59

Round, it has already demonstrated to the world its willingness to live by the many important
commitments required by the Round. China’s negotiators have urgently argued as well that admission to
the WTO is the surest possible guarantee that China will continue its massive program of economic
reform, since the government will be bound by solemn international agreements to behave in ways
prescribed by the WTO.

Many of China’s trade partners, on the other hand, including the U.S. negotiating team and many in the
U.S. business world but also including authoritative spokespersons from such key WTO members as
Japan and the European Union, have argued that in any Accession Protocol China must make explicit,
and in detail, its commitments for “getting from here to there,” the “here” being its current economic and
‘commercial practices and the “there” being a range of truly WTO-compatible practices. Although some
progress has been made in repeated rounds of multilateral and bilateral negotiations, to date no
breakthrough has occurred that would permit the crafting of a final accession package.

{don’t need to tell the Members of this Committee that in this country, the question of China’s WTO
accession, at this time, is often entangled in a much wider range of interlocking and overlapping interests
and policy concems. To some extent, China issues in the United States are surrogates for the pursuit of
other battles; my sense is that U.S. issues might at times play a similar sole within the Chinese political
system.

In the U.S. today, most discussions of our relations with China raise seemingly baffling questions of
precedence and causality -- what must happen in order that what else can happen -- in the minds of
business people, Congress, the Administration, and other concerned Americans. Indeed, a pessimist
‘might look atthe cluttered landscape of U.S.-China relations today from 1989 to today and conclude that
every avenue of forward progress is blocked by some unconquerable political obstacle.

‘Thus, let me take this occasion to observe that unless both the United States and China make continual
efforts to prevent it, the U.S. and China today face what I might call “Gridlock By Default,” a paralyzing
inability to break free of the negative status quo on virtually any front. This is particularly true because
of the apparent tendency on both sides casually to mix all fronts together. An example on the Chinese
side would be the claim that U.S. resistance to China's WTO accession without detailed Chinese
‘commitments is part and parcel of a comprehensive U‘S. strategy to “contain” China's legitimate
development as a globally respected nation. On the U.S. side, it has unfortunately proven difficult since
Tiananmen to avoid pouring all American discontents over Chinese behavior into a single cauldron, and
then spreading the resulting mixture over any particular policy issue that comes along.

Difficult as it may be, in the superheated climate that periodically surrounds the discussion of U.S.-China
issues in either country, | believe that the greatest hope for overall progress toward more cooperative
ULS.-China relations lies in the piece by piece addressing of separate ~ and separable -- questions. One
of these, though by no means the only one, isthe question of China's WTO status.

While I am on the subject of placing China's WTO accession in appropriate context, fet me offer the
following observation. The China WTO issue is not, and should not be allowed to become, a stalking
horse for a renewed assault on America’s commitment to the WTO and the rules-based global trading
system that the WTO embodies. The members of my Council fully understand the vast benefits that they
and the U.S. economy reap from the GATT-WTO system. They understand that the value of the WTO.
for the United States lies in the disciplines that it imposes on other trading nations’ behavior and in the
establishment of order where anarchy might otherwise prevail. They are profoundly aware of the
damage that would result from a return to tit-for-tat unilateralism outside the framework of a set of
globally-accepted commitments to trade liberalization. As players in the nation which has traditionally
led the world in the commitment to open trade, they understand the importance to the United States of
‘other nations’ movement in trade-opening directions, and of the vital role that the WTO institution plays
in encouraging or even compelling other nations to do so. This subcommittee and its parent committee
have distinguished themselves, under leadership of both parties, by their vision and courage in preserving
‘America's role as a champion of an increasingly open world trade system founded on globally-effective
commitments, AAs it approaches the discussion of China's participation in the WTO, it is important that
the China issue be taken on its own merits, and not permitted either to drive or to be hostage to a
renewed assault on the WTO.based trading sysem of which our nation f 30 portant a component.

Broadly speaking. the internationally active companies that support our Council are eager to see China
admitted to the WTO, for the many obvious benefits that this will bring: multilateralization of China's


123

semiconductor industry, and significant opportunities and challenges have already become evident.
In response to these developments, the SIA determined several years ago that an examination was
needed of the issues confronting the U.S. semiconductor industry as a result of its growing
presence in China and China's emergence as @ major trading power with a rapidly emerging
electronics sector.

The result was an SIA study on China released in February 1995 entitled "Semiconductors
in China; Defining American Interests." The study was intended to be a contribution to the
information base necessary to support a constructive dialogue on issues of mutual interest and
concern as commercial and technological ties grow between the U.S. and Chinese industries. The
following information is based on that study and updated information gathered through a series
of annual trips to China undertaken by the SIA to foster a better understanding of the Chinese
‘market and to explain to Chinese officials U.S. semiconductor industry concerns regarding
‘China's trade and economic regime,

While statistical data on Chinese semiconductor demand and output ae limited, the matket
currently is estimated to be nearly $3 billion and it is growing at a rapid rate. From 1985 to
1995, the average growth rate in semiconductor demand in China has been about 24 percent per
year. A number of observers believe that in light of China's growing domestic demand for
¢lectronies products, China will become the world’s largest semiconductor market in 10-15 years.

Presently local production can only supply about 25 10 33 percent of China's semiconduc-
tor needs, and these represent primarily low-end devices used in consumer electronics products
like refrigerators, washing machines, radios, and televisions. Virtually all sophisticated
semiconductors needed by Chinese electronics firms must be imported, a pattern that will not
change significantly over the short run. This continuing shortfall creates a major commercial
‘opportunity for U.S. producers.

At the same time, the Chinese Government, through its Ministry of Electronics Industry,
is undertaking a significant effort to develop a competitive domestic Chinese semiconductor
industry. While most semiconductor technology in China is currently at the 1.2 micron level, the
Chinese Government is undertaking a number of projects designed to obtain cutting edge
‘manufacturing technology at 0.35-0.50 micron level, which would allow the Chinese industry to
compete with the U.S. industry and other key world semiconductor producers.

The focus of this Chinese Government plan to develop its own industry is an effort to
persuade foreign firms to invest in China and share their technology with Chinese firms through
joint ventures and other partnership arrangements. In return, suggestions are made that increased
market access may be made available to those firms willing to transfer technology. Reform of
such practices must be at the heart of any agreement 10 admit China to the WTO.

Polis ies Relating to Ching’s i the WT

The SIA supports China’s bid to join the WTO. but only if that accession is accomplished
‘on a commercially sound basis. In this regard, the SIA has a number of concerns with regard
to trade and investment in China, including: (1) Chinese targeting of particular sectors, including
ticroelectronics in general and the semiconductor industry in particular; (2) intellectual property
protection; (3) China's trade regime, especially with regard to limitations on trading rights; (4)
CChina’s tariffs on semiconductors; and (5) investment restrictions in China, including those related
to government pressure to transfer technology. These particular concerns are outlined below:

1, Targeting of ce trial sectors i ket o ities. The
Chinese Government has designated four “pillar” industries for targeting as essential to the
nation’s long-run economic future: Automobiles, electronics, machinery and petro-
Teumn/petrochemicals, Within electronics, emphasis has been placed on microelectronics.
Promotional measures are typical of those previously undertaken by many countries:

+ Creation of several large national champions through consolidation of enterprises
and the channeling of funds on a preferential basis to the favored entities

+ Acquisition of advanced technology from foreign companies, most commonly
through joint ventures.


25

Admission to the WTO, on the other hand, is a carrot. It is a car-
rot that has not yet been extended to, nor received or accepted by,
either the PRC or Taiwan.

Because of the rather dramatic differences between the cir-
cumstances of the governments of the island of Taiwan and of the
PRC and because of the difference in the way that their economies
respectively operate, it is rather clear that Taiwan is a model for
the PRC and not the other way around.

I think we can advantage ourselves by admitting the largest pur-
chaser of U.S. exports not yet a member of the Wro, and at the
same time hold out that carrot for the PRC, because emulation of
what Taiwan has done would be in their interest; and ours. is \

would suggest specifically, in terms of hurrying this along
and doing something concrete and positive, that the sense of the
Congress resolution to this end, H. Res. 490, is a perfectly appro-
priate vehicle.

Mr. Gissons. Well, I want to thank both of you for good answers.

Mr. Cox, I thought that was a very interesting point you raised
about the symmetry between Hon; ng and Taiwan, that neither
one come in—Hong Kong is already a member of the WTO, and it
is there not as a sovereign nation, but as a tariff area.

And, that is the same sort of status that you think we ought to
apply to Taiwan; is that correct?

ir. Cox. That is exactly correct.

Mr. GiBBONS. Well, that makes good sense. Thank you.

Chairman CRANE. Mr. Ramstad.

Mr. RaMsTaD. I have no questions.

Chairman CRANE. Mr. Payne.

Mr. Payne. Thank you very much, Mr. Chairman. And I, too,
would like to thank you for the kind comments you made as we
started this session. :

It has been a real honor and Privilege for me to serve on this
Trade Subcommittee and on the Ways and Means Committee, and
I appreciate what you and Mr. Rangel and Mr. Gibbons have done,
the kind of leadership you have provided and the kind of bipartisan
leadership on an issue that most definitely needs to remain biparti-
san as we take up important matters of trade.

I want to , too, the staff, because they have been very hel
ful to us, as we have had many deliberations on this Trade Sul
committee in this and other sessions of Congress. I also want to
thank the administration and the folks who are here from the
USTR's office, because of the close relationship that we have and
need to continue to have.

I think that the work that this Subcommittee does is extremely
important. The hearings that we are having today on the WTO and
accession of China, we will be having these kinds of hearings more
and more as time goes on, because the public policy of how it is
that the United States transacts with other nations in terms of
trade will largely be determined right on this panel and with the
members of the administration who are here. This will be increas-
ingly important as we move more and more into our global econ-
omy.

So, thank you very much. It has been a real privilege for me to
serve.


154

A. Adoption of a Non-discriminatory Conventional Tariff and Excise Tax Regime
1. Tariffs

Taiwan will enter the WTO as a developed country, and should reform its tariff system
to conform with those of other developed countries. Taiwan's tariffs should be bound for all
types of distilled spirits, and reduced to levels comparable to other developed WTO members.
Specifically, Taiwan should adhere to the Uruguay Round "zero for zero” agreement by
eliminating its tariffs on whisky and brandy, and should join other WTO members in
extending the "zero for zero” agreement to all other spirits. Finally, Taiwan should establish a
system of specific tariffs for imported distilled spirits as part of its accession package to the
WTO.

2, Excise Taxes

‘Taiwan should be required to replace its existing monopoly tax system with a
transparent and non-discriminatory excise tax system that applies equally to imported and
domestic products and does not provide special treatment for “traditional Chinese”
Excise taxes should be applied at a level comparable to those of other developed WTO
members, and should take the form of a single specific tax rate for both imported and domestic
spirits based on alcohol content.

B. Advertising

Taiwan has made great strides in removing discriminatory restrictions on the
advertisement of distilled spirits products. Over the past year, Taiwan has introduced
regulations permitting the advertisement of distilled spirits on broadcast and cable television
and other electronic media subject to certain conditions. However, there remain some print
‘media restrictions that apply only to distilled spirits, and not to beer and wine. As part of the
WTO accession package, Taiwan should agree to permit advertising of distilled spirits in
newspapers, and in magazines without a time limit.

C. Protection of Intellectual Property Rights

As in China, the distilled spirits industry is very concerned about counterfeiting and
establishment of a gray market. As Taiwan dismantles its government monopoly for distilled
spirits production, enhanced regulations should be established to protect imported brands from
counterfeit goods in the Taiwan market. Taiwan should establish a requirement of a certificate
Of origin issued by the manufacturer or the customs authorities in the country of export for
imported distilled spirits. This measure will reduce the likelihood of large scale counterfeiting
and curtail the development of a gray market for imports. As with China, as part of its terms
of accession, WTO members should insist that Taiwan fully adhere to the provisions of the
‘Agreement on Trade Related Intellectual Property (TRIPS), including the provisions related to
the protection of trademarks and geographical indications for distilled spirits.

TV. Linkage of Accession of China and Taiwan

DISCUS believes that both China and Taiwan should accede to the WTO based on
sound commercial terms. The terms of accession negotiated with each applicant should
satisfactorily address the concerns of U.S. exporters before they are accepted by the United
States. While it is desirable that both China and Taiwan accede sooner rather than later, it is
possible that one may offer acceptable terms in advance of the other. Should this situation
arise, DISCUS would encourage the U.S. government to move forward with each applicant
individually based on their own merits.

¥. Conclusion
The accession of China and Taiwan to the WTO is important to the U.S. distilled

spirits industry. It is our desire that both China and Taiwan accede to the WTO in the near
future based on sound commercial considerations. To achieve a sound commercial


149

STATEMENT OF CAMPBELL SOUP COMPANY
BEFORE THE TRADE SUBCOMMITTEE OF THE
HOUSE COMMITTEE ON WAYS AND MEANS
REGARDING CHINA AND TAIWAN’S ACCESSION
TO THE WORLD TRADE ORGANIZATION

L INTRODUCTION.

This statement is filed by Campbell Soup Company (“Campbell”), headquartered
in Camden, New Jersey. in response to the August 22, 1996, House Ways and Means

This statement summarizes Campbell's priority in seeing that Taiwan reduces its
25 percent ad valorem tariff on canned condensed soup (HTS No. 2104.10.11 and
2104.10.19) to 12 percent upon entry into the WTO, to be reduced to 7 percent over 3
years. While a reduction in the soup tariff is the company's highest market access
iority, Taiwan's 32.5 percent and 35 percent tariffs on cookies and “V-8" vegetable

juice. respectively, are also important to the company.
I. ABOUT CAMPBELL SOUP COMPANY.

Campbell is a major U.S. food processing company known internationally as one
of the leading manufacturers and marketers of branded consumer food products. Net
sales in its fiscal year ending July 1996 were $7.7 billion, of which $5.3 billion were U.S.
domestic sales. Campbell employs 40,650 people worldwide and operates more than 75
facilities in over 22 countries.

‘Campbell is the largest manufacturer of soup in the U.S. and purchases enormous
quantities of U.S. agricultural products. For example, Campbell uses millions of pounds
of chicken, com, tomatoes, broccoli, carrots, wheat flour, com syrup and potatoes.

Campbell Soup exports to Taiwan are manufactured principally in Sacramento,
California. Campbell's chicken broth, creamy chicken with corn, cream of chicken,
cream of mushroom and com potage are expected to be the most popular canned soup
flavors in Taiwan,

Ml. CAMPBELL’S LONGSTANDING EFFORTS
‘TQ REDUCE TAIWAN’S TARIFFS.

Since 1988, Campbell has requested U.S. Government assistance to significantly
reduce Taiwan's soup tariff. Despite a number of “unilateral” trade liberalization
tiatives by Taiwan, the high soup tariff has only been reduced 5 percent since 1989 and
this reduction was made only last year. The
‘Trade Barriers has indentified Taiwan's high soup tariff in every Report since 1991.

Current soup exports by Campbell are small, principally due to the 25 percent
tariff which increases the average price per can of soup in Taiwan to nearly 150 percent
‘more than the price paid by U.S. consumers.

Campbell's market analysis reveals that Taiwanese eating habits, tastes, and food
preferences are similar to those in Hong Kong, where there is no duty imposed on canned
soup and broth imports. The roughly 21 million people in Taiwan today consume less
than I can of soup per capita per year. Since Hong Kong's 5.8 million people are
‘consuming over 5 cans per capita annually, there is undoubtedly enormous potential
demand for Campbell's soup in Taiwan, demand that can only be satisfied with a
significant reduction in the import duty.


COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois ‘SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, Jr., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, lowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas LF. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts
MAC COLLINS, Georgia MICHAEL R. MCNULTY, New York

ROB PORTMAN, Ohio
JIMMY HAYES, Louisiana
GREG LAUGHLIN, Texas
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
Priuuip D. Mosetey, Chief of Staff

JANICE Mays, Minority Chief Counsel

SUBCOMMITTEE ON TRADE
PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida SAM M. GIBBONS, Florida

AMO HOUGHTON, New York ROBERT T. MATSUI, California
MEL HANCOCK, Missouri WILLIAM J. COYNE, Pennsylvania
DAVE CAMP, Michigan LF. PAYNE, Virginia

JIM RAMSTAD, Minnesota RICHARD E. NEAL, Massachusetts

DICK ZIMMER, New Jersey
JENNIFER DUNN, Washington

ay


119

market that prohibits free and independent trade unions, and a political/military structure that
oppresses its citizens on a huge scale.

Because of these practices, accession negotiations will be extremely difficult.

If the PRC is to achieve WTO membership, the following elements must be made part
of any agreement:

The U.S. must be allowed to continue conditional MFN treatment for Chinese
goods and services. The provisions of Jackson-Vanik must remain in force, and
the U.S. must be able to utilize Sec. 301 of the trade act.

China, as one of the world’s largest trade economies, must join as
a developed nation, undertaking completely all the obligations of
the WTO. In addition, adherence to at least the Civil Aircraft
Agreement, the Government Procurement Code, and any future
multilateral steel agreement must be required. Discipline in these
areas is particularly important because of the pervasive
involvement of the Chinese military in commercial activity.

China’s unacceptably high tariff barriers must be fully dismantled
and bound at levels commensurate with U.S. levels. For example,
tariff leveis of 100 percent for autos cannot be tolerated.

All nontariff barriers and import licensing requirements must be
eliminated prior to WTO membership.

All discriminatory trade related investment measures, including
foreign exchange requirements, trade balancing requirements, local
content requirements, export requirements, technology transfer
requirements, and domestic sales restrictions must be expressly
eliminated in an agreement. These requirements have been
particularly harmful to the U.S. auto, aircraft, electronic, and
telecommunications industries.

Full wansparency of laws and regulations affecting trade and
investment must be achieved.

Immediate application of WTO rules on intellectual property
protection, as well as the elimination of controls on audio-visual
imports are essential.

The specific inclusion in an agreement of the right of WTO
members to take special safeguard actions against Chinese goods
that are being imported in such quantities as to cause harm to
domestic production is vital. Such a provision is needed in order
to address the non-market character of the Chinese economy.

Finally, an agreement with the Chinese government to support the
establishment of a working party on worker rights in the WTO
should be sought.

Mr. Chairman, the AFL-CIO does not seek the isolation of China, or the elimination of
trade and investment. We seek a relationship that will benefit working Americans; a relationship
that puts the U.S. on the side of the oppressed, not the oppressors; a relationship where the rules
of trade are fair and equitable; and a relationship that understands that this country has interests
that are more important than the balance sheet of an individual corporation.


"LIVING FROM DAY

TO DAY IN A VERY BUSY ©

PLACE, IT’S EASY TO
FORGET THE
EXTRAORDINARY
STRUCTURAL
TRANSFORMATION THAT
HAS TAKEN PLACE IN
Tawan. IN A 10-
YEAR PERSPECTIVE, IT
BECOMES MORE
oBvious."

Presipenr' s Ace

BRR

a TOPICS, September 1996

is AmCham month —aprogram of public events we hope will raise

our profile and show the range of interests ofthe business commu
nity. In mid-September, some of us will be among those welcominga Sub-Cabinet
Economic Dialogue delegation beaded by La 5, Depury Secretary
fof the Treasury. They will visit Taipei not for negotiations on specific trade
disputes, but fora wide-ranging mutual consultation on international and bilateral
economic developments. Regular visits ofthis sort have long been encouraged by
‘AmCham, We believe that familiarity, the personal feel that can be established
‘only by visiting Taipei and talking at length with local officials and business people,
smakesitmuch easier to conduct negotiations over difficultissuesin away thatleads
‘to murually beneficial solutions, For the same reason, we are encouraged by the
recent resumption of more active dialogue between the United States and the
PRC.

‘When the Summers delegation is in Taipei, I will be in Washington, D.C.
‘with the AmCham Taipei Doorknock. This is an annual event in which the
American brsiness comamunits , -4 bree don- + -rgeaxionviely 75 mectings
‘with elected and appointed U.S. officials. Delivering a report of conditions on the
ground in Asia, we are always gratified by the interest shown in Washington and
the accessibility of our government.

‘Our general theme in Washington this year is Taiwan's place in the world
economy. Living from day to day in a very busy place, it’s easy to forget the
‘extraordinary structural transformation that has taken place in Taiwan. In a 10-
year perspective, it becomes more obvious. Let me demonstrate that by summa-
‘izing trade and investment
Aowsia Taiwanin 1986 and
in 1995,

In 1986, exports and
import totaled USS64 bil.
lion and there was 2 USSI6
billion surplus. Forty-eight
percent of exports went tothe United States, 2.5 percent of imports, and Taiwan's
‘ade surplus with the U.S. was USS13.5 billion. Although down from the peak
ofa few years earlier, the U.S. market was still the dominant source of Taiwan's
prosperity, The second largest trading parmer was Japan, taking 11.4 percent of
‘exports and providing } percent of imports, mostly capital goods. Taiwan's trade
deficit with Japan of USS3.7 billion was largely structural. If demand in the US.
‘market increased, Taiwan required more inputs from Japan in order to produce
‘more goods, thereby increasing both the surplus with the U.S. and thedeficit with.
Japan. Interestingly, Hong Kong/P.R.C. (the two'are not easily distinguished in
‘Taiwan statistics) ranked third, taking 7.3 percent of exports and providing a
US82.5 billion surplus.

In 1986, overseas capital investment by Taiwanese totaled USSS7 million.
‘The US. ateracted 81 percent of this small amount; the next largest share was held
by Thailand with 10 percent Hong Kong/P.R.C. was too small to break out.

‘Ten years later, in 1995, exports and imports totaled USS215 billion, over
three times larger, and the overal surplus was almost halved to USS8.1 billion. The
USS. market bought only 23.6 percent of Taiwan's products sold abroad; that is,

"T vation ‘month for AmCham Taipei. In Taiwan, September

AN SVMURCK


152

1. Restrictions on Distribution by Foreign Firms

Foreign firms are prohibited from setting up wholly-owned distribution companies.
‘They are even barred from investing in joint-ventures with Chinese distributors. U.S. distilled
spirits companies are being forced to reiy on a small group of Chinese importers and
distributors that have little experience in promoting consumer goods. Without the right to
import and distribute their products, U.S. companies are unable to manage the development of
their brands in the market place. These unwarranted restrictions are seriously hindering the
growth of U.S. exports, while contributing to the thriving gray market for imported spirits.
‘Therefore, the right of foreign companies to establish distribution subsidiaries must be
guaranteed as part of the terms of China's WTO accession protocol. In addition, U.S.
negotiators should use this opportunity to identify any differences in the regulations applied to
private and government-owned distribution networks.

.. Import Monopoly

tionally, China only gave the right to import distilled spirits to the China National
certs Oils and Foodstuffs Import and Export Corporation (CEROILS). While some other
government controlled entities appear to have secured import rights, the current system is still
100 restrictive to allow foreign spirits producers to meet demand for their products. Although
the quota system for distilled spirits was technically eliminated in December of 1995 according
to the terms of the 1992 MOU, the strict issuance of licenses that facilitates the existence of
the monopoly remains a significant barrier to expanding imports into China. The curtailment
of CEROILS' de facto monopoly on imports will encourage the creation of competing
importers and distribution networks. This competitive environment is more likely to be able
to meet demand, and begin to replace the gray market for imported distilled spirits.

3. Automatic Registration

China has introduced an automatic registration system which requires importers to
advise the Chinese government of the quantity and value of imports before they arrive. While
the automatic registration system does not have a quantity limit like a quota, the fact that an
imported item must be registered before it is permitted to be imported opens up the possibility
that the new system could be used to limit imports, It is no coincidence that this new
automatic registration system was installed at the same time the quota system was dropped at
the end of 1995 in compliance with the 1992 MOU. The automatic registration system is
administered by the State Planning Commission, and purportedly is to be used only for
statistical purposes. However, we fear that it will be used to restrict the volume of imports
Unless dismantled, automatic registration may become a significant barrier to imports of
distilled spirits in the future.

B. Reduction of Tariffs

High tariffs restrict access for imported distilled spirits to the Chinese market. These
high tariffs, which are assessed on an ad valorem basis, are largely responsible for the
substantial volume of imports entering through unofficial channels.

1. Tariff Levels

Despite a reduction from 150 percent to 80 percent on March 1, 1995, and a further
reduction to 70 percent on April 1, 1996, China's tariffs on imported distilled spirits are still
excessive. High tariffs place lawfully imported products at a significant competitive
disadvantage in the market place. During the Uruguay Round negotiations, major participants
agreed to eliminate tariffs on whipky and brandy over a period of ten years. The United States
should seek a commitment from China to reduce significantly and ultimately eliminate its
tariffs on imported distilled spirits as part of the terms of accession to the WTO.

2. Ad Valorem Rates

The distilled spirits industry has advocated the use of specific rates in assessing tariffs
on distilled spirits. Specific tariffs are more easily applied and reduce the incentive for


19

P=TAIWAN-US ECONOMICS |

ANALYSTS PREDICT THAT IN THE LONG-TERM, US
EXPORTS OF CONSUMER GOODS INTO TAIWAN WILL
INCREASE AS TAIWAN CONTINUES TO OPEN ITS
ECONOMY AND PREPARE TO ENTER THE WTO.

‘Tue US Retams ms PosmON AS TAIWAN'S LARG-
EST EXPORT MARKET (USS33.18 BILLION) WITH
29% OF ALL EXPORTS DIRECTED TO THE US, AGAIN
OF 8.5% raom 1994, THE US DepaxrMent oF
COMMERCE REPORTS THAT DURING 1995, TAIWAN
naporTED US$20.7 BILLION FROM THE US. TA-
\WAN REMAINS THE 6TH LARGEST CUSTOMER FoR US
EXPORTS. TAIWAN'S TRADE WITH THE US 1s EX-
PECTED TO INCREASE ONCE 1T OPENS A TRANSSHIP-
MENT CENTER

‘The US TRADE DEFICIT WITH TAIWAN WAS REPORTED
BY THE U.S. DEPARTMENT OF COMMERCE TO BE
USSS.6 BLLION FOR FISCAL YEAR 1995. By YEAR'S
END, TAIWAN POSTED AN OVERALL TRADE SURPLUS
‘oF USS9.68 BLION FoR 1995. TAIWAN IS THE
‘8TH LARGEST OVERALL TRADING PARTNER OF THE
US. 171s THE 77H LARGEST SUPPLIER OF US Dt
PORTS AND THE US'S GTH+LARGEST EXPORT MAR
wer.

BILATERAL TRADE BETWEEN TAIWAN AND THE US.
CREW 10.2% To REACH USS48.2 BLLION IN 1995.

IN LINE WITH THE GLOBAL TREND TOWARD ECONOMIC
REGIONALZATION, TAIWAN CONTINUES TO PROMOTE
FOREIGN INVESTMENT IN THE ROC THROUGH STRA-
TEGIC ALLIANCES WITH MULTINATIONAL CORPORA
‘Tins. FROM FEBRUARY 1993 To Decemaen 1995,
‘Tatwan sioneD 38 Lerrers oF INTENT (LOIS) For
THE FORMATION OF STRATEGIC ALLIANCES WITH
MNCs, 23 oF wancn WERE wiTH US Fins, THE
SCOPE OF OPERATION FOR STRATEGIC ALLIANCES GEN

1 1995 TOTALLED USS2.9 BILLION. THE US ac-
‘COUNTED FOR USS1.3 BILLION, REPRESENTING 45%

*

"TAIWAN CONSISTENTLY RANKS AS ONE OF THE UNITED
STATES’ LARGEST AND MOST IMPORTANT MARKETS,
BUT TRADE AND INVESTMENT STATISTICS DO NOT
(CONVEY THE FULL EXTENT OR THE RICHNESS OF THIS
ECONOMIC RELATIONSHIP, OR THE PROBLEMS THAT
US compaNIES FACE. MANY US BUSINESSES HAVE
BECOME HOUSEHOLD NAMES IN TAIWAN, ESTABLISH
[ING REPUTATIONS FOR QUALITY THAT ARE SPREADING
FROM TAIWAN TO MAINLAND CHINA AND OTHER
PARTS OF ASIA, ON THE OTHER HAND, Many US.
DVESTMENTS FACE SERIOUS PROBLEMS. Mor US
‘BUSINESS SUCCESSES (AND POTENTIAL SUCCESSES) IN
‘TAIWAN INCLUDE THE FOLLOWING:

GE Wis Nuctzar Power PLANT Prosect
AT AN ESTIMATED USS6.5 BILLION, THE ISLAND'S.
[FOURTH NUCLEAR REACTOR IS ONE OF THE LARGEST
INFRASTRUCTURE PROJECTS IN TAIWAN. ABOUT
'USS2.7 BILLION OF THE FUNDS WILL BE FROM FOR-
EIGN PROCUREMENT. THE PROJECT BEGAN IN 1982,
BEFORE FALLING TO PRESSURE FROM DISSENTING EN-
\VIRONMENTAL GROUPS. AFTER A SERIES OF FALSE
STARTS FOR OVER 10 YEARS, THE TENDERS FOR BIDS
WERE SCHEDULED FoR OCTOBER 1995, ONLY TO BE
CANCELLED, BIDS REOPENED IN THE SPRING 1996
(WITH THE PROJECT FINALLY BEING AWARDED To GE
IN May 1996,

Boring 777 Sates to Cina Am axp EVA
‘LETTERS OF INTENT WERE SIGNED BY EVA AIRLINES
‘AND CHINA AIRLINES OF A NUMBER OF BOEING
[ARCRAFTS IN DECEMBER 1995, PRESSURE FROM
COMPETITOR AIRBUS, WHICH ALSO SIGNED A DEAL
‘WITH THE PRC, HAS INCREASED THE URGENCY SUR-
ROUNDING THE CHINA AIRLINES DEAL, THE SALE TO
(Cran AIRLINES ALONE 1S ESTIMATED TO RUN BE~
TWEEN USS1-3 BILLION.

Grnerat RamLway SIGNAL

USS100 MALIN Is INVOLVED IN THIS CONTRACT
‘TO PROVIDE SIGNAL AND CONTROL EQUIPMENT FOR
‘THE TAPE! METRO SYSTEM. ALTHOUGH ALL OF THE
EQUIPMENT IS IN PLACE, SOME HAS YET TO BE TRIAL
TESTED. AS A RESULT, GRS HAS ONLY BEEN PAID
USS40 MILLION For Irs WoRK. A CLADM IS STILL
PENDING ON THE REMAINING USS60 MILLION.

TOPICS, September 1996 a


at)

Chairman CRANE. Thank you.
Mr. Cox.

STATEMENT OF HON. CHRISTOPHER COX, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Cox. Thank you, Mr. Chairman.

I want to take just a brief moment to thank not only Chairman
Crane, but all the Members of the Trade Subcommittee for holding
hearings on a pending sense of the congressional resolution sup-
porting the admission of Taiwan to the WTO.

The Chairman has a long and distinguished record of
anticommunism and support for free and fair trade, not to mention
an abiding interest in both the PRC and Taiwan. It was my pleas-
ure and privilege to visit Taiwan with the Chairman for meetings
with President Lee early this year, shortly after Taiwan conducted
the first free and fair elections for the head of government in over
4,000 years of Chinese history.

This hearing is an important step in moving us beyond the an-
nual ritual-.of debate over MFN renewal for the PRC; MFN denial,
like other sanctions, inescapably injures the United States. Admis-
sion of one of America’s largest trading partners to the WTO, on
the other hand, is an advantage of the United States, and it does
injury to no one. By rewarding the kind of changes, progress, and
liberalization that America so strongly supports, rather than plac-
ing exclusive reliance on sanctions and punishment, we may well
accomplish far more.

The point of my testimony today is that helping Taiwan to enter
the WTO, the World Trade Organization, will send the right sig-
nals, both to Taipei and to other nations that we are urging to fol-
low the path toward greater economic and political freedom.

Taiwan deserves to become a member of the WTO on its merits.
Unlike the People’s Republic of China, Taiwan has a free market
economy. The economy has been progressively liberalized over the
last three decades.

Taiwan is currently the 14th largest trading nation in the world.
Taiwan’s foreign exchange reserves are among the world’s largest.
Taiwan is the world’s seventh largest foreign investor. She is the
largest importer of U.S. goods who is not currently a member of the
WTO. And unlike the PRC, Taiwan is a now a full-fledged democ-
racy with a freely elected parliament and chief executive.

Conditional on its admission to the WTO, Taiwan has already
agreed to further reduce the tariff levels of many of its products,
so that admission of Taiwan to the WTO would be a great advan-
tage to us in that respect. It has likewise agreed simultaneously to
eliminate many other nontariff barriers.

Larry Summers, our Deputy Treasury Secretary, recently con-
cluded meetings in Taiwan with trade officials and with President
Lee, and his description earlier this week on September 16 and 17
was that they were “very constructive.”

This amply summarizes Taiwan’s consistent efforts to negotiate
toward WTO admission in good faith. I am told by both the State
Department and officials in Taiwan that Taiwan will surely wish
to cooperate further in admission to the WTO and to fulfill the de-


128

20 percent per year until the tum of the century. Such demand means that there will be
significant opportunities for SIA member companies in that nation. However, there are also a
number of issues that should be considered as Taiwan seeks accession to the WTO:

+ Tariff elimination: Taiwan maintains semiconductor tariffs of about 1 percent,
‘which it has said it will eliminate if permitted to enter the WTO. Obtaining this
tariff elimination would be an important step toward the SIA’s goal of tariff-free
trade for semiconductors worldwide.

+ Intellectual property: Taiwan adopted its own maskwork protection law in July
1995. The enforcement of this law should be reviewed and monitored on an
active basis.

+ Targeting: The Taiwan Government's efforts to promote continued technological
improvements and increases in the capacity of Taiwanese chip producers should
be reviewed to ensure their consistency with WTO rules.

As with China, every effort should be made to ensure that Taiwan enters the WTO on a
‘commercially sound basis

Conclusion
‘The Chinese and Taiwanese semiconductor markets represent major opporwunities for the

USS. industry, but there are significant risks and hurdles to be addressed as well, especially with
regard to the rapidly growing Chinese market.

In microelectronics, China could become one of the world’s leading producers, and, as
such, it warrants continued monitoring. Ongoing bilateral and multilateral negotiations with
China over the terms of its full integration into the world trading system can be utilized to
address those aspects of the Chinese system which are problematic from the perspective of the
USS. semiconductor industry.

‘The U.S. Government is actively pursuing resolution of U.S. industry issues of concern
in the negotiations concerning China's accession to the WTO and the SIA strongly supports the
efforts of USTR and other U.S. Government agencies in this regard. Meanwhile, in meetings
with the SIA, officials of the Chinese Government and its electronics industry have
receptivity to many of the U.S. industry issues of concern outlined above. The SIA believes that
the potential exists for a productive joint effort to address these issues in the context of China's
accession to the WTO.


184

Representative. However, if opening the agreement threatens a host of disputes
and further restrictions on US. textile and apparel imports from China, then
retailers would prefer a simple rollover of the existing agreement. Again, our aim is
to preserve the U.S.-China relationship, to improve the terms of the dialogue, and
to foster mutual respect that will ultimately bring China into the WTO as soon as
possible. A long and contentious negotiation over the contents of a new, more
protectionist U.S.-China textile agreement should not be permitted to threaten that
ultimate goal.

With the introduction of H.R. 3654 (the Spratt textile bill), the U.S. textile
and apparel industries have already laid a proposal on the table to severely restrict
China's access to the U.S. textile and apparel markets as part of the price China
would have to pay for U.S. support to join the WTO. But how can we hope to gain
greater access to China's textile and apparel markets when we are so quick to close
ours to them? Remember the Agreement on Textiles and Clothing (ATC) does very
little to liberalize U.S. tariffs on Chinese imports, just quotas. If we put off quota
liberalization as the textile industry demands, why should not China and Taiwan
put off their textile trade liberalization to the disadvantage of American exporters,
including U.S. textile manufacturers?

In trade with China, we have crossed the bar of intra-sectoral trade battles.
As we learned from the intellectual property rights (IPR) debate earlier this year,
the U.S. retaliation list had very little to do with the items being allegedly pirated
by some businesses in China. Similarly, the Chinese counter-retaliation list had
even less in common with the U.S. retaliation list. The U.S. targeted textile and
apparel imports, toys and consumer electronics, while the Chinese government
listed U.S. agricultural products, telecommunications equipment and heavy
machinery, among others, as its targets for prohibitive tariffs. Our two-way trade is
more linked than ever. We should not play protectionist politics with China in the
hopes we can contain the collateral damage within a single sector that we could
sustain in an unnecessary trade war. Our trading relationship has grown far more
complicated and as we set out to improve our trading relations with China, we
should not forget these strategic issues.

IV. Conclusion

Mr. Chairman, America’s retailers stand ready to assist you and others
members of this Committee in your efforts to ensure that the United States
negotiate a tough, but fair, accession protocol with the Chinese government and, in
turn, the Taiwanese government. We thank you for allowing us to testify this
afternoon.


14

EECONGMIC-EFFRECTS, |
Fat 1995 To Sprinc 1996

INDUSTRIAL OUTPUT FELL 4.2%, THE MANUFACTURING SECTOR FELL 5%, AND CONSTRUCTION FELL 16%,

‘THE GOVERNMENT AUTHORIZED A NTS200 BILLION STABILIZATION FUND TO PURCHASE AN ESTIMATED NTS70
BILLION IN SHARES IN SUPPORT OF THE TAIWAN STOCK EXCHANGE THREATENED BY CROSS STRAIT TENSIONS. THE
FUND FRUOYED LARGE GAINS IN THE POST-ELECTION STOCK MARKET RALLY.

‘TAIWAN'S THREE EXPORT PROCESSING ZONES (EPZs) WITNESSED A 15% FALL IN PRODUCTION VALUE FROM 4Q.
1995 70 1Q 1996. OFFICIALS BLAMED THE DROP ON MAINLAND CHINA'S LIVE FIRE MISSILE TESTS AND SEASONAL.
FLUCTUATIONS IN EXPORT PATTERNS.

In MARCH, THE MONTH OF THE PRESIDENTIAL ELECTION, EXPORT ORDERS TOTALED US$9.92 BULLION, A MERE
0.3% MCREASE OVER FEBRUARY. THis WAS THE FIRST TIME IN EIGHT MONTHS THAT EXPORT ORDERS ENJOYED LESS
‘THAN DOUBLE-DIGIT GROWTH.

ALTHOUGH OVERSEAS CHINESE INVESTMENTS DY TAIWAN GREW 133%, FOREIGN INVESTMENTS IN THE FIRST QUAR-
TER OF 1996 DECLINED 31%, fi-vesT.Tom1s BY US COMPANTES DUPD'S T° P3100 TOTALED Ars ESTIMATED
USS45.1 NaLLION, 4 77% DECREASE FROM THE PREVIOUS YEAR. AMONG THE FOUR MAJOR FOREIGN INVESTORS
IN TAIWAN (Hon KONG, UNrTeD STATES, JAPAN AND EUROPE) ONLY JAPAN REGISTERED AN INCREASE.

POSTING THE WORLD'S THIRD LARGEST FOREIGN EXCHANGE RESERVES FOR THE LAST SEVERAL YEARS, TAIWAN'S
[RESERVES HIT AN ALL-TIME HIGH OF US$100.4 BILLION IN JUNE 1995, BUT SLIPPED TO A THREE-YEAR LOW OF
USS82.55 BILLION AT THE END OF MARCH 1996 As THE CENTRAL BANK SUCCESSFULLY DEFENDED THE NT
DoLLan at NTS27.5:USS1 AMID CROSS STRAIT TENSIONS. RESERVES RECOVERED To USS85.2 BILLION IN JUNE
1996,

Foreign investment was down, exports
and imports experienced declves | ---and GDP growth suffered
as a consequence, reaching an
ercign Investment inte ates a"
——* unusually low 4.86% in the
fourth quarter of 1995.
ecctnt | tae | Sn
Real GDP Growth
aim | ws [ime 1995 0 Int Quarter 1996
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TOPICS, September 1996


32

1995 Intellectual Property Rights Agreement

U.S. copyright industries employ more than 5 percent of the U.S. work force ~- roughly equal to
the auto industry -- and are growing three times as fast as the rest of the economy. The copyright
industries contribute more than $350 billion a year to the U.S, economy, accounting for more
than 6 percent of GDP. The U.S. computer software industry alone maintains a 75 percent
‘market share worldwide, and created almost 60,000 jobs in 1995. Therefore, when firms in
China pirate American products, they are stealing the ideas of these industries. We will not
tolérate the theft from our leading industries.

Since the signing of the IPR Agreement in February 1995, U.S. government delegations traveled
to China nine times to ensure enforcement and held more than forty formal and informal
Consultations from Beijing to Shanghai to Guangzhou. However during 1995, there was a great
deal of talk on the part of the Chinese, but litle concrete action on important aspects of the
‘Agreement. That is why, in May 1996, the Clinton Administration threatened to take action
against China as a result of China's failure to enforce satisfactorily its commitments under the
1995 agreement on intellectual property protection,

In June 1996, after substantial verification activities on the part of a U.S. government delegation,
it was determined that a critical mass of enforcement actions in connection with the 1995 IPR
Enforcement Agreement had been taken by the Chinese, and sanctions were averted. Our
discussions in June confirmed that China had begun to take action in a number of key areas.
China had closed a total of 15 CD factories, and had begun a new initiative targeting
underground CD plants. The Ministry of Public Security now plays a leading role in these
efforts. China also put a moratorium on the establishment of any new CD factories, and issued
regulations which virtually ban the importation of CD presses and other manufacturing
equipment. The Chinese strengthened border enforcement by executing seizures during the past
several months -- netting tens of thousands of pirated CDs, VCDs, LDs, and other pirated goods.
Chinese Customs officials continue cooperative efforts with Hong Kong Customs and continue
to work with U.S, Customs. China also had clamped down on the import of illegal CD presses.
And finally, significant progress was been made to secure opportunities in China for American
TPR industries -- for sound recordings, motion pictures, and software.

Of course, the ultimate test is real and ongoing implementation. The United States will continue
to monitor the situation and ensure that our economic interests are protected. To that end, a
USTER team is in China now to verify that the Chinese are continuing to take the agreed-upon
steps to crack down on piracy and proVide market access.

The 1992 Market Access Agreement

In October 1992, the United States and China signed a market access agreement that committed
China to make sweeping changes in its import regime. To its credit, China has done much to
implement the 1992 agreement. It has taken important steps toward making its trade regime
‘more transparent. It has made a major commitment to eliminate non-tariff barriers, and since the
end of 1993, it has eliminated or substantially reduced the several thousand barriers that existed.
Once these barriers are eliminated, the markets in China for computers, medical equipment,
heavy machinery, textiles, steel products, chemicals, pharmaceuticals, and other products will
open.

While China has removed a substantial number of non-tariff barriers, we are concemed with
China's tendency to give with one hand and take away with the other. In some instances, China
has substituted new barriers in the place of those removed. For example, quotas have been
replaced with “tendering requirements” or “registration requirements.” In sectors such as
medical equipment and film, new regulations have prevented the market access we anticipated as
a result of the 1992 agreement. China must live up to its agreement and eliminate these
impediments to fair trade.

‘A number of other market access problems remain, most importantly for U.S. agricultural


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39

like all foreign companies ~- are allowed to establish freely in the United States. No one restricts
their right to do business with American customers,

For the United States, itis certainly true that China offers unmatched potential. Unfortunately,
while progress has been made, for the United States, the potential of the Chinese market remains
largely untapped in many respects. China’s highly restrictive import policies mean that less than
2 percent of U.S. exports go to China. China must open its markets, and the first step is to ensure
‘compliance with commitments already made.

‘The Chinese fee! that is only “fair” that China -- the country with the largest population and the
fastest growing major economy, the country that may soon be the world’s largest economy —- be
admitted to the WTO. The United States also sees accession to the WTO as a matter of fairness.
Faimess is abiding by rules and living up to one’s commitments. Faimess is a matter of meeting
agreed-upon standards and eliminating unfair barriers. Accession to the WTO is a matter of
faimess. In fact, itis a matter of fair trade.



164

it Industry Trade Policy Council
122 C Street, N.W., Suite 875.
We D.C. 20001

(202) 347-3600
September 18, 1996

The Honorable Dan Glickman
Secretary of Agriculture

14th & Independence Avenues, SW
Washington, DC 20250

Dear Secretary Glickman:

‘As China and Taiwan's applications for accession to the World Trade
Organization move ahead, the Meat Industry Trade Policy Council (MITPC)
would like to reiterate its deep concern regarding China and Taiwan's
barriers on imports of beef and pork. As an initial matter, we request that
China and Taiwan be required to meet all standards and requirements of
current WTO members with no exceptions for agriculture.

As you know, China maintains one of the highest rates of import protection
for its beef regime in all of Asia. Because of the availability of cheap domestic
product, imported beef utilization is confined to joint venture hotels and
restaurants. China's major hotels buy beef at prices approximately 120
percent higher than the price of the same item in Hong Kong, the major
transshipment and supplying point. Chinese duties on imported beef should
be lowered to no more than 20 percent to allow the limited number of end-
users access to high-quality imported beef at reasonable prices.

China consumes approximately 50 percent of the total pork annually
consumed in the world. While the Chinese government has attempted to
assuage U.S. concerns by announcing that the hotel and foreign restaurant
sector may be liberalized, this sector represents only a small portion of
China's entire market. As a general rule, China simply does not permit the
importation of fresh chilled and frozen pork and most pork products.
China's market must be open to pork imports with tariffs bound at zero or
very low levels to guarantee meaningful market access. Moreover, China
should not be permitted to erect unscientific sanitary barriers or to require
the utilization of state trading organizations.


64

First, it is important to maintain the integrity of the WTO as a
trade organization, because we want to avoid political consider-
ations dominating the WTO dispute resolution process in the
future.

Second, the WTO is an organization of separate customs terri-
tories, as well as sovereignty nations, which accommodates Hong
Kong, already a member in its own right, and Taiwan, already an
observer.

And third, WTO membership for Taiwan will be advantageous
for the PRC and the region as a whole, as Hong Kong’s member-
ship already is, due to the stronger economic growth and greater
openness of the Taiwanese economy that will result.

This is not a zero-sum game. The United States and Taiwan will
benefit from Taiwan’s WTO accession, and so will Taiwan’s other
important trading partners in the region, including the PRC.

The same is true for PRC accession, if it is accomplished on the
basis of adherence to WTO principles for developing economy mem-
bers and recognition of the weight of the PRC’s position in world
trade.

At this juncture, AmCham/Taipei believes it would be helpful for
the Subcommittee on Trade to affirm the Subcommittee’s support
for Taiwan’s WTO accession as a developed nation on the condition
that remaining issues are resolved in a manner appropriate to that
status; to urge Taiwan to make the internal decisions necessary for
the USTR to conduct another, hopefully final, round in our bilat-
eral negotiations before the end of this year; and to reaffirm United
States policy that our bilateral negotiations with Taiwan and the
PRC are separate matters to be resolved on the basis of economic
and trade issues.

Thank you, Mr. Chairman, for inviting me to participate in this
hearing, and I will be happy to answer any questions you may

ave.

[The prepared statement and attachments follow:]


148

‘Vegetable of consumption will increase at an enaual rate of § percent in the period 1996-2000
‘and 5 percent in the period 2001-2005.

Protein meal consumption (soybean meal equivalent) will increase at an annual rate of 10
percent in the period 1996-2000 and & percent ia the period 2001-2005. The rapid growth of
soybean meal usage will be dus largely to greater usage of soybean meal in hog rations and
very sharp expansion of the broiler industry.

In Septembec, 1995 China had 436 million hogs of which 85 percent were in the back yards of
rural residents and teceive very Little protein supplements in their rations. With urbanization

increased vegetable
oil usage because the Chinese moving to cities and towns will no loager bave the lard from the
hog of two they slaughtered for their oom use each yaar.

Domestic Protein meal production (soybean meal equivalent wil inereaze by 3 percent per
‘year in the poriod 1996-2005,

‘There will be no direct consumer retioning of vegetable oll and animal products, nor
excessively high consumer prices which would curtail consumption.

Moderate growth of world prices for ollsends and products.
‘There will be large foreign investment in China's oilseed processing industry.


35

for WTO accession that will further open Taiwan's goods and services markets to a significant
degree. Taiwan's Trade Action Plan, self-initiated in 1989, reduced industrial tariffs to an
average of 8.6 percent. Taiwan's Legislature enacted a law in late June 1995 implementing an
Executive branch commitment made in February 1994 to reduce tariffs by an average of 21
percent on 483 items of prime U.S. export interest valued at $890 million.

Telecommunications

In February, Taiwan approved a plan to transform its monopoly telecommunications agency to a
strictly regulatory role, spinning off its operational arm as a newly privatized entity. Thé plan
‘opened up the telecommunications sector to domestic and, with some limitations, foreign
‘competition in providing equipment and services. U.S. equipment and service providers were
concemed with certain aspects of the plan, in particular restrictions on foreign investment and the
possible continuing influence of the newly-privatized telecommunications entity, including a
ceiling of twenty percent on foreign investment, an 11.9 percent cap on return on investment,
limits on debv/equity ratios, and limited spectrum allocation on which to develop a customer
base.

Bilateral consultations with Taiwan authorities in July succeeded in securing commitments to
Temoval of the profit cap and of restrictions on debt equity ratios. It was also confirmed that the
newly-privatized telecommunications entity would not be able to cross-subsidize its wireless
services with revenues from its remaining basic telecommunications monopoly activities, nor
discriminate in pricing of connections for its own wireless subsidiaries and new competitors in
that sector.

