Statement of Calman J. Cohen, President,
Emergency Committee for American Trade

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

I am Calman Cohen, President of the Emergency Committee for American Trade – ECAT – an association of the chief executives of major American companies with global operations. ECAT was founded more than three decades ago to promote economic growth through expansionary trade and investment policies. Today, ECAT’s members represent all principal sectors of the U.S. economy – agriculture, manufacturing, merchandising, processing, and services. The combined exports of ECAT companies run into the tens of billions of dollars. The jobs they provide for American men and women – including the jobs accounted for by suppliers, dealers, and subcontractors – are located in every state and cover skills of all levels. The annual worldwide sales of ECAT companies exceed $1.5 trillion, and they employ approximately 4.5 million people.

I am here today to address one of ECAT’s top priorities: the annual extension of Normal Trade Relations (NTR) with the People’s Republic of China that 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 World Trade Organization (WTO).

Commercial engagement with China has been the cornerstone of U.S. policy toward China for the last nearly quarter-century, since the historic 1979 Agreement on Trade Relations Between the United States of America and the People’s Republic of China. This agreement authorized by the Jackson-Vanik amendment of the Trade Act of 1974 and approved by Congress after its completion, committed the United States and China to accord each other NTR treatment with respect to goods and certain other issues. Every President since 1980 onward –starting with President Reagan and continuing with Presidents Bush, Clinton and now President George W. Bush – has sought and obtained the annual renewal of China’s NTR status.

In fact, this policy 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 under the 1844 Treaty of Wanghia – that was only suspended in 1951.

This Committee has played a key role in promoting this policy at the end of the 20^th Century. Starting in 1990, when the first resolution disapproving China’s NTR status was introduced in the House, this Committee has voted 11 times on a disapproval resolution. This Committee has also considered related legislation on China’s NTR status on several other occasions.

Most importantly, however, this Committee led the effort last year to authorize the President to extend permanent normal trade relations to China upon its accession to the WTO on terms substantially similar to those agreed in the November 1999 U.S.-China bilateral market access agreement. ECAT is very grateful for your historic efforts that we hope will soon reach fruition.

The time is drawing near when we will be able to restore fully the commercial relationship with China that we began in 1844. Following the Administration’s successful negotiations in Shanghai in early June and the recent Working Party meeting in Geneva, there remain few issues left to resolve as part of China’s negotiations to enter the WTO. Once negotiations are concluded in the Working Party, the ministerial work of the WTO will continue in finalizing the protocol of accession, the working party report and consolidating the schedules containing China’s market-access commitments. When that process is complete, the Working Party must report China’s accession by consensus, which will be followed by a vote (or, as in all past accessions, a unanimous decision) of the General Council. Once China’s entry is approved, Taiwan’s entry will also be approved. China and Taiwan will then, of course, have to ratify the decisions and will formally accede to the WTO third days thereafter.

In joining the WTO, China will merely resume the role that it played more than half a century ago: China was one of the forty-four participants in the 1944 Bretton Woods Conference. It served on the Preparatory Committee that wrote the charter for the International Trade Organization (ITO) that was to complement the International Monetary Fund and the International Bank for Reconstruction and Development. China was also one of the twenty-three original Contracting Parties to the General Agreement on Tariffs and Trade, initially created to be an interim arrangement until the ITO Charter would come into force, which it never did.

In China, however, revolution intervened. The government of Taiwan notified the GATT on March 8, 1950, that it was terminating China’s membership. It was only in 1986 that the People’s Republic of China officially sought to rejoin the GATT, now the World Trade Organization. And now, after 15 years of negotiations, China is poised to enter the organization that it originally worked to create.

Until China formally enters the WTO and the President authorizes the extension of Permanent Normal Trade Relations, this Committee 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.

In 1990, I and a number of my colleagues in the business community formed the Business Coalition for U.S.-China Trade, an umbrella organization of associations and companies interested in promoting commercial engagement with China. ECAT and the Business Coalition supported the annual extension of NTR every year and worked with all of you to support last year’s historic vote on PNTR. On June 5, seventy business associations sent a letter to the President and the House and Senate Leadership on the importance of NTR renewal. That letter is attached. The Business Coalition will soon be sending a letter to every member of the House asking for his or her support of NTR with China.

