```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

              RENEWAL OF NORMAL TRADE RELATIONS WITH CHINA

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 10, 2001

                               __________

                           Serial No. 107-41

                               __________

         Printed for the use of the Committee on Ways and Means

                   U.S. GOVERNMENT PRINTING OFFICE
75-054                     WASHINGTON : 2001

----------------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona              LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

E. CLAY SHAW, Jr., Florida           SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York               CHARLES B. RANGEL, New York
DAVE CAMP, Michigan                  RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota               WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington            XAVIER BECERRA, California
WALLY HERGER, California             JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
JIM NUSSLE, Iowa

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________
                                                                   Page
Advisories announcing the hearing................................  2, 5

                               WITNESSES

Office of the United States Trade Representative, Jeffrey A. 
  Bader, Assistant United States Trade Representative for China, 
  Hong Kong, Mongolia, and Taiwan................................    28

American Farm Bureau Federation, Bob Stallman....................    41
Blumenauer, Hon. Earl, a Representative in Congress from the 
  State of Oregon................................................    24
Brown, Hon. Sherrod, a Representative in Congress from the State 
  of Ohio........................................................    22
Emergency Committee for American Trade, Calman J. Cohen..........    65
Pelosi, Hon. Nancy, a Representative in Congress from the State 
  of California..................................................    15
Rohrabacher, Hon. Dana, a Representative in Congress from the 
  State of California............................................    19
United States-China Business Council, Robert A. Kapp.............    49
U.S. Committees of the Pacific Basin Economic Council, Pacific 
  Economic Cooperation Council, New York Life International, and 
  New York Life Insurance Company, Gary Benanav..................    44
Wolf, Hon. Frank R., a Representative in Congress from the State 
  of Virginia....................................................     8

                       SUBMISSIONS FOR THE RECORD

U.S. Department of State, Hon. James A. Kelly, Assistant 
  Secretary of State for East Asian and Pacific Affairs, 
  statement......................................................    77

Ad Hoc Committee of Domestic Nitrogen Producers, statement.......    79
American Insurance Association, statement and attachment.........    80
American Textile Manufacturers Institute, Carlos Moore, statement    82
Channellock, Meadville, PA, William S. DeArment, letter and 
  attachment.....................................................    84
International Mass Retail Association, Arlington, VA, statement..    86
National Association of Manufacturers, statement.................    88
National Retail Federation, Erik Author, statement...............    90
StorageTek, Inc., Louisville, CO, Gary Francis, letter...........    91

 
              RENEWAL OF NORMAL TRADE RELATIONS WITH CHINA

                              ----------                              

                         TUESDAY, JULY 10, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 1100 Longworth House Office Building, Hon. Philip M. Crane 
(Chairman of the Subcommittee) presiding.
    [The advisory and revised advisory announcing the hearing 
follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 28, 2001
No. TR-4

                       Crane Announces Hearing on

              Renewal of Normal Trade Relations With China

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on United States-China trade relations 
and the status of China's negotiations to the World Trade Organization 
(WTO). The hearing will take place on Tuesday, July 10, 2001, in B-318 
Rayburn House Office Building, beginning at 2 p.m.
      
    Invited witnesses include Assistant United States Trade 
Representative, Jeffrey Bader. Testimony will also be received from 
private sector witnesses. In addition, any individual or organization 
not scheduled for an oral appearance may submit a written statement for 
consideration by the Committee or for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    At present, China's trade status is subject to the Jackson-Vanik 
amendment to Title IV of the Trade Act of 1974, the provisions of law 
governing the most-favored-nation (MFN) trade status, now referred to 
as normal trade relations (NTR), of nonmarket economy countries 
ineligible for MFN treatment as of the enactment of the Trade Act.
      
    NTR status was first granted to the People's Republic of China on 
February 1, 1980, and has been extended annually since that time. 
Annual extensions are granted based upon a Presidential determination 
and report to Congress that such an extension will substantially 
promote the freedom of emigration objectives in Title IV of the Trade 
Act of 1974, the so-called Jackson-Vanik amendment. Subsections 402 (a) 
and (b) of the Trade Act set forth criteria which must be met, or 
waived by the President, in order for the President to grant NTR status 
to non-market economies such as China.
      
    The annual Presidential waiver authority under the Trade Act 
expires on July 3 of each year. The renewal procedure requires the 
President to submit to Congress a recommendation for a 12-month 
extension by no later than 30 days prior to the waiver's expiration 
(i.e., by not later than June 3). The waiver authority continues in 
effect unless disapproved by Congress within 60 calendar days after the 
expiration of the existing waiver. Disapproval, should it occur, would 
take the form of a joint resolution disapproving the President's 
determination to waive the Jackson-Vanik freedom of emigration 
requirements for China. On June 1, 2001, President Bush issued his 
determination to waive the requirements for China for the period of 
July 3, 2001, to July 2, 2002 (H. Doc. 107-79). H. J. Res. 50, a joint 
resolution disapproving the extension of the waiver authority contained 
in section 402(c) of the Trade Act of 1974 with respect to China was 
introduced by Congressman Dana Rohrabacher (R-CA) on June 5, 2001.
      
    P.L. 106-286 (enacted October 10, 2000) amended Title IV of the 
Trade Act of 1974 to remove China from the list of countries subject to 
this provision upon the accession of China to the WTO and upon 
certification by the President that the final terms of accession are at 
least equivalent to the terms of the November 15, 1999, bilateral 
agreement between the United States and China.
      
    On June 8, 2001, during bilateral talks in Shanghai, the United 
States and China reached agreement on major outstanding issues 
concerning China's accession to the WTO. United States Trade 
Representative Robert B. Zoellick and Minister of Foreign Trade and 
Economic Cooperation Shi Guangsheng capped 15 years of negotiations on 
areas including domestic support for agriculture, services, and trading 
rights.
      
    Several important steps remain ahead in China's WTO accession 
process. The bilateral agreement between the United States and China 
will be considered at the next China Working Party meeting in Geneva 
beginning on June 28. The WTO's General Council must then adopt China's 
accession package, after which China will have to complete its domestic 
ratification procedures. China will become a WTO member 30 days after 
filing its notice of acceptance with the WTO.
      
    In announcing the hearing, Chairman Crane said: ``It is indeed 
heartening for those of us who support normalizing U.S. trade relations 
with China to observe that China's negotiations to join the WTO are 
close to concluding. The momentum for opening trade with China is 
building. Last year, we passed the permanent normal trade relations 
legislation, and earlier this month, USTR made significant progress 
with the Chinese to further open their markets to our goods and 
services. We need to keep the momentum going by renewing China's NTR 
status for another year.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be to evaluate overall U.S. trade 
relations with the People's Republic of China and the status of China's 
negotiations to join the WTO, and to consider the extension of NTR 
status for China for an additional year. The Subcommittee will be 
interested in hearing testimony on China's emigration policies and 
practices, the nature and extent of U.S. trade and investment ties with 
China and related issues, and the potential impact on China, Hong Kong, 
Taiwan, and the United States of a termination of China's NTR status. 
Finally, witnesses may also address U.S. objectives in ongoing 
negotiations over conditions upon which China will enter the WTO, as 
well as the anticipated impact of WTO membership on U.S. workers, 
industries, and other affected parties.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bill Covey at (202) 225-1721 no later than the close of 
business, Friday, June 29, 2001. The telephone request should be 
followed by a formal written request to Allison Giles, Chief of Staff, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House 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 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    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, along with 
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, 
of their prepared statement 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 July 5, 2001. Failure to 
do so may result in the witness being denied the opportunity to testify 
in person.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Wednesday, 
July 11, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements 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, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                

                * * *  NOTICE--CHANGE IN LOCATION  * * *

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE,
July 9, 2001
No. TR-4--Revised

             Change in Location for Subcommittee Hearing on

              Renewal of Normal Trade Relations With China

    Congressman Crane (R-IL), Chairman of the Ways and Means 
Subcommittee on Trade, today announced that the Subcommittee hearing on 
United States-China trade relations and the status of China's 
negotiations to the World Trade Organization (WTO) will now be held in 
the main Committee hearing room, 1100 Longworth House Office Building.
      
    All other details for the hearing remain the same. (See 
Subcommittee press release No. TR-4 dated June 27, 2001.)

                                

    Chairman Crane. If everyone will please take their seats, 
we will get underway. And our first panel consists of our 
distinguished colleagues, the Honorable Frank Wolf from 
Virginia, the Honorable Nancy Pelosi from California, the 
Honorable Dana Rohrabacher from California, the Honorable 
Sherrod Brown from Ohio, and our distinguished colleague from--
wait a second--Oregon--OK, we got it--Mr. Blumenauer.
    I would like to have you proceed in the order that I 
presented you, and if you will please try and keep your oral 
testimony to 5 minutes or less, and all written testimony will 
be made a part of the permanent record. Nancy brought a ton. 
Thank you. And we will have opening statements.
    But before we yield to you, Frank, I want to yield to Sandy 
here, our distinguished Ranking Minority Member.
    Mr. Levin. Welcome. I have an opening statement. Mr. 
Chairman, you don't have one. I think I will read it.
    First of all, I want to say, though, welcome to you, to all 
five of you. This is an issue that all five of us and many 
others have discussed over the years, and it deserves this 
hearing, and we are especially pleased that the five of you who 
have given so much to this issue are here.
    About a year ago, many of us thought we would not be here, 
but since China has not yet acceded to the World Trade 
Organization (WTO), we are faced with another vote and, as I 
see it, we should look upon this as an opportunity, not a 
problem, but an opportunity to assess the state of our economic 
relationships with China and other relevant issues.
    In the past 12 months there has been continuing, indeed 
often accelerated, change in China. At the same time, in 
important respects, China has stayed the same. It is important 
we take note of both.
    China has continued to move away from a State-dominated to 
a free market economy. This has been most true in industrial 
sectors. Private enterprise is spreading beyond the coastal 
areas where it earlier gained footholds. The rapid growth of 
the Internet continues to challenge authoritarian controls. 
Cracks are even appearing in the complete domination of the 
State over the legal system. China is witnessing for the first 
time some successful suits to redress grievances of or injuries 
to individuals and workers. Earlier this year China ratified 
the U.N. Convention on Economic and Social Rights.
    In striking ways, however, conditions in China have not 
changed, the State remains a dominant force in the economy. 
There continues to be a trampling of basic human rights. China 
has continued its campaign against the Falun Gong movement, 
including imprisonment and possibly torture of its followers, 
and many of those followers have died while in State custody. 
China's repression of Tibet continues. It has detained a number 
of scholars and American citizens--one goes on trial next 
week--and it continues to thwart free speech.
    It now appears that the key issues relating to China's 
accession to the WTO have been resolved or are very close to 
resolution. China's entry into the WTO should accelerate its 
movement toward a freer economy. Boosted by the recent accords, 
it should be true in agriculture as well as industry and 
services. Though the developments of last year provides support 
for both parts of the basic premise of last year's action on 
China Permanent Normal Trade Relations (PNTR), the U.S. has no 
realistic choice but to engage with, but it also must keep 
pressure on China as to the direction it is taking. That was 
reinforced by the security issues that figured prominently in 
our relationship this last year.
    As part of the effort to keep the pressure on China, 
several steps were taken in last year's PNTR legislation. One 
was establishing a congressional executive commission on the 
People's Republic of China. This commission should be up and 
running this month, well before China's accession to the WTO. 
It will monitor China's compliance with human rights, including 
worker rights, compile lists of victims of human rights abuses, 
and monitor development of the rule of law in China. It will 
release annual reports setting forth its findings, allowing for 
a full airing of the facts and issues. The China commission 
must play an important role in the dynamic of engagement with 
and pressure on China.
    As the trade deficit with China has continued to grow and 
China's competition with American products increases, the 
commitment which the U.S. obtained with respect to antidumping 
and the anti-surge mechanism have become more important. In the 
PNTR legislation we created the toughest anti-surge and anti-
trade diversion provisions ever enacted into U.S. law. As I 
understand it, the most recent round of negotiations have 
ensured the U.S. right to use its special antidumping analysis 
against China.
    Finally, and crucially important as we move forward in our 
trading and economic relationships with China, is the issue of 
implementation. Benefits of expanded trade with China for 
American businesses and workers could be illusory unless the 
U.S. remains vigilant, especially because of the weak rule of 
law structures in China. In the PNTR legislation we inserted 
various mechanisms to ensure monitoring and implementation. 
Additionally, the United States Trade Representative (USTR) 
successfully delivered on an item requested in that 
legislation, a special annual review by the WTO of China's 
compliance with its protocol of accession. These annual reviews 
will go on for the first 8 years after China's WTO accession, 
with one more review to cap China's first decade in the WTO.
    Equally important, and I mention to my colleagues here, 
will be the implementation, assistance and monitoring that the 
U.S. will conduct on its own. We must pursue and fund these 
programs vigorously. I think that last year's China PNTR 
legislation embodied a right mix of policy. Moving forward we 
must follow through with each of these policies to ensure that 
we continue to shape our relationship with China.
    Thank you, Mr. Chairman.
    Chairman Crane. I too want to welcome all of our panelists, 
and this hearing of the Ways and Means Trade Subcommittee is to 
evaluate our overall U.S.-China trade relations and to consider 
the brief extension of normal trade relations status to help 
expedite China's imminent succession to the World Trade 
Organization.
    On October 10th of last year, the President signed 
legislation terminating the application of the 1974 Jackson-
Vanik statute which requires the annual consideration of 
China's normal trade relations, NTR, status. By a vote of 273 
to 197, the House voiced its unwavering support on a bipartisan 
basis for the momentous economic and social reforms taking 
place in China and committed to extend permanent normal trade 
relations to China upon its succession to the WTO.
    That firm commitment demonstrated this body's overwhelming 
support for bringing China into the rules-based trading system. 
Under this deal our tariff on the Chinese imports will not 
change, while Chinese tariffs on our imports will be sharply 
reduced. China's succession agreement also requires it to 
undertake a wide range of market-opening reforms to key sectors 
of its economy still under State control. Therefore, unlike any 
other major trade agreement, these negotiations represent a set 
of one-sided concessions that will grant the United States 
unprecedented access to China's 1.2 billion customers.
    [The opening statement of Chairman Crane follows:]

  Opening Statement of the Hon. Philip M. Crane, a Representative in 
  Congress from the State of Illinois, and Chairman, Subcommittee on 
                                 Trade

    Good afternoon. This hearing of the Ways and Means Trade 
Subcommittee is to evaluate overall U.S.-China trade relations and to 
consider the brief extension of normal trade relations (NTR) status to 
help expedite China's imminent accession to the World Trade 
Organization (WTO).
    On October 10th last year, the President signed legislation 
terminating the application of the 1974 Jackson-Vanik statute which 
requires the annual consideration of China's normal-trade-relations 
(NTR) status. By a vote of 273 to 197, the House voiced its unwavering 
support for the momentous economic and social reforms taking place in 
China, and committed to extend permanent normal trade relations (PNTR) 
status to China--upon its accession to the WTO.
    That firm commitment demonstrated this Body's overwhelming support 
for bringing China into the rules-based trading system. Under this 
deal, our tariffs on Chinese imports will not change, while Chinese 
tariffs on our exports will be sharply reduced. China's accession 
agreement also requires it to undertake a wide range of market-opening 
reforms to key sectors of its economy still under state control. 
Therefore, unlike any other major trade agreement, these negotiations 
represent a set of one-sided concessions that will grant the United 
States unprecedented access to China's 1.2 billion consumers.
    On June 11, the United States and China reached a breakthrough 
agreement on all of the remaining bilateral trade-liberalization 
issues, removing a key stubborn obstacle to China's full and prompt 
entry into the WTO. In response, China has indicated its intent to 
become a member of the WTO by the end of this year, so it can 
participate in the WTO ministerial meetings in Qatar and join the 
anticipated new global round of trade negotiations.
    This breakthrough represents the culmination of 15 years of 
negotiations, and is exceptionally good news. It now appears that 
Congress need only re-authorize NTR status one last time--for the span 
of just a few months--before China becomes a full member of the WTO. In 
light of the historic policy decision made last fall we must keep the 
momentum moving forward toward our common goal of integrating China 
into the international system of rules and standards. It is my 
judgement that, after 15 years, we are almost there.
    Of course, I will be the first to admit that relations with China 
continue to be rocky and rancorous. Yet, slapping China through 
revocation of NTR will not bring about the changes that we all seek in 
China. Cutting off avenues of communication and trade will not help the 
Chinese people create the future that we wish for them.
    Nothing would be better for America's long term national security 
interests in China and the Asian region than ensuring that China begins 
this century on an economic reform path shaped and defined by the free-
market trade rules of the WTO.

                                

    Chairman Crane. And with that, then, I would like to 
proceed, and we will start, as I indicated before, with our 
distinguished colleague from Virginia, Mr. Wolf.

   STATEMENT OF THE HON. FRANK R. WOLF, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF VIRGINIA

    Mr. Wolf. I thank you, Mr. Chairman. I think it is time we 
as a legislative body face reality about the People's Republic 
of China. We have annually debated trade relations with China. 
We have heard about human rights abuses, religious persecution, 
and nuclear arms sales. But sometimes we must get a sense of 
how Winston Churchill must have felt in the thirties, 1935, 
1936, 1937, 1938, when he was talking about Nazi Germany and 
the world just ignored him, as did the House of Commons.
    It has annually been the will of the Congress that we 
engage in trade with China with the expectation that human 
rights would improve, but the expectations have fallen short. 
As we have increased trade, the human rights situation in China 
has grown worse. For the past 2 years the Department of State's 
annual report--which very few, if any, people actually read--on 
human rights in China stated this clearly, and it said, ``the 
government's poor human rights record has deteriorated 
markedly,'' and ``the government's poor human rights record 
worsened and they continued to commit numerous serious 
abuses.''
    Giving China most favored nation (MFN) status hasn't 
changed for better the lives of thousands of men and women 
languishing in forced labor prison camps. Human rights 
violations in China are about people suffering. They are not 
about trade. Human rights violations in China are about people 
of faith, people with faith in God, Catholic priests, Catholic 
bishops, Protestant pastors, all being sent to a dismal prison 
cell because of their having faith. When China violates its own 
citizens' human rights, people die. People are put in prison 
and families suffer.
    I recently read, as I think most of the members did, the 
graphic testimony of a Chinese doctor who participated in the 
removal of organs and skin from executed prisoners in China. He 
writes that his work, ``required me to remove skin and corneas 
from the corpses of over one hundred executed prisoners and, on 
a couple of occasions, victims of intentionally botched 
executions.''
    What kind of government skins alive and sells the organs of 
its own citizens? And the answer is the Chinese government 
does.
    The Government of China also persecutes and imprisons 
people because of their faith. The U.S. Department of State 
recently sent a letter to me on the status of religious 
freedom, which I enclose for the record.
    The letter states: The Government of China persecutes 
believers of many faiths, including Roman Catholics, Muslims, 
Tibetan Buddhists and Protestants. It is estimated that some 10 
Catholic bishops, scores of Catholic priests and Protestant 
house church leaders, 100 to 300 Tibetan Buddhists, hundreds 
perhaps thousands, of Falun Gong adherents, and an unknown but 
possible significant number of Muslims are in various forms of 
detention in China for expression of their belief, their 
spiritual faith.
    [The following was subsequently received:]

                                   U.S. Department of State
                                       Washington, DC 20520
                                                       May 31, 2001

    Dear Mr. Wolf:

    This is in response to your request of Acting Assistant Secretary 
Michael Parmly for additional information during his testimony before 
the Human Rights Caucus on May 15 on the status of religious freedom in 
China. We appreciate your concern about the recent deterioration of 
religious freedoms in China and the large number of persons held in 
China for the peaceful expression of their religious or spiritual 
views. We regret the delay in responding to your request for 
information, but we wanted to provide as comprehensive a list of these 
individuals as possible.
    We currently estimate that roughly ten Catholic Bishops, scores of 
Catholic priests and house church leaders, 100-300 Tibetan Buddhists, 
hundreds (perhaps thousands) of Falun Gong adherents, and an unknown 
but possibly significant number of Muslims are in various forms of 
detention in China for the expression of their religious or spiritual 
beliefs. The forms of detention range from de facto house arrest to 
imprisonment in maximum security prisons. As you know, we regularly 
raise cases of religious prisoners with Chinese officials both here and 
in China. Our information about such cases comes from sources as 
diverse as religious dissidents, human rights NGOs, interested 
Americans and, most importantly, regular reporting from our embassies 
and consulates. Unfortunately, the opaqueness of the Chinese criminal 
justice system and absence of any central system that provides basic 
information on who is incarcerated and why makes it exceedingly 
difficult to determine the exact number of religious prisoners 
currently being held in China. We have, however, attached lists of 
cases of particular concern that we have raised with Chinese 
authorities or have included in our human rights and religious freedom 
reports.
    We recognize the importance of compiling and maintaining a database 
of political and religious prisoners from additional sources such as 
Chinese newspapers and government notices and appreciate Congressional 
interest in providing us additional resources to fund such activities. 
At present, the Bureau for Democracy, Human Rights and Labor is 
discussing with the International Republican Institute a proposal which 
will be submitted through the National Endowment for Democracy. This 
proposal will be for a Human Rights and Democracy Fund grant 
specifically for the purpose of funding a U.S. NGO's efforts to develop 
and maintain a list of political and religious prisoners in China.
    Such a database will be extremely valuable to the human rights work 
done not only by this bureau but also by other government agencies, the 
Congress, and NGOS. We welcome your interest in and support of this 
effort and look forward to cooperative efforts to develop and fund a 
comprehensive record of religious prisoners in China.
    In the meantime, we hope the information in this letter and the 
attached lists are helpful to you. We would welcome any case 
information that you might have available that could improve the 
quality of this list.

            Sincerely,
                                   Michael E. Guest
                                 Acting Assistant Secretary
                                                Legislative Affairs

Enclosure:
Listing of Religious Prisoners in China
           Illustrative List of Religious Prisoners in China
Note: See comments in cover letter. The following illustrative list is 
compiled from various sources, including information provided to us by 
reputable non-governmental organizations and from the State 
Department's annual reports on human rights and on religious freedom. 
We cannot vouch for its overall accuracy or completeness.

MUSLIMS                                      Status
Xinjiang Abduhelil Abdumijit                 Tortured to death in custody
Turhong Awout                                Executed
Rebiya Kadeer                                Serving 2nd year in prison
Zulikar Memet                                Executed
Nurahmet Niyazi                              Sentenced to death
Dulkan Rouz                                  Executed
Turhan Saidalamoud                           Sentenced to death
Alim Younous                                 Executed
Krubanjiang Yusseyin                         Sentenced to death

PROTESTANTS (misc.)
Qin Baocai                                   Re-education through labor sentence
Zhao Dexin                                   Serving 3rd year in prison
Liu Haitao                                   Tortured to death in custody
Miao Hailin                                  Serving 3rd year in prison
Han Shaorong                                 Serving 3rd year in prison
Mu Sheng                                     Re-education through labor sentence
Li Wen                                       Serving 3rd year in prison
Yang Man                                     Serving 3rd year in prison
Chen Zide                                    Serving 3rd year in prison

EVANGELISTIC FELLOWSHIP
Hao Huaiping                                 Serving re-education sentence
Jing Quinggang                               Serving re-education sentence
Shen Yiping                                  Re-education; status unknown

COLD WATER RELIGION
Liu Jiaguo                                   Executed in October 1999

FENGCHENG CHURCH GROUP
Zheng Shuquian                               Re-education; status unknown
David Zhang                                  Re-education; status unknown

CATHOLICS

Bishops
Bishop Han Dingxiang                         Arrested in 1999, status unknown
Bishop Shi Engxiang                          Arrested in October 1999
Bishop Zeng Jingmu                           Rearrested on September 14, 2000
Bishop Liu                                   House arrest in Zhejiang
Bishop Jiang Mingyuang                       Arrested in August 2000
Bishop Mattias Pei Shangde                   Arrested in early April 2001
Bishop Xie Shiguang                          Arrested in 1999; status unknown
Bishop Yang Shudao                           Arrested Feb. 2001; status unknown
Bishop An Shuxin                             Remains detained in Hebei
Bishop Li Side                               House Arrest
Bishop Zang Weizhu                           Detained in Hebei
Bishop Lin Xili                              Arrested Sept. 1999, status unknown
Bishop Su Zhimin                             Whereabouts unknown

Priests
Fr. Shao Amin                                Arrested September 5, 1999
Fr. Wang Chengi                              Serving re-education sentence
Fr. Wang Chengzhi                            Arrested September 13, 1999
Fr. Zhang Chunguang                          Arrested May 2000
Fr. Lu Genjun                                Serving 1st year of 3 year sentence
Fr. Xie Guolin                               Serving 1st year of 1 year sentence
Fr. Li Jianbo                                Arrested April 19 2000
Fr. Wei Jingkun                              Arrested August 15, 1998
Fr. Wang Qingyuan                            Serving 1st year of 1 year sentence
Fr. Xiao Shixiang                            Arrested June 1996, status unknown
Fr. Hu Tongxian                              Serving 3rd year of 3 year sentence
Fr. Cui Xingang                              Arrested March 1996
Fr. Guo Yibao                                Arrested April 4 1999
Fr. Feng Yunxiang                            Arrested April 13 2001
Fr. Ji Zengwei                               Arrested March 2000
Fr. Wang Zhenhe                              Arrested April 1999
Fr. Yin                                      Serving 1st of 3 year sentence
Fr. Kong Boucu                               Arrested October 1999
Fr. Lin Rengui                               Arrested Dec. 1997, status unknown
Fr. Pei Junchao                              Arrested Jan. 1999, status unknown
Fr. Wang Chengi                              Arrested Dec. 1996, status unknown

TIBETAN BUDDHISTS

Lamas
Gendun Choekyi Nyima                         House Arrest
Pawo Rinpoche                                House Arrest

Nuns
Ngawang Choekyi                              Serving 9th year of 13 year sentence
Ngawang Choezom                              Serving 9th year of 11 year sentence
Chogdrub Drolma                              Serving 6th year of 11 year sentence
Jamdrol                                      Serving 6th year of 7 year sentence
Namdrol Lhamo                                Serving 9th year of 12 year sentence
Phuntsog Nyidrol                             Serving 12th year of 17 year sentence
Yeshe Palmo                                  Serving 4th year of 6 year sentence
Ngawang Sangdrol                             Serving 9th year of 21 year sentence
Jigme Yangchen                               Serving 11th year of 12 year sentence

Monks
Ngawang Gyaltsen                             Serving 12th year of 17 year sentence
Ngawang Jamtsul                              Serving 12th year of 15 year sentence
Jamphel Jangchub                             Serving 12th year of 18 year sentence
Ngawang Kalsang                              Serving 6th year of 8 year sentence
Thubten Kalsang                              Sentence not reported
Lobsang Khetsun                              Serving 5th year of 12 year sentence
Phuntsok Legmon                              Sentenced to 3 years in prison
Namdrol                                      Sentenced to 4 years in prison
Yeshe Ngawang                                Serving 12th year of 14 year sentence
Ngawang Oezer                                Serving 12th year of 17 year sentence
Ngawang Phuljung                             Serving 12th year 19 year sentence
Lobsang Phuntsog                             Serving 6th year of 12 year sentence
Sonam Phuntsok                               Arrested in October 1999
Phuntsog Rigchog                             Serving 7th year of 10 year sentence
Lobsang Sherab                               Serving 5th year of 16 year sentence
Sonam Rinchen                                Serving 15 year sentence
Ngawang Sungrab                              Serving 9th year of 13 year sentence
Jampa Tenkyong                               Serving 10th year of 15 year sentence
Ngawang Tensang                              Serving 10th year of 15 year sentence
Lobsang Thubten                              Serving 7th year of 15 year sentence
Agya Tsering                                 Arrested in October 1999
Trinley Tsondru                              Serving 5th year of 8 year sentence
Tenpa Wangdrag                               Serving 13th year of 14 year sentence

                                

    Mr. Wolf. What kind of government imprisons its nation's 
religious leaders? The answer is it is China. When China 
violates its own citizens' human rights, people die, they 
suffer.
    Today is the 150th day a mother and a wife, a permanent 
resident from my Congressional District, has been in jail, Dr. 
Gao Zhan. The Chinese government took her away, has not allowed 
our government to talk to her, separated her from her 5-year-
old child, and today we still don't know anything about her.
    Successive Presidents and previous Congresses have acted to 
trade with the People's Republic of China, expecting China's 
human rights record to improve. After nearly two decades of 
many different administrations, Republican and Democrat, in 
which China has received MFN status, it is clear religious 
freedom and human rights have been given lip service.
    It is time to try something new, and that is to link these 
things together the way that we have in other areas. I don't 
expect this Congress to do it. I don't expect this 
administration to do it. And I will predict that human rights 
in China will continue to get worse and worse and people will 
be imprisoned and killed for their fundamental beliefs, because 
they have faith in God and they want to practice it.
    And I thank the gentleman for the opportunity, and I yield 
back the balance of my time.
    [The prepared statement of Mr. Wolf follows:]

Statement of the Hon. Frank R. Wolf, a Representative in Congress from 
                         the State of Virginia

    Mr. Chairman, thank you for the opportunity to testify today.
    I think it is time we as a legislative body face reality about the 
People's Republic of China. We've annually debated trade relations with 
China. We've heard about human rights abuses, religious persecution, 
nuclear arms sales. And it has annually been the will of the Congress 
that we engage in trade with China with the expectation that human 
rights would improve.
    But the expectations have fallen short. As we have increased trade, 
the human rights situation in China has grown worse. For the past two 
years, the Department of State's annual report on human rights in China 
has stated this clearly, saying: ``the Government's poor human rights 
record has deteriorated markedly'' and ``the Government's poor human 
rights record worsened, and it continued to commit numerous serious 
abuses.''
    Giving China most favored nation status hasn't changed for the 
better the lives of thousands of men and women languishing in forced 
labor prison camps. Human rights violations in China are about people 
who are suffering. Human rights violations in China are about people of 
faith being thrown into a dismal prison cell because of their faith.
    When China violates its own citizens' human rights, people die, 
people suffer and families are torn apart.
    I recently read the graphic testimony of a Chinese doctor who 
participated in the removal of organs and skin from executed prisoners 
in China. Dr. Wang Guoqi was a skin and burn specialist employed at a 
People's Liberation Army hospital. He recently testified before the 
House International Relations Subcommittee on International 
Organizations and Human Rights on the Government of China's involvement 
in the execution, extraction, and trafficking of prisoner's organs. I 
enclose Dr. Wang's statement for the record.
    Dr. Wang writes that his work ``required me to remove skin and 
corneas from the corpses of over one hundred executed prisoners, and, 
on a couple of occasions, victims of intentionally botched 
executions.''
    What kind of government skins alive and sells the organs of its own 
citizens?
    The Government of China also persecutes and imprisons people 
because of their religious beliefs. The U.S. Department of State 
recently sent me a letter on the status of religious freedom in China, 
which I enclose for the record. This letter states that the Government 
of China persecutes believers of many faiths, including Roman 
Catholics, Muslims, Tibetan Buddhists and Protestant Christians.
    It is estimated that some ``ten Catholic Bishops, scores of 
Catholic priests and [Protestant] house church leaders, 100-300 Tibetan 
Buddhists, hundreds (perhaps thousands) of Falun Gong adherents, and an 
unknown but possible significant number of Muslims are in various forms 
of detention in China for the expression of their religious or 
spiritual beliefs.''
    What kind of government imprisons its nation's religious leaders?
    When China violates its own citizens' human rights, people die, 
people suffer and families are torn apart.
    Today is the 150th day a mother and wife and permanent 
U.S. resident has spent in a Chinese jail. Dr. Gao Zhan is a researcher 
at American University here in Washington, D.C. She is my constituent. 
She studies women's issues. One hundred and fifty days ago, Chinese 
authorities detained Gao Zhan and her husband and their 5-year-old son, 
Andrew. In the matter of an instant, this happy young family was torn 
apart by the regime in Beijing. A 5-year-old child was taken from his 
parents, a young couple was divided by prison walls and armed guards. 
Imagine how you would feel if the Government of China did this to your 
family. Imagine how you would feel if the Government of China put your 
5-year-old son in prison.
    What kind of government imprisons mothers who are academic experts 
on women's issues?
    Successive Presidents and previous Congresses have acted to trade 
with the People's Republic of China expecting China's human rights 
record to improve. After nearly two decades in which China has received 
most favored nation status, it is clear religious freedom and human 
rights have been given lip service by the Chinese government.
    It is time to try something new in our China policy. If the U.S. 
wants China's human rights record to improve, the U.S. ought to 
withhold normal trade status until the Chinese government proves that 
it will treat its own people, its mothers, fathers, religious leaders 
and even common criminals with the dignity, compassion and respect that 
all human life deserves.

                        TESTIMONY OF WANG GUOQI
      FORMER DOCTOR AT A CHINESE PEOPLE'S LIBERATION ARMY HOSPITAL
                               before the
       SUBCOMMITTEE ON INTERNATIONAL OPERATIONS AND HUMAN RIGHTS
                                 of the
                 UNITED STATES HOUSE OF REPRESENTATIVES

    My name is Wang Guoqi and I am a 38-year-old physician from the 
People's Republic of China. In 1981, after standard childhood schooling 
and graduation, I joined the People's Liberation Army. By 1984, I was 
studying medicine at the Paramilitary Police Paramedical School. I 
received advanced degrees in Surgery and Human Tissue Studies, and 
consequently became a specialist in the burn victims unit at the 
Paramilitary Police Tianjin General Brigade Hospital in Tianjin. My 
work required me to remove skin and corneas from the corpses of over 
one hundred executed prisoners, and, on a couple of occasions, victims 
of intentionally botched executions. It is with deep regret and remorse 
for my actions that I stand here today testifying against the practices 
of organ and tissue sales from death row prisoners.
    My involvement in harvesting the skin from prisoners began while 
performing research on cadavers at the Beijing People's Liberation Army 
Surgeons Advanced Studies School, in Beijing's 304th Hospital. This 
hospital is directly subordinate to the PLA, and so connections between 
doctors and officers were very close. In order to secure a corpse from 
the execution grounds, security officers and court units were given 
``red envelopes'' with cash amounting to anywhere between 200-500 RMB 
per corpse. Then, after execution, the body would be rushed to the 
autopsy room rather than the crematorium, and we would extract skin, 
kidneys, livers, bones, and corneas for research and experimental 
purposes. I learned the process of preserving human skin and tissue for 
burn victims, and skin was subsequently sold to needy burn victims for 
10 RMB per square centimeter.
    After completing my studies in Beijing, and returning to Tianjin's 
Paramilitary Police General Brigade Hospital, I assisted hospital 
directors Liu Lingfeng and Song Heping in acquiring the necessary 
equipment to build China's first skin and tissue storehouse. Soon 
afterward, I established close ties with Section Chief Xing, a criminal 
investigator of the Tianjin Higher People's Court.
    Acquiring skin from executed prisoners usually took place around 
major holidays or during the government's Strike Hard campaigns, when 
prisoners would be executed in groups. Section Chief Xing would notify 
us of upcoming executions. We would put an order in for the number of 
corpses we'd like to dissect, and I would give him 300 RMB per cadaver. 
The money exchange took place at the Higher People's Court, and no 
receipts or evidence of the transaction would be exchanged.
    Once notified of an execution, our section would prepare all 
necessary equipment and arrive at the Beicang Crematorium in plain 
clothes with all official license plates on our vehicles replaced with 
civilian ones. This was done on orders of the criminal investigation 
section. Before removing the skin, we would cut off the ropes that 
bound the criminals' hands and remove their clothing. Each criminal had 
identification papers in his or her pocket that detailed the executee's 
name, age, profession, work unit, address, and crime. Nowhere on these 
papers was there any mention of voluntary organ donation, and clearly 
the prisoners did not know how their bodies would be used after death.
    We had to work quickly in the crematorium, and 10-20 minutes were 
generally enough to remove all skin from a corpse. Whatever remained 
was passed over to the crematorium workers. Between five and eight 
times a year, the hospital would send a number of teams to execution 
sites to harvest skin. Each team could process up to four corpes, and 
they would take as much as was demanded by both our hospital and 
fraternal hospitals. Because this system allowed us to treat so many 
burn victims, our department became the most reputable and profitable 
department in Tianjin.