‘We are continuing to monitor the implementation of our July Understanding with Taiwan to
censure that U.S. firms are permitted to compete fairly in the Taiwan telecommunications market.
In addition, we are working with U.S. equipment and services suppliers to assure that our
concerns are taken into account as regulations are developed to implement further this element of
the liberalization.

Intellectual Property Rights

‘As a result of many years of bilateral Special 301 work with the United States, Taiwan has made
significant improvements in its IPR protection as it has worked to bring this effort up to TRIPS
standards, These improvements have resulted in movement from a Special 301 designation by
USTR as a “priority foreign country” in 1002, to watch list in 1995. This year, we have
removed Taiwan from the U.S. Special 301 lists to the category of special mention.

Last Apri, the U.S. and Taiwan reached agreement on an 18 point Action Plan outlining
enhanced IPR enforcement commitments in areas of concem to U.S. industry. Taiwan's
commitment to implement the Action Plan within six months resulted in a USTR downgrading
Taiwan's status from the special 301 "Watch list" to the “special mention" category. At the
urging of the United States, Taiwan has worked to prevent cross-strait investment in PRC-based
CD manufacturers, required all Taiwan CD manufacturers to use a source identification code on
all products, and has recommended simplification of the power of attorney provision under
Taiwan law to the Ministry of Justice. We remain concerned, however, that Taiwan's money and
equipment continues to foster CD piracy in China, We will conduct an out-of-cycle special 301
review, tentatively scheduled for October, to assess Taiwan's continued efforts to protect IPR.

Medical Devices

Taiwan's efforts to contain costs under its National Health Insurance Program have led to
implementation of brand-name based price lists for determining reimbursements which
reportedly favor domestic medical devices and generic pharmaceuticals over imported ot foreign
invested manufactured products. U.S. medical device manufacturers and pharmaceutical
companies allege that prices assigned their leading products are arbitrary, non-transparent and
‘may deny national trestment due to pricing formulas designed to benefit local producers of


o7

‘economic growth and greater openness of the Talwanese economy that will result.

This Is not a zero sum game. The US and Taiwan will benefit from Taiwan's WTO
accession, and so will Taiwan's other important trade partners in the region, including the
PRC. The same is true for PRC accession, if it is accomplished on the basis of
adherence to WTO principles for developing economy members and recognition of the
weight of the PRC's position in world trade.

At this juncture, AmCham Taipei believes It would be helpful for the Subcommittee on
‘Trade to:

© Affirm the Subcommittee's support for Taiwan's WTO accession as a
developed nation, on the condition remaining issues are resolved in a manner
‘appropriate to that status;

© Urge Taiwan to make the intemal decisions necessary for the USTR to
‘conduct another, hopefully final, round in our bilateral negotiations before the end
of the year; and

° Reaffirm US policy that our bilateral negotiations with Taiwan and the PRC
are separate matters to be resolved on the basis of economic and trade issues.

Thank you, Mr. Chairman, for inviting me to participate in today's important
hearing.

wee


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167

Mr. Chairman, supporting Communist Chinese entry into the WTO would be an
extremely short-sighted policy for the United States. It would put the U.S. stamp of approval on
the record of this regime, and as news events display every week, they simply don’t deserve it.
Mgr. Chairman, support for Communist Chinese entry into the WTO would be nothing but a
continuation of the policy of engagement which, as I've said before, is failing before our very

In closing Mr. Chairman, I would simply urge this Committee and this Congress not to
put Communist China on the same plane as Taiwan. To do so would be factually incorrect,
politically foolish and economically damaging Most of all, it would represent a complete
travesty of justice.

‘Again, I thank the committee for the time here today.

fe)


126

The SIA believes China's best interests would be served by eliminating tariffs on
semiconductors, semiconductor manufacturing equipment, and personal computers, The SIA
believes that elimination of these duties would spur development of a competitive microelec-
tronics industry in China, as it has in other nations.

5. Investment restrictions in China limit U.S. market opportunities and may force U.S.
firms to transfer technology to Chinese firms. While Chinese officials, especially at the focal and
provincial level, are quite interested in promoting foreign direct investment in China, a number
of complex and negotiable requirements exist for foreign-owned ventures. These rules place a
number of restrictions on foreign investment in various sectors:

+ 100 percent foreign ownership of manufacturing facilities is permitted in China,
but as a general rule, it appears that, under an unpublished policy applicable to the
electronics industry, 100 percent of such a facility's output must normally be
exported. A 70/30 foreign majority-owned joint venture is generally required
‘under the same policy to export 70 percent of its production, but there are no
‘uniform rules; cach arrangement is negotiated on a project-specific basis. For
instance, one U.S. company reportedly has negotiated the export requirement out
of its contract, but agreed instead to reinvest all profits eamed from domestic
sales,

+ Despite the absence of any explicit legal obligations to meet specific export
percentages (except for purposes of obtaining preferential tax treatment or
qualifying to establish a wholly foreign-owned enterprise) many U.S. companies
hhave been pressed by the Chinese approval authorities to agree to export targets.
Although such cules are not always enforced, a company can legally be held
accountable for non-compliance at a future date.

+ There are localization requirements for parts and materials for products made in
China which are not technically legal requirements, yet firms must file localization
plans with their foreign investment application. Furthermore, the Chinese
Government audits foreign firms to determine local content and what constitutes
local content can be subject to many definitions. For example, importation via a
Chinese distributor can qualify a part as “local.” Chinese industrial policies, such
as the auto industrial policy, also contain local content requirements.

‘Such requirements may be imposed not only as strict legal obligations, but also as a quid-
pro-quo for preferential treatment by individual officials at the national or sub-national level.
‘These measures are often used as levers to obtain transfer of technology from foreign firms.
Elimination of these investment restrictions would benefit China as well as its trading partners
bby encouraging greater investment in China and thereby speeding the development of China's
capabilities in high technology manufacturing,

‘Terms of China's WTO Accession

Reform of the above areas must be part of the WTO accession negotiations for China if
it is to enter the WTO on a commercially sound basis. The SIA recommends that the following
specific reforms be included in China's Protocol of Accession to the WTO:

Technology Transfer. Every effort should be made to ensure that the Protocol includes
‘commitments by China not to impose de jure or de facto requirements to transfer technology on
foreign firms seeking market access or the right to establish and operate facilities in China. Such
requirements may be imposed not only as strict legal obligations, but also as a quid-pro-quo for
preferential treatment by individual officials at the national or sub-national level. Therefore, it
is essential that the broadest possible conception of principles of non-discrimination and national
treatment be established in the Protocol. Furthermore, this must be done not only in the sections
of the Protocol concerning non-discrimination, but also in the sections relating to uniform
administration of the trade and tariff regimes, trading rights, non-tariff measures, import and
export licensing, and trade-related investment measures. These measures are often used as levers
to obtain transfer of technology from foreign firms.


45

Q: Assuming that the accession negotiations proceed, what do you think will be the most
important substantive issues that will have to be resolved?

A: It is premature to begin deciding which of the many significant issues remaining unresolved
are the most important substantively. Much of what the WTO has requested of China is
normally requested, and agreed to, by other WTO accession applicants. We expect each of these
issues (¢.g., elimination of nontariff measures, basic compliance with GATT 1994 and the other
WTO Agreements) to be resolved when negotiations begin moving toward completion.

Q: A major concern shared by many in this country is that many of our fellow WTO.
Members will treat China’s accession to the WTO more as a political exercise than as an
economic exercise. I understand, for example, that Japan intends to hold a “seminar” on
Chinese WTO accession in October, apparently to help facilitate Chinese entry. How do
you assess at this point other countries negotiating approach and will they continue to
support us on insisting on a sound commercial protocol with China?

A: Other major WTO members would also like to see China’s WTO accession accomplished on
commercial terms with full compliance with basic WTO provisions. They look to the United
States for leadesship in this as in many of the other WTO accessions. All WTO members active
in the negotiation, including the United States, are taking whatever steps they can to facilitate
China’s WTO accession within these parameters. We view Japan’s offer of a seminar in this
perspective.

Q: Last week, Minority Leader Gephardt introduced H.R. 4065, a bill to require prior
Congressional approval before the President supports admission of China into the WTO
and provides for the withdrawal of the United States from the WTO if China is accepted in
the WTO without U.S. support. Does the Administration have a position on this
legislation?

‘A: While the Administration has not articulated a formal position on the legislation, the
proposed legislation as it would unacceptably impinge upon the President’s constitutional
authority to conduct foreign relations by requiring prior Congressional approval before the
President would support the admission of China to the WTO. On this basis, we would oppose
any such restraint.

Furthermore, existing legislation and Administration policy makes this bill unnecessary. The
Administration has consulted closely with relevant Congressional committees on this issue, as
evidenced by the hearing before the Ways and Means Committee on September 19. This
consultation process will continue. Section 122 of the URAA requires the Administration to
consult closely with Congress on any accession, particularly before taking any action to approve


(MENTAL PRIORITIES AND PLANS. INCREASED FOR
EIGN PRESSURE AT THE MOMENT WILL ONLY AL-
IENATE POPULAR ENVIRONMENTAL SUPPORT AND
DISCREDIT THE ENVIRONMENTAL LEADERSHIP.

4. GOVERNMENT CONTRACTING

4.1 THE PENDING ACCESSION OF TAIWAN INTO THE
Wortp TRabE ORGANIZATION IS APPLAUDED.
‘THERE ARE MANY PRINCIPLES OF THE WTO THAT
[RUN COUNTER TO THE PRACTICES OF THE LOCAL
ENGINEERING CONSTRUCTION MARKET WHICH
‘CONSTITUTES THE LARGEST PART OF GOVERNMENT
‘CONTRACTING.

42 REQUIRE THE OPENING OF TAIWAN'S CONSTRUC-
TION MARKET. THIS INCLUDES OPEN TENDERING
FOR PROFECTS ABOVE A FINED THRESHOLD VALUE.
PROVISION SHOULD BE MADE SO THAT CONTRACTS
CANNOT BE SUBDIVIDED $0 AS TO CIRCUMVENT.
‘THIS REQUIREMENT.

4.3 ADOPT OPEN, CLEAR, AND COMPETITIVE BDDING
PROCEDURES FOR PUBLIC WORKS CONTRACTS.
‘THis WILL PROVIDE FAIR COMPETITION FOR LO
(CAL AND INTERNATIONAL FIRMS BIDDING ON MA
JOR PUBLIC WORKS PROKECTS.

4.4 ADOPT REASONABLE TERMS AND CONDITIONS IN
ALL CONTRACTS. SPECIAL CONCERNS INCLUDE

Tarwan’s COMMITMENT TO
ENVIRONMENTAL PROTECTION
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[FICIENT AND UNFAIR CHANGE ORDER PROCEDURES,
[UNREASONABLE LIMITS ON LIABILITY AND CON-
SEQUENTIAL DAMAGES, EXCESSIVE LIQUIDATED
[DAMAGES EXPOSURE, UNWARRANTED THIRD PARTY
LIABILITY EXPOSURE, NEED FOR EFFICIENT ARBI-
‘TRATION AND DISPUTE RESOLUTION PROCEDURES,
[AND UNREASONABLE WARRANTY PROVISIONS FOR
[EQUIPMENT AND COMPLETED CONTRACT WORK,

REMOVE RESTRICTIONS THAT MAKE IT DYORDI-
NATELY DIFFICULT FOR INTERNATIONAL FIRMS TO
‘CARRY OUT THEIR CONTRACTUAL RESPONSIBILITY.
FULLY IMPLEMENT THE PROCEDURES FOR FOR-
[EIGN INVESTMENT IN LOCAL CLASS A CONSTRUC:
TION COMPANIES. ALLOW FOR MORE FOREIGN
PARTICIPATION DN THE MARKET.

5. INDEPENDENT Business

st

52

$3

54

38

56

3.7

58

(CENTRALIZE THE JURISDICTION OVER WORK PER-
Mars,

Enrorce Section 48 of THE ESA (Empioy-
‘MENT SERVICES ACT), GUARANTEEING A PERSON
‘MARRIED TO AN ROC SPOUSE THE RIGHT TO OB-
TAIN A WORK PERMIT.

(CREATE ONE COMERENT LAW WHICH SPECIRCALLY
ADDRESSES THE CIRCUMSTANCES UNDER WHICH A
WORK PERMIT 15 NECESSARY.

‘ABOLISH THE EXIT AND RE-ENTRY PERMITS, AL+
LOWING FOR ALIEN RESIDENT CERTIFICATE TO RE~
PLACE SAID DOCUMENTS.

EXTEND THE RIGHT TO CONVERT A VISITOR STA
‘TUS VISA TO A RESIDENT VISA FOR EMPLOYEES OF
NON-FIA (FOREIGN INVESTMENT APPROVAL)
COMPANIES.

CHANGE THE CAPITAL REQUIREMENT FoR TAI
‘WAN BRANCHES,

ALLOW REPRESENTATIVE OFFICES TO OBTAIN A
WORK PERMIT WITHOUT A PRIOR CONTRACT IN
Tarwan.

REVISE LONG AND COMPLICATED PROCEDURES

[NECESSARY IN ESTABLISHING A BRANCH OFFICE DY
TAIWAN.

TOPICS, September 1996 “”


8

Chairman CRANE. I now recognize our distinguished Ranking
Member, Mr. Rangel, for any statement he would like to make.

Mr. RANGEL. Mr. Chairman, thank yu for calling this very im-

tant Subcommittee hearing. And I, too, welcome Ambassador

arshefsky and thank her for her tireless efforts in this area.

I ask unanimous consent that my statement be entered into the
record, and I would like to be associated with your opening state-
ment.

Chairman CRANE. Without objection, so ordered.

[The opening statements follow:]


ACCESSION OF CHINA AND TAIWAN TO THE
WORLD TRADE ORGANIZATION

THURSDAY, SEPTEMBER 19, 1996

HOuSE OF REPRESENTATIVES,
COMMITTEE ON Ways AND MEANS,
SUBCOMMITTEE ON TRADE,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:55 a.m., in
room 1100, Longworth House Office Building, Hon. Philip M. Crane
(Chairman of the Subcommittee) presiding.
{The advisories announcing the hearing follow:]

qd)


150

Iv. TAIWAN'S RESPONSE TO U.S, GOVERNMENT REQUESTS
EQRA TARIFF REDUCTION ON SOUP IMPORTS.

Nearly two years ago. when the bilateral negotiations with Taiwan were still
active, Taiwan officials informed both Executive Branch officials and Members of
‘Congress that it would have a difficult time reducing the soup tariff because its Council
on Agriculture was engaged in research involving soup production involving “the
extraction of poultry or animal bones” and that “some of our {Taiwan's} domestic
producers are already engaged in this business” which “would benefit our {Taiwan's}
livestock industries by using their by-products”.

‘At the outset, Campbell uses only the highest grade ingredients in its soups,
ingredients which are not based on animal by-products.

Second, our examination of store shelves in Taiwan indicates that of the very
small quantity of canned soups available there, only about 10 percent are produced in
Taiwan.

Third, no nation with a significant canned soup market relies on livestock industry
by-products as a major ingredient for those soups. Creation of a significant canned soup
market (as exists in the United States and Hong Kong) requires top quality products at
reasonable prices. Campbell has the quality products and will sell them at reasonable
prices in the absence of prohibitive tariffs.

Even if Taiwan is able to establish production capabilities for its livestock by-
product canned soups. it does not have a market for them. Such a market will not emerge
without the kind of aggressive market-building activities which Campbell will undertake

‘can deliver high quality products to consumers at reasonable prices, not inflated by

Vv. CONCLUSION.

‘The United States trade deficit with Taiwan was $9,7 billion in 1995. nearly $50
million larger than in 1994, As a condition to entry into the WTO, the U.S. should insist
that Taiwan make significant tariff reductions on highly competitive U.S.-processed food
exports such as soups and broths. The history of Taiwan's failure to live up to earlier
trade liberalizing commitments made to the United States strongly suggests that tariff
reductions of interest to U.S. exporters such as Campbell must be made periar to the U.S.
agreeing to Taiwan’s membership in the WTO.


42

negotiate or punishing companies that are cooperative—I mean are
not cooperative with their policies.

It just seems that because they are a giant nation and becoming
a major force in international trade, all you can do is try to do the
best you can. But, we cannot wrestle this monster to the ground
ourselves. They do what they want to do.

And my question really was, Can the WTO be more effective in
dealing with China than we are?

With all credit to your negotiators, and they have done a good
job in knocking out illegal CD manufactures in China; My
that is a profile in courage, they are closing up the thieves, and we
appreciate every effort they make.

ut, what can the WTO do that we have not done?

Ambassador BARSHEFSKY. Well, I have already given you the
picture on the market access side on the

The other side of the coin has to do with how we enforce market
access commitments by China.

In the WTO context, in the accession context, we have potentially
a range of tools that either complement or go beyond what we have
domestically in our own legislation.

For example, in the WTO, we and Europe have said to China,
There must be a special safeguard clause in your accession. So, if
there are import surges, we can handle those by way of quota or
other restrictive measures if need be. That is very important.

We have, of course, as a general matter WTO dispute settlement,
just won our first case, the first case we have brought under the
mechanism, which operates much more effectively than the former
GATT system. And we are the biggest user of the WTO system on
dispute settlement, as we were in the GATT, and will continue to

We have also, with respect to accession, the view that parties
must be able to review China’s economic performance each year, to
review its progress in keeping its commitments, and that if China
is well off track, that ‘0 members can take action to protect
their rights, and we are working on such a mechanism with
Europe.

Mr. THOMAS. I am going to——

Ambassador BARSHEFSKY. So there are, I think, some important
mechanisms.

There is no question, Mr. Rangel, that China presents an ex-
traordinary array of challenges for the United States and for the
world trading system. But, we do think if the accession is the right
package, it will help.

Mr. RANGEL. I am going to ask the staff to send you a series of
questions that I have that you might answer.

[The subsequent questions and answers follow:]


161

have been fulfilled and that conditions for the PRC's workers and citizens improve
over time.

The negotiations on WTO accession for the PRC have been ongoing for
years, yet it seems that many of the most basic issues are yet to be adequately
addressed. The UAW believes the U.S. goverment must resist the growing
pressure to accelerate the pace of the talks at the expense of a comprehensive,
enforceable accession agreement that addresses the variety of issues that have
been raised with the PRC govemment. The size of the PRC economy and its
potential for substantial growth ensure that the terms of this accession negotiation
will have a profound effect on production and trade globally. The impact on all
‘subsequent accession agreements and the willingness of WTO members to fully
comply with the organization's rules must not be underestimated. The interests of
American workers must be reflected in any agreement that truly benefits the U.S.
economy. We urge the Administration to proceed on that basis.


73

PRESIDENTIAL ELECTION
Marco 23, 1996

‘THE DIRECT PRESIDENTIAL ELECTION OF MARCH 23, 1996 SET IN MOTION SEVERAL PORCES OF CHANOE WITHIN
‘THE POLITICAL LANDSCAPE, MOST NOTICEABLY A SPLIT IN THE RULING KMT.

‘Tae INCREASING “TATWANIZATION” OF THE NATIONALIST PARTY, REPRESENTED MOST VISIBLY BY TAIWAN-BORN
Presipent Liz TENO-HUL, RESULTED IN THE MARGINALIZATION OF ITS HARDLINE REUNIFICATION FACTIONS. KMT
‘Vice Cuamaan Loy YANo-KaNo AND VICE PREMIER HAU PE-TSUN BROKE FROM THE PARTY RANKS IN AUOUST
1995 vo orpose LaE’s PRESIDENTIAL BID.

‘Ti SPLIT CREATED AN IDEOLOOICAL GAP FOR VOTERS WHO TRADITIONALLY HAD JUDGED CANDIDATES UPON THEIR
ETHNIC IDENTITY. LEE ATTEMPTED TO DISTINOUISH A “NEW” KMT “ONLY A PEW YEARS OLD,” AND OFENED UP A
DISTANCE WITH THE AUTOCRATIC REODME OF OLD. FOR EXAMPLE, THE PRESIDENT EXTENDED AN OFFICIAL RECOONI-
TION AND APOLOGY FOR THE 20,000 OR $0 INTELLECTUALS AND DISSIDENTS WHO DIED IN THE SUPPRESSION OF

Fapruany 28, 1947 np INAUOURATED THE 2/28 PEACE PARK IN TAIPEI AS A REMEMBRANCE,

ELECTION RESULTS

Lee & Lien (KMT) 54.00

PResDENT LEE WAS REELECTED WITH 34% OF THE
POPULAR VOTE WITH BETWEEN 8-13% CROSSOVER VOTE
[FROM VOTERS NORMALLY AFFILIATED WITH THE DPP.

|PENO MING-MIN OF THE PRO-INDEPENDENCE DEMo-
‘CRATIC PROORESSIVE PARTY WON A LOWER THAN EX-
PECTED 21%. INDEPENDENT CANDIDATE LIN YANO-
KANO, REPRESENTING THE KMT OLD GuARD, WON 15%
WITH THE ENDORSEMENT OF THE NEW PARTY. INDEPEND-
ENT CHEN Li-aX, RUNNINO ON A PLATFORM OF MORAL~
ITY AND INTEGRITY, WON 10%,

‘VOTER PARTICIPATION WAS AT AN IMPRESSIVE 76% OR
10.8 MILLION OF THE 14.3 MILLION ELIOBLE VOTERS.

‘SIONIFCANT WAS THE FACT THAT IN THE ELECTIONS TO
‘THE NATIONAL ASSEMBLY THE SAME DAY, THE KMT"S.
[MAJORITY WAS REDUCED TO BELOW TWO-THIRDS FOR THE

& Hau (NP Endorsed) 14.90%

Pe

FIRST TIME. THE RULINO PARTY WILL NOT BE ABLE TO
Pass CONSTITUTIONAL AMENDMENTS BY ITSELF. ANEW
[ERA OF COALITION BUILDING HAS BEOUN, FOLLOWING THE
‘TREND ALREADY EVIDENT IN THE LEGISLATIVE YUAN.

19 & Hsieh (DPP) 21.13%

‘MEDIA COVERAGE IN TAIWAN WAS INTENSIFIED BY
(CHINA'S INCREASINOLY VISIBLE AND AOORESSIVE MILI-
‘TARY POSTURINO IN THE STRAIT, EXPLICITLY MEANT TO
[DETER TAIWAN'S DEMOCRATIC AND INDEPENDENT URGES.
‘To THE CONTRARY, HOWEVER, THE INCREASED AITEN-
‘TION SUPPORTED TAIWAN'S FIGHT FOR DEMOCRACY AND
QAINED TAIWAN ADDITIONAL INTERNATIONAL ATTENTION
AND RESPECT.

(CHDU'S MILITARY EXERCISES HAD LITTLE EFFECT ON
‘THE ELECTION RESULTS, MAROINALLY HELPING THE INCUM-
‘BENT LEE AND WEAKENING THE OPPOSITION,

Chen & Wang (Independents) 9;

‘TOPICS, September 1996

35


82

ECROSS-STRAIT RELATIONS, |
POLITICAL

‘Unta JuLy oF 1995, THE RELATIONSHIP BETWEEN TAIWAN AND MAINLAND CHINA WAS DY A STATE OF QUASI
DETENTE, YET, LAST SUMMER BEVING STARTED STAGING MILITARY EXERCISES UST NORTH OF TAIWAN'S SHORES
‘Tras INCLUDED MISSILE TESTS, AS WELL AS NAVAL MANEUVERS. THE STATED PURPOSE OF THESE TESTS WERE TO
PROTEST AGAINST ROC PRESIDENT Ler TENG-HuI's Vist TO CoRNELL UNIVERSITY IN THE UNITED STATES, AS
WELL AS INTIMIDATION TOWARDS THE PEOPLE OF THE ROC To AFFECT THE MARCH ELECTIONS OF 1996,

BELING’S AGORESSION TOWARDS TAIWAN HELPED, RATHER THAN OBSTRUCTED PRESIDENT LEE TENG-HUI"s ELEC-
TION IN MARCH 1996, TAIWAN'S FIRST DIRECT PRESIDENTIAL ELECTION

MAINLAND CHINA'S SHOW OF FORCE LED THE UNITED STATES TO SEND TWO AIRCRAFT CARRIER BATTLE GROUPS TO
‘THE AREA

US-PRC RELATIONS ARE IMPROVING, BUT TAIWAN REMAINS A POTENTIAL IRRITANT. TAIWAN-MAINLAND CHINA
RELATIONS ARE LESS TENSE, BUT THERE IS NO SIUN OF A QUICK RESUMPTION OF CXOSS-STRAIT NEGOTIATIONS,

Economic

(Chapin REMAINS TAIWAN'S SECOND LARGEST TRADING PARTNER AND TAIWAN 1S ALSO MAINLAND CHINA'S SECOND
LARGEST SOURCE OF FOREIGN INVESTMENT AT LEAST 10% OF TAIWAN'S TOTAL EXPORTS 00 TO MAINLAND CHINA
ADDITIONALLY, AGOREGATE TAIWANESE CAPITAL INVESTMENT INTO MAINLAND CHINA WAS USSI.I BILLION FOR
FISCAL YEAR 1995. THIS REPRESENTED 40% OF TOTAL 1995 OUTBOUND TAIWAN INVESTMENT OF USS2.9 BILLION
(CEPD Stansmics)

[DESPITE THE HEIGHTENED POLITICAL TENSIONS BETWEEN TAIWAN AND MAINLAND CHINA LAST YEAR, DOCUMENTED
INDIRECT TRADE BETWEEN THE TWO SIDES SURPASSED THE USS20 BILLION MARK tN 1995, RECORDING AN IMPRES-
SIVE 27.1 % OROWTH FROM THE YEAR BEFORE AND ACCOUNTING FOR 9.9% OF TAIWAN'S TOTAL FOREIGN TRADE
LAST YEAR. FURTHERMORE, ACCORDING TO TAIWAN'S BOARD OF FOREION TRADE, TAIWAN'S TRADE SURPLUS,
IMPORTS, EXPORTS AND TOTAL TRADE VALUE WITH THE MAINLAND HIT RECORD HIGHS FOR 1995.

ROC Indirect Trade with PRC
1995 (USSbi
Exports to PRC 17.89 22.10%
Imports from PRC 3.0 66.30%
Trade Surplus 14.81 15.70%
Total Trade Value 20.99 27.10%

Source: Board of Fornign Trade, ROC

ion) Growth from 1994

|
|

‘TOPICS, September 1996


ACCESSION OF CHINA AND TAIWAN TO THE
WORLD TRADE ORGANIZATION

HEARING

BEFORE THE

SUBCOMMITTEE ON TRADE

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
SECOND SESSION

SEPTEMBER 19, 1996

Serial 104-95

Printed for the use of the Committee on Ways and Means

Se

U.S. GOVERNMENT PRINTING OFFICE
45-692 CC WASHINGTON : 1998

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC. 20402

ISBN 0-16-057040-9
“3



108

pressed time basis. It would cause massive unemployment in
China’s major cities.

One has to keep in mind that even though this economy has
transformed in many dimensions, two-thirds of all workers in cities
in China depend on the state for jobs. Many of these state enter-
prises are not going to be viable in the long run, and China, from
the point of view of political assessment believes it needs more time
to undertake the kind of restructuring that will make it possible
to move workers from sectors that may not be viable to those that
will be, after China is subject to international competition.

So, I think we have a real dilemma. It is in our interest to get
China in. We have already given away the main prize; that is, we,
the United States, along with most other countries in the world.
And the benefits to China from coming in now are quite small, rel-
ative to the real restructuring costs that they will have to under-
take and the political risks that that represents for the regime.

Now the argument that is made on the gradualistic approach is,
How do we really know that they will live up to an accession proto-
col that calls for them to take very specific reforms by very time-
specific dates, that they may stand for for a number of years?

And, of course, at the end of the day there is no way we can be
sure. But, we have to recognize that we do have some very power-
ful instruments at our disposal.

First of all, of course, we do have available all the tools provided
for in United States trade law even after China becomes a member
of WTO. We can use section 301 of the trade act; we can use sanc-
tions under our IPR laws and so forth.

In addition, as several people have indicated, there can be a safe-
guard clause that is relatively strict that allows foreign govern-
ments, including the United States, to place quotas on products
that are subject to surges of flows of commodities into our country.

Second, the protocol governing accession can be written to em-
body very tight reviews of the progress that they make. Charlene
Barshefsky this morning was alluding to this trade policy review
mechanism, which is set forth in the Uruguay round treaty, which
can also be supplemented by further measures that make it more
likely that there will be compliance.

I think finally we should take some note of the fact that China
has come into international standards with respect to other inter-
national organizations.

For example after many years of consultation with the inter-
national monetary fund—it has come into compliance with article
VUI of the IMF charter, which does not allow members to impose
restrictions on making payments for current account transactions.
It took them a number of years, but they worked closely with the
IMF—many, many steps—and they are now in compliance. So, I
think they do have a record.

So, I think what we should really be looking for is an agreement
that calls for China to come into compliance with WTO. But, I
think one has to be realistic and say, If this process is frontloaded
and requires most of the change to be made either as a pre-
condition or immediately after entry, China will probably choose to
remain outside the WTO. And, I think that would be a tremendous


131

In trade with China, we have crossed the bar of intrasectoral
trade battles. As we learned from the IPR debate earlier this year,
the United States retaliation list had very little to do with the
items being pirated by some of the businesses in China. Similarly,
the Chinese counterretaliation list had even less in common with
the United States list. The United States targeted textile and_ap-
parel imports, toys, consumer electronics, while the Chinese Gov-
ernment listed United States agricultural products, telecommuni-
cations equipment, and heavy machinery, among others, as its tar-
gets for prohibitive tariffs.

Our two-way trade is more linked now than ever. We should not
play protectionist politics with China in the hopes we can contain
the collateral damage within a single sector that we could sustain
in an unnecessary trade war.

Our trading relationship has grown far more complicated. And as
we set out to improve our trading relations with China, we should
never forget these strategic issues.

Mr. Chairman, America’s retailers stand ready to assist you and
other Members of this Subcommittee in your efforts to ensure that
the United States negotiates a tough, but fair, protocol with the
Chinese Government and, in turn, the Taiwanese Government, and
we thank you for allowing us to testify.

{The prepared statement follows:]


159

Statement of Steve Beckman, international Economist
International Union, United Automobile, Aerospace and
Agricuttural implement Workers of America (UAW)
to the
Subcommittee on Trade
Committee on Ways and Means
United States House of Representatives

on
‘The Possible Accession of the Peopie's Republic of China to the WTO.
‘September 19, 1996

Mr. Chairman, the UAW appreciates the opportunity to share its views with

the Subcommittee on the negotiations for accession of the People’s Republic of

China (PRC) into the World Trade Organization (WTO). We believe the

negotiations with the PRC are a critical test of the WTO's ability to address the

intoasts of American worker in intemationa trade. in action, we share your view

that Congress must play a role in ensuring that any proposed accession protocol
es that could

‘The UAW is convinced that it would be naive and counter-productive to
ope 2 change tne EPCs rade pracicas ater WTO accession ven tose

leverage to
for American workers must be utilized now if it is to be effective.
‘There are many PRC practices that trouble American workers. However,
identified it

‘The treatment of imports and local production in the PRC's auto industry is a
source of great concem to the UAW. With its 1984 announcement of a plan to
make the auto industry a ‘pillar industry’, the PRC has made auto industry
development a priority and many govemment programs are putting this policy into
effect. Recent announcements regarding the plans of the PRC goverment for auto
production are quite expansive. The target for annual production is § milion
\ohicles by the end of tho decade; current production is less then 2 milion vehicles,

The virtual requirement that companies selling in the PRC invest in local
production facilities, which is a part of the govemment's plan, must be challenged.
The extremely high PRC tariffs and broad import licensing authority contained in
current policies combine to act as effective barriers to imports of vehicles and parts
and as inducements to export-oriented production in the PRC. These market-
closing and export-promoting PRC barriers must be removed.

‘The impact of the PRC's ‘pillar industry’ policy on U.S. auto industry trade
can already be measured. While the escalating overall U.S. deficit in trade with the
PRC has received wide attention, bilateral auto trade has not. In 1995, U.S. exports
of vehicles and parts to the PRC totaled $180 million and U.S. imports were $635,
milion; the U.S. trade deficit was $455 million. In 1993, prior to the implementation
of the program, the U.S. trade balance in automotive products with the PRC was a
surplus of $521 million. A deterioration of $1 billion occurred in only two years. In
the first quarter of 1996, this trend continued, with U.S. exports to the PIC falling
further and imports increasing.




109

loss for the United States and for the international trading commu-
nity for a couple of reasons.

First of all, this is the first time in the history of the WTO or
the GATT that 1 of the 10 largest trading countries in the world
has remained outside the disciplines of the WTO.

And, I also remind everybody that all the while the clock is run-
ning, we could have gotten—if we hold out for a perfect agreement,
China will never come in. They will continue to have complete dis-
cretion on when they undertake reforms. And they have under-
taken many reforms, as a number of people have indicated, but it
has been purely on a discretionary basis with no time certainty.

If we had let China in on the kind of agreement that I am talk-
ing about 5 years ago, many of the phase-ins already would have
been finished. They would have had to come into compliance.

Instead, where are we?

We are still talking about how the long list of things they must
do is a precondition for entry. And, I think we would have been
better served to get an agreement that calls for these things to
happen over time, and we would have been further along today if
we had embarked on this kind of a process a number of years ago.

In other words, what I am saying is: The clock does not really
start running until we get an agreement that calls for all these
time-specific reforms to be undertaken. I think it is very much in
our interest that we begin that process.

Thank you.
(The prepared statement follows:]


30

ual negotiations must be completed before Taiwan’s accession is
ripe, and indeed, as well as these negotiations, China’s protocol of
accession, the rules of accession, must also be completed. That
drafting has only just begun.

In conclusion, Mr. Chairman, let me say that we look forward to
working with you and Members of the Subcommittee as these ac-
cessions proceed and as, of course, our bilateral agenda with these
countries proceed.

We, of course, must ensure market access for our companies, as
well as movement by the Taiwan and Chinese trade regimes
toward a rules-based system.

Thank you.
[The prepared statement follows:]


95

96

INDIVIDUAL MAY PURCHASE.

[ESTABLISH A FAIR AND TRANSPARENT PRICE SET
‘TING PROCEDURE THAT REFLECTS MANUFACTUR~
ERS" SAVINGS BASED ON THE VOLUME SOLD TO
COMMISSARIES,

ESTABLISH AND PUBLISH A NEW PROCUREMENT
AND PRODUCT LISTING GUIDELINE THAT REFLECTS
‘CURRENT MARKET DYNAMICS AND REDUCES DIF-
FICULTY IN OBTAINING NEW LISTINGS.

10. Mepica. Devices

10.1

10.2

10.3

104

10.5

‘THE RECENT INTRODUCTION OF THE NATIONAL
HEALTH INSURANCE SYSTEM IS A STEP FORWARD
FOR THE PROVISION OF HEALTH CARE SERVICE IN
‘Taran, HOWEVER, IN ORDER TO FURTHER Ne
(CREASE EFFICIENCY AND LOWER COSTS FOR PA+
‘TIENTS, IT 1S IMPERATIVE TO ESTABLISH A REIM-
‘BURSEMENT SYSTEM THAT IS MARKET BASED AND
[NOT GOVERNMENT DRIVEN,

ALLOW CLINICAL PRACTITIONERS TO DECIDE
WHETHER NEW TECHNOLOGIES SHOULD BE
‘ADOPTED. A GOVERNMENT BOARD IS NOT KNOWL-
[EDGEABLE ENOUGH ABOUT PATIENT NEEDS, AND
‘THEREFORE SHOULD INCLUDE A HIGH REPRESEN-
‘TATION OF CLINICAL PRACTITIONERS.

ESTABLISH CLEAR AND ORGANIZED GUIDELINES
FOR MEDICAL DEVICE REIMBURSEMENT AND
‘SHORTEN REIMBURSEMENT APPLICATION PROCESS
[NG TIMES, ALSO, ESTABLISH AN APPEAL SYSTEM
FOR UNREASONABLE OR UNFAIR REIMBURSEMENT.
‘Tins 15 NECESSARY IN ORDER TO INSURE MARKET
ACCESS AND A REASONABLE PRICE FOR MANUFAC
TTURERS, LEADING TO INNOVATION IN THE INDUS-
‘TRY AND ALLOWING MANUFACTURERS TO INTRO
DUCE PRODUCTS WITH OREATER EASE.

‘LENSES. A CHANGE IN THE MANUFACTURING SITE
OR A SLIGHT MODIFICATION To THE PRODUCT
‘SHOULD NOT REQUIRE RE-TESTING. UNNECESSARY
TESTS ARE NOT ONLY INEFFICIENT BUT COSTLY TO
‘THE PATENT.

10.6 SOMPLIFY THE REOISTRATION PROCESS FOR NEW
MEDICAL DEVICES AND FOLLOW STRICT DE JURE
GUIDELINES, DISCONTINUE DISCRIMINATION
[AGAINST FOREION MANUFACTURERS.

11. PHARMACEUTICAL INDUSTRY

LLL FOsTeR A MARKET ENVIRONMENT THAT FACILI-
‘TATES THE INTRODUCTION OF NEW PRODUCTS, AS
(WELL AS ALLOWS FOR THE CONTINUED AVAILABIL-
TY OF QUALITY na 2k. Tis Wt MEL? REO
DUCE COSTS AND IMPROVE THE QUALITY OF
HEALTH CARE BY ELIMINATING COSTLY SURGICAL
OPERATIONS.

11.2 CHANGE THE PRICDIO STANDARD FOR PHARMA
CEUTICALS SUCH THAT PRICES OF GENERIC BRANDS
[ARE FRACTIONALLY BASED ON THE PRICE OF THE
BRAND NAME AND NOT VICE-VERSA.

11.3 DECREASE ADMINISTRATIVE INTERVENTION IN THE
INDUSTRY. SUCH INTERVENTION REDUCES THE
DEOREE OF PROFESSIONAL FREEDOM AND IN-
[FRINGES UPON THE QUALITY OF HEALTH CARE.

11.4 PROVIDE PATENT PROTECTION IN LINE WITH

11S ABOLISH IMPORT TARIFFS, REDUCE REGISTRATION

PRODUCTS AT MORE COMPETTIVE PRICES WILL
HELP IMPROVE HEALTH CARE QUALITY AND RE-
LIEVE THE STRAIN ON THE NATIONAL HEALTH I
SURANCE BUDGET.

12, TELECOMMUNICATIONS AND

INFORMATION TECHNOLOGY

12.1 TARIFF AND PROFTT REGULATION SHOULD BE

TOPICS, September 1996 st


A Prosperous, Mopern SocteTy
Comes oF AGE

Stupents: EAct YEAR SOME 40,000 sTuDENTS
FROM TAIWAN STUDY IN THE UNTTED STATES, MAK-
[ING TAIWAN THE SECOND LARGEST SUPPLIER OF FOR
EIGN STUDENTS TO THE UNITED STATES.

Newspapers: TAIWAN CURRENTLY HAS 300 NEWS
PAPERS WITH A DAILY CIRCULATION OF OVER SIX MIL-
LION COPIES IN ADDITION, THE MAGAZINE INDUS
TRY HAS FLOURISHED, WITH 5096 MAGA7INES REG
ISTERED WITH THE GOVERNMENT INFORMALION OF
FICE AS OF DECEMBER 1994,

MEDIA: 60% oF TAIWAN HOUSEHOLDS CURRENTLY
‘OWN CABLE TELEVISION. THIS NUMBER IS EXPECTED
TO RISE TO 80% IN THE NEXT TWO YEARS, SUPPLIED
BY 45 MAJOR PROGRAM DISTRIBUTION COMPANIES.
202 RADIO STATIONS ARE EXPECTED TO BE APPROVED
BY THE GIO BY THE END oF 1996.

Autos: HOUSEHOLD AUTOMOBILE OWNERSHIP HAS
INCREASED FROM 30% IN 1988 TO AN ESTIMATED
65% mi 1995. Tarwan iMporTeD USS2.4 BL-
LION WORTH OF CARS DY 1994

SOCIETY: TAIWAN'S SOCIAL AND CULTURAL ORGAN
‘ZATIONS ARE RESPONDING TO THE DEVELOPMENT OF
[MULTIPARTY DEMOCRACY. FOR DECADES, SOCIAL AND
(CULTURAL ORGANIZATIONS, LABOR UNIONS, AND EDU-
(CATIONAL INSTITUTIONS AT ALL LEVELS WERE MICRO
“MANAGED BY THE GOVERNMENT. TODAY, MOST OF
THE PRE- 1988 CONTROLS ARE GONE.

Human Ricuts: THe severe HUMAN RuGHTS
[ABUSES OF EARLIER DECADES ARE NO LONGER SEEN.
FREEDOM OF SPEECH, PRESS, AND ASSOCIATION ARE
GUARANTEED AND GENERALLY RESPECTED. SOME
‘COMPLAINTS PERSIST CONCERNING GOVERNMENT
CONTROL OF THE THREE MAJOR TELEVISION NET-
WORKS, WOMEN AND CHILDREN’S RIGHTS, AND RE+

“ TOPICS, September 1996

STRICTIONS OF LABOR’S RIGHT To STRIKE. NO SERI-
(OUS HUMAN RIGHTS VIOLATIONS HAVE BEEN REPORTED
DN YEARS.

NGOs: Non-GOVERNMENT ORGANIZATIONS HAVE
HELPED BRING GREATER PUBLIC AND GOVERNMENT
ATTENTION To SPECIFIC SOCIAL TOPICS SUCH AS PUB-
LIC HEALTH (POLLUTION, DRUG ABUSE) AND EDUCA-
TIONAL REFORM.

But, TAIWAN FACES THE
QUALITY-OF=LIFE ISSUES OF
AN ADVANCED NATION

‘TAIWAN'S POPULATION AT THE END OF 1995 was 2) 3
MILLION, WITH A GROWTH RATE OF 0.0848% THE
LOW GROWTH IS ATTRIBUTED TO THE HIGHEST DEATH
[RATE IN YEARS AND A LARGE NUMBER OF EMIGRANTS,
AT THE SAME TIME, TAIWAN'S POPULATION DENSITY
18 THE SECOND HIGHEST AMONG NATIONS WITH OVER
10 MBLLION PEOPLE, AVERAGING 590 PEOPLE PER
SQUARE KILOMETER

‘THE CURRENT MINIMUM WAGE is NTS14,880 PER
MONTH. MONTHLY SPENDING ACCOUNTED FOR
NTS14,892, on 42% OF THE AVERAGE MONTILY
WAGE OF ABOUT NTS35,000. Foop HAD THE BIc-
GEST SHARE AT 32%, FOLLOWED BY HOUSING AT 31%

Quick Statistics H

LITERACY RATE: ROSE TO 94.02%,

Lae EXPECTANCY: MALE 72.02, FEMALE 77.42

Hiouex Epucaion RATE: 2.5 MILLION PEOPLE,
on 13.1% OF THE POPULATION

DEMOGRAPHICS
AGE PERCENT OF POPULATION
‘Unper 14 25.4
15-64 67.6
‘Over 65 7



12

mand, U.S. pork producers are unable to export pork without
market access.

Unfortunately, China and Taiwan, which collectively account for
approximately 52 percent of global pork consumption, are almost
completely closed to pork imports. China is estimated to annually
consume nearly the same amount of pork per capita as is consumed
in the United States. China supplies approximately 80 percent of
its market through backyard producers. China, with a minimal ex-
ception, does not permit the importation of pork.

cently released statistics reveal that in June 1996, China sur-
passed Japan as the single largest source of the United States
trade deficit. If China liberalized its pork market, United States
pork could quickly garner significant market share in China. With-
out question, United States pork exports could make a large dent
in the United States-China trade imbalance.

Taiwan is also a very significant pork-consuming nation. Tai-
wan’s per capita consumption of pork, which is higher than per
capita consumption in the United States, is the highest in Asia.

Variety meats represent the largest part of Taiwan’s pork con-
sumption. For the most part, this market is closed to imports. The
government of Taiwan does not permit the importation of pork va-
riety meats and selectively restricts other cuts of pork. If Taiwan
liberalized its pork market, United States exports would gain sig-
nificant market share.

I urge the administration and Congress to take all appropriate
measures to open Taiwan’s and China’s pork markets. At a mini-
mum, these markets must be opened to pork imports as a condition
to China and Taiwan becoming members of the World Trade Orga-
nization with tariffs bound at zero or very low levels to guarantee
meaningful market access.

And I thank the Chairman, and I will be glad to answer any
questions.

[The prepared statement follows:}


54

they are pernicious from the point of view of our industry and our
export interests.

Mr. RamstaD. And then you will, whether or not we are in
session, report back to us?

Ambassador BARSHEFSKY. Of course, absolutely.

Mr. RamstTaD. Thank you very much, Madam Ambassador.

Ambassador BARSHEFSKY. Absolutely.

Mr. RamstaD. Mr. Chairman, thank you.

Chairman CRANE. I thank you. And again, we want to express
our profound appreciation to you, Madam Ambassador, for the out-
standing work that you have done, and we look forward to a
continuing working relationship with you. Thank you.

Ambassador BARSHEFSKY. Thank you so much.

[Pause.]

Chairman CRANE. We have an upcoming panel that I know has
some time constraints, because at least Mr. Kapp has a plane to
catch.

But, we are on the verge of our having our final vote on the floor.
And so, I think what we might do is recess the Subcommittee for
one-half hour right now. That will cover the vote.

If anybody wants to grab a quick bite to eat, do so. Mr. Kapp will
be the first to testify when we reconvene.

The Subcommittee stands in recess.

[Whereupon at 12:15 p.m., the Subcommittee was recessed, to
reconvene at 12:45 this same day.]

Chairman CRANE. I would like to reconvene and invite up our
next panel of witnesses, who represent different perspectives of
China’s and Taiwan’s accession to the WTO: First, Robert Kapp,
United States-China Business Council; Christian Murck, American
Chamber of Commerce in Taiwan; Hon. Michael Samuels on behalf
of the National Foreign Trade Council; Greg Mastel, vice president
of the Policy and Planning Administration for the Economic Strat-
egy Institute; and Nicholas Lardy, senior fellow for the Brookings
Institute.

And if you folks do not mind, we shall go in that order since Mr.
Kapp, I know, is working within tight time constraints. And if you
can try and compress your oral presentations to 5 minutes or less,
all of your entire written remarks will be made a part of the
permanent record.

Mr. Kapp.

STATEMENT OF ROBERT A. KAPP, PRESIDENT, UNITED
STATES-CHINA BUSINESS COUNCIL

Mr. Kapp. Thank you, Chairman Crane.

My approach to having to get everything into 5 minutes is usu-
ally to talk at triple speed, but I rely on you and the electrical sys-
tem to tell me when my time is up, no matter what.

I want to congratulate you and this Subcommittee on holding
this hearing, particularly since it is that moment of the year when
we are not convulsed by the MFN debate. We need more discussion
of serious issues outside of the superheated environment of the
MEN situation. This is a good example of that.

Also, I want to reaffirm our Council’s sense that the input and
the consultation that Congress provides to the executive branch on


96

acted constructively and pragmatically, recently they seem to have reflected a more closed
attitude toward the many issues that are part of the negotiation

With respect to most-favored-nation (MEN) statu:. for China, the NETC remains firmly
behind granting permanent MFN for China. This would put an end to the counterproductive and
ineffective annual debate on MEN for China, Of course, it’s worth noting that MEN is a
cornerstone and founding principle of the GATT/WTO.

A thied general area on which the NFTC would like to comment is the need to recognize
that the accession process takes time. It is a detailed negotiating process and there are basic
requirements that must be met, Such minimal requirements should include the following: 1) full
and effective adoption of all basic rules and principles; 2) meaningful and substantial market
access commitments; 3) effectively addressing distortive non-market economy practices relating
to state enterprises and restrictive trading rights; 4) adherence to short transition periods, as
appropriate; and 5) a standstill commitment on new trade and investment restrictions during the
accession process and afier accession.

Recent accession packages on Mongolia, Bulgaria and Panama are very promising in
meeting all these basic objectives. 11 is our understanding, for example, that these countries will
fully adopt immediately upon accession the WTO TRIPS agreement on intellectual property
without any transition period and that they will have no quantitative restrictions or investment
restrictions that are banned by the TRIMS agreement. The tarif€ packages reportedly also offer
very favorable terms to other WTO members. They include, among other provisions, some
adherence to the tariff reduction and harmonization agreement on chemical products. There is
also agreement to negotiate accession to key WTO plurilateral agreements, including the
Government Procurement Agreement -- an area of major importance to the United States. In
significant ways these accession packages are models for others to follow.

‘The NFTC believes that no economy should be denied entry to the WTO for non-trade
reasons. The accession of each economy should proceed at its own pace. When an accession
negotiation has led to the satisfaction of all parties, an economy should be permitted to accede.
At the same time, we recognize that the United States and other WTO members may need to be
sensitive to the unique relationship between China and Taiwan with respect to timing of
accession.

The Singapore Ministerial offers a major opportunity to focus on the critical issue of
WTO accession by formally recognizing the importance of bringing into the WTO.
While welcoming and encouraging non-WTO members to formally join the premier multilateral
trade regime, the Singapore Ministerial should also present a united front on the basic elements
of the terms of entry for these countries. It should be made clear that accession terms must be in
the best economic and commercial interests of WTO members and that they strengthen and
preserve the integrity of the WTO. Finally, while each accession will be negotiated on its own
terms, recognition should be given to the fact that there are no short-cuts to minimal accession
requirements along the lines of those mentioned above.

