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Congressional Testimony
April 5, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 6534 words
HEADLINE:
TESTIMONY April 05, 2000 STUART E. EIZENSTAT TREASURY DEPUTY SECRETARY
SENATE FOREIGN RELATIONS EAST ASIAN AND PACIFIC AFFAIRS CHINESE
WTO MEMBERSHIP
BODY:
April 6, 2000 TREASURY DEPUTY
SECRETARY STUART E. EIZENSTAT TESTIMONY BEFORE THE SENATE FOREIGN RELATIONS
COMMITTEE SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS AND SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY, EXPORT AND TRADE PROMOTION "The Case for
Permanent Normal Trade Relations with China" Introduction
Chairman Hagel, Chairman Thomas, Ranking Member Sarbanes, Ranking Member Kerry,
and Members of the Committee, I thank you for the opportunity to testify today
on perhaps the most important international economic issue facing this Congress.
As you know, the President has made it one of his highest priorities this year
to work with Congress to grant China permanent Normal Trade
Relations, commonly known as PNTR. When the President submitted
legislation to Congress for PNTR, he argued that the choice is clear - China's
accession to the WTO is in the fundamental interest of American security and
reform in China. The economic, political, and strategic implications of this
decision give it historic dimensions. This legislation enables the United States
to grant PNTR to China once it has completed its accession, provided that it is
on terms at least as good as those in our bilateral agreement concluded in
November 1999. In fact, the terms can only get better, as we benefit from all
further concessions China makes to other countries. It is important to keep in
mind that the agreement we concluded with China is a straight gain.
Commercially, the agreement is one- sided in our favor, in that China opens its
markets to an unprecedented degree while the United States simply maintains its
current market access policies. There is no down-side, only an up side for
American exporters, farmers, and workers. It is also important to keep in mind
what granting PNTR to China is not: - It is not about whether China will enter
the WTO, which can happen in any case. - It is not about whether Chinese
producers will have access to our market. Our market is already open to China,
which enjoys the same access as nearly everyone else. Not granting PNTR will not
revoke this access. - It is not an endorsement of China's record on human rights
or workers rights. We will still express our disagreements forcefully, including
in the UN and other international fora, with or without PNTR. - And it is not
about China's policies toward Taiwan or other strategic issues that concern us.
We will continue to protect our strategic interests, with or without PNTR, and
nothing in the WTO hampers our ability to do this. Passing PNTR merely ensures
that we reap the full benefits of our bilateral agreement with China and its
accession to the WTO. There are three crucial advantages to the United States in
passing PNTR. Let me address each one in order. I. The Commercial Benefits to
the United States of Granting PNTR First, the economic case for China WTO
accession is overwhelmingly compelling. The commercial benefits of granting PNTR
are significant and all one-sided for the United States. We make no commercial
concessions; China makes them all. We would get unprecedented new access to
China's market for exports of American goods and services, with benefits for
American workers, farmers and companies. The scope of this new access is
impressive, in tariff reductions on industrial and agricultural goods, reduction
in barriers to American service providers, and especially in high-tech goods and
services: Chinese tariffs on industrial and agricultural goods will fall by 50
percent or more in the space of five years. For example: - Industrial tariffs on
U.S. products will fall from an average of 25 percent in 1997 to 9.4 percent in
2005. - In the automobile sector, tariffs will fall from 80-100 percent to 25
percent by mid-2006, with the largest cuts in the first years after WTO
accession. Quotas on autos will be phased out. And American auto companies will
be allowed to provide auto financing for the first time. - Tariffs on the broad
range of agricultural goods will fall by roughly one half, with larger cuts for
US priority goods. The role of state trading companies will be progressively
reduced, allowing for more market-based trade. This improved access will
eventually result in an increase of $2 billion a year in our agricultural
exports to China, according to 1990 and 1998. China's telecommunications market
is the world's fastest growing. By the end of this year, some analysts predict
that China will become the world's second largest market in both
telecommunications and personal computers. And last year., the number of Chinese
Internet users quadrupled, from 2 million to 9 million. This year, it should
more than double, to 20 million. No amount of censorship or monitoring can
completely control this explosion of information. The President has compared it
to trying to nail Jello to a wall. In addition to this new access to China's
markets, we will benefit from unprecedented provisions to protect American
workers and farmers from import surges, unfair pricing, and abusive investment
practices such as offsets or forced technology transfer. No agreement on WTO
accession has ever contained stronger measures: - A "product-specific" safeguard
that allows us to take measures focused directly on China in case of an import
surge that threatens a particular industry. This protection, which remains in