    Huge profits prompted our hospital to urge other departments to 
design similar programs. The urology department thus began its program 
of kidney transplant surgeries. The complexity of the surgery called 
for a price of $120-150,000 RMB per kidney.
    With such high prices, primarily wealthy or high-ranking people 
were able to buy kidneys. If they had the money, the first step would 
be to find a donor-recipient match. In the first case of kidney 
transplantation in August 1990, I accompanied the urology surgeon to 
the higher court and prison to collect blood samples from four death-
row prisoners. The policeman escorting us told the prisoners that we 
were there to check their health conditions; therefore, the prisoners 
did not know the purpose for their blood samples or that their organs 
might be up for sale. Out of the four samplings, one basic and sub-
group blood match was found for the recipient, and the prisoner's 
kidneys were deemed fit for transplantation.
    Once a donor was confirmed, our hospital held a joint meeting with 
the urology department, burn surgery department, and operating room 
personnel. We scheduled tentative plans to prepare the recipient for 
the coming kidney and discussed concrete issues of transportation and 
personnel. Two days before execution, we received final confirmation 
from the higher court, and on the day of the execution, we arrived at 
the execution site in plain clothes. In the morning, the donating 
prisoner had received a heparin shot to prevent blood clotting and ease 
the organ extraction process. When all military personnel and condemned 
prisoners would arrive at the site, the organ-donating prisoner was 
brought forth for the first execution.
    At the execution site, a colleague, Xing Tongyi, and I were 
responsible for carrying the stretcher. Once the hand-cuffed and leg-
ironed prisoner had been shot, a bailiff removed the leg irons. Xing 
Tongyi and I had 15 seconds to bring the executee to the waiting 
ambulance. Inside the ambulance, the best urologist surgeons removed 
both kidneys, and rushed back to the waiting recipient at the hospital. 
Meanwhile, our burn surgery department waited for the execution of the 
following three prisoners, and followed their corpses to the 
crematorium where we removed skin in a small room next to the furnaces. 
Since our director had business ties with the Tianjin Ophthalmologic 
Hospital and Beijing's 304th Hospital, he instructed us to extract the 
executee's corneas as well.
    Although I performed this procedure nearly a hundred times in the 
following years, it was an incident in October 1995 that has tortured 
my conscience to no end. We were sent to Hebei Province to extract 
kidneys and skin. We arrived one day before the execution of a man 
sentenced to death for robbery and the murder of a would-be witness. 
Before execution, I administered a shot of heparin to prevent blood 
clotting to the prisoner. A nearby policeman told him it was a 
tranquilizer to prevent unnecessary suffering during the execution. The 
criminal responded by giving thanks to the government.
    At the site, the execution commander gave the order, ``Go!,'' and 
the prisoner was shot to the ground. Either because the executioner was 
nervous, aimed poorly, or intentionally misfired to keep the organs 
intact, the prisoner had not yet died, but instead lay convulsing on 
the ground. We were ordered to take him to the ambulance anyway where 
urologists Wang Zhifu, Zhao Qingling and Liu Qiyou extracted his 
kidneys quickly and precisely. When they finished, the prisoner was 
still breathing and his heart continued to beat. The execution 
commander asked if they might fire a second shot to finish him off, to 
which the county court staff replied, ``Save that shot. With both 
kidneys out, there is no way he can survive.'' The urologists rushed 
back to the hospital with the kidneys, the county staff and executioner 
left the scene, and eventually the paramilitary policemen disappeared 
as well. We burn surgeons remained inside the ambulance to harvest the 
skin. We could hear people outside the ambulance, and fearing it was 
the victim's family who might force their way inside, we left our job 
half-done, and the half-dead corpse was thrown in a plastic bag onto 
the flatbed of the crematorium truck. As we left in the ambulance, we 
were pelted by stones from behind.
    After this incident, I have had horrible, reoccurring nightmares. I 
have participated in a practice that serves the regime's political and 
economic goals far more than it benefits the patients. I have worked at 
execution sites over a dozen times, and have taken the skin from over 
one hundred prisoners in crematoriums. Whatever impact I have made in 
the lives of burn victims and transplant patients does not excuse the 
unethical and immoral manner of extracting organs.
    I resolved to no longer participate in the organ business, and my 
wife supported my decision. I submitted a written report requesting 
reassignment to another job. This request was flatly denied on the 
grounds that no other job matched my skills. I began to refuse to take 
part in outings to execution sites and crematoriums, to which the 
hospital responded by blaming and criticizing me for my refusals. I was 
forced to submit a pledge that I would never expose their practices of 
procuring organs and the process by which the organs and skin were 
preserved and sold for huge profits. They threatened me with severe 
consequences, and began to train my replacement. Until the day I left 
China in the spring of 2000, they were still harvesting organs from 
execution sites.
    I hereby expose all these terrible things to the light in the hope 
that this will help to put an end to this evil practice.

                                

    Chairman Crane. Thank you. Ms. Pelosi.

    STATEMENT OF THE HON. NANCY PELOSI, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Pelosi. Thank you very much Mr. Chairman, Ranking 
Member Levin, members of the Committee. Thanks for the 
opportunity once again to talk to you about permanent normal 
trade relations with China. Mr. Chairman, really in light of 
last year's passage of the PNTR with China bill, I had hoped 
that we would not have to proceed with this year's debate. Last 
year's vote was based on promises, not performances, however. 
So here we are again.
    As you know, we have been coming here year in and year out 
over the past dozen years. We have raised concerns about the 
human rights situation in China, China's proliferation of 
weapons of mass destruction and lack of market access and other 
trade violations that China was committing vis-a-vis the U.S. 
We were right. Twelve years have gone by. The human rights 
situation is worse, and China continues to occupy Tibet, arrest 
people for their religious and political beliefs, and the list 
goes on and on. Now it includes arresting Americans, American 
citizens, and legal residents.
    But you mentioned, Mr. Levin, and I believe the Chairman 
did as well, that the passage of the permanent normal trade 
relations would help expedite China's entry into the WTO. That 
was the hope that we all had. We don't want to be proven wrong 
on that, that this is going to go on and on and on for a number 
of years before China honors its bilateral commitments and does 
accede to the WTO.
    When we started the MFN debate following the 1989 Tiananmen 
Square massacre, the reported U.S. deficit for China--that was 
1989, but they were reporting the 1988 deficit--it was $2 
billion a year. In 2000 the trade deficit with China was $83.8 
billion, up from $68.7 billion from 1999. According to the 
Congressional Research Service, the projected U.S. trade 
deficit with China for 2000 will be $100 billion. We have gone 
from a deficit of $2 billion a year to $2 billion a week. 
Something is wrong with this picture. This policy is not 
working, just on the basis of trade alone, if you can forget 
all that Mr. Wolf described in terms of human rights 
violations, and the proliferation of weapons of mass 
destruction.
    Again, when we started the MFN debate following Tiananmen 
Square, we were told that trade would improve human rights. 
Again, the news is bad. According to the State Department's 
2000 Country Report on Human Rights, and Mr. Wolf quoted it, so 
I will just reference that the government has intensified 
crackdowns on religion and in Tibet, intensified its harsh 
treatment of political dissent and suppressed any person or 
group perceived to threaten the government.
    The rest I will submit for the record. Tragically, each 
year this report has essentially documented a continuing 
deterioration of human rights in China. But every political 
dissident is either in jail or in exile. Indeed, trade has not 
improved human rights in China.
    When, again, we started the MFN debate after Tiananmen 
Square, another issue of concern was China's proliferation of 
weapons of mass destruction. Again, the news is bad, as China 
has continued to proliferate dangerous weapons of mass 
destruction to unsafeguarded nations, countries of concern and 
rogue States, including Pakistan, North Korea, Iran, Iraq, 
Syria and Libya.
    We are having this debate again this year because what we 
have seen for the past year is a continuation of China's 
pattern in bilateral and multilateral trade agreements; signing 
trade agreements and not abiding by them, or removing one set 
of barriers while erecting another one. Either way the results 
are the same. No good news.
    The most serious stumbling blocks--and I want to just focus 
now on the trade issues--the most serious stumbling blocks have 
been negotiations over agricultural provisions and the Chinese 
government's insistence that it be treated as a developing 
country for WTO's purposes, despite the fact that we have been 
told that China was to enter the WTO as a developed country and 
the fact that China is the world's 10th largest economy.
    I point out agriculture because those were the promises 
made to so many members, that this was going to open so many 
markets for U.S. agricultural products. The status of 
agriculture is of great concern. The U.S. and China on April 
10th, 1999 signed the agreement on U.S.-China Agricultural 
Cooperation to eliminate Chinese barriers to imports of U.S. 
citrus, meat, poultry, wheat and other grains. The agreement 
was cited regularly during the PNTR debate as evidence that a 
new page had been turned in U.S.-China trade.
    However, according to the Bush administration, this Bush 
administration's 2001 Trade Policy Agenda and 2000 Annual 
Report, ``China's compliance with this agreement has been 
inconsistent and U.S. exporters still do not have the access 
envisioned in this agreement.'' The report notes a number of 
problems, including the implementation of new barriers to 
poultry imports, the imposition of other WTO-inconsistent 
restrictions, and measures designed to replace other 
restrictions removed in connection with our bilateral agreement 
and WTO negotiations.
    I will submit more on that for the record, but I would also 
like to submit the whole agricultural section of the 2001 Trade 
Policy Agenda and Report for the record.
    Chairman Crane. Without objection so ordered.
    [The report is being retained in the Committee files.]
    Ms. Pelosi. Thank you, Mr. Chairman. And I would hope that 
the members of this Committee, if you have not yet read the 
China section of the administration's 2001 National Trade 
Estimate Report on Foreign Trade Barriers, I urge you to do so. 
The 27 pages on China describe a full range of challenges 
confronting U.S. goods and services seeking to enter China, 
such as the installation of new or worsened trade barriers.
    Our intellectual property is supposed to be our competitive 
advantage, but we must confront the fact that the U.S. economy 
has lost over $15 billion to Chinese piracy since 1995 alone, 
according to the International Intellectual Property Alliance 
(IIPA). The IIPA 2001 Special 301 Report documents that piracy 
rates in China continue to hover at the 90 percent level, 
reports on an alarming increase in the production of pirate 
optical media products including DVDs by licensed as well as 
underground CD plants. More for the record, but I will conclude 
that section by saying that the report says China has fallen 
behind in implementing the State Council's 1999 software 
legalization decree with respect to uses of unauthorized copies 
of software in government enterprises and business and 
ministries.
    Last year, Congress voted PNTR for China. I hoped, again as 
I said earlier, that we would not have this NTR debate again. 
In fact, Mr. Rohrabacher and I were working with Mr. Matsui in 
the hopes that we would not have to even come to this. However, 
all that changed with the detention of the U.S. crew and the 
arrest of at least six American citizens or legal residents. 
While some in the United States may want to look the other way 
on China's human rights abuses and proliferation violations, 
how much longer can we on the Trade Committee look the other 
way or ignore China's violations of trade agreements?
    We should use this debate this year--as Mr. Levin had said 
earlier, this is an opportunity. We should use this debate to 
focus on why China has not yet acceded to the WTO and how many 
more years we will have to continue to have this debate until 
the Chinese government honors its trade agreements. We owe that 
to the American people and especially those who wish to export 
to China.
    I don't know how many more people have to be repressed, or 
how many more years China will have to brutally occupy Tibet, 
or how many more people will be persecuted for their religious 
and political beliefs, or how many more Americans will have to 
be arrested in China to get the attention of the Committee, but 
I hope it won't be too many more.
    Thank you again, Mr. Chairman, Mr. Levin, members of the 
Committee, for the opportunity to present my views, and I am 
submitting that for the record. Thank you for receiving it. 
Don't forget to read this book. Thank you very much, Mr. 
Chairman.
    Chairman Crane. Thank you. And one consolation with regard 
to the annual renewal, as I think the concessions made at the 
most recent negotiations in the agriculture area will mean that 
this is our last time to have to go through it.
    Ms. Pelosi. I hope so.
    [The prepared statement of Ms. Pelosi follows:]

 Statement of the Hon. Nancy Pelosi, a Representative in Congress from 
                        the State of California

    In light of last year's passage of Permanent Normal Trade Relations 
with China, I had hoped that we would not have to proceed with this 
year's debate. Last year's vote was based on promises, not performance, 
so here we are again.
    As you know, over the past dozen years, my colleagues and I have 
appeared before this Committee to discuss many facets of the U.S.-China 
relationship--trade, proliferation and human rights. We cannot be 
encouraged by the results of the decisions this Congress has made.
    When we started the MFN debate following the 1989 Tiananmen Square 
massacre, the reported U.S. trade deficit with China for 1988 was 
around $2 BILLION. In 2000, the United States trade deficit with China 
was $83.8 BILLION, up from $68.7 BILLION in 1999. According to the 
Congressional Research Service, the projected U.S. trade deficit with 
China for 2000 will be $100 BILLION. We have gone from a deficit of $2 
BILLION per year to a deficit of $2 BILLION per week.
    When we started the MFN debate following Tiananmen Square, we were 
told that trade would improve human rights. Again, the news is bad. 
According to the U.S. State Department's 2000 Country Reports on Human 
Rights Practices regarding China issued this year, ``The Government's 
poor human rights record worsened, and it continued to commit numerous 
human rights abuses. The Government intensified crackdowns on religion 
and in Tibet, intensified its harsh treatment of political dissent, and 
suppressed any person or group perceived to threaten the Government.'' 
Tragically, each year this report has essentially documented a 
continuing deterioration of human rights in China. Every political 
dissident is either in jail or in exile.
    When we started the MFN debate after Tiananmen Square, another 
issue of concern was China's proliferation of weapons of mass 
destruction. Again the news is bad, as China has continued to 
proliferate dangerous weapons of mass destruction to unsafeguarded 
nations, countries of concern, and rogue states, including Pakistan, 
North Korea, Iran, Iraq, Syria and Libya.
    We are having the debate again this year, because what we have seen 
for the past year is a continuation of China's pattern in bilateral and 
multilateral agreements: signing trade agreements and not abiding by 
them, or removing one set of barriers while erecting another one. 
Either way, the results are the same.
    The most serious stumbling blocks have been negotiations over 
agriculture provisions and the Chinese government's insistence that it 
be treated as a developing country for WTO purposes, despite the fact 
that we had been told that China was to enter the WTO as a developed 
country, and the fact that China is the world's tenth largest economy.
    The status of agriculture is of great concern. The United States 
and China, on April 10, 1999, signed the Agreement on U.S.-China 
Agricultural Cooperation to eliminate Chinese barriers to imports of 
U.S. citrus, meat and poultry, wheat and other grains. This agreement 
was cited regularly during the PNTR debate as evidence that a new page 
had been turned in U.S.-China trade. However, according to the Bush 
Administration's ``2001 Trade Policy Agenda and 2000 Annual Report,'' 
``China's compliance with this agreement has been inconsistent and U.S. 
exporters still do not have the access envisioned in this agreement.''
    The report notes a number of problems, including the implementation 
of new barriers to poultry imports, the imposition of ``other WTO-
inconsistent restrictions'' and measures ``designed to replace other 
restrictions removed in connection with our bilateral agreement and the 
WTO accession negotiations.'' China agreed to remove phytosanitary 
barriers to wheat and other grains from the Pacific Northwest beginning 
April 1999. According to the report, ``less than 100,000 metric tons of 
grain have been shipped to China, and most of it has been stopped at 
the border due to new internal measures calling for special processing 
of U.S. grains.'' Similar problems exist for varieties of apples, 
plums, potatoes and pears. I would like to submit for the record the 
section from the ``2001 Trade Policy Agenda'' describing on-going 
implementation problems in Agriculture.
    If the members of this Subcommittee have not yet read the China 
section of the Administration's 2001 National Trade Estimate Report on 
Foreign Trade Barriers, I urge you to do so. The 27 pages on China 
describe a full range of challenges confronting U.S. goods and services 
seeking to enter China, such as the installation of ``new or worsened 
trade barriers.'' Examples of special concern include: cosmetic testing 
and registration requirements, educational testing services, chain 
store regulations, restrictions on the import of chicken meat, 
implementation of agreements on TCK in wheat and barley, and the 
registration of internet content providers. This report documents 
problems being faced by a very wide range of U.S. products and 
services, from motor vehicles to wine and spirits, from potato flakes 
to high technology, from grapes to insurance.
    Our intellectual property is our competitive advantage, but we must 
confront the fact that the U.S. economy has lost over $15 BILLION due 
to Chinese piracy of our intellectual property since 1995 alone, 
according to the International Intellectual Property Alliance (IIPA). 
The IIPA's 2001 Special 301 report documents that ``piracy rates in 
China continue to hover at the 90% level,'' reports on an ``alarming 
increase in the production of pirate optical media products including 
DVDs by licensed as well as underground CD plants,'' and expresses 
concern about the ``increasing sophistication in the pirate market 
including . . . growing Internet piracy . . . growing production of 
higher quality counterfeit products . . . the still rampant piracy of 
computer software by business enterprises,'' and that ``China has 
fallen behind in implementing the State Council's (1999) software 
legalization decree . . . with respect to uses of unauthorized copies 
of software in government enterprises and ministries.'' (emphasis 
added)
    Last year, Congress voted for Permanent Normal Trade Relations for 
China. I had hoped that we would not have to debate annual NTR again 
this year. Indeed, we were working toward a plan to avoid this debate. 
However, that all changed with the detention of the U.S. crew and the 
arrest of at least six American citizens or legal residents. While some 
in the United States might want to look the other way on China's human 
rights abuses and proliferation violations, how much longer can we 
ignore China's violations of trade agreements? We should use this 
debate to focus on why China has not yet acceded to the WTO and how 
many more years we will have to have this debate until the Chinese 
government honors its trade agreements. We owe that to the American 
people.
    [The attachment is being retained in the Committee files.]

                                

    Chairman Crane. And with that, Mr. Rohrabacher.

  STATEMENT OF THE HON. DANA ROHRABACHER, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Rohrabacher. Thank you, Mr. Chairman. As we discuss 
this issue, I think we all should think about what happened 
just a few months ago. A few months ago, this very same 
government that we are now suggesting should have normal trade 
relations like any other government, forced an American 
aircraft out of the sky in an attempt to murder the 24 military 
crew members--but they survived. And then those 24 military 
crew members were held hostage for 11 days.
    You know, this is the government that we want to have 
normal trade relations with? This is an insult to the American 
people, it is an insult to our standards, and it is especially 
a slap in the face to those people in our military who we 
expect to defend us against this monstrous threat. And it is a 
monstrous threat.
    Communist China is America's most potential adversary and 
enemy in the future. We all know that. Nobody is saying it, but 
we all know that. This is like--we mentioned Nazi Germany 
before and the things that were leading up to the war in Nazi 
Germany. IBM and a lot of other major corporations were making 
a lot of money dealing with Nazi Germany. They, too, were major 
human rights abusers, but our trade was going to make it 
better. Let's give the Nazis the Olympics, for example.
    There are a lot of historic parallels here, and I know a 
lot of people, after we found out what Nazi Germany was all 
about and after we suffered because of the consequences of the 
West's absolute indefensible strategy against the Nazis, what 
happened? There was a lot of people who sort of brushed that 
aside. Well, no, we made some very serious errors in our 
dealing with tyrannical threats to America and to the West in 
the twenties and thirties and it led to World War II.
    We are making those same mistakes right now with Communist 
China. We should not be treating Communist China the same way 
we treat our democratic friends. I believe in free trade, but 
free trade between free people. If we extend normal trade 
relations to a regime like exists in Beijing, they would look 
at that as a sign of weakness.
    And what are they doing with that $80 billion surplus that 
we are permitting them to have? You know, we are setting up the 
rules here. What are they doing with the $80 billion that they 
make off the trade surplus of the United States? Well, they are 
beefing up their military so it makes them easier to knock 
American military aircraft out of the sky and to intimidate the 
United States military and to hold our people hostage. Is that 
what we want? And by the way, this isn't about free trade. This 
isn't about free trade with China at all.
    What does normal trade relations really mean when it comes 
to what we are discussing today? What it means is that China is 
eligible for subsidies from the Import-Export Bank. What we are 
talking about today isn't free trade or capitalism. What it is 
talking about is making the American taxpayer eligible to 
subsidize to the Export-Import Bank through subsidized interest 
rates on the loans, or actually subsidizing guaranteed loans to 
companies who want to close up in the United States and set up 
factories in this military dictatorship in order to use and 
exploit the slave labor in China.
    Is that what we want? Is that what the American people 
want? We want to encourage, we want to subsidize American 
business to go into a Communist dictatorship and set up their 
businesses there, to exploit the slave labor there? I don't 
think so. I don't think that is moral, I don't think it is 
leading America in the right direction strategically, and it is 
indefensible.
    All along we have been told if we do this just a little bit 
more, let's subsidize our big businessmen to set up their 
factories in China through the Export-Import Bank, and you know 
what will happen? Once they have more economic interaction with 
us, it is going to liberalize their country. It is not 
liberalizing their country at all. As we speak, they are 
murdering members of the Falun Gong, which is nothing more than 
a little religious cult that believes in yoga and meditation, 
and they are murdering these people. There was a report that 10 
more of them died in captivity, some of them women, after they 
were tortured by the government of Communist China.
    No, it is not getting any better in China. It is getting 
worse in the United States. Our immoral relationship with this 
Communist dictatorship is lowering our standards. It is not 
raising their standards. We now just shrug our shoulders. We 
let them get away with shooting down our airplanes or holding 
our people hostage. We let them get away with these things. 
Why? Why, because there are some people in this country who are 
making a lot of money, that are billionaires who are making 
money by exploiting the slave labor in China. And what is 
worse, this bill that we are talking about will permit those 
billionaires to get government guaranteed loans to set up their 
factories there. That is what this is all about. And it is a 
shameful thing, and it was a shameful thing when that happened 
with the Nazis in the thirties, and I can assure you when the 
historic record is clear, there are going to be many Americans 
who are ashamed of this policy as well.
    We need to stand up for what our Founding Fathers meant 
America to stand up for. We are not a country of people just 
coming here to make a fast buck. We are here to stand for 
freedom and justice, with liberty and justice for all. And not 
only do the Chinese persecute their own people, but right now 
they have a number of American citizens, who are legal 
residents from our country, under their control and being held 
hostage. How can we even seriously consider giving normal trade 
relations to a country that is holding our own people hostage 
like that?
    I cannot more emphatically say this should be denied, and I 
am very proud to be the author of the denial of the President's 
request to extend the Jackson-Vanik provision on trade of the 
Trade Act of 1974. Communist China is not a country that 
deserves this. Thank you very much.
    Chairman Crane. Thank you, Mr. Rohrabacher.
    [The prepared statement of Mr. Rohrabacher follows:]

 Statement of the Hon. Dana Rohrabacher, a Representative in Congress 
                      from the State of California

    I have introduced House Joint Resolution 50, a resolution 
disapproving the extension of the President's waiver on the ``Jackson-
Vanik'' provision in the Trade Act of 1974. My reason for this 
resolution is a matter of national security as well as massive 
violations of human rights by an emerging superpower. During the past 
twelve months, despite previous Presidential waivers, the communist 
Chinese have used their $80 billion annual trade surplus with the 
United States to further modernize its military and boost its nuclear 
force targeting America and our friends in Taiwan, Japan and India. In 
addition to intensified campaigns to crack-down on religious believers 
independent of state controlled organizations, freedoms of press and 
speech have been thoroughly suppressed.
    The sad reality is that increased Western investment and U.S. 
taxpayer subsidized transfers of U.S. industries for near-slave labor 
conditions in Communist China has only strengthened the grip of the 
Beijing despots and corrupt ``princelings'' who dominate the state-
controlled economy. Rather than changing China, it is America that has 
changed our owned standards in support of freedom and against arming 
potential nuclear-armed adversaries. I believe in free trade--among 
free people, and not subsidizing American corporations to invest in 
lawless one-party states where it is a prisonable offense to make 
public economic statistics and where private U.S. banks and insurance 
companies won't back loans.
    Despite negotiations over entry to the World Trade Organizations 
and their bidding to host the 2008 Olympic games, last week Beijing 
sent home in pieces the U.S. military aircraft that they forced down 
from international airspace and demanded $1 million from our government 
for the cost of their unlawfully detaining the U.S. air crew. The 
pugnacious Beijing bullies have no fear that this august body will 
reconsider our illogical subsidies and massive investment into their 
despotic regime. This week our media revealed shocking news of at least 
ten more Falun Gong meditators, including women, perishing in a prison 
labor camp after severe torture. Jiang Zemin has again threatened 
military conquest of democratic Taiwan.
    On July 8, a Washington Post editorial stated: ``Beijing appears 
prepared to press on with repression even while demanding that the 
world accept it as an Olympic host and World Trade Organization member. 
The list of offenses grows . . . a larger crackdown on free thought has 
included the shutting down of Internet cafes and independent-minded 
newspapers and arresting dissidents. There is the continuing campaign 
against religion. . . . There is the massive use of the death penalty. 
Amnesty International says more people have been executed in China 
during the past three months--1,781--than in all the rest of the world 
during the past three years.'' And there was compelling testimony 
recently in this House by witnesses of the macabre business practice of 
Chinese officials harvesting the organs of freshly executed prisoners. 
After World War II, most American leaders said ``never again'' would we 
ignore Nazi-style tactics by any regime on this planet. How soon some 
people forget the tragic lessons of recent history.
    Mr. Chairman, I request permission to enter into the record the 
copy of the cover story of the July 9, 2001 New Republic magazine, 
titled ``Why Trade Won't Bring Democracy to China,'' by Lawrence F. 
Kaplan. I urge my colleagues to read this devastating historical and 
contemporary study of how our trade and subsidy policies have 
strengthened the brutal Beijing regime without bringing about any 
substantial democratic reforms or temperance of their systematic human 
rights abuses.
    I urge my colleagues to stand up for American values and 
international freedom by supporting House Joint Resolution 50.

                                

    Chairman Crane. Mr. Brown.

   STATEMENT OF THE HON. SHERROD BROWN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. Brown. Thank you, Mr. Chairman, for the opportunity to 
join you today. Thank you, Mr. Levin, the Ranking Member.
    We as a nation ignore the abuse of human rights in China 
when we devalue the principles on which our democracy is built. 
Based upon his first 6 months in office, President Bush has yet 
to make this connection.
    As we seek to encourage democracy throughout the world, we 
should not create a double standard by overlooking human rights 
violations and ignoring efforts toward peace. Each year, as Mr. 
Wolf and Ms. Pelosi pointed out, China's human rights record 
gets worse. The State Department's recent human rights report 
cites crackdowns by China on freedom of speech, on freedom of 
belief, on freedom of association. And the Hainan incident in 
March further demonstrated the aggressive posture China has 
chosen to take with the U.S. and with the international 
community.
    Since 1994 when human rights were delinked from the 
requirements of MFN, China's tolerance for individual freedom 
has deteriorated severely. Yet our response has been to reward 
China by importing more goods and by passing permanent normal 
trade relations. Last month, President Bush asked Congress to 
extend China's MFN status. This step allows the world's most 
notorious human rights abuser to maintain its strong trade 
advantage over our country.
    As China's human rights practices spiral downward, the U.S. 
trade deficit with this country is exploding upward. During the 
weeks approaching the vote for PNTR for the People's Republic 
of China, corporate chief executive officers in our country 
flocked to Capitol Hill to lobby for increased trade with 
China. They talked incessantly about access to 1.2 billion 
Chinese consumers. But their real interest, as we see, is 1.2 
billion Chinese workers. These chief executive officers would 
tell you that increasing trade with China will encourage and 
allow human rights to improve. They will tell you that 
democracy flourishes with increased free trade, but there is no 
evidence of that.
    In fact, as the last decade has shown, democratic nations 
in the developing world such as India are losing out to more 
totalitarian governments such as China, where people are not 
free and the workers do as they are told. In 1989, of U.S. 
exports from developing countries, 54 percent of those exports 
to the U.S. from developing countries came from developing 
democracies. Ten years later, only 35 percent came from 
developing democracies. Among manufactured goods in 1989, 57 
percent of manufactured goods coming from developing countries, 
57 percent came from developing democracies. Ten years later, 
only 35 percent came from developing democracies.
    As U.S. business leaders tell us that they prefer 
democracy, Western investment, clearly the evidence shows, 
prefers totalitarianism. They choose China and Indonesia and 
Burma over Taiwan and India and South Korea. Corporate America 
wants to do business with countries with docile workforces that 
earn below-poverty wages and are not allowed to bargain 
collectively. Western corporations want to invest in countries 
that have below-poverty wages, poor environmental standards, no 
worker benefits, and no opportunities to bargain collectively.
    As developing nations make progress toward democracy, doing 
what we hope they do as they increase worker rights and create 
regulations to protect the environment, the business community, 
the Western business community, the American business 
community, punishes them by pulling its trade and investment in 
favor of other totalitarian governments.
    In China's case, decisions about the economy are made by 
three groups: the Chinese Communist Party; the People's 
Liberation Army, which controls a significant amount of the 
businesses and export to the U.S.; and, third, Western 
investors.
    Which of these three wants to empower workers? Does the 
Chinese Communist Party want the Chinese people to enjoy 
increased human rights? I don't think so. Does the People's 
Liberation Army want to close the labor camps? I don't think 
so. Do Western investors want Chinese workers to bargain 
collectively? I don't think so. None of these groups has any 
interest in changing the current situation in China. The 
People's Liberation Army, the Chinese Communist Party, and 
Western investors, all three profit too much from the status 
quo to want to see human rights and labor rights improve in the 
People's Republic of China.
    Congress should not tolerate the working conditions that 
exist in Chinese factories. Congress should care about how 
American corporations are behaving outside the borders of the 
United States. For all of President Bush's military posturing 
over the Taiwan Strait, he has chosen not to address the 
blatant violations of human rights within the People's Republic 
of China. We must, as Mr. Rohrabacher said, do more than call 
upon the People's Republic of China to end its human rights 
abuses. We must demand it of them.
    I thank the Chairman.
    Chairman Crane. Thank you, Mr. Brown.
    Mr. Blumenauer.

  STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Blumenauer. Thank you, Mr. Chairman. I appreciate the 
opportunity to join with you. I appreciate the leadership that 
you and Ranking Member Levin and the members have taken in this 
important area.
    Last year, Congress overwhelmingly made a difficult 
decision that we were going to follow the path of engagement 
with the Chinese by voting to approve China's admission to the 
WTO and extending permanent normal trade relations. In so 
doing, the majority of Congress and the leaders of both parties 
aligned themselves with the forces of change and reform in 
China. I have in my formal statement statistics about the 
impact that this trade has for my State and for the country.
    But economics are only part of the issue. Just because 
Chinese accession has taken longer than we anticipated, we are 
back again for the need for the last annual extension; and we 
need to focus on the big picture as we continue the roller 
coaster relationship, although nothing fundamentally has 
changed.
    China continues to be ruled at the top by party and 
military leaders who are threatened by China's engagement with 
the United States and the broader world. These leaders fear the 
restructuring of the Chinese economy and the resulting social, 
economic, and communications changes that would weaken their 
grip on the Chinese population. The distance that China has 
traveled from the butchery and starvation of the Great Leap 
Forward, and the chaos of the Cultural Revolution is 
significant.
    Yet my colleagues are correct. There are serious problems. 
China's human rights record is atrocious, and we need to 
continue to shine the light on the behavior of the Chinese, and 
engagement with the WTO provides us with an excellent vehicle 
to do so.
    These forces of repression fear further penetration of the 
Chinese market by foreign economic powers, especially the 
United States. Tearing down economic barriers that would permit 
us to trade effectively could have a destabilizing effect on 
the repressive regime, and our failure to move forward would 
play on the other forces that are strengthening a new 
generation of entrepreneurial spirit, provincial and municipal 
leadership, and new business partnerships.
    I think a classic example happened earlier this year when 
there was the explosion we are all familiar with in the 
fireworks factory where young children were being forced to 
assemble firecrackers, as young as third- and fourth-graders in 
a school. The official Chinese line was that some mad bomber 
had come into the school and detonated this explosion, but 
within hours the truth was out through the magic of e-mail. The 
Chinese Premier was forced to acknowledge that it was an 
accident at a school-based factory that employed child labor to 
build fireworks.
    I think this is symptomatic of the forces of change that 
are at work in that country.
    Failure for us to renew our normal trading relations would 
be a serious mistake. For us to reverse course now would have 
an extraordinarily destabilizing effect on our relationship 
with China, and economics would be the least of our worries at 
a time when we are attempting to reduce the tension between the 
two countries. It would be a gratuitous and unfortunate 
escalation of pressures on our side which would frustrate, 
perhaps infuriate the Chinese, confound our allies, and delight 
our business competitors.
    History suggests it will not have the impact desired by 
opponents of normal relations with China. It is ironic at a 
time when we are now inching toward acknowledging our policy of 
attempting to isolate a much smaller country, Cuba, has been 
failure. It has only harmed the Cuban people, prolonged the 
life of the Cuban dictatorship. Had we opened our borders to 
commerce and interaction, Castro would certainly be less 
powerful and probably be a thing of the past.
    Well, my interest in Congress is promoting livable 
communities around the United States and around the world. 
Engagement with China ranks very high on the list of 
opportunities. If 1.3 billion Chinese develop in patterns like 
the United States--energy demands, air pollution, disruption of 
oceans and waterways--the impacts will be devastating. 
Opportunities through trade and engagement give us a chance to 
build on a better future.
    It is true we have just concluded a difficult period 
surrounding the incident with the Chinese fighter and the 
American surveillance plane. I have a slightly different view 
of that than expounded by my friend from California. But 
imagine for a moment if the roles had been reversed and it was 
the Chinese spy plane that was forced to land at military 
facilities in Anacortes, Washington after spying off the West 
Coast of the United States. I think we need to take a step 
back.
    China, with all due respect, is not Nazi Germany. We are 
not at risk from China now in terms of military aggression. We 
are going to be overwhelmingly more powerful than China 10 
years from now, but we can influence the future and the nature 
of that relationship.
    China's behavior does continue to be troubling. The 
potential is great that frustrations may even escalate in the 
near term. But we are going to have to be aggressive in our 
negotiations, vigilant for human rights, the environment, and 
trade compliance. With China engaged in the WTO, we will have 
more tools and more allies in the struggle, and I think we are 
going to get the results that we want much sooner.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Blumenauer follows:]

  Statement of the Hon. Earl Blumenauer, a Representative in Congress 
                        from the State of Oregon

    Thank you, Mr. Chairman and members of the Committee for providing 
me with the opportunity to testify on this important issue. Last year 
Congress overwhelmingly made a difficult decision that we were 
following path of engagement with the Chinese by voting to approve 
China's admission to the WTO and extending Permanent Normal Trade 
Relations. In so doing, the majority of Congress and the leaders of 
both political parties aligned themselves with the forces of change and 
reform in China.
    Oregon has seen its aggregate exports to China grow from $56 
million in 1993 to $216 million in 1999, according to Department of 
Commerce trade statistics, a percentage increase of 289%. Almost 10% of 
all jobs in the State of Oregon are in some way related to the export 
of manufactured goods (to the World), making Oregon the tenth most 
export dependent state in the country. It's easy to understand how 
important the growing Chinese market is economically to me, my 
constituents in Portland, and Oregon as a whole.
    Just because Chinese ascension to WTO has taken longer than we 
anticipated, we are back again with the need to do the last annual 
extension. We continue the roller coster relationship although nothing 
has fundamentally changed. China continues to be ruled at the top by 
party and military leaders who are threatened by China's engagement 
with the United States and the broader world. These leaders fear the 
restructuring of the Chinese economy and the resulting social, 
economic, and communication changes that would weaken their grip on the 
vast Chinese population.
    The distance that China has traveled from the butchery and 
starvation of the Great Leap Forward to today is almost unfathomable. I 
would note it was a Republican President preaching engagement, Richard 
Nixon, which in many ways allowed us to take this step forward. Its 
important we give our new President the same opportunity.
    China's Human Rights record is atrocious, and we need to continue 
to shine a light on the behavior of the Chinese, and engagement through 
the WTO provides us with an excellent vehicle to do so. Further 
penetration of the Chinese market by foreign economic powers, 
especially the United States, tearing down economic barriers that would 
permit us to trade effectively would have a destabilizing effect on the 
repressive regime and would play to the other forces of change that are 
strengthening the new regeneration of entrepreneurial spirit, 
provincial and municipal leadership, and new business partnerships.
