Committee on Ways and Means, Subcommittee on Trade, 7-10-01 Testimony

Statement of Robert A. Kapp, President, United States-China Business 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

Chairman Crane, Representative Levin, members of the Subcommittee:

Thank you for inviting me to appear before you today at this hearing on the Resolution of Disapproval whose passage would, if it became law, end for the moment the extension to Chinese imports of the same tariff treatment that we accord to all but a tiny handful of very small economies around the world.

1. Introduction

I am Robert Kapp, president of the US-China Business Council. The Council is the principal organization of American companies engaged in trade and investment with China. Founded in 1973, the Council assists its member companies in developing and pursuing effective business development strategies with China, through a combination of direct advisory services; publications including The China Business Review; a constant flow of informational events in both the United States and China, and advocacy efforts in the public policy realm, including appearances before your distinguished Subcommittee. The Council is headquartered in Washington, and maintains field offices in Beijing and Shanghai. I am pleased that our current business leadership, whose best wishes I am pleased to convey today, includes Frederick W. Smith, Chairman and CEO of FedEx Corporation, as our Chairman; Philip M. Condit, Chairman and CEO of The Boeing Company, as Vice Chairman, and former Senator J. Bennett Johnston, CEO of Johnston Development Co., LLC, as Vice Chairman. The Council enjoys the support of approximately 225 respected corporations and services of all sizes, and from most of our fifty states.

The United States-China Business Council strongly urges the members of the Subcommittee, the full Committee, and the House of Representatives to oppose the Resolution of Disapproval, and thereby to sustain -- as they have done annually for a decade and as the full Congress has done for twenty years -- the decision of the President of the United States to maintain without disruption the flow of trade between the United States and its fourth-ranked trading partner. That trade now totals no less than $120 billion annually.

The arguments for the continuation of NTR, Mr. Chairman, are familiar to most members of this Subcommittee, and indeed to most Members of Congress. Without in any way taking for granted the views of any Member on the very important vote that he or she will face on NTR this summer, I hope you will forgive me for restating our perspectives on the reasons to sustain presidential renewal of NTR in an attachment to my testimony, for those Members who wish to move through what we believe to be the unshakeable logic of NTR continuation, rather than in the main body of my remarks. (Attachment 1) I shall be happy to try to discuss any specific issues relating to NTR extension with any Member of the Subcommittee, the whole Committee, or the House itself, whether during today's hearing or in subsequent meetings.

Mr. Chairman, this hearing on annual NTR extension, for a number of reasons, is very likely to prove different in kind from those of the many preceding years in which you and your colleagues have grappled with Resolutions of Disapproval. For that reason, I would like to spend most of my time touching on themes that circumstances have not really made fully appropriate until this year.

2. Expression of Appreciation to the Subcommittee. Mr. Chairman, we learn in working on China-related issues in Washington that unexpected surprises, usually bad ones, can happen at any time and come from any quarter, and that it is foolish to assume prematurely a final, favorable outcome of any issue involving our two nations.

Nevertheless, developments last month and last week give unprecedented strength to the belief that the end of the fifteen-year-long process of negotiating China's responsible participation as a full member of the World Trade Organization is now close at hand.

As you know, in accordance with the historic PNTR legislation approved by the 106^th Congress last year, when China enters the WTO, on terms as favorable or more favorable to U.S. interests than the terms of the historic US-China Bilateral Agreement on WTO accession concluded in November 1999, the United States will extend to China full WTO-member treatment in the form of Permanent Normal Trade Relations treatment of Chinese imports. The United States will in turn enjoy full-WTO member privileges in its trade relations with China. With that, the requirement of annual renewal of standard US import duties on Chinese products required under the Trade Act of 1974 will come to an end.

In other words, it now appears very likely that this NTR hearing will be the last of its kind.

I have appeared before this Subcommittee every year since coming to Washington in the spring of 1994. I have come to know some members of the Subcommittee well, and to know and respect key members of the Subcommittee's talented and extremely hard working staff.

Please permit me to say how much my Council has valued the dialogue that we have maintained with the Subcommittee on Trade over the many years of this annual discourse, and how much I personally appreciate the courtesies that the Subcommittee has accorded to me and the US-China Business Council over the years that I have served here. I know that for most of you, China is but one of a thousand issues that fill your calendars and your minds. For me, China has been for decades the central concern of my working life. The seasonal opportunity to concentrate withthis Subcommittee on issues of China's development and of our nation's relations with the PRC has been very rewarding to me -- and, I hope, helpful to you.

Our Council sincerely welcomes and encourages the continuation of dialogue with Members of Congress on the broad range of China issues -- commercial and non-commercial -- which informed policy makers must continually study. Please consider us ready, willing and able to offer information to you, convene experienced and thoughtful figures from the world of US-China business with you, join with you in meetings in your home districts or other venues, and assist you in fruitful visits to China in the future. The Council also will hope to bring interested members of this Subcommittee into its programs when appropriate, so that we can benefit from your perspectives and ideas.

3. Congress and US-China Trade and Economic Relations after PNTR

Each member of Congress who voted in favor of H.R. 4444 last year surely had his or her unique combination of reasons for doing so, but I believe at bottom most Members chose to support PNTR in the belief that full WTO-member relations between our nation and China after WTO accession would provide two core benefits to the United States:

substantially increased opportunities for American industrial and agricultural producers, service providers and investors under the extraordinarily far-reaching accession terms our representatives had successfully negotiated with China (terms that our current negotiating team led by Ambassador Robert Zoellick further solidified in last month's crucial Shanghai negotiations); and

long-term assurance that a China fully committed to conducting its international trade according to the world's "rules of the road" under WTO, and subject to multilateral disciplines under WTO dispute resolution, was a far better bet for America and the world trade system than a China excluded from full participation in the world trade community and thus unbound by global expectations and requirements.

