89–009

107TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 107–145

DISAPPROVAL OF NORMAL TRADE RELATIONS TREATMENT

TO THE PRODUCTS OF THE PEOPLE’S REPUBLIC OF CHINA

JULY 18, 2001.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. THOMAS, from the Committee on Ways and Means,

submitted the following

ADVERSE REPORT

[To accompany H.J. Res. 50]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the

joint resolution (H.J. Res. 50) disapproving the extension of the

waiver authority contained in section 402(c) of the Trade Act of

1974 with respect to the People’s Republic of China, having considered the same, report unfavorably thereon without amendment and

recommend that the joint resolution do not pass.

CONTENTS

Page

I. Introduction ...................................................................................................... 2

A. Purpose and Summary ......................................................................... 2

B. Background ........................................................................................... 2

C. Legislative History ............................................................................... 4

II. Explanation of Resolution ................................................................................ 4

III. Votes of the Committee .................................................................................... 6

IV. Budget Effects ................................................................................................... 7

A. Committee Estimate of Budgetary Effects ......................................... 7

B. Statement Regarding New Budget Authority and Tax Expenditures .................................................................................................... 7

C. Cost Estimate Prepared by the Congressional Budget Office ........... 7

V. Other Matters To Be Discussed Under the Rules of the House ................... 9

A. Committee Oversight Findings and Recommendations .................... 9

B. Summary of Findings and Recommendations of the Committee

on Government Reform and Oversight ............................................. 9

C. Constitutional Authority Statement ................................................... 10

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1Legislation to replace the term ‘‘most-favored-nation’’ (MFN) in United States statutes with

the term ‘‘normal trade relations’’ (NTR) was enacted into law as part of the Internal Revenue

Service Restructuring and Reform Act of 1998, P.L. 105–206.

I. INTRODUCTION

A. PURPOSE AND SUMMARY

H.J. Res. 50 would disapprove the extension of normal trade relations (NTR status) to the products of the People’s Republic of

China.

B. BACKGROUND

Prior to 1951, the United States extended nondiscriminatory, or

unconditional most-favored-nation (MFN) treatment, now referred

to as normal trade relations (NTR),1 to all of its trading partners

in accordance with obligations undertaken when the United States

joined the General Agreement on Tariffs and Trade (GATT) in

1948. However, the Trade Agreements Extension Act of 1951 directed the President to withdraw or suspend the MFN status of the

Soviet Union and all countries under the domination of Communism. As implemented, this directive was applied to all then-existing communist countries except Yugoslavia. Poland’s MFN status was restored by Presidential directive in 1960.

Title IV of the Trade Act of 1974, which includes the so-called

‘‘Jackson-Vanik amendment,’’ represented a liberalization of the

1951 law. Title IV authorizes the extension of normal trade relations treatment to nonmarket economies which both meet freedomof-emigration requirements and conclude a commercial agreement

with the United States. Title IV also authorizes the President to

waive the freedom-of-emigration requirements of that title and to

extend NTR status to a nonmarket economy country if he determines that doing so will substantially promote the freedom-of-emigration objectives. The President’s waiver authority under Title IV

expires at midnight on July 2 of each year. It may be extended on

an annual basis upon a Presidential determination and report to

Congress that such extension will substantially promote the freedom-of-emigration objectives of the 1974 Trade Act.

In the case of the People’s Republic of China, a bilateral commercial agreement, as required by the Jackson-Vanik amendment, was

concluded on July 7, 1979, and has remained in force since that

time. NTR was first granted to China on February 1, 1980, and has

been renewed annually since then on the basis of Presidential

waivers. On June 1, 2001, the President formally transmitted to

the Congress his recommendation to waive the 1974 Trade Act’s

freedom-of-emigration requirements and to thereby extend China’s

NTR status for an additional year, during the period of July 3,

2001, through July 2, 2002.

The President’s waiver authority continues in effect unless disapproved by the Congress—either generally or with respect to a

specific country—within 60 calendar days of the expiration of the

existing authority. Under Title IV amendments adopted as part of

the Customs and Trade Act of 1990, disapproval takes the form of

a joint resolution disapproving the extension of Presidential authority to waive the 1974 Trade Act’s freedom-of-emigration requirements. Under the 1990 amendments, Congress may consider

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any veto message before the later of the end of the 60-day period

or within 15 legislative days. The disapproval resolution is highly

privileged, thus generally guaranteeing a vote in the House if it is

introduced.

