COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois E. CLAY SHAW, Jr., Florida NANCY L. JOHNSON, Connecticut AMO HOUGHTON, New York WALLY HERGER, California JIM MCCRERY, Louisiana DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JIM NUSSLE, Iowa SAM JOHNSON, Texas JENNIFER DUNN, Washington MAC COLLINS, Georgia ROB PORTMAN, Ohio PHIL ENGLISH, Pennsylvania WES WATKINS, Oklahoma J. D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ROBERT T. MATSUI, California WILLIAM J. COYNE, Pennsylvania SANDER M. LEVIN, Michigan BENJAMIN L. CARDIN, Maryland JIM MCDERMOTT, Washington GERALD D. KLECZKA, Wisconsin JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee XAVIER BECERRA, California KAREN L. THURMAN, Florida LLOYD DOGGETT, Texas EARL POMEROY, North Dakota
Allison Giles, Chief of Staff Janice Mays, Minority Chief Counsel  SUBCOMMITTEE ON TRADE PHILIP M. CRANE, Illinois, Chairman

E. CLAY SHAW, JR., Florida AMO HOUGHTON, New York DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JENNIFER DUNN, Washington WALLY HERGER, California PHIL ENGLISH, Pennsylvania JIM NUSSLE, Iowa

SANDER M. LEVIN, Michigan CHARLES B. RANGEL, New York RICHARD E. NEAL, Massachusetts WILLIAM J. JEFFERSON, Louisiana XAVIER BECERRA, California JOHN S. TANNER, Tennessee

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisories announcing the hearing

Office of the United States Trade Representative, Jeffrey A. Bader, Assistant United States Trade Representative for China, Hong Kong, Mongolia, and Taiwan

American Farm Bureau Federation, Bob Stallman

Blumenauer, Hon. Earl, a Representative in Congress from the State of Oregon

Brown, Hon. Sherrod, a Representative in Congress from the State of Ohio

Emergency Committee for American Trade, Calman J. Cohen

Pelosi, Hon. Nancy, a Representative in Congress from the State of California

Rohrabacher, Hon. Dana, a Representative in Congress from the State of California

United States-China Business Council, Robert A. Kapp

U.S. Committees of the Pacific Basin Economic Council, Pacific Economic Cooperation Council, New York Life International, and New York Life Insurance Company, Gary Benanav

Wolf, Hon. Frank R., a Representative in Congress from the State of Virginia

RENEWAL OF NORMAL TRADE RELATIONS WITH CHINA

House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.

The Subcommittee met, pursuant to notice, at 2:05 p.m., in room 1100 Longworth House Office Building, Hon. Philip M. Crane (Chairman of the Subcommittee) presiding.

[The advisory and revised advisory announcing the hearing follow:]

Chairman CRANE. If everyone will please take their seats, we will get underway. And our first panel consists of our distinguished colleagues, the Honorable Frank Wolf from Virginia, the Honorable Nancy Pelosi from California, the Honorable Dana Rohrabacher from California, the Honorable Sherrod Brown from Ohio, and our distinguished colleague from--wait a second--Oregon--okay, we got it--Mr. Blumenauer.

I would like to have you proceed in the order that I presented you, and if you will please try and keep your oral testimony to 5 minutes or less, and all written testimony will be made a part of the permanent record. Nancy brought a ton. Thank you. And we will have opening statements.

But before we yield to you, Frank, I want to yield to Sandy here, our distinguished Ranking Minority Member.

Mr. LEVIN. Welcome. I have an opening statement. Mr. Chairman, you don't have one. I think I will read it.

First of all, I want to say, though, welcome to you, to all five of you. This is an issue that all five of us and many others have discussed over the years, and it deserves this hearing, and we are especially pleased that the five of you who have given so much to this issue are here.

About a year ago, many of us thought we would not be here, but since China has not yet acceded to the World Trade Organization (WTO), we are faced with another vote and, as I see it, we should look upon this as an opportunity, not a problem, but an opportunity to assess the state of our economic relationships with China and other relevant issues.

In the past 12 months there has been continuing, indeed often accelerated, change in China. At the same time, in important respects, China has stayed the same. It is important we take note of both.

China has continued to move away from a State-dominated to a free market economy. This has been most true in industrial sectors. Private enterprise is spreading beyond the coastal areas where it earlier gained footholds. The rapid growth of the Internet continues to challenge authoritarian controls. Cracks are even appearing in the complete domination of the State over the legal system. China is witnessing for the first time some successful suits to redress grievances of or injuries to individuals and workers. Earlier this year China ratified the U.N. Convention on Economic and Social Rights.

In striking ways, however, conditions in China have not changed, the State remains a dominant force in the economy. There continues to be a trampling of basic human rights. China has continued its campaign against the Falun Gong movement, including imprisonment and possibly torture of its followers, and many of those followers have died while in State custody. China's repression of Tibet continues. It has detained a number of scholars and American citizens--one goes on trial next week--and it continues to thwart free speech.

It now appears that the key issues relating to China's accession to the WTO have been resolved or are very close to resolution. China's entry into the WTO should accelerate its movement towards a freer economy. Boosted by the recent accords, it should be true in agriculture as well as industry and services. Though the developments of last year provides support for both parts of the basic premise of last year's action on China Permanent Normal Trade Relations (PNTR), the U.S. has no realistic choice but to engage with, but it also must keep pressure on China as to the direction it is taking. That was reinforced by the security issues that figured prominently in our relationship this last year.

As part of the effort to keep the pressure on China, several steps were taken in last year's PNTR legislation. One was establishing a congressional executive commission on the People's Republic of China. This commission should be up and running this month, well before China's accession to the WTO. It will monitor China's compliance with human rights, including worker rights, compile lists of victims of human rights abuses, and monitor development of the rule of law in China. It will release annual reports setting forth its findings, allowing for a full airing of the facts and issues. The China commission must play an important role in the dynamic of engagement with and pressure on China.

As the trade deficit with China has continued to grow and China's competition with American products increases, the commitment which the U.S. obtained with respect to antidumping and the anti-surge mechanism have become more important. In the PNTR legislation we created the toughest anti-surge and anti-trade diversion provisions ever enacted into U.S. law. As I understand it, the most recent round of negotiations have ensured the U.S. right to use its special antidumping analysis against China.

Finally, and crucially important as we move forward in our trading and economic relationships with China, is the issue of implementation. Benefits of expanded trade with China for American businesses and workers could be illusory unless the U.S. remains vigilant, especially because of the weak rule of law structures in China. In the PNTR legislation we inserted various mechanisms to ensure monitoring and implementation. Additionally, the United States Trade Representative (USTR) successfully delivered on an item requested in that legislation, a special annual review by the WTO of China's compliance with its protocol of accession. These annual reviews will go on for the first 8  years after China's WTO accession, with one more review to cap China's first decade in the WTO.

Equally important, and I mention to my colleagues here, will be the implementation, assistance and monitoring that the U.S. will conduct on its own. We must pursue and fund these programs vigorously. I think that last year's China PNTR legislation embodied a right mix of policy. Moving forward we must follow through with each of these policies to ensure that we continue to shape our relationship with China.

Thank you, Mr. Chairman.

Chairman CRANE. I too want to welcome all of our panelists, and this hearing of the Ways and Means Trade Subcommittee is to evaluate our overall U.S. China trade relations and to consider the brief extension of normal trade relations status to help expedite China's imminent succession to the World Trade Organization.

On October 10th of last year, the President signed legislation terminating the application of the 1974 Jackson-Vanik statute which requires the annual consideration of China's normal trade relations, NTR, status. By a vote of 273 to 197, the House voiced its unwavering support on a bipartisan basis for the momentous economic and social reforms taking place in China and committed to extend permanent normal trade relations to China upon its succession to the WTO.

That firm commitment demonstrated this body's overwhelming support for bringing China into the rules-based trading system. Under this deal our tariff on the Chinese imports will not change, while Chinese tariffs on our imports will be sharply reduced. China's succession agreement also requires it to undertake a wide range of market-opening reforms to key sectors of its economy still under State control. Therefore, unlike any other major trade agreement, these negotiations represent a set of one-sided concessions that will grant the United States unprecedented access to China's 1.2 billion customers.

[The opening statement of Chairman Crane follows:]

Chairman CRANE. And with that, then, I would like to proceed, and we will start, as I indicated before, with our distinguished colleague from Virginia, Mr. Wolf.

STATEMENT OF THE HON. FRANK R. WOLF, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Mr. WOLF. I thank you, Mr. Chairman. I think it is time we as a legislative body face reality about the People's Republic of China. We have annually debated trade relations with China. We have heard about human rights abuses, religious persecution, and nuclear arms sales. But sometimes we must get a sense of how Winston Churchill must have felt in the thirties, 1935, 1936, 1937, 1938, when he was talking about Nazi Germany and the world just ignored him, as did the House of Commons.

It has annually been the will of the Congress that we engage in trade with China with the expectation that human rights would improve, but the expectations have fallen short. As we have increased trade, the human rights situation in China has grown worse. For the past 2  years the Department of State's annual report--which very few, if any, people actually read--on human rights in China stated this clearly, and it said, "the Government's poor human rights record has deteriorated markedly," and "the Government's poor human rights record worsened and they continued to commit numerous serious abuses."

Giving China most favored nation (MFN) status hasn't changed for better the lives of thousands of men and women languishing in forced labor prison camps. Human rights violations in China are about people suffering. They are not about trade. Human rights violations in China are about people of faith, people with faith in God, Catholic priests, Catholic bishops, Protestant pastors, all being sent to a dismal prison cell because of their having faith. When China violates its own citizens' human rights, people die. People are put in prison and families suffer.

I recently read, as I think most of the members did, the graphic testimony of a Chinese doctor who participated in the removal of organs and skin from executed prisoners in China. He writes that his work, "required me to remove skin and corneas from the corpses of over one hundred executed prisoners and, on a couple of occasions, victims of intentionally botched executions."

What kind of government skins alive and sells the organs of its own citizens? And the answer is the Chinese Government does.

The Government of China also persecutes and imprisons people because of their faith. The U.S. Department of State recently sent a letter to me on the status of religious freedom, which I enclose for the record.

The letter states: The Government of China persecutes believers of many faiths, including Roman Catholics, Muslims, Tibetan Buddhists and Protestants. It is estimated that some 10 Catholic bishops, scores of Catholic priests and Protestant house church leaders, 100 to 300 Tibetan Buddhists, hundreds perhaps thousands, of Falun Gong adherents, and an unknown but possible significant number of Muslims are in various forms of detention in China for expression of their belief, their spiritual faith.

[The following was subsequently received:]

U.S. Department of State
Washington, DC 20520
May 31, 2001

Dear Mr. Wolf:

This is in response to your request of Acting Assistant Secretary Michael Parmly for additional information during his testimony before the Human Rights Caucus on May 15 on the status of religious freedom in China. We appreciate your concern about the recent deterioration of religious freedoms in China and the large number of persons held in China for the peaceful expression of their religious or spiritual views. We regret the delay in responding to your request for information, but we wanted to provide as comprehensive a list of these individuals as possible.