In addition, many Members from both parties -- legitimately, in my view -- came to understand that the changes in state behavior that WTO's most basic principles require of China -- transparency in legal and regulatory policy, for example, or nondiscrimination in the treatment of foreign and domestic goods and services -- bear within them the seeds of enormously positive evolutionary changes in Chinese society, along lines that nearly all Americans would welcome and support. Taken together, the somewhat breathless article by one of the media’s best informed commentators on China’s internal dynamics and my own much more limited essay on China’s growing dialogue over WTO’s implications would tend to justify Members’ cautious optimism on this crucial issue. (Attachments 2 and 3)

American companies doing business with China, many of them now in their third decade of the most kind of on-the-ground engagement, have a realistic appreciation of the weight of the tasks that WTO membership will soon impose on China's government and society.

They are optimistic about the elimination of market barriers and the reduction of trade-distorting practices under WTO, and thus about their enhanced opportunities for successful business with China.

Having in large measure defined American negotiating goals throughout the prolonged WTO accession negotiations, American firms also believe strongly in the necessity of China's realization of its WTO commitments as defined in the nearly finalized accession documents.

American companies accept fully the legitimacy of Congress's concerns over China's ability to implement fully its WTO commitments, and understand the necessity of continuing close U.S. observation of China's efforts and achievements in living up to its WTO obligations.

At the same time, however, recognizing the enormity of the challenges that the WTO presents to China, we feel strongly that the US government and American businesses must commit themselves to extending the hand of cooperation to China as the PRC takes the path of responsible participation in the world trading system.

This is not the time merely to stand on the sidelines with a clipboard and a pencil, filling out a compliance scorecard. Scorecarding is part of the process that lies ahead of us. But expanded, effective bilateral cooperation on key elements in WTO implementation deserve equal American emphasis.

The Chinese themselves have embarked on intensive efforts at introducing WTO concepts to legions of policy makers and bureaucrats at the central, provincial, and local levels, many of them hardly familiar with "the system" that our own country has so heavily influenced and enjoyed since the end of World War II. Hundreds of national laws have been examined, as required under WTO, for compliance with WTO rules, and where necessary are being revised to ensure formal compliance with WTO requirements. Members may find the attached brief US-China Business Council analysis of these efforts to be of interest. (Attachment 4)

Today, American educational institutions are pitching in, providing long- and short term training programs for eager Chinese government and business officials, many of whom come to the United States at Chinese government expense for the purpose of imbibing American expertise in the operation of a WTO-compliant market-oriented economy.

I myself, in cooperation with the enthusiastic and capable leaders of the Shanghai WTO Affairs Consultation Center and our own Consulate General in Shanghai, have had the pleasure of organizing a continuing series of digital video conferences on WTO issues, bringing together teams of US specialists and an audience of Chinese participants in Shanghai for lively discussions, not only on specific technical provisions in the WTO, but on the very workings of a WTO-informed political/economic/social system.

The US-China Legal Cooperation Fund, supported by voluntary contributions from member companies in the US-China Business Council and operating with no administrative budget whatsoever, continues to support worthy US-China joint programs in the field of law, in an effort to help build not only specific WTO-compliant institutions in China but to strengthen the foundations of a more equitable and accessible legal system in a rapidly changing China. (Attachment 5)

Mr. Chairman, we in the business community welcome and encourage the willingness of the Congress and the executive branch to roll up their sleeves and pitch in with us on the long-term cooperative agenda with China that will help to ensure China's fullest realization of its WTO commitments in the shortest possible time.

We believe that this is very much in the US national interest, in the interest of China itself, and in the fundamental interest of an equitable and orderly world trading system.

We hope the Ways and Means Committee and its distinguished leadership will continue to work to enhance awareness throughout the House of significance of a far-seeing and sustained effort, not just to monitor and grade China's WTO compliance, but to support and enhance China's own efforts to achieve that compliance.

4. The Changing Agenda of US-China Relations, and the Shifting Center of Congressional Interest in China

During the extended debate over PNTR legislation last year, it was widely understood that many of those in the House who either opposed PNTR outright or who were uneasy about approval of H.R. 4444 were concerned that elimination of the annual NTR debate would deprive them of a legally mandated opportunity to bring to the Congress's attention those aspects of US-China relations -- and of China's internal affairs -- that they felt needed to be aired in the interests of sound policy and faithfulness to their basic values. Thanks to the skill and creativity of key Members of the House, most notably Representatives Sander Levin and Doug Bereuter, whose names adorned a massive set of provisions included in the final bill, the Congress provided both for the extension of full WTO-member treatment to China upon its WTO accession and for the continuation of Congressional examination of certain questions of concern to Members once the annual NTR debate drew to a close forever.

Our Council stands ready to cooperate with responsible and constructive efforts of the Congressional-Executive Commission on China, established under H.R. 4444, to carry out its mandated functions.

Now that the annual NTR discussion does seem to be winding down for good, I think that even we in the business community, who have worked with this Subcommittee to support stable and expanded US-China trade relations for so long, will also feel a twinge of regret and a sense of concern.

The reason is that, for us, the NTR process offered an opportunity to re-emphasize essential points (or introduce them to new Members) about the significance and the promise of expanded economic American opportunities accompanying China's rapid economic growth, and about the vital importance of healthy bilateral economic ties to the management of the entire, highly challenging, relationship between the United States and China.