If both chambers of Congress do not pass a resolution of disapproval within 60 calendar days following the July 3, 2001 expiration of the existing waiver authority, China’s NTR status will be

renewed automatically through July 2, 2002. H.J. Res. 50 was introduced by Representative Rohrabacher (R–CA) on June 5, 2001.

H.J. Res. 50 provides for disapproval of extension of the waiver authority recommended by the President on June 1, 2001, with respect to China for the period beginning July 3, 2001.

P.L. 106–286

In 2000, in response to significant progress in China’s negotiations to accede to the World Trade Organization (WTO), the Congress passed and the President signed P.L. 106–286, which authorized the extension of nondiscriminatory treatment (normal trade

relations treatment) to the People’s Republic of China when China

becomes a member of the WTO. P.L. 106–286 also established a

framework for relations between the United States and the People’s

Republic of China.

Specifically, P.L. 106–286 amends Title IV of the Trade Act of

1974 to remove the People’s Republic of China (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 the accession are at least equivalent to the terms of the

November 15, 1999 bilateral agreement between the United States

and China.

In addition to granting the President the authority to remove

China from the application of Jackson-Vanik, P.L. 106–286 also: (1)

established a Congressional-Executive Commission to monitor China’s progress on human rights, worker rights, and enforcement of

its WTO agreements; (2) contained trade enhancement provisions,

including a safeguard mechanism to protect U.S. industries and

workers from unexpected import surges from China; (3) authorized

additional funds for U.S. agencies to monitor China’s adherence to

its WTO commitments; (4) provided technical assistance in developing the rule of law in commercial and labor markets, as well as

democracy-building in China; (5) established a task force on prison

labor imports; and (6) expressed a sense of the Congress that Taiwan should enter the WTO at the same WTO General Council session as China.

China’s negotiations to join the World Trade Organization

In July 1986, China applied for accession to the General Agreements on Tariffs and Trade (GATT), the predecessor organization

to the WTO. Work has proceeded in the China Working Party since

that time to negotiate the conditions upon which China will enter

the WTO.

Article XII of the Agreement establishing the WTO states that

any State or separate customs territory may accede to the WTO ‘‘on

terms to be agreed between it and the WTO.’’ In practice, any WTO

applicant must negotiate terms for WTO membership in the form

of a Protocol of Accession. Through the operation of a Working

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Party, the United States and other WTO members may review the

trade regimes of applicants to ensure that they are capable of implementing their WTO obligations. In parallel with the Working

Party’s efforts, the United States and other interested member governments conduct separate negotiations with the applicant. These

bilateral negotiations are aimed at achieving specific concessions

and commitments on tariff levels, agricultural market access and

subsidies, and trade in services.

Although P.L. 106–286 was enacted on October 10, 2000, work

remains to be done concerning the U.S.-China negotiations on the

protocol of China’s accession. During the June 4–8, 2001 bilateral

talks in Shanghai, the United States and China reached agreement

on some of the major outstanding issues.

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 June 28, 2001. 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.

C. LEGISLATIVE HISTORY

COMMITTEE ACTION

H.J. Res. 50 was introduced on June 5, 2001, by Representative

Rohrabacher and was referred to the Committee on Ways and

Means.

LEGISLATIVE HEARING

In a hearing held on July 10, the Committee considered the issue

of whether or not to normalize trade relations with China in the

context of China’s imminent membership in the World Trade Organization. The hearing considered the implications of failing to permanently remove China from Title IV of the Trade Act of 1974. At

the hearing, the Office of the U.S. Trade Representative and the

State Department expressed support, and American Farm Bureau

President Robert Stallman and other witnesses expressed their

views regarding U.S.-China trade relations.

II. EXPLANATION OF THE RESOLUTION

PRESENT LAW

Title IV of the Trade Act of 1974, as amended by the Customs

and Trade Act of 1990 (Public Law 101–382), sets forth three requirements relating to freedom of emigration which must be met,

or waived by the President, in order for a nonmarket economy

country to be granted NTR. Title IV also requires that a bilateral

commercial agreement that provides for nondiscriminatory, NTR

status remain in force between the United States and the nonmarket economy country receiving NTR status. Title IV as well sets

forth minimum provisions that must be included in such an agreement.

