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Congressional Testimony
May 11, 2000, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3874 words
HEADLINE:
TESTIMONY May 11, 2000 JAMES A. LEACH REPRESENTATIVE HOUSE
BANKING AND FINANCIAL SERVICES IMPACT OF CHINA NTR ON FINANCIAL INDUSTRY
BODY:
May 11, 2000 Opening Statement of
Representative James A. Leach Chairman, Committee on Banking and Financial
Services Permanent Normal Trade Relations with China On behalf of the Committee,
I would like to welcome Secretary Summers, Ambassador Barshefsky, and our
distinguished second panel of witnesses. I understand that Ambassador Barshefsky
must leave at 11 and therefore to allow as many Members as possible to question
the Trade Representative, it is my intent to restrict opening statements to the
Chairman and Ranking Member, and in addition to quickly summarize my comments.
The purpose of today's hearing is to examine an issue of seminal importance for
the national interests of the United States: the case for Permanent Normal Trade
Relations (PNTR) with China. While we hope to hear testimony on
the broad commercial benefits to the U.S. of granting PNTR, the
Committee expects to give particular emphasis on the impact of
PNTR and China's prospective membership in the World Trade
Organization on the U.S. financial services industry. As Members are aware, a
House floor vote on PNTR for China is scheduled for the week of
May 22 ,d There can be little doubt that this is the most consequential foreign
policy legislation upon which this Congress has been asked to address in the new
millennium. Impressively, the vast majority of Members appear United on the
principle that it is in the interests of the United States to develop a credible
strategy for integrating China into the world economy as a responsible power
that accepts international political and trading norms. What is at issue is
means, not ends; that is, whether granting PNTR advances U.S.
interests and values in modern China. In my judgment, approving
PNTR for China is in the enlightened self-interest of the
people of the United States and of China. It promotes our economic well being by
opening Chinese markets to American goods and services. It advances our interest
in a rules- based international trading system by helping to "lock-in" Chinese
reforms, economic restructuring, and a commitment to orderly globalization.
China's accession to the WTO, in turn, also paves the way for a long- overdue
entry by a democratic Taiwan into the global trading body. China's entry into
the WTO, coupled with permanent normal trade relations, opens up substantial
commercial advantages to the United States. With market-opening commitments in
agriculture, banking and financial services, telecommunications and a panoply of
other industries, Americans and other exporters will have much greater access to
a market that reflects fully one-fifth of the world's population. Credible
estimates suggest that the market- opening concessions that would accompany
PNTR would boost U.S. exports to China by around $3 billion or
close to a 15% increase in current U.S. exports to China. Indeed, the math is on
our side. While we frequently have 3 to 5 percent tariffs on Chinese goods
coming into our country, they just as frequently have 30 to 50 percent tariffs
on American goods shipped to China. This agreement negligibly effects America's
tariff structure, but dramatically reduces Chinese levies, down in most
instances to the single digit level. This committee has jurisdiction over
certain macro-economic issues as well as the financial services industry in
particular. With regard to commercial products, China maintains unfairly high
tariffs, which this PNTR approach is designed to reduce. With
regard to financial services, China maintains arbitrary non- tariff barriers,
which this PNTR approach is designed to dismantle. Reduction in
Chinese tariffs and non-tariff barriers is self-apparently in the U.S. national
interest. Not insignificantly, commerce follows finance. If we fail to pass
PNTR, China will simply import fewer manufactured goods and
farm products from the U.S. It will be German, French and Japanese banks which
will enter China and, by so doing, facilitate exports from the companies they
serve in their own countries. America will remain an import haven, but
opportunities for building export jobs here at home will be denied to American
workers. Here I would emphasize a fatal flaw of failing to approve
PNTR -- it would leave the U.S. unable to apply WTO rules and
obligations on the Chinese government, including standards of openness and
reciprocity as well as mechanisms for dispute resolution. In other words,
American farmers, workers and consumers would be denied the market-opening and
rules-based trade benefits that China will grant to our European and Japanese
competitors when it joins the WTO. In this regard, it must be stressed that
although our economic ties to China have grown rapidly in recent years, so too
has the size of our trade deficit. It is time American leaders make the
fundamental point that normal trade relations are all about reciprocity. A
billion dollar a week trade deficit is politically and economically
unsustainable, particularly if China's market is closed to American products or
biased to foreign firms. The best way for countries to have good sustainable
political relations is to have reciprocal open markets, and the best way to
achieve reciprocity in trade is to get politics out of economics and competition
into the market. Balanced and mutually beneficial trade is a cornerstone of good
Sino-American relations. Likewise, unbalanced trade contains the smoldering
prospect of social rupture. Hence, little is more in the U.S. interest than to
promote reform and liberalization of China's economic, trade, and investment
regimes and to bind China to the rules of international commerce. For some, the
PNTR issue has come to symbolize concerns about globalization
and the increased integration of the world economy through trade flows, capital
flows, and high-speed information technology. While angst exists in some
segments of the American public, as in all publics, about competition and
globalization, the historical record affirms that market systems based on free
trade and the rule of law lead to higher standards of living than systems based
on political isolation or economic autarky. Protectionism is particularly
harmful in the credit, securities, and savings industries because the general
economy is dependent on each. In the U.S. today approximately one-fourth of
banking assets and one-third of commercial loans are made by foreign entities.
