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USIS Washington File

16 May 2000

Text: USTR Barshefsky May 16 Speech on China Trade Status, WTO

(Denying China permanent NTR would be "reckless") (3310)
U.S. Trade Representative Charlene Barshefsky told the Economic
Strategy Institute Annual Conference in Washington, D.C. May 16 that a
vote by Congress to deny China permanent Normal Trade Relations (PNTR)
status would be "reckless" because the United States has "a
fundamental national security interest in a peaceful, stable, mutually
beneficial relationship with China."
Barshefsky explained that if Congress votes against PNTR, it would
mean that the United States is turning down the comprehensive set of
one-way concessions offered by China to become a member of the World
Trade Organization (WTO).
"We not only lose their concrete and immediate [economic] benefit, but
make a very dark statement about the future of our relationship with
the world's largest country," she said.
Barshefsky said a rejection of PNTR would complicate America's Pacific
alliances because countries in the region would view rejection of PNTR
as an unprovoked rejection of stable and constructive relations with
their largest neighbor.
"Over the long term, and perhaps most important, China -- seeing no
economic reason for our decision -- would become more likely to read
hostile intent into our every move; and this in turn would raise the
prospect that our present disagreements and tensions will only
escalate," she added.
To reject PNTR 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," Barshefsky said.
"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," she concluded.
Following is the text of Barshefsky's remarks:
(begin text)
CHINA'S WTO ACCESSION IN AMERICAN ECONOMIC STRATEGY
Ambassador Charlene Barshefsky
U.S. Trade Representative
Economic Strategy Institute Annual Conference
Washington, DC
May 16, 2000
Thank you, and let me thank Clyde very much for this chance to speak
on one of the most important American trade and foreign policy
decisions in many years: China's accession to the World Trade
Organization and permanent Normal Trade Relations status.
ONE-WAY CONCESSIONS
When Congress opens its formal debate on this topic next week, in the
most basic sense it will be addressing a trade policy issue. And in
these terms, the choice is clear.
Our agreement on China's WTO accession secures broad-ranging,
comprehensive, one-way trade concessions on China's part. These
concessions:
-- Open China's markets to American exports of industrial goods,
services and agriculture to a degree unprecedented in the modern era.
-- Strengthen our guarantees of fair trade.
-- Give us far greater ability to enforce China's trade commitments.
-- And facilitate the WTO accession of Taiwan, which has made an
equally valuable set of market access commitments.
By contrast, we change no market access policies -- not a single
tariff line. We amend none of our trade laws. We change 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.
This is the only policy issue before Congress. Regardless of our
decision, China will enter the WTO. Regardless of our decision, it
will continue to sell in the American market. The only question
Congress will decide is whether we will accept the benefits of China's
accession and the agreement we negotiated; or whether by turning away
from permanent NTR, we enable our competitors across the world to get
them while Americans are left behind.
PRINCIPLES OF TRADE POLICY
From the strict perspective of American economic self-interest, there
is little reason to say more. But China's accession also has
implications for many of the broader goals at the foundation of modern
trade policy; and it is on 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."
ACCOMPLISHMENTS OF THE TRADING SYSTEM
Today's World Trade Organization is an attempt to create such an
economy for ourselves and our trading partners. But it is also a
response to challenges that lie beyond economic textbooks. Its roots
lie in the General Agreement on Trade and Tariffs, which dates to
1948; and the GATT in turn reflected the experience of our postwar
leaders in Depression and war.
In the 1930s, they had seen their predecessors yield to a cycle of
protection and retaliation, with the Smoot-Hawley Act in the United
States and colonial preference schemes in Europe, which deepened the
Depression and contributed to the political upheavals of the era.
Eighteen years later, they believed that by reopening world markets
they could restore economic health and raise living standards. In
larger terms, as part of the broader postwar internationalist vision
-- the economic stability fostered by the IMF and the 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, the Rio
Treaty, and our Pacific alliances -- 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 113 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, dispute settlement, agriculture, services, intellectual
property, telecom, information technology, financial services and
electronic commerce. The work 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. And when we step back a
moment, we see its enormous benefit:
-- Growth and Rising Living Standards: The opening of world markets
has helped to spark what is in effect a fifty-year economic boom:
since 1950, trade has expanded fifteen-fold; 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 corners of the world.
-- Economic Security: In the Asian financial crisis, 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 new members, the
trading system has helped us address political challenges fundamental
to world peace and stability. It helped reintegrate Germany and Japan
in the 1950s, and then the nations emerging from colonial rule in the
1960s and 1970s. It has now taken up a task of equal gravity, as after
the Cold War, nearly 30 nations breaking with communist planning
policies have sought WTO membership to reform their economies and
integrate with the world.
CHINESE REFORM AND U.S. TRADE POLICY
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 its revolutionary role 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 years, American trade policy has worked to end this
isolation. Our policies, viewed in detail, have sought to advance
specific American trade interests; 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. Reform has
established an internal market; eroded the repressive 'work-unit'
system that bound workers to particular jobs and factories; reduced
the state's role as an owner and manager of factories; and, over time,
begun to replace 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 -- from the
lifting of the trade embargo in 1972, to our Bilateral Commercial
