Secretary of Commerce

Regarding PNTR for China

before the

Mr. Chairman, Congressman Rangel, members of the Committee, thank you for the opportunity to testify today on the benefits to America of China's accession to the World Trade Organization (WTO). It is my pleasure to appear here today with my colleagues, Treasury Secretary Lawrence Summers, Agriculture Secretary Glickman, and United States Trade Representative Ambassador Charlene Barshefsky to discuss this important initiative. Secretary Summers's testimony discusses the economic benefits of this agreement to the United States, and Ambassador Barshefsky's testimony places WTO accession and the grant of Permanent Normal Trade Relations into the broader trade perspective as well as outlining the details of the November U.S.-China accession agreement itself. Secretary Glickman will discuss the benefits of China's WTO accession for American farmers. I will focus in my testimony on our efforts to ensure that China provides us the market access that we have negotiated.

I recently returned from a trip to Beijing where I co-chaired the 13^th Session of the U.S.-China Joint Commission on Commerce and Trade (JCCT). The JCCT is a government-to- government forum developed to promote U.S.-China commercial cooperation. We met to discuss China's ongoing reform efforts and ways to enhance China's transition to a rules-based global trading system. Obviously a lot of the discussion centered on China's pending application to join the WTO and on our process for deciding whether to grant Permanent Normal Trade Relations (PNTR).

This was my third visit to China during my tenure as Secretary of Commerce. Much has changed even in the few years that I have been traveling there. The signs of a nascent transition to a market-based economy are evident everywhere in increased private ownership of businesses, and more freedom for the Chinese to choose their own places of employment. Over twenty years of domestic reforms have enabled China to lift more than 200 million people out of absolute poverty. Wireless communications has put cell phones in the hands of 40 million Chinese (only a fraction of the potential market) and given them access to a world of ideas and influences.

But many problems exist. High unemployment, inefficient state-run enterprises and corruption continue to plague the Chinese economy. As a result, economic growth has slowed.

The Chinese leadership has recognized the need to open its market to global competition in order to be able to build a modern, successful economy. One of the best indicators of the commitment of the Chinese leadership to a more open economy is its desire to take on the challenges and obligations of WTO membership. I am here today to discuss with you how supporting PNTR status for China can move China toward a more open economy.

Last November, after 13 years of negotiations, the United States and China reached a bilateral agreement on the terms and conditions of China's entry into the WTO. China made significant and far-reaching market access and trade concessions that will benefit American exporters and import sensitive industries across a broad range of industrial goods, services and agriculture. It contains strong enforcement mechanisms and strong protections against unfair trade. American exporters stand to benefit immediately upon China's accession to the WTO. China has agreed to begin opening its markets in virtually every sector immediately upon accession. The phase-in of further concessions will be limited to five years in almost all cases, and in many cases only one to three years.

In contrast to China's historic set of commitments, with this agreement we have only one obligation, and that is to maintain the market access policies we already apply to China by granting it Permanent Normal Trade Relations status. We are appearing here today to seek your support for the President's legislative proposal to grant China PNTR.

I won't spend my time in this testimony discussing the details of this historic agreement. However, attached to my testimony is a written summary of the terms of the agreement. Also, over 45 industry specific fact sheets, 50 state-specific reports, and other detailed information are available on our Web site at www.chinapntr.gov.

There is no doubt that this agreement is a great opportunity for American businesses, workers and farmers. It will provide unprecedented access to a largely untapped market of over one billion consumers. The benefits for the U.S. are widespread, including significant opportunities for small and medium size businesses. SMEs are responsible for a growing share of U.S. exports to China.

Recently 47 Governors sent a letter to Senators and Members of the House expressing how important they believe passage of China PNTR is to maintaining the economic growth and prosperity of families in their states and territories. These Governors know this is a good economic deal for America. They do not want America to be left behind.

Yet this agreement goes beyond economics. As President Clinton has said, this represents the most significant opportunity that the United States has had to create positive change in China since President Nixon's visit there in the early 1970s. As a world leader we have an obligation to foster further reform in China. Encouraging China to join the rules-based world trading system gives it a greater stake in the stability and prosperity of its regional neighbors and the rest of the world. It will create a better, more stable, safer world.

