Number range CHAPTER**Deputy Assistant Secretary Henry A. Levine's
Testimony**

**Congressional-Executive Commission on China**

**September 24, 2003**

Mr. Chairman and members of the Commission, thank you very much for
inviting me to participate in this hearing.

The Department of Commerce is dedicated to making sure "China is playing
by the rules" and we continue active efforts, in coordination with US
companies and other US agencies, to that end. I recently returned from
China with Assistant Secretary William Lash. We worked on preparations
for Secretary Evans's October trip to China and met with senior
officials to discuss China's WTO compliance record and other bilateral
trade issues. We stressed the need for China to implement its WTO
commitments fully and on time.

The stakes involved in seeing that China "plays by the rules" are large.
China is our fourth largest trading partner. Bilateral merchandise trade
reached \$147.2 billion in 2002. Our imports from China have been
growing rapidly. China overtook Japan to become our third largest source
of imports last year, and surpassed Mexico in July to become our second
largest source of imports. Because our imports from China are more than
five times greater than our exports, China has become our largest
deficit-trading partner. The bilateral trade deficit, which hit \$103
billion in 2002, reached \$65 billion in the first seven months of this
year.

While our deficit with China has continued to soar, it is also worth
noting that since 2001, China has been by far our fastest growing export
market among our top ten trading partners. Although our exports to the
world declined 7% in 2001, 5% last year, and rose less than 3% in the
first seven months of this year, our exports to China surged 19% in
2001, 15% last year and more than 22% in January-July. Along with the
United States, China now accounts for most of the current growth in the
world economy.

As you know, the Administration has placed much emphasis on responding
to the concerns of the US manufacturing sector. In March 2003, Secretary
Evans directed the Commerce Department to lead a comprehensive review of
the issues influencing long-term competitiveness of U.S. manufacturing,
and to outline a strategy for ensuring that government is doing all it
can to create the conditions for manufacturers to thrive. This review
will culminate in a report to be released later this fall. In developing
this report, Commerce Department officials held roundtable discussions
in more than 20 cities across the country -- from Manchester, NH to
Columbus, OH to Detroit to Los Angeles -- meeting with manufacturers in
the aerospace sector, autos, semiconductors, pharmaceuticals, among
others.

In response to the concerns we have heard, Secretary Evans has already
announced several new initiatives, including the creation of an
Assistant Secretary focused on the needs or manufactures supported by a
new Office of Industry Analysis to focus on the needs of American
manufacturers, the creation of a new Assistant Secretary for Trade
Promotion to boost our exports, and the establishment of an Unfair Trade
Practices Team to track, detect and confront unfair competition.

During the roundtable discussions, no country raised more attention as a
source of concern than China. Our manufacturers complained about rampant
piracy of intellectual property; forced transfer of technology from
firms launching joint ventures in China; trade barriers; and capital
markets that are largely insulated from free-market pressures. We have
also heard rising concerns about the pace and direction of China's
implementation of its WTO commitments in areas such as transparency, IPR
protection, trading rights and distribution services, agriculture, and
financial services.

Americans are willing to compete, on even terms, with any country in the
world but we will not stand for unfair competition. We will not look the
other way or wait idly. As the Secretary stated in a recent speech to
the Detroit Economic Club, "American manufacturers can compete against
any country's white collars and blue collars, but we will not submit to
competing against another country's choke collars."

To ensure that China honors its commitments and that US companies
benefit from these opportunities, we have adopted an aggressive and
multi-pronged approach. We are going to target unfair trade practices
wherever they occur. We are exploring the use of new tools to expand our
trade promotion activities related to China. We are expanding our
efforts to engage Chinese officials to help make sure they "get the
rules right" as they continue their massive task of restructuring their
economic system.

In the area of intellectual property rights (IPR) protection, despite
China's commitments to cracking down on rampant piracy, fake CDs, DVDs
and pharmaceuticals continue to flood the market, costing us estimated
\$20-25 billion annually. In fact, the Business Software Alliance
estimates that software piracy rates in China exceed 90%. In response,
we continue to insist that the Chinese government take the steps
necessary to bring these problems under control. We have raised specific
IPR concerns at our meetings with senior Chinese government officials.
Through the annual Special 301 process, working with our colleagues in
other agencies, we continue to closely monitor China\'s IPR conditions.
To make sure that China has the tools to implement its commitments we
have organized a series of seminars with Chinese officials conveying US
views on how best to increase criminal enforcement of IPR violators and
stop cross-border trade in pirated products. We think China can and
should do better in these areas. We will continue to press for this
goal.

In our manufacturing roundtables many companies have expressed concern
over the exchange rate of the Chinese Yuan. This administration believes
that currency values should be set by free-market forces. Three weeks
ago Secretary Snow delivered exactly that message to the Chinese
government.

While continuing our focus on China's WTO implementation and other trade
practices, we will continue to enhance the ability of US businesses,
especially small and medium-sized businesses, to compete in China. We
are launching "Doing Business in China" seminars in cities across the
country, which address small business concerns pertaining to the Chinese
market. We are enhancing our efforts to insure that US-developed
technical standards are accepted in China just as they are accepted
elsewhere internationally. We are exploring ways to develop more trade
leads in China and to provide even more targeted information on China
opportunities for companies in the US.

Combined with these domestic efforts, we regularly engage Chinese
government officials to ensure trade agreement compliance and market
access for our products and services. Secretary Evans will visit China
in October to advance U.S. interests and ensure US companies face a
level playing field in our economic relations with China. We will have
another opportunity to raise outstanding issues during the 15^th^
U.S.‑China Joint Commission on Commerce and Trade (JCCT). Secretary
Evans has issued an invitation to host China's Minister of Commerce Lu
in Washington for the JCCT by the end of this year. We are still
awaiting an official response.

Number range CHAPTERThank you for devoting this hearing to these
important issues, and I welcome your questions.