House Report 107-145 - DISAPPROVAL OF NORMAL TRADE RELATIONS TREATMENT TO THE PRODUCTS OF THE PEOPLE'S REPUBLIC OF CHINA

[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.

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 * * *'').