U.S. GOVERNMENT PRINTING OFFICE

60–940 WASHINGTON : 1999

U.S.-CHINA TRADE RELATIONS AND RENEWAL OF

CHINA’S MOST-FAVORED-NATION STATUS

HEARING

BEFORE THE

SUBCOMMITTEE ON TRADE

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

JUNE 17, 1998

Serial No. 105–90

Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON TRADE

PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

AMO HOUGHTON, New York

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

WALLY HERGER, California

JIM NUSSLE, Iowa

ROBERT T. MATSUI, California

CHARLES B. RANGEL, New York

RICHARD E. NEAL, Massachusetts

JIM MCDERMOTT, Washington

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

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.

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C O N T E N T S

Page

Advisories announcing the hearing ........................................................................ 2

WITNESSES

Office of the U.S. Trade Representative, Susan Esserman, General Counsel .... 59

U.S. Department of State, Hon. Stanley O. Roth, Assistant Secretary, East

Asian and Pacific Affairs ..................................................................................... 71

Acton Institute for the Study of Religion and Liberty, Father Robert A.

Sirico ..................................................................................................................... 127

American Federation of Labor and Congress of Industrial Organizations, Barbara Shailor .......................................................................................................... 198

Amway Corporation, Richard Holwill .................................................................... 171

Cargill, Incorporated, Ernest S. Micek .................................................................. 99

Cincinnati Milacron, Christopher Hall .................................................................. 163

Craner, Lorne W., International Republican Institute ......................................... 152

Dannenfelser, Martin J., Jr., Family Research Council ....................................... 144

Dooley, Hon. Calvin M., a Representative in Congress from the State of

California .............................................................................................................. 48

Emergency Committee for American Trade, Ernest S. Micek ............................. 99

Family Research Council, Martin J. Dannenfelser, Jr ......................................... 144

Hall, Christopher, Cincinnati Milacron, and Society of the Plastics Industry,

Inc .......................................................................................................................... 163

Holwill, Richard, Amway Corporation, and U.S. Chamber of Commerce ........... 171

International Republican Institute, Lorne W. Craner .......................................... 152

Johnson, Clark A., Pier 1 Imports, Inc., and National Retail Federation .......... 117

Kapp, Robert A., United States-China Business Council ..................................... 185

Micek, Ernest S., Cargill, Incorporated, and Emergency Committee for American Trade ............................................................................................................. 99

National Retail Federation, Clark A. Johnson ...................................................... 117

O’Brien, William R., Global Center, Samford University ..................................... 137

Pelosi, Hon. Nancy, a Representative in Congress from the State of California ..................................................................................................................... 41

Pier 1 Imports, Inc., Clark A. Johnson .................................................................. 117

Shailor, Barbara, American Federation of Labor and Congress of Industrial

Organizations ....................................................................................................... 198

Sirico, Father Robert A., Acton Institute for the Study of Religion and Liberty ........................................................................................................................ 127

Smith, Hon. Christopher H., a Representative in Congress from the State

of New Jersey ....................................................................................................... 19

Society of the Plastics Industry, Inc., Christopher Hall ....................................... 163

Solomon, Hon. Gerald B., a Representative in Congress from the State of

New York .............................................................................................................. 17

Stark, Hon. Fortney Pete, a Representative in Congress from the State of

California .............................................................................................................. 8

United States-China Business Council, Robert A. Kapp ...................................... 185

U.S. Chamber of Commerce, Richard Holwill ....................................................... 171

Weldon, Hon. Curt, a Representative in Congress from the State of Pennsylvania ...................................................................................................................... 25

SUBMISSIONS FOR THE RECORD

U.S. General Accounting Office, JayEtta Z. Hecker, Associate Director, International Relations and Trade Issues, National Security and International

Affairs Division, statement and attachments .................................................... 214

American Association of Exporters and Importers, New York, NY, statement .. 237

American Chamber of Commerce in Hong Kong, China, statement ................... 241

Page

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American Chamber of Commerce People’s Republic of China—Beijing, statements ..................................................................................................................... 243

American Farm Bureau Federation, statement .................................................... 246

Chemical Manufacturers Association, Arlington, VA, statement ........................ 250

Coalition of Service Industries, Robert Vastine, statement and attachments .... 254

Distilled Spirits Council of the United States, Inc., statement ........................... 266

Intel Corporation, Michael C. Maibach, statement ............................................... 272

National Business Association, Greenville, SC, Bryan McCanless, statement .. 280

U.S. Integrated Carbon Steel Producers, et al., statement .................................. 290

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U.S.-CHINA TRADE RELATIONS AND RENEWAL

OF CHINA’S MOST-FAVORED-NATION STATUS

WEDNESDAY, JUNE 17, 1998

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON TRADE,

Washington, DC.

The Subcommittee met, pursuant to notice, at 1:03 p.m., in room

1100, Longworth House Office Building, Hon. Phil Crane (Chairman of the Subcommittee) presiding.

[The advisories announcing the hearing follow:]

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Chairman CRANE. Will everyone please take seats and hold the

conversation down to a minimum inside this room. And I want to

welcome everyone to this meeting of the Ways and Means Trade

Subcommittee to review the critical issue of U.S.-China trade relations.

On an annual basis, as required by the 1974 Jackson-Vanik statute, Congress considers the question of renewing China’s MFN, or

normal, trade status. After many years of isolation, China conditionally regained its status in 1980. As my colleagues know, every

President since that time has recommended a renewal of this treatment. Even President Clinton, who experimented during his first

year in office with linking China’s MFN, most-favored-nation trade

status to human rights conditions, ultimately conceded that such

policies do not promote our national interests and do nothing to improve the human rights situation in this turbulent region of the

world.

All legislative attempts at revoking MFN since 1980 or subjecting it to additional conditions have been resoundingly unsuccessful. This year, despite the investigation surrounding allegations

of export control violations, we cannot afford to let the outcome be

any different.

The Speaker recently joined Chairman Archer and me in a letter

that affirmed our commitment to the importance of separating the

MFN trade issue from the ongoing investigations.

The truth is that all Presidents since 1980 have realized that

slapping China through the revocation of MFN will not bring about

the changes that we all seek in China. Cutting off avenues of communication and trade between the United States and China will

not help the Chinese people create the future that we want for

them. In addition, revoking MFN could encourage additional financial instability in the region.

We must continue to emphasize that MFN is nothing more than

normal trade treatment, uniform among 150 U.S. trading partners.

I believe it’s misleading to characterize MFN as somehow exceptional or especially favorable tariff treatment. Because the terminology in the statute causes endless confusion to those who don’t

focus on these topics everyday, I intend for the Trade Subcommittee to markup H.R. 2316, bipartisan legislation which would

change the MFN label to normal trade relations, or NTR. I am sure

we will all enjoy getting used to a new acronym.

I would now like to yield to my distinguished colleague from

California, Mr. Matsui, for an opening statement.

Mr. MATSUI. Thank you very much, Chairman.

I would like to just submit my written statement for the record

in view of the fact that you have a long hearing, and I think this

issue, for the last 7 or 8 years, has been debated time and time

again. And we probably know all of the issues that have to be discussed and all the issues that go into making a decision on whether

to renew or not renew most-favored-nation status.

I might just point out, and followup on what Chairman Crane

has said: that China is 22 percent of the world population. One out

of every five individuals living on this planet is a citizen of China.

The U.S.-China relationship may be the most important bilateral

relationship the United States has for the next decade, the next 25

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years, perhaps the next generation. And it would be my hope that

Members of Congress—House Members, Senators, people from the

outside—would not politicize this issue. This issue is too critical for

the future of not only this country, but for the free world. And it’s

my hope that, as time goes on, that we begin to recognize that the

President’s policies of engagement of the Chinese is really the appropriate policy to take. None of us want to see a renewal of the

cold war, and it’s certainly my hope that all of us understand that

the decisions, comments, and statements we make now could have

that kind of an effect over the next generation, the next decade.

Thanks, Mr. Chairman.

[The opening statement of Hon. Jim Ramstad follows:]

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Chairman CRANE. Thank you. And I want to thank the witnesses

in advance for their prepared testimony and ask that you please

try and keep your presentations to 5 minutes or less so that we can

conclude the hearing by mid-afternoon. And please feel free to

elaborate for the printed record. Any printed statements will be

made a part of the permanent record.

The first witness today is our distinguished colleague on the

Committee, Mr. Stark from California, followed by my good friend

and Chairman of the Rules Committee, Jerry Solomon, who has a

long record in Congress on this issue. We will then proceed with

Mr. Smith from New Jersey, followed by Mr. Weldon of Pennsylvania. She’s not here yet, but Ms. Pelosi will be next, assuming she

arrives, and I feel confident she will. And we’ll conclude with Mr.

Dooley of California. Again, please try and keep it to 5 minutes or

less. Thank you.

STATEMENT OF HON. PETE STARK, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. STARK. Thank you very much, Mr. Chairman. I appreciate

the opportunity to be here.

As you well know, I oppose renewing the most-favored-nation

trading status to the People’s Republic of China. Their record of

forced abortions and sterilizations, human rights abuse, slave

labor, proliferation of mass weapons of destruction provide more

than enough reason to deny the status to China.

We talk about a meeting of the minds; I just think it’s important

to start the hearing off understanding that the Chinese have no interest or intent to meet our minds. The Chinese do not understand

what human rights are, as we understand them. By our terms, the

Chinese Government is barbaric. They do not believe in the value

of human life. They do not believe in the right of self-determination; they oppose it, and they have no intention or desire to change.

They will outmaneuver us and outflank us at the negotiating table

and say, Oh, yes, we’ll change. But they haven’t; they’ve gotten

worse. They release a few dissidents, and they put 10 more in. And

they mock us and laugh at us.

Now, nobody in their right mind suggests we would not trade

with China at all, but why we should give them an advantage that

we allow only to our friends and allies escapes me.

You should recognize that there has been no record of China’s aggregate improvement and, indeed, no indication that China intends

to live by what we would say is the Christian-Judean ethic in this

country, by the right of people to enjoy liberty and to protect

human life. They don’t believe in that. They believe the State owns

the lives of their citizens, and they can force sterilization and abortions as they decide. And they want to do that. They believe that’s

their right. They believe it’s all right to kill young girls; they don’t

need them, they don’t want them. They don’t add to their—whatever their mind set is that says government is intent to do. They

are barbarians. Women who attempt to have more than one child

either get abortions or get sterilized. China’s work force produces

goods and ships them to America, and they are produced with slave

labor. There’s forced overtime. It’s typical for workers to work 6

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and 7 days a week for 13 cents an hour. Migrant workers are

housed in inhumane quarters.

Our President contends that continued engagement with these

barbarians is essential to forming a common strategy. How do you

form a common strategy with heathens? We wouldn’t need to remedy a nuclear arms race between Pakistan and India if China

hadn’t supplied Pakistan with the nuclear weapons in the first

place.

China must be condemned for their violations of proliferating

weapons of mass destruction. The CIA has reported that China has

13 intercontinental ballistic missiles. They’ve sold Pakistan 34 nuclear-capable M–11 missiles. The Clinton administration did not

want to oppose sanctions then, and they dismissed the CIA

counterproliferation evidence.

In February 1996, the PRC sold 5,000 ring magnets to Pakistan

to use in their uranium enrichment facility. In May 1997, the State

Department cited seven Chinese entities for exporting chemical

weapons technology to Iran. In 1997, the CIA identified China as

being the most significant supplier of weapons-of-mass-destruction

related goods and technology to foreign countries. In September

1997, the Navy reported that China is the most active supplier of

Iran’s nuclear, chemical, and biological weapons program. In 1998,

China was found to be transfering chemical weapons to Iran, and

just June 16, 1998 initial CIA findings show that China is helping

Libya develop its own ballistic program.

What is there that makes us want to deal with these people?

There may be millions of them, as my colleague from California

suggests, but trading with them—dealing with them as we would

deal with intelligent, loving, caring human beings—is idiocy. They

don’t hear us. They want our weapons of mass destruction. They

want us to buy their cheap sneakers and T-shirts, and they are

laughing all the way to the bank while they continue to perpetuate

slavery, to denigrate the value of human life, and to peddle weapons of mass destruction around the world.

We must find another way to deal with this nation, and the sooner we face up to the fact that appeasing them, mollycoddling them,

and subsidizing them will only give them the strength to someday

turn and bite us. When we recognize that, we will begin to change

our policy toward China and not try to contain them through trade.

It’s a gift to the enemies of humanity, and we should not be part

of it.

Thank you, Mr. Chairman.

[The prepared statement follows:]

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Chairman CRANE. Mr. Solomon.

STATEMENT OF HON. GERALD B. SOLOMON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK

Mr. SOLOMON. Mr. Chairman, I have great respect for you and

your ranking member, Mr. Matsui, and I apologize for being late.

I was at a meeting which is about to establish the Select Committee on China, looking into the transfer of satellite technology to

the People’s Republic of China, which, without question, now has

resulted in the development and deployment, as Mr. Stark has just

said, of at least 13 out of a known 18, deadly intercontinental ballistic missiles aimed at the United States of America. And that’s

really what is the crux of this debate here today.

In a week or so, the President of the United States will be received by the dictators who run China, in the very place where

those dictators killed over 1,000 innocent people. This is morally

revolting, but it is the logical result of our policy of appeasement

of Communist China over the years, unfortunately under other administrations as well.

Of course, the continuous unlinked granting of MFN is the cornerstone of that appeasement policy. That is why I’ve introduced

H.J. Res. 121, which is pending before you right now, which would

temporarily—and I emphasize temporarily—suspend MFN for

China.

Mr. Chairman, as has been the norm for over a decade, the trade

picture with China continues to worsen. China’s refusal to grant

fair and open access to American goods has resulted in our trade

deficit with that country skyrocketing to over $50 billion. And I’ve

sat at this table year after year after year, when it was only $5 billion, $10 billion, $15 billion, and $30 billion. Now it’s more than

$50 billion and skyrocketing.

Mr. Chairman, this costs thousands of American jobs. Supporters

of the current policy keep telling us that U.S. exporters will get access to this vast Chinese market in return for this, but that remains just an elusive myth. It just is not happening. American exports to China totaled only $13 billion in 1997, less than one-fifth

of one percent of the total U.S. economy. Mr. Chairman, that is a

very slim return when you consider that we give China favorable

tariffs on over one-third of all of their exports.

On human rights, Mr. Chairman, I truly hope that no one is

fooled by the recent release of a couple of dissidents from Chinese

jails. The fundamental situation remains the same. China continues to be a vicious violator of basic human rights, consistently

ranked at the bottom by all human rights observers from all across

this world. According to our very own State Department, in its

1997 human rights report noted that the Chinese Government,

‘‘continued tight restrictions on freedom of speech, freedom of press,

assembly, association, religion, privacy, and worker rights.’’ Everything, Mr. Chairman; ‘‘serious rights abuses persisted in minority

areas, including Tibet.’’ And what a terrible, terrible thing that is

there, where tight controls on religion and other fundamental freedom continue, and are even intensifying, as we sit here this

minute. All these years of trade, yet we still wait for the improveVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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ment in human rights that the engagement theorists keep promising.

In the field of national security—and this probably is, without

question; the most important issue here today—our appeasement of

China’s reckless proliferation activities has finally borne its bitter

fruit in the form of a nuclear arms race in south Asia. There should

be no mistaking China’s guilt in this matter.

Just days before the first Indian nuclear test last month, their

defense minister stated unambiguously that China represents the

No. 1 threat to Indian security. Subsequent statements and analysis by Indian officials and observers leave little doubt that China’s

longstanding support for Pakistan’s nuclear and missile programs,

coupled with American appeasement of China’s actions, prompted

the Indian tests.

Mr. Chairman, MFN has led directly the bankruptcy of our socalled nonproliferation policies, which, quite bluntly, Mr. Chairman, have been discarded by this administration in its quest for

trade dollars with this Communist country. Last year, a new element was interjected in this debate: The revelations that the Chinese embassy here in Washington sought to buy influence with the

U.S. Government through campaign contributions. This year, we

have had confirmation of this from Democratic fundraiser Johnny

Chung, who has admitted to receiving $300,000 from a Chinese

military officer, who also happens to be connected to Chinese firms

involved in the business of launching satellites and proliferated

missiles.

The dots are beginning to connect themselves here, Mr. Chairman, and the odor of money and influence peddling that hangs over

this entire debate smells. It smells badly.

Tomorrow, my committee will create a Select Committee to get

to the bottom of all this. But frankly, Mr. Chairman, we don’t need

a Select Committee to know that it is our policy of business as

usual, at any cost, that has set the stage for this whole sorry scenario.

MFN is the crux of that policy, and until we link it to the behavior of the Chinese Government, as Mr. Stark has said, we will continue to invite the kind of abuses we see now. These are the very

bitter fruits of engagement, Mr. Chairman.

And in closing, let me just say cutting off MFN does not mean

that we cease all trade and contact with China—and you should all

listen to this. It simply means we raise tariffs on Chinese goods to

the point where we get their attention. That’s the only way that

will get their attention. This, and only this, will encourage better

behavior by the Chinese dictators. When we see that happening,

this Congress can turn around within days, weeks, or months and

restore MFN for China. You’re not cutting it off permanently. You

don’t have to wait 1 or 2 years; you can do it at the whim of this

Congress; the next day if you want to. I guarantee you, having

worked with the Chinese for all of these 50 years, that this would

hit them like a rock. Then they would wake up and, pay at least

some consideration to human rights, to human decency, to human

life itself.

And, Mr. Chairman, I plead with you, and I know your position,

I know you’re sincere and well meaning, you ought to come out and

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we all should, once and for all, temporarily stop MFN for China.

And you will see the direct results, resulting in the saving of

human life.

Thank you, Mr. Chairman.

Chairman CRANE. Thank you.

Mr. Smith.

STATEMENT OF HON. CHRISTOPHER H. SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. SMITH of New Jersey. Thank you very much, Chairman

Crane and Members of the Subcommittee, and thank you for the

invitation to be here.

Whatever decision the Congress makes about MFN for China

this summer, the American people will see it as a decision about

the role of morality in U.S. foreign policy, and they will be right.

Mr. Chairman, I think you would agree with me that legislatures

should judge their actions against two basic laws of economics:

What you subsidize you get more of; what you penalize you get less

of. So in judging whether we should continue to confer billions of

dollars in economic benefits on the Government of the People’s Republic of China, we need to decide whether we want more of what

this government has been doing for the last several years. In other

words, the China MFN is about whether a government that routinely practices forced abortion and forced sterilization should be

rewarded or punished.

Last week, I convened a hearing of my Subcommittee on International Operations and Human Rights. We heard from Harry Wu

and other witnesses, but also from a woman from Fujian Province

who gave stark and compelling testimony of how she ran the program and how she and the other family-planning cadres routinely

compelled woman to have abortions in the ninth month of pregnancy. She talked about certificates—birth approval certificates—

without which the child is illegal in the eyes of the Government

and is, therefore, killed by abortion. She talked about the tears

shed by women whose babies were first stolen by the State and

then killed with a shot of formaldehyde or some other substance

into the head.

This vote is about how we treat a government that imprisons

Catholic bishops and priests, Protestant ministers, and Tibetan

monks and nuns.

This is vote about a government that routinely uses slave labor,

and has dying rooms in its orphanages where so-called unwanted

children—mostly girls and handicapped—are left to die of starvation and disease.

This is the country of which Chi Haotian, the PRC Defense Minister, when he came to our country said, No one died at Tiananmen

Square. My Subcommittee, Mr. Chairman, very quickly put together a hearing and had several eye witnesses come forward, including an editor from the People’s Daily who told us how he saw

people die right in front of his eyes. And yet this high-ranking Chinese Government official, who received a 19-gun salute and the red

carpet treatment at the White House, said that no one died at

Tiananmen Square. No doubt he and his comrades will be there at

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Tiananmen Square to welcome our President when he visits. Chi

was the one who ordered the killings.

Those who believe that ‘‘comprehensive engagement,’’ will eventually bring about respect for human rights in China must ask

themselves several questions.

First, how long do we need to keep trying this strategy before it

begins to produce results? It has not succeeded yet in the 25 years

that we’ve been trying it—25 years of a tragic, unrequited love affair with the Communist regime in Beijing. There is no question

that increased contact with the West has changed China’s economic

system, but there is little or no evidence that it has increased the

regime’s respect for fundamental rights. As a matter of fact, Amnesty International and other organizations say things have actually gotten worse.

Mr. Chairman, this is because China’s economic system is not

changing from a Communist system into a free economy. Rather,

it is making a much simpler transformation: from communism to

fascism. Foreign businesses are permitted to make money and lots

of it, but only if they take the Government as their partner. I repeat, this is not freedom; it is fascism. American businessmen

made money in Nazi Germany in the 1930’s, but at least they did

not have the temerity to predict that because they were making

money, human rights were somehow just around the corner.

What more does Beijing have to do before we admit that our engagement has not been constructive, that it has, instead, been destructive of human rights?

Second, when big business and the Clinton administration really

want to change the conduct of the Government, they talk about

sanctions. Let’s not forget: When intellectual property rights were

at risk, we very quickly said sanctions would be in the offing. And

a 301 action was initiated, and we were all set to impose sanctions

in order to preserve intellectual property rights and combat piracy

and infringement of those copyrights..

Let me also say that Wei Jingsheng testified recently before my

Subcommittee, and he made the point—and this is counter intuitive to what some of you may thing—that when we are in a mode

of appeasement and working with the dictators, that’s when the

bullyboys in the Laogai—the Gulag system—are afraid to beat,

punish, and mete out torture. He said, You may think that’s not

the case, but we know from experience, that things go from bad to

worse as soon as you are in a concession mode.

I happen to believe very strongly, Mr. Chairman, that, as Mr.

Solomon said, we should suspend MFN and say, Look, our markets

are open, but you’ve got to make some fundamental changes in the

way you treat your own citizenry and stop these abuses of human

rights.

You know, the underground church—the Roman Catholic and the

Protestant Evangelical Church, is under incredible siege. I met

with Bishop Su, of Boading Province, an underground bishop who

celebrated Mass for our delegation. He got arrested—rearrested. He

had already spent 19 years in the Gulag because of his faith, and

he went right back to the Gulag as a result of our meeting. Some

other people have testified that, just as with other Communist

countries over the years, as soon as MFN is locked in for another

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year—in the book, as they say in baseball—right away they go to

massive amounts of torture, executions, and the like because they

know they’re scot-free, nobody’s looking.

