Statement of Steve Van Andel, Chairman, Amway Corporation, Ada, Michigan
on behalf of the U.S. Chamber of Commerce

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, for the opportunity to testify today before this Subcommittee on Trade on the critical issue of US trade relations with China. I am Steve Van Andel, Chairman of Amway Corporation, a Michigan-based company known for its quality products and use of the direct selling system that encourages people around the world to succeed by owning their own businesses. Amway has proudly maintained a partnership with its distributors that has enabled the company to grow from a tiny operation in the basement of my father's home into a multinational enterprise with annual retail-equivalent sales nearing $7 billion.

Today, I am appearing on behalf of the US Chamber of Commerce, where I serve as a member of the Board of Directors and have a direct role in shaping the Chamber's international policy positions. The US Chamber is the world's largest business federation, representing more than three million businesses and organizations of every size, sector and region. I am pleased to have this opportunity to present the views of the Chamber on US-China trade relations at this critically important time.

The US Chamber has long supported normalization of US-China commercial relations. The Chamber supports permanent and unconditional extension of normal trade relations (NTR) status to China. We support its entry into the World Trade Organization (WTO) under commercially viable terms. We also advocate the removal of unilateral economic sanctions on China. Those of us who are involved in or associated with the US Chamber believe that a strong commercial foundation will enhance our relationship with the People's Republic of China. Moreover, we are convinced that it will foster cooperation on a range of issues including controls on proliferation of weapons of mass destruction, human rights and global financial management.

Increasing Public Understanding

Before turning to the subject at hand, I want to thank you, Mr. Chairman, for holding this hearing, which affords the American public an opportunity to give due consideration to this critical issue. The Chamber is committed to increasing public understanding of the benefits to the United States of enhanced trade with China. The Chamber is drawing on its state and local chamber of commerce affiliates as well as small- and medium-sized member companies to strengthen public understanding of the importance of our commercial relationship with China.

As part of its education efforts in 1998, the US Chamber issued a report on Small Business Success Stories in China, which highlighted the successes of just a sampling of 30 small US companies that have developed markets for their products in China. This year the Chamber released an educational brochure on US-China issues that explains why stronger relations are in the interest of the United States. The document offers a brief history of trade between the two countries and answers some commonly asked questions about our commercial relationship. That report was sent to each member of the House and Senate, to over 650 state and local chambers of commerce and to selected Chamber member companies small and large.

Greater public understanding about the many facets of our relationship with China is critical to an informed debate on trade policy issues because understanding brings an appreciation of the vast opportunities that exist for US companies and workers. As US manufacturers, workers, farmers, service providers and others learn the extent to which China has offered to open its markets, they have become convinced that China should be admitted to the WTO. Moreover, I can tell you that the US Chamber will campaign to inform the American people that this market- opening agreement is in their interest. I am confident that there will be strong grassroots support for China's WTO accession and for those Members of Congress who back this agreement.

China's Accession to the World Trade Organization

For well over a decade, China has been negotiating to gain admission into the world trading body. Without regard to the length of these negotiations, US and Chinese negotiators agree that significant progress has been made. While differences remain concerning specifics, China has committed to open its markets and abide by the rules of the international trading system that apply to WTO members. These moves are part of the modernization of the Chinese economy and will benefit both the Chinese people and China's trading partners. The Chinese people will find that their economy will become more dynamic and its growth potential will increase. We will benefit because a WTO agreement rooted in commercially viable principles will result in the removal of barriers to US products by lowering tariffs, eliminating quantitative restrictions, opening sectors previously closed to foreign participation and allowing US companies to distribute their goods and to service products after sales throughout China.

The US Chamber believes that the time has come to conclude these negotiations so that US companies can take full advantage of these market-opening measures. We believe that Congress should join with US businesses to press the Administration to move rapidly and complete this agreement before the next WTO ministerial meeting. In our judgment, China's membership in the WTO will ensure that the modernization of its economy occurs in a manner consistent with international norms and standards. If China is not a member prior to the start of the next round of trade negotiations it will be ever more difficult to bring China into this international trading system on mutually acceptable terms. Simply put, there could be no better time than the present to resolve these issues.

