the
Congress, thereby allowing for appropriate public debate on
these important matters. This should include, at a minimum,
an annual report on Taiwan's request for any military
equipment and technology and a review of U.S.-Taiwan policy
in light of the growing importance of this issue in U.S.-
China relations.
The Commission recommends that the Congress and the
administration conduct a fresh assessment of the one China
policy, given the changing realities in China and Taiwan.
This should include a review of:
The policy's successes, failures, and continued viability;
Whether changes may be needed in the way the U.S.
government coordinates its defense assistance to Taiwan,
including the need for an enhanced operating relationship
between U.S. and Taiwan defense officials and the
establishment of a U.S.-Taiwan hotline for dealing with
crisis situations;
How U.S. policy can better support Taiwan's breaking out of
the international economic isolation that the PRC seeks to
impose on it and whether this issue should be higher on the
agenda in U.S.-China relations. Economic and trade policy
measures that could help ameliorate Taiwan's marginalization
in the Asian regional economy should also be reviewed. These
should include enhanced U.S.-Taiwan bilateral trade
arrangements that would include protections for labor rights,
the environment, and other important U.S. interests.
To support this policy review, the Commission recommends
that the appropriate committees of Congress request that the
executive branch make available to them a comprehensive
catalogue and copies of all the principal formal
understandings and other communications between the United
States and both China and Taiwan as well as other key
historical documents clarifying U.S. policy toward Taiwan.
The Commission recommends that Congress consult with the
administration on developing appropriate ways for the United
States to facilitate actively cross-Strait dialogue that
could promote the long-term, peaceful resolution of
differences between the two sides and could lead to direct
trade and transport links and/or other cross-Strait
confidence-building measures. The administration should be
directed to report to Congress on the status of cross-Strait
dialogue, the current obstacles to such dialogue, and, if
appropriate, efforts that the United States could undertake
to promote such a dialogue.
Chapter 5--China's Proliferation Practices and the Challenge of North
Korea
Should the current stalemate in the Six Party Talks
continue, the Commission recommends that Congress press the
administration to work with its regional partners, intensify
its diplomacy, and ascertain North Korean and Chinese
intentions with a detailed and staged proposal beginning with
a freeze of all North Korea's nuclear weapons programs,
followed by a verifiable and irreversible dismantlement of
those programs. Further work in this respect needs to be done
to determine whether a true consensus on goals and process
can be achieved with China. If this fails, the United States
must confer with its regional partners to develop new options
to resolve expeditiously the standoff with North Korea,
particularly in light of public assessments that the likely
North Korean uranium enrichment program might reach a stage
of producing weapons by 2007.
The Commission recommends that Congress press the
administration to renew efforts to secure China's agreement
to curtail North Korea's commercial export of ballistic
missiles and to encourage China to provide alternative
economic incentives for the North Koreans to substitute for
the foreign exchange that would be forgone as a result of
that curtailment.
As recommended in the Commission's 2002 Report, and now
similarly proposed by President Bush and the U.N. Secretary
General, the Commission reiterates that Congress should
support U.S. efforts to work with the U.N. Security Council
to create a new U.N. framework for monitoring the
proliferation of weapons of mass destruction and their
delivery systems in conformance with member nations'
obligations under the Nuclear NonProliferation Treaty, the
Biological Weapons Convention, and the Chemical Weapons
Convention. This new monitoring body would be delegated
authority to apply sanctions to countries violating these
treaties in a timely manner or, alternatively, would be
required to report all violations in a timely manner to the
Security Council for discussion and sanctions.
As recommended in the Commission's 2002 Report, the
Commission reiterates that Congress should act to broaden and
harmonize proliferation sanctions by amending all current
statutes that pertain to proliferation to include a new
section authorizing the president to invoke economic
sanctions against foreign nations that proliferate WMD and
technologies associated with WMD and their delivery systems.
These economic sanctions would include import and export
limitations, restrictions on access to U.S. capital markets,
restrictions on foreign direct investment into an offending
country, restrictions on transfers by the U.S. government of
economic resources, and restrictions on science and
technology cooperation or transfers. The new authority should
require the President to report to Congress the rationale and
proposed duration of the sanctions within seventy-two hours
of imposing them. Although the president now has the
authority to select from the full range of economic and
security-related sanctions, these sanctions are case specific
and relate to designated activities within a narrow set of
options available on a case-by-case basis.
Chapter 6--China's Energy Needs and Strategies
The Commission recommends that Congress direct the
secretaries of State and Energy to consult with the
International Energy Agency with the objective of upgrading
the current loose experience-sharing arrangement, whereby
China engages in some limited exchanges with the
organization, to a more structured arrangement whereby the
PRC would be obligated to develop a meaningful strategic
reserve, and coordinate release of stocks in supply
disruption crises or speculator-driven price spikes.
