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

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

Hearing on Renewal of Normal Trade Relations with China

July 10, 2001

Relationship of NTR and China's WTO Accession

China's NTR status has wider implications than merely the U.S.-China trade 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 and how it affects our global and regional security concerns, human rights, and religious freedom in China. My testimony will focus on the ongoing negotiations on China's accession into the World Trade Organization (WTO) and the interplay between that issue and NTR status.

Once China accedes to the WTO, pursuant to last year's legislation, permanent Normal Trade Relations status will become effective for China, provided the President sends the required certification to the Congress. This will obviate the need for a 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 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 1999 U.S.-China Bilateral Agreement

The November 1999 U.S.-China Bilateral Agreement on China's accession to the WTO capped nearly fourteen years of intense, often difficult negotiations. It provided us with a set of comprehensive, verifiable, 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 to note the bipartisan support for that Agreement and for the steps we have taken since.

Market Access

This Subcommittee is familiar with the details of our bilateral agreement and there is no need to review them today. Suffice to say that, inter alia, under the 1999 Agreement China will:

• Reduce average tariff levels on goods of interest to the United States from 24% to 7%,
• Phase-out all tariffs on Information Technology Products by 2005,
• Broadly open up its service sectors, such as insurance, banking, securities, telecommunications, express mail, legal, accounting, and computer-related services,
• Permit U.S. companies to operate wholesale, retail, and franchised distribution networks.

In addition, the associated April 1999 U.S.-China Agricultural Cooperation Agreement removed the bans on imports of U.S. citrus and wheat which were not based on sound scientific principles. This Agreement requires China to apply sanitary and phytosanitary measures consistent with sound scientific principles and to accept U.S. certification of meat products. With proper implementation, these requirements will be of particular benefit to U.S. growers of wheat and citrus products previously barred from China and should facilitate export of U.S. beef, pork and poultry products.

Our growers, exporters, and ranchers have begun to take advantage of that opening. They will be able to capitalize on it much more fully once China accedes to the WTO, because the tariff reductions for all products and the new tariff rate quotas for wheat, corn, rice and cotton will only then take effect. U.S. agricultural exports to China, including Hong Kong, reached $3 billion in 2000. The U.S. Department of Agriculture estimates that China's membership in the WTO could result in $2 billion annually in additional U.S. agricultural exports by 2005.

Systemic Reforms

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 development of China's economy. 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 these provisions before they are implemented. Administrative actions relating to trade matters will be subject to judicial review and China has agreed that the practices of all levels of government will comply with WTO requirements.

China's membership in the WTO also requires compliance with international rules important in the day-by-day world of international trade. China has already begun the process of revising numerous laws and regulations on matters ranging from customs valuation and issuing import licenses to new patent and copyright laws. Beijing has been systematically reviewing and revising or abolishing laws and regulations inconsistent with WTO requirements. Work has also begun at the provincial level and in major cities, such as Shanghai.

It is true that since 1999, we have experienced problems in our trade with China. As China continues the economic reforms it began two decades ago, certain segments of its government, particularly those in the state-owned or "planned" sectors of the economy, stand to lose influence. In cooperation with the Congress, Commerce and Agriculture Departments, other government agencies, industry and agriculture, and other governments, we will continue to engage the Chinese vigorously whenever we see such slippage.

Recent developments: Shanghai and Geneva

The 1999 agreements, critical though they were, 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 commitments it is undertaking in the area of goods, services and intellectual property rights. It is principally these negotiations that have occupied Ambassador Zoellick and our delegation, first in Shanghai last month and more recently at the Working Party meeting in Geneva last week. We also have negotiated improvements in and clarifications of some of the bilateral services schedules necessitated by ambiguities in China's laws and regulations.

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

• An agreement on agricultural domestic support that limits China's recourse to provisions of the WTO Agreement on Agriculture to levels below that available to developing countries;
• 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.
• A commitment from China on how it will allow foreign companies, including those from the United States, to export to China on a nondiscriminatory, non-discretionary basis without burdensome requirements.
• A phase-out of the current requirement for mandatory cession of 20% of premiums to China's reinsurance state monopoly.
• Broader opportunities for U.S. insurance companies to provide large-scale commercial risk insurance.