We need to say that MFN and its linkage to human rights is

something we care about. This Sub-committee and Members individually, when they vote on this on legislation, can advance the

ball significantly. Where is China going to find a market for its

$60-plus billion worth of goods? They’re not going to find it in Europe, Asia, or anywhere else. We have real clout; let’s use it on behalf of the suffering people in the People’s Republic of China.

Thank you, Mr. Chairman.

[The prepared statement follows:]

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Chairman CRANE. Thank you.

Mr. Weldon.

STATEMENT OF HON. CURT WELDON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF PENNSYLVANIA

Mr. WELDON of Pennsylvania. Thank you, Mr. Chairman. It’s a

pleasure to be here today. I have a deep respect for both you and

this Subcommittee, as well as my colleagues at the table with me.

My testimony today—you’ve put my statement in the record, so

I will talk basically ad hoc. I will differ from my other colleagues

at the table. As someone who is on the Human Rights Caucus and

takes great pride in focusing on human rights issues around the

world, I am pro-life and take great pride in my votes to stop abortion in this country and around the world. But I am pro-MFN.

I also come as the Chairman of the Military Research and Development Subcommittee, which oversees $37 billion of our dollars

each year to focus on defense systems to protect our country, our

people, and our troops from the growing proliferation posed by

weapons of mass destruction and by missile technologies.

I am here to say that while I am pro-MFN, I am pro-constructive

and enforced engagement with China. I am the first to admit that

there are very serious problems, but, Mr. Chairman, I think we

have to look at what’s happening here. You have a country of 1.3

billion people with a Government about 50 years old. I would ask

my colleagues to look back when America was 50 years old: Were

women considered citizens? Were blacks considered human beings?

They were pieces of property that we bought and sold. This country

was not perfect. Now, I’m not trying to say that we should forgive

China the atrocities that they do in forcing abortions and in other

human rights violations. But to totally isolate them—and politically make the case that all is not going to be well unless we totally

remove them from the world—I think will not have the desired result.

Let me say, Mr. Chairman, that nobody works harder on the

issue of proliferation in this Congress than I do. I work this issue

on a daily basis; but, unlike my colleagues, I’m willing to confront

the Chinese. In my two trips to China last year, I sat across the

table from General Gong at lunch, in front of all of his subordinates. Now, you remember General Gong is the one—No. 2 in the

Chinese military—who issued the veiled threat against Los Angeles. And he was commenting to me about how unhappy they were

with the United States. And I said, Let me tell you something,

General: We in the United States do not take high Chinese officials

making veiled threats against our cities lightly. He put his head

down in embarrassment and didn’t know what to say. That’s the

kind of approach we should be using: We should be confronting

them across the table. We should be debating them and engaging

them.

Now, on the issue of proliferation, Mr. Chairman, let me ask to

put in the record a CRS, Congressional Research Service analysis

that I’ve had prepared of 21 Chinese violations of arms controls

agreements since 1992.

Chairman CRANE. Without objection, so ordered.

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Mr. WELDON of Pennsylvania. This listing, which I had CRS prepare, basically shows potential violations of every major arms control agreement that this country is a signatory to and which China

has also pledged to abide by, from the MTCR to other major arms

control agreements. This administration only imposed sanctions in

3 of those 21 cases, and they were eventually waived. Now we can,

of course, blame China. We can blame China for the most recent

Loral case, which I’m in the middle of investigating, but, Mr.

Chairman, let me say that if we have arms control agreements we

don’t enforce, maybe we ought to blame ourselves. Maybe we ought

to look at the White House and ask this administration why there

could be 21 consecutive violations of transfers of M–11 missiles to

Pakistan, ring magnets to Pakistan for their nuclear weapons program, and no sanctions?

If you have an arms control agreement and you’re not going to

enforce it when it’s violated, of course you can blame the country

that’s doing the violation. But I also blame our administration because the same practice is happening with Russia.

I would also be happy to enter into the record Mr. Chairman, the

CRS report on Russia where there were 17 violations of arms control agreements in the past 6 years and, again, no sanctions were

imposed.

[The information follows:]

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And we wonder why India and Pakistan are saber-rattling now,

or why Iran and Iraq have medium-range missile or nuclear capabilities. It’s because they got that technology from China and Russia, and they got it in spite of arms control agreements that, if they

were properly enforced, would have stopped that technology from

being sold or transferred abroad.

So I say the bulk of the problem lies right here in our city, right

at the end of Pennsylvania Avenue. If we really want to put the

heat on China, then start enforcing the laws on the books; start

using the pressure we can apply. But should we hurt the Chinese

people—the Chinese people who would be set aside—and portray

them as some kind of radicals who should be ostracized from the

world community? I think not.

I think, Mr. Chairman, that the time has come for us—and, sure,

I understand the political vote. The easy political vote is the vote

against MFN. But I say—as someone who was willing to hold

China accountable every step of the way for its human rights violations, for its policy on forced abortions—on the issue of defense and

security, on violations of arms control agreements, it is better to

deal with them directly and confront them. On both of my trips to

China last year, I spoke at the PLA’s National Defense University.

I went before mid- and senior-level officers in the Chinese military

and I confronted them on the issues that I’m bringing up today:

arms control violations, cooperation in nuclear technology with

Pakistan, M–11 missile sales to Pakistan, and the other numerous

violations that I cite here in this document. That is the way to deal

with China, and eventually we will prevail.

Allowing the argument that’s put forth by my colleagues here—

all of whom are my good friends—I think it is the wrong signal,

at the wrong time, and I think in the end will not help us. So I’m

here to say, Mr. Chairman, that I support the renewal of MFN.

[The prepared statement follows:]

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Chairman CRANE. Thank you, Mr. Weldon.

Ms. Pelosi.

STATEMENT OF HON. NANCY PELOSI, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Ms. PELOSI. Thank you very much, Mr. Chairman. Here we are

again: 10 years we’ve been doing this, 10 hearings—9 years; next

year it will be 10. And to tell you the truth, Mr. Chairman, I have

never expected this Subcommittee to ever vote out Mr. Solomon’s

amendments to reject the President’s special request for a special

waiver for China to have most-favored-nation status. But I would

hope that, in having this discussion, we point out the need for a

change in U.S.-China policy.

Although my colleague, Mr. Weldon, and I disagree on MFN, I

certainly agree with him that we have to enforce our own laws, and

in making this point on MFN a privileged resolution that comes to

the floor, it gives us that opportunity. So if people say they don’t

approve of President Clinton’s policy, MFN is the cornerstone of it.

And one way to get the President to change his policy is to remove

the support for it.

I come as a member of the Appropriations Committee, as the

ranking member of the Foreign Operations Committee; I also serve

as a member of the Intelligence Committee. And I can say with

great confidence that in the areas of concern to Congress—trade,

proliferation, and human rights—that the case is even stronger

than ever that we should not renew most-favored-nation status for

China this year.

I know as I say that—I wish that I could say that progress has

been made but, unfortunately, that is not the case. The President

likes to describe his engagement policy as constructive engagement.

I say it is neither constructive nor true engagement, because it is

a policy that does whatever the Chinese want; it does not have the

give-and-take to respond to our concerns about proliferation,

human rights, and trade. I want to set the record very straight, because the President is fond of saying that those who oppose him

on his China policy wish to isolate China. Nothing could be further

from the truth.

We want engagement that is honest, that is effective, and that

sustains our values, our own economy, and international security.

I’ve said already that I don’t expect this Subcommittee to reject

the President’s request, but I do think that this Subcommittee

should face the facts. As I’ve said, Mr. Chairman, we’ve been doing

this for many years, and when we first set upon this issue about

10 years ago, the trade deficit was about $2 billion with China. For

1997, it was $50 billion and for 1998 it is projected to be $63 billion—the trade deficit is on President Clinton’s watch alone.

Now, how effective is his policy on trade? On President Clinton’s

watch alone, by the end of this year, the trade deficit—for his

watch alone—will be a quarter of a trillion dollars—not million, not

billion—a quarter of a trillion dollars and growing. Something must

be wrong with that.

Don’t take my word for it. The administration’s own book, the

United States Trade Representative Estimate on Foreign Trade

Barriers, says that China has used prohibitively high tariffs—

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which in late 1997 still reached as high as 100 percent on some

motor vehicles—in combination with other import restrictions and

foreign exchange controls to protect its domestic industry and restrict imports. These high nominal tariff rates, to which China

adds applicable value-added taxes and, on some goods, consumption taxes, contribute to inefficiencies in China’s economy and pose

a major barrier to U.S. commercial opportunity.

And regarding trade in services, the same report notes that China’s market for services today remains essentially closed. Restrictive investment laws, lack of transparency in administrative procedures, and arbitrary application of regulations and law limit U.S.

service exports and investment in China. It goes on further, but I

want to talk about the proliferation issue, so I refer you to the

USTR’s own book on foreign trade barriers.

In the case of proliferation, those who support the status quo are

saying we need the Chinese Government’s help in solving the nuclear weapons crisis in south Asia. But Pakistan’s nuclear program

was developed with China’s help, which the U.S. Government consistently ignored, as Mr. Weldon mentioned. Without China’s help,

Pakistan would not have been able to develop or carry out its missile capacity with which it could deliver nuclear warheads or carry

out its nuclear tests. Without China’s help, Pakistan would not be

participating in a nuclear arms race in south Asia. And in addition

to that, those who support the status quo tout the agreement that

President Jiang Zemin signed last October, halting China’s proliferation of weapons of mass destruction. Less than 4 months

later, Mr. Chairman, China was caught trying to transfer dangerous chemical weapons to Iran, in violation of the very agreement President Clinton is claiming as progress. I submit more

about that as well as more on proliferation, for the record.

In terms of human rights—so much to say, so little time. Those

who support the status quo point to the forced exile of Wang Deng

and Wei Xin Chang as progress. These people were not freed. They

were forcefully exiled—forcibly exiled. They cannot speak freely in

China; how could that be progress? I will submit a list of all of the

atrocities and human rights violations for the record, Mr. Chairman. According to Human Rights Watch Asia, there has been no

substantial improvement in China’s human rights record in the

past year. Isolated prisoner releases such as the release of Weng

Deng and Wei Xin Chang, have little impact on the overall state

of repression in China. In the 6 months since Wei’s release, others

have been detained and arrested. The overall pattern of government treatment of political dissidents has not changed.

Mr. Chairman, I wish I had more time. As we embark on our annual debate over granting MFN, most-favored nation status to

China we must face up to the realities of the U.S.-China relationship. MFN is the centerpiece of the administration’s China policy,

a policy which is not working. Instead of an honest, effective, and

sustainable engagement which would make trade fairer, the world

safer, and people freer, we have in place a policy which actually

makes matters worse. Trade with China is growing more lopsided.

China’s proliferation of weapons of mass destruction continues, and

China’s people are not free.

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We have the opportunity to signal to this administration, and to

the Chinese Government, that the status quo is not acceptable by

opposing MFN for China. We must associate ourselves with the aspirations of the Chinese people.

And I remind my colleague, Mr. Weldon, that Taiwan is also 50

years old, and enjoys a thriving democracy—and their elections

were even threatened by missiles from mainland China just recently. So 50 years, for some of us, is old. For some of us, it is

young; for me, it’s young. But I point to the fact that, because the

people of China share our aspirations, they should not be penalized

because they live under an authoritarian regime which promises

the mirage of a market for some products made in America at the

expense of our values—and hopefully not at the expense of our

international security.

Thank you, Mr. Chairman, Mr. Matsui, members of the committee.

[The prepared statement follows:]

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Chairman CRANE. Thank you, Ms. Pelosi.

Our final witness is Mr. Dooley, and if your comments exceed 5

minutes that will be part of the permanent record in printed form,

not verbal. Please proceed.

STATEMENT OF HON. CALVIN DOOLEY, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. DOOLEY. Thank you, Mr. Chairman. And thanks to all you

Members of the Subcommittee for giving me the opportunity to appear before you today. As you know, I have a been a strong supporter of continued normal trading relations with China, and have

worked hard to advance a protrade agenda in Congress. I am concerned about the growing reluctance of the Congress to provide the

leadership needed on international issues to make improvements in

trade relations and economic conditions throughout the world.

Opponents of extending MFN have discussed China’s human

rights record, nuclear proliferation, religious freedoms, and barriers. Clearly, problems exist with China and work needs to continue on all fronts. However, Presidents Clinton, Bush, Reagan,

Carter, and Ford have recognized that engagement is a better policy than isolationism. They recognize that to wall ourselves off from

20 percent of the world’s population is not in the interests of the

citizens of China or the working men and women of the United

States. President Clinton’s trip to China later this month will provide the United States with another forum to pursue improvements

in all these areas. Without a policy of engagement, this type of trip

and the benefits that it will provide would not be possible.

The reality is that China has one of the fastest growing economies in the world. From 1979 to 1997, China’s real GDP grew average rate of 9.9 percent annually, and projected growth is estimated

by some at an average rate of 7 percent a year over the next two

decades. At this rate China, could double the size of its economy

every 10 years.

I represent the San Joaquin Valley, CA. And this highly productive agricultural area produces agriculture commodities worth in

excess of $22 billion annually, more than half of which is exported.

China is currently the sixth largest export market for U.S. agricultural goods. In 1996, China bought over $1.9 billion of U.S. agricultural products. With 1.2 billion people and limited arable land,

China must rely on imports to satisfy its demands for food. USDA

estimates that two-thirds of the future growth in U.S. farm exports

will be in Asia, and of that increase 50 percent will be in China

alone.

We must maintain our ability to be a reliable supplier of agricultural products. Our competitors in world market—Australia, Europe, Canada, and South America—stand ready to fill the needs of

China into the next century if we cut off trade.

Our ultimate goal must be to fully integrate China into the world

trading arena as a full participant. This means helping to encourage WTO accession to China to ensure that they will abide by

internationally accepted trading rules. It also means continued bilateral talks to address specific issues, like intellectual property

rights and nontariff trade barriers.

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Mr. Chairman, I recognize that problems continue to exist in

China, and remain committed to making improvements in the area

of human rights, trade policies, and nuclear proliferation. And I appreciate the efforts of some of my colleagues. However, I strongly

disagree with the philosophy of this engagement and believe that

it would be a mistake to disprove the extension on MFN.

I think many of us, when we look at what is happening in the

globalization of the world economy, equate it to the Americanization of the world economy. As we found in, I think, every instance where we have engaged in economic integration with any

developing country in the world, it has resulted in our values becoming increasingly instilled, whether it be the U.S. values on

human rights; the U.S. values on religious freedom, or movement

toward none capitalism and more democracy in these countries

which we have chosen not to isolate but to engage.

And that is the issue before us today: How can we most effectively advance the interests of the working men and women of the

United States as well as the interest of the citizens of China? I

think that clearly argues for us to continue with our approval of

China and MFN.

[The prepared statement follows:]

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Chairman CRANE. Thank you very much, Mr. Dooley.

Mr. Matsui.

Mr. MATSUI. I have no questions, Mr. Chairman. I’d like to thank

all of the panelists for appearing before the Subcommittee today.

Chairman CRANE. Mr. Nussle. Mr. McDermott.

Mr. MCDERMOTT. Thank you, Mr. Chairman. I just wanted to

ask Mr. Smith one question: What was the date of Tiananmen

Square?

Mr. SMITH. of New Jersey. Nineteen eighty-nine.

Mr. MCDERMOTT. And that was in June, wasn’t it?

Mr. SMITH of New Jersey. Yes, it was.

Mr. MCDERMOTT. Did Mr. Bush recommend most-favored-nation

status that year?

Mr. SMITH of New Jersey. I’m not sure if it had already been

made that year.

Ms. PELOSI. I can answer that, Mr. Chairman. As you know, Mr.

McDermott, in our country, June 4, 1989 was the date that—the

time was different between here and China—but June 4, 1989, was

beyond the time when a President could—it would be up to Congress to reject. We considered it at the time, but it was in a major

state of flux, and we didn’t realize that President Bush would not

go along with signing the Chinese student protection bill, which

was the vehicle that we used that year to express our concern

about U.S.-China relations. As you know, in the House and Senate,

Members voted overwhelmingly to protect the Chinese students

and our students with scholars in America. But that was the vehicle that year, which the President vetoed over Thanksgiving, and

that—I often wonder how things would be different around here if

President Bush had never signed that bill and sent a message to

the regime of that time that we had our limits. But, instead of

sending that message, he sent Secretary Eagleburger to toast the

regime in Beijing, but that’s what was——

Mr. MCDERMOTT. In 1991 and 1992, did President Bush recommend—the renewal of normal trade relations with China?

Mr. SMITH of New Jersey. Yes, he did, and let me make it very

clear that when President Bush recommended renewal of MFN objections were bipartisan and I spoke out very strongly as did Mr.

Solomon and others, and thought it was very ill-advised that a socalled constructive engagement—they didn’t perhaps put that same

word on it——

Mr. MCDERMOTT. I just wanted to bring some balance to this discussion. It seemed like all the problems in our relationships with

China started when President Clinton was elected, and suddenly

we gave up fighting for our national interests.

Mr. SMITH of New Jersey. Not at all. But let me just say, Mr.

McDermott, that Mr. Clinton, President Clinton, made—could I respond? Let me just say that many of us thought that President

Clinton, then candidate Clinton, had it right. And I publicly, as did

other Republicans, spoke out and said that he was right when he

criticized President Bush and said that he was ‘‘coddling dictators’’

meaning Li Peng and the rest of the gang in Beijing after

Tiananmen Square and because of the human rights abuses. What

we find so bewildering is that Mr. Clinton, after he issued his executive order and things went from—and remember, the operative

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language in that executive order was ‘‘significant progress’’ in

human rights—there was significant regression in every area, and

Mr. Weldon talked about confronting and dealing and meeting with

the Chinese. I’ve led three human rights trips to China; met with

Li Peng, Peng Peiyun who runs the coercive population control program and many, many others in their regime. So, I do believe we

need to meet them across the table, but destructive appeasement—

which is what we’re engaged in now, which destroys the people—

you know, I said it earlier, Mr. McDermott, and I know you can

reject it. Maybe you do——

Mr. MCDERMOTT. The problem, Mr. Smith, is that you don’t like

what we’re doing. But tell me, what is your solution for the Chinese population? How, if you were President or the Prime Minister

of China, would you deal with these issues?

Mr. SMITH of New Jersey. Voluntarism. Unless you’re——

Mr. MCDERMOTT. Voluntarism? Do you know the history of famine in that country?

Mr. SMITH of New Jersey. I also know that coercion should be totally unacceptable.

Mr. MCDERMOTT. I’m not saying that coercion is the answer. I’m

not defending the Chinese way.

Mr. SMITH of New Jersey. But you’re asking me what I would do;

I am answering.

Mr. MCDERMOTT. Your plan would be just to tell the people of

China, ‘‘Please don’t have any more kids.’’ That would be your plan.

Mr. SMITH of New Jersey. That’s what voluntarism is all about,

and the premise of your question is that you would allow them to

engage in coercion as a means to an end. The means justifies the

end?

Mr. MCDERMOTT. You wouldn’t have any kind of education program teaching about the various methods of family planning?

Mr. SMITH of New Jersey. Education, with a bedrock of——

Mr. MCDERMOTT. Would you have a family planning education

program?

Mr. SMITH of New Jersey. I would have no problem with voluntary—the emphasis is on voluntary——

Mr. MCDERMOTT. But all kinds of family planning? All kinds?

Mr. SMITH of New Jersey. Would you let me finish?

Mr. MCDERMOTT. Mr. Smith, I just want to hear the answer.

Would you advocate all kinds of family planning or not?

Mr. SMITH of New Jersey. It’s up to the individual, but not abortion. Abortion takes the life of a baby.

Mr. MCDERMOTT. So, there’s some kinds of family planing that

you would not tolerate.

Mr. SMITH of New Jersey. You’re suggesting that——

Mr. MCDERMOTT. So, you’re going to tell the Chinese how to do

everything, even ‘‘voluntarily’’.

Mr. SMITH of New Jersey. You’re suggesting abortion is birth

control? Is that what you’re saying? That’s the core of what you’re

saying.

Ms. PELOSI. If I may, Mr. Smith, our responsibility is what to advise the American President as Members of Congress. And we’re

advising the American President to have a different policy so that

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the Chinese people can decide for themselves what form of government and what systems they want to live under.

Chairman CRANE. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman. I’d like to

make a statement at this time. I want to thank the Chairman for

scheduling this hearing before the upcoming summit between the

United States and China next week. As a long-time supporter of

free and open trade, I believe that retaining normal trade relations

with China is the key to fostering a great mutual understanding

between our two countries. And I appreciate the opportunity to

hear from our panel of witnesses today.

All of us here understand the importance of open relations with

China. The economic effects of enhanced trade help build the

United States economy and help strengthen international markets.

The open exchange of goods and services has been a critical component of fostering understanding between nations for centuries and

has helped bring about regional, economic, and diplomatic stability.

Creating an environment of normal relations and ongoing engagement only serves to lower the walls of fear and suspicion while

building a spirit of cooperation through joint ventures.

More specifically to today’s headlines, with the weakening Yen

and the inability of Japanese officials to halt their current recession, China will play an even larger role in helping to stabilize the

Asian economy. But what should be our ultimate objective with

China with respect to trade relations? I believe that liberalized

trade with a communist society in the process of opening itself up

the world community will someday deliver to our trading partners

our most precious gift, and that is freedom. Indeed, we are already

starting to see the effects of China’s more liberalized trade policies.

The number of Chinese citizens employed in private business continues to escalate. Between 1986 and 1996, the number of employees in private enterprises jumped from 65.9 million to 232.9 million

people. This trend is also borne out by the fact that the share of

industrial output by the nonstate sector in China is increasing rapidly while the share of the state sector continues to decline.

Since the government of the PRC must continue to produce economic growth or face the internal stability threats brought about

by high unemployment, I expect to see further gains by these private enterprises. Continuing normal trade relations with China for

this year is critical, and I look forward to the day when their normal trade status with the United States is made permanent. It is

well beyond the time to realize that not granting normal trade relations to China is unacceptable. It would be equivalent to severing

all United States-China relationships. Even if we do absolutely

nothing to pressure China to release political prisoners, to grant

total religious freedom, to hold elections nationwide, to allow more

property ownership, or to contain proliferation, a country that denies the human spirit cannot sustain the wave of personal freedom

that accompanies open relations with the rest of the world. Only

isolation breeds rigid conformities.

The need to have a strong Chinese economy to anchor Asia is

even more true as we enter a new era of nuclear proliferation in

South Asia. Over the last month, I have heard a great deal of criticism regarding Congress’ stance on some of the new questions that

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have arisen in this area. I want to take a look at a couple of these

issues today, because to ignore them is to ignore reality and to be

naive.