Permanent Normal Trade Relations for China

I must stress the importance of pushing this agreement to its conclusion. Permanent NTR status is critically important to securing China's commitments. US companies can only reap the market-opening benefits of this agreement when China is accepted into the WTO. The Congress will then be asked extend permanent Normal Trade Relations (NTR) status to China under standard WTO terms. If the Congress does not permanently extend NTR or normal US tariff levels to China, their government will not be bound to honor its market-opening commitments to the United States. Our competitors, however, will benefit from China's market-access policies.

Last year, the United States exported over $14 billion in goods and services to China. These exports supported hundreds of thousands of jobs in the United States that pay 10 to 15 percent more than the US average. Trade with China also supports tens of thousands of jobs at ports, retail establishments and consumer good companies. While $14 billion in exports is not insignificant, US exports to China can and should be much higher given the quality of our products and China's need for what the United States has to sell. China's membership in the WTO and removal of annual NTR review by Congress will eliminate barriers to US exports and will help improve our trade imbalance with China.

The greatest potential increase in exports to China will be in the agriculture and infrastructure sectors. China is the sixth largest export market in the world for US farmers. That market is expected to grow significantly in the coming years thanks to the bilateral agreement on agriculture that took effect in April. In that agreement, China pledged to use only science-based standards to evaluate agricultural imports from the United States. When combined with tariff cuts pending in the WTO negotiations, it promises very significant opportunities for US farmers doing business with China.

China's market-opening commitments would also increase the likelihood that US companies will benefit from China's massive infrastructure development needs. China is undertaking major infrastructure projects in sectors where US companies are particularly competitive. Given the chance to bid on equal terms with firms from other countries, US companies will be very competitive.

US consumers and small shop owners have much to gain from the increased trade that China's WTO accession and permanent NTR status would likely generate--and also a great deal to lose without that NTR status. Without NTR, tariffs on US imports from China would increase by at least 30 percent and in some cases as much as 50 percent. Based on 1996 import data, these tariff hikes would impose a tax increase of at least $300 on the average family in the United States. This burden would have the greatest impact on low-income and working households who would pay more for consumer goods such as apparel, footwear, and toys. Small and medium-sized US companies selling these goods would also be hard-hit.

Beyond the direct commercial benefits of WTO accession and permanent NTR for China, expanding US-China trade is in our broader national interest. Trade has been a pillar of a relationship that brings together two of the most powerful countries on earth. US-China trade has fostered and accelerated dramatic economic reforms in China. These in turn are generating internal political reforms. By our operations in China, US Chamber members establish benchmarks for corporate practice in such areas as personnel management, corporate citizenship, fairness and equal opportunity. Many members have made their commitments to ethical business practices explicit through a corporate statement of principles. US Chamber members have been and will continue to be forces for positive change in China.

Some critics argue that by extending permanent NTR, the United States ignores China's human rights record. We disagree. Our operations establish standards that Chinese citizens then begin to demand from other employers in China. Removing NTR will not lead to progress on human rights. It would erode our economic relationship, harm the forces in China that are most sympathetic to political reform and isolate Chinese officials who argue for an improved relationship with the United States. The US Chamber and all others who support human rights should recognize that the best way for the United States to promote political reform in China is to maintain a policy of commercial engagement.

It is my firm belief that progress in the area of human rights and democratic reform will be hastened by adherence in China to the rule of law. Moreover, it is the rule of law that ensures that both citizens and business are treated fairly. My company can attest to the fact that China is striving to formulate and apply laws in a manner that is responsive to the demands of its citizens as well as foreign investors.

Amway's Experience in China

Permit me to recount for you our experience in China during the past year, as doing so will provide a vivid example of improvements in the rule of law and the commercial environment for foreign companies that have already been made in China. Amway is one of the largest direct selling companies in the world. We manufacture more than 400 home and personal care products as well as the Nutrilite line of vitamins and food supplements. Amway only sells products through a network of independent contractors who own and operate their own businesses.

We initiated operations in China as Amway (China) Company, Ltd. - or ACCL - in 1995, and soon developed strong business growth and acceptance within the Chinese public. Amway has invested US$100 million in China, making us one of the largest investors in China. Our plant was the first chemical facility in China to be given ISO 9000 certification. By providing business opportunities to Chinese citizens, Amway is helping to meet the country's employment and income needs while training people in basic business skills. ACCL consolidated sales reached US$178 million in 1997 with over half-a-million Chinese distributors.

