[House Report 105-638]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-638
_______________________________________________________________________


 
 DISAPPROVING EXTENSION OF NONDISCRIMINATORY TREATMENT TO THE PRODUCTS 
                   OF THE PEOPLE'S REPUBLIC OF CHINA

                                _______
                                

 July 20, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                             ADVERSE REPORT

                             together with

                            DISSENTING VIEWS

                      [To accompany H.J. Res. 121]

    The Committee on Ways and Means, to whom was referred the 
joint resolution (H.J. Res. 121) disapproving the extension of 
non-discriminatory treatment (most-favored-nation treatment) to 
the products of the People's Republic of China, having 
considered the same, report unfavorably thereon and recommend 
that the joint resolution do not pass.

                            I. INTRODUCTION

                         A. Purpose and Summary

    H.J. Res. 121 would disapprove the extension of 
nondiscriminatory treatment (most-favored-nation or normal 
tariff treatment) to the products of the People's Republic of 
China.

                             B. Background

    Prior to 1951, the United States extended 
nondiscriminatory, or unconditional most-favored-nation (MFN) 
treatment, to all of its trading partners, in accordance with 
obligations undertaken when the United States joined the 
General Agreement on Tariffs and Trade (GATT) in 1948. However, 
the Trade Agreements Extension Act of 1951, directed the 
President to withdraw or suspend the MFN status of the Soviet 
Union and all countries under the domination of international 
communism. As implemented, this directive was applied to all 
then-existing communist countries except Yugoslavia. Poland's 
MFN status was restored by Presidential directive in 1960.
    Title IV of the Trade Act of 1974, which includes the so-
called ``Jackson-Vanik amendment,'' represented a 
liberalization of the 1951 law. Title IV authorizes the 
extension of MFN, or normal, treatment to nonmarket economies 
which meet freedom of emigration requirements and conclude a 
commercial agreement with the United States. Title IV 
authorizes the President to waive the freedom-of-emigration 
requirements of that title, and to grant MFN status to a 
nonmarket economy country, if he determines that doing so will 
substantially promote the freedom-of-emigration objectives of 
that title.
    MFN status was first granted to the People's Republic of 
China on February 1, 1980, and has been renewed annually since 
then on the basis of Presidential waivers. (A bilateral 
commercial agreement, as required by the Jackson-Vanik 
amendment, has remained in force during that time.) On June 3, 
1998, the President formally transmitted to the Congress his 
recommendation to waive, once again, the 1974 Trade Act's 
freedom-of-emigration requirements and to thereby extend 
China's MFN status for an additional year, during the period of 
July 3, 1998, through July 2, 1999.
    The President's waiver authority under Title IV expires at 
midnight on July 2 of each year. It may be extended on an 
annual basis upon a Presidential determination and report to 
Congress that such extension will substantially promote the 
freedom-of-emigration objectives of the 1974 Trade Act. The 
waiver authority continues in effect unless disapproved by the 
Congress--either generally or with respect to a specific 
country--within 60 calendar days after the expiration of the 
existing authority. Under Title IV amendments adopted as part 
of the Customs and Trade Act of 1990, disapproval takes the 
form of a joint resolution disapproving the extension of 
Presidential authority to waive the 1974 Trade Act's freedom-
of-emigration requirements. Under the 1990 amendments, Congress 
can consider any veto message before the latter of the end of 
the 60-day period or within 15 legislative days. The 
disapproval resolution is highly privileged, thus generally 
guaranteeing a vote in the House if it is introduced.
    If both chambers of Congress do not pass a resolution of 
disapproval within the 60 calendar days following the July 3, 
1998 expiration of the existing waiver authority, China's MFN 
status is automatically renewed through July 2, 1999. House 
Joint Resolution 121 was introduced by Representative Solomon 
on June 4, 1998. The resolution provides for disapproval of 
extension of the waiver authority recommended by the President 
on June 3,1998 with respect to China for the period beginning 
July 3, 1998.

                         C. Legislative History

Committee action

    House Joint Resolution 121 was introduced on June 4, 1998, 
by Representative Solomon, and was referred to the Committee on 
Ways and Means. On June 25, 1998, the Committee ordered House 
Joint Resolution 121 reported adversely without amendment to 
the House by voice vote, with a quorum present.

Legislative hearing

    The Subcommittee on Trade held a hearing June 17, 1998 on 
the question of renewing China's most-favored-nation trade 
status. At this hearing, Members of Congress, as well as 
representatives of the Administration and business and 
religious groups, expressed their views regarding U.S.-China 
trade relations.