The Commission recommends that Congress encourage work that
increases bilateral cooperation in improving China's energy
efficiency and environmental performance, such as further
cooperation in Clean Coal Technology and waste-to-liquid-
fuels programs, subject to any overriding concerns regarding
technology transfers. Further, the commission recommends that
Congress direct the State and Energy departments, and the
intelligence community, to conduct an annual review of
China's international energy relationships and its energy
practices during times of global energy crises to determine
whether such U.S. assistance continues to be justified.
The Commission recommends that the Commerce Department and
USTR investigate whether China's dual pricing system for coal
and any other energy sources constitutes a prohibited subsidy
under the WTO and include this assessment in the Commerce/
USTR report on subsidies recommended in Chapter 1.
Chapter 7--China's High-Technology Development and U.S.-China Science
and Technology Cooperation
The U.S. government must develop a coordinated,
comprehensive national policy and strategy designed to meet
China's challenge to the maintenance of our scientific and
technological leadership. America's economic competitiveness,
standard of living, and national security are dependent on
such leadership. The Commission therefore recommends that
Congress charge the administration to develop and publish
such a strategy in the same way it is presently required to
develop and publish a national security strategy that deals
with our military and political challenges around the world.
In developing this strategy, the administration should
utilize data presently compiled by the Department of Commerce
to track our nation's technological competitiveness in
comparison with other countries.
The Commission recommends that Congress revise the law
governing the CFIUS process (Title VII of the Defense
Production Act)--which gives the president authority to
investigate mergers, acquisitions, or takeovers of U.S. firms
by foreign persons if such activities pose a threat to
national security--to expand the definition of national
security to include the potential impact on national economic
security as a criterion to be reviewed. In this regard, the
term national economic security should be defined broadly
without limitation to particular industries.
The Commission recommends that Congress direct the
administration to transfer chairmanship of CFIUS from the
Secretary of the Treasury to the Secretary of Commerce.
Chapter 8--China's Military Modernization and the Cross-Strait Balance
The annual report to Congress recommended in Chapter 4 on
Taiwan's requests for military equipment and technology
should include an assessment of the new military systems
required by Taiwan to defend against advanced PRC offensive
capabilities.
As recommended in Chapter 4, Congress and the
administration should review the need for a direct
communications hotline between the United States and Taiwan
for dealing with crisis situations. This is important in
light of the short time frame of potential military scenarios
in the Strait, together with Chinese strategic doctrine
emphasizing surprise and deception.
The Commission recommends that Congress urge the president
and the secretaries of State and Defense to press strongly
their European Union counterparts to maintain the EU arms
embargo on China.
The Commission recommends that Congress direct the
administration to restrict foreign defense contractors who
sell sensitive military-use technology or weapons
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systems to China from participating in U.S. defense-related
cooperative research, development, and production programs.
This restriction can be targeted to cover only those
technology areas involved in the transfer to China.
The Commission recommends that Congress request the
Department of Defense to provide a comprehensive annual
report to the appropriate committees of Congress on the
nature and scope of foreign military sales to China,
particularly from Russia and Israel.
Chapter 9--Media and Information Control in China
On June 30, 2003, the Commission recommended that Congress
direct the Broadcasting Board of Governors to target funds
for efforts aimed at circumventing China's Internet firewall
through the development of anticensorship technologies and
methods. Congress approved such funding as part of the 2004
Omnibus Appropriations Act. The Commission recommends that
Congress continue this program with enhanced resources,
pending successful results for the current fiscal year.
As recommended in the Commission's 2002 Report, the
Commission reiterates that Congress should direct the
Department of Commerce and other relevant agencies to conduct
a review of export administration regulations to determine
whether specific measures should be put in place to restrict
the export of U.S. equipment, software, and technologies that
permit the Chinese government to surveil its own people or
censor free speech.
The Commission recommends that Congress approve legislation
to establish an Office of Global Internet Freedom within the
executive branch, tasked with implementing a comprehensive
global strategy to combat state-sponsored blocking of the
Internet and persecution of users. The strategy should
include the development of anticensorship technologies.
The Commission recommends that Congress encourage the
administration to press China to freely admit U.S.
government-sponsored journalists, such as those representing
the Voice of America and Radio Free Asia. China frequently
denies visas for such journalists, despite the fact that
China's state-sponsored journalists are freely admitted in
the United States. Options should be considered for linking
Chinese cooperation to concrete consequences, including the
possible use of U.S. visas for Chinese government journalists
as leverage to gain admission of more U.S. government-
supported journalists to China.
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