Statement of Sy Sternberg, Chairman, President and Chief Executive Officer
New York Life Insurance Company

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

I'm Sy Sternberg, and I'm Chairman, President, and Chief Executive Officer of New York Life Insurance Company. We are a Fortune 100 company and one of the nation's largest insurance firms. We have operations in all 50 states and overseas through a network of 12,000 employees and 10,000 agents. Our assets under management in 1998 were $122.6 billion and our revenues topped $19 billion.

We are committed to strengthening New York Life's presence in the international marketplace and believe strongly that United States leadership on international trade is essential to achieving our goal. For this reason, I'm honored to be here today to discuss the importance of international trade with China for U.S. insurance companies; our assessment of China's WTO offer; the very significant benefits for the United States once China enters the WTO, and, equally critical, the granting of permanent Normal Trade Relations (NTR) status with China.

The Importance of International Insurance Markets

To appreciate the importance of international trade with China to companies like New York Life, it is critical to understand the nature of the United States insurance business and its trends for the future. We have a very mature domestic market with the vast majority of American families already depending on life insurance to provide economic protection. The most recent data available indicates approximately 85 percent of all married couples in the United States own some form of life insurance to protect their families.

With this level of market penetration and the demographics of our aging population, it's understandable that industry-wide trends for life insurance sales in the United States are modest. For example, the face values of life insurance purchases over the past 10 years have increased only 3.8 percent annually. During this same period, the annual growth in the purchase of individual policies has been just 1.5 percent.

These low rates, combined with flat growth projections over the next 25 years for United States insurance sales, would not allow us to expand our businesses and to strengthen our future financial competitiveness. New York Life, and most other major American insurance firms, must look to the global market to achieve those goals.

That is why after 154 years of successful operations, we are interested in doing business in a country half a world away. New York Life needs to become a significant international player to sustain our financial strength well into the next century.

We are financially well positioned for expansion. In 1998, New York Life had a banner year. We added more than $1.3 billion to our surplus and investment reserves, the largest, single-year increase in our Company's history. With our surplus and investment reserves totaling $7.7 billion, we have one of the industry's highest surplus-to-assets ratios - 8.5 percent. In addition, we were number one in the country in new life insurance sales in 1998.

In addition, we have the core skills needed to build life insurance businesses in emerging, high-growth, foreign markets. Since 1845, life insurance has been our most vital and valued product. It fulfills a unique social responsibility for which there is simply no substitute. New York Life's core competencies - actuarial expertise, underwriting and marketing - are unmatched and will be leveraged in emerging global markets.

The Importance of China as an International Insurance Market

Working from our international base of operations in Argentina, Hong Kong, Indonesia, Mexico, South Korea and Taiwan, we began in 1997 to pursue a number of initiatives to give our Company a stronger international presence. We conducted a comprehensive review of potential overseas markets with emphasis on demographics and market size; competitive intensity of the insurance marketplace; and, the regulatory and political environments. Worldwide, we identified seven countries as having immediate potential for New York Life. China was one of these prime markets.

China is by far the largest insurance market in the world that is currently both closed and under-served. Its demographics of 1.2 billion people - with 26 percent under age 14 and 68 percent ages 15 to 64 - make it the world's premiere market for financial security in the form of life insurance, annuities and pensions. Only 30 percent of the Chinese population currently have any type of life insurance. And while the 1997 per capita GDP was $3,460, the annual savings rate has averaged more than 40 percent. Thus, with more than 20 percent of the world's population, China accounts for less than .02 percent of the world's current life insurance market. Were New York Life to capture just one percent of the potential market in China, we could more than double our existing customer base. And a strong global presence will inevitably enhance our ability to serve domestic markets.

Unlike most of my colleagues here today, New York Life does not currently do business in China. Since 1994, we have been engaged in a series of preliminary steps to demonstrate our qualifications and our long-term interest in the country. We have concluded that our ability to secure a license is considerably increased by China's entry into the World Trade Organization (WTO).

It is within this context that I come before this committee to express my strong support for the completion of the U.S.-China WTO bilateral negotiations, the accession of China to the WTO and the granting by Congress of permanent NTR status to this country.

The Importance of U.S.-China Relations

We fully recognize that this is a critical time in our relations with China. The public policy debate surrounding the aftermath of the accidental bombing of the Chinese Embassy in Belgrade and the release of the Cox Committee report has raised legitimate questions about Chinese intentions and how the United States should interact with the world's most populous nation. Some voices are suggesting that these concerns are reason not to proceed with China's WTO accession. At New York Life we believe these issues should be resolved on their own merits and in their own arenas.

