U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION REPORT
Mr. SARBANES. Mr. President, I rise
to call to the attention of my colleagues the release on
June 15 of the 2004 Report to Congress of the United States-China
Economic and Security Review Commission.
The Commission was created by Congress on October 30, 2000,
as part of the National Defense Authorization Act for 2001.
Its principal sponsor in the Senate was Senator BYRD. The
charter of the Commission provides that it be composed of
12 Commissioners, 3 of whom are appointed by each of the
Congressional leaders in both the House and Senate. The
Commission is thus bipartisan, and reflective of the leadership
of both the House and the Senate.
The purpose of the Commission, according to its charter,
is to ``monitor, investigate and report to Congress on the
national security implications of the bilateral trade and
economic relationship between the United States and the
People's Republic of China.'' The Commission is required
by its charter to submit an annual report to Congress, which
must include a full analysis, along with conclusions and
recommendations for legislative actions, if any, of the
national security implications for the United States of
trade and current account balances, financial transactions,
and technology transfers with the People's Republic of China.
In preparation for its 2004 annual report, the Commission
held 11 public hearings, including field hearings in Columbia,
SC, and San Diego, CA. Through these hearings the Commission
heard the perspectives of members of Congress, current and
former senior government officials, representatives of industry,
labor and finance, academics, journalists, and citizens.
The Commission took testimony from more than 130 witnesses.
The Commission's fact-finding and examination process also
included funding statistical analyses of China's role in
world trade and investment, and its compliance record with
its WTO commitments. Moreover the Commission contracted
for the translation of articles from influential publications
within China discussing Beijing's economic and security
strategies and its perceptions of the United States.
During the course of its deliberations, the Commission developed
a broad bipartisan agreement on the issues it was charged
by Congress to
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examine, and adopted its 2004 report by a unanimous vote.
Among the key findings of the report are that in 2003 the
United States ran a global goods trade deficit of $545.5
billion, of which $124 billion was attributable to U.S.
trade with China. The U.S. trade deficit with China constituted
over 23 percent of the total U.S. goods deficit. Further,
with U.S. exports to China of $28 million and imports from
China of $152 billion, U.S. trade with China constitutes
our most lopsided trading relationship. The report notes
that over the past 10 years, the U.S. trade deficit with
China has grown at an average rate of 18.5 percent, and
if it continues growing at this rate, it will double to
$248 billion within 5 years. The report further notes that
since 1998, the United States has moved from a global trade
surplus in advanced technology products, ATP, of $29.9 billion
to a deficit of $27 billion in 2003, of which $21 billion
is attributed to our trade with China.
The Commission report unanimously finds that, ``The magnitude
of the goods trade deficit threatens the nation's manufacturing
sector, a sector that is vital for our national and economic
security.'' It further notes that China has a ``coordinated
sustainable vision for science and technology development''
and urges our country to develop a ``comprehensive national
policy to meet China's challenge to our scientific and technological
leadership.''
The report finds that China is systematically intervening
in the foreign exchange market to keep its currency undervalued,
and that this has contributed to the size of the U.S. trade
deficit with China and has hurt U.S. manufacturers. The
report further notes that China has policies in place to
attract foreign direct investment ($57 billion in 2003)
and to develop its national productive capacity in ``pillar
industries''. These policies include tariffs, limitations
on access to domestic marketing channels, requirements for
technology transfer, government selection of partners for
joint ventures, preferential loans from state banks, privileged
access to land, and direct support for research and development.
In order to begin to help correct our trading relationship
with China, the Commission urges that the U.S. immediately
seek to have the yuan revalued substantially upward against
the dollar and then to be pegged against a trade weighted
basket of currencies. After such an immediate revaluation,
the Commission recommends that China, as it addresses problems
in its banking system, move to a market-based currency.
It further recommends that Congress should charge USTR and
the Commerce Department to undertake a comprehensive examination
of China's industrial policies, described in the report,
to determine which may be illegal under provisions of the
WTO, and to lay out specific steps the U.S. can take to
address these practices through the WTO or other means.
It urges the U.S. to make more active use of WTO dispute
settlement if we cannot persuade China by negotiation to
carry out its WTO commitments.
The report discusses a number of other htmects of United
States-China trade and political relations. It makes a number
of recommendations to help manage the relationship to minimize
security risks and to enhance prospects of moving China
toward a more open, democratic and law-based society to
the benefit of both countries.
In my view, this 2004 report of the Commission makes a very
valuable contribution to our policy deliberations on China.
I salute Senator BYRD for his wisdom in calling for the
creation of the Commission, and thank all the Commissioners
for their contribution to our knowledge of the United States-China
economic and political relationship. The Baltimore Sun ran
an editorial which strongly praised the report and found
that ``the case for `urgent attention and course corrections'
to U.S. policies on China is well made.'' I ask that the
Baltimore Sun editorial be inserted in the RECORD after
my statement.
I strongly commend the 2004 report of the United States-China
Economic and Security Review Commission to my colleagues.
There being no objection, the material was ordered to be
printed in the RECORD, as follows:
[From the Baltimore Sun, June 17, 2004]
The China Trade-Off
In the past year, some large foreign investors were for
the first time allowed to enter China's domestic stock market
to buy shares of Chinese firms. This includes shares of
part of Norinco, China North Industries Group--a transnational
conglomerate that was founded by the People's Liberation
Army, that retains strong military ties, that makes everything
from baby shoes to missiles, and that has drawn U.S. sanctions
for arming Iran.
Given the lack of disclosure in China, foreign investors
and technology traders with Norinco and other Chinese firms
cannot know if their resources will end up serving China's
long-term, well-coordinated strategic plan to compete with
American economic, military and political power. That potential
danger is the basis for the very strong alarms sounded this
week by the U.S-China Economic and Security Review Commission,
a bipartisan congressional group monitoring U.S.-China relations.
In its wide-ranging annual report, the commission warns
that rapidly increasing trade, investment and technology
flows between the two nations are far too lopsided in China's
favor--eroding U.S. economic strength, abetting China's
military build-up and its development as a high-tech manufacturing
platform, and potentially threatening U.S. security interests.
Worse, the commission found that the U.S. government often
is far too blind to these hazards in arguably its most important
long-term relationship.
The report will be criticized by some for demonizing Beijing
just as the West is penetrating Chinese markets and succeeding
in dramatically drawing China into the community of nations.
But in general, the case for ``urgent attention and course
corrections'' to U.S. policies on China is well made.
For starters, the commission is urging the United States
to use the World Trade Organization to more aggressively
press China on its undervalued currency and on state subsidies
for export manufacturers, both underlying factors in America's
$124 billion trade deficit with China last year. It also
recommends comprehensive monitoring of: advanced technology
transfers to China via U.S. investments, joint ventures
and research and development projects; China's U.S. investments;
and bilateral exchange and education programs.
The lengthy commission report paints a picture of China
leveraging the short-term financial ambitions of diverse
U.S. interests to capture money and technology vital to
its highly focused, long-term goal of trumping the United
States--and of the U.S. government at best adrift in monitoring
and managing its side of this imbalanced and critically
important relationship. It's a caution worth the highest
attention.
END