    The classic example happened earlier this year where there was an 
explosion at a fireworks factory where children were being forced to 
assemble firecrackers as young as 3rd and 4th graders in this school. 
The official Chinese line was that a suicide bomber had entered a 
fireworks factory and detonated an explosion. Within days, due to the 
work of the domestic Chinese internet media, the Chinese Premier was 
forced to acknowledge that the ``Factory'' was in reality a school 
which employed child labor to build fireworks. Through modern 
communications the reality was out instantly all across China and the 
truth triumphed.
    This is just an example of how reform is happening daily, in 
dozens, hundreds of examples on a smaller scale that illustrate the 
point. It's not going to be easy. It's not going to be quick. But we 
can use the leverage of WTO membership to accelerate the progress and 
hasten the day when the Chinese enjoy the liberties that we too often 
take for granted.
    Failure to renew would be at this point a serious mistake. First 
because we have already made that determination and established a 
policy on it. For us to reverse course now would have an 
extraordinarily destabilizing effect on our relationship with China and 
economics would be the least of our worries, at a time when we are 
attempting to reduce tensions between the two countries. This would be 
a gratuitous and unfortunate escalation of pressures on our side, which 
would frustrate, infuriate the Chinese. It would confuse our allies and 
delight our business competitors.
    History suggests it will not have the impact desired by opponents 
of normal relations with China. If going through this annual process 
has had no impact according to our opponents, why is going to make a 
difference now?
    It's particularly ironic at a time when we are now inching towards 
acknowledging our policy of attempting to isolate a much smaller 
country, Cuba, has been a failure. It's only harmed the Cuban people 
and prolonged the life of the Cuban dictatorship. Had we opened our 
borders, engaged in commerce and interaction, Castro would certainly be 
less powerful, and probably a thing of the past.
    My interest in Congress is promoting livable communities around the 
United States and around the world. Engagement with China ranks very 
high on the list of opportunities. If 1.3 billion Chinese develop in 
patterns like the United States: energy demands, air pollution, 
disruptions of oceans and waterways, the impacts will be devastating.
    There are tremendous opportunities for economic, cultural, and 
scientific and governmental exchange to bring about a different future. 
For instance, this summer we are having two groups of Chinese municipal 
planners come to Portland, OR where they will meet with municipal 
officials and members of the community to discuss ways of improving 
quality of life in a sustainable fashion, a prospect that excites both 
parties.
    We have just concluded a difficult period surrounding incident with 
the Chinese fighter and the American surveillance plane. (Imagine if 
the roles had been reversed and it was a Chinese spy plane that was 
forced to land at the military facilities in Anacortes, Washington 
after spying off the West Coast of the United States. Imagine if the 
Chinese had bombed our embassy in Belgrade.) Its time to get on with 
this difficult past.
    China's behavior continues to be troubling, the potential is great 
that the frustrations may even escalate in the near term. Having China 
in the WTO is not going to solve all our problems. We are still going 
to have to be aggressive in our negotiations, vigilant for human 
rights, the environment, and trade compliance. With China in the WTO we 
will have more tools and more allies in this struggle.
    I would cite one final example of the importance of engagement in 
the Marshall plan. The Marshall plan, which contemporary historians 
call the ``defining moment of the Cold War,'' poured over $100 billion 
in inflation adjusted dollars into Europe over three years into 16 
Western European nations. These nation's form the basic core of the 
developed, democratized world. Stalin rejected the offer of President 
Truman's and General Marshall's assistance, because he knew the 
engagement would bring down his totalitarian regime. The nation's of 
the Iron Curtain remain mired in poverty, corruption, and lack of 
basic, fundamental human rights that plague them to this day.
    I strongly recommend this committee exercise its leadership with a 
bold and comprehensive report and the recommendation to support the 
President's determination to extend to China another year of Normal 
Trade Relations.

                                

    Chairman Crane. Thank you very much. Thank you Mr. 
Blumenauer. And now I would like to yield to our Ranking 
Minority Member, Mr. Levin.
    Mr. Levin. Mr. Chairman, I think I will forego questions 
partly out of consideration of the time factors of our five 
colleagues and also other panels. But I do want to say just two 
things if I might. Number one, to Dana. I don't think one has 
to agree with an analogy to Nazi Germany to be deeply concerned 
about human rights and related issues in China. I think we have 
to be wary of facile historical analogies, but there can be 
many societies short, and even far short of where Nazi Germany 
was, for there to be concern on our part about freedoms. And I 
think China very much fits into that category.
    And second, I would hope that as you leave, as you will in 
a few minutes, that no one who is listening in will mistake 
what is being undertaken here and what is being said here. 
There may be, and there are, some differences as to how to 
proceed, but I don't think anybody should be mistaken in 
thinking that there isn't a deep concern within this Congress 
about the path that China has been following in terms of basic 
human rights.
    I, for one, don't think there is a one-to-one equation, 
economic freedom and other freedoms or free economic markets 
and other freedoms. History has shown that there is no magic 
connection between the two.
    But while there may be some disagreement as to how you 
proceed, I think there is less disagreement than some people 
think in this Congress about the importance of the issue and 
the role that the United States intends to play, surely this 
Congress, in terms of pressuring for China to follow the path 
not only of a free economic market but true freedoms all 
around.
    And so while this may be the last annual vote, it isn't 
going to be the last debate. The commission that was referred 
to hopefully will be one of the vehicles; but I think in 
addition, there will be others, including reports to this 
Congress and discussions within this Congress about these 
issues.
    So we will have a vote this time, and I think Mr. 
Rohrabacher's proposal will be defeated. But I think the effort 
to promote China on the path of freedom will not be defeated. I 
think that is going to very much continue to be a part of the 
fabric of this institution.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you. And with that, let me express 
appreciation to all of our colleagues, even though we may have 
disagreements.
    Mr. Rohrabacher. Mr. Chairman, may I answer the question 
that was posed?
    Chairman Crane. If the gentleman wants to respond.
    Mr. Rohrabacher. I would agree with my friend that Nazi 
Germany may not be the best comparison, although there are many 
other areas of comparison there with the Olympics and the human 
rights abuses that were going on in the 1930s. But I think 
there is certainly a comparison with imperial Japan, who was 
also a major human rights abuser in the twenties and thirties, 
and was an expansionary power and was a militaristic power in 
an economic relationship with the United States. And I am not 
saying that war is inevitable with the Chinese Communists, 
because that is not the case, but our policies in the 1930s 
with imperial Japan did not lead to peace, and I just think 
there is a comparison there.
    Mr. Levin. Okay. Thank you.
    Chairman Crane. Thank you. And with that, I again express 
appreciation, and we look forward to working with you folks in 
the future.
    I would now like to welcome as our next witness Mr. Jeffrey 
Bader who is the new Assistant U.S. Trade Representative for 
China, Hong Kong, Mongolia, and Taiwan. And Mr. Bader, we again 
would like to urge you to try and keep all testimony as close 
as possible to around 5 minutes, and all written testimony, 
though, will be made a part of the permanent record. And with 
that, you may proceed.

 STATEMENT OF JEFFREY A. BADER, ASSISTANT UNITED STATES TRADE 
  REPRESENTATIVE FOR CHINA, HONG KONG, MONGOLIA, AND TAIWAN, 
        OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

    Mr. Bader. Thank you, Mr. Chairman. I will indeed excerpt 
my statement and submit the full statement for the record.
    Mr. Chairman, I am pleased to appear before this 
Subcommittee today to discuss the benefits to the United States 
of renewing normal trade relations status with the People's 
Republic of China. China's NTR status has wider implications 
than merely the U.S.-China relationship, as important as that 
is. My colleagues from the Departments of State and Commerce 
will discuss with this and other Committees why the granting of 
normal trade relations status is in the broad U.S. national 
interest. My testimony will focus on the ongoing negotiations 
on China's accession into the World Trade Organization and the 
interplay between that issue and NTR status.
    Once China accedes to the WTO, pursuant to last year's 
legislation, permanent NTR status will become effective for 
China provided the President sends the required certification 
to the Congress. This will obviate the need for Jackson-Vanik 
waiver, annual renewal, and this annual debate. Thus, there is 
a statutory linkage between NTR status for China and its 
accession to the WTO.
    More broadly, China's accession to the WTO will be a major 
and direct step forward in advancing some of the objectives 
that underlie our annual debate on NTR, assuring significantly 
greater market access for U.S. business, farmers, and ranchers 
to China's large and expanding market and encouraging the 
development of the rule of law in China.
    The November 1999 U.S.-China Bilateral Agreement on China's 
accession to the WTO capped nearly 14 years of intense, often 
difficult negotiations. It provided us with a set of 
comprehensive, verifiable and, as you said in your statement, 
Mr. Chairman, one-way trade concessions that substantially open 
China's market across the spectrum to U.S. goods, services, and 
agriculture. I want to acknowledge the tremendous efforts of 
Ambassador Barshefsky in achieving this result and note the 
bipartisan support for that agreement and for the steps we have 
taken since.
    This Subcommittee is familiar with the details of our 
bilateral agreement and there is no need to review them today. 
My written statement does review them. I will dispense with 
them today.
    In addition to improved market access, China has agreed to 
change practices that have made it difficult for U.S. companies 
to do business in China and hindered the developments of 
China's economy as well. These broad-based reforms include 
commitments to greater transparency in the operation of China's 
trade regime. Laws, regulations, and other measures will be 
published before they are enforced, and interested parties will 
have an opportunity to comment on the provisions before they 
are implemented. Administrative actions relating to trade 
matters will be subject to judicial review. Beijing has been 
systematically reviewing and revising or abolishing laws and 
regulations inconsistent with WTO requirements.
    The 1999 agreements did not mark the end of China's WTO 
accession process. Still to be completed was the negotiation of 
the multilateral documents essential to the accession package--
the Protocol of Accession and the Working Party Report. These 
documents describe how WTO rules will apply to China and how 
China intends to implement the commitment it is undertaking. It 
is principally these negotiations that have occupied Ambassador 
Zoellick and our delegation, first in Shanghai last month and 
most recently at the Working Party meeting in Geneva last week.
    In Shanghai, Ambassador Zoellick negotiated the following 
improvements in China's accession package:
    First, an agreement on agricultural domestic support that 
limits China's recourse to provisions of the WTO Agreement on 
Agriculture to levels below that available for developing 
countries.
    Second, a commitment from China to assure that its 
restrictions on chain stores do not inappropriately restrict 
the right of American retailers to operate fully owned 
distribution outlets.
    Third, a commitment from China on how it will allow foreign 
companies, including those from the United States, to export to 
China on a nondiscriminatory, nondiscretionary basis without 
burdensome requirements.
    And, fourth, several improvements in access to the 
insurance market of China.
    In Geneva this past week, we obtained multilateral 
endorsements of these achievements. In addition, we achieved 
international consensus on Working Party provisions on numerous 
issues crucial to assuring market access and fair trade with 
China.
    Just a few additional points about China's WTO commitments:
    First, they are effective immediately upon accession. Most 
will phase in. Some will be effective on day one. Most will 
phase in in 3 years, and then virtually in all cases in 5 
years.
    Second, the agreements are enforceable. We will enforce 
them through our trade laws, WTO dispute settlement processes, 
as necessary, and other mechanisms including an annual 
multilateral review of China's implementation and compliance 
for 8 years, with an additional review in the 10th year.
    Third, the agreement helps ensure that trade with China 
does not injure U.S. industry and workers. The special 
antidumping provision we negotiated allows us to use nonmarket 
economy methodology in judging prices of imports from China for 
15 years. The special safeguards provision and the procedures 
in our PNTR legislation allows the U.S. to act quickly to 
address rapidly increasing imports from China.
    And fourth, the increased transparency and accountability 
that WTO membership and implementation of WTO rules compel will 
have a positive effect in other areas. The essence of the WTO 
is that it is a rules-based system that requires its members in 
turn to play by the rules, with the openness and transparency 
in rulemaking and rule enforcement I noted earlier.
    It appears we are nearing the end game in this accession 
process. I will be going back to Geneva with my delegation this 
weekend for another Working Party meeting whose objective will 
be to produce a completed Protocol of Accession, a Working 
Party Report with as few unresolved issues as possible, and 
final consolidated schedules on goods and services. If we are 
successful, this package will be sent to capitals for review. 
It is possible that early in the fall, what we hope will be the 
final Working Party session on China will convene to approve 
final texts of all these documents.
    The full accession package will be reviewed by Ambassador 
Zoellick and other concerned agencies of the U.S. Government. 
After that review, the President will decide whether he can 
certify to the Congress, as required in the PNTR legislation, 
that the final package is at least equivalent to the bilateral 
agreement negotiated in 1999. It is our objective to produce a 
final package that meets that standard.
    If the President is able to produce such a certification 
and if other countries provide similar approvals, WTO members 
at a meeting of the General Council, or possibly at the WTO 
Ministerial meeting at Doha in November, would then approve the 
terms of China's accession to the WTO.
    A final point. We fully expect the WTO to approve Taiwan's 
accession in the same time frame as China's. As a major player 
in international trade and a new and thriving democracy, Taiwan 
deserves membership and a larger role in the international 
community. We have discussed our expectations on Taiwan's 
accession thoroughly with all the concerned parties and are 
confident there is a consensus on this.
    If we fail to grant NTR status to China, it is predictable 
that the WTO accession process I described with its benefits to 
U.S. business, labor, farmers, and ranchers will grind to a 
halt.
    Without China's accession to the WTO, the benefits of 
China's commitments in areas such as services and dispute 
settlements will be unavailable to U.S. companies. All of the 
tariff and tariff-rate quota concessions will be on hold.
    China's accession to WTO will be a benefit to China, of 
course, but it is not a favor to China. Major beneficiaries 
will be American companies, workers, and agriculture. It would 
significantly open the world's most populous country, and 
arguably the fastest growing economy in the world, to our 
exporters and service suppliers. Renewal of NTR is an essential 
step toward this objective.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Bader follows:]

     Statement of Jeffrey A. Bader, Assistant United States Trade 
 Representative for China, Hong Kong, Mongolia, and Taiwan, Office of 
                 the United States Trade Representative

    Mr. Chairman, I am pleased to appear before this subcommittee today 
to discuss the benefits to the United States of renewing Normal Trade 
Relations (NTR) status for the People's Republic of China.
Relationship of NTR and China's WTO Accession
    China's NTR status has wider implications than merely the U.S.-
China trade relationship, as important as that is. My colleagues from 
the Departments of State and Commerce will discuss with this and other 
committees why the granting of Normal Trade Relations status is in the 
broad U.S. national interest and how it affects our global and regional 
security concerns, human rights, and religious freedom in China. My 
testimony will focus on the ongoing negotiations on China's accession 
into the World Trade Organization (WTO) and the interplay between that 
issue and NTR status.
    Once China accedes to the WTO, pursuant to last year's legislation, 
permanent Normal Trade Relations status will become effective for 
China, provided the President sends the required certification to the 
Congress. This will obviate the need for a Jackson-Vanik waiver, annual 
renewal, and this annual debate. Thus, there is a statutory linkage 
between NTR status for China and its accession to the WTO.
    More broadly, China's accession to WTO will be a major and direct 
step forward in advancing some of the objectives that underlie our 
annual debate on NTR--assuring significantly greater market access for 
U.S. business, farmers, and ranchers to China's large and expanding 
market and encouraging the development of the rule of law in China.
The 1999 U.S.-China Bilateral Agreement
    The November 1999 U.S.-China Bilateral Agreement on China's 
accession to the WTO capped nearly fourteen years of intense, often 
difficult negotiations. It provided us with a set of comprehensive, 
verifiable, one-way trade concessions that substantially open China's 
market across the spectrum to U.S. goods, services, and agriculture. I 
want to acknowledge the tremendous efforts of Ambassador Barshefsky in 
achieving this result, and to note the bipartisan support for that 
Agreement and for the steps we have taken since.
Market Access
    This Subcommittee is familiar with the details of our bilateral 
agreement and there is no need to review them today. Suffice to say 
that, inter alia, under the 1999 Agreement China will:

   Reduce average tariff levels on goods of interest to the 
        United States from 24% to 7%,
   Phase-out all tariffs on Information Technology Products by 
        2005,
   Broadly open up its service sectors, such as insurance, 
        banking, securities, telecommunications, express mail, legal, 
        accounting, and computer-related services,
   Permit U.S. companies to operate wholesale, retail, and 
        franchised distribution networks.

    In addition, the associated April 1999 U.S.-China Agricultural 
Cooperation Agreement removed the bans on imports of U.S. citrus and 
wheat which were not based on sound scientific principles. This 
Agreement requires China to apply sanitary and phytosanitary measures 
consistent with sound scientific principles and to accept U.S. 
certification of meat products. With proper implementation, these 
requirements will be of particular benefit to U.S. growers of wheat and 
citrus products previously barred from China and should facilitate 
export of U.S. beef, pork and poultry products.
    Our growers, exporters, and ranchers have begun to take advantage 
of that opening. They will be able to capitalize on it much more fully 
once China accedes to the WTO, because the tariff reductions for all 
products and the new tariff rate quotas for wheat, corn, rice and 
cotton will only then take effect. U.S. agricultural exports to China, 
including Hong Kong, reached $3 billion in 2000. The U.S. Department of 
Agriculture estimates that China's membership in the WTO could result 
in $2 billion annually in additional U.S. agricultural exports by 2005.
Systemic Reforms
    In addition to improved market access, China has agreed to change 
practices that have made it difficult for U.S. companies to do business 
in China and hindered the development of China's economy. These broad-
based reforms include commitments to greater transparency in the 
operation of China's trade regime. Laws, regulations and other measures 
will be published before they are enforced and interested parties will 
have an opportunity to comment on these provisions before they are 
implemented. Administrative actions relating to trade matters will be 
subject to judicial review and China has agreed that the practices of 
all levels of government will comply with WTO requirements.
    China's membership in the WTO also requires compliance with 
international rules important in the day-by-day world of international 
trade. China has already begun the process of revising numerous laws 
and regulations on matters ranging from customs valuation and issuing 
import licenses to new patent and copyright laws. Beijing has been 
systematically reviewing and revising or abolishing laws and 
regulations inconsistent with WTO requirements. Work has also begun at 
the provincial level and in major cities, such as Shanghai.
    It is true that since 1999, we have experienced problems in our 
trade with China. As China continues the economic reforms it began two 
decades ago, certain segments of its government, particularly those in 
the state-owned or ``planned'' sectors of the economy, stand to lose 
influence. In cooperation with the Congress, Commerce and Agriculture 
Departments, other government agencies, industry and agriculture, and 
other governments, we will continue to engage the Chinese vigorously 
whenever we see such slippage.
Recent Developments: Shanghai and Geneva
    The 1999 agreements, critical though they were, did not mark the 
end of China's WTO accession process. Still to be completed was the 
negotiation of the multilateral documents essential to the accession 
package--the Protocol of Accession and the Working Party Report. These 
documents describe how WTO rules will apply to China and how China 
intends to implement the commitments it is undertaking in the area of 
goods, services and intellectual property rights. It is principally 
these negotiations that have occupied Ambassador Zoellick and our 
delegation, first in Shanghai last month and more recently at the 
Working Party meeting in Geneva last week. We also have negotiated 
improvements in and clarifications of some of the bilateral services 
schedules necessitated by ambiguities in China's laws and regulations.
    In Shanghai, Ambassador Zoellick negotiated the following 
improvements in China's accession package:

   An agreement on agricultural domestic support that limits 
        China's recourse to provisions of the WTO Agreement on 
        Agriculture to levels below that available to developing 
        countries.
   A commitment from China to assure that its restrictions on 
        chain stores do not inappropriately restrict the right of 
        American retailers to operate fully-owned distribution outlets.
   A commitment from China on how it will allow foreign 
        companies, including those from the United States, to export to 
        China on a nondiscriminatory, non-discretionary basis without 
        burdensome requirements.
   A phase-out of the current requirement for mandatory cession 
        of 20% of premiums to China's reinsurance state monopoly.
   Broader opportunities for U.S. insurance companies to 
        provide large-scale commercial risk insurance.

    In Geneva this past week, we obtained multilateral endorsement of 
these achievements. In addition, we achieved international consensus on 
Working Party Report provisions on numerous issues crucial to assuring 
market access and fair trade with China--inter alia, technical barriers 
to trade (standards), anti-dumping, safeguards, administration of 
tariff-rate quotas, intellectual property rights, industrial subsidies, 
and the transitional mechanism to monitor China's implementation of its 
commitments.
    I want to make a few additional points about China's WTO 
commitments:

   First, our agreements will reduce China's trade barriers 
        across a broad range of goods, services, and agricultural 
        products, eliminate or significantly reduce restrictions on 
        freedom to import and distribute goods within China, and 
        rectify industrial policies intended to draw jobs and 
        technology to China.
   Second, China's commitments are effective immediately upon 
        accession. China will be required to take concrete steps to 
        open its market from day one in virtually every sector. The 
        phase-in of further concessions will be limited to five years 
        in almost all cases, and in many cases to three years.
   Third, the agreements are enforceable. China's commitments 
        are specific, with timetables and dates for staged and full 
        implementation. We will enforce them through our trade laws, 
        WTO dispute settlement processes, as necessary, and other 
        mechanisms including an annual multilateral review of China's 
        implementation and compliance for eight years, with an 
        additional review in the tenth year. We intend to set up a 
        network to help us identify and act upon problems as early as 
        possible, drawing on the assets of our Embassy and Consulates 
        in China, the Departments of Commerce and Agriculture, and the 
        American Chambers of Commerce in China and the region. At USTR, 
        we have added two people to what was a four-person China office 
        and one attorney to our General Counsel's office, all of whom 
        will focus on monitoring and implementation efforts.
   Fourth, the agreement helps ensure that trade with China 
        does not injure U.S. industry and workers. The special anti-
        dumping provision we negotiated allows us to use non-market 
        economy methodology in judging prices of imports from China for 
        15 years. The special safeguards provision and the procedures 
        in our PNTR legislation allow the United States to act quickly 
        to address rapidly increasing imports from China that disrupt 
        our market and cause material injury to a U.S. industry. Under 
        this provision we can take action against imports only from 
        China instead of restricting imports from all WTO Members. For 
        textile and apparel products, the accession package includes a 
        special safeguard mirroring our current practice in this area. 
        Our textile and apparel industry will be able to use this 
        safeguard until January 1, 2009.
   Fifth, the increased transparency and accountability that 
        WTO Membership and implementation of WTO rules compel can only 
        have a positive effect in other areas. The essence of the WTO 
        is that it is a rules-based system that requires its members in 
        turn to play by the rules--with the openness and transparency 
        in rule-making and rule-enforcement I noted earlier. Its 
        provisions and philosophy stress the central role of markets 
        and private enterprise. The reforms China is undertaking to 
        conform to WTO rules will provide the basis for further 
        liberalization in China.

Remaining Steps
    It appears we are nearing the end game in this accession process. 
China has completed the negotiation of all its bilateral agreements 
except with Mexico and Central America, with which it has been 
negotiating intensively. Along with our other trading partners, we are 
in the process of verifying and rectifying each of the commitments 
China has made in its various bilateral agreements to assure the most 
liberalizing one makes it into the final accession documents.
    I will be going back to Geneva with my delegation this weekend for 
another Working Party meeting whose objective will be to produce a 
completed Protocol of Accession, a Working Party Report with as few 
unresolved issues as possible, and final consolidated schedules on 
goods and services. If we are successful, this package will be sent to 
capitals for review. It is possible that early in the fall, what we 
hope will be the final Working Party session will convene to approve 
final texts of all these documents.
    The full accession package will be reviewed by Ambassador Zoellick 
and other concerned agencies of the U.S. Government. After that review, 
the President will decide whether he can certify to the Congress, as 
required in the PNTR legislation, that the final package is at least 
equivalent to the bilateral agreement negotiated in 1999. It is our 
objective to produce a final package that meets that standard.
    If the President is able to provide such a certification and other 
countries provide similar approvals, WTO members, at a meeting of the 
General Council or possibly at the WTO Ministerial meeting at Doha, 
would then approve the terms of China's accession to the WTO. China 
will then need to complete its domestic approval process and formally 
accept WTO membership. China will become a WTO member after filing its 
formal acceptance with the WTO.
    A final point: we fully expect the WTO to approve Taiwan's 
accession in the same time frame as China's. As a major player in 
international trade and a new and thriving democracy, Taiwan deserves 
membership and a larger role in the international community. We have 
discussed our expectations on Taiwan's accession thoroughly with all 
the concerned parties and are confident there is a consensus on this.

The Stakes
    If we fail to grant NTR status to China, it is predictable that the 
WTO accession process I have described, with its benefits to U.S. 
business, labor, farmers, and ranchers, will grind to a halt. In such a 
scenario, we can expect to fall into a cycle of retaliation and 
counter-retaliation with the Chinese, with markets closing rather than 
opening and sales, and jobs, going to U.S. competitors.
    As was clear in last year's debate on PNTR, without China's 
accession to the WTO, the benefits of China's commitments in areas such 
as services and dispute settlement will be unavailable to U.S. 
companies. All of the tariff and tariff-rate quota concessions will be 
on hold. The livelihoods of the 400,000 American workers and farmers 
employed in or benefiting from America's trade with China will be 
affected.
    China's accession to WTO will be a benefit to China, of course, but 
it is not a favor to China. Indeed, it contains the most rigorous and 
broad-ranging commitments ever required of a new member to the GATT or 
WTO. Major beneficiaries will be American companies, workers, and 
agriculture. It would significantly open the world's most populous 
country, and arguably the fastest-growing economy in the world, to our 
exporters and service suppliers. Renewal of NTR is an essential step 
toward this objective.
    I look forward to your questions.

                                

    Chairman Crane. Thank you, Mr. Bader.
    At the end of the negotiations in 1999, the Chinese 
withdrew their commitments on chemical fertilizers. Can you 
assure me that nothing will be included in the final Chinese 
Schedule of Commitments, the Working Party Report, its annexes, 
or the Protocol of Accession that would undermine the market 
access commitments the Chinese have made to us on fertilizers?
    Mr. Bader. Mr. Chairman, these are very important 
commitments that the Chinese made. They involve tariff-rate 
quotas which will vastly increase China's imports of chemical 
fertilizers, including the fertilizers most important to the 
United States, diammonium phosphate and urea. In addition, 
there are commitments to open up fertilizer trading to private 
companies, phased in over the next several years, and this will 
be a great benefit to U.S. companies.
    I take very seriously your comment about assuring that 
there is no walk-back from these commitments. We do not 
anticipate such a walk-back, and we will assure there will not 
be.
    Chairman Crane. I understand that the European Union (EU) 
has received a preferential market access commitment from the 
Chinese on fertilizer from this period of time and the time 
China enters WTO. What is the USTR doing to ensure that U.S. 
fertilizer exports receive the same treatment as EU exports 
during this interim period?
    Mr. Bader. Mr. Chairman, we noted the commitment that the 
EU received in their last round of negotiations with the 
Chinese on chemical fertilizers of interest to the EU--
fertilizers that they produce that we do not. We have spoken to 
the Chinese negotiators. I personally raised this with my 
counterpart in Geneva last week. We have raised this in 
Beijing. We have raised this at high levels to assure that 
before accession, that historic levels of U.S. exports of 
chemical fertilizers are available. We expect if they are going 
to treat EU that way they will treat the U.S. that way, and we 
made that very clear to them.
    Chairman Crane. Thank you, Mr. Bader. Mr. Levin.
    Mr. Levin. Thank you, Mr. Chairman, and welcome.
    Let me just discuss with you a bit the nature of the 
agreement. As you know, I very much agree that in the 
negotiations China made some significant concessions. In fact, 
I think the regimen they have agreed to will have profound 
impacts on the structure of their economy. The subsidization or 
nonsubsidization or antisubsidization rules are going to have a 
very substantial, probably a profound acceleration on what has 
been started there. So I don't want to minimize the likely 
impact. As I said earlier I don't think that is an automatic in 
terms of human rights or the path toward democracy. Clearly 
there are going to be some major changes in their economy; if 
not started under the WTO regimen, accelerated. So I don't want 
to appear to minimize them.
    And I think it is also true, what we agreed with China, for 
example, in terms of distribution, will put the markets in 
China more accessible to us than they are in Japan. China is 
going to have to have a more open distribution mechanism than 
is true of Japan, which remains in terms of distribution, often 
a closed entity. But I do want to suggest that we try to have 
some balance in our picture of all of this. And you used a term 
here, which when it was used by the predecessor administration 
I objected to also, and that is one-way trade concessions. 
Because that makes it--sounds like we gave up nothing, and I 
don't think this is true.
    First of all, their going into the WTO structure places 
impediments or strictures, however you want to put it, or 
regulations, on how we enforce our agreements and how we carry 
them out. Also, let me give you a specific example and that is 
textile and apparel. Now, before China went into, or before 
they go into the WTO, they don't gain the benefit of the 
elimination of quotas on textile and apparel in 2005, right? So 
if they weren't in the WTO, we could impose, outside of WTO's 
approved sanctions like 201 action--we could maintain a quota 
on textiles from and apparel from China right. Once they are 
in, they are going to benefit from that WTO Agreement. Am I 
wrong?
    Now, I don't think anybody should fool themselves into 
thinking that China as a major textile and apparel processor, 
producer, manufacturer, is going to be a major factor in the 
American market. It already is, and it will be competing with 
our producers, but also with producers from other countries. So 
I just urge that we not undermine the importance of agreements 
by overstating them, because then it is not believable.
    It is not believable that China would agree to a one-way 
deal, is it? I mean, doesn't that sell it short in terms of its 
wisdom, its intelligence, its whatever you want to call it?
    Mr. Bader. I appreciate your point, Mr. Chairman, and I 
think that the WTO Agreement and Balhall Agreement stand on its 
own and should not be the subject of exaggerated salesmanship. 
I certainly take your point. Specifically, on our laws and on 
textiles, I would say that we will still have the availability, 
the recourse to appropriate trade laws under the WTO Agreement, 
201 safeguards, section 301 of the Trade Act, our antidumping 
methodology, the antidumping methodology. We will be allowed to 
treat China as a nonmarket economy for 15 years. We have 
negotiated a special China-specific safeguards provision which 
allows us to limit imports from China, uniquely from China, in 
a way that we cannot do with the rest of the world, if there 
are surges in certain products. But I certainly take your 
point.
    Mr. Levin. And we insisted, some of us, that that special 
safeguard mechanism in the first instance be negotiated, 
because we made clear to the Clinton administration in that 
April period, I forget the year already, that without a special 
safeguard mechanism a number of us could not support a WTO 
China Agreement. And then they went back and negotiated it and 
then we insisted, at first over some resistance, that it be 
embodied in American law.
    So I don't want to sell it short because I think it is 
important. It does have a time limit. And I think we need to be 
careful when we describe these agreements that we not so 
overstate that it isn't one way, it isn't 100 percent, it isn't 
win-win. No trade agreement of any importance is win-win. I 
mean, there are winners and losers. It is part of the 
competitive process. And I just thought in your debut here that 
I would give you the same treatment I gave your predecessors.
    Thanks very much and good luck.
    Mr. Bader. Thank you, Congressman. I just want to say this 
is not my debut here. I stumbled in here once before in a 
previous hearing, and as I walked in--I was with the State 
Department at the time--the Chairman, I believe it was Chairman 
Archer, said is there anyone here from the State Department? 
And they saw me in the corner and yanked me in to answer some 
questions then on human rights. But I certainly appreciate the 
welcome. Thank you very much.
    Chairman Crane. Mr. Houghton.
    Mr. Houghton. Thank you, Mr. Chairman.
    Mr. Bader, good to see you. I really just have two quick 
questions. One is about the automotive industry, and the reason 
I ask this is because it is such an important exporter and 
importer. As I understand it now, Japan really dominates the 
export market into China, and we are held back; and we have had 
certain negotiations, and they have refused to budge on these. 
I just wonder what is going to happen in the next year, 
particularly if China accedes to the World Trade Organization. 
That is question number one.
    Question number two, something which hangs over all of us 
because of the lack of rule of law in China, is the whole 
question of intellectual property. And if that isn't really 
resolved, it is sure going to curtail a lot of investment in 
that country which we could make and want to make.
    So maybe you could answer those two questions.
    Mr. Bader. Thank you, Congressman. First, on the automobile 
issue, I would not disagree at all with your characterization 
of the history of the China market.
    What we have tried to do in this bilateral agreement and 
the WTO access is to change that. The historic levels of 
tariffs on automobiles in China, a couple of years ago when I 
was dealing with China affairs in a previous job, they were 
about 250 percent. They have now dropped down slightly below 
100 percent, and under this agreement, they will phase out, 
phase down to about 25 percent over the next 5 years. On auto 
parts, they will phase down from about 80, 85 percent to about 
10 percent.
    In addition, one of the things that we negotiated in 
Shanghai was a commitment to assure that American automobile 
manufacturers would be able to operate distribution networks in 
China and to give them direct access to Chinese consumers. 
Another part of the WTO Agreements is a provision that allows 
automobile companies and nonbanks to provide automobile 
financing.
    So we have taken a number of steps to try to open up the 
Chinese market, and American companies are starting to take 
advantage of that. So we are confident that this historic trend 
that you talked about will change. I know American cars are 
already very popular in China. I don't want to get into 
specific brands, but I know that they are favored by many 
Chinese.
    Mr. Houghton. Intellectual property?
    Mr. Bader. Rule of law? I'm sorry, the second question was 
on rule of law?
    Mr. Houghton. Intellectual property rights?
    Mr. Bader. Okay. Intellectual property rights. Did you ask 
about rule of law also more generally?
    Mr. Houghton. No. Intellectual property.
    Mr. Bader. Okay. Intellectual property rights historically 
has been a problem in China. It has been the subject of not 
one, but two special 301 actions against China in the last 
decade. I think there is not much doubt that the authorities 
take the issue seriously and are taking some steps to deal with 
it. They have tried to ban the use of pirated software in 
government offices. They have periodic crackdowns on--they have 
had crackdowns on factories producing CDs and DVDs, you know, 
burnings of pirated goods.
    But the problems remain serious, particularly in the--I 
think in the trademark, in the trademark area. The WTO 
Agreement would require Chinese acceptance and enforcement, the 
so-called ``trips'' agreement, the trade-related intellectual 
property rights obligations upon accession. But the magnitude 
of this problem over the last decade is considerable, and I 
think it is going to be some time before we see its 
eradication.
    Mr. Houghton. Do you see any movement here?
    Mr. Bader. Yes. I think the movement is in a positive 
direction, in large measure because Chinese companies are 
beginning to realize that they themselves have a stake in 
protection of intellectual property in the--for instance, in 
the information technology area, the Chinese are very active in 
production and assembly of software and of telecommunications 
equipment. And so Chinese companies are now insisting to the 
government that they have to take seriously the enforcement of 
intellectual property rights.
    I remember Bill Gates' visit to China in the early 1990's 
in which he made precisely this point, that we would start 
seeing Chinese improvements in their intellectual property 
regime as soon as pressure came from within, from Chinese 
entrepreneurs who demanded it; and so I think that we are 
getting a confluence of these two streams, of the foreign and 
the domestic. But still, as I say, it is a substantial problem.
    Chairman Crane. Thank you. Mr. Tanner.
    Mr. Tanner. Thank you very much, Mr. Chairman. I just have 
one short question following really along the lines that you 
questioned Mr. Bader about.
    And thanks for being here. I am told that the EU believes 
they have an agreement with China for seven insurance company 
licenses. If that's true, and I don't know if you know that, 
but if it is, what is the status of United States insurance 
companies getting like treatment from the standpoint of the 
market absorbing that kind of commerce?
    Mr. Bader. Congressman, I have seen the same reports that 
you have about the EU. We haven't seen evidence yet that the 
Chinese are acting upon that so-called commitment, but we have 
seen those reports as well. I certainly agree with the thrust 
of your question, which is that if markets--if the market is 
being opened to our competitors, then our companies need to be 
in there too.
    Right now, there are three American companies. Indeed, the 
first American--the first foreign insurance company to have a 
presence in China was an American company. And there are more 
American companies that are interested in going in, and we will 
advocate very strongly for their entry to the market.
    One of the things that the WTO Agreement does is to put in 
place a requirement that the Chinese provide access for foreign 
insurance companies, essentially without the kinds of 
restrictions, without the kinds of bidding wars that have gone 
on in the past, to do it basically on a prudential basis, to 
avoid a politicization of the process that historically has 
been true. But they don't surrender their regulatory rights, 
and we will have to see how it is implemented.