In the absence of a forum for the discussion of our massive and far-reaching economic engagement with China, the Congress is likely to turn its attention to China increasingly over questions not normally analyzed in economic and commercial terms. Ironically, we in the business community may find ourselves watching with concern if the center of legislative interest in China shifts moves too rapidly and too completely away from the economic dimensions of US-China engagement.

Therefore, we in the business community would say to members of this Subcommittee, and of the full Ways and Means Committee: don't let the promise, the achievements, and the challenges of US-China trade relations drift too far into the shadows. Help us to remind lawmakers in both parties that U.S. economic success is a core element in the definition of U.S. national interests vis à vis China. Help to sustain the understanding, so hard-won in the 106^th Congress, that our economic engagement with China contributes to American economic vitality and to progressive change within China itself. Lend a hand in making sure that easy but misleading phrases like "Profits vs. Principles" and "Trade vs. National Security" add little to responsible policy formulation, and are best met with sober Congressional understanding of the salience of effective US-China economic and commercial cooperation in advancing a broad American agenda with China, whether bilaterally, in the Asia-Pacific Region, or in global arenas.

5. Conclusion

Mr. Chairman, for literally decades, the Trade Subcommittee of the House Ways and Means Committee has had a uniquely significant role in the making of US policy toward China, thanks to the accident of a few paragraphs of Cold War legislation originally aimed at the Soviet Union and only latterly brought to bear on US relations with the People's Republic of China. The Subcommittee has facilitated wide-ranging debate, sometimes extremely heated, over our policies with regard to China. The Subcommittee's steadfast support of sensible, stable, non-preferential economic relations with China, augmented by the support of the full Ways and Means Committee, has provided indispensable guidance to the House on persistent and far-reaching policy question. Once again, we thank the Members for their hard work each year on MFN/NTR.

On behalf of our Council's companies, who have achieved so much already with China and who now view China with both optimism and sobriety, I urge you to remain interested. Engage with us, and with those who see the same questions from different vantage points. Visit China as often as you can manage. Engage with Chinese colleagues, through the established US-China Interparliamentary Exchange program or through the new Congressional Study Group on China now being set up under the leadership of Representatives Manzullo and Lantos and the auspices of the Association of Retired Members of Congress. The balance and wisdom of the Trade Subcommittee and the full Ways and Means Committee has been a true national asset in the American discourse on China, and we hope that it will remain a vital part of our national dialogue on China in the future.

Thank you.

Attachments:

"NTR 2001: To Sing the Blues or Walk the Walk." The China Business Review, May-June 2001.

"WTO Winds will blow away the old China," CNN.com, July 3, 2001.

"China’s Dialogue on the Coming of WTO," The China Business Review, January-February 2001.

US-China Business Council. "Toward WTO: Highlights of PRC Implementation Efforts To Date."