You are all familiar with the issues surrounding this debate. Last year, Congress engaged in an extensive debate on the value of continued commercial engagement and Permanent Normal Trade Relations. At the end of the day, Congress voted to stay the course of commercial engagement and authorized the President to extend PNTR at the appropriate time.

Nothing has fundamentally changed since last year’s debate. If we look at our primary interests as a nation – commercial, humanitarian and national security – it is clear that continued engagement and an extension of NTR status are in the United States’ interest.

1. Commercial Interests: China’s accession to the WTO will open markets for every major sector of the U.S. economy and will provide a multilateral mechanism for the resolution of disputes under the WTO agreements. The U.S.-China bilateral agreement from November 1999 and subsequent negotiations establish a comprehensive package for removing major trade barriers in all major sectors of the economy. I will list only a few of the highlights.

• Agriculture: The bilateral agreement provides expanded market access for U.S. wheat, corn, soybeans, cotton, barley, and rice under a new system of tariff-rate quotas, reduces Chinese tariffs on priority products such as beef, citrus, and dairy from over 30 percent to 12 percent, and eliminates Chinese export subsidies. The recent negotiations in Shanghai resulted in China’s commitment to limit substantially its use of domestic agricultural support.

• Manufacturing: The bilateral agreement cuts Chinese tariffs from the current overall average of 24.6 percent to 9.4 percent, including major tariff reductions on the farm products noted above. In the auto sector, China agreed to reduce its current 80 to 100 percent tariffs on autos to 25 percent and to reduce tariffs on auto parts from 23 percent to 10 percent. China also will join the WTO’s Information Technology Agreement (ITA) that will require China to reduce its tariffs on computers, semiconductors, telecommunications, and other high-technology products to zero.

• Services: As a result of U.S. negotiations, China has agreed to provide comprehensive market access for U.S. telecommunications and financial services under the WTO Telecommunications and Financial Services Agreements. China has made specific market-access commitments in all services industries of primary interest to the United States, including the Internet, audio-visual, banking, insurance, securities, and auto finance. U.S. publishing and information services also will benefit from China’s commitment to remove restrictions on distribution and to reduce restrictions on investment.

The Congressional Research Service has projected that China’s accession would increase annual U.S. exports by $11.5 billion by 2005. The U.S. Department of Agriculture estimates that U.S. farm exports would grow by $2.2 billion annually as a result of China’s WTO accession.

It is to the U.S. advantage to be able to have China enter into binding market-access commitments that are enforceable under WTO dispute settlement procedures, rather than have to enforce existing bilateral agreements unilaterally and in a piecemeal fashion. The longer China’s WTO accession is delayed, the more business opportunities are lost for U.S. suppliers and the greater the pressure within the United States to impose unilateral, trade-disrupting measures against China.

More broadly, our continued commercial engagement, renewal of NTR and China’s accession to the WTO will help deepen and accelerate China’s own market reforms. Indeed, bringing China into the WTO will help to address our rising trade deficit with China, as China will have to reduce its high tariffs and eliminate quotas and other major market-access barriers.

As documented in ECAT’s Global Investments, American Returns (GIAR) and ECAT’s 1999 Update, the continued commercial engagement and investment of American companies around the world has complemented, rather than substituted for, economic activity in the United States in areas determinative of productivity, such as research and development and capital investments. In addition, over 70 percent of the total income earned by the foreign affiliates of U.S. firms is repatriated. This in turn has promoted economic growth and a higher standard of living in the United States. And contrary to the speculation of some critics, U.S. companies with global operations have increased overall U.S. employment, not reduced it.

The cost of another extension of China’s Normal Trade Status is small indeed. Only six countries are currently denied NTR status – Afghanistan, Cuba, Laos, North Korea, Serbia and Montenegro and Vietnam – with the last likely to regain that status later this year. One hundred and fifty-two countries receive even more favorable access to the U.S. market than NTR through the NAFTA, the U.S.-Israel Free Trade Agreement, the Generalized System of Preferences program, the Caribbean Basin Initiative, the Andean Trade Preferences Act and the African Growth and Opportunity Act.

