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Federal Document Clearing House
Congressional Testimony
May 3, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4400 words
HEADLINE:
TESTIMONY May 03, 2000 DAVID N., LAUX PRESIDENT US-TAIWAN BUSINESS FORUM
HOUSE WAYS AND MEANS CHINA AND THE WORLD TRADE ORGANIZATION
BODY:
May 3, 2000 Statement by David N. Laux,
President, US-Taiwan Business Forum, and former President, US-ROC (Taiwan)
Business Council HEARING ON PERMANENT NORMAL TRADE RELATIONS
FOR CHINA Mr. Chairman, and distinguished Members of the Committee: Thank you
for inviting me here today to present views on Permanent Normal Trade
Relations (PNTR)for the People's Republic of China and accession to the
World Trade Organization (WTO) for China and Taiwan. Background/credentials.
First, a word about my background and credentials. Most of my working life over
the past 49 years has been spent in some way trying to improve U.S. relations
with the Chinese people -- on both sides of the Taiwan Strait. For 4 and 1/2
years (1982-1986) in the Reagan Administration I was Director of Asian Affairs
on the National Security Council staff dealing primarily with China and Taiwan;
for 3 and 1/2years (1987-1990) 1 was Chairman and Managing Director of the
American Institute in Taiwan -- the organization which is, in effect, our
substitute for an Embassy in conducting the U.S. unofficial, "commercial,
cultural and other relations" with Taiwan. On April 1 of this year I stepped
down as President of the US-ROC (Taiwan) Business Council after 9 and 1/2years,
to devote my full time to the position of President of the US-Taiwan Business
Forum, a 501-c-3 foundation, dedicated to economic research, business
educational exchanges, and educational seminars focused on developing new
business opportunities and strengthening U.S. economic and business relations
with Taiwan, and through American participation in cross-Strait trade, with
China. Purpose. I believe the purpose of my testimony is to show that the
granting of PNTR to China and the accession of China to WTO will be beneficial
for the people of Taiwan and will help promote U.S. trade and business with both
China and Taiwan. Economic Importance of Taiwan. I want to begin with a brief
description of the economic importance of Taiwan because, while many are aware
of their reputation as an "economic miracle" and one of the economic "Tigers" of
Asia, not many know the spectacular statistics behind this achievement. The
Republic of China on Taiwan has the world's third largest foreign exchange
reserves after Japan and the People's Republic of China. They totaled $113
billion at the end of March, and something close to 70% of this is invested in
U.S. dollar instruments. Moreover, Taiwan is the world's second largest
"creditor nation" after Japan because they have virtually no foreign debt.
Taiwan's two-way trade with the U.S. was $54.3 billion in 1999, making Taiwan
the U.S.'s seventh largest trading partner behind Canada, Japan, Mexico, China,
Germany and Great Britain, and ahead of countries like South Korea, France,
Singapore and Italy. Taiwan is the U.S.'s eighth largest foreign market and
second largest in Asia after Japan. Taiwan bought one and a half times as much
from the U.S. in 1999 as did China. In earlier years the difference was even
greater. In 1997, 1998 and 1999, Taiwan purchased $20.4, $18.2 and $19.1 billion
respectively of U.S. goods. Let me put this in perspective; it is enormously
important. It is half as much as all of South and Central America (not counting
Mexico) buys from the U.S., twice as much as all of Africa, and five to six
times as much as either India or Russia buys from the U.S. -- not bad for 22
million people in an area one and a half times the size of Maryland. Taiwan is
the world's 18th largest economy, the world's 14th largest trader, and 12th
largest exporter. Taiwan is the world's 7th largest foreign investor and is the
largest or second largest foreign investor in Vietnam, Thailand, Malaysia, the
Philippines and China. Taiwan's economy survived the Asian financial crisis
better than almost any other, and recovered quickly from the devastating
earthquake of September 1999 to achieve a growth rate of 5.4% in 1999. The
economy is accelerating, and the latest forecast is for 6.5% growth this year.
In short, Taiwan is one of the major economic, financial, and trading powers in
the world today, and it should be in the WTO. WTO for Taiwan; WTO for China; and
PNTR for China. 1. WTO for Taiwan. In 1990 Taiwan applied for membership in the
GATT, WTO's predecessor organization, and became an observer in 1992. Since
then, it has negotiated with the GATT and the members of the successor WTO
"working party" established to consider Taiwan's application. Taiwan will enter
as a "developed" economy, which means meeting more rigorous and demanding
requirements than those for a "developing " economy. As of this date, Taiwan has
completed all bilateral agreements with its major trading partners, and all
substantive work on the multilateral negotiations, which is the completion of
the working party report and protocol. Taiwan needs to have a final meeting with
the working party to get their agreement to forward the report to the full WTO
Council. While the U.S. government's position is that Taiwan's accession is not
linked to that of the People's Republic of China, the current reality is that
the WTO working party, because of the positions of some of its members, is not
going to reach a "consensus" agreement approving Taiwan's entry until China is
ready too. The Administration's objective, shared I think by virtually all
members of the WTO, is that both China and Taiwan accede to the WTO this year.