    But we have spent a substantial amount of our time on the 
insurance issue and trying to assure American access to that 
market, and I am glad to take your point and to carry that to 
the Chinese when we next see them.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman.
    Mr. Bader, thank you for being here. And good luck as you 
move forward in your position, and let us be as helpful as we 
can to you as you do so.
    Let me ask a question which has, to some degree, I think, 
left the table of discussion. But I would like to just go back 
to the act itself that requires us to go through this whole 
process. One of the conditions is that we take a look at the 
immigration practices of these countries, and in this regard, 
we have always waived the immigration condition for China. If 
the requirement for waiver is that we allow--or the President 
has the authority to say that the waiver fulfills the national 
interests and the intent of the act itself, section 402 of the 
act, and second, that we receive assurances that the country in 
question, in this case China's future immigration practices 
will substantially lead to an achievement of the objectives of 
section 402, that in those cases, if those two conditions are 
met, then the waiver is appropriate.
    In the first, whether the waiver is in the best interest 
and fulfills the intentions of section 402, I am hoping you can 
give me some sense of how is it we believe that the best 
interests of section 402 are being met by a waiver; and second, 
if you can give me a response in regards to any assurances that 
we are receiving from China that they intend to move forward 
and provide--as I guess the language says, countries' future 
immigration practices will substantially lead to achievement of 
the objectives of the section.
    And put that in context of the fact that we have U.S. 
citizens and U.S. permanent residents that are now under arrest 
and prosecution in China, that we have some 150,000 to 200,000 
North Korean refugees in China who are, in many cases, being 
hostilely returned to North Korea; and finally, the human 
rights abuses that we know China is committing against its own 
people, many of whom we--I imagine, are trying to immigrate to 
other countries, including the U.S.
    Give me a sense of why we don't give much attention to that 
side of Jackson-Vanik in terms of immigration.
    Mr. Bader. You know, Congressman, historically, as you 
know, when Jackson-Vanik was first enacted, China was very 
restrictive on immigration. It was in the late seventies that 
they began to allow a modicum of immigration. And you will 
remember the famous quotation from Deng Xiaoping to Senator 
Jackson, the gist of which was, how many Chinese would you like 
to immigrate to the United States, one million, two million?
    However many, I think the point that Deng Xiaoping was 
making was that the main restrictions on Chinese immigration to 
the U.S. came from the U.S. side, rather than from the Chinese 
side.
    There were assurances that the U.S. received from the 
Chinese back in the early days of the waiver process. I have to 
tell you candidly that I simply don't know what their most--you 
know, whether earlier iterations have been, you know, repeated.
    But the--your reading of the law is very useful. The key 
point there is not so much whether there is freedom of 
emigration from China--I would say that there is not--but 
whether the objective of freedom of immigration is being 
fostered and will be helped by the waiver. And I think that 
that has been demonstratively so by the trend in China in the 
last--in the last years.
    Your point about the American citizens who are under 
arrest, that is a very valid point, a very serious one indeed. 
As you know, President Bush raised that in his first telephone 
conversation with President Xiang the other day. And the State 
Department has raised this in very strong terms in addition to 
putting into effect a travel warning to the--to Americans about 
travel to China because of that.
    Mr. Becerra. Do you think that there could be any influence 
we could exert in the process of trying to complete all of our 
negotiations with China that can help us on the emigration 
side, get them to be a little bit more accommodating to those 
who are wishing to leave--not necessarily am I saying that we 
are going to accept a whole lot of folks, but just to make the 
process a little bit more transparent.
    It seems to me that at this stage that China, both in terms 
of immigration and emigration, is causing a lot of folks a lot 
of heartburn.
    Mr. Bader. I think on that point, Congressman, what the 
future holds is a necessity for us to maintain bilateral and 
multilateral pressure on the Chinese to achieve that goal. I 
think, you know, as we have sort of been--the premise 
underlying our discussion here, the days of the Jackson-Vanik 
tool are coming--will be coming to an end once the WTO process 
is complete, so we won't have that particular mechanism 
anymore. We will have to put that on our bilateral agenda and 
talk to our friends about trying to be sure that they raise 
that as well.
    Mr. Becerra. Mr. Chairman, if I could ask one quick 
question.
    Congressman Brown said something. I couldn't find his 
testimony to actually be able to quote it again, but he, in 
essence, said something to the effect that years back we had 
three-quarters of our trade, or the vast majority of our trade, 
occurring with foreign countries that were democracies; and in 
all our years of trying to promote trade with our foreign 
counterparts, we have actually reduced the number of countries, 
that we are doing trade with, which are democracies, so that 
the level of our trade is going more and more to autocracies, 
to governments with which we probably don't agree.
    Can you comment on this? The trend seems to be that as much 
as American industry says and tries to engage in commerce with 
countries that are democracies, it seems that, more and more, 
we are directing our trade to those countries that are less and 
less democratic.
    Mr. Bader. Yeah. I think, Congressman, that without having 
studies, those statistics--I assume that a good portion of that 
statistic is due to China, that the mushrooming of American 
trade with China is the reason that those numbers that the 
Congressman cited come out that way.
    I think it would clearly be a mistake for us to repress our 
trade with China solely in order to maintain a differential in 
the statistics, to make the statistics look better. We wouldn't 
want to use your word, direct--you know, direct our companies 
to trade only with democracies, particularly since I would 
certainly contend that the effect of trade on China is a 
positive one in terms of their evolution if--it does not, as 
one of the Congressmen said, lead automatically to democracy 
and freedom, but I think it certainly assists in moving in that 
direction, as it has historically in other countries in Asia. 
That has certainly been the trend.
    Mr. Becerra. Mr. Chairman, thank you very much. Thank you, 
Mr. Bader.
    Chairman Crane. Thank you, Mr. Bader. One final quickie.
    As you know, the PNTR legislation contains the sense of 
Congress that the WTO General Council should consider Taiwan's 
accession immediately after China's admission. And do you 
anticipate any possible problems with that?
    Mr. Bader. Mr. Chairman, I'm quite confident that will 
indeed occur. We have made that clear with all of the 
interested parties. And I repeat ``all,'' that these two should 
go through in the same session. And what I have heard from all 
of the interested parties is that that is not a problem.
    The Taiwan documents are in very good shape. There is just 
a little bit of work that remains to be done. And I anticipate 
finishing that up in the same timeframe as we finish up the 
China report, and I anticipate seeing those two working party 
reports going to their capitals in the same timeframe, in the 
same session, producing accession.
    Chairman Crane. Very good. And we look forward to both of 
them becoming members of WTO.
    Thank you, Mr. Bader, and we look forward to working with 
you as we proceed down this positive path.
    Mr. Bader. Thank you, Mr. Chairman.
    Chairman Crane. And with that, let me now invite our final 
panel, Bob Stallman, President of the American Farm Bureau 
Federation; Gary Benanav--I mispronounced it, I'm sorry--
Chairman and Chief Executive Officer of New York Life 
International; Robert Kapp, President, United States-China 
Business Council; and Calman Cohen, President of the Emergency 
Committee for American Trade.
    Gentlemen, please take seats, and we will proceed in the 
order that I called your names. And if you gentlemen also could 
try and keep your oral testimony as close as possible to about 
5 minutes, all printed testimony will be made a part of the 
permanent record.
    And with that, Mr. Stallman, you open up.

  STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                           FEDERATION

    Mr. Stallman. Well, thank you, Mr. Chairman, members of the 
Committee. I am Bob Stallman, the President of the American 
Farm Bureau Federation (AFBF) and a rice producer-cattleman 
from Columbus, Texas. AFBF represents more than 5 million 
member families in all 50 States and Puerto Rico. Our members 
produce every type of farm commodity grown in America and 
depend on access to foreign markets for our economic viability.
    I appreciate the opportunity to speak with you today about 
China trade and the importance of granting normal trade 
relations to China.
    Farm Bureau does support renewal of normal trade relations 
with China. Strengthening the economic ties with China is in 
the best interest of our country. Our economic relationship 
with China is extremely important to the U.S. agricultural 
sector and will grow even more important once China joins the 
WTO.
    Currently, China is the sixth largest export market for 
U.S. agricultural goods, exceeding $1.7 billion. Together, 
China and Hong Kong represent the second largest market for 
U.S. soybean exports and the third largest market for U.S. 
poultry meats.
    Why should Congress grant NTR to China? At a time when most 
U.S. agricultural commodities are experiencing the lowest 
prices in decades, stable access to China's huge market is 
critical.
    Second, good trade relations with China are a necessary 
condition for completing China's accession to the WTO. The USDA 
forecasts that China will be the number one growth market for 
U.S. agriculture exports over the coming decade. We must bring 
China into the WTO under the terms of the bilateral agreement 
reached between our two countries.
    Recently, the United States and China reached an agreement 
on domestic support spending that will pave the way for China 
to join the WTO. We believe it commits the Chinese to a 
specific domestic support spending level that is fair. The 
agreement stipulates that China will not be allowed to spend in 
excess of 8.5 percent of the value of its agricultural 
production on products and nonproduct-specific domestic 
support. We preferred 5 percent, as other developing countries 
use, but in the bigger interest of getting an agreement, we 
certainly accept the 8.5 percent. And China did waive its right 
to use other developing country subsidies. Upon entry into the 
WTO, U.S. farmers and ranchers will be granted significant 
access to China's market for a number of commodities.
    Given today's low prices, access into China's market is 
critically important for our agricultural economy. The Farm 
Bureau now looks forward to Congress voting to extend normal 
trade relations to China. Granting NTR status will continue our 
existing trade relationship with China without interruption. It 
is vital that America maintains a stable economic relationship 
with China and forges ahead in completing China's accession to 
the WTO.
    Equally important, we hope to have China at the negotiating 
table when a new WTO trade round is launched later this year, 
so that additional market access can be negotiated for U.S. 
farmers and ranchers to supply China's growing market.
    One often-overlooked fact is that China's access into the 
WTO is synonymous with Taiwan's accession. Taiwan is an 
important market for U.S. agricultural exports. It represents 
our third largest market for coarse grains, fourth for fresh 
fruit, fifth for soybeans and sixth for red meats. Building on 
our important bilateral trading relationship with Taiwan is 
also essential for the future viability of U.S. agriculture.
    There are two important issues that must be fully resolved 
before China is allowed entry into the WTO. First, China must 
fully implement the bilateral agreement on sanitary and 
phytosanitary measures affecting U.S. meat, citrus and grain 
exports.
    Second, we understand that China is developing rules that 
will govern export approval for bioengineered commodities. The 
potential for China to disrupt the grain trade with these 
regulations is significant. These regulations must be clarified 
and ultimately implemented in a manner that is consistent with 
WTO rules.
    In summary, maintaining our current level of exports to 
China with an eye on sizable increases when China joins the WTO 
is very important at a time when our agricultural economy needs 
to be strengthened. Granting NTR status to China is a critical 
step in this process.
    Thank you, Mr. Chairman. I look forward to questions.
    [The prepared statement of Mr. Stallman follows:]

 Statement of Bob Stallman, President, American Farm Bureau Federation

    Mr. Chairman, members of the Committee, I am Bob Stallman, 
President of the American Farm Bureau Federation and a rice producer 
and cattleman from Columbus, Texas. AFBF represents more than five 
million member families in all 50 states and Puerto Rico. Our members 
produce every type of farm commodity grown in America and depend on 
access to foreign markets for our economic viability.
    I appreciate the opportunity to speak with you today about China 
trade and the importance of granting normal trade relations to China.
    For more than two decades, American commercial engagement has 
served as a cornerstone of improved U.S.-China relations. We support 
renewal of normal trade relations with China and underscore the 
importance of finalizing a U.S.-China WTO Accession Agreement soon.
    At this critical juncture, when U.S.-China relations are under 
strain, it is vital that America maintains a stable economic 
relationship with China and forges ahead in completing China's 
accession to the WTO. A WTO agreement is overwhelmingly in America's 
interest and U.S. farmers and ranchers stand to realize huge 
improvements in access to China's expanding markets.
    We are mindful of, and take very seriously, concerns that have been 
raised regarding sensitive security and military issues regarding 
China. These issues are important to all Americans. It is our view, 
however, that China is at a pivotal point between the hardliners and 
the reformists. Granting NTR status to China will signal U.S. support 
for the reformist movement and will pave the way for strengthened 
economic and political ties between our two nations.
    Strengthening economic ties with China is in the best interest of 
our country. Our economic relationship with China is extremely 
important to the U.S. agricultural sector and will grow even more 
important once China joins the WTO.
    Currently, China is the sixth largest export market for U.S. 
agricultural goods, exceeding $1.7 billion. Together, China and Hong 
Kong represent the second largest market for U.S. soybean exports and 
the third largest market for U.S. poultry meat.
    At a time when most U.S. agricultural commodities are experiencing 
the lowest prices in decades, stable access to China's market is 
critical.
    Good trade relations with China are a necessary condition for 
completing China's accession to the WTO. USDA forecasts that our number 
one growth export market over the coming decade will be China. We must 
bring China into the WTO under the terms of the bilateral agreement 
reached between our two countries.
    Recently, the United States and China reached an agreement on 
domestic support spending. The agreement stipulates that China will not 
be allowed to spend in excess of 8.5 percent of the value of its 
agricultural production on product and non-product specific domestic 
supports. In addition, China waived its right to use other developing 
country subsidies. Farm Bureau would have preferred that the United 
States hold the limit on the amount of domestic agriculture support at 
the five percent ceiling required for developed countries. However, we 
reluctantly accepted the compromise to break the impasse in 
negotiations on China's accession to the WTO.
    Upon entry into the WTO, China will have to play by the trade rules 
that are currently observed by the rest of the world. U.S. farmers and 
ranchers will be granted significant access to China's market for a 
number of commodities. Given today's low prices, access into China's 
market is critically important for our agricultural economy.
    Granting NTR will continue to foster the cooperative trade 
relations that are needed in order to complete China's accession into 
the WTO. It is essential that China join the WTO before a new round of 
trade talks is launched in that important multilateral trading 
institution. We hope to have China at the negotiating table when a new 
round is launched so that additional market access can be negotiated 
for U.S. farmers and ranchers to supply China's growing market.
    We also hope to use the bilateral deal that the United States 
reached with China as part of the terms of accession as a model for 
agricultural negotiations on export subsidies and state trading 
enterprises. In both instances, China agreed to path breaking 
commitments to eliminate export subsidies and discipline state trading 
operations.
    One often overlooked fact is that China's accession into the WTO is 
synonymous with Taiwan's accession. Taiwan is an important market for 
U.S. agricultural exports. Taiwan represents our third largest market 
for coarse grains, fourth for fresh fruit, fifth for soybeans and sixth 
for red meats. Building on our important bilateral trading relationship 
with Taiwan is essential for the future viability of U.S. agriculture.
    There are two important issues that must be resolved before China 
is allowed entry into the WTO. First, resolution of the bilateral 
agreement on sanitary and phytosanitary measures affecting U.S. meat, 
citrus and grain exports must be fully implemented. We understand that 
China has not fully complied with the letter of the agreement on 
grains. Full compliance and the commencement of U.S. exports of these 
commodities will signal that China intends to fulfill its international 
obligations.
    Second, we understand that China is developing rules that will 
govern export approval for bioengineered commodities. To date we have 
not received full notification of the requirements that will be 
associated with China's regulations. The potential for China to disrupt 
U.S. grain trade with these regulations is significant. These 
regulations must be clarified and ultimately implemented in a manner 
that is consistent with WTO rules. Any standards associated with these 
regulations should not block market access for U.S. agricultural 
exports. Without such clarification, China should not be allowed entry 
into the WTO.
    In summary, maintaining our current level of exports to China with 
an eye on sizeable increases when China joins the WTO is very important 
at a time when our agricultural economy needs to be strengthened. 
Granting NTR status to China this year is a critical step in that 
process.
    We look forward to working with members of this Committee to secure 
NTR status for China, to finalize China's accession into the WTO and to 
enable American farmers and ranchers to more fairly compete to supply 
the food and fiber China's 1.3 billion consumers need.

                                

    Chairman Crane. Thank you, Mr. Stallman. Mr. Benanav. Did I 
pronounce it correctly that time?
    Mr. Benanav. You got it exactly right, Mr. Chairman.
    Chairman Crane. Thank you, sir.

    STATEMENT OF GARY BENANAV, CHAIRMAN AND CHIEF EXECUTIVE 
 OFFICER, NEW YORK LIFE INTERNATIONAL; VICE-CHAIRMAN, NEW YORK 
   LIFE INSURANCE COMPANY; CHAIRMAN, U.S. COMMITTEES OF THE 
PACIFIC BASIN ECONOMIC COUNCIL; AND CHAIRMAN, PACIFIC ECONOMIC 
                      COOPERATION COUNCIL

    Mr. Benanav. Mr. Chairman, members of the Committee, I am 
Gary Benanav. I am the Chairman and Chief Executive Officer of 
New York Life International and vice Chairman of New York Life 
Insurance Company.
    In addition to my corporate position, I serve as the 
Chairman of the U.S. Committees of the Pacific Basin Economic 
Council, known as PBEC-US, and the Pacific Economic Cooperation 
Council, known as US-PECC. While New York Life is a member of 
the ACLI, I do not appear today on behalf of the ACLI, the 
American Council of Life Insurers.
    I will summarize the remarks which are in my formal 
statement, which will be made part of the record. Thank you.
    I appreciate this opportunity to appear before you on 
another renewal of China's normal trade relations status. 
Eighteen months ago the Congress and our Nation debated the 
granting of permanent normal trade relation status to China. 
That review culminated with the granting of PNTR status once 
China accedes to the World Trade Organization.
    The PNTR bill was grounded in a negotiated agreement that 
requires China to open its markets to American exports, thereby 
giving America the opportunity to improve the trade balance 
with China; and I would be willing to defend that historic 
agreement in any boardroom, on any shop floor and on any farm 
in America.
    Mr. Chairman, I strongly supported the passage of PNTR 
legislation both as a private citizen and as a member of the 
business community. I continue to support it for the reasons 
that I am going to outline, and I hope China will become a 
member of the WTO before the end of this year. But until 
China's accession to the WTO is finalized, Congress must decide 
whether to extend the current tariff rates to China.
    Every year for the past 20 years, under Republican and 
Democratic administrations, the United States has faced the 
decision on extending NTR status to China. Each time Congress 
supported the continuation of that status, even in years when 
relations were very strained between the U.S. and China.
    I hope Congress will reach the same conclusion again this 
year. To do otherwise would cause tremendous damage to our own 
economy, to the economic recovery of Asia and to the stability 
of international relations. At this important juncture, on the 
eve of China's entry into the WTO, as you consider the 
extension of NTR to China, I would like to outline why I 
believe we should broaden our economic engagement with China 
and why broader engagement will benefit not only China and the 
United States, but also the world community.
    Mr. Chairman, globalization presents the United States and 
China an opportunity to cooperate in order to achieve greater 
overall economic benefits for both countries and increased 
economic stability for the rest of Asia Pacific. It is in 
everyone's interest that China's economy grow in a balanced 
manner, promoting its own internal stability, opening its 
markets to exports from other countries, and broadening its 
participation in the global marketplace. China is just at the 
starting line for creating the conditions necessary to achieve 
balanced and sustainable growth. The first and foremost 
requirement is a system of contractual and intellectual 
property rights that allows people to accumulate capital.
    The second requirement is a growing middle class, which 
will stimulate robust domestic demand, so that China doesn't 
have to grow its economy solely by expanding exports to the 
market of its trading partners.
    And the third requirement is a broad, privatized financial 
system which mobilizes savings and channels them efficiently by 
offering them a range of development options.
    The world community has created various institutions and a 
system of multinational rules based on cooperation. The result 
is a set of building blocks for a global system that can help 
sustain and secure economic stability. China needs to have a 
stake in that global system if it is to realize its full growth 
potential and expand its domestic consumption.
    At the same time, America's interest in a stable world 
order is best served by having China become more deeply 
integrated in the international, rules-based trading and 
financial systems and more dependent on international trade and 
financial markets. China's growing stake in the smooth 
operation of a global economic and financial system will act as 
a strong constraint on China's ability to adopt political or 
military postures that would have the inevitable consequence of 
damaging its domestic economic opportunities, or at the 
extreme, even impoverishing its own people.
    Let me talk a little bit about China's domestic political 
evolution, which has been the subject of a lot of discussion 
this afternoon. During last year's national debate on trade 
with China, several commentators predicted that the opening of 
China's domestic market would inevitably lead to the opening of 
its domestic political system. I do not believe this is a 
simple cause-and-effect issue. I agree with Congressman Levin 
that open economic systems do not, in and of themselves, 
inevitably lead to open political systems. However, I do 
believe that without an open economic system there can be no 
hope of developing an open political system in China.
    To shape a stable and prosperous future for China, China 
has accepted three important realities, which probably would 
have been considered blasphemy 20 years ago: first, that China 
must move to a more open, less centrally controlled economy in 
which the government plays a diminished role in the operation 
of the market; second, that it must engage actively in the 
rules-based institutions formed by the community of nations; 
and third, that it must adopt policies which will develop an 
educated and robust middle class. All three of these policies 
will not guarantee, but will enhance the prospects for a more 
open Chinese political system.
    U.S. businesses can continue to support all those efforts 
to the benefit of both nations. And I believe that the infusion 
of international standards and values into the Chinese economy 
will influence the opening of China's political process.
    Let me close by emphasizing three points. In the long term, 
we have to devise a framework for U.S.-China relations that 
advances our national interest while recognizing that both 
countries' political and economic security are inextricably 
linked. Neither China nor the U.S. can succeed with a strategy 
based on one side winning and the other side losing.
    Our near-term challenges are to pass NTR, complete China's 
WTO accession, monitor China's implementation of its WTO 
commitment and work with China to build its capacity. And to be 
successful, we need to establish a domestic and political 
consensus in the U.S. that trade with China is a win-win 
proposition, though certain sectors may lose; and economically 
and politically for the United States, China and the entire 
Asia Pacific region, economic trade can help solidify the 
relationship.
    Thank you, sir.
    [The prepared statement of Mr. Benanav follows:]

 Statement of Gary Benanav, Chairman and Chief Executive Officer, New 
    York Life International; Vice-Chairman, New York Life Insurance 
   Company; Chairman, U.S. Committees of the Pacific Basin Economic 
      Council; and Chairman, Pacific Economic Cooperation Council

    Mr. Chairman, members of the Committee, I am Gary Benanav, the 
Chairman and CEO of New York Life International and Vice-Chairman of 
the New York Life Insurance Company. In addition to my corporate 
positions, I serve as the Chairman of the U.S. Committees of the 
Pacific Basin Economic Council (PBEC-US) and the Pacific Economic 
Cooperation Council (US-PECC).
    I appreciate this opportunity to appear before you for this hearing 
on renewal of China's normal trade relations status. I am confident I 
speak for the lion's share of the U.S. business community when I say I 
hope that this will be the last hearing that the Committee ever holds 
on this issue.
    Eighteen months ago, our nation was in the midst of a national 
debate of tremendous importance concerning our relations with China. I 
recall Senator Moynihan, then in his final year in Congress, saying it 
was certainly the most important issue the Congress would face in the 
year 2000, and perhaps the most important decision in the first decade 
of the new millennium.
    That debate culminated with the passage of legislation granting 
permanent normal trade relations status to China once it acceded to the 
World Trade Organization. The measure passed with broad bipartisan 
support in both chambers of Congress. At the time, few people suspected 
Congress would once again have to consider the issue of normal trade 
relations with China. Unfortunately, events proved otherwise.
    The PNTR bill was grounded in a negotiated agreement that required 
China to open its markets to our exports and required us to do nothing 
in return. I would be willing to defend that historic agreement in any 
boardroom, on any shop floor, or on any farm in America.
Withdrawing NTR from China
    Mr. Chairman, I strongly supported the passage of the PNTR 
legislation, both as a private citizen and as a member of the business 
community. I continue to support it, for reasons I will outline. I hope 
China will become a full member of the WTO before the end of this year. 
Until China's accession to the WTO is finalized, Congress must decide 
whether to extend the current tariff rates to China.
    It is almost inconceivable that Congress would not extend NTR. 
Every year for the past twenty years, the United States faced a choice 
on China. Should we extend to China the same non-preferential tariffs 
we extend to countries such as France, Brazil and India, or should we 
impose upon China the Smoot-Hawley tariffs that wreaked havoc in the 
1930's? Every year Congress reached the same conclusion. I fervently 
hope Congress will reach the same conclusion again this year, and 
permit renewal of normal trade relations with China. To do otherwise 
would cause tremendous damage to our own economy, to the economic 
recovery of the Asia Pacific region, and to the stability of 
international trade.
    At this important juncture, on the eve of China's entry into the 
WTO as you consider the extension of NTR to China, I would like to 
outline why I believe we should broaden our economic engagement with 
China, and why broader engagement will benefit not only China and the 
United States, but also the world community.
Benefits of Trade with China
    Mr. Chairman, globalization presents the United States and China an 
opportunity to cooperate in order to achieve greater economic growth in 
both countries. Current conditions in the U.S. economy have tangible 
effects on our trading partners. In the same vein, conditions in China 
influence the Asia Pacific region and the global economy. It is in 
everyone's interest that China grows in a balanced manner, a manner 
which promotes its own internal stability, opens it's own market for 
other countries and participates in the global marketplace.
    For balanced political and economic growth, China needs to 
encourage the expansion of its middle class. This group will stimulate 
the robust domestic demand needed for long-term growth of the Chinese 
economy. China's long-term economic development cannot be achieved 
simply through expanding exports to the markets of its trading 
partners.
    Experience points to the key requirements for balanced growth and a 
middle class. First and foremost is a system of contractual and 
intellectual property rights that allows people to accumulate capital. 
Second is a sophisticated financial system, which mobilizes savings and 
channels them efficiently by offering a range of investment products. 
As part of that, a burgeoning middle class requires financial 
instruments which permit individuals to manage risk by pooling their 
resources, mobilize capital, and to participate in both the domestic 
market and the global economy.
    The world community has devised institutions to form a system of 
multilateral rules based on cooperation. The result is a set of 
building blocks for a global system that can secure and sustain 
political and economic stability. China needs to have a stake in this 
global system if it is to realize its full growth potential.
    Moreover, the more China is rooted in the international rules-based 
trading system, the greater the cost to China's own economy of taking 
political or military steps that undermine the system. China's stake in 
the smooth operation of a global economic system and the 
interdependence of the global system will act as constrains on China's 
ability to adopt political or military postures that will have the 
consequence of slowing down or damaging its domestic economic 
opportunities, or at the extreme even impoverishing its own people.
The Challenge of Compliance
    Mr. Chairman, the business community has no illusions that economic 
integration will be a simple process. After China accedes to the WTO, 
implementation of WTO rules will not be easy or automatic, just as the 
negotiations between the United States and China were neither easy nor 
automatic. As Representative Levin said in his recent speech at the 
Center for Strategic and International Studies, ``When China ultimately 
does accede to the WTO, our work will not have ended, it will just have 
begun.''
    The transition will not be automatic because China has not yet 
developed the full range of institutions needed for a competitive 
marketplace. China's trading partners will need to be vigilant and work 
with patient determination to ensure compliance with WTO agreements. 
Government, business, and NGO's must be prepared to monitor China's 
implementation of its WTO commitments and must be willing to work with 
their counterparts in China to help increase the institutional capacity 
of China to meet its WTO obligations.
    The issue of institution building is critical to China's ability to 
live up to its market opening commitments. In his recent book, The 
World Economy: A Millennial Perspective, Angus Maddison has identified 
the central factors for successful economic growth, namely the 
development of strong legal protections for property rights and the 
building of institutions that foster entrepreneurial activity.
    China certainly does not lack entrepreneurial spirit. If you have 
ever walked the Bund in Shanghai or visited a factory in Guangzhou or 
talked to students at Beijing University, you know the natural 
entrepreneurial spirit of the Chinese people. But China does lack the 
institutional foundations on which that entrepreneurial spirit can 
flourish.
    Professor Arthur Waldron of the American Enterprise Institute has 
written eloquently on this point describing his concern that China's 
economic growth ``rests on shaky foundations--and these grow more 
shaky, not less, as that growth continues in a political and 
institutional vacuum.'' I share Professor Waldron's concern.
    Mr. Chairman, building institutional capacity is essential if China 
is to meet the challenge of implementing its WTO commitments 
successfully. If we can assist the development of durable rule of law 
intuitions in China, one can only imagine how more entrepreneurial the 
Chinese people could be. New York Life, like many other companies and 
trade and industry associations, has been active in training Chinese 
officials about international standards and providing information about 
the changes needed in Chinese law to meet WTO obligations. Congress 
took great care to address both of these issues--compliance and 
institutional capacity--in last year's legislation.

China's Domestic Political Evolution
    Mr. Chairman, during last year's national debate on trade with 
China, several commentators predicted that the opening of China's 
domestic market would inevitably lead to the opening of its domestic 
political system. I do not believe this is an issue of simple cause and 
effect.
    Open economic systems do not, in and of themselves, inevitably lead 
to open political systems. But I do believe that without an open 
economic system there can be no hope of developing an open political 
system. As China moves towards a more open, less centrally controlled 
economy, the government will play a diminished role in the operation of 
the market. A more open economy will stimulate the growth of the 
private sector. Trade liberalization will allow foreign competition and 
challenge the efficiency of state owned enterprises. This is exactly 
what is happening today in many sectors of China's economy, including 
the insurance sector.
    But the effect goes beyond the economic arena. The energized 
private sector and expanded middle class in China already are 
demonstrating increased interest in democratic structures and 
understanding of international norms and values. For this reason, we 
all need to support wider interaction between civil society groups in 
both countries.
    The leaders of China face the monumental task of constructing a 
productive, stable future for the world's largest nation. China's 
future will determine in no small measure the future of the entire Asia 
Pacific region. To shape a stable and prosperous future for itself, 
China must engage actively in the rules-based institutions formed by 
the community of nations and must commit domestically to the formation 
of a robust middle class. U.S. business can contribute to both of those 
efforts, to the benefit of both nations.
    U.S. businesses can also help shape a stable and prosperous China 
by bringing to the Chinese economy their corporate values, world class 
standards for treatment of workers, commitment to safety in the 
workplace, codes of conduct for business operations, support for rule 
of law and campaigns against fraud and corruption. I believe that the 
infusion of international standards and values into the Chinese economy 
will influence the opening of China's political processes in a positive 
manner.
    I want to emphasize three points in closing.
    In the long-term, we must devise a framework for U.S.-China 
relations that advances our national interests while recognizing that 
both countries' political and economic security are inextricably 
linked.
    In the near-term, we must pass NTR, complete China's WTO accession, 
monitor China's implementation of its WTO commitments and work with 
China to build its capacity to comply with WTO obligations.
    To be successful in the near- and long-term, we must establish a 
domestic political consensus that trade with China is a win-win 
proposition, economically and politically for the United States, China 
and the entire Asia Pacific region.
    Thank you, Mr. Chairman.

                                

    Chairman Crane. Thank you, Mr. Benanav. Mr. Kapp.

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

    Mr. Kapp. Mr. Chairman, thank you for letting me join you 
again today. It is good to see the stalwarts of this 
Subcommittee. Am I on or not on?
    Chairman Crane. I don't think----
    Mr. Kapp. I am sorry. Now I am. Thank you. It is good to 
see the stalwarts of this Subcommittee again, hopefully for the 
last time on this particular subject.
    My testimony, as you will see, is largely valedictory. It 
assumes that we are really at a turning point now, and 
therefore it attempts to do three things. First of all, in the 
most sincere way possible it attempts to thank the Committee, 
and those members who have served on it for all the years that 
I have been here; for holding these meetings every year and for 
permitting all of us of different views to touch upon the China 
we see and the China we think our country needs to work with 
(or, in some cases, to argue with).
    I will regret the passing of this series of hearings, in 
part because just as they have offered to those who have 
disagreed with us the opportunity to bring forth concerns of 
great potency for them, it has given us in the business 
community a chance to make, as strongly as we could, some 
points about the essential nature of the economic engagement 
between our two countries and the importance of that engagement 
to the rest of our relationship with China. So I want to thank 
you very much for all of these years of receiving us and 
treating us so courteously.
    Second of all, my testimony is designed to try to urge the 
Congress, but especially this Subcommittee and the full Ways 
and Means Committee, to remain engaged on China. We don't need 
to say that to Congressman Levin, of course, who is one of the 
architects of the Congressional-Executive Commission on China. 
But I do think it is very important; as this NTR annual effort 
seems to be winding down its period of time, that the members 
of the Subcommittee most concerned with our economic relations 
with China remain heavily involved on the U.S.-China 
relationship as a whole. The attention is moving elsewhere. It 
is moving in directions that in some ways are very, very 
contentious and potentially historic in their implications for 
our relationships with China well into the future, but not 
necessarily on trade and commercial terms. I hope that you will 
retain your interests in the China relationship as a whole, 
because there are great challenges, even perils, as well as 
opportunities ahead of us.
    I want to mention just briefly in this informal oral 
testimony two comments on the testimony of one of the members 
who spoke earlier. I yesterday received a group of young 
trainees from the Ministry of Foreign Trade and Economic 
Cooperation of the People's Republic who are here in this 
country at their government's expense to train on WTO with some 
of the best specialists that the United States has to offer, in 
this case at Georgetown University. We had a great meeting. 
These are young, highly motivated, very intelligent, 
interesting people. At the end I said, ``Now are there any 
questions?'' The first question was, ``Does the trade agreement 
between the United States and China--the agreement on the WTO 
accession between the United States and China, which calls for 
us to lower our tariffs, mean the death of American investment 
in China?'' From the Chinese perspective, the fear is that if 
they lower their tariffs it will make it easy for American 
companies to say, ``Well, why should we invest over there? We 
can sell from the United States and get our goods in and sell 
on the local market without prohibitive tariffs pricing our 
products out of the market.''
    So to the argument that as I have heard so often, that the 
1999 WTO accession agreement, and the final terms that were 
negotiated just a few weeks ago by our current trade 
representative, represent, ``not a trade agreement but an 
investment agreement,'' designed to take American companies and 
move all of their production into China, it is interesting to 
see the opposite concern in Chinese minds, i.e., that if they 
lower the tax barriers that once priced American goods out of 
the market, American companies won't bother to invest at all 
because they can sell into China from production bases in the 
U.S. or other countries.
    And finally, on the matter of Nazi Germany, not only would 
I associate myself, perhaps more emphatically, with Congressman 
Levin's remarks, thinking of those who have been victims of 
Nazi atrocities in the past, but I would also say that 
historically this analogy is extremely faulty. And in other 
testimony and in other venues I have noted in the most 
conservative of intellectual debates, a blistering denunciation 
of the false analogy between the People's Republic today and 
Nazi Germany in the period of the 1930s and 1940s or, for that 
matter, the Soviet Union in the period of the 1920s and 1930s. 
So I appreciated Congressman Levin's remark on that.
    Let me close with one very quick observation, which I have 
refrained from making in earlier appearances before this 
Subcommittee.
    You know, in Hamlet, Polonius advises his son Laertes, to 
thine own self be true. While, I think it is legitimate for us 
to know what we don't like when we see it in China and not to 
let it go by unnoticed, I believe we must also approach our 
dislikes with a certain sense of humility. This morning, in 2 
minutes, using a standard internet search engine, I pulled down 
materials on two events that have gone essentially unnoticed in 
this country, even though they bear some very significant 
similarities to the things that galvanize us so about China. 
One event was the massacre of at least 10,000 people by Chinese 
armies on Taiwan in 1947, which finally, fully 45 years later, 
was brought fully to light, to the great credit of the 
government on Taiwan that had by then come to democratic 
existence. I leave it to you to look back at the history of 
whether the United States acted in response to that tragedy in 
any way comparable to what many have felt the United States 
must do in the aftermath of tragedies of more recent vintage in 
China.
    The other event, in 1968, on the eve of the Olympics in 
Mexico City, was also a massacre by the national armed forces, 
which I know all too little about, but which is now 
commemorated 30 years later with the beginnings of openings of 
archives, with the beginnings of revelations as to who put out 
the orders to shoot and so on. CNN has headlines in its 
February 4, 1998 story on the search for truth about this 
tragedy, posts a sub-head: ``Pro Democracy Demonstrators Shot 
in Square.''
