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Weapons of Mass Destruction (WMD)

USIS Washington File

09 May 2000

Text: Treasury Secretary Summers on PNTR to Senate Banking Committee

(Summers cites "crucial advantages" to U.S. of China PNTR) (4570)
U.S. Treasury Secretary Lawrence Summers described to the Senate
Committee on Banking May 9 "three crucial advantages" to be enjoyed by
the United States if Congress votes to grant China permanent Normal
Trade Relations (PNTR) status and welcome China's membership into the
World Trade Organization (WTO).
Summers testified that: 
-- The economic and commercial benefits of granting PNTR are
significant and all on the side of U.S. businesses and workers.
-- There are crucial indirect advantages for the United States in
China's WTO membership in that it will both support the cause of
market reform within China and provide an effective rule-based
framework for future Chinese reforms to take place.
-- A policy of welcoming China into the community of nations -- rather
than being a voice that keeps China out, even when it commits to live
by the rules -- is a policy that supports America's deepest national
security interests and values.
Summers added that the Clinton Administration agrees with Congress
that the United States must place a high priority on pressing for
improvement of China's human rights, religious freedoms, labor rights
and the rule of law.
According to Summers, the Clinton Administration is receptive to
working with Congress to establish certain safeguards as long as the
proposals do not place conditions on PNTR.
"Finding alternatives to the annual NTR renewal process, such as a
[new] Commission [suggested by Congress], to keep a spotlight on these
issues makes sense," he said.
"We agree as well that it is important to have a vigorous program,
both within the United States Government and within the WTO, to
monitor China's implementation of its WTO commitments and to ensure
China lives up to them . . . [and] that we must make clear the rules
and procedures this and future Administrations will employ to
implement the strong import safeguard protections we negotiated,"
Summers said.
Following is the text of Summers' testimony, as prepared for delivery:
(begin text)
TREASURY NEWS
FROM THE OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
May 9, 2000
LS-611
TREASURY SECRETARY LAWRENCE H.  SUMMERS
TESTIMONY BEFORE THE SENATE COMMITTEE ON BANKING
Chairman Gramm, Ranking Member Sarbanes, and Members of the Committee,
I thank you for the opportunity to testify today on what I believe to
be the most important issue that Congress will face this year: the
decision to grant China Permanent Normal Trade Relations, or PNTR.
Last fall, the United States signed a bilateral agreement with China
to bring it into the World Trade Organization, on strong terms that
will open its markets to American exports. After China completes its
agreements with other countries, and completes the multilateral part
of the negotiation, it will join the WTO. But for us to enjoy the full
benefits of the market opening that we negotiated, we must first grant
China the same permanent normal trading status that we have already
granted to every other country with which we share the benefits of the
WTO.
The legislation presently before Congress enables the United States to
grant PNTR to China once it has completed its accession, provided that
it is on terms at least as good as those in our 1999 bilateral
agreement. In fact, the terms can only get better, as we benefit from
all further concessions China makes to other countries.
I will discuss in a few moments the concrete commercial advantages for
the United States of passing this bill. I believe they are enormous.
Moreover, the agreement with China is a one-way street. China opens
its markets to an unprecedented degree, while in return the United
States simply maintains its current market access policies.
It is also important to keep in mind what granting PNTR to China is
not:
This vote is not about whether China will enter the WTO: it will
become a member either way. It is not about whether Chinese producers
will have access to our market: they will continue to be able to sell
their goods in the United States whether or not Congress passes PNTR.
It is not about whether we approve or disapprove of China's human
rights record: we will continue to pursue improvements at the United
Nations Human Rights Commission and other fora, either way. It is not
about China's policies toward the environment: we will continue to
work with China to improve its capacity to protect China's environment
and national resources, either way. It is not about China's policies
toward Taiwan or other strategic issues that concern us: we will
continue to press for peaceful resolution of differences between the
PRC and Taiwan, and to urge China to respect global norms of conduct
in nuclear nonproliferation and other areas, either way.
It is difficult to discern any disadvantage to the United States in
passing this legislation. We will continue to press our full agenda
with China regardless of how Congress votes. And China will open its
markets to other members of the WTO when it joins the system,
regardless of how Congress votes.