The US-ROC (Taiwan) Business Council has been on record favoring Taiwan's entry
into the WTO since the bilateral agreement was signed between the U.S. and
Taiwan (through the American Institute in Taiwan and the Taipei Economic and
Cultural Representative's Office) on February 20, 1998. The agreements provide
important reductions in tariffs and increased U.S. access for U.S. companies to
Taiwan's automobile, medical equipment, financial services, telecommunications,
beef, pork and other markets -- but these terms do not go into effect until
Taiwan is a member of WTO. In short, from a practical point of view, the sooner
China is in WTO, the sooner U.S. companies obtain these new advantages, not only
the ones negotiated with China, but those negotiated with Taiwan. The sooner
this happens, the sooner the U.S. can make a significant impact on reducing the
$16 billion trade deficit with Taiwan and the $ 68 billion trade deficit with
China. Common sense would dictate that Taiwan should enter the VV70 now, because
it has met the requirements, but if that is not possible, then everything should
be done to ensure that Taiwan and China are admitted at the same time -- without
a "coffee break," or any other pause between the entry of China and the entry of
Taiwan. The VVTO is not a political organization. It is a framework of rights
and obligations among economies which have, through negotiations, undertaken
mutual economic commitments. For decades, the various economies in GATT, VVTO's
predecessor organization, were legally known as contracting parties, rather than
as member governments. Taiwan's application is as "The Separate Customs
Territory of Taiwan, Penghu, Kimnen, and Matsu," not as "Taiwan" or the
"Republic of China." If ever there was an ideal candidate for membership in the
WTO, it has to be Taiwan. Few economies are more committed to, and dependent
upon, trade for their economic well being. Yet, after a decade of attempting to
qualify for membership in the GATT and its successor, the VVTO, Taiwan, --
despite the fact that it is one of the most active participants in world trade
-- still sits on the sidelines. VV TO membership is important to Taiwan and
Taiwan could make significant contributions to the WTO. For Taiwan, its VVTO
membership will be its most significant participation in an international
organization. 2. VVTO and PNTR for China. The US-ROC (Taiwan) Business Council
has been on record since 1996 in favor of Most Favored Nation trading status for
China and for the past two years in favor of China's entry into the WTO. On
January 26 of this year the Council put out a press release recommending
Permanent Normal Trade Relations for China. The reasons are
simple. Most of the US Council's member companies do business with China, as wen
as with Taiwan, and they believe that permanent NTR for China is good for both
China and Taiwan, and is also good for U.S. business relations with both the
People's Republic of China and the Republic of China on Taiwan. As I understand
it, the substantial benefits in terms of lower tariffs and increased access to
China's markets that were negotiated over 13 years between the U.S. and China in
the agreement signed on November 15,1999, would be seriously limited if the U.S.
does not grant PNTR to China. The U.S. would still get the tariff reductions
negotiated, but not the market access improvements which were the more
significant part of the package. The excellent study done by Gary Clyde Hufbauer
and Daniel H. Rosen of the Institute for International Economics in April, 2000,
goes into this aspect in some detail. Taiwan's Trade with and Investment in
China. Taiwan's annual trade with China is now over $25 billion and Taiwan
companies and individuals have now invested a total of $40 to $45 billion in
China in over 40,000 enterprises. Many of these companies manufacture goods for
export to the United States. Permanent NTR for China benefits these Taiwan-owned
companies, and denying PNTR to China would hurt Taiwan. Taiwan's View of Normal
Trade Relations and WTO for China. Taiwan has been in favor of normal trade
relations for China since at least early 1996. On May 7, 1996, the Wall Street
Journal published a letter entitled "MFN for China is also good for Taiwan"
written by Jeffrey Koo, Chairman and CEO of China trust Commercial Bank, and
then Chairman of the Chinese National Association of Industry and Commerce and
also then Chairman of the ROC-USA Business Council, the Taiwan counterpart
organization to the US-ROC (Iaiwan) Business Council. That letter certainly had
the tacit endorsement of the ROC government. Since then, officials of the ROC
government in Taiwan have been increasingly open in their support of MFN and
normal trade relations status for China and for China's entry into the WTO. Both
President Lee Teng-hui and President-elect Chen Shui-bian are on record in favor
of the People's Republic of China's entry into the WTO. Taiwan sees this as an
important step in bringing the PRC into the community of nations and getting
them to play by the rules of the game, rather than being kept outside. With
respect to the current U.S. debate over "Permanent" Normal Trade
Relations for China, Taiwan's officials have remained silent, viewing
it as a domestic U.S. issue and a bilateral issue between the U.S. and China on
which they should not comment. President-elect Chen Shui- bian has said he would
like to see trade relations between the U.S. and the PRC "normalized," but he
did not use the word PNTR or permanent normal trade relations.