Safeguards, Compliance and Enforcement

In addition to unprecedented access to the vast Chinese market, we negotiated additional terms to ensure that we gain the full benefits of our agreement and that China lives up to its commitments. China has agreed to a number of provisions that go to the core of the closed Chinese economy and that will result in real and effective market access. These special provisions address issues raised by the high degree of government involvement in the Chinese economy and by industrial policy measures, such as local content, offsets, export performance, and forced technology transfer requirements. These provisions were sought to address the legitimate concerns raised by industries and Members of Congress, Democratic and Republican alike.

The agreed provisions include special protections to guard against import surges from China. China has agreed to a 12-year product-specific safeguard provision which ensures that the United States can take effective action in case of increased exports from China which cause market disruption in the United States. This applies to all industries, permits us to act on a lower showing of injury to domestic industry than under existing safeguard law and allows us to act specifically against imports from China. This safeguard provision is in addition to existing safeguard actions authorized under Section 201.

We have also ensured that American firms and workers will have strong protection against unfair trade practices, including dumping. China has agreed to guarantee our right to continue using our current methodology (treating China as a non-market economy) in antidumping cases for fifteen years after China's accession to the WTO.

We also have retained the right to use the full range of existing United States trade laws, including Special 301 (intellectual property rights protection), Section 301 (unfair trade practices), and, of course, our antidumping laws. It also is important to emphasize that nothing in this agreement undermines our ability to continue to block imports of goods made with prison labor, to maintain our export control policies, or to withdraw trade benefits, including NTR itself, in case of a national security emergency.

The agreement will also require China to reform a number of internal policies which force foreign companies to locate operations in China and give up valuable intellectual property rights as conditions of doing business. The agreement will eliminate unfair practices such as mandated offsets, local content and various investment performance requirements. China will take on the obligations of the WTO Agreement on Trade-Related Investment Measures. This will make it easier for U.S. companies to export to China from home rather than forcing companies to set up in China in order to sell their products there. Forced technology transfers will also be eliminated as a condition of investment, better enabling U.S. companies to protect their investment in R&D. China has agreed to stop enforcement of such practices in existing contracts immediately upon accession.

The agreement contains additional effective enforcement tools to ensure China meets its obligations. For the first time, China's trade commitments will be enforceable through binding WTO dispute settlement, subjecting its actions to impartial review, and ultimately sanctions if necessary. The multilateral nature of the WTO also strengthens our enforcement capabilities. And the significance for China is great -- its economic decisions will be subject to multilateral trade review, which will provide us additional leverage in resolving future trade disagreements with China.

Our bilateral agreement with China is highly specific with clear timetables for implementation and firm end dates for full compliance. When copies of the agreement were handed out to Members of Congress, some members commented that the text looked more like a spread sheet with its defined tariff rates, dates certain and concrete obligations. This was intentional and reflects past experience with trying to enforce trade agreements with China. The specificity of China's commitments in this bilateral agreement will strengthen our ability to monitor and demand compliance.

The Administration intends to vigorously monitor and aggressively enforce the terms of this agreement. Our commitment to do so is reflected in the President's budget request for a $22 million increase in new compliance and enforcement resources for Commerce, USTR, USDA and the State Department.

In addition, today, I am announcing a five-point plan for monitoring China's compliance with its commitments and making sure that we get the full benefits of the WTO from our bilateral agreements. This is Commerce's part of an interagency effort to ensure China's compliance with the WTO. Most elements of Commerce's plan will be put in place immediately.

Rapid Response Compliance Team. I am creating a Deputy Assistant Secretary for China focusing on compliance. This will be the highest level Commerce official we have devoted to a single country's compliance with a trade agreement. Working with the DAS will be a rapid response team of at least 12 compliance and trade specialists in Washington and China, most of whom are already on the payroll. I am sending a senior compliance officer to China next week to assess the needs and priorities of the business community. In the medium term, I want to station compliance officers permanently in China. This is part of the President's $22 million Trade Compliance Initiative in the 2001 budget request. These officers will be exclusively devoted to compliance matters, not trade promotion and not economic analysis. The State Department also plans to place additional compliance officers in China, and is currently developing a specialized training course to equip new officers from all agencies with a deeper understanding of our international agreements to ensure compliance.

