[House Report 107-145]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    107-145

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



 
DISAPPROVAL OF NORMAL TRADE RELATIONS TREATMENT TO THE PRODUCTS OF THE 
                       PEOPLE'S REPUBLIC OF CHINA

                                _______
                                

 July 18, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                             ADVERSE REPORT

                      [To accompany H.J. Res. 50]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
joint resolution (H.J. Res. 50) disapproving the extension of 
the waiver authority contained in section 402(c) of the Trade 
Act of 1974 with respect to the People's Republic of China, 
having considered the same, report unfavorably thereon without 
amendment and recommend that the joint resolution do not pass.

                                CONTENTS

                                                                   Page
 I. Introduction......................................................2
        A. Purpose and Summary...................................     2
        B. Background............................................     2
        C. Legislative History...................................     4
II. Explanation of Resolution.........................................4
III.Votes of the Committee............................................6

IV. Budget Effects....................................................7
        A. Committee Estimate of Budgetary Effects...............     7
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures.........................................     7
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     7
 V. Other Matters To Be Discussed Under the Rules of the House........9
        A. Committee Oversight Findings and Recommendations......     9
        B. Summary of Findings and Recommendations of the 
            Committee on Government Reform and Oversight.........     9
        C. Constitutional Authority Statement....................    10

                            I. INTRODUCTION


                         A. Purpose and Summary

    H.J. Res. 50 would disapprove the extension of normal trade 
relations (NTR status) 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, now referred to as normal trade relations (NTR),\1\ 
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 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.
---------------------------------------------------------------------------
    \1\ Legislation to replace the term ``most-favored-nation'' (MFN) 
in United States statutes with the term ``normal trade relations'' 
(NTR) was enacted into law as part of the Internal Revenue Service 
Restructuring and Reform Act of 1998, P.L. 105-206.
---------------------------------------------------------------------------
    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 normal trade relations treatment to nonmarket 
economies which both meet freedom-of-emigration requirements 
and conclude a commercial agreement with the United States. 
Title IV also authorizes the President to waive the freedom-of-
emigration requirements of that title and to extend NTR status 
to a nonmarket economy country if he determines that doing so 
will substantially promote the freedom-of-emigration 
objectives. 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.
    In the case of the People's Republic of China, a bilateral 
commercial agreement, as required by the Jackson-Vanik 
amendment, was concluded on July 7, 1979, and has remained in 
force since that time. NTR was first granted to China on 
February 1, 1980, and has been renewed annually since then on 
the basis of Presidential waivers. On June 1, 2001, the 
President formally transmitted to the Congress his 
recommendation to waive the 1974 Trade Act's freedom-of-
emigration requirements and to thereby extend China's NTR 
status for an additional year, during the period of July 3, 
2001, through July 2, 2002.
    The President's waiver authority continues in effect unless 
disapproved by the Congress--either generally or with respect 
to a specific country--within 60 calendar days of 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 may consider any veto message before the 
later 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 60 calendar days following the July 3, 2001 
expiration of the existing waiver authority, China's NTR status 
will be renewed automatically through July 2, 2002. H.J. Res. 
50 was introduced by Representative Rohrabacher (R-CA) on June 
5, 2001. H.J. Res. 50 provides for disapproval of extension of 
the waiver authority recommended by the President on June 1, 
2001, with respect to China for the period beginning July 3, 
2001.

