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

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

Mr. Chairman, members of the Committee, I am Gary Benanav, the Chairman and CEO of New York Life International and Vice-Chairman of the New York Life Insurance Company. In addition to my corporate positions, I serve as the Chairman of the U.S. Committees of the Pacific Basin Economic Council (PBEC-US) and the Pacific Economic Cooperation Council (US-PECC).

I appreciate this opportunity to appear before you for this hearing on renewal of China's normal trade relations status. I am confident I speak for the lion's share of the U.S. business community when I say I hope that this will be the last hearing that the Committee ever holds on this issue.

Eighteen months ago, our nation was in the midst of a national debate of tremendous importance concerning our relations with China. I recall Senator Moynihan, then in his final year in Congress, saying it was certainly the most important issue the Congress would face in the year 2000, and perhaps the most important decision in the first decade of the new millennium.

That debate culminated with the passage of legislation granting permanent normal trade relations status to China once it acceded to the World Trade Organization. The measure passed with broad bipartisan support in both chambers of Congress. At the time, few people suspected Congress would once again have to consider the issue of normal trade relations with China. Unfortunately, events proved otherwise.

The PNTR bill was grounded in a negotiated agreement that required China to open its markets to our exports and required us to do nothing in return. I would be willing to defend that historic agreement in any boardroom, on any shop floor, or on any farm in America.

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

It is almost inconceivable that Congress would not extend NTR. Every year for the past twenty years, the United States faced a choice on China. Should we extend to China the same non-preferential tariffs we extend to countries such as France, Brazil and India, or should we impose upon China the Smoot-Hawley tariffs that wreaked havoc in the 1930's? Every year Congress reached the same conclusion. I fervently hope Congress will reach the same conclusion again this year, and permit renewal of normal trade relations with China. To do otherwise would cause tremendous damage to our own economy, to the economic recovery of the Asia Pacific region, and to the stability of international trade.

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 economic growth in both countries. Current conditions in the U.S. economy have tangible effects on our trading partners. In the same vein, conditions in China influence the Asia Pacific region and the global economy. It is in everyone's interest that China grows in a balanced manner, a manner which promotes its own internal stability, opens it's own market for other countries and participates in the global marketplace.

For balanced political and economic growth, China needs to encourage the expansion of its middle class. This group will stimulate the robust domestic demand needed for long-term growth of the Chinese economy. China's long-term economic development cannot be achieved simply through expanding exports to the markets of its trading partners.

Experience points to the key requirements for balanced growth and a middle class. First and foremost is a system of contractual and intellectual property rights that allows people to accumulate capital. Second is a sophisticated financial system, which mobilizes savings and channels them efficiently by offering a range of investment products. As part of that, a burgeoning middle class requires financial instruments which permit individuals to manage risk by pooling their resources, mobilize capital, and to participate in both the domestic market and the global economy.

The world community has devised institutions to form a system of multilateral rules based on cooperation. The result is a set of building blocks for a global system that can secure and sustain political and economic stability. China needs to have a stake in this global system if it is to realize its full growth potential.

Moreover, the more China is rooted in the international rules-based trading system, the greater the cost to China's own economy of taking political or military steps that undermining the system. China's stake in the smooth operation of a global economic system and the interdependence of the global system will act as constrains on China's ability to adopt political or military postures that will have the consequence of slowing down or damaging its domestic economic opportunities, or at the extreme even impoverishing its own people.

Mr. Chairman, the business community has no illusions that economic integration will be a simple process. After China accedes to the WTO, implementation of WTO rules will not be easy or automatic, just as the negotiations between the United States and China were neither easy nor automatic. As Representative Levin said in his recent speech at the Center for Strategic and International Studies, "When China ultimately does accede to the WTO, our work will not have ended, it will just have begun."

The transition will not be automatic because China has not yet developed the full range of institutions needed for a competitive marketplace. China's trading partners will need to be vigilant and work with patient determination to ensure compliance with WTO agreements. Government, business, and NGO's must be prepared to monitor China's implementation of its WTO commitments and must be willing to work with their counterparts in China to help increase the institutional capacity of China to meet its WTO obligations.

The issue of institution building is critical to China's ability to live up to its market opening commitments. In his recent book, The World Economy: A Millennial Perspective, Angus Maddison has identified the central factors for successful economic growth, namely the development of strong legal protections for property rights and the building of institutions that foster entrepreneurial activity.

China certainly does not lack entrepreneurial spirit. If you have ever walked the Bund in Shanghai or visited a factory in Guangzhou or talked to students at Beijing University, you know the natural entrepreneurial spirit of the Chinese people. But China does lack the institutional foundations on which that entrepreneurial spirit can flourish.

Professor Arthur Waldron of the American Enterprise Institute has written eloquently on this point describing his concern that China's economic growth "rests on shaky foundations - and these grow more shaky, not less, as that growth continues in a political and institutional vacuum." I share Professor Waldron's concern.

Mr. Chairman, building institutional capacity is essential if China is to meet the challenge of implementing its WTO commitments successfully. If we can assist the development of durable rule of law intuitions in China, one can only imagine how more entrepreneurial the Chinese people could be. New York Life, like many other companies and trade and industry associations, has been active in training Chinese officials about international standards and providing information about the changes needed in Chinese law to meet WTO obligations. Congress took great care to address both of these issues -- compliance and institutional capacity -- in last year's legislation.

China's Domestic Political Evolution

Mr. Chairman, 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 an issue of simple cause and effect.

Open economic systems do not, in and of themselves, inevitably lead to open political systems. But I do believe that without an open economic system there can be no hope of developing an open political system. As China moves towards a more open, less centrally controlled economy, the government will play a diminished role in the operation of the market. A more open economy will stimulate the growth of the private sector. Trade liberalization will allow foreign competition and challenge the efficiency of state owned enterprises. This is exactly what is happening today in many sectors of China's economy, including the insurance sector.

But the effect goes beyond the economic arena. The energized private sector and expanded middle class in China already are demonstrating increased interest in democratic structures and understanding of international norms and values. For this reason, we all need to support wider interaction between civil society groups in both countries.

The leaders of China face the monumental task of constructing a productive, stable future for the world's largest nation. China's future will determine in no small measure the future of the entire Asia Pacific region. To shape a stable and prosperous future for itself, China must engage actively in the rules-based institutions formed by the community of nations and must commit domestically to the formation of a robust middle class. U.S. business can contribute to both of those efforts, to the benefit of both nations.

U.S. businesses can also help shape a stable and prosperous China by bringing to the Chinese economy their corporate values, world class standards for treatment of workers, commitment to safety in the workplace, codes of conduct for business operations, support for rule of law and campaigns against fraud and corruption. I believe that the infusion of international standards and values into the Chinese economy will influence the opening of China's political processes in a positive manner.

I want to emphasize three points in closing.

In the long-term, we must devise a framework for US-China relations that advances our national interests while recognizing that both countries' political and economic security are inextricably linked.

In the near-term, we must pass NTR, complete China's WTO accession, monitor China's implementation of its WTO commitments and work with China to build its capacity to comply with WTO obligations.

To be successful in the near- and long-term, we must establish a domestic political consensus that trade with China is a win-win proposition, economically and politically for the United States, China and the entire Asia Pacific region.

Thank you, Mr. Chairman.