                   II. Explanation of the Resolution

Present law

    Title IV of the Trade Act of 1974, as amended by the 
Customs and Trade Act of 1990 (Public Law 101-382), sets forth 
three requirements relating to freedom of emigration which must 
be met, or waived by the President, in order for a nonmarket 
economy country to be granted MFN treatment. Title IV also 
requires that a bilateral commercial agreement that provides 
for nondiscriminatory, MFN status remain in force between the 
United States and the nonmarket economy country receiving MFN 
status. Title IV also sets forth minimum provisions that must 
be included in such an agreement.
    An annual Presidential recommendation under section 402(d) 
for a 12-month extension of authority to waive the Jackson-
Vanik freedom-of-emigration requirements--either generally, or 
for specific countries--may be disapproved through passage by 
Congress of a joint resolution of disapproval within 60 
calendar days after the expiration of the previous waiver 
authority. Congress may override a Presidential veto within the 
latter of the end of the 60 calendar day period for initial 
passage or 15 legislative days.

Explanation of the resolution

    House Joint Resolution 121 states that the Congress does 
not approve the extension of the waiver authority contained in 
section 402(c) of the Trade Act of 1974, recommended by the 
President to the Congress on June 3, 1998, with respect to the 
People's Republic of China.

Reasons for committee action

    The Committee reports Congressman Solomon's disapproval 
resolution adversely, primarily because the Members, in 
general, support the Administration's policy of engagement with 
China. The Committee is convinced that non-discriminatory trade 
treatment is the cornerstone of a policy of engagement and 
increased trade, which enables the United States to influence 
the growth of democratic and market-oriented policies in China 
in a manner which will improve respect for fundamental human 
rights and lead eventually to political reform. The Committee, 
in general, recognizes that disapproving the President's 
recommendation for an extension of China's MFN status would 
permanently sacrifice U.S. leverage to bring about change in 
China, while at the same time harming U.S. exporters, workers 
and consumers.
    Withdrawing MFN for China would also have a serious adverse 
effect on Hong Kong and Taiwan due to the high levels of trade 
and investment between Hong Kong and China, and between Taiwan 
and China. By severely disrupting trade in the region, 
terminating MFN would harm U.S. efforts to address the current 
financial crisis in Asia and risk prompting further currency 
devaluations. Finally, the majority of Members believe that 
revoking China's MFN status as of July 3 of this year is too 
blunt a sanction and would work against U.S. Government efforts 
to bring China into the global community of civilized nations. 
While the United States has many serious problems with China, 
the Committee believes they are best addressed through 
expanding the involvement of U.S. citizens in Chinese society 
and making full use of U.S. trade statutes where necessary.

                       III. VOTE OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statements 
are made concerning the vote of the Committee on Ways and Means 
in its consideration of H.J. Res. 121.

                       Motion to Report the Bill

    H.J. Res. 121 was ordered reported adversely without 
amendment to the House by voice vote, with a quorum present.

                           IV. BUDGET EFFECTS

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 7(a) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of this 
resolution, House Joint Resolution 121 as reported: The 
Committee agrees with the estimate prepared by CBO which is 
included below.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with subdivision (c) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that enactment of H.J. Res 121 would increase 
customs duty receipts due to higher tariffs imposed on goods 
from China.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with subdivision (c) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, requiring 
a cost estimate prepared by the Congressional Budget Office, 
the following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 25, 1998.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.J. Res. 121, a joint resolution disapproving the 
President's recommendation to extend most-favored-nation (MFN) 
status to the People's Republic of China, as adversely reported 
on June 25, 1998, by the Committee on Ways and Means. CBO 
estimates that disapproving the extension of MFN status to the 
People's Republic of China would increase receipts by $135 
million in fiscal year 1998 and by $405 million in fiscal year 
1999.
    Under the Trade Act of 1974, MFN status may not be 
conferred on a country with a nonmarket economy if that country 
maintains restrictive emigration policies. Under present law, 
however, the President may waive this prohibition on an annual 
basis if he certifies that granting MFN status would promote 
freedom of emigration in that country. The People's Republic 
has received MFN status through presidential proclamation on an 
annual basis beginning in 1980. On June 3, 1998, President 
Clinton transmitted to Congress his intention to waive the 
emigration prohibition and extend MFN status to the People's 
Republic of China for an additional year, beginning July 3, 
1998. H.J. Res. 121 would disapprove the President's 
recommendation to extend MFN treatment.
    If the People's republic were denied MFN status, tariff 
rates on its exports to the U.S. would rise substantially. The 
higher tariffs on these would increase the prices faced by U.S. 
consumers for the goods imported from the People's Republic, 
reducing demand. Therefore, imports of goods from the People's 
Republic would be lower than they would be if MFN status were 
to be extended. CBO estimates that the increased tariff rates 
caused by the loss of MFN status would cause an overall 
increase in customs duty receipts measured relative to revenues 
generated under continued MFN status. Because imports from the 
People's Republic would decline substantially, customs duties 
collected on Chinese imports to the U.S. would fall, but it is 
likely that some of the decline in U.S. imports from the 
People's Republic would be made up by an increase in imports 
from other MFN countries. CBO estimates that the increase in 
revenue from this effect would outweigh the reduction in 
revenues from the reduced level of imports from the People's 
Republic. The budget effects of the bill are shown in the 
following table.