Recent press releases announcing grants by the US-China Legal Cooperation Fund


Email this article to a friend	*Robert A. Kapp*
*NTR 2001: To Sing the Blues or Walk the Walk*	Like a bolt from the blue ... the "Blue Team," the truest case of David versus Goliath in the big-money world of Washington foreign-policymaking ... is posing the biggest-ever challenge to the generously funded China lobby of the Democratic and Republican establishments.... Unlike much of what they call the Red Team, which is blamed for putting business concerns above national security, Blue Teamers aren't in it for the money.... Today, the Blue Team no longer is merely a small group of individuals but a movement.... ...China's April 1 interception and downing of a US Navy EP-3H [sic] intelligence plane in international airspace, its detaining of the 24 crew members and the continued impoundment [sic] of the aircraft have served to galvanize opinion among the American public, in Congress and within the Bush Administration around positions Blue Teamers long advocated...." (Excerpted from J. Michael Waller, "Blue Team Takes on Red China," and "Blue Team Vindicated Time and Again," InsightMag.com, June 4, 2001.) Yes, it's NTR time again. China isn't in the World Trade Organization (WTO) yet, though it made a giant stride in that direction with the June 7 agreements between US Trade Representative Robert Zoellick and PRC Minister of Foreign Trade and Economic Cooperation Shi Guangsheng. Still, Permanent Normal Trade Relations (PNTR) is not yet the law of the land. And, in America, the law really is the law: no WTO, no PNTR. So we recline again into the steaming cauldron of a summer NTR debate. Allow me to offer some thoughts on why it would be better for all of us if Congress decided not to overturn President George W. Bush's decision to renew plain-vanilla tariff treatment of China's imports to the United States for another year (or less, if China gets into the WTO before June 2002 and PNTR goes into effect as Congress intended) than if the United States were to shut down $120 billion in trade with its fourth-ranked trade partner. What follows can't match the flamboyance of the Men in Blue. It accuses no one of "kowtowing," "appeasing," or being a "paymaster" for the opposition. I like to think that what follows pretty much embodies a case that the Congress has already broadly understood and accepted. Congress has, after all, sustained the presidential decision to keep the floor of our nation's engagement with China in place every year for the past decade and passed the historic PNTR legislation one year ago. The United States and China share a shrinking globe; each must maintain a firm commitment to strengthening the foundations of global stability. China and the United States continue to face opportunities and challenges in dealing with numerous regional and global concerns, from the questions before the upcoming Asia Pacific Economic Cooperation (APEC) meetings in Shanghai to the Korean Peninsula question, to issues of international cooperation in law enforcement and environmental affairs, among others. Neither country can wish the other away. As China has increasingly entered the mainstream of world affairs since the end of the Mao era 25 years ago, it has become a major trading nation and a major trade and economic partner of the United States. It ranked seventh in the world in total trade volume last year. Total US-PRC merchandise trade last year exceeded $120 billion. China is now the fourth-ranked US trade partner, and the United States is China's second-ranked trade partner. Since 1979, US firms have invested roughly $30 billion. Economic and commercial relations have been the most positive aspects of an often-troubled US-China relationship. Their continuation is essential to the maintenance of orderly engagement and to the prevention of an ill-advised free fall in US-China affairs. China and its WTO trade partners have resolved remaining issues standing in the way of China's full accession to the WTO. Because it will be some months before China's accession process is complete, under current law Congress must again consider whether to act as it has since 1981, by concurring with presidential renewal of standard US import tariffs for an additional year, or whether to do what it has never done through all the debates of the 1990s: overturn the action of the president of the United States in sustaining Normal Trade Relations with China. Since 1992, the House has voted each year to sustain presidential renewal of NTR trade with China, on the grounds that NTR is merely the standard treatment the United States accords to all but a tiny handful of insignificant economies around the world, that the increasing economic interaction between the two nations is fundamentally in the US national interest, and that US repudiation of the massive trade relationship would hinder rather than help to address non-trade issues of concern to many members of Congress. Congressional defense of normal trade status with China this year is in all likelihood a holding measure pending implementation of PNTR. Last year Congress, after a major debate, agreed that the full integration of China into the world's systems of economic and commercial rules and laws, through WTO, was in the best interests of the nation and the world economy. When China enters the WTO, perhaps by the end of 2001 or else probably in 2002, PNTR will become the Law of the Land, and annual congressional action on NTR renewal will cease. President Bush has clearly pointed out that a productive relationship with China is desirable and possible and has pointed to trade and economic relations as an example of what is most positive about US-China relations today. The United States and China have found it difficult to manage many non-trade problems in recent years. It would be immeasurably harder to control these issues if Congress were to succeed in overriding presidential renewal of NTR. America's friends in the Pacific, including Japan and Taiwan, as well as the people of the great free-market center of Hong Kong, strongly support continued stable economic relations between the United States and China; rejection of NTR would cause severe economic dislocation throughout the Asia Pacific region. The fundamentals of the NTR question remain unchanged, in spite of recent flare-ups in the relationship: Trade and economic engagement with China generates American employment and contributes to business strength in the United States. China's continuing growth at 8 percent and its commitments to major new market-opening measures under WTO represent opportunity and stability for the US economy, particularly now, when the US economy is slowing. US exports to China rose 36 percent year-on-year in the first quarter of 2001. China's imports to the United States at ordinary tariff levels help to keep consumer goods affordable for all Americans, particularly those with low and moderate incomes. China's internal evolution in the direction of the market economy, WTO reforms, and the expansion of private enterprise remains on track, despite Chinese domestic worries that these reforms will provide too many opportunities for Americans and others at the expense of those in the PRC who benefit from China's current closed markets. China's economic relations with Taiwan, already massive, continue to expand heavily as the economic integration of the mainland and the island progresses. Taiwan's leader has stated his hope for continued normal economic relations between the United States and China. Shutting the market to tens of billions of dollars in Chinese exports to the United States will result in the closure of the Chinese market to US exports; the economic punishment of many ordinary workers in Chinese industries; the reduction of US employment supported by exports to China; the ceding of key strategic markets to US competitors in Asia and Europe; the stigmatization of political figures and others in China who are committed to the prime importance of a cooperative relationship with the United States; and very probably the comprehensive degradation of US-China relations, with unforeseeable consequences for both nations. There it is: the case for NTR renewal, the case for a stable baseline in US-China relations. If the Blues want to call this "kowtowing to Beijing," so be it. I think the Congress will be more sensible than the Blues expect.

Last Updated: 5-Jul-01

WTO winds will blow away the old China

By Willy Wo-Lap Lam
CNN Senior China Analyst

(CNN) -- Globalization is not a dinner party. Much has been written about the impact of China's entry to the World Trade Organization (WTO) on the country's economy.

However, it is clear WTO accession and globalization in general will chip away at not only Beijing's "economic sovereignty" but also the power base and prerogatives of the Chinese Communist Party (CCP).

About two years ago, the CCP and State Council set up a special team to study the WTO's impact on domestic politics.

While the team's findings have not been publicized, it is clear WTO accession will pose severe challenges to the authority of the party and state apparatus.

In a prescient paper written soon after the dissolution of the Soviet Union in the early 1990s, a group of sons of party elders argued that to avoid the fate of the USSR, the CCP must never lose control over the economy and businesses.

There seems little doubt, however, that both the party and the central government have to sever links with enterprises in the post-WTO order.

Largely because of WTO-related pressures, Beijing last year began asking state-owned enterprises (SOEs) to beat a retreat from more than 150 competitive industrial sectors.

In several years, private firms, foreign firms and joint ventures will split up the sky with SOEs.

As more Chinese get their paychecks and services from non-state entities, the party's authority may be dealt a body blow.

Then there are the unexpected side-effects. For example, the CCP's ability to start and operate party cells in joint ventures and wholly-owned foreign concerns may be challenged by overseas businessmen.

Equally significantly, the party and government have since the 1950s exercised control over the economy and the country mainly through issuing decrees, often in the form of hongtou wenjian or "documents with red letterheads."

Monopoly powers

These diktat and executive fiats enjoy the same status as legal statutes -- and cadres and citizens alike are required to treat them as such.