We currently estimate that roughly ten Catholic Bishops, scores of Catholic priests and house church leaders, 100-300 Tibetan Buddhists, hundreds (perhaps thousands) of Falun Gong adherents, and an unknown but possibly significant number of Muslims are in various forms of detention in China for the expression of their religious or spiritual beliefs. The forms of detention range from de facto house arrest to imprisonment in maximum security prisons. As you know, we regularly raise cases of religious prisoners with Chinese officials both here and in China. Our information about such cases comes from sources as diverse as religious dissidents, human rights NGOs, interested Americans and, most importantly, regular reporting from our embassies and consulates. Unfortunately, the opaqueness of the Chinese criminal justice system and absence of any central system that provides basic information on who is incarcerated and why makes it exceedingly difficult to determine the exact number of religious prisoners currently being held in China. We have, however, attached lists of cases of particular concern that we have raised with Chinese authorities or have included in our human rights and religious freedom reports.

We recognize the importance of compiling and maintaining a database of political and religious prisoners from additional sources such as Chinese newspapers and government notices and appreciate Congressional interest in providing us additional resources to fund such activities. At present, the Bureau for Democracy, Human Rights and Labor is discussing with the International Republican Institute a proposal which will be submitted through the National Endowment for Democracy. This proposal will be for a Human Rights and Democracy Fund grant specifically for the purpose of funding a U.S. NGO's efforts to develop and maintain a list of political and religious prisoners in China.

Such .a database will: be extremely valuable to the human rights work done not only by this bureau but also by other government agencies, the Congress, and NGOS. We welcome your interest in and support of this effort and look forward to cooperative efforts to develop and fund a comprehensive record of religious prisoners in China.

In the meantime, we hope the information in this letter and the attached lists are helpful to you. We would welcome any case information that you might have available that could improve the quality of this list.

Sincerely,

Michael E. Guest
Acting Assistant Secretary
Legislative Affairs

Enclosure:
Listing of Religious Prisoners in China

What kind of government imprisons its nation's religious leaders? The answer is it is China. When China violates its own citizens' human rights, people die, they suffer.

Today is the 150th day a mother and a wife, a permanent resident from my Congressional District, has been in jail, Dr. Gao Zhan. The Chinese Government took her away, has not allowed our government to talk to her, separated her from her 5-year old child, and today we still don't know anything about her.

Successive Presidents and previous Congresses have acted to trade with the People's Republic of China, expecting China's human rights record to improve. After nearly two decades of many different administrations, Republican and Democrat, in which China has received MFN status, it is clear religious freedom and human rights have been given lip service.

It is time to try something new, and that is to link these things together the way that we have in other areas. I don't expect this Congress to do it. I don't expect this administration to do it. And I will predict that human rights in China will continue to get worse and worse and people will be imprisoned and killed for their fundamental beliefs, because they have faith in God and they want to practice it.

And I thank the gentleman for the opportunity, and I yield back the balance of my time.

[The prepared statement of Mr. Wolf follows:]

Chairman CRANE. Thank you. Ms. Pelosi.

STATEMENT OF THE HON. NANCY PELOSI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. PELOSI. Thank you very much Mr. Chairman, Ranking Member Levin, members of the Committee. Thanks for the opportunity once again to talk to you about permanent normal trade relations with China. Mr. Chairman, really in light of last year's passage of the PNTR with China bill, I had hoped that we would not have to proceed with this year's debate. Last year's vote was based on promises, not performances, however. So here we are again.

As you know, we have been coming here year in and year out over the past dozen years. We have raised concerns about the human rights situation in China, China's proliferation of weapons of mass destruction and lack of market access and other trade violations that China was committing vis-a-vis the U.S. We were right. Twelve years have gone by. The human rights situation is worse, and China continues to occupy Tibet, arrest people for their religious and political beliefs, and the list goes on and on. Now it includes arresting Americans, American citizens, and legal residents.

But you mentioned, Mr. Levin, and I believe the Chairman did as well, that the passage of the permanent normal trade relations would help expedite China's entry into the WTO. That was the hope that we all had. We don't want to be proven wrong on that, that this is going to go on and on and on for a number of years before China honors its bilateral commitments and does accede to the WTO.

When we started the MFN debate following the 1989 Tiananmen Square massacre, the reported U.S. deficit for China--that was 1989, but they were reporting the 1988 deficit--it was $2 billion a year. In 2000 the trade deficit with China was $83.8 billion, up from $68.7 billion from 1999. According to the Congressional Research Service, the projected U.S. trade deficit with China for 2000 will be $100  billion. We have gone from a deficit of $2 billion a year to $2 billion a week. Something is wrong with this picture. This policy is not working, just on the basis of trade alone, if you can forget all that Mr. Wolf described in terms of human rights violations, and the proliferation of weapons of mass destruction.

Again, when we started the MFN debate following Tiananmen Square, we were told that trade would improve human rights. Again, the news is bad. According to the State Department's 2000 Country Report on Human Rights, and Mr. Wolf quoted it, so I will just reference that the government has intensified crackdowns on religion and in Tibet, intensified its harsh treatment of political dissent and suppressed any person or group perceived to threaten the government.

The rest I will submit for the record. Tragically, each year this report has essentially documented a continuing deterioration of human rights in China. But every political dissident is either in jail or in exile. Indeed, trade has not improved human rights in China.

When, again, we started the MFN debate after Tiananmen Square, another issue of concern was China's proliferation of weapons of mass destruction. Again, the news is bad, as China has continued to proliferate dangerous weapons of mass destruction to unsafeguarded nations, countries of concern and rogue States, including Pakistan, North Korea, Iran, Iraq, Syria and Libya.

We are having this debate again this year because what we have seen for the past year is a continuation of China's pattern in bilateral and multilateral trade agreements; signing trade agreements and not abiding by them, or removing one set of barriers while erecting another one. Either way the results are the same. No good news.

The most serious stumbling blocks--and I want to just focus now on the trade issues--the most serious stumbling blocks have been negotiations over agricultural provisions and the Chinese Government's insistence that it be treated as a developing country for WTO's purposes, despite the fact that we have been told that China was to enter the WTO as a developed country and the fact that China is the world's 10th largest economy.

I point out agriculture because those were the promises made to so many members, that this was going to open so many markets for U.S. agricultural products. The status of agriculture is of great concern. The U.S. and China on April 10th, 1999 signed the agreement on U.S.-China Agricultural Cooperation to eliminate Chinese barriers to imports of U.S. citrus, meat, poultry, wheat and other grains. The agreement was cited regularly during the PNTR debate as evidence that a new page had been turned in U.S.-China trade.

However, according to the Bush administration, this Bush administration's 2001 Trade Policy Agenda and 2000 Annual Report, "China's compliance with this agreement has been inconsistent and U.S. exporters still do not have the access envisioned in this agreement." The report notes a number of problems, including the implementation of new barriers to poultry imports, the imposition of other WTO-inconsistent restrictions, and measures designed to replace other restrictions removed in connection with our bilateral agreement and WTO negotiations.

I will submit more on that for the record, but I would also like to submit the whole agricultural section of the 2001 Trade Policy Agenda and Report for the record.

Chairman CRANE. Without objection so ordered.

[The report is being retained in the Committee files.]

Ms. PELOSI. Thank you, Mr. Chairman. And I would hope that the members of this Committee, if you have not yet read the China section of the administration's 2001 National Trade Estimate Report on Foreign Trade Barriers, I urge you to do so. The 27 pages on China describe a full range of challenges confronting U.S. goods and services seeking to enter China, such as the installation of new or worsened trade barriers.

Our intellectual property is supposed to be our competitive advantage, but we must confront the fact that the U.S. economy has lost over $15 billion to Chinese piracy since 1995 alone, according to the International Intellectual Property Alliance (IIPA). The IIPA 2001 Special 301 Report documents that piracy rates in China continue to hover at the 90 percent level, reports on an alarming increase in the production of pirate optical media products including DVDs by licensed as well as underground CD plants. More for the record, but I will conclude that section by saying that the report says China has fallen behind in implementing the State Council's 1999 software legalization decree with respect to uses of unauthorized copies of software in government enterprises and business and ministries.

Last year, Congress voted PNTR for China. I hoped, again as I said earlier, that we would not have this NTR debate again. In fact, Mr. Rohrabacher and I were working with Mr. Matsui in the hopes that we would not have to even come to this. However, all that changed with the detention of the U.S. crew and the arrest of at least six American citizens or legal residents. While some in the United States may want to look the other way on China's human rights abuses and proliferation violations, how much longer can we on the trade Committee look the other way or ignore China's violations of trade agreements?

We should use this debate this year--as Mr. Levin had said earlier, this is an opportunity. We should use this debate to focus on why China has not yet acceded to the WTO and how many more years we will have to continue to have this debate until the Chinese Government honors its trade agreements. We owe that to the American people and especially those who wish to export to China.

I don't know how many more people have to be repressed, or how many more years China will have to brutally occupy Tibet, or how many more people will be persecuted for their religious and political beliefs, or how many more Americans will have to be arrested in China to get the attention of the Committee, but I hope it won't be too many more.

Thank you again, Mr. Chairman, Mr. Levin, members of the Committee, for the opportunity to present my views, and I am submitting that for the record. Thank you for receiving it. Don't forget to read this book. Thank you very much, Mr. Chairman.

Chairman CRANE. Thank you. And one consolation with regard to the annual renewal, as I think the concessions made at the most recent negotiations in the agriculture area will mean that this is our last time to have to go through it.

Ms. PELOSI. I hope so.

[The prepared statement of Ms. Pelosi follows:]

Chairman CRANE. And with that, Mr. Rohrabacher.

STATEMENT OF THE HON. DANA ROHRABACHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. ROHRABACHER. Thank you, Mr. Chairman. As we discuss this issue, I think we all should think about what happened just a few months ago. A few months, ago this very same government that we are now suggesting should have normal trade relations like any other government, forced an American aircraft out of the sky in an attempt to murder the 24 military crew members--but they survived. And then those 24 military crew members were held hostage for 11 days.

You know, this is the government that we want to have normal trade relations with? This is an insult to the American people, it is an insult to our standards, and it is especially a slap in the face to those people in our military who we expect to defend us against this monstrous threat. And it is a monstrous threat.

Communist China is America's most potential adversary and enemy in the future. We all know that. Nobody is saying it, but we all know that. This is like--we mentioned Nazi Germany before and the things that were leading up to the war in Nazi Germany. IBM and a lot of other major corporations were making a lot of money dealing with Nazi Germany. They, too, were major human rights abusers, but our trade was going to make it better. Let's give the Nazis the Olympics, for example.

There are a lot of historic parallels here, and I know a lot of people, after we found out what Nazi Germany was all about and after we suffered because of the consequences of the West's absolute indefensible strategy against the Nazis, what happened? There was a lot of people who sort of brushed that aside. Well, no, we made some very serious errors in our dealing with tyrannical threats to America and to the West in the 1920s and 30s and it led to World War II.

We are making those same mistakes right now with Communist China. We should not be treating Communist China the same way we treat our democratic friends. I believe in free trade, but free trade between free people. If we extend normal trade relations to a regime like exists in Beijing, they would look at that as a sign of weakness.

And what are they doing with that $80 billion surplus that we are permitting them to have? You know, we are setting up the rules here. What are they doing with the $80 billion that they make off the trade surplus of the United States? Well, they are beefing up their military so it makes them easier to knock American military aircraft out of the sky and to intimidate the United States military and to hold our people hostage. Is that what we want? And by the way, this isn't about free trade. This isn't about free trade with China at all.