First, let’s look at some facts. On May 1, 1998, the CIA reported

that China now possesses 18 long-range missiles—nuclear missiles

armed with nuclear warheads—13 of which are aimed at United

States cities. It’s been widely reported that they continue to develop and fine tune short-, middle-, and long-range missiles. The

PRC played a large role in the development of nuclear technology

in Pakistan through the 1970’s, and it provided defense applications of nuclear technology for them throughout the 1980’s. Now,

we are hearing that similar technology is being sold in Iran.

When reports begin to surface about the administration’s approval to transfer sensitive missile technology to China from companies—in view of China’s inappropriate diversion of U.S. aeronautic manufacturing equipment to the their defense facilities—

and the agreement of the United States to sell Clipper computers

to China capable of greatly advancing their nuclear capabilities,

Congress must respond. This is particularly true when you consider

that much of this was done over the objection of the Pentagon,

whose analyst argued that national security could be jeopardized.

This sort of intelligence immediately requires a response from

Congress, whose responsibility is to protect the national security

interests of the United States. As you all know, the United States

policy toward China is multifaceted and nuanced. The importance

of opening up their markets to United States goods, eliminating religious persecution, permitting political dissent, and promoting rule

of law cannot be overstated. At the same time, protecting the freedom and the safety we hold precious in this country must be our

primary goal when it comes to relations with any country; it’s in

a category by itself above these other important objectives.

As the world’s most populated country and a growing superpower, China is becoming a major player on the world stage as we

enter the millennium. We cannot place an overimportance on one

aspect of our relationship with China without asking the tough national security questions that will always demand Congress’ attention.

Mr. Chairman, I look forward to participating with other Members of Congress and this inquiry in answering these important

questions. But I believe that we are in a historic period of change

around the world, and China, as much as any other country, is a

microcosm of the many difficult issues we will face as policymakers. I firmly believe that our past policy of engagement with

China has greatly enhanced the relationship between our two countries, so it is even more critical as we move forward together in an

increasingly uncertain world. I thank the Chairman for his willingness to hold this hearing, and I look forward to working with my

colleagues on the Subcommittee to defeat the disapproval resolution that would deny China normal trade status for this year.

Mr. STARK. Mr. Chairman, could I ask the gentlelady if she

would apply those remarks to Cuba as well? Ms. Dunn.

Ms. DUNN. These are remarks I apply specifically to China.

Mr. STARK. Would you hold that same thing true for Cuba?

Ms. DUNN. No, this is related only to MFN in our relations——

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Mr. STARK. So, you wouldn’t open up trade to Cuba?

Ms. DUNN. If you wish to be specific about what you are asking

me, I would——

Mr. STARK. Just, would you apply your same philosophy to Cuba?

Would you open up trade to engage with Cuba, would you trade

with them? Why not Cuba? Why wouldn’t you include Cuba?

Ms. DUNN. As you know very well, Mr. Stark, there are a number of reasons that we have put sanctions on Cuba——

Mr. STARK. Name one that didn’t apply to China.

Ms. DUNN. That we can save for another day.

Chairman CRANE. The time of the gentlelady has expired, and

you can continue this conversation——

Mr. STARK. It’s an interesting thing, Mr. Chairman, how we can

apply one set of standards to one country and another set to another and, somehow, they don’t seem to balance.

Chairman CRANE. Next, Mr. Jefferson.

Mr. JEFFERSON. Thank you, Mr. Chairman. I don’t have much in

the way of questions of this panel. I do want to observe that all

of us have been working on one side or the other on this issue for

a number of years, some of us since the start of this whole process

of the MFN waiver, and some of us come to the debate accustomed

to that. As you know, the whole issue started out with the JacksonVanik questions about immigration. And we stray far away from

that in these discussions now because we use them as an annual

opportunity to try and leverage the Chinese to different standards

of conduct, more acceptable standards of conduct, ones which are

more in line with what we agree with and expect, and also expect

of our partners.

I wonder—those who have testified that are opposed to the President’s current policy of deleting the trade issue from the human

rights questions and recognize that nothing has anything to do—

no one has discussed Jackson-Vanik really today; we’ve discussed

other issues. Is there another level of engagement that you argue

for with respect to our relationship with China? I know you don’t

argue for isolation; that doesn’t make any sense. The mercury level

we’re talking about—what is that level of engagement, and what

is the stuff you have to take to get there—if there is an approach

other than engaging them as freely and as openly as possible in

trading and investing opportunities? Is there some other way to get

at the engagement? As I said, there has to be a plan other than

this, because you can’t simply say, Ignore China. So, what is the

plan?

Mr. STARK. Mr. Jefferson, if I might try and respond. I may have

been here—Mr. Clay may have, as well—when Jackson-Vanik was

first initiated. The immigration was really an icon for human

rights. Although immigration was at the basis of Jackson-Vanik, it

also included other human rights, and many of us travelled to

countries periodically just to see whether we would renew most-favored-nation status. Sometimes we did, sometimes we didn’t, and

it tended to work.

I would suggest that we could do as we did with Romania. In response to an extension of a most-favored-nation status, you might

very well give a little more to China. But we’ve been dealing now,

I think over 10 years, and have basically had a denigration or a

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diminution of human rights and any positive response whatsoever.

In other words, it’s been all give on our part. The deficit has grown;

their trade policies have gotten worse, and we haven’t really seen

any significant, bilateral response from China. We might say, Just

give them airplanes or, Just give them rice and cotton—which

would make some of us more happy in this room—and stop buying

sneakers; I don’t care.

It is to my experience—I think all of us have visited China—they

won’t discuss human rights with us or they put that aside and say,

Let’s talk about trade; let’s talk about manufacturing; let’s talk

about your exporting more technology to us. I’m suggesting that

we’ve just been bad, and whether it’s our administration or previous administrations, we’ve been out-negotiated. We have gotten

nothing for our efforts. So, nobody in this room, I believe, is suggesting isolationism.

Not having MFN temporarily is a setback; it’s an economic fine,

if you will, but there’s nobody to suggest for a minute that there

wouldn’t be trade. There’s nothing to suggest you can’t go half way,

but in the past that hasn’t worked and China knows that we won’t

follow through. We have tremendous pressure from the manufacturers and the agricultural interests in this country who want to

ship and sell. We have tremendous pressure from the importers—

the K-Marts and the Wal-Marts of the world—who want to sell

cheap goods here, and China recognizes we won’t override those

economic pressures.

So, at some point, we’ve got to have something different than all

or nothing. I think what all of us are saying is that the current policy hasn’t worked, whether it’s our administration, whether it was

the Bush administration, or the Reagan administration. So, why

don’t we try something different, and then I think we could all

work together in great harmony and set some goals. If they don’t

meet those goals—whether it’s in the exportation of weaponry or

restricting trade—we’ve talked about it and China must face consequences.

What are the sanctions we’ve heard about today that people are

asking the White House to put on for the selling of weaponry?

What are those sanctions? Let’s impose those; that’s OK with me.

They happen to be some of the same trade sanctions that you

would take away if you didn’t give them MFN. So, while the people

who favor MFN say that we should sanction for weapons violations,

what kind of sanctions?

So, I guess all I’m saying is that it’s time for change. Our threats

mean nothing, China knows it, and that’s the kind of frustrating

sense that we have. We have no authority, and we are just givingin every step of the way. I think that doesn’t make us credible to

enforce any violations, whether it’s nonproliferation, human rights,

or fair trade practices. They won’t listen and we have done nothing,

collectively, to suggest to China that we mean business.

Mr. SMITH of New Jersey. Mr. Jefferson, if I could respond briefly. No one’s suggesting that we recall our own ambassador or close

down our diplomatic mission in Beijing or any of the consulates

that we have there. What we’re talking about is a response to a

dictatorship where we have some real tools that can make a difVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00061 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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ference. The balance of trade, as we all know, is $60-plus billion

to about $13 billion of our exports going there.

I led the effort, along with Tony Hall and Frank Wolf, in the

1980’s to suspend most-favored-nation status for Romania. I’ll

never forget all those years, after all of those human rights trips

to Romania, hearing how great and different and how grand Nicholas Ceaucescu was. Now I can’t find anyone who will say

Ceaucescu was a great guy, because now the records have come forward—and we knew some, but it was only the tip of the iceberg

then—as to how repressive he was.

Now, we’re talking about a dictatorship. Much of what we do enhances the People’s Liberation Army. They have, as I said in my

testimony—I don’t think there are too many communists anymore,

in the old-line style of communism. These are real fascists; they’re

making money.

Recently one of our colleagues was in Moscow and asked their

chief China watcher what the difference is between China and

what happened here in Russia? He said the military is part of the

gravy train. They’re becoming the fat cats, but they’re also getting

a technological transfer that is almost exponentially beefing up

their military capabilities. And unless we see a change in their

mindset, their vision, and the way they treat their own people, we

don’t want to be enhancing them.

I was one of the few Republicans on the International Relations

Committee in the early 1980’s who broke with Republican ranks

and said, Apartheid is such an egregious human right violation, I’m

going to vote for those sanctions to end Apartheid and to stop all

investing. There were some short-term troubles; some people even

got poorer. Some blacks even got poorer, but, thank God, it was the

catalyst that eventually greased the skids for the end of Apartheid.

Chairman CRANE. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman. Thank you for your

leadership on this important issue. Thank you for calling today’s

hearing on the renewal of normal trade relations with China. I’m

going to be very brief, because we have other panels waiting. But,

Mr. Chairman, I just want to join in the remarks of my distinguished colleague and friend from Washington State, Ms. Dunn.

I also want to say that it’s hard for me to believe that anyone

would ignore one-fifth of the world’s population. One out of five of

the world’s consumers happen to live in China. And while I respect

the good faith position of the adversaries of this normal trade relationship with China, to me it seems obvious that we could have a

greater impact on human rights if we were engaged, if we’re physically there—American workers, American companies actually are

there—than if we disengage. It seems to me that a policy of disengagement would be nothing more than cutting off our nose to

spite our face.

When you look at the figures, you see that normal trade relations

are critical to jobs—absolutely critical to jobs. Merchandise exports

alone to China in 1995 totaled $12 billion, supporting 170,000

American jobs. By the way, those jobs pay, on the average, 16 percent more than nontrade related jobs. Certainly, we in Minnesota

understand what that means. In 1996 alone, we exported over $60

million worth of goods to the growing Chinese market. We’re curVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00062 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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rently working on improving that number through the Minnesota

trade offices—Minnesota-China initiative. Thanks to corporate

leaders like Ernie Micek of Cargill, who’s here today to testify

today on the third panel, we are expanding our export opportunities as well as the job opportunities for people in Minnesota.

So I applaud your efforts, Mr. Chairman, in extending normal

trade relations with China and, at the same time, being engaged

and doing something about their abysmal human rights record.

Again, engagement, in my judgment—and the judgment of many

thoughtful people, some of our distinguished colleagues from this

panel notwithstanding—seems to me the right thing to do and the

preferable thing to do. So, I look forward to hearing from the rest

of our panels, from the other witnesses and, again, thank you, Mr.

Chairman, for this hearing today.

Chairman CRANE. Thank you, Mr. Ramstad.

There is one final observation I’d like to make about an open letter to Congress in today’s New York Times: In addition to sponsors

of normal trade relations with China, such as George Bush, Jimmy

Carter, and Gerald Ford, virtually all of their Secretaries are cosigners of this letter calling for preservation of normal trade relations. I would recommend it to our colleagues. And with that, I

want to express appreciation to all of you. Notwithstanding our differences, we have opportunities to work together as well as to oppose one another’s views. I thank you for coming and testifying

today.

Our next panel is Susan Esserman, General Counsel, Office of

the U.S. Trade Representative; and the Honorable Stanley O. Roth,

Assistant Secretary of State for East Asian and Pacific Affairs, U.S.

Department of State. And if you folks will be seated, please.

Let me again reiterate that, if you can, please keep your verbal

presentations to 5 minutes or less. Any printed statements will be

made a part of the permanent record. And, with that, ladies first.

STATEMENT OF SUSAN ESSERMAN, GENERAL COUNSEL,

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Ms. ESSERMAN. Thank you very much, Mr. Chairman, for this opportunity today to discuss China’s most-favored-nation status.

China will play a crucial role in the major international issues that

our country must address in the decades to come. These include security in Korea, nuclear tests in South Asia, proliferation of advanced weapons, crime and drugs, the environment, human rights,

religious freedom, and trade. The administration, thus, has a policy

of comprehensive engagement with China. This does not mean endorsement of Chinese policies. Instead, it is the best way to further

our interests across a broad range of issues, finding mutual interest where possible and addressing differences in a forthright way.

I’d like to use the time to explain why engagement and MFN in

particular is a far better approach than the alternative. Fundamental to engagement is MFN status. MFN is a misnomer. It is

normal trade relations, the same tariff status we grant nearly all

our trading partners. It confers no special benefits on China. Renewing MFN is in our economic interest. Since it was granted in

1980, U.S. exports to China have grown from an insignificant level

to nearly $13 billion. China has become our sixth largest agriculVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00063 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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tural market, and exports to China and Hong Kong now support

over 400,000 American jobs.

It is also in our broader strategic interest. One example is China’s response to the Asian financial crisis. Trade has given China

a stake in economic stability beyond its borders. This has led China

to contribute to the IMF recovery packages for Thailand and Indonesia, and to resist pressure to devalue its currency.

By contrast, to revoke MFN status would be to sever our trade

relationship. Across a wide range of economic and security interests, there would be consequences that we would come to regret.

Assistant Secretary Roth will speak to the severe consequences in

areas beyond trade. I’d like to just focus briefly on the economic

consequences. Revoking MFN would raise tariffs from 6 percent to

a trade-weighted average of 44 percent on Chinese goods, raising

prices consumers pay for basic goods. In every region of the country, it would threaten the jobs of manufacturing workers, the incomes of farmers, as well as adversely affect retail, service, marketing, and transportation workers that are connected to U.S.-

China trade. It would derail WTO negotiations and jeopardize the

access we have achieved in our bilateral agreements.

Revoking MFN would also badly damage Hong Kong with severe

impacts on Hong Kong trade and jobs. This would occur at the

worst possible time, as the Asian crisis poses real economic difficulties. And Hong Kong just held its first election as the Hong Kong

Special Administrative Region; this is why all leading Hong Kong

figures support China’s MFN status.

Revoking MFN status would worsen the Asian financial crisis. A

disruption of the magnitude of revoking MFN would introduce new

financial and economic instability to Asia with unpredictable and

very negative effects in the region and on the American economy.

In short, to renew MFN is to protect fundamental U.S. interests

and values.

I would like to take one minute, if I could, to talk about our trade

agenda, with MFN as the foundation for our relationship. The administration has two principal goals in its trade policy with China:

First and foremost, we continue to actively pursue market opening

initiatives on a broad scale for U.S. goods, services, and agricultural products. Especially in light of our trade deficit with China,

we must see greater balance in our trade relationship with high

growth in our exports. Continuing to open China’s markets—not

isolation and termination of our trade relationship—is the best way

to tackle that part of the deficit due to trade barriers in China.

Second, a fundamental principle of our policy has been working

to ensure that China accepts the rule of law so that China’s trade

and economic policies are consistent with international trade practices and norms. We have pursued these objectives both through

WTO discussions and bilateral initiatives relying on a full range of

U.S. trade laws. Engagement in this manner has helped us to advance both our trade and economic interests and broader values.

There are many examples of engagement, but I want to just

highlight one in particular because I think it is very helpful, if I

might for just one minute, Mr. Chairman. Not long ago, China’s intellectual property laws were weak and piracy was widespread.

Two sets of negotiations, in which we threatened retaliation twice,

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and actually invoked retaliation under section 301, won landmark

agreements in 1995 and 1996. Under these agreements, China significantly reduced the scale of piracy and began to establish a modern, legal infrastructure for the protection of intellectual property

rights.

These gains were achieved not only through hammering out the

terms of trade agreements, but through intensive, continuous, and

ongoing work with Chinese and administration officials, with active

assistance from our industry. Surely more needs to be done; problems remain, but the key here is intensive engagement to continue

the advancement in this area. The same is true in the WTO. I refer

you to my statement, which will be in the record.

Let me just conclude by saying that trade policy is about access

and fairness, but the effect extends beyond commerce to fundamental national interests, values, and ideals. While many difficult

problems lie ahead, the long-term trends in our trade relationship

are important. These trends are not only good for China, they are

good for America. The direction we are moving in gives the best opportunity to maintain our gains and tackle the array of trade problems that persist which, I assure you, we will continue to pursue

relentlessly.

So the administration strongly supports China’s MFN status,

and we very much look forward to working with you, Mr. Chairman.

[The prepared statement follows:]

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Chairman CRANE. Thank you, Ms. Esserman.

Mr. Roth.

STATEMENT OF STANLEY O. ROTH, ASSISTANT SECRETARY OF

STATE FOR EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF STATE

Mr. ROTH. Thank you, Mr. Chairman. I have submitted a rather

lengthy statement for the record, and I won’t attempt to read it

within the 5 minutes you’ve given us. Let me simply point out that

the first section deals with U.S. interests in China and what the

stakes are. This Subcommittee is very familiar with that. The second section, which I wasn’t even going to mention at all, deals with

engagement and what the proofs of engagement have been; I wanted to lay out a record. But let me simply state at this point that

there were a number of assertions in the previous panel that we

have no benefits, no results, in human rights, nonproliferation, economic issues—and I think that’s simply a distortion of the factual

record. So, I would like to refer you to some of the specific examples I’ve pointed to in the statement. I tried not to overstate. I’m

not saying there are no human rights, nonproliferation, or economic

problems remaining, but I think we shouldn’t rewrite history and

claim there are no successes so far for the engagement policy.

Now, let me turn to the specific issue on the table which is MFN.

A lot of the basic arguments on the consequences of denying MFN

have already been laid out by my colleague from USTR. Let me add

a few points. First I think, in addition to what effect it would have

on Hong Kong, it’s important to point out it would also have a

major negative impact on Taiwan, another one of our major friends

in the region, and that’s certainly a fact that I think this Subcommittee, this Congress, will want to take into account. This

would be a very major, negative blow to Taiwan at a time when

its own currency and market are under attack as part of the Asia

financial crisis.

A second point—we can talk about more in questions if you

want—is the impact upon China itself. I think it’s very important

to recognize that China has undertaken some major, structural,

economic reform that we’re encouraging, including the privatization

of its state economic enterprises—a massive undertaking including

banking and financial reform, development of mortgage and housing industries. If we were to deny MFN, which would have a significant impact on their economy, I think we would be undermining

the very reform sectors that we most want to support, and this

would have real serious consequences for us over a period of time.

Finally, let me talk about some of the consequences that it would

have toward U.S.-China relations, because I think a key point is

that this is not only a commercial issue. Revocation of MFN would

affect our relationship with China across the board. By denying

what is essentially normal trade ties, we would be reversing engagement and, therefore, we’d be imperiling the gain that we have

achieved thus far—a difficult enough process as it is. And I think

we would be eliminating the prospects for future progress.

Let me just give you a few examples—and this is not an exhaustive list—of what the world might look like if we revoked MFN for

China. I think it would undercut our strategic cooperation, particuVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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larly in defusing escalating tensions in South Asia but also dismantling North Korea’s nuclear program and pursuing a permanent

peace settlement on the Korean peninsula. It would undoubtedly

encourage more belligerent and xenophobic foreign policy on the

part of China’s leadership. They have a number of maritime territorial disputes with a variety of countries, and I think we might

well see those exacerbated. It would have to handicap our efforts

to strengthen China’s integration into nonproliferation regimes,

and it would limit our ability to curtail technology transfers to unstable regions.

Finally, an aspect that isn’t talked about nearly enough: It would

risk support for the U.S. initiatives at the United Nations. This is

not a minor point: China is a permanent member of the Security

Council. They are perfectly capable of exercising the veto, which

they have really not done. If one recalls Soviet behavior during the

height of the cold war, you know just how devastating the relentless use of the veto can be as a tool for blocking U.S. foreign policy

objectives, and we should take this into account. It would also jeopardize Chinese cooperation on global issues, some of which we’ve

made important progress on: combating drug trafficking and alien

smuggling—an area we hope to make more progress—and climate

change.

Finally, let me get to the threshold question: Would risking vitally needed cooperation on all the above fronts get the United

States anything positive in return? In my view, denial of MFN

could actually hinder our efforts to improve human rights in China.

It would create a tense, hostile atmosphere in which Chinese leaders would be less inclined to take the kind of action we have

worked painstakingly to encourage: releasing political dissidents,

allowing international visits with prisoners, signing and ratifying

international human rights covenants, and engaging international

religious leaders.

Furthermore, the loss of the U.S. market might have the unintended effect of weakening some of the most progressive elements

of Chinese society. Private entrepreneurs have been able to expand

personal freedom by being independent of the State, and our trade

and investment have helped to expand the habits of free enterprise

and independent thinking. We need to encourage this sector, not

stunt its growth; we can only do that providing access to American

markets and ideals.

Mr. Chairman, in conclusion, as Secretary Albright has often

said, there is no greater opportunity for challenge in U.S. foreign

policy than to encourage China’s integration into the world community. President Clinton’s decision to extend MFN status to China

reflects our commitment to this goal. Thank you very much.

[The prepared statement follows:]

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Chairman CRANE. Thank you, Mr. Roth.

Ms. Esserman, my understanding is that Charlene’s airborne

right now; is that correct?

Ms. ESSERMAN. That is correct.

Chairman CRANE. En route to China. All right, well, you tell her

when she gets back that we’re sorry we missed her.

Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman, and thank you

for your testimony. It was very, very interesting, I think, especially

the results of our closing down on MFN and how it would affect

us and our friends in the Asian economy.

I want to ask you, Mrs. Esserman, to take a moment to focus

more directly on the importance of MFN to nations other than

China, in particular, Hong Kong and Taiwan. I think that people

forget that this is not simply a situation between us and China. As

we well know, in that relationship there are obstacles in the road,

and we want to consider all those obstacles. But we also believe

thoroughly that trade is terribly important in providing us with an

environment where we can begin to talk about these things.

I wonder if you would just reiterate—for example, we know in

China we have something like 1,000 American companies and

3,500 Americans employed by those companies living in China. I

wonder if you would take a minute or two—and perhaps you, too

Mr. Roth—to talk about the effect on some of the very good friends

that we do business with in the Far East.