Thank you for the opportunity to testify.


xo)

E-POLITICAL: TRENDS

Current PourticaL Situation

ALTHOUGH TAIWAN HAS EMERGED AS A FULLY DEMOCRATIC SOCIETY, ITS POLITICAL EVOLUTION
IS CONTINUING.

SOME ISSUES TO CONSIDER:

3% POSSIBLE AMENDMENTS OF THE ROC CONSTITUTION TO CLARIFY THE DIVISION-OF-POWER ISSUES BETWEEN THE
TIVE BRANCHES OF GOVERNMENT AND BETWEEN THE PRESIDENT AND THE PREMIER.

3% CONCENTRATING ON MULTIPARTY COOPERATION AND COMPROMISE TO IMPLEMENT IMPORTANT POLICIES SUCH AS
‘THE STRATEGY TO BECOME AN ASIA PActFiC REGIONAL OvERATIOns CENTER (APROC), WTO ExTRy, AND
IMPROVING CROSS-STRAIT RELATIONS.

3 IMPROVING GOVERNMENT EFFICIENCY BY REDUCING OVERLAPPING RESPONSIBILITIES AMONG GOVERNMENT AGEN
(CIES AND REDUCING CORRUPTION AND MISMANAGEMENT.

3% IMPROVING THE PACE AND QUALITY OF LEGISLATION BY UPGRADING THE QUALITY OF HEARINGS, COMMITTEE DELIB-
ERATIONS AND FLOOR ACTION, AS WELL AS IMPROVING THE RESEARCH BACKUP ON SPECIFIC ISSUES FROM LEGISLA
‘TIVE AIDS, THE LEGISLATIVE LIBRARY, LOBBY GROUPS AND NON-GOVERNMENT ORGANIZATIONS.

3 FACILITATING ECONOMIC INFRASTRUCTURAL DEVELOPMENT, INCLUDING INCREASING THE AMOUNT OF AVAILABLE
INDUSTRIAL LAND AND ASSURING ADEQUATE SUPPLIES OF ELECTRICAL POWER AND WATER.

: Talwan’s GRADUAL DEMOCRATIZATION |

1986 Tne “nwo-wu,” an UNOFFICIAL OPPOSITION PARTY, CONTESTS SEVERAL SUPPLEMENTARY SEATS IN
‘THE LEGISLATIVE YUAN AND THE NATIONAL ASSEMBLY.

| 1989 Tee DPP rorwanyy parricmares mi THE ELECTION AND WONS SEATS IUTHE LeoisLaTIVE Yun |
[AND SEVERAL COUNTY MAGISTRATE AND CITY MAYOR POSTIONS,

1991 Tre KMT Retans A LARGE MUORITY IN THE NATIONAL ASSEMBLY AND AMENDS THE ROC i

CONSTITUTION TO PROMOTE DEMOCRATIC REFORMS. |
1992 Tae DPP wos wore THAN 30% oF THE vorE IN THE LecistaTive YUAN ELECTION, |
1993 Fomsanow or noe New Paxry. |
1994 PP canoare CHEN SHUFBIAN IS ELECTED AS THE MAYOR OF TAPES. {
1995 Tae KMT Loses rrs soum nue MORTTY IN THE LEOISLATIVE YUAN.

|
i

1996 Tee KMT wos rie rst PresmENTIAL ELECTION, BUT LOSS ITS RULING MADORITY 8 THE NATIONAL |
ASSEMBLY, CAPTURING 50% OF THE SEATS. THE DPP wins 30% AND THE New Paxry 15%. i

TOPICS, September 1996 ”


36

competing products. The Health Industry Manufacturer's Association (HIMA) filed a petition on
July 2 on the concem in response to the Federal Register notice requesting comments for
practices to be considered under Super 301. The issue was raised during bilateral consultations
with the Taiwan authorities in mid-July and most recently during subcabinet-level meetings in
Taiwan last week. We will continue to work with our suppliers to persuade Taiwan to establish
‘more transparent, non-discriminatory formulas.

Sanitary and Phytosanitary Issues

‘The United States and Taiwan have been able to resolve several outstanding sanitary and
phytosanitary (SPS) concems on plants and plant products over the past several years. However,
Taiwan still implements several unnecessary quarantine restrictions on livestock and meat.
Taiwan also has a restrictive performance testing system for breeding swine which effectively
prevents imports of certain breeds of swine. In addition, they subject dietary supplements to a
registration process such as that used for pharmaceuticals,

The World Trade Organization

‘The United States and Taiwan have resolved many issues relating to Taiwan's efforts to accede
to the WTO but critical issues remain. Taiwan has negotiated some significant commitments and
concessions on market access (tariffs and non-tariff barriers), trade in services (including
financial services), and adherence to the WTO Government Procurement Agreement, However,
major issues remain outstanding, They relate, for example, to the tariffs and quotas for
automobiles and other industrial goods, tariffs and trade and distribution arrangements on certain
agricultural commodities; and tariffs, taxes, and other aspects of market access on products that
are currently the responsibility of the Taiwan Tobacco and Wine Monopoly Bureau (TTWMB) .
Another major element of the accession negotiation is agreeing on reforms to the TTWMB so
that Taiwan meets WTO requirements of national treatment, MFN, and transparency. Taiwan
also needs to address U.S. requests for commitments in legal and financial services, and to
respond positively to our request for their adherence to the WTO Aircraft Agreement after

accession.

At the close of Taiwan's last accession Working Party meeting in Geneva, it was agreed that the
next task to be undertaken by the group would be the discussion of issues for a protocol text
based on a checklist developed, by participants in the negotiation last year. Contacts with the
‘Taiwan delegation on remaining issues continue, and we will meet with them prior to the next
Working Party meeting.

WTO ACCESSION, IN GENERAL

I would now like to tur to specifics of the WTO accession process and efforts by other countries
seeking to join the WTO. Increasingly, Congress is taking an interest in the accession process,
and we have been responsive to the provisions established in U.S. trade law, seeing them as a
baseline for ali the negotiations. Section 121 of the URAA gives guidance on objectives related
to Uruguay Round results, and section 1106 of the Omnibus 1988 Trade Act speaks to the issue
of state trading and accession. More broadly, we have been responsive to the general objectives
‘set in the Uruguay Round legislation in areas such as market access, (e.g. the zero-to-zero tariff
harmonization proposals and in our continuing negotiating authority under section 111).

Accession Process

In the twenty months that the WTO has been in existence, the accession process conducted under
Article XII of the WTO Agreement has become a major focus of our efforts to expand market
access for U.S. exports and strengthen the existing rules of the international trading system.

‘There are 31 countries and customs territories in various stages of the WTO accession process at
this time, with the accessions of China and Taiwan among the most important of them. Among


48

Mr. RANGEL. As relates to Taiwan receiving the same status of
Hong Kong before China’s being considered, is that a reality? Is
that a consideration?

Ambassador BARSHEFSKY. Mr. Rangel, Taiwan will not address
seriously five or six key outstanding issues with respect to their ne-
gotiation just with the United States.

Mr. RANGEL. And if they did——

Ambassador BARSHEFSKY. Well, if I may——

Mr. RANGEL [continuing]. There is a possibility that we would
review their admission before the People’s Republic?

Ambassador BARSHEFSKY. Well, you know that to get into the
WTO, a working party is formed. The Taiwan working party is
about 35 countries.

The only way Taiwan’s accession or any country’s accession
moves out of the working party to the floor for vote is by consensus.

Taiwan has not finished bilaterally with any of the key members
in that working party. The Europe talks, the Japan talks, are far
behind ours. We have been the most aggressive in pursuing these
talks with Taiwan, in getting them to move, even though there are
outstanding issues.

Mr. RANGEL. Is it our policy to encourage them to move forward
in this process for admission?

Ambassador BARSHEFSKY. It is our policy to encourage them to
open their markets and to make every conceivable commitment we
can get. It is our policy —

Mr. RANGEL. Well, for the purpose of admission to the WTO?

Ambassador BARSHEFSKY. Of course, for purpose for admission to
the WTO. But, Taiwan’s accession bid will depend also on their re-
sponsiveness to their other trading partners as well as to finishing
up with ours.

Mr. RANGEL. If I was to join you—if I was to join you in encour-
aging this to happen, I would not face a stone wall in terms of our
policy with the People’s Republic from what you are saying, then?

Ambassador BARSHEFSKY. I think that we would have to look at
each accession as it proceeds on its merits. This has always been
U.S. policy. But as a practical matter, Taiwan has not fulfilled the
requirements we need bilaterally for their accession.

Mr. RANGEL. I understand. You are crystal clear on that. But,
the fact of the merger of Taiwan and Hong Kong with the main-
land is not an impediment as it relates to our policy for encourag-
ing Taiwan to move forward for admission to the WTO; is that
what you are saying?

Ambassador BARSHEFSKY. We wish to encourage Taiwan to open
its markets, so that WTO accession will be possible.

Mr. RANGEL. Thank you.

Chairman CRANE. Thank you.

Mr. Houghton.

Mr. HoucHTon. Thank you, Mr. Chairman. Thank you, Madam
Ambassador, for being here.

I would just like to ask you a couple of questions. The first one
is about State enterprises.

The important thing with State enterprises is that what we do
is make sure that costs and prices are fairly reflected and not dis-


117

Because of these practices, accession negotiations will be
extremely difficult.

If the PRC is to achieve WTO membership, a variety of elements
must be made part of any agreement. Let me touch on a few.

First, the United States must be allowed to continue conditional
most-favored-nation treatment for Chinese goods and services with
the provisions of Jackson-Vanick remaining in force. We believe
that this is particularly important because of the current nondemo-
cratic, nonmarket character of the Chinese Government and
economy.

In this regard we believe that it is inappropriate to change the
term “most-favored nation” to one that connotes normalcy. We are
of the view that there is nothing normal about the United States-
China trade and investment relationship.

Second, China, as one of the world’s largest trading economies,
must join as a developed nation, undertaking completely all of the
obligations of the World Trade Organization.

Third, China’s unacceptably high tariff barriers must be fully dis-
mantled and bound at levels commensurate with United States lev-
els. For example, tariff levels at 100 percent for autos cannot be
tolerated.

Fourth, and very importantly, all discriminatory trade-related in-
vestment measures, including foreign exchange requirements, trade
balancing requirements, local content requirements, export require-
ments, tech transfer requirements, domestic sales restrictions—the
list goes on and on—must be expressly eliminated in an agreement.
These requirements have been particularly harmful to U.S. work-
ers in the auto, aircraft, electronics, and telecommunications
industries.

And, finally we believe that it is essential for the United States
Government to continue to seek an agreement with China to, at
the very least, support the establishment of a working party on
worker rights in the World Trade Organization.

Mr. Chairman, the AFL-CIO does not seek the isolation of China
or the elimination of trade and investment. Rather we seek a rela-
tionship that will benefit working Americans and where the rules
of trade are fair and equitable.

This, sadly, is currently not the case, and any accession agree-
ment must ensure change by the Chinese to remedy the harm
currently being done to United States workers.

you very much.
{The prepared statement follows:]


53

As you know, Madam Ambassador, Taiwan’s National Health
Insurance Bureau, or NHIB as it is referred to, is the sole payer
in that country for medical device products, and until recently their
purchasing process was decentralized, and purchasers negotiated
prices directly with the manufacturers and were then reimbursed

ry -

But under their new policy, this bureau will set prices centrally
through its medical device price list.

Now I have heard from a number of medical device companies
back home that the procedures that this bureau uses for determin-
ing foreign prices under the new policy are nontransparent—

Ambassador BARSHEFSKY. Right.

Mr. RamstaD [continuing]. And discriminate against U.S. suppli-
ers. They are fearful that the bureau will use the new pricing list
to target imported products for significant price cuts that could, of
course, drive our manufacturers from Taiwan.

Now I know our medical device industry asked you to cite Tai-
wan under this year’s super 301 review for unfair pricing practices,
and I appreciate the attention that you have given this problem.

Could you tell us the response, if any, received from Taiwan
when the issue was raised and what additional actions that your
office plans to take?

Ambassador BARSHEFSKY. There is no question there appears to
be a problem here, that Taiwan may be implementing a reimburse-
ment system that discriminates against foreign suppliers. That is
obviously unacceptable.

We had our negotiators in Taiwan about 10 days ago or 2 weeks
ago to learn a little bit more about this system, the underlying
facts. There were last week, as you may know, subcabinet meetings
in Taiwan. The delegation was headed by Larry Summers, the
Deputy Treasury Secretary, and this issue was raised.

We will be consulting internally now that we have more informa-
tion on the issue. We will be consulting internally as well as with
the affected industry to determine the most effective course of
action at this point.

Mr. RaMSTAD. But to date, you do not have a specific strategy in
mind in response to the 301 petition?

Ambassador BARSHEFSKY. We would like to—let me reserve on
that right now. We would like to get together with Deputy
Secretary Summers and his team in terms of what they have
learned, as well as, of course, review the situation in-house.

There is a super 301 request on this to cite this particular prac-
tice, and obviously we will look at that very carefully.

Mr. RAMSTAD. Well, I am glad to see, Madam Ambassador, that
you are aware and you appreciate the magnitude of this
problem-——

Ambassador BARSHEFSKY. Yes.

Mr. RAMSTAD [continuing]. And the possible effect on our medical
device or biomedical_——

Ambassador BARSHEFSKY. We do indeed.

Mr. RaMsTaD [continuing]. Industry.

Ambassador BARSHEFSKY. We do indeed. We have seen discrimi-
natory reimbursement schemes elsewhere, including Japan, and


138

Here we are sitting as American legislative representatives or
business representatives, and we are looking down the road, and
you have got this potential behemoth out there whose economy is
very small at the moment. I mean, it is the counterpart of the
Benelux countries or something like that. But, you know the num-
ber of people and the ability of the individuals there, and the
technology is going to be great.

So, how would we really handle it, because we recognize that if
we go to the Smoot-Hawley route, that that is not going to be good?

And yet at the same time, we have got to reach out, whether it
is with other regional agreements or through GATT or maybe even.
not admitting China to the WTO as a developing country, maybe
just as a mature country.

What are the basics here? What are we dealing with?

And, this is long term because we get sort of mixed up in the in-
dividual things, whether it hurts semiconductors or whether it
hurts textiles or other egregious changes in the rules.

What are the fundamentals that we should be wrestling with in
this Congress?

Mr. ANDERSON. Perhaps I could respond first, Congressman.

I think the issue confronting, this Subcommittee and the admin-
istration is how to deal, with a country that currently pays little,
if any, attention to the kind of trading and commercial norms that
the World Trade Organization is predicated upon.

It is a challenge not only for the United States, but for the rest
of the world community to bring in a country that, by definition,
has little to do with the basic principles of the World Trade
Organization.

If we are going to move toward a rules-based international trad-
ing system, China Rerhaps is the supreme test.

rr. HOUGHTON. Well, let me just interrupt. So, we do not allow
them into the World Trade Organization.

But as you know, China does not have a legislative body. China
does not have any judicial system. It is all really by administrative
fiat over there. And it probably will continue that way for a while.

So, we do not put them in the World Trade Organization. But
what do we do? What is our role?

Mr. ANDERSON. Well, I do not think the issue, Congressman, is
whether one lets them into the World Trade Organization or not.

Assume for a moment that we do not let them in. We are of the
view, that the existing trade and investment relationship—they are
not in the WTO today—has been very detrimental to the interests
of this country.

Mr. HouGHTON. Certainly, certainly.

Mr. ANDERSON. We are of the view that it is necessary to take
a much More vigorous approach toward our relationship with

ina.

Mr. Houcuton. All right. Now let us just hold here, OK. That
is fine as a generalization.

What is the most important, specific thing we should do?

Mr. ANDERSON. If China, for example, is found to be in violation
of freely negotiated agreements—for example, the 1992 memoran-
dum of understanding on market access—where China committed
to eliminate practices that required the transfer of technology, or


49

criminatory, and also that we have access to the markets. As they
export to us, we export to them.

As we move along this World Trade Organization route, is this
going to get better, or is it going to get worse?

And let me just ask another question, because once again, taking
the July figures, as we have talked about—the exports to the
United States have bumped up another 15 percent, and, you
compound that—and we think we are doing the right things proce-
durally. But from a practical standpoint, are we getting at this
issue, which is really getting out of balance?

Ambassador BARSHEFSKY. Let me answer both those questions.

On the State enterprise issue, I could not agree with you more
with respect to your identification of the problems.

We have indicated to the Chinese that with respect to their State
enterprises, those enterprises would need to operate and demon-
strably need to be shown to be operating on the basis of commercial
considerations with respect to price, with respect to costs, and with
respect to exports and imports.

A subsidiary issue here is something called trading rights. In
China, foreign importers and, foreign exporters, do not have the
right to trade directly with China. The question is—and State trad-
ing enterprises, of course, are pleased to keep the situation that
way, so they have a monopoly hold on the flow of imports and the
flow of exports, either because they are the generator of those im-
ports or exports or because you must trade through them, because
you, as a company, do not have the right to engage in trade

jirectly.

Part of the accession process will be to open up these trading
rights, so that ultimately there is the ability of companies to import
and export freely without the need to go through these enterprises,
and that, in turn, will engender increased competition in the mar-
ket and curb the power of the State trading enterprises. This is a
very complex set of issues.

With respect to the trade deficit, I have pointed out that our ex-
ports to China have doubled since 1990. They were up about 27
percent last year. They are up this year, though admittedly at a
slower rate.

We know that the rate of increase in the trade deficit with China
has slowed. It had previously been a double-digit rate of increase;
it has slowed to about an 8-percent increase.

I am not suggesting that we are happy with the numbers; we are
not happy with the numbers. And, obviously this kind of trade
performance needs to be reversed.

I would say, though, with respect to the composition of trade, the
composition still strongly favors the United States. China tends to
sell here low-end consumer products, toys, textiles; those are the
big three items. We tend to sell to China airplanes, industrial
goods, higher technology products.

But having said that, we are by no means pleased with the trade
figures. We, of course, have worked very hard with respect to mar-
ket access, and we have seen some significant improvement in
some areas, in higher end consumer products, as well as in things
like integrated circuits where we have seen very substantial
increases in U.S. exports.


78

ECTO

OF THE*ECONO.

Movin INTO HIGH-TECHNOLOGY AND SERVICE

Iv 1995, 51% OF THE LABOR FORCE WAS EMPLOYED
IN THE SERVICE SECTOR, AN INDICATION THAT THE
‘SERVICE SECTOR IS INCREASINGLY SURPASSING MANU-

FACTURING AS THE DOMINANT FORCE IN TAIWAN'S %

‘OVERALL ECONOMIC DEVELOPMENT.

PRESENTLY, THE MANUFACTURING SECTOR CONTIN=
UES TO DRIVE THE ECONOMY. IN 1995, TOTAL EX-
PORTS TOPPED US$110 BILLION, OF WHICH ROUGHLY

USSS0 BILLION WAS ACCOUNTED FOR BY THE MANU-

FACTURING SECTOR. TAIWAN'S MANUFACTURING IN-
DUSTRY IS. ANTICIPATED TO GROW 6% PER ANNUM
ASSURING THE GOVERNMENT'S PROJECTION OF
USS120 BILLION FoR THE YE«® 2000

MANUFACTURING OF ELECTRONICS, COUPLED WITH
INFORMATION AND COMMUNICATION PRODUCTS, HAS
BEEN TAIWAN'S FASTEST GROWING EXPORT
SUBSECTOR, WITH AGGREGATE EXPORTS OF USS2.92
BILLION 1X 1Q 1996, ELECTRONICS ACCOUNTED FOR
USS1.47 BILLION, WHILE INFORMATION AND TEL

COMMUNICATIONS SALES TOTALED USSI.45 Bi-

LION DURING THE SAME PERIOD.

‘TAIWAN 1S CURRENTLY THE WORLD'S THIRD LARG-
EST PRODUCER OF INFORMATION TECHNOLOGY PROD-

LUCTS®, MANUFACTURING USS19.67 BILLION WORTH 3

OF HARDWARE IN 1995 (33% INCREASE FROM 1994)
formation Techaatogsprodectaten node ecrami compen
emit

Severs $1.1

“reresare 10.00%

TOPICS, September 1996

[AND ACCOUNTING FOR THE LARGEST COMPONENT OF
‘TAIWAN'S EXPORTS.

(CHEMICAL MANUFACTURERS ERUOYED THE HIGHEST
‘PROFTT MARGDN (9.1%) AMONG THE SUBSECTORS OF
‘THE MANUFACTURING INDUSTRY, WHICH AS A WHOLE
ID NOT FARE AS WELL (5.9%). PLASTICS ALSO EX
JOYED GOOD PERFORMANCE (8.7%).

ELECTRONICS, INFORMATION TECHNOLOGY, TEL-
ECOMMUNICATIONS, CHEMICALS, AND PLASTICS EX+
PORTS ARE FORECAST TO GROW MORE THAN 10% DY
1996,

HEAVY INDUSTRY, A SUBSECTOR OF MANUFACTUR-
ING, CONTINUES TO ACCOUNT FOR A LION'S SHARE
(OF MANUFACTURING OUTPUT, REPRESENTING 66% OF
MANUFACTURED EXPORTS FOR 1995. Export
GROWTH OF HEAVY INDUSTRIAL GOODS INCREASED
30.3% OVER THE PREVIOUS YEAR.

NON-CHENICAL AND AGRICULTURAL PRODUCT EX-
PORTS CONTINUE TO DECLINE, AND PROCESSED AG-
RICULTURAL PRODUCT EXPORTS ARE EXPECTED TO
‘MAKE UP ONLY 3.5% OF TOTAL EXPORTS FOR 1996.

REGULATORY BARRIERS CONTINUED TO INHIBIT THE
[FDIANCIAL SECTOR AND DISCOURAGE DEVELOPMENT
(OF A FULLY FUNCTIONING INTERBANK MARKET. CUR-
RENCY CONTROLS REMAINED IN EFFECT. FOREIGN
INVESTMENT IN THE STOCK MARKET CONTINUED TO
‘GROW, BUT REMAINED SUBJECT TO DETAILED PROCE-
DURAL RESTRICTIONS. PRIVATE BANKING AND MANY
(OTHER OFFSHORE INVESTMENT SERVICES REMAINED
MLEGAL.

‘THE CONSTRUCTION AND CONTRACTING INDUSTRIES
ENDURED A POOR YEAR AND A NUMBER OF SCAN
DALS, PARTICULARLY IN GOVERNMENT PROCUREMENT.
‘Toe Fosst Une oF THE Tarre! Mass RAPD TRAN-
‘stt SYSTEM OPENED, BUT BOTH THE LINE AND THE
‘Tare Department oF Rapp Transit SYSTEMS
CONTINUE TO FACE SERIOUS PROBLEMS. SEVERAL
‘MAJOR FOREIGN CONTRACTORS CLOSED THEIR OFFICES
AND LEFT TAIWAN.


6. INSURANCE,

6.1 THE MOST PROMINENT CONCERN IS THE RESTRIC
TION ON FOREIGN OWNERSHIP OF REAL ESTATE IN
‘TAIWAN FOR INVESTMENT PURPOSES. LOCAL COM
PANIES ARE ALLOWED TO PURCHASE TAIWAN REAL
ESTATE WITHOUT LIMITATION, AND THEREFORE CAN
INVEST THEIR ASSETS MORE EFFECTIVELY.

(a) Revise THE Lan Law anp Company Law so.
‘THAT FOREIGN INSURERS RECEIVE TREATMENT
EQUAL TO LOCAL INSURANCE COMPANTES.

6.2__ INTERNATIONAL INSURANCE FIRMS ARE INCREAS
INOLY USING GLOBAL RESOURCES FOR TRAINING
[AND DEVELOPMENT OF STAFF TO MEET GROWING
LOCAL AND INTERNATIONAL COMPETITION. Ex-
CHANGING SKILLS AND EXPERTISE 15 IN THE DN
TEREST OF ALL COMPANIES IN THE ROC. AT THE
MOMENT, OBTAINING WORK PERMITS AND VISAS.
1S A BURDENSOME TASK IN THE R.O.C.

(A) APPROVE WORK PERMOTS WITH LONGER TIME LIME
TTS FOR FOREIGNERS WITH KEY SKILLS AND EX:
PERTISE AND STREAMLINE THE PROCESS FOR OF
TAINING SUCH PERMETS. IN ADDITION, THE NEWLY
[ADDED REQUIREMENT OF A HEALTH EXAM FOR
INSURANCE EXECUTIVES IS UNNECESSARY AND
UNNECESSARILY STRICT. IT THEREFORE SHOULD
BE ELIMINATED.

7. INTELLECTUAL PROPERTY

7.1 TAIWAN WAS RECENTLY DOWNGRADED To “SPE
CIAL MENTION” STATUS ON THE UNITED STATES
Secion 301 watcHLisT. THIS MARKS THE FIRST
TIME TAIWAN HAS NOT BEEN ON THE 301 LisT
‘SINCE IT WAS ENACTED IN 1988,

7.2. WE SUPPORT PASSAGE OF LEGISLATION AMEND
ING THE CopyRicHT Law To Orve 50 YEARS OF
RETROACTIVE PROTECTION FOR COPYRIGHTED
WORKS AND GRANTING PATENT PRIORITY FILING
RIGHTS. ONCE THESE LAWS ARE ENACTED, WE
‘SUPPORT DELETION OF TAIWAN" NAME FROM THE.
301 WATCHLIST COMPLETELY.

7.3. Support TAIWAN'S IMMEDIATE ACCESSION TO
‘THE WTO so THAT US BUSINESSES CAN BENERT
FROM THE INCREASED PROTECTION TAIWAN'S.

50 TOPICS, September 1996

ACCESSION WILL BRING TO US PRODUCTS AND
[SERVICES THAT RELY ON INTELLECTUAL PROPERTY.

8. Lapor Issues

‘Tue current LaBor STANDARDS Law 15 OUT-
DATED. MORE SPECIFICALLY, ISSUES RELATED TO
(OVERTIME PAY AND WORKING RESTRICTIONS ON
WOMEN HAVING BEEN BASED ON THE OLD Tal-
‘Wan FACTORY LAW AND IS NOT SUITABLE FOR
[SERVICE INDUSTRIES, PARTICULARLY WHITE COL-
LAR INDUSTRIES SUCH AS BANKING, THEREFORE,
‘THE GOVERNMENT SHOULD SUSPEND EXTENSION
OF THIS LAW UNTIL THE LAW TTSELF HAS BEEN
THOROUGHLY REVIEWED, WITH PUBLIC AND IN-
DUSTRY PARTICIPATION, AND ALTERED TO MORE
CLOSELY FIT THE NORMS OF DEVELOPED ECONO-
MES, OTERVIGE TINS COULD LEAD 7 A DE-
(CREASE IN FOREIGN INVESTMENT AS WELL AS SUB+
STANTIAL HARM TO TAIWAN'S ATTEMPT TO BE-
COME AN ASIA PACIFIC REGIONAL OPERATIONS
(Cenrrer BY THE YEAR 2000,

9. MARKETING & DisTRIBUTION

91

92

93

94

INCREASE TRANSPARENCY IN AVAILABLE MARKET
DATA AVAILABLE (ADVERTISING, PROMOTIONAL,
‘AND CONSUMER SPENDING, PRODUCT TESTING,
rc.)

INCREASE GOVERNMENT-RELATED ASSOCIATIONS
AND INDUSTRIES TO SET INDUSTRY-WIDE STAND-
ARDS IN THE ROC IN ORDER TO IMPROVE QUAL>
ITY STANDARDS.

TAIWAN'S SYSTEM OF MILITARY AND CIVILIAN
(COMMISSARIES UNFAIRLY DISTORTS THE RETAL.
‘BUSINESS ENVIRONMENT IN TAIWAN BECAUSE THE
CURRENT OPERATING AND BIDDING PROCEDURES
(OF THE MILITARY PXS AND CIVILIAN COMMISSARY
(ORGANIZATIONS HARM BOTH MANUFACTURERS AND
PRIVATE RETAILERS. THE PX/COMMISSARY SYS-
‘TEM NEEDS TO RETURN TO ITS ORIGINAL FUNC-
TION OF PROVIDING LOW COST NECESSITIES TO
GOVERNMENT WORKERS.

[RESTRICT ACCESS OF UNAUTHORIZED PERSONNEL
‘TO COMMISSARY RETAIL OUTLET STORES, AND
LIMIT THE AMOUNT OF GOODS AN AUTHORIZED


43

Responses to House Ways and Means Questions Submitted by Congressman Rangel

Q: Chinese accession to the WTO, if it happens, will have a dramatic effect on the dynamic
between and among contracting parties to the WTO. The bipartisan leadership of the
Ways and Means Committee in 1994 sent then USTR Kantor two letters concerning
China’s accession to the WTO. In those two letters, it was stressed that China should be
allowed to accede to the WTO only on commercially sound terms and in full compliance
with WTO obligations. Moreover, it was emphasized that USTR should take whatever
time is necessary to ensure that this negotiation is done properly. Are you aware of those
two letters and do you agree with the recommendation made in them.

A: The U.S. position on appropriate terms for China’s accession to the WTO has not changed
since 1994, As then USTR Kantor responded, “our strategy in the accession talks will continue
to be based upon our long-term commercial interests in China and its role in the global economy.
We can be flexible and creative without undermining the system.” We will continue to support
China’s accession on the basis of a commercially viable accession agreement and on terms that,
are consistent with WTO provisions. We continue to work with China to complete this
negotiation on such terms, which we believe also support our bilateral agenda with China, since
many of the issues overlap.

Q: How does our approach to Chinese accession to the WTO fit into the Administration’s
overall policy of constructive engagement with China? Is there any likelihood that we
would subordinate our commercial policy goals in the accession process to our larger
geopolitical objectives with China?

A: Our approach to China’s WTO accession is an integral part of our strategy of constructive
engagement with China. The Administration will not subordinate commercial policy goals to
larger geopolitical objectives with China. Our negotiators continue to meet with their Chinese
counterparts in both the bilateral and multilateral context. We continue to build on the
foundations of our bilateral agreements in the areas of market access and intellectual property
rights and to participate in the multilateral forum of the WTO Working Party regarding China's
accession.

Q: Last year, the Administration gave the Chinese an eight-page roadmap for acceding to
the WTO. Without betraying the confidential nature of that document, could you describe
in broad terms what are the key elements of that roadmap? In particular, how does it
address the Chinese request that they be treated as a developing country for purposes of
WTO accession?

A: The U.S. roadmap document provided a comprehensive discussion of the decisions we
believe China must make in order to complete its accession negotiations. In some areas,


129

Chairman CRANE. Thank you, Mr. Hatano.
Mr. Hall.

STATEMENT OF ROBERT HALL, VICE PRESIDENT AND
INTERNATIONAL TRADE COUNSEL, NATIONAL RETAIL
FEDERATION

Mr. HALL. Thank you, Mr. Chairman, good afternoon. I am Rob-
ert Hall, vice president and international trade counsel of the Na-
tional Retail Federation, the nation’s largest trade association rep-
resenting the American retail industry, and we thank you and the
Members of the Subcommittee for scheduling this very important
hearing on the accession of China and Taiwan to the WTO.

I feel confident that your Subcommittee’s work can lead to a bet-
ter, more coordinated United States Government approach to deal-
ing with two of our most important trading partners, China and
Taiwan.

The United States retail industry urges caution to both Congress
and the administration as you proceed in WTO accession talks with
China and Taiwan. We should negotiate tough, but fair, accession
protocols that serve not only the Chinese and Taiwanese interests,
but also the interests of all segments of American industry and
American families. We urge that United States negotiators to not
bow to domestic protectionist sentiments, but rather to treat China
as the important trading partner it is, both as a growing United
States export market and a significant source of products that
American families buy every day.

The Federation supports the earliest possible admission of China
and Taiwan to the WTO as part of a broad administration policy
of engagement and coopera rative trade relations with these two very
important economies. e longer they are not bound by inter-
national trading rules that help to make trade more stable, the
more difficult it is to trade and invest with them. Our opportunities
to export to them, import from them, and invest in them are se-
verely restricted by both uncertainty regarding the stability of the
relationships on the one hand, and by specific tangible barriers to
trade and investment on the other.

The Clinton administration has recently embarked on an impor-
tant initiative to stabilize the political and economic relationship
with China. This relationship has suffered greatly and unneces-
sarily over the last year. Important United States trade and invest-
ment opportunities in China were lost in the process.

It is indeed time to make a concerted effort to build a stronger
relationship on a platform of cooperation and mutual respect.
is a direction in which we are both now headed and thankfully in
time to have a positive effect on bringing China and consequently
Taiwan into the

It is in this spirit that the Federation strongly supports exten-
sion of permanent most-favored-nation tariff treatment to China. It
is in the interest of American families to do so.

The annual renewal ritual increases uncertainty, making it very
difficult for retailers, who typically place orders with China 18
months ahead of delivery to source from China, yet it is China that
offers American consumers value-priced goods, as well as goods like


113

Chairman CRANE. Thank you, Mr. Lardy.

Mr. Murck, how long would you estimate it will take for the gov-
ernment in Taiwan to implement the concessions necessary for
WTO entry?

Mr. Murcx. I think that can be done relatively fast. Most of the
legislative framework is in place. There is a domestic political con-
sensus that WTO entry is in the long-term economic and political
interests of Taiwan.

And, I think that although some further legislation will be
uired that this can be done, say within a 6-month timeframe.
yhairman CRANE. Let me throw another question out to any and

all of you and that is, If Taiwan came into WTO as—well, what is
the designation?—a customs territory like Hong Kong?—would that
make them go ballistic on the mainland?

Mr. Murck. I will defer to my colleagues. And, I obviously cannot
speak for the mainland’s attitudes. I think that will depend par-
tially on the extent to which Taiwan’s entry is politicized, and that
is one reason why I do not advise friends of Taiwan to link
Taiwan’s WTO accession to a measure which would seem to criti-
cize, punish, or in other ways impinge on the PRC’s process.

yhairman CRANE. Do any of you have thoughts on that?

Mr. SAMUELS. The government of the PRC has made noises as
if to indicate that it would, indeed, in your words, “go ballistic” if
that happened.

But good negotiating, not just with the United States involved,
but perhaps even with the encouragement between the authorities
and the authorities in Beijing, could bring about the kind of focus
on the kind of substantive issues that the WTO should be con-
cerned about and depoliticize this.

I do not believe it is out of the question that that could happen,
but right now the emotions are greater than the substance.

Mr. MasTEL. I think it is important to keep in mind that the
United States last year exported almost twice as much to Taiwan
as to China. And so, we have a commercial interest in getting a
good, strong accession agreement with Taiwan in place. It could
mean additional opportunities for the United States.

It is certainly true the Chinese are likely to have—well, they
have great political sensitivity about Taiwan’s accession, to say the
very least—but I am not sure that the United States has really
tested the limits yet on that issue. For many years, they have been
under pressure to look into moving Taiwan’s application forward.
I am not sure we have worked as hard as we might in terms of
lining up alliances and other trading powers to try to move the ap-
plication forward.

Chairman CRANE. Do you have any thoughts, Mr. Lardy?

Mr. Larpy. Yes, I do. I think the Prospect ‘ou are talking about
is probably largely theoretical. 1 think that China—I do not think
there will be a consensus in the working party to move the Taiwan
accession forward, even if Taiwan does all the things that are
necessary, you know, immediately.

And the reason is quite simple. I think that China has made it
clear to the members of the working party that it is very much op-
posed to Taiwan’s accession prior to its own. And, I do not think
that the Europeans and other countries in the working party are


122

STATEMENT OF DARYL HATANO
VICE PRESIDENT, INTERNATIONAL TRADE,
AND GOVERNMENT AFFAIRS
SEMICONDUCTOR INDUSTRY ASSOCIATION

HEARING ON ACCESSION OF CHINA AND TAIWAN
TO THE WORLD TRADE ORGANIZATION

SEPTEMBER 19, 1996
1 appreciate this opportunity to appear before the Subcommittee on Trade of the
Committee on Ways and Means to present the views of the Semiconductor Industry Association

(SIA) on the accession of China and Taiwan to the World Trade Organization (WTO),

Before discussing the SIA’s position on these importent issues, I would like to take
‘minute to give some background on the U.S. semiconductor industry

The U.S, Semiconductor Industry

Semiconductors are an increasingly pervasive aspect of everyday life. enabling the creation
of the information superhighway and the functioning of everything from automobiles to modern
defense systems.

USS. semiconductor makers employ 260,000 people nationwide. Their products are the
enabling technology behind the nearly $400 billion US. electronics industry. which provides
employment for 2.5 million Americans

The U.S. semiconductor industry is currently the world market share leader. with 1995
world sales reaching $59 billion, representing almost 41 percent of the $144 billion world market.
‘Moreover, the world semiconductor market is expected to double by the year 2000. with projected
sales of over $300 billion.

USS. semiconductor producers are highly committed to maintaining their lead in both
semiconductor manufacturing and technology. The U.S. semiconductor industry devotes on
average 20 percent of its revenues to capital spending and another 11 percent to research and
development -- among the highest of any U.S. industry

While investing heavily in the industry's future competitiveness and technological
capabilities, SIA members also have always actively sought fo secure foreign market access for
USS. products. Because the semiconductor industry is so global in nature -- roughly half of the
US. industry's revenues are derived from overseas sales ~ the SIA has been dedicated since its
inception to promoting free trade and opening world markets.

For example, the U.S. industry has been in the forefront of efforts to eliminate tariffs on
semiconductors and related products worldwide. At the SIA’s urging. both the United States and
Japan eliminated their semiconductor tarifts in the mid-1980s. Today. the SLA is pushing for
‘other nations to eliminate their semiconductor tariffs. through such means as the proposed
Information Technology Ayreement.

Given China's potential to become the largest single market for semiconductors in the
world within a few decades and Taiwan's growing domestic semiconductor manufacturing
capability, the SIA believes it is essential that the United States ensure that China and Taiwan
accede to the WTO on a commercially sound basis, Because the focus of the SIAs efforts in
recent years with respect to WTO accession has been on China. the foeus of my testimony today
will be on the question of China's accession to the WTO.

‘Semiconductors in Chi

U.S. semiconductor firms are making substantial commitments to expand their market
presence in the Peoples’ Republic of China. At the same time, China is seeking to foster its own,
electronics industry. with a particular emphasis on microelectronics, and is rapidly’ moving to
integrate its economy more fully into the world trading system. As pant of this process. the
Chinese Government and its electronies industry are inviting closer contacts with the U.S.



127

Intellectual Property Protection. China must commit in the Protocol to full implementa
tion of the obligations of the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPs) and should agree to meet these obligations as soon as possible -- certainly no later than
within one year of its entry into the WTO. China should also enact a maskwork protection law,
as specified in the TRIPs Agreement, as soon as possible.

Reform of Trade Regime. China must commit to a broad range of reforms to its trade
regime. These reforms should include:

+ Elimination of existing restrictions on trading rights for foreign firms. If foreign
enterprises lack the right to import and export goods, and sell and service their
products in the domestic market, it will be very difficult to ensure that other
proposed trade and economic reforms produce a truly open market in China for
US. firms.

+ Full observation of the principle of national treatment. This requires a commit-
ment by China not to condition governmental actions, approvals or contracts,
including the offer of preferential treatment under China’s trade and investment
regime, upon commitments by foreign firms to meet certain performance
requirements, including in particular the transfer of technology. National treatment
should be specified to mean that no preferential arrangements shall be established
that are linked in any way 10 requirements relating to investment restrictions,
technology-transfer, tocal content, export performance or limitations on domestic
sales, Reform of these practices should be a central aspect of reform China's trade
regime.

+ Uniform administration of its trade and investment regime. Uniform application
should be specified to mean that no preferential arrangements shall be established
that are linked in any way to requirements relating to investment restrictions,
performance requirements of any kind, including in particular transfer of
technology, Jocal content, export performance, limitations on domestic sales, or on
the nationality or nature of the enterprise.

+ Increased transparency of its trade regulations through publication with a period
for public comment prior to implementation of any new rules or regulations.

+ Provision of an opportunity for independent judicial review, especially in areas
stich as intellectual property protection where legal enforcement measures are
critical

+ Elimination of existing import and export licensing requirements.

‘Tarif. China must also commit in the market access negotiations first to bind all its
semiconductor tariffs, and then to reduce progressively to zero these tariffs over a set period of
time, not to exceed ten years. The Republic of Korea committed in the Uruguay Round to
eliminate its semiconductor tariffs over five years; China should do the same.

fictions. As noted above, all forms of investment restrictions, including
export performance requirements, local content requirements, and limitations on domestic sales,
should be prohibited to the fullest extent possible in accordance with WTO rules.

‘The SIA strongly supports the efforts of USTR and those of everyone in the Administra-
tion to ensure that China obtains membership in the WTO only after making the economic
reforms necessary to ensure that its market access commitments are not nullified and impaired
by @ non-transparent and non-uniform trade regime.

‘Taiwan
‘Taiwan is becoming a significant manufacturer of DRAM memory chips and electronics
products like personal computers, although it still imports the vast majority of the semiconductors

sed in its electronics industry. Taiwan is unlikely to shift its reliance on foreign semiconductor
products in the near future; some experts have predicted that the import market will grow at 15-


151

SUBCOMMITTEE ON TRADE
‘COMMITTEE ON WAYS AND MEANS

HEARING ON THE ACCESSION OF CHINA AND TAIWAN
TO THE WORLD TRADE ORGANIZATION

STATEMENT OF THE DISTILLED SPIRITS COUNCIL
OF THE UNITED STATES

‘The following statement is submitted on behalf of the Distilled Spirits Council of the
United States, Inc. (DISCUS) for inclusion in the printed record of the Subcommittce’s
hearing on the accession of China and Taiwan to the World Trade Organization (WTO).
DISCUS is the national trade association which represents U.S. producers, marketers and
‘exporters of distilled spirits.

iL Introduction

Securing enhanced access to the markets of China and Taiwan is critical to the U.S.
distilled spirits industry. Exports have become increasingly important to the U.S. distilled
spirits industry, as we have faced a 28 percent decline in sales in the United States since 1980.
Both China and Taiwan have rapidly rising iocomes, expanding imports of consumer products,
and a tradition of consuming distilled spirits. With its huge population and rapidly rising
incomes, China may well be the industry's most promising export market over the long term.
Taiwan has the potential for more immediate export gains once our companies no longer face
barriers to their full participation in the market. Assuming the terms are adequate, accession
to the WTO will ensure that both China and Taiwan reach their full potemtial for exports of
USS, distilled spirits.

‘The development of WTO accession packages for China and Taiwan presents an
excellent opportunity to address the most egregious market access barriers that constrain U.S.
distilled spirits exports and those of other spirits producers around the world. DISCUS urges
the U.S. government to join with its counterparts in Europe and North America to address the
following issues in negotiating terms of accession with China and Taiwan.

Tl. Market Access Barriers to Distilled Spirits in China

The U.S. distilled spirits industry believes that China has tremendous potential to
become a major importer of U.S. distilled spirits. However, high tariffs are currently forcing
trade into unofficial channels, which makes it difficult for U.S. spirits exporters to develop
and implement long term strategies to penetrate the market. Besides high tariffs, there are
many other barriers to trade such as a de facto import monopoly, restrictive distribution
system, and intellectual property rights violations. Together, these barriers prevent U.S.
exporters from realizing the true potential of this fast growing market.

Many of these barriers are incompatible with the fundamental objectives of the General
Agreement on Tariffs and Trade (GATT). Negotiations on China's accession to the World
Trade Organization (WTO) and ongoing bilateral discussions offer the opportunity to bring
‘China's legislation and practices into conformity with GATT/WTO, which will enhance
exporters’ chances of success in penetrating the China market.

A. Rationalization of Importation and Distribution System

Foreign firms are at a severe disadvantage in the Chinese market for imported distilled
spirits since they are barred from discributing and marketing their own products, official
imports are limited to a few government controlled importers, and customs treatment is uneven
throughout China, It is essential that the terms of China's accession to the WTO guarantee
foreign firms national treatment with respect to importation, distribution, and marketing of
imported distilled spirits.


155

‘environment, the distilled spirits industry urges the U.S. government to secure the following
commitments from China and Taiwan in their terms of accession to the WTO:

‘China

‘The right of foreign suppliers of distilled spirits to engage directly in the importation
and distribution of their products;

the substantial reduction and eventual elimination of tariffs on imported distilled spirits;

the conversion of ad valorem tariffs and taxes to specific rates based on alcohol
content;

the strengthened protection and enforcement of trademarks and geographical indications
for distilled spirits; and

the uniform and transparent application of all trade laws and regulations affecting
imported distilled spirits.

Taiwan

‘The adoption of a non-discriminatory conventional tariff and excise tax regime;
the elimination of remaining restrictions on advertising;

‘enhanced protection against smuggled and counterfeit spirits, and

the protection of geographical indications for distinctive American distilled spirits.

Lt Mui)

‘Thank you very much.


CONTENTS

The advisories announcing the hearing .
WITNESSES

U.S. Trade Representative, Hon. Charlene Barshefsky, Acting U.
Representative ....

AFL-CIO, Mark A. Anderson
‘American ‘Chamber of Commerce in T: pei, Christian Murck
American Textile Manufacturers Institute, Charles V. Bremer
Anderson, Mark A., AFL-CIO .
Bremer, Charles V., American ‘Textile Manufacturers Institute
Brownback, Hon. ‘Sam, a Representative in Congress from the State of
nsas a
Cox, Hon. Christopher Cox, a Representative in Congress from the State
of California
Economic Strategy Institute, Greg Mastel
Hall, Robert, National Retail Federation .
Hatano, Daryl, Semiconductor Industry Association
Kapp, Robert A., United States-China Business Council
ardy, Nicholas R., Brookings Institute
Latham, Hon. Tom, a Representative in Congress from the State of lowa
Mastel, Greg, Economic Strategy Institute
Murck, Christian, American Chamber of C.
National Foreign Trade Council, Inc., Hon. Michael A. Samuel:
National Retail Federation, Robert Hall .
Samuels International Associates, Inc.,
National Foreign Trade Council, Inc ..
Semiconductor Industry Association, Daryl Hata:
United States-China Business Council, Robert A. Kapp .

SUBMISSIONS FOR THE RECORD

American Apparel Manufacturers Association, Arlington, VA, statement
American Oilseed Coalition, John Long, letter and attachments ..
Campbell Soup Company, Camden, Nd, statement ...
Distilled Spirits Council of the United States,
statement
Health Industry Manufacturers Association, statement .
International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW), Steve Beckman, statement ..
Labor-Industry Coalition for International Trade, statement ..
Meat Industry Trade Policy Council, Alan Tank, letter ..
Solomon, Hon. Jerry, a Representative in ‘Congress from the State of New
‘York, statement ..

ap


145

tariffs--there would be one overall framework, with special treatment afforded to
state-traded items.

This framework would lead to significant trade liberalization for the oilseed sector.
The actual tariff rates negotiated may differ from those suggested, but as long as
they are low and harmonized, the result will be meaningful trade policy reform.
Time frames for phasing out TRQs and state trading also could change, but the five-
year period suggested would have the transition mostly completed when the next
round of WTO multilateral agricultural negotiations begins in 1999 or 2000.

if Chinese negotiators are seeking to increase customs revenues, this proposal
could be modified slightly to achieve that objective. For instance, if the in-quota
tariff rate was set at two percent and the above-quota rate at seven percent, we
would expect a large volume of trade to occur that actually would pay the tariff upon
entering the country. Since the over-quota tariff is not prohibitive, there would be
little pressure to waive it when additional imports are needed. Since the incentives
to avoid tariffs are minimal, smuggling should be greatly diminished. Thus, this
structure would tend to be enforceable because there would not be much pressure
to import around it. That would be even more the case if value-added taxes (VATs)
would be eliminated from foods in China.

\is arrangement is compatible with the oilseeds “level playing field" (LPF)
initiative currently being promoted by the oilseed industries of several countries.

The Chinese have not suggested implementing TRQs for protein meals. Offering
them a TRQ system for meals may give them a greater sense of contro! over that
trade, while maintaining equivalent import treatment of the entire complex. It is
useful to include fishmeal in this TRQ because the Chinese normally import several
hundred thousand tons of it, Since soybean meal imports have been small,
combining all meals together will give a relatively large initial TRQ, within which
soybean meal imports might be able to compete quite effectively.

‘Are China's official trade statistics sufficiently accurate to be used in calculating the
size of the TRQs? {f not, what other trade data might be available?

Some accounting system will be required to keep track of how much product is
entering at the in-quota tariff rate. If China wishes to use a ragistration system for
this purpose, that might be acceptable as long as registrations are issued
automatically for over-quota amounts.


106



from the US in 1995. It was the sixth largest market in the world for American exports
overall and the fourth largest market for American agricultural exports. With only 21
Trillion people, as compared to the 1.2 billion in the PRC, Taiwan is approximately twice
the size of the PRC as a market for US goods. The US, in tum, is Taiwan's largest
export market, leading to an American trade deficit of $9.7 billion. The Taiwan market
is large, with significant existing US interests to protect.

There is also potential for future growth. Real GDP growth in Taiwan was 6.4% in 1995,
the savings rate continued high at 29%, and per capita income was $12,439, having
increased 86 times in the last 45 years. Talwan's remarkable economic progress was for
many years export-driven, while major sectors of its domestic economy remained closed
to foreign and, in some cases, to private participation. This means US business has the
opportunity to grow from a large base, benefiting from reduced tariffs and deregulation.