    What I am trying to say here is not that we should not 
focus on the inequities and the social injustices that we can 
all see in China. It is to say that somehow, as we look at 
China and we engage as a body, as a legislative body or as a 
country with the things that bother us so with the People's 
Republic, we have to keep tabs on our own reactions to these 
inequities and tragedies, some of them harrowingly similar to 
tragedies that have occurred in other countries where the 
United States in fact has looked the other way, done nothing or 
found justifications for what transpired.
    Now, we could get into a long historical argument here, and 
if there were other members with different views here I am sure 
it could get quite colorful as to whether these analogies are 
perfect or not. What I am to say is that, now that this session 
and this series is winding down and we can look forward to new 
forms of congressional engagement with China, I hope we can 
somehow balance our belief in the need for intense focus on our 
bilateral relationship with China with the fact that we deal 
with political tragedies and human experiences in a wide range 
of countries with whom we often have very different relations 
and to whose tumults we often have very different reactions.
    I apologize for straying from the field of trade and 
business on the occasion of this likely final NTR hearing, but 
this is something that I have felt strongly about for many 
years, and perhaps this is the moment to try to say something 
along those lines. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kapp follows:]

 Statement of Robert A. Kapp, President, United States-China Business 
                                Council

    Chairman Crane, Representative Levin, members of the Subcommittee, 
thank you for inviting me to appear before you today at this hearing on 
the Resolution of Disapproval whose passage would, if it became law, 
end for the moment the extension to Chinese imports of the same tariff 
treatment that we accord to all but a tiny handful of very small 
economies around the world.

1. Introduction
    I am Robert Kapp, president of the U.S.-China Business Council. The 
Council is the principal organization of American companies engaged in 
trade and investment with China. Founded in 1973, the Council assists 
its member companies in developing and pursuing effective business 
development strategies with China, through a combination of direct 
advisory services; publications including The China Business Review; a 
constant flow of informational events in both the United States and 
China, and advocacy efforts in the public policy realm, including 
appearances before your distinguished Subcommittee. The Council is 
headquartered in Washington, and maintains field offices in Beijing and 
Shanghai. I am pleased that our current business leadership, whose best 
wishes I am pleased to convey today, includes Frederick W. Smith, 
Chairman and CEO of FedEx Corporation, as our Chairman; Philip M. 
Condit, Chairman and CEO of The Boeing Company, as Vice Chairman, and 
former Senator J. Bennett Johnston, CEO of Johnston Development Co., 
LLC, as Vice Chairman. The Council enjoys the support of approximately 
225 respected corporations and services of all sizes, and from most of 
our fifty states.
    The United States-China Business Council strongly urges the members 
of the Subcommittee, the full Committee, and the House of 
Representatives to oppose the Resolution of Disapproval, and thereby to 
sustain--as they have done annually for a decade and as the full 
Congress has done for twenty years--the decision of the President of 
the United States to maintain without disruption the flow of trade 
between the United States and its fourth-ranked trading partner. That 
trade now totals no less than $120 billion annually.
    The arguments for the continuation of NTR, Mr. Chairman, are 
familiar to most members of this Subcommittee, and indeed to most 
Members of Congress. Without in any way taking for granted the views of 
any Member on the very important vote that he or she will face on NTR 
this summer, I hope you will forgive me for restating our perspectives 
on the reasons to sustain presidential renewal of NTR in an attachment 
to my testimony, for those members who wish to move through what we 
believe to be the unshakeable logic of NTR continuation, rather than in 
the main body of my remarks. (Attachment 1) I shall be happy to try to 
discuss any specific issues relating to NTR extension with any Member 
of the Subcommittee, the whole Committee, or the House itself, whether 
during today's hearing or in subsequent meetings.
    Mr. Chairman, this hearing on annual NTR extension, for a number of 
reasons, is very likely to prove different in kind from those of the 
many preceding years in which you and your colleagues have grappled 
with Resolutions of Disapproval. For that reason, I would like to spend 
most of my time touching on themes that circumstances have not really 
made fully appropriate until this year.

2. Expression of Appreciation to the Subcommittee
    Mr. Chairman, we learn in working on China-related issues in 
Washington that unexpected surprises, usually bad ones, can happen at 
any time and come from any quarter, and that it is foolish to assume 
prematurely a final, favorable outcome of any issue involving our two 
nations.
    Nevertheless, developments last month and last week give 
unprecedented strength to the belief that the end of the fifteen-year-
long process of negotiating China's responsible participation as a full 
member of the World Trade Organization is now close at hand.
    As you know, in accordance with the historic PNTR legislation 
approved by the 106th Congress last year, when China enters the WTO, on 
terms as favorable or more favorable to U.S. interests than the terms 
of the historic U.S.-China Bilateral Agreement on WTO accession 
concluded in November 1999, the United States will extend to China full 
WTO-member treatment in the form of Permanent Normal Trade Relations 
treatment of Chinese imports. The United States will in turn enjoy 
full-WTO member privileges in its trade relations with China. With 
that, the requirement of annual renewal of standard U.S. import duties 
on Chinese products required under the Trade Act of 1974 will come to 
an end.
    In other words, it now appears very likely that this NTR hearing 
will be the last of its kind.
    I have appeared before this Subcommittee every year since coming to 
Washington in the spring of 1994. I have come to know some members of 
the Subcommittee well, and to know and respect key members of the 
Subcommittee's talented and extremely hard working staff.
    Please permit me to say how much my Council has valued the dialogue 
that we have maintained with the Subcommittee on Trade over the many 
years of this annual discourse, and how much I personally appreciate 
the courtesies that the Subcommittee has accorded to me and the U.S.-
China Business Council over the years that I have served here. I know 
that for most of you, China is but one of a thousand issues that fill 
your calendars and your minds. For me, China has been for decades the 
central concern of my working life. The seasonal opportunity to 
concentrate with this Subcommittee on issues of China's development and 
of our nation's relations with the PRC has been very rewarding to me--
and, I hope, helpful to you.
    Our Council sincerely welcomes and encourages the continuation of 
dialogue with Members of Congress on the broad range of China issues--
commercial and non-commercial--which informed policy makers must 
continually study. Please consider us ready, willing and able to offer 
information to you, convene experienced and thoughtful figures from the 
world of U.S.-China business with you, join with you in meetings in 
your home districts or other venues, and assist you in fruitful visits 
to China in the future. The Council also will hope to bring interested 
members of this Subcommittee into its programs when appropriate, so 
that we can benefit from your perspectives and ideas.

3. Congress and U.S.-China Trade and Economic Relations after PNTR
    Each member of Congress who voted in favor of H.R. 4444 last year 
surely had his or her unique combination of reasons for doing so, but I 
believe at bottom most members chose to support PNTR in the belief that 
full WTO-member relations between our nation and China after WTO 
accession would provide two core benefits to the United States:

   substantially increased opportunities for American 
        industrial and agricultural producers, service providers and 
        investors under the extraordinarily far-reaching accession 
        terms our representatives had successfully negotiated with 
        China (terms that our current negotiating team led by 
        Ambassador Robert Zoellick further solidified in last month's 
        crucial Shanghai negotiations); and
   long-term assurance that a China fully committed to 
        conducting its international trade according to the world's 
        ``rules of the road'' under WTO, and subject to multilateral 
        disciplines under WTO dispute resolution, was a far better bet 
        for America and the world trade system than a China excluded 
        from full participation in the world trade community and thus 
        unbound by global expectations and requirements.

    In addition, many members from both parties--legitimately, in my 
view--came to understand that the changes in state behavior that WTO's 
most basic principles require of China--transparency in legal and 
regulatory policy, for example, or nondiscrimination in the treatment 
of foreign and domestic goods and services--bear within them the seeds 
of enormously positive evolutionary changes in Chinese society, along 
lines that nearly all Americans would welcome and support. Taken 
together, the somewhat breathless article by one of the media's best 
informed commentators on China's internal dynamics and my own much more 
limited essay on China's growing dialogue over WTO's implications would 
tend to justify members' cautious optimism on this crucial issue. 
(Attachments 2 and 3)
    American companies doing business with China, many of them now in 
their third decade of the most kind of on-the-ground engagement, have a 
realistic appreciation of the weight of the tasks that WTO membership 
will soon impose on China's government and society.
    They are optimistic about the elimination of market barriers and 
the reduction of trade-distorting practices under WTO, and thus about 
their enhanced opportunities for successful business with China.
    Having in large measure defined American negotiating goals 
throughout the prolonged WTO accession negotiations, American firms 
also believe strongly in the necessity of China's realization of its 
WTO commitments as defined in the nearly finalized accession documents.
    American companies accept fully the legitimacy of Congress's 
concerns over China's ability to implement fully its WTO commitments, 
and understand the necessity of continuing close U.S. observation of 
China's efforts and achievements in living up to its WTO obligations.
    At the same time, however, recognizing the enormity of the 
challenges that the WTO presents to China, we feel strongly that the 
U.S. government and American businesses must commit themselves to 
extending the hand of cooperation to China as the PRC takes the path of 
responsible participation in the world trading system.
    This is not the time merely to stand on the sidelines with a 
clipboard and a pencil, filling out a compliance scorecard. 
Scorecarding is part of the process that lies ahead of us. But 
expanded, effective bilateral cooperation on key elements in WTO 
implementation deserve equal American emphasis.
    The Chinese themselves have embarked on intensive efforts at 
introducing WTO concepts to legions of policy makers and bureaucrats at 
the central, provincial, and local levels, many of them hardly familiar 
with ``the system'' that our own country has so heavily influenced and 
enjoyed since the end of World War II. Hundreds of national laws have 
been examined, as required under WTO, for compliance with WTO rules, 
and where necessary are being revised to ensure formal compliance with 
WTO requirements. Members may find the attached brief U.S.-China 
Business Council analysis of these efforts to be of interest. 
(Attachment 4)
    Today, American educational institutions are pitching in, providing 
long- and short-term training programs for eager Chinese government and 
business officials, many of whom come to the United States at Chinese 
government expense for the purpose of imbibing American expertise in 
the operation of a WTO-compliant market-oriented economy.
    I myself, in cooperation with the enthusiastic and capable leaders 
of the Shanghai WTO Affairs Consultation Center and our own Consulate 
General in Shanghai, have had the pleasure of organizing a continuing 
series of digital video conferences on WTO issues, bringing together 
teams of U.S. specialists and an audience of Chinese participants in 
Shanghai for lively discussions, not only on specific technical 
provisions in the WTO, but on the very workings of a WTO-informed 
political/economic/social system.
    The U.S.-China Legal Cooperation Fund, supported by voluntary 
contributions from member companies in the U.S.-China Business Council 
and operating with no administrative budget whatsoever, continues to 
support worthy U.S.-China joint programs in the field of law, in an 
effort to help build not only specific WTO-compliant institutions in 
China but to strengthen the foundations of a more equitable and 
accessible legal system in a rapidly changing China. (Attachment 5)
    Mr. Chairman, we in the business community welcome and encourage 
the willingness of the Congress and the executive branch to roll up 
their sleeves and pitch in with us on the long-term cooperative agenda 
with China that will help to ensure China's fullest realization of its 
WTO commitments in the shortest possible time.
    We believe that this is very much in the U.S. national interest, in 
the interest of China itself, and in the fundamental interest of an 
equitable and orderly world trading system.
    We hope the Ways and Means Committee and its distinguished 
leadership will continue to work to enhance awareness throughout the 
House of significance of a far-seeing and sustained effort, not just to 
monitor and grade China's WTO compliance, but to support and enhance 
China's own efforts to achieve that compliance.

4. The Changing Agenda of U.S.-China Relations, and the Shifting Center 
        of Congressional Interest in China
    During the extended debate over PNTR legislation last year, it was 
widely understood that many of those in the House who either opposed 
PNTR outright or who were uneasy about approval of H.R. 4444 were 
concerned that elimination of the annual NTR debate would deprive them 
of a legally mandated opportunity to bring to the Congress's attention 
those aspects of U.S.-China relations--and of China's internal 
affairs--that they felt needed to be aired in the interests of sound 
policy and faithfulness to their basic values. Thanks to the skill and 
creativity of key Members of the House, most notably Representatives 
Sander Levin and Doug Bereuter, whose names adorned a massive set of 
provisions included in the final bill, the Congress provided both for 
the extension of full WTO-member treatment to China upon its WTO 
accession and for the continuation of Congressional examination of 
certain questions of concern to members once the annual NTR debate drew 
to a close forever.
    Our Council stands ready to cooperate with responsible and 
constructive efforts of the Congressional-Executive Commission on 
China, established under H.R. 4444, to carry out its mandated 
functions.
    Now that the annual NTR discussion does seem to be winding down for 
good, I think that even we in the business community, who have worked 
with this Subcommittee to support stable and expanded U.S.-China trade 
relations for so long, will also feel a twinge of regret and a sense of 
concern.
    The reason is that, for us, the NTR process offered an opportunity 
to re-emphasize essential points (or introduce them to new members) 
about the significance and the promise of expanded economic American 
opportunities accompanying China's rapid economic growth, and about the 
vital importance of healthy bilateral economic ties to the management 
of the entire, highly challenging, relationship between the United 
States and China.
    In the absence of a forum for the discussion of our massive and 
far-reaching economic engagement with China, the Congress is likely to 
turn its attention to China increasingly over questions not normally 
analyzed in economic and commercial terms. Ironically, we in the 
business community may find ourselves watching with concern if the 
center of legislative interest in China shifts moves too rapidly and 
too completely away from the economic dimensions of U.S.-China 
engagement.
    Therefore, we in the business community would say to members of 
this Subcommittee, and of the full Ways and Means Committee: don't let 
the promise, the achievements, and the challenges of U.S.-China trade 
relations drift too far into the shadows. Help us to remind lawmakers 
in both parties that U.S. economic success is a core element in the 
definition of U.S. national interests vis a vis China. Help to sustain 
the understanding, so hard-won in the 106th Congress, that our economic 
engagement with China contributes to American economic vitality and to 
progressive change within China itself. Lend a hand in making sure that 
easy but misleading phrases like ``Profits vs. Principles'' and ``Trade 
vs. National Security'' add little to responsible policy formulation, 
and are best met with sober Congressional understanding of the salience 
of effective U.S.-China economic and commercial cooperation in 
advancing a broad American agenda with China, whether bilaterally, in 
the Asia-Pacific Region, or in global arenas.

5. Conclusion
    Mr. Chairman, for literally decades, the Trade Subcommittee of the 
House Ways and Means Committee has had a uniquely significant role in 
the making of U.S. policy toward China, thanks to the accident of a few 
paragraphs of Cold War legislation originally aimed at the Soviet Union 
and only latterly brought to bear on U.S. relations with the People's 
Republic of China. The Subcommittee has facilitated wide-ranging 
debate, sometimes extremely heated, over our policies with regard to 
China. The Subcommittee's steadfast support of sensible, stable, non-
preferential economic relations with China, augmented by the support of 
the full Ways and Means Committee, has provided indispensable guidance 
to the House on persistent and far-reaching policy question. Once 
again, we thank the members for their hard work each year on MFN/NTR.
    On behalf of our Council's companies, who have achieved so much 
already with China and who now view China with both optimism and 
sobriety, I urge you to remain interested. Engage with us, and with 
those who see the same questions from different vantage points. Visit 
China as often as you can manage. Engage with Chinese colleagues, 
through the established U.S.-China Interparliamentary Exchange program 
or through the new Congressional Study Group on China now being set up 
under the leadership of Representatives Manzullo and Lantos and the 
auspices of the Association of Retired Members of Congress. The balance 
and wisdom of the Trade Subcommittee and the full Ways and Means 
Committee has been a true national asset in the American discourse on 
China, and we hope that it will remain a vital part of our national 
dialogue on China in the future.
    Thank you.
    Attachments:

          ``NTR 2001: To Sing the Blues or Walk the Walk.'' The China 
        Business Review, May-June 2001.
          ``WTO Winds will blow away the old China,'' CNN.com, July 3, 
        2001.
          ``China's Dialogue on the Coming of WTO,'' The China Business 
        Review, January-February 2001.
          U.S.-China Business Council. ``Toward WTO: Highlights of PRC 
        Implementation Efforts To Date.''
          Recent press releases announcing grants by the U.S.-China 
        Legal Cooperation Fund.
        [GRAPHIC] [TIFF OMITTED] T5054A.001
        
        [GRAPHIC] [TIFF OMITTED] T5054A.002
        
        [GRAPHIC] [TIFF OMITTED] T5054A.003
        
                             Robert A. Kapp

    Like a bolt from the blue . . . the ``Blue Team,'' the truest case 
of David versus Goliath in the big-money world of Washington foreign-
policymaking . . . is posing the biggest-ever challenge to the 
generously funded China lobby of the Democratic and Republican 
establishments. . . . Unlike much of what they call the Red Team, which 
is blamed for putting business concerns above national security, Blue 
Teamers aren't in it for the money. . . . Today, the Blue Team no 
longer is merely a small group of individuals but a movement. . . .
    . . . China's April 1 interception and downing of a U.S. Navy EP-3H 
[sic] intelligence plane in international airspace, its detaining of 
the 24 crew members and the continued impoundment [sic] of the aircraft 
have served to galvanize opinion among the American public, in Congress 
and within the Bush Administration around positions Blue Teamers long 
advocated. . . .''
    (Excerpted from J. Michael Waller, ``Blue Team Takes on Red 
China,'' and ``Blue Team Vindicated Time and Again,'' InsightMag.com, 
June 4, 2001.)
    Yes, it's NTR time again.
    China isn't in the World Trade Organization (WTO) yet, though it 
made a giant stride in that direction with the June 7 agreements 
between U.S. Trade Representative Robert Zoellick and PRC Minister of 
Foreign Trade and Economic Cooperation Shi Guangsheng. Still, Permanent 
Normal Trade Relations (PNTR) is not yet the law of the land. And, in 
America, the law really is the law: no WTO, no PNTR. So we recline 
again into the steaming cauldron of a summer NTR debate.
    Allow me to offer some thoughts on why it would be better for all 
of us if Congress decided not to overturn President George W. Bush's 
decision to renew plain-vanilla tariff treatment of China's imports to 
the United States for another year (or less, if China gets into the WTO 
before June 2002 and PNTR goes into effect as Congress intended) than 
if the United States were to shut down $120 billion in trade with its 
fourth-ranked trade partner.
    What follows can't match the flamboyance of the Men in Blue. It 
accuses no one of ``kowtowing,'' ``appeasing,'' or being a 
``paymaster'' for the opposition.
    I like to think that what follows pretty much embodies a case that 
the Congress has already broadly understood and accepted. Congress has, 
after all, sustained the presidential decision to keep the floor of our 
nation's engagement with China in place every year for the past decade 
and passed the historic PNTR legislation one year ago.
    1. The United States and China share a shrinking globe; each must 
maintain a firm commitment to strengthening the foundations of global 
stability. China and the United States continue to face opportunities 
and challenges in dealing with numerous regional and global concerns, 
from the questions before the upcoming Asia Pacific Economic 
Cooperation (APEC) meetings in Shanghai to the Korean Peninsula 
question, to issues of international cooperation in law enforcement and 
environmental affairs, among others. Neither country can wish the other 
away.
    2. As China has increasingly entered the mainstream of world 
affairs since the end of the Mao era 25 years ago, it has become a 
major trading nation and a major trade and economic partner of the 
United States. It ranked seventh in the world in total trade volume 
last year. Total U.S.-PRC merchandise trade last year exceeded $120 
billion. China is now the fourth-ranked U.S. trade partner, and the 
United States is China's second-ranked trade partner. Since 1979, U.S. 
firms have invested roughly $30 billion.
    3. Economic and commercial relations have been the most positive 
aspects of an often-troubled U.S.-China relationship. Their 
continuation is essential to the maintenance of orderly engagement and 
to the prevention of an ill-advised free fall in U.S.-China affairs.
    4. China and its WTO trade partners have resolved remaining issues 
standing in the way of China's full accession to the WTO. Because it 
will be some months before China's accession process is complete, under 
current law Congress must again consider whether to act as it has since 
1981, by concurring with presidential renewal of standard U.S. import 
tariffs for an additional year, or whether to do what it has never done 
through all the debates of the 1990s: overturn the action of the 
president of the United States in sustaining Normal Trade Relations 
with China.
    5. Since 1992, the House has voted each year to sustain 
presidential renewal of NTR trade with China, on the grounds that NTR 
is merely the standard treatment the United States accords to all but a 
tiny handful of insignificant economies around the world, that the 
increasing economic interaction between the two nations is 
fundamentally in the U.S. national interest, and that U.S. repudiation 
of the massive trade relationship would hinder rather than help to 
address non-trade issues of concern to many members of Congress.
    6. Congressional defense of normal trade status with China this 
year is in all likelihood a holding measure pending implementation of 
PNTR. Last year Congress, after a major debate, agreed that the full 
integration of China into the world's systems of economic and 
commercial rules and laws, through WTO, was in the best interests of 
the nation and the world economy. When China enters the WTO, perhaps by 
the end of 2001 or else probably in 2002, PNTR will become the Law of 
the Land, and annual congressional action on NTR renewal will cease.
    7. President Bush has clearly pointed out that a productive 
relationship with China is desirable and possible and has pointed to 
trade and economic relations as an example of what is most positive 
about U.S.-China relations today.
    8. The United States and China have found it difficult to manage 
many non-trade problems in recent years. It would be immeasurably 
harder to control these issues if Congress were to succeed in 
overriding presidential renewal of NTR.
    9. America's friends in the Pacific, including Japan and Taiwan, as 
well as the people of the great free-market center of Hong Kong, 
strongly support continued stable economic relations between the United 
States and China; rejection of NTR would cause severe economic 
dislocation throughout the Asia Pacific region.
    10. The fundamentals of the NTR question remain unchanged, in spite 
of recent flare-ups in the relationship:

   Trade and economic engagement with China generates American 
        employment and contributes to business strength in the United 
        States. China's continuing growth at 8 percent and its 
        commitments to major new market-opening measures under WTO 
        represent opportunity and stability for the U.S. economy, 
        particularly now, when the U.S. economy is slowing. U.S. 
        exports to China rose 36 percent year-on-year in the first 
        quarter of 2001.
   China's imports to the United States at ordinary tariff 
        levels help to keep consumer goods affordable for all 
        Americans, particularly those with low and moderate incomes.
   China's internal evolution in the direction of the market 
        economy, WTO reforms, and the expansion of private enterprise 
        remains on track, despite Chinese domestic worries that these 
        reforms will provide too many opportunities for Americans and 
        others at the expense of those in the PRC who benefit from 
        China's current closed markets.
   China's economic relations with Taiwan, already massive, 
        continue to expand heavily as the economic integration of the 
        mainland and the island progresses. Taiwan's leader has stated 
        his hope for continued normal economic relations between the 
        United States and China.
   Shutting the market to tens of billions of dollars in 
        Chinese exports to the United States will result in the closure 
        of the Chinese market to U.S. exports; the economic punishment 
        of many ordinary workers in Chinese industries; the reduction 
        of U.S. employment supported by exports to China; the ceding of 
        key strategic markets to U.S. competitors in Asia and Europe; 
        the stigmatization of political figures and others in China who 
        are committed to the prime importance of a cooperative 
        relationship with the United States; and very probably the 
        comprehensive degradation of U.S.-China relations, with 
        unforeseeable consequences for both nations.

    There it is: the case for NTR renewal, the case for a stable 
baseline in U.S.-China relations. If the Blues want to call this 
``kowtowing to Beijing,'' so be it. I think the Congress will be more 
sensible than the Blues expect.
           Copyright 2001 by the U.S.-China Business Council
                          All rights reserved.
                         Last Updated: 5-Jul-01

                 WTO winds will blow away the old China

                          By Willy Wo-Lap Lam
                        CNN Senior China Analyst

    (CNN)--Globalization is not a dinner party. Much has been written 
about the impact of China's entry to the World Trade Organization (WTO) 
on the country's economy.
    However, it is clear WTO accession and globalization in general 
will chip away at not only Beijing's ``economic sovereignty'' but also 
the power base and prerogatives of the Chinese Communist Party (CCP).
    About two years ago, the CCP and State Council set up a special 
team to study the WTO's impact on domestic politics.
    While the team's findings have not been publicized, it is clear WTO 
accession will pose severe challenges to the authority of the party and 
state apparatus.
    In a prescient paper written soon after the dissolution of the 
Soviet Union in the early 1990s, a group of sons of party elders argued 
that to avoid the fate of the USSR, the CCP must never lose control 
over the economy and businesses.
    There seems little doubt, however, that both the party and the 
central government have to sever links with enterprises in the post-WTO 
order.
    Largely because of WTO-related pressures, Beijing last year began 
asking state-owned enterprises (SOEs) to beat a retreat from more than 
150 competitive industrial sectors.
    In several years, private firms, foreign firms and joint ventures 
will split up the sky with SOEs.
    As more Chinese get their paychecks and services from non-state 
entities, the party's authority may be dealt a body blow.
    Then there are the unexpected side-effects. For example, the CCP's 
ability to start and operate party cells in joint ventures and wholly-
owned foreign concerns may be challenged by overseas businessmen.
    Equally significantly, the party and government have since the 
1950s exercised control over the economy and the country mainly through 
issuing decrees, often in the form of hongtou wenjian or ``documents 
with red letterheads.''
                            Monopoly powers

    These diktat and executive fiats enjoy the same status as legal 
statutes--and cadres and citizens alike are required to treat them as 
such.
    After WTO accession, however, it is obvious that these documents 
with red letterheads will have to go.
    First to be affected will be party and government orders giving 
monopoly powers to certain SOEs--and fixing the prices of their 
products.
    After all, the WTO's central spirit is the rule of law--and respect 
for fair competition and other global standards.
    Beginning late last year, Beijing has asked provincial and 
municipal administrations to do a thorough vetting of hongtou wenjian 
with the view to invalidating most of them--and replacing them with 
proper legislation.
    In an article entitled ``Beware that hongtou wenjian may violate 
the law,'' the official Xinhua news agency reported last week that a 
couple of SOEs in Anhui province have lost their monopoly in the course 
of the campaign to weed out state fiats.

                            Party-dominated

    Yet the WTO's fallout will not be restricted to the abolition of 
this or that particular state decree.
    The very concept of a party-dominated legal system is imperiled.
    It is an open secret that since 1949, the law courts--as well as 
legal interpretation in general--are under the thumbs of a secretive 
CCP organ called the Political and Legal Affairs Commission.
    Another pillar of CCP domination--the control over information--is 
jeopardized.
    This is even though WTO protocols so far signed with the United 
States or the European Union have made no provisions for joint venture 
newspapers or TV stations.
    But these WTO agreements do allow for joint venture Internet 
companies, although foreign partners cannot hold more than 49 percent 
of total shares.
    Analysts say Beijing will find it difficult a few years post-WTO to 
resist pressure to open up the news business, even though initially 
foreign partners may only be allowed to handle advertising, marketing 
and distribution.
    Also under threat will be Beijing's vaunted ability to guard 
``state secrets'' from foreign eyes.
    For example, the CCP leadership has refused to allow Western 
companies to conduct information-related businesses such as polling and 
market research, for the obvious reason that such activities can yield 
a bonanza of politically sensitive data.
    After WTO, Beijing may no longer be able to keep up the bamboo 
curtain.
    Indeed, police and state security departments are keenly aware that 
many Western-style commercial operations can have heavy political 
overtones.

                          Networks of salesmen

    A case in point is direct or door-to-door marketing through close-
knit, quasi-pyramid networks of salesmen. In the mid-1990s, Beijing 
asked several foreign firms in the areas of cosmetics and household 
products to stop direct-sales activities.
    An internal paper cited the political implications of such tightly 
organized marketing teams, which often boasted several tens of 
thousands of sales people.
    The document said law and order, a euphemism for CCP control over 
everyday life, might be threatened if ``hostile foreign forces'' 
including quasi-religious bodies were able to use such sales networks 
to pursue anti-Beijing goals.
    Consider also the fact that post-WTO, the state may have to yield 
its monopoly over education to foreign institutions, including 
commercial operators.

                           Direst consequence

    Already in Shanghai and Shenzhen, more and more nouveau riche 
parents are sending their kids to international schools, where Marxism-
Leninism is hardly taught.
    From the party's standpoint, the direst consequence of WTO entry 
may be changes in people's thinking.
    As a Beijing-based social sciences professor put it, if everything 
is now being done according to international--in many instances, 
Western and American--norms, more people will cast doubt on CCP 
ideology.
    ``It will become clear that values and systems such as socialism 
and `dictatorship of the proletariat' run counter to global trends,'' 
the professor said.
    WTO accession, of course, will not affect the party's hold over 
control mechanisms such as the army, the People's Armed Police and the 
police.
    Yet a pluralistic market milieu will afford ordinary folks ample 
opportunity to thumb their nose at the CCP--and with devastating 
effect.
    For example, well-trained personnel including scientists, engineers 
and mangers can vote with their feet by working for foreign or joint 
venture firms, not government departments or SOEs.
    As State Councilor Wu Yi put it in an internal talk, globalization 
meant first of all a fight for talents between government units and 
SOEs on the one hand, and multinationals on the other. People can also 
vote with their pocketbook.
    If Chinese have lost faith in the authorities, they may convert 
their renminbi into dollars and euros, put their money in foreign 
banks, patronize foreign insurance companies, purchase foreign stocks 
instead of local ones--and, a few years later, buy Global Daily instead 
of People's Daily.
    Perhaps because of fear of impending loss of control, the Jiang 
Zemin administration has in recent months cracked the whip on dissident 
organizations and imposed blanket censorship on the media.
    Over the long haul, however, there seems little doubt the forces of 
economics will triumph over outdated dogmas--especially those that 
serve only a privileged minority.

CHINA'S DIALOGUE ON THE COMING OF WTO
January-February 2001 Issue: Robert A. Kapp
Cover by Benjamin Hurd
    While America grinds through its election and post-election rituals 
and prepares for a new administration, hoping that the newcomers will 
make fewer of the inevitable first-year mistakes than most of their 
predecessors have made, China grapples with the coming of the World 
Trade Organization (WTO).
    Even before the tortuous Geneva accession negotiations conclude, 
the Chinese are engaged in a heavy discussion of what the WTO means for 
China--not just in terms of jobs or exports, but in terms of China's 
own future as an economy and a society. I have read several lengthy and 
well-informed book-length analyses of the likely impacts of WTO 
membership on the Chinese economy, sector by sector. Articles from 
every province and city appear in print and online daily.
    Combined with the avid study of information about the WTO's rules, 
operations, and dispute resolution experiences, the sheer volume of 
published material on the WTO--what Chinese are saying to each other 
where all can see and hear it--is impressive, and ought to be of real 
interest to U.S. business and to U.S. policymakers. As in any debate 
over a big new international trade agreement in any country, some of 
the material is repetitive, even predictable; certainly that was the 
case in the United States during the NAFTA and Uruguay Round debates. 
But taken as a whole, China's current debate reveals where China 
hopes--and sometimes worries--the WTO will take it.
    Our dialogue with China on the WTO, as on other matters, will be 
more productive if Americans have a living sense of issues under debate 
within China on any given subject, and indeed if the Chinese, in turn, 
have that same living sense of America's key concerns on issues we 
debate regarding China. The WTO offers a good example.
    Here, then, is a short example of what is being said within China 
about the WTO. The writer, Zhao Yihuai, is an official of the Shanghai 
Municipal Office for Restructuring the Economy. He published his piece 
recently in the major Shanghai newspaper, Liberation Daily. The article 
was then posted to a rich compendium of WTO essays found on the website 
of the national newspaper of the Chinese Communist Party itself, the 
People's Daily (http://www.peopledaily.com.cn/). You have to read 
Chinese to plow into this ``China Enters the WTO'' collection, but if 
you do, or if you know someone who can help you, it is a worthwhile 
trip.
    What follows are excerpts from ``How Should the Government Respond 
to WTO Entry?'' by Zhao Yihuai (my translation):

``Any country entering the WTO is considered to be a market economy. . 
. . Conceptually, this means changing from `omnipotent government' to 
`limited government.' ''_Zhao Yihuai

    China's entry into the WTO is first and foremost a government 
entry. Never mind whether it is the central government or local 
governments: all have to be adequately informed. For a long time, our 
economy has been a government-led economy: government policies and 
system regulations were formed from a single, internal, national 
understanding and set by the nation's own circumstances. After China 
enters the WTO, it faces a new environment. China must accept rules of 
the game already put in place by the WTO. We may not simply change 
those rules without authorization, but instead must obey and support 
them. Therefore, governments need to ratchet up the modification of our 
laws and regulations to make them compatible with the basic principles 
and the basic spirit of the WTO, so that we can effectively adapt to 
this new economic environment. Concretely, we should start with the 
following:

``How Should the Government Respond to WTO Entry?''_Liberation Daily

     The first step, naturally, is to speed up our own 
        structural reforms. Compared to the reform process in the past, 
        the biggest change in our reform process after WTO entry will 
        be from ``We Want Reform'' to ``We Must Reform Ourselves.'' 
        This imposes a new system of reform upon us. To meet this 
        challenge, governments must consciously increase the intensity 
        of their reform efforts, and speed up the steps leading to the 
        marketization of the national economy. In keeping with the 
        requirements of the WTO, we must deepen the reforms of our 
        financial structures, our food distribution structures, our 
        social insurance systems, and so on, rooting out the 
        discrepancies and the frictions between our domestic systems 
        and international rules. Elimination of such conflicts is the 
        precondition for the true alignment of our national economy 
        with the world economy.

The Chinese are engaged in a heavy discussion of what the WTO means for 
China

     Next, we must expand the grounding of government policy in 
        law, and increase the transparency of government policies. 
        Enhancement of legality is necessitated by the requirements of 
        the market economy. Any country entering the WTO is considered 
        to be a market economy. This requires government conduct to 
        advance along tracks defined by law. Conceptually, this means 
        changing from ``omnipotent government'' to ``limited 
        government.'' With WTO entry, China must erect both a new 
        conceptual basis to undergird government conduct and new forms 
        of government action. Looking at today's realities, the first 
        task is to eliminate many outmoded internal regulations and 
        policies that are not compatible with WTO rules. For example, 
        in dealing with the non-public economic sector, governments 
        must realize the commitment to nondiscrimination, in order to 
        create a fair environment for the operation of the 
        nongovernmental economy. That means to the greatest possible 
        extent avoiding preferential policies and subsidies for state-
        owned enterprises, in order not to provoke retaliation from 
        abroad.
     Next, China must energetically enhance the economic 
        management abilities of governments. WTO entry does not signal 
        the general weakening of the managerial skills of governments. 
        On the contrary, it is through the reform of government systems 
        of economic management and the strengthening of the rational 
        professional skills of governments that we will be able to 
        preserve the basic interests of the people and the national 
        economic security in a globalized environment of intense 
        competition.
     Specifically, this means, (a) providing correct guidance 
        and active fine-tuning. These roles are recognized under the 
        WTO system. . . . And (b), it means energetically supporting 
        our own interests. We must utilize all the safeguard methods 
        authorized by the WTO for its members to use in guarding their 
        infant industries. We must actively explore effective support 
        mechanisms, to defend against the massive onslaught against our 
        national production sectors and our vulnerable products in the 
        midst of bitter competition. Of course, the purpose of such 
        government protections is not to protect backwardness; rather, 
        it is ultimately to end such protections and to raise the 
        international competitive power of the producers and products 
        afforded the protection.

    In sum, entering the WTO drives forward our country's historic 
opportunity to develop along market economy lines. It serves as a new 
driver of all facets of our nation's reform and ``opening.'' Agencies 
of government cannot but actively rise to this challenge, advance the 
reform process within the framework of the WTO, and only by so doing 
preserve the autonomy of our nation's economy amidst the competition of 
a global economy.
    As America endures a laborious political transition, and U.S. 
companies peer into the future at home and overseas, China's discussion 
of its future in a WTO-based global economy goes on apace. The 
adjustment to life in the WTO may not be easy for China or its trade 
partners. But there is plenty of evidence--far more than I've been able 
to offer here--that suggests that the WTO is being taken with the 
greatest seriousness in the PRC, and that its implications for economic 
and other changes within China are very much in public view. The more 
we can know about the dynamics of the WTO discussion within China, the 
more effectively the U.S.-China Business Council and its member firms 
can pursue with Chinese counterparts the full and successful 
realization of China's new rights and responsibilities.