There is no question that continued commercial engagement and the extension of NTR with China are in our commercial interest.

2. Humanitarian Interests: Continued commercial engagement, including the renewal of NTR, is also 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. These are not simple issues that can be resolved from one day or even one year to the next. Nor can they be achieved through one simple vote – up or down on the renewal of NTR. Yet, the evidence shows that increased commercial engagement – not isolationism, has fostered greater reform and progress on these issues as well. For those of you who have visited China over the last two decades, you have witnessed the immeasurable changes that greater commercial engagement and contact with U.S. companies have had.

China’s accession to the WTO will also help strengthen progress towards greater transparency and the rule of law in China’s legal system. While the rule of law work will begin in the commercial sector, it is certainly our government’s policy – in large part through the PNTR legislation that you drafted last year – to help promote greater adherence to the rule of law in other areas as well.

U.S. companies operating in China bring with them their values and their standards on everything from worker safety to the environment. The benefits of this engagement are inestimable in terms of their ability to promote a better way of life for the Chinese people.

As the World Bank and others have documented, it is precisely through increased trade and economic growth that developing countries are better able to reduce poverty and improve standards, including on issues such as the labor and environment. Since World War II, the liberalization of trade has produced a six-fold growth in the world economy and a tripling of per capita income and enabled hundreds of millions of families to escape from poverty and enjoy higher living standards. A recent World Bank study shows that developing countries that participate actively in trade grow faster and reduce poverty faster than countries that isolate themselves. In the 1990s, per capita incomes grew 5.1 percent in developing countries with high trade and investment flows, while more isolated countries saw incomes decline by 1.1 percent.

Make no mistake, commercial engagement, NTR, and PNTR are not panaceas. They do however, put us on the most productive road to achieving our country’s broader humanitarian goals.

3. National Security Interests: Our national security relationship with China has obviously been on the front burner recently, particularly with the downing of the EP-3 aircraft. I profess no expertise on the issue, but defer to the statement of our Secretary of State, Colin Powell, on the importance of NTR renewal for U.S. national security interests as well:

"China’s increasing engagement with the outside world makes it easier to work with that country on maintaining peace and stability in the Asia-Pacific region and combating alien smuggling, HIV/AIDS, narcotics trafficking, financial crimes, terrorism and environmental degradation. . . . {I}t is fundamentally in our national interest to extend normal trade relations." Colin Powell, "The Promise of China Trade, Washington Post (June 1, 2001).

Like our humanitarian interests, we must continue to address our national security concerns in other venues as well, while recognizing that continued commercial engagement and the extension of NTR with China will also help to promote those very same interests.

On the other side of the equation is the disapproval resolution, H.J. Res. 50, which this Committee and the full House will be asked to vote on this year. Passage of that resolution will not advance U.S. interests; it will undermine them. Let us consider the same three primary U.S. interests – commercial, humanitarian and national security.

1. Commercial Interests: Terminating NTR with China will significantly harm U.S. commercial interests. 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, with a disproportionately large effect on working and low-income households. Higher priced imports will raise the relative production costs for U.S. companies, impairing their ability to compete effectively with foreign companies that face no similar price increase. At the same time, termination of NTR can have only a negative effect on U.S. exports as China has little impetus to open its market to U.S. goods. In addition, as NTR is reciprocal, U.S. exports will face higher tariffs than those imposed on the exports of our principal foreign competitors. As a result, the loss of NTR would put in jeopardy many of the hundreds of thousands of U.S. jobs that are supported by our trade with China.

The net effect is a loss for U.S. businesses, their workers and their families.

2. Humanitarian Interests: 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 those policies for the better. Indeed, many of those who have dedicated their lives to promoting reform within China believe that reducing U.S. involvement in China will have the opposite effect.

The net effect is a loss for the Chinese people.

3. National Security Interests: 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. The most direct effects will be felt in Hong Kong and Taiwan, which stand to lose over a hundred thousand jobs and billions of dollars in exports if the United States terminates NTR. Even more importantly, it will strengthen China’s hardliners, 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 straits to the Korean peninsula.

The net effect is a loss for the Asia-Pacific region and our own security interests.