The arena for economic and commercial issues is the WTO. There is no question that it is in America's strategic interest to bring the world's largest emerging economy into the WTO legal framework. The WTO is the foundation of an open, rules-based international trading system, and membership is a privilege not a right. WTO membership requires a country to meet standards of market openness and agree to apply WTO rules, including the rules of dispute settlement. They provide a credible and effective tool to enforce United States rights, backed up by the threat of WTO-authorized sanctions for non-compliance.

WTO accession is America's best means of opening the Chinese market and ensuring the continued development of China's legal infrastructure. It's a vast improvement over our current trade destabilizing approach to gaining market access in China - an approach that relies on piecemeal, bilateral agreements and the threat of unilateral sanctions. It permanently locks China into an open, transparent, non-discriminatory trade regime enforced by dispute settlement procedures.

Reducing the trade deficit and guaranteeing that it lives up to its agreements does not require us to punish China by keeping it outside of the system of global trade rules. As the largest emerging economy in the world, China's integration into the rules-based international trading system is essential to ensuring that it undertakes the obligations and responsibilities of the trading system from which it benefits. Its accession into the WTO's legal framework will create new incentives and pressures for it to undertake economic and regulatory reforms and to abide by international trade rules.

New York Life also maintains that if China and the United States conclude an acceptable accession agreement, we will firmly support the extension of permanent NTR status to it. NTR status is not a favor for China. It simply provides to that country the same treatment the United States offers virtually all of its trading partners. More importantly, the United States will not receive the full benefits of China's WTO market access commitments until it takes this step. WTO accession requires the reciprocal extension of permanent NTR status by the United States and China, and with that reciprocity we can end the need for the divisive annual debate in Congress on NTR status renewal.

The Recent WTO Negotiations

New York Life, like most observers of the China WTO accession process, was discouraged last year when it appeared Beijing was reluctant to make the hard decisions necessary to complete the negotiations. We had hoped the momentum in bilateral relations sparked by the exchange of state visits in October 1997 and June 1998 would create the impetus needed to conclude the decade-long negotiations. But we also had consistently maintained that China should not be allowed into the WTO for political reasons, nor should it be kept out of the WTO solely on that basis.

To ensure the Administration understood our position, the insurance industry developed a priority agenda for the USTR to pursue. We developed this agenda working with the American Council of Life Insurance, the U.S. Chamber of Commerce, the U.S.-China Business Council, the Emergency Committee for American Trade (ECAT), the Coalition of Service Industries and the U.S. Committee of the Pacific Basin Economic Council (PBEC-US).

By working with organizations representing a broader coalition of American trade interests with China, New York Life is confident that the insurance industry's objectives were consistent with the principles sought by other United States industries. These include full market access, national treatment, transparency, and high levels of WTO discipline.

We believed our objectives would enable us to be competitive in China and allow our potential Chinese policyholders to enjoy the full benefits of our insurance products. We also believed and made clear to the Administration and the Chinese that an agreement satisfying one industry, but failing to address the issues of other core industries, such as agriculture or telecommunications, would not win broad support. Finally, we made it a point that negotiations yield immediate real benefits on market access to all sectors of the United States economy.

Ambassador Barshefsky has secured Chinese commitments that, pending WTO accession, will address the great majority of our industry's market access objectives. For example:

Today, New York Life and most other American insurance companies are not allowed access to the Chinese market. The process by which China has awarded insurance licenses has been both unpredictable and non-transparent. But once the WTO agreement is implemented, China will award licenses on the basis of established, prudent and published criteria without imposing an economic needs test. Insurance firms will know in advance the process for securing a license.

Today, insurance firms with licenses in China can pursue business in only two cities - Shanghai and Guangzhou. But once the WTO agreement is implemented, all of China will be opened to foreign insurers by January 2005. In the interim, 24 of our highest priority cities will be opened by January 2003.

Today, foreign insurance firms operating in China are not allowed to offer the full range of their products. But once the WTO agreement is implemented, foreign insurers will be able to sell group life, health and pension lines of insurance by January 2005.

Today, foreign insurance firms in China are limited in their form of ownership and are restricted in their choice of joint venture partner. But once the WTO agreement is implemented, joint venture partners will no longer be narrowly restricted to Chinese insurance companies and foreign firms will be able to select their own joint venture partners. In addition, life insurers will be able to own 51 percent of a joint venture by January 2001 and non-life insurers can have 100 percent ownership by January 2002.