After WTO accession, however, it is obvious that these documents with red letterheads will have to go.

First to be affected will be party and government orders giving monopoly powers to certain SOEs -- and fixing the prices of their products.

After all, the WTO's central spirit is the rule of law -- and respect for fair competition and other global standards.

Beginning late last year, Beijing has asked provincial and municipal administrations to do a thorough vetting of hongtou wenjian with the view to invalidating most of them -- and replacing them with proper legislation.

In an article entitled "Beware that hongtou wenjian may violate the law," the official Xinhua news agency reported last week that a couple of SOEs in Anhui province have lost their monopoly in the course of the campaign to weed out state fiats.

Party-dominated

Yet the WTO's fallout will not be restricted to the abolition of this or that particular state decree.

The very concept of a party-dominated legal system is imperiled.

It is an open secret that since 1949, the law courts -- as well legal interpretation in general -- are under the thumbs of a secretive CCP organ called the Political and Legal Affairs Commission.

Another pillar of CCP domination -- the control over information -- is jeopardized.

This is even though WTO protocols so far signed with the United States or the European Union have made no provisions for joint venture newspapers or TV stations.

But these WTO agreements do allow for joint venture Internet companies, although foreign partners cannot hold more than 49 percent of total shares.

Analysts say Beijing will find it difficult a few years post-WTO to resist pressure to open up the news business, even though initially foreign partners may only be allowed to handle advertising, marketing and distribution.

Also under threat will be Beijing's vaunted ability to guard "state secrets" from foreign eyes.

For example, the CCP leadership has refused to allow Western companies to conduct information-related businesses such as polling and market research, for the obvious reason that such activities can yield a bonanza of politically sensitive data.

After WTO, Beijing may no longer be able to keep up the bamboo curtain.

Indeed, police and state security departments are keenly aware that many Western-style commercial operations can have heavy political overtones.

Networks of salesmen

A case in point is direct or door-to-door marketing through close-knit, quasi-pyramid networks of salesmen. In the mid-1990s, Beijing asked several foreign firms in the areas of cosmetics and household products to stop direct-sales activities.

An internal paper cited the political implications of such tightly organized marketing teams, which often boasted several tens of thousands of sales people.

The document said law and order, a euphemism for CCP control over everyday life, might be threatened if "hostile foreign forces" including quasi-religious bodies were able to use such sales networks to pursue anti-Beijing goals.

Consider also the fact that post-WTO, the state may have to yield its monopoly over education to foreign institutions, including commercial operators.

Direst consequence

Already in Shanghai and Shenzhen, more and more nouveau riche parents are sending their kids to international schools, where Marxism-Leninism is hardly taught.

From the party's standpoint, the direst consequence of WTO entry may be changes in people's thinking.

As a Beijing-based social sciences professor put it, if everything is now being done according to international -- in many instances, Western and American -- norms, more people will cast doubt on CCP ideology.

"It will become clear that values and systems such as socialism and 'dictatorship of the proletariat' run counter to global trends," the professor said.

WTO accession, of course, will not affect the party's hold over control mechanisms such as the army, the People's Armed Police and the police.

Yet a pluralistic market milieu will afford ordinary folks ample opportunity to thumb their nose at the CCP -- and with devastating effect.

For example, well-trained personnel including scientists, engineers and mangers can vote with their feet by working for foreign or joint venture firms, not government departments or SOEs.

As State Councilor Wu Yi put it in an internal talk, globalization meant first of all a fight for talents between government units and SOEs on the one hand, and multinationals on the other. People can also vote with their pocketbook.

If Chinese have lost faith in the authorities, they may convert their renminbi into dollars and euros, put their money in foreign banks, patronize foreign insurance companies, purchase foreign stocks instead of local ones -- and, a few years later, buy Global Daily instead of People's Daily.

Perhaps because of fear of impending loss of control, the Jiang Zemin administration has in recent months cracked the whip on dissident organizations and imposed blanket censorship on the media.

Over the long haul, however, there seems little doubt the forces of economics will triumph over outdated dogmas -- especially those that serve only a privileged minority.