            Copyright 2001, The U.S.-China Business Council

                          All Rights Reserved

                       TOWARD WTO: HIGHLIGHTS OF
                   PRC IMPLEMENTATION EFFORTS TO DATE
                               June 2001

    The U.S.-China Business Council is committed to tracking WTO-
related changes in China. This document highlights particular PRC 
efforts, as known to the Council, to bring its system into WTO 
compliance. It is not intended to be comprehensive. China has taken 
positive first steps to implement its commitments, but significant gaps 
remain. The Council will continue to update this report on a quarterly 
basis.

   Revising Laws and Regulations: In preparation for China's 
        accession to the World Trade Organization (WTO), PRC officials 
        have begun to bring China's legal and administrative regimes 
        into compliance with WTO rules. According to PRC legislators, 
        more than 1,300 national and local laws and regulations did not 
        comply with the WTO rules as of October 2000. The National 
        People's Congress (NPC) and State Council announced in 2001 
        that they would formulate 26 new regulations, amend an 
        estimated 140 national laws and regulations, and abolish 
        another 573.
   New Legislation: Drafts of new and amended legislation are 
        said to be circulating and include new antitrust, foreign 
        trade, antidumping/countervailing duty, safeguard, import/
        export commodity inspection, copyright, and trademark laws, as 
        well as regulations governing foreign investment in the 
        telecommunications sector and a revised Catalogue Guiding 
        Foreign Investment.
   Publishing Laws: The PRC government has initiated an effort 
        to publish laws and regulations on various government websites, 
        and new laws continue to be announced in the MOFTEC Gazette. A 
        bigger challenge for PRC government agencies will be how to 
        make the legislative process more transparent and to change 
        current lawmaking procedures that allow many laws to be 
        enforced even if they are not published.
   Shanghai: Shanghai leads other localities in its WTO 
        preparations. The legal affairs office of the Shanghai 
        municipal government has reportedly identified 52 city laws 
        that must be revised and 40 city regulations that it will 
        abolish in the coming year. The Shanghai government established 
        the Shanghai WTO Affairs Consulting Center on October 26, 2000 
        to provide local and foreign enterprise managers and government 
        officials with training, research, and consulting services on 
        China's WTO policies. Since January 1, 2001, the Shanghai 
        government has posted new laws in Chinese at 
        www.shanghai.gov.cn, but not yet in English or another WTO-
        compliant language.
   Revisions to Foreign Investment Laws: The State Council 
        released on April 24, 2001 the revised Implementing Regulations 
        of the PRC Wholly Foreign-Owned Enterprise (WFOE) Law. Under 
        the revised regulations, foreign companies are no longer 
        required to balance foreign exchange, source domestically, use 
        advanced technology, and abide by export quotas. The NPC also 
        passed on March 15, 2001 the amended Law of the People's 
        Republic of China on Equity Joint Ventures, the principal law 
        governing foreign-PRC joint ventures.
   Pilot Projects in Services: The PRC government has launched 
        several pilot projects to experiment with allowing foreign 
        investment in previously restricted sectors including 
        telecommunications services and fund management.
   Intellectual Property Rights: The State Council has issued a 
        number of policy directives to strengthen anticounterfeiting 
        enforcement work and established a new National 
        Anticounterfeiting Coordination Committee, chaired by State 
        Councilor Wu Bangguo. A judicial interpretation and prosecution 
        guidelines issued in April 2001 establish new and clearer 
        standards for criminal liability in counterfeiting cases. The 
        government will need to ensure that local police and 
        prosecutors have sufficient resources for enforcement. The 
        Shanghai Technical Supervision Bureau established the Shanghai 
        Foreign-Invested Enterprises Anticounterfeit Work Liaison 
        Office in September 2000, the only government office 
        established with the sole purpose of helping foreign companies 
        fight counterfeiters in China.
   Commodity Inspection & Technical Standards: China merged its 
        two standards and inspections bodies on April 1, 2001 to form 
        the State Bureau of Quality Supervision, Inspection, and 
        Quarantine (SBQSIQ). China had maintained one inspection regime 
        for imports and another for domestically made goods. The merger 
        represents China's first step toward meeting the demand of its 
        WTO negotiating partners that China unify its inspection regime 
        to ensure national treatment. In the past, the PRC government 
        has used the existence of a separate inspection regime for 
        imports as a non-tariff barrier, particularly against imports 
        of agricultural products. The WTO Technical Barriers to Trade 
        (TBT) Consulting Enquiry Point, a PRC government organization 
        under SBQSIQ, will report on standardization requirements to 
        the WTO and to foreign and domestic companies. The organization 
        will submit to the WTO current PRC technical regulations, 
        standards, quality evaluation procedures, labeling 
        requirements, and other issues that may affect trade with WTO 
        members. Information on the new organization can be found at 
        www.wto-tbt.gov.cn.
   Customs: Amendments to China's Customs Law took effect on 
        January 1, 2001. The revisions aim to strengthen the legal 
        framework governing customs activities to bring China's customs 
        systems into line with the international practices embodied in 
        the Kyoto Customs Convention and WTO Customs Valuation 
        Agreement. China's commitment to use transaction value in the 
        amended law brings PRC valuation practices closer to those 
        outlined in the WTO Customs Valuation Agreement, which China 
        has committed to followas a WTO member.
   Removal of Non-Tariff Barriers: MOFTEC removed quotas, 
        licenses, and other special administrative import measures for 
        21 types of appliances, electronics, medical equipment, and 
        vehicles on January 15, 2001. The announcement marks the eighth 
        time since 1992 that MOFTEC removed non-tariff barriers for 
        various electronic and machinery products.
   Tariff Reductions: The State Council reduced average tariffs 
        by 6.6 percent as of January 1, 2001. The cut brings the 
        average import tariff to 15.3 percent moves Beijing closer to 
        fulfilling its basic WTO tariff obligations. Of the cuts, 152 
        were vehicle-related. Seventy-nine different tariffs on 
        completed vehicles were reduced from 51.38 percent to 44.16 
        percent on average.
   Education and Training: PRC government training programs 
        have been under way since late 1999 at the central, provincial, 
        and municipal levels. Many key personnel have attended at least 
        one one-week course on the WTO. Some senior-level officials 
        have attended month-long courses that cover WTO-related issues, 
        including background on the WTO, information on WTO agreements, 
        and the impact of China's WTO accession on key industries. 
        Courses for the most senior-level officials have covered the 
        actual terms contained in China's bilateral market-access 
        agreements and protocol of accession. Increasingly, Chinese 
        bookstores are prominently displaying books on the WTO, its 
        regulations, and its operating principles. The U.S.-China 
        Business Council is conducting a WTO training program with the 
        Shanghai WTO Affairs Consulting Center. The program uses 
        digital videoconference (DVC) technology to bring the 
        experience and expertise of U.S.-based specialists to an 
        audience of Shanghai government officials, local WTO experts 
        and academics, and business leaders. Topics have included 
        antidumping, trade-related intellectual property rights 
        (TRIPs), technical barriers to trade, and agriculture. DVC 
        facilities have been made available by the U.S. Consulate 
        General in Shanghai and the U.S. Department of State in 
        Washington. U.S. companies are also engaged in their own 
        efforts to train PRC regulators, joint-venture partners, 
        suppliers, and customers on WTO rules and obligations.

For Immediate Release

UNIQUE LEGAL COOPERATION FUND MAKES GRANTS TO FIVE NEW U.S.-CHINA RULE 
                            OF LAW PROJECTS
    (Washington, June 4) A one-of-a-kind fund established by U.S. 
business to assist vital ``rule of law'' cooperation between the United 
States and China has disclosed five new competitive grants to 
recipients based in the two countries. The bilateral programs slated to 
receive help from the U.S.-China Legal Cooperation Fund range from the 
development of legal aid for the indigent to improvement of China's 
compliance with World Trade Organization requirements after its 
accession to the WTO.
    The U.S.-China Legal Cooperation Fund announced its fifth set of 
grants since its inception in 1998. The Legal Cooperation Fund is a 
project of The China Business Forum, Inc., the research and education 
arm of the U.S.-China Business Council.
    The Fund's grants will support five new projects to:

   Identify and define the administrative law reforms and laws 
        with respect to transparency that China must enact to comply 
        with WTO requirements that ask members to apply trade laws in a 
        ``uniform, fair, and reasonable manner'';
   Conduct a workshop and research on freedom of information 
        and open government in China, together with development of 
        program materials for a continuing administrative law program 
        for China;
   Undertake field research in two locales to identify 
        impediments to full implementation of China's labor law;
   Complete a needs assessment for legal aid in Anhui Province 
        and create a criminal investigation and defense manual for 
        Chinese legal aid attorneys; and
   Sponsor a series of interdisciplinary seminars in China on 
        WTO standards, structure, and procedures, focusing on rule of 
        law and conflict resolution in the WTO context.

    Legal Cooperation Fund Trustees Chairman Herbert J. Hansell, Senior 
Counsel at Jones, Day, Reavis & Pogue in Washington, DC, remarked:

          ``In this fifth round, the Legal Cooperation Fund received 21 
        innovative, timely, and practical proposals from a wide variety 
        of U.S. and Chinese organizations. The Trustees were 
        particularly gratified to joint U.S.-China proposals submitted 
        principally by Chinese applicants, reflecting the Fund's 
        continuing effort to reach out to Chinese individuals and 
        organizations concerned with the rule of law. The Trustees 
        continued to focus on projects that would substantially advance 
        cooperation in the legal fields that U.S. and Chinese political 
        leaders identified in the late 1990s, including proposals that 
        will assist China's implementation of its World Trade 
        Organization commitments. The Fund is grateful for the 
        continuing financial support of U.S. corporations and 
        professional firms, which will ensure future U.S. cooperation 
        with China in developing the rule of law.''

    The following business members of the U.S.-China Business Council, 
the leading organization of American firms engaged in trade and 
investment with the People's Republic of China, support the U.S.-China 
Legal Cooperation Fund: ABB Inc.; AMP Incorporated; American 
International Group, Inc.; Applied Materials, Inc.; ARCO; Baker & 
Daniels; Cargill, Inc.; Caterpillar Inc.; China Products North America; 
The Chubb Corporation; CIGNA Corporation; Citigroup; Coca-Cola Company; 
Corning Incorporated; Eastman Kodak Company; Eaton Corporation; 
Emerson; ExxonMobil Corporation; Federal Express Corporation; Ford 
Motor Company; GE Fund; General Motors Corporation; Honeywell Inc.; 
Ingersoll-Rand Company; Jones, Day, Reavis & Pogue; Kaye, Scholer, 
Fierman, Hays & Handler; Lehman Brothers; Merrill Lynch; Microsoft 
Corporation; Motorola Inc.; Nationwide Global Holdings; Payless 
ShoeSource; PepsiCo, Inc.; Praxair, Inc.; Timken Company; TRW Inc.; 
United Technologies Corporation; and Wm. Wrigley Jr. Company.
    Information on the Fund may be found at its web site: 
www.uschinalegalcoop.org. The next deadline for submitting applications 
for Fund grant will be October 15, 2001, with the next set of Fund 
awards expected about November 30, 2001.
                                --END--

For Immediate Release

 TRAIL-BLAZING LEGAL COOPERATION FUND SUPPORTS SIX NEW U.S.-CHINA RULE 
                            OF LAW PROJECTS
    (Washington, December 11) A unique business-supported fund 
established to enhance U.S.-China legal cooperation awarded grants in 
early December to fund six bilateral projects ranging from a long term 
academic study of the legal aspects of China's upcoming accession to 
the World Trade Organization to a program to draft a code of ethics for 
Chinese lawyers.
    The U.S.-China Legal Cooperation Fund announced its fourth group of 
grants following a December 1 meeting of its Board of Trustees. The 
Legal Cooperation Fund is a project of The China Business Forum, Inc., 
the research and education arm of the U.S.-China Business Council.
    The Fund's grants will support six new projects to:

   Develop a more effective Code of Legal Ethics for the All-
        China Lawyers Association;
   Study the development of the rule of law, constitutionalism, 
        and judicial independence in China;
   Support the first phase of a long-term academic study of the 
        legal impact on both China and the United States of China's 
        accession to the World Trade Organization;
   Draft a codification system for existing and future Chinese 
        laws to speed legal research by legal scholars and 
        practitioners as well as business and the general public;
   Assist Chinese securities regulators to conduct a study of 
        U.S. civil liability laws within the system of U.S. securities 
        regulations and facilitate teaching U.S. securities laws to 
        Chinese students; and
   Support a program for teaching of U.S. laws at a Chinese law 
        school.

    Herbert J. Hansell, Senior Counsel at Jones, Day, Reavis & Pogue in 
Washington, DC, who chairs the Board of Trustees, commented:

          ``In this fourth round of grants, the Trustees of the Legal 
        Cooperation Fund considered a number of high quality proposals 
        intended to support and foster bilateral cooperation in the 
        field of law. These grants will direct U.S. private-sector 
        resources to areas of legal cooperation that Presidents Clinton 
        and Jiang articulated in the late 1990s, and also to projects 
        that will help China meet its far-reaching WTO commitments. The 
        U.S. businesses that created and support this Fund believe that 
        U.S. cooperation with China in developing the rule of law will 
        yield specific, significant, and long-lasting benefits to the 
        citizens of both countries.''

    The U.S.-China Legal Cooperation Fund is supported by the following 
business members of the U.S.-China Business Council, the leading 
organization of American firms engaged in trade and investment with the 
People's Republic of China: ABB Inc.; AMP Incorporated; American 
International Group, Inc.; Applied Materials, Inc.; ARCO; Caterpillar 
Inc.; China Products North America; CIGNA Corporation; Citigroup; Coca-
Cola Company; Corning Incorporated; Eastman Kodak Company; Eaton 
Corporation; Emerson Electric Company; ExxonMobil Corporation; Federal 
Express Corporation; Ford Motor Company; GE Fund; General Motors 
Corporation; Honeywell Inc.; Ingersoll-Rand Company; Jones, Day, Reavis 
& Pogue; Kaye, Scholer, Fierman, Hays & Handler; Lehman Brothers; 
Merrill Lynch; Microsoft Corporation; Motorola Inc.; Nationwide Global 
Holdings; Payless ShoeSource; Praxair, Inc.; Timken Company; United 
Technologies Corporation; and Wm. Wrigley Jr. Company.
    Information on the Fund may be found at its web site: 
www.uschinalegalcoop.org. The next deadline for submitting applications 
for Fund grant will be April 16, 2001, with the next set of Fund awards 
expected about May 31, 2001.
                                --END--

                                

    Chairman Crane. Thank you, Mr. Kapp, and hopefully this is 
the last time that we go through this procedure.
    Mr. Cohen.

 STATEMENT OF CALMAN J. COHEN, PRESIDENT, EMERGENCY COMMITTEE 
                       FOR AMERICAN TRADE

    Mr. Cohen. Mr. Chairman, Mr. Levin, members of the 
Committee, I am Calman Cohen, the president of Emergency 
Committee for American Trade (ECAT), an association of the 
chief executives of major American companies with global 
operations. In the view of ECAT members, the annual extension 
of NTR with China is critical to maintaining commercial 
engagement with China and to ensuring that America fully 
benefits from the completion of China's negotiations to enter 
the WTO. The engagement policy, I hasten to add, is not an 
invention of the post-World War II era or even the last 
century. It only resumes the NTR treatment that the United 
States and China first accorded each other back in 1944. That 
status was first suspended, or was suspended after a hundred 
years in about 1951, until China formally enters the WTO. When 
the President authorizes the extension of PNTR, this Committee, 
which has played a key role in promoting the engagement policy 
at the end of the 20th century, will be called upon to reaffirm 
our longstanding policy of commercial engagement with China.
    I am here to ask you to stay the course one more year. 
Nothing has fundamentally changed since last year's debate. As 
you have heard already this afternoon, if we look at our 
primary interest as a nation, commercial, humanitarian, 
national security, it is clear that continued engagement and an 
extension of NTR status are in the United States' interest. 
Make no mistake, commercial engagement, NTR, PNTR, are not 
panaceas. They do, however, put us on the most productive road 
to achieving our country's broad interests.
    On the other side of the equation is the Disapproval 
Resolution, H. J. Res. 50. Passage of that resolution will not 
advance U.S. interests. I will suggest it will undermine them. 
Terminating NTR with China will significantly harm U.S. 
commercial interests. For example, the imposition of Smoot-
Hawley level tariffs would raise the price of U.S. imports, 
equaling an approximate $245 tax increase on the average U.S. 
family. Nor will the termination of NTR with China result in 
any appreciable improvement in China's respect for human 
rights. While many of China's domestic policies conflict with 
our values as Americans, effectively cutting off our commercial 
relations will not change these policies for the better. 
Indeed, many of those who have dedicated their lives to 
promoting reform within China believe that U.S. commercial 
engagement is one of our best tools for helping to promote our 
humanitarian interests in China, including greater openness, 
the rule of law, the respect for human rights and the 
alleviation of poverty.
    Finally, there is the issue of our national security 
interests. Terminating NTR with China will have significant 
repercussions throughout Asia that will undermine U.S. 
interests in the region. Importantly, it could strengthen 
China's hard-liners, who will cite our termination of NTR as 
proof of American hostility, and will undermine our ability to 
use dialog and other means to promote greater stability and 
security throughout the region from the Taiwan Strait to the 
Korean Peninsula.
    In conclusion, China's eventual accession to the WTO will 
not of course be the end of the process as you, Mr. Levin, and 
others have suggested. China will not magically be transformed 
overnight or in a year. We must work on the ground in China to 
promote the change that China's WTO accession promises. We will 
also need your help, with that of the administration, to ensure 
that China fully implements its commitments.
    In particular, it will be critical to fund fully the 
commercial, labor, legal system and civil society programs that 
were promoted by Congressmen Levin and Bereuter and authorized 
by last year's United States-China Relations Act. We strongly 
support also full funding for the efforts of the U.S. Trade 
Representative and the Department of Commerce to monitor and 
ensure full implementation of our trade agreements.
    In sum, renewal of NTR with China and the rejection of H.J. 
Res. 50 will continue the policy of commercial engagement that 
has benefited the United States not only in the last quarter 
century, but also since our original agreement with China on 
NTR in 1844. We cannot resolve all of our diverse concerns with 
China on the back of trade, but we can make simple progress on 
all of our interests as Americans by staying the course and 
continuing our commercial engagement with almost one-fifth of 
the world's population.
    Thank you once again for this opportunity to testify.
    [The prepared statement of Mr. Cohen follows:]

   Statement of Calman J. Cohen, President, Emergency Committee for 
                             American Trade

    I am Calman Cohen, President of the Emergency Committee for 
American Trade--ECAT--an association of the chief executives of major 
American companies with global operations. ECAT was founded more than 
three decades ago to promote economic growth through expansionary trade 
and investment policies. Today, ECAT's members represent all principal 
sectors of the U.S. economy--agriculture, manufacturing, merchandising, 
processing, and services. The combined exports of ECAT companies run 
into the tens of billions of dollars. The jobs they provide for 
American men and women--including the jobs accounted for by suppliers, 
dealers, and subcontractors--are located in every state and cover 
skills of all levels. The annual worldwide sales of ECAT companies 
exceed $1.5 trillion, and they employ approximately 4.5 million people.
    I am here today to address one of ECAT's top priorities: the annual 
extension of Normal Trade Relations (NTR) with the People's Republic of 
China that is critical to maintaining commercial engagement with China 
and to ensuring that America fully benefits from the completion of 
China's negotiations to enter the World Trade Organization (WTO).

COMMERCIAL ENGAGEMENT HAS BEEN A CORNERSTONE OF U.S. POLICY TOWARDS 
        CHINA
    Commercial engagement with China has been the cornerstone of U.S. 
policy toward China for the last nearly quarter-century, since the 
historic 1979 Agreement on Trade Relations Between the United States of 
America and the People's Republic of China. This agreement authorized 
by the Jackson-Vanik amendment of the Trade Act of 1974 and approved by 
Congress after its completion, committed the United States and China to 
accord each other NTR treatment with respect to goods and certain other 
issues. Every President since 1980 onward--starting with President 
Reagan and continuing with Presidents Bush, Clinton and now President 
George W. Bush--has sought and obtained the annual renewal of China's 
NTR status.
    In fact, this policy is not an invention of the post-World War II 
era or even the last century. It only resumes the NTR treatment that 
the United States and China first accorded each other under the 1844 
Treaty of Wanghia--that was only suspended in 1951.
    This Committee has played a key role in promoting this policy at 
the end of the 20th Century. Starting in 1990, when the first 
resolution disapproving China's NTR status was introduced in the House, 
this Committee has voted 11 times on a disapproval resolution. This 
Committee has also considered related legislation on China's NTR status 
on several other occasions.
    Most importantly, however, this Committee led the effort last year 
to authorize the President to extend permanent normal trade relations 
to China upon its accession to the WTO on terms substantially similar 
to those agreed in the November 1999 U.S.-China bilateral market access 
agreement. ECAT is very grateful for your historic efforts that we hope 
will soon reach fruition.
    The time is drawing near when we will be able to restore fully the 
commercial relationship with China that we began in 1844. Following the 
Administration's successful negotiations in Shanghai in early June and 
the recent Working Party meeting in Geneva, there remain few issues 
left to resolve as part of China's negotiations to enter the WTO. Once 
negotiations are concluded in the Working Party, the ministerial work 
of the WTO will continue in finalizing the protocol of accession, the 
working party report and consolidating the schedules containing China's 
market-access commitments. When that process is complete, the Working 
Party must report China's accession by consensus, which will be 
followed by a vote (or, as in all past accessions, a unanimous 
decision) of the General Council. Once China's entry is approved, 
Taiwan's entry will also be approved. China and Taiwan will then, of 
course, have to ratify the decisions and will formally accede to the 
WTO third days thereafter.
    In joining the WTO, China will merely resume the role that it 
played more than half a century ago: China was one of the forty-four 
participants in the 1944 Bretton Woods Conference. It served on the 
Preparatory Committee that wrote the charter for the International 
Trade Organization (ITO) that was to complement the International 
Monetary Fund and the International Bank for Reconstruction and 
Development. China was also one of the twenty-three original 
Contracting Parties to the General Agreement on Tariffs and Trade, 
initially created to be an interim arrangement until the ITO Charter 
would come into force, which it never did.
    In China, however, revolution intervened. The government of Taiwan 
notified the GATT on March 8, 1950, that it was terminating China's 
membership. It was only in 1986 that the People's Republic of China 
officially sought to rejoin the GATT, now the World Trade Organization. 
And now, after 15 years of negotiations, China is poised to enter the 
organization that it originally worked to create.

THE ANNUAL NTR DEBATE
    Until China formally enters the WTO and the President authorizes 
the extension of Permanent Normal Trade Relations, this Committee will 
be called upon to reaffirm our longstanding policy of commercial 
engagement with China. I am here to ask you to stay the course one more 
year.
    In 1990, I and a number of my colleagues in the business community 
formed the Business Coalition for U.S.-China Trade, an umbrella 
organization of associations and companies interested in promoting 
commercial engagement with China. ECAT and the Business Coalition 
supported the annual extension of NTR every year and worked with all of 
you to support last year's historic vote on PNTR. On June 5, seventy 
business associations sent a letter to the President and the House and 
Senate Leadership on the importance of NTR renewal. That letter is 
attached. The Business Coalition will soon be sending a letter to every 
member of the House asking for his or her support of NTR with China.
    You are all familiar with the issues surrounding this debate. Last 
year, Congress engaged in an extensive debate on the value of continued 
commercial engagement and Permanent Normal Trade Relations. At the end 
of the day, Congress voted to stay the course of commercial engagement 
and authorized the President to extend PNTR at the appropriate time.
Continued Commercial Engagement and the Extension of NTR Are in the 
        United States' National Interest
    Nothing has fundamentally changed since last year's debate. If we 
look at our primary interests as a nation--commercial, humanitarian and 
national security--it is clear that continued engagement and an 
extension of NTR status are in the United States' interest.
    1. Commercial Interests: China's accession to the WTO will open 
markets for every major sector of the U.S. economy and will provide a 
multilateral mechanism for the resolution of disputes under the WTO 
agreements. The U.S.-China bilateral agreement from November 1999 and 
subsequent negotiations establish a comprehensive package for removing 
major trade barriers in all major sectors of the economy. I will list 
only a few of the highlights.

   Agriculture: The bilateral agreement provides expanded 
        market access for U.S. wheat, corn, soybeans, cotton, barley, 
        and rice under a new system of tariff-rate quotas, reduces 
        Chinese tariffs on priority products such as beef, citrus, and 
        dairy from over 30 percent to 12 percent, and eliminates 
        Chinese export subsidies. The recent negotiations in Shanghai 
        resulted in China's commitment to limit substantially its use 
        of domestic agricultural support.
   Manufacturing: The bilateral agreement cuts Chinese tariffs 
        from the current overall average of 24.6 percent to 9.4 
        percent, including major tariff reductions on the farm products 
        noted above. In the auto sector, China agreed to reduce its 
        current 80 to 100 percent tariffs on autos to 25 percent and to 
        reduce tariffs on auto parts from 23 percent to 10 percent. 
        China also will join the WTO's Information Technology Agreement 
        (ITA) that will require China to reduce its tariffs on 
        computers, semiconductors, telecommunications, and other high-
        technology products to zero.
   Services: As a result of U.S. negotiations, China has agreed 
        to provide comprehensive market access for U.S. 
        telecommunications and financial services under the WTO 
        Telecommunications and Financial Services Agreements. China has 
        made specific market-access commitments in all services 
        industries of primary interest to the United States, including 
        the Internet, audio-visual, banking, insurance, securities, and 
        auto finance. U.S. publishing and information services also 
        will benefit from China's commitment to remove restrictions on 
        distribution and to reduce restrictions on investment.

    The Congressional Research Service has projected that China's 
accession would increase annual U.S. exports by $11.5 billion by 2005. 
The U.S. Department of Agriculture estimates that U.S. farm exports 
would grow by $2.2 billion annually as a result of China's WTO 
accession.
    It is to the U.S. advantage to be able to have China enter into 
binding market-access commitments that are enforceable under WTO 
dispute settlement procedures, rather than have to enforce existing 
bilateral agreements unilaterally and in a piecemeal fashion. The 
longer China's WTO accession is delayed, the more business 
opportunities are lost for U.S. suppliers and the greater the pressure 
within the United States to impose unilateral, trade-disrupting 
measures against China.
    More broadly, our continued commercial engagement, renewal of NTR 
and China's accession to the WTO will help deepen and accelerate 
China's own market reforms. Indeed, bringing China into the WTO will 
help to address our rising trade deficit with China, as China will have 
to reduce its high tariffs and eliminate quotas and other major market-
access barriers.
    As documented in ECAT's Global Investments, American Returns (GIAR) 
and ECAT's 1999 Update, the continued commercial engagement and 
investment of American companies around the world has complemented, 
rather than substituted for, economic activity in the United States in 
areas determinative of productivity, such as research and development 
and capital investments. In addition, over 70 percent of the total 
income earned by the foreign affiliates of U.S. firms is repatriated. 
This in turn has promoted economic growth and a higher standard of 
living in the United States. And contrary to the speculation of some 
critics, U.S. companies with global operations have increased overall 
U.S. employment, not reduced it.
    The cost of another extension of China's Normal Trade Status is 
small indeed. Only six countries are currently denied NTR status--
Afghanistan, Cuba, Laos, North Korea, Serbia and Montenegro and 
Vietnam--with the last likely to regain that status later this year. 
One hundred and fifty-two countries receive even more favorable access 
to the U.S. market than NTR through the NAFTA, the U.S.-Israel Free 
Trade Agreement, the Generalized System of Preferences program, the 
Caribbean Basin Initiative, the Andean Trade Preferences Act and the 
African Growth and Opportunity Act.
    There is no question that continued commercial engagement and the 
extension of NTR with China are in our commercial interest.
    2. Humanitarian Interests: Continued commercial engagement, 
including the renewal of NTR, is also one of our best tools for helping 
to promote our humanitarian interests in China, including greater 
openness, the rule of law, the respect for human rights and the 
alleviation of poverty. These are not simple issues that can be 
resolved from one day or even one year to the next. Nor can they be 
achieved through one simple vote--up or down on the renewal of NTR. 
Yet, the evidence shows that increased commercial engagement--not 
isolationism, has fostered greater reform and progress on these issues 
as well. For those of you who have visited China over the last two 
decades, you have witnessed the immeasurable changes that greater 
commercial engagement and contact with U.S. companies have had.
    China's accession to the WTO will also help strengthen progress 
towards greater transparency and the rule of law in China's legal 
system. While the rule of law work will begin in the commercial sector, 
it is certainly our government's policy--in large part through the PNTR 
legislation that you drafted last year--to help promote greater 
adherence to the rule of law in other areas as well.
    U.S. companies operating in China bring with them their values and 
their standards on everything from worker safety to the environment. 
The benefits of this engagement are inestimable in terms of their 
ability to promote a better way of life for the Chinese people.
    As the World Bank and others have documented, it is precisely 
through increased trade and economic growth that developing countries 
are better able to reduce poverty and improve standards, including on 
issues such as the labor and environment. Since World War II, the 
liberalization of trade has produced a six-fold growth in the world 
economy and a tripling of per capita income and enabled hundreds of 
millions of families to escape from poverty and enjoy higher living 
standards. A recent World Bank study shows that developing countries 
that participate actively in trade grow faster and reduce poverty 
faster than countries that isolate themselves. In the 1990s, per capita 
incomes grew 5.1 percent in developing countries with high trade and 
investment flows, while more isolated countries saw incomes decline by 
1.1 percent.
    Make no mistake, commercial engagement, NTR, and PNTR are not 
panaceas. They do however, put us on the most productive road to 
achieving our country's broader humanitarian goals.
    3. National Security Interests: Our national security relationship 
with China has obviously been on the front burner recently, 
particularly with the downing of the EP-3 aircraft. I profess no 
expertise on the issue, but defer to the statement of our Secretary of 
State, Colin Powell, on the importance of NTR renewal for U.S. national 
security interests as well:

          ``China's increasing engagement with the outside world makes 
        it easier to work with that country on maintaining peace and 
        stability in the Asia-Pacific region and combating alien 
        smuggling, HIV/AIDS, narcotics trafficking, financial crimes, 
        terrorism and environmental degradation. . . . (I)t is 
        fundamentally in our national interest to extend normal trade 
        relations.'' Colin Powell, ``The Promise of China Trade, 
        Washington Post (June 1, 2001).

    Like our humanitarian interests, we must continue to address our 
national security concerns in other venues as well, while recognizing 
that continued commercial engagement and the extension of NTR with 
China will also help to promote those very same interests.
Passage of the Resolution Disapproving China's NTR Status Will 
        Undermine U.S. Interests
    On the other side of the equation is the disapproval resolution, 
H.J. Res. 50, which this Committee and the full House will be asked to 
vote on this year. Passage of that resolution will not advance U.S. 
interests; it will undermine them. Let us consider the same three 
primary U.S. interests--commercial, humanitarian and national security.
    1. Commercial Interests: Terminating NTR with China will 
significantly harm U.S. commercial interests. The imposition of Smoot-
Hawley level tariffs would raise the price of U.S. imports, equaling an 
approximate $245 tax increase on the average U.S. family, with a 
disproportionately large effect on working and low-income households. 
Higher priced imports will raise the relative production costs for U.S. 
companies, impairing their ability to compete effectively with foreign 
companies that face no similar price increase. At the same time, 
termination of NTR can have only a negative effect on U.S. exports as 
China has little impetus to open its market to U.S. goods. In addition, 
as NTR is reciprocal, U.S. exports will face higher tariffs than those 
imposed on the exports of our principal foreign competitors. As a 
result, the loss of NTR would put in jeopardy many of the hundreds of 
thousands of U.S. jobs that are supported by our trade with China.
    The net effect is a loss for U.S. businesses, their workers and 
their families.
    2. Humanitarian Interests: Nor will the termination of NTR with 
China result in any appreciable improvement in China's respect for 
human rights. While many of China's domestic policies conflict with our 
values as Americans, effectively cutting off our commercial relations 
will not change those policies for the better. Indeed, many of those 
who have dedicated their lives to promoting reform within China believe 
that reducing U.S. involvement in China will have the opposite effect.
    The net effect is a loss for the Chinese people.
    3. National Security Interests: Finally, there is the issue of our 
national security interests. Terminating NTR with China will have 
significant repercussions throughout Asia that will undermine U.S. 
interests in the region. The most direct effects will be felt in Hong 
Kong and Taiwan, which stand to lose over a hundred thousand jobs and 
billions of dollars in exports if the United States terminates NTR. 
Even more importantly, it will strengthen China's hardliners, who will 
cite our termination of NTR as proof of American hostility, and will 
undermine our ability to use dialogue and other means to promote 
greater stability and security throughout the region, from the Taiwan 
straits to the Korean peninsula.
    The net effect is a loss for the Asia-Pacific region and our own 
security interests.

THE ROAD AFTER ACCESSION
    China's eventual accession to the WTO will not, of course, be the 
end of the process; China will not magically be transformed overnight 
or in a year. We are pragmatic people and know that we must work on the 
ground in China to promote the change that China's WTO accession 
promises. We will also need your help with that of the Administration 
to ensure that China fully implements its commitments. In particular, 
it will be critical to fund fully the commercial, labor, legal system 
and civil society programs authorized by last year's U.S.-China 
Relations Act. Similarly, we strongly support full funding for the 
efforts of the United States Trade Representative and the Department of 
Commerce to monitor and ensure full implementation of our trade 
agreements.

CONCLUSION
    In sum, renewal of NTR with China (and the rejection of H.J. Res. 
50) will continue the policy of commercial engagement that has 
benefited the United States, not only in the last quarter-century, but 
also since our original agreement with China on NTR in 1844. We cannot 
resolve all of our diverse concerns with China on the back of trade, 
but we can make considerable progress on all of our interests as 
Americans by staying the course in continuing our commercial engagement 
with almost one-fifth of the world's population.
    I appreciate the opportunity to appear before you today on behalf 
of ECAT.

                                                       June 5, 2001

The Honorable J. Dennis Hastert
Speaker
U.S. House of Representatives
H-232 of the Capitol
Washington, D.C. 20515

    Dear Speaker Hastert:

    We urge your continued strong leadership on a bipartisan basis in 
extending normal trade relations with China in order to allow 
completion of negotiations to bring China and Taiwan under the rules of 
the global trading system.
    Last year, in the most important trade vote in six years, Congress 
enacted historic legislation authorizing the President to approve 
Permanent Normal Trade Relations (PNTR) with China upon completion of 
negotiations over China's application for WTO membership. Because the 
WTO negotiations have taken longer than expected, in part because of 
America's insistence that China join on sound commercial terms, 
Congress is likely to be forced again to vote on whether to disapprove 
the President's annual extension of NTR. If Congress terminates NTR, 
prohibitive Smoot-Hawley tariffs would be imposed on Chinese goods. 
Unlike PNTR, the upcoming NTR vote is the trade equivalent of an 
``extender'' designed to maintain the status quo, pending completion of 
a WTO agreement.
    In approving PNTR, the House and Senate reaffirmed a quarter-
century of bipartisan U.S. policy, which has recognized that U.S. 
commercial engagement is America's best tool for advancing economic 
freedom and the rule of law in China, supporting vital U.S. national 
security interests in Asia, and maintaining Taiwan's prosperity and 
security. While, like all Americans, we are concerned by recent 
developments in U.S.-China relations, revoking NTR would be the wrong 
response, with devastating consequences for U.S. security, jobs, 
exports, and consumers.
    We appreciate your strong leadership in advancing American trade. 
We look forward to working closely with you and the bipartisan House 
and Senate leadership to extend NTR and wrap up a WTO agreement to open 
China's markets to American goods, services, and farm products.