What does normal trade relations really mean when it comes  to what we are discussing today? What it means is that China is eligible for subsidies from the Import-Export Bank. What we are talking about today isn't free trade or capitalism. What it is talking about is making the American taxpayer eligible to subsidize to the Export-Import Bank through subsidized interest rates on the loans, or actually subsidizing guaranteed loans to companies who want to close up in the United States and set up factories in this military dictatorship in order to use and exploit the slave labor in China.

Is that what we want? Is that what the American people want? We want to encourage, we want to subsidize American business to go into a Communist dictatorship and set up their businesses there, to exploit the slave labor there? I don't think so. I don't think that is moral, I don't think it is leading America in the right direction strategically, and it is indefensible.

All along we have been told if we do this just a little bit more, let's subsidize our big businessmen to set up their factories in China through the Export-Import Bank, and you know what will happen? Once they have more economic interaction with us, it is going to liberalize their country. It is not liberalizing their country at all. As we speak, they are murdering members of the Falun Gong, which is nothing more than a little religious cult that believes in yoga and meditation, and they are murdering these people. There was a report that 10 more of them died in captivity, some of them women, after they were tortured by the Government of Communist China.

No, it is not getting any better in China. It is getting worse in the United States. Our immoral relationship with this Communist dictatorship is lowering our standards. It is not raising their standards. We now just shrug our shoulders. We let them get away with shooting down our airplanes or holding our people hostage. We let them get away with these things. Why? Why, because there are some people in this country who are making a lot of money, that are billionaires who are making money by exploiting the slave labor in China. And what is worse, this bill that we are talking about will permit those billionaires to get government guaranteed loans to set up their factories there. That is what this is all about. And it is a shameful thing, and it was a shameful thing when that happened with the Nazis in the 1930s, and I can assure you when the historic record is clear, there are going to be many Americans who are ashamed of this policy as well.

We need to stand up for what our Founding Fathers meant America to stand up for. We are not a country of people just coming here to make a fast buck. We are here to stand for freedom and justice, with liberty and justice for all. And not only do the Chinese persecute their own people, but right now they have a number of American citizens, who are legal residents from our country, under their control and being held hostage. How can we even seriously consider giving normal trade relations to a country that is holding our own people hostage like that?

I cannot more emphatically say this should be denied, and I am very proud to be the author of the denial of the President's request to extend the Jackson-Vanik provision on trade of the Trade Act of 1974. Communist China is not a country that deserves this. Thank you very much.

Chairman CRANE. Thank you, Mr. Rohrabacher.

[The prepared statement of Mr. Rohrabacher follows:]

Chairman CRANE. Mr. Brown.

STATEMENT OF THE HON. SHERROD BROWN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. BROWN. Thank you, Mr. Chairman, for the opportunity to join you today. Thank you, Mr. Levin, the Ranking Member.

We as a Nation ignore the abuse of human rights in China when we devalue the principles on which our democracy is built. Based upon his first 6 months in office, President Bush has yet to make this connection.

As we seek to encourage democracy throughout the world, we should not create a double standard by overlooking human rights violations and ignoring efforts towards peace. Each year, as Mr. Wolf and Ms. Pelosi pointed out, China's human rights record gets worse. The State Department's recent human rights report cites crackdowns by China on freedom of speech, on freedom of belief, on freedom of association. And the Hainan incident in March further demonstrated the aggressive posture China has chosen to take with the U.S. and with the international community.

Since 1994 when human rights were delinked from the requirements of MFN, China's tolerance for individual freedom has deteriorated severely. Yet our response has been to reward China by importing more goods and by passing permanent normal trade relations. Last month, President Bush asked Congress to extend China's MFN status. This step allows the world's most notorious human rights abuser to maintain its strong trade advantage over our country.

As China's human rights practices spiral downward, the U.S. trade deficit with this country is exploding upward. During the weeks approaching the vote for PNTR for the People's Republic of China, corporate CEOs in our country flocked to Capitol Hill to lobby for increased trade with China. They talked incessantly about access to 1.2 billion Chinese consumers. But their real interest, as we see, is 1.2  billion Chinese workers. These CEOs would tell you that increasing trade with China will encourage and allow human rights to improve. They will tell you that democracy flourishes with increased free trade, but there is no evidence of that.

In fact, as the last decade has shown, democratic nations in the developing world such as India are losing out to more totalitarian governments such as China, where people are not free and the workers do as they are told. In 1989, of U.S. exports from developing countries, 54 percent of those exports to the U.S. from developing countries came from developing democracies. Ten  years later, only 35 percent came from developing democracies. Among manufactured goods in 1989, 57 percent of manufactured goods coming from developing countries, 57 percent came from developing democracies. Ten years later, only 35 percent came from developing democracies.

As U.S. business leaders tell us that they prefer democracy, Western investment, clearly the evidence shows, prefers totalitarianism. They choose China and Indonesia and Burma over Taiwan and India and South Korea. Corporate America wants to do business with countries with docile workforces that earn below-poverty wages and are not allowed to bargain collectively. Western corporations want to invest in countries that have below-poverty wages, poor environmental standards, no worker benefits, and no opportunities to bargain collectively.

As developing nations make progress towards democracy, doing what we hope they do as they increase worker rights and create regulations to protect the environment, the business community, the Western business community, the American business community, punishes them by pulling its trade and investment in favor of other totalitarian governments.

In China's case, decisions about the economy are made by three groups: the Chinese Communist Party; the People's Liberation Army, which controls a significant amount of the businesses and export to the U.S.; and, third, Western investors.

Which of these three wants to empower workers? Does the Chinese Communist Party want the Chinese people to enjoy increased human rights? I don't think so. Does the People's Liberation Army want to close the labor camps? I don't think so. Do Western investors want Chinese workers to bargain collectively? I don't think so. None of these groups has any interest in changing the current situation in China. The People's Liberation Army, the Chinese Communist Party, and Western investors, all three profit too much from the status quo to want to see human rights and labor rights improve in the People's Republic of China.

Congress should not tolerate the working conditions that exist in Chinese factories. Congress should care about how American corporations are behaving outside the borders of the United States. For all of President Bush's military posturing over the Taiwan Strait, he has chosen not to address the blatant violations of human rights within the People's Republic of China. We must, as Mr. Rohrabacher said, do more than call upon the People's Republic of China to end its human rights abuses. We must demand it of them.

I thank the Chairman.

Chairman CRANE. Thank you, Mr. Brown.

Chairman CRANE. Mr. Blumenauer.

STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON

Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate the opportunity to join with you. I appreciate the leadership that you and Ranking Member Levin and the members have taken in this important area.

Last year, Congress overwhelmingly made a difficult decision that we were going to follow the path of engagement with the Chinese by voting to approve China's admission to the WTO and extending permanent normal trade relations. In so doing, the Majority of Congress and the leaders of both parties aligned themselves with the forces of change and reform in China. I have in my formal statement statistics about the impact that this trade has for my State and for the country.

But economics are only part of the issue. Just because Chinese accession has taken longer than we anticipated, we are back again for the need for the last annual extension; and we need to focus on the big picture as we continue the roller coaster relationship, although nothing fundamentally has changed.

China continues to be ruled at the top by party and military leaders who are threatened by China's engagement with the United States and the broader world. These leaders fear the restructuring of the Chinese economy and the resulting social, economic, and communications changes that would weaken their grip on the Chinese population. The distance that China has traveled from the butchery and starvation of the Great Leap Forward, and the chaos of the Cultural Revolution is significant.

Yet my colleagues are correct. There are serious problems. China's human rights record is atrocious, and we need to continue to shine the light on the behavior of the Chinese, and engagement with the WTO provides us with an excellent vehicle to do so.

These forces of repression fear further penetration of the Chinese market by foreign economic powers, especially the United States. Tearing down economic barriers that would permit us to trade effectively could have a destabilizing effect on the repressive regime, and our failure to move forward would play on the other forces that are strengthening a new generation of entrepreneurial spirit, provincial and municipal leadership, and new business partnerships.

I think a classic example happened earlier this year when there was the explosion we are all familiar with in the fireworks factory where young children were being forced to assemble firecrackers, as young as third- and fourth-graders in a school. The official Chinese line was that some mad bomber had come into the school and detonated this explosion, but within hours the truth was out through the magic of e-mail. The Chinese Premier was forced to acknowledge that it was an accident at a school-based factory that employed child labor to build fireworks.

I think this is symptomatic of the forces of change that are at work in that country.

Failure for us to renew our normal trading relations would be a serious mistake. For us to reverse course now would have an extraordinarily destabilizing effect on our relationship with China, and economics would be the least of our worries at a time when we are attempting to reduce the tension between the two countries. It would be a gratuitous and unfortunate escalation of pressures on our side which would frustrate, perhaps infuriate the Chinese, confound our allies, and delight our business competitors.

History suggests it will not have the impact desired by opponents of normal relations with China. It is ironic at a time when we are now inching towards acknowledging our policy of attempting to isolate a much smaller country, Cuba, has been failure. It has only harmed the Cuban people, prolonged the life of the Cuban dictatorship. Had we opened our borders to commerce and interaction, Castro would certainly be less powerful and probably be a thing of the past.

Well, my interest in Congress is promoting livable communities around the United States and around the world. Engagement with China ranks very high on the list of opportunities. If 1.3 billion Chinese develop in patterns like the United States--energy demands, air pollution, disruption of oceans and waterways--the impacts will be devastating. Opportunities through trade and engagement give us a chance to build on a better future.

It is true we have just concluded a difficult period surrounding the incident with the Chinese fighter and the American surveillance plane. I have a slightly different view of that than expounded by my friend from California. But imagine for a moment if the roles had been reversed and it was the Chinese spy plane that was forced to land at military facilities in Anacortes, Washington after spying off the West Coast of the United States. I think we need to take a step back.

China, with all due respect, is not Nazi Germany. We are not at risk from China now in terms of military aggression. We are going to be overwhelmingly more powerful than China 10 years from now, but we can influence the future and the nature of that relationship.

China's behavior does continue to be troubling. The potential is great that frustrations may even escalate in the near term. But we are going to have to be aggressive in our negotiations, vigilant for human rights, the environment, and trade compliance. With China engaged in the WTO, we will have more tools and more allies in the struggle, and I think we are going to get the results that we want much sooner.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Blumenhauer follows:]

Chairman CRANE. Thank you very much. Thank you Mr. Blumenauer. And now I would like to yield to our Ranking Minority Member, Mr. Levin.

Mr. LEVIN. Mr. Chairman, I think I will forego questions partly out of consideration of the time factors of our five colleagues and also other panels. But I do want to say just two things if I might. Number one, to Dana. I don't think one has to agree with an analogy to Nazi Germany to be deeply concerned about human rights and related issues in China. I think we have to be wary of facile historical analogies, but there can be many societies short, and even far short of where Nazi Germany was, for there to be concern on our part about freedoms. And I think China very much fits into that category.

And secondly, I would hope that as you leave, as you will in a few minutes, that no one who is listening in will mistake what is being undertaken here and what is being said here. There may be, and there are, some differences as to how to proceed, but I don't think anybody should be mistaken in thinking that there isn't a deep concern within this Congress about the path that China has been following in terms of basic human rights.