Privately, however, many of the officials I have talked to have expressed the
hope that the U.S. will grant PNTR to China because they see it as an important
gesture in maintaining and increasing U.S. influence with the PRC. Why the U.S.
Should Grant PNTR to China. 1.The U.S. will gain the full benefits of the
substantial agreements it negotiated with China, in the agreement signed
November 15, 1999. 2.It would be a psychological boost that might speed the
entry of both China and Taiwan into the WTO. 3.The sooner both are in; the
sooner the U.S. will benefit from the agreements that it has negotiated with
parties. 4.Once both China and Taiwan are in the WTO, there will be an expansion
of trade across the Taiwan Strait. Taiwan now has a long list of items which it
prohibits from being imported from China. Although this list has been shortened
over the years, it is still substantial. It is my understanding that Taiwan
could continue to exclude these items from import after both are in the WTO
through a little used special exclusion provision which one WTO member can
exercise against another, but my private soundings in Taiwan lead me to believe
that this almost certainly will not be done because of the adverse psychological
impact this would have on the already tense and delicate cross-Strait relations.
On the contrary, I would expect Taiwan to abolish this list as a gesture of good
will. If this happens, some important benefits will accrue to the U.S. Some U.S.
manufacturers are interested in manufacturing parts or components in China and
shipping them to Taiwan for assembly into larger components or finished
products. In short, a jump in cross-Strait trade after the entry of China and
Taiwan into WTO is going to provide new business opportunities to U.S.
companies. 5.The increase in economic and business interaction across the Taiwan
Strait will contribute to a lowering of tensions. It will create larger
constituencies on both sides with a vested interest in peaceful relations and a
continuing expansion of economic, financial and other ties. 6.Some
confidence-building in the economic aspects of the cross- Strait relationship
could help spill over to more confidence in any political talks. 7.Finally, all
of this works toward the opening up and reform of the Chinese system. Nothing is
likely to change China in a positive way more than bringing the benefits of
greater trade to the Chinese people It will bring them foreign goods more
cheaply and it will provide jobs and more prosperity to China's workers. It will
accelerate the development of a market economy and spur the needed reforms of
China's antiquated state enterprises and its weak banking system. The opening of
the country and growth in trade and prosperity will also lead to expansion of
interest in, and more open communication with, the rest of the world. In short,
it will help move the PRC toward democracy. This is what happened in Taiwan.
Notable Endorsements of PNTR for China by Others. There have been some strong
cases made for the granting of PNTR to China by others, notably: the April Study
by the Institute for International Economics, cited earlier; a GAO study along
similar lines; an OP-ED article in the April 20,2000 Los Angeles Times by Dai
Qing, a Chinese environmentalist and human rights activist in Beijing; and the
testimony of the Honorable Frank Carlucci, Chairman of the US-ROC (Taiwan)
Business Council (and also Chairman of The Carlyle Group, and Nortel Networks),
to the Senate Foreign Relations Committee on April 6. Conversely, Denying PNTR
to China will do the following: 1, It will not prevent China's entry into the
VVTO. 2.It would seriously limit the large gains won at the negotiating table
contained in the November 15 agreement. The U.S. would not get the market access
aspects of that package and this would put U.S. firms at a serious disadvantage
in competing with European and Japanese firms in China. 3.It would not be
helpful to Taiwan. It could hurt Taiwan and could delay China's and Taiwan's
entry into the VVTO. U.S. interests would suffer with both parties. 4.It would
do further damage to our already troubled relationship with China. Conclusion.
Over the past 50 years, continuous trade liberalization has enabled world trade
to grow much faster than national production, pulling all economies into
sustained, higher growth. The principal way in which trade liberalization has
been achieved is through negotiations within the multilateral trading system --
especially the General Agreement on Tariffs and Trade (GATT), and its successor
organization, the World Trade Organization (WTO). This expanded trade has helped
boost prosperity around the world. However, nearly two billion still remain
outside the VVTO, including the 22 million people of Taiwan and the 1.2 billion
of the People's Republic of China. One way to remedy that is to get Taiwan and
China into the WTO as soon as possible. PNTR for China will help that process.
Let me conclude by quoting part of the final paragraph of Jeffrey Koo's letter
to the Wall Street Journal of May 7, 1996, favoring MFN for China, which I
mentioned earlier. "No country has a larger interest than Taiwan in seeing
prosperity take hold on the mainland. For prosperity will help push mainland
China into becoming a responsible member of the international community, abiding
by international laws, including protection of human rights. .... That's a
long-term outcome that would benefit everyone -- Taiwan, the U.S., the
Asian-Pacific region, and most of all the Chinese people on the mainland." Thank
you for inviting me to appear before you. I will be happy to try to answer any
questions.
LOAD-DATE: May 10, 2000, Wednesday