An annual Presidential recommendation under section 402(d) for

a 12-month extension of authority to waive the Jackson-Vanik freeVerDate 11-MAY-2000 22:55 Jul 18, 2001 Jkt 089009 PO 00000 Frm 00004 Fmt 6659 Sfmt 6602 E:\HR\OC\HR145.XXX pfrm07 PsN: HR145
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dom-of-emigration requirements—either generally or for specific

countries—may be disapproved through passage by Congress of a

joint resolution of disapproval within 60 calendar days after the expiration of the previous waiver authority. Congress may override a

Presidential veto within the later of the end of the 60 calendar day

period for initial passage or 15 legislative days.

EXPLANATION OF THE RESOLUTION

House Joint Resolution 50 states that the Congress does not approve the extension of the waiver authority contained in section

402(c) of the Trade Act of 1974, recommended by the President to

the Congress on June 1, 2001, with respect to the People’s Republic

of China.

REASONS FOR COMMITTEE ACTION

The Committee has long supported a policy of engagement with

China and has consistently rejected annual legislation to revoke

normal trade relations (or nondiscriminatory treatment), which it

sees as the cornerstone of that policy. As demonstrated by the

House’s passage of P.L. 106–286 (H.R. 4444) last year, Members

believe that normalizing trade relations with China by graduating

it from the annual review process established under the JacksonVanik amendment, a Cold War statute, is appropriate. Specifically,

the Committee believes that increased trade, together with other

tools of active engagement, enables the United States to influence

the growth of democratic and market-oriented policies in China in

a manner which will improve respect for fundamental human

rights and encourage political reform.

The Committee continues to view with deep concern widespread

human rights abuses carried out by the Chinese government

against Catholic priests and bishops, Protestant pastors, Tibetan

Buddhist clergy, Falun Gong members and pro-democracy activists

and scholars. The Committee is also concerned about China’s continued suppression of labor rights. Nevertheless, the Committee is

concerned that rejecting the President’s waiver of the JacksonVanik amendment for the 2001–2002 period will send a very mixed

and unproductive signal to China regarding the U.S. commitment

to free trade, in light of last year’s passage of the permanent normal trade relations (PNTR) legislation (P.L. 106–286).

The passage of P.L. 106–286 by a 237–197 vote demonstrated the

House’s commitment to the policy of engagement with China. P.L.

106–286 will remove China from Title IV of the Trade Act of 1974

when China becomes a member of the WTO. Once China becomes

a WTO member, the annual review of China’s NTR status will no

longer be necessary. However, until that time, it remains necessary

for the Committee to consider the annual disapproval resolution (if

such a resolution is introduced) according to the privileged procedures set out in Title IV of the Trade Act of 1974.

Failing to grant NTR treatment at this time would forfeit the

market access concessions made by the Chinese in the Bilateral

Trade Agreement of 1999 and those that will be included in China’s

protocol of accession to the WTO. If fully implemented, these commitments would represent substantial new opportunities for U.S.

exports to and investment in China. Terminating NTR would jeopardize these efforts to bring China into the WTO.

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Withdrawing NTR for China would also have a serious adverse

effect on Hong Kong and Taiwan due to the high levels of trade

and investment between Hong Kong and China and between Taiwan and China. By severely disrupting trade in the region, terminating NTR for the 2001–2002 period would harm U.S. efforts to

address economic instability in Asia and risk prompting currency

devaluations.

Finally, the Committee believes that revoking China’s NTR status for the 2001–2002 period would constitute too blunt a sanction

and would work against U.S. Government efforts to bring China

into the global community of civilized nations. Rejecting annual

NTR in light of last year’s passage of P.L. 106–286 (which would

remove China from Title IV and grant permanent NTR when

China becomes a WTO member) would send conflicting signals as

to U.S. policy regarding China. While the United States has many

serious problems with China, the Committee believes that areas of

U.S.-Sino disagreement are best addressed through expanding U.S.

contacts with China and maintaining strong and effective mechanisms to press China to continue to reform.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the

House of Representatives, the following statements are made concerning the votes of the Committee on Ways and Means in its consideration of the joint resolution, H.J. Res. 50.

MOTION TO REPORT THE BILL

The joint resolution, H.J. Res. 50, was ordered adversely reported, by voice vote, with a quorum being present.

