FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. I would like to focus my remarks today on the case for granting Permanent Normal Trading Relations (PNTR) to China.

There are many ways to make the case for granting permanently to the largest country in the world the access to our markets that it enjoys more conditionally today. But let me start by emphasizing one crucial point: these arguments have very little to do with helping China - and everything to do with promoting America's core interests.

Last fall, the United States signed a bilateral agreement with China to bring it into the World Trade Organization, on terms that will open its markets to American products and investment. After China completes its agreements with other countries, it will join the WTO. But for us to enjoy the benefits of its entry we must first grant it the same permanent normal trading status that we have already granted to every other country with whom we share the benefits of the WTO.

The President submitted to Congress last week legislation that would achieve this. I will discuss in a few moments the concrete commercial advantages for the United States of passing this bill. I believe they are enormous. But let me be clear. Even if these advantages were very small, it would be in our interest to take this step, because the agreement with China is quite simply a one-way street.

• This vote is not about whether China will enter the WTO: it will become a member either way.
• It is not about whether Chinese producers will have access to our market: they will continue to be able to sell their goods in the United States whether or not Congress passes PNTR.
• It is not about whether we approve or disapprove of China's human rights record: we will continue to condemn it in the United Nations Human Rights Commission and other fora, either way.
• It is not about China's policies toward Taiwan or other strategic issues that concern us: we will continue to insist on peaceful resolution of differences between the PRC and Taiwan, and to press China to respect global norms of conduct in nuclear nonproliferation and other areas, either way.

There is no disadvantage to the United States in passing this legislation. We will continue to press our full agenda with China regardless of how Congress votes. And China will open its markets to other members of the WTO when it joins the system. All that PNTR does is ensure that America enjoys the benefits that every other country will obtain.

There are, however, three crucial advantages to the United States in passing this bill:

• First, there are the direct and commercial benefits of the market opening agreement that we concluded last fall.
• Second, there are the economic and broader benefits to the United States of promoting economic and social change in China.
• Third, there is the ultimate enhancement of America's national security interests that comes from integrating China more closely with the community of nations

1. The Commercial Benefits to the United States of Granting PNTR

By passing PNTR we will be agreeing to continue to grant China the same access to our markets that its producers currently enjoy. What we will get in return - as a result of the agreement we concluded last fall - is unprecedented new access to what could ultimately become the largest market in the world.

With this deal in force:

• Chinese tariffs will fall by 50 percent or more in the space of five years, and other import barriers either eliminated or greatly reduced, in a wide range of sectors that are important to the United States. For example:
• Tariffs in the automobile sector will fall from 80-100 percent to 25 percent by mid-2006, with the largest cuts in the first years after WTO accession. Auto quotas will be phased out. And American auto companies will be allowed to provide auto financing for the first time.
• China will participate in the Information Technology Agreement (ITA), eliminating all tariffs on computers, semi-conductors and other high-tech products.
• Tariffs on the broad range of agricultural goods will fall by roughly one half, with larger cuts for US priority goods. And Chinese export subsidies on agricultural goods will be eliminated.
• China would phase out a wide range of restrictions in a broad range of services, including distribution, banking, insurance, telecommunications and professional services such as accountancy and legal consulting. Instead of having to produce in China and sell through a state-sponsored middleman, over the course of the next three years American businesses will win the right to distribute goods directly - goods that are made here at home.
• We would also acquire special safeguards in the WTO against dumping and surges in imports from China, along with other key protections with respect to forced technology transfer requirements and the practices of state-owned-enterprises. These provisions will ensure that American businesses and workers have strong formal protection against unfair trading practices in China going forward. No WTO accession agreement has ever contained stronger measures to guarantee fair trade and to address practices that distort trade and investment.

To those who are concerned that these commitments by China will not be honored, let me assure you that we are already preparing for the most intensive enforcement effort ever mounted for a single trade agreement. Such concerns cannot be a reason to reject an agreement that will allow us to use global enforcement mechanisms of the WTO to keep China to its word. Some of China's most important decisions will for the first time be subject to international review, with rules and binding mechanisms for resolving disputes.

In these and other ways, the concessions involved in this agreement are all on China's side. All that it requires is we pass PNTR - so that these new markets do not flow instead to other countries.

I have spoken of the direct commercial advantages of this agreement. But there are also crucial indirect advantages for the United States in helping to promote the path of Chinese reform.

China has come a long way since the beginnings of market reforms a little over 20 years ago. Its economy has grown by more than 350 percent in real terms. It has risen to being 11^th largest trading nation in the world. And the number of Chinese with access to a television has risen one hundred-fold, to one billion.

