Copyright 2000 Federal News Service, Inc.
Federal News Service
February 16, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 1710 words
HEADLINE:
PREPARED TESTIMONY OF FREDERICK W. SMITH CHAIRMAN OF THE BOARD PRESIDENT AND
CHIEF EXECUTIVE OFFICER FEDEX CORPORATION
BEFORE THE
HOUSE COMMITTEE ON WAYS AND MEANS
SUBJECT -
U.S.-BILATERAL TRADE AGREEMENT AND THE ACCESSION OF CHINA TO THE WORLD TRADE
ORGANIZATION
BODY:
Mr. Chairman and Members
of the Committee,
I am pleased and honored to have the opportunity to
appear before you today on the critical issue of China's accession to the World
Trade Organization (WTO) and on the need for the U.S. Congress to pass
legislation to extend permanent Normal Trade Relations (NTR)
status to China. I appeared before you on June 8, 1999, and outlined why I
strongly believe that these actions are in the best economic interests of the
U.S., including FedEx and the air express industry.
As I stated last
June, no single issue is of greater importance to the U.S. economy than the
long-term health and viability of the world trading system. The direct and
indirect implications for American business and the American economy are
profound. This is even truer today than it was last summer, in the aftermath of
the failure to launch a new round of multilateral trade negotiations at the
Seattle ministerial meeting in November. Protectionist forces are at work to
turn back the progress we have made to open foreign markets and maintain a fair
and open trading system under the auspices of the WTO. Such forces have now set
their sights on stopping China from joining the WTO. That course of action is
clearly wrong, and I urge this Committee to move swiftly to provide permanent
NTR status to China, helping to facilitate its becoming a member of the WTO. The
bilateral agreement negotiated between the U.S. and China is a good one. It will
substantially open China's markets to U.S. exporters without requiring the U.S.
to take any additional market opening measures to China beyond providing, on a
permanent basis, the NTR status that we have provided to China on an annual
renewable basis for a number of years.
The position of FedEx is
unequivocal. FedEx supports China's accession to the WTO and, with it, the
extension of permanent Normal Trade Relations (NTR) rights by
the U.S. to China -- just as we have with every other major trading partner.
Simply put, China's accession to the WTO will move China's economy toward
integration with the global economy, and this is good for American business. I
have conveyed this view to Ambassador Barshefsky, whom I want to commend for
having done an outstanding job in concluding this agreement.
WTO
accession will also help FedEx be a more effective competitor. For example, I am
particularly encouraged at the liberalization scheduled for the distribution
field. With China's WTO accession, FedEx would have the ability to sell its
services directly in the market place in four years, instead of leaving it to
agents. With China integrated into the WTO, our decisions on how to operate in
China would be based on commercial considerations, not determined by government
fiat.
Mr. Chairman, we are facing both a challenge and opportunity. It
is high time that we focused our efforts on making sure that Americans
understand how and why free trade works to their benefit. We need to show the
country that we are prepared to do everything we can to encourage export
opportunities for U.S. business in international markets. This is particularly
important in the case of China. We need to review our tax and other policies to
eliminate barriers to competitive opportunities for U.S. businesses. You held
hearings on this subject last year. We support your efforts.
In
addition, improved transportation and facilitation services are critical to
developing U.S. export opportunities. I have made that a goal of our company and
I am proud to state that we carry nearly three times as many U.S. express export
shipments. as our nearest competitor. Put simply, where FedEx flies, U.S.
exports follow.
The U.S. recently concluded a new aviation agreement
with China, which was a step in the right direction. Nevertheless, it was a
disappointment for FedEx and its customers. Notwithstanding the importance of
promoting U.S. exports in this market for the U.S. economy, FedEx is still the
only carrier that lacks the ability to provide twice-daily service to China. Yet
we serve more cities in China - Beijing Shanghai and Shenzhen - than any other
U.S. carrier. What we need is a minimum of 24 weekly flights to China - instead
of our current 10 - that would allow us to provide daily service to each of
China's four major industrial centers - Beijing, Shanghai, Shenzhen (in the
South) and Dalian (in the North). That's what we and our customers/exporters
need.