P.L. 106-286

    In 2000, in response to significant progress in China's 
negotiations to accede to the World Trade Organization (WTO), 
the Congress passed and the President signed P.L. 106-286, 
which authorized the extension of nondiscriminatory treatment 
(normal trade relations treatment) to the People's Republic of 
China when China becomes a member of the WTO. P.L. 106-286 also 
established a framework for relations between the United States 
and the People's Republic of China.
    Specifically, P.L. 106-286 amends Title IV of the Trade Act 
of 1974 to remove the People's Republic of China (China) from 
the list of countries subject to this provision upon the 
accession of China to the WTO, and upon certification by the 
President that the final terms of the accession are at least 
equivalent to the terms of the November 15, 1999 bilateral 
agreement between the United States and China.
    In addition to granting the President the authority to 
remove China from the application of Jackson-Vanik, P.L. 106-
286 also: (1) established a Congressional-Executive Commission 
to monitor China's progress on human rights, worker rights, and 
enforcement of its WTO agreements; (2) contained trade 
enhancement provisions, including a safeguard mechanism to 
protect U.S. industries and workers from unexpected import 
surges from China; (3) authorized additional funds for U.S. 
agencies to monitor China's adherence to its WTO commitments; 
(4) provided technical assistance in developing the rule of law 
in commercial and labor markets, as well as democracy-building 
in China; (5) established a task force on prison labor imports; 
and (6) expressed a sense of the Congress that Taiwan should 
enter the WTO at the same WTO General Council session as China.

China's negotiations to join the World Trade Organization

    In July 1986, China applied for accession to the General 
Agreements on Tariffs and Trade (GATT), the predecessor 
organization to the WTO. Work has proceeded in the China 
Working Party since that time to negotiate the conditions upon 
which China will enter the WTO.
    Article XII of the Agreement establishing the WTO states 
that any State or separate customs territory may accede to the 
WTO ``on terms to be agreed between it and the WTO.'' In 
practice, any WTO applicant must negotiate terms for WTO 
membership in the form of a Protocol of Accession. Through the 
operation of a Working Party, the United States and other WTO 
members may review the trade regimes of applicants to ensure 
that they are capable of implementing their WTO obligations. In 
parallel with the Working Party's efforts, the United States 
and other interested member governments conduct separate 
negotiations with the applicant. These bilateral negotiations 
are aimed at achieving specific concessions and commitments on 
tariff levels, agricultural market access and subsidies, and 
trade in services.
    Although P.L. 106-286 was enacted on October 10, 2000, work 
remains to be done concerning the U.S.-China negotiations on 
the protocol of China's accession. During the June 4-8, 2001 
bilateral talks in Shanghai, the United States and China 
reached agreement on some of the major outstanding issues.
    Several important steps remain ahead in China's WTO 
accession process. The bilateral agreement between the United 
States and China will be considered at the next China Working 
Party meeting in Geneva, beginning June 28, 2001. The WTO's 
General Council must then adopt China's accession package, 
after which China will have to complete its domestic 
ratification procedures. China will become a WTO member 30 days 
after filing its notice of acceptance with the WTO.

                         C. Legislative History


                            committee action

    H.J. Res. 50 was introduced on June 5, 2001, by 
Representative Rohrabacher and was referred to the Committee on 
Ways and Means.

                          legislative hearing

    In a hearing held on July 10, the Committee considered the 
issue of whether or not to normalize trade relations with China 
in the context of China's imminent membership in the World 
Trade Organization. The hearing considered the implications of 
failing to permanently remove China from Title IV of the Trade 
Act of 1974. At the hearing, the Office of the U.S. Trade 
Representative and the State Department expressed support, and 
American Farm Bureau President Robert Stallman and other 
witnesses 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 NTR. Title IV also requires that 
a bilateral commercial agreement that provides for 
nondiscriminatory, NTR status remain in force between the 
United States and the nonmarket economy country receiving NTR 
status. Title IV as well 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 
later of the end of the 60 calendar day period for initial 
passage or 15 legislative days.

                     explanation of the resolution

    House Joint Resolution 50 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 1, 2001, with respect to the 
People's Republic of China.