The WTO accession package negotiated with Taiwan will significantly improve market
access for US products and firms. There are few past accession agreements 0 great
as the one being negotiated Taiwan. But the commitments made will not take full effect
until Taiwan becomes a WTO member. That is the reason Taiwan's WTO accession is
an important economic Interest of the United States.

However, there are still a few crucial unresolved issues. In the view of AmCham Taipei,
the major ones are:

° Fult access to the agricultural market, especiaily the rice market;

© _ Privatization of the government liquor and tobacco monopoly, full accsss to
the market, and opening the industries to foreign investment;

© Opening of the automobile market in a way that does not disadvantage US
manufacturers; and

. Regulations governing foreign lawyers which maintain or improve
‘existing access for American lawyers practicing in Taiwan,

Some of these are difficult for Taiwan for domestic political reasons, others involve
balancing US interests against those of other countries. For example, Japan and Korea
are interested in the automobile market, and Australia is interested in the beef market.
Notwithstanding the complications of conducting multiple bilateral negotiations, 1 am
convinced Taiwan wishes to move ahead to complete its bilateral with the US, and will
take the necessary steps.

Once the Taiwan-US negotiation is completed, Taiwan must still conclude its talks with
other nations and a multilateral Working Group report must be issued to the WTO
membership for a vote. Everyone is well aware that many countries would prefer to admit
Taiwan and the PRC to the WTO together. | cannot speak with any authority about the
politics of this large multilateral organization, but there are three points which | think
should determine US policy:

© {tis important to maintain the integrity of the WTO as a trade organization,
because we want to avoid political considerations dominating the WTO dispute
resolution process in the future;

© The WTO is an organization of "separate customs territories", as well as
sovereign nations which accommodates Hong Kong, already a member in its own
‘ight, and Taiwan, already an observer; and

© WTO membership for Taiwan will be advantageous for the PAC and the
region as a whole, as Hong Kong's membership already is, due to the stronger


52

Mr. Payne. Relative to what is in place now, the 1992 market
access agreement, how would you say that China is doing, comply-
ing with the agreement that we currently have in place?

Ambassador BARSHEFSKY. I think they are doing reasonably well.
Certainly tariff reductions that they have committed to, they have
put into place. Nontariff barrier reductions they have committed to,
they have put into place.

However, on the nontariff barrier side, they have also imposed
some new potential barriers which we are concerned may replace
some of the ones removed. That is the subject of bilateral discus-
sions this past week in China; I have a team there now. And it is
a discussion in the WTO. These are measures related to industrial
policy, related to tendering and registration requirements for im-
ports which have the look of import licensing which they had pre-
viously abolished. So, we are taking a very careful look at these is-
sues.

With respect to transparency as required by the MOU, Memoran-
dum of Understanding, there has been improvement. China has
begun to publish on a fairly wide scale trade laws and trade rules.
Its tariff regime is much better known; its nontariff regime is much
better known than it was before 1992; that is, before the agreement
was signed.

So, I think that they have made some very good progress under
the agreement. If I could pick one area under it where we are dis-
satisfied, seriously dissatisfied, I would say it is in the agricultural
sector.

The MOU required China to use scientifically based standards
with respect to agricultural product imports—whether it is pork or
beef or citrus or wheat. China still does not use sound science in
the development of its sanitary and phytosanitary restrictions,
leading to unwarranted and unjustifiable barriers on United States
agricultural exports.

That is an area of substantial dissatisfaction. There is a USDA
team in China now. These issues have been under discussion for
some time. And, of course, unless the situation is corrected, WTO
accession would be quite impossible.

Mr. Payne. Well, I want to thank you very much for the good
work that you are doing on this issue, as well as the bilateral nego-
tiations that we are having with China, and to let you know that
we very much appreciate your tough and right stance, and we cer-
tainly look forward to seeing some good progress as time goes on.

I want to thank your staff as well, because they have done an
excellent job in this matter as well.

Thank you.

Ambassador BARSHEFSKY. Thank you so much.

Chairman CRANE. Mr. Ramstad.

Mr. RamstaD. Thank you, Mr. Chairman.

Madam Ambassador, I, too, would like to thank you for your im-
portant work in this area and also for keeping members of this
panel so well informed.

I would like to focus on an unfair pricing practice in Taiwan that
I think could significantly hurt the medical device industry in our
country.


101

and in others, Chinese officials seem either unwilling or unable to
enforce international agreements and their own laws.

In recent years, China has either failed to enforce or has violated
trade agreements on topics ranging from market access, trans-
shipment of textiles, to intellectual property protection. The viola-
tions are serious enough to raise questions about the wisdom of
negotiating trade agreements with China.

Finally, a number of serious problems are tied to the holdover of
the Communist system in China. China has undertaken dramatic
economic reforms in the last 2 decades. But, the Chinese economy
still has one foot in communism. State-owned enterprises account
for about one-third of China’s GNP. China still issues traditional
5-year economic and central plans.

Import demand is set through consultations among three
Chinese ministries, not the marketplace. And to import and export
from China, approval or trading rights must be granted by the
government.

This high degree of government involvement in the economy
poses a serious barrier to establishing a normal trade relationship
with China.

It is possible to address these concerns in a WTO accession
agreement, but such a; ment must require at least three things:

First and foremost, the Chinese Government must commit to real
economic reform by a certain date. That should include accepting
all WTO disciplines, perhaps after a phase-in period.

Second, all sides must examine innovative solutions to integrat-
ing into the WTO. Previous accession agreements with nonmarket
economies, Poland and Romania, provide some useful models for
use here.

Finally, given China’s poor record of abiding by trade agree-
ments, particular emphasis should be placed on enforcement and
oversight.

WTO accession negotiations with China provide a unique oppor
tunity to further the cause of reform in China and to make China
a more reliable trading partner. It is an opportunity that the
United States cannot afford to squander.

1 look forward to your questions.

[The following was subsequently received:]


26

I want to thank my colleagues for being here, for what they have
had to say, and I have no questions and yield back the balance of
my time.

Chairman CRANE. Thank you very much.

Ms. Dunn.

Ms. Dunn. No questions.

Mr. RANGEL. Mr. Chairman.

Chairman CRANE. Yes. Mr. Rangel.

Mr. RANGEL. Congressman Cox, I certainly concurred with your
idea and Sam’s supporting it that Taiwan, for WTO purposes, be
treated like Hong Kong.

But, what hits me between the eyes is the political problem that
we face even in talking about it. I would not know whether Taiwan
would want that kind of help right now, being faced with the
People’s Republic of China.

And so, sometimes the economic solution does not have a political
solution to it. But, I am certain that Ambassador Barshefsky will
have some views that would help both you and me to see how we
can be supportive to have a transition that is beneficial to both
countries.

Mr. Cox. If I might respond to that, anticipating that what
Taiwan might wish to do would be of special interest to the Mem-
bers of the Subcommittee, I solicited the advice of the Taipei Eco-
nomic and Cultural Representative’s Office in the United States,
and I received the following statement today from Hon. Jason Hu,
the representative in the United States.

“It is the set policy,” he writes, “of my government to enter the
WTO at the earliest possible date. With its large and liberalized
economy and open trade policy, my country is ready and deserves
to be a member of the WTO. Moreover, the evaluation and consid-
eration of our application should be based strictly and entirely on
its own merits without being linked to any other applications.”

I do not think there is any question from the standpoint of the
government on Taiwan that what we are talking about here would
be entirely acceptable.

Mr. RANGEL. Well, that clears that up.

Do you have any idea of the feelings of the People’s Republic?

Mr. Cox. Well, I think it is manifestly clear that the PRC has
in effect, at every turn, blocked the attempt of Taiwan to gain ad-
mission to the WTO on the ground that Taiwan shall not become
a member before the PRC.

That is the question really that is before us. And because the cir-
cumstances of the two are so different, it strikes me that sound
American policy would be based on the notion that Taiwan ought
not to be held hostage to the relatively less developed and highly
mercantile of the PRC.

Mr. RANGEL. Thank you.

Chairman CRANE. And, gentlemen, I want to thank you for your
testimony, and we continue to solicit your input and information
and background as further negotiations continue.

you.
Mr. Cox. Thank you, Mr. Chairman.
Mr. BROWNBACK. Thank you.


22

paid; in addition the value-added tax is applied in a manner that
discriminates against imports, and including other minor customs
clearing charges and handling charges, the effective rate of protec-
tion is approximately 90 percent.

I am also concerned that China uses sanitary regulations as a
disguised barrier to imports of United States beef. While the Unit-
ed States and China signed a memorandum of understanding in
1992 on these measures, the USTR has determined that China’s
sanitary inspections of meat products are—meat products and
lengthy veterinarian quarantines are “often overly strict, unevenly
applied, and not backed up by modern laboratory standards.”

United States beef exports to China are unlikely to increase sig-
nificantly until China stops unfairly protecting its beef industry,
and this is unfortunate. With its 1.2 billion people and its rapidly
growing economy, China should be the United States largest export
market for beef and other agricultural products. But, until China
eliminates its barriers to United States beef, our exports to China
will never reach a reasonable level. If China is not willing to elimi-
nate its barriers, the United States should not support its accession
to the WTO.

Thank you very much.

Chairman CRANE. Thank you, Mr. Brownback

Before we get to questioning our witnesses, I would like to re-
mind one and all that this is the last meeting of the Trade Sub-
committee in the 104th Congress, and we have distinguished col-
leagues who have served faithfully and very well in the trade
arena, and other arenas as well, that 1 would like to acknowledge
before we begin questioning our witnesses.

First of all is our Grover Cleveland Democrat, Sam Gibbons, one
of the most knowledgeable and effective freetraders that we have
ever had in Congress, and pay tribute to him.

And Mel Hancock, over here on my right, who is retiring, too.

And L.F. Payne down here, sitting in on his last meeting of the
Trade Subcommittee.

And Dick Zimmer, who is going off to pursue other objectives.

I salute my colleagues. And, I would like to now yield to Charlie
Rangel for any questions.

Mr. RANGEL. Let me join with you in tribute. All of the Members
that are leaving are really going to be missed, notwithstanding the
fact that this fas not been the friendliest Congress that I have
served in, but at least I think we have tried a little harder on this
Subcommittee.

I was just telling Sam Gibbons that he has given so much to his
country in establishing with foreign countries a credibility as re-
lates to trade policy that I do hope that there is some way that we
can keep this historic continuity as we move forward into the next
century. And since he is going to be in Washington, I know I will
be calling upon him a lot, and I hope that you would join with me
to see whether it is possible within the rules to set up something
that is a little more permanent in terms of his relationship.

But, it has been good knowing all of you, and I certainly hope
the fact that you will not be here officially, that you come back and
visit with us.

Thank you.


105

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162

‘Statement of

‘The Labor-Industry Coalition for International Trade
(LICIT)

‘The Proposed WTO Accession of China and Taiwan

Submitted to the Committee on Ways and Means
‘Subcommittee on Trade

October 1, 1996

‘We appreciate the opportunity to testify on the proposed WTO accession of China and
Taiwan. This statement sets out the views of the Labor-Industry Coalition for International Trade
(LICIT). LICIT, along with its subsidiary, the Coalition for Open Trade, brings companies and
unions together to advocate increased, balanced and equitable international trade. Companies and
labor organizations that have joined in recent LICIT statements on trade policy are American
Flint Glass Workers; Association for Manufacturing Technology; Bethlehem Steel; Chrysler
Corporation; Cincinnati Milacron; Communications Workers of America; Coming Inc.; Industrial
Union Department (AFL-CIO); Intel Corporation; Intemational Brotherhood of Electrical
Workers; International Union of Electronic Workers; Motorola Inc.; UNITE; United Rubber
Workers; and United Steelworkers of America.

LICIT considers it essential that China’s accession to the WTO occur only on the basis
of commercially acceptable terms and conditions. We believe that China must be prepared to
adopt the full range of WTO disciplines, and that, although the protocol of accession might
recognize and provide for special situations that confront China and other economies in transition,
China must signal its clear intent to participate in the world trading system in a manner fully
consistent with its WTO obligations.

China is a major player in the international trade community today, and its actions have
important implications for all trading nations -- including the United States, whose trade deficit
with China exceeded $33 billion last year and is still growing. To become a WTO member,
China must subscribe fully to the range of principles underlying the organization -- for example,
most-favored-nation status, national treatment, and transparency. Allowing China to become a
WTO member on any other terms would be damaging commercially and would lead all
developing countries to expect exemptions from these fundamental principles. Likewise,
permitting China to maintain substantial protection for extended periods of time after its accession
would create troubling precedents with potentially harmful consequences for many U.S.
industries.

In negotiating China’s proposed WTO accession, the U.S. Government should be guided
by the following objectives:

First, the negotiations must yield real market access ~- the ability to sell products and
services freely in China, without regard to accompanying investment in China

+ Real market access will require, as an initial matter, rapidly phasing down China's high
tariffs -- particularly tariffs on manufactured goods. The trade-weighted average tariff
that U.S. goods currently face in China is estimated to exceed 25% (a conservative figure
that does not take account of numerous prohibitively high tariffs, ranging from 79-145%,
that prevent imports altogether). The trade-weighted average U.S. tariff, by contrast, is
currently 2.5%. China must eliminate this disparity over a period of no more than three
years.

+ China must also eliminate restrictions on basic trading rights (e.g., the ability to import
and export from China). Currently, only designated enterprises can trade products they
‘manufacture in China, Similarly, non-Chinese companies generally cannot sell or service
end products not made in China. These limitations significantly curtail U.S. firms’ access
to the Chinese market,


165

With regard to Taiwan: we are concerned that the U.S. maintain its firm
stand on beef tariff equalization. If Taiwan must equalize the tariff levels on
high quality and and manufacturing quality beef, the tariffs must be equalized at a

lower level than the current tani on high quality beef. We would have great
difficulty with an approach to tariff equalization which simply dropped the
tariff on manufacturing beef to the current tariff level on high quality beef, or
raised the tariff on high quality beef to the level currently applied to
manufacturing beef. Further, Taiwan has a ban on the importation of beef
variety meats. This ban should be rescinded and tariffs should be bound at
low levels that permit trade.

‘Taiwan's per capita consumption of pork, which is higher than per capita
consumption in the U.S., is the highest in Asia. Variety meats represent the
largest part of Taiwan's pork consumption. Unfortunately, Taiwan has a de
facto ban on pork variety meats and selectively restricts other cuts of pork.
Taiwan, as part of its accession to the WTO. should open its market to all
types of pork imports with tariffs bound at zero or very low levels to
guarantee meaningful market access.

We appreciate your attention on these important matters.

Sincerely,

ue.

Alan Tank,
Chairman, Meat Industry Trade Policy Council

American Farm Bureau Federation
American Meat Institute

American Sheep Industry Association
National Cattlemen's Beef Association
National Pork Producers Council
U.S. Meat Export Fetleration

ce: The Honorable Charlene Barshefsky,


and look forward to China’s responses.

The operation of China’s state trading system is one clear example of the important relationship
between WTO rules and basic market access issues. We must ensure that state trading does not
‘operate as a barrier to imports and that it provides fair market opportunities for U.S. exporters.
Congress has provided important guidance to our negotiators in this area. Completion of China’s
accession process requires that these and other difficult outstanding issues be addressed.

On the President's instructions, we prepared a document that has been referred to as a WTO
roadmap for China. The roadmap crystallizes for China the basic actions it must make to make
progress in each substantive area covered by the WTO. It draws on the draft protocol text that
‘was tabled and negotiated in Geneva in 1994.

China has responded with a preliminary presentation in Washington on February 12, but we
expect further, more detailed responses at a later stage. WTO issues were also discussed during
meetings of China's Accession Working Party that took place in late March. The next meeting
of China’s Accession Working Party, where non-tariff measures will be discussed, is scheduled
for late October.

To move the accession process forward, China's intentions in each of the areas identified need to
‘be expressed in terms of specific, contractual commitments to implement WTO rules. China
must also provide for substantial improvement of market openings in goods, in services, and in
agriculture. Without progress in all these areas, none of the major countries negotiating China’s
accession terms will be prepared to complete the accession.

‘We are committed to a pragmatic and realistic accession process. As President Clinton made
clear to President Jiang, we stand ready to negotiate a balanced, commercially-based accession
agreement.

Let me stress a key point about moving this process forward. To make progress, China must stop
erecting new trade barriers to replace those previously removed. And it must cease
implementing policies that move it further away from WTO consistency.

Of course, China must also fully implement its existing bilateral trade agreements. The
‘Administration's actions this spring to ensure satisfactory implementation of the 1995
Intellectual Property Enforcement Agreement demonstrate our commitment to enforcing our
trade agreements. Complete and timely implementation of the IPR Agreement, as well as our
market access, textiles, and other agreements, will help to put our bilateral trading relations on a
more stable, long-term foundation.

TALWAN

Taiwan is the world's fourteenth largest trading economy, and the United States' eighth largest
trading partner. The United States and Taiwan have a bilateral trade relationship of long standing
that has benefitted both economies. U.S.-Taiwan bilateral trade reached $48 billion in 1995. In
the last decade, as Taiwan has reformed its political structure and moved toward the democratic
mainstream, bilateral negotiations between the U.S. and Taiwan have laid the foundation of
‘more open and liberalized trade regime in Taiwan. Difficult bilateral issues of market access,
protection of endangered species (Pelly Amendment), and intellectual property protection have
been addressed and resolved.

Before tuming to the WTO accession, I would like to review our ongoing bilateral efforts.
Market Access

Although not a participant in the Uruguay Round, Taiwan has in the past several years taken
steps to provide greater market access. Taiwan is engaged with the United States in negotiations


115

sliding, that the external obligation that comes from WTO member-
ship serves a very useful purpose for both the reformers in China
and for those on the outside who want to see China behave in the
way that most countries behave in the trading system today.

Mr. Murck. Mr. Chairman, I would just add that I think the
business community, both in the United States and internationally,
has made it very clear with its investment dollars that they per-
ceive a favorable long-term environment in China and that this
process is irreversible.

From the point of view of the Chinese business community in
Taiwan, their cumulative investment in the People’s Republic now
exceeds 25 billion United States dollars, and I do not believe that
those investments would have been made if a significant number
of them thought that the Chinese process was likely to be reversed.

Mr. Larpy. I will just add a supplement to what I said earlier.
One of the reasons that I think that China will not come in unless
it is given some phase-in periods in certain very sensitive indus-
tries is that I think it is not as far along the path of reform as
perhaps we have judged.

i think the State-owned sector in particular is proving to be a
much more difficult problem for China than it had anticipated only
a few years ago. They thought they would be able to finesse this
by having a rapidly growing non-State sector. That has not pro-
vided a long-term solution for the problems in the State sector that
T have alluded to, the fact that it still employs the bulk of the peo-
ple in urban areas, the fact that some portions—significant por-
tions—of this sector appear to be relatively economically inefficient.
They are losing money; they cannot repay their bank loans.

Similarly I would point out that keeping too much of the State
sector going has had very adverse effects on their banking system.
So, they are facing a major problem in terms of not just in restruc-
turing State-owned firms, but also restructuring their entire finan-
cial system.

I think these are going to be two enormous challenges for them,
and I think they want to have some control over the time period
in which they undertake these adjustments. That is why I have
suggested that I do not think they are going to come into the WTO
if we require them to undertake to fully open their economy to
international competition early in the process. Certainly, some sec-
tors can be opened right away. But, they will have to be provided
with some fairly long phase-in periods for other sectors. Otherwise
I believe their judgment will be that they are better off outside the
WTO rather than inside.

So, my views are closely correlated. The reason I think we will
have to offer fairly long phase-ins on some sectors in order to get
them to agree to a commercially viable protocol is my assessment
that some of these sectors are extremely large and extremely weak.

Chairman CRaNE. Well, I want to thank you all for your testi-
mony today and urge you please to stay in contact with us. As I
stated at the outset, this is our last hearing of this session of
Congress. But, this whole debate will be going on with the recon-
vening of the next Congress.

So keep us abreast, and thank you so much.


136

Despite what they may say publicly, the rest of the world pri-
vately expects and hopes the United States will continue to exhibit
leadership in this respect. No one, it seems, and certainly no one
in Geneva, wants to stand up to China, preferring, as is so often
the case, to leave that burden to the United States.

That being so, the United States has the right to dictate the
terms for China’s accession, and those terms, ATMI respectfully
suggests, Mr. Chairman, should be those set forth above.

There remains one further condition regarding China’s accession
about which the United States must be unyielding—whether China
will be permitted in the WTO as a developing country, thus exempt
from many of the disciplines and obligations which bind the devel-
oped members.

It is ludicrous for China to seek accession as a developing coun-
try member, and it would be folly for any sitting member of the
WTO to accept China’s self-described developing country status.

Any country that is self-sufficient in the production of military
hardware, that sells guided missiles, that has nuclear weapons and
the wherewithal to deliver them, and which is engaged in a com-
mercial satellite launching program in competition with France
and the United States, is not a developing country, pure and
simple.

Any country whose exports are larger than Korea’s, Spain’s,
Switzerland’s, or Taiwan’s and are growing faster than any other
country in the world is not a developing country. The country
whose trade surplus with the United States has grown even larger
than Japan’s is certainly not a developing country by any trade-
related criterion.

Finally, it is worth reviewing for the Subcommittee China’s out-
rageous behavior with respect to customs fraud and textile quota
circumvention.

The U.S. Customs Service has estimated that illegal shipments
of textiles and clothing from China, primarily through Hong Kong
and Macao, amount to between $2 and $4 billion per year.

We are pleased the U.S. Customs Service and the Office of the
U.S. Trade Representative are intensifying their efforts to combat
China’s repeated circumvention of its textile trade agreement with
the United States and United States laws and to impose the appro-
priate penalties.

In conclusion, Mr. Chairman, ATMI earnestly recommends to the
Congress and the administration that the United States continue
its policy of requiring China to conduct its trade affairs in a respon-
sible, transparent, and forthright manner before it can be admitted
to the World Trade Organization.

Thank you, Mr. Chairman, for the opportunity for ATMI to speak
on this important matter.

Chairman CRANE. Thank you, Mr. Bremer.

Mr. Hatano, does the large amount of State involvement in the
Chinese economy make it harder for the semiconductor industry
manufacturers to resist Chinese demands to transfer technology
and source components locally and comply with the local invest-
ment restrictions?

Mr. Hatano. Absolutely. A lot of the rules that the Chinese Gov-
ernment has put on make it very difficult. And, I think one of the


58

STATEMENT OF
ROBERT A. KAPP, PRESIDENT
US-CHINA BUSINESS COUNCIL

Mr. Chairman, members of the Subcommittee:

‘Thank yov for inviting me to offer remarks before you today on behalf of the US-China Business
Council. As many of you know, the US-China Business Council is the principal organization of
‘American companies engaged in trade and investment activities with China. Founded at the dawn of
relations in 1973, the Council is currently supported by more than three hundred
firms of all sizes. We maintain headquarters in Washington, and offices in Beijing and
Hong Kong. We have been privileged to cooperate closely with Members and staff members of this.
‘Subcommittee on many occasions, and look forward to continuing our important contact with you in the
future. I hope that all Members of the subcommittee will look upon the Council as a nonpartisan source
of responsible perspectives, and of accessible factual information, on U.S.-China trade and economic
relations as well as broader issues affecting our two great nations.

‘We gather today to focus on the complex of issues surrounding China’s potential accession to the World
Trade Organization. From virtually nothing in 1978, when China embarked on its historic path toward a
market economy and toward full engagement with the world economy, China's foreign trade has risen to
$280 billion in 1995, me ‘China the eleventh-largest trading nation in the world. China’s foreign
trade sector is a key driver of China’s remarkable economic growth, which has achieved so much in
raising popular living standards in such a short time. China has also become a leading target of the
world’s investment, standing second only to the United States in the level of incoming investment in
1995.

ULS.-China trade, as this subcommittee has heard so often, approached $60 billion (by U.S. calculations)
in 1995, with U.S. exports up as much as 29% over the preceding year, and figures for early 1996
suggest continuing robust expansion. The benefits of U.S.-China trade now extend into all comers of our
‘country in the form of hundreds of thousands of jobs, enhanced business compe
consumer products. In China, the presence of U.S. companies plays a modest but very si

the gigantic transformation of Chinese society now underway, toward improved popular living standards
and a wider range of personal freedom of choice,

‘With China already established as one of the world’s major trading nations, its absence from the key
institution of the global trading system, the WTO, seems increasingly anomalous and worrisome to many
‘observers, The People’s Republic, since its decision to “Open to the Outside World” in 1978, has
become an integral and generally responsible participant in many key global economic institutions,
including the World Bank and the IMF, the other two legs of the three-legged global economic structure
erected at the end of World War f1. As China’s representatives, and many non-Chinese figures have
observed, a World Trade Organization without China is incomplete on the face of it

‘The People’s Republic of China is a nation in profound economic and social transition, from a rigid,
centrally-planned, highly autarkical Soviet-style economic system before the initiation of reforms in
1978 toa much more heavily marketized and globally-integrated economy today. The instruments and
practices of socialist planning have given way massively, but by no means entirely, to market-driven
price mechanisms, profit incentives, nascent labor and factor markets, and a rapidly expanding array of
commercial and economic laws. Much of the impetus behind this emergent rule of law, however
incomplete it may be, has been the need to improve the Chinese environment for foreign investment and
business. While many aspects of China's domestic and intemational economic system today are a far cry
from those that most Americans would want in a perfect world, China has already progressed far along.
the road to effective integration into the global marketplace. As more and more economic activity
devolves into non-government hands, and as more and more PRC business people gain the linguistic and
commercial fluency with which to operate in the international arena, China’s ability to work effectively
‘with global business partners will continue to grow.

China has long sought to become a full-fledged member of the global trade regime, first by “resuming”
the seat in the GATT which the Chinese Nationalist government departed in the late 1940s, and more
recently by acceding as a new member to the World Trade Organization. To date, neither the pluritateral
negotiations conducted by the WTO Working Party on China's accession nor the bilateral negotiations
between China and the U.S. or China and other trade partners have produced a workable agreement on
the specific terms of China’s accession. China has claimed that, since it signed the 1994 Marrakesh
‘Agreements concluding the Uruguay Round negotiations in its official capacity as an Observer to the



112

transactions (also at the beginning of 1994), The culmination of this process was earlier this
year when China announced that by allowing foreign firms access to the interbank market to
purchase foreign exchange for in order to be able to remit profits, it would achieve
convertibility on all current account transactions. At almost every step the role of the IMF in
providing guidance and advice was critical. This example suggests that China has established
a credible record in meeting the obligations inherent in membership in major international
economic organizations.

In addition to allowing China longer phase in periods to meet WTO standards, the
United States should take the lead in insuring that the economic benefits that China would
receive from membership in the World Trade Organization are at least somewhat proportional
to the very real costs that still will be associated with coming into compliance with WTO
standards over time. Two possibilities seem most obvious. The first would be for the United
States to provide China, upon its entry into the WTO, with the benefits of the phase-out of
the Multifiber Agreement (MFA) specified in the Uruguay Round Trade Agreement.
Assuming that the United States will invoke Article XIII (Non-Application of Multilateral
Trade Agreements between Particular Members) of the WTO, unless there is a separate
provision to that effect, China will not be eligible for the phase out of the MFA in the US
market.

‘Second, the United States should pledge to repeal, at a specific point in the future, the
Jackson-Vanik Amendment, as it applies to China, so that Chinese goods would be eligible
for most-favored-nation treatment in the US market. This repeal should be made conditional
‘on China's living up to the specific provisions agreed to in the protocol governing its
membership in the WTO.

In summary China’s membership in the WTO would serve US interests. But China's
trading partners have already conveyed the principal benefit associated with WTO
membership and the domestic economic costs to China of coming into compliance with
international trade standards will be high. Given this unfavorable benefit to cost ratio, China
is not likely to agree to membership under a formula that requires them to meet all
international trade standards as precondition. Thus the United States should take the lead both
in drafting a protocol that provides long phase-in periods to mitigate the costs China will face
in restructuring its domestic industries to meet the full force of international competition and
in taking other steps that would increase the benefits China would receive in exchange for
agreeing to an acceptable WTO protocol



EcoNoMiC PERFORMANCE REMAINS HEALTHY Despite CRoss sTRAIT TENSIONS

[DESPITE HAVING ONLY 0.4% OF THE WORLD'S POPU-
LATION, TAIWAN ACCOUNTS FOR 2.1% OF THE
WORLD'S TRADE. TAIWAN'S EXPORTS IN 1995
TOIALED USS11 1.7 BILLION, A 20% INCREASE OVER
1994 ano 14TH IN THE WORLD. THE COUNCIL FOR
Economic PLANNING AND DEVELOPMENT EXPECTS
ANNUAL TWO-WAY FOREIGN TRADE TO REACH
US$300 BILLION BY 2000. IN ITs TRADE IN SERV-
ICES, TAIWAN TOOK THE POSITION OF 18TH IN THE
WORLD IN TERMS OF EXPORT VALUE, WHILE IMPORTS
‘TOOK 11TH PLACE

GDP coNTDWED To GROW AT A HEALTHY CLIP OF
6.4% IV 1995, THE MALS ENGINE OF OxOWTH COM-
ING FROM EXPORT EXPANSION. THE 1995 GROWTH
[RATE REPRESENTS A MODEST DECLINE FROM THE 1994
RATE OF 6.51%. THE GOVERNMENT ATTRIBUTES
MOST OF THE DECREASE TO HEIGHTENED CROSS STRAT
TENSIONS. THE AVERAGE GDP GROWTH RATE FOR
‘THE LAST 5 YEARS HAS BEEN 7.5%.

Real GDP Growth %

3% TAIWAN HAD THE 18TH HIGHEST LEVEL oF GNP

‘THE WORLD, ITS ECONOMY HAVING PRODUCED A TO-
‘TAL OF US$253.9 BILLION. PER CAPITA INCOME AT
YEAR-END 1995 sTooD AT USS12,490, RANKING
‘Tarwan 25TH IN THE WORLD. IT HAS BEEN THE
STATED GOAL OF THE GOVERNMENT TO RAISE PER
CAPITA INCOME TO US$20,000 BY THE YEAR 2000,
PER CAPITA INCOME HAS INCREASED FRoM USS145
To USS12,439 on BY A FACTOR OF 86 TIMES OVER
‘THE LAST 45 YEARS, AN INDICATION OF THE PROGRESS
TAIWAN HAS MaDe. HOWEVER, UNOFFICIAL ESTI-
MATES SUGGEST THAT THE REAL PER CAPITA INCOME
1S CLOSER TO US$20,000, NOTING A LARGE AND
UNDOCUMENTED UsDERGiOU}D ECONOMY.

2% UNEMPLOYMENT RATE TOPPED 2.6% WORKERS IY

June 1996, THE HIGHEST IN A DECADE THOUGH STILL
REMARKABLY LOW FOR A MATURING ECONOMY.
MANUFACTURING AND CONSTRUCTION WORKERS
BORE THE BRUNT OF THE LABOR CRUNCH WITH Al-

Foreign Exchange Reserves (USS bil)

TOPICS, September 1996

,
;
‘
5
3
2
Od Se a ee ne oe
Per Capita GNP 1967-1995 (US$) ‘Total Exports end imports
29000 10 7 .
| 3 co
1 te Ry Saat
| te a
bed Dri
F * pon L



28

we work with China to resolve our differences, and it also means
that we protect our interests when consultations are not fruitful.

Of course, we have had a vigorous bilateral agenda with China
in a number of areas, and we have made some important progress
in a number of areas, and let me just touch on those briefly.

First the protection of intellectual property rights. Earlier this
year, after a threat of retaliation, we were able to make some im-
portant progress in getting China to enforce the provisions of our
1995 IPR agreement.

This past year, China has closed 15 CD, compact disk, factories.
I am pleased to report to the Subcommittee that they remain
closed. China has destroyed equipment; it has made substantial
numbers of arrests; it has prohibited the importation of CD press-
es; and I received a report yesterday—I have a team in China now
that there have been a number of confiscations of CD presses. That
is good news. It has engaged its police forces in intensified raids
and taken the other steps required by our accord.

With respect to market access, the market access memorandum
of understanding, China has taken, I think, important steps to
make its trade regime more transparent. It has eliminated over
1000 nontariff barriers in a variety of sectors. But, of course, con-
cern remains with existing barriers and with the erection of new
barriers to replace from time to time ones that have been removed.

In services, China has pledged to begin serious discussions on
market access, in value-added telecommunications, and in insur-
ance, and we have a team in China now.

On agricultural products, the United States continues to experi-
ence very serious market access problems, not only in beef and
pork, but also with respect to wheat, citrus, and other products. We
now have a USDA team in China discussing these issues this week.

We will continue to engage China bilaterally on these and addi-
tional issues, because, of course, the goal is reciprocal market
access for United States goods, services, and agriculture.

With respect to China’s WTO accession, let me say that the proc-
ess of negotiating accessions for new members—there are 30 pend-
ing accessions—has been a major focus for us with respect to ex-
panding market access for United States exports, as well as
strengthening existing multilateral rules.

President Clinton, as you know, has repeatedly affirmed United
States support for China’s accession in the WTO, but only on the
basis of a commercially viable protocol that commits China to ex-
pand market access and that will ensure compliance with WTO ob-
ligations. WTO members, in general, have proceeded from the prin-
ciple that China’s membership needs to be accomplished on terms
that provide market access and provide a strengthening of WTO
rules. There is a consensus among the major WTO members for a
tough and principled approach to the accession process.

Last February, as you know, we prepared a document that has
since become referred to as the “road map” for China’s WTO acces-
sion, and it crystallized for China the basic decisions it would have
io make, in order to accede to the WTO on each area covered by
the .


94

‘Testimony of Michael A. Samuels
President of Samuels International Associates, Inc.

‘on behalf of the
National Foreign Trade Council, Inc.

Before the
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representative

September 19, 1996

Mr. Chairman, Members of the Subcommittee, | am Michael Samuels, President of
Samuels {nternational Associates. Prior to establishing my own international consulting firm, |
was Deputy USTR and U.S. Ambassador to the GATT. Subsequently, | chaired the National
Foreign Trade Council's Trade and Investment Committee for five years. | am very pleased to
testify today on behalf of the National Foreign Trade Council on the very important topic of the
accession of China and Taiwan to the World Trade Organization (WTO). The NFTC has over
500 U.S. companies engaged in international trade and investment, and its membership is drawn
from all sectors of the U.S. economy, including basic manufacturing, financial services, energy,
high technology and agriculture.

The National Foreign Trade Council testified before your subcommittee earlier this year
on the WTO and highlighted the issue of WTO accession as a key issue that should be addressed
during the upcoming WTO Ministerial Conference in Singapore. More recently, in a letter to
Ambassador Charlene Barshefsky, the NFTC recommended in greater detail the importance of
raising this issue in a formal way at the Singapore Ministerial as one of seven overall objectives
to focus on. | have attached a copy of the letter to our written testimony and ask that it be
included in the hearing record.

The NFTC believes that, as important as the accession of any single economy may be, the
general subject of WTO accession is even more important. Therefore, { would tike to focus my
remarks on the generic aspects of WTO accession, which apply to the accession of China and
Taiwan, as well as the many other countries that are seeking to join the WTO. In this regard,
there are three fundamental points the NFTC views as worthy of serious consideration.

‘The first point is that accession is one of the major challenges facing the WTO.
Applications to join the WTO are at an all time high with over 30 countries seeking to accede to
the already 122-member strong organization. This is not only a testament to the strength and
importance of the WTO in promoting a vibrant multilateral trading system; it also presents a
significant challenge to WTO members. That challenge is to ensure that all countries are
welcomed and encouraged to join, but that accession is achieved in a manner that builds on the
WTO ina progressive and credible way. ‘That means preserving the basic integrity of the WTO
rules and principles and achieving commercially viable and acceptable protocols. The fact that
‘many of the countries that have applied to join the WTO are economies in transition from
centrally-planned economies to market-oriented economies makes meeting this challenge
particularly critical.

Deadlines and political pressure should not be the guiding force behind the accession
process. Rather, the guiding force should be to improve and make stronger the WTO's
foundation for open global trade and investment, and, thereby, enhance the WTO"s enormous

ibution to worldwide economic growth, The GATT and WTO's foundation is essentially



OPENING STATEMENT
CONGRESSMAN CHARLES B. RANGEL
SUBCOMMITTEE ON TRADE
HEARING ON
ACCESSION OF CHINA AND TAIWAN
TO THE WORLD TRADE ORGANIZATION
‘SEPTEMBER 19, 1996

Mr. Chairman, thank you for holding today's hearing on the
accession of China and Taiwan to the World Trade Organization.
Our trading relationship with China has become one of the most
important and complex of all our trading relationships.
Consequently, I would submit that negotiation of the terms and
conditions for China's entry into the WTO will be the most
important trade negotiation in which the United States is
involved in the coming years.

Clearly, the economic stakes with China are high. China is
now the world's eleventh largest trading country. Given the
impressive growth of the Chinese economy and a population of 1.2
billion people, China's presence as a world trader will only
increase. Unfortunately, as the commercial importance of China
has grown, so has our bilateral trade deficit. Indeed, in July
of this year, our monthly bilateral trade deficit with China
surpassed that of Japan for the first time ever. Last year our
bilateral trade deficit had grown to $33 billion and it will be
larger thie year. One of the best ways to reverse thie deficit
is through greater access to Chinese markets and continued reform
of the Chinese economic system. One of the best ways to achieve
these objectives is through China's accession to the WTO on sound
commercial terms.

In this regard, Mr. Chairman, let me again reiterate for the
record, as I did at a Trade Subcommittee hearing on March 9,
1995, my support for the positions set forth in two bipartisan
letters sent in 1994 by the leadership of the Committee on Ways
and Means to then USTR Mickey Kantor. In those letters, it was
stated that the United States should support Chinese accession to
the WTO provided it is done on commercially sound terms and with
full acceptance by China of the basic obligations of the WTo
system. Moreover, our trade negotiators and the Administration
should take whatever time is necessary and pursue whatever
negotiating options are appropriate to ensure that this
negotiation is done properly.

As for negotiations on Taiwanese accession to the WTO, I
understand that this negotiation is well advanced. At the same
time, there remain several key issues that must be resolved in
order to complete this negotiation. I look forward to hearing
the testimony of our friends from the American Chamber of
Commerce in Taipei on this matter.

In concluding, Mr. Chairman, let me welcome Ambassador
Barshefsky to the Trade Subcommittee and thank her for tireless
efforts on behalf of the commercial interests of this country.
Ambassador Barshefsky and her team are doing a splendid job in
conducting these negotiations. I look forward to working with
her on these difficult negotiations and being helpful in any way
that I can.

Thank you.


‘MOST ONE-THIRD OF TAMWAN’S JOBLESS COMING
FROM THESE TWO SECTORS. ACADEMICS HAVE
‘STRESSED THAT THE RECENT UNEMPLOYMENT RATES,
SHOULD BE VIEWED AS SIGNS THAT TAIWAN HAS.
MATURED INTO AN ADVANCED ECONOMY, MUCH AKIN
‘To JAPAN AND THE UNITED STATES.

‘TATWAN'S HOUSEHOLD SAVINGS RATE REMADS HGH
147 29.5%, ALTHOUGH THIS FIGURE IS DECREASING
‘ANNUALLY. THE DECREASE, HOWEVER, IS A POS
TIVE SIGN THAT DOMESTIC DEMAND AND PRIVATE-
SECTOR CONSUMPTION IS RAPIDLY INCREASING.

In JuNE 1996, MorcaN STANLEY ANNOUNCED
‘TTS DECISION TO LIST THE TAIWAN STOCK EXCHANGE
ow Ts EMERGING MARKETS FREE (EMF) INDEX,
SIGNALLING THE RISING IMPORTANCE OF TATVAN'S
ECONOMY To INSTITUTIONAL INVESTORS, TAIWAN
ACCOUNTS FOR 7.9% OF THE TOTAL STOCKS ON
THE EMF INDEX, HIGHER THAN THE 5% AVERAGE
PREDICTED BY DOMESTIC INSTITUTIONAL INVESTORS.
Moroan STANLEY CREDITS TAIWAN'S RECENT
PROGRESS IN THE INTERNATIONALIZATION AND LIB+
ERALIZATION OF ITS MARKETS AS MAJOR REASONS
FOR THE LISTING.

Exchange Rate OFTE-U881)

wt\
Net N

Inflation (CPI %)
og

45

A

ae

1

[ TAIWAN’S RANKINGS

Ast Latcrst rnopecrs OF COMPUTER NOSTORS 9 THE
‘WORLD WITH A GLOBAL MARKET SHARE OF 57%,

‘Jup LARCEST PORIICN DLCHANCE RESERVES fv THE WORLD,
[EstoaTeD ar USSS5.2 en.LI0N AS oF JUNE 1996,

‘Sap spcatesr FXPORT CROWTH RATE AMONG ASUA'S POLK DRAG
(OSs, WITH EXPORTS HISTO 20%, THE ISLAND'S BEST PERFORM
[ANCE TN EIGHT YEARS, TOTAL EXPORT VALUE D4 1995 was
USS112.68 saiow.

| sep evrur woauo r Tar raoDUCTION OF NORNANOS TECH

| novocy (FT) paooucts, sasuracTunnc USS19 67 anii08
| Nomror mapaate 011995 33% DCREASE MoM 1934) 00
| AGOODNTIG FOR THE LARGEST COMBOMENT OF TATA BX
| toms. Tarwax's cones RODUCE 65% OF THE WORLD'S
| gyo00n0s A MOTHERBOARDS, MEARLY 60M OF ALL MOR
| Tons, 0 4 LARGE FORTOM OF TH GLOBAL MARKET FOR DESK
YOR FREONAL CoWT'STERS, LA 3P, SEAINERS, MOLE, 2D
warencars

| drm Uancest MARKET FOR US, AcRICULTURAL EXPORTS.

| aru atst raorrt oronrismry Bs THE WoRLD.
| Busnass Ewvmomaest Risk Inreisicence Co.)

‘Sra Laxcest ECONOMIC ENTITY VTE AStA-PACIC REGION,
‘Tit Asta-PACIFIC AREA IS CURRENTLY THE THIRD LARGEST ECO
| WOMIC BLOC THE WORLD, AFTER NORTH AMERICA a6 THE
| Bunorean Unon

| én .ancest raronrta oF US cops 1 1995, wien 0
| USS19.295 snuzox

‘Tm wancest OF coops ro Tar US m 1995,
\WALvED ay USS28.975 paLion

‘Sr Lancest ovens TRADING parrveR oF THE US. Busr-
| 2a. mae uw 10.2% to USS4B 2 son 01995

141m LARGEST EXPORTER AND ISTH LARGEST BAPORTIR IS
‘THE WORLD BY 1995,

16rm Most Ecoxowacaiiy Mase couNTaY Fx 1995. (IisT-
‘TUTE oF Punic AFFARS, VANCOUVER, CANADA)

167m wnctest NanoxAL CaKDr RATSC.
(Eumossoney Macazome Survey)

Hira ov ovERLALL COMPETTTMVENESS AMONG THE WORLD'S

35

28

one
((loesousiona. InstiTuTe. oF Manaceneen Deveronsent)

18m sacaest GNP 0 1H won ov 1995 AT A TOTAL VALUE.
oF US$264.6 s10%,

251m meontst 7

Tiera tm 1995,

TOPICS, September 1996 39


83

ELECTRONIC EQUIPMENT AND COMPONENTS MADE UP 15.1% OF TAIWAN'S EXPORTS TO THE MAINLAND, RECORDING
‘462.9% INCREASE OVER 1994; TRAILING WERE PLASTIC PRODUCTS AND RAW MATERIALS. ANALYSTS SUSPECT THE
INCREASE ON EXPORTS WAS DUE TO LOCAL MANUFACTURERS” ANTICIPATION OF THE MAINLAND'S PLAN TO ELIMINATE
‘THE PREFERENTIAL TAX EXEMPTION TO FOREIGN-FUNDED ENTERPRISES IN MAINLAND CHINA, SEMI-FINISHED ELEC-
‘TRIC PRODUCTS LED DYPORTS FROM THE MAINLAND INTO TAIWAN,

Exports to and Imports from Hong Kong*

. (1991-1995)

“ =
»

”

rr

.

‘ . a ch oc v
° 1901 1982 1993 1994 1095,

TS

= enue }

+ Lacumg diet rae inks ith he PRC, analysts ae teres ang Hong Kang
‘trad erst accureely pevge Greater China trade CEPD)

Marcu 1996

a INDIRECT TRADE SAW A LARGE DECREASE, MAINLY DUE TO THE CROSS STRAIT POLITICAL TENSIONS DY MARCH,
ACCOMPANYING TAIWAN'S FIRST PRESIDENTIAL ELECTION. BELING'S REPEATED MILITARY INTIMIDATION OF TA
WAN SCARED AWAY TAIWAN BWVESTORS.

2% DESPITE FIRST QUARTER DECREASES IN TRADE AND CAPITAL FLOWS, LEVELS OF COMMERCE HAVE RETURNED TO
‘THEIR PREVIOUS NORMS.

GREATER CHINA TRADE

a TOTAL TRADE BETWEEN THE US AND THE THREE CHINESE ECONOMIES AMOUNTED TO USS130 BILLION FoR 1995,

[REPRESENTING 9.8% OF ALL US FOREIGN TRADE. EXPORTS TO THE THREE CHINESE ECONOMIES COMPRISED 7.8%
‘OF TOTAL US ExPoRrS.

Greater China Trade with the United States

1995 figures (USSbillion)
US exports to US imports from 2 way trade
Taiwan 19.2 28.975 48.175
Hong Kong 14.22 10.293 24.513
PRC 11.748 45.555 57.303
Total 45.168 84.823 129,991 |

‘Source: US Department of Commerce

TOPICS, September 1996 45


5

Chairman CRANE. Good morning. This is a meeting of the Ways
and Means Subcommittee on Trade to review the process and re-
quirements for countries to accede to the WTO, World Trade Orga-
nization.

There are currently 31 countries and territories seeking WTO
membership, so it is appropriate that the Trade Subcommittee take
a detailed look at what constitutes an adequate package of commit-
ments for accession.

The WTO derives its strength and effectiveness from an inte-
grated system of rules and disciplines that are honored by its mem-
bers, irrespective of political considerations that hinder bodies such
as the United Nations.

A major achievement of the Uruguay round agreement, the so-
called single undertaking, has helped to standardize the process of
developing packages of trade commitments for WTO applicants.
Since WTO members agree to abide by all WTO agreements, the
same must be expected of applicants.

I am committed to ensuring that all countries enter the WTO on
comparable and commercially sound terms. To countenance a WTO
accession process that selects favorites, depending on political
might and other considerations, would ultimately unravel the sys-
tem of WTO rules, which this Subcommittee, under Republican and
Democrat administrations, has worked years to put in place.

There can be no doubt that the two cases on which we have re-
quested testimony today, China and Taiwan, represent starkly dif-
ferent stages of readiness to undertake the necessary economic re-
forms and trade policy commitments.

Taiwan, a vibrant market economy, should be commended for the
admirable progress it has made thus far in its negotiations, and I
urge Taiwan to address the few outstanding issues promptly, par-
ticularly those which will require legislation and sensitive economic
adjustments.

Purchasing over twice the amount of United States products as
China, Taiwan is a key market for our exports, in addition to being
a loyal friend and ally.

I am interested today in hearing Ambassador Barshefsky’s
thoughts on the status of China’s application. I am not convinced
that China has turned its full attention to the economic restructur-
ing that will be necessary for it to gain entry into the WTO.

If it is our best judgment that the internal political situation in
China is preventing progress for the time being, we may need to
consider waiting until China takes some concrete steps to dem-
onstrate flexibility.

I believe permitting Chinese accession before this country is
ready, would be more harmful to our industries in the long run.

I look forward to today’s testimony, which will be useful to the
Subcommittee as we evaluate the market and access commitments
and other trade concessions that these two important countries are
willing to make in order to join the WTO.

(The opening statement follows:]


ll

are relatively high for China while the gains from membership in the GATT/WTO are
relatively small.

‘What is the solution to this apparent standoff, reflected in the lack of progress
achieved in the most recent meetings of the Working Party? The central issue is not whether
China becomes a member of the WTO on “commercially viable terms” but rather the length
of time that China is given for meeting such terms. Some have argued that China must meet
such terms as a precondition for membership. I believe that approach will result in China
remaining outside the WTO indefinitely.

“The appropriate analogy is buying a house. We want China to buy the “house,” i.e.
come into compliance with the expectations of the established international trading system.
We should not lower the price of the house, i.e. allow China to be a member on
concessionary terms. In particular the international community should not agree to China
joining the WTO as a “developing country,” a status that automatically would provide it with
the longest possible time periods for coming into compliance with some standards and would
exempt China entirely from a few standards. What we should do is lower the down payment
‘on the house to a level that is politically affordable to China. That means coming into
compliance with many but not all WTO standards as a precondition for membership. And it
means a “mortgage” of sufficient duration to allow China to come into compliance with those
criteria that it is unable to meet at the outset.

‘Specifically, China should be allowed in a few cases relatively long phase-in periods
for the dismantling the barriers protecting it's most sensitive industries. Long phase-in
periods for some sectors would allow China to spread the very substantial costs of adjusting
to international competition over a longer period of time, thus making them politically more
manageable. The international community however, should insist on more rapid reduction of
trade barriers in less sensitive sectors and immediate reforms with respect to transparency,
trading rights, and other systemic features of China’s trading system. The latter reforms
would be of considerable immediate benefit to firms that seek to trade with or invest in
China. In short, the down payment should be reduced but it should still be substantial.

in criticism of this approach is that it runs the risk that once China is a member
it may not fulfill its obligations under the protocol and would in effect be given a free ride.
This perspective overlooks three elements. First, the US government will still have available
all of the tools provided for in US trade law. ‘The US government will still be able to
investigate Chinese trade practices under the provisions of Section 301 of the US Trade Act
and impose sanctions, if warranted. Disagreements over intellectual property rights can also
bbe addressed unilaterally, if conditions warrant. In addition, surges in exports of Chinese
‘goods to the United States that either cause or threaten to cause serious injury to the US
industry can be addressed under the Agreement on Safeguards of the Uruguay Round Treaty.
That agreement allows countries to impose quantitative restrictions on imports under certain
conditions.