There are, however, three crucial advantages to the United States in
passing this bill, which I would like to focus on today:
First, there are the direct and commercial benefits of the market
opening agreement that we concluded last fall. Second, there are the
economic and broader benefits to the United States of promoting
economic and social change in China. Third, there is the ultimate
enhancement of America's national security interests that comes from
integrating China more closely with the community of nations.
I. The Commercial Benefits to the United States of Granting PNTR
First, the economic and commercial benefits of granting PNTR are
significant and all on the side of US businesses and workers. By
passing PNTR, we will be agreeing to continue to grant China the same
access to our markets that its producers currently enjoy. What we will
get in return -- as a result of the agreement we concluded last fall
-- is unprecedented new access to what could ultimately become the
largest market in the world.
I might note that it is evidence of the compelling nature of these
benefits that economists reflecting the full diversity of academic
opinion have been united in their support for the Administration's
approach. On April 25, 138 economists, including 13 Nobel Laureates,
released a joint letter to the American people strongly supporting
China's accession to the WTO on the terms that we negotiated last
fall. It has sometimes been remarked that asking five economists a
question will generate ten different answers. On this issue there has
been only one answer: that welcoming China into the global economic
system is right for the American economy and for the global economy.
The scope of this new access is impressive, with reductions in tariff
and non-tariff barriers on industrial and agricultural goods and the
elimination or reduction of barriers to American service providers:
Chinese tariffs on industrial and agricultural goods will fall by 50
percent or more in the space of five years, along with sharp cuts in
non-tariff barriers to U.S. exports. For example: Industrial tariffs
on U.S. products will fall from an average of approximately 25 percent
in 1997 to 9.4 percent in 2005. In the automobile sector, tariffs will
fall from 80-100 percent to 25 percent by mid-2006, with the largest
cuts in the first years after WTO accession. Quotas on autos will be
phased out. And American auto companies will be allowed to provide
auto financing for the first time. Tariffs on the broad range of
agricultural goods will fall by roughly one half, with larger cuts for
US priority goods. The role of state trading companies will be
progressively reduced, allowing for more market-based trade. This
improved access is expected to result in an increase of $2 billion a
year in our agricultural exports to China by 2005, according to USDA
estimates. In addition, China has committed to eliminate agricultural
export subsidies, which displace American exports to third country
markets, and to reduce domestic agricultural subsidies, which also
distort trade. China will participate fully in the Information
Technology Agreement (ITA), eliminating all tariffs by 2005 on
computers, semi-conductors and other high-tech products -- markets in
which the U.S. is highly competitive. China will also eliminate or
sharply reduce a wide range of crucial non-tariff barriers. For
example, American exporters will be able to import directly into China
themselves, distribute within China, and offer after-sale service in
ways they never could before. With these rights, U.S. firms and
farmers will be better able to sell American-made products directly to
Chinese consumers. China would phase out restrictions in a broad range
of services, including in financial services and other key sectors
where the United States is more competitive. China has agreed to
liberalize international trading rights, and wholesale and retail
distribution services throughout China in three years for most
products. Instead of having to produce in China or import and sell
through a state-sponsored middleman, American businesses will win the
right to distribute goods directly -- goods that are made here at
home. In telecommunications, China has agreed to allow direct foreign
investment for the first time. It will also participate in the Basic
Telecommunications Agreement, accepting pro-competition principles
such as an independent regulatory authority and interconnection
rights. The Chinese market for a wide range of computer, internet and
software services will be opened to American companies, either through
joint ventures or direct service. The opening of the information
technology and telecommunications sectors comes at the same time as
the powerful revolution in information and communications technology
is just beginning in China. American high technology exports to China
grew 500 percent between 1990 and 1998 alone.
In view of the responsibilities of this Committee and the prominence
of financial services during the negotiations, let me elaborate
somewhat on this particular component of China's bilateral accession
agreement.
When implemented, our firms will benefit from commitments in banking,
non-bank automobile financing, and financial information and advisory
services. In banking, for example, China will allow foreign
institutions to establish either as direct branches or 100% owned
subsidiaries without any numerical or geographic limitations. This
particular commitment is comparable to what OECD countries have agreed
to and is superior to the GATS commitments of almost all current
developing country members of the WTO. Given the developing nature of
China's regulatory framework, full access will not be immediate or
come in a single step, but some commitments will take effect upon
accession to the WTO and it will all be in place within five years.