                      reasons for committee action

    The Committee has long supported a policy of engagement 
with China and has consistently rejected annual legislation to 
revoke normal trade relations (or nondiscriminatory treatment), 
which it sees as the cornerstone of that policy. As 
demonstrated by the House's passage of P.L. 106-286 (H.R. 4444) 
last year, Members believe that normalizing trade relations 
with China by graduating it from the annual review process 
established under the Jackson-Vanik amendment, a Cold War 
statute, is appropriate. Specifically, the Committee believes 
that increased trade, together with other tools of active 
engagement, 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 
encourage political reform.
    The Committee continues to view with deep concern 
widespread human rights abuses carried out by the Chinese 
government against Catholic priests and bishops, Protestant 
pastors, Tibetan Buddhist clergy, Falun Gong members and pro-
democracy activists and scholars. The Committee is also 
concerned about China's continued suppression of labor rights. 
Nevertheless, the Committee is concerned that rejecting the 
President's waiver of the Jackson-Vanik amendment for the 2001-
2002 period will send a very mixed and unproductive signal to 
China regarding the U.S. commitment to free trade, in light of 
last year's passage of the permanent normal trade relations 
(PNTR) legislation (P.L. 106-286).
    The passage of P.L. 106-286 by a 237-197 vote demonstrated 
the House's commitment to the policy of engagement with China. 
P.L. 106-286 will remove China from Title IV of the Trade Act 
of 1974 when China becomes a member of the WTO. Once China 
becomes a WTO member, the annual review of China's NTR status 
will no longer be necessary. However, until that time, it 
remains necessary for the Committee to consider the annual 
disapproval resolution (if such a resolution is introduced) 
according to the privileged procedures set out in Title IV of 
the Trade Act of 1974.
    Failing to grant NTR treatment at this time would forfeit 
the market access concessions made by the Chinese in the 
Bilateral Trade Agreement of 1999 and those that will be 
included in China's protocol of accession to the WTO. If fully 
implemented, these commitments would represent substantial new 
opportunities for U.S. exports to and investment in China. 
Terminating NTR would jeopardize these efforts to bring China 
into the WTO.
    Withdrawing NTR 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 NTR for the 2001-2002 period would harm U.S. 
efforts to address economic instability in Asia and risk 
prompting currency devaluations.
    Finally, the Committee believes that revoking China's NTR 
status for the 2001-2002 period would constitute too blunt a 
sanction and would work against U.S. Government efforts to 
bring China into the global community of civilized nations. 
Rejecting annual NTR in light of last year's passage of P.L. 
106-286 (which would remove China from Title IV and grant 
permanent NTR when China becomes a WTO member) would send 
conflicting signals as to U.S. policy regarding China. While 
the United States has many serious problems with China, the 
Committee believes that areas of U.S.-Sino disagreement are 
best addressed through expanding U.S. contacts with China and 
maintaining strong and effective mechanisms to press China to 
continue to reform.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the joint resolution, H.J. Res. 50.

                       motion to report the bill

    The joint resolution, H.J. Res. 50, was ordered adversely 
reported, by voice vote, with a quorum being present.

                          votes on amendments

    A rollcall vote was conducted on an amendment by Mr. Rangel 
to add Cuba to the resolution disapproving the extension of 
nondiscriminatory treatment to China. The amendment was 
defeated by a rollcall vote of 16 yeas to 22 nays, The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........  ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                           IV. BUDGET EFFECTS


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) 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 50 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 clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that 
enactment of H.J. Res. 50 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 clause 3(c)(3) of rule XIII 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, July 16, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.J. Res. 50, 
disapproving the extension of the waiver authority contained in 
section 402(c) of the Trade Act of 1974 with respect to the 
People's Republic of China.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin Whitaker 
(for revenues), and Lauren Marks (for private-sector mandates).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.J. Res. 50--Disapproving the extension of the waiver authority 
        contained in section 402(c) of the Trade Act of 1974 with 
        respect to the People's Republic of China