This forthcoming agreement represents an historic breakthrough for the United States insurance industry in China. Did we get everything we wanted as quickly as we wanted it? No. But the nature of negotiations is predicated on compromise, and this agreement is truly a "win-win." American insurance firms will have the opportunity to enter the Chinese market and to compete. Chinese consumers will benefit from this competition and from the wide range of new products and services we will offer. Even the Chinese insurance firms, which have enjoyed the protection of the current restrictions on foreign firms, will benefit from the professionalism and innovations we will bring to their marketplace.

Finally, through its market opening commitments, China is sending a strong signal to foreign investors that it is moving toward the rule of law in trade matters. China's current WTO offer eliminates an array of Chinese barriers and creates new opportunities for American businesses, farmers and workers. China's offer is a comprehensive market opening agreement on agriculture, sanitary and phyto-sanitary barriers, industrial products and services. It has agreed to a series of bold steps including significant and permanent tariff cuts, elimination of most import quotas, application of national treatment, extension of trade and distribution rights, greater access for information technology and telecommunications firms, and resolution of longstanding agricultural disputes over meat, citrus and wheat.

But we face one problem. The incredible progress achieved by USTR cannot begin to be translated into market access for American exports unless and until the United States bilateral agreement is completed and the remaining negotiations on China's accession are finalized. Over the past several weeks, in our meetings with the Administration, Members of Congress and with Chinese officials, New York Life has communicated our clear position that both sides should wrap up the talks on the bilateral market access package as quickly as possible. Otherwise, the concessions gained from China could be lost, the momentum of the negotiating process could be lost, and the Chinese agreement to play by the rules could be lost. Frankly, a great deal is at stake here.

My Company has been actively involved the Business Coalition for U.S.-China Trade. We have also been working with members of Congress to increase understanding of the benefits that would accrue to the United States economy from an agreement. We look forward to working with members, including those of this committee, to develop a broad bipartisan coalition in support of China's WTO accession and extension of permanent NTR status.

Conclusion

We have not adopted our position lightly. New York Life acknowledges the serious issues regarding United States national security, Asia-Pacific stability, and human rights and religious freedom in China. But as I've said, we believe that these issues should be resolved on their own merits, in their own arenas, and that it's a false choice to suggest our relations with China are a zero-sum game.

Few business decisions or life decisions are black and white, and I believe leaders in the business community and the American public will reject this either/or mindset. The choices facing the United States and China are complex and nuanced. Solutions will not be found at the polar ends of the debate.

No matter how strongly some may suggest that American business is seeking profits at the expense of other important American interests, we believe it would be a mistake to turn back the clock on the 25 years of improvements in U.S.-China relations. Major gains have been made on security, trade, nonproliferation and human rights issues precisely because of the engagement policy pursued by all Administrations and Congress since 1973.

Responsible business leaders do not ignore the very real problems between the United States and China. However, we are convinced that problems in one area can - and should - be resolved without damaging our overall relations or undermining our position on issues still in conflict.

The common ground that has been achieved on economic and commercial issues between the United States and China should not be held hostage to other important, but unresolved, issues. Moving forward in areas where both sides can and do agree might well improve the chances of success on issues where agreement has not been reached. In fact, China's accession to the WTO will significantly advance the broader agenda of political and legal reforms which we all want to see in China.

Promoting American values does not require us to cut off interaction with China. Indeed, moving China toward internationally accepted standards of conduct is more likely to be achieved if China is exposed to Western values, ideas and commerce. Such exposure will strengthen further the economic and political forces that are changing Chinese society.

The WTO understanding announced in early April is the culmination of 12 years of hard work and constant pressure. It is not a "political deal" or a gift to China. The concessions are all China's - a fact perhaps not yet fully understood. China will earn its place at the table in Geneva the "old-fashioned way," by providing genuine access to its market and by its commitment to accept the rules and standards of the international trade regime.

There seems little doubt that if we do not conclude the bilateral agreement, prospects for China's WTO membership will fade for several years. The next global trade talks, set to be launched in Seattle next December, would take place without the benefit of China's participation and it would remain outside the system of trade rules for an indefinite period of time.

Finally, we urge members to recognize that even with China's market access offer in place, America's firms, farmers and workers - your constituents - will not reap fully the benefits of the agreement unless we extend permanent NTR status to China.

Thank you.