            Sincerely,
                    AeA, Advancing the Business of Technology; 
                            Aerospace Industries Association; American 
                            Apparel and Footwear Association; American 
                            Chamber of Commerce in China; American 
                            Chamber of Commerce in Guangdong; American 
                            Chamber of Commerce in Hong Kong; American 
                            Chamber of Commerce in Shanghai; American 
                            Chamber of Commerce in Taipei; American 
                            Chemistry Council; American Council of Life 
                            Insurers; American Crop Protection 
                            Association; American Farm Bureau 
                            Federation; American Feed Industry 
                            Association; American Forest & Paper 
                            Association; American Insurance 
                            Association; American Meat Institute; Asia-
                            Pacific Council of American Chambers of 
                            Commerce; Association of American 
                            Publishers; Automotive Trade Policy 
                            Council; Biotechnology Industry 
                            Organization; The Business Roundtable; 
                            California Council for International Trade; 
                            Coalition for Employment Through Exports; 
                            Coalition of Service Industries; Computer 
                            Systems Policy Project; Distilled Spirits 
                            Council of the United States; Electronic 
                            Industries Association; Emergency Committee 
                            for American Trade; Food Marketing 
                            Institution; Footwear Distributors and 
                            Retailers of America; Grocery Manufacturers 
                            of America; Idaho Barley Commission; 
                            Information Technology Industry Council; 
                            International Dairy Foods Association; 
                            International Insurance Council; 
                            International Mass Retail Association; 
                            National Association of Manufacturers; 
                            National Cattlemen's Beef Association; 
                            National Chicken Council; National Council 
                            of Farmer Cooperatives; National Electrical 
                            Manufacturers Association; National Food 
                            Processors Association; National Foreign 
                            Trade Council; National Oilseed Processors 
                            Association; National Pork Producers 
                            Council; National Potato Council; National 
                            Renderers Association; National Retail 
                            Federation; National Turkey Federation; 
                            National Venture Capital Association; 
                            Pharmaceutical Research and Manufacturers 
                            of America; Rice Millers' Association; 
                            Semiconductor Equipment and Materials 
                            International; Semiconductor Industry 
                            Association; Snack Food Association; 
                            Software and Information Industry 
                            Association; Telecommunications Industry 
                            Association; Toy Industry Association; USA 
                            Engage; USA Poultry & Egg Export Council; 
                            United States Association of Importers of 
                            Textiles and Apparel; United States-China 
                            Business Council; U.S. Apple Association; 
                            U.S. Chamber of Commerce; U.S. Council for 
                            International Business; U.S. Dairy Export 
                            Council; U.S. Rice Producers' Group; 
                            Washington State China Relations Council; 
                            Wheat Export Trade Education Committee; 
                            Western U.S. Agricultural Trade Association

                                

    Chairman Crane. Thank you, Mr. Cohen. Mr. Stallman, you 
mentioned in your testimony that China committed to cap its 
domestic support at 8.5 percent of production value, and yet 
the current subsidies are only 1 to 2 percent. I don't get it. 
I mean, 5 percent was the target we were trying for. What was 
their interest in that arbitrary 8.5 percent?
    Mr. Stallman. And that is a good question, because we were 
asking the same one. We would like to have held it at 5. They 
are very limited in their ability to provide domestic support.
    Chairman Crane. I was going to say, but how could they 
afford 8.5?
    Mr. Stallman. Well, we don't think they will, but in 
discussions with particularly some of the Chinese officials 
here in Washington it was an issue of, I guess, saving face 
with their countryside, with their farmers in the country. Even 
with that 8.5 percent, the total so-called amber box type 
spending levels, we still have a greater level under the WTO 
than what the Chinese will at the 8.5 percent because we had 
some previously during the General Agreement on Tariffs and 
Trade, GATT, round.
    Chairman Crane. Yeah. Mr. Benanav, how open will China's 
insurance market be after its commitments are phased in?
    Mr. Benanav. The agreement provides that anyone who meets 
prudential tests is permitted to apply and receive a license. 
If you have an operating history of being a good insurance 
company and are in sound financial condition, you are eligible 
for a license. Over a 5-year period the entire country will 
open up in phases. So I would say within 5 years it will be an 
open market just as you see in Hong Kong or other places. The 
only restriction that American and other companies will have is 
they will have to operate as joint ventures, with American 
companies being permitted to own 50 percent of the joint 
venture under the current agreement, whereas in other places, 
in Hong Kong for example, we can own 100 percent of the 
company.
    Chairman Crane. Mr. Kapp, last week the Washington Post 
reported that President Jiang Zemin for the first time opened 
Communist Party membership to entrepreneurs and private 
businesses who have previously been disparaged as capitalists. 
Based on your extensive knowledge of China, do you believe this 
was a significant change in policy and, if so, why?
    Mr. Kapp. Well, it was certainly a controversial one, which 
has initiated some very heavy criticism within China, because 
it seems to fly in the face of fundamental Marxist-Leninist 
dogma. I think the leadership understands that the dynamism in 
the Chinese economy today resides in the non-State sector. That 
is where the jobs are being developed. That is where the 
technical innovation is coming from. That is where the 
aspirations of those who are eager to make more of their lives 
are being focused. The Party leaders can see this for 
themselves. They would rather have within their ranks that most 
dynamic segment of a society in profound transition than try to 
keep it at arm's length.
    There is potentially something of a parallel from the 
forties, which I hope doesn't happen this time. In the forties 
the then governing party and ruling party in China, the 
Nationalist Party, had a way of muscling its way into any 
business that was making progress and had not yet fallen under 
party control. In other words, in those terrible years a lot of 
businesses were driven into, destruction by the intrusions of 
the ruling party, and one doesn't want to see that happen again 
in China. Nor does one want to see, a kind of resurgence of 
privileged, wealthy elites and exploitative political elites in 
a way that is profoundly reactionary.
    But I don't really think the circumstances are that similar 
now. I think the party is facing reality. This is where the 
enthusiasm and the dynamism is in the society. The 
entrepreneurs who are now joining, however, are joining for 
very instrumental reasons. They see, membership in the party as 
a useful way to ensure certain kinds of favorable behavior from 
the State or to insulate themselves perhaps from some of the 
unfavorable behaviors that the State could otherwise bring down 
on them. So it is a little bit of an insurance policy, and that 
is not always going to be to our liking either.
    Chairman Crane. Mr. Cohen, currently what is the most 
difficult challenge to doing business in China and how will 
China's accession to the WTO help to resolve these challenges?
    Mr. Cohen. I would think one of the most difficult 
challenges----
    Chairman Crane. Wait, your mike isn't on.
    Mr. Cohen. Mr. Chairman, I think one of the most difficult 
challenges will be in the agriculture sector. Given that 
approximately 50 percent of China's population is agrarian, I 
think there will be a great deal of pressure against the 
Chinese to fully implement their various commitments to open 
their agricultural sector. It will require constant attention 
from the U.S. Government with regard to their regulations in 
the area of sanitary and phytosanitary areas. As a result, I 
would think that in terms of the WTO, we will need to work with 
the Chinese to try to ensure that they put in place the systems 
that will allow their various agrarian sectors to comply with 
the commitments that China made to become a member of the WTO. 
I don't think this is going to be achieved overnight. There 
will be cases where we will need to avail ourselves of the WTO 
dispute settlement, but I would hope that we would instead in 
as many cases as we possibly can provide the resources that are 
called for in the legislation passed by the Congress last year 
to provide education, training, technical assistance so the 
Chinese can follow through.
    Chairman Crane. Thank you. Mr. Levin.
    Mr. Levin. Thank you and welcome to all of you. We have 
enjoyed your testimony. I think it may be a bit more nuanced 
than it might have been some years ago. I am not sure. But I 
think some progress has been made in this debate we have been 
having here, and I think there is a broader agreement about not 
looking at China in kind of cut and dried, either/or terms, and 
a realization that the journey ahead is going to be a difficult 
one for them and a difficult one for us, that there will be 
competition as well as market access. I think, Mr. Stallman, 
your testimony kind of evidences that.
    The argument about subsidization in a sense was 
theoretical, but I think in a sense wasn't. We probably should 
learn from the recent experience between Japan and China that 
China will be a competitor as well as a purchaser, and that may 
well be true of agriculture. And that may not be true, United 
States-China, for 15, 20 years. It is slightly true now, I 
think. But maybe that is what the fighting was all about. And I 
think it also is illustrated in your comment, which is fairly 
stark, on the last page about the bioengineering, about biotech 
standards. It is not a subject of little controversy elsewhere. 
And I think when you say without such clarification China 
should not be allowed entry into the WTO, that is a pretty 
strong statement, and I agree we need to iron that out.
    I think, therefore, this debate has helped us to realize 
that when we look at China, again, it is not just a place where 
we will sell goods. It is a place with which we will be 
increasingly competing in higher tech goods and probably in 
agriculture. There isn't much competition now, but it is 
foreseeable that will occur 5, 10 years from now, isn't it?
    Mr. Stallman. Well, with respect to agriculture, we have 
always contended that it would be difficult, as Mr. Cohen 
indicated, to be sure that they actually implement the 
agreement. There will be some sectors, some agricultural 
products where the Chinese will be competitive. Look at the 
apple juice concentrate issue right now. I mean, that is just 
one. On the other hand, some of the things they have agreed to 
do upon accession, eliminating export subsidies, that has been 
a bone of contention with EU for years and they have agreed to 
do it with their agricultural products, so that will impact.
    So, yes, it will be a give and take over time. It is not a 
one-way magic bullet. But on balance having access to that 
market for American agriculture is extremely important. They 
only have roughly 7 percent of the arable land in the world, 
versus more than 20 percent of the population and growing, so 
that right there is a natural resource cap on production.
    Mr. Levin. Even the word ``balance'' has come into play in 
discussing a relationship. And Mr. Cohen, I think you also 
highlighted it. Mr. Kapp and I have talked about this a lot, 
the whole implementation process, and I do hope that everybody 
will work hard to realize this is closer to the beginning than 
it is the end. And this is true in terms of our full economic 
relationship in terms of human rights issues, in terms of other 
economic related issues, and we have a lot of work to do. I 
hope that all of you will be as active from here on in as you 
have been active in securing PNTR when it comes to 
appropriations for the various departments in terms of 
implementation for the Commission, really for everything, 
because the three times I have been in China, I think you feel 
change, but you also feel rather age old traditions, including 
a very weak rule of law.
    Also, I think the comment, Mr. Benanav, of yours is so 
right, and I think when you talk about implementation, now just 
I will just kind of end where I began. I notice when you read 
win-win you modified it a bit. Because I just don't think we 
can tell people in this country that a trade proposition is 
win-win and there be no losers and no problems, it is all one 
way, it is easy street. That isn't the way competition works 
within the United States. I think the last years have shown 
there are winners and losers, including some people whose stock 
is now worth 2 cents on the dollar, and I think we have to 
expect an international competition. There are going to be 
winners and losers, especially as we compete with countries 
that have very different structures.
    Mr. Kapp, your burden, to some extent the rest of you, has 
been to work with a relationship involving a country that is at 
a very, very different point than we are, and I think if we 
don't acknowledge it as well as the change that is occurring 
within, we are not only fooling ourselves, even worse, we are 
fooling our constituents. They know better. Anyway, on this 
last hearing date, thanks for joining us. Hasta la vista 
somewhere else.
    Chairman Crane. Mr. English.
    Mr. English. No.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman. And to all of the 
panels, thank you very much for your testimony, quite often I 
must say. If I could ask Mr. Kapp, because I am glad you veered 
from your text and you spoke from your heart, and eloquently 
so, as you have in the past. Could you give me a sense of how 
we should contextualize what has happened in the past year with 
China and the incidents that our public, our constituents read 
about, hear about? How do we frame the debate for a public 
which only hears about China based on what it sees on the 
evening news or reads in the upper fold of the newspaper, which 
for the most part has not been good? And how do we--give me a 
sense of how we try to convey to them the import of what you 
all have just said.
    Mr. Kapp. Well, Congressman, it is really a problem. A 
couple of days ago the New York Times did a 30-inch column 
story about the fact that the people in China eat dog. And 
right in the middle of this very long report, accompanied by 
pictures of dog hindquarters boiling in pots, and so forth, was 
a little box, no more than three column inches, which said 
``China to try U.S. scholar.''
    I actually wrote to the Times about it and tried to say, 
``The story that some Chinese people eat things that American 
people consider repugnant goes all the way back to the 1870s. 
There is a whole tradition, in California above all, as you 
probably know, of this. And you demean the story of the 
scholars who have been indicted and are to be tried by putting 
it in as a little box where the overall message is, `Ain't it 
awful! The Chinese do these terrible things: they are really 
beyond the pale; they eat dog and they are bad to U.S. 
scholars.' ''
    I have a real problem with this. It is not for a minute to 
say that the American media should go out and portray 
everything in China as sweetness and light. And actually as 
someone who reads the media, the major national media, very, 
very carefully, I would say that the last couple of years have 
actually shown some improvement in the media's treatment of 
complex realities in China, many of which are very tough. Life 
is tough over there for a lot of people. It is also exciting 
for a lot of people. But, I think that, for those of us who 
understand that it is not as simple as ``Ain't it awful--the 
Chinese eat dog meat,'' (or who remember that Americans eat 
pork and beef, which offends the sensibilities of many Muslims, 
Jews and Hindus around the world), all we can do is try, 
without allowing ourselves to be nailed as apologists for 
Beijing, to point out that China has tough, huge burdens and 
challenges and that governing it is a very difficult matter, 
and to point where we can to stories that convey a balance and 
a balance of experience.
    Now, American business, I might say, is pretty good at 
that, and the majority of American businesspeople if they ever 
were in the realm of painting rosy pictures--are way beyond 
that today. I could bring in 15 people and sit here and give 
you very interesting, balanced stories about the good and bad, 
the pros and the cons, the achievements and the failures. That 
is what we need. China is not that different from any other 
country in this regard. But it is a long battle and I for one 
find it exhausting, but also necessary.
    Mr. Becerra. Mr. Benanav, let me ask you a question now. 
Congressman Tanner asked Mr. Bader a question regarding 
services. Right now, of our exports to China very little is in 
the form of services and if indeed Europe is moving forward 
with financial services agreements with China, that may to some 
degree block us out unless it is totally open market, and I 
don't think that we quite get there. What is your sense about 
our opportunities in the financial services area to make some 
inroads into China, given that we need to compete obviously 
with the Europeans and others?
    Mr. Benanav. Right. The Chinese economy is at a point where 
it needs a much broader financial sector in order to fuel the 
growth that they need. American companies and European 
companies to a large extent have expertise that the Chinese 
absolutely have to have if they are going to create a vibrant 
capital market, if they are going to create infrastructure 
funds to help grow. It is a place where we have a significant 
competitive advantage, and our opportunity to go into those 
markets and bring that expertise for both our own benefit as 
U.S. companies and for the benefits of the Chinese people and 
Chinese economy really represent a unique opportunity. This is 
not a case where we are transferring American jobs to China. 
This is financial services for the Chinese people. Most of the 
employees are Chinese and some are American expats.
    So this really is a sector, one of the few sectors maybe, 
where we can say we have an opportunity to win with very little 
risk of losing anything, and that is why the service industry 
is so eager to get into China, because the longer the delay the 
less our competitive advantage will be because the Chinese 
themselves, very smart people, are taking every opportunity 
they can to develop that expertise and maintain the businesses 
under Chinese ownership and we are eager to get in there. We 
believe the market is going to be large enough so that the pie 
will be ever growing and there is plenty of room for American, 
European and Chinese companies.
    An example I use is Hong Kong, with a population of 6 
million people, has over 40 life insurance companies. How many 
companies can a billion two hundred million people support? The 
U.S. has about 2,000 life insurance companies, which may be too 
many, but there is plenty of room for a lot of companies in 
China providing financial services.
    Mr. Becerra. Thank you. Thank you, Mr. Chairman.
    Chairman Crane. Well, we want to thank you all again for 
your participation and your ongoing participation, Mr. Kapp, 
too, for so many years, and with all due respect, we do hope 
this is the last time we ask you to come testify, and with that 
our hearing stands adjourned.
    [Whereupon, at 4:12 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
Statement of the Hon. James A. Kelly, Assistant Secretary of State for 
        East Asian and Pacific Affairs, U.S. Department of State
    I appreciate the opportunity to comment on U.S.-China ties. This is 
perhaps America's most challenging and complex relationship. Successful 
management of U.S.-China relations is vital to our peace, prosperity 
and security--and that of our allies. A key to that success will be 
continuing Normal Trade Relations for China. It is an integral part of 
our efforts to bind China to acceptable international standards of 
behavior.
    Our relationship with China is based, first and foremost, on 
America's national interests. We will engage and cooperate with China 
where we can--for example on Korea and South Asia--and compete with or 
vigorously oppose China where we must--such as on human rights and 
nonproliferation. As Secretary Powell said, ``We will treat China as 
she merits. China is a competitor and a potential regional rival, but 
also a trading partner willing to cooperate in the areas where our 
strategic interests overlap. China is not an enemy and our challenge is 
to keep it that way.''
    We will also consult with our allies and friends in the region. 
They stand at the forefront of America's Asia-Pacific policy and I 
believe they want a strong and reliable U.S. role in the region and at 
the same time, a productive relationship with their largest neighbor.
    If we are to be successful in promoting and protecting our national 
interests and in working with our friends and allies, then we must find 
a way to deal with the contradictions of a changing China--a country 
that at times embraces globalism and at other times encourages intense 
nationalism, a country that wants to join the world trading system but 
also keeps in place protectionist barriers.
    We can best do this by holding China to its bilateral and 
international commitments. If China chooses to disregard those 
obligations in areas as diverse as security, human rights, 
nonproliferation and trade, we will use all available policy tools to 
persuade it to move in more constructive directions.
    The cutting edge of reform and positive social development in China 
is our trade relationship. As the President said, ``Open trade opens 
minds.'' Economic growth spurred by freer markets leads to greater 
integration with global economic, trade and information systems. In the 
process, the marketplace will promote American values, just as trade 
will, I believe, encourage more freedom and individual liberties. You 
can already see that happening today in China, where trade has led to 
greater openness, more competition, more choice, greater job 
opportunity--and fewer government controls on day-to-day life, 
particularly in the coastal regions most affected by international 
trade. Greater access to China's markets will also promote opportunity 
for American business, labor and agriculture providers and give 
American consumers more and better choices with regard to the products 
they purchase. For all these reasons, we urge the Congress to reject 
H.J. Res. 50.
    We do not claim that trade alone will remake China in the near term 
or that it is the single most critical element in the dynamic change 
that has taken place these last 20 years in the PRC. But trade has been 
an important part of this process because it exposes many Chinese to a 
world in which competition and choice inform and transform basic 
decision-making.
    For the same reasons--that is, enhancing our peace and prosperity, 
furthering America's and our allies' interests and helping transform 
China--the President plans to attend the APEC leaders meeting in 
Shanghai in the fall and then travel to Beijing. His presence will 
speak volumes about our commitment to regional prosperity and market-
oriented economic reform in China.
    Taiwan is important and this Administration has been clear about 
the importance we attach to our unofficial relationship with Taiwan and 
the admiration with which we view the progress made in Taiwan over the 
past 20 years. The President made clear in his discussion of our recent 
arms sales package that, as set forth in the Taiwan Relations Act, we 
will continue to ``make available to Taiwan such defense articles and 
services'' as are required to enable Taiwan to defend itself. We have 
informed the Chinese that military build-ups, especially of short and 
intermediate range missiles across the Taiwan Strait, are not the 
answer. Dialogue is. We are direct with the Chinese in Beijing that our 
maintenance of unofficial relations with the people on Taiwan and our 
commitment to support Taiwan's self-defense are fundamental to our 
``one China'' policy. We favor and encourage dialogue across the 
Strait.
    Our productive relationship with China can only be based on a true 
reflection of our values. They are our greatest strength. We will be 
forthright in telling Beijing that its human rights violations are 
unacceptable to the American people and that change is necessary. Every 
American Administration has been clear about this: U.S.-China relations 
cannot reach their full potential so long as Americans are persuaded 
that the Chinese government systematically violates its people's most 
basic rights of worship, peaceful assembly and open discourse.
    We are pressing the Chinese government at all levels to end abuses, 
including use of torture, arbitrary arrest, and detention without 
public trial or for peaceful expression of political or religious 
views. In particular, we will press for an end to religious 
restrictions against Tibetan Buddhists. We have forcefully raised the 
recent detentions of U.S. citizens and legal permanent residents. The 
President discussed this issue with President Jiang Zemin in their 
phone conversation on July 5. In fulfilling our responsibility to all 
Americans, we issued a Public Announcement through our consular 
information program that provides the full picture to those planning to 
travel to China.
    Religious freedom and tolerance are also issues at the center of 
our concerns about how China treats its people. Taking the longer view, 
we will also work to preserve Tibetans' unique cultural, religious, and 
linguistic heritage. We urge China to open a dialogue with the Dalai 
Lama or his representatives.
    Proliferation is an area where we have shared interests with China, 
but where we also have disagreements about Chinese actions. It is in 
our interests and the interests of the entire international community 
that China abide by international norms and standards in dealing with 
proliferation issues. We will work hard to have China adhere to those 
standards.
    There are additional areas where we share interests with China and 
would like to see it continue or expand constructive policies. We want 
to build on cooperation against narcotics trafficking; China realizes 
that drugs are a threat to the Chinese people. The problems of 
trafficking in persons and illegal immigration are also areas where we 
have a common interest with China. We want to work with China to combat 
the spread of HIV/AIDS. And we will continue to work together where 
possible to protect the environment.
    Secretary Powell stated that we have a strong interest in 
supporting the development of the rule of law in China. We are prepared 
to offer an American perspective to China as it attempts to develop a 
more transparent and accountable legal system; we have, after all, the 
most open, transparent, and democratic legal system in the world.
    We have enunciated a clear path forward. China is in a position to 
chart a mutually beneficial course for our future relationship. This 
Administration wants a productive relationship with Beijing that 
promotes our interests and those of the entire Asia-Pacific region. We 
are willing to work with China to address the areas of common concern 
that I have mentioned. These are items on a bilateral agenda with China 
that are in our national interest and we believe China's leaders will 
also see these as common interests.
    But we will be firm in advocating our views:
  --We will not shy away from supporting our friends and defending our 
        common interests in the region.
  --We will address differences with China forthrightly and in a spirit 
        of mutual respect.
  --We will be guided by our values and ensure Beijing understands it 
        cannot have a stable relationship with the American people if 
        it continues to oppress its own citizens.
  --Above all, we will insist that China respect its bilateral and 
        international obligations.
    China's behavior, particularly in the next few months, will 
determine whether we develop the kind of productive relationship the 
President wants. We encourage China to make responsible choices that 
reflect its stature in and obligations to the community of nations. The 
Congress can help nudge China in the right direction by rejecting H.J. 
Res. 50.

                                

    Statement of the Ad Hoc Committee of Domestic Nitrogen Producers

Introduction

    The Ad Hoc Committee of Domestic Nitrogen Producers (``the AD Hoc 
Committee'') is an informal coalition of a number of major U.S. 
nitrogen fertilizer producers. The members of the Ad Hoc Committee 
include CF Industries, Inc.; Mississippi Chemical Corporation; Terra 
Industries, Inc.; PCS Nitrogen, Inc.; and Coastal Chem, Inc. The Ad Hoc 
Committee has worked diligently over the past several years with U.S. 
trade negotiators and the Congress to ensure that China provides 
meaningful market access for foreign fertilizer producers. The Ad Hoc 
Committee is following carefully the final phase of negotiations on 
China's accession to the WTO currently taking place in Geneva in the 
WTO Working Party on China's Accession.

    The Ad Hoc Committee seeks the support of the Committee on Ways and 
Means and the Trade Subcommittee in helping to ensure that the final 
text of China's market access schedule for goods as well as the final 
texts of the Working Party report, its annexes, and the Chinese 
protocol of accession maintain and provide for full and timely 
implementation of China's bilateral commitments to the United States on 
fertilizer. The Ad Hoc Committee also seeks the support of the 
Committee on Ways and Means and the Trade Subcommittee in obtaining a 
further commitment from China that U.S. fertilizer exports to China 
will receive treatment no less favorable than that apparently committed 
to fertilizer producers from the European Union for the time period 
between now and the date of entry into force of the WTO for China.

China's Bilateral Commitments to the United States on Fertilizer

    The issue of Chinese market access commitments on fertilizer was 
the last market access issue resolved bilaterally between the United 
States and China. The Chinese had withdrawn their earlier concessions 
on fertilizer at the last moment when the original U.S.-China Agreement 
On Market Access of November 15, 1999, was signed. However, at the 
insistence of Ambassador Barshefsky, China committed to reexamine her 
position and to resolve the problem. Based on this commitment, 
subsequent negotiations between China and the United States led to the 
signing of a separate bilateral agreement on fertilizer on April 28, 
2000 (``Additional Provisions on Market Access for Certain Chemical 
Fertilizers''). Under this agreement, the Chinese committed to 
establish tariff rate quotas (TRQs) for urea and diammonium phosphate 
(DAP) that would provide meaningful access to the Chinese market for 
these key fertilizer products.

Work on Incorporating China's Fertilizer Commitments into the Final 
        Terms of China's Accession to the WTO and Outstanding Issues

    Since the conclusion of these bilateral agreements, U.S. 
negotiators have worked hard in Geneva to ensure that the final text of 
China's market access schedule for goods as well as the final texts of 
the Working Party report, its annexes, and the Chinese protocol of 
accession maintain and provide for full and timely implementation of 
China's bilateral commitments to the United States on fertilizer. At 
the most recent meeting of the WTO Working Party on China's Accession 
in Geneva on June 27-July 4, most of the outstanding issues in the 
various texts as they relate to fertilizer were apparently resolved 
although the U.S. fertilizer industry must still review the final 
texts. (The U.S. fertilizer industry sent a delegation to Geneva to 
advise USTR during the latest round of talks.)

    Nonetheless, there are still several open questions that must be 
resolved relating to possible domestic price controls on urea and the 
administering agency in China for fertilizer TRQs. In addition, the 
Europeans recently negotiated preferential access to the Chinese market 
for its fertilizer exports for the period of time between now and the 
date of accession for the Chinese. Unless the Chinese are willing to 
extend these interim fertilizer concessions to third countries, U.S. 
fertilizer interests will be sorely disadvantaged. A number of Senators 
sent a letter to Ambassador Yang Jiechi on June 29 expressing their 
concern about this matter and asking for equal treatment for the U.S. 
fertilizer industry.

Objectives of the Ad Hoc Committee on Fertilizer and China

    In working with USTR officials and the Congress on this matter in 
recent months, the Ad Hoc Committee has indicated that it has the 
following objectives on fertilizer for the close-out phase of 
negotiations on China's accession to the WTO:

   The bilateral fertilizer agreement (``Additional Provisions 
        on Market Access for Certain Chemical Fertilizers'') that was 
        signed in Beijing on April 28, 2000 must stay intact. The U.S. 
        fertilizer industry, including the Ad Hoc Committee, worked 
        very hard to achieve agreement with the Chinese on market 
        access for fertilizers. The agreement consists of commitments 
        on tariff rate quotas (TRQs) for DAP and urea and how those 
        TRQs will be administered. This agreement must not be altered, 
        unless it were to increase the quantities for DAP and urea that 
        would receive the lower tariff rate of 4 percent, as opposed to 
        the out-of-quota tariff rate of 50 percent.
   China should fulfill her obligations under the bilateral 
        fertilizer agreement on a timely basis: The TRQ provisions for 
        fertilizer were carefully thought through with the aim that 
        implementation of these TRQs would coincide with the fertilizer 
        business cycle. Therefore, it is critically important for the 
        Chinese to adhere to the schedule set forth in the bilateral 
        agreement. This includes application procedures, official 
        journal publication dates, allocation procedures, and 
        reallocation procedures. It is essential to insure that these 
        procedures are in place well before the official entry of China 
        into the World Trade Organization.
   Prior to entry into force of the WTO for China, the Chinese 
        should provide equitable market access for fertilizer that is 
        roughly comparable to the formal commitments made by the 
        Chinese under the bilateral fertilizer agreement, and in any 
        event, access no less favorable than that given to third 
        countries, such as the EU. When the bilateral fertilizer 
        agreement was reached, it was the expectation of the U.S. side 
        that China would enter the WTO by January 1, 2001; and that the 
        market access provisions for fertilizer would begin to apply as 
        of that date. Unfortunately, there have been unforeseen delays 
        in Chinese entry into the WTO, although it is hoped that this 
        can occur in the early part of 2002. In the interests of equity 
        and the fact that the U.S. is entitled under the MFN provisions 
        of the U.S.-China Trade Agreement of 1978 to access comparable 
        to that apparently committed by China to the EU for NPK in 
        advance of China's formal entry into the WTO, the Ad Hoc 
        Committee believes that China should provide access for DAP and 
        urea from now until WTO entry that is roughly comparable to the 
        commitments they made under the bilateral fertilizer agreement. 
        It was clearly the expectation of the U.S. side when it 
        negotiated the bilateral agreement that such access would have 
        been provided by now. Any delay by China in providing this 
        access will do grave harm to the U.S. industry.
   China should not impose domestic price controls on the sale 
        of urea in China. The Ad Hoc Committee has been advised 
        informally, and is seeking to confirm, that China intends to 
        reserve the right to impose price controls on the sale within 
        China of at least a portion of Chinese production of urea. The 
        Ad Hoc Committee firmly opposes the imposition by China of any 
        price controls on the sale of urea in China, as this will only 
        distort the market for urea in China and could seriously 
        undermine the value of the market access concessions for urea 
        made by China in the bilateral fertilizer agreement.
   MOFTEC is the proper Chinese agency to implement and 
        administer the fertilizer TRQ. MOFTEC is the appropriate 
        Chinese agency to perform this function since it is regularly 
        engaged in international trade matters and is knowledgeable of 
        the workings of the fertilizer industry.
Conclusion
    The Ad Hoc Committee appreciates the opportunity to provide these 
written comments for the record in conjunction with the hearing of the 
Trade Subcommittee of July 10, 2001, regarding China's accession to the 
WTO. The Ad Hoc Committee appreciates the support of the Trade 
Subcommittee in working with U.S. negotiators and Chinese officials to 
attain the objectives of the Ad Hoc Committee as set forth in this 
submission. Attainment of these objectives is crucial for the long-term 
economic health of U.S. nitrogen fertilizer producers.

                                

            Statement of the American Insurance Association
    U.S. property and casualty insurers strongly supported the 1999 
U.S-China bilateral agreement on China's accession to the World Trade 
Organization (WTO) because of the far-reaching and comprehensive market 
access commitments it provided for U.S. insurers to the Chinese market. 
The agreement did not completely open the market for U.S. insurers, but 
it opened it significantly enough to generate further confidence among 
U.S. insurance companies already invested in China or those 
contemplating investments in the future.
    The U.S. property and casualty insurance industry and its trade 
association, the American Insurance Association, spent considerable 
time and resources lobbying in support of Permanent Normal Trade 
Relations for China in 2000, largely based on the quality of the 1999 
agreement. It lobbied hundreds of congressional offices and contacted 
every Member of the House and Senate in support of PNTR.
    One year later, the AIA is proud to offer its continued strong 
support for China's accession to the WTO and for the granting of Normal 
Trade Relations (NTR) for China again this year until accession becomes 
a reality. The U.S. property and casualty insurance industry has had 
various issues subject to negotiation since the 1999 agreement, and 
more recently in the WTO Working Party on China's Accession, in an 
effort to clear up ambiguities in that agreement. We are happy to 
report to the House Ways and Means Trade Subcommittee that these issues 
have progressed to our satisfaction and will result in meaningful 
market opening opportunities for many U.S. property and casualty 
insurers.
    These issues have included:

   The elimination of the mandatory 20 percent reinsurance 
        cession on non-life insurance products. The Working Party 
        report calls for a phase-out of this cession over a period of 
        four years. The AIA has expressed concern over the cession in 
        the past and supports its timely phase-out.
   Opening the market to ``large-scale commercial risks.'' 
        Large commercial risks in China have always been a targeted 
        market for U.S. property and casualty insurers, and the U.S. 
        prioritized the opening of this market in the 1999 agreement. 
        Language in the Working Party report will set the parameters 
        for the ``large-scale commercial'' risk market at approximately 
        $50,000 in U.S. premium value and an $18 million investment 
        level. While these parameters will limit access to China's 
        commercial market for U.S. insurers, this opening in the 
        commercial market is a good start and one that we hope to build 
        on in future negotiations.
   Master policy coverage. The agreement will permit insurers 
        to underwrite blanket coverage for the same person's property 
        and liabilities but located in different places. This will make 
        it easier and more efficient for an insurer to underwrite the 
        risks of one company that conducts business in multiple 
        locations throughout the country.
   Licensing criteria. We have reviewed language currently in 
        the Working Party report that addresses criteria for license 
        applications from U.S. insurers and believe that it should 
        provide for a fair and transparent system for awarding licenses 
        in a timely and fair manner. Last year, the AIA reported that 
        over 20 U.S. insurance companies were currently operating in 
        China in some capacity, and this criteria should help them 
        become licensed if they meet the relevant qualifications.

    The AIA remains committed to China's WTO accession and continued 
congressional support for NTR for China. We are happy to report that 
all issues of concern to us appear to be on the verge of being 
favorably resolved in the Working Party report, and we will continue to 
work with USTR negotiators toward that end. We understand that all 
parties involved--the U.S., China and all WTO countries--will continue 
to watch China's accession with great interest and optimism, and stand 
ready to assist China in any way in successfully adhering to the terms 
of accession and to WTO membership in general. Anything less would be a 
disservice to global trade and prosperity, the effectiveness of the 
WTO, U.S. trade policy, and, importantly, to the Chinese people and 
private sector that will benefit from a healthy and open property and 
casualty insurance sector.
                          INSURANCE AND CHINA
Background
   Compared to other major countries, China's insurance market 
        is relatively new and still evolving. Foreign participation in 
        the market is even more recent with many foreign insurance 
        companies just beginning to establish a presence in China in 
        the last decade.
   Insurance was nationalized in China in 1949, and until the 
        late 1980s the market was dominated by a small number of state-
        owned insurance companies in China. China began to gradually 
        award licenses to foreign insurers in the early 1990s, but the 
        business activities of the licensed companies have been heavily 
        restricted and still are today.
   As in most developing countries, insurance has not been a 
        major component of China's economy in the past. As the economy 
        in China has gradually expanded and undergone some reform, more 
        types of insurance products (that are common in developed 
        countries) are now in higher demand.
   Currently, the Chinese market is still largely closed to 
        foreign insurance companies. While several foreign insurance 
        companies have operating licenses in China, the extent to which 
        they can operate and sell their products is extremely limited.
   The Chinese Insurance Regulatory Commission (CIRC) was 
        created in 1998 to regulate the business of insurance in China. 
        The creation of a single agency to regulate the business is 
        indicative of the increasing importance of insurance to the 
        Chinese economy.
   Currently, there are nearly 30 insurance companies operating 
        with licenses in China, including Chinese and non-Chinese 
        companies.
Chinese market_the future
   The Chinese economy experienced significant growth in the 
        1990s. Continued economic reforms will generate new economic 
        growth and significant new opportunities for U.S. insurers. As 
        China continues to open its doors to foreign investment, U.S. 
        insurers want to insure both commercial and personal lines 
        exposures to both foreign and Chinese consumers.
   China, with a population of 1.2 billion, represents the 
        largest untapped market for property-casualty and life 
        insurance products. Based on SIGMA (Swiss Re) data, China has a 
        very low penetration rate of 1.22 (total insurance premiums as 
        a share of gross domestic product), which places it 65th of 82 
        countries in the survey. The per capita spending on insurance 
        policies in China in 1996 was U.S. $6, which places it 78th 
        among 82 countries. Per capita spending on insurance policies 
        in the U.S. was $2,460 in the same year.
   Total insurance premiums in China in 1998 (property/casualty 
        and life) amounted to U.S. $15.1 billion. The annual growth 
        rate in the insurance market from 1993-98 averaged 29.7%.
U.S. and other foreign insurance company activity
   Currently, foreign insurers are allowed to conduct limited 
        business activities in two Chinese cities only, Shanghai and 
        Guangzhou. Depending on the type of insurance a foreign company 
        sells, the company, if licensed, faces significant restrictions 
        on what form of ownership it may assume, what products it can 
        sell and to whom, where it can sell its products, whether it 
        must comply with a different set of regulations from domestic 
        companies, and a host of other barriers that prevent it from 
        competing freely in that market.
   Property/casualty insurers are allowed only to sell products 
        to other foreign entities in China. They are not allowed to 
        sell directly to Chinese consumers.
   The first U.S. company to receive an operating license in 
        China was AIG in 1992. The second and most recent U.S. insurer, 
        Aetna, received a license in 1997. Both companies are severely 
        limited in how they operate and what products they can sell. 
