CHINA PNTR: ENFORCING U.S. TRADE RIGHTS AND STRENGTHENING U.S. LEVERAGE

PNTR strengthens U.S. leverage with China.

Bringing China into the WTO gives the U.S. a powerful enforcement tool to ensure China plays by global rules.

The status quo is not an option. Despite the hopes of PNTR opponents, their efforts to leverage the annual NTR process have failed for over a decade, producing no progress on trade, security, or human rights.

If Congress rejects PNTR, the costs of continuing the annual NTR process will escalate as American workers, companies, farmers and ranchers lose the benefits of key Chinese WTO concessions to Europe, Canada, and Japan.

Under the WTO's rules, the United States retains the right to protect its essential national security interests, including revoking PNTR if necessary.

China's track record in the IMF and World Bank shows it is not a "system buster."

Establishing Permanent Normal Trade Relations (PNTR) will give the United States a powerful new tool for enforcing U.S. trade rights against China - binding WTO Dispute Settlement rules.

So far, the United States has won 23 of the 25 complaints we've filed at the WTO.

If the United States wins a WTO ruling, China would have two options - comply or face WTO-approved trade sanctions.

In the WTO, Japan and Europe don't get a free ride. If China loses a WTO dispute, it will face multilateral pressure from 135 WTO Members to comply. In contrast, when the U.S. pursues a go-it-alone Section 301 strategy, we take all the risks, while our competitors, such as Japan, Canada, and Europe, share the benefits. The WTO fixes the burden-sharing problem by making our competitors take some responsibility for enforcing the rules and opening China's markets.

U.S. chances of winning WTO disputes will be enhanced by the specificity of China's WTO commitments. In U.S.-China Market Access Agreement of November 15, USTR negotiated specific, detailed commitments by China to open its markets. We will also benefit from 50 years of GATT/WTO law, practice, and precedent, which will guide WTO Panels in evaluating Chinese barriers.

The WTO strictly enforces its free trade rules. The complaining party has won about 80% of WTO disputes, in part because WTO Members know that protectionist rulings establish dangerous legal precedents that could backfire on their own exports.

The U.S. will benefit because China's protectionist laws and regulations need a massive overhaul to comply with WTO.

China's decrepit state-owned enterprises fear WTO and increased foreign competition. They know that WTO Membership will force them to restructure -- or disappear. "The blow will not be light. The pain [of WTO] is unavoidable." China Comment ("Banyuetan") Magazine (Jan. 2000).

Political hardliners, like former Prime Minister Li Peng, fear WTO because it will lock in market-oriented economic reforms - and pressures for political change. "It was, according to observers in China, Li Peng who used the emotion of the moment to direct criticism of Zhu Rongji [over WTO] . . . At a Politburo meeting . . . Li was critical of Zhu . . . Many of these reforms were good, Li asserted, but they cannot all be done at once or pushed too quickly. Cutting bureaucracy had hurt a lot of good cadres . . . " China and the WTO: Politics Behind the Agreement, Joseph Fewsmith, National Bureau of Asian Research (Nov. 1999).

U.S. remedies against dumping and import surges will remain intact.

The U.S.-China WTO Agreement protects U.S. non-market economy (NME) antidumping methodologies for 15 years.

WTO allows the U.S. to maintain special safeguards against NME market disruption for 12 years.

U.S. laws banning prison labor imports from China won't change. GATT Article XX(e) specifically recognizes the right of WTO Members to prohibit trade in prison labor products.

Under the WTO rules, the U.S. retains the full right to protect its national security. GATT Article XXI provides that nothing shall preclude any WTO Member from taking actions necessary to defend its essential national security interests or to maintain international peace and security under the United Nations Charter. In 1984, the GATT rejected a Nicaraguan challenge to an U.S. embargo imposed by President Reagan. We maintain sanctions on Cuba, India, Pakistan, and Serbia - all WTO Members.

The GATT Article XXI exception has been used sparingly, because WTO Members recognize its potential to disrupt the trading system if abused. Nevertheless, the United States retains the unquestioned right to take whatever measures it deems necessary to address a legitimate security threat, including revoking PNTR or imposing economic sanctions. While China could always retaliate in kind, the WTO recognizes that security takes precedence for any Member, including the U.S.

All indications are that China is making a serious effort to comply with WTO obligations. The Chinese leadership views WTO as a way to advance key domestic objectives - restructuring failing state-owned enterprises and accelerating long-term economic growth. It recognizes WTO will require major systemic reforms - that's why it wants to join.

China's record on trade agreement compliance is no better and no worse than other U.S. trading partners.

According to a Coalition of America's Creative Industries: "While piracy remains very high within the domestic Chinese market, China met its principal commitment under the 1996 Action Plan - to stem the flow of exports that were disrupting other developed markets on a global basis. . . We do not accept the suggestion that China's intellectual property track record since the signing of the 1996 bilateral agreements constitutes a justification for Congressional rejection of PNTR in the year 2000." Letter from Business Software Alliance, Recording Industry Association of America, IIPA, Motion Picture Association, Association of American Publishers (Feb. 22, 2000).

According to Former U.S. Trade Representative Carla A. Hills, who negotiated the ground-breaking market access and IPR Agreements for the Bush Administration: "China did adhere to the letter of its 1992 market-opening agreement with us, which was phased in over four years. And if there is a problem, the WTO gives us mechanisms for enforcement plus international pressure to support implementation. . . It makes no sense to reject this agreement because there may be future lapses. Without it, we are worse off."

PNTR opponents claim the annual NTR votes enhance U.S. leverage, but their strategy has failed for a decade.