Second, the protocol governing Chinese accession can be written to embody very tight
reviews of the progress China makes over time in coming into full compliance with the time
specific commitments set forth in the protocol. ‘These periodic reviews could be conducted
under the provisions of the Trade Policy Review Mechanism set forth in the Final Act of the
Uruguay Round, supplemented or modified as specified in the protocol in order to provide
‘more assurance of compliance.

Third, China's record in its participation in international organizations provides some
basis for confidence that China would meet the obligations specified in any protocol it signed.
‘One example is China’s relationship with the International Monetary Fund (IMF). When
China joined the IMF in 1980 its foreign exchange system was extremely distorted. The
value of the domestic currency was highly overvalued and China was nowhere close to
meeting its obligations under Title VIII of the IMF Charter, which limits the ability of
members to “impose restrictions on the making of payments and transfers for current
international transactions.”

Over the next 15 years China undertook a series of important reforms of its foreign
exchange system. These steps included several major devaluations, the introduction of a
secondary swap market for some types of foreign exchange transactions, increased access to
foreign exchange for Chinese with approval to travel abroad, the unification of the foreign
exchange market at the beginning of 1994, and the introduction of convertibility for trade



81

ECONOMIC OUTLOOK]

3 TAIWAN MAKING HEADWAY IN THE FIRST PHASE OF ITS AMBITIOUS ASIA PACIFIC REGIONAL OPERATIONS CENTER
PLAN (APROC): LIBERALIZATION OF FINANCIAL MARKETS AND THE ESTABLISHMENT AND UPGRADING OF AL~
READY EXISTING TRANSSHIPMENT FACILITIES. RECENT INCLUSION OF TAIWAN STOCKS INTO MORGAN STANLEY'S.
EMExomic MARKETS INDEX AND THE Dow Jones WORLD INDEX REFLECTS INCREASING CONFIDENCE IN TAl-
WAN’S CAPITAL MARKETS. THE CEPD EXPECTS KAOHSIUNG, TAIWAN'S SOUTHERNMOST MAJOR HARBOR, TO BE
‘THE WORLD'S BUSIEST CONTAINER PORT BY 2000.

APROC: THE PLAN To MaKE TAIWAN INTO
Six REGIONAL OPERATIONS CENTERS

: 1. MANuracruRING 4, Financia
A “ScrENcE AND TECHNOLOGY ISLAND" (Cross-BORDER FINANCIAL SERVICES
i [WITH WELL-EQUIPPED SCIENCE PARKS
: 5. TELECOMMUNICATIONS
| 2. SEA TRANSPORTATION ener Sorrcema Hus
‘TransstapMenT Hu For East Asia NATIONAL INFORMATION INFRASTRUCTURE
3. Am TRANSPORTATION 6. MEDIA

2% TAIWAN'S INCREASING UNEMPLOYMENT MAY BE A SIGN OF A TRANSITION IN TAIWAN'S CHANGING ECONOMY.
‘TAIWAN IS EXPERIENCING STRUCTURAL CHANGE IN ITS ECONOMY AS IT GRADUALLY EVOLVES INTO A HIGH-TECH
NOLOGY CENTER

3 AT THE SAME TIME, PESSIMISTS RAISING CONCERN OVER TAIWAN'S DECREASING SAVINGS RATE OVERLOOK THE
FACT THAT DECREASED SAVINGS TRANSLATES INTO INCREASED CONSUMPTION, WHICH I$ GENERALLY GOOD FOR AN
ECONOMY AND FOLLOWS THE PATTERN OF MOST ADVANCED ECONOMIES. STILL, AT A HOUSEHOLD SAVINGS RATE OF
29.5%, TAIWAN RAS PLENTY OF ROOM FOR DOMESTIC INVESTMENT, LE. FUTURE GROWTH.

1996 Economic Forecasts | APROC TiveLine

~ 1005 t 1967
ProvecteD Economic GrowTH RATE 5.88% merove Yates Basie Eoonomc Stare
Provectep INFLATION RATE 3.28% ae
Laport & Export TRADE GROWTH >12,00% 1997 to 2000
Privare Sector SPENDING GROWTH 6.34% || momanwstorecse namonte ten Sse
PRIVATE INVESTMENT 8.97% O00 wel Beyond
ECONOMISTS EXPECT UPTURN IN 3RD QUARTER. 'Fctar Seung Tata's Potion os Rachonet Opuntions Car

Tous Fut Eooneree Lneounaa
Corea te Camarcton Proc

TOPICS, September 1996 “a


107

Chairman CRANE. Thank you, Mr. Mastel.
Mr. Lardy.

STATEMENT OF NICHOLAS R. LARDY, SENIOR FELLOW,
BROOKINGS INSTITUTE

Mr. Larpy. Yes, thank you, Chairman Crane, for inviting me to
appear before the Subcommittee today. I have submitted a state-
ment for the record, and I would like to just summarize very briefly
some of the points that I think are the most important.

Everybody that has appeared before the Subcommittee so far
today has agreed that it is in the United States interest that China
become a member of the WTO. People have pointed out a number
of advantages that will help us to deal with China more success-
fully on a multilateral basis on trade frictions rather than dealing
with them exclusively on a bilateral basis. It may reinforce an im-
petus toward further economic reform within China. And most im-
portantly, it has at least the potential for getting China on a time-
specific schedule of reforms that brings them into compliance with
the WTO standards.

I think virtually everybody has said that China must be a mem-
ber of the WTO on a so-called commercially viable basis or some
similar phrase.

The question we really have not adequately addressed, in my
opinion, is whether or not this should te as a precondition for
membership or whether China can achieve this status of coming
into compliance with world standards over time.

The analogy that I use on this question is: It is like buying a
house. We want China to buy the house, to agree to the structure
of the international system and the principles that are in it. If we
require China to come into complete compliance with all the spe-
cific provisions of this house, as a precondition for buying the
house, I think they will remain outside the WTO indefinitely.

Rather what we should be offering them is a deal that has a
downpayment that meets certain minimal requirements and then
a period of time in which they come into compliance with all the
rest of the provisions that everybody has addressed so far today.

But, I think the problem that we have had to date is that the
preconditions have been too great. And why do I say that?

Quite simply, there are very few benefits now for China becom-
ing a member of the WTO. They already have the single greatest
benefit of the WTO, which is most-favored nation, permanent MFN
status, in every country in the world except the United States.
And, we have provided them with MFN status on a year-by-year
basis for more than 15 years.

So, quite frankly, the world system and all the countries in it
have already given away the biggest prize we have to offer for
complying with the WTO standards.

So from China’s point of view, on a cost/benefit analysis, they are
not going to come in, in my opinion, to the WTO if they have to
meet all of these preconditions.

As many witnesses have already indicated, there are significant
portions of this economy which have not been transformed. The
current political leadership, I believe, will not undertake to open up
their economy fully to international competition on a very com-


92

Chairman CRANE. Thank you, Mr. Murck.
Ambassador Samuels.

STATEMENT OF HON. MICHAEL A. SAMUELS, PRESIDENT,
SAMUELS INTERNATIONAL ASSOCIATES, INC.; ON BEHALF
OF NATIONAL FOREIGN TRADE COUNCIL, INC. AND
FORMER U.S. AMBASSADOR TO GATT AND DEPUTY US.
TRADE REPRESENTATIVE

Mr. SAMUELS. Mr. Chairman, good afternoon. I am pleased to
testify on behalf of the National Foreign Trade Council on the very
important topic of the accession of China and Taiwan to the WTO.

The NFTC believes that as important as the accession of any
single economy may be, the general subject of WTO accession is
even more important, and I would like to make three points in this
regard.

First, accession is a major challenge for the WTO. Applications
to join the WTO are at an all-time high. The challenge is to ensure
that all countries are encouraged to join, but that each accession
preserves the basic integrity of the WTO rules and principles and
achieves commercially viable and acceptable protocols. Deadlines
and political pressures should not be the guiding force behind the
accession process. The guiding force should be to strengthen the
WTO's foundation for open global trade and investment and there-
by enhance worldwide economic growth.

WTO membership requires obligations just as it confers rights.
It is not universal or automatic. The United States should not
allow an economy to accede to membership in the WTO unless it
is confident that that country can fulfill all its obligations. My own
experience in Geneva tells me that some ignore this distinction.

Second, it is in our interest to have as many economies in the
WTO as possible. No economy should be denied entry for nontrade
reasons.

WTO accession is an essential vehicle for normalizing and im-

roving commercial relations with non-WTO members, especially
for integrating them into the world economy on responsible and
constructive terms.

Accession also offers significant leverage to WTO members to re-
solve outstanding commercial problems in a multilateral fashion
that avoids bilateral disputes that can harm broader relationships.
This is especially true for China.

It is in our strong interest that China become a member of the
WTO. China is the fastest growing economy in the world and is
strategically important to United States exports, jobs, and overall
competitiveness.

Since the late seventies, the Chinese economy has undergone sig-
nificant market-oriented economic reform, but it still has much fur-
ther to go. It remains extremely difficult for many foreign firms to
conduct business and trade with China.

The United States has led the way, through bilateral negotiation
and trade brinkmanship, to address many of these difficulties. In
most of our bilateral trade concerns, such as tariffs, intellectual
property rights, investment restrictions, general lack of trans-
parency in regulations and directives, or the discriminatory treat-
ment accorded to foreign companies, WTO membership would help


60

obligations in place of solely bilateral instruments of persuasion; progressively increased access to
Chinese markets at lower tariffs in areas covered by the WTO accords; greater transparency and
consistency of China's trade regime, including the national- and sub-national policy and regulatory
systems; expanded opportunities directly to conduct business in China; further protection of intellectual
property rights, reduction and elimination of the stll-pervasive non-tariff barriers confronting foreign
business interests; standardization of treatment of foreign and Chinese products and business activities
within China, and so on, Moreover, American businesses broadly speaking understand that a nation of
China's size and rapidly growing significance in the world economy in some ways deserves, by virtue of
its size and significance, to be included in the world’s ultimate association of trading nations.

Furthermore, many American firms are concerned that the longer China remains external to the WTO the
{greater the likelihood of damage to themselves and to the U.S. economy. It is important always to
remember that one of the great virtues of the GATT and the WTO is that they clarify a range of
prohibited practices and provide for remedies against them. This factor suggests that a China of
increasing economic power and global trade significance in the future, unfettered by the commitments
embodied in WTO membership, might pose increasingly difficult challenges in the future. At least one
expert has noted wryly that if China had been admitted to the GATT in the early days of its application,
during the late 1980s, the inevitable five-, eight-, or even ten-year phase-in periods it would have faced
would by now in 1996 have expired, and China would already be fully obligated to compliance with
WTO codes.

It is also important to mention, however briefly, the domestic impact of WTO accession within the PRC.
It is well known that powerful segments of Chinese official life are deeply concerned about the
economically and socially destabilizing effects of a too-rapid liberalization of key sectors of the Chinese
economy under the dictates of WTO accession protocol. The implications for China's domestic
‘economy of such a rapid-fire liberalization dwarf, | believe, the implications for the U.S. economy of the
recent NAFTA and Uruguay Round Agreements, which caused so much political debate and conflict in
our own country. The shaky economic condition of many of China's unprofitable state-owned

industries, which still provide a disproportionate share of overall industrial employment in the PRC, or of
the state-owned banks, which labor under huge burdens of bad loans, leave many in China
understandably nervous about what they perceive as the dangers of liberalization in too great a hurry.

‘The US-China Business Council has tong associated itself with the notion of WTO accession “on
commercially acceptable terms,” asserting, in essence, that no WTO agreement would be better than a
bad one. The concerns of various sectors of our corporate community largely mirror those expressed by
ULS. negotiators directly to their Chinese counterparts and to the multilateral accession negotiators. The
list is long: trading rights, national treatment, investment restrictions, transparency, non-tariff barriers,
even tariffs themselves, and many others.

‘Thus far, neither in the bilateral U.S.-China discussions nor in China’s discussions with the multilateral
working party have China and its trading partners begun to close toward a package. Certainly, the
negotiators must constantly look over their shoulders at their home-country monitors, lest they have their

knuckles rapped for making excessive concessions.

Ultimately, though, China's WTO accession is a question of negotiation. The ten-year history of the
Uruguay Round negotiations offers some grounds for optimism. Exactly when negotiating adversaries
make their minds up — to accept a package that offers less than total victory on each point, but whose
adoption nevertheless promises greater benefits to all sides than would continued stalemate ~~ is hard to
pinpoint in advance, That moment, nevertheless, has been reached in other bitter and seemingly endless
ions, and we believe that it can be reached in this one as well. Sometimes subtle changes of
political emphasis result in quiet modifications of frozen positions, sometimes changes in the
actualities of trade conditions lend greater urgency to settlement or new emphasis to previously-slighted
issues. Sometimes the entry of third-party “neutral” recommendations can help to break a seemingly
impassable log jam.

Mr. Chairman, the United States and China have passed through a very difficult period since Tiananmen.
Annual MFN debates in this country have created a pulsating rhythm of criticism and retort,
denunciation and response, and growing uneasiness in each country as to the other nation’s ultimate
intentions. As Congress moved toward its decisive vote in support of continued normal economic
relations with China earlier this year, voices on both sides of the aisle made clear that the annual MFN
convulsion was an increasingly unproductive and misdirected exercise.



56

It is important not to underestimate the WTO as a trans-
formative device that will encourage and ensure a higher degree of
compatibility on the part of China and its trade regime with glob-
ally established norms and practices.

We come back again and again in this debate to the question of
whether the glass is half full or half empty, to whether accession
to the WTO is a carrot or a stick. And the answer, of course, is that
it is both: that on the one hand it is necessary, as Ambassador
Barshefsky and her predecessors have argued, that the United
States in its role of extraordinary influence in this matter really in-
sist on a degree of commitment and specificity on the part of China
if a successful agreement is to be realized.

But it is important—in Congress and in the White House and
certainly in the business sector—that two other factors be taken
into account in addition to what we might call the “not unless”
factor.

One of these two additional factors is the downside that goes
with China’s continuing presence outside the WTO. There are
downsides in terms of the lack of multilateral engagement, the lack
of multilateral dispute resolution, and other things that come with
membership.

And at the same time, the risk persists that the many bilateral
trade concerns currently facing the United States and China are
liable to be melded into the larger political conflicts that sometimes
grip the two countries in ways that would be reduced if China were
part of a multilateral system of dispute resolution.

It is also worth pondering, as one considers the potential valued
China’s WTO inclusion, that, as the Chinese have said themselves,
the commitment to WTO membership on the basis of an acceptable
accession package is a way of ensuring the continuation of the re-
forms and the very real progress that the People’s Republic has
made in the period since reforms began in 1978. That sense of
change over time is not to be treated lightly. Membership in the
WTO, I think, should also be seen as a way of ensuring the con-
tinuation of those reforms, because China would be bound by very
somber and solemn international agreements.

A couple of other points before I conclude. It seems to me—and
I have not done a lot of research on this—that as we look at the
terms that we feel China must meet, if the United States, at least,
is to be satisfied with an accession package, we have to bear in
mind the terms on which other members of the WTO in good
standing conduct their trade and international economic regimes.

I think it is important that the United States not hold out over
China’s head specific demands for behaviors and commitments that
other members of the WTO, with whom we have perfectly satisfac-
tory and bilateral trade relations, do not adhere to.

For one thing, to do that would be to render the United States
liable to the countercharge from our negotiating opposite numbers
in China that we are being hypocritical. We need to be consistent
in our expectations and not expect that this particular nation join
and make solemn commitments to a universal system of rules, if,
on the other hand, we are not framing those requirements in a
universal way.


18

Testimony of Christopher Cox
on the Accession to the World Trade Organization by
Taiwan and the People’s Republic of China
Before the
Subcommittee on Trade
of the
Committee on Ways and Means
on
September 19, 1996

I want to thank Chairman Crane and the other members of the Subcommittee for
allowing me to speak to the issue of Taiwan's and Communist China’s suitability for
membership in the World Trade Organization. As you know, I have a particular interest
in this matter, having introduced two bills, H.R. 3569 and H. Res. 490, in the 104th
Congress. J am also pleased that the Committee is following up on the mandate for the
committees of jurisdiction to hold hearings by September 30, 1996 on the whole range of
issues regarding the U.S.. the PRC, and Taiwan--legislation which | also introduced in an
effort to move away from using Most Favored Nation status as Congress's singular
instrument for conducting China policy.

Let me begin by treating Taiwan. I believe it is essential for the United States to
work to reward Taiwan for the strides it has made in economic development and
expanding political freedom, Its enormous economic growth, and the culmination of its
progress toward full democratization--the first free and direct election for a head of state
in nearly 5,000 years of Chinese civilization--both follow the international trend toward
freedom and democracy in the Jast two decades. As a result, American credibility is on
the line. We must now work to help Taiwan assume a place in the world commensurate
with its status as a strong free-market economy and a fully democratic polity. To my
mind, helping Taiwan enter the World Trade Organization will send the right signals both
to Taipei and to other nations that we are urging to follow the path toward greater
economic and political freedom.

Moreover, Taiwan manifestly deserves to become a member of the WTO on the
merits. Taiwan has a free-market economy that has been progressively liberalized over
the last three decades, and is currently the 14th largest trading nation in the world.
Taiwan has a GNP that is the world’s 20th largest, its foreign exchange reserves are
among the largest in the world; and it has become the world’s seventh largest foreign
investor.

Taiwan has already agreed to reduce the tariff levels of many products, and to
eliminate other nontariff barriers as a condition of its admission to the WTO. Deputy
Treasury Secretary Larry Summers’ description of his meetings with trade officials and
President Lee Teng-hui in Taiwan earlier this week (on September 16 and 17) as “very
constructive” aptly summarizes Taiwan's consistent effort to negotiate in good faith. I
am told by both State Department analysts and officials in Taiwan that Taiwan will surely
fulfill the demands of members of the WTO Working Party on “Taiwan, Penghu,
Kinmen, and Matsu”--including the U.S.--when and if WTO membership is in sight. But
the KMT government of Taiwan will only be willing to spend the political capital
involved in exposing powerful domestic constituencies to international competition when
they know that WTO membership, and the international status accompanying it, are
imminent. like the alcohol, tobacco, and automobile industries and agriculture.



aT

Q: Political control over Hong Kong will pass to China in 1997 although Hong Kong will
remain a WTO Member. If China does not accede to the WTO before control of Hong
Kong passes to China, what problems might arise from this new situation? For example, it
has been suggested that China could use Hong Kong to circumvent world and U.S. trading
rules by labeling goods made in China as originating in Hong Kong. What is your view on
this?

A: Irrespective of the timing of China’s WTO Accession, Hong Kong will remain an
independent Customs territory for 50 years following 1997 under the terms of the agreement
between the United Kingdom, Hong Kong and the People's Republic of China concerning the
return of the territory of Hong Kong to China, including in economic and trade matters, such as
import quotas and certificates of origin.

The United States will continue to treat Hong Kong and China separately for purposes of
administering the requirements of our rules governing the origin of goods, and we will continue,
for example, to maintain and administer separate quantitative arrangements governing imports of
textiles and apparel from Hong Kong and China as under applicable international agreements.

Q: What is the Administration’s position on Taiwanese accession to the WTO? Is it
possible that Taiwan would be allowed to accede to the WTO before China?

A: WTO accessions should be conducted and approved on their merits. We continue to work
with both Taiwan and the PRC, as well as with other interested members of the WTO, on
acceptable terms of accession for both economies. The timing of Taiwan's accession depends on a
number of factors, including agreement on outstanding issues raised by various parties in the
accession negotiations. The negotiations are well advanced, but key issues remain to be resolved
with most of the major WTO members in Taiwan’s Working Party. It is premature to discuss a
time line for completion. It should be understood that the timing of Taiwan's WTO accession
cannot be resolved by the United States alone. WTO approval of accessions is a multilateral
process, and requires that all current Members agree to the terms of accession.



51
sitional periods, time to catch up, more akin to a developing coun-

So, we have said to China that we want a good substantive reso-
lution on each and every issue outstanding in the negotiation. At
the end of the day, China can call itself what it wishes. The acces-
sion itself has to be substantively right, whatever China calls itself.

So, our aim is to look at each provision, each obligation, and
work through what for the United States is the best deal and what
is the most reasonable deal for China.

Mr. Payne. Is China in agreement with that statement and those
policies?

Ambassador BARSHEFSKY. China is certainly in agreement with
the notion that a negotiation will be required. China rhetorically
refers to itself as a developing country and indicates that it will not
accede as a developed country. Well, no one has asked China to ac-
cede as a developed country. Our position on this issue—that is,
looking at every provision one by one and cracking the best deal
has been our position consistently for 8 years.

Mr. Payne. In the broad framework of the road map that was
laid out last year, one of the issues was market access.

Ambassador BARSHEFSKY. Yes.

Mr. PayNE. Without revealing confidential information in any
way, could you comment generally on what that outline contained
in terms of market access, please?

Ambassador BARSHEFSKY. The outline was very brief on market
access, indicating simply that China’s proposed market access
schedule of concessions on tariff and nontariff barriers was inad-
equate virtually across the board, and that it would have to
substantially revise and put forward a new proposal.

We did not in the road map specify the level of tariff concessions,
for example, because we have, tabled a tariff request, which is very
detailed, similarly with respect to nontariff barriers. But, the road
map was not designed to actually negotiate that particular point;
it was designed to crystallize in every issue area the decisions
China would have to take with respect to their positioning on
WTO.

And in the case of tariffs, for example, on market access, we
made clear that as a substantive matter, the offer by China on the
table was wholly inadequate, and it ought to go back to the draw-
ing board and start again, bearing in mind our requests.

ir. PAYNE. When do you expect China to respond with some sort
of market access offer?

Ambassador BARSHEFSKY. Well, China has provided some further
information on market access and has come forward in the APEC
process with some unilateral tariff reductions, but those tariff re-
ductions only get China to the level of what they had put on the
table in Geneva, which was inadequate.

So we have not yet received from China, though we have asked
for it and the chairman of the working party in Geneva has asked
for it, revised or modified offers with respect to market access
issues.

There is a working party toward the end of October, and we
would certainly hope China would come forward at that point, but
we do not know if they will.


80

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[NEW 8-INCH WAFER FABRICATION FACILITY. ACER HAS ALSO RECENTLY TEAMED UP WITH MICROSOFT IN AN EFFORT
‘TO INCREASE ITS PARTICIPATION IN THE RAPIDLY EXPANDING INTERNET.

Unrrep Parcet SeRvicr (UPS) SIGNED A MEMORANDUM OF UNDERSTANDING WITH THE MINISTRY OF TRANS-
PORTATION AND COMMUNICATIONS TO ESTABLISH UPS's MAIN ASIA PACIFIC REGIONAL AIR CARGO HUB IN TAI-
WAN, UPS's INVESTMENT IS EXPECTED TO TOTAL BETWEEN USS380-410 MILLION OVER THE NEXT 15 MONTHS,
INCLUDING NTS2.6 MILLION IN LAND RENT FOR NEW FACILITIES CONSTRUCTED AT CKS INTERNATIONAL AIRPORT.
‘Tue MOTC GAVE THE NoD TO THE WORLD'S LARGEST DISTRIBUTION COMPANY OVER US RIVAL FEDERAL EX-
PRESS, WHICH HAD PRESENTED ITS APPLICATION FOR A REGIONAL TRANSSHIPMENT HUB AS EARLY AS 1988.

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a TOPICS, September 1996


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142

September 16, 1996

The Honorable Philip M. Crane
‘Chairman, Subcommittee on Trade.

233 Cannon House Office Building
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:
The American Oiseed Cositon (AOC). the trade association
representing U.S. oilseed producers and processors on trade policy

matters, would like to take the opportunity of your upcoming

on the World Trade Organization (WTO) Singapore Ministerial
Meeting and the Accession of China and Taiwan to the WTO to
‘express how closely our industry's growth is linked to continued
global trade liberalization in the oilseed and oilseed products sector.

In the case of the Singapore Ministerial, we have urged the Clinton
Administration to include a Zero Tariff Initiative for and
oilseed products on the ministerial agenda. A zero tariff initiative for
oilseeds and oilseed products would focus the attention of WTO
members on both the need for continued liberalization of world trade
in this sector (some members are attempting to move in the opposite
direction) and on the importance of beginning the process before the
Continuation of the Uruguay Round Agriculture Negotiation gets
under way in 1999.

China is the world’s largest market for oliseeds and oilseed products
and therefore Chinese Accession to the WTO is the most important

advancing oseed and ollseed product liberalization and we
‘commend them for their efforts.

Sincerely,

opel,

Enel:
Tors)


135

Chairman CRANE. Thank you, Mr. Hall.
Mr. Bremer.

STATEMENT OF CHARLES V. BREMER, DIRECTOR, INTER-
NATIONAL TRADE, AMERICAN TEXTILE MANUFACTURERS
INSTITUTE

Mr. BREMER. Thank you, Mr. Chairman.

Among the issues and challenges facing the domestic textile in-
dustry, which ATMI represents, and its 634,000 full-time employ-
ees, none is more daunting than international trade, and no single
element of that challenge looms larger than China, the world’s
largest textile and apparel exporter.

China has captured this role of primacy by a long and systematic
pattern of unfair and illegal conduct, conduct which renders China
ineligible for and undeserving of membership in the World Trade
Organization.

Before China can be admitted to the WTO, it must look like,
sound like, and act like a responsible member of the international
trading community. At the very least, this would entail the accom-
plishment—the accomplishment, not the notice of intent, not the
commitment, not the agreement, not the promise—of the following
reforms.

It must have a convertible currency with one and only one rate
of exchange.

It must cease the repeated violation of trade agreements to
which it is a signato:

It must end the subsidization of its exports. It must stop dump-
ing its exports in foreign markets.

It must open its domestic markets to imports, which means
among other things, lowering tariffs to reasonable levels, binding
them to the , removing capricious and arbitrary nontariff
barriers, and adopting truly transparent rules and regulations.

1 China must abolish its export performance-linked investment
jaws.

It must not constrain its import trade through State-controlled
quasi-commercial enterprises.

And finally, it must cease forthwith its massive and unremitting
intellectual property violations which are nothing less than naked

With regard to this last item, ATMI realizes that China signed
an a ment earlier this year to terminate such practices. But,
ATMI is not as sanguine as others that this commitment will be
honored. China promised the same thing in 1992 and in 1995. Our
industry continues to be victimized by Chinese theft of our
members’ intellectual property.

But, even if China does end its intellectual property piracy, it
has made no commitment to cease any of the other practices cited.
Any of them individually would be grounds to carefully consider
China’s accession to the WTO. Collectively, they should forbid even
the consideration of China’s accession.

Thus far the United States has been steadfast in articulating the
conditions under which it will consent to China’s membership in
the WTO, and it should continue to do so.


13

TOM LATHAM,
Sooner ome

Congress of the United States
Wouse of Representatives:
Washington, BE 20515-1505

Statement by
Congressman Tom Latham
Sth District of Iowa
to the
Committee on Ways and Means
Subcommittee on Trade
September 19, 1996

Mr. Chairman and members of the Committee, I appreciate the
opportunity to appear before you. TI am here today to underscore
the importance of obtaining meaningful market access in China and
Taiwan for U.S. exports of Pork.

I represent the second largest hog producing district in the
country. My state of Iowa is, by far, the largest hog producing
state in the nation. The pork industry is Iowa's largest industry.
However, pork production is not limited to Iowa or even to the corn
belt. Significant production is found in many states across the
country. The contribution of the pork industry is far reaching
throughout our economy. According to a 1993 Iowa State University
study, the U.S. pork industry is responsible for over $66 billion
in total domestic economic activity and supports 764,080 jobs.

USDA forecasts agricultural exports to reach $60 billion this year
with imports expected at approximately $30 billion. Thus,
agricultural trade results in a huge surplus for the United States.
According to USDA, each $1 billion in agricultural exports supports
over 17,000 well-paying jobs for American workers in production,
processing, packaging, transportation, and related industries and
services. The record for pork is even more impressive. The
Economic Research Service of USDA calculates that for each dollar
in exported pork -- a value-added commodity -- §1.63 in additional
U.S. economic activity is generated compared to $1.08 for each
dollar of bulk grain exported. Moreover, every billion dollars in
pork exports creates an additional 23,000 new jobs in the U.S.
‘economy.

Perhaps no industry has benefitted as much from the Uruguay Round
Agreement and NAFTA as the U.S. pork industry. During 1995, when
the Uruguay Round Agreement went into effect, U.S. pork (muscle
meat) exports to the world increased by approximately 50 percent
from 1994 levels. As a result of NAFTA, U.S. pork exports to
Mexico increased by 74 percent in 1994 compared to 1993 levels.
Even with the devaluation of the peso, U.S. exports to Mexico
remain significant. Moreover, the U.S. pork industry will gain
further market share in Mexico as the NAFTA phase-in period
proceeds. In 1996, U.S. pork exports continue to soar. During the
period January through June 1996, U.S. pork exports increased by 40
percent compared to the same period in 1995.

U.S. pork exports are growing for a number of reasons. First, the
U.S. is the technological leader and low-cost producer of pork in
the world. Second, by virtue of such things and the Pork Quality
Assurance Program and the relentless pursuit of a lean product with
outstanding taste, U.S. producers can boast of a product which is
second to none in terms of global quality. Third, global demand
for pork is exploding as vast populations across the globe increase
their incomes. Many of you may not realize it but pork is the
world’s meat of choice. Pork represents 44 percent of daily meat
protein intake in the world. But no matter how efficient the
production process, no matter how high the quality, no matter how
large the demand, U.S. pork producers are unable to export pork
without market access.


137

other problems we have is that in other contexts, if you are dealing
with other countries and you want to transfer technology on a com-
mercial basis, there is a market there. You can go to one company;
if they are not offering a good deal, you can go to another company.

The problem with China is, because it is pretty much centrally
government-controlled, with the exception of a few local govern-
ments, you are dealing much more with one body, and you do not
have that same bargaining power that you do in other contexts.

Chairman CRANE. A question that I would like to put to Mr. An-
derson, but have Mr. Bremer comment, too: What industries do you
believe would be most negatively affected if China were to enter
the WTO as a developing, rather than developed, country?

Mr. ANDERSON. The impact, Mr. Chairman, would be to allow
China to continue the kind of predatory practices that they
currently employ.

While there is no hard and fast rule as to what conditions are
for a developing, as opposed to a developed, member of the WTO,
it implies at least much longer phaseouts of WTO inconsistent
practices. It implies at least the grandfathering of many practices
that are detrimental to the United States.

So, I think it would fundamentally mean continued harm, a con-
tinued downward pressure on Unitied States workers’ wages, and
continued pressure on United States industry, as has been noted
by many of the witnesses here today, to transfer plant and equip-
ment and technology to the People’s Republic of China on terms
that have nothing to do with their commercial interests.

It would be disaster for this country if we acceded to that kind
of situation.

Chairman CRANE. Mr. Bremer, I think I heard you speak on that
with regard to a targeted industry. Do you have any broader view
of that.

Mr. BREMER. Yes, Mr. Chairman. I believe that if China were al-
lowed to join the WTO as a developing country, nearly all manufac-
turing industries in this country, with the exception of the ad-
vanced and high-tech industries such as computer manufacturing,
but every other manufacturing industry and any industry depend-
ent upon intellectual property would suffer.

As a developing country member, China could postpone its adop-
tion of the investment and—the intellectual property codes of the
WTO for years. As a developing country member trying to continue
its subsidization of its exports—even though I understand the U.S.
Department of Commerce says there are no subsidies in China; I
find that ridiculous—they can continue their subsidization, and
they can continue dumping.

Every manufacturing—except the very, very advanced and high-
tech—and the intellectual property industries in this country would
continue to suffer for years.

Chairman CRANE. Mr. Hatano or Mr. Hall, do you have any
thoughts on that?

Mr. HaTAaNno. None, sir.

Chairman CRANE. Mr. Houghton.

Mr. HouGHTON. Yes. Thank you very much, Mr. Chairman.

I guess I am asking a basic question here which does not have
anything to do with a lot of the testimony.


55

the negotiation of key agreements such as this and many others is
extremely important.

I am sorry that Congressman Gibbons and the other Members
who are leaving the Subcommittee are not here. I wanted to say
a special word of appreciation to them and to former Chairman
Gibbons whose influence was formative as I entered the field in
which I now work.

Chairman CRANE. I agree with you wholeheartedly, and Sam is
going to be back, but I think it will be after your departure, and
Charlie has an organizational meeting, but he will be back later,
too.

Mr. Kapp. Will you please convey our appreciation?

Chairman CRANE. I will pass it on to them both. Thank you.

Mr. Kapp. My testimony pretty much speaks for itself. It does
not attempt to get down to the special terms that are or are not
acceptable to individual companies or sectors of our business com-
munity as they approach the further development of the WTO
negotiations.

I have tried to emphasize elements of context, and I would like
to review a couple of those here.

The first is that the United States-China Business Council is
strongly in favor of congressional efforts and White House efforts
to achieve permanent MFN for China. We will continue to speak
to that issue; I notice that it is in writing in the testimony of an-
other one of the witnesses today, and we are pleased to make the
same argument and expect to make it with considerable vigor in
the months to come.

Next, the American business community, broadly speaking, con-
tinues to want to see China in the WTO on commercially accept-
able terms. That is, of course, easy to say, but ultimately it will
require a greater clarity of definition on specific issues.

Along the way, though, there are some things to keep in mind.
The China-WTO issue should not be allowed to become a referen-
dum on United States-China relations. And, it certainly should not
become the vehicle for any kind of sustained assault on U.S. com-
mitment to the institutions of the multilateral trading system, in
this case the WTO. I have tried to make that point very strongly
in my remarks.

The process of China’s accession clearly “takes two to tango.”
That is the case between the United States and China in our bi
eral discussions. It is the case between China and its other individ-
ual negotiating partners on this issue, not only the European
Union and Japan, but other countries as well. And, of course, it is
the case with regard to China’s negotiations with the multilateral
WTO working party.

We share the concerns of many of those who testified today, in-
cluding Ambassador Barshefsky and some of the sectoral and other
witnesses, that many aspects of China’s current trade regime sim-

ly must be addressed iP a commercially and politically acceptable

agreement is to be realized.

At the same time, I think it is important to emphasize, as Profes-
sor Lardy does to some extent in his testimony, the advantages
that inclusion of China in the WTO can have if the agreement is
good enough for the United States as well as for China.



ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE CONTACT: (202) 225-1721
August 22, 1996
No. TR-31-

Crane Announces Hearing on
Accession of China and Taiwan
to the World Trade Organization

Congressman Philip M. Crane (R-IL), Chairman of the Subcommitice on Trade of the
‘Committee on Ways and Means, today announced that the Subcommittee, as part of its series of
hearings on the future direction of U.S. trade policy, will hold a hearing on the accession of the
China and Taiwan to the World Trade Organization (WTO). The bearing will take place on
‘Tuesday, September 17, 1996, in the main Committee hearing room, 1100 Longworth House
Office Building, beginning at 2:00 p.m.

Oral testimony will be heard from Acting U.S, Trade Representative, Charlene Barshefsky, as
well as other invited and public witnesses.

BACKGROUND:

Article XII of the Agreement Establishing the World Trade Organization states that any State
or separate customs territory may accede to the WTO “on terms to be agreed between it and the
WTO." In practice, China, Taiwan and other applicants must negotiate terms for membership in the
WTO in the form of a Protocol of Accession. Through the operation of a Working Party, the United
States and other WTO members bave an opportunity to review the trade regimes of applicants to
ensure that they are capable of implementing WTO obligations. In negotiating terms of accession to
the WTO, members also work to secure commitments and concessions on tariff levels, agricultural
market access, and trade in services.

China applied for accession to the General Agreement on Tariffs and Trade in July 1986, and
work has proceeded sporadically in the China Working Party since that time to negotiate the
conditions upon which it will enter the WTO. Taiwan, known in the WTO as Chinese Taipei,
applied for accession in January 1990, but negotiations did not commerice until September 1992.

In announcing the hearing, Chairman Crane said: “Given the size and annual growth rates of
the economies of China and Taiwan, and the importance of achieving agreements that open markets
for U.S. products and services, itis essential the Trade Subcommittee monitor progress of these
accession talks closely. Congress will insist on strong protocol packages which ensure that the
disciplines of the Uruguay Round Agreement are firmly established and protected, and that our
‘market access objectives are accommodated.”

FOCUS OF THE HEARING:

The focus of the hearing will be to examine the problems and opportunities associated with
the entry of China and Taiwan into the WTO. Testimony will be received on objectives for the
negotiations with China and Taiwan, as well as on the anticipated impact of their WTO membership
on U.S. workers, industries, and other affected parties.

to be heard at the bearing must be made by telephone to Traci Altman or Bradley
Schreiber at (202) 225-1721 no later than the close of business, Friday, September 6, 1996. The
telephone request should be followed by a formal written request to Phillip D. Moseley, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House


168

+ To provide real access, China will also have to address the problem of discriminatory
business costs. Presently, foreign firms in China pay more than domestic firms for a
variety of business expenses, including advertising, hotels, air travel, and office rental.
‘The requirement to use designated foreign employment companies to hire local employees
imposes additional, and inappropriate, costs.

Second, where foreign companies do invest in China, their operations should not be
subject to export, technology transfer, profit re-investment or other onerous performance
requirements.

Third, China should be required to assume the full mantle of WTO obligations as soon
as possible, and for those areas where a transition period is required, it must be tightly defined.
For example, an acceptable protocol of accession must commit China to meet the obligations of
the TRIPs Agreement as a developed nation and without a transition period. Effective intellectual
property protection is in China's interest and will encourage inbound investment.

Fourth, China's programs aimed at promoting economic growth and development at home
‘must be consistent with WTO principles, and should be crafted to avoid distortions in world trade
flows.

LICIT also supports the Administration's intention, as expressed by Acting USTR
Charlene Barshefsky in her oral testimony before this Subcommittee, to include in China's
protocol of accession a special safeguard measure spplicable to imports from China afler
accession.

We recognize that the negotiations over China's accession are exceedingly difficult and
have supported the Administration's premise that progress on the WTO accession issue will be
advanced by progress on bilateral trade issues. We believe the strategy of pursuing negotiations
‘on important bilateral issues, such as intellectual property rights, is the right one and should
continue as part of a coordinated effort to bring China’s trade practices in line with international
norms.



A DECISIVE YEAR FOR TAIWAN POLITICS

‘TAIWAN'S EFFORTS TO DEFINE ITS ROLE ON THE INTERNATIONAL STAGE SPARKED INCREASINGLY AG-
GRESSIVE POSTURING FROM MAINLAND CHINA, WHICH REGARDS TAIWAN AS A RENEGADE PROVINCE
‘SEPARATED FROM THE MOTHERLAND IN 1949. A STEADY DECLINE IN CROSS-STRAIT RELATIONS BEGAN
IN Jue 1995 WHEN PRESIDENT LEE TENG-HUI VISITED HIS ALMA MATER, CORNELL UNIVERSITY,
[AND CULMDIATED IN THE WEEKS PRECEDING THE MARCH 23, 1996 DIRECT PRESIDENTIAL ELECTION
‘THE ELECTION WAS A HISTORIC MOMENT, AS IT REPRESENTED THE FIRST POPULAR SELECTION OF A
HEAD OF STATE IN OVER 5,000 YEARS OF CHINESE CULTURE.

June 1995

PresDeNT LEE MADE A PRIVATE VisIT 10 CORNELL
UNIVERSITY, FROM WHICH HE RECEIVED A DOCTORAL DE-
GREE DN AGRICULTURAL ECONOMICS.

BEVING ANNOUNCED THAT THE UNITED STATES HAD
ACTED AGAINST ITS “ONE CHINA” POLICY BY GRANTING
Prestoent Lee a visa. In PROTEST, BELING IMMEDIATELY
RECALLED ITS AMBASSADOR TO THE UNITED STATES, BRING-
NG SINO-AMERICAN RELATIONS To A 25 YEAR LOW. LATER
‘THAT MONTH, IT ANNOUNCED A SERIES OF MISSILE TESTS IN
‘THE TAIWAN STRAIT.

Fat 1995

(CHNA’s MILITARY TESTS AND INTIMIDATION CONTINUED
INTO THE FALL, APPARENTLY ON AN EFFORT TO INFLUENCE
‘THE OUTCOME OF THE DECEMBER 2 LEGISLATIVE ELECTIONS

HOWEVER, DESPITE THE SABER-RATTLING AIMED AT BOL
‘STERING THE PRO-UNIFICATION NEW PARTY, THE LEOISLA-
TIVE ELECTIONS AND SURROUNDING DEBATES WERE DOM-
NATED BY DOMESTIC POLICY ISSUES

Recent Legislative Election Results
ond 1995

ny ee ed en
we | 89° 3 85 “6

om | 50 cry 4 3
mere | 7° - 2 3
om | as 16 4 8

| 16 100} 164°") 100

olny atch eel
(0 Sat brane ct op
Cet oni ep

————

LEGISLATIVE YUAN
EvLeciiONS

1995

\
i
|

DECEMBER 2,

Over 10 sLION vores WENT TO THE POLLS,
[REPRESENTING ABOUT 68% OF THE TOTAL ELECTOR-
‘Ave. THE ELECTION RESULTS REVEALED TAIWAN'S
PROGRESS TOWARD A VIABLE, MULTIPARTY DEMOC-
er.

‘Tee: Democranc Prooressive Pasty (DPP)
ENGAGED IN VOTE-SHARING STRATEGIES INTHE MORE
DIFFICULT DISTRICT RACES. THIS DYCREASED CONCERN
‘WITH PARTY UNITY MARKED A BREAK. FROM THE IN-
DIVIDUAL NATURE OF PREVIOUS ELECTION CAMPAIGNS.

‘Tue New Party (NP) FARED QUITE WELL, RAIS-
[NG ITS REPRESENTATION DN THE LEGISLATIVE YUAN
FROM 770 21 SEATS, MAINLAND CHINA'S MINISTER
(OF FoREON AFFAIRS, SHEN GUO-FANG, QUICKLY
‘CLAIMED VICTORY POR THE ELECTION RESULTS COM-
MENTING THAT TATWAN'S PEOPLE HAD VOTED FOR
UNIFICATION, NOT INDEPENDENCE,

Lookino FORWARD TO THE NEW LEGISLATURE,
‘POLITICAL ANALYSTS EXPRESSED SOME CONCERN THAT
‘A MORE FRAGMENTED LEOISLATIVE YUAN WOULD
IMPEDE THE KMT’S EFFORTS To ENACT IMPORTANT
LEOBLATION. THIS HAS RAISED SKEPTICISM OVER THE
SUCCESS OF THE Asia Paciric REGIONAL OPERA-
‘Tons Centex (APROC) PLAN, WHICH HAS ALREADY
‘BEEN DELAYED BY LEGISLATIVE LOO JAMS.

ONLY HIGHT CASES OF ELECTION-RELATED VIO-
LENCE WERE REPOPTFN,

aa TOPICS, Septes:ber 1996


27

Chairman CRANE. Our next witness is Hon. Charlene
Barshefsky, the Acting U.S. Trade Representative.

STATEMENT OF HON. CHARLENE BARSHEFSKY, ACTING U.S.
TRADE REPRESENTATIVE

Ambassador BARSHEFSKY. Thank you.

Mr. Chairman, thank you very much. It is a pleasure to be here.
Of course, I ask that my full statement be accepted into the record.

Chairman CRANE. Without objection, so ordered.

Ambassador BARSHEFSKY. Thank you.

Mr. Chairman, if I may, before I begin, on behalf of the adminis-
tration, pay particular tribute to Mr. Hancock and Mr. Payne and
Mr. Gibbons. Of course, Mr. Payne has worked tirelessly with
USTR on behalf of constituents in his district who have had dif-
ficulties with globalization, with the new rules of international

rade.

Mr. Payne, you helped us work out very difficult and thorny is-
sues with respect to textiles and tobacco, in a way that served the
interests of the United States, but also served the interests of your
constituents so well, and I want to pay special tribute to your ef-
forts in that regard, and it has been a real privilege to work with
you. And, I say that on behalf of all of USTR and the administra-

ion.

Of course, Mr. Hancock has had a very long and distinguished
record of public service representing his constituents, including the
auto industry in his district, and we have had great pleasure work-
ing with him.

And then we get to Mr. Gibbons, who is so unique and recognized
as such by the administration. I wanted to simply say, Mr.
Gibbons, on behalf of the administration, that we recognize.so well
your distinguished service to our country and to the Congress. In
our narrow area of trade, of course, you have been a champion of
trade reform and trade liberalization throughout the world. It has
been the very greatest privilege to work with you, and I want to
thank you so much.

Mr. Gispons. Thank you.

Ambassador BARSHEFSKY. Mr. Chairman, it is a pleasure to be
here to discuss the efforts by China and Taiwan and indeed other
nations to join the World Trade Organization. Let me first chat
briefly about China and then Taiwan.

As I have said to this Subcommittee before, the United States-
China relationship is complex and multifaceted. We, of course, have
a wide range of issues with China that go beyond trade, including
human rights, including nuclear nonproliferation, and environ-
mental protection. But, of course, trade does play a central role in
our relationship with the world’s largest nation.

China is now the world’s 11th largest trading nation. It is the
United States fifth largest trading partner. In 1995 our exports to
China increased by about 27 percent. They have doubled since
1990, but, of course, the trade deficit is of significant concern to us.

The Clinton administration’s policy toward China has been con-
sistent and unchanging. It is a policy of engagement, but by that,
I do not mean we ignore our differences. “Engagement” means that


10

EXECUTIVE DireEcToR's MESSAGE

“Taiwan and mainland China can be likened to Ginger Rogers and Fred Astaire. He ve-
ceived all the accolades and limelight however she was the one that accomplished the same
routines, only wearing high heels and dancing backwards.”

‘eptember is the month that
AmCham — Taipei

celebrates its 45th year in
business. September is alto
‘AmCham Month. Atthough weare
not the eldest AmCham, we have a
reputation for being oneof the most
prosctive,not only inthe Asia Pacific
region, but globally. Hostinga core
of activities centering on industry
working committees and issues
pertinent ro US business interestsin
Taiwan, AmCham organizes
anywhere from 18-25 events in a
siven month. A recent introduction
to our calendar of activities is the
undertaking ofa Taiwan Doorknock
to Washington D.C. Entering its third year, the Doorknock
is an experience that is both professionally and personally
rewarding. This month a delegation of AmCham members

Executive

Lynn Murray Sien ~ 3% Uk.

Rather, I would like to tura
your attention to a very useful
document prepared by AmCham.
It is the 1996 Taiwan White Paper
‘which caprulizeseconomic, political
and industry trends and events. As
advocates of USinterestsin Taiwan,
wwe must also weigh the prapects
for future opportunity in our host
ination. Included among the macro
data is a “Rankings Profile” of
Taiwanthat offersimmediateclarity
towards validating Taiwan's level
‘of globalimportance. Only recently
‘has support for elevating Taiwan's
economic status been begrudging
accepted by most world forum
participants. It was not always the case; Taiwan and mainland
‘China can be likened to Ginger Rogers and Fred Amaire. He
received all the accolades and limelight however she was the

Director,

travels to Washington and articulates US| issues and
concerns surrounding their activities in Taiwan.
‘Notwithstanding the hard work of our liaison representative
inthecapitolaccessto our administration offcialsandelected
policy-makers is uly inspiring

Taiwan's unique status vira-vis US foreign policy
offers many challenges. It was only afew short years ago that
the focus of our Doorknock delegation activities was to
educate those in the administration and on the Hill about
‘Taiwan's prosperity and emerging democracy in an effort to
place US-Taiwan business issues on the radar screen. It was
also obvious three years ago that given US's One
foreign policy and corporate home office's preoccupation
‘with the “widget theory," 1.2 billion consumers in mainland
China versus 21 million in Taiwan, America needed to find
balanced and measured approach when dealing with Taiwan-
‘mainland China issues. Indeed, she did. But thicismerely one
of many activities taking place this month and there will be
‘more to report when we return from Washington,

cone that the same routines, only wearing high
bels and dancing backwards,

nis evident though that as Taiwan gains respect for its
economic and democratic achievements, more visitors from
the US and elsewhere are blazing « wider path to Taipei and
adding it to their itinerary prior to trekking onward to
‘mainland China. Among those, AmCham is honored to be
homing a number of VIPs:

‘Aug, 30~ Deputy Asst, Secretary Dan McLaughlin Department
2f Commerce; Ambassador William Bode; Sept.3 ~ Dr. Michael
D. Lampton, Director, National Commitieeon US:PRCRelations
‘Council; Former Secretary of Defense, Arthur Schlesinger; Sept.
5~Mr. Dominic Tarantino Chairman, Price Waterhouse World
Firm; Sept. 17 ~ Dr. Lawrence Summers, Under Secreary of
Treasury; Sept. 23 ~ Ambassador Darryl fobnton Director, AIT
Taiwan; Sept. 24~Dr. Ken Brody, Chairman, Presidential
‘Commisionon Asia Foreign Affairs.

io TOPICS, September 1996


146

APPENDIX I

China's Import Needs for Oilsceds and Products
(1996 - 2005)

‘China's crade and iavestment policies are expected to favor imports of oilseeds to meet growing
protein meal and vegetable oll needs. TBs as orn he wena word pers fr cous
‘with large and growing deScits of real and oil, Chins's oilseed processing industry is antiquated,

crush capacity near ports, afe aa follows (Million Metric Tons):

1996197 1997198 isses9 1999/2000 2000/2001
Oilseeds' Ls 20 3.0 4s 60
‘Vegetable Oil 38. 42 44 46 47
‘Soybean Meal 10 1s 22 27 32

2001/2002, 2002/2003 2003/2004 2004/2005,

Oilseeds’ 1S 90 10.5 120
Vegeuble Oil 49 st 54 $7
Soybean Meal Pe eS) 4s $2

(China's past vegetable oil and protein meals usage trends are of limited value in forecasting future
consumption levels and import needs due to the following factors:

+ Rigid eationing of vegetable oll and animal products consumption prior to 1993.
«Past constraints on imports.
© Acceleration of the rapid urbanization trend.