CHINA'S DIALOGUE ON THE COMING OF WTO
	Robert A. Kapp
January - February 2001 Issue: Cover by Benjamin Hurd "Any country entering the WTO is considered to be a market economy.... Conceptually, this means changing from 'omnipotent government' to 'limited government.'" -Zhao Yihuai, "How Should the Government Respond to WTO Entry?" -Liberation Daily The Chinese are engaged in a heavy discussion of what the WTO means for China	While America grinds through its election and post-election rituals and prepares for a new administration, hoping that the newcomers will make fewer of the inevitable first-year mistakes than most of their predecessors have made, China grapples with the coming of the World Trade Organization (WTO). Even before the tortuous Geneva accession negotiations conclude, the Chinese are engaged in a heavy discussion of what the WTO means for China-not just in terms of jobs or exports, but in terms of China's own future as an economy and a society. I have read several lengthy and well-informed book-length analyses of the likely impacts of WTO membership on the Chinese economy, sector by sector. Articles from every province and city appear in print and online daily. Combined with the avid study of information about the WTO's rules, operations, and dispute resolution experiences, the sheer volume of published material on the WTO-what Chinese are saying to each other where all can see and hear it-is impressive, and ought to be of real interest to US business and to US policymakers. As in any debate over a big new international trade agreement in any country, some of the material is repetitive, even predictable; certainly that was the case in the United States during the NAFTA and Uruguay Round debates. But taken as a whole, China's current debate reveals where China hopes-and sometimes worries-the WTO will take it. Our dialogue with China on the WTO, as on other matters, will be more productive if Americans have a living sense of issues under debate within China on any given subject, and indeed if the Chinese, in turn, have that same living sense of America's key concerns on issues we debate regarding China. The WTO offers a good example. Here, then, is a short example of what is being said within China about the WTO. The writer, Zhao Yihuai, is an official of the Shanghai Municipal Office for Restructuring the Economy. He published his piece recently in the major Shanghai newspaper, Liberation Daily. The article was then posted to a rich compendium of WTO essays found on the website of the national newspaper of the Chinese Communist Party itself, the People's Daily (http://www.peopledaily.com.cn/). You have to read Chinese to plow into this "China Enters the WTO" collection, but if you do, or if you know someone who can help you, it is a worthwhile trip. What follows are excerpts from "How Should the Government Respond to WTO Entry?" by Zhao Yihuai (my translation): China's entry into the WTO is first and foremost a government entry. Never mind whether it is the central government or local governments: all have to be adequately informed. For a long time, our economy has been a government-led economy: government policies and system regulations were formed from a single, internal, national understanding and set by the nation's own circumstances. After China enters the WTO, it faces a new environment. China must accept rules of the game already put in place by the WTO. We may not simply change those rules without authorization, but instead must obey and support them. Therefore, governments need to ratchet up the modification of our laws and regulations to make them compatible with the basic principles and the basic spirit of the WTO, so that we can effectively adapt to this new economic environment. Concretely, we should start with the following: · The first step, naturally, is to speed up our own structural reforms. Compared to the reform process in the past, the biggest change in our reform process after WTO entry will be from "We Want Reform" to "We Must Reform Ourselves." This imposes a new system of reform upon us. To meet this challenge, governments must consciously increase the intensity of their reform efforts, and speed up the steps leading to the marketization of the national economy. In keeping with the requirements of the WTO, we must deepen the reforms of our financial structures, our food distribution structures, our social insurance systems, and so on, rooting out the discrepancies and the frictions between our domestic systems and international rules. Elimination of such conflicts is the precondition for the true alignment of our national economy with the world economy. · Next, we must expand the grounding of government policy in law, and increase the transparency of government policies. Enhancement of legality is necessitated by the requirements of the market economy. Any country entering the WTO is considered to be a market economy. This requires government conduct to advance along tracks defined by law. Conceptually, this means changing from "omnipotent government" to "limited government." With WTO entry, China must erect both a new conceptual basis to undergird government conduct and new forms of government action. Looking at today's realities, the first task is to eliminate many outmoded internal regulations and policies that are not compatible with WTO rules. For example, in dealing with the non-public economic sector, governments must realize the commitment to nondiscrimination, in order to create a fair environment for the operation of the nongovernmental economy. That means to the greatest possible extent avoiding preferential policies and subsidies for state-owned enterprises, in order not to provoke retaliation from abroad. · Next, China must energetically enhance the economic management abilities of governments. WTO entry does not signal the general weakening of the managerial skills of governments. On the contrary, it is through the reform of government systems of economic management and the strengthening of the rational professional skills of governments that we will be able to preserve the basic interests of the people and the national economic security in a globalized environment of intense competition. · Specifically, this means, a) providing correct guidance and active fine-tuning. These roles are recognized under the WTO system.... And b), it means energetically supporting our own interests. We must utilize all the safeguard methods authorized by the WTO for its members to use in guarding their infant industries. We must actively explore effective support mechanisms, to defend against the massive onslaught against our national production sectors and our vulnerable products in the midst of bitter competition. Of course, the purpose of such government protections is not to protect backwardness; rather, it is ultimately to end such protections and to raise the international competitive power of the producers and products afforded the protection. In sum, entering the WTO drives forward our country's historic opportunity to develop along market economy lines. It serves as a new driver of all facets of our nation's reform and "opening." Agencies of government cannot but actively rise to this challenge, advance the reform process within the framework of the WTO, and only by so doing preserve the autonomy of our nation's economy amidst the competition of a global economy. As America endures a laborious political transition, and US companies peer into the future at home and overseas, China's discussion of its future in a WTO-based global economy goes on apace. The adjustment to life in the WTO may not be easy for China or its trade partners. But there is plenty of evidence-far more than I've been able to offer here-that suggests that the WTO is being taken with the greatest seriousness in the PRC, and that its implications for economic and other changes within China are very much in public view. The more we can know about the dynamics of the WTO discussion within China, the more effectively the US-China Business Council and its member firms can pursue with Chinese counterparts the full and successful realization of China's new rights and responsibilities.

Copyright 2001, The US-China Business Council All Rights Reserved.

TOWARD WTO: HIGHLIGHTS OF
PRC IMPLEMENTATION EFFORTS TO DATE

June 2001

The US-China Business Council is committed to tracking WTO-related changes in China. This document highlights particular PRC efforts, as known to the Council, to bring its system into WTO compliance. It is not intended to be comprehensive. China has taken positive first steps to implement its commitments, but significant gaps remain. The Council will continue to update this report on a quarterly basis.

Revising Laws and Regulations: In preparation for China’s accession to the World Trade Organization (WTO), PRC officials have begun to bring China’s legal and administrative regimes into compliance with WTO rules. According to PRC legislators, more than 1,300 national and local laws and regulations did not comply with the WTO rules as of October 2000. The National People’s Congress (NPC) and State Council announced in 2001 that they would formulate 26 new regulations, amend an estimated 140 national laws and regulations, and abolish another 573.