effect for 12 years after accession, provides stronger and more targeted relief
than our current Section 201 law. - Strong anti-dumping protections. The
agreement includes a provision recognizing that the U.S. may employ special
methods, designed for non-market economies, to counteract dumping by Chinese
exporters for 15 years after its accession. - Requiring China to eliminate
barriers to U.S. companies that cost American jobs. For the first time,
Americans will have the means, accepted under the WTO rules, to combat such
measures as forced technology transfer, mandated offsets, local content
requirements and other practices intended to drain jobs and technology away from
the U.S. Moreover, Chinese commitments to open up trading and distribution
rights will allow American companies to export to China products made at home by
American workers, rather than seeing companies forced to set up factories in
China or go through Chinese government approved middlemen in order to sell
products there. We are already preparing for the most intensive enforcement and
compliance effort ever mounted for a single trade agreement. The President has
requested an additional $22 million for new enforcement and compliance efforts,
which will focus in large part on China. The Administration's aggressive
monitoring and enforcement efforts will include the private sector, other WTO
partners, and Congress. For the first time, China's compliance will be subject
to multilateral enforcement under the WTO dispute settlement mechanism -- which
will force China to comply with WTO rulings or be subject to trade sanctions. We
want to work closely with Congress on this important issue. The bottom line of
this agreement is more U.S. exports to China, leading to more. high- paying jobs
for American workers. All we have to do is vote PNTR, so we can get the full
benefits of the agreement, just as our competitors will. II. America's Stake in
Promoting Successful Market Reform in China Second, WTO accession provides a
powerful impetus for China's economic reforms at a critical juncture. It
strengthens the hand of economic reformers in China and helps lock in their
reform path. For economic, strategic, and humanitarian reasons, we have an
enormous stake in the successful continuation of China's economic reforms. China
has come a long way since the beginnings of market reforms two decades ago. Yet
China has already reaped the easy gains of its reforms to date and now faces the
complex challenges of reforming its bloated state-owned enterprise sector and
restructuring its troubled banks. Economic growth is slowing, but the labor
force is increasing even faster. But, as the President has said, the Chinese
authorities face a dilemma: they realize that closer integration with the global
economy risks unleashing forces that they cannot control. Opening China more
fully to the revolution in communications and technology will provide ordinary
Chinese with unprecedented freedom and access to information. But if China tries
to shut its people off from international competition, integration, and
information, it will not be able to attract the investment and know-how to build
a modem economy and deliver rising living standards and stability for its 1.3
billion people. Reformers at the highest levels of the Chinese government appear
to be embracing the WTO's impetus for change through initiatives to prepare for
the new competition. The central bank is preparing for opening the banking
sector. And the government is opening parts of the economy previously considered
strategically important to international and private investors. with individuals
already dominating the Chinese Internet industry and also being allowed to take
ownership stakes in domestic banks for the first time. With WTO accession, China
is locking into place a more rapid process of market opening and reform of its
economy, and submitting itself to a global rules-based system. In my meetings
with U.S. business representatives in Shanghai and Beijing, they told me the
most important thing the U.S. government could do to help them was to promote
the rule of law in China. WTO accession is the most powerful way of advancing
this objective. We have an enormous national stake in supporting China's
decision for WTO accession and greater integration: - It helps support faster
growth in productivity and wages in China, leads to higher living standards for
Chinese workers, and promotes higher demand for our products. - It serves as a
catalyst for broader changes that will help to promote core American interests
and values. To thrive as a WTO member, China will need to become more
market-based; more respectful of personal and commercial freedoms; and more open
to the free flow of information and ideas. - China's accession to the WTO will
serve to promote the causes of human rights, workers' rights, and religious
freedom, laying the groundwork for progress in the future. WTO membership will
further the development of the rule of law and the opening of China, which will
advance our core values. This will not happen overnight, however. In the
meantime, the United States will remain continuously vigilant on human rights
abuses in China, and we will continue to express our disapproval forcefully
whenever rights are abused in China. The Administration already monitors the
situation continuously and issues an annual report. We also will make continuing
use of the LTN and other international fora, working with countries that share
our core values. But let's keep in mind that we have much more positive