China agreed to such sweeping commitments in these areas because China
will benefit from our firms' presence, too. Chinese depositors and
borrowers will benefit from more efficient financial intermediation
and credit allocation. Chinese financial institutions will learn the
best international practices from our firms in such key areas to China
as credit risk management. World class merger and acquisition advisory
services will permit efficient corporate restructuring.
In insurance, the Chinese market will also be progressively opened
over five years, with the elimination of limits on the number of
licenses for foreign firms and the geographic scope of operations for
foreign firms. In non-life insurance, wholly foreign owned
subsidiaries would be allowed two years after accession.
Their commitments for foreign securities firms are not as sweeping,
but constitute real liberalization from current practice and are a
reasonable start in view of China's situation.
China's capital market is small in relation to the economy and the
government is just now drafting law and regulations to govern it. And
looking forward, China, in the context of our bilateral Joint Economic
Committee, has agreed to consult with our experts on capital market
development issues, including the role of foreign financial services
providers.
In addition to this new access to China's markets, we will benefit
from unprecedented special safeguards and protections to defend
American workers and farmers from import surges, unfair pricing, and
abusive investment practices. No agreement on WTO accession has ever
contained stronger measures.
Notably:
A "China-specific" safeguard that allows us to take measures focused
directly on China in case of an import surge that threatens a
particular industry. This protection, which remains in effect for 12
years after accession, provides stronger and more targeted relief than
our current Section 201 law. Strong anti-dumping protections. The
agreement includes a provision recognizing that the U.S. may employ
special methods, designed for non-market economies, to counteract
dumping by Chinese exporters for 15 years after its accession.
Requirements that China eliminate barriers to U.S. companies that cost
American jobs. For the first time, Americans will have the means,
accepted under the WTO rules, to combat such measures as forced
technology transfer, mandated offsets, local content requirements and
other practices intended to drain jobs and technology away from the
U.S. Moreover, combined with Chinese commitments to open up trading
and distribution rights, these protections will allow American
companies to export products made at home by American workers to
China, rather than being forced to set up factories in China or go
through Chinese government-approved middlemen in order to sell
products there.
We are already preparing for the most intensive enforcement and
compliance effort ever mounted for a single trade agreement. The
President has requested an additional $22 million for new enforcement
and compliance efforts, which will focus in large part on China. The
Administration's aggressive monitoring and enforcement efforts will
include the private sector, other WTO partners, and Congress. For the
first time, China's compliance will be subject to multilateral
enforcement under the WTO dispute settlement mechanism, which will
force China to comply with WTO rulings or be subject to trade
sanctions.
II.  America's Stake in Promoting Successful Market Reform in China
There are also crucial indirect advantages for the United States in
China's WTO membership in that it will both support the cause of
market reform within China -- and provide an effective rule-based
framework for future Chinese reforms to take place.
China has come a long way since the beginnings of market reforms a
little over 20 years ago. Its economy has grown by more than 350
percent in real terms. It has risen to being the 10th largest trading
nation. And the number of Chinese with access to a television has
risen one hundred-fold, to one billion.
This transformation has brought enormous benefits for the Chinese
people. But it has also unleashed new forces for change in the Chinese
economy and society more broadly, forces that the authorities fear
they will ultimately be unable to control. As a result, there are
powerful voices within China today in favor of halting, or even
reversing, the process of economic reforms -- and all that reform
implies.
By supporting China's decision to sign this agreement and enter the
WTO:
We can strengthen the hand of those who favor the reform path, and
make it more difficult for China to turn back the clock. We can also
support the establishment of a rules-based framework for continued
economic reform in China that can support faster growth in
productivity and wages in China -- and thus higher demand for our
products in the future -- and provide a catalyst for broader changes
that will help to promote core American interests and values. As
competition and integration proceed, China will need to become more
market-based; more protective of personal and commercial freedoms, and
more open to the free flow of information and ideas.
The potential economic and broader benefits of supporting the forces
of Chinese reform are evident when we consider the impact on China's
growing technology sector. By the end of this year, some analysts
predict that China will become the world's second largest market in
both telecommunications and personal computers. Last year the number
of Chinese Internet users quadrupled, from 2 million to 9 million. And
this year, it should more than double, to 20 million.