The reason I point this out, Mr. Chairman is that we are facing a
crisis of confidence in our trading system. We need to refocus our efforts on
doing everything we can to make it possible for American businesses to compete
fairly in these important new international markets. If we don't, the American
public will continue to lose confidence in the benefits of a free and open
international trading system. We simply cannot afford to let that happen.
Let me try to explain my perspective on the question of China's WTO
accession by briefly relating the role of the air express industry to trade
facilitation; outlining the obstacles we face now in China; and assessing how
WTO accession affects our situation.
Even within our own country many do
not realize the rapidly changing nature of world trade and the increasingly
critical role of integrated air express. At present almost 40 percent of the
value of all world trade goes by air. Representing only some two percent of the
tonnage of trade, air shipments clearly account for the high value end of
production.
Today's trends in e-commerce and just-in-time logistics
underlie the phenomenal expansion of the integrated air express industry and
reinforce growing requirements for fast, time-definite transportation of cargo
from door-to-door. Air express is both a cause of, and a response to, the
changing nature of competition in international markets. The ability to ship
packages to destinations around the world in only hours or days widens the field
of competition in all industries and accelerates the pace of commerce.
No country can expect to operate a modern economy or be at the forefront
of trade in the 21st century without a strong air express service. China is no
exception. At present, outside of WTO discipline, China is a hodgepodge of
regulatory barriers to efficient air express service. Let me cite a few.
Currently, foreign-owned companies are not allowed to conduct customs
brokerage and clearance, ground transportation, warehousing, consolidation,
forwarding, or related services. These functions, which lie at the heart of an
integrated air express carrier's operations, all have to be conducted through
joint ventures or agents without regard to the commercial considerations or
whether such an arrangement improves the ability to provide express delivery
services.
Joint venture regulations raise further issues.
We are prohibited from taking a majority share of a joint
venture and are limited geographically in where and how fast we can expand joint
venture operations. As a non-majority partner, we do not control the sales force
and have no guarantee that introduction of new technology will yield optimum
returns.
There may be good reasons to have an agent or Joint Venture
partner for some functions in the distribution chain, but the decision should
rest on commercial interest not regulatory restrictions. The net result of these
artificial barriers is increased prices for our customers, lower quality of
service and artificial limitations on growth -- for the integrated express
carrier and the Chinese economy.
How does China's WTO accession affect
this? Simply put, the restrictions I have noted above in the distribution field
would be removed within four years. FedEx would be able to set up wholly-owned
subsidiaries and, for the first time have the opportunity to provide the same
standard of service to customers in China that we do in the U.S. and elsewhere
in the world.
Of course, some will say that the Chinese may not keep
their commitments. But, at least, if China were a WTO member, it would have to
justify its actions before that body. The more a part of the system China
becomes, the more the outside factors influence its behavior. In other words,
the costs of non-compliant behavior will go up. That is no guarantee of
implementation, but it is an important, even critical, step in creating a more
open, user-friendly economic environment in China. At present, if we encounter
problems, there is no recourse to any system other than the homegrown variety. I
prefer to take my chances in the more transparent WTO environment.
Finally, let's consider the alternative: a world trading system which
excludes China. Does a China less subject to the discipline of the World Trade
Organization transform itself more or less quickly into a responsible member of
the world community? Does more or less contact with China influence it in a
positive direction? Does attempting to isolate China from the responsibilities
of WTO membership advance anyone's interest but those who oppose reform and a
more modern, open China?
I think the answers to these questions are
self-evident. Few would dispute that China has changed for the better in the
past twenty years and that the lives of individual Chinese have improved.
Livelihood, freedom of choice and, gradually, even human rights have become
better than at any time in modern Chinese history.
American business has
played an important role in this transformation. The very presence of American
business has exposed the Chinese to a culture where individual rights are
respected and human dignity valued.
I am particularly proud that FedEx
has actively participated in this effort--through humanitarian missions bringing
critical medical and relief supplies to several Chinese cities and provinces
ravaged by floods and other natural disasters.
The trend toward openness
and reform is in the right direction, and American business has been a positive
force for change. I believe the continuation of this trend is in the interest of
everyone and that China's accession to the World Trade Organization and the
establishment by the U.S. of permanent, normal bilateral trading relations with
China is fundamental to its achievement.
Thank you.
END
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