I, for one, don't think there is a one-to-one equation, economic freedom and other freedoms or free economic markets and other freedoms. History has shown that there is no magic connection between the two.

But while there may be some disagreement as to how you proceed, I think there is less disagreement than some people think in this Congress about the importance of the issue and the role that the United States intends to play, surely this Congress, in terms of pressuring for China to follow the path not only of a free economic market but true freedoms all around.

And so while this may be the last annual vote, it isn't going to be the last debate. The commission that was referred to hopefully will be one of the vehicles; but I think in addition, there will be others, including reports to this Congress and discussions within this Congress about these issues.

So we will have a vote this time, and I think Mr. Rohrabacher's proposal will be defeated. But I think the effort to promote China on the path of freedom will not be defeated. I think that is going to very much continue to be a part of the fabric of this institution.

Thank you, Mr. Chairman.

Chairman CRANE. Thank you. And with that, let me express appreciation to all of our colleagues, even though we may have disagreements.

Mr. ROHRABACHER. Mr. Chairman, may I answer the question that was posed?

Chairman CRANE. If the gentleman wants to respond.

Mr. ROHRABACHER. I would agree with my friend that Nazi Germany may not be the best comparison, although there are many other areas of comparison there with the Olympics and the human rights abuses that were going on in the 1930s. But I think there is certainly a comparison with imperial Japan, who was also a major human rights abuser in the twenties and thirties, and was an expansionary power and was a militaristic power in an economic relationship with the United States. And I am not saying that war is inevitable with the Chinese Communists, because that is not the case, but our policies in the 1930s with imperial Japan did not lead to peace, and I just think there is a comparison there.

Mr. LEVIN. Okay. Thank you.

Chairman CRANE. Thank you. And with that, I again express appreciation, and we look forward to working with you folks in the future.

I would now like to welcome as our next witness Mr. Jeffrey Bader who is the new Assistant U.S. Trade Representative for China, Hong Kong, Mongolia, and Taiwan. And Mr. Bader, we again would like to urge you to try and keep all testimony as close as possible to around 5  minutes, and all written testimony, though, will be made a part of the permanent record. And with that, you may proceed.

STATEMENT OF JEFFREY A. BADER, ASSISTANT UNITED STATES TRADE REPRESENTATIVE FOR CHINA, HONG KONG, MONGOLIA, AND TAIWAN, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Mr. BADER. Thank you, Mr. Chairman. I will indeed excerpt my statement and submit the full statement for the record.

Mr. Chairman, I am pleased to appear before this Subcommittee today to discuss the benefits to the United States of renewing normal trade relations status with the People's Republic of China. China's NTR status has wider implications than merely the U.S.-China relationship, as important as that is. My colleagues from the Departments of State and Commerce will discuss with this and other Committees why the granting of normal trade relations status is in the broad U.S. national interest. My testimony will focus on the ongoing negotiations on China's accession into the World Trade Organization and the interplay between that issue and NTR status.

Once China accedes to the WTO, pursuant to last year's legislation, permanent NTR status will become effective for China provided the President sends the required certification to the Congress. This will obviate the need for Jackson-Vanik waiver, annual renewal, and this annual debate. Thus, there is a statutory linkage between NTR status for China and its accession to the WTO.

More broadly, China's accession to the WTO will be a major and direct step forward in advancing some of the objectives that underlie our annual debate on NTR, assuring significantly greater market access for U.S. business, farmers, and ranchers to China's large and expanding market and encouraging the development of the rule of law in China.

The November 1999 U.S.-China Bilateral Agreement on China's accession to the WTO capped nearly 14 years of intense, often difficult negotiations. It provided us with a set of comprehensive, verifiable and, as you said in your statement, Mr. Chairman, one-way trade concessions that substantially open China's market across the spectrum to U.S. goods, services, and agriculture. I want to acknowledge the tremendous efforts of Ambassador Barshefsky in achieving this result and note the bipartisan support for that agreement and for the steps we have taken since.

This Subcommittee is familiar with the details of our bilateral agreement and there is no need to review them today. My written statement does review them. I will dispense with them today.

In addition to improved market access, China has agreed to change practices that have made it difficult for U.S. companies to do business in China and hindered the developments of China's economy as well. These broad-based reforms include commitments to greater transparency in the operation of China's trade regime. Laws, regulations, and other measures will be published before they are enforced, and interested parties will have an opportunity to comment on the provisions before they are implemented. Administrative actions relating to trade matters will be subject to judicial review. Beijing has been systematically reviewing and revising or abolishing laws and regulations inconsistent with WTO requirements.

The 1999 agreements did not mark the end of China's WTO accession process. Still to be completed was the negotiation of the multilateral documents essential to the accession package--the Protocol of Accession and the Working Party Report. These documents describe how WTO rules will apply to China and how China intends to implement the commitment it is undertaking. It is principally these negotiations that have occupied Ambassador Zoellick and our delegation, first in Shanghai last month and most recently at the Working Party meeting in Geneva last week.

In Shanghai, Ambassador Zoellick negotiated the following improvements in China's accession package:

First, an agreement on agricultural domestic support that limits China's recourse to provisions of the WTO Agreement on Agriculture to levels below that available for developing countries.

Second, a commitment from China to assure that its restrictions on chain stores do not inappropriately restrict the right of American retailers to operate fully-owned distribution outlets.

Third, a commitment from China on how it will allow foreign companies, including those from the United States, to export to China on a nondiscriminatory, nondiscretionary basis without burdensome requirements.

And, fourth, several improvements in access to the insurance market of China.

In Geneva this past week, we obtained multilateral endorsements of these achievements. In addition, we achieved international consensus on Working Party provisions on numerous issues crucial to assuring market access and fair trade with China.

Just a few additional points about China's WTO commitments:

First, they are effective immediately upon accession. Most will phase in. Some will be effective on day one. Most will phase in in 3 years, and then virtually in all cases in 5 years.

Second, the agreements are enforceable. We will enforce them through our trade laws, WTO dispute settlement processes, as necessary, and other mechanisms including an annual multilateral review of China's implementation and compliance for 8 years, with an additional review in the 10th year.

Third, the agreement helps ensure that trade with China does not injure U.S. industry and workers. The special antidumping provision we negotiated allows us to use nonmarket economy methodology in judging prices of imports from China for 15 years. The special safeguards provision and the procedures in our PNTR legislation allows the U.S. to act quickly to address rapidly increasing imports from China.

And fourth, the increased transparency and accountability that WTO membership and implementation of WTO rules compel will have a positive effect in other areas. The essence of the WTO is that it is a rules-based system that requires its members in turn to play by the rules, with the openness and transparency in rulemaking and rule enforcement I noted earlier.

It appears we are nearing the end game in this accession process. I will be going back to Geneva with my delegation this weekend for another Working Party meeting whose objective will be to produce a completed Protocol of Accession, a Working Party Report with as few unresolved issues as possible, and final consolidated schedules on goods and services. If we are successful, this package will be sent to capitals for review. It is possible that early in the fall, what we hope will be the final Working Party session on China will convene to approve final texts of all these documents.

The full accession package will be reviewed by Ambassador Zoellick and other concerned agencies of the United States Government. After that review, the President will decide whether he can certify to the Congress, as required in the PNTR legislation, that the final package is at least equivalent to the bilateral agreement negotiated in 1999. It is our objective to produce a final package that meets that standard.

If the President is able to produce such a certification and if other countries provide similar approvals, WTO members at a meeting of the General Council, or possibly at the WTO Ministerial meeting at Doha in November, would then approve the terms of China's accession to the WTO.

A final point. We fully expect the WTO to approve Taiwan's accession in the same time frame as China's. As a major player in international trade and a new and thriving democracy, Taiwan deserves membership and a larger role in the international community. We have discussed our expectations on Taiwan's accession thoroughly with all the concerned parties and are confident there is a consensus on this.

If we fail to grant NTR status to China, it is predictable that the WTO accession process I described with its benefits to U.S. business, labor, farmers, and ranchers will grind to a halt.

Without China's accession to the WTO, the benefits of China's commitments in areas such as services and dispute settlements will be unavailable to U.S. companies. All of the tariff and tariff-rate quota concessions will be on hold.

China's accession to WTO will be a benefit to China, of course, but it is not a favor to China. Major beneficiaries will be American companies, workers, and agriculture. It would significantly open the world's most populous country, and arguably the fastest growing economy in the world, to our exporters and service suppliers. Renewal of NTR is an essential step toward this objective.

Thank you, and I look forward to your questions.

[The prepared statement of Mr. Bader follows:]

Chairman CRANE. Thank you, Mr. Bader.

At the end of the negotiations in 1999, the Chinese withdrew their commitments on chemical fertilizers. Can you assure me that nothing will be included in the final Chinese Schedule of Commitments, the Working Party Report, its annexes, or the Protocol of Accession that would undermine the market access commitments the Chinese have made to us on fertilizers?

Mr. BADER. Mr. Chairman, these are very important commitments that the Chinese made. They involve tariff-rate quotas which will vastly increase China's imports of chemical fertilizers, including the fertilizers most important to the United States, diammonium phosphate and urea. In addition, there are commitments to open up fertilizer trading to private companies, phased in over the next several years, and this will be a great benefit to U.S. companies.

I take very seriously your comment about assuring that there is no walk-back from these commitments. We do not anticipate such a walk-back, and we will assure there will not be.

Chairman CRANE. I understand that the European Union (EU) has received a preferential market access commitment from the Chinese on fertilizer from this period of time and the time China enters WTO. What is the USTR doing to ensure that U.S. fertilizer exports receive the same treatment as EU exports during this interim period?

Mr. BADER. Mr. Chairman, we noted the commitment that the EU received in their last round of negotiations with the Chinese on chemical fertilizers of interest to the EU--fertilizers that they produce that we do not. We have spoken to the Chinese negotiators. I personally raised this with my counterpart in Geneva last week. We have raised this in Beijing. We have raised this at high levels to assure that before accession, that historic levels of U.S. exports of chemical fertilizers are available. We expect if they are going to treat EU that way they will treat the U.S. that way, and we made that very clear to them.

Chairman CRANE. Thank you, Mr. Bader. Mr. Levin.

Mr. LEVIN. Thank you, Mr. Chairman, and welcome.

Let me just discuss with you a bit the nature of the agreement. As you know, I very much agree that in the negotiations China made some significant concessions. In fact, I think the regimen they have agreed to will have profound impacts on the structure of their economy. The subsidization or nonsubsidization or antisubsidization rules are going to have a very substantial, probably a profound acceleration on what has been started there. So I don't want to minimize the likely impact. As I said earlier I don't think that is an automatic in terms of human rights or the path towards democracy. Clearly there are going to be some major changes in their economy; if not started under the WTO regimen, accelerated. So I don't want to appear to minimize them.

And I think it is also true, what we agreed with China, for example, in terms of distribution, will put the markets in China more accessible to us than they are in Japan. China is going to have to have a more open distribution mechanism than is true of Japan, which remains in terms of distribution, often a closed entity. But I do want to suggest that we try to have some balance in our picture of all of this. And you used a term here, which when it was used by the predecessor administration I objected to also, and that is one-way trade concessions. Because that makes it--sounds like we gave up nothing, and I don't think this is true.

