Statement of George M.C. Fisher, Chairman and Chief Executive Officer,
Eastman Kodak Company, Rochester, New York

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on United States-China Trade Relations and the
Possible Accession of China to the World Trade Organization

June 8, 1999

Thank you, Mr. Chairman; I appreciate the opportunity to speak with you today in my role as CEO of Kodak and as a participating member in the Business Coalition for U.S.-China Trade.

I thought I would use my time to briefly describe why having China as a member of the World Trade Organization (WTO) would be good for the United States and for Kodak. Then I'd like to spend a few minutes answering the arguments of those who have recently suggested that we put our trade relationship with China on ice.

Benefits to the United States

Let me focus immediately on the most important point: the largely-complete WTO market access agreement would be a great deal for America.

In fact in many ways, the draft agreement with China would be a model for other developing countries to follow, and would provide U.S. firms with even better market access than we have in some countries which are already members of the WTO.

To illustrate, consider industrial tariffs, which are quantifiable and therefore easy to measure. Under the Uruguay Round GATT agreements, which Congress passed overwhelmingly in 1994, final average bound tariffs in developing countries like India, Brazil and Indonesia were between 27% and 32%.

Under the draft China WTO agreement, overall average tariffs for industrial goods would be about 10%. That's a two-thirds reduction from current rates, and would put China's tariff average considerably lower than the Uruguay Round commitments of comparable developing countries.

But there is much more to this deal than industrial tariffs. In other critical areas like financial services, telecommunications, distribution and retailing, the China WTO agreement is a model for reform that would open markets, foster change in inefficient state enterprises, and force local firms to meet expanded competition from foreign companies.

Benefits to Kodak

Let me turn to Kodak specifically. Five years ago, China was Kodak's 17th largest market and we trailed Fuji in market share for film and photographic paper. Today, China is our third largest market and may soon pass Japan to be the world's second-largest photographic market. Kodak is now the Chinese market share leader in consumer film and paper, and there are about 4,000 Kodak Express retail outlets in China, with new ones being added every day.

Our growth in China is due in large measure to a $1 billion investment we're making there. In a novel approach to state-enterprise reform that was championed by Premier Zhu Rongji, the Chinese government essentially allowed Kodak to acquire a major portion of its state-owned photographic products industry. We're upgrading the facilities, building new factories, and will soon have the capacity to produce 100 million rolls of film per year in China. Importantly, as we buy and upgrade old state-run factories, Kodak is already making significant improvements in worker safety and environmental compliance.

The proposed WTO deal would help Kodak grow in China even more dramatically in the future, in five important ways:

1. It would substantially lower tariffs on critical input materials that we will export to China, such as raw chemicals and sensitizing emulsions: duties in these areas will drop by about 50% over five years.

2. In important growth areas like digital cameras, China has agreed to completely eliminate tariffs on digital cameras-- going from 45% today to zero by 2005.

3. For the first time, Kodak will be able to provide after-sales service on medical imaging equipment sold to Chinese hospitals, because of China's bold commitments to open its service sector.

4. Our motion picture film business would also be helped by a significant increase in the number of foreign movies that can be shown in China every year... on Kodak print film, of course.

5. Finally, a WTO deal and permanent normal trade relations would stabilize the commercial environment so that our $1 billion investment in the Chinese market can proceed.

I want to emphasize that our Kodak factories in China will be important customers for Kodak exports made in the United States, as we ship raw materials and high-end products to China for finishing and final sale. In 1998 alone, we exported more than $100 million in goods and materials to China, mostly to our own facilities. In fact, about 80% of Kodak's U.S. exports go to our own foreign subsidiaries for finishing and final sale, making Kodak's overseas factories our best customers for Made-in-USA products and materials.

Answering Criticisms of Trade With China

Now, let me turn to the critics of trade with China. In recent weeks, some have said China should not be allowed to join the WTO because of concerns over national security or human rights issues.

We cannot minimize the importance of these issues, which must be addressed as part of the overall U.S.-China relationship. But I believe critics who would link WTO to these issues proceed from a fundamentally flawed assumption. They view WTO membership for China as a reward for improved behavior. That's wrong. China's entry to the WTO is not a reward, but a challenge. WTO membership will require China to make difficult and sometimes painful economic reforms. The hard work is on China's side. The U.S. has to give up very little.

It simply makes no sense to look at WTO entry as a political weapon to pressure China on non-trade issues. Denying WTO membership would only strengthen the hand of those in China who oppose economic reform, who want to protect Chinese industry, or who prefer to isolate Chinese people from Western influences. For China, joining WTO is the hard part. Staying out would be the path of least resistance.

The record of trade with China provides strong evidence that economic engagement produces positive results. China's entry to WTO would accelerate a trend toward market-driven and more open foreign investments--an approach exemplified by Kodak's acquisition of Chinese state-owned assets. Ten years of involvement by U.S. companies in China demonstrates that the presence of American companies helps to improve the living standards of Chinese workers. And American firms bring with them practices that improve China's environment and worker safety. In Kodak's case, we bought very old state-owned photographic plants in Wuxi, Shantou and Xiamen, upgraded them, significantly improved environmental compliance, and recently celebrated 5 million safe work hours at our new plant under construction in Xiamen.

Finally, there are some who argue that China won't comply with its WTO obligations, and therefore shouldn't be allowed in. Well, Mr. Chairman, I have some first-hand experience with countries that skirt their obligations to the WTO, and if this is the chief test for membership we'll have a long list of outcasts. In China's case, there are two important factors to consider. First, China's protocol is already more comprehensive than the existing obligations of some current WTO members. And China's leaders--unlike Japan's--are restructuring their economy with tough actions, not words.

Summary

In sum, Mr. Chairman, getting China into the WTO is manifestly in America's interests. But please remember that the greatest irony would be for the Administration to conclude a China WTO deal, but then see Congress reject permanent NTR. This would deliver all of the market access benefits won by our negotiators into the hands of America's foreign competitors, while leaving American firms and workers standing on the sidelines. With your committee's leadership, I'm confident that the ultimate logic of free trade with China will prevail.

Thank you.