' soybeans are expected to make up over 90 percent of oilseeds imports.


63

According to the U.S. Department of Commerce, Taiwan im-
ported $19.3 billion in goods from the United States in 1995. It was
the sixth largest market in the world for American exports and the
fourth largest market for American agricultural exports.

With only 21 million people, as compared to the 1.2 billion people
in the PRC, Taiwan is approximately twice the size of the PRC as
a market for United States goods. The United States, in turn, is
Taiwan’s export market, leading to an American trade deficit of
$9.7 billion in 1995. The Taiwan market is, therefore, large with
significant existing United States interests to protect.

There is also potential for future growth. Real GDP growth in
Taiwan was 6.4 percent in 1995. The savings rate continued high
at 29 percent, and per capita income was over $12,000, having
increased by 86 times in the last 45 years.

Taiwan’s remarkable economic progress was for many years
export-driven, while major sectors of its domestic economy re-
mained closed to foreign and in some cases to private participation.
This means U.S. business has the opportunity to grow from an al-
ready large base, benefiting from reduced tariffs and deregulation.

The WTO accession package negotiated with Taiwan will signifi-
cantly improve market access for United States products and firms.
There are few past accession agreements so favorable as the one
being negotiated with Taiwan.

But, the commitments made will not take full effect until Taiwan
becomes a WTO member. That is the reason Taiwan’s WTO acces-
sion is an important economic interest of the United States.

However, there are still a few crucial unresolved issues. In the
view of AmCham/Taipei, the major ones are full access to the agri-
cultural market, especially the rice market; privatization of the
government liquor and tobacco monopoly, full access to that market
and opening of that industry to foreign investment; opening of the
automobile market in a way that does not disadvantage United
States manufacturers; and finally regulations governing foreign
lawyers, which maintain or improve existing access for American
lawyers practicing in Taiwan today.

Some of these are difficult for Taiwan for domestic political rea-
sons. Others involve balancing United States interests against
those of other countries. For example, Japan and Korea are inter-
ested in the automobile market, and Australia is interested in the
beef market.

Notwithstanding the complications of conducting multiple bilat-
eral negotiations, 1 am convinced Taiwan wishes to move ahead to
complete its bilateral with the United States and will take the nec-
essarily steps.

Once the Taiwan-United States negotiation is completed, Taiwan
must still conclude its talks with other nations, and a multilateral
working group report must be issued to the WTO membership for
a vote.

Everyone is well aware that many countries would prefer to
admit Taiwan and the PRC to the WTO together. I cannot speak
with any authority about the politics of this large multilateral orga-
nization, but there are three points which I think should determine
US. policy.


20

These barriers to trade have contributed to the U.S. trade deficit with the PRC
ballooning from $10 million in 1985 to $33.8 billion in 1995. In the last decade, U.S.
exports to the PRC have tripled, but by comparison the PRC’s exports to the U.S. have
grown 11 times. In June of 1996, for the first time, the PRC surpassed Japan as the nation
with the largest trade surplus with the United States, as the PRC sold $3.33 billion more
in goods to the U.S. than the U.S. sold the PRC (as compared to Japan’s surplus of $3.2
billion).

Taiwan shou!d no longer be held hostage to Communist China’s suitability for
WTO membership, or more precisely, its lack of suitability for such membership.

To those who say that the controversy over Taiwan’s sovereignty renders should
prevent Taiwan from acceding to the WTO before the PRC, let me respond that their
concern is altogether unfounded. Pursuant to its charter and rules, membership in the
WTO is not limited to nations nor indicative of sovereignty, a policy illustrated by the
fact that Hong Kong will remain a full member of the WTO as a separate customs
territory after becoming part of the People’s Republic of China on July 1, 1997. Taiwan
likewise has applied for membership in the WTO as a separate customs territory. With
regard to this particular economic organization, questions as to whether there is one China
and where it is found on the map are irrelevant.

These arguments about the merits of Taiwan's and the PRC's relative cases for
accession to the WTO, and about why Taiwan ought not wait for the PRC to become a
WTO member, are set out in H. Res. 490, a Sense of the House resolution which I
introduced on July 26, 1996. H. Res 461 urged the Committee on Ways and Means--
along with the Committees on Banking, International Relations, and National Security--to
report out appropriate legislation to address the full range of issues in the relations
between the U.S.. the PRC, and Taiwan. This Resolution was expressly designed to
move beyond using MFN renewal as the only instrument for addressing this panoply of
issues, because | think we can all agree that MFN cannot and should not bear the weight
of our entire China policy. H. Res. 490 is just such an appropriate piece of legislation.

A statement of support for Taiwan's entry into the WTO is an important step
forward in China policy. Taiwan deserves to become a member on the merits, while the
PRC, as yet, does not. The U.S. should work for Taiwan’s membership in this economic
organization, for which sovereignty is not by definition a prerequisite for participation, in
order to reward Taiwan’s progress in economic growth and democratization. And
approval of the Taiwan model for Chinese civilization will signal the mainland that
embracing economic growth through free markets and rule of law is the proper course.
Far better than MFN, this symbolic measure regarding WTO membership will deliver the
message the PRC should hear. As such, I ask that your committee report out H. Res. 490,
and favorably.


37

the other twenty nine applicants are Russia, Ukraine, Kazakhstan, and six other former Soviet
republics of the Commonwealth of Independent States (CIS); the Baltic States, Saudi Arabia,
Jordan, and Vietnam.

‘The United States and other WIO Members adopted the Uruguay Round as a single undertaking-
-all aspects of the Agreements that emerged from the Uruguay Round negotiations were
mandatory for all who wished to become WTO members. Through the accession process, we
maintain the integrity of that commitment for future WTO members as well as for original ones.

The rules for joining the WTO are stated in Article XII of the Agreement, and are functionally
identical to those that operated for accessions to the GATT 1947, i, that

“Any State or separate customs territory possessing full autonomy in the conduct
of its external commercial relations and of other matters provided for in this
‘Agreement and the Multilateral Trade Agreements may accede to this Agreement,
on terms to be agreed between it and the WTO. Such accession shall apply to
Agreement and the Multilateral Trade Agreements annexed thereto.”

‘As was the case under GATT 1947, the negotiations required for membership provide broad
opportunity for current WTO members, including the United States, to ensure that new
memberships take place on terms that reduce barriers to trade and support the credibility and
strength of the WTO. In practice, this means that applicants must negotiate terms for
membership in the organization, giving current WTO members an opportunity (1) to ensure that
applicant trade regimes can implement WTO obligations and (2) to secure commitments and
‘concessions on specific issues and for enhanced market access on tariff levels, agricultural
market access, and trade in services.

‘The accession process involves a two part negotiation:

—' bilateral negotiations to identify specific goods and services market access commitments
and

— multilateral discussions in a Working Party composed of all interested WTO members to
identify aspects of the applicant's trade regime conflicting with WTO provisions so they
can be amended.

To initiate the WTO accession process, the applicant describes its foreign trade regime to WTO
members, responds to questions, and provides any other information on its trade practices and
laws requested by WTO members. There is a long list of basic information that all applicants for
WTO accession are required to provide for WP review. The WP will meet as many times as is
necessary to complete the'review of the applicant's trade regime, and to discuss concems
expressed by WTO members on the consistency of the applicant's trade regime. The pace of
these discussions traditionally depends on the applicants willingness to identify the problems
with WTO-consistency in its trade regime, and to provide assurances or commitments to bring
these measures into line with the WTO Agreements. Ultimately, the WP makes a collective
assessment of where changes or commitments to change must be made in the applicant's regime
to meet WTO obligations.

These assessments, and specific requests for changes or commitments to change to bring the
applicant's trade regime into conformity with WTO provisions, are reflected in the final
accession package approved first by the Working Party and then by the full WTO:

-- Protocol, listing the commitments undertaken by the applicant concerning WTO rules;

— a Working Party report elaborating on the commitments;

 _aschedule of initial market access commitments for trade in services; and

-- schedule of market access concessions for goods, including an agricultural country
schedule with commitments on export subsidies and intemal supports.



157

‘The deliberate result of this policy is to significantly reduce or eliminate the price differential
between high quality foreign products and low quality domestic products, By eliminating this
<ifferential, U.S. manufacturers in many cases would be forced to significantly pare down their
product offerings in Taiwan, eliminating their most innovative and creative health care products
‘and supplying generic products only. Because U.S. industry competes internationally on the
basis of its ability to bring to market creative new health care solutions which enhance efficiency
in the health care system and make patients better faster, a policy that forces our companies to
retreat to a generic product strategy would harm U.S. industry most by denying it the opportunity
‘to market its best products. It would harm patients most by denying them access to the health
care technologies they need.

Lack of Transparency and Openness. The WTO is replete with general requirements for
‘openness and transparency. Again, Taiwan's health insurance authority, in instituting its new
policy on the pricing of medical device products, appears to have been unaware of these general
requirements, as well as efforts by the rest of the government 10 come into compliance in order
to accede to the WTO. As evidence of the lack of transparency and openness which
characterizes the new medical device pricing policy, consider the following:

© Taiwan has yet to publish its policy for setting new prices,

‘© Oral explanations of the new price-setting rules by government officials often conflict
with actual U.S. company experience;

© Taiwanis the only country in the world that implements a pricelist for medical devices
‘but that does not make that list public. Even manufacturers are not notified by the
‘government when their own prices are changed;

‘© Taiwan is the only country in the world that implements a pricelist for medi
bbut does not include the manufacturer in negotiations over what its price will be,

© Prices may be set or adjusted at any time. Uncertainty regarding timing of price
Talatlons cxepronion indus anys eagage lag tens boars cates;

© Not until U.S. industry raised complaints through official U.S. Government trade
channels would Taiwan's health authority agree to even meet directly with manufacturers
to bear complaints about the impact of the new policy or general suggestions for how
policy might be improved.

Most troubling to U.S. industry isthe pervasive lack of interest on the part of national insurance

officials in the value of the products that manufacturers bring to the health care setting. At no

point in the system, described briefly above, does the insurance authority ask if « product is any

different or better than a competing product. For instance,

© Does the product incorporate a new technology that adds value? For example, a knee
implant made of a new and stronger composite material could last longer without needing
to be replaced

© Does the product incorporate additional features that make it more efficient? For
example, a new device might simplify a surgical procedure and thereby eliminate the
need for an additional health care workers) to be present during the procedure.

© Does the product reduce cost elsewhere in the health care system? For example,
disposable hand-held laparoscopic equipment can reduce hospital stays for gall ladder
patients by several days as compared to traditional open surgery

‘Under each of these scenarios, adoption of advanced technologies could trim overall health care
‘costs by thousands of dollars per patient treated. However, such considerations have been
‘completely lost in Taiwan's haste to implement its new price list. Because Taiwan's new system
is closed and non-transparent, manufacturers have not even been allowed the opportunity to
make the case for their products’ value directly to the Government


57

Finally, I think the purpose of my written remarks today is sim-
ply to suggest that at the end of all of this, the WTO accession
process is still a negotiation. And it is a China negotiation at that.

I have made the argument more times than I would like to
admit: As “trade war” has threatened on one issue or negotiations
with China never get serious until what I call the “final taxi ride
to the airport.”

This WTO negotiation is much more complicated than the aver-
age business deal. But, I think both because it is a negotiation with
the PRC and because of the record of other trade negotiations at
the multilateral level that we have seen in recent years, there is
reason to be moderately confident that a moment comes in the ne-
gotiation when both sides understand that the time for action is at
hand.

It can be a kind of divine intervention by one-third of the party
that breaks a stalemate; it can be subtle political changes within
one or more than one country. But, a moment comes when tough
negotiating adversaries understand that the benefits of concluding
an agreement are beginning to outweigh the disadvantages. And,
T still am moderately confident that that time will come in the case
of China’s accession to the WTO.

In that regard, I do think it is important that since the summer
the tone of relations at the head-of-government level between our
two countries has improved quite significantly.

I do not pretend for a moment—and no Member of Congress
would permit me to pretend for a moment—that it is up to the ex-
ecutive branch alone to simply have a closed meeting, cut a deal,
and be done with it. But, I do think that there is no substitute for
aggressive leadership at the head-of-government level in both of
countries, despite the differences of our political systems, in mak-
ing possible the final resolution of difficult negotiations.

This is not a substitute for substance; it is a guarantee, I think,
that the forces of bureaucratic inertia can be, in some cases, pre-
vented from exercising their paralyzing power.

Ambassador Barshefsky was correct in not pretending to speak
for China this morning in response to a question, and I will not ei-
ther. We are all watching very carefully to see whether, as rela-
tions seem to be improving at the head-of-government level and the
near head-of-government level between the two countries, it will be
possible for the Chinese Government to achieve a degree of coher-
ence and forthcomingness in the WTO accession negotiations that
unfortunately has not been as evident thus far as many of us
would like to see.

But I am hopeful on that score. And, if and when we do begin
to see the ice floes breaking up, the logjam beginning to move, I
hope and trust that Congress will be as interested as the executive
branch in progress toward a constructive WTO resolution, whose
benefits clearly outweigh the benefits of continued stalemate and
China’s exclusion from the WTO.

Thank you.

[The prepared statement follows:]


23

Chairman Crane. Thank you.

Mr. Hancock.

Mr. HANCOCK. Well, thank you, Mr. Chairman, and thanks for
the opportunity to say it has been an honor and a privilege to serve
with you and the other Members of the Subcommittee.

We are talking about trade. And I recall, Charlie, some trips that
we made at one time to New York with the New York—congres-
sional delegation. It was the first time I had ever been in New
York. It was a very exciting place to be.

Branson is a big tourism area, too. So, maybe we can work out
a little trade deal here where we could promote both New York for
tourism and Branson, Missouri, for tourism.

I appreciate the opportunity to have served with you, Mr.
Chairman. And I would just like to say, the people sitting behind
us here have been—you and those people—have been very cour-
teous and supportive and helpful to me. There are a lot of people
up here that, frankly, next year 1 am going to miss. And that is
the staff, both Members, all sides of the aisle.

Thanks again. Very few people have ever had the opportunity
that we have had. Fewer than 12,000 people have ever served in
the U.S. Congress. Very few of those have ever served on the Ways
and Means Committee. Very few of those, again, have ever served
on this Subcommittee. And I just want to thank you.

Thank you.

Chairman CRanE. Well, we thank you and commend you for your
service and at least promise you that we will come back and Visit
occasionally, if nothing more.
ofnd now, our distinguished retiring Minority Member here, Mr.

‘ibbons.

Mr. Gippons. Thank you, Mr. Chairman, and Mr. Cox and Mr.
Brownback and Mr. Latham.

I learned a lot from your testimony here today, and I am glad
to see how seriously you are considering what I think is a very im-
portant problem for the United States and’for really the people of
the world.

The integration of one-fifth of the world’s population and a rising
economic power into the brotherhood and fellowship of the civilized
and more industrialized nations on Earth is really an important
step. And certainly, Taiwan plays a very important role in all of
this, and they have been our good, loyal friends for a long time, and
we owe them and we owe to the wonderful people of China an op-
portunity to welcome them fully into the family of nations.

What we do and how we do it, and what they do and how they
do it will affect history for a long time, because anytime we make
these changes, we have got a lot of old history, and sometimes not
very good history, to overcome in these integration efforts.

And so, I want to welcome your testimony and welcome the ideas
that you had. They are certainly worthy of serious consideration by
this Subcommittee. I look forward to perhaps working with you and
others on this problem in the future. Even though I will not be on
this side of the microphone, I will be out on the public side of the
microphone, out there listening.

Mr. Chairman, I want to say that my years of service here have
been a great educational opportunity for me. I have learned a lot


144

Harmonized Import Regime for China's Oilseed Complex

A single tariff-rate quota (TRQ) would be established for all vegetable oils, including
palm. The TRQ quantity would be the average of the previous two years’ imports of all
oils; it would be adjusted annually.

Similar aggregated TROs would be established for all oilseeds and all protein meals,
including fishmeal.

The tariff rate within the TRQ would be zero percent for oils, meals and seeds. The
tariff rate for imports in excess of the TRQ would be five percent the first year, then four
percent, three percent, and two percent in subsequent years, then zero percent in the
fifth year and into the future. The TRQ structure would end in the fifth year.

in. b, The current applied tariffs for soybeans is 3%; for soybean meal 5% and
soybean oil 13%. The 5% over quota tariff would not seem to be an unreasonable
approach to this question.

Products subject to state trading (vegetable oils) would be treated much like non-state-
traded items. However, quantities of state-trade items equal to 50 percent of the
previous two years’ imports would be reserved for Ceroils to import at the zero-percent
in-quota tariff rate. Non-state-trading entities could import the other 50 percent at the
zero-percent rate, plus additional amounts of that item as long as the overall TRQ for
vegetable oils was not exceeded. Non-state traders then could import more at the
above-quota tariff rate, even if Ceroils had not exercised its right to import its full in
quota amount. (In essence the “sub-quota within a quota’ concept becomes more of a
restriction on Ceroils than on non-state traders:) Ceroils' reserved share of the in
-quota business would decline to 40 percent, 30 percent and 20 percent over the first
four years, dropping to zero in the fifth year.

Consideration must be given to developing altemative mechanisms to transfer unused
portions of the state traded TRQ to non-state traders if not fully utilized to ensure that all
of the zero or low duty quota is utilized.

e.g. The TRQ for a given year shall be increased by an amount equal to the unused
portion of the state traded TRQ from the previous year.

Comments

* This arrangement would provide harmonized treatment immediately for all products
within the oilseed complex. Harmony would be maintained throughout the
transition period and institutionalized into the future.

+ This arrangement would simplify the import regime for the oilseed complex.
Instead of having separate treatment for three categories of products--those subject
to TRQs, those subject to both TRQs and state trading, and those subject only to


122

123

12.4

12.5

126

HANDLED WITH A LA/SSEZ-BUIRE APPROACH,

REQUEST THAT THE ACTUAL VALUES IN THE IN-
‘TERCONNECT FORMULA FOR INTERCONNECTION
RATES AND THE DATA SUPPORTING THEM BE
‘MADE AVAILABLE FOR REVIEW BY BIDDERS.

Crunc-Hwa TeLecommuntcarions Corp.,
THE BOARD OVERLOOKING THE PRIVATIZATION
(OF TAIWAN'S TELECOMMUNICATIONS MARKET,
SHOULD STRICTLY ENFORCE A LAW AGAINST
‘CROSS-SUBSIDIZATION TO PROMOTE FAIR AND
FUL Compermon.

PROMOTE FULL COMPETITION FOR ALL Cus-
‘TOMER PREMISES EQUIPMENT.

PROVIDE FOR THE INTERCONNECTION AGREE-
MENT NECESSARY FOR A PRIVATE CELLULAR
SERVICE PROVIDER TO OPERATE A NETWORK.

[PROVIDE FOR THE ALLOCATION OF SIGNIFICANT
FREQUENCIES TO FUTURE PRIVATE PROVIDERS OF
CELLULAR SERVICES.

90

13. TRANSPORTATION IssuES

134

13.2

133

13.4

Bs

AIRPORTS AND HARBORS NEED TO BE COST AND
REGULATORY EFFICEENT IN COMPARISON WITH
OTHER TRANSPORTATION CENTERS IN ASIA.
OPERATE ALL PORTS ON A COMMERCIAL BASIS
(WITHOUT ARBITRARY RATE HIKES.

(Open ur Dimer Am AND SEA LOS WITH THE
MAINLAND.

Revise ARTICLE 306 OF THE CRIMINAL Law TO
(MAKE IT ILLEGAL TO TRESPASS ON AN AIRPLANE.

ALLOW SELF-HANDLING AND COMPETITIVE HAN=
DLING OPERATIONS AT ALL AIRPORTS AND
HARBORS

STREAMLINE CUSTOMS PROCEDURES AND EXPAND
‘To 24 HOURS OF OPERATION.

PROJECTED
Worldwide High-tech S P
Hardware Production Value EMICONDUCTOR FLANTS
(in USSmillion) =— Ss = l=
= * a
1994 | 1995 | Growch Rate —
3 = Saari eave
us | $60,307 | $65,122 | 8.00% a 5 a
= ¥ a
Japan| $61,107 | $63,851 | 4.00% ® soe | eee
TM eevee
Taiwan | 514,582 | $19,667 | 35.00% _ : ial =
Singapore | $11,420 | $13,480 | 18.00% = * | Mews
or iF wr
Germany | 27125 | $7492 | Som — e 7 aa
= = aa aa
18.00% ae * 7 war
= od



44

negotiations in the WTO Working Party have already addressed many of the key issues. In other
areas considerable work remains, and it is important that China address outstanding concerns and
issues. Following are some, but not all, of the issues noted in the roadmap.

Itis widely recognized that China must make commitments for genuine market openings
in goods, in services and in agriculture. China’s current offers are inadequate. China
must give special attention to elaborating on the conditions of market access for
agricultural products, how its state trading system will work, how to discipline subsidies
and internal supports, and how sanitary and phytosanitary requirements will be applied to
imports. The roadmap also addressed specific disciplines, such as transparency, uniform
application of the trade regime, the establishment of trading rights for all firms and
individuals and national treatment of imports in China's internal market.

We also noted the need for the development of a fixed schedule of elimination for all
WTO- inconsistent nontariff measures in place, e.g., quotas, licensing restrictions, and
other measures that act to block imports. The roadmap pointed out specific areas where
China needs to bring its regime into line with the provision of WTO Agreements, such as
Technical Barriers to Trade and Customs Valuation, and pressed for China to address
new mechanisms, such as the industrial programs, that also affect trade. Finally, the
roadmap noted special transitional mechanisms, such as a review mechanism and
safeguards, that WTO members have requested of China. We expect a detailed response
from China on these points as we continue our efforts to find acceptable terms for
China’s WTO accession.

We do not believe that applying labels to China as a developed or developing country is a
constructive approach to addressing the issue of China's terms of accession. We have agreed to
take a pragmatic approach to resolving each issue in a manner that results in a commercially
meaningful protocol package.

Q: In 1994, the Chinese appeared anxious to accede to the WTO as an original member.
There has been recent speculation, however, that the Chinese may be rethinking their
position on WTO accession. Moreover, it could be that no decisions will be made until
after the succession process in China is completed. What can you tell us about the current
Chines government position on WTO accession?

Az Negotiations for China’s GATT accession began over nine years ago. The duration of the
discussions demonstrates the difficulty of merging China with GATT, and now WTO,
institutions. While it is clear that the accessions process is extremely complex and multifaceted,
we believe that China remains interested in WTO Membership, whether or not it can claim
“original” member status. We will be working closely with China in the coming months to
explore what China is prepared to do to meet WTO concems and complete the negotiations.



US buspiesses WANT TO BUILD ON ITS PAST SUCCESSES,
[AND CONTINUE TO GROW AND PROSPER IN TAIWAN. THE
AMERICAN CHAMBER OF COMMERCE HAS IDENTIFIED THE
FOLLOWING ISSUES AS IMPORTANT TO THE US'S PRESENT
[AND FUTURE ECONOMIC INTERESTS IN TATWAN.

Pace
1, AGRICULTURAL-CHEMICALS. 47
2. BANKING AND CAPITAL MARKETS 47
3. ENVIRONMENTAL PROTECTION 48
4, GOVERNMENT CONTRACTING 49
‘5. LxperENDENT Busress 49
6. INSURANCE 50
7. BNTELLECTUAL PROPERTY 30
8. Lapor Issues $0
9. MARKETING AND DisTRIBUTION 50
10. MepicaL Devices 31
HL. PHaRMaceUTicaL INDUSTRY s1
12. TELECOMMUNICATIONS AND
InFoRMATION TECHNOLOGY 51
13. TRANSPORTATION 52

oo

PLETHORA OF |

{
“ 9
| ME-Too” PRODUCTS
rrr |
t 1 Tate Pitas}
| | product Products Repiewred witout
| Oneee Regie i coanen Naat Phar Augean foe |
! i a
i Matboanyt
Dara
| Becomy! 5)
cxtetem °
nec
Catone 2
ro ee 2
to 2
pawion Cyaan |
| Tetaon ’
i iepyien TM
Dew Bias
Troan ‘

1. AGRICULTURAL-CHEMICALS,
Propucts

1 AMenp THE Pesrice Controt Law. Exsst-
ING ROC REGULATIONS ON REGISTRATION OF PES-
TICIDE COPY PRODUCTS (SO-CALLED “ME-Too”
PRODUCTS) ALLOWS REGISTRANTS LATER ACCESS
To TEST DATA SUBMITTED BY ORIGINAL REGIS-
TRANTS WITHOUT THEIR PRIOR APPROVAL. Tins
PRACTICE 1S INCONSISTENT WITH INTERNATIONAL
‘STANDARDS AND INFRINGE ON THE INTELLECTUAL,
PROPERTY RIGHTS OF THE ORIGINAL APPLICANTS
WHO ARE USUALLY MULTINATIONAL COMPANIES.

1.2 VERIFY ALL DOCUMENTS SUBMITTED FOR FUTURE
“Me-Too” PRODUCT REGISTRATIONS, VALIDATE
[ALL BXASTING REGISTRATIONS AND PROSECUTE ANY
FORGER IN VIOLATION OF THE LAW. LENIENT AP-
PROVAL OF “ME-Too” PRODUCTS AND TOLER-
ANCE OF FORGERY HAVE LED TO AFFLOOD OF “ME~
‘Too"s, SERIOUSLY UNDERMINING THE INTERESTS
(OF AMERICAN AND OTHER FIRMS WHICH HAVE
‘BORNE SIGNIFICANT RESEARCH EXPENSES.

1.3. PREVENT MISCONDUCT BY LOCAL TRADING
AGENTS AND REACH A CONSENSUS BETWEEN THE
Counc. OF AGRICULTURE AND THE JUDICIAL
SYSTEM (N THE INTERPRETATION OF EXISTING
REGULATIONS, INCONSISTENCIES NOT ONLY EN-
‘COURAGE MISCONDUCT, BUT ALSO FAIL TO PRO-
‘VIDE FAIRNESS TO LAW-ABIDING COMPANIES.

2. Banxin & CaprraL MARKETS

2.1 INTEORATE ONSHORE AND OFFSHORE MARKETS AT
A FASTER PACE TO LEVERAGE TAIWAN'S LARGE
DOMESTIC MARKET AND POOL OF SAVINGS AND
DEVELOP TAIWAN AS A REGIONAL OPERATIONS
CENTER.

2.2 PERMIT DIRECT CROSS-STRAIT FINANCIAL DEAL-
Nes.

2.3. PRIVATIZE GOVERNMENT-OWNED BANKS.

TOPICS, September 1996 a7


62

Chairman CRANE. Thank you, Mr. Kapp. And I know you have
got to head to California, so you may excuse yourself—

Mr. Kapp. Thank you, sir. My apologies.

Chairman CRANE [continuing]. To catch your plane and have a
safe flight.

Mr. P. Thanks.

Chairman CRANE. Mr. Murck.

STATEMENT OF CHRISTIAN MURCK, PRESIDENT, AMERICAN
CHAMBER OF COMMERCE IN TAIPEI

Mr. Murck. Thank you, Mr. Chairman. It is my pleasure to tes-
tify today representing the American Chamber of Commerce in
Taipei. AmCham/Taipei comprises over 900 individuals working for
about 500 companies doing business in Taiwan. Our goals are to
inform our membership on business issues, to communicate the
views of the American business community to the government in
Taiwan and to our own government in Washington.

At the outset, let me say that AmCham/Taipei strongly encour-
ages United States support for prompt and orderly accession to
WTO membership as soon as the few remaining issues in the Unit-
ed States-Taiwan bilateral negotiations are satisfactorily resolved.

We similarly favor support for PRC accession on the basis of an
acceptable package of commitments to market opening, intellectual
Property rights protection, and a level playingfield in the Chinese
market.

These two important economies should be full participants in the
international trade regime represented by the WTO, while meeting
standards appropriate to their levels of economic development.

AmChan/Taipei has been an active supporter of the United
States-Taiwan bilateral negotiations on accession, regularly
providing input from over 20 subcommittees organized by industry
to USTR and the American Institute in Taiwan and to their Tai-
yan counterparts. I congratulate both sides on the work done so

far.

Significant commitments have been required by the United
States and made by Taiwan on thousands of tariff lines. Major im-
provements have already been made in the legal framework, in en-
forcement of intellectual property rights, and further commitments
will take effect on WTO accession.

The process of deregulating the telecommunications monopoly
and opening that industry to foreign investment has begun.

Work is proceeding on a government procurement code. Taiwan
has accepted that it will enter the WTO as a fully developed econ-
omy and is prepared to make major changes accordingly.

Why is this important to the United States?

Some friends of Taiwan seem to consider WTO membership
mainly in a political light, as recognizing Taiwan’s democratization
or rewarding ast friendship. Some critics of China perhaps sup-
port Taiwan’s 'O membership to irritate or “punish” the PRC.

I would argue that such political motivations should be put aside,
because they distort the purpose and character of the WTO. I hope
this Subcommittee will focus instead on the substantial economic
interests of the United States at stake.


24

25

26

27

28

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(0)

29

2.10

86

DEVELOP AN EFFECTIVE INTEREST RATE SWAP
[MARKET AND OTHERWISE EXPAND DERIVATIVES.

FURTHER OPEN CAPITAL MARKETS BY REMOVING
REMAINING LIMITS ON FOREIGN OWNERSHIP OF
LISTED SHARES AND REMOVING BUREAUCRATIC
‘OBSTACLES TO CAPITAL FLOWS.

REPLACE CEILINGS ON BANKS” FOREIGN EX

AND IMPROVE FOREIGN BANKS” ACCESS TO FUNDS.

ALLOW PRODUCT INNOVATION WITHOUT PRIOR
APPROVAL.

INCREASE FOREIGN ACCESS TO TAIWAN'S CAPI*
TAL POOL BY:

PERMITTING MARE 71NG (INCLUDING MEDIA AD-
\VERTISING AND DISTRIBUTION) OF FOREIGN MU-
‘TUAL FUNDS BY BANKS, SECURITIES ADVISORS,
‘SECURITIES HOUSES, AND INSURANCE COMPANIES.

PERMITTING SECURITIES HOUSES TO BROKER AND
DEAL IN ALL FOREIGN LISTED SECURITIES AND IN
\VESTMENT PRODUCTS.

PERMITTING BANKS TO ENGAGE IN INTERNATIONAL
PRIVATE ADVISORY AND PORTFOLIO MANAGEMENT
SERVICES (LE. PRIVATE BANKING) AND THE PRO

PERMITTING LICENSED SECURITIES ADVISORS TO
[ADVISE ON ALL DOMESTIC AND FOREIGN SECURI-
‘TIES AND INVESTMENT PRODUCTS AND ENGAGE DY
PORTFOLIO MANAGEMENT.

“AMEND THE Lapor STANDARDS Law TO FREE
‘THE BANKING INDUSTRY FROM WHAT IT PERCEIVES
‘TO BE NON-APPLICABLE AND UNREASONABLE CON-
mons.

IMPROVE QUALITY OF LEGISLATIVE AND REQULA-
‘TORY DRAFTING AND EXPAND PRE-ENACTMENT
‘CONSULTATION WITH THE INDUSTRY.

3. ENVIRONMENTAL PROTECTION

31

“s

‘THE U.S. SHOULD ENCOURAGE SUBSTANTIVE PAR>
‘TICIPATION BY TATAAN Is MEANINGFUL INTERNA

TOPICS, September 1996

. Deposits

E_Domeste i

32

33

‘TAIWAN NEEDS TIME TO ALLOW THE LOCAL PO-
LIICAL PROCFSS TO DEVELOP ITS OWN ENVIRON-


121

Second, last year the U.S. chip industry invested $6 billion in
R&D, so intellectual property protection is critical.

China’s current level of technological development does not per-
mit it to illegally use advanced United States products. However,
China’s capabilities in the semiconductor sector are rapidly advanc-
ing, so it is essential that China commit to full implementation of
all WTO intellectual property obligations as soon as possible, as
Ambassador Barshefsky said earlier today.

This is in China’s interest, as it will encourage investments in
China and investments from outside of China.

Third is the more general issue of reform of China’s trade regime
including elimination of existing restrictions on trading rights for
foreign firms.

In response to Representative Houghton’s questions, Ambassador
Barshefsky explained about the trading rights issue, so at this
point I would only like to say that if United States companies lack
the right to import and export goods and to sell and service their
products in the Chinese market, it will be very difficult to ensure
that any other reforms will produce a truly open market.

Finally, on the issue of tariffs, China has already made some
progress. Earlier this year, China lowered its semiconductor tariffs
from as high as 20 percent to a maximum of 12 percent, and 6 per-
cent for most integrated circuits. But, these tariffs are still high
compared to America’s zero tariffs. And, China recently reimposed
tariffs as high as 35 percent on semiconductor manufacturing
equipment, adding a significant burden to United States companies
seeking to invest in that country.

The elimination of China’s chip and equipment tariffs serve the
interests of both United States producers and their Chinese cus-
tomers.

T am pleased to say that USTR is working very hard to ensure
that China obtains membership in the WTO only after making
these essential reforms. We support continuing that approach.

Mr. Chairman, thank you for this opportunity to present the
views of the Semiconductor Industry Association, and I will be
pleased to answer any questions.

(The prepared statement follows:]


124

+ Establishment of numerous Chinese versions of "Silicon Valley,” encouraging
clusters of high technology development within designated zones through a
combination of tax preferences, trading and other commercial privileges, soft
loans, and infrastructural assistance.

+ Mobilization of the nation’s research institutes toward specific commercially-
oriented tasks.

To date, the auto industry is the only one of the four pillar industries currently operating
under a formal policy. However, that policy has a number of provisions which violate WTO
rules.

‘There are recent reports that the Chinese Ministry of Electronics Industry also has drafted
an electronics industrial policy which is now being circulated to other Chinese Government
ministries for comment. A final policy plan may be issued sometime in the latter half of 1996,
While no details are currently available, earlier reports indicated that this plan might follow the
approach of the auto policy and could proscribe foreign majority ownership of semiconductor
firms, establish export performance requirements for Sino-foreign joint ventures, and provide the
basis for eventual displacement of foreign semiconductors in the Chinese market by domestically-
made devices. Of particular concer to the U.S. semiconductor industry are policies to pressure
foreign firms to transfer advanced technology. If such policies were adopted, the SIA believes
that they would prove counterproductive over the long run because they would discourage the
foreign investment necessary to promote China's technological, economic and market
development.

The 1992 U.S.-China Memorandum of Understanding (MOU) on Market Access provides
that China will eliminate the use of import substitution policies and measures. However, a
number of the elements outlined above are arguably inconsistent with this commitment. WTO
rules also limit China's ability to establish local content requirements. The SIA believes that any
future policies governing China's economic development should adhere to the provisions of the
1992 MOU and WTO rules. The negotiation of China's accession to the WTO provides the
appropriate forum for obtaining commitments by China to make the necessary reforms.

intellectual tection is inadequate. China has enacted patent, copyright, and
trademark laws, but their credibility requires strengthened enforcement. While there has been no
piracy of semiconductor intellectual property to date, the primary constraint at present on misap-
propriation of U.S. semiconductor designs is China’s level of technological development, which
does not yet permit it to manufacture advanced U.S. products. However, China's capabilities in
the semiconductor sector are rapidly advancing. Therefore, the SIA takes very seriously al issues
relating to intellectual property protection in China and strongly supports the efforts of the U.S.
Trade Representative over the last few years to negotiate agreements with China to ensure
increased enforcement of Chinese patent, copyright and trademark laws.

‘Of particular concern to the semiconductor industry at present is the fact that compulsory
licensing remains authorized under Chinese patent law whenever “necessitated by the public
interest.” The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)
~ to which China is not yet a signatory -- probibits the compulsory licensing of semiconductor
technology except in certain limited circumstances. China must revise its law to bring it into
conformity with the TRIPs Agreement as part of its accession to the WTO,

Accession to the WTO would also require China to enact specific legislation extending,
intellectual property protection to semiconductor layout designs (maskworks). The SIA has been
told that a draft maskwork protection law has been prepared by the Ministry of Electronics
Industry and is now under review by the Chinese Patent Office. This is a positive development
and every effort should be made to encourage the Chinese Government to continue to move
forward on this front as expeditiously as possible.

The SIA believes that China’s Protocol of Accession to the WTO should commit China
to abide by the obligations of the TRIPs Agreement without any significant transition period
certainly no longer than a year. This is in China's imterest as it will encourage the high
technology foreign investment it seeks as part of its effort to promote the development of its
economy.



31

Testimony of
‘Ambassador Charlene Barshefsky
Before the Ways and Means Committee
Subcommittee on Trade
September 19, 1996

Mr. Chairman and Members of the Committee, itis a pleasure to appear before you today to
discuss the efforts by China and Taiwan to join the World Trade Organization (WTO). While I
will focus on our bilateral relationships with China and Taiwan and the negotiations for China
and Taiwan to accede to the WTO, I would also like to take this opportunity to describe the
accession process and briefly report on the work being done with the other applicants for WTO
membership.

CHINA

Now let me tun specifically to China, The U.S.-China relationship is complex and multifaceted.
The United States has a wide range of issues with China that go far beyond trade. We have a
deep and abiding interest in human rights, worker rights, and a range of other areas from non-
proliferation to environmental protection.

Increasingly, however, trade plays a central role in our relationship with the world’s largest
nation. We cannot ignore the fact that the United States has a significant commercial stake in
China. China is the fastest growing major economy in the world, with annual growth rates of
more than 10 percent for each of the past four years. Already possessing the world’s largest
population, by early in the next century, China may have the world’s largest economy.

China is the world’s eleventh largest trading nation, the United States’ fifth largest trading
partner. In 1995 alone, U.S. exports to China increased by nearly 27 percent, and -- at $11.8
billion ~ these exports were more than double their 1990 level. That is why more than 170,000
American workers owe their jobs to U.S. exports to China.

The Clinton Administration’s policy toward China remains consistent and unchanged. It is
policy of engagement. But let me be clear about what we mean by engagement, Mr. Chairman.
Engagement with China does not mean ignoring our differences. It means actively engaging
China to resolve our differences and it means protecting our interests when consultations are not
fruitful.

In June of this year, Président Clinton urged Congress to renew MFN for China for another year.
He did this — and the Congress supported him -- because the United States’ interests are best
promoted and achieved if we maintain MFN as the foundation for our trade relationship with
China.

‘When the President delinked human rights and MFN in 1994, he said that his Administration was
prepared to use a whole array of legislative and administrative methods to address specific issues
with China. In the President's words, “We must enforce our trade laws and our trade agreements
with all the tools and energy at our disposal.” 1 can assure you that we have consistently used all
of the tools at our disposal to open China's market.

Since the outset of the Clinton Administration, we have pursued a vigorous bilateral trade agenda
with China, and we have sought and achieved real results. By working successfully with
‘Congress and the private sector, we have opened markets ranging from heavy machinery to
telecommunications technology.

‘We have made important progress but it is clear that there is much more work to be done.
Before I specifically address China's WTO accession, let me review some of the areas in which
progress has been made with regard to opening China's vast market:


156

‘STATEMENT OF
HEALTH INDUSTRY MANUFACTURERS ASSOCIATION

ON
TAIWAN'S ACCESSION TO THE WORLD TRADE ORGANIZATION

‘Thank you, Mr. Chairman and members of the subcommittee, for this opportunity to provide the
views of the U.S. medical device and diagnostics industry on Taiwan’s accession to the World
Trade Organization (WTO).

‘The Health Industry Manufacturers Association (HIMA) is a Washington, D.C.-based trade
association and the largest medical technology association in the world. HIMA represents more
than 700 manufacturers of medical devices, diagnostic products, and health information systems.
HIMA’s members manufacture neatly 90 percent of the more than $51 billion of health care
technology products purchased annually inthe United States, and 50 percent of the $120 billion
purchased annually around the world

The U.S. medical device and diagnostics industry is a powerful reason why the quality of health
care continues to rapidly rise in America, Europe, Japan, and many other parts of the world The
industry develops products that make possible faster, less invasive diagnosis and treatment, that
facilitate treatment in less expensive and more comfortable settings such as the home, and that
improve overall efficiency in the health care system. During the past 20 years, advances in such
fields as fiber optics, imaging, biomaterials, and electronics have revolutionized medicine

(ur industry's focus on export markets has enabled us to provide access to these advances to
patients around the world. In 1995, U.S. exports of medical device products totaled $1) 5
illion, reflecting 12 percent growth over the previous year and contributing to a trade surplus
for our industry of $5.4 billion, Nineteen ninety-six is proving to be an even better year for
growth in medical device exports

The purpose of this testimony is to alert the committee that the Taiwanese government is
instituting policies that will block its own citizens” access to better heaith care by substantially
foreclosing the ability of U.S. firms to compete and sell life-saving and life-enhancing
technologies to the patients who rely on them.

‘As Congress reflects on whether to accept Taiwan's bid for WTO accession, we would ask that
Members of Congress consider the violations of WTO principles described below, the negative
impact of the violations on American business, American workers, and, perhaps most
poignantly, on patients in Taiwan whose access to quality medical device products is being
threatened. With these considerations in mind, we feel obligated to recommend against
accepting Taiwan into the WTO until these violations can be fully resolved

‘Violation of Imponant WTO Principles

In June 1996, Taiwan's national health insurance authority began to implement a new
reimbursement policy whereby it sets the price for individual medical device products. At a time
‘when the rest of the Taiwan government has been taking steps to conform to WTO policy, thus
positioning the country for WTO accession, the health insurance authority seems 10 have been
oblivious to the need to provide national eatment 10 foreign suppliers and to conduct its policy
‘making and implementation activities in a ind open fashion Thus, Taiwan's new
medical device pricing policy defies the core wro 770 principles ‘of national treatment and
transparency, threatens US industry's access to the Taiwan market, especially in high value-
added product areas, and will lower the quality of health care available to Taiwan citizens.

Failure to Provide National Treatment. In affording foreign companies national treatment, the
WTO promises “the same treatment as domestic companies in respect of all laws, regulations,
and requirements affecting their internal sale” In violation of this principle, Taiwan has
suggested that prices for imported medical device products be set based on different, and less
favorable, considerations than those used in determining price for domestic products

Specifically, Taiwan has become the only country in the world to require that importers turn over
their business-proprietary and highly sensitive import cost data, and itis using this data to help
determine the lowest possible price at which a manufacturer can sellin Taiwan. In some cases,
price may even be set below cost. Domestic companies, by contrast, are not asked to share any
information on their cost. Rather, they are given the same price as foreign products, even though
domestic products are by and large of inferior design and are manufactured to lower quality
standards at a considerably lower cost than foreign products.


particularly those which will require legislation and sensitive economic adjustments.
Purchasing over twice the amount of U.S. products as China, Taiwan is a key market
for our exports, in addition to being a loyal friend and ally.

1 am interested today to hear Ambassador Barshefsky’s thoughts on the status of
China’s application. I am not convinced that China has tured its full attention to the
economic restructuring that will be necessary for it to gain entry into the WTO. If it

is our best judgment that the internal political situation in China is preventing progress
for the time being, we may need to consider waiting until China takes some concrete
steps to demonstrate flexibility. I believe permitting Chi
country is ready would be more harmful to our industries in the long run.

se accession before this

I look forward to today’s testimony which will be useful to the Subcommittee
as we evaluate the market access commitments and other trade concessions that these
two important countries are willing to make in order to join the World Trade
Organization.


139

required as a condition of investment export performance—the
USTR says they are in violation of this agreement—

Mr. HoucuTon. Right, right.

Mr. ANDERSON [continuing]. We should deny access to the United
States market for a stipulated segment of Chinese-produced goods.

Mr. Houcuton. All right. So, you would be willing—I am not
saying it is a bad idea—but you would be willing to face an all-out
trade war over that particular issue?

Mr. ANDERSON. No, sir. I would be willing to—

Mr. HOUGHTON. No, but that is—those are the dice you are
playing with.

Mr. ANDERSON. No, sir. I would be willing rather to begin a proc-
ess where the United States vigorously upholds its rights under
freely entered into agreements.

The sad position we have found ourselves is that the agreements
we have reached mean little, because we do not have the will to
vigorously enforce them.

Mr. HouGHTon. Both public and private will, right?

Mr. ANDERSON. Yes, sir.

Mr. Houcuton. Are there any other ideas on this?

Mr. HatTano. Yes, sir. I think one of the things we have been
looking at is the development of Japan and Korea over the last sev-
eral decades and how they grew from having no industries at all
to having very large semiconductor industries and what lessons
have we learned as an industry within the government, and what
lessons have been learned through that process.

One of the lessons, I think, that we have learned is to deal with
the problem early. In the case of Japan, their industry was engag-
ing for a long period in having a closed market, subsidies, dump-
ing, and so forth, before both the industry and the government in
the United States, responded vigorously in the mideighties. By that
time, the DRAM industry was largely gone from the United States,
and to this day we have a relatively small share worldwide in that
area.

So, the lesson there is to deal with this problem early. And I
think in that regard, it is very good that we are trying to address
many of these concerns within the context of China’s accession into
the WTO, rather than waiting to deal with it after the problems
have become a lot larger.

The second lesson that I think we have learned is that we are
dealing a lot more on an industry-to-industry basis and trying very
early to build the links with the Chinese industry and the Chinese
Government in order to build an understanding with them as to
how our industry has developed through free market forces.

An example of this might be tariffs. We got rid of our tariffs in
the United States, and we did it for very selfish reasons. We did
it because that helped the computer companies in the United
States, and it helped our customers, and ultimately that helps U.S.
semiconductor producers. So, getting rid of U.S. semiconductor
duties was in our interest.

We are trying to deliver that message to the Chinese, that if they
were to get rid of their semiconductor duties, that helps build their
electronics industry, which ultimately helps their semiconductor
industry.


147

By utilizing appropriate assumptions, China's furure import needs can be projected with a
“reasonable” degree of reliability. China's trada, investment and other policies will, of course,
deternsine actual future import Ievels. The following key assumptions were utilized in determaining
China's import noeds for marketing years 1996/97 - 2004/2005:

KEY ASSUMPTIONS

‘+ GDP growth in China for the period 1995-2000 will avecage 10 percent per year, and 7
[percent per year in the period 2000-2005.

+ Rapid urbanization will continue, The following population shifts reflect trends observed ia
(China and one percent annual population growth:

CHINA POPULATION
Ase 2005
Total 1.198 billion 1.340 billion
Ror 855 million 804 millioa
Cities and Towns 343 million 536 million

‘The above population shift wil stimulate both enimal products and vegetable oil consumption.

* Domestic oilseed production will increase by 3 percent and vegetable oil production from
local oilsceds will expand by 4 percent per year between 1996 and 2005. Higher oi exraction
Fates arc expected from new oilscods varictics and modernization of oilseed processing,

Also, most of Chint's inerested oilseed production is expected to be rapeseed, with only a
small annua! increase in soybean output. Below is a comparison of current U.S. and China
oilseed extraction rates:

‘U.S. AND CHINA VEGETABLE OIL. EXTRACTION RATES (PERCENT)

us. CONA
Soybeans ty is
Rapeseed “0 33
Sunflower 4 34

Cottonseed 7 1s


158

importers to undervalue imports, particularly when faced with high tariff levels. The
conversion of China's tariffs to specific rates would reduce the incentive for importing spirits
through unofficial channels, while minimizing the adverse impact on suppliers of high value
products. China should be encouraged to adopt a specific tariff as an interim step toward the
‘eventual elimination of tariffs for imported distilled spirits.

C. Application of Domestic Taxation

A lack of transparency pervades China's application of domestic taxes. The application
of domestic taxes to imported spirits may adversely affect the competitiveness of foreign
suppliers of distilled spirits in two respects:

1. Ad valorem Consumption Tax

China has recently harmonized its consumption taxes for various types of distilled
spirits, with a single rate of 10 percent, While this harmonization is welcome, China still uses
‘an ad valorem method to calculate the consumption tax, which tends to be discriminatory to
high quality imported products. As part of its terms of accession, China should be encouraged
to adopt a system of specific taxation, utilizing a single rate of tax for all distilled spirits based
‘on alcohol content.

2. VAT

It is widely reported that in some cases the VAT has only been levied on imported
products, and that many domestic producers do not pay VAT at all. The inequities and
irregularities in the administration of the VAT must be addressed to ensure that imported
consumer products, including distilled spirits, are not subject to discriminatory taxation.