First of all, their going into the WTO structure places impediments or strictures, however you want to put it, or regulations, on how we enforce our agreements and how we carry them out. Also, let me give you a specific example and that is textile and apparel. Now, before China went into, or before they go into the WTO, they don't gain the benefit of the elimination of quotas on textile and apparel in 2005, right? So if they weren't in the WTO, we could impose, outside of WTO's approved sanctions like 201 action--we could maintain a quota on textiles from and apparel from China right. Once they are in, they are going to benefit from that WTO agreement. Am I wrong?

Now, I don't think anybody should fool themselves into thinking that China as a major textile and apparel processor, producer, manufacturer, is going to be a major factor in the American market. It already is, and it will be competing with our producers, but also with producers from other countries. So I just urge that we not undermine the importance of agreements by overstating them, because then it is not believable.

It not believable that China would agree to a one-way deal, is it? I mean, doesn't that sell it short in terms of its wisdom, its intelligence, its whatever you want to call it?

Mr. BADER. I appreciate your point, Mr. Chairman, and I think that the WTO Agreement and Balhall Agreement stand on its own and should not be the subject of exaggerated salesmanship. I certainly take your point. Specifically, on our laws and on textiles, I would say that we will still have the availability, the recourse to appropriate trade laws under the WTO Agreement, 201 safeguards, section 301 of the Trade Act, our antidumping methodology, the antidumping methodology. We will be allowed to treat China as a nonmarket economy for 15 years. We have negotiated a special China-specific safeguards provision which allows us to limit imports from China, uniquely from China, in a way that we cannot do with the rest of the world, if there are surges in certain products. But I certainly take your point.

Mr. LEVIN. And we insisted, some of us, that that special safeguard mechanism in the first instance be negotiated, because we made clear to the Clinton administration in that April period, I forget the year already, that without a special safeguard mechanism a number of us could not support a WTO China Agreement. And then they went back and negotiated it and then we insisted, at first over some resistance, that it be embodied in American law.

So I don't want to sell it short because I think it is important. It does have a time limit. And I think we need to be careful when we describe these agreements that we not so overstate that it isn't one way, it isn't 100  percent, it isn't win-win. No trade agreement of any importance is win-win. I mean, there are winners and losers. It is part of the competitive process. And I just thought in your debut here that I would give you the same treatment I gave your predecessors.

Thanks very much and good luck.

Mr. BADER. Thank you, Congressman. I just want to say this is not my debut here. I stumbled in here once before in a previous hearing, and as I walked in--I was with the State Department at the time--the Chairman, I believe it was Chairman Archer, said is there anyone here from the State Department? And they saw me in the corner and yanked me in to answer some questions then on human rights. But I certainly appreciate the welcome. Thank you very much.

Chairman CRANE. Mr. Houghton.

Mr. HOUGHTON. Thank you, Mr. Chairman.

Mr. Bader, good to see you. I really just have two quick questions. One is about the automotive industry, and the reason I ask this is because it is such an important exporter and importer. As I understand it now, Japan really dominates the export market into China, and we are held back; and we have had certain negotiations, and they have refused to budge on these. I just wonder what is going to happen in the next year, particularly if China accedes to the World Trade Organization. That is question number one.

Question number two, something which hangs over all of us because of the lack of rule of law in China, is the whole question of intellectual property. And if that isn't really resolved, it is sure going to curtail a lot of investment in that country which we could make and want to make.

So maybe you could answer those two questions.

Mr. BADER. Thank you, Congressman. First, on the automobile issue, I would not disagree at all with your characterization of the history of the China market.

Mr. BADER. What we have tried to do in this bilateral agreement and the WTO access is to change that. The historic levels of tariffs on automobiles in China, a couple of years ago when I was dealing with China affairs in a previous job, they were about 250 percent. They have now dropped down slightly below 100 percent, and under this agreement, they will phase out, phase down to about 25 percent over the next 5 years. On auto parts, they will phase down from about 80, 85 percent to about 10 percent.

In addition, one of the things that we negotiated in Shanghai was a commitment to assure that American automobile manufacturers would be able to operate distribution networks in China and to give them direct access to Chinese consumers. Another part of the WTO agreements is a provision that allows automobile companies and nonbanks to provide automobile financing.

So we have taken a number of steps to try to open up the Chinese market, and American companies are starting to take advantage of that. So we are confident that this historic trend that you talked about will change. I know American cars are already very popular in China. I don't want to get into specific brands, but I know that they are favored by many Chinese.

Mr. HOUGHTON. Intellectual property?

Mr. BADER. Rule of law? I'm sorry, the second question was on rule of law?

Mr. HOUGHTON. Intellectual property rights?

Mr. BADER. Okay. Intellectual property rights. Did you ask about rule of law also more generally?

Mr. HOUGHTON. No. Intellectual property.

Mr. BADER. Okay. Intellectual property rights historically has been a problem in China. It has been the subject of not one, but two special 301 actions against China in the last decade. I think there is not much doubt that the authorities take the issue seriously and are taking some steps to deal with it. They have tried to ban the use of pirated software in government offices. They have periodic crackdowns on--they have had crackdowns on factories producing CDs and DVDs, you know, burnings of pirated goods.

But the problems remain serious, particularly in the--I think in the trademark, in the trademark area. The WTO agreement would require Chinese acceptance and enforcement, the so-called "trips" agreement, the trade-related intellectual property rights obligations upon accession. But the magnitude of this problem over the last decade is considerable, and I think it is going to be some time before we see its eradication.

Mr. HOUGHTON. Do you see any movement here?

Mr. BADER. Yes. I think the movement is in a positive direction, in large measure because Chinese companies are beginning to realize that they themselves have a stake in protection of intellectual property in the-- for instance, in the information technology area, the Chinese are very active in production and assembly of software and of telecommunications equipment. And so Chinese companies are now insisting to the government that they have to take seriously the enforcement of intellectual property rights.

I remember Bill Gates' visit to China in the early 1990s in which he made precisely this point, that we would start seeing Chinese improvements in their intellectual property regime as soon as pressure came from within, from Chinese entrepreneurs who demanded it; and so I think that we are getting a confluence of these two streams, of the foreign and the domestic. But still, as I say, it is a substantial problem.

Mr. CRANE. Thank you. Mr. Tanner.

Mr. TANNER. Thank you very much, Mr. Chairman. I just have one short question following really along the lines that you questioned Mr. Bader about.

And thanks for being here. I am told that the EU believes they have an agreement with China for seven insurance company licenses. If that's true, and I don't know if you know that, but if it is, what is the status of United States insurance companies getting like treatment from the standpoint of the market absorbing that kind of commerce?

Mr. BADER. Congressman, I have seen the same reports that you have about the EU. We haven't seen evidence yet that the Chinese are acting upon that so-called commitment, but we have seen those reports as well. I certainly agree with the thrust of your question, which is that if markets--if the market is being opened to our competitors, then our companies need to be in there too.

Right now, there are three American companies. Indeed, the first American--the first foreign insurance company to have a presence in China was an American company. And there are more American companies that are interested in going in, and we will advocate very strongly for their entry to the market.

One of the things that the WTO agreement does is to put in place a requirement that the Chinese provide access for foreign insurance companies, essentially without the kinds of restrictions, without the kinds of bidding wars that have gone on in the past, to do it basically on a prudential basis, to avoid a politicization of the process that historically has been true. But they don't surrender their regulatory rights, and we will have to see how it is implemented.

But we have spent a substantial amount of our time on the insurance issue and trying to assure American access to that market, and I am glad to take your point and to carry that to the Chinese when we next see them.

Chairman CRANE. Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman.

Mr. Bader, thank you for being here. And good luck as you move forward in your position, and let us be as helpful as we can to you as you do so.

Let me ask a question which has, to some degree, I think, left the table of discussion. But I would like to just go back to the act itself that requires us to go through this whole process. One of the conditions is that we take a look at the immigration practices of these countries, and in this regard, we have always waived the immigration condition for China. If the requirement for waiver is that we allow--or the President has the authority to say that the waiver fulfills the national interests and the intent of the act itself, section 402 of the act, and secondly, that we receive assurances that the country in question, in this case China's future immigration practices will substantially lead to an achievement of the objectives of section 402, that in those cases, if those two conditions are met, then the waiver is appropriate.

In the first, whether the waiver is in the best interest and fulfills the intentions of section 402, I am hoping you can give me some sense of how is it we believe that the best interests of section 402 are being met by a waiver; and secondly, if you can give me a response in regards to any assurances that we are receiving from China that they intend to move forward and provide--as I guess the language says, countries' future immigration practices will substantially lead to achievement of the objectives of the section.

And put that in context of the fact that we have U.S. citizens and U.S. permanent residents that are now under arrest and prosecution in China, that we have some 150,000 to 200,000 North Korean refugees in China who are, in many cases, being hostilely returned to North Korea; and finally, the human rights abuses that we know China is committing against its own people, many of whom we--I imagine, are trying to immigrate to other countries, including the U.S.

Give me a sense of why we don't give much attention to that side of Jackson-Vanik in terms of immigration.

Mr. BADER. You know, Congressman, historically, as you know, when Jackson-Vanik was first enacted, China was very restrictive on immigration. It was in the late 1970s that they began to allow a modicum of immigration. And you will remember the famous quotation from Deng Xiaoping to Senator Jackson, the gist of which was, how many Chinese would you like to immigrate to the United States, one million, two million?

However many, I think the point that Deng Xiaoping was making was that the main restrictions on Chinese immigration to the U.S. came from the U.S. side, rather than from the Chinese side.

There were assurances that the U.S. received from the Chinese back in the early days of the waiver process. I have to tell you candidly that I simply don't know what their most--you know, whether earlier iterations have been, you know, repeated.

But the--your reading of the law is very useful. The key point there is not so much whether there is freedom of emigration from China--I would say that there is not--but whether the objective of freedom of immigration is being fostered and will be helped by the waiver. And I think that that has been demonstratively so by the trend in China in the last--in the last years.

Your point about the American citizens who are under arrest, that is a very valid point, a very serious one indeed. As you know, President Bush raised that in his first telephone conversation with President Xiang the other day. And the State Department has raised this in very strong terms in addition to putting into effect a travel warning to the--to Americans about travel to China because of that.

Mr. BECERRA. Do you think that there could be any influence we could exert in the process of trying to complete all of our negotiations with China that can help us on the emigration side, get them to be a little bit more accommodating to those who are wishing to leave--not necessarily am I saying that we are going to accept a whole lot of folks, but just to make the process a little bit more transparent.

It seems to me that at this stage that China, both in terms of immigration and emigration, is causing a lot of folks a lot of heartburn.

Mr. BADER. I think on that point, Congressman, what the future holds is a necessity for us to maintain bilateral and multilateral pressure on the Chinese to achieve that goal. I think, you know, as we have  sort of been--the premise underlying our discussion here, the days of the Jackson-Vanik tool are coming--will be coming to an end once the WTO process is complete, so we won't have that particular mechanism anymore. We will have to put that on our bilateral agenda and talk to our friends about trying to be sure that they raise that as well.

Mr. BECERRA. Mr. Chairman, if I could ask one quick question.