China’s eventual accession to the WTO will not, of course, be the end of the process; China will not magically be transformed overnight or in a year. We are pragmatic people and know that 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 authorized by last year’s U.S.-China Relations Act. Similarly, we strongly support full funding for the efforts of the United States 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 considerable progress on all of our interests as Americans by staying the course in continuing our commercial engagement with almost one-fifth of the world’s population.

I appreciate the opportunity to appear before you today on behalf of ECAT.

June 5, 2001

The Honorable J. Dennis Hastert
Speaker
U.S. House of Representatives
H-232 of the Capitol
Washington, D.C. 20515

Dear Speaker Hastert:

We urge your continued strong leadership on a bipartisan basis in extending normal trade relations with China in order to allow completion of negotiations to bring China and Taiwan under the rules of the global trading system.

Last year, in the most important trade vote in six years, Congress enacted historic legislation authorizing the President to approve Permanent Normal Trade Relations (PNTR) with China upon completion of negotiations over China's application for WTO Membership. Because the WTO negotiations have taken longer than expected, in part because of America's insistence that China join on sound commercial terms, Congress is likely to be forced again to vote on whether to disapprove the President's annual extension of NTR. If Congress terminates NTR, prohibitive Smoot-Hawley tariffs would be imposed on Chinese goods. Unlike PNTR, the upcoming NTR vote is the trade equivalent of an "extender" designed to maintain the status quo, pending completion of a WTO agreement.

In approving PNTR, the House and Senate reaffirmed a quarter-century of bipartisan U.S. policy, which has recognized that U.S. commercial engagement is America's best tool for advancing economic freedom and the rule of law in China, supporting vital U.S. national security interests in Asia, and maintaining Taiwan's prosperity and security. While, like all Americans, we are concerned by recent developments in U.S.-China relations, revoking NTR would be the wrong response, with devastating consequences for U.S. security, jobs, exports, and consumers.

We appreciate your strong leadership in advancing American trade. We look forward to working closely with you and the bipartisan House and Senate leadership to extend NTR and wrap up a WTO agreement to open China's markets to American goods, services, and farm products.

Sincerely,

AeA, Advancing the Business of Technology
Aerospace Industries Association
American Apparel and Footwear Association
American Chamber of Commerce in China
American Chamber of Commerce in Guangdong
American Chamber of Commerce in Hong Kong
American Chamber of Commerce in Shanghai
American Chamber of Commerce in Taipei
American Chemistry Council
American Council of Life Insurers
American Crop Protection Association
American Farm Bureau Federation
American Feed Industry Association
American Forest & Paper Association
American Insurance Association
American Meat Institute
Asia-Pacific Council of American Chambers of Commerce
Association of American Publishers
Automotive Trade Policy Council
Biotechnology Industry Organization
The Business Roundtable
California Council for International Trade
Coalition for Employment Through Exports
Coalition of Service Industries
Computer Systems Policy Project
Distilled Spirits Council of the United States
Electronic Industries Association
Emergency Committee for American Trade
Food Marketing Institution
Footwear Distributors and Retailers of America
Grocery Manufacturers of America
Idaho Barley Commission
Information Technology Industry Council
International Dairy Foods Association
International Insurance Council
International Mass Retail Association
National Association of Manufacturers
National Cattlemen's Beef Association
National Chicken Council
National Council of Farmer Cooperatives
National Electrical Manufacturers Association
National Food Processors Association
National Foreign Trade Council
National Oilseed Processors Association
National Pork Producers Council
National Potato Council
National Renderers Association
National Retail Federation
National Turkey Federation
National Venture Capital Association
Pharmaceutical Research and Manufacturers of America
Rice Millers' Association
Semiconductor Equipment and Materials International
Semiconductor Industry Association
Snack Food Association
Software and Information Industry Association
Telecommunications Industry Association
Toy Industry Association
USA Engage
USA Poultry & Egg Export Council
United States Association of Importers of Textiles and Apparel
United States-China Business Council
U.S. Apple Association
U.S. Chamber of Commerce
U.S. Council for International Business
U.S. Dairy Export Council
U.S. Rice Producers' Group
Washington State China Relations Council
Wheat Export Trade Education Committee
Western U.S. Agricultural Trade Association