While some may be startled by these statistics, in general Americans consider
foreign financial competition good for the nation's economy and believe it would
be even more so in developing countries such as China, which need to build a
financial system that can allocate capital on a market basis. Hence, one the
most beneficial and far-reaching aspects of our bilateral WTO accession
agreement is China's continent to undertake the progressive dismantling of
barriers to foreign investment in its financial services industry. More broadly,
Beijing's commitment to the rules and obligations of a WTO-based framework
should help support China's transition to a modern market economy based on the
rule of law. As the world's most populous nation, China's successful management
of economic and social reform is very much in the interest of the U.S. and the
broader global economy. Joining the WTO binds China to a set of rules, which
limits the ability of government officials to capriciously change market rides
to advance personal or vested interests. This will help Chinese reformers lay
the basis for a rule-based economy that is the best hope for controlling
pervasive official corruption. In this context, it deserves stressing that
government centered, managed trade pro-tides fertile ground for corrupt
practices. On the other hand, free trade under the rule of law is an economic
framework where social corruption has a more difficult time flourishing. Many
Americans, including Members of Congress, are vexed by the human rights record
of China and are concerned by the pace of economic and political change in
China. On the other hand, experience teaches that the political system that best
fits economic free enterprise is reflected in democratic political institutions
of, by, and for the people. Advancing freely associated economic ties with the
West under the rubric of internationally accepted trade rules has one principal
political side effect: it builds bridges to democracy. Quixotic attempts to
isolate China economically run the great risk of assuring oppression and causing
intemperate international actions. In any regard, Chinese society is changing
far more rapidly than most Americans realize. The late Deng Xiaoping underscored
the new Chinese pragmatism with his cat and mice metaphor, and by promoting
"socialism with Chinese characteristics." Twenty years of ad hoc, pragmatic
economic reforms have moved China from the chaos of the Cultural Revolution to
unprecedented economic development and largely peaceful social change,
quadrupling the standard of living and laying the foundation for systemic
reforms. Indeed, despite indefensible examples of continued political
repression, against groups like the Falun Gong and liberal intellectuals, China
may be changing as rapidly as any other country in the world. While a communist
style political apparatus remains ensconced at the top of Chinese society, at
local government levels experiments with democratic elections are occurring and
at the individual and family levels free speech has become increasingly the
norm. In sharp contrast with the period of Mao's Cultural Revolution there is
little question that China has become a far more open society than it was just a
generation ago when Deng inaugurated his period of "opening and reform."
Nonetheless, China's economic and Social System cannot develop to its fullest
unless the rule of law and its associated rights - including freedom of speech
and of the press, due process for disputes over contractual obligations, and a
judiciary that efficiently and fairly adjudicates disputes - are made central
tenets of Chinese life. As the development of a modern market economy impacts on
politics, Beijing's leaders can be expected to recognize the incompatibility of
free enterprise and an authoritarian political system. Instability is simply too
easily unleashed in society when governments fail to provide safeguards for
individual rights and fail to erect political institutions adaptable to change
and accountable to the people. Lastly, establishing permanent normal trade will
help foster a stable, mutually beneficial Sino- American relationship, a
bilateral relationship that is of profound importance to the future of peace and
prosperity not just in Asia, but for the world. From a historical perspective
free trade is a natural extension of the open door policy that hallmarked
American involvement in China at the end of the 19'h century. Rejecting
PNTR would effectively drive a stake, through the heart of our
economic ties with China and place in grave jeopardy the future of our
relationship with one-fifth of the world's population. Whether the 21't century
is peaceful and whether it is prosperous will most of all depend on whether the
world's most populous country can live with itself and become open to the world
in a fair and respectful manner. How the United States, its allies, and the
international system responds to the complexities and challenges of modern China
is also one of the central foreign policy challenges of our time. Failure to
approve PNTR would not he responsive to that challenge. It
would not effectively address our legitimate concerns on human rights,
nonproliferation, relations across the Taiwan straits, or trade. On the
contrary, rejection of PNTR would go back on our open door
tradition and suggest that China and the United States can not maintain
cooperative relations. It would be a vote with destabilizing consequences for
the region and beyond. Ironically, in this seminal foreign policy vote, the
president's political opposition is generally supportive of the president's
initiative. The majority of Republican's consider PNTR to be
key to peace, stability, and prosperity in the 21" century. It would be tragic,
and I might say unprecedented in the post World War 11 era in any Western
democracy, if the administration's own party becomes responsible for driving a
stake into a bipartisan, bi- institutional foreign policy. This meeting of the
Committee has been called to provide the administration opportunities to lead. I
hope you are successful.
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