Agreement and grant of Normal Trade Relations (then MFN status) in
1979, renewal of NTR every year since; and most recently, detailed
agreements on intellectual property, textiles and agriculture. To look
at a case in point, our work on intellectual property rights rests on
commitment to fight theft through piracy of our most creative
industries. But it meant 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 did not exist
before.
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.
In China, they have helped over 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. It has also made China a more integrated, responsible member of
the Pacific community. To choose an example, when the Asian financial
crisis began, 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, in 1997 they were customers who
support Chinese factories and farm incomes, and the investors who
create Chinese jobs. This is the backdrop to China's decision to
maintain currency stability and contribute to recovery packages for
its Asian neighbors during the financial crisis.
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 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 over the same period.
This reflects the fact that reform is incomplete. Some policy legacies
of the revolutionary era remain in force today, and others are only
partly reformed. Beyond the unusual features of the Chinese economy
are more typical trade barriers: high tariffs are joined by an array
of largely secret quotas, and industrial policies that require
investors to transfer technology, purchase parts only from Chinese
sources, and so forth. More generally, the country suffers from poorly
developed market institutions and the lack of a reliable rule of law.
These are barriers to American products, but problems for China as
well. Just as China's external and internal trade barriers block
imports, they also -- as China's senior leaders realize -- lead 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. Our bilateral agreement address each barrier to American
goods, services and farm products, and all the major unfair trade
practices. As it does so, it will help China build an economy
prosperous and open to the world, to its own benefit and that of its
Asian neighbors. These commitments go well beyond removing border
trade barriers, to alter policies dating to the earliest years of the
communist era:
-- For the first time since the 1940s, China will permit foreign and
Chinese businesses to import and export freely from China.
-- China will reduce, and in some cases remove entirely, state control
over internal distribution of goods and the provision of services.
-- China will enable, again for the first time since the 1940s,
foreign businesses to participate in information industries such as
telecommunications, including the Internet.
-- And China will subject government decisions in all fields covered
by the WTO to impartial dispute settlement when necessary.
Each commitment is specific, detailed, and fully enforceable --
through our own trade laws, WTO dispute settlement, periodic
multilateral review of China's adherence, multilateral pressure from
all 135 WTO members, and other mechanisms such as the special
anti-dumping rules and anti-import surge remedies. We are already
preparing, with the President's most recent budget request, for the
largest enforcement effort ever devoted to a trade agreement.
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 relations between China and the United States.
WTO ACCESSION AND BROADER INTERESTS
In economic terms, then, the choice is clear. To enter the WTO, China
makes one-way concessions; if we do not grant permanent NTR, others
will take advantage of them at our expense.
For our trade interest, then, to reject PNTR would be foolish. And
just as the economic merits of the foundation of the GATT were simply
one element in President Truman's broader vision, so today the
economic consequence of rejecting PNTR would be the least of the
damage.
We have concerns and responsibilities towards human rights and the
rule of law in China. Here, many Chinese dissidents and Hong Kong
democratic leaders -- Bao Tong, jailed for seven years after Tiananmen
Square; Ren Wanding, a founder of China's modern human rights
movement; environmentalist Dai Qing; Martin Lee, leader of the Hong
Kong Democratic Party -- believe WTO accession and PNTR are the most
significant steps toward reform and the rule of law in China in twenty
years. To reject permanent NTR is to ignore their views and 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. These will
require patience, statesmanship on both sides of the Pacific, and the
foundation of a stable and mutually beneficial relationship.
But WTO accession, together with PNTR, will address many of them. And
if we turn down a comprehensive set of one-way concessions, we not
only lose their concrete and immediate benefit, but make a very dark
statement about the future of our relationship with the world's
largest country.
Such a statement would threaten our work on all the specific issues in
our China policy agenda. It would complicate for the foreseeable
future our Pacific alliances, as all our Asian friends and allies
would view rejection of PNTR as unprovoked rejection of stable and
constructive relations with their largest neighbor. Over the long
term, and perhaps most important, China -- seeing no economic reason
for our decision -- would become more likely to read hostile intent
into our every move; and this in turn would raise the prospect that
our present disagreements and tensions will only escalate.
CONCLUSION
But if we have the wisdom and confidence to make the right choice,
before us is a remarkable opportunity.
Over three decades, together with our Pacific alliances and military
commitments; in tandem with our advocacy of human rights; and in the
best tradition of postwar American leadership; our China trade
policies have helped us build a relationship with the world's largest
nation which strengthens guarantees of peace and security for us and
for the world. WTO accession, together with permanent Normal Trade
Relations, will be the most significant step in this process in many
years.
Franklin Roosevelt, in his last message to Congress, called the
opening of the negotiations which led to the GATT a chance "to lay the
economic basis for the secure and peaceful world we all desire." We
have such a chance again, more than half a century later, as Congress
prepares to debate China's entry into the institution Americans have
helped to build ever since.
That is the opportunity. These are the stakes as the Congressional
debate begins. 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: http://usinfo.state.gov)



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