Ms. ESSERMAN. Thank you, Congresswoman Dunn. You are absolutely right that the revocation of MFN would have a significant

adverse affect on Hong Kong. Hong Kong handles over 50 percent

of U.S.-China trade, making it very dependent on the normal commercial trade relations status. Hong Kong authorities themselves

estimate that MFN revocation would slash trade by $20 to $30 billion, with a resulting loss of jobs between 60,000 to 85,000 jobs.

That is why, as I have said, Hong Kong leaders across the board

have stated their strong support for the renewal of MFN.

It is also crucially important that we continue to extend the normal trading relations to China now, at this very sensitive time.

With the Asian crisis, it is particularly important for Hong Kong

that we extend China MFN, and this is the case for other countries

in the region also.

Mr. ROTH. Why don’t I say a little bit about Taiwan? As you

know, Taiwan has invested massively in China. It’s actually been

one of the stabilizing elements in that relationship. But much of

that investment is geared to export industries—Korea exports, the

United States is one of the largest markets. I think it’s pretty obvious that if you start massively curtailing exports from China to the

United States by virtue of revoking MFN then you’re going to be

hurting Taiwan-owned industries. Some of these will go out of business and then there’s going to be a major loss of investment on the

part of Taiwanese investors.

And as is the case with Hong Kong, the majority of the leaders

in Taiwan have made no secret that they, too, would like to see

MFN extended.

Ms. DUNN. Thank you very much. I must say that there have

been strong proponents of this point-of-view that you just exVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00085 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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pressed: last year Governor Chris Patton came to Washington, DC

and spoke articulately about this. This year as Wei Sie Chen visited us here in Washington, DC, and also my hometown of Seattle,

WA at a forum that was led by Robert Kapp, president of the

United States-China Business Council, and she expressed this

point-of-view.

I think it’s a terribly important point for us to remember that

our friends—who are not just all over the world, but specifically in

Taipei, Taiwan, and also in Hong Kong—are depending on our extending MFN.

I yield back.

Chairman CRANE. Mr. Jefferson.

Mr. JEFFERSON. Thank you, Mr. Chairman.

As I read the President’s message to the Congress transmitting

his notification of his waiver of the application of Jackson-Vanik,

it is, of course, limited to the issue of freedom of immigration and

freedom to encourage further progress of immigration. So, it’s unfair to the President to say, don’t you think, that if he makes those

two findings and submits it to Congress that he is somehow not

discharging his responsibility on the MFN issue? Because these

other issues that we’ve heard discussion about don’t apply, technically or legally, at all to the Jackson-Vanik discussion, which is

the essence of what the President has to make a determination

about. Isn’t that correct?

Mr. ROTH. Well, the President’s specific report to the Congress

deals with the narrow parameters of the legislation itself and

treats it as a legal issue. But I think all of us——

Mr. JEFFERSON. That is all he has to do, isn’t it?

Mr. ROTH. Yes.

Mr. JEFFERSON. That’s his whole responsibility. So, if he does

that, he’s met his responsibility, correct?

Mr. ROTH. Yes.

Mr. JEFFERSON. Now, with respect to the other issues, they fall

within the realm of what we—when the President says he delinks

human rights from the trade issues, it doesn’t necessarily mean

that one has less priority than the other; does it? I’m trying to follow these witnesses who say when you delink, it means one has

less priority than the other. They may have equal priority in their

spheres of discussion and consideration. Isn’t that correct?

Mr. ROTH. Exactly.

Mr. JEFFERSON. And so with the issue of human rights, religious

freedom, and political freedom that we all care about: aren’t they

on track for discussion and for resolution, but in another sphere of

consideration? Not with respect to the trade and investment side,

but with respect to the diplomatic side. The State issues and all

those matters are always present and the administration’s pressing

on those issues. Isn’t that true?

Mr. ROTH. Yes, you’re making my case better than I did.

Mr. JEFFERSON. I’m trying to; now, the issue. With respect to the

other matters of non-proliferation and all the discussion we’ve

heard about those: What has been the record of cooperation that

recognizes that these issues are separate from the issues that are

really before this Subcommittee? Nonetheless, let me ask you:

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What has been the record in the last year of the Chinese Government with respect to the proliferation issue?

Mr. ROTH. Overall, I think you would characterize it as improving. We reached some significant agreements at the last summit,

particularly with respect to stopping the sale of antiship cruise

missiles to Iran and to dual-use export controls on nuclear items.

And we’ve seen excellent Chinese compliance with the commitments made at the last summit.

We are working to try to broaden areas in which we’re getting

Chinese commitments. For example, right now, we’re trying to

achieve further progress on missile proliferation. But overall, the

trend has been positive.

Mr. JEFFERSON. With respect to the India-Pakistan question:

What has been the Chinese response to them?

Mr. ROTH. The Chinese response has been very supportive of

United States policy. We have worked jointly at the permanent five

at the United Nations. China was the Chair, actually, at the special session in Geneva to deal with the response to the nuclear test.

And our positions are very similar in terms of wanting adherence

to the comprehensive test ban: for them to both renounce future

tests, to agree not to produce additional fissile material, and to

agree to serious talks to try to diffuse the situation on the Indian

subcontinent. It was a very good relationship of which we’re trying

to achieve a common strategic objective.

Mr. JEFFERSON. With respect to the bilateral agreements we

reached with the Chinese over the last few years, what is the

record of compliance with those agreements, specifically with respect to prison labor, intellectual property rights, textile

transhipment, market access, property rights, those questions?

Ms. ESSERMAN. Let me start on the trade side. Their record has

been pretty good overall. There are areas, for example, in the 1992

MOU agreement where they have fully complied, that is, in lowering tariffs and removing licenses and certain quotas.

Where they haven’t been so good is in respect to agriculture. Agriculture is a very difficult issue; China is a very important market

to the United States and we are pressing very hard to resolve some

of these barriers. I might add that some of the barriers that we see

in China are the same that we see around the world—in Europe

in particular, where we’re continuing to have difficult problems

with them.

In the area of intellectual property, we have been working intensely with Chinese authorities and provincial authorities to not

only implement the agreement, but to establish a real legal infrastructure so that there is effective intellectual property protection.

In the area of CD’s and CD–ROMs, the compliance has been

quite good and continuing. There are issues that remain: There are

other piracy problems as well as market access issues that we are

addressing.

Mr. JEFFERSON. On the transshipment—because you didn’t mention it, I want to ask you to speak to that one too.

Ms. ESSERMAN. Yes. We have been vigorous in monitoring our

textile agreements with China. And where we have found any evidence of transshipment, and we have followed the appropriate legal

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procedures and taken action and we have triple charged against

their quotas.

Mr. JEFFERSON. I see my time is up. Mr. Chairman, thank you

for allowing me——

Chairman CRANE. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman.

First of all, let me say, Ms. Esserman, I’m a big fan of your boss.

It’s a pleasure to work with Ambassador Barshefsky in a bipartisan, pragmatic way on these important trade issues.

Let me ask you this: Everyone is concerned, of course, about the

financial instability in Asia and about the Chinese currency. In

your judgment, do you think China will eventually devalue in order

to stay competitive with its Asian neighbors?

Ms. ESSERMAN. I wouldn’t want to speculate in this hearing, but

I would say that we believe that their actions to date, where they

have chosen to maintain their currency despite pressure, have been

very, very helpful to the situation.

Mr. RAMSTAD. Have they, therefore, been rewarded in terms of

the trade negotiations?

Ms. ESSERMAN. Absolutely not. We think, again, that this is another product of continued and intensive engagement with them.

But as we have always said, our trade negotiations will be on the

merits. In respect of WTO accession, we will work with them. Any

WTO package will be strictly on the merits and on terms that other

members have been required to follow.

Mr. RAMSTAD. Good. Let me ask you another question, Ms.

Esserman. In your statement you talked about the status of WTO

negotiations, that they indicated some positive signs. You mentioned that China agreed not to use export subsidies for agriculture. What implications for U.S. agriculture are in these signals?

Ms. ESSERMAN. Well, we think that is a very important step.

That’s very, very important to our agricultural community. It is, of

course, one step. In the area of agriculture, as I mentioned, there

is already a significant market for agriculture producers. China is

our agriculture producers’ sixth largest market, but many problems

remain and we are working intently on them. They are in the form

of high tariffs, tariff rate quotas, as well as these so-called safety

standards that are really not based on science. So we have a ways

to go in the agriculture area.

Mr. RAMSTAD. Finally, Ms. Esserman, will you support the bill

that Chairman Crane and I and others have sponsored to change

the nomenclature from most-favored-nation status—which is misleading—to normal trade relations with China? That term is much

more descriptive and accurate.

Ms. ESSERMAN. Absolutely. It goes a long way to help clear up

the issue.

Mr. RAMSTAD. Thank you, Mr. Chairman, Ms. Esserman. I yield

back.

Chairman CRANE. Thank you.

Mr. Houghton.

Mr. HOUGHTON. Thank you very much. Mr. Ramstad said that he

was a big fan of your boss. I’m a big fan of you, Ms. Esserman.

[Laughter.]

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And, Mr. Roth, it’s nice to see you. I guess the basic question is:

Where do we come at this? Some people don’t think China is doing

the right thing economically. There’s force directed on economic

placing, many times, of slave labor. In terms of the employment

we’ve got problems. Also in terms of abortion, many times the concept of religion, intellectual property rights, and all sorts of things

like that. But I think the question is, Do we sort of stare them

down and flag them and tell them they’re bad, or do we sort of

work through them?

I wasn’t here for Chris Smith’s testimony, but it’s hard to separate the basic trading from the other issues. I basically come from

the standpoint that it’s better to work with people, particularly

when you have this enormous powerhouse out there. And we are

now so inextricably intertwined with the economy and the rest of

the world—and now even more so with China—that to wag our finger and threaten them, scold them, just doesn’t seem the right

thing. But those issues are out there; they’re very, very important,

and not just in this room.

How do you handle those things? Maybe you’d both like to——

Mr. ROTH. Let me take the first crack at it. But I think in your

question itself, you’ve basically underlined the strategy behind

what we’re trying to do with engagement. It’s not a feel-good strategy to avoid confrontation; rather it’s a very pragmatic and realistic

strategy designed to try to produce results on all the issues that

we care about, whether it’s some of the diplomatic foreign policy security issues that I deal with, or the economic issues that my colleagues at USTR and the other economic agencies spend so much

time on.

But the real question is, What works, what gets results, and is

it a confrontational policy? Would that lead us to progress?

I said in my statement, and I firmly believe that if we revoke

MFN, things would go backward on human rights, that they’d go

dramatically backward on nonproliferation. I think we’d get less cooperation on key foreign policy issues like the Korean peninsula

and South Asia. And my colleague from USTR has explained at

great length what the economic consequences might be for the

United States, and for some of our key friends in Asia.

So I think the engagement strategy is exactly what you suggested: a means of trying to elicit progress on issues that affect

American interests.

Mr. HOUGHTON. So what you, in effect, are saying, is that you

do believe strongly in some of these other issues, which are noneconomic; that the best way to resolve them is not to cut off relationships, but to be further involved in changing them, as I guess

we have seen in a variety of different areas in China.

Mr. ROTH. Yes.

Mr. HOUGHTON. Ms. Esserman.

Ms. ESSERMAN. Congressman Houghton, I want to add to what

Assistant Secretary Roth just said, because I think it is particularly pertinent in the trade area. Obviously, we cannot make

progress in our trade relationship if we have no relationship.

But the nature of the trade problems require intensive and

painstaking work. And I did mention earlier our intellectual property situation. I think it is very, very interesting.

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Actually, this point definitely applies to our WTO accession negotiations: What we did there was we confronted the Chinese with

the problem. We were insistent on dealing with the problem. We

negotiated an agreement. They weren’t complying as we wanted

them to do. We threatened, and then actually invoked retaliation.

But most importantly, we worked with them to develop the legal

infrastructure necessary to make that agreement a success. And

what that has required is ongoing and painstaking work, bringing

our Customs and Justice authorities and the Patent and Trademark Organization over, working with them and working with our

industry to make sure they’ve developed the kind of infrastructure

necessary to ensure that we secure the gains that we must for our

intellectual property industries.

So really, the best way to go at this point is to be working intensely with them, and not be afraid to use the targeted trade tools

when necessary.

Mr. HOUGHTON. OK, thank you very much. Thank you, Mr.

Chairman.

Chairman CRANE. Mr. McDermott.

Mr. MCDERMOTT. Thank you, Mr. Chairman.

I’d like to ask a couple questions just to hear your thinking, because I don’t really know the answers to these. Maybe there is no

answer, but let’s just suppose that the Congress turns down mostfavored-nation for China; that leads to what consequences in

China? Tell me what you think would occur there, in terms of employment, or devaluation of the Renminbi, or whatever.

Mr. ROTH. Well, let me talk more on the foreign policy side and

the development of China itself, and then turn the economic questions over to Susan.

First of all, I tried to indicate in my statement that you’re undermining the very reformist elements in China itself that we should

be encouraging; people that are trying to promote a lot of the steps,

whether it’s the privatization of the state economic enterprises, or

financial reform, and the like.

I think beyond that you’re also going to see a movement to the

right, as it were—more hardline positions on foreign policy issues.

And I think a lot of the cooperation on certain areas that I’ve described could disappear. I would also have to worry about what the

response might be in the Security Council in terms of how they

might react.

So I think what you’d get is a combined response: That if you did

this you would a worsening of our relationships with China, you

would be hurting your reform movement within China, and you

would be hurting American economic interests simultaneously.

Mr. MCDERMOTT. Just as an aside, I think I heard Secretary

Rubin say that if we didn’t pay our arrears and dues to the U.N.,

that we will lose our vote on the Security Council at the end of this

year; is that correct? And if we miss this year then we lose our vote

in the General Assembly?

Mr. ROTH. I haven’t heard it for Security Council.

Mr. MCDERMOTT. Oh, it’s in the General Assembly; we would

lose our vote.

Mr. ROTH. Let me get you his exact comment and response. I

want to see what he said.

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Mr. MCDERMOTT. OK.

[The information follows:]

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Ms. Esserman, could you give us a feeling for what would actually happen economically if we did not extend most favorite nation

to China? Without making it seem worse than it is, I want a realistic estimate on your part of what that would do to the Chinese

economy.

Ms. ESSERMAN. Well, I think most fundamentally what has

caused great concern at this juncture is that the act of—the magnitude of—revoking MFN would really cause destabilization within

China and within the region. And I think that is a very, very serious concern.

Mr. MCDERMOTT. But by what mechanism would it cause destabilization? Like when the stock market fell last week and confidence fell in Asian economies, or would it actually be closing of

markets and loss of exports? What would be the mechanism by

which that destabilization would occur?

Ms. ESSERMAN. Well, it would be through a variety of means. It

would create great instability in affecting confidence in the region,

and it would affect opportunities for China in the United States.

But of course, and most fundamentally, that kind of instability in

Asia will have an effect on the United States’ interests, and there

are a range of concerns—economic concerns—that we have about

the revocation of MFN. Its impact on our own economy here, in

terms of increased costs of consumer goods, potential loss of jobs,

would be felt in a wide array of areas, including the concern that

we would lose the gains that we have fought so hard to achieve in

the intellectual property area. And the gains that we have made

in the WTO accession negotiations, while very slow and painstaking, that progress would simply stop.

Mr. MCDERMOTT. What’s the likelihood that you would expect

the RMB to be devalued?

Ms. ESSERMAN. I’m sorry, I didn’t hear your question.

Mr. MCDERMOTT. The currency devaluation; what’s the likelihood

that that would happen if we withdrew most-favored-nation trading sting? Is it more likely, or less likely, or would it have no effect?

Ms. ESSERMAN. Well, I wouldn’t want to comment on what the

Chinese plans are on devaluation. Let me simply say that we are

pleased with their actions to date, and certainly any kind of dramatic action like revoking MFN would have a destabilizing effect

on China.

Mr. MCDERMOTT. It’s my view that destabilizing China through

this kind of action, both politically and economically, leads to more

human rights abuses. Is that a fair estimate?

Mr. ROTH. Yes, I would not want to have a straight-line projection, but I would certainly say that, in the context of a very bad

U.S.-China relationship, as well as a suffering Chinese economy,

the leverage that we and the international community would have

on China to improve the human rights situation would certainly be

diminished.

Ms. ESSERMAN. And I think if you look at history, during the

times of the greatest closure in China—between the early 1950’s

and the early 1970’s—that’s a time of great abuse.

Mr. MCDERMOTT. Thank you, Mr. Chairman.

Chairman CRANE. Mr. Matsui.

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Mr. MATSUI. Mr. Chairman, I am sorry I was late. I was meeting

with some constituents back there, and I want to apologize to both

Ambassador Esserman, and certainly Secretary Roth as well. Perhaps these questions have already been addressed.

Secretary Roth, in terms of the—and I was just saying to Chairman Crane here that it’s so difficult to address hypothetical questions. It may be difficult for you to even respond to some of them,

because obviously you don’t want to get further out than you may

want to get out, or should get out, at this particular time.

But in terms of what the Chinese are doing with respect to India

and Pakistan now, with the nuclear weapons having been detonated by both countries: Could you say, one way or the other,

whether China has been playing a positive role now in helping us?

Because I know the whole issue of how to set up roles between the

two countries—just as we did with the Soviet Union during the

Cold War—those are some areas that need to be addressed by the

rest of the free world.

Now, if you can’t answer it I would not expect it, but if you could,

that would be helpful.

Mr. ROTH. Actually, I don’t think that’s a hypothetical question.

I think you’re asking what role China is playing now, which is a

factual question.

Mr. MATSUI. Right.

Mr. ROTH. As I tried to indicate previously, I think that the Chinese have been helpful in response to this immediate wave of nuclear tests in both countries. They did chair the Permanent Five,

P–5 session in Geneva, in which we’re trying to come up with a coordinated P–5 response to what happened. And they took substantive positions there, pretty much parallel to our own in terms

of what they want: adherence to a comprehensive test band, competence-building measures, direct talks between India and Pakistan, adherence to limits on fissile materials, and the like.

So they had a very robust nonproliferation package that mirrored

our own. I think it’s a very helpful response.

Mr. MATSUI. Thank you. In terms of the issue of intellectual

property protection, Ambassador Esserman, I know that 2 years

ago we entered into an agreement with the Chinese with respect

to protection of our intellectual property. Obviously we’ve had some

rough roads over the last 24 months.

So with respect to the enforcement of the agreement, could you

tell me how that agreement is going right now, how would you rate

it in terms of the monitoring that your agency has been conducting?

Ms. ESSERMAN. I would say that in certain areas the implementation of the agreement has been very, very good and very successful. In the area of CD and CD–ROM piracy, the agreement has

been very successful. And as I had mentioned earlier, we have been

working intensely with the Chinese and provincial authorities to

establish a legal infrastructure. And the Chinese Government has

taken extensive action: arresting intellectual property violators,

closing down 64 CD and CD–ROM production lines, and taking a

number of other measures.

That does not mean that all the work is done. We have a considerable amount of work to do dealing with software piracy, and

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we’re working intensely on that. We also have a range of other

issues such as trademark, and we need to make much more

progress in the area of market access.

Mr. MATSUI. One last question.

Secretary Roth, in the area of human rights abuses and religious

freedom, are you seeing—maybe this isn’t within your bailiwick,

because you do have a secretary in charge of the human rights. But

are you seeing some changes now in China, in those areas?

I know that Reverend Billy Graham and a number of others have

said we must continue to engage the Chinese, continue most-favored-nation status. Obviously, they want the President to continue

his efforts and take the trip as well. Perhaps you might talk about

some of those areas.

Mr. ROTH. Without in any way wanting to minimize the problems that still remain—and they’re formidable—I think I would say

that we’ve seen some progress on human rights. Some of it is very

well known to this Subcommittee: the release of prominent dissidents on medical parole in the U.S., Wei Jingsheng and Wang

Dan. The signing of one U.N. covenant last year, and the announcement that the Chinese are going to sign the political covenant later this year.

We’ve had very positive major steps—the receiving of a religious

delegation that the United States sent, which included a 1-hour

meeting with President Jiang—and all these are an atmosphere

that things are somewhat improving.

I think even more important, Secretary Albright came away from

her recent trip there stating that China is changing. She had meetings on her trip that physically wouldn’t have been possible 2 years

ago. We had a meeting at our Ambassador’s residence with local

Government leaders, think-tank people, members of various levels

of government in which they talked about the process of change in

China. We discussed legal reform, rule of law, and other issues.

These things weren’t on the agenda. Two years ago you couldn’t

find the phrase ‘‘rule of law’’ in a Chinese newspaper; now it’s a

headline issue. You’re seeing village elections in some places, and

in a few cases even the election of the nongovernment party candidate.

So there is a process that’s starting some change, but there’s a

long way to go, and I’m not by any means trying to suggest that

we do not have formidable problems remaining.

Mr. MATSUI. Are our Defense Department and also our Justice

Department continuing meeting on a regular basis with the Chinese, in terms of assisting the Chinese in how to establish a court

system with due process? Second, regarding some of the military

conversion efforts I know Secretary Perry has been involved in: Are

those efforts, where we have face-to-face engagement with the Chinese on conversion and also maybe setting up a judicial system

continuing?

Mr. ROTH. One of the outcomes of the previous summit was that

we did agree to engage with the Chinese on a regular basis across

a series of issues, and you’ve highlighted two of them.

For example, on the law enforcement issue we have a vigorous

rule-of-law program with a lot of different programs being considered—about exchanges, training of lawyers and judges—that’s

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quite promising, and that happens regularly. The Justice Department is also involved in this, although a lot of the work happens

through NGOs.

On the military side, we have a working relationship as well,

military-to-military, but it’s not on the conversion side. Unfortunately, that program was shut down by the Congress on the other

side, and so our activities are in other areas. But we’re concentrating on things like peacekeeping, on search-and-rescue, on transparency, trying on getting them to produce a more accurate analysis of their own budget, their white papers, what their doctrine is.

But we are trying to engage the Chinese military in these areas

without, of course, getting into any relationship on military sales.

Mr. MATSUI. If we should eliminate most-favored-nation—and I

know my time is up, Mr. Chairman—eliminate most-favored-nation

status, would you believe that those would all continue? Or would

they—perhaps the Chinese would—what would your——

Mr. ROTH. Clearly, the Chinese would take it quite seriously as

a major step backward if the United States were to revoke MFN,

and they would wonder what engagement meant if that happened.

While I would not want to give you a roadmap of what they might

do, I think that one could expect very serious consequences in multiple areas.