Congressman Brown said something. I couldn't find his testimony to actually be able to quote it again, but he, in essence, said something to the effect that years back we had three-quarters of our trade, or the vast majority of our trade, occurring with foreign countries that were democracies; and in all our years of trying to promote trade with our foreign counterparts, we have actually reduced the number of countries, that we are doing trade with, which are democracies, so that the level of our trade is going more and more to autocracies, to governments with which we probably don't agree.

Can you comment on this? The trend seems to be that as much as American industry says and tries to engage in commerce with countries that are democracies, it seems that, more and more, we are directing our trade to those countries that are less and less democratic.

Mr. BADER. Yeah. I think, Congressman, that without having studies, those statistics--I assume that a good portion of that statistic is due to China, that the mushrooming of American trade with China is the reason that those numbers that the Congressman cited come out that way.

I think it would clearly be a mistake for us to repress our trade with China solely in order to maintain a differential in the statistics, to make the statistics look better. We wouldn't want to use your word, direct--you know, direct our companies to trade only with democracies, particularly since I would certainly contend that the effect of trade on China is a positive one in terms of their evolution if--it does not, as one of the Congressmen said, lead automatically to democracy and freedom, but I think it certainly assists in moving in that direction, as it has historically in other countries in Asia. That has certainly been the trend.

Mr. BECERRA. Mr. Chairman, thank you very much. Thank you, Mr. Bader.

Chairman CRANE. Thank you, Mr. Bader. One final quickie.

As you know, the PNTR legislation contains the sense of Congress that the WTO General Council should consider Taiwan's accession immediately after China's admission. And do you anticipate any possible problems with that?

Mr. BADER. Mr. Chairman, I'm quite confident that will indeed occur. We have made that clear with all of the interested parties. And I repeat "all," that these two should go through in the same session. And what I have heard from all of the interested parties is that that is not a problem.

The Taiwan documents are in very good shape. There is just a little bit of work that remains to be done. And I anticipate finishing that up in the same time frame as we finish up the China report, and I anticipate seeing those two working party reports going to their capitals in the same time frame, in the same session, producing accession.

Chairman CRANE. Very good. And we look forward to both of them becoming members of WTO.

Thank you, Mr. Bader, and we look forward to working with you as we proceed down this positive path.

Mr. BADER. Thank you, Mr. Chairman.

Chairman CRANE. And with that, let me now invite our final panel, Bob Stallman, President of the American Farm Bureau Federation; Gary Benanav--I mispronounced it, I'm sorry--Chairman and CEO of New York Life International; Robert Kapp, President, United States-China Business Council; and Calman Cohen, President of the Emergency Committee for American Trade.

Gentlemen, please take seats, and we will proceed in the order that I called your names. And if you gentlemen also could try and keep your oral testimony as close as possible to about 5  minutes, all printed testimony will be made a part of the permanent record.

And with that, Mr. Stallman, you open up.

STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU FEDERATION

Mr. STALLMAN. Well, thank you, Mr. Chairman, members of the Committee. I am Bob Stallman, the President of the American Farm Bureau Federation (AFBF) and a rice producer-cattleman from Columbus, Texas. AFBF represents more than 5 million  member families in all 50 States and Puerto Rico. Our members produce every type of farm commodity grown in America and depend on access to foreign markets for our economic viability.

I appreciate the opportunity to speak with you today about China trade and the importance of granting normal trade relations to China.

Farm Bureau does support renewal of normal trade relations with China. Strengthening the economic ties with China is in the best interest of our country. Our economic relationship with China is extremely important to the U.S. agricultural sector and will grow even more important once China joins the WTO.

Currently, China is the sixth largest export market for U.S. agricultural goods, exceeding $1.7 billion. Together, China and Hong Kong represent the second largest market for U.S. soybean exports and the third largest market for U.S. poultry meats.

Why should Congress grant NTR to China? At a time when most U.S. agricultural commodities are experiencing the lowest prices in decades, stable access to China's huge market is critical.

Second, good trade relations with China are a necessary condition for completing China's accession to the WTO. The USDA forecasts that China will be the number one growth market for U.S. agriculture exports over the coming decade. We must bring China into the WTO under the terms of the bilateral agreement reached between our two countries.

Recently, the United States and China reached an agreement on domestic support spending that will pave the way for China to join the WTO. We believe it commits the Chinese to a specific domestic support spending level that is fair. The agreement stipulates that China will not be allowed to spend in excess of 8.5 percent of the value of its agricultural production on products and nonproduct-specific domestic support. We preferred 5 percent, as other developing countries use, but in the bigger interest of getting an agreement, we certainly accept the 8.5 percent. And China did waive its right to use other developing country subsidies. Upon entry into the WTO, U.S. farmers and ranchers will be granted significant access to China's market for a number of commodities.

Given today's low prices, access into China's market is critically important for our agricultural economy. The Farm Bureau now looks forward to Congress voting to extend normal trade relations to China. Granting NTR status will continue our existing trade relationship with China without interruption. It is vital that America maintains a stable economic relationship with China and forges ahead in completing China's accession to the WTO.

Equally important, we hope to have China at the negotiating table when a new WTO trade round is launched later this year, so that additional market access can be negotiated for U.S. farmers and ranchers to supply China's growing market.

One often-overlooked fact is that China's access into the WTO is synonymous with Taiwan's accession. Taiwan is an important market for U.S. agricultural exports. It represents our third largest market for coarse grains, fourth for fresh fruit, fifth for soybeans and sixth for red meats. Building on our important bilateral trading relationship with Taiwan is also essential for the future viability of U.S. agriculture.

There are two important issues that must be fully resolved before China is allowed entry into the WTO. First, China must fully implement the bilateral agreement on sanitary and phytosanitary measures affecting U.S. meat, citrus and grain exports.

Second, we understand that China is developing rules that will govern export approval for bioengineered commodities. The potential for China to disrupt the grain trade with these regulations is significant. These regulations must be clarified and ultimately implemented in a manner that is consistent with WTO rules.

In summary, maintaining our current level of exports to China with an eye on sizable increases when China joins the WTO is very important at a time when our agricultural economy needs to be strengthened. Granting NTR status to China is a critical step in this process.

Thank you, Mr. Chairman. I look forward to questions.

[The prepared statement of Mr. Stallman follows:]

Chairman CRANE. Thank you, Mr. Stallman. Mr. Benanav. Did I pronounce it correctly that time?

Mr. BENANAV. You got it exactly right, Mr. Chairman.

Chairman CRANE. Thank you, sir.

STATEMENT OF GARY BENANAV, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, NEW YORK LIFE INTERNATIONAL; VICE-CHAIRMAN, NEW YORK LIFE INSURANCE COMPANY; CHAIRMAN, U.S. COMMITTEES OF THE PACIFIC BASIN ECONOMIC COUNCIL; AND CHAIRMAN, PACIFIC ECONOMIC COOPERATION COUNCIL

Mr. BENANAV. Mr. Chairman, members of the Committee, I am Gary Benanav. I am the chairman and CEO of New York Life International and vice chairman of New York Life Insurance Company.

In addition to my corporate position, I serve as the chairman of the U.S. Committees of the Pacific Basin Economic Council, known as PBEC-US, and the Pacific Economic Cooperation Council, known as US-PECC. While New York Life is a member of the ACLI, I do not appear today on behalf of the ACLI, the American Council of Life Insurers.

I will summarize the remarks which are in my formal statement, which will be made part of the record. Thank you.

I appreciate this opportunity to appear before you on another renewal of China's normal trade relations status. Eighteen months ago the Congress and our Nation debated the granting of permanent normal trade relation status to China. That review culminated with the granting of PNTR status once China accedes to the World Trade Organization.

The PNTR bill was grounded in a negotiated agreement that requires China to open its markets to American exports, thereby giving America the opportunity to improve the trade balance with China; and I would be willing to defend that historic agreement in any boardroom, on any shop floor and on any farm in America.

Mr. Chairman, I strongly supported the passage of PNTR legislation both as a private citizen and as a member of the business community. I continue to support it for the reasons that I am going to outline, and I hope China will become a member of the WTO before the end of this year. But until China's accession to the WTO is finalized, Congress must decide whether to extend the current tariff rates to China.

Every year for the past 20 years, under Republican and Democratic administrations, the United States has faced the decision on extending NTR status to China. Each time Congress supported the continuation of that status, even in years when relations were very strained between the U.S. and China.

I hope Congress will reach the same conclusion again this year. To do otherwise would cause tremendous damage to our own economy, to the economic recovery of Asia and to the stability of international relations. At this important juncture, on the eve of China's entry into the WTO, as you consider the extension of NTR to China, I would like to outline why I believe we should broaden our economic engagement with China and why broader engagement will benefit not only China and the United States, but also the world community.

Mr. Chairman, globalization presents the United States and China an opportunity to cooperate in order to achieve greater overall economic benefits for both countries and increased economic stability for the rest of Asia Pacific. It is in everyone's interest that China's economy grow in a balanced manner, promoting its own internal stability, opening its markets to exports from other countries, and broadening its participation in the global marketplace. China is just at the starting line for creating the conditions necessary to achieve balanced and sustainable growth. The first and foremost requirement is a system of contractual and intellectual property rights that allows people to accumulate capital.

The second requirement is a growing middle class, which will stimulate robust domestic demand, so that China doesn't have to grow its economy solely by expanding exports to the market of its trading partners.

And the third requirement is a broad, privatized financial system which mobilizes savings and channels them efficiently by offering them a range of development options.

The world community has created various institutions and a system of multinational rules based on cooperation. The result is a set of building blocks for a global system that can help sustain and secure economic stability. China needs to have a stake in that global system if it is to realize its full growth potential and expand its domestic consumption.

At the same time, America's interest in a stable world order is best served by having China become more deeply integrated in the international, rules-based trading and financial systems and more dependent on international trade and financial markets. China's growing stake in the smooth operation of a global economic and financial system will act as a strong constraint on China's ability to adopt political or military postures that would have the inevitable consequence of damaging its domestic economic opportunities, or at the extreme, even impoverishing its own people.

Let me talk a little bit about China's domestic political evolution, which has been the subject of a lot of discussion this afternoon. During last year's national debate on trade with China, several commentators predicted that the opening of China's domestic market would inevitably lead to the opening of its domestic political system. I do not believe this is a simple cause-and-effect issue. I agree with Congressman Levin that open economic systems do not, in and of themselves, inevitably lead to open political systems. However, I do believe that without an open economic system there can be no hope of developing an open political system in China.

To shape a stable and prosperous future for China, China has accepted three important realities, which probably would have been considered blasphemy 20 years ago: first, that China must move to a more open, less centrally controlled economy in which the government plays a diminished role in the operation of the market; second, that it must engage actively in the rules-based institutions formed by the community of nations; and third, that it must adopt policies which will develop an educated and robust middle class. All three of these policies will not guarantee, but will enhance the prospects for a more open Chinese political system.

U.S. businesses can continue to support all those efforts to the benefit of both nations. And I believe that the infusion of international standards and values into the Chinese economy will influence the opening of China's political process.

Let me close by emphasizing three points. In the long term, we have to devise a framework for U.S.-China relations that advances our national interest while recognizing that both countries' political and economic security are inextricably linked. Neither China nor the U.S. can succeed with a strategy based on one side winning and the other side losing.