influence over China's behavior if we are actively engaged with China, rather
than trying to isolate it. Of course, we understand that Congress is concerned
about these issues. Some Members of Congress have considered the annual review
of China's NTR status a useful opportunity to review the human rights situation
in that country, even though the connection is arguably tenuous. The
Administration is committed to working with Congress to address concerns over
granting PNTR, including opportunities to review China's rights record. I can
assure you that we will work with Congress on this issue, considering
constructive ideas that could garner broad, bipartisan support. III. The Broader
National Strategic Case for Supporting Greater Integration of China Third, and
finally, PNTR advances our broader national interests by promoting a more
responsible and constructive role for the Chinese state, both at home and
abroad. We cannot know where China will be in 20 years, or even 10 years, what
its economy will be like, how it will treat its people, what its role in Asia
and the world will be like. China will determine that. But we do know that they
are more likely to be a responsible, reformist power if they are more integrated
into the world economy. A policy of welcoming China into the community of
nations - rather than being a voice that keeps China out, even when it offers to
live by the rules - is a policy that supports our deepest national security
interests. WTO membership will not only open Chinese markets, but will also
provide China's people with an unprecedented opening to the outside world. For
example, accelerating the information revolution, through greater international
integration, improved telecommunications and wider internet access, can only
help empower the Chinese people. As the President has pointed out, if the
Internet has changed America, which is already an open society, imagine how much
it could change China. The more open China is, the more likely it will play a
positive role in the world. By learning to play by the rules, both
internationally and domestically, China will strengthen the rule of law, which
will enable it to become a more reliable partner and a fairer society. It can
even lay the groundwork for protection of core values in China, such as human
rights, religious freedom, and workers rights. We also have a vital strategic
stake in China's continued economic progress and reform. Stagnation and
disintegration would threaten China's stability. If we have learned anything in
the last few years, from events in Russia and elsewhere, it is that the
weaknesses of great nations can pose as big a challenge to the United States as
their strengths. We must not seek to cut China off from the economic and broader
forces that are most likely to change it in the right direction. As the
President has said, simply bringing China into the WTO does not guarantee that
its government will take a responsible, constructive course. But it will lead
the authorities to confront that choice sooner, and it will make stronger and
more visible the imperative to make the right choice. And that, along with the
compelling commercial benefits and the need to support economic reform, is the
imperative for us to make the right choice on PNTR and fully welcome China into
the WTO. IV. Answering the Critics Opponents of PNTR and China's accession to
the WTO have raised some important questions, which I would like to take the
opportunity to address: Some opponents ask - Why do we need PNTR? Isn't the 19
79 agreement enough? - I was in the Carter White House during the negotiation of
the 1979 Agreement, and I can tell you that it falls far short of providing us
with the full benefits of China joining the WTO. based on our November 1999
agreement with them. Although it was the best we could do at the time, the 1979
Agreement is a short, three-page document that provides for only limited rights
and obligations, largely with respect to the treatment of goods for import. -
Reliance on the 1979 Agreement would deprive the United States of. virtually all
market access provisions negotiated in November for services; meaningful market
access for goods; key elements necessary to safeguard American workers from
import surges and unfair trade from China; and special rules and vital
enforcement rights like access to WTO dispute settlement. Some opponents ask -
Are we not abandoning or turning our back on old friends in Taiwan by granting
China PNTR and letting it into the WTO? - China PNTR and WTO accession in no way
affects our commitments to Taiwan or our ability to back them up. In fact,
Taiwan itself wants to see China in the WTO. - Taiwan is also poised to Join the
WTO. A combination of Taiwan and PRC accessions to the WTO will create
opportunities for Taiwan to increase its economic ties with the PRC. build trust
and confidence through expanded trade and investment, and lower barriers to
freer flow of ideas between the two sides of the Strait. Some opponents ask -
Don't we lose leverage over the Chinese on human rights by granting PNTR and
appearing to reward them despite their human rights record? - Fundamentally, we
have much more positive influence over China's behavior if we are actively
engaged with China, rather than trying to isolate it. This is true in a number
of ways, including strengthening of the rule of law, providing freer access to
information. and creating more economic freedom. We are not granting PNTR to
reward China, but because it advances our national interests and values. - Many
human rights advocates have spoken out convincingly in favor of WTO accession.