Mr. MATSUI. Thank you. Thank you, Mr. Chairman.

Chairman CRANE. Mr. Neal.

Mr. NEAL. Thanks, Mr. Chairman. I just have a quick question

and an observation. The MFN vote, as you might expect, generates

some of the toughest letters that Members of Congress receive, in

some measure, because there’s so little information surrounding

the entire question.

But given your experience, isn’t it really an issue of both sides

telling a bit of the truth, and you just have to proceed with an element of faith? There have been some democratic reforms or neardemocratic reforms that have been instituted by the Chinese Government, and things are better than they were, but not quite what

we desire that they be.

I’ve given up trying to write back to constituents about that. Instead, I call them on the phone and try to talk it through with

them. If you can’t convince them of the merit of your argument, at

least you can persuade them to postpone a final decision on what

you’ve done.

I think that’s part of this engagement process, because we have

not succeeded very well when we try to hit them over the head.

Even with much of the controversy that surrounds the president’s

visit, the truth is that even if we come back with an approval 51

to 49, we once again have advanced the democratic arguments,

haven’t we?

Mr. ROTH. I think that’s a fair point, and I think you illustrated

the fact that there is a bit of dilemma because there is truth on

both sides. Most of the issues we’ve been talking about is good

news and bad news. Some areas progress, some areas not enough

progress.

Not too many areas I’m happy to say were there setbacks. But

this is a complex picture, where you can’t give one straight, simple

answer across the board.

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Ms. ESSERMAN. And I would just extend as well, in the trade

area it is a complex picture. The point is, looking back since the

beginning of our grant to MFN, we have made a fair amount of

progress.

Businesses are now having access to China; they are operating

in China and transmitting our values. The level of state ownership

has declined. There has been long-term gains. These are good

trends, but many, many problems remain. The real question is how

you best address that. And our strongly held belief that terminating the relationship will not help at all to advance these many

concerns that people have rightly pointed out across the range of

issues.

Mr. NEAL. Thank you. That’s pretty much where I come down.

Thank you both.

Chairman CRANE. I want to express appreciation to our panelists

for their performance today, and relieve you from further duty. And

as I say, any written remarks will be made a part of the permanent

record, Mr. Roth.

Ms. ESSERMAN. Thank you very much, Mr. Chairman.

Chairman CRANE. Thank you. And with that I would like to call

our next panel, Ernest Micek, Chairman and Chief Executive Officer of Cargill Incorporated; and Clark Johnson, President and Chief

Executive Officer of Pier 1 Imports Inc. And I would like for Mr.

Micek to be presented to our panel here by Mr. Ramstad as Cargill

and his district.

And I had the pleasure of visiting up there with Mr. Ramstad before, and had the opportunity to be at the Cargill Headquarters.

And when you get up there it impresses you overwhelmingly as a

magnificent campus. But it’s very beautiful and doing outstanding

work.

With that, I’d like to yield to Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman, and welcome to you,

Ernie Micek. Certainly as CEO of the largest privately held company in the world, with operations in 72 countries and 79,000 employees worldwide, your expertise is certainly welcomed here today.

We appreciate your coming to Washington to testify.

Also, I want to thank you especially for your outstanding leadership and advocacy in support of free and fair trade. Your efforts to

open new export market and create jobs throughout the world are

most impressive, and exemplary. You’ve been a real leader in the

corporate world, creating jobs. Certainly, nobody’s been a better

corporate citizen in our State of Minnesota than Cargill, and with

your leadership, we appreciate that as well.

I just want to conclude by saying, and challenging your counterparts out there in the corporate world. If every CEO would exert

half the effort and influence you have, we wouldn’t have to battle

MFN each year as we do. We wouldn’t have to go scrapping for

each and every vote, and have these close calls, when jobs are on

the line, when American prosperity is on the line, when economic

growth is on the line. We’d also have Fast Track Authority, which

is so important to the administration to have to open new markets

and to create jobs for the American people.

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So I want to thank you and welcome you here today, Ernie. You

certainly are not only one of the best and the brightest, but you’ve

been a real friend of free trade, and that’s deeply appreciated.

Thank you, Mr. Chairman, I yield back.

Chairman CRANE. Thank you.

Mr. Matsui.

I’m sorry. Mr. Micek, you’re next.

STATEMENT OF ERNEST S. MICEK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CARGILL, INC. AND CHAIRMAN OF THE

EMERGENCY COMMITTEE FOR AMERICAN TRADE

Mr. MICEK. Mr. Chairman, Mr. Ramstad, and Members of this

Subcommittee, thank you very much for those kind remarks.

Good afternoon. My name is Ernie Micek. I’m Chairman and

Chief Executive Officer of Cargill, Inc. Today I am testifying as

Chairman of the Emergency Committee for American Trade,

known as ECAT, on behalf of its member companies about the need

to renew China’s MFN treatment, a priority for ECAT member

companies.

Cargill has been doing business in China for nearly 30 years.

Our presence in China does not mean that we approve of everything that happens there. We believe that a great deal must

change to transform China into a pluralistic society, governed

democratically, and driven by a market economy.

Our experience of doing business in more than 70 countries convinces us that walling off a neighbor cuts off any opportunity to

change that neighbor’s behavior, and makes the global neighborhood a more dangerous place. We believe that lesson applies to

China as well.

I have five points I would like to make in my presentation today,

and refer you to the written version of my testimony for more detail.

First, MFN treatment does not confer any special status to China

beyond what is normal trade status for the majority of U.S. trading

partners. ECAT does not believe that there should be any change

in China’s MFN status because of recent allegations concerning the

possible transfer of sensitive technology to China.

These allegations should be properly investigated, and any illegal

conduct should be punished by applicable U.S. law. America’s vital

bilateral relations with China should not be put on hold while the

investigations are carried out.

Second, the renewal of China’s MFN status is essential for the

continued expansion of U.S. trade and investment in China. Since

the first extension of MFN treatment to China in 1979, U.S. exports of American goods and services have grown nearly 20-fold to

$16 billion in 1997, while U.S. investments in China have grown

to $25 billion.

U.S. exports to China support nearly 200,000 U.S. jobs across

every sector of our economy. China already is one of the top five

largest markets for U.S. agriculture exports, buying an average of

8 to 10 million tons of grain per year, with the potential to import

30 million tons of grain by the year 2010.

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In addition to grain, Cargill ships orange juice and phosphate

fertilizer, as well as cotton, corn, soybeans, soybean products, and

meat from the United States.

Cargill has invested in facilities in China, and we now employ

over 500 people in China. We’re proud of the fact that we and

many other U.S. firms have made a positive impact on the lives,

attitudes, and behaviors of our employees in China through improvements in workplace habits, supplying better products, and

paying higher wages and benefits.

Cargill has brought safety, quality, and ethics programs, and

good management and environmental practices to China. For example, we require our workers to wear hard hats, safety shoes,

safety glasses, and ear plugs when necessary—all new practices in

China. Even the guardrails we installed around our work site were

a foreign concept to the average Chinese worker.

Cargill’s corporate quality program and guiding principles—our

code of conduct—have been translated into Chinese and taught to

our employees.

Cargill’s trade with China also provides important benefits here

at home. The export of phosphate fertilizer to China and elsewhere

enables our Florida fertilizer facilities to operate year round.

Jim Johnson, one of our union employees in Tampa, spent a

week in Washington last year, telling that story to Members of

Congress as part of the effort to secure passage of fast-track legislation. He and others like him at our many export-dependent facilities know the United States needs to compete in today’s global

economy, and needs fast-track trade negotiating authority to get

the best competitive terms it can.

Doing business in China is not without challenges, as described

in my written statement. The important point I’m making with this

detail on Cargill’s experience in China is this: We are struggling,

but we are building our business as we have learned to do in many

other countries, responsibly and honorably. Our limited success to

date and our hopes for the future, like the hopes of other American

companies, will be jeopardized if China’s MFN status is withdrawn.

My third point is that withdrawal of China’s MFN treatment will

jeopardize U.S. security interests and the spread of Western influence in China. More than just commercial interests are at stake.

Withdrawal of China’s MFN status would undercut important

gains the United States has made in achieving greater strategic cooperation with China, and would undermine the remarkable transformation of Chinese society over the past two decades, resulting

from its opening to the West. The Chinese people today enjoy higher living standards, greater economic freedom, and more access to

outside information than ever before.

Fourth, the continuation of China’s MFN status is essential in

maintaining the health of Hong Kong’s economy and preserving

Taiwan’s prosperity and autonomy. Hong Kong remains a vitally

important gateway to China, and its open economy is a major influence on mainland China. Maintaining China’s MFN status, in turn,

is crucial to Hong Kong’s economy and to the one-China policy and

efforts to preserve economic relations with Taiwan.

Finally, we should not lose sight of the importance of maintaining a broad vision and moving toward a more stable relationship

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with China built on greater mutual understanding and trust. U.S.

extension of permanent MFN status to China and China’s entry

into the WTO on commercially reasonable terms, would solidify

this relationship.

An important step in the process was the agreement last fall to

hold regular summits between the United States and China. President Clinton’s state visit this month is another chance to move

ahead the U.S. agenda, and make progress in commercial and diplomatic relations.

In conclusion, granting China MFN status advances U.S. national interests. It is essential to the expansion of U.S. trade in

China and the Asia-Pacific region, maintaining a strong U.S. economy, and promoting U.S. security interests.

Cargill, the Emergency Committee for American Trade, The

Business Coalition for U.S.-China Trade, and many other business

groups, strongly support the renewal of China’s MFN status. I appreciate this opportunity to appear before the Trade Subcommittee

on behalf of ECAT, and I look forward to responding to your questions.

Mr. Chairman, in closing, I’d like to make one more statement.

I want to thank you for the excellent letter that you sent with

Speaker Gingrich and Chairman Archer to the President, supporting renewal of China’s MFN treatment. Your letter is helping

to frame the debate over MFN renewal in a constructive manner.

I would also ask that the statement of the Business Coalition for

U.S.-China Trade in support of MFN renewal, and the Business

Coalition letter to Speaker Gingrich supporting MFN, be entered

into the record of this hearing. Thank you very much.

[The prepared statement follows:]

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Chairman CRANE. Thank you. We appreciate your testimony.

And the bells have gone off, and inasmuch as we are on tight

time constraints over there—now they’ve changed the guidelines

and don’t leave the lights on. And I think we should recess, subject

to call of the chair. We’ll go over, respond to this vote. And we’ll

come back as quickly as possible and get Mr. Johnson’s testimony.

Mr. JOHNSON. Thank you, Chairman. Fine.

[Recess.]

Chairman CRANE. The committee will come to order. And I apologize to our witnesses for this interruption, but it turned out to be

three votes.

And now, Mr. Johnson, if you would be so kind to make your

presentation.

STATEMENT OF CLARK A. JOHNSON, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, PIER 1 IMPORTS, INC.

Mr. CLARK JOHNSON. Thank you, Mr. Chairman. My name is

Clark Johnson, and I’m chairman of the board and chief executive

officer of Pier 1 Imports. I’m here to testify today on behalf of the

National Retail Federation, as well as my company, Pier 1 Imports.

The National Retail Federation is the world’s largest retail trade

association, with membership that includes department stores, specialty stores, discount, mass merchandises and independent stores,

as well as 32 national and 50 state associations.

The NRF membership represents over 1.4 million retailers in the

United States, covering 22 million people, or 1 out of every 5 people

in the United States work in retail. Last year companies in our organizations had combined sales of over $2.5 trillion.

While there’s several issues that I could talk about that in my

judgment should compel the Congress to extend MFN, I want to

cover just two subjects.

The first subject is the negative impact on low and middle income American citizens if MFN is not renewed. The mission of a

retailer in American is to provide an assortment of a wide range

of goods from everywhere in the world, and present that merchandise to our retail customers in a fashion that represents significant

value for the customers.

China makes products that working families can afford. One of

the strengths of China is that products that require a high labor

content and are low value-added products really is what China is

noted for.

Let me give you an example of shoes, because we heard something about shoes here earlier today. Forty percent of all of the

shoes sold in the United States come from China, and 60 percent

of the low-priced shoes come from China.

As an example of how meaningful that is to Americans, I was in

one of our members retail establishments this summer up in North

Carolina, and they had a sale, three pair of leather shoes from

China for $8.81. So when you ask yourself the question how do low

and middle income Americans get by with four or five children?

One of the ways they do is buy good quality products that are imported from China and elsewhere.

Imports generally have helped keep American inflation low. Although we’ve gone through some tenuous times in America, where

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American industry has had to restructure to become competitive

with overseas suppliers, most of that has passed now, and today

America is as competitive as any country in the world.

I think the final question is, if we weren’t buying some of these

products of yesterday from overseas and from China, where would

the labor come in the United States to do make these products?

It’s been estimated by the International Business and Economic

Research Corporation that failure to renew normal trade relations

for China would cost every American an extra $300 a year in higher prices for goods. In effect, that’s a tax increase put on Americans, and in our collective judgment that’s not the way to do that.

The second factor that I’d like to touch on is China’s potential as

a market for the future of the United States and U.S. goods.

Pier 1 Imports has been in China since 1975. I made my first

trip there in 1985, and in the 13 years that I’ve been going to

China, I have seen tremendous improvements. In fact, I was in

China last week for two days, in Beijing, and when I commented

that I had been coming to China for 13 years, one of my business

associates said there’s been more change in China in the last 13

years than in the 1,000 years before that. Remember, China’s a

country 3,500 years old, and we’re 222 years old, so they’ve been

through a lot over there. But I’ve seen significant signs that

progress is being made.

There have been a series of interesting articles running in ‘‘The

Washington Post’’ on China. One that was in ‘‘The Post’’ today was

particularly timely for this hearing, and stated that as of 1997

there were 263 million Chinese, out of a population of 1.2 billion,

working in private industry.

In 1978, just 20 years ago, there were 150,000. So they’ve gone

from 150,000 in 1978 to 263 million. To me that is one of the

strongest signs of the fact that China is moving in the right direction.

Sixty-seven percent of all the Chinese live in state-owned housing. They have a major program underway to convert that state

housing to independent ownership. Only 2 percent of Americans

live in state or government housing.

When I was there I was the guest of the Bureau of Experts. This

bureau in China in 1997 facilitated the arrival of 80,000 experts

from all over the world, that came to China to help them modernize every aspect of the Chinese society. Of the 80,000 experts,

14,000 were from the United States.

So as we heard earlier, if China is a country that’s closing down

rather than opening up, why then the fact that they would let

80,000 people from all over the world come on an independent

basis, and promulgate whatever their trends were, is important.

Could I have one more minute, Chairman, to conclude my remarks?

Chairman CRANE. Yes, you may.

Mr. CLARK JOHNSON. Do you have another vote?

Chairman CRANE. Okay, we’re still in business.

Mr. CLARK JOHNSON. Okay. Well, let me just finish here, and I’ll

be rapid, Mr. Chairman.

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Beyond MFN, which is important, America’s world trade activities today represents 30 percent of our gross domestic product, $2.4

trillion worth of activity. The same activity that retailers represent.

The way that we will enhance the standard of living of all Americans going forward is to continue to aggressively open up markets

for American’s goods around the world, for those goods that Americans are known for, technology, software, entertainment, airplanes.

But what we need to be is dependable, consistent, predictable suppliers and customers to our world markets.

There is a rush toward market economies all around the world,

and the Chinese people are entrepreneurial, and are moving to

their version of capitalism in a very rapid fashion. When this process is finished with MFN, Mr. Chairman, I think it’s mandatory

that we put Fast Track back on the front burner.

My trade specialist that I listen to said that the world ahead of

us is going to evolve into three trading blocks; Europe and Eastern

Europe, the hemisphere that we live in, and Eastern Asia. And

that it is ludicrous that the United States is losing the business in

Central and South America—that we are—to the Germans, to the

French, to the Japanese, and to others, because we haven’t been

able to go down there with Fast Track and really tell the American

story. That’s our legitimate market down there, and the time for

us to get position is after this battle is over.

I appreciate the opportunity of having been here today, and my

associate and I will be happy to respond to any questions.

[The prepared statement follows:]

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Chairman CRANE. We appreciate your willingness to participate

and contribute toward this hearing. You made a very astute point

there about the importance of trade in our national economy. We

constitute less than 5 percent of the population on the face of this

earth. Where are the customers? They’re beyond our borders. Trade

has been the most dynamic component of our economy and it’s better than one-third of our total economy today, and still growing,

but that could stagnate absent Fast Track, as you’ve pointed out.

One of the things that’s interesting to me is the news that I saw

in today’s paper, that the European Union is now going to open up

free trade relations with sub-Saharan Africa. And I say that because we reported that bill out of our committee back in March,

and out of the House in March, and the Senate had its first hearing on that today. And I was over there with Charlie Rangel and

some other colleagues to testify. But at least the EU’s getting the

message. We aren’t getting it here at all.

So I think that we’ve got to lift the blinders, and recognize the

importance of what has to be done. And stop playing games in

these critical areas.

Mr. CLARK JOHNSON. Mr. Chairman, we don’t have shooting wars

anymore, but we have an economic war, and it’s as vicious as any

physical wars we’ve had in the past. We need to be on the front

lines armed with the tools to promote the well being of America

and our citizens.

Chairman CRANE. Well, that vicious war though works to the

benefit of all consumers. You better come forward with the most

competitive best quality product at the lowest price if you want to

survive. And thank the good Lord we’ve been in the vanguard of

that effort worldwide in trade thus far, but there are categories.

Some of the imports, for example from China, you’ve touched

upon. I mean, you know, low cost items. Like shoes, textiles, and

apparels. I mean these are products that are not being manufactured here to meet the competitive world price, at least to the degree that guarantees that we aren’t importing a lot of that. And

those are categories where the biggest dollar amounts of imports

are coming. But then you examine who are the consumers. The

consumers here in the United States are people in lower income

brackets.

So you could put a great wall of China around the United States

and say we’re not going to import any of that anymore, but who

pays for it.

Mr. Micek, you said in your testimony that the agricultural sector in China, where your firm operates, remains under heavy government control. And you mentioned the central government controls grain production, pricing, and distribution.

Is this in the process of changing at all?

Mr. MICEK. Well, we’d like to think it would change, but as long

as we operate on a year-by-year basis on renewing MFN, as important as food is to China with 1.3 billion people, the Chinese just

simply cannot take the risk of depending on someone like the

United States to supply them food in light of the risk that trade

could be disrupted.

So we must become a more reliable supplier going forward. One

way to accomplish this would be to grant permanent MFN status,

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so that we do not have this annual argument about the renewal of

China’s MFN treatment. For example, in our company, if we have

to rely on a particular raw material, we surely would look at a supplier that would give us reliability and consistency over a period of

time. In China today, the United States is not looked at in this

way, certainly from the agricultural standpoint.

The net result is that we are a residual supplier to China today,

at a time when the U.S. farmer is as competitive as anyone in the

world. We see this as unfortunate. If China had permanent MFN

status, I think it would be an important step in the right direction.

Chairman CRANE. Well, I do, too. As I say, we have several items

on the table. CBI parity is another, and our Sub-Saharan Africa

bill, or going forward with MFN, or normal trade relations. We

want to change that designation because it’s misleading to the average person. I’ve mentioned this is simply normal relations, which

we have with all but six countries on the face of this earth, and

people are startled to hear that because they have different interpretations of the meaning.

At any rate, it’s an annual battle, and hopefully, we’ll see WTO

accession on the part of China and conformity to guidelines to

guarantee that we can provide permanent normal relations at that

time.

Mr. MICEK. I’m looking forward to that.

Chairman CRANE. Mr. Portman, do you have any questions that

you would like to put to the witnesses?

Mr. PORTMAN. Mr. Chairman, I want to thank you for having the

hearing and for bringing some focus to this.

I just caught the tailend of the testimony.

I couldn’t agree with you more. If we could call this normal trading relations, we would have a chance. It’s just as good an acronym

as MFN, isn’t it?

Mr. CLARK JOHNSON. Oh, categorically. Couldn’t agree with it

more.

Mr. PORTMAN. No, it’s just that I’m sorry I was not here today

to hear your testimony. I appreciate the support you all are giving

us. I’m sure you’ve heard this Cargill, Pier 1, and other companies,

to the extent you can get out and explain to your shareholders and

your employees the importance of international trade generally and

with China specifically. It would be most helpful for the policymakers. Because we hear a lot from the other side and a more informed point of view would be very helpful. So thank you, gentlemen for being here.

Mr. CLARK JOHNSON. Thank you very much.

Mr. PORTMAN. Thank you, Mr. Chairman.

Chairman CRANE. Thank you both for your testimony. We will

now call our next panel: The Reverend Robert A. Sirico, president,

Acton Institute for the Study of Religion and Liberty; William R.

O’Brien, director, Global Center, Beeson Divinity School; Martin J.

Dannenfelser, Jr., director, Government and Media Relations, for

Family Research Council; and Lorne Craner, president, International Republican Institute.

Gentlemen, if you will take your seats. Then in the order that

I presented you, if you will give your testimony, and try and keep

your oral remarks to five minutes. All printed statements though

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will be made a part of the permanent record. With that, we’ll commence with Reverend Sirico.

STATEMENT OF REVEREND ROBERT SIRICO, PRESIDENT,

ACTON INSTITUTE FOR THE STUDY OF RELIGION AND LIBERTY

Reverend SIRICO. Mr. Chairman, I’m Father Robert Sirico——

Chairman CRANE. Sirico, I’m sorry.

Reverend SIRICO [continuing]. That’s all right.

Chairman CRANE. I apologize.

Reverend SIRICO. I represent the Acton Institute for the Study of

Religion and Liberty, a nonprofit research organization that promotes international contact between scholars, students, and civic

organizations in pursuit of a classically liberal world view of peace,

prosperity, enterprise and religious freedom.

At the outset, let me say that my fundamental concern on the

issue of trade with China—especially in saying some things today

before Congress that will upset some of my usual friends and allies—is how to better the human rights situation in China with

particular regard to the growing religious community there. I take

trade as a means to this end.

Some people think that denying MFN to China would constitute

a much needed rebuke to the Chinese regime and compel the government to change its policies regarding minority religions. I agree

that the political rulers of China are in need of a moral rebuke, but

one that is effective and is itself moral. As a Catholic priest, although not speaking for the Bishops’ Conference, who has visited

with members of the underground Catholic and Protestant churches, I feel a strong spiritual bond to members of the clergy who have

been jailed for speaking out against Government policies—or even

for preaching the gospel.