    Summary: Under the Trade Act of 1974, nondiscriminatory 
trade relations may not be conferred on a country with a 
nonmarket economy if that country maintains restrictive 
emigration policies. However, the President may waive this 
prohibition on an annual basis if he certifies that doing so 
would promote freedom of emigration in that country. On June 1, 
2001, President Bush transmitted to the Congress his intention 
to waive the prohibition with respect to the People's Republic 
of China for a year, beginning July 3, 2001. H.J. Res. 50 would 
disapprove the President's extension of this waiver. CBO 
estimates that denying nondiscriminatory tariff treatment to 
the People's Republic of China would increase revenues by $610 
million over the fiscal year 2001-2002 period. Since adopting 
this resolution would affect receipts, pay-as-you-go procedures 
would apply.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments. H.J. Res. 
50 would impose a private-sector mandate on importers of 
Chinese goods that would be subject to higher tariffs. CBO 
estimates that the increased costs in tariffs to importers 
would total $610 million in fiscal years 2001 and 2002. 
Approximately $500 million of this cost increase would occur in 
fiscal year 2002, which would exceed the threshold for private-
sector mandates established in UMRA ($113 million in 2001, 
adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.J. Res. 50 is shown in the following 
table.

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2001     2002     2003     2004     2005     2006
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues........................................      111      499        0        0        0        0
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: Denial of nondiscriminatory trade 
relations to the People's Republic of China would substantially 
increase the tariff rates imposed on its exports to the United 
States. CBO assumes that these higher tariff rates would 
increase U.S. prices and would decrease U.S. demand for goods 
imported from the People's Republic of China. CBO estimates 
that imports from China would decline by more than enough to 
offset the higher rates, so that the U.S. customs duties 
collections on Chinese imports would fall. However, CBO 
estimates that some of that drop in trade with China would be 
offset by an increase in imports from other countries with 
normal trade relations status. The increase in revenues from 
this effect would outweigh the reduction in revenues from 
China. Assuming an effective date of August 1, 2001, CBO 
estimates that revenues would increase by $610 million over the 
fiscal year 2001-2002 period. The People's Republic of China 
has received normal trade relations status through Presidential 
proclamation on an annual basis beginning in 1980, and CBO 
assumes there would be a resumption of normal trade relations 
with the People's Republic of China after July 3, 2002.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table.


----------------------------------------------------------------------------------------------------------------
                                                       By fiscal year, in millions of dollars--
                                    ----------------------------------------------------------------------------
                                      2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011
----------------------------------------------------------------------------------------------------------------
Changes in outlays.................                                 Not applicable
Changes in receipts................    111    499      0      0      0      0      0      0      0      0      0
----------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
H.J. Res. 50 contains no intergovernmental mandates as defined 
in UMRA and would not affect the budgets of state, local, or 
tribal governments.
    Estimated impact on the private sector: H.J. Res. 50 would 
impose a private-sector mandate on importers of Chinese goods 
that would be subject to higher tariffs. CBO estimates that the 
increased costs in tariffs to importers would total $610 
million in fiscal years 2001 and 2002. Approximately $500 
million of this cost increase would occur in fiscal year 2002, 
which would exceed the threshold for private-sector mandates 
established in UMRA ($113 million in 2001, adjusted annually 
for inflation). U.S. consumers of Chinese goods would also bear 
indirect costs if they chose to substitute other foreign goods 
or domestically produced goods for Chinese products.
    Previous estimate: On July 18, 2000, CBO transmitted an 
estimate for H.J. Res. 103, disapproving the extension of the 
waiver authority contained in section 402(c) with respect to 
the People's Republic of China, as ordered reported adversely 
by the House Committee on Ways and Means. CBO estimated that 
last year's resolution would increase revenues by $520 million 
over the 2000-2001 period.
    Estimate prepared by: Federal Costs: Erin Whitaker; Impact 
on the Private Sector: Lauren Marks; and Impact on State, 
Local, and Tribal Governments: Elyse Goldman.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

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


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII 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 NTR status as of July 3, 2001, would be unwise and 
counterproductive.

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

    With respect to clause 3(c)(4) of rule XIII 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 3(d)(1) of rule XIII 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 * * *'').

                                  
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