New Legislation: Drafts of new and amended legislation are said to be circulating and include new antitrust, foreign trade, antidumping/countervailing duty, safeguard, import/export commodity inspection, copyright, and trademark laws, as well as regulations governing foreign investment in the telecommunications sector and a revised Catalogue Guiding Foreign Investment.

Publishing Laws: The PRC government has initiated an effort to publish laws and regulations on various government websites, and new laws continue to be announced in the MOFTEC Gazette. A bigger challenge for PRC government agencies will be how to make the legislative process more transparent and to change current lawmaking procedures that allow many laws to be enforced even if they are not published.

Shanghai: Shanghai leads other localities in its WTO preparations. The legal affairs office of the Shanghai municipal government has reportedly identified 52 city laws that must be revised and 40 city regulations that it will abolish in the coming year. The Shanghai government established the Shanghai WTO Affairs Consulting Center on October 26, 2000 to provide local and foreign enterprise managers and government officials with training, research, and consulting services on China’s WTO policies. Since January 1, 2001, the Shanghai government has posted new laws in Chinese at www.shanghai.gov.cn, but not yet in English or another WTO-compliant language.

Revisions to Foreign Investment Laws: The State Council released on April 24, 2001 the revised Implementing Regulations of the PRC Wholly Foreign-Owned Enterprise (WFOE) Law. Under the revised regulations, foreign companies are no longer required to balance foreign exchange, source domestically, use advanced technology, and abide by export quotas. The NPC also passed on March 15, 2001 the amended Law of the People’s Republic of China on Equity Joint Ventures, the principal law governing foreign-PRC joint ventures.

Pilot Projects in Services: The PRC government has launched several pilot projects to experiment with allowing foreign investment in previously restricted sectors including telecommunications services and fund management.

Intellectual Property Rights: The State Council has issued a number of policy directives to strengthen anticounterfeiting enforcement work and established a new National Anticounterfeiting Coordination Committee, chaired by State Councilor Wu Bangguo. A judicial interpretation and prosecution guidelines issued in April 2001 establish new and clearer standards for criminal liability in counterfeiting cases. The government will need to ensure that local police and prosecutors have sufficient resources for enforcement. The Shanghai Technical Supervision Bureau established the Shanghai Foreign-Invested Enterprises Anticounterfeit Work Liaison Office in September 2000, the only government office established with the sole purpose of helping foreign companies fight counterfeiters in China.

Commodity Inspection & Technical Standards: China merged its two standards and inspections bodies on April 1, 2001 to form the State Bureau of Quality Supervision, Inspection, and Quarantine (SBQSIQ). China had maintained one inspection regime for imports and another for domestically made goods. The merger represents China's first step toward meeting the demand of its WTO negotiating partners that China unify its inspection regime to ensure national treatment. In the past, the PRC government has used the existence of a separate inspection regime for imports as a non-tariff barrier, particularly against imports of agricultural products. The WTO Technical Barriers to Trade (TBT) Consulting Enquiry Point, a PRC government organization under SBQSIQ, will report on standardization requirements to the WTO and to foreign and domestic companies. The organization will submit to the WTO current PRC technical regulations, standards, quality evaluation procedures, labeling requirements, and other issues that may affect trade with WTO members. Information on the new organization can be found at www.wto-tbt.gov.cn.

Customs: Amendments to China’s Customs Law took effect on January 1, 2001. The revisions aim to strengthen the legal framework governing customs activities to bring China’s customs systems into line with the international practices embodied in the Kyoto Customs Convention and WTO Customs Valuation Agreement. China’s commitment to use transaction value in the amended law brings PRC valuation practices closer to those outlined in the WTO Customs Valuation Agreement, which China has committed to follow as a WTO member.

Removal of Non-Tariff Barriers: MOFTEC removed quotas, licenses, and other special administrative import measures for 21 types of appliances, electronics, medical equipment, and vehicles on January 15, 2001. The announcement marks the eighth time since 1992 that MOFTEC removed non-tariff barriers for various electronic and machinery products.

Tariff Reductions: The State Council reduced average tariffs by 6.6 percent as of January 1, 2001. The cut brings the average import tariff to 15.3 percent moves Beijing closer to fulfilling its basic WTO tariff obligations. Of the cuts, 152 were vehicle-related. Seventy-nine different tariffs on completed vehicles were reduced from 51.38 percent to 44.16 percent on average.

Education and Training: PRC government training programs have been under way since late 1999 at the central, provincial, and municipal levels. Many key personnel have attended at least one one-week course on the WTO. Some senior-level officials have attended month-long courses that cover WTO-related issues, including background on the WTO, information on WTO agreements, and the impact of China’s WTO accession on key industries. Courses for the most senior-level officials have covered the actual terms contained in China’s bilateral market-access agreements and protocol of accession. Increasingly, Chinese bookstores are prominently displaying books on the WTO, its regulations, and its operating principles. The US-China Business Council is conducting a WTO training program with the Shanghai WTO Affairs Consulting Center. The program uses digital videoconference (DVC) technology to bring the experience and expertise of US-based specialists to an audience of Shanghai government officials, local WTO experts and academics, and business leaders. Topics have included antidumping, trade-related intellectual property rights (TRIPs), technical barriers to trade, and agriculture. DVC facilities have been made available by the US Consulate General in Shanghai and the US Department of State in Washington. US companies are also engaged in their own efforts to train PRC regulators, joint-venture partners, suppliers, and customers on WTO rules and obligations.