What I do not understand is how cutting China off from membership in the world community of trading nations is going to bolster

religious freedom in that country. I have yet to hear a persuasive

argument that it would do so. I think it is imperative that those

who favor revoking MFN for China understand that free trade is

not solely about economic matters of profit for corporations. It is

also about freedom and strengthening the civic order in that country.

From my conversations with missionaries, Christian business

people, and members of the Church hierarchy, it is clear that there

is a struggle taking place in China but not of the Marxist variety.

It is a struggle between the growing civil sector made up of churches, business associations, and local governments over against the

state bureaucracies still dominated by old ways of thinking. Economic exchange within China and with the rest of the world is

helping strengthen this civil sector.

The dissemination of technologies—like phone systems, computers, access to the Internet—allow dissident religious groups to

be in contact with others and with groups around the world, and

thereby draw attention to the plight of those persecuted for their

beliefs. Business can promote this by donating computers to

churches, providing communications technology to civic groups, and

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wise afford. We have noted in the last months and years a rise in

the contact that we have with Chinese groups on our website on

the Internet.

In this context, permit me to directly confront the issue of China’s one child per family rule. It is a gruesome policy. As a longtime pro-life activist, I want it to be clear that I find China’s population control methods to be a ghastly crime. They must end. I

would like to see the U.S. take stronger measures to make sure

that not one dime of U.S. taxpayer dollars goes toward providing

any kind of moral sanction to this policy. But we must also realize

the role that rising prosperity in China has played in reducing the

numbers of forced abortions in China. I point you to Seth Faison’s

fascinating report in the August 17, 1997 issue of The New York

Times.

It is important to understand where the one-child-per-family policy comes from in the first place. It was an essential part of the

socialist project. If a government is going to plan production, dictate lines of work, tell people where to live—they’re also going to

have to tell people how many children they must have. But with

that socialist dogma finding fewer and fewer adherents and free

enterprise now flourishing in huge sections of the country, the population control part of the central planning regime is also breaking

down. You see the practical, pastoral, and moral considerations can

reinforce each other. Quite simply, there is no case to be made that

injuring trading relations with China’s private sector will accomplish the worthy ends sought by those advocating denying MFN

today.

However, these commercial relationships cannot proceed without

a clearer view of China’s abysmal record on human rights. Here I

must agree with the critics of MFN for China and disagree with

others who might be allies in trying to keep free trade open. I can

only echo the words of Pope John Paul II ‘‘that every decision to

invest involves a moral choice and implies certain moral obligations.’’ If they are to profit from dealings with China, they must

also reciprocate by being forces for good and for freedom in that

country as well.

The same is true in our diplomatic posture. I find the Clinton administration too willing to sweep important human rights issues

under the rug and too quick to claim that calling the Chinese leaders to account would constitute a breach of protocol. That is why

I call upon President Clinton on the occasion of his upcoming visit

to China to speak out forcefully, principally, and publicly about the

human rights violations occurring in China precisely when the eyes

of the world are upon him—in the presence of the Chinese leadership in Tiananmen Square.

We need not choose between morality and economic progress.

Pressure should be brought to bear against the government in Beijing, but not against the Chinese people. Along with the revival in

the economic sector, there comes a religious revival as well. It was

set in motion after officials loosened some specific laws but they

could not have known what would follow.

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orous today in China than at the height of the Jesuit influence in

the 17th century or the Protestant evangelical efforts of the 1920’s.

All three represent a challenge to the status quo. Religion has become a powerful force for further change in this society.

We must also remember that the rights to freedom of worship assembly and speech are facilitated by the natural and sacred right

to own and trade property. I’m also bound to point out that the

Holy Father has spoken out in very strong terms about the evils

that sanctions can visit upon a country. They punish people, not

governments, He has said. One Vatican diplomat recently pointed

out to me that in places where there is no trade with the outside

world, there are weak church organizations and civil society is virtually non-existent. He cited North Korea, Cuba, and Vietnam as

cases in point.

In sum, it is understandable that Americans do not want to see

their tax dollars used to back regimes that are unfriendly to their

core values. Neither should American firms doing business in

China avert their eyes from violations of human rights. Rather

they should serve as advocates for greater freedom. But the upshot

of denying China most favored nation trading status would be to

risk scuttling the opportunity to be a force for good, to keep contact

with the rising civic sector, and to improve the lot of the Chinese

people.

In countries where religious minorities are treated poorly, we

face a choice. We can erect a wall that shuts out our influence or

we can keep the door open using moral suasion, commerce, and

diplomatic ties to encourage and extend the process of reform. A

policy of peace and trade promotes a wider range of freedoms. It

actually holds out the prospect for making the right kind of difference and provides a genuine moral center for international, political, and economic relationships. Thank you.

[The prepared statement follows:]

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Chairman CRANE. Thank you.

Our next witness is Mr. O’Brien.

STATEMENT OF WILLIAM R. O’BRIEN, DIRECTOR, GLOBAL

CENTER, BEESON DIVINITY SCHOOL

Mr. O’BRIEN. Thank you, Mr. Chairman, and committee for this

opportunity today.

I would like to approach this from the standpoint of the development in fields of religion and diplomacy over the last four decades

and through a lens of my own experience as an expatriate living

in Asia for one of those decades. My youthful intrigue with China

developed into more holistic concerns while living in Indonesia

from 1963 to 1971. I followed with keen interest political developments, as well as nurturing a concern for Christ followers in China

and their churches.

I followed the Vietnam War from Indonesia. Listening to the debates of the U.S. about the domino theory, I scratched my head in

wonderment. We happened to be in Hong Kong as a family in January 1965, when Indonesia pulled out of the United Nations and

helped form the Conference of the New Emerging Forces. The

headquarters were to be built in Jakarta. The member bodies included North Vietnam, Cambodia, North Korea, and China. As the

attempted coup in October 1965 unfolded, it was apparent for those

of us who lived inside Indonesia that we were watching the implementation of a vice theory—not a domino theory.

If the coup had been successful, conceivably the China in the

North and Indonesia in the South—that kind of vice grip—would

have been put on Singapore thereby controlling the Sea Lanes between East Asia and the Western routes. If that had happened,

history would be different today.

There probably would have been a different perspective on the

ethnic Chinese minority in Indonesia, if that had happened. There

certainly would have been a different story of Christians and

churches in both places. Meanwhile, history took a different turn

politically and economically in China to mention nothing of the progressively freer opportunity for the expression of religion in China.

I’m concerned with the fact that we’d not just be pushing our

own agenda—what’s in the best of the United States—but that we

truly get inside the skin of a Middle Kingdom mindset. China—

Middle Kingdom is the term China refers to itself by, not the word

China. They understood that Bai—meaning north, the north capital, Beijing; Nan—south, Nan Xing, south capital; Xi—Xi on the

west capital; but the east capital was not Shang—Shanghai. It

would be apparent it would be. But it was Eto, which is Tokyo. So

we see the vastness of the territory considered to fall within the

geographical and mental boundaries of what we now know as modern China and Japan.

To become a part of an interdependent world whereby the touch

of computer keys over $1 trillion is exchanged across the borderless

territories every 24 hours is a formidable challenge for Middle

Kingdom mindsets. Further for centuries of feudal cultures to be

interrupted by a foreign political ideology such as Marxism ala Mao

is quite a jar in itself. Then to be jolted once again with a reform

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perspective that exposes a mystique best served by secrecy represents another quantum leap.

If Deng Siao-ping believed in the economic reform he initiated,

he also obviously felt it could only be kept on track through the

Middle Kingdom mindset that perceives the whole is more important than any single part. Therefore, reform must be guarded and

guided in such a way so as not to see happen in China what was

happening in Russia. The larger communal mindset always takes

precedence over individuals, and certainly over individualism.

Now the reform continues to move in ways that cause many to

see China as the world economic leader by the end of the first

quarter of the 21st century. Peter Drucker affirms this with the caveat that it will not be China, but the Chinese who hold sway economically—see his article in the March 10, 1997 Forbes magazine.

Chinese multinational corporations are already owned by families and clans. The 50 million overseas Chinese have built vast networks of commerce well-connected on the mainland. These corporations, as most other Chinese relations, work on the basis of friendship and trust. Any western corporation that fails to recognize a

Middle Kingdom mindset will have a rocky road. Any government,

including our own, that assumes one can work with and in China

solely from our own interest from an Enlightenment and Reformation mindset will learn what it means to be on the short end of the

stick in the 21st century.

The religion issue, as our colleague here has mentioned, is very

important. It cannot be separated and insulated away. In 1979,

China recognized five religious entities—Buddhist, Taoists, Muslims, Protestants, and Catholics—granting freedom to assemble

and worship. It did not include indigenous movements such as

Watchman Nee’s Little Flock, nor Seventh-Day Adventists, among

others. Those were viewed as cults and therefore did not come

under the policy of religious freedom.

Since 1979, we have witnessed increasing toleration of religious

expression on the part of the Communist party’s United Front

Work Department. Leadership of the Three-Self Patriotic Movement and the China Christian Council has walked a fine line to

meet the needs of churches and believers.

Because time is of essence, I hope the whole thing will be entered

in the report, but let me just say over the last 20 years, the increasing openness to religious freedom—while there are policy

guidelines—there is no governmental mandate that is forcing pastors and leaders to report, as long as they operate within the guidelines that are becoming increasingly more free.

With all of that to say that China is a very multi-complex reality,

China as a nation is flexing its mind as well as its muscle and its

heart. Everything is changing. I would not want to be the nation

standing on the outside chunking rocks at this mammoth. Such action may prove to ourselves we’re not afraid of the big bad wolf,

but I believe it to be not self-serving, but self-defeating. In fact, as

a non-economist, I wondered to myself if the term and notion of

this MFN is not a vocabulary of the era of competing national

economies, and does not serve us well in this new civilization

aborning. After all, we are shaped by the words we use.

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So I urge this committee, and the House as a whole, to be strongly supportive of MFN status for China. Then having done so, urge

the State Department and any other governmental entity along

with NGOs to choose very carefully persons designated to relate to

the Chinese government and its people. This crucial intersection in

which we find ourselves must not become the crossroads of partisan collisions that would keep us from influencing change in

China by such influence perhaps undergo healing changes within

our own body politic. Thank you very much.

[The prepared statement follows:]

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Chairman CRANE. Thank you, Mr. O’Brien.

Mr. Dannenfelser.

STATEMENT OF MARTIN J. DANNENFELSER, JR., DIRECTOR,

GOVERNMENT AND MEDIA RELATIONS, FOR FAMILY RESEARCH COUNCIL

Mr. DANNENFELSER. Thank you, Mr. Chairman. Mr. Chairman,

members of the subcommittee, ladies and gentlemen, I appreciate

the opportunity to testify today about the Family Research Council’s policy priorities towards China. The subcommittee has asked

me particularly to address the question of whether the U.S. should

continue to renew most-favored nation status for China.

The Family Research Council President Gary Bower appeared

before your subcommittee last year to testify against renewing

MFN for China and I am here again before this body for the same

reason—to urge Congress to revoke MFN status to China. I believe

the reasons to do so have only increased in the past year. Denial

of MFN for China will ultimately send a single to the rulers that

we’re serious and bring long-term improvement in the deplorable

conditions suffered by the people of China.

Where have we come after another year of the same form of engagement with China? Arguably, we are in a less safe and more

volatile world. Unlike what the gentleman said earlier that we

don’t have shooting wars anymore, the world is still a very dangerous place. We now have an estimated 13 Chinese long-range

missiles pointed at American cities. Pakistan and India are on the

brink of a nuclear arms race at least partially due to China selling

nuclear weapons materials and missiles to Pakistan. There are also

technology transfers to Iran and other countries.

Hong Kong is now being ruled by a public legislature controlled by Beijing. Our trade deficit with China has increased by about $15

billion. It was $50 billion in 1997, and many economics are projecting that it will grow to about $60 billion this year. Besides the

highly publicized, but very limited symbols of releasing political

dissidents Wei Jingsheng and Wan Dan, who were barred from returning to their home country, there has been no concrete evidence

that conditions are getting any better for those in China who dare

to disagree with their government.

Members of an underground church in China recently sent a letter to Freedom House telling of how the police threw out the

church’s members, beating some, and then raised the church. The

fact that the Chinese regime would implement crackdowns such as

this on the eve of the first visit by a U.S. president in nine years

suggests that our current policy with China is not being the desired

reforms we envision.

Last week, President Clinton presented his reasons for going to

China. I believe he is setting up a false dichotomy by claiming that

the debate is between a policy of engagement and a policy of isolationism. The debate is really about what type of engagement we

are going to have. It is not isolationism to put American values at

the forefront of our policy. Let me make it clear, I do not advocate

an end to trade or diplomatic relations with China nor do I suggest

that we impose an economic embargo on China. By revoking MFN,

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mal standards a country must meet if it wishes to be fully welcomed into the family of civilized nations.

China is currently exporting to America four times than it imports from America. Depending on the American market for a large

portion of its total exports—approximately 35 percent—China has

far more to fear from its suspension of MFN than America has as

in being China’s own friendly public relations campaign in Washington today attests. America, in other words, stands before China

in the summer of 1998 for the most part as customer. In most free

economic relationships, it is the customer who has the power.

Those who would argue that American values of equality and freedom for all will seep into Chinese culture as a result of increased

trade forget that Chinese tyranny can also seep into ours.

The Chinese government generally places strict constraints on

one of the best vehicles to the outside world—the Internet. Last

year Prodigy agreed to block all of the Internet sites that the government requested in order to enter into a joint venture with the

company controlled by China’s military. You can visit a Free Tibet

website in Washington. However, you cannot access the human

rights in China website in Hong Kong. Chinese censors, with the

aid of Prodigy, block that site.

There is evidence to suggest that if the U.S. were to redirect its

trade policy toward China, more trade opportunities—not less—

could result. It was in 1990 and 1991 when China was faced with

a real prospect of losing MFN after the massacre of 700 to 2,000

students at Tiananmen Square that Beijing announced a large contract with Boeing. They were clearly afraid and responded accordingly—not only with the Boeing contract, but by: releasing some

800 political prisoners; promising to ban exports of goods produced

by slave labor; ending illegal textile shipments; accelerating U.S.

imports; closing down all illegal factories dealing in copyright and

software theft; and opening a nuclear reactor that was building in

Algeria to international inspection.

All this occurred only, when briefly in the summers of 1990 and

1991, it looked as if Congress might really act. China was faced not

just with condemnation or bluster from Washington, but of a real

prospect of losing its cherished MFN privileges with its greatest export market.

Our dealings with China have been highly one-sided. I believe

they have been a bad deal for Americans, especially American

workers and taxpayers. But I readily admit that I would not be appearing before this subcommittee today if this were only a matter

of disadvantaged trade relationships. Facts continue to emerge indicating America’s national security is seriously at risk.

U.S. high-tech trade with China is being conducted with a shortsightedness that exceeds any similar error we have made in the

past. China is unquestionably engaging in the largest scale military buildup of any great power. Beijing uses much of the $40 billion in hard currency it nets from trade with the United States to

finance its military buildup. Many of China’s companies are virtually wholly-owned subsidiaries of the People’s Liberation Army.

At a minimum, Congress should enact a ban on the importation

of materials from companies controlled by the People’s Liberation

Army. The involvement of China’s PLA-controlled firms in slave

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labor, transfer of nuclear technology and chemical weapons to terrorist states, and the oppression of religious believers in China cannot be seriously denied. If we can’t, at the very least, regulate our

dealings with the oppressors army, how is anything we say going

to be taken seriously in Beijing?

That same army is responsible for many of the atrocities committed against the people of China. China’s human rights violations shock, or at least should shock, the conscience of the world.

Our State Department continues to report that torture, extradition,

judicial killings, arbitrary arrests and detention, forced abortion

and sterilization, and brutal oppression of ethnic minorities and religions still exist in China.

The Beijing regime has also indicated that it used Christians as

the enemy of totalitarian Communism. Its leadership, determined

not to repeat the mistakes as they viewed them, of the Soviet empire speaks disparagingly of the ‘‘Polish disease.’’ The religious resistance to Communism galvanized by Pope John Paul is very

much on the minds of Chinese leaders.

Christians are not the only ones persecuted in Beijing. Buddhists, particularly those in Tibet and Muslims in the Northwest

are experiencing a Chinese version of ethnic cleansing.

Despite the numerous examples of a consistently abusive and authoritarian regime, our country failed to initiate the rather mild

gesture of condemning these abuses at the United Nations conference on human rights this past March. President Clinton, when

he delinked trade from human rights in 1994 that that would be

the vehicle for raising human rights concerns.

Mr. Chairman, the students who marched for freedom in

Tiananmen Square carried copies of our Declaration of Independence—a document which speaks to a universal longing in the

human soul for freedom and dignity. The United States of America

should always ensure that the tyrants of this world will sleep

uneasily in the knowledge that their people know the words of our

Declaration of Independence. That they, and we still believe them.

Thank you very much.

[The prepared statement follows:]

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Chairman CRANE. Thank you.

Mr. Craner.

STATEMENT OF LORNE CRANER, PRESIDENT,

INTERNATIONAL REPUBLICAN INSTITUTE

Mr. LORNE CRANER. Mr. Chairman, Congressman Portman,

thank you for the opportunity to testify today. I’m not going to add

to the China policy prescriptions you’ll be receiving on important

issues such as proliferation, Taiwan, trade deficits, and campaign

contributions. IRI is not a think tank, but we are a do tank, and

we’re helping to nurture democracy abroad.

So today, I want to give you IRI’s perspective on some changes

in China in which we became involved five years ago at the suggestion of both analysts and dissidents. I will address three questions:

first, is China reforming its political system; second, do the reforms

matter; and third, if they do matter, how can the U.S. help advance

them?

First, is China reforming its political system? The answer is a

qualified yes incrementally, but in three areas—electoral, legislative, and legal—that could have far-reaching consequences. For a

decade, elections have been occurring in China’s rural villages.

They were, at first, of a very ragged quality. But with the passage

of time, experience was gained and outside advice including IRI’s

was accepted.

Today, up to half of China’s 1 million villages have elections that

can be described as technically well-administered. The elections

have enabled hundreds of millions to choose village councils responsible for local governance—from taxes to economic development. In the process, those elected—about 40 percent of whom are

not Communist—are learning that they must serve the voters. As

a result, responsive government—something that has never before

existed—is coming to be expected by as many as 850 million rural

Chinese.

In the meantime, elections are moving to a higher level to townships. The law governing village elections is expected to be debated,

improved, and made permanent by China’s National People’s Congress. It may sound odd to talk about debate in China’s National

People’s Congress, which has long been a classic Communist rubber

stamp legislature whose members simply passed laws handed down

by ministries. In the last five years, however, China’s legislature

has heavily amended draft bills and is expected this year to begin

writing legislation. The NPC has also begun to exercise a greater

degree of oversight authority. With these developments the NPC is

moving away from being a rubber stamp for the rule of man and

has begun to act as an institutional bulwark for the rule of law.

Legal reform is the final area in which IRI has worked, initially

with judges charged with adjudicating new commercial laws, and

more recently in helping to set up a new legal aid system for China’s poor and indigent. This recent, but unprecedented development, should give ordinary Chinese a means of redress against entrenched economic and political interests.

The second question I posed at the beginning of my testimony is

whether these reforms matter. I’ve already noted the unprecedented changes in political culture: rural voters expecting represenVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00156 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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tation from those they elect; legislators exercising long dormant authority and ordinary citizens beginning to access a nascest legal

system. These are the foundations of democracy and are therefore

consequential for China itself. But the answer to whether these reforms matter for the U.S. lies in the very fears of those who seek

China’s isolation and containment. They believe that China’s growing power will—within a decade or two—result in aggression

against the U.S. But aggression requires both ability and intent.

There are many powerful countries with the ability for aggressive

action, but no intent to exercise it. The world would be well-served

if early in the next century, China was similarly a powerful country lacking an aggressive intent.

A more democratic government responsive to a well-informed

populace and restrained by a functioning legal system would likely

be more interested in the welfare of those they serve in a foreign

adventurism.

The last of the three questions I posed is how the U.S. can help

advance these reforms. To answer that question, we need to know

why they are occurring, and it is not because of the goodness in

someone’s heart. They are a direct result of economic change in

China. Elections, for example, have occurred because the previous

form of local government—communes—was dissolved in an attempt

to raise crop yields. China’s legislature is gaining more authority

because of the need to reconcile free-market laws with varying regional stages of development. China’s first recognizable legal system is taking shape to attract foreign investment and to resolve the

tensions that result when ordinary citizens are hurt by economic

change.

The economic motivation for these reforms should make one way

the U.S. can help advance them obvious. Engagement has encouraged economic change and by extension helped initiate gradual political reform. As many have noted recently, however, there is a

certain amount of faith in the belief that commercial transactions

alone lead to rapid democratization. Critics of MFN call this the inevitability cop-out. There is some wisdom to their opposition to

commercially-based engagement, especially given the short time

until China can become a first-rate military power.

At IRI, we have pursued engagement with a purpose—organizing

and catalyzing developments within China that are specifically in

line with U.S. interests. It is important for the future of both countries that the U.S. make these developments a significant component of engagement and encourage support and assist them. I look

forward to answering your questions.

[The prepared statement follows:]

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Chairman CRANE. Thank you very much.

I have a quickie for you, Mr. Dannenfelser. It has to do with an

article in today’s New York Times—front page article. The article

is about China’s churches. They have some interesting observations

in there that I wondered if you might have some information on.

They say, according to a man named Reverend Don Angew—recent

President of the National Association of Evangelicals in the U.S.—

that China may experiencing the single—this is a direct quote—

‘‘single greatest revival in the history of christianity.’’ Is that consistent with your evaluation?

Mr. DANNENFELSER. Well, as Paul Marshall, who’s studied very

widely on this subject, has said, China is a large enough country

that everything is true somewhere within that country. So that’s

not to suggest that everywhere in China there’s the same degree

of oppression against religion. But there are some very basic things

that can’t be done still.

For instance, the Vatican cannot appoint bishops. The Chinese

government won’t recognize those bishops. You can’t preach about

the second coming of Christ, which is an essential tenet of christianity.

I think that they have certain information that comes from them

from various sources. We have—but I don’t believe that they really

got out into the countryside unescorted by Chinese leaders. We

have gotten people who have really—we’ve heard from people who

have gone there and gone out and met with the underground

church leaders. They’ve had to worship in the middle of the night.

So they report a great deal of oppression and sent back messages

of please continue to keep up the pressure back in the United

States.