Prompt addressing of market access problems. I am putting in place tight deadlines for investigating market access and commercial problems in China. Within strict deadlines, the rapid response team will engage appropriate officials in China to address the problem. If resolution is not reached within 90 days, we will work with other agencies to determine if further action is required. The goal of this procedure will be to encourage resolution of issues without resorting to WTO dispute settlement. To make this procedure more user-friendly, I will launch a China compliance website. It will contain a detailed description of China's accession commitments in all sectors, the relevant ministries and key individuals responsible for implementing the commitments, and most significantly, changes in China's laws and regulations to implement the new commitments as they are promulgated.

Statistical monitoring of Chinese trade flows and special trade law enforcement program. I am putting together a special team to monitor both imports from China and exports to China in critical sectors. This will be modeled on the import surge monitoring program we established for steel, which has been so effective in helping to combat last year's steel crisis. The data collected will help to implement the China-specific safeguard that we negotiated. In addition, the data collected will be useful in vigorously enforcing our other trade laws. As I mentioned earlier in my testimony, we have maintained our ability to apply our non-market economy methodology to China for 15 years. To ensure strict enforcement, I am creating a China-specific dumping anticircumvention program. In addition, I am creating a China-specific subsidies enforcement team to ensure that China abides by its subsidy commitments.

Comparative law dialogue and technical assistance. I know many of you are concerned about China bringing its laws into conformity with the WTO. We share your concerns. So when I was in China last month, I obtained agreement to set up a comparative law dialogue. We will keep a close watch as China amends its laws and regulations, share our experience with implementing WTO rules, and provide technical assistance and advice. We will begin meetings in June. These efforts will be closely coordinated with the Department of State's China Rule of Law Initiative which stems from the Presidential agreement with China to expand cooperation for addressing rule of law issues throughout the Chinese legal system.

China-specific WTO training and export promotion program. Finally, we are setting up an unprecedented WTO training and trade promotion strategy to ensure that our exporters take advantage of all the opportunities presented by China's new commitments. This will include a trade opportunities service similar to what we did for Eastern Europe after the fall of the Berlin wall and for the Middle East after the Gulf War. We will use our nation-wide network of export assistance centers and video conferencing to conduct seminars for small and medium companies on doing business in China and promoting export opportunities. We are establishing a China market information website and will assign a China expert to our trade information center hotline. We will provide U.S. businesses with training about U.S. rights under the WTO agreement.

Community Economic Adjustment Initiative

In addition to compliance, let me highlight another Administration effort that addresses a concern of many Members: the impact of trade on U.S. workers and communities. President Clinton has requested in the FY2001 budget a substantial increase to help U.S. workers and communities succeed in the global economy. The package includes a Community Economic Adjustment Initiative modeled on the Department of Defense's program to help communities slated for military base closures. This program, based at Commerce's Economic Development Administration, would coordinate Administration-wide responses for regions adversely affected by trade or other problems.

The package would also consolidate and reform the Department of Labor's two trade adjustment assistance programs for workers who lose their jobs due to imports or shifts in production, capturing the best features of each. It also would greatly expand the President's New Market Initiative by providing investment incentives to spur economic activity in distressed urban and rural areas.

A More Open China

The President has made clear that supporting China's accession into the WTO does not mean a tacit endorsement of China's human rights policies. We will continue to denounce China's persecution of its citizens for their political or religious beliefs. Last month, Secretary of State Albright demonstrated this commitment when she personally presented a resolution condemning China's human rights record to the United Nations' Human Rights Commission in Geneva. We will not hesitate to use our authority to sanction China under the International Religious Freedom Act as we did last year. We will also continue to pursue our foreign policy goals with China in a number of important areas such as non-proliferation and global climate change. We remain committed to a peaceful resolution of issues between China and Taiwan.