        The Chinese government announced in April 2000 that an 
        additional license was to be awarded to The Chubb Corporation, 
        and this license has since been approved.
   Seven individual insurance companies from Japan, Canada, 
        Switzerland, Germany, France, the U.K., and Australia have also 
        received licenses since 1992.
   Over 100 other foreign insurance companies, including 20 
        from the U.S., have established a physical presence in China 
        with the hope of becoming licensed in the future.

                                

  Statement of Carlos Moore, American Textile Manufacturers Institute

    This statement is submitted for the record by the American Textile 
Manufacturers Institute (ATMI), the national trade association of the 
domestic textile mill products industry.
    ATMI is opposed to renewal of normal trade relations (NTR) status 
for the People's Republic of China. We urge Congress to pass H.J. Res. 
50, a resolution to disapprove of the President's waiver of the 
Jackson-Vanik amendment's requirements, which was granted in order to 
continue China's normal trade relations status.
    As ATMI has stated on numerous occasions, China has not earned NTR 
status with the United States because of its continued irresponsible 
behavior on a variety of fronts.
    With respect to textile-related issues specifically, China has 
signed six bilateral textile trade agreements with the United States 
over the past two decades and has subsequently broken every one of 
them. China illegally smuggles more than $4 billion worth of textiles 
and apparel into the United States each year. It routinely violates 
U.S. design and copyright laws--in fact, China has signed four 
intellectual property rights agreements--and intellectual property 
theft in China remains rampant. In fact, a recent National Trade 
Estimates report compiled by the U.S. Trade Representative's Office 
notes that ``U.S. industry estimates of intellectual property losses in 
China due to counterfeiting, piracy, and exports to third countries 
have exceeded $2 billion.'' \1\
---------------------------------------------------------------------------
    \1\ 1999 National Trade Estimate Report on Foreign Trade Barriers, 
USTR, p. 60.
---------------------------------------------------------------------------
    In addition, China is already exploiting a loophole which exists in 
current U.S. trade regulations that allows it, as a non-market economy, 
to be inexplicably exempted from U.S. countervailing duty law against 
export subsidies. Further, China maintains tariff and non-tariff 
barriers that have restricted U.S. textile and apparel exports, despite 
repeated promises to liberalize. This is yet another example of how 
China gets better treatment than our other trading partners.
    Thus, there is nothing ``normal'' about the manner in which China 
conducts its trade policy, and it is not deserving of NTR status with 
the U.S.
    Also, make no mistake about it--NTR status for China, and the terms 
under which it is preparing to enter the World Trade Organization, will 
severely undermine the economic partnerships that have formed and 
continue to form between U.S. yarn and fabric producers and apparel 
manufacturers in Mexico and the Caribbean. Once all global textile and 
apparel quotas are removed, China is poised to essentially wipe out 
these mutually beneficial trade arrangements we have made with our 
hemispheric neighbors.
    This concern is borne out by a 1999 U.S. International Trade 
Commission (ITC) study on China's accession to the WTO,\2\ which 
determined the Chinese share of apparel imports into the U.S. would 
more than triple as quotas are phased out by the year 2005. The ITC 
study revealed that the effect of the Chinese quota phase-out on other 
regions, particularly the Caribbean nations and Mexico, will be equally 
severe. These countries' growing apparel sectors, which exist almost 
entirely to service U.S. markets, will be decimated by the early phase-
out of controls on imports from China.
---------------------------------------------------------------------------
    \2\ Assessment of the Economic Effects on the United States of 
China's Accession to the WTO, Investigation 332-403, (Publication 3229; 
September 1999).
---------------------------------------------------------------------------
    The major concern about the early phase-out of quotas on imports of 
textiles and apparel from China is that China is getting a better deal 
than the rest of our trading partners. Once China joins the WTO, the 
U.S. has agreed to remove controls on imports from China by January 1, 
2005. This means that, as a WTO member, China will be subject to a much 
shorter quota phase-out period than other WTO members. For example, if 
China joins the WTO by January 1, 2002, it will receive a three-year 
phase-out period. Other U.S. trading partners that are WTO members 
faced a ten-year phase-out period. China is the least deserving country 
imaginable for this preferential treatment.
    Giving China enhanced access to the U.S. market for its vast 
subsidized textile and apparel sector while U.S. textile and apparel 
access into the Chinese market remains seriously impaired seems to be 
an act of unilateral surrender on the part of the United States. In 
light of the current economic crisis facing the U.S. textile industry, 
with nearly 50 plants having closed in the first five months of this 
year, and over 56,000 workers--10 percent of the industry's entire 
workforce--losing their jobs in the past twelve months, the U.S. 
textile industry cannot afford to make further unwarranted trade 
concessions, such as granting China normal trade relations status.
    The ongoing devastation to the U.S. textile industry resulting from 
the Asian currency devaluations of recent years, which has given Asian 
imports the equivalent of a 40% price cut upon entering the U.S., has 
made our industry even more vulnerable to subsidized Chinese imports. 
Without some government mechanism to correct this imbalance, extending 
NTR for China would only compound the problem. On the other hand, 
denial of NTR to China would offset, at least in part, the damage to 
our industry by devalued Asian imports.
    Finally, China's continuing practice of arresting dissenters, as 
well as U.S. citizens and academics indicate that it is unworthy of 
normal trade relations. Seizure of a U.S. Navy plane, detention of its 
crew and then handing the U.S. a $1 million bill for what amounts to a 
kidnapping should be the final straw. The U.S. should not ignore these 
actions and ``reward'' China by continuing normal trade relations 
status.
    In a larger sense, renewal of NTR for China signals a willingness 
on the part of the U.S. to grant China permanent NTR and membership in 
the WTO. This Administration and the previous one have said the WTO 
accession agreement between the U.S. and China will hurt no one in the 
U.S. and will provide new and important export opportunities for U.S. 
companies. The reality is quite different.
    The U.S. textile industry, its nearly 500,000 workers and its 
suppliers in the man-made fiber, cotton, chemical, machinery and 
related industries will be hurt by the special treatment provided China 
in the accession agreement.
    Those U.S. companies hoping to sell products and services to WTO 
member China must consider the opportunity to do so to be just that--a 
hope. China is already backtracking on several commitments and has 
never embraced imports in the past.
    So, the impact on the U.S. of normal trade relations with China 
(and the WTO membership that it brings) will certainly damage the U.S. 
textile industry, its workers and suppliers. On the other hand, 
accession might benefit other U.S. industries. Not something to bet an 
important, essential industry on--but that is what the U.S. Government 
is doing.
    In conclusion, for the reasons we have stated, we urge the 
committee to adopt H. J. Res. 50 and reject renewal of NTR with China.

                                

                                                Channellock
                              Meadville, Pennsylvania 16335
                                                      July 10, 2001

Attention: Allison Giles
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

    Gentlemen:

    It has come to my attention that Congressman Crane is soliciting 
testimony from the private sector regarding the United States-China 
trade relations and the status of China's negotiations to the World 
Trade Organization. Specifically, the hearings have to do with whether 
or not the United States will grant for another year to ``non-market 
economy countries'' such as mainland China and Taiwan, Normal Trade 
Relations (NTR) formerly known as Most-Favored-Nation (MFN) trade 
status.
    We understand that Congressman Dana Rohrabacher (R-CA) on June 5, 
2001 introduced a joint resolution disapproving the extension of the 
waiver authority contained in section 402(c) of the Trade Act of 1974 
with respect to China. The purpose of this letter is to comment on that 
resolution.
    By way of background, Channellock is a family-owned business 
established in 1886 in Meadville, Pennsylvania, USA. We are in the 
business of manufacturing mechanics' hand tools, specifically pliers 
and screwdrivers under the trademark CHANNELLOCK. We make a very high 
quality product that is well-known in global, hand tool marketplaces. 
We employ 570 people in Meadville, Pennsylvania, 461 of whom are 
members of the United Steelworkers of America Local 1917-03.
    It is my belief that granting Normal Trade Relations or Most 
Favored Nation Status to mainland China and to a lesser degree Taiwan, 
is slowly killing the manufacturing base of the United States for two 
reasons:

          1. In doing so, you give these nations who are purportedly 
        ``non-market economy countries,'' full access to the domestic 
        markets of the United States of America. Conversely, in trying 
        to sell our products in their markets, we find non-tariff 
        barriers, trademark violations, and certainly great difficulty 
        in collecting payments due from delinquent customers.
          2. At the same time, you saddle American industry with 
        massive regulation and onerous, confiscatory taxes to which 
        Chinese manufacturers are not subject.

    I am by nature a fair trade person and believe that trade benefits 
all countries of the world. But I believe that you need to understand 
the restrictions under which you expect us to trade/compete with these 
two countries achieving Normal Trade Relations.
    As stated above, mainland China has no regard for intellectual 
property law. They continually abuse/copy, our trademarks and patent 
rights. And there is no rule of law in China to follow-up on any 
violations of our rights in the areas of intellectual property laws.
    Regulation:
   ERISA--Show me any Chinese pension plans and regulation of 
        them. Show me their Pension Benefit Guarantee Corp. regulations 
        which are in place in this country to protect pensioners in 
        case an employer goes into default.
   OSHA--Show me their Occupational Safety and Health 
        Administration. Show me any Safety Committees. Show me the 
        Chinese manufacturer's Safety Committee Minutes. Show me their 
        Lost Time Accident Reports. Show me their Machine Guarding 
        Standards.
   Environmental Protection Agency (EPA)--Show me their clean 
        air standards. Show me their Hazardous Waste permits. Show me 
        any permits and fees that they pay for all sorts of things such 
        as ground water run-off and the right to burn trash in an 
        incinerator. Show me their emission standards and their 
        compliance documentation. Show me their Clean Air Standards 
        Act.
   Show me their Minimum Wage Law Legislation.
   Show me their Family Medical Leave Act Legislation.
   Show me their Patient's Bill of Rights Legislation.
   Show me their Trade Adjustment Assistance Act Legislation 
        (when their local manufacturers lay off people because of 
        foreign competition, the government provides training and 
        education funds to retrain these laid off workers).
   Show me their Unemployment Compensation Statutes and the 
        taxes that are paid by Chinese manufacturers to support said 
        statutes.
   Show me their Social Security Program and the taxes that the 
        Chinese manufacturers pay to support that program.
   Show me their Medicare and Medicaid Legislation. (And, oh by 
        the way, show me how they go about accrediting their hospital 
        facilities such as we do in this country via the Joint 
        Commission on Accreditation to assure consistent, high quality 
        care.)
   Show me how many Chinese manufacturers are ISO 9000 
        certified.
   Show me their Labor and Industry Regulations assuring their 
        factories are safe places to work.
   Show me their Robinson Pattman legislation with regard to 
        protection of consumers against Chinese predatory pricing 
        practices.
   Show me their ``Right To Know'' Regulations requiring 
        Chinese manufacturers to properly label all chemicals/oils etc. 
        workers contact in their daily jobs.

    Taxation:

   Show me their depreciation schedules and while you're at it, 
        show me their Generally Accepted Accounting Principals as 
        stated in their form of a Journal of Accountancy--doesn't 
        exist.
   Show me any estate taxes they pay.
   Show me any capital gains taxes they pay.
   Show me any income taxes that are paid to any city, county, 
        state, and federal agencies.
   Show me any sales taxes that are paid by Chinese 
        manufacturers.
   Show me any property taxes that are paid by Chinese 
        manufacturers.
   And certainly show me any Occupational Privilege Taxes that 
        are paid by Chinese manufacturers.
   Show me any Capital Stock Taxes paid by Chinese 
        manufacturers.

    Product Liability:

   Show me how you can be compensated if you are hurt while 
        using a Chinese product. Who do you sue? It certainly will not 
        be the Chinese manufacturer.

    The point of all of this is that offering Most Favored Nation/
Normal Trade Relations Status to these kinds of countries does nothing 
but slowly kill the domestic manufacturing backbone of this country and 
you are using a two-edged sword to do it:

          1. The one edge is giving them open access to our markets 
        while we have limited access to their markets.
          2. The second edge is that Chinese manufacturers are not 
        subject to any of the above referenced regulations under which 
        U.S. domestic manufacturers must operate. This severely raises 
        our costs and makes us un-competitive. The long-term affect is 
        that it will put us out of business. If that is your goal, you 
        are right on track.

    Any red-blooded American citizen should be outraged. Declaring 
mainland China and Taiwan as a ``non-market economies'' is ludicrous. 
Just look at the billions of dollars of trade between China, Taiwan, 
and the United States--most of it from them, to us. Calling China and 
Taiwan ``non-market economies'' just makes no sense.
    Further, offering them full and free access to our markets when our 
local industries cannot begin to compete with them due to the above 
referenced regulations and taxes.
    The solution lies in having these countries recognize and implement 
social, safety, and environmental standards. The United States 
government needs to further rethink our systems of taxation to 
aggressively promote the creation of capital and to aggressively reward 
productivity instead of taxing it.
    I submit this for your consideration with the hopes that some day 
somebody inside the beltway will WAKE UP!

            Sincerely,
                                        William S. DeArment
                                                    President & CEO
    [The attachment is being retained in the Committee files.]

                                

  Statement of the International Mass Retail Association, Arlington, 
                                Virginia

    This statement is submitted on behalf of the International Mass 
Retail Association (IMRA), the world's leading alliance of retailers 
and their product and service suppliers. IMRA is committed to bringing 
price-competitive value to the world's consumers. IMRA improves its 
members' businesses by providing industry research and education, 
government advocacy, and a unique forum for its members to establish 
relationships, solve problems, and work together for the benefit of the 
consumer and the mass retail industry. IMRA represents many of the 
best-known and most successful retailers in the world, who operate 
thousands of stores worldwide. IMRA equally values among its members 
hundreds of the world's top-tier product and service suppliers, working 
with their retailer partners to further the growth of the mass retail 
industry.
    All of IMRA's members are dependent upon imports to provide 
American consumers with high-quality, low-priced goods. Many IMRA 
members import products directly from China, while others sell products 
that have been imported by American brand-name consumer product 
suppliers. China is an important source of supply for such every-day 
products as clothing and toys. In addition, a handful of IMRA member 
companies actually operate stores within China.
    Consequently, IMRA's member companies have a strong interest in 
seeing stable U.S.-Sino relations, both political and economic. IMRA 
supports the U.S.-China bilateral agreement on accession into the World 
Trade Organization (WTO) that was completed in November 1999, as well 
as additions to that agreement recently concluded. IMRA also supported 
the passage of permanent Normal Trade Relations (PNTR) status last 
year. Unfortunately because China has not yet become an official member 
of the WTO, Congress must once again vote on the annual renewal of NTR.
    For this reason, IMRA believes this year's NTR vote is the trade 
equivalent of an ``extender'' designed to maintain the status quo until 
China becomes an official member of the WTO. With both the U.S. and EU 
wrapping up the major outstanding WTO accession issues, China is sure 
to become a full member of the WTO by the end of the year. Disapproving 
NTR now, will upset negotiations that are of vital importance in 
opening China's markets for many industries, including retailing, since 
the accession agreement contains significant market access concessions 
on retailing services.

NTR Benefits U.S. Retailers and Consumers
    The revocation of China's NTR status could have serious economic 
repercussions on IMRA's members who import or who rely on imported 
merchandise as well as harm U.S. consumers and manufacturers. The loss 
of NTR status would mean markedly higher import tariffs on a wide range 
of products, from footwear to toys to consumer electronics. Tariffs 
would increase on from an average of about 4% to an average of 60%. In 
some cases, the duty would jump to as high as 100%.
    Such steep duty increases would result in products simply 
disappearing from the marketplace. Suppliers would not be able to shift 
production swiftly; and in many cases alternate suppliers cannot 
produce products at the same value price. In the past, the NTR vote has 
occurred in June or July, which are the peak months for importing 
Christmas merchandise. Revocation of NTR would mean significantly 
higher prices and shortages of key Christmas products. This obviously 
would hurt American families more than it would the Chinese. The 5 
weeks of the Christmas shopping season account for about 25% of U.S. 
retail sales for the entire year.
    Consider the following holiday products that could be affected:
    China accounts for more that 50% of all toy imports. Revocation of 
NTR would sharply increase the price of toys in the U.S. This would 
lead to a reduction in the variety of toys available on IMRA members' 
shelves. Many of today's most popular toys might not be affordable for 
American consumers if NTR is revoked.
    China is also a major exporter of portable tape and compact disc 
players to the United States. The average price for these products is 
about $84. Without NTR, these products would jump to a price of about 
$110. That's a 31% jump. Importers might be able to shift supply to 
Malaysia, but the average price for this product is about $98.
    Apparel is another important Christmas product for mass retailers. 
China is an extremely important source of value-priced cotton and man-
made fiber products, and is one of the only sources of silk apparel 
products such as high-quality women's silk blouses. A loss of NTR would 
mean a price increase of over 50% for these products. This dramatic 
increase would affect many consumers' ability to afford these products 
and would force value-priced silk and cotton products off the shelves 
of mass retailers.
    Over 60% of the footwear sold in the United States is produced in 
China. Many U.S. consumers rely on the inexpensive footwear produced in 
China and sold in mass retail stores. The inexpensive boys leather 
sports footwear, such as high tops, tennis shoes and snow boots would 
all increase by an average of 15%. This could be devastating to the 
low-income consumer, preparing to outfit their kids for back-to-school 
this fall.
    IMRA's catalog and Internet members also depend upon the annual 
renewal of NTR. Many of these companies are putting the finishing 
touches on their Christmas catalogs right now. By August, their 
catalogs will be printed with final prices. A loss of NTR means that 
these companies, along with their suppliers would be unable to fulfill 
orders; and would be precluded, under state fair advertising laws, from 
raising prices. Holiday catalogs cost millions of dollars to print, and 
their shelf life is very long.

Benefits to U.S. Retailers Operating in China
    Currently, American retailers face numerous obstacles in opening 
stores in China. Chinese licensing requirements are onerous and 
obtaining a license can take months or even years. More important, 
China has made the development of large-scale retail operations, with 
many outlets, nearly impossible, because it requires that each store 
location be separately licensed and financed with unique local 
partners.
    Under the WTO accession agreement negotiated by the United States 
and Europe, the ability to obtain licenses will be made easier, 
although equity restrictions will still be placed on stores larger than 
20,000 square meters and retailers with more than 30 stores. While many 
IMRA members wishing to operate in China fit those categories, we still 
view the accession agreement as a positive step, because it eliminates 
the store-by-store approach. Obviously, having China become a member of 
the WTO, means that the United States can raise these remaining 
restrictions as part of the broader WTO Negotiations on Services now 
ongoing.
    Another key provision of the U.S.-China WTO accession deal is 
China's agreement to liberalize restrictions on their distribution 
system. Currently, American companies can only distribute goods that 
they manufacture in China and cannot own or manage distribution 
networks or warehouses. The ability to control the distribution process 
is the lifeblood of an American mass retailer. Under the current deal, 
the Chinese agreed to phase out all restrictions on distribution 
services within three years.
    For retailers, this means removal of restrictions on foreign equity 
share, geographic restrictions and number of service suppliers. 
American retailers will now be able to import and distribute American 
made products to their stores in China. The easiest way for American 
products to penetrate the Chinese market is to be sold through an 
American mass retail store in China.
    Obviously, if Congress were to revoke China's NTR at this point in 
the WTO accession negotiations, it would ``upset the apple cart'' on 
the market access progress we have made as part of the WTO accession 
negotiations.

Rules and Safeguards
    Many in Congress have expressed concern about the ability to 
enforce the Chinese WTO accession agreement. It is important to 
remember that once China becomes a member of the WTO, it would be 
obligated to play by the rules or be subject to the WTO's dispute 
settlement process. This process has proven to be very successful for 
the U.S. (e.g., WTO ruling on the EU banana dispute). What's more, 
Chinese membership in the WTO provides ample opportunity for further 
negotiations to liberalize its trade regime, including services.
    There are also those who claim that allowing China to join the WTO 
will do nothing to further human rights or democratic change. These 
individuals couldn't be more wrong. A strong economic and trade 
relationship--based on mutually agreed-upon rules such as those 
embodied by the WTO--will result in change. One has only to look at the 
progress being made in places like South America to see how economic 
relationships foster democratic processes.
    Progress can only be made when the rest of the world decides to 
push for change, not just the U.S. The best example of a failed attempt 
to bring about democratic change unilaterally is the 40 plus years of 
isolationism between the United States and Cuba. Cuba remains a 
Communist nation today because the rest of the world has decided to 
maintain commercial relations, while the United States, which could be 
Cuba's closest trading partner, has decided to isolate Cuba in an 
attempt to end Communism. This will never work. As a member of the WTO, 
China will be forced to open its doors and allow not only goods, but 
also ideas into its closed economy. This is the greatest agent for 
change within China.
    Some have expressed a fear that once China gains entrance into the 
WTO, it will flood the U.S. market with cheap goods, displacing U.S. 
workers. Because of this fear, the current WTO accession agreement 
includes a product-specific safeguard as well as a special safeguard 
covering textiles and apparel.
Conclusion
    Granting China annual NTR and allowing it to join the WTO is a win-
win for American businesses, both importers and exporters, and U.S. 
consumers. WTO accession will open a Chinese market that is currently 
closed. American retailers will be able to open up stores and act as a 
beachhead for U.S. consumer products in China. Congress has already 
granted permanent NTR for China, when it officially accedes to the WTO. 
It would be foolhardy, at this late date, with the accession 
negotiations so close to being finalized, to revoke China's temporary 
NTR. Such a step would undo years of work in negotiating market access 
terms that will inure to the benefit of many American businesses and 
consumers.

                                

         Statement of the National Association of Manufacturers

    The National Association of Manufacturers (NAM) represents 14,000 
American firms. Manufacturing comprises approximately one fifth of all 
the goods and services produced by the U.S. economy and directly 
supports 56 million Americans--the 18 million American men and women 
who make things in America and their families.
    Trade is of great importance to NAM members. More than 80 percent 
of U.S. merchandise exports are manufactured products. About one sixth 
of total U.S. manufacturing output is exported, and for many industries 
the ratio is much higher.
Importance of the China Market
    China represents an important market for U.S. manufactured goods. 
Last year total U.S. exports to China amounted to $16.3 billion, making 
China our 11th largest export market. More than 90 percent of U.S. 
exports to China were manufactured goods.
    One of the fastest growing economies in the world, China will offer 
significant new opportunities for a wide range of U.S. manufactured 
products in the years ahead. It is already one of the largest markets 
in the world for some capital goods, such as commercial aircraft and 
electrical power plants. As personal incomes rise, the demand for U.S. 
consumer products will also grow.
    But U.S. companies face strong competition in the China market from 
other foreign suppliers, particularly those in Japan, South Korea, 
Taiwan, Germany and France. Withdrawing NTR status from China, even 
temporarily, would lead to trade retaliation that would cut many U.S. 
manufacturers out of the market, perhaps for years to come.
Many Adverse Effects From Withdrawing NTR
    The manufacturing sector is already experiencing severe problems 
because of changes in the domestic and international economy. 
Manufacturing production declined 1.7 percent in the fourth quarter of 
2000 from the previous quarter and another 7.9 percent in the first 
quarter of 2001 from that level. Since July 2000, the manufacturing 
sector has lost 788,000 jobs.
    U.S. manufacturers are trying to cope simultaneously with a slowing 
domestic economy, a 27-percent increase in the trade-weighted value of 
the dollar since 1997, which makes U.S. exports substantially less 
competitive, and declining growth in major overseas markets, such as 
Japan and Europe. A trade conflict with China over NTR withdrawal would 
only add to these other burdens.
    The negative spillover effects on other Asian economies, including 
many U.S. friends and allies, would also be significant. South Korea, 
Thailand, the Philippines and Malaysia are still recovering from the 
Asian financial crisis. An economic slowdown in China resulting from a 
disruption in U.S.-China trade could affect the entire region and 
threaten further economic recovery.
    There would be other adverse consequences as well. After 15 years 
of difficult negotiations, the United States has finally reached an 
acceptable agreement on most of the key issues relating to China's 
membership in the World Trade Organization (WTO). WTO membership will 
require China to undertake substantial market-opening measures and 
begin adhering to internationally accepted trade rules. Congress has 
already endorsed China's WTO membership by approving legislation in 
2000 that grants China permanent NTR status when its membership becomes 
effective. This is expected to occur later this year or in early 2002. 
Withdrawal of NTR, however, could complicate that process and lead to 
further delays.

Other U.S. Interests Also Affected
    And more is at stake than just U.S. commercial interests. For 
nearly a quarter of a century, both Republican and Democratic 
administrations with bipartisan congressional support have pursued a 
policy of engagement as the best way to encourage positive change in 
China. It is in the U.S. national interest to see that China becomes a 
more open society that is based on the rule of law and allows more 
personal freedom. Trade with the United States and contact with U.S. 
companies help to promote those goals.
    Trade helps raise living standards and exposes a broad spectrum of 
Chinese society to American values and culture. It allows many Chinese 
to see the political as well as economic benefits of American democracy 
and our free-market system.
    This exposure comes not only to business representatives, workers 
and students that travel to the United States. It also comes from 
contact with American companies selling and producing their products in 
China. A recent study issued by the NAM and the Manufacturers Alliance 
(MAPI) showed that American companies bring their high ethical, labor 
and environmental standards to their operations in developing 
countries, including China.
    The report revealed, for example, that 95 percent of the companies 
surveyed apply the same corporate code of conduct and ethical standards 
to their operations in developing countries as they do domestically. 
With regard to labor conditions, 87 percent of the companies surveyed 
have detailed policies on health and safety standards for workers. And 
78 percent have environmental management systems that contain 
measurable objectives or targets for improved environmental 
performance.
    Chinese who come in contact with American companies, then, are 
learning much more than just business and production skills. They are 
gaining insights into how successful companies in a modern democratic 
society manage the complex challenges of balancing the need for profits 
with high ethical, labor and environmental standards.
    However, these economic benefits and positive social, cultural and 
political influences will be sharply curtailed if we were to terminate 
China's NTR status and disrupt our growing trade and investment 
relationship. In this environment, engagement even in other non-
economic spheres would be difficult.
Need to Stay the Course with China
    Encouraging China's economic engagement with the outside world has 
served U.S. interests well over the past two decades. It has brought 
economic benefits to the Chinese people and to American companies, 
workers and farmers. And it has helped to promote greater economic and 
personal freedom and respect for the rule of law in China. We should 
not undermine these positive developments by withdrawing China's NTR 
status and allowing a major disruption in our bilateral trade and 
investment.
    In highlighting the many positive aspects of China's NTR status, we 
do not ignore the problems that exist in our trade relationship. Many 
U.S. firms are having difficulties competing with low-cost Chinese 
imports and selling their products and services in China. Withdrawing 
NTR status, however, is not the way to address these problems.
    Over the long term, our best hope of establishing a level playing 
field in our bilateral trade is to have China abide by internationally 
accepted rules. The sooner that China takes on its obligations as a WTO 
member the better position we will be in to achieve that goal. There 
will be other benefits as well. For example, in its agreement with 
China on WTO membership, the United States has negotiated a product 
safeguard provision to address market disruption and injury that occur 
because of surges in Chinese imports. The United States, however, 
cannot take advantage of these disciplines and safeguards if China's 
WTO membership is delayed by withdrawing NTR status.
    For all these reasons, the National Association of Manufacturers 
endorses President Bush's decision to extend China's NTR status and 
strongly opposes House Joint Resolution 50 to discontinue NTR.

                                

   Statement of Eric Author, Vice President and International Trade 
                  Council, National Retail Federation
I. Introduction
    The National Retail Federation (NRF) submits these written comments 
to the Subcommittee on Trade of the House Committee on Ways and Means 
to inform members of the importance of ``normal trade relations'' 
trading status for China to America's retailers, their workers, and the 
American consumer.
    NRF is the world's largest retail trade association with membership 
that comprises all retail formats and channels of distribution 
including department, specialty, discount, catalog, Internet and 
independent stores. NRF members represent an industry that encompasses 
more than 1.4 million U.S. retail establishments, employs more than 22 
million people--about 1 in 5 American workers--and registered sales of 
$3.1 trillion in 2000. NRF's international members operate stores in 
more than 50 nations. In its role as the retail industry's umbrella 
group, NRF also represents 32 national and 50 state associations in the 
U.S. as well as 36 international associations representing retailers 
abroad.
    As we have consistently in years past, NRF and the U.S. retail 
industry strongly supports the renewal of China's normal trade 
relations (NTR) status for several reasons:

   NTR for China helps retailers supply American families with 
        a wide range of value-priced merchandise;
   NTR for China creates high-paying jobs related to both 
        exports to China and imports from China;
   Failure to renew China's NTR status would deal a severe blow 
        to Hong Kong.
II. NTR for China Helps American Families
    Perhaps no one understands better than retailers the importance NTR 
for China plays in helping American families purchase well-made, value-
priced goods. Every day, NRF's members shop the United States and the 
world in search of consumer goods that meet American families' demands 
for quality at competitive prices.
    China offers us an opportunity to provide the goods these consumers 
demand at prices that fit their increasingly tight budgets. For many 
products, such as toys and consumer electronics, China is a low-cost 
alternative to other foreign producers. In other cases, such as high-
quality silk apparel, sold not only by high-end department stores but 
also by mass retailers, China is the only source of a given product at 
affordable prices. In the case of silk apparel, even U.S. producers are 
not alternative suppliers.
    Imports of consumer products from China are clearly significant, 
and failure to renew NTR would have broad effects on American families. 
In 2000, NRF estimates that retailers imported about $80 billion (at 
first cost) of consumer goods from China, and NTR duty status provided 
retailers, and consequently, American consumers, $40 billion in tariff 
savings. In today's highly competitive market, these duty savings are 
passed along directly to consumers. More specifically, toys imported 
from China account for about half of all toys sold in the United 
States. Moreover, footwear imported from China accounts for about 60 
percent of all footwear sold in the United States. The Bank for 
International Settlements found that declining import prices generally 
in the United States lowered the annual rise in U.S. consumer prices by 
0.9 percentage points (Bank for International Settlements, 68th Annual 
Report, issued June 8, 1998, pages 24-25). Imagine what would happen to 
the inflation rate--and American families' budgets--if the prices of 
consumer goods imported from China shot up by as much as 66 percent 
(non NTR tariff rates).
III. NTR for China Creates Good Jobs in the United States
    NTR for China creates high-paying jobs in the United States. As you 
have heard from many, U.S. exports to China support hundreds of 
thousands of American jobs every year. These include high-paying jobs 
in growing industries such as telecommunications, information 
technology, aviation and power generation. But what is not as widely 
known is that U.S. imports from China, which are more directly affected 
by NTR tariff treatment, support an even larger number of high-paying 
U.S. jobs than U.S. exports to China. The Trade Partnership estimates 
that U.S. imports of consumer goods alone from China in 1998 supported 
more than 1.7 million American jobs in such high-paying sectors as 
manufacturing (the jobs related to making cash registers and trucks to 
transport goods to stores, for example), finance and insurance, 
transportation, wholesaling and, of course, retailing. Failure to renew 
NTR for China would put many of these jobs at risk.
IV. Failure to Renew China's NTR Status Would Deal A Severe Blow to 
        Hong Kong
    We cannot forget that failure to renew China's NTR status would 
deal a severe blow to Hong Kong. Hong Kong is the main gateway for 
China's trade and investment abroad. Hong Kong estimates that in 2000 
it handled 70 percent of China's export to the United States and 27 
percent of U.S. exports to China. The majority of Hong Kong's 
manufacturing industry is now located across the border in China, and 
many multinationals make Hong Kong their international base. The 
government of Hong Kong projects denial to China of NTR status would 
curtail Hong Kong's GDP by 2.3 to 3.3 percentage points.

V. Conclusion
    Not extending China's NTR status could have serious domestic 
consequences, both for retailers and American consumers. The American 
retail industry urges the Committee to recommend a continuation of 
China's NTR status.

                                

                                   StorageTek, Inc.
                                 Louisville, Colorado 80028
                                                      July 12, 2001

The Honorable Philip M. Crane
Chairman, Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Re: Renewal of Normal Trade Relations With China

    Dear Representative Crane:

    On behalf of StorageTek, Inc., I am writing to support the 
extension of Normal Trade Relations (NTR) with China. By extending NTR 
with China this year, the United States Congress will send a strong 
message to China that the U.S. is a dedicated trading partner and 
committed to ensuring a smooth accession for China to the World Trade 
Organization (WTO).
    StorageTek is a Colorado-based, high-tech multinational company 
manufacturing and marketing data storage products and services. The 
company, which has 7,600 employees, sells over $2 billion in products 
and services annually in over 50 countries. StorageTek now sells over 
50% of its storage products (which are almost exclusively manufactured 
domestically) overseas. Currently, a small percentage of our 
international sales are with China. However, that number is expected to 
rise dramatically following China's WTO accession.
    The Sino-U.S. trade relationship is important to StorageTek for two 
reasons. First, we import several important component parts for 
domestic production that are produced in mainland China. Second, 
greater China (PRC, Taiwan, Hong Kong, Macao) is one of our top four 
growth markets worldwide. StorageTek in greater China has experienced 
average revenue growth of approximately 100% per annum since opening 
our Beijing office in November 1998. The entry of the China into the 
World Trade Organization will create substantial investment in 
information technology infrastructures, as companies prepare to deal 
with international corporations. This creates greater opportunities for 
U.S.-based companies such as StorageTek. For example, we are targeting 
major banks in the region, along with telecommunications firms, 
government institutions, and oil and gas companies for increased 
opportunities associated with WTO accession. In anticipation of such 
growth, in 2001 StorageTek will open new offices in Shanghai, Taiwan, 
and Guangzhou to complement our existing operations.
    In addition, China's accession to the WTO has positive effects 
throughout the information technology industry as a whole. WTO 
accession means China unilaterally adopts the WTO Information 
Technology Agreement (thus eliminating tariffs on most IT products); 
allows for trading and distribution rights, which eliminates costly 
middlemen; adheres to the WTO Trade-Related Intellectual Property 
Rights (TRIPS) Agreement providing for added protections for U.S. 
intellectual property; and agrees to subject itself to the WTO 
multilateral, dispute resolution system for addressing international 
trade disputes. In a broader sense, China would benefit from increased 
Access to American commercial information technologies. These 
technologies, including those manufactured by StorageTek, enabled 
people worldwide to improve business efficiency across all sectors, 
enhance educational and social opportunities, and connect with one 
another. Continued and improved market access for U.S. commercial 
information technology in China will ultimately contribute to the 
advancement of economic and social reform in China.
    Each one of these benefits, however, could be lost without renewal 
of NTR this year. If NTR with China is not renewed, tariffs on Chinese 
goods will increase ten-fold to 40-50%, increasing the cost of consumer 
goods and components--a tax paid by U.S. citizens. Also, American high-
tech firms have invested, and slowly garnered market share in China. An 
interruption of our bilateral commercial relationship will undermine 
these investments and the hard-fought gains U.S. companies have made in 
the Chinese market, ceding them to our foreign-based competitors.
    On June 8, 2001, during bilateral talks in Shanghai, the United 
States and China reached agreement on major outstanding issues 
concerning China's accession to the WTO. United States Trade 
Representative Robert B. Zoellick and China's Minister of Foreign Trade 
and Economic Cooperation Shi Guangsheng capped 15 years of negotiations 
on areas including domestic support for agriculture, services, and 
trading rights. This breakthrough signals China's imminent accession to 
the WTO, likely before the end of 2001. After proceeding this far, 
failure to renew NTR for China during the ``closing'' period of WTO 
negotiations would destroy 15 years of progress and cause significant 
harm to StorageTek and the IT industry.
    Recently you said, ``It is indeed heartening for those of us who 
support normalizing U.S. trade relations with China to observe that 
China's negotiations to join the WTO are close to concluding. The 
momentum for opening trade with China is building. Last year, we passed 
the permanent normal trade relations legislation, and earlier this 
month, USTR made significant progress with the Chinese to further open 
their markets to our goods and services. We need to keep the momentum 
going by renewing China's NTR status for another year.'' StorageTek 
agrees with these sentiments wholeheartedly and calls upon the U.S. 
Congress to extend NTR to China for another year to allow the 
completion of China's WTO accession.

            Sincerely,
                                               Gary Francis
                                           Corporate Vice President

                                

```