So I wouldn’t suggest there is not—there is a great deal of, you

know, belief and so on that is growing there. I think the people,

you know, who have this faith will persevere in many cases despite

the government, but they should not be subjected to abuse for practicing their beliefs.

Chairman CRANE. Well, another point in this article is in 1949—

it says there were fewer than 1 million Protestants in China and

79 three years after the end of the cultural revolution when the

Mao’s mobs attacked churches and the homes of believers. Only

three Protestant churches were open in all of China and today

there are more than 12,000—up from 3,000 to more than 12,000 official Protestant churches that are open. That doesn’t include the

house churches.

We had Billy Graham’s son, who’s been doing missionary work

over there for the last nine years. They have been distributing Bibles to a lot of those house church activities. I don’t think they are

supposed to be doing that sort of—I mean the house church thing,

I don’t think is wholeheartedly legal—do you know the answer to

that, Mr. O’Brien?

Mr. O’BRIEN. There are 37,000 registered churches and meeting

places. The terminology has shifted over this 20 years: registered

church meaning they have openly agreed to work within the broad

guidelines of freedom; registered meeting places that cooperate; unregistered cooperating meeting places that some call ‘‘house churches’’ or underground; and then unregistered non-cooperating. We

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don’t know how many unregistered non-cooperating there are, but

we know there are 12,000 registered churches and another 25,000

unregistered but cooperating. They number 12 to 15 million. Now

you’ll hear 50 to 60 million total. But nobody knows because there’s

no way to count.

One, that culture doesn’t put an emphasis on numbers, and we

do. No. 2, they’re just so proliferated, there’s no way to get at it.

There’s 17 theological training centers and bible schools. As I indicated in my testimony, the Amity Press has printed and distributed

20 million Bibles within China itself. Interestingly, the pastors of

unregistered churches come to the registered churches to get both

their Bibles and their hymn books. They invite pastors of registered churches to preach in their pulpits. No registered pastor

would go uninvited because it would cause the people in the unregistered churches to suspect they were spies or something. So there’s

a lot of misinformation, there’s a lot of disinformation.

But as I pointed out, if you look over a 20-year period, the progressive development toward freedom and there is an impressive

revival. As you pointed, something—anything you read is true; it’s

happening somewhere. You may have harassment in one area and

a revival breaking out in the province next to it. You have some

people who are arrested—not because they’re Christians, but because they broke the law, just like in this country.

The issue of miracles in the cultic areas and those that did not

fall in the original guidelines of freedom—there’s a lot of heresy—

the emphasis on miracles as a determinant of whether you’re a believer or not. So they’re desperately trying to produce new leadership that can combat heresy. So to me it’s a very encouraging picture. I know personally these leaders.

Chairman CRANE. I have seen the figures and this article also

documents that, that there are an estimated close to 40 million

Christians in China——

Mr. O’BRIEN. It’s an estimate.

Chairman CRANE [continuing]. Which is interesting because of

the 1.2 billion Chinese only 40 million are Communists. I am now

delegating my Chair responsibilities to Congressman Houghton.

Rob Portman and I have to go—unless you want to ask a quickie

before we run to catch this vote.

Mr. PORTMAN. Thank you, and I’m sorry that I can’t stay with

you to do our constitutional duty here. I have a number of questions.

Just to tell you where I’m coming from. Many of the concerns

raised by Mr. Dannenfelser are ones that I know that I asked the

other panel to share and some of you addressed some of them. I

tried to list the ones I heard Mr. Dannenfelser mentioning and I

know there are others about China selling missiles to Pakistan or

nuclear materials to Pakistan; you mentioned Iran, as well, and we

have some information on that; the poor conditions for political

prisoners; you mentioned the churches being forced to be underground or being harassed; the Chinese markets not being open

enough to U.S. products; the concerns, of course, with the People’s

Liberation Army; with of course, the one-child policy; and forced

abortions which you spoke about.

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You know, my question is a very simple one, and I will direct it

to Mr. Dannenfelser, although all of you are free to chime in. I

think I know most of your answers, but when I hear this litany,

all of which concerns me a lot, and having been to China. In 1984,

I spent 10 weeks on an unofficial trip. I went off the track a few

times when I wasn’t supposed to and survived it. You know, it is

a huge, fascinating country but it has changed so much.

I just wonder how revoking MFN is going to help in any of these

categories. Having again heard your arguments about all the problems, and so on, I don’t see how disengaging in any respect—putting China in the category as the six countries that we don’t offer

normal trading relations to which is the Cubas and the North Koreas of the world—how that’s going to help at all in terms of moving China toward a freer country, a country that does respect

human rights. I just wondered if you could expand on that.

Mr. DANNENFELSER. Well, I think one point to keep in mind is

that they are largest growing military power in the world; that representatives of their government have made it clear that they plan

to reunify Taiwan by the year 2010——

Mr. PORTMAN. Again, I’ve got to run. I apologize.

Mr. DANNENFELSER. But I think that that’s a distinction that

they are really the only—well, not the only—they are the most significant military threat to us down the road.

Mr. PORTMAN. So you put them into another category than those

other countries that aren’t a threat?

Mr. DANNENFELSER. I think so. The other thing is that you deal

with different countries based on the circumstances and levers, I

guess, that you have. Trade is the best peaceful lever that we have

for dealing with China. When you have a 35-to-2 situation—you

know, 35 percent of their export market is the United States; they

only represent 2 percent of ours, and that figure has stayed pretty

flat for quite a number of years now despite the belief that it’s just

over the horizon. There’s this great opportunity there that just has

not materialized, except for maybe a number of large corporations.

So I think that, again, the fact that in the past—in the recent

past—that they did take some tangible action only when they

thought we were ready to act, I would believe that even now to the

extent that conditions are not worse is that the Chinese leaders realized that, if they want to maintain the relationship they have

now, that they need to place some limit on what they do because

that threat is still there. So I think that’s another factor to take

into consideration.

Mr. PORTMAN. Thank you. I’ve got two minutes to literally run

to vote. I apologize I can’t stay, but Chairman Houghton will take

over.

Mr. HOUGHTON [presiding]. All right. Good morning, gentlemen,

thank you very much. I’m sorry I wasn’t here for your testimony.

Do you have anything else to add? I’d be delighted to hear it. If

not, we’ll move on to the next panel.

Mr. O’BRIEN. Just one interesting anecdote. This whole terminology on underground, clandestine church, everybody knows

where all of the unregistered churches are. A Chinese pastor who

boasts of having the largest unregistered church in China is in

Guangzhou. His church meets on the second floor of a building,

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right over the police station. And everybody knows everything

that’s going on. We really need to get past some myths. There’s

enough smoke to know there’s fire in places; it’s true in a lot of

places. But I think it’s in our best interest and theirs to get inside

the Middle Kingdom mind set and be encouragers and affirmers

where we can.

Mr. DANNENFELSER. If I could add from a Catholic perspective,

my colleague here mentioned that the Holy Father is not permitted

to appoint bishops in China with regard to the patriotic association,

and that is true, but I think you need to understand the complexity

of this. One prelate in China estimated that 70 percent of the patriotic association bishops have made private vows of obedience to the

Holy Father, and this was evidenced recently when the Vatican invited two patriotic association bishops to attend the Asian Synod

of Bishops that was held in Rome several weeks ago.

And the whole posture of the Vatican with regard to the patriotic

association and the underground Catholic church is to encourage a

reconciliation between the two, and not an isolation and a continuation of the breach.

Mr. HOUGHTON. That’s very helpful, thank you. Anybody else?

Mr. DANNENFELSER. If I could add one or two quick things, following up on the question that Congressman Portman asked a few

minutes ago. I think a real problem with our current policy is that

we seem to have only additional incentives in our dealings with

China. There is really no application of a disincentive. And even

when they commit abuses, at least on the President’s part, his answer seems to be, well let’s give them new incentives to comply

with the agreement that they just violated.

So it almost creates a situation where that benefits them to violate these agreements to get another incentive. And I think that

that is really troublesome situation, and I think a balanced policy

where they think that there is some penalty for egregious behavior,

would, I think, give them some reason to pause when they contemplate doing some of the more undesirable things.

Mr. HOUGHTON. Have you got anything to add, Mr. Craner?

Mr. LORNE CRANER. I would add two things. No. 1, I don’t disagree with the last statement by my colleague, but in

addressing——

Mr. HOUGHTON. Which colleague?

Mr. LORNE CRANER. My colleague, Mr. Dannenfelser.

Mr. HOUGHTON. All right, I see. Thank you.

Mr. LORNE CRANER. But in addressing the issue of isolating

China, I don’t think we have to speculate about what it would do.

We can look at some fairly recent history, and that is the period

from 1949 to about 1969. China was largely isolated from the rest

of the world. Internally, it stumbled from a communist revolution

to the cannibalism of the Cultural Revolution, and in those twenty

years we had to fight China twice, in Korea and then to a degree

in Vietnam.

By contrast, we began to engage China in about 1969 to 1972.

I think anybody who went there then, or even in the 1980s, as Congressman Portman did, would not recognize China today. So I

think, we don’t need to speculate on whether isolating China helps

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it internally or makes it a greater enemy. I think we have history

to show us the answer there.

Mr. HOUGHTON. Okay. Well, thank you very much. I appreciate

your time, gentlemen, and your wisdom. Now we’ll have another

panel. And that panel will consist of, unless there are any changes,

Mr. Hall, Mr. Holwill, Mr. Kapp, and Barbara Shailor.

Well, okay, I’m not going to apologize for the discrepancy of the

number of bodies here and the in-and-out votes, because we always

do this. It’s always the pattern down here. But in any event, this

is an important issue. We’re delighted you’re here. We’re sorry you

had to wait so long. But let’s go right into this. Maybe we’ll start

with Mr. Hall.

STATEMENT OF CHRISTOPHER HALL, DIRECTOR, INTERNATIONAL BUSINESS, CINCINNATI MILACRON, ON BEHALF

OF THE SOCIETY OF THE PLASTICS INDUSTRY, INC.

Mr. HALL. Thank you. Mr. Chairman, it is indeed a pleasure to

speak to you today on behalf of the Society of the Plastics Industry,

known as SPI, and Cincinnati Milacron in support of renewing

most-favored-nation status for China. I appreciate this opportunity

to present the views of SPI, and those of Milacron.

The Society of the Plastics Industry is a trade association of more

than two thousand members, representing all segments of the plastics industry in the United States. SPI’s business units and committees are composed of plastics processors, raw material suppliers,

machinery manufacturers, mold makers, and other industry-related

groups and individuals. U.S. manufacturers of plastics raw materials, products, machinery, and molds directly employ more than

1.3 million workers and ship more than 274 billion.

Plastics products rank fourth among the top manufacturing industry groups in shipments, only behind motor vehicles, petroleum

refining, and electronics. Cincinnati Milacron is a global leader in

plastics processing machinery, mold-making equipment, machine

tools, and other industrial products, with 1997 sales of 1.9 billion.

Based in Ohio, Milacron employs more than 13,000 in 30 plants in

North America and Europe, with joint ventures and licensees for

manufacturing and marketing in Asia and South America.

I have been with Cincinnati Milacron for more than 30 years,

with direct responsibility for Milacron’s international business and

the company’s China operations for several years. Growing and

shaping a company’s international business is certainly a challenge, but a necessary one in today’s global marketplace.

International trade continues to play an increasingly important

role, not only for Cincinnati Milacron but also for the entire plastics industry. As plastics industry exports continue to grow, so do

the industries’ export-related jobs. International trade accounted

for more than 118,000 plastics industry jobs in the United States—

plastics raw material, products, and machinery industries in 1996,

a 22 percent increase in four years. More than 14 percent of overall

plastics industry employment are directly related to the industry’s

exports.

International business for Cincinnati Milacron has also increased

significantly in the past several years, accounting for 43 percent of

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our business and creating thousands of jobs in Ohio, around the

country and the world.

There is no doubt that China is an important market, both for

my company and for the U.S. plastics industry. U.S. exports of

plastics raw materials and products to China ranked seventh out

of all U.S. exports in 1997, and have increased 94 percent in five

years, to more than 432 million. U.S. exports of plastic resins, products, and machinery to China alone accounted for nearly 3,000 jobs

in the U.S. in 1997.

Cincinnati Milacron’s presence in China also has grown considerably in recent years with exports of machinery and tools to China,

which is a significant part of our business. We have offices and employees in the cities in China of Beijing, Shanghai, and Guangzhou.

We estimate that our China sales account for more than 100 jobs

throughout the company. But this is only the tip of the iceberg.

Milacron’s many suppliers, most of which are small businesses and

rely heavily on their Milacron business, benefit significantly from

our business with China.

Fifty-five supplying companies provide more than 85 percent of

Milacron’s purchases, totaling more than 400 million annually. A

business relationship with Cincinnati Milacron can represent 50

percent, or up to 10 million dollars of sales for these small to midsize companies, the core of their business success. Supplying companies such as CastFab Technologies and Dayco are critical in

meeting the needs of both our domestic and our Chinese customers.

Milacron also has a responsibility to service and respond to our

U.S. customers already in China. Some of the Cincinnati Milacron

plastics equipment currently in use in China are owned by U.S.

companies such as Lear and Kodak. These companies need to know

that their U.S. supplier can deliver top-quality service. This type

of quality customer service requires that we have Cincinnati

Milacron employees located in China, to make sure that our U.S.

customers are——

Mr. HOUGHTON. Mr. Hall, could I just interrupt a minute? The

red light is on. Now, if you want to continue, that’s perfectly all

right by me. We’re going to try to keep it in reasonable segments

here, but go right ahead.

Mr. HALL. Okay, just a couple more minutes, I think we can

wrap up. Thank you, Mr. Chairman.

In addition to the suppliers located in the United States and the

U.S.-based customers network in China, Milacron has developed relationships with Chinese-European joint ventures, providing the

opportunity for our company to break into the often difficult-to-penetrate European market. Furthermore, our success and presence in

China is related to our business interests in the entire Asian region. Milacron’s presence in Japan, Singapore, and other Asian

countries is linked to our business in China, the largest economy

in the region. We want to, we need to continue our expansion into

the Asian markets, and we need unencumbered access to the Chinese market to do that.

Cincinnati Milacron and the Society of the Plastics Industry

strongly support renewing most favored nation status for China. I

will be the first to admit that gaining access to the Chinese market

and expanding there is not easy. A high value-added tax on plastics

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machinery, excessive bureaucratic red tape, and intellectual property rights concerns can discourage companies from tackling the

Chinese market.

While it may often be daunting, Cincinnati Milacron believes

that China is critical for our continued growth, both domestically

and internationally. If trade barriers are to be lowered, we must

continue the dialogue between our two countries, to make sure that

even more U.S. products reach Chinese customers. The Society of

the Plastics Industry believes strongly, and so do we, that to promote an improvement in China’s human rights practices, the

United States should encourage an environment in which China accomplishes political reform on its own behalf.

I do know that in Milacron’s 25 years in the China market, we

have seen radical changes for the better. We have seen a dramatic

increase in the standard of living of the Chinese consumer. We

have witnessed a greater openness to our company and U.S. business in general. I firmly believe that if the United States cracks the

MFN whip, we will pay through a loss of sales and jobs, and our

competitors from Europe and other Asian countries will benefit as

a result. The United States, no matter what it does, cannot stop

China from growing, but we must choose whether we will be part

of it or whether we will be watching from the sideline.

Cincinnati Milacron hopes to there playing, and leading, in the

game to expand our China business and grow our U.S. job base as

a result. We urge you and your colleagues to vote against House

Joint Resolution 121, which would disapprove extending MFN

treatment to China, and we urge you to support the United States’

continuing a dialogue to improve the business ties between our two

nations.

Thank you, Mr. Chairman, for allowing Cincinnati Milacron and

the Society of Plastics Industry to express our views. I would be

pleased to take any questions you have.

[The prepared statement follows:]

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Mr. HOUGHTON. Okay, well, thanks very much, Mr. Hall. I think

we can wait until the end for the questions.

Now Mr. Holwill.

STATEMENT OF RICHARD HOLWILL, DIRECTOR, INTERNATIONAL RELATIONS, AMWAY CORPORATION, AND COCHAIRMAN, ASIA TASK FORCE, U.S. CHAMBER OF COMMERCE, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE

Mr. HOLWILL. Mr. Chairman, I am Richard Holwill, director of

international affairs for the Amway Corporation, but I have the

honor today of testifying on behalf of the U.S. Chamber of Commerce. I’m a member of the International Policy Committee and cochairman of the Asia Task Force of the Chamber. I have submitted

my testimony for the record. I have a summary here, but in the interest of time I’ll attempt to summarize the summary for you.

We believe that expansion of U.S. trade is vital to America’s economic future. The economy of China has experienced explosive

growth in recent years, and it has tremendous potential for the future. The estimates of China’s infrastructure requirements and the

potential of its huge domestic market help to make China a top

international priority for many U.S. companies during the 1980’s

and 1990’s.

The members of the U.S. Chamber are eager to pursue these opportunities in the marketplace in China, particularly given the aggressive efforts of our European and Asian competitors there. Last

year, the United States exported approximately 12.8 billion dollars

in goods to China. These were, by and large, high-paying, that is,

they supported hundreds of high-paying jobs in the United States,

jobs that pay on average 10 to 15 percent more than domestic jobs.

In 1997, China bought more than 1.6 billion in U.S. agricultural

exports.

Withdrawing MFN is simply not a viable option. It would put

these jobs at risk. Without MFN, tariffs on U.S. imports from

China would dramatically increase, anywhere from 10 to 70 percent more. These tariff hikes would impose a tax of at least 300

dollars on the average American family. And if China were to lose

MFN status, it would have a legal right and every reason to retaliate against U.S. exports, putting at risk billions of dollars of U.S.

sales.

The recent economic growth in China has largely been fueled by

this explosive surge of exports to the United States and other countries. Our bilateral trade deficit has grown steadily in the 1990’s

to a total of over 50 billion dollars last year. Expansion of our exports to China is the only viable way to reduce the trade deficit.

The actual challenge facing the United States is to move away

from this ritualized debate over MFN, and to remove the barriers

to trade. We believe that these annual debates on China’s MFN

status are counterproductive, because they distract from the more

important issue of bringing China into the World Trade Organization. U.S. products face formidable market barriers in China. The

present commercial environment is difficult for U.S. companies. It

makes it hard for us to compete and to prosper. While MFN cannot

address these issues, they are appropriate topics for consideration

in the context of China’s bid to join the WTO.

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The challenges for the U.S. government are to bring China, one

of the world’s fastest growing trading nations, into the WTO, where

it will be obliged to adhere to international standards and norms.

WTO accession on commercially viable terms offers the best opportunity for securing vital access to this market.

Looking at our annual MFN exercise, China is rightly concerned

that the U.S. Congress may not agree to permanent MFN, even in

the context of a WTO accession agreement. Thus, Chinese negotiators appear cynical about the benefits to them of making concessions when it appears that the entire package might be rejected by

this Congress. Therefore, we urge members of Congress to consider

the vote on MFN in this context, and to send a strong signal that

permanent MFN is a desirable option in the near future, particularly in context of measurable progress on WTO accession.

We further believe that expanding economic cooperation with

China will have ancillary benefits in the area of human and worker

rights. U.S. companies operating in China establish benchmarks

for corporate practices in such critical areas as personnel management, corporate citizenship, fairness, and equal opportunity.

The recent experience of the Amway Corporation in China can

serve as a case study of this phenomenon, and of the potential, the

problems, and the manner in which progress can best be made in

China. We opened there in 1995 and by 1997, our sales to China

exceeded 178 million dollars. Our direct-selling system enabled

Chinese citizens to establish their own businesses and control of

their future in a way never before possible. In April of this year,

the Chinese government imposed a ban on direct selling that was

intended to eliminate fraud, but also threatened to put us and our

Chinese citizen partners out of business.

I just returned from Beijing and can say that we’ve resolved

most, but not all, of the outstanding issues there. We found officials

open to reason and willing to work with us to resolve these difficult

issues. We believe we will be able to reopen in the very near future. I would point out that we proposed to the Chinese government a series of international standards that would permit them

to protect their citizens, while permitting us to offer that business

opportunity. They were interested in these international standards

far more than any solution that bore a made-in-the-USA label.

As a practical matter, we require a fair degree of goodwill to operate successfully in China. If Congress terminates MFN status for

China, it will have effectively put us out of business. If, as we expect, we gain permission from the Chinese government to resume

operations, it would be ironic, indeed tragic, if then the U.S. Congress killed our business.

Mr. Chairman, that concludes my remarks. I look forward to

your questions.

[The prepared statement follows:]

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Mr. HOUGHTON. Thank you, Mr. Holwill. Again, we’re going to

wait for the end to have questions.

Mr. Kapp.

STATEMENT OF ROBERT A. KAPP, PRESIDENT, UNITED

STATES-CHINA BUSINESS COUNCIL

Mr. KAPP. Mr. Chairman, thank you. I will be very brief. Knowing that I might be coming to this hearing near the end of the day,

I decided that I wouldn’t try to repeat verities that others had said

before. I’ve associated myself and the U.S.-China Business Council

with many of the very constructive remarks that have been offered

by other participants in the hearing today.

I have chosen instead in this material to try to get us down to

the inescapable reality that it’s time to get rid of annual MFN. We

are now in the ninth year, I think it is, of this exercise. We went

through 10 years in which Congress said nothing about MFN annually, between 1980 and 1989, but for the last nine years we’ve been

going through an exercise which is essentially doomed to perpetual

fruitlessness, because it is misdirected.

It stems, as you know, Mr. Chairman, from the making of an act

by the Congress in 1974 that was aimed to force the Soviet Union

to permit the emigration of Soviet Jews. Emigration is not an issue

with China. The Soviet Union is gone. The world has changed.

Only the annual MFN exercise with China remains. It’s time to finish it up.

MFN, as we all know, is not ‘‘Most Favored’’ anything. There are

three or four of what I, perhaps a little bit too colorfully, call trade

midgets around the world, with whom the United States does not

maintain MFN relations. But for the rest, of course, the United

States has MFN trade with one and all.

I have struggled to come up with something new to say to break

through some of this thick and seemingly perpetual fog, and this

year I’ve decided to come up with the analogy of the pit stop.

We are engaged in a long and complex challenge in managing

and accommodating ourselves to the arrival of China for the first

time in our history as a major player in the world of global economics and global power. It is a long and difficult struggle with a nation that has not played that role before in the modern era. There

are, as Mr. Holwill and everyone else experienced with China will

attest, many difficulties and many areas of conflict and friction.

