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07 April 2000

Text: USTR Barshefsky April 6 on Permanent Trade Status for China

(Normal Trade Relations vote critical to U.S. future) (4610)
China will enter the World Trade Organization (WTO) whether the
Congress votes to grant that country permanent Normal Trade Relations
(NTR) status or not, according to U.S. Trade Representative Charlene
Barshefsky.
Furthermore, she argued in an April 6 speech at the Wharton School of
the University of Pennsylvania in Philadelphia, China will continue to
have access to America's markets, no matter how Congress votes on the
NTR issue.
What the House of Representatives and the Senate will accomplish by
voting to grant permanent NTR status to China, Barshefsky said, is to
secure the market openings China agreed to as part of its negotiations
with the United States regarding the terms of its entry into the WTO.
From an economic perspective, Barshefsky said, it is clear that
granting China NTR status is in the U.S. interest.
However, the U.S. Trade Representative said, the main reason for
Congress to approve permanent NTR for China goes beyond the possible
economic benefits to American businesses.
China's accession to the WTO, Barshefsky told her audience, "has
implications for many of the broader goals at the foundation of our
modern trade policies."
China, Barshefsky acknowledged, "remains an authoritarian and
repressive country." But, she added, the reforms it has carried out
have "strengthened personal freedoms and begun to develop the rule of
law."
This has been a goal of U.S. policymakers since the Nixon
Administration, as engagement was seen as a way to enhance reform in
China, Barshefsky said.
This policy, she added, has borne results, and "has made China a more
integrated, responsible member of the Pacific community." Barshefsky
cited the positive role China played in the Asian financial crisis
when it did not devalue its currency and helped maintain regional
economic stability.
Quoting Chinese economist and reform advocate Cao Siyuan, Barshefsky
said, China "has opened the door, but only to reach out and cautiously
shake hands."
The United States should seek to draw China out, Barshefsky said.
"We have a fundamental national security interest in a peaceful,
stable, mutually beneficial relationship with China," she said. "To
reject PNTR would be reckless.
"No trade agreement," she said, "will ever solve all our
disagreements, but this will address many of them; and if we turn down
a comprehensive set of one-way concessions, we make a very dark
statement about the future possibility of a stable, mutually
beneficial relationship with the world's largest country."
Barshefsky cited President Clinton's observation that for "every major
American trade, economic and foreign policy interest, to reject
permanent NTR would be to lessen the chance that China will choose the
right path in the years ahead."
Those are the stakes, she said, America has to consider as Congress
prepares to vote.
Following is the text of Barshefsky's remarks, as prepared for
delivery:
(begin text)
TRADE AND AMERICAN ECONOMIC STRATEGY:
THE CASE OF CHINA'S WTO ACCESSION
Ambassador Charlene Barshefsky
U.S. Trade Representative
As prepared for delivery
The Wharton School of the University of Pennsylvania
Philadelphia, PA
April 6, 2000
Thank you very much. I am pleased to be here with you, and grateful to
the Wharton School for this chance to speak on one of America's most
important trade and foreign policy goals: China's accession to the
World Trade Organization and permanent Normal Trade Relations status.
ONE-WAY CONCESSIONS
In the most basic sense, of course, these are technical trade policy
issues. And when we consider them as such, we have a clear economic
choice:
Last November, after years of negotiation, we reached a bilateral
agreement with China on WTO accession. It secures comprehensive,
one-way concessions, opening China's markets to America's industrial
goods, agriculture and services. It strengthens our guarantees of fair
trade, and our ability to enforce Chinese commitments. By contrast, we
change none of our market access policies; in a national security
emergency, we can withdraw the market access China has now. We change
none of our trade laws, and none of our laws controlling the export of
sensitive technology. We agree only to maintain the market access
policies we already apply to China, and have for over 20 years, by
making China's current Normal Trade Relations status permanent.
Permanent NTR is the only issue before Congress. Regardless of the
Congressional debate, China will enter the WTO. Regardless of the
debate, it will retain its market access America. The only question
now is whether we will accept the benefits of the agreement we
negotiated; or on the contrary, by turning away from permanent NTR,
give these benefits to our trade competitors while American
entrepreneurs, farmers and factory workers are left behind.
THE TRADING SYSTEM IN AMERICAN FOREIGN POLICY
From the strict perspective of American economic self-interest, this
is fairly stark and simple. In this light we could end the discussion
right there. But China's accession also has implications for many of
the broader goals at the foundation of our modern trade policies. And
these topics that I will concentrate today.