For example, Martin Lee, the leader of the Democracy Party of Hong Kong, has
said, "The participation of China in the WTO would not only have economic and
political benefits, but would also serve to bolster those who understand that
the country must embrace the rule of law." A Chinese dissident, Ren Wanding, a
leader of the 1978 Democracy Wall Movement, sees it as "a new beginning." Some
opponents ask - Can't we just continue to grant China NTR status annually? - The
answer is no. GATT Article I requires that all WTO members grant each other "any
advantage, favor, privilege or immunity" provided to other countries
"immediately and unconditionally." This requires permanent NTR at the time China
joins the WTO. We cannot grant NTR through an annual or periodic renewal process
and ensure that we get the full benefits of China's accession commitments. Our
Asian, European and other competitors would reap the benefits, however. - Even
if this were a WTO-consistent option, which it is not, one must consider the
uncertainty for American farmers, businesses, and workers that would have
committed resources to developing customers in China. The possibility that
within a certain period, the access on which they based their business plans
would be withdrawn could frustrate any meaningful opportunities. Some opponents
ask - China has never, followed through on past commitments - why would they do
anything different now? Are there concrete examples of successful compliance and
enforcement with past agreements? - The WTO agreement is different from our
bilateral agreements in two important respects -- the obligations that China has
accepted are far more specific and detailed, and it is enforceable through the
WTO dispute settlement process. The Administration will aggressively monitor and
enforce this agreement, using WTO dispute settlement and the WTO's monitoring
mechanism. - We will commit the necessary resources to ensure Chinese
compliance, and we are seeking new resources for the FY 2001 budget. Under
President Clinton's proposal, the United States would dramatically increase the
resources of agencies that monitor and ensure our trading partners' compliance
with trade agreements. - China's record of compliance is admittedly somewhat
mixed. But vigorous enforcement of our bilateral agreements with China has
resulted in significant improvements in intellectual property (IP) protection.
Before our IP agreements in 1992 and 1995 and the enforcement action in 1996,
China was one of the world's largest IP pirates. Today, China has improved its
legal framework -- and it has substantially eliminated the illegal production
and export of pirated music and video CDs and CD-ROMs. - Generally, China has
implemented its agreements most satisfactorily when its obligations were
concrete, specific. and open to monitoring. Previous bilateral agreements have
not adequately dealt with the range of barriers and trade-restrictive practices
our exporters face in China. The November 1999 bilateral agreement has far more
specificity in terms of well- defined commitments than we were able to achieve
in earlier agreements. - China's commitments are subject to the WTO's
multilateral review and dispute settlement mechanism. The U. S. monitoring and
enforcement efforts will be complemented and enhanced by the 134 other WTO
Members with a common interest in seeing China's market opened. Some opponents
ask - Why do we think this agreement will increase U.S. exports? Why should
China be any different from Japan, which is in the WTO and where we still have
difficulty distributing our goods and providing services? -China currently has
high barriers to U.S. export. In our November agreement, China made broad
commitments to eliminate both tariff and non-tariff barriers to American
exports. On U.S. priority agricultural products, for example, tariffs will drop
from an average of 31 percent to 14 percent by 2005. This improved access will
eventually result in an increase of $2 billion a year in our agricultural
exports to China, according to USDA estimates. Industrial tariffs on U.S.
products will fall from an average of 24.6 percent in 1997 to an average of 9.4
percent by 2005. A study by Goldman Sachs estimated that U.S. exports to China
could increase by at least two-thirds by 2005. - But China's commitments extend
well beyond tariff reductions. For effective access, American companies, farmers
and workers need the ability to export, import and distribute goods and services
in China - these rights are currently denied, but they will be permitted under
the agreement. It was in part because of our experience with Japan that we
sought to ensure strong commitments on these trading and distribution rights.
Some opponents ask - If the agreement is so one-sided, what does China get from
it? How can it be in the interests of China and the US. at the same time? In the
last 20 years, China has made remarkable progress, but it faces daunting
problems as well. China's economic growth has slowed just when it needs to
create more jobs and maintain support for economic reform. For all the progress
of China's reforms, private enterprise still accounts for less than one- third
of its GDP. In other words, China cannot maintain stability or ensure prosperity
by maintaining the status quo. The U.S. shares a common interest with those in
China's leadership who support reform. Continuing stability and economic growth
in China supports America's security and economic interests. Some opponents ask
- Won't China WTO accession just lead to more job losses in America"' - China's
accession to the WTO will lead to increases in U.S. exports, creating more high-
paying jobs. But there will be no increased access for Chinese imports to the
U.S. market, which might raise concerns over job losses. In fact, the
unprecedented protections against import surges and dumping will provide
effective recourse in those cases where Chinese trade practices might threaten
job losses. - China's commitments will also make it easier for our businesses to
make their products with U.S. workers in America and sell their products
themselves in China. New investment rules will prevent Chinese practices
designed to force foreign companies to move production to China, like forced
technology transfer or requirements for local content. Thank you for the
opportunity to present the compelling case for China's accession to the World
Trade Organization and granting it Permanent Normal Trade
Relations status. I took forward to working with this Committee and the
Senate on this issue, and I would be happy to answer any questions that you may
have.
LOAD-DATE: April 13, 2000, Thursday