In a situation like that, whose rhythms are not governed by the

annual calendar of Jackson-Vanik, it seems to me that if we have

to deal with MFN at all, it should be as a necessary but routine

maintenance stop, and nothing more. You cannot compete in the

entire race, you cannot win the race, if you don’t change the

wheels, fill the tank, and top off the radiator along the way.

Let’s not load MFN down with the intellectual and moral baggage, and the strategic baggage, that we go through every year in

these discussions. This is a humble, unglamourous trade matter. It

is obsolete to begin with, but as long as we’re stuck with it should

be treated as a humble and unglamourous trade matter and nothing more.

I would just paraphrase by saying that MFN is about maintaining the most basic, lowest common denominator standard of civility

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in the economic and non-economic relations of two great nations,

each a major trade and economic partner of the other, and each

possessed of the power to shape world events. That humble fact is

the reason that Congress should sustain MFN and free itself from

this annual burden at the earliest moment.

I did want to take a minute to thank your chairman, Chairman

Crane, and his committee chairman, Chairman Archer, and of

course the speaker, Speaker Gingrich, for their very constructive

statement on MFN issued almost immediately after President Clinton announced his intention to renew MFN for the coming year.

Permit me also to call your attention, and the attention of interested members, to the letter which Representative Curt Weldon, a

member of the House National Security Committee, has circulated,

first to fellow members of his committee and I think then to the

House as a whole, making a very important distinction and maintaining the separateness—the clear separateness—of the MFN

issue from the issues now under investigation regarding alleged

breaches of United States military security that are being handled

separately in the Congress. I think that’s an important point.

To conclude, as I put it a little bit colorfully, the annual MFN

debate sustains a cottage industry of publicists, advocates, political

strategists, journalists, pundits, spinmeisters, and instant interpreters, all of whom should be given a chance to earn their living

in other ways.

Thank you very much.

[The prepared statement follows:]

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Mr. HOUGHTON. Well, thanks very much Mr. Kapp.

Ms. Shailor.

STATEMENT OF BARBARA SHAILOR, DIRECTOR, INTERNATIONAL AFFAIRS, AMERICAN FEDERATION OF LABORCONGRESS OF INDUSTRIAL ORGANIZATIONS

Ms. SHAILOR. Thank you, Mr. Chairman, and thank you for this

opportunity to present the views of the AFL–CIO, as we have for

the last eight years on the extension of most-favored nation trading

status to China.

The AFL–CIO opposes granting MFN to China. We believe that

China’s egregious and flagrant violations of human and worker

rights, its flaunting of international agreements on arms sales,

market access, intellectual property rights, forced labor, and the

environment, and its non-reciprocal and discriminatory trade and

investment policies are not improving under the current policy.

Only the threat of withdrawing trade preferences will cause the

Chinese government to address these very serious concerns. Our

choice, we believe, with respect to China is not between isolationism and engagement, as some would argue. Rather, it is between continuing the status quo and using the leverage of our marketplace to affect necessary and positive change.

The key issue that Congress and the country face is whether or

not our current policy is working. At the AFL–CIO we believe that

on every dimension—human rights, worker rights, and trade—we

are seeing a deterioration or failure to make significant progress.

The human rights situation in China continues to be an international disgrace. The State Department’s 1997 human rights report asserts the Chinese government continues to commit widespread and well-documented human rights abuses, including torture and mistreatment of prisoners, forced confessions, arbitrary

arrests, and lengthy incommunicado detention. The government

continues tight restrictions on freedom of speech, the press, assembly, association, religion, privacy, and worker rights. Human rights

abuses in minority areas, including Tibet and Chianxing, continue

in some cases in fact to intensify.

The AFL–CIO welcomes the release of political prisoners this

year, particularly Wei Jeishing, who eloquently addressed the Executive Council of the AFL–CIO this January. But releasing political prisoners forced into exile is not the same as allowing them to

speak freely and work towards democratic change in their own

homeland.

The worker rights situation in China remains particularly bleak.

The single official recognized labor organization, the All China Federation of Trade Unions, is controlled by the Communist Party. Its

main tasks are to improve labor discipline, mobilize workers to

achieve party and government objectives, and dispense social welfare funds.

The State Department reports that there were more efforts last

year to form or register independent unions in 1997 but that none

of them were successful. The official labor unions in China represent the interests of both management and the government, but

certainly not the interests of working people.

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Workers attempting to organize independent unions or carry out

strikes in response to truly dreadful working conditions are fired,

imprisoned, beaten, and tortured. Working conditions in industries

such as toys, apparel, and electronics, in which there is significant

foreign investment, are deplorable. Excessive hours, violation of

minimum wage laws, poor health and safety conditions, and physical abuse by managers is commonplace.

A recent report by the National Labor Committee, based on extensive investigations carried out in China, reveals that workers

producing goods for the American consumer market may work from

60 to 98 hours a week, 28 days a month, for as little as 13 cents

an hour. The workers are often housed in dormitories 16 to a room.

Companies that produce in China to sell to American consumers

reap enormous windfall profits, by taking advantage of these

shamefully low wages and poor working conditions, while charging

premium prices for their products. Nike’s advertising budget alone

for one year is 650 million dollars. That would pay the entire wage

bill for all 50,000 workers at the Yuyong factory in China for 19

years. These workers produce Nike sneakers 12 hours a day, 7 days

a week for 16 cents an hour.

What is the point at which the United States Government will

set limits on its trade with China? Will we draw the line at trading

with and boosting the earnings of companies that are owned by

military organizations responsible for carrying out the Chinese government’s policy of repressing students, workers, and religious and

ethnic minority activists?

The AFL–CIO calls on President Clinton to immediately revoke

the visas of all representatives of the PLA and the PAP doing business in the U.S.; on Congress to enact legislation to ban trade and

investment with these companies; on corporations to pledge to

refuse to do business with these organizations; and on the American consumers not to buy products produced by the Chinese military.

China’s policy of extorting technology transfers in investment

from American companies interested in selling in China is costing

the United States good jobs—good jobs in aircraft and automotive

sectors, to name two. More serious transferring technology, much

of which has been subsidized by American taxpayers, will create in

China the capacity to challenge American competitiveness in industries that we now take for granted. While it may serve the interests of individual companies to trade away technological advantage

for short-term market access, this certainly does not serve the national interest.

The AFL–CIO supports trade expansion, international engagement, and equitable development. But the Chinese government is

not engaging in free trade, and we will neither help the Chinese

people in their aspirations, nor our own work force by ignoring this

basic fact.

Thank you, Mr. Chairman. I’m glad to answer any questions.

[The prepared statement follows:]

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Mr. HOUGHTON. Well, thank you very much, Ms. Shailor. You

know, I could ask each of you individual questions, but maybe it

will be a good idea if I just threw out a couple of questions and

then we could sort of chew on them together, to sort of get an idea.

I think one question, is in terms of the businesses involved, and

I think particularly of the Amway and Cincinnati Milacron. But

what really is the balance of trade? Is there something going back

and forth which is fair? That’s one issue.

Another issue is in terms of the Asian financial crisis. What impact is that having?

Another issue is really this concept, as you bring up, Ms. Shailor,

of the extorting technology transfers and investments. I’d be really

interested in answers to those or anything else you might bring up.

So let’s open it up. And cut in at any time.

Ms. SHAILOR. Let me address the technology transfer issues for

a moment.

Mr. HOUGHTON. All right.

Ms. SHAILOR. We represent many members, obviously, at Boeing,

at McDonnell-Douglas, at a number of the large aerospace companies, and in separate testimony before Congress and in many other

forums, we have been indicating for several years our severe concern about the extortion of technology. In particular, for access in

the aircraft market. And at Boeing and McDonnell-Douglas and, I

might add, I assume Cincinnati Milachron as well, you will see the

transfer of technology which is dual-use equipment that is sitting

in military facilities in China where the nuclear-strike bombers are

produced.

I think, when we look at China’s accession to the WTO, one of

the most significant issues is going to be the market-access question and the technology-transfer question, and I think, certainly

under the current circumstances, the technology questions need to

be looked at very carefully. They are not in our national interest

and they are creating a key industry for the Chinese that we have

no way at this hearing or in the coming years to determine will

eventually come back in ways that we seriously regret.

Mr. HOUGHTON. True. Well, on this—yes, go ahead.

Mr. KAPP. I just would urge that we be very, very specific in our

depictions of realities here. The term, ‘‘nuclear-strike bomber,’’ is a

classic example of the kind of easy-to-say term that gets launched

into the public dialogue with precious little detail behind it. I think

that it is very important that if we’re going to cast blanket condemnations across the transfer of industrial technology and knowhow, and managerial know-how, from American corporations to

their customers in other countries around the world, including

China, we be very specific as to the nature of the technology——

Mr. HOUGHTON. Sure.

Mr. KAPP. And the nature of the——

Mr. HOUGHTON. No, I understand that, but——

Ms. SHAILOR. I can be very specific.

Mr. HOUGHTON. But let’s just, for example, for Cincinnati

Milacron, suppose you were exporting plastics, or your customers

were exporting plastics to China. And, I don’t know if this it could

happen or not, and China would say, we want to make them ourself. And furthermore, if you do not put up a plant here, and if you

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do not give us our technology, despite the fact that you cannot

make any money on that, the return on investment would be bad,

but you felt that was the only way to access the Chinese market,

what would you do? You don’t have to answer that, but, I mean,

it’s a very practical question, and I’m sure it’s been posed to many

industries.

Mr. HOLWILL. Mr. Chairman, our company does not make or use

sensitive technologies. We sell soap and personal-care items, but I

would like to point out that we are among that do export to China.

We want to export more to China, and we see the focus on MFN

as inhibiting the negotiations on WTO, and I would suggest to my

friend from the AFL-CIO that emphasis on worker rights can best

be carried out in the context of the WTO session agreement. And

we would urge them to join us in pushing this Congress and this

Administration to accelerate that in the best, and the most aggressive way possible, and to include such standards in the agreement,

if possible.

Ms. SHAILOR. And I might add on the question of specificity. I

think this is a problem for multinationals throughout the world.

It’s not unique to American companies. And I think there is no

question that addressing it multilaterally and within the context of

the WTO on commercially acceptable grounds and in ways that impact on all companies would move us forward.

But you have a situation where companies are in fact being held

up on their technology transfers. And so, for example, you’ll see

Cincinnati Milacron five—access milling equipment in facilities

where there is also military production going on in China. And it

is a concern for Boeing, for McDonnell-Douglas, for all of the aircraft industry when the Chinese can simply say, if you don’t transfer this technology, we’ll buy Airbus equipment instead. So we are

sympathetic to the pressures that our companies are under, and we

would like it addressed in a multilateral way, but it still gets to

the issue of the extortion by the Chinese government.

Mr. HOUGHTON. Well, now do you have—if I could just interrupt

a minute—you have page 3 of your testimony. You talk about the

People’s Armed Police and the People’s Liberation Army, and you

suggest that Congress enact legislation to ban trade and investment and so on and so on. Why don’t you boycott them yourselves?

Why doesn’t the labor union, why doesn’t the AFL–CIO boycott

them, whether the Congress does or whether business does?

Ms. SHAILOR. Well, boycott is a——

Mr. HOUGHTON. No, seriously. Why aren’t their flyers in your

communities, where you have organized plants, and they’re all over

the country, why don’t you do this yourself?

Ms. SHAILOR. We are urging our members, and we have through

many different ways indicated that we would very much hope that

we would be able to identify products that were coming in from the

PLA and urge them not to buy those products. That is a common

process that we go through in the labor movement, as we have

done in many situations in many countries where workers are

being repressed and abused. As we did in Poland, as we did in

South Africa, as we continue to do in many regions of the world.

You have a situation where Chinese workers are suffering terribly as well. They’ve lived through a very difficult history and——

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Mr. HOUGHTON. You know what I mean. You know what I mean

on this. Now, maybe I could just move along to Mr. Kapp. You talk

about this unromantic pit stop.

Mr. KAPP. Mr. Chairman, could I interrupt for just a second? I

think our friend from Cincinnati Milacron had a comment on the

previous discussion.

Mr. HOUGHTON. Okay.

Mr. HALL. Just quickly, before we do run out of time, I would

like to submit to the record, in regard to these comments about

Milacron machines involved in military, if I could at some later

time in detail.

Mr. HOUGHTON. You’re going to put it in the record?

Mr. HALL. I would like to prepare something.

Mr. HOUGHTON. You would like to make a comment? Go ahead,

make a comment.

Mr. HALL. At this time, I’m not prepared to, but I would like to

at a later time.

Mr. HOUGHTON. All right. Good. We’ll make it at the end of this

or submit it for the record. That would be great.

Mr. HALL. Thank you.

[The following was subsequently received:]

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Mr. HOUGHTON. Now, Mr. Kapp, this unromantic pit stop, could

you break that down a little bit?

Mr. KAPP. Yes. What I’m trying to get at there, Mr. Chairman,

is the fact that, as this panel and all the other panels today have

once again revealed, and as the comments, I believe, of Representative Jefferson, who was speaking when I first entered the room,

brought us back to the MFN process is a creation of an American

law which singles out for annual MFN renewal so-called non-market economies. And the criterion on which the President is to recertify is the question of immigration, the permission of the country

in question that its citizens can emigrate.

What has happened over the years since the tragedy at

Tiananmen is that the MFN decision has been decked out, Christmas-tree style, with every other imaginable objection that Americans of good conscience, and Americans with strong political feelings, and others might raise to aspects of China’s behavior, domestic or international.

My point is that we’ve lost track of what the MFN renewal actually is. To me at least, and I would hope to the members of Congress, it is a simple procedural question. Do they permit the emigration, or don’t they? The emigration is not an issue, and therefore I would like to think, (a) that we can put this whole dinosaur

into the ground once and for all, and (b), until we can do that, we

should try to get back to the fact that this is a routine maintenance

stop every year in a much larger challenge, that the United States

must face. That challenge is to come to terms with the emerging,

powerful, and significant China on the world scene. This MFN exercise is, in fact, as Richard Holwill and others had said, a debilitating distraction from what we really should be doing.

Mr. HOUGHTON. Well, anyway, as I listen to you, the basic thrust

is China is big; China is important; China’s a great market; we’ve

got to keep it open. We ought to get rid of any of the impediments,

such as an annual review of the MFN. And they’re very important

to us; they’re very important to employment, so on and so forth.

And I agree with all that. I mean, I am basically down there.

However, you know, Mrs. Shailor is saying something important.

Is there a quid pro quo? I mean, would we deal with England the

same way we are dealing with China? And if not, why?

Mr. HOLWILL. Mr. Chairman, the point of my remarks was simply that there are legitimate criticisms. She has raised several;

other speakers here today have raised others. But MFN is a unilateral move in which we attempt to arrogate to ourselves the right

to dictate policies within China. China does respond well when

there are clear international standards that it’s expected to meet.

If we move away from MFN and toward a multilateral regime with

international standards, such as WTO, we will advance those goals

far more effectively than if we continue to do so in a bilateral manner that engenders only hostility and resentment from the Chinese.

Mr. HOUGHTON. Okay, so what you do is you disagree with Mrs.

Shailor. I’m going to cite a particular sentence in the first paragraph of her testimony. I don’t think you have it. Let me read it

to you.

‘‘Only the threat of withdrawing trade preferences will cause the

Chinese government to address these very serious concerns?’’

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You don’t agree with that?

Mr. HOLWILL. I don’t, sir. I believe—

Mr. HOUGHTON. Well, help me on that. Or anybody help me on

that.

Mr. HOLWILL. I do not, and I believe there have been several references here today that the Chinese have maintained a stable currency through the Asian economic crisis; if we shut the door on $68

million in Chinese exports to the United States, they will be

obliged to find other markets, and the primary mechanism which

we’ll have to do that will be to devalue the one currency that is

maintaining some stability in Asia.

Mr. HOUGHTON. I agree with you, but you’re talking in economic

terms, and those are real terms, and they’re important terms, and

they’re probably the most critical terms. But what about the other

issues we’re trying to get at? It’s always this balancing between the

human and the right versus the economic. How do we handle this

other area?

Mr. KAPP. Sir, at the risk of spilling the beans on my Senate testimony tomorrow, which I haven’t quite finished yet——

Mr. HOUGHTON. I won’t tell a soul. [Laughter.]

Mr. KAPP [continuing]. And I know it will be held completely

within these round walls. Let me read you a little bit of Jasper

Becker’s description of the famine that engulfed China between

1958 and 1961, a famine caused by the obsessive dreams of the deified ruler of China and enforced across the whole face of the land.

‘‘Fear and terror explain the behavior of the cadres who did nothing in the face of this catastrophic economic collapse. A cadre who

questioned orders faced death. The anti-Right opportunists campaign had clearly demonstrated this fact, but it also showed that

opposition not only endangered the official, but also his family, his

relatives, and his friends. As the famine worsened and the peasants lost hope, the cadres also found that they could only order by

creating more and more terror. All judgments and beliefs were suspended. No one dared move or act according to what he knew to

be true. Instead, even the highest-ranking officials moved in a secretive society, paralyzed by an all-pervasive network of informers

and spies. In a world of distorted mirrors, it became hard to grasp

that such senseless cruelty could really be taking place. Who could

believe that party officials would plaster and paint trees, stripped

of their bark by starving peasants, to hide a famine from the country’s president, Yo Tzou Chi Zhou, who was on a visit?’’

Now, Mr. Chairman, if we look at the society that China was

thirty years ago, the China that adults of China today lived in and

lived through, we come to understand how far China has in fact

traveled in the last 20 years. The great leader is gone. No more

semi-divine leader. No more doctrinal fanaticism. No more Marxism-Leninism-Mao Zedong thought in command of everything. No

more isolation from the world—it is not, in fact, a small coincidence

these things go together. And, of course, spectacularly raised living

standards for large numbers of people.

In other words, as we consider legislative policy toward China,

we somehow have to understand that the China of today, for all of

the objectionable features that all of us might discover somewhere,

is still much more advanced and improved over the China of a genVerDate 11-MAY-2000 15:38 Jun 07, 2000 Jkt 060940 PO 00000 Frm 00215 Fmt 6633 Sfmt 6602 E:\HEARINGS\60940 pfrm04 PsN: 60940
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eration ago. We need to bear that in mind as we go about determining American policy for a China that is still moving forward

today and tomorrow.

Mr. HOUGHTON. Yes, but if we eliminate—yes, go ahead, please.

Yes.

Ms. SHAILOR. A comment on the transition, the political transition, that’s going on in China. And I think that was an excellent

recent history. So we’ve gone then from the Long March to the

Great Leap Forward to the Cultural Revolution to Socialism with

Chinese characteristics and I think this period could be called capitalism with a Fascist face.

Mr. KAPP. Well, again, that might be a good sound bite, but I

think that this issue actually bears a more serious analysis at

much greater length than such a phase implies.

Mr. HOLWILL. Mr. Chairman.

Mr. HOUGHTON. Yes.

Mr. HOLWILL. I would like to add one personal observation here

and that is, having just completed a round of negotiations on a

very difficult, technical issue, what I have learned in dealing—in

looking at this issue is that the Chinese themselves are looking to

the world to see how to reorder and to restructure their society.

They themselves are struggling with many of these issues.

And I believe that the best way to achieve the goals, which I believe is your primary question, is MFN or the threat of denial of

MFN going to achieve those goals? I believe the best way to do it

is to offer to them cooperation in finding the appropriate international standards for dealing with issues that trouble them. Their

workers are demanding better standards and those who advocate

the improvement of labor—of the status of labor in China would be

well-advised, I believe, to move away from threats and move toward areas of cooperation where they can see the benefits of a dynamic and democratic labor movement within the country.

Mr. HOUGHTON. Sure. I just want another crack at this. I mean,

you know, we’re living in an extraordinary time. I’ve been around

the business world since the early 1950’s and I’ve never seen anything like this. But, you know, we’ll go south at some time. We always have; we always will. And the thing that I worry about is

that we go south in a way which then forces us to get our balance

of trade back into power and into balance and then, also, be very

careful that the United States keeps its status as the country with

a reserve currency, rather than going to the Euro or something like

that. If that goes, then we’ve got a double-barreled hit.

So I guess the thing that I’m concerned about is that if we end

up in a situation—we’re not there yet—where we have a $200 billion-a-year annual trade, not current account, but trade deficit with

China and we see our currency destabilizing and we see—or having

to put ourselves back in control—it’s good to trade with China and

it’s important to do it, but what sort of monitoring mechanism do

we have as we go along, if we take away this annual review of the

MFN?

Mr. KAPP. Congressman, monitoring mechanism as to what?

Mr. HOUGHTON. Monitoring—what?

Mr. KAPP. Monitoring mechanism as to what?

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Mr. HOUGHTON. Monitoring mechanism in terms of our trade imbalance.

Mr. KAPP. Oh, I see.

Mr. HOLWILL. Mr. Chairman, I would submit to you that the accession of China to the WTO should be the higher priority and

there will be, through that mechanism, both an opportunity to provide oversight to the terms of accession and oversight by this committee to the action of WTO in pursuing the cases that are brought

before it that relate to whatever dispute may be at hand, whether

it is an investment dispute, a business condition—a dispute relating to market access, or a dispute relating to the fact that some industries may be operating with subsidized or slave labor.

There are—there will be, through that mechanism, a role for this

committee that will be vital and it will be a far more effective role,

I submit, than the one that you now are offered through MFN,

which is a once-a-year ritual over an all-or-nothing option for dealing with the problems in China.

Mr. HOUGHTON. Well, I think you’re right. But, at the same time,

you say on page eight, you know, you say things which are great.

I mean, they make a lot of sense. They would be nice if they were

enacted. Provide market access for Texas and agricultural products, reduce export subsidy, trim protection of market access, liberalize access to foreign exchange, provide the provisions of WTO

uniformly through China. That’s not going to happen. I mean, it

may ultimately, but in the meantime, we’ve got to live and we’ve

got to be able to keep this thing in balance and have them understand the importance of our economy as well as theirs. That’s what

I’m saying about some sort of monitoring device.

Mr. HOLWILL. Thank you, Mr. Chairman.

Mr. HOUGHTON. Well, look, you’re nice to come. Mr. Hall, have

you got something which you’d like to enter here? Or would you

just like to just enter it in the record?

Mr. HALL. I’d just like to enter it in the record. Thank you.

Mr. HOUGHTON. Okay, fine.

Well, listen, I really appreciate this. It’s been very, very helpful

and, without any other comment, session adjourned.

[Whereupon, at 5:45 p.m., the hearing was adjourned subject to

the call of the Chair.]

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