For over five decades, Americans have led in development of an open
world economy under the rule of law. We have done so for reasons
reflecting, first of all, clear economic logic. Open markets abroad
offer our businesses, farmers and workers larger markets: almost 80%
of world economic consumption takes place outside the U.S., and to
grow and remain competitive in the future, America must have fair
access to these markets. At the same time, open markets at home give
us access to imports, which dampen inflation; spark the competition
that promotes innovation and efficiency; and raise living standards,
most of all for the poorest among us.
These are ideas with broad application. We tend to believe they
reflect Western liberal thought, but one can also cite the classical
Chinese historian Ssu-ma Ch'ien, writing in 90 B.C.:
"There must be farmers to produce food, men to extract the wealth of
mountains and marshes, artisans to process these things, and merchants
to circulate them. There is no need to wait for government orders:
each man will do his part as he gets what he desires. So cheap goods
will go where they fetch more, while expensive goods will make men
search for cheap ones. When all work willingly at their trades, just
as water flows ceaselessly downhill day and night, things will appear
unsought and people will produce them without being asked."
Today's World Trade Organization is an attempt to create such an
economy for ourselves and our trading partners: to open markets,
strengthen the rule of law, and by doing so raise living standards,
promote technological progress and ultimately strengthen peace.
To trace it to its roots, the WTO reflects the lessons President
Truman and his Allied counterparts drew from personal experience in
Depression and war. In the 1930s, they had seen their predecessors
fall to resist a cycle of protection and retaliation, including the
Smoot-Hawley Act in the United States and colonial preference schemes
in Europe, which had deepened the Depression and contributed to the
political upheavals of the era. Eighteen years later, at the
foundation of the WTO's predecessor, the General Agreement on Trade
and Tariffs (GATT), they believed that by reopening world markets they
could restore economic health and raise living standards. And as part
of a broader array of policies and institutions -- economic stability
through the IMF and World Bank; international standards of human
rights, embodied in the Universal Declaration on Human Rights and a
series of later Conventions; and the collective security commitments
of the United Nations, NATO and our Pacific alliances -- they believed
that open markets would give nations greater stakes in stability and
prosperity beyond their borders, strengthening a fragile peace.
Since then, we have completed eight negotiating Rounds, and 112 new
members have joined the 23 GATT founders. The agenda has broadened
from tariffs -- which have dropped by 90% on average -- to non-tariff
barriers, technical standards, dispute settlement, agriculture,
services, intellectual property, telecommunications, information
technology, financial services and electronic commerce. It continues
today, with the WTO's decision in February to open negotiations on
agriculture and services, and our work to broaden these talks into a
new Round.
When we step back for a moment, we see the enormous benefits this has
brought:
-- Growth and Rising Living Standards: The opening of world markets
has helped to spark what is in effect a fifty-year boom, in which
trade has expanded fifteen-fold since the 1950s, world economic
production grown six-fold and per capita income nearly tripled. And
the result has been historically unprecedented social progress: since
the 1950s, world life expectancy has grown by twenty years, infant
mortality dropped by two-thirds, and famine receded from all but the
most remote or misgoverned comers of the world. America, as the
world's largest importer and exporter, benefits perhaps most of all.
-- Economic Security: In the Asian financial crisis of 1997-99, with
40% of the world in recession, the respect WTO members had for their
commitments kept open the markets necessary for affected nations to
recover. Thus the system of mutual benefit and rule of law represented
by the WTO helped prevent a cycle of protection and retaliation like
that of the 1930s; and ultimately to avert the political strife that
can erupt in economic crisis.
-- Peace and Stability: Through the accession of 112 new members since
1948, the GATT and now WTO have helped us address some of the
political challenges of greatest importance for world peace and
stability. It helped to reintegrate Germany and Japan in the 1950s,
and the nations emerging from colonial rule in the 1960s and 1970s.
And it has now taken up a task of equal gravity, as after the Cold
War, the nations breaking with communist planning systems -- Albania,
Croatia and Bulgaria; the Baltics, Ukraine, Russia, Georgia, and
Armenia; the Kyrgyz Republic and Mongolia -- seek WTO membership to
reform their economies and integrate with the world.
CHINESE REFORM AND U.S. TRADE POLICY
And with this we come to China.
The world's largest nation, for many years, was one of the great rents
in the trading system. When our modern relationship began in 1972, its
economy was almost entirely divorced from the outside world. After the
Communist revolution in 1949, it had expelled foreign businesses and
banned direct economic contact between Chinese citizens and the
outside world. At home it offered virtually no space for private
farming or business; externally, it conducted what trade it felt
necessary through a few Ministries. Such policies impoverished China
and contributed to the revolutionary role China took up in Asia:
isolated from Pacific markets, Asia's largest nation had little stake
in a peaceful and stable region, and every Pacific nation felt the
consequences.