                                        REVENUE EFFECTS OF H.J. RES. 121                                        
                                    [By fiscal year, in billions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                     1998         1999         2000         2001         2002   
----------------------------------------------------------------------------------------------------------------
Projected revenues under current law...........    1,710.491    1,773.298    1,822.745    1,885.171    1,965,978
Proposed changes...............................        0.135        0.405            0            0            0
Projected revenues under H.J. Res. 121.........    1,710.616    1,773.703    1,822.745    1,885.171    1,965.978
----------------------------------------------------------------------------------------------------------------
\1\ Includes the revenue effects of P.L. 105-178 (H.R. 2400).                                                   

    The proposed legislation contains no intergovernmental 
mandates as defined in Public Law 104-4 and would impose no 
direct costs on state, local, or tribal governments. The 
increased tariff rates on products from the People's Republic 
caused by the loss of MFN would impose a private-sector mandate 
on importers of Chinese products into the United States. The 
private-sector mandate would exceed $100 million in both fiscal 
years 1998 and 1999. Taxes would increase by $0.1 billion in 
1998 and by $0.4 billion in 1999. In addition to these 
increased tariffs, firms would incur additional costs when they 
substitute goods from other MFN countries or domestic 
producers.
    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting direct spending or receipts through 1998. 
CBO estimates that H.J. Res. 121 would affect receipts. 
Therefore, pay-as-you-go procedures would apply. They pay-as-
you-go impact is summarized below.

                       PAY-AS-YOU-GO CONSIDERATION                      
                [By fiscal year, in millions of dollars]                
------------------------------------------------------------------------
                                    1998          1999          2000    
------------------------------------------------------------------------
Changes in Outlays............                                          
(2) Not Applicable                                                      
Changes in Receipts...........          135           405             0 
------------------------------------------------------------------------

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Hester Grippando.
            Sincerely,
                                         June E. O'Neill, Director.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee, based on public hearing 
testimony and information from the Administration, believes 
that revoking China's MFN status as of July 3, 1998 would be 
unwise and counterproductive.

    B. Summary of Findings and Recommendations of the Committee on 
                    Government Reform and Oversight

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, no oversight 
findings or recommendations have been submitted to the 
Committee by the Committee on Government Reform and Oversight 
with respect to the subject matter contained in the resolution.

                 C. Constitutional Authority Statement

    With respect to clause 2(l)(4) of rule XI of the Rules of 
the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general Welfare of the 
United States * * *'').

                          VI. DISSENTING VIEWS

          The People's Republic of China (PRC) is an 
        authoritarian state in which the Chinese Communist 
        Party (CCP) is the paramount source of power. At the 
        national and regional levels, party members hold almost 
        all top government, police, and military positions. 
        Ultimate authority rests with members of the Politburo. 
        Leaders stress the need to maintain stability and 
        social order and are committed to perpetuating the rule 
        of the CCP and its hierarchy. Citizens lack the freedom 
        to express peacefully opposition to the party-led 
        political system and the right to change their national 
        leaders or form of government. * * *

           *       *       *       *       *       *       *

The Government continued to commit widespread and well-
documented human rights abuses, in violation of internationally 
accepted norms stemming from the authorities' very limited 
tolerance of public dissent, fear of unrest, and the limited 
scope or inadequate implementation of laws protecting basic 
freedoms. The Constitution and laws provide for fundamental 
human rights, but they are often ignored in practice. Abuses 
included torture and mistreatment of prisoners, forced 
confessions, and arbitrary arrest, and lengthy incommunicado 
detention. Prison conditions at many facilities remained harsh. 
The Government continued tight restrictions on freedom of 
speech, the press, assembly, association, religion, privacy, 
and worker rights. Discrimination against women, minorities, 
and the disabled, violence against women, prostitution, 
trafficking in women and children, and the abuse of children 
remain problems. The Government continued to restrict tightly 
worker rights. Serious human rights abuses persisted in 
minority areas, including Tibet and Xinjiang, where tight 
controls on religion and other fundamental freedoms continued 
and, in some cases, intensified--U.S. Department of State China 
Country Report on Human Rights Practices for 1997.

    For the reasons stated above, I believe we must lead 
international and efforts to promote respect for human rights 
and democratic principles in the People's Republic of China. 
Countries that respect the rights of their citizens and adopt 
open, democratic reforms make the best economic and political 
partners. In China, only respect for the basic principles of 
human rights will insure that the U.S. consumer is not 
financing oppressive practices within the People's Republic of 
China.
    The United States has helped create a more prosperous, 
democratic and equitable world by leading past fights for 
freedom, democracy, and human rights. Trade sanctions succeeded 
in bringing change to the Former Soviet Union, South Africa, 
and other nations. American leadership can once again set the 
standard for international support for reform in China. We must 
take a serious stand demanding change in China. Change will 
begin with a vote to end Most Favored Nation trade status for 
China.

                                                        Ben Cardin.