And yet, in part as a result of the government's partial approach to reform, China's economy and society are also showing increasing signs of strain:

• The financial sector is mired in debts, but is still making the majority of its loans to a loss-making state-owned enterprise sector that accounts for only around one third of economic output.
• Each year many millions of people migrate to the cities in search of jobs, and in many places unemployment is now well into double digits.
• And the country still suffers from poorly developed market institutions and the lack of a reliable rule of law. These pose a growing burden at a time of enormous economic and social change. Smuggling and corruption, drugs and arms trafficking all pose a rising threat.

As the President has said, as they confront these problems, the Chinese authorities face a dilemma: they realize that closer integration with the global economy risks unleashing forces that they cannot control. Notably, opening China more fully to the revolution in communications and technology will provide ordinary Chinese with unprecedented freedom and access to information - access that experience suggests that China will not long be able to control. But the government also knows that without competition and integration, China will not be able to attract the investment and know-how that it needs to build a modern economy and deliver rising living standards and stability to its 1.3 billion people.

It is a lesson of the history of international trade agreements since the start of the GATT that the greatest benefits come not from the concessions that you receive from other nations but from the concessions that you make. In choosing to sign this agreement and enter the WTO, China is locking into place a more rapid process of market opening and reform of its economy. And it is submitting itself to a global rules-based system, based on core standards such as transparency and checks on arbitrary government action.

We have an enormous economic and broader stake in supporting that decision.

• Because it will help strengthen the hand of economic reformers in China, and make it more difficult for others to seek to turn back the clock. The growth of the private sector could then play a vital role in absorbing workers that are being laid off from inefficient state-owned firms.
• Because it will help support faster growth in productivity and wages in China - and thus higher real living standards in China and higher demand for our products in the future.
• And we have an enormous stake in supporting that decision because it will provide a catalyst for broader changes that will help to promote core American interests and values. As competition and integration proceed, China will need to become more market-based; more protective of personal and commercial freedoms, and more open to the free flow of information and ideas.

Already, we are seeing these positive effects in renewed commitment to reform at the highest levels of the Chinese leadership that is expressly linked to the need to prepare the economy for tougher competition from the outside world. For example:

• The government has stepped up efforts to promote the development of private firms, the most dynamic sector of China's economy, by eliminating heavy deposit requirements and other regulations which discriminate against them and allowing them to list themselves on the stock market for the first time.
• PBOC Governor Dai has pledged to intensify efforts to clean up bad loans within the banking sector and to enhance competition among banks by permitting more flexible interest rates. A regulatory overhaul is underway to level the playing field between foreign and domestic firms in line with WTO commitments.
• As the Wall Street Journal reported only yesterday, even parts of the economy that the Chinese consider strategically important are being opened up to the private sector, with individual investors already dominating the Chinese Internet industry and being allowed take ownership stakes in domestic banks for the first time.

3. The Broader National Strategic Case for Supporting Greater Integration of China

Finally, a policy of welcoming China into the community of nations - rather than being a voice that keeps China out, even when it commits to live by the rules - is a policy that supports our deepest national security interests.

Ever since the rise of Assyria and Sparta, emerging economic strength and major changes in the economic balance of power have raised the specter of war and conquest. In this century alone we have seen two World Wars that followed closely on the emergence of major new economic powers. And the pace of economic change in China - and indeed through much of Asia - is literally unprecedented in history, with standards of living for billions of people quadrupling or more in a single generation.

That this has so far been achieved with the minimum of conflict, despite the pervasive rivalries between the peoples of Asian nations, is a reflection of the progress that has been made across the region toward openness and integration. And it speaks to the success of postwar international institutions in helping to cement that progress. But if the next quarter century in Asia is to be as successful as the last it will be crucial that China define its greatness in a constructive way and that it fit into the global economic system.

As President Clinton has said, 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 a big a challenge to the United States as their strengths. Our long-term strategy must be to encourage the right kind of success in China: to help it grow into a strong, prosperous and open society, to come together not fall apart, and to become part of institutions that promote our deepest values and interests and can build mutual trust. And we have a much greater chance of having a positive influence if we welcome it into the broader global system.

This is a policy based not on mutual affection but mutual respect. As I said at the beginning, we can and will continue to express our differences with China both forthrightly and consistently. What we must not do is seek to cut China off from the economic and broader forces that are most likely to change it in the right direction.

At bottom, we believe that in a 21^st century global economy China will increasingly have to recognize that to maintain stability and growth at home, it must meet, rather than stifle, the growing demands of its people for openness and accountability. As the President has said, simply bringing China into the WTO does not guarantee that its government will take this course. But it will force the authorities to confront that choice sooner, and it will make stronger and more visible the imperative to make the right choice.

By supporting China's entry into the WTO we have already paved the way for an historic change in China's relations with the broader global economy. All that remains is for us to grant PNTR to China so that American businesses, workers and farmers can enjoy the benefits. I do not believe that this should be a difficult step for the United States to take. Thank you.