In the intervening thirty years, American trade policy has worked to
end this isolation. Our policies, viewed in detail, have sought
concrete new opportunities for American businesses, workers, and
farmers. But they also have pushed forward a strategic vision. By
opening China's markets, and helping to give China access to world
markets, we have sought to ensure that this nation of 1.2 billion
people plays its proper role as an export market and a source of
economic growth for its Asian neighbors; promote reform and economic
liberalization within China; and, ultimately, help China find a
different and healthier role in the Pacific region.
This is a strategy consistent with China's own reforms. At home, since
the 1970s, China has reversed the most damaging policies of the Great
Leap Forward and Cultural Revolution era, abolishing rural communes
and reviving private business in villages and cities. Domestically,
reforms have established an internal market, eliminating many controls
over prices; eroding the repressive "work-unit" system that bound
workers to particular jobs and factories; reducing the state's role as
an owner and manager of factories; and, over time, replacing
bureaucratic control with law. Externally, reform has begun to open
China to the world, substantially relaxing although not abandoning
entirely bans on foreign investment and private export trade.
American trade policy has worked with reform at every step. This has
been consistent and bipartisan, from the lifting of the trade embargo
in 1972 under President Nixon, to our Bilateral Commercial Agreement
and grant of Normal Trade Relations (then MFN status) in 1979 under
President Carter; renewal of NTR every year since; our support for
China's APEC membership; and in the 1990s detailed agreements on
market access, intellectual property, textiles and agriculture. Each
step rested on concrete American trade interests; each also helped
advance reform in China, acquaint China with modern standards of
business and governance, and integrate China into the Pacific and
world economies.
To choose a case in point, our work on intellectual property rights
since the early 1990s, based on our commitment to fight theft through
piracy of our most creative industries, has helped us to nearly
eliminate manufacturing and export of pirate CDs and CD-ROMs. But it
means more than this: to develop an intellectual property policy is to
draft and publish laws; to train lawyers and officials; to improve and
ensure access to judicial procedures; ultimately, to create due
process of law where it (lid not exist before. The same is true, more
recently, with our work with the Chinese Ministry of Agriculture to
develop modern sanitary and phytosanitary procedures.
This is one example of a much broader process of economic reform,
opening to the world, and adoption of internationally accepted trade
principles which have served China, its neighbors and ourselves well.
At home, they have helped 200 million Chinese men and women escape
from poverty. For us, they have sparked $10 billion in export growth
since our Commercial Agreement. And their advantages go beyond
material gain.
While China remains an authoritarian and repressive country, reform
has strengthened personal freedoms and begun to develop the rule of
law. And it has made China a more integrated, responsible member of
the Pacific community. To choose one example, when the Asian financial
crisis began in 1997, South Korea and the ASEAN were (setting Hong
Kong aside) the source of a seventh of China's foreign direct
investment, and the market for a sixth of its exports. Thus, while in
1967 these nations were China's ideological rivals, today they are the
customers who support Chinese factories and farm incomes, and the
investors who create Chinese jobs. Thus China chose in this event to
maintain currency stability and contribute to recovery packages. The
fact that the financial crisis did not become a security crisis owes
much to this change in Chinese perceptions of its regional interests.
REFORM INCOMPLETE
But the work is not yet done. As the economist and reform advocate Cao
Siyuan has put it, China has opened the door; but only to reach out
and cautiously shake hands.
To look back again on the financial crisis, while China's policy was
constructive, important and valuable, its neighbors did not have the
opportunity to use China as a market which could spur recovery. ASEAN
and Korean exports to China -- already low -- actually dropped by $4.5
billion, or nearly 25%, between 1997 and 1998. Or to use another
index, closer to home, our $10 billion in export growth to China since
1980, while substantial, is far less than our export growth to almost
any other major trading partner -- Europe, Japan, South Korea, ASEAN,
Canada, Mexico, Taiwan or the Caribbean Basin countries -- over the
same period.
This reflects, the fact that reform remains incomplete. Some policy
legacies of the revolutionary era remain in force today, and others
are only partly reformed. Foreign companies may invest in China, but
lose rights to import parts and market their products. China maintains
a patchwork of geographical policies which encourage foreign
investment in some areas while discouraging or banning it in others.
State ownership of industry generally remains quite high. Beyond these
unusual features of the Chinese economy are more typical trade
barriers: China's high tariffs are joined by an array of largely
secret quotas, and by industrial policies that require investors to
transfer technology, purchase parts only from Chinese sources, and so
forth. And more generally, the country still suffers from poorly
developed market institutions and the lack of a reliable rule of law.