In Geneva this past week, we obtained multilateral endorsement of these achievements. In addition, we achieved international consensus on Working Party Report provisions on numerous issues crucial to assuring market access and fair trade with China - inter alia, technical barriers to trade (standards), anti-dumping, safeguards, administration of tariff-rate quotas, intellectual property rights, industrial subsidies, and the transitional mechanism to monitor China's implementation of its commitments.

I want to make a few additional points about China's WTO commitments:

• First, our agreements will reduce China's trade barriers across a broad range of goods, services, and agricultural products, eliminate or significantly reduce restrictions on freedom to import and distribute goods within China; and rectify industrial policies intended to draw jobs and technology to China.
• Second, China's commitments are effective immediately upon accession. China will be required to take concrete steps to open its market from day one in virtually every sector. The phase-in of further concessions will be limited to five years in almost all cases, and in many cases to three years.
• Third, the agreements are enforceable. China's commitments are specific, with timetables and dates for staged and full implementation. 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 eight years, with an additional review in the tenth year. We intend to set up a network to help us identify and act upon problems as early as possible, drawing on the assets of our Embassy and Consulates in China, the Departments of Commerce and Agriculture, and the American Chambers of Commerce in China and the region. At USTR, we have added two people to what was a four-person China office and one attorney to our General Counsel's office, all of whom will focus on monitoring and implementation efforts.
• Fourth, the agreement helps ensure that trade with China does not injure U.S. industry and workers. The special anti-dumping provision we negotiated allows us to use non-market economy methodology in judging prices of imports from China for 15 years. The special safeguards provision and the procedures in our PNTR legislation allow the United States to act quickly to address rapidly increasing imports from China that disrupt our market and cause material injury to a U.S. industry. Under this provision we can take action against imports only from China instead of restricting imports from all WTO Members. For textile and apparel products, the accession package includes a special safeguard mirroring our current practice in this area. Our textile and apparel industry will be able to use this safeguard until January 1, 2009.
• Fifth, the increased transparency and accountability that WTO Membership and implementation of WTO rules compel can only 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 rule-making and rule-enforcement I noted earlier. Its provisions and philosophy stress the central role of markets and private enterprise. The reforms China is undertaking to conform to WTO rules will provide the basis for further liberalization in China.

Remaining Steps

It appears we are nearing the end game in this accession process. China has completed the negotiation of all its bilateral agreements except with Mexico and Central America, with which it has been negotiating intensively. Along with our other trading partners, we are in the process of verifying and rectifying each of the commitments China has made in its various bilateral agreements to assure the most liberalizing one makes it into the final accession documents.

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 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 U.S. 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 provide such a certification and other countries provide similar approvals, WTO members, at a meeting of the General Council or possibly at the WTO Ministerial meeting at Doha, would then approve the terms of China's accession to the WTO. China will then need to complete its domestic approval process and formally accept WTO membership. China will become a WTO member after filing its formal acceptance with 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.

The Stakes

If we fail to grant NTR status to China, it is predictable that the WTO accession process I have described, with its benefits to U.S. business, labor, farmers, and ranchers, will grind to a halt. In such a scenario, we can expect to fall into a cycle of retaliation and counter-retaliation with the Chinese, with markets closing rather than opening and sales, and jobs, going to U.S. competitors.

As was clear in last year's debate on PNTR, without China's accession to the WTO, the benefits of China's commitments in areas such as services and dispute settlement will be unavailable to U.S. companies. All of the tariff and tariff-rate quota concessions will be on hold. The livelihoods of the 400,000 American workers and farmers employed in or benefiting from America's trade with China will be affected.

China's accession to WTO will be a benefit to China, of course, but it is not a favor to China. Indeed, it contains the most rigorous and broad-ranging commitments ever required of a new member to the GATT or WTO. 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.

I look forward to your questions.