‘The terms of China's accession to the WTO should require China to provide national treatment
in its application of the VAT to imported distilled spir

D. Protection of Intellectual Property Rights

China has a serious problem with counterfeiting of domestically produced premium
spirits brands. U.S. spirits exporters are very concerned that the high level of unofficial
imports also will lead to rampant counterfeiting. As part of its terms of accession, WTO
members should insist that China fully adhere to the provisions of the Agreement on Trade
Related Intellectual Property (TRIPS), including the provisions related to the protection of
trademarks and geographical indications for distilled spirits.

E, Transparency and Enforcement of Laws and Regulations

‘The lack of transparency in the implementation and enforcement of China's laws and
regulations continues to pose a significant barrier to expanding trade. ‘The 1992 U.S.-PRC
‘of Understanding (MOU) on Market Access requires China to publish all laws
and regulations affecting trade. The United States should insist that China reiterate its MOU
commitments as part of its protocol of accession to the WTO. In addition, the recently passed
Foreign Trade Law requires China to practice a uniform trade policy and publish all its trade
regulations in a complete and transparent manner. Unfortunately, the latter law only covers
i led spirits producers would
fike to see this law extended to cover services, such as distribution.

HII. Market Access Barriers to Distilled Spirits in Taiwan

Taiwan and the United States have been involved in years of productive negotiations
toward developing an accession package for Taiwan. Therefore, Taiwan's market access
issues are not quite as fundamental as China's. However, some key issues remain unresolved,
and should be addressed as part of Taiwan's accession package.


46

or support an accession. Section 1106 of the 1988 Omnibus Trade and Competitiveness Act
adds additional requirements for the President and Congress in considering accession of
countries like China which maintain substantial state-run enterprises.

In addition, the WTO operates by consensus, so that it would be extremely difficult for China to
be accepted into the WTO without U.S. support in any case.

Q: If the Administration were to be satisfied with the Chinese WTO accession pratocol,
would you ask Congress to remove China from Jackson-Vanik and give China
unconditional MEN, as required by the WTO?

‘A: We do not want to speculate on the outcome of ongoing negotiations and the possible
resultant effects. It is simply to early to tell. We can say that in its present form, China’s offers
‘on market access and the other aspects of the accession package are not satisfactory to the U.S. or
to other members of the Working Party.

Q: In the Uruguay Round Agreements Act, the Congress gave the President residual
authority to restore pre-Uruguay Round MEN rates to countries that do not accede to the
WTO on timely basis or do not offer adequate market access. We continue to have market
access problems in China, notwithstanding the 1992 Memorandum of Understanding
(MOU). Are you aware of this snap back authority and do you intend to use it in
appropriate circumstances.

‘A: The “snap-back” proposal if used to block China’s access to the lower Uruguay Round rates
would not be a good remedy for China’s own import barriers, and would not give us much
additional leverage, if any. In the first place, increasing tariffs on selected Chinese imports that
benefitted from Uruguay Round reductions will not punish China, but it will harm U.S. interests.
Throughout the Uruguay Round, Congress and the Administration worked so that China should
not get a free ride. As a result, the package of tariff reductions Congress approved purposely did
not make reductions on products of greatest interest to China. In trade jargon, this means that we
did not make concessions where China was a principal or substantial supplier.

It is also the case that the United States imports some products from China that were subject to
Uruguay Round duty reductions, particularly items like toys, where U.S. industry actively sought
the reductions. In fact, the majority of these items had been subject to long standing duty-
suspension legislation. [tis in these kinds of products that China's trade is concentrated in terms
of Uruguay Round benefits, Use of the “snap back” legislation on China at this time would only
undermine our efforts to get China to open its market to U.S. goods and services. We argue to
China that we must have a commercial, rather than political, result. “Snap back” action will
undermine those efforts and U.S. leadership in keeping the negotiations focused on substance.
Finally, taking away China’s benefits puts at risk our bilateral MFN agreement and China’s
obligation to give the United States MFN tariff treatment -- for example, as it reduces its tariffs
as it just did for APEC.


OPENING STATEMENT OF
CHAIRMAN PHILIP M. CRANE
SEPTEMBER 19, 1996
HEARING ON THE ACCESSION OF CHINA AND TAIWAN TO THE WORLD
TRADE ORGANIZATION
Good Morning. This is a meeting of the Ways and Means Subcommittee on
Trade to review the process and requirements for countries to accede to the World
Trade Organization (WTO). There are currently 31 countries and territories secking
WTO membership, so it is appropriate that the Trade Subcommittee take a detailed
look at what constitutes an adequate package of commitments.

The WTO derives its strength and effectiveness from an integrated system of
rules and disciplines that are honored by its members, irrespective of political
considerations that hinder bodies such as the United Nations. A major achievement of
the Uruguay Round Agreement, the so-called "single undertaking," has helped to
standardize the process of developing packages of trade commitments for WTO
applicants. Since WTO members agree to abide by all WIO Agreements, the same
must be expected of applicants.

I am committed to ensuring that all countries enter the WTO on comparable and
commercially sound terms. To countenance a WTO accession process that selects
favorites depending on political might and other considerations would ultimately
unravel the system of WTO rules which this Committee, under Republican and
Democrat Administrations, has worked years to put in place.

There can be no doubt that the two cases on which we have requested testimony
today, China and Taiwan, represent starkly different stages of readiness to undertake
the necessary economic reforms and trade policy commitments. Taiwan, a vibrant
market economy, should be commended for the admirable progress it has made thus
far in its negotiations. I urge Taiwan to address the few outstanding issues promptly,


40

Chairman CRANE. Thank you, Ms. Barshefsky.

To open up, why would you think it is in China’s interest to join
the WTO?

Ambassador BARSHEFSKY. I think the interests are many and
varied. Of course, only the Chinese can ultimately judge whether
they wish to join the WTO. But, let me give you a few thoughts
on the way, at least, we could look at it.

First off, of course, China appears to have a desire to move into
a leadership position with respect to international economic mat-
ters and to move toward greater political acceptability, if you will.
WTO accession, of course, would be very important on both of those
counts.

Second, of course, China is a major exporting nation. China ex-
ported in 1995 what Japan exported in 1980 at a per capita GDP
a fraction of that of Japan’s in 1980. This is a country whose ex-
ports have risen by double digits in every year for at least the last
5 or 6 years, a country whose growth rate hovers around 10 per-
cent, and a country that is amassing technology at a rapid rate. It
is, in short, an export powerhouse.

Without WTO accession, China remains quite vulnerable to the
imposition of restrictive trade measures by other countries, meas-
ures which cannot be challenged in any forum. For China to better
protect its own export position, China should wish to be a member
of the WTO.

Of course, the flipside of that is, as a member of the WTO,
China’s trade regime would be subject to dispute settlement, and
arguably that cuts against the desirability of accession for China.

ut for both economic reasons, as well as political reasons, acces-
sion may well be of importance to China.

I would add one further point, and that is: There is a significant
reform movement in China, a movement toward market economics,
toward less State involvement in the economy, a movement away
from arbitrary decisionmaking by government. And in that regard,
the reformers in China strongly support WTO accession as a means
of furthering the process of economic reform in China.

Chairman CRANE. You have indicated in prior testimony that 50
to 70 percent, as I recall, of the Chinese economy is State-owned
and controlled. And, what kind of an issue does that represent as
far as China’s éligibility for WTO accession?

Ambassador BARSHEFSKY. Well, this presents a very complicated
set of issues. We have some experience with heavily State-
controlled economies. If we think through for a moment that we
have previously seen the accession, for example, of Poland—this
was to the GATT; of Romania; and to a lesser extent of Hungary.
We now have had the accession to the WTO, for example, of
Bulgaria.

We do have some experience. But, of course, the range of State
enterprise is very massive in China. The scale, of course, is
fundamentally different from these other countries.

We know that State enterprise participation in the economy can
distort trade, both imports as well as export trade. We also know
that the presence of State enterprises reduces significantly the
transparency of a country’s trade regime. It is very difficult to get
at the practices utilized that inhibit imports and that expand ex-


120

Chairman CRANE. Thank you, Mr. Anderson.
And our next witness is Mr. Hatano.

STATEMENT OF DARYL MHATANO, VICE PRESIDENT,
INTERNATIONAL TRADE AND GOVERNMENT AFFAIRS,
SEMICONDUCTOR INDUSTRY ASSOCIATION

Mr. HatTano. Thank you, Mr. Chairman. Thank you for this op-
portunity to present the views of the U.S. semiconductor industry.

The SIA supports China’s accession to the WTO, but only if it is
done on a sound commercial basis. U.S. semiconductor makers em-
ploy 260,000 people in the United States. Our products are the ena-

ling technology behind the nearly $400 billion U.S. electronics
industry, which provides jobs for 2.5 million Americans.

Half of our industry’s revenues are outside the United States,
making open markets essential for our continued growth and
success.

The Chinese semiconductor market currently is estimated to be
nearly $3 billion, and it is growing at a rapid rate. Demand for
semiconductors in China has grown about 24 percent annually over
the last 10 years, and China has the potential to become one of the
world’s largest semiconductor markets over the next 10 years.

Presently, Chinese producers can only supply about a quarter to
one-third of China’s semiconductor needs, and these are often low-
end devices used primarily in consumer appliances.

Virtually all sophisticated semiconductors needed by Chinese
electronics firms must be imported, creating a major commercial
opportunity for United States producers.

Today I would like to highlight four items which we believe must
be key United States negotiating objectives for China’s WTO acces-
sion. They are: Discouraging Government pressure to transfer tech-
nology; protecting intellectual property; providing trading rights;
and, finally, eliminating tariffs.

First, with regard to technology transfer, the Chinese Govern-
ment is seeking to develop its domestic chip industry by persuading
foreign firms to invest in China and transfer their technology to
Chinese firms through joint ventures and other partnership
arrangements.

In return, it is suggested that increased market access will be
available to those firms willing to share their technology. Discour-
aging such practices must be a primary objective of our U.S.
negotiators.

Other investment restrictions in China also may force United
States firms to transfer technology to Chinese firms. For example,
if a company wishes to establish a manufacturing plant in China,
it is expected to export a certain percentage of its production. But,
there are no uniform rules. Each arrangement is negotiated on a
project-specific basis, and the Percentage to be exported can be
lower if the foreign firm transfers technology. These investment re-
strictions must be eliminated.

In fact, I believe that China’s development will be faster if Unit-
ed States firms are encouraged to transfer technology on the basis
of commercial considerations rather than on the basis of such gov-
ernment pressure.


19

Taiwan’s progress in moving toward free trade is particularly striking when
compared with that of the People’s Republic of China.

Asa function of Taiwan’s substantially more liberal trade practices, Taiwan’s
purchases of United States exports are more than 50 percent greater than those of the
PRC. This is not accidental.

Although I know that some may disagree, in my mind, the PRC does not belong in
the WTO. First of all, the basic prerequisite for free trade is largely absent in Communist
China: the rule of law. Failure to live up to international standards on intellectual
property rights is just the most striking example of its failure to fulfill its agreements.
Taiwan has largely complied with the United States’ wholly justified demands to respect
intellectual property rights. while the PRC has been strikingly deficient. Acting US.
Trade Representative Charlene Barshefsky came to an understanding with the PRC on
June 17, 1996 that the PRC would five up to the terms of the March 11, 1995 agreement
‘on curtailing piracy--which it had utterly failed to enforce. Yet at the time the June 17,
1996 understanding was reached, the People’s Liberation Army-run South Electronics
Audio and Video factory in Foshan in Guangdong province was reopened for production
of pirated material. The United States Trade Representative’s 1996 National Trade
Estimate Report on Foreign Trade Barriers indicates that “Despite its commitment under
the 1992 market access Memorandum of Understanding to publish all laws and
regulations affecting imports, some regulations and a large number of directives have
traditionally been unpublished, and there is no published. publicly available national
procurement code in China.” In other words, in the PRC. rules are arbitrarily formulated
and applied, and by no means transparent.

The Communist government of the People’s Republic of China maintains an
intricate system of restrictive and punitive tariff and nontariff administrative controls to
implement its centrally-planned industrial and trade policies, with tariffs on foreign
goods. such as automobiles, as high as 150 percent, even though Beijing made
commitrnents in the 1992 MOU, reaffirmed in March 1995, to reform significant parts of
its import regime. There are systematic barriers to U.S. access to the Communist Chinese
market, from the PRC's 35-40% MFN-level tariffs (compared to about 2% MFN-level
tariffs on goods entering the U.S.) to the unpublished regulations serving as non-tariff
barriers. Troubling regulations constraining foreign engagement in the PRC’s market
include:

* So-called “export performance requirements,” whereby Communist Chinese
authorities frequently force foreign manufacturers operating in Communist China
to export 50 to 70 percent (and sometimes more) of their goods to other markets,
as a condition of approving the investment.

. Requirements that foreign investors not just build factories in Communist China
but transfer a significant amount of state-of-the-art technology to their PRC
partners in joint ventures. The aircraft-production sector is a prime example of
Communist China’s practice of conditioning American joint ventures upon
building facilities in the PRC designed to enhance the flow of high technology to
that nation. The technology-transfer requirement could lead U.S. producers to
compete against their own products in the future, with the possibility of goods for
exports being produced by Chinese manufacturers using stolen American
technology.


14

Unfortunately, China and Taiwan, which collectively account for
approximately 52 percent of global pork consumption, are almost
completely closed to pork imports. China, a country with a
population of approximately 1.2 billion, is estimated to annually
consume nearly the same amount of pork per capita as consumed in
the United States making it a vast pork consuming market. China
supplies approximately 80 percent of its market through "backyard"
producers. China, with minimal exception, does not permit the

Over the last four years the Chinese economy has grown by 10 to 14
Percent per year. Last year, China‘s Gross National Product
exceeded Japan's GNP. China’s economy is growing at a pace to
surpass the United States and become the world’s largest economy by
2010. As incomes rise in China, pork consumption in the nation
will continue to soar.

Recently released statistics reveal that in June of 1996, China
surpassed Japan as the single largest source of the U.S. trade
deficit. If China liberalized its pork market, U.S. pork would
quickly garner significant market share in China. Without
question, U.S. pork exports could make a large dent in the U.S. -
China trade imbalance.

Taiwan also is a very significant pork consuming nation. Taiwan’s
per capita consumption of pork, which is higher than per capita
consumption in the U.S., is the highest in Asia. Variety meats
(e.g. tongues, kidneys) represent the largest part of Taiwan’s pork
consumption. For the most part, this market is closed to imports.
The Government of Taiwan does not permit the importation of pork
variety meats and selectively restricts other cuts of pork. If
Taiwan liberalized its pork market, U.S. exports would gain
significant market share.

I urge the Administration and Congress to take all appropriate
measures to open Taiwan’s and China’s pork markets. At a minimum,
these markets must be open to pork imports as a condition to China
and Taiwan becoming members of the WTO with tariffs bound at zero
or very low levels to guarantee meaningful market access.

Thank you, Mr. Chairman.


Office Building, Washington, D.C. 20515. The staff of the Subcommittee on Trade will notify by
telephone those scheduled to appear as soon as possible after the filing deadline. Any questions
conceming a scheduled appearance should be directed to the Subcommittee staff at (202) 225-6649.

In view of the limited time available to hear witnesses, the Subcommittee may not be
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‘an oral appearance are encouraged to submit written statements for the record of the hearing. Alt
persons requesting to be heard, whether they are scheduled for oral testimony or not, will be notified
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‘Wimesses scheduled to present oral testimony are required to summarize briefly their written
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ENFORCED. The full written statement of each witness will be included in the printed
record.

In order to assure the most productive use of the limited amount of time available to question
witnesses, all witnesses scheduled to appear before the Subcommittee are required to submit 200
copies of their prepared statements for review by Members prior to the hearing. Testimony should
arrive at the Subcommittee on Trade office, room 1104 Longworth House Office Building, no
later than 2:00 p.m., Friday, September 13, 1996, Failure to do so may result in the witness being
denied the opportunity to testify in person.

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‘Any person or organization wishing to submit a written statement for the printed record of the
hearing should submit at least six (6) copies of their statement, with their address and date of hearing
noted, by the close of business, Tuesday, October 1, 1996, to Phillip D. Moseley, Chief of Staff,
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distributed to the press and interested public at the hearing, they may deliver 200 additional copies
for this purpose to the Subcommittee on Trade office, room 1104 Longworth House Office Building,
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FORMATTING REQUIREMENTS:

‘Each actementprvento fr pratingw Cot Comantion by 2 wines, any wen sutapent or elt vod fr the prt reerd ray
SE comme rere eer win sme ween pus a yay nt i mt
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1, Ail statements nod any svempanyog chit fer psting must be typed i sag space om lagabson paper nd may net emeed &
‘wen 0 18 page thang sachets,
2 Copan af whee docmenta sobuitiod as eit mata wl wet be sovepd fer peeing, asood, efit material shen be

‘alread und qostd te poraphrased. A echt mate) set mowing tec opectiontons wl be salnained i the Commmtane fet fer review and
‘ee byte Conaian,

1 Aone qpensing i pubis Denctng subduing sstamant fer ha overt a » yobte Deering. or subg wet
comet fn rapemns 10 pblished rogeeat fr comments by Os Common, mat fncade on hs snement et oubeaden & Rt of al eat, pacmae,
( erpuninaons on wane boball the wast aqpents.

4 Ampplomenia! shout mont sccumpany such sntomant ating the name, ful uédrst, 2 iephane sumer whee te witness othe
ecigasodropreenttie maybe reached and stplesl une a semmary o 0 commests nd recommendations i Ge ful statment. The
‘pplemantal shot wl aet be inchndod in Oe printed ecard.

‘The above resccons a tmiasons apply ay » mater) bing eted for peeing. Mstnneats snd exh or eppionentay
nbeiaod sty fr atten ts the Meme, the vat snd the pie Ging the cmure of x pubic Dearing may be uimined ther fs.

Note: All Committee advisories and news releases are now available on the World Wide Web at
"HTTP://WWW.HOUSE.GOV/WAYS_ MEANS?’ or over the Intemet at "GOPHER.HOUSE.GOV’
under "HOUSE COMMITTEE INFORMATION’.


182

TESTIMONY OF ROBERT HALL
NATIONAL RETAIL FEDERATION

1. Introduction

Good afternoon, I am Robert Hall, Vice President and International Trade
Counsel at the National Retail Federation ("the Federation”), the nation’s largest
trade association representing the American retail industry. Our membership
includes the leading department, specialty, discount, mass merchandise and
independent stores, as well as 32 national associations and 50 state associations.
Our members represent an industry that encompasses over 1.4 million retail
establishments, employs more than 20 million people, 1 in 5 American workers, and
registered 1995 sales in excess of $1.3 trillion.

Mr. Chairman, the American retail industry thanks you and members of this
subcommittee for scheduling this important hearing on the accession of China and
Taiwan to the World Trade Organization (WTO). I feel confident that your
committee's work can lead to a better, more coordinated U.S. government approach
to dealing with two of our most significant trading partners, China and Taiwan.

The U.S. retail industry urges caution to both Congress and the
Administration as you proceed in WTO accession talks with China and Taiwan. We
should negotiate tough, but fair, accession protocols that serve not only Chinese and
Taiwanese interests, but also the interests of all segments of American industry
and American families. We urge the U.S. negotiators not to bow to domestic
protectionist sentiments, but rather to treat China as the important trading partner
it is, both as a growing U.S. export market and a siginificant source of products that
American families buy every day.

IL U.

. Support for the Membership of China and Taiwan in the WTO Should

The Federation supports the earliest possible admission of China and Taiwan
to WTO as part of a broad Administration policy of engagement and cooperative
trade relations with these two very important economies. The longer they are not
bound by international trading rules that help to make trade more stable, the more
difficult it is to trade and invest with them. Our opportunities to export to them,
import from them and invest in them are severely restricted, by both uncertainty
regarding the stability of the relationships, on the one hand, and by specific,
tangible barriers to trade and investment on the other.


110

STATEMENT OF NICHOLAS R. LARDY
SENIOR FELLOW
THE BROOKINGS INSTITUTE

It is very much in the long term infest of the United States, as well as important to
the world trading system, that China soon become a member of the World Trade Organization
(WTO). China, already the 10th largest producer of export goods, is the largest trading
country in the world that is not already subject to the disciplines of the WTO. Indeed, never
before in the history of the WTO or its predecessor, the General Agreement on Tariffs and
Trade (GATT), has such an important trading country not been a member of the principal
international body governing relations among trading nations.

There are at least two reasons China’s membership in the WTO would serve US
interests. First, the protocol governing China's accession to the WTO would not only
provide for an eliraination of non-tariff trade barriers and a very substantial reduction in
tariffs but would also delineate the further systemic economic reforms to bring China into
compliance with WTO standards. Some have described such a protocol as bringing China
into the world trading system on a “commercially viable basis.” Most importantly, the
protocol would require that such steps be taken on specific schedule. China has
reduced tariff and nontariff barriers significantly in recent years, but the timing of these steps
has been entirely at China's discretion,

Second, bringing China into the WTO will provide a way for the United States to
address inevitable trade frictions with China on a more multilateral rather than purely a
bilateral basis. Recent history suggests that multilateral negotiations within an agreed
international framework provide a structure that is more productive than bilateral negotiations
followed by unilateral pressures and sanctions. The new dispute resolution procedures of the
WTO, to which the United States contributed so much, are particularly important in this
regard.

While such protocol is in our interest, the history of negotiations over the past ten
‘years shows that an agreement can not be achieved simply by offering China membership in
the WTO. The process of China becoming a member of the WTO is already the most
extended on record. Chins first formally indicated its desire to become a contracting part of
the General Agreement on Tariffs and Trade (GATT), the predecessor to the WTO, in July
1986. Seven months later it submitted a memorandum describing its foreign trade regime, a
key step in the accession process. A GATT Working Party was appointed in June 1987 and
the first meeting of the Working Party took place in February 1988, Since that time the
Working Party has met formally almost two dozen times, and China also has conducted
extensive bilateral negotiations on the WTO with its main trading partners. Thus the
accession process started more than a decade ago and formal talks on China's accession to the
GATT/WTO have been going on for nine years.

Negotiations for China's accession have been of record length for two closely
interrelated reasons. First, as a transition economy there are some features of its trading
system that are not compatible with the GATT/WTO system, which was created to facilitate
trade among market economies. Although China has transformed dramatically many aspects
of its domestic economic system, this transformation has been protracted. China has found it
particularly difficult to dismantle the barriers that continue to protect significant portions of a
state-owned industrial sector that grew up during a period of relative autarky, when
intemational cost competitiveness was irrelevant. On the other hand, the United States,
Europe, and Japan insist that China dismantle these barriers as a precondition for membership
in WTO.

‘The second reason for China's protracted entry into the WTO is that the benefits China
would attain through WTO membership are relatively modest. China's size and geopolitical
influence are both sufficiently large that the single most important economic benefit associated
with membership in the WTO--permanent most-favored-nation (MFN) trading status in the
markets of member countries~-was bestowed by all countries, except the United States, in
advance of even any indication on China's part that it was interested in participating in the
GATT system. And the United States has provided MFN status for China on a year-by year
basis for more than fifteen years. With the principal benefit of membership already in hand,
what is the incentive for China to incur the considerable costs of domestic restructuring and
adjustment that would inevitably accompany the dismantling of their remaining import
barriers? In short, the costs of conforming to expectations of the West on openness to trade



69

its share declined sharply even while the dollar amount rose from USS19 illion to «
Ustiebillon, The wade wrpar withthe US avo dedined wo USS billion, ae AE RAPIDITY WITH
the U.S. retained a20 percent share of Taiwan's impor, a satisfying trend for US.
trade negotztrs. Japan was Taivan's third largest trading parr, aking 11 ICH AN ECONOMIC
percent of exports and providing 29 percent of imports, almost unchanged from
1986, In dollar tema, however, the ade deficit with Japan grew sharply fom RELATIONSHIP OF DEPTH
'USS32 billion to USS17 billion. ‘The remarkable change is in the Hong Kong/
PRC. numbers, HK/PR.C vaued over Japan to become the second larg AND SCALE DEVELOPED
srading partner, taking 23.4 percent ofexpors, only awhisherlessthantheUS. But BETWEEN TAIWAN AND
‘Taiwan purchased litle from mainland China, leading to 2 USS24 billion trade
surplus. Withoutthe exports to Hong Kong and the mainland, Taiwan would have M47NLAND CHINA
run a trade deficit of USS16 billion.

‘Wecan understand what was driving these exports when welook atoverseas. NATURALLY CAUSES
investment. In 1995 it totaled USS2. billion, 43 times larger than in 1986. These
figures are almost cerainly understated since they include only officially registered SOME TO WORRY ABOUT
investments by Taiwan-domiciled companis and often omit investments made by
‘overseas companic: owned by Sani. 2. Where did it go? Maintand Cuinia gue BECOMING OVERLY DE-
45 percent, the U.S. got 10 percent, and the rest was widely spread among other
‘countries in Southeast Asia, the Americas, and Europe. Even 3 percent in dollar PENDENT ON THE MAIN-
terms was more than Taiwan's total investment in 1986, This small society of 21
rillion people suddenly became a major capital exporter. LAND MARKET. THE

‘The rapidity with which an economic relationship of depth and scale
developed between Taiwan and mainland China naturally causes some to worry OPPORTUNITIES NEVER-
about becoming overly dependent on the mainland market. The opportunities
nevertheless seem irresistible to both foreign and local investors based in Taiwan, THELESS SEEM IRRESIST-
‘The economic relationship, so full of promise and much larger than commonly
realized in other countries, san incentive for both sides to manage their politi) /BLE TO BOTH FOREIGN
rivalry carefully. But the stability provided by the United States through its
security role under the Taiwan Relations Actisaull necessary, as wasdemonstrated AND LOCAL INVESTORS
last March, when P.R.C. missile tests were balanced by U.S. aircraft carrier bare »
‘roups sent to the vicinity of Taiwan, BASED IN TAIWAN.

Although mainland China attracts the largest single share ofthis enormous
«capital outflow, well over half is scarered elsewhere in the world, especially in
‘Thailand, Indonesia, Malaysia, Vietnam, and more recently the Philippines. 1am occasionally asked how long Taiwan will
beableto stay ahead ofthe development curve. After moving rapidly from agriculcuretolabor intensive light manulacruring,
then on tocapital and technology intensive heavy industry, and increasingly to services, what comes next? What will prevent
‘Taiwan's medium tech industries, like computer monitor manufacturing, from being overtaken by new competitors just as
its garment industry was?) The answer is that this has already happened. One of the major monitor makers has 18,000
employees, of only whom 2,000 work in Taiwan, The rest are in plans in Malaysia, mainland China and Scotland, all areas
‘where land and labor are more readily available than in Taiwan. The monitor industry in the next generation of competitor
countries already exists, It is mainly owned and managed by Taiwanese multinational corporations fiercely devoted to the
‘optimum balance berween low cost manufacturing and the best

“Taiwan in 1986 was a prosperous, but provincial and ditant appendage ofthe US. economy, with secondary tiesto
ins former colonial ruler Japan, Taiwan in 1995 was well integrated in the regional economy, but ever more closely related
to its narural partner, the mainland Chinese market. Today the growth trends in investment and trade with mainland China
have been blunted by political tensions and indecision on both sides. Mostindicators of eross strait activity forthe fst half
‘of 1996 are at or down. My view is that chs will eventually be seen as only a temporary pause in a relationship that will
flourish to the benefit of both.

TOPICS, September 1996 9


24

from the witnesses, from the Subcommittee Members, and from our
excellent staff, about what our responsibilities are here. They are
awesome, and they are very challenging, and I think we will all
profit if we listen to each other and try to learn from history what
the significant role of all this is.

Having said that, let me say to Mr. Cox and Mr. Brownback, you
have made some interesting proposals here and very well-reasoned
proposals.

How can we get all of this done as quickly as possible, yet bring-
ing into this the responsibilities that you have outlined in your tes-
timony to the people in the United States? Is there anything that
you see that we can do about removing the sterile and often harm-
ful debate on MFN from this arena?

Would either one of you like to tackle that or both of you like
to tackle that question?

Mr. BROWNBACK. I would be happy to make just a brief comment
on that, and probably you, Congressman Gibbons, would be wiser
on this than I would be, by some distance.

It seems to me—in representing my district—that what the peo-
ple want is, to be able to trade back and forth, but they want to
make sure that everybody is playing on the same bit of ground
here, and that nobody has got an advantage or a disadvantage in

it.

What I have outlined, particularly on the issue of beef, which is
an issue that I am very familiar with, it is not a fair field, that we
are not going into, and that hurts the overall atmosphere for people
as they look to trade.

I support an expanded trade environment. But, it has got to be
very balanced, and it is one that whenever any of us, as Members,
or other people in the public find an area where it is not balanced,
we really ought to go at it and be very specific and pointed and
very direct and aggressive on dealing with it.

I think we need | to go at the specifics rather than just dealing
in these big cloudy areas and issues where we do not get much res-
olution. There is not much discussion of points that ever can be
resolved.

Mr. GiBBons. Well, thank you for your answer.

And, Mr. Cox, would you like to elaborate?

Mr. Cox. Sustainable, long-term trade relationships have to be
based on mutual advantage rather than one party taking advan-
tage of another.

‘What the United States has made almost the entirety of its focus
in our trading relationship with the People’s Republic of China is
MEN renewal. And may I substitute for “the United States” as I
just said, “the Congress,” because, of course, we have a role in pol-
icy relating to intellectual property and on each of the disputes
that arise in the course of our trading affairs with the PRC.

This dates to a different era when the Jackson-Vanik legislation
addressed different problems than face us just now.

As I said in my testimony, if that is our exclusive focus, we have
disadvantaged the United States, not just the country upon whom
we wish to impose sanctions, because sanctions, by their very na-
ture, will disadvantage the party that imposes them, as well as the
party that is subjected to them.


seo
MARYVILLE CENTRE OR,
‘SUITE 400,
ST.L0Us,
mussount

estat

PHONE:
ata) s76.1770
Fax:

014) s762706

143

December 7, 1995

Mr. Richard Schroeter

Deputy Administrator, intemational Trade Policy
Foreign Agriculture Service

U.S. Department of Agriculture

14th & Independence Ave., S.W.,

Washington, 0.C. 20250

Dear Rich:

‘As you continue your negotiations with the Chinese regarding
their accession to the WTO, and further to our previous
correspondence of July 17, 1995 and October 10, 1995, we
sppreciao the oppertunty to forward for your consideration the
following:

* ASAINOPA Concept Paper on a ‘Harmonized Import Regime
for China's Oilseed Complex"; and

* Our industry considered analysis of "China's Import Needs for
Oilseed and Products* (1996-2005)

We tok forward to siscunsing these documents with you at an
appropriate time, but wish to advise that they have

developed through consitatons between ASA ed
NOPA and represent our collective best thinking on these
subjects.
With kindest personal regards,

President, NOPA President, ASA

Enels: (2)
Pro



10

STATEMENT OF REP. JIM RAMSTAD
WAYS AND MEANS SUBCOMMITTEE ON TRADE
HEARING ON THE WORLD TRADE ORGANIZATIONS,
‘SINGAPORE MINISTERIAL MEETING
‘SEPTEMBER 19, 1996

Mr. Chairman, thank you for calling this hearing today to discuss the accession of
China and Taiwan to the World Trade Organization (WTO).

As we discussed during last week's hearing, further progress to reduce and eliminate
barriers to trade and increase market access for American exports is very important
for the continued growth of our economy.

China and Taiwan are currently very important trading partners for the U.S. In
1995, China was our thirteenth largest export market and Taiwan was the seventh
largest. Since the economies and populations of these two countries will certainly
be experiencing significant growth in the coming years, it is imperative that we
discuss the opportunities that could be realized with their accession into the WTO.

‘We must also, however, keep in mind the obstacles associated with the entries of
these countries into the WTO. For example, China's trade regime remains heavily
regulated by the central government. As you know, earlier this month, the USTR
cited China for illegal transshipment practices which violate our 1994 bilateral trade
agreement _on textile and apparel trade. While Taiwan has agreed to reform many of
its trade practices that are inconsistent with the WTO, additional changes still need
to be discussed.

Mr. Chairman, thanks again for calling this hearing. I look forward to listening to
the testimony of today's witnesses and learning more about the problems and
opportunities involved with bringing China, Taiwan and other nations into the WTO.


141

Statement for the Record Submitted by the
American Apparel Manufacturers Association to the
Subcommittee on Trade, Committee on Ways and Means
U.S. House of Representatives
re: China’s Accession to the World Trade Organization

The American Apparel Manufacturers Association (AAMA) appreciates this opportunity to
express its views pertaining to World Trade Organization (WTO) membership for China.
AAMA opposes China’s accession to the WTO until China demonstrates a sincere
willingness and capability to obey intemational trade agreements and provide reciprocity in
its intemational relationships.

AAMA is the central trade association of the U.S. apparel industry, representing more than
70 percent of U.S. apparel production. AAMA members make everything from socks to
caps, from underwear to shirts and sweaters, to suits and overcoats. While the industry is
large, most of the companies are relatively small. Most companies have sales under $20
million and many have sales under $10 million. There are approximately 850,000 apparel
manufacturing jobs in the U.S. and almost every state has some apparel employment.
Nineteen states have more than 10,000 apparel jobs and eight of those have more than
50,000 jobs. Approximately 40% of the American apparel workers are minorities and 90%
are women.

‘The United States and China have maintained a bilateral arrangement for trade in textiles
and apparel over the past several years, and our experience with China has taught us
several lessons. Chinese apparel and textile suppliers pay their workers merely cents an
hour, subsidize and dump their exports, and illegally ship billions of dollars worth of
merchandise to the United States by circumventing international trade laws and
agreements, In retum, China restricts market access for U.S. apparel products through the
use of tariffs and non-tariff barriers to trade, fails to protect the intellectual property rights
of international commercial enterprises, and does not provide an environment of
transparency with regard to the basis rules and regulations of doing business.

It is a fact that the world has become an international marketplace, and a nation’s access
to the benefits of global commerce should be explicitly linked to its record of
performance. Therefore, AAMA believes it would be both unwise and unjust to afford
China membership in the WTO until it ceases the practice of flaunting international trade
laws and rendering exports to the Chinese market all but impossible.


29

While China has responded preliminarily to the road map, we
have yet to receive a full response and, of course, look forward to
that.

With respect to its offers currently on the table in Geneva, Chi-
na’s offers on market access for goods and market access for serv-
ices are not acceptable in their current form.

In addition, there are a number of important rules-based issues
such as the right to trade, removal of nontariff measures, the role
of State enterprises, disciplines on agricultural supports and sub-
sidies, China’s industrial policies. These rules-based issues remain
unresolved as well.

In addition, with respect to agriculture market access, China will
need to sharply improve its offer. We have made a number of con-
crete suggestions in all of these areas to China, beyond and in ad-
dition to the road map paper, and we look forward to working with
China on these critical issues.

Let me just say that we are committed, of course, to a pragmatic
and realistic accession process for China. As President Clinton has
said to President Jiang, we stand ready to negotiate a balanced,
commercially base accession agreement.

Mr. Chairman, let me turn briefly to Taiwan. Taiwan is the 13th
largest trading economy. It is the United States six largest trading

artner. Of course, in the last decade, Taiwan has reformed its po-
jitical structure and moved toward the democratic mainstream. Bi-
lateral negotiations between the United States and China have laid
the foundation for a more liberalized trade regime in Taiwan. Of
course, there are difficult issues that remain, and I have detailed
the bilateral issues that are outstanding.

In addition, as you may know, Mr. Chairman, the United States
runs about a $10 billion trade deficit with Taiwan, and that is an
issue on which we have also focused significant attention.

Although not a participant in the Uruguay round, Taiwan has
moved toward freer markets in recent years. Taiwan’s trade acces-
sion plan, which was self-initiated in 1989, reduced industrial tar-
iffs to an average of 8.6 percent. And last year, Taiwan’s legislature
enacted a law to reduce tariffs by an average of 21 percent on
particular items of United States export interest.

The unresolved issues in Taiwan's accession bid concern various
market access matters. They relate to a number of areas that are
of critical importance to the United States—for example, Taiwan’s
tariffs and quotas on automobiles and other industrial goods; their
tariff and distribution arrangement on certain agricultural com-
modities; their tariffs, taxes, and other arrangements on products
that are within the province of the Taiwan Tobacco and Wine Mo-
nopoly Board. And Paiwan has yet to address United States con-
cerns with respect to its services offers, particularly with respect to
legal and financial services, as well as the question of whether Tai-
wan will accede to the aircraft agreement after accession.

We work closely with the Taiwan delegation, but there is no
question that significant outstanding issues remain with respect to
our bilateral negotiations with Taiwan.

I would add, however, that Taiwan has not finalized its bilateral
consultations for accession with any of its major trading partners—
not with Europe, not with Japan, or others. Each of these individ-


166

Congressman Jerry

TESTIMONY BEFORE HOUSE WAYS & MEANS SUBCOMMITTEE ON TRADE
“ACCESSION OF TAIWAN AND CHINA TO THE WTO”
SEPTEMBER 4. 1996

1 am grateful to Chairman Crane and the members of the subcommittee for this
opportunity to address you today on the subject of the potential accession of Taiwan and the
People’s Republic of China to the World Trade Organization.

First I'd like to address Taiwan. It is ironic that we are here today discussing Taiwan's
potential accession to the WTO because just this past Tuesday, the International Relations
‘Committee reported out my resolution, H.Con.Res. 212, which addresses this very issue. I am
happy to report that the resolution will be on the floor under suspension next Tuesday. The
resolution simply endorses a European Parliament resolution which urges greater representation
in international organizations for Taiwan, and that is what I am here to do today.

Mr. Chairman, I can think of no other country that so richly deserves prompt accession to
the WTO. We all are familiar with the great economic success story of this island nation. An
impoverished third world island just forty five years ago, Taiwan has vaulted to being the 19th
largest economy in the world and has become the sixth largest trading partner of the U.S. With
an economy characterized by low inflation, low unemployment and a $12,000 per-capita GNP,
Taiwan is nearly on par economically with countries such as Spain and Ireland.

More importantly, Taiwan's successful transformation to democracy has got to be taken
imo account when considering WTO membership. This year’s presidential elections have
rounded out this transformation and today Taiwan is marked by free elections, a free press and
respect for human rights and civil liberties. In so doing, Taiwan has provided an excellent
model for the rest of Asia.

Finally on Taiwan, Mr. Chairman, I would submit that the United States has a special
moral obligation to support Taiwan's early membership in the WTO. Back during the Cold
War, we really didn’t have a more steadfast ally in our struggle against Communism than the
Republic of China on Taiwan. They were integral in stopping the spread of that deadly system in
Asia and for that we owe them a debt of gratitude.

Turning to Communist China, well, we just couldn't have a darker and more contrasting
situation. Instead of the democracy we have in Taiwan, we have a vicious totalitarian
dictatorship tha: consistently ranks at the bottom of the world in terms of respect for human
rights.

Instead of the solid reliable trading parmer we have with Taiwan, we have a crooked and
duplicitous regime that refuses to allow open and fair access to American goods, blatantly
violates trade agreements and consistently has racked up huge trade surpluses against the U.S.
Indeed. we have all seen the June trade figures in which, for the first time, Communist China
surpassed Japan as the largest contributor to our trade deficit. | am sure it will not be the last.

And finally, instead of the peaceful ally we have in Taiwan, we have a virulently anti-
‘American regime that is engaged in a massive military buildup, regularly bullies its neighbors,
and is recklessly abetting the spread of weapons of mass destruction to fellow rogue states
around the world.


98

“rounds” of negotiations every several years. It would also give a positive impetus to the WTO's
longer-term negotiating agenda. A Singapore Ministerial “down payment” on trade liberalization
should at least include tariff elimination on high-tech products under the Information Technology
Agreement (ITA). It should also include other products, such as wood and chemicals, which are
covered under the Administration's existing residual tariff-cutting authority. The NFTC
encourages continued U.S. focus at the WTO and in regional fora to secure a tariff package
agreement as a major objective of the ministerial meeting.

© LxG Future Liberalizat Bulle .
Unlike past GATT Rounds, the Uruguay Round Agreements contain a full agenda of ongoing
action items, including specific dates for launching negotiations on services, agriculture and
government procurement. This “built-in” agenda provides the main vehicle for future
‘multilateral trade liberalization and for ensuring the WTO is relevant and up-to-date. One of the
Singapore Ministerial's highest priorities should be agreement on the necessary work plan and
other preparatory decisions to accomplish the ambitious goals set out in the built-in agenda. In
addition to accomplishing this critical objective, the NFTC strongly supports encompassing other
issues in the WTO's ongoing negotiating agenda. These issues should include further industrial
tariff negotiations, as well as improvement of existing agreements, such as the one relating to
preshipment inspection. The NFTC also endorses the Administration's efforts to reach
agreement on an Interim Arrangement to establish greater transparency and due process in
government procurement markets for all WTO members. It is an important step in itself and will
promote broader adherence to the plurilateral Government Procurement Agreement. Finally, we
recommend building on the WTO's limited investment rules by starting a process of discussion.
about appropriate next steps among WTO members, while at the same time concluding a
comprehensive investment agreement at the OECD.

oO

i At least 30 countries or territories are seeking to join the already 121-
member strong WTO. Many of these countries, such as China, Russia and Vietnam. represent
‘major emerging markets that will have a significant impact on the future direction and credibility
of the WTO. While itis critically important that these countries become full fledged members, it
is essential that accession terms be in the best economic and commercial interest of the United
States, and that they strengthen and preserve the integrity of the WTO. The Singapore
Ministerial should present a united front on the basic elements of the terms of entry for these
countries by making clear that there are no short-cuts to the following minimal accession
requirements: 1) full and effective adoption of all basic rules and principles; 2) meaningful and
substantial market access commitments; 3) effectively addressing distortive non-market economy
issues such as state trading rights; 4) adherence to short transition periods, as appropriate; and 5)
a standstill commitment on new trade and investment restrictions during the accession process
and after accession. In return, the United States should make clear that we are prepared to revise
relevant U.S. trade laws in order to maintain a formal WTO relationship with, and grant
permament MFN status to, all future WTO members.


140

So, we are trying to address this thing to them as a win-win, not
as a zero-sum game.

Mr. HOUGHTON. Let me just interrupt for 1 minute, because I
guess the light is flashing, and I guess we public ought to stop this.

But, Mr. Chairman, if I understand correctly what these two gen-
tlemen have said, is that in order to trade fairly, we must be reso-
lute in terms of those things which we consider important for us
to stand by, and therefore we have got to be tough about it—not
tough, mean; but tough, fair. And that somehow the Government
and the private industry must work closely together.

I do not mean to generalize this, but I think——

Chairman CRANE. We will take a generalization.

Mr. HoucHrTon. All right, fine. Thank you, Mr. Chairman.

Chairman Crane. Well, that concludes our hearing, and I want
to express our deep appreciation to you for sharing your views and
expertise with the Subcommittee, and I look forward to an ongoing
working relationship as we go into that 105th Congress.

With that, this hearing stands adjourned.

(Whereupon, at 3:27 p.m., the hearing was adjourned.]

{Submissions for the record follow:]


91

f Taiwan's 1995 Share of Worldwide Computer Markets

‘Worldwide Share

‘Mouses

72.00%
65.00%

Motherboards

Keyboards

65.00%

‘Scanners

Monitors

‘Network Cards

Power Supplies

‘Video Cards

Graphics Cards

Terminals

Portables

Router.
Souad Cards

‘CD-ROM

Desktops

SURVEY OF INTERNATIONAL
TRANSPORTATION COMPANIES

‘What Changes Are Needed to Make Taiwan
‘Your Company's Regional Operations Center?

‘Frederte Harris Survey Reruts

a 0 © © 0 m wo
% Re: pendents

TOPICS, September 1996


ll

Chairman CRANE. Now we will start with our distinguished col-
leagues first, and I would ask all of you gentlemen to please kee
your oral presentations to 5 minutes. Any further statements will

e made part of the permanent record.

And we have with us Hon. Chris Cox of California, Sam
Brownback of Kansas, and Tom Latham of Iowa. And if you two
gentlemen, Mr. Cox and Mr. Brownback, do not mind, Mr. Latham

as an appointment, and he is not going to be able to hang in here.

So you proceed, if you will.

STATEMENT OF HON. TOM LATHAM, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF IOWA

Mr. LaTHAM. Thank you, Mr. Chairman, and Members of the
Subcommittee, and I appreciate my colleagues allowing me to
proceed here.

I do appreciate the opportunity to appear before you. I am here
today to underscore the importance of obtaining meaningful market
access to China and Taiwan for United States exports of pork.

I represent the second largest hog-producing district in the coun-
try, and my State of Iowa is by far the largest hog-producing State
in the Nation. The pork industry is Iowa’s largest industry. How-
ever, pork production is not limited to Iowa or even to the Corn
Belt. Significant production is found in many States across the
country.

According to a 1993 Iowa State University study, the U.S. pork
industry is responsible for over $66 billion in total domestic activity
and supports over 764,000 jobs.

USDA forecasts agricultural exports to reach $60 billion with im-
ports expected at approximately $30 billion. According to USDA,
each billion in agricultural exports supports over 17,000 good-
paying jobs for American workers in production, processing, pack-
aging, transportation, and related industries and services.

The record for pork is even more impressive. The Economic Re-
search Service of USDA calculates that for each dollar of exported
pork, a value-added commodity, $1.63 in additional U.S. economic
activity is generated, compared to $1.08 for each dollar of bulk
grain exported.

However, every $1 billion in pork exports creates an additional
23,000 new jobs in the U.S. economy. Perhaps no industry has ben-
efited as much from the Uruguay round agreement of NAFTA as
the U.S. pork industry. During 1995 when the Uruguay round
agreement went into effect, United States pork exports to the world
increased by approximately 50 percent from 1994 levels.

U.S. pork exports are growing for a number of reasons. First, the
United States is the technological leader and low-cost producer of
pork in the world.

Second, U.S. producers can boast of a product which is second to
none in terms of global quality.

Third, demand for pork is exploding as vast populations across
the globe increase their incomes.

Many of you may not realize it, but pork is the world’s meat of
choice. Pork represents 44 percent of the daily meat protein intake
in the world. But, no matter how efficient the production process
and no matter how high the quality, no matter how large the de-


oT

NATIONAL FOREIGN TRADE COUNCIL, INC.

1625 K STREET, N.W., WASHINGTON, DC 20006-1604

Tel: (202) 887-0278 (Be) FAX: (202) 482-8160

August 29, 1996

The Honorable Charlene Barshefsky

Acting United States Trade Representative

The Office of the United States Trade Representative
690 17th Street, N.W.

Washington, D.C. 20508

Dear Ambassador Barshefsky:

On behalf of the 500 member companies of the National Foreign Trade Council (NFTC),
I would like to provide the NFTC’s views regarding the Singapore Ministerial. The NFTC
believes that this first ministerial meeting of the World Trade Organization (WTO) is critically
important to the United States and that we should approach it with ambitious, yet realistic
expectations. More specifically stated below are the NFTC’s overall recommendations for the
Singapore Ministerial.

© Reaffirm the Importance of the WTO.~ The Singapore Ministerial offers the United
States and its major trading partners the opportunity to reaffirm their commitment to the WTO in
three important ways by: 1) recognizing its central role in promoting an open and equitable
multilateral trading system; 2) demonstrating its major economic benefits; and 3) supporting it as
a dynamic institution that must evolve in a progressive direction and timely manner to remain
relevant, The WTO's biennial ministerial conferences provide a built-in mechanism for
consolidating and advancing global trade and investment liberalization, and the NFTC urges
continued strong U.S. leadership to assure such forward momentum at the Singapore Ministerial.

© Assess WIO Implementation — Ensuring that all WTO members are implementing
their WTO obligations is the most basic requirement for the WTO to reach its full potent
operate effectively. The Singapore Ministerial should frankly assess the record on.
implementation, address problems where they might exist, and renew member countries”
commitment to abide by the rules. Particular attention should be given to examining the dispute
settlement system to determine how well it is working to resolve disputes in a timely and
meaningful manner. Just as important is the goal of encouraging accelerated implementation of
key agreements, such as those relating to intellectual property rights.

© Achieve Near-Term Additional Liberalization.-- One of the strongest endorsements in
support of a dynamic WTO would be gaining greater market access liberalization during the
Singapore Ministerial. This would build confidence in the WTO's new structure and capacity to
advance open global trade without resorting to the past GATT practice of launching new


102

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118

Statement of Mark A. Anderson, Director, Task Force on Trade
American Federation of Labor and Congress of Industrial Organizations
Before the Subcommittee on Trade
‘Committee on Ways & Means
U.S. House of Representatives

on
The Possible Accession of the People’s Republic of China to the WTO
September 19, 1996

Mr. Chairman, members of the Committee, the AFL-CIO appreciates this opportunity
to present its views on the possible accession of the People's Republic of China (PRC) to the
World Trade Organization (WTO). The importance of these hearings cannot be overstated, and
continued congressional oversight and involvement is necessary to ensure that the interests of
the United States are protected. In this regard, the AFL-CIO supports proposals requiring
congressional approval before the President supports the admission of the PRC into the WTO.
‘The terms of an accession agreement must be carefully examined and weighed alongside U.S.
interest. A public debate and vote will ensure that such an examination take place.

The negotiations currently taking place that hope to establish the conditions under which
the PRC may join the WTO need to address the basic contradiction of marrying the PRC's
undemocratic political structure and command economy with an institution that is presumably
designed to promote and serve democratic political institutions and market oriented economies.
Without substantial and far-reaching change on the part of the Chinese, such a marriage is
doomed to failure, and can only result in continued harm to U.S. workers.