These are barriers to American products, but they are problems for
China as well. Geographic limitations, for example, mean Chinese
insurance regulators spend much of their time calculating whether a
particular area might "need" one or two or three more companies rather
than reviewing the financial health of insurance firms. Border
barriers block agricultural and manufactured imports that could raise
living standards and make Chinese business more productive. State
monopolies in distribution mean that farmers lose much of their crop
on the way to market. The financial sector is mired in debts, but is
still making the majority of its loans to a loss-making state-owned
enterprise sector that accounts for only around one-third of China's
economic output. And overall economic inefficiency has made job
creation difficult, leading to high unemployment rates just as
immigration from rural districts to the cities accelerates.
Thus, just as China's external and internal trade barriers only block
imports, they also -- as China's senior leaders realize -- have led to
corruption and economic inefficiencies which block China's own
prospects for sustainable growth, job creation and Technological
progress.
THE WTO ACCESSION
Against this background, the WTO accession assumes its full economic
significance. The agreement we reached last November will address each
barrier to American goods, services and agricultural products. It will
take up all the major unfair trade practices we face in the Chinese
market. And it will help China build an economy prosperous and open to
the world, on the foundation of principles Ssu-ma Chi'en outlined 2100
years ago and the Wharton School teaches today. To offer you a look at
the details:
-- In manufacturing, China will cut industrial tariffs from an average
of 24.6% in 1997 to 9.4% by 2005. China will eliminate all quotas and
discriminatory taxes. And of critical importance, in virtually all
products it will allow both foreign and Chinese businesses to market,
distribute and service their products; and to import the parts and
products they choose.
-- In services, China's markets will open for the full range of
sectors: distribution, telecommunications, financial services,
insurance, professional, business and computer services, motion
pictures, environmental services, law, architecture, construction,
travel and tourism, and other industries. China will participate in
the WTO's newest agreements on Financial Services and Basic
Telecommunications. It will make historic commitments in the
professions, from international law to accounting and management
consulting. In some fields, such as distribution and telecom, this
means the first opening to direct foreign participation since the
1940s.
-- In agriculture, on U.S. priority products tariffs drop from an
average of 31% to 14% by 2004. China will also expand access for bulk
agricultural products; agree to end import bans, cap and reduce
trade-distorting domestic supports; eliminate export subsidies and
base food safety decisions on science.
-- And American workers and businesses will receive stronger
protection against unfair trade practices, import surges, and
investment practices intended to draw jobs and technology to China.
The agreement addresses state enterprise policies, forced technology
transfer, local content, offsets and export performance requirements.
It provides, for a 12-year period, a special remedy to discipline
market-disrupting import surges from China. And it strengthens our
antidumping laws by guaranteeing our right to use a special non-market
economy methodology to address dumping for 15 years after China's
accession to the WTO.
Each commitment is fully enforceable. China's commitments are specific
and detailed; and as a fundamental WTO principle, China must for the
first time publish all its laws and regulations. And WTO accession
will not only case enforcement but give us new tools: in addition to
our trade laws, we will have WTO dispute settlement, periodic
multilateral review of China's adherence, multilateral pressure from
all 135 WTO members, and other mechanisms such as the special
antidumping rules and anti-import surge remedies. We are preparing
now, with the President's request for increased funding for China
compliance and enforcement in his Fiscal Year 2001 budget.
CASE STUDY: THE AUTO INDUSTRY
To illustrate the cumulative effect of these commitments, let me offer
a case study of the present situation and the changes WTO accession
will make for the automobile industry.
At present, a combination of trade barriers and industrial policies
makes it virtually impossible to export cars to China. Last year, the
total was 419 cars, of which 130 were used. This figure is far less
than a single average U.S. auto dealership sells in a year; it is
actually fewer than the 688 motorized golf-carts we sold to China. To
sell in China, therefore, an auto company must build its factories and
hire its workers there; once it has done so, China requires transfer
of technology, requires local purchases for parts, and restricts the
right to market, finance and repair cars. Our bilateral agreement
addresses each of these policies:
-- We reduce barriers at the border, cutting auto tariffs from 80-100%
today to 25% in 2006; forbidding discriminatory value-added taxes; and
raising the current virtually prohibitive quota to $6 billion worth of
autos and then eliminating it entirely within five years.
-- We open distribution markets and guarantee trading rights, ensuring
that firms and dealerships in China can import autos directly from the
United States, auto plants can buy American parts, and Americans can
move their products freely within China to the areas of greatest
demand.
-- We open up services essential to auto sales: China will let auto
firms provide financing, set up dealerships, advertise their cars, and
provide repair and maintenance.