VOTES ON AMENDMENTS

A rollcall vote was conducted on an amendment by Mr. Rangel

to add Cuba to the resolution disapproving the extension of nondiscriminatory treatment to China. The amendment was defeated

by a rollcall vote of 16 yeas to 22 nays, The vote was as follows:

Representatives Yea Nay Present Representatives Yea Nay Present

Mr. Thomas ........................... ........... X ............. Mr. Rangel ........................... X ........... .............

Mr. Crane .............................. ........... X ............. Mr. Stark .............................. X ........... .............

Mr. Shaw ............................... ........... X ............. Mr. Matsui ............................ X ........... .............

Mrs. Johnson ......................... X ........... ............. Mr. Coyne ............................. X ........... .............

Mr. Houghton ........................ ........... X ............. Mr. Levin .............................. X ........... .............

Mr. Herger ............................. ........... X ............. Mr. Cardin ............................ X ........... .............

Mr. McCrery ........................... ........... X ............. Mr. McDermott ..................... X ........... .............

Mr. Camp .............................. ........... X ............. Mr. Kleczka ........................... X ........... .............

Mr. Ramstad ......................... ........... X ............. Mr. Lewis (GA) ..................... ........... ........... .............

Mr. Nussle ............................. ........... X ............. Mr. Neal ............................... X ........... .............

Mr. Johnson ........................... ........... X ............. Mr. McNulty .......................... X ........... .............

Ms. Dunn .............................. ........... X ............. Mr. Jefferson ........................ ........... ........... .............

Mr. Collins ............................ ........... ........... ............. Mr. Tanner ............................ X ........... .............

Mr. Portman .......................... ........... X ............. Mr. Becerra .......................... X ........... .............

Mr. English ........................... ........... X ............. Mrs. Thurman ....................... X ........... .............

Mr. Watkins ........................... ........... X ............. Mr. Doggett .......................... X ........... .............

Mr. Hayworth ......................... ........... X ............. Mr. Pomeroy ......................... X ........... .............

Mr. Weller .............................. ........... X .............

Mr. Hulshof ........................... ........... X .............

Mr. McInnis ........................... ........... X .............

Mr. Lewis (KY) ...................... ........... X .............

Mr. Foley ............................... ........... X .............

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Representatives Yea Nay Present Representatives Yea Nay Present

Mr. Brady .............................. ........... X .............

Mr. Ryan ............................... ........... X .............

IV. BUDGET EFFECTS

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of the rule XIII of the Rules of

the House of Representatives, the following statement is made concerning the effects on the budget of this resolution, House Joint

Resolution 50 as reported: The Committee agrees with the estimate

prepared by CBO which is included below.

B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee states that enactment of

H.J. Res. 50 would increase customs duty receipts due to higher

tariffs imposed on goods from China.

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, requiring a cost estimate prepared by

the Congressional Budget Office, the following report prepared by

CBO is provided.

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, July 16, 2001.

Hon. WILLIAM ‘‘BILL’’ M. THOMAS,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.J. Res. 50, disapproving the

extension of the waiver authority contained in section 402(c) of the

Trade Act of 1974 with respect to the People’s Republic of China.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Erin Whitaker (for revenues), and Lauren Marks (for private-sector mandates).

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

H.J. Res. 50—Disapproving the extension of the waiver authority

contained in section 402(c) of the Trade Act of 1974 with respect

to the People’s Republic of China

Summary: Under the Trade Act of 1974, nondiscriminatory trade

relations may not be conferred on a country with a nonmarket

economy if that country maintains restrictive emigration policies.

However, the President may waive this prohibition on an annual

basis if he certifies that doing so would promote freedom of emigraVerDate 11-MAY-2000 22:55 Jul 18, 2001 Jkt 089009 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR145.XXX pfrm07 PsN: HR145
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tion in that country. On June 1, 2001, President Bush transmitted

to the Congress his intention to waive the prohibition with respect

to the People’s Republic of China for a year, beginning July 3,

2001. H.J. Res. 50 would disapprove the President’s extension of

this waiver. CBO estimates that denying nondiscriminatory tariff

treatment to the People’s Republic of China would increase revenues by $610 million over the fiscal year 2001–2002 period. Since

adopting this resolution would affect receipts, pay-as-you-go procedures would apply.