No amount of censorship or monitoring can completely control this
explosion of information.
WTO membership will not only open Chinese markets, but will also
provide China's people with an unprecedented opening to the outside
world. As the President has said: consider how much the Internet has
changed America, which is already an open society, then imagine how
much it could change China.
Already, in the wake of the agreement last fall, there are clear signs
of renewed commitment to reform at the highest levels of the Chinese
leadership, a commitment that is expressly linked to the need to
prepare the economy for tougher competition from the outside world.
The government has stepped up efforts to promote the development of
private firms, the most dynamic sector of China's economy, by
eliminating heavy deposit requirements and other regulations which
discriminate against them and allowing them to list themselves on the
stock market for the first time. People's Bank of China Governor Dai
has pledged to intensify efforts to clean up bad loans within the
banking sector and to enhance competition among banks by permitting
more flexible interest rates. A regulatory overhaul is underway to
level the playing field between foreign and domestic firms in line
with WTO commitments. As the Wall Street Journal reported, even parts
of the economy that the Chinese consider strategically important are
being opened up to the private sector, with individual investors
already dominating the Chinese Internet industry and being allowed
take ownership stakes in domestic banks for the first time.
The need for reform of China's financial sector is particularly
urgent. Well-functioning financial markets can make the difference
between getting a country's savings into high-return investments --
versus tying up those precious resources in moribund state-owned
enterprises. China's large state banks direct about two-thirds of
their loans to state-owned enterprises which in turn produce only
about one third of China's industrial output. Bank staff lacks the
skills and the necessary financial information to assess the
creditworthiness of their clients.
The Chinese government has taken some promising initial steps toward
reform, including the reorganization of the central bank along
regional lines to reduce local political pressure on supervisors, and
the creation of RTC-style asset management companies to deal with
non-performing loans. But China faces significant challenges going
forward in cleaning up the large stock of bad loans and putting
Chinese banks on a sound commercial footing. China's commitments to
opening the financial sector to foreign will help lock in reforms, as
banks accelerate internal restructuring and reform in order to become
competitive. Foreign banks can also be a source of capital, technology
and best practices for domestic banks as they seek to reform.
We recognize that the kind of changes that we seek to support in China
will not happen overnight. In the meantime, the United States will
remain continuously vigilant on human rights abuses in China, and we
will continue to express forcefully our disapproval when such abuses
occur. The Administration already engages the Chinese on this issue
through bilateral channels, monitors the situation continuously and
issues annual reports.
We are, however, convinced that we will have much more positive
influence over China's behavior if we are actively engaged with China,
rather than trying to isolate it. And I might note that a large number
of prominent activists in this area have the same view. For example:
Martin Lee, the leader of the Democracy Party of Hong Kong, has said:
"the participation of China in the WTO would not only have economic
and political benefits, but would also serve to bolster those who
understand that the country must embrace the rule of law."
Dai Qing, a Chinese environmentalist and former prisoner in China,
wrote recently that she believed that: "permanent normal trade status,
with its implications of openness and fairness, is among the most
powerful means of promoting freedom in China." A Chinese dissident,
Ren Wanding, a leader of the 1978 Democracy Wall Movement, sees
Chinese entry into the WTO as "a new beginning."
III. The Broader National Interest In Supporting Greater Integration
of China
Finally, a policy of welcoming China into the community of nations --
rather than being a voice that keeps China out, even when it commits
to live by the rules -- is a policy that supports our deepest national
security interests and values.
Ever since the rise of Assyria and Sparta, emerging economic strength
and major changes in the economic balance of power have raised the
specter of war and conquest. In this century alone we have seen two
World Wars that followed closely on the emergence of major new
economic powers. And the pace of economic change in China over the
past 20 years -- and indeed through much of Asia -- is literally
unprecedented in history, with standards of living for hundreds of
millions of people quadrupling or more in a single generation.
This has so far been achieved with the minimum of conflict, despite
the pervasive rivalries between the peoples of Asian nations, is a
reflection of the progress that has been made across the region toward
openness and integration. And it speaks to the success of postwar
international institutions in helping to cement that progress. But if
the next quarter century in Asia is to be as successful as the last,
it will be crucial that China use its emerging power in a constructive
way, that it fits into the global economic system, and that it
continues to maintain economic growth and stability.