-- We abolish certain industrial policies intended to draw auto
investment, jobs and technology to China: China will abandon
requirements that firms set up factories in China in order to sell in
China, and abolish local purchase requirements and forced technology
transfer as a condition of investment.
-- We strengthen the security of auto production and jobs in the U.S.
with the commitments on market-disrupting import surges and
anti-dumping rules.
-- And we have enforcement mechanisms for all these separate,
overlapping commitments.
Thus, we in essence have a comprehensive agreement on automobile
trade; and we match it, though specific features differ, in every
industry of concern to the U.S. economy: from autos to information
technology, wheat, finance, law, fishery products, pharmaceuticals,
environmental technologies, steel, citrus, telecom and all the way
down the list. Altogether, this will open China to American exports as
never before; it will make China the source of growth and opportunity
for the Pacific region that it should be; and it will place the
capstone on thirty years of American support for reform, opening and
change in China.
Finally, China's entry will facilitate Taiwan's entry into the WTO.
This will have substantial trade benefits, as Taiwan is already a
larger export market for us than China. And the opening of both
economies, while we have no guarantees, may ultimately play some part
in easing the tensions in the Strait. It should thus be no surprise
that Taiwan's new leadership supports both China's WTO membership and
normalized trade between China and the United States.
PERMANENT NORMAL TRADE RELATIONS
And this brings me to the point at which I began, with permanent NTR.
China will be a WTO member soon. There is no question of that. The
only question, ironically, is whether we will receive the full
benefits of the very agreement we negotiated.
By contrast to China's historic set of commitments, our sole
obligation is to grant permanent NTR. In terms of our China policy,
this is no real change. NTR is simply the tariff status we give to
virtually all our trading partners. We have given it to China since
the Carter Administration; every Administration and every Congress
since has reviewed it and found it, even at the periods of greatest
strain in our relationship, in our fundamental national interest.
But the legislative grant of permanent NTR is critical. All WTO
members, including ourselves, pledge to give one another permanent NTR
to enjoy the full benefits of one another's markets. Were Congress to
refuse to grant permanent NTR, we thus risk losing broad market
access, special import protections, and rights to enforce China's
commitments through WTO dispute settlement. Our Asian, Latin American,
Canadian and European competitors will reap these benefits; Americans
would be left behind.
CONCLUSION
That in my view would be an extraordinary mistake. Such a U.S.
retreat, at this most critical moment, would harm every significant
interest we have in our relationship with China. And this is clear
when we ask the most basic questions:
-- Do we benefit from today's relatively open and inclusive world
economy; or were Americans better off with the closed and exclusive
world economy of the 1930s?
-- Are we better off integrating China, Russia, Ukraine and the other
reforming nations into the trading system we have built; or attempting
to frustrate and isolate them?
-- Should we support Chinese economic reform and opening to the world;
or was our interest in a prosperous, stable Pacific better served by
China's isolation in the 1950s and 1960s?
-- Should the United States receive the benefits of China's entry to
the WTO -- or give them to everybody else?
Clearly, we are better off with today's open world economy than the
closed world economy of the 1930s. We are better off integrating
countries breaking with strict communist planning than isolating them.
We are better off with a reforming and opening China than an isolated
and resentful China. And as China will enter the WTO regardless of our
decision, we would simply be foolish to give the benefits of its
accession to our competitors, while punishing our own farmers and
factory workers.
In terms of our economic interests, therefore, to reject PNTR would be
foolish; and as this brief set of questions implies, the damage would
go well beyond economics and trade.
We have concerns and responsibilities towards human rights and the
rule of law in China. In these areas, to reject permanent NTR is to
turn our backs on nearly thirty years of work to support reform,
improve the legal system and offer hope for a better life to hundreds
of millions of Chinese. And it is to give up the hope of contributing
in the future to a China freer, more open to the world, and more
responsive to the rule of law than it is today.
And we have a fundamental national security interest in a peaceful,
stable, mutually beneficial relationship with China. And in this
sense, to reject PNTR would be reckless. No trade agreement will ever
solve all our disagreements, but this will address many of them; and
if we turn down a comprehensive set of one-way concessions, we make a
very dark statement about the future possibility of a stable, mutually
beneficial relationship with the world's largest country.
As the President has said, for every major American trade, economic
and foreign policy interest, to reject PNTR would be to lessen the
chance that China will choose the right path in the years ahead. And
these are the stakes as Congress prepares to vote.
This is why the Administration is committed to permanent Normal Trade
Relations status for China on the basis of this historic agreement.
And this is why it is so important that we succeed.
Thank you very much.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: usinfo.state.gov)