Our near-term challenges are to pass NTR, complete China's WTO accession, monitor China's implementation of its WTO commitment and work with China to build its capacity. And to be successful, we need to establish a domestic and political consensus in the U.S. that trade with China is a win-win proposition, though certain sectors may lose; and economically and politically for the United States, China and the entire Asia Pacific region, economic trade can help solidify the relationship.

Thank you, sir.

[The prepared statement of Mr. Benanav follows:]

Chairman CRANE. Thank you, Mr. Benanav. Mr. Kapp.

Mr. KAPP. Mr. Chairman, thank you for letting me join you again today. It is good to see the stalwarts of this Subcommittee. Am I on or not on?

Chairman CRANE. I don't think--

Mr. KAPP. I am sorry. Now I am. Thank you. It is good to see the stalwarts of this Subcommittee again, hopefully for the last time on this particular subject.

My testimony, as you will see, is largely valedictory. It assumes that we are really at a turning point now, and therefore it attempts to do three things. First of all, in the most sincere way possible it attempts to thank the Committee, and those members who have served on it for all the years that I have been here; for holding these meetings every year and for permitting all of us of different views to touch upon the China we see and the China we think our country needs to work with (or, in some cases, to argue with).

I will regret the passing of this series of hearings, in part because just as they have offered to those who have disagreed with us the opportunity to bring forth concerns of great potency for them, it has given us in the business community a chance to make, as strongly as we could, some points about the essential nature of the economic engagement between our two countries and the importance of that engagement to the rest of our relationship with China. So I want to thank you very much for all of these years of receiving us and treating us so courteously.

Second of all, my testimony is designed to try to urge the Congress, but especially this Subcommittee and the full Ways and Means Committee, to remain engaged on China. We don't need to say that to Congressman Levin, of course, who is one of the architects of the Congressional-Executive Commission on China. But I do think it is very important; as this NTR annual effort seems to be winding down its period of time, that the members of the Subcommittee most concerned with our economic relations with China remain heavily involved on the U.S.-China relationship as a whole. The attention is moving elsewhere. It is moving in directions that in some ways are very, very contentious and potentially historic in their implications for our relationships with China well into the future, but not necessarily on trade and commercial terms. I hope that you will retain your interests in the China relationship as a whole, because there are great challenges, even perils, as well as opportunities ahead of us.

I want to mention just briefly in this informal oral testimony two comments on the testimony of one of the members who spoke earlier. I yesterday received a group of young trainees from the Ministry of Foreign Trade and Economic Cooperation of the People's Republic who are here in this country at their government's expense to train on WTO with some of the best specialists that the United States has to offer, in this case at Georgetown University. We had a great meeting. These are young, highly motivated, very intelligent, interesting people. At the end I said, "Now are there any questions?" The first question was, "Does the trade agreement between the United States and China--the agreement on the WTO accession between the United States and China, which calls for us to lower our tariffs, mean the death of American investment in China?" From the Chinese perspective, the fear is that if they lower their tariffs it will make it easy for American companies to say, "Well, why should we invest over there? We can sell from the United States and get our goods in and sell on the local market without prohibitive tariffs pricing our products out of the market."

So to the argument that as I have heard so often, that the 1999 WTO accession agreement, and the final terms that were negotiated just a few weeks ago by our current trade representative, represent, "not a trade agreement but an investment agreement," designed to take American companies and move all of their production into China, it is interesting to see the opposite concern in Chinese minds, i.e., that if they lower the tax barriers that once priced American goods out of the market, American companies won't bother to invest at all because they can sell into China from production bases in the U.S. or other countries.

And finally, on the matter of Nazi Germany, not only would I associate myself, perhaps more emphatically, with Congressman Levin's remarks, thinking of those who have been victims of Nazi atrocities in the past, but I would also say that historically this analogy is extremely faulty. And in other testimony and in other venues I have noted in the most conservative of intellectual debates, a blistering denunciation of the false analogy between the People's Republic today and Nazi Germany in the period of the 1930s and 1940s or, for that matter, the Soviet Union in the period of the 1920s and 1930s. So I appreciated Congressman Levin's remark on that.

Let me close with one very quick observation, which I have refrained from making in earlier appearances before this Subcommittee.

You know, in Hamlet, Polonius advises his son Laertes, to thine own self be true. While, I think it is legitimate for us to know what we don't like when we see it in China and not to let it go by unnoticed, I believe we must also approach our dislikes with a certain sense of humility. This morning, in two minutes, using a standard internet search engine, I pulled down materials on two events that have gone essentially unnoticed in this country, even though they bear some very significant similarities to the things that galvanize us so about China. One event was the massacre of at least 10,000 people by Chinese armies on Taiwan in 1947, which finally, fully 45 years later, was brought fully to light, to the great credit of the government on Taiwan that had by then come to democratic existence. I leave it to you to look back at the history of whether the United States acted in response to that tragedy in any way comparable to what many have felt the United States must do in the aftermath of tragedies of more recent vintage in China.

The other event, in 1968, on the eve of the Olympics in Mexico City, was also a massacre by the national armed forces, which I know all too little about, but which is now commemorated 30 years later with the beginnings of openings of archives, with the beginnings of revelations as to who put out the orders to shoot and so on. CNN has headlines in its February 4, 1998 story on the search for truth about this tragedy, posts a sub-head: "Pro Democracy Demonstrators Shot in Square."

What I am trying to say here is not that we should not focus on the inequities and the social injustices that we can all see in China. It is to say that somehow, as we look at China and we engage as a body, as a legislative body or as a country with the things that bother us so with the People's Republic, we have to keep tabs on our own reactions to these inequities and tragedies, some of them harrowingly similar to tragedies that have occurred in other countries where the United States in fact has looked the other way, done nothing or found justifications for what transpired.

Now, we could get into a long historical argument here, and if there were other members with different views here I am sure it could get quite colorful as to whether these analogies are perfect or not. What I am  to say is that, now that this session and this series is winding down and we can look forward to new forms of congressional engagement with China, I hope we can somehow balance our belief in the need for intense focus on our bilateral relationship with China with the fact that we deal with political tragedies and human experiences in a wide range of countries with whom we often have very different relations and to whose tumults we often have very different reactions.

I apologize for straying from the field of trade and business on the occasion of this likely final NTR hearing, but this is something that I have felt strongly about for many years, and perhaps this is the moment to try to say something along those lines. Thank you, Mr. Chairman.

[The prepared statement of Mr. Kapp follows:]

Chairman CRANE. Thank you, Mr. Kapp, and hopefully this is the last time that we go through this procedure. Mr. Cohen.

STATEMENT OF CALMAN J. COHEN, PRESIDENT, EMERGENCY COMMITTEE FOR AMERICAN TRADE

Mr. COHEN. Mr. Chairman, Mr. Levin, members of the Committee, I am Calman Cohen, the president of Emergency Committee for American Trade (ECAT), an association of the chief executives of major American companies with global operations. In the view of ECAT members, the annual extension of NTR with China is critical to maintaining commercial engagement with China and to ensuring that America fully benefits from the completion of China's negotiations to enter the WTO. The engagement policy, I hasten to add, is not an invention of the post-World War II era or even the last century. It only resumes the NTR treatment that the United States and China first accorded each other back in 1944. That status was first suspended, or was suspended after a hundred years in about 1951, until China formally enters the WTO. When the President authorizes the extension of PNTR, this Committee, which has played a key role in promoting the engagement policy at the end of the 20th century, will be called upon to reaffirm our longstanding policy of commercial engagement with China.

I am here to ask you to stay the course one more year. Nothing has fundamentally changed since last year's debate. As you have heard already this afternoon, if we look at our primary interest as a nation, commercial, humanitarian, national security, it is clear that continued engagement and an extension of NTR status are in the United States' interest. Make no mistake, commercial engagement, NTR, PNTR, are not panaceas. They do, however, put us on the most productive road to achieving our country's broad interests.

On the other side of the equation is the Disapproval Resolution, H.J.Res. 50. Passage of that resolution will not advance U.S. interests. I will suggest it will undermine them. Terminating NTR with China will significantly harm U.S. commercial interests. For example, the imposition of Smoot-Hawley level tariffs would raise the price of U.S. imports, equaling an approximate $245 tax increase on the average U.S. family. Nor will the termination of NTR with China result in any appreciable improvement in China's respect for human rights. While many of China's domestic policies conflict with our values as Americans, effectively cutting off our commercial relations will not change these policies for the better. Indeed, many of those who have dedicated their lives to promoting reform within China believe that U.S. commercial engagement is one of our best tools for helping to promote our humanitarian interests in China, including greater openness, the rule of law, the respect for human rights and the alleviation of poverty.

Finally, there is the issue of our national security interests. Terminating NTR with China will have significant repercussions throughout Asia that will undermine U.S. interests in the region. Importantly, it could strengthen China's hard-liners, who will cite our termination of NTR as proof of American hostility, and will undermine our ability to use dialogue and other means to promote greater stability and security throughout the region from the Taiwan Strait to the Korean Peninsula.

In conclusion, China's eventual accession to the WTO will not of course be the end of the process as you, Mr. Levin, and others have suggested. China will not magically be transformed overnight or in a year. We must work on the ground in China to promote the change that China's WTO accession promises. We will also need your help, with that of the administration, to ensure that China fully implements its commitments.

In particular, it will be critical to fund fully the commercial, labor, legal system and civil society programs that were promoted by Congressmen Levin and Bereuter and authorized by last year's U.S.-China Relations Act. We strongly support also full funding for the efforts of the U.S. Trade Representative and the Department of Commerce to monitor and ensure full implementation of our trade agreements.

In sum, renewal of NTR with China and the rejection of H.J.Res. 50 will continue the policy of commercial engagement that has benefited the United States not only in the last quarter century, but also since our original agreement with China on NTR in 1844. We cannot resolve all of our diverse concerns with China on the back of trade, but we can make simple progress on all of our interests as Americans by staying the course and continuing our commercial engagement with almost one-fifth of the world's population.

Thank you once again for this opportunity to testify.

[The prepared statement of Mr. Cohen follows:]

Chairman CRANE. Thank you, Mr. Cohen. Mr. Stallman, you mentioned in your testimony that China committed to cap its domestic support at 8.5 percent of production value, and yet the current subsidies are only 1 to 2 percent. I don't get it. I mean, 5 percent was the target we were trying for. What was their interest in that arbitrary 8.5 percent?

Mr. STALLMAN. And that is a good question, because we were asking the same one. We would like to have held it at 5. They are very limited in their ability to provide domestic support.

Chairman CRANE. I was going to say, but how could they afford 8.5?

Mr. STALLMAN. Well, we don't think they will, but in discussions with particularly some of the Chinese officials here in Washington it was an issue of, I guess, saving face with their countryside, with their farmers in the country. Even with that 8.5 percent, the total so-called amber box type spending levels, we still have a greater level under the WTO than what the Chinese will at the 8.5 percent because we had some previously during the General Agreement on Tariffs and Trade, GATT, round.

Chairman CRANE. Yeah. Mr. Benanav, how open will China's insurance market be after its commitments are phased in?