As President Clinton has said, "if we have learned anything in the
last few years, it is that rapidly changing, insecure nations can pose
as a great a challenge to the United States as strong and confident
ones." Our long-term strategy must be to encourage the right kind of
success in China: to help it grow into a strong, prosperous and open
society; to come together not fall apart; and to become part of
institutions that promote our deepest values and interests and can
build mutual trust. And we have a much greater chance of having a
positive influence if we welcome it into the broader global system.
By learning to "play by the rules," both internationally and
domestically, China will strengthen the rule of law, which will enable
it to become a more reliable partner and a fairer society. It can even
lay the groundwork for protection of core values in China, such as
human rights, religious freedom, workers' rights and environmental
protection.
We believe that in a 21st century global economy, China will
increasingly have to recognize that, to maintain stability and growth
at home, it must meet, rather than stifle, the growing demands of its
people for openness and accountability. We must not seek to cut China
off from the economic and broader forces that are most likely to
change it in the right direction.
This is not a policy based on mutual affection. As I said at the
beginning, we can and will continue to express our differences with
China both forthrightly and consistently. Simply bringing China into
the WTO does not guarantee that its government will take a
responsible, constructive course. But it will lead the authorities to
confront that choice sooner, and it will make stronger and more
visible the imperative to make the right choice.
IV.  Concluding Remarks
Mr. Chairman, I have emphasized today three key reasons: the
commercial benefits to the US of this agreement; America's deep
economic and broader interest in China's continuing evolution; and our
deep national interest in a more stable and peaceful global system.
This is why we believe granting China PNTR to be enormously in
America's core interests.
One of the issues at stake is whether the United States will be seen
as embracing the opportunities of the global economy -- or turning our
back. Granting PNTR to China, rather than rejecting it, will be an
important step forward for the open global trading system, which has
contributed enormously to the longest-lasting economic expansion in
our history. This system, and our commitment to it, have provided an
important "safety valve" for the economic pressures generated by our
rapid growth. A vote against PNTR will in effect amount to a vote
against our commitment to this system.
At the same time, as important as PNTR is, we recognize that it is but
one piece in a much larger mosaic as we consider the kind of China we
would like to see -- and the kind of global economic system that we
want to create. The President has called it "the challenge of the
millennial generation...to create a world trading system, attuned both
to the pace and scope of a new global economy and to the enduring
values which give direction and meaning to our lives." If we want this
new global economy to work, we have to make sure it works for people.
And we have to make sure it works to support our deep values.
This imperative will continue to guide our international economic
policy more broadly -- in areas ranging from our support for
international efforts to address environmental problems, to support
for core labor standards. And it can and must continue to guide our
broader policy toward China in the months and years ahead.
In this context, let me say that the Administration believes that the
proposals being developed by Members of Congress are constructive,
address issues of major importance, and we welcome further dialogue on
these proposals among Members on both sides of the aisle.
For example:
We agree that it is a priority for the United States to press for
improvement of China's human rights, religious freedoms, labor rights
and the rule of law. Finding alternatives to the annual NTR renewal
process, such as a Commission, to keep a spotlight on these issues
makes sense. We agree as well that it is important to have a vigorous
program, both within the USG and within the WTO, to monitor China's
implementation of its WTO commitments and to ensure China lives up to
them. And we must have adequate resources to accomplish this. Finally,
we agree that we must make clear the rules and procedures this and
future Administrations will employ to implement the strong import
safeguard protections we negotiated.
The Administration could not, of course, accept anything that would in
any way condition PNTR. However, we are committed to working with
Congress to address these concerns, and are receptive to ideas that
make good substantive sense and can garner broad bipartisan support.
Mr. Chairman, granting PNTR to China represents but one of the aspect
of the relationship with China that we will be pursuing in the years
ahead -- and one piece of the global economic system we would like to
build. It will, however, be an exceptionally important piece -- one
that is fundamentally supportive of our broader long-term economic and
broader national interests.
Indeed, with due respect to all the other issues we work on, I believe
this is the only vote that Congress will take this year that is likely
to appear in a prominent way in history books 25 or 50 years from now.
I look forward to working with this Committee and the Senate as we
work toward the best result on this crucial issue. Thank you.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)



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