As Amway began to succeed in China, others tried to emulate our operations and direct selling companies began to proliferate. Although most of these were legitimate operations, several con-artists established operations that included "pyramid" schemes and inventory-loading scams. In April 1998, responding to demands from Chinese citizens who had lost large sums of money in what is called chuan xiao - literally "chain selling" - the Chinese government announced a ban on all forms of chuan xiao in China. Because Amway was licensed under chuan xiao regulations, we were forced to halt operations.

We were told that we could resume operations by opening retail shops. However, because the founders of the company had been distributors, they understood the hard work and effort that goes into building a successful business. They had long operated the company with a pledge to distributors that the company would not compete with them. To "go retail" would have caused the company to break faith with three million distributors around the world.

Amway worked with the Chinese government to explain to officials that a properly regulated direct selling industry could contribute to economic growth without exposing Chinese citizens to fraud. In June, two full months after the ban was imposed, Chinese officials announced new regulations that permitted us to reopen in a manner that allowed us to maintain our obligation to our distributors. Amway was the first company to be re-licensed under these rules. Our business is again growing and we now operate in more than 20 provinces and four direct municipalities in China.

Although this was a difficult challenge, we came away from it with greater respect for and a better understanding of the Chinese government. The government demonstrated that it would respond to the demands of both its citizens and foreign investors. Notwithstanding the sudden imposition of the ban, the process demonstrated a commitment on the part of Chinese officials to the rule of law.

Some critics portray China as a totalitarian dictatorship obsessed with control. Our experience has given us an insight into a far more complex situation. China is striving to adapt to the modern challenges in a way that respects a complicated and conflicted history. In this context, it is possible to work with the Chinese government, provided that you do so with patience, sophistication and respect for internal political priorities. It is axiomatic that all politics is local. Our problem was resolved because the solution was consistent with internal political realities as well as the operational imperatives of direct selling companies. By the same token, we must now proceed to address both the problems and opportunities in US-China relations with patience, sophistication and respect for the political dynamics in China as well as the United States. All of these issues can be resolved in a manner that advances US interests if we remember that the solution must be politically acceptable both here and there.

Current Challenges

Allow me, Mr. Chairman, to say a few words about the recently released report on US national security concerns with respect to China as outlined in the report filed by Congressmen Cox of California and Dicks of Washington. These concerns about Chinese espionage and illegal transfers of US technology are quite grave. We believe that the allegations are the result of a serious investigation and that they should be analyzed carefully. Make no mistake: The business community is strongly committed to protecting US national security interests. Individuals or companies that have compromised our security must be held accountable to existing laws.

The Chamber strongly believes that a healthy and competitive technology industry is essential to enhancing national security. Revisions to our export control regime must be carefully calibrated to ensure that essential and critical technology is safeguarded. Yet, in that regard, we must not allow our reach to exceed our grasp. A control regime that strangles US industry not only saps our economic strength, it wastes precious national security resources on efforts to control technologies that are freely available in the international marketplace. Congress faces a clear challenge: It must strengthen the regime that guards critical technologies while permitting sales of those products that do not put our national security at risk.

Our relationship with China, as with other nations, will always remain dynamic. While there are problems at present, such as the evidence of apparent espionage and the NATO bombing of the Chinese embassy in Belgrade, it is important to note that there are opportunities as well.

I was encouraged by a letter that Senator Max Baucus and 29 other Senators recently sent to the President. The message in that letter was compelling. While the United States must not ignore the challenges of our relations with China, we must examine each aspect of the relationship in an objective manner to determine what is in the best interest of the United States and then act accordingly. The letter concludes that our best interest is served by the rapid conclusion of the WTO talks and extension of permanent NTR status to China. These actions will secure an unprecedented opening of China's market to US agricultural products, services and manufactured goods.

Conclusion

The US Chamber believes we have a window of opportunity to conclude the negotiations on China's accession to the WTO, extend permanent NTR status and secure broader and more consistent access to China's market. As I noted at the beginning of my remarks, these have been longstanding goals of the US Chamber. We believe it would be a tragic mistake to forego this opportunity.

Mr. Chairman, this concludes my formal presentation. Thank you. I would be happy to respond to any questions.