Mr. BENANAV. The agreement provides that anyone who meets prudential tests is permitted to apply and receive a license. If you have an operating history of being a good insurance company and are in sound financial condition, you are eligible for a license. Over a 5-year period the entire country will open up in phases. So I would say within 5 years it will be an open market just as you see in Hong Kong or other places. The only restriction that American and other companies will have is they will have to operate as joint ventures, with American companies being permitted to own 50 percent of the joint venture under the current agreement, whereas in other places, in Hong Kong for example, we can own 100 percent of the company.

Chairman CRANE. Mr. Kapp, last week the Washington Post reported that President Jiang Zemin for the first time opened Communist Party membership to entrepreneurs and private businesses who have previously been disparaged as capitalists. Based on your extensive knowledge of China, do you believe this was a significant change in policy and, if so, why?

Mr. KAPP. Well, it was certainly a controversial one, which has initiated some very heavy criticism within China, because it seems to fly in the face of fundamental Marxist-Leninist dogma. I think the leadership understands that the dynamism in the Chinese economy today resides in the non-State sector. That is where the jobs are being developed. That is where the technical innovation is coming from. That is where the aspirations of those who are eager to make more of their lives are being focused. The Party leaders can see this for themselves. They would rather have within their ranks that most dynamic segment of a society in profound transition than try to keep it at arm's length.

There is potentially something of a parallel from the 1940s, which I hope doesn't happen this time. In the 1940s the then governing party and ruling party in China, the Nationalist Party, had a way of muscling its way into any business that was making progress and had not yet fallen under party control. In other words, in those terrible years a lot of businesses were driven into, destruction by the intrusions of the ruling party, and one doesn't want to see that happen again in China. Nor does one want to see, a kind of resurgence of privileged, wealthy elites and exploitative political elites in a way that is profoundly reactionary. 

But I don't really think the circumstances are that similar now. I think the party is facing reality. This is where the enthusiasm and the dynamism is in the society. The entrepreneurs who are now joining, however, are joining for very instrumental reasons. They see, membership in the party as a useful way to ensure certain kinds of favorable behavior from the State or to insulate themselves perhaps from some of the unfavorable behaviors that the State could otherwise bring down on them. So it is a little bit of an insurance policy, and that is not always going to be to our liking either.

Chairman CRANE. Mr. Cohen, currently what is the most difficult challenge to doing business in China and how will China's accession to the WTO help to resolve these challenges?

Mr. COHEN. I would think one of the most difficult challenges --

Chairman CRANE. Wait, your mike isn't on.

Mr. COHEN. Mr. Chairman, I think one of the most difficult challenges will be in the agriculture sector. Given that approximately 50 percent of China's population is agrarian, I think there will be a great deal of pressure against the Chinese to fully implement their various commitments to open their agricultural sector. It will require constant attention from the U.S. Government with regard to their regulations in the area of sanitary and phytosanitary areas. As a result, I would think that in terms of the WTO, we will need to work with the Chinese to try to ensure that they put in place the systems that will allow their various agrarian sectors to comply with the commitments that China made to become a member of the WTO. I don't think this is going to be achieved overnight. There will be cases where we will need to avail ourselves of the WTO dispute settlement, but I would hope that we would instead in as many cases as we possibly can provide the resources that are called for in the legislation passed by the Congress last year to provide education, training, technical assistance so the Chinese can follow through.

Chairman CRANE. Thank you. Mr. Levin.

Mr. LEVIN. Thank you and welcome to all of you. We have enjoyed your testimony. I think it may be a bit more nuanced than it might have been some years ago. I am not sure. But I think some progress has been made in this debate we have been having here, and I think there is a broader agreement about not looking at China in kind of cut and dried, either/or terms, and a realization that the journey ahead is going to be a difficult one for them and a difficult one for us, that there will be competition as well as market access. I think, Mr. Stallman, your testimony kind of evidences that.

The argument about subsidization in a sense was theoretical, but I think in a sense wasn't. We probably should learn from the recent experience between Japan and China that China will be a competitor as well as a purchaser, and that may well be true of agriculture. And that may not be true, U.S.-China, for 15, 20 years. It is slightly true now, I think. But maybe that is what the fighting was all about. And I think it also  is illustrated in your comment, which is fairly stark, on the last page about the bioengineering, about biotech standards. It is not a subject of little controversy elsewhere. And I think when you say without such clarification China should not be allowed entry into the WTO, that is a pretty strong statement, and I agree we need to iron that out.

I think, therefore, this debate has helped us to realize that when we look at China, again, it is not just a place where we will sell goods. It is a place with which we will be increasingly competing in higher tech goods and probably in agriculture. There isn't much competition now, but it is foreseeable that will occur 5, 10 years from now, isn't it?

Mr. STALLMAN. Well, with respect to agriculture, we have always contended that it would be difficult, as Mr. Cohen indicated, to be sure that they actually implement the agreement. There will be some sectors, some agricultural products where the Chinese will be competitive. Look at the apple juice concentrate issue right now. I mean, that is just one. On the other hand, some of the things they have agreed to do upon accession, eliminating export subsidies, that has been a bone of contention with EU for years and they have agreed to do it with their agricultural products, so that will impact.

So, yes, it will be a give and take over time. It is not a one-way magic bullet. But on balance having access to that market for American agriculture is extremely important. They only have roughly 7 percent of the arable land in the world, versus more than 20 percent of the population and growing, so that right there is a natural resource cap on production.

Mr. LEVIN. Even the word "balance" has come into play in discussing a relationship. And Mr. Cohen, I think you also highlighted it. Mr. Kapp and I have talked about this a lot, the whole implementation process, and I do hope that everybody will work hard to realize this is closer to the beginning than it is the end. And this is true in terms of our full economic relationship in terms of human rights issues, in terms of other economic related issues, and we have a lot of work to do. I hope that all of you will be as active from here on in as you have been active in securing PNTR when it comes to appropriations for the various departments in terms of implementation for the Commission, really for everything, because the three times I have been in China, I think you feel change, but you also feel rather age old traditions, including a very weak rule of law.

Also, I think the comment, Mr. Benanav, of yours is so right, and I think when you talk about implementation, now just I will just kind of end where I began. I notice when you read win-win you modified it a bit. Because I just don't think we can tell people in this country that a trade proposition is win-win and there be no losers and no problems, it is all one way, it is easy street. That isn't the way competition works within the United States. I think the last years have shown there are winners and losers, including some people whose stock is now worth 2 cents on the dollar, and I think we have to expect an international competition. There are going to be winners and losers, especially as we compete with countries that have very different structures.

Mr. Kapp, your burden, to some extent the rest of you, has been to work with a relationship involving a country that is at a very, very different point than we are, and I think if we don't acknowledge it as well as the change that is occurring within, we are not only fooling ourselves, even worse, we are fooling our constituents. They know better. Anyway, on this last hearing date, thanks for joining us. Hasta la vista somewhere else.

Chairman CRANE. Mr. English?

Mr. ENGLISH. No.

Chairman CRANE. Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman. And to all of the panels, thank you very much for your testimony, quite often I must say. If I could ask Mr. Kapp, because I am glad you veered from your text and you spoke from your heart, and eloquently so, as you have in the past. Could you give me a sense of how we should contextualize what has happened in the past year with China and the incidents that our public, our constituents read about, hear about? How do we frame the debate for a public which only hears about China based on what it sees on the evening news or reads in the upper fold of the newspaper, which for the most part has not been good? And how do we--give me a sense of how we try to convey to them the import of what you all have just said.

Mr. KAPP. Well, Congressman, it is really a problem. A couple of days ago the New York Times did a 30-inch column story about the fact that the people in China eat dog. And right in the middle of this very long report, accompanied by pictures of dog hindquarters boiling in pots , and so forth, was a little box, no more than three column inches, which said "China to try U.S. scholar." 

I actually wrote to the Times about it and tried to say, "The story that some Chinese people eat things that American people consider repugnant goes all the way back to the 1870s. There is a whole tradition, in California above all, as you probably know, of this. And you demean the story of the scholars who have been indicted and are to be tried by putting it in as a little box where the overall message is, "Ain't it awful! The Chinese do these terrible things: they are really beyond the pale; they eat dog and they are bad to U.S. scholars."

I have a real problem with this. It is not for a minute to say that the American media should go out and portray everything in China as sweetness and light. And actually as someone who reads the media, the major national media, very, very carefully, I would say that the last couple of years have actually shown some improvement in the media's treatment of complex realities in China, many of which are very tough. Life is tough over there for a lot of people. It is also exciting for a lot of people. But, I think that, for those of us who understand that it is not as simple as "Ain't it awful--the Chinese eat dog meat," (or who remember that Americans eat pork and beef, which offends the sensibilities of many Muslims, Jews and Hindus around the world), all we can do is try,  without allowing ourselves to be nailed as apologists for Beijing, to point out that China has tough, huge burdens and challenges and that governing it is a very difficult matter, and to point where we can to stories that convey a balance and a balance of experience.

Now, American business, I might say, is pretty good at that, and the majority of American business people if they ever were in the realm of painting rosy pictures--are way beyond that today. I could bring in 15 people and sit here and give you very interesting, balanced stories about the good and bad, the pros and the cons, the achievements and the failures. That is what we need. China is not that different from any other country in this regard. But it is a long battle and I for one find it exhausting, but also necessary.

Mr. BECERRA. Mr. Benanav, let me ask you a question now. Congressman Tanner asked Mr. Bader a question regarding services. Right now, of our exports to China very little is in the form of services and if indeed Europe is moving forward with financial services agreements with China, that may to some degree block us out unless it is totally open market, and I don't think that we quite get there. What is your sense about our opportunities in the financial services area to make some inroads into China, given that we need to compete obviously with the Europeans and others?

Mr. BENANAV. Right. The Chinese economy is at a point where it needs a much broader financial sector in order to fuel the growth that they need. American companies and European companies to a large extent have expertise that the Chinese absolutely have to have if they are going to create a vibrant capital market, if they are going to create infrastructure funds to help grow. It is a place where we have a significant competitive advantage, and our opportunity to go into those markets and bring that expertise for both our own benefit as U.S. companies and for the benefits of the Chinese people and Chinese economy really represent a unique opportunity. This is not a case where we are transferring American jobs to China. This is financial services for the Chinese people. Most of the employees are Chinese and some are American expats.

So this really is a sector, one of the few sectors maybe, where we can say we have an opportunity to win with very little risk of losing anything, and that is why the service industry is so eager to get into China, because the longer the delay the less our competitive advantage will be because the Chinese themselves, very smart people, are taking every opportunity they can to develop that expertise and maintain the businesses under Chinese ownership and we are eager to get in there. We believe the market is going to be large enough so that the pie will be ever growing and there is plenty of room for American, European and Chinese companies.

An example I use is Hong Kong, with a population of 6 million people, has over 40 life insurance companies. How many companies can a billion two hundred million people support? The U.S. has about 2000 life insurance companies, which may be too many, but there is plenty of room for a lot of companies in China providing financial services.

Mr. BECERRA. Thank you. Thank you, Mr. Chairman.

Chairman CRANE. Well, we want to thank you all again for your participation and your ongoing participation, Mr. Kapp, too, for so many years, and with all due respect, we do hope this is the last time we ask you to come testify, and with that our hearing stands adjourned.

[Whereupon, at 4:12 p.m., the hearing was adjourned.]
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