The bill contains no intergovernmental mandates as defined in

the Unfunded Mandates Reform Act (UMRA) and would not affect

the budgets of state, local, or tribal governments. H.J. Res. 50

would impose a private-sector mandate on importers of Chinese

goods that would be subject to higher tariffs. CBO estimates that

the increased costs in tariffs to importers would total $610 million

in fiscal years 2001 and 2002. Approximately $500 million of this

cost increase would occur in fiscal year 2002, which would exceed

the threshold for private-sector mandates established in UMRA

($113 million in 2001, adjusted annually for inflation).

Estimated cost to the Federal Government: The estimated budgetary impact of H.J. Res. 50 is shown in the following table.

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006

CHANGES IN REVENUES

Estimated Revenues ..................................................................... 111 499 0 0 0 0

Basis of estimate: Denial of nondiscriminatory trade relations to

the People’s Republic of China would substantially increase the tariff rates imposed on its exports to the United States. CBO assumes

that these higher tariff rates would increase U.S. prices and would

decrease U.S. demand for goods imported from the People’s Republic of China. CBO estimates that imports from China would decline

by more than enough to offset the higher rates, so that the U.S.

customs duties collections on Chinese imports would fall. However,

CBO estimates that some of that drop in trade with China would

be offset by an increase in imports from other countries with normal trade relations status. The increase in revenues from this effect would outweigh the reduction in revenues from China. Assuming an effective date of August 1, 2001, CBO estimates that revenues would increase by $610 million over the fiscal year 2001–2002

period. The People’s Republic of China has received normal trade

relations status through Presidential proclamation on an annual

basis beginning in 1980, and CBO assumes there would be a resumption of normal trade relations with the People’s Republic of

China after July 3, 2002.

Pay-as-you-go considerations: The Balanced Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures for legislation affecting direct spending or receipts. The net changes in

governmental receipts that are subject to pay-as-you-go procedures

are shown in the following table.

9

By fiscal year, in millions of dollars—

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Changes in outlays ................................................... Not applicable

Changes in receipts ................................................. 111 499 0 0 0 0 0 0 0 0 0

Estimated impact on state, local, and tribal governments: H.J.

Res. 50 contains no intergovernmental mandates as defined in

UMRA and would not affect the budgets of state, local, or tribal

governments.

Estimated impact on the private sector: H.J. Res. 50 would impose a private-sector mandate on importers of Chinese goods that

would be subject to higher tariffs. CBO estimates that the increased costs in tariffs to importers would total $610 million in fiscal years 2001 and 2002. Approximately $500 million of this cost

increase would occur in fiscal year 2002, which would exceed the

threshold for private-sector mandates established in UMRA ($113

million in 2001, adjusted annually for inflation). U.S. consumers of

Chinese goods would also bear indirect costs if they chose to substitute other foreign goods or domestically produced goods for Chinese products.

Previous estimate: On July 18, 2000, CBO transmitted an estimate for H.J. Res. 103, disapproving the extension of the waiver

authority contained in section 402(c) with respect to the People’s

Republic of China, as ordered reported adversely by the House

Committee on Ways and Means. CBO estimated that last year’s

resolution would increase revenues by $520 million over the 2000–

2001 period.

Estimate prepared by: Federal Costs: Erin Whitaker; Impact on

the Private Sector: Lauren Marks; and Impact on State, Local, and

Tribal Governments: Elyse Goldman.

Estimate approved by: G. Thomas Woodward, Assistant Director

for Tax Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE

RULES OF THE HOUSE

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives (relating to oversight findings), the Committee, based on public hearing testimony and information from

the Administration, believes that revoking China’s NTR status as

of July 3, 2001, would be unwise and counterproductive.

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

With respect to clause 3(c)(4) of rule XIII of the Rules of the

House of Representatives, no oversight findings or recommendations have been submitted to the Committee by the Committee on

Government Reform and Oversight with respect to the subject matter contained in the resolution.

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C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of rule XIII of the Rules of the

House of Representatives, relating to Constitutional Authority, the

Committee states that the Committee’s action in reporting the bill

is derived from Article I of the Constitution, Section 8 (‘‘The Congress shall have power to lay and collect taxes, duties, imposts and

excises, to pay the debts and to provide for * * * the general Welfare of the United States * * *’’).

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