It is significant that many of those most supportive of a more open, democratic China support its membership in the WTO. The newly elected leader of Taiwan, Chen Shui-bian, supports normalizing trade relations between the United States and China. Martin Lee, the leader of Hong Kong's Democracy Party, recently said "The participation of China in the WTO would not only have economic and political benefits, but it would serve to bolster those in China who understand that the country must embrace the rule of law." A longtime Chinese dissident leader, Ren Wanding, declared in support of the China's WTO membership "Before the sky was black, now it is light. This can be a new beginning."

By seeking to join the WTO, China has undertaken to deepen its market reforms and open its economy to the rest of the world. It has agreed to adhere to international trade rules and subject its actions to WTO dispute settlement. It's clear that this has not been an easy choice for its leaders. They understand that opening their borders to foreign goods, services and investors opens the door wide to new ideas and ideals they can not control. They have made the decision to take this risk. We should encourage China to choose the path of reform and involvement with the rest of the world. Bringing China into the WTO will make a significant difference.

The possibility of positive change is illustrated by the great potential of the telecommunications market in China. Some analysts predict that China will become the world's second largest personal computer market by the end of this year and the third largest semiconductor market by 2001. It is already the world's fasted growing telecommunications market. In 1999 alone, the number of Chinese Internet users quadrupled, jumping from 2 million at the beginning of the year to 9 million. Growth predictions put Internet users at over 20 million by the end of 2000. Not only will this technology explosion benefit U.S. information technology industry, which is the best and most competitive in the world, but it will also give the Chinese people unfettered access to outside influences and ideas through satellites and the Internet. This cannot help but promote greater economic and political reform in China.

Of course, the trade agreement with China will not, by itself, resolve serious human rights issues in China. At the same time, I believe that WTO membership will bring fundamental changes to China that will advance our goals in this area.

The Vote on PNTR

A few months ago when the President asked me to lead the Administration's efforts to seek Congressional approval of PNTR, I discovered that there was a lot of misunderstanding about what the vote on PNTR means. Let me explain. Normal trade relations, formerly called most-favored-nation or MFN treatment, is the same trading status we extend to the rest of the world, with very few exceptions. The legislation would remove China from the annual NTR renewal process under Jackson-Vanik, under which we have extended NTR to China since 1980.

PNTR is required to meet our obligation to treat all WTO members the same. WTO members are required to grant each other "any advantage, favor, privilege or immunity" provided to other countries "immediately and unconditionally." The United States currently extends PNTR to all countries with whom we share and enjoy the benefits of the WTO, without the condition of annual review. Not surprisingly, China seeks identical treatment upon its accession -- and WTO rules require it to be provided.

It is worth emphasizing that this will not be a vote on whether China will join the WTO. Once China completes its accession negotiations with other countries, its application to join the WTO will move forward, with or without PNTR. However, Congress' upcoming vote on PNTR will determine whether the United States will enjoy the economic benefits created by China's WTO membership. A vote against PNTR will mean ceding our share of this newly opened market to our economic competitors in Europe, Asia and elsewhere. As President Clinton has stated, "We must understand the consequences of saying no. If we don't sell our products to China, someone else will step into the breach, and we will spend the next 20 years wondering why in the wide world we handed over the benefits we negotiated to other people."

The vote on PNTR also will not affect whether the Chinese will have access to the American market and consumers. They already do. The United States has the most open market in the world. A vote for PNTR will give us access to the previously closed Chinese market and level the playing field in a dramatic way.

When President Nixon first went to China, more people saw the pictures and heard his words than on any occasion in the history of the world. During that visit he paraphrased Abraham Lincoln, saying "what we say here would not be long remembered. What we do here can change the world." Thirty years later, we now face another history-making foreign policy choice, identified by President Clinton as his top remaining foreign policy goal. After all the speeches, after all the arguments, after all the voices on both sides of the debate, what we say is not as important as what we do. And on this occasion we should act to promote further reform and the rule of law in

China and to integrate China into the world economy. It is in our economic, strategic and national security interests to do so.

I appreciate the thoughtfulness and consideration Members have brought to the debate. I am optimistic that once all the pros and cons have been weighed the Congress will vote its support for PNTR.

Thank you, Mr. Chairman, that concludes my statement. I will now be happy to answer any questions you may have.