These negotiations also pose a series of more fundamental questions:

What are the conditions under which the United States trades with the world? Are there
any standards or rules that should be observed? Are certain narrow commercial interests
identical to the interests of the nation as a whole? The talks with China put those questions and
others in sharp relief, and how they are answered will tell us a lot about this country's adherence
to basic principles and whether or not the growing internationalization of the economy can be
structured to benefit and not harm working Americans.

In 1994, the World Bank described China's trade strategy as "mercantilist, motivated by
achieving export growth for the sake of generating foreign exchange without sufficient regard
to costs, and linked with attempts to contain import growth.” In many respects, this approach
has been quite successful for China, but detrimental for the United States.

International trade now accounts for 40 percent of China’s total economy, with hard
currency reserves reaching $73 billion. In recent years, Chinese exports have grown at three
times the average world rate, making China one of the world’s ten largest exporters. As a result
of this strong export growth, together with restrictions on imports, China enjoyed an overall
trade surplus of $20 billion in 1995, while the U.S. recorded an overall deficit of $160 billion.

Over the last dozen years, U.S. merchandise trade with China has deteriorated from
rough balance to a deficit that reached $34 billion in 1995. While U.S. exports amounted to $12
billion, imports reached $46 billion and represented 31 percent of China's worldwide exports.
In contrast, U.S. exports to China were only 2 percent of total U.S. exports.

U.S. investment in China has also soared with committed investment now reported to be
an almost unbelievable $25 billion.

‘These shifts in trade and investment reflect an explicit Chinese policy of export led
growth, supported by an economic regime that is discriminatory and nonreciprocal, a labor


65

Accession of China and Taiwan to the World Trade Organization

Testimony by
Christian Murck, President
‘American Chamber of Commerce in Taipei

Subcommittee on Trade
Ways and Means Committee
US House of Representatives

‘September 19, 1996

Mr. Chairman, Members of the Subcommittee on Trade, Ladies and Gentlemen:

It is my pleasure to testify today representing the American Chamber of Commerce in
Taipel. AmCham Taipei comprises over 900 individuals working for about 500 companies
doing business in Taiwan. Our goals are to inform our membership on business issues
in Taiwan, and to communicate the views of the American business community to the
government in Talwan and to our own government in Washington.

Atthe outset, let me say that AmCham Taipei strongly encourages US support for prompt
and orderly accession of Taiwan to WTO membership, as soon as the few remaining
Issues in the US-Talwan bilateral negotiations are satistactorily resolved. We similarly
favor support for PRC accession on the basis of an acceptable package of commitments
to market opening, intellectual property rights protection, and a level playing field in the
Chinese market. These two important economies should be full participants in the
international trade regime represented by the WTO, while meeting standards appropriate
to their levels of economic development.

‘AmCham Taipei has been an active supporter of the US-Taiwan bilateral negotiations on
WTO accession, reguiarty providing input from over 20 committees organized by industry
to USTR and the American Institute in Taiwan, and to their Taiwan counterparts |
congratulate both sides on the work done so far. Significant commitments have been
requested by the US, and made by Talwan, on thousands of tariff lines. Major
improvements have already been made in the legal framework and enforcement of
Intellectual property rights, and further commitments will take effect on WTO accession.
‘The process of deregulating the telecommunications monopoly and opening the Industry
to foreign investment has begun. Work is proceeding on a government procurement
code. Taiwan has accepted that it will enter the WTO as a fully developed economy and
is prepared to make major changes accordingly.

Why is this Important to the United States?

‘Some friends of Talwan seem to consider WTO membership mainly in a political light as
recognizing Talwan's democratization or rewarding past friendship. Some critics of China
perhaps support Taiwan's WTO membership to initate or "punish" the PRC. 1 would
argue that such political motivations should be put aside, because they distort the
purpose and character of the WTO. | hope this Subcommittee will focus instead on the
‘substantial economic interests of the United States at stake.

According to the U.S. Department of Commerce, Taiwan imported $19.3 billion In goods


1

PREPARED BY
‘PAUL CABSINGHAM

RICHARD HENSON

CHRISTIAN MuncK

LYNN MURRAY SIEN

Epivons:
DANIEL CHEN
SCHAN Durr

AKIKO PUSIKAWA

AMERICAN CHAMBER OF COMMERCE IN TA\

Suite 1012, 10/F, #96 CHUNG SHAN N. RD. Sec.
TRL: BBR-2-

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AKG HHAUZEND.COM. TY

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16

mands of the WTO working party members, including the United
States, when and if WTO membership is in sight.

Mr. Chairman, Taiwan’s case should be considered on the merits.
Taiwan should no longer be held hostage to Communist China’s
suitability for WTO membership because, as the Chairman so cor-
rectly pointed out, there are serious concerns about the suitability
of the PRC for admission to the WTO at this juncture or in the
foreseeable future.

Some who are not as well briefed in these matters as Members
of the Subcommittee and many of your witnesses today might be-
lieve that the controversy over Taiwan’s sovereignty would pose a
problem for their admission to the WTO ahead of the PRC. Of
course, this concern is entirely unfounded because WTO member-
ship in no way connotes sovereignty, and membership in the WTO
is not limited to nation-states. Pursuant to its charter and rules,
membership in the WTO is neither limited to nations nor indicative
of sovereignty.

That policy is illustrated by Hong Kong’s current membership
and the fact that Hong Kong will maintain its membership in the
WTO as a separate customs territory after becoming part of the
People’s Republic of China in July of next year.

Taiwan likewise has applied for membership in the WTO not as
a separate nation, but as a separate customs territory.

With regard to this particular economic organization, therefore,
questions as to whether there is one China or two, or some amal-
gam of those alternatives, are irrelevant.

The arguments about the merits of Taiwan entering the WTO
and the PRC entering the WTO ought to be treated separately.
They are laid out in some detail in the preamble to H. Res. 490,
which I have introduced with many of our colleagues in cosponsor-
ship.

H. Res. 461 has a bearing on the work of this Subcommittee and
to the Subcommittees on Banking, International Relations, and Na-
tional Security as well. This resolution was expressly designed to
move American policy beyond the singularity of annual MFN de-
bate and instead move us forward to policy tools that can help in-
crease trade among and between our allies and also advance our
interests in democratization and trade liberalization.

A statement of support for Taiwan’s entry into the WTO and b:
this House I believe is an important step forward in our China pol-
icy, indeed in the development of a new China policy better suited
to the 21st century, as anticipated in H. Res. 461. Taiwan deserves
to become a member on the merits, while the PRC as yet does not.

The United States should work for Taiwan’s membership in the
WTO for which sovereignty is not, by definition, a prerequisite for
participation, in order to reward Taiwan’s progress in economic
growth and democratization and to hold out Taiwan as a model,
both for the PRC and for other emerging economies and democ-
racies in the region.


160

A continuation of the auto policy will mean a growing imbalance and greater
pressure on American auto workers’ jobs. As it is very hard to win protection for the
USS. industry through domestic procedures, we are especially concemed about this
potential, Consequently, a full accounting of all goverment programs related to
auto industry development must be provided and commitments to the elimination of
export performance requirements and other similar unfair practices must be agreed
upon before WTO accession. In addition, special safeguard measures to respond
to injury or the threat of injury related to imports from the PRC must be available to
American workers, The size and the non-market structure of the PRC's economy
make such protections essential.

‘The UAW ie also concemed about aerospace trade and investment. Through
the use of concerted govemment policies, the PRC is creating a sophisticated
aerospace industry and is willing to use the leverage of its market in order to
succeed. The use of forced technology transfer, local production offsets and other
unfair practices has been documented. Many other countries, particularly in Asia,
are competing to become centers of aircraft and parts production, but the PRC has
a leg up on its competitors because of the size of its market. U.S.-based aerospace
firms have already agreed to onerous conditions in order to win access to the
market in the PRC by acceding to co-production deals and technology transfers.
We are very concemed that work in the aerospace industry has been, and will
continue to be, relocated from the U.S. UAW members lose their jobs and their
families and communities suffer when this occurs. The PRC's aerospace policies
must be carefully addressed in the WTO accession negotiations. This must include,
but go beyond, the PRC's accession to the Civil Aircraft and Subsidies Codes to
address all forms of government inducements for local production, transparency in
aircraft procurement decision-making by govemment-owned and other entities, as
well as a complete listing of all goverment support programs, direct and indirect, for
the PRC's industry.

‘The labor policies of the PRC government also must be addressed in the
WTO accession talks. It was recently announced that all foreign investments would
have to be unionized, with the official PRC unions to be recognized. It is our
experience that the PRC unions too often have been more interested in the health of
the govemment's policies than of the workers they are supposed to represent.
Abuses of workers are said to be rampant. There must be enforceable obligations
on the part of the PRC to rectify the mistreatment of workers prior to WTO
accession. Otherwise, there will be little pressure for change in the govemment's
‘treatment of workers in the future. Commitments by the goverment of the PRC to
support the creation of a WTO working party on trade and worker rights and to
eliminate exports of products made with forced and prison labor (and to allow
monitoring of this commitment) must be included in an accession agreement.

It is important that Congress play a constructive role in advising the
Administration on the accession negotiations and in defining the issues that must be
addressed. We note the legislation introduced by Representative Gephardt, which
would require Congress to vote on the accession agreement before the
Administration could accept it. We strongly believe that Congress must be involved
in the process of setting tough yet appropriate terms for the accession agreement
and we look forward to working with the Committee and others in Congress to
achieve that goal.

There are several trade and investment issues that are of concem to the
UAW that also have much broader impacts. The effective implementation of the
WTO rules on protection of intellectual property rights must be assured in the PRC's
accession agreement. The trade regime of the PRC, including regulations and other
government policies in addition to ail relevant laws, must be fully transparent so that
those outside the PRC have access to all the information needed to represent their
interests in dealings with the govemment. Finally, the trade tools that are presently
available to the U.S. govemment must remain in place. The continuation of
conditional Most Favored Nation treatment for imports from the PRC and the annual
reviews under the Jackson-Vanik provision are needed to ensure that commitments


While tee is ongoing discussion ofa varery of “new issues” that might be addressed atthe
Singapore Ministerial, including competition policy, the environment and labor, we should not
expend limited resources and political capital on issues that are highly controversial and not
sufficiently well-developed for the WTO. Moving in this direction will serve to the detriment of
realizing more ambitious results in more traditional areas of trade, including quicker
implementation of existing agreements and additional tariff cuts. The WTO, moreover, should
not be burdened with issues that do not have clear trade links and are more appropriately
addressed in other existing organizations. In that regard, the NFTC is particularly concemed
about broadening the WTO agenda to include a “social clause,” and believes the International
Labor Organization (ILO) is the more relevant organization for dealing with labor standards and
conditions. With respect to the WTO's Committee on Trade and the Environment (CTE), we
urge the Administration to consult closely with the business community on any U.S. positions
regarding the CTE’s activities and to apply strict criteria to any linkages between the
environment and WTO rules.

© Commit to Seeking New U.S, Fast-Track Authority Next Year.~ As a clear signal of
our strong commitment to advancing the WTO's agenda in a meaningful fashion, the United
Stores should make clear to WTO members that one of its highest priorities in 1997 will be to
secure new fast-track authority. This is not only critical to accomplishing an ambitious future
trade negotiating agenda, but it is central to continued U.S. global economic leadership. While
we strongly support new fast-track authority, the NFTC remains opposed to encompassing labor
and environmental issues within that authority.

Before concluding, I would like to express the sincere appreciation of the NFTC for your
leadership and dedication to a strong and vibrant WTO. We are confident that your ongoing
efforts and those of your excellent negotiating team will bring about a successful ministerial
meeting of the WTO in December. The NFTC and its member companies hope our comments
are helpful as you and your staff approach the final phases of preparation for the ministerial, and
we would be pleased to assist you in any way to assure a positive outcome.

ce: Deputy USTR Jeffrey Lang
Assistant USTR Dorothy Dwoskin


21

Chairman CRANE. Thank you, Mr. Cox.
Mr. Brownback.

STATEMENT OF HON. SAM BROWNBACK, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF KANSAS

Mr. BROWNBACK. Thank you very much, Mr. Chairman. It is a
delight to be here with you and in front of your Subcommittee as
well.

Chairman Crane and distinguished Members of the Ways and
Means Trade Subcommittee, thank you for this opportunity to ap-
pear in front of you today to address the issue of China market ac-
cess barriers, particularly related to the imports of United States

eef,

Let me be direct. China must remove its barriers to trade and
especially the barriers to United States beef before it should be al-
lowed to enjoy the full benefits of WTO membership.

In addition, China should be required to meet all standards and
requirements of current WTO members with no exceptions for agri-
culture. China should not be rewarded for denying reasonable mar-
ket access to United States agricultural and manufactured prod-
ucts. China should be required to make substantial tariff conces-
sions and other reforms before it is allowed into the WTO. Access
to our market must be accompanied by uninhibited access to Chi-
na’s market, a price that China thus far has seemed unwilling to

pay.

Us. beef is enjoyed by consumers around the world. Exports of
U.S. beef have skyrocketed over the past 5 years. In 1996 U.S. beef
exports were forecast to reach 962,000 metric tons; that is an in-
crease of 78 percent since 1991. And throughout East Asia, barriers
to imported beef have been falling. Japan has increased its imports
of beef nearly 91 percent. South Korea has increased its imports of
beef nearly 31 percent.

However, even while Japan and Korea have begun to open their
markets to United States beef, China has still essentially remained
closed. China has one-quarter of the world’s population, yet it is
only 36th—it is the 36th largest consumer of United States beef,
and that is even behind Bermuda and Barbados, which buy more
beef than China.

The United States is not the only victim of China’s barrier to im-
ported beef. China’s meat imports from all sources have been rel-
atively flat over the past 5 years and remain less than one-tenth
of 1 percent of total domestic consumption.

The United States should not support China’s accession to the
WTO until China removes the unfair trade barriers that are
currently imposed on imports of American beef.

China maintains one of the highest rates of import protections
for its beef industry in all of Asia, but unlike China—or excuse
me—unlike Japan and Korea, China’s domestic beef prices are very
low, which makes China’s high degree of import protection some-
what puzzling. Because of the availability of cheap domestic beef,
imported beef poses little threat to domestic producers.

Nevertheless, published ad valorem rates of 50 percent for bone-
in beef cuts and 55 percent for boneless cuts do not include an ad-
ditional 17 percent value-added tax, which is calculated on the duty


50

But, much more work needs to be done. This is one of the
reasons that a good WTO accession package is important.

Mr. HouGHTON. Let me ask you just one more question. I think
the light is still on.

Now American companies invest in China, as they invest all over
the world. Now they invest either directly, or they invest with roy-
alty agreements, or they invest in turnkey operations or something
like that.

Do you have any figures indicating the amount of money in
terms of exports from China back into the United States from those
American investments?

Ambassador BARSHEFSKY. I would have to ask our staff if we do.
I am not sure that we do, because of the way our export figures
are kept. Of course, they are not kept by enterprise. But, let us see
if we can generate some numbers for you or estimates or see if
there are data sources for that.

Mr. HouGHrTon. All right. Thank you very much.

Chairman CRANE. Mr. Payne.

Mr. Payne. Thank you very much, Mr. Chairman, and thank you
very much, Ms. Barshefsky, for this testimony. I think this has
been very helpful.

As you mentioned earlier in your very kind remarks about my
service—and I appreciate that very much—I have a real interest in
textiles and the textile industry. One of the issues there has to do
with how exactly and what are the conditions upon which China
would be allowed accession to the WTO. One of the issues is wheth-
er it is a developing nation or a developed nation.

And, as you started this and explained the conditions in China
and their economic success and their economic growth, we know
they have a very strong export capability; they have a very strong
technology ability, and that is improving:

It seems that the case is pretty open and shut that it is a devel-
oped nation, and it is one that we should trade with on an equal
footing.

Could you just bring me up to date on where this discussion is
relative to developed versus developing nation and where you see
this going as the talks continue?

Ambassador BARSHEFSKY. Mr. Payne, there is no question that
China has an extraordinarily well-developed export sector. There is
also no question that if you look at other indicators relative to the
Chinese economy—for example, per capita GDP—it is not a devel-
oped country in the sense of that term.

What we have said to the Chinese is that we do not think it is
productive to engage in a discussion of whether China is developing
for all purposes or developed for all purposes. It is neither for all
purposes.

But instead, we should look at each and every issue area under
the WTO and try and resolve each issue area in the manner appro-
priate to that issue.

On intellectual property rights, for example, China must be in
compliance now, not as a developing country, and its bilateral
agreements with us already put it in a developed country status.

But, if we look at other areas—and I do not want to name par-
ticular areas, but other areas—we may find that China needs tran-


95

built on three pillars: 1) elimination and reduction of tariff and non-tariff barriers to international
economic activity; 2) establishment of predictable, equitable and uniform rules that are designed
{0 promote strong market economies; and 3) creation of mechanisms to ensure that basic
obligations are met and rights are fully respected. It is critical to keep these pillars in mind
during the WTO accession process.

In this context, it is worth noting that the WTO differs from many international
organizations. Its membership is neither automatic nor universal. Membership requires
obligations, just as it confers certain rights. The United States should not allow an economy to
10 membership in the WTO unless it is confident that country can fulfill all its
ions. My own experience in Geneva tells me that some forget this distinction for political
reasons. The United States should not allow the WTO to become automatically universal.

A second point the NFTC would like to emphasize is that itis in the strong interest of
both WTO members and non-members to have as many economies in the WTO as possible.
This is particularly true for large growing economies and fast-emerging economies that remain
outside the WTO, such as China, Russia, Taiwan and Vietnam, to name a few. WTO accession
clearly offers major benefits to WTO members and those in the process of becoming WTO
members. It is an essential vehicle for normalizing and improving commercial relations with
non-WTO members, as well as integrating transitioning economies into the world economy on
responsible and constructive terms. Moreover, the process of accession offers significant
leverage to the United States and other WTO members to resolve outstanding bilateral trade and
‘other commercial problems in a multilateral fashion that avoids disruptive, saber rattling bilateral
disputes that can cause ill will and harm to broader relationships.

This is especially true for China. tis in our best mutual interest that China become a
member of the WTO. As members of the subcommittee well understand, China is the fastest-
growing economy in the world and is predicted by some to become the world's largest economy
by the year 2000. The U.S.-China commercial relationship has grown substantially in recent
years and China is strategically important to U.S. exports, jobs, and overall competitiveness,
particularly throughout the entire Asia-Pacific region. And it will only grow in magnitude and
importance over the coming years.

Since the late 1970s, the Chinese economy has undergone significant market-oriented
economic reform, but it still has much further to go. It remains extremely difficult for many
foreign firms to conduct business and trade with China. The United States has led the way
through bilateral negotiations with China to address many of the difficulties faced in establishing,
‘a mutually beneficial trade and investment relationship with China. Both the 1992 Market
Access Memorandum of Understanding and the more recent agreements on intellectual property
rights between our two countries are examples of our bilateral efforts. We have had to use very
strong trade brinkmanship time and again to gain these and other various trade agreements.

In key respects, WTO accession offers a better approach for addressing our various
bilateral concerns with China. In most of our concerns, whether they be in the area of tariffs,
intellectual property rights, trade-related investment restrictions, general luck of transparency in
regulations and directives, or the discriminatory treatment accorded to foreign companies, WTO
membership offers an effective and efficient way in which to address them. It will, for example,
require the central government to enforce WTO obligations throughout the country.

China has much to gain as well from WTO membership. It will help lock in and promote
the ongoing economic reform process that has been key to China's impressive economic growth
over the past several years. It will also be the best demonstration of China's willingness to be a
responsible global economic player by adhering to the WTO rules of the game. WTO
membership will integrate China into the global economy and be a significant step toward
normalizing and stabilizing its commercial relations with the United States and the rest of the
world. Frankly, we would like to see a clearer demonstration of China's willingness to undertake
the various commitments and obligations that are necessary in order to move more quickly its
accession process in a forward and positive direction. While China's negotiators sometimes have



33

products. In the Agreement, China committed to eliminate unscientific sanitary and
phytosanitary restrictions used as barriers to market access. However, China has failed to
scientifically justify restrictions which block exports on a number of important agricultural
products, particularly wheat and citrus fruit. Even where China has taken positive steps, for
example with cherries and apples, subsequent phytosanitary requirements or tariffs have blocked
meaningful access to the market. In order to continue to engage the Chinese on these important
issues of market access for our agricultural exports, our agricultural officials are currently in
China.

Services

‘The United States is the largest exporter of services in the world, and producer of the highest
quality services that range from financial services to engineering and construction. We are
pursuing discussions with China on services, both bilaterally and multilaterally, in particular in
the areas of value-added telecommunications and insurance.

In addition, USTR continues to pursue market access for other services sectors. This includes
efforts in the areas of business facilitation, distribution, travel services and advertising,

Xinhua Control over Financial News Services

Xinhua News Agency, also known as the New China News Agency, has recently been authorized
to control the release of economic information in China by foreign news agencies. We are very
concerned about this development which could adversely affect U.S. commerical presence in
China, impinge on U.S. intellectual property rights and constitute yet another significant WTO-
related issue. We are now in consultations with the Chinese on the regulations and their
implementation,

The World Trade Organization

In the twenty months that the WTO has been in existence, the process of negotiating the terms of
accession to the WIO Agreement for new members has become a major focus of our efforts to
expand market access for U.S. exports and to strengthen the existing rules of the international
trading system. This is nowhere more relevant than in the negotiations for China's membership.

A signatory to the Marrakesh Agreement Establishing the World Trade Organization, China
formally applied for WTO membership in late 1995, and participated in the first meeting of its
WTO Accession Working Party in March 1996. From the beginning of this process, WIO
members have proceeded from the principle that China's membership must be accomplished on
terms that provide for meaningful market access and the incorporation of the disciplines of WTO
provisions into China's trade regime. While recognizing the importance of China's accession to
the WTO, there is consensus among the major WTO Members for a tough and principled
approach to this process.

President Clinton has repeatedly affirmed U.S. support for China’s accession to the WTO on the
basis of commercially viable commitments that provide greatly expanded market access and
ensure compliance with WTO obligations. We have worked hard, both bilaterally and
multilaterally, to organize and facilitate China’s accession process.

Unfortunately, China’s offers on market access for goods and services are not acceptable in their
current form. In addition, a number of important rules issues, such as the right to trade, the
removal of non-tariff measures, how state trading is conducted, disciplines on agricultural
‘supports and subsidies, and China's industrial policies, remain unresolved.

China also needs to give special attention to market access for agricultural products. We and
‘other WTO Members continue to carefully review China’s proposals on how its state trading
system will work, how it will discipline subsidies and internal supports, and how it will
implement its sanitary and phytosanitary rules. We have made a number of concrete suggestions,



183

The Clinton administration has recently embarked on an important initiative
to stabilize the political and economic relationship with China. This relationship
has suffered greatly and unnecessarily over the last year. Important U.S. trade and
investment opportunities in China were lost in the process. It is indeed time to
make a concerted effort to build a stronger relationship on a platform of cooperation
and mutual respect. This is the direction in which we are now headed, and
thankfully in time to have a positive effect on bringing China, and consequently
Taiwan, into the WTO.

It is in this spirit that the Federation strongly supports the extension of
permanent most-favored-nation (MFN) tariff treatment to China. It is in the
interests of American families to do so. The annual renewal ritual increases
uncertainty, making it very difficult for retailers, who typically place orders with
China 18 months ahead of delivery, to source from China, Yet it is China that
offers American consumers value-priced goods, as well as goods like silk apparel,
that are simply not available from other manufacturers, even in the United States.
‘The uncertainty of continued MFN forces retailers to gamble: should we pay more
to buy the goods we would have gotten from China from other suppliers, so that we
can know for sure what price we will pay for them, and pass the higher prices on to
our customers? Or should we risk the uncertainty of sourcing from China, hoping
that MFN will continue so that we can pass the cost savings on to American
families? The dramatic drop recently in imports of apparel from China shows you
how significant an impact this uncertainty can have. In many instances, retailers
and other importers opted to source goods from countries other than China,
countries.where continued MFN was assured, and where retaliation over perceived
wrongs was not likely.

Ul. Textile Trade Problems Should Not Be Permitted to Compromise Our
Broader Goals

‘The Federation also strongly suggests that Congress and the Administration
not permit textile trade issues to become stumbling blocks that set us back from our
broader goals. Unfortunately, our dealings with China on textile issues, so far,
threaten to do just that. Just last week, while lacking the evidence to bring civil or
criminal charges, the Office of the U.S. Trade Representative nevertheless punished
China by reducing its quota for instances of transshipment of certain apparel
products, and China has reacted with strong concern to the action. More important,
we are approaching the expiration of a bilateral textile agreement with China.
Renewal of that agreement is of paramount importance to retailers. We would
prefer the renewal to include some important improvements to the pact,
improvements we have already suggested to the Office of the U.S. Trade



17

Quite simply, approval of the Taiwan model for Chinese civiliza-
tion will signal the mainland that embracing economic growth
through free markets and the rule of law is the better course. Far
better than MFN, the symbolic measure of the passage of the reso-
lution that I have described, H. Res. 490, will deliver the message
the PRC should hear.

As such, I ask that this Subcommittee report out H. Res 490, and
favorably, and I thank the Chairman.

[The prepared statement follows:]


61

In the past several months, there have been promising signs of a re-thinking of options on both sides of
the US.-China relationship. A number of specific irritants to bilateral ties have been successfully
removed, at least for the moment, from the list of each country's grievances against the other.
Representatives of the heads of the U.S. and Chinese governments have met, privately and intensively, in
an apparently successful effort to re-direct the U.S.-China dialogue into more positive directions. The
two sides have even suggested that reciprocal state visits -- the absence of which has been one of the
most regrettable signs of U.S.-China estrangement since 1989 -- might be scheduled in the not too distant
future.

‘The US-China Business Council hopes that this tentative but very promising detente at the highest levels
‘of government will continue to expand. The progressive normalization of economic and trade relations
between the U.S. and China can and should both propel that bilateral detente and be its beneficiary. We
believe that itis not too much to hope that those ultimately responsible for finding a mutually
satisfactory WTO accession arrangement, whether in China, in the U.S., or in other WTO nations, will be
emboldened to step forward with greater forthcomingness as the climate of U.S.-China relations
continues to improve. No final WTO accession agreement is going to provide complete satisfaction on
all issues to any negotiating party; no completed trade agreement -- and certainly not NAFTA or the
Uruguay Round agreements ~ ever does. In the end, both the United States and China will give and take,
adding time to a phase-in here and shortening the phase-in there, including certain practices here and
excluding them there. These accommodations are not insignificant and should not be made in a cavalier
fashion, but in the end they are the stuff of any tough trade negotiation.

‘The U.S. has the benefit today, as it has had for so many years under many administrations, of tenacious,
extremely knowledgeable, and sophisticated negotiators in dealing with China over WTO. We hope that
satisfactory accords on China’s WTO accession will be reached at an early date, and urge the Congress
to lend not only its wisdom but also its support to the U.S. negotiating team. A satisfactory WTO
accession will, in our view, contribete strongly to the stability and predictability of U.S.-China economic
relations which lie at the core of the overall global relationship of our two nations today. No bt
association, and certainly not the US-China Business Council, should presume to speak for in
firms as to the specifics of their hopes and concens on matters of this complexity. But I am confident
that it is possible for China, the U.S., and the WTO Working Party to reach a set of understandings over
the PRC's accession to the WTO which would receive the broad support of the American business

/. We hope that this time is coming sooner, rather than later.

‘Again, thank you very much for the privilege of offering these observations.


130

silk apparel that are simply not available from other manufactur-
ers, even those in the United States.

The uncertainty of continued MFN forces retailers to gamble.
Should we pay more to buy the goods we could have gotten from
China from other suppliers, so that we can know for sure what
price we will pay for them and pass that higher price on to consum-
ers, or should we risk against the uncertainty of sourcing from
China, hoping that MFN will continue so we can pass the cost
savings on to American families?

The dramatic drop recently in imports of apparel from China,
which was 31 percent, shows you how significant an impact this
uncertainty can have. In many instances, retailers and importers
opted to source goods from countries other than China, countries
where continued MFN was assured and where retaliation of
perceived wrongs was not likely.

The Federation also strongly suggests that Congress and the ad-
ministration not permit textile trade issues to become stumbling
blocks that set us back from our broader goals.

Unfortunately our dealings with China on textile issues so far
threaten to do just that. Just last week, while lacking the evidence
to bring criminal or civil charges, the Office of the U.S. Trade
Representative nevertheless punished China by reducing its quota
for instances of transshipment of certain apparel products, and
China has reacted with concern at this action.

More important, we are approaching the expiration of the bilat-
eral textile agreement with China. Renewal of that agreement is of
paramount importance to retailers and American families.

We would prefer the renewal to include some improvements to
the pact, improvements we have already suggested to USTR. How-
ever, if opening the ement threatens a host of disputes and fur-
ther restrictions on United States textile and apparel imports from
China, then retailers would simply prefer a rollover of the existing
agreement.

Again, our aim is to preserve the United States-China relation-
ship to improve the terms of the dialog and to foster the mutual
respect that will ultimately bring China into the WTO as soon as
possible. A long and contentious negotiation over the contents of a
new, more protectionist United States-China textile agreement
should not be permitted to threaten that ultimate goal.

With the introduction of the textile bill by Congressman Spratt
recently, the United States textile and apparel industries have al-
ready laid a Proposal on the table to severely restrict China’s ac-
cess to United States textile and apparel markets as part of the
Brice China would have to pay for United States support to join the

But, how can we hope to gain greater access to China’s textile
and apparel markets when we are so quick to close ours to them?

Remember the ATC, the Agreement on Textiles and Clothing, as
part of the GATT, does very little to liberalize United States tariffs
on Chinese imports, just quotas. If we put off quota liberalization
as the textile industry requests why should not China and Taiwan
put off their textile trade liberalization to the disadvantage of Unit-
ed States exporters, including United States textile manufacturers
and United States cotton producers?


114

going to support Taiwan’s accession in advance of China’s. And, I
lo not think there is very much we can do about that, for the rea-
son that Charlene Barshefsky was hinting at when she said, Really
the accession process, getting an accession out of the working
party, is very much a consensual process.

We might, as Mr. Mastel suggests, be able to bring about a few
people to a point of view of supporting Taiwan on the merits, but

think the numbers of countries that wil] take that position will
be, in the end, extremely small.

Chairman CRANE. Ambassador Samuels, do you believe our trad-
ing partners in the WTO, such as Japan and the European Union,
are cooperating adequately with us in the China working party?

Mr. SAMUELS. I think that one of the unfortunate developments
over the last few years has been that the United States has found
itself in the leadership and much more vocal on some of these is-
sues than commercially should have been allowed to have taken
place. And, I think that that is partially the fault of U.S. nego-
tiators themselves.

I do think now, however, that there is a widespread view within
the working party amongst most of the trading nations that China
needs to do quite a bit more and take more seriously the negotiat-
ing process.

't might appear in the press as if the United States is really in
the forefront and taking all the feedback on this. But, I do not be-
lieve in the working party that that is actually what is taking
place. I do believe that at this point in time none of the countries,
particularly the major trading partners, have satisfied themselves
of China’s commitments to the kinds of things they are interested
in.

And as a result, because of the lack of apparent political commit-
ment on the part of the Chinese officials, no country has reached
an agreement, and negotiations are not really going very far right
now.

Chairman CRANE. And a final question for any or all of you: Are
you comfortable with the economic reforms that have taken place
on the mainland and feel reasonably confident there will not be any
backsliding in the future?

Mr. MASTEL. Well, I am not sure anyone could be comfortable
about that. I mean, given the political situation in China, there is
no way to really predict the future. China has made some impor-
tant steps forward.

I think it is important to recognize that there still are many
steps left to go, and maybe the WTO process can help us to move
China down that path if we do it correctly.

But, it is very difficult to have great confidence in the future.
China has made a lot of steps. But, there are still within the Chi-
nese Government competing factions who have different views
about how to proceed.

h So, I guess we will have to sit back and watch and see what
appens.
ir. SAMUELS. I would agree with those comments, but I would
also note that one of the advantages to both Chinese and non-
Chinese of participation as a member in the WTO is that that is
a way to freeze policies and move them forward to avoid back-


116

Our next and final panel is made up of representatives in the
textile and semiconductor industries.

Oh, wait a second, gentlemen. We are about to have the final
vote over there, so we will recess momentarily. You can get com-
fortable in your chairs up here or wherever, and as soon as this
vote is over, we will reconvene.

[Recess.]}

Chairman CRANE. Our next and final panel includes Mark
Anderson, director of the AFL-CIO Task Force on Trade; Daryl
Hatano, vice president of International Trade for the Semiconduc-
tor Indust: Association; Robert Hall, vice president and
International Trade Counsel for the National Retail Federation;
and Charles Bremer, director of the International Trade Division
for the American Textile Manufacturers Institute.

And I apologize, gentlemen. I do not control that activity on the
floor, and I thank you for your patience and waiting, and we will
proceed in the order I introduced you.

STATEMENT OF MARK A. ANDERSON, DIRECTOR, TASK FORCE
ON TRADE, AFL-CIO

Mr. ANDERSON. Good afternoon, Mr. Chairman. Thank you very
much.

The AFL-CIO appreciates this opportunity to present its views
on the possible accession of the People’s Republic of China to the
World Trade Organization.

The importance of these hearings cannot be overstated, and con-
tinued congressional oversight and involvement is necessary to
ensure that the interests of the United States are protected.

In this regard, Mr. Chairman, the AFL-CIO strongly supports
proposals requiring congressional approval before the President
supports admission of the PRC into the World Trade Organization.
The terms of an accession agreement must be carefully examined
and weighed alongside U.S. interest, and a public debate and vote
will ensure that such an examination takes place.

The negotiations that are currently taking place that hope to es-
tablish the conditions under which the PRC may join the World
Trade Organization need to address the basic contradiction of
marrying the PRC’s undemocratic political structure and command
economy with an institution that presumably is designed to pro-
mote and serve democratic political institutions and market-
oriented economies.

Without substantial and far-reaching change on the part of the
Chinese, such a marriage is doomed to failure and can only result
in continued harm to United States workers.

Over the 12 years, United States merchandise trade with China
has deteriorated from a rough balance to a deficit that reached $34
billion last year. It continues to grow in 1996.

United States investment in China has soared with committed
investment now reported to be an almost unbelievable $25 billion.

These shifts in trade and investment reflect an explicit Chinese
policy of export-led growth supported by an economic regime that
is discriminatory and nonreciprocal, a labor market that prohibits
free and independent trade unions, and a political and military
structure that oppresses its citizens on a huge scale.


***NOTICE -- CHANGE IN DATE AND TIME***

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE CONTACT: (202) 225-6649
September 13, 1996
No. TR-31-Revised

Change in Date and Time for Subcommittee Hearing
on Accession of China and Taiwan to the
World Trade Organization

Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on Trade of the
Committee on Ways and Means, today announced that the Subcommittee hearing on
Accession of China and Taiwan to the World Trade Organization scheduled for Tuesday,
September 17, 1996, at 2:00 p.m., in the main Committee hearing room, 1100 Longworth
House Office Building, will be held i on Thursd t

All other details for the hearing remain the same. (See Subcommittee press release
No. TR-31, dated August 22, 1996.)

eerery


93

resolve them. It will, for example, require the central government
to enforce WTO obligations throughout China.

China, too, has much to gain from WTO membership. It will help
lock in and promote the ongoing economic reform process that has
been key to China’s recent impressive economic growth. Adherence
to WTO rules will also demonstrate China’s willingness to be a
responsible global economic player.

But, China’s negotiators need to show a clearer willingness to
undertake WTO commitments and obligations in order to move its
accession process more quickly.

With respect to most-favored-nation status, the NFTC remains
firmly behind granting permanent MFN for China. This would put
an end to the counterproductive annual debate on MFN for China,
and it is worth noting that MFN is one of the guiding principles
of the GATT and WTO.

Third, the accession process takes time, and each accession
should proceed at its own pace. It is a detailed negotiating process,
and there are basic requirements that must be met. Minimal
requirements from the NFTC’s perspective should include the
following:

First, full and effective adoption of all basic rules and principles;

Second, meaningful and substantial market access commitments;

Third, effectively addressing distortive nonmarket economy prac-
tices relating to State enterprises and restrictive trading rights;

Forth, adherence to short transition periods;

Finally, a standstill commitment on new trade and investment
restrictions.

These should be reaffirmed at the WTO ministerial meeting in
Singapore in December.

Recent accession terms, Mr. Chairman, for Mongolia, Bulgaria,
and Panama meet these basic objectives. Immediately upon acces-
sion, these countries will adopt the WTO agreement on intellectual
property without any transition period, and they will have no
quantitative restrictions on investment restrictions banned by the
TRIMS agreement.

The tariff packages reportedly also offer very favorable terms to
other WTO members. There is also agreement to negotiate acces-
sion to key WTO plurilateral agreements, including the Govern-
ment Procurement Agreement, an area of major importance to the
United States.

If such countries as Mongolia, Bulgaria, and Panama could reach
such terms and make such commitments, why cannot China and
Taiwan?

I believe they can. They should. And I believe with good negotia-
tions they will.

In sum, there are no shortcuts to minimal accession require-
ments.

Thank you for the opportunity to testify.

[The prepared statement and attachment follow:]


38

These elements constitute the accession applicant's "entry fee" to bring them up to a level of
commitment to WTO provisions and to trade liberalization commensurate with that of current
WTO members. Because every trade regime is different, and because every applicant has its
own views on how rapidly itis willing or able to respond in the negotiations, there is no way to
tell how long the negotiations will take. The accession process can be very detailed and take
‘time, particularly if the trade regime of the applicant is very complex or in the process of
transition from a state-trading basis to a regime based on market principles.

‘The U.S. traditionally has taken a leadership role in developing the terms for acceding countries.
This is as true for Mongolia and Bulgaria as for China and Taiwan. Over the past several years
‘we have worked hard in Geneva to develop a strong multilateral consensus on the elements of a
commercially viable protocol package in the accession process, including with China, and we
intend to continue to provide leadership to building that consensus.

Results of Other Accessions

Since WTO implementation in January 1995, four countries have completed their negotiations
under Article XII to accede to the WTO. These are: Ecuador, which became a member in
January 1996, Mongolia, whose accession was approved by the WTO in June 1996; and
Bulgaria and Panama where approval is expected this fall of the accession packages completed
before the summer break. In all four cases, the commitments and concessions in both goods and
services market access and in implementation schedules for the WTO Agreements excocded
those generally accepted by countries with similar economies in the Uruguay Round, particularly
in market access for goods and services, and in full implementation of WTO commitments on an
accelerated basis.

‘The commitments included:

full binding of all tariff lines, industrial as well as agricultural, with full or partial
acceptance of chemical harmonization;

ctimination upon date of accession or with very short transitions of most existing
practices inconsistent with GATT 1994 or other WTO Agreements, including: minimum
import valuation; non-tariff taxes and charges on imports, customs charges, or internal
taxes also applied to similar domestic goods; and several categories of restrictions on
imports, including quotas, minimum import prices, and restrictive licensing schemes;

broad initial commitments by all four countries to market access and national treatment
for foreign service providers in key soctors of interest to the United States, including
value-added telecommunications and a wide range of financial services (including
insurance), as well as in accounting, management consulting, construction, engineering,
wholesale distribution, and hotel services and tourism;

early implementation of TRIPs and the Agreements on SPS and TBT without recourse to
‘transitions, and immediate implementation of the Customs Valuation Agreement by
Mongolia, Panama, and Bulgaria

commitments from Mongolia and Bulgaria (the first transforming economies to complete
accession to the WTO) that the state foreign trade monopoly was abolished and to
transparency for remaining price controls.

CONCLUSION

In conclusion, let me retum to the topic of China. The U.S.-China relationship is as important as
any bilateral relationship in the world. But relationships are a two-way street. For China, the
potential of the U.S. market is great. Roughly one third of China’s exports go to the U.S.,
including tens of billions of dollars of textiles and footwear. In addition, Chinese companies —


158

Recent Progress

Because our industry has taken the first steps toward initiating a trade action against Taiwan as a
result of this new policy and because that action has been strongly supported by several members
of this subcommittee, we have seen over the past week the first signs of a new openness to
industry views. We have put forward a proposal that would ensure that foreign suppliers are
afforded treatment similar to that of domestic suppliers, clarify the rules under which medical
technologies are priced in Taiwan, and institute a system in which medical technologies can be
recognized for the value they bring to the health care setting Taiwan's health insurance
‘authorities will be in Washington next week to explore our proposal in further detail

‘We are in high hopes that next week's discussions will ead to a breakthrough that would allow
‘our industry to continue the uninterrupted supply of innovative health care products that can help
the people of Taiwan live better and longer It would be ironic, indeed, if we failed, since
‘Taiwan's government has been seeking to improve the quality of care in Taiwan for the past
‘year, through providing universal health care coverage to all citizens, To now begin denying
‘access to the products people need to stay healthy is surely not the direction in which the
‘government or the people of Taiwan want their health system to move.

‘Conclusion

‘However, we cannot be certain of progress. To date, our experience has shown that Taiwan's
health authority appears to be more receptive to our thoughts and concerns when political
pressure is applied Therefore, in order to achieve a positive resolution, we believe our
government needs to take a visible stand in favor of American industry, the American worker,
and the people of Taiwan We need you to let Taiwan know that failure to meet the principles of

national treatment, openness, and transparency in the area of medical device reimbursement will
be adequate grounds to seriously consider holding up Taiwan's bid for WTO accession

‘Thank you, Mr Chairman and members of the subcommittee, for allowing us to present our
Views. We look forward to working closely together with you as we proceed to resolve this
difficult but important issue


125

3. ina gi ri id not
requirements. China's foreign trade regime is a complex system with many anomalies which
hamper the operations of U.S. firms in China:

+ "Trading rights," (e.g. the ability to import and export from China), are limited
to designated enterprises, including foreign-invested firms, which can trade
products they manufacture in China. U.S. firms doing business in China that lack
such rights must conduct their business through firms that hold such privileges.
Moreover, a foreign company generally cannot sell or service end products not
made in China. This includes the importation of spare parts. These limitations
are significant impediments to U.S. firms’ ability to access the Chinese market,
and, if not eliminated, may undermine the benefit of other trade liberalization
‘measures agreed 10 by China.

+ Transparency is inadequate. Rules and procedures are frequently not published,
and are subject to varying “interpretations” by individual officials. The Chinese
Government is struggling to eliminate corruption. Many products are imported
through Hong Kong by Hong Kong-based trading companies using a variety of
complex and circuitous channels. Smuggling is a major problem.

+ Foreign firms are charged more than domestic firms for a variety of business
expenses in China. Although this practice reportedly is being eliminated,
advertising costs, hotels rates, airfare, and office rental rates, for example, all can
run from 20 to 100 percent higher than the rates charged domestic firms. Local
employees must also be hired through designated foreign employment services
companies, which may collect as much as half the salary paid for the employee's
services.

+ While foreign exchange controls were substantially liberalized in July 1996, the
continued non-convertibility the local Chinese currency injects an element of
‘uncertainty in business operations for many U.S. firms.

China must commit to a broad range of reforms to its rade regime as outlined in the next
section of my testimony as part of its Protocol of Accession to the WTO. These reforms should
include: Uniform administration of its regime, elimination of limitations on trading rights for
foreign firms, increased transparency of its trade regulations and tariffs through full publication
with a period for public comment prior to implementation of any new rules or regulations,
provision of an opportunity for independent judicial review, and non-discriminatory imposition
‘of import and export licensing requirements and elimination of such requirements by a date
certain,

4. China's tariffs on semiconductors must be reduced. China's desire to enter the WTO.
as a "developing country” reflects, in substantial part, its desire to use high tariffs to protect its
targeted industries, notably electronics. While China has made strides in the right direction,
lowering its semiconductor tariffs from as high as 20 percent to a maximum of 12 percent in the
last year, these tariffs are still high compared to the zero tariffs imposed on semiconductors by
the United States, Japan, Canada and Mexico. These tariffs tend to be higher on low-end
semiconductors which China can make domestically, and lower on complex devices which must
bbe imported.

A related problem concerns the very high tariffs - up to 35 percent -- recently reimposed
bby China on semiconductor manufacturing equipment and other capital equipment imported into
China. At the end of December 1995, China's State Council announced that as part of a series
‘of major reforms in its import tax regime it would eliminate previously existing tariff and value
added tax (VAT) exemptions for imports of capital equipment for foreign enterprises, effective
‘April 1, 1996. Until this change, foreign-owned companies in China and Sino-foreign joint
ventures did not have pay a VAT of duty on capital equipment imports. Now these companies
must pay an import duty plus a VAT of 17% assessed on the value of the equipment plus the
customs duty. Given that tariff on capital equipment continue to be relatively high, this
‘combination significantly raises the cost of capital imports.


100

Chairman CRANE. Thank you, Mr. Ambassador.
Mr. Mastel.

STATEMENT OF GREG MASTEL, VICE PRESIDENT, POLICY
PLANNING ADMINISTRATION, ECONOMIC STRATEGY
INSTITUTE

Mr. MASTEL. Good afternoon, Mr. Chairman. It is a pleasure to
be here. I would also like to commend the Subcommittee for
hearings on this important topic.

For the record, I provided the Subcommittee with an article that
I recently authored that analyzes the issues associated with
China’s WTO accession. I would like to just spend a few minutes
today highlighting some of the most important points.

The WTO accession negotiation with China has the potential to
be the most significant trade negotiation in the next 10 years.
Through these talks, the world’s largest nonmarket economy is at-
tempting to join the market trading system, a task of potentially
historical significance.

The direct economic stakes in these talks are also significant.
Consider a few statistics.

The Chinese economy is now growing at a pace that will make
it the world’s largest economy by early in the next century. China’s
exports have grown at more than three times the world’s average
rate for almost 2 decades.

In 1995 China’s exports totaled about $150 billion, making it one
of the world’s top 10 exporters. Also in 1995, $38 billion in foreign
direct investment flowed into China, making it the world’s largest
recipient of FDI after only the United States.

Unfortunately, despite this success, China has pursued a decid-
edly mercantilist policy. As a_ result of these constraints, with
China’s application to join the WTO, three different sets of issues
need to be addressed.

First, traditional trade barriers. China maintains an array of for-
mal tariff and nontariff barriers ranging from tariffs to import li-
censes to subsidies. China now maintains more WTO-inconsistent
barriers than any other major trading country.

One set of such special formal trade barriers that deserve special
attention are investment performance requirements. These are pri-
marily requirements imposed upon foreign joint ventures compel-
ling them to export most or all of their production from China and
to transfer production technology to China.

On the scale that China is pursuing these performance require-
ments, they threaten seriously to distort world trade and skew
comparative advantage.

As Ambassador Barshefsky said earlier, China has made some
progress to reduce its formal trade barriers in recent years, but at
the same time other barriers have been raised. The net effect is
difficult to determine.

A second set of issues to consider arises from China’s lack of an
established rule of law. The recent dispute between the United
States and China on intellectual property highlights this problem.
China has had world class intellectual property laws on the books
since 1992. Unfortunately, it also has had little effect on the bur-
geoning Chinese intellectual property piracy industry. In this case


41

ports, and it is very difficult sometimes to fashion appropriate
remedies.

This entire area of State enterprise is one that we, as well as our
trading partners, are looking at very carefully with respect to the
China accession.

We are also looking at the issue carefully with respect to the ac-
cessions, for example, of Russia and the Ukraine and others of the
former Soviet Republics whose economies have been under varying
degrees of State control.

‘here are no easy answers here. This requires a fair amount of
thoughtful analysis. But to be sure, there is no question that the
higher the percentage of State involvement and State enterprise in-
volvement in the economy, the greater the opportunity for trade
distortion and the greater the risk of market access barriers.

Chairman CRANE. Thank you very much.

Mr. Rangel.

Mr. RANGEL. Let me join with those who thank and congratulate
you for the great work that you are doing, and this is especially
so as relates to your patience in dealing with the politics and trade
policies of China.

Do you think that the WTO would have any unique means of re-
moving some of the severe restrictions and barriers to trade that
China has put up for United States exporters?

Ambassador BARSHEFSKY. I think the WTO accession process
provides a potentially excellent opportunity for the United States,
as well as other countries, to work to reduce, on a structural level
as well as on a cross-sectoral level, trade barriers that exist in

ina.

Our alternative is sectoral, bilateral negotiation, which is, as you
know, a long process. It is arduous. We are committed to it; you
know that we have negotiated just shy of 200 trade agreements in
44 months, all of which toward market access for U.S. exports. But,
it is an arduous process.

In the WTO, of course, accession would require not only the low-
ering of tariff barriers across the board, but the identification and
removal of nontariff barriers on goods, the opening up of the serv-
ices market across sectors, the opening up of the agriculture mar-
ket across the range of agricultural commodities, not just one or
two but the range of agricultural commodities, and, of course, the
accession by China and other countries to the international rules
of the road with respect to trade.

So the accession does provide us with a very good opportunity.
We have to be smart about it. We have to be very clear as to what
we want, and I think we have been very clear as to what we want.
And we have to be very dogged in our pursuit.

Mr. RANGEL. Well, that was not my question. We have been clear
in what we want, and they have been clear as to what they are not
going to do.

And I am just wondering, notwithstanding how more clear the
WTO can be—I do not know what stories they give to you. Maybe
stealing intellectual property is a cultural thing, or they do not
think it is stealing, or once it is created it belongs to the world, or
subsidizing their own industries and declaring that that is a na-
tional industry or putting tariffs on particular things in order to