Ten years of annual NTR votes has produced nothing for U.S. trade, human rights, or security. Making empty threats only undermines U.S. credibility and leverage. No one, least of all China, is intimidated by the threats of a handful of deeply-committed Members to terminate NTR, mainly because it would hurt the U.S. just as much as China and would have a devastating impact on Taiwan and Hong Kong.

Ms. Wallach and the AFL-CIO have a responsibility to explain how isolationism and protectionism would achieve the same gains for U.S. workers, farmers, ranchers, and companies as making China play by WTO rules. Otherwise, trying to wring leverage from the annual NTR process only squanders concessions won by the U.S. at the negotiating table and hands them over to our foreign competitors.

If Congress rejects PNTR, the House will face costly and divisive annual votes over China's trade status in perpetuity, with an additional element: "Who Lost China?"

Threatening to shoot yourself in the foot is not leverage.

Contrary to the AFL-CIO, the annual NTR is not leverage. Revoking NTR would put 200,000 U.S. jobs at risk, invite a costly and destructive trade war, and threaten U.S. security, economic, and human rights interests. The Chinese haven't been intimidated by such threats in the past, and aren't likely to be fooled by them in the future.

Rejecting PNTR won't increase U.S. trade leverage. It will ensure that China - the world's biggest emerging market -- buys European aircraft, Japanese cars, Australian wheat, and Canadian pork.

Section 301 is an important weapon in the U.S. trade arsenal, but it is a diminishing asset.

The Uruguay Round severely constrained the scope for unilateral action under Section 301. A recent WTO ruling further boxes in USTR by requiring it to administer Section 301 in a manner consistent with WTO rules, timetables, and procedures.

In the 1980s, Section 301 was effective against small countries who relied on close trade or security ties with the United States, e.g. Taiwan and Korea, and were not in a position to counter-retaliate. Obviously, China does not fall into either category.

In contrast to Section 301, it would be extremely difficult for China to counter-retaliate in the face of a WTO ruling striking down a protectionist barrier. 135 WTO Members would immediately condemn such a step.

According to the Coalition of America's Creative Industries, which led the past Section 301 battles over IPR piracy: "Looking ahead, America's ability to address China within the framework of the WTO is a vital tool for the preservation of our economic rights and the advancement of our national interests."

China's track record in the IMF and World Bank shows it is not a "system-buster."

"China's likely behavior in the WTO is also predictable based on its record in other international organizations, particularly the World Bank and International Monetary Fund (IMF). Here the record in unambiguous . . . China has become a 'system maintainer' rather than a 'system transformer' . . . Chinese officials were able to use World Bank and IMF standards in conjunction with China's desire to be an accepted member of global organizations as an impetus for economic liberalization." "China's Track Record in the Global Economy," Professor Margaret M. Pearson, China Business Review (Jan. 2000).

China will have a major stake in a strong WTO system. If the global trading system breaks down, China would become the world's leading target for protectionist barriers. "As to enforceability, China has done reasonably well in terms of living up to agreements that it has signed in the economic area . . . I think the record suggests that they're not likely to sign up for an agreement that they know in advance that they wouldn't be able to implement." Professor Nicholas Lardy, The Brookings Institution (July 22, 1999).

It is clear that the Chinese leadership recognizes that WTO accession will require major changes. "China will overhaul its trade and investment rules to bring them in line with the World Trade Organization requirements as the nation approaches its goal of joining the trade rules-making body, top Chinese trade officials say. . . Speaking at a recent conference in Beijing, Trade Minister Shi Guangsheng noted that many laws enacted in the 1970s and 1980s as China began its transformation from a planned to a market economy are in conflict with international law. "China Bracing for Membership in the WTO," Associated Press (Jan. 1, 2000).

The AFL-CIO is proposing a double-standard for China trade.

If America could trust its trading partners, we wouldn't need the WTO. WTO Membership isn't based on trust. We can't trust Europe on agriculture; Canada on culture; or Japan on anything related to trade.

It's still in America's interest to have Europe, Canada, and Japan in the WTO. PNTR would give the U.S. access to the same WTO procedures and mechanisms we use to resolve disagreements and enforce our rights against our other trading partners. That's why we need China in the WTO and bound by the same rules.

The Hormones and Bananas disputes show the WTO is working and that the Uruguay Round rules are being enforced.

Before the WTO was established in 1995, it often took decades to resolve a dispute, because in the GATT the losing party could block trade retaliation indefinitely. The WTO has fixed this problem.

Despite European efforts to stall U.S. trade sanctions in the Beef and Bananas disputes, the WTO authorized the U.S. to impose sanctions in a timely, effective way. Traditional stalling tactics didn't work. Now the pressure is on Europe to comply, since otherwise U.S. trade sanctions will remain in effect.

While WTO decisions are not automatically self-executing, that's designed to protect U.S. sovereignty. The WTO can't force the United States to comply when we lose a dispute, e.g. FSC. But failing to comply with a WTO ruling comes with a high price. Unfortunately, Europe was willing to pay the price when the WTO authorized USTR to impose $166.8 million of sanctions in Beef and on $191.4 million in Bananas.

While WTO rules could be changed to make Panel decisions self-executing, such an approach could affect Congressional prerogatives. Requiring automatic implementation of WTO rulings would bind the U.S. as well as the European Union, and could require self-executing changes in U.S. laws -- without Congressional action or approval.

PNTR will give American companies, workers, and farmers a powerful tool to open China's markets, enforce WTO commitments, and make China play by international rules. We urge Congress not to leave U.S. exporters and farmers empty-handed by taking away America's best trade leverage - making China play by WTO rules.