For Immediate Release

UNIQUE LEGAL COOPERATION FUND MAKES GRANTS TO FIVE NEW US-CHINA RULE OF LAW PROJECTS

(Washington, June 4) A one-of-a-kind fund established by US business to assist vital "rule of law" cooperation between the United States and China has disclosed five new competitive grants to recipients based in the two countries. The bilateral programs slated to receive help from the US-China Legal Cooperation Fund range from the development of legal aid for the indigent to improvement of China's compliance with World Trade Organization requirements after its accession to the WTO.

The US-China Legal Cooperation Fund announced its fifth set of grants since its inception in 1998. The Legal Cooperation Fund is a project of The China Business Forum, Inc., the research and education arm of the US-China Business Council.

The Fund's grants will support five new projects to:

Identify and define the administrative law reforms and laws with respect to transparency that China must enact to comply with WTO requirements that ask members to apply trade laws in a "uniform, fair, and reasonable manner";
Conduct a workshop and research on freedom of information and open government in China, together with development of program materials for a continuing administrative law program for China;
Undertake field research in two locales to identify impediments to full implementation of China’s labor law;
Complete a needs assessment for legal aid in Anhui Province and create a criminal investigation and defense manual for Chinese legal aid attorneys; and
Sponsor a series of interdisciplinary seminars in China on WTO standards, structure, and procedures, focusing on rule of law and conflict resolution in the WTO context.

Legal Cooperation Fund Trustees Chairman Herbert J. Hansell, Senior Counsel at Jones, Day, Reavis & Pogue in Washington, DC, remarked:

"In this fifth round, the Legal Cooperation Fund received 21 innovative, timely, and practical proposals from a wide variety of US and Chinese organizations. The Trustees were particularly gratified to joint US-China proposals submitted principally by Chinese applicants, reflecting the Fund’s continuing effort to reach out to Chinese individuals and organizations concerned with the rule of law. The Trustees continued to focus on projects that would substantially advance cooperation in the legal fields that US and Chinese political leaders identified in the late 1990s, including proposals that will assist China’s implementation of its World Trade Organization commitments. The Fund is grateful for the continuing financial support of US corporations and professional firms, which will ensure future US cooperation with China in developing the rule of law."

The following business members of the US-China Business Council, the leading organization of American firms engaged in trade and investment with the People's Republic of China, support the US-China Legal Cooperation Fund: ABB Inc.; AMP Incorporated; American International Group, Inc.; Applied Materials, Inc.; ARCO; Baker & Daniels; Cargill, Inc.; Caterpillar Inc.; China Products North America; The Chubb Corporation; CIGNA Corporation; Citigroup; Coca-Cola Company; Corning Incorporated; Eastman Kodak Company; Eaton Corporation; Emerson; ExxonMobil Corporation; Federal Express Corporation; Ford Motor Company; GE Fund; General Motors Corporation; Honeywell Inc.; Ingersoll-Rand Company; Jones, Day, Reavis & Pogue; Kaye, Scholer, Fierman, Hays & Handler; Lehman Brothers; Merrill Lynch; Microsoft Corporation; Motorola Inc.; Nationwide Global Holdings; Payless ShoeSource; PepsiCo, Inc.; Praxair, Inc.; Timken Company; TRW Inc.; United Technologies Corporation; and Wm. Wrigley Jr. Company.

Information on the Fund may be found at its web site: www.uschinalegalcoop.org. The next deadline for submitting applications for Fund grant will be October 15, 2001, with the next set of Fund awards expected about November 30, 2001.

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For Immediate Release

TRAIL-BLAZING LEGAL COOPERATION FUND SUPPORTS
SIX NEW US-CHINA RULE OF LAW PROJECTS

(Washington, December 11) A unique business-supported fund established to enhance US-China legal cooperation awarded grants in early December to fund six bilateral projects ranging from a long term academic study of the legal aspects of China’s upcoming accession to the World Trade Organization to a program to draft a code of ethics for Chinese lawyers.

The US-China Legal Cooperation Fund announced its fourth group of grants following a December 1 meeting of its Board of Trustees. The Legal Cooperation Fund is a project of The China Business Forum, Inc., the research and education arm of the US-China Business Council.

The Fund's grants will support six new projects to:

Develop a more effective Code of Legal Ethics for the All-China Lawyers Association;
Study the development of the rule of law, constitutionalism, and judicial independence in China;
Support the first phase of a long-term academic study of the legal impact on both China and the United States of China’s accession to the World Trade Organization;
Draft a codification system for existing and future Chinese laws to speed legal research by legal scholars and practitioners as well as business and the general public;
Assist Chinese securities regulators to conduct a study of US. civil liability laws within the system of U.S. securities regulations and facilitate teaching US securities laws to Chinese students; and
Support a program for teaching of US laws at a Chinese law school.

Herbert J. Hansell, Senior Counsel at Jones, Day, Reavis & Pogue in Washington, DC, who chairs the Board of Trustees, commented:

"In this fourth round of grants, the Trustees of the Legal Cooperation Fund considered a number of high quality proposals intended to support and foster bilateral cooperation in the field of law. These grants will direct U.S. private-sector resources to areas of legal cooperation that Presidents Clinton and Jiang articulated in the late 1990s, and also to projects that will help China meet its far-reaching WTO commitments. The US businesses that created and support this Fund believe that US cooperation with China in developing the rule of law will yield specific, significant, and long-lasting benefits to the citizens of both countries."

The US-China Legal Cooperation Fund is supported by the following business members of the US-China Business Council, the leading organization of American firms engaged in trade and investment with the People's Republic of China: ABB Inc.; AMP Incorporated; American International Group, Inc.; Applied Materials, Inc.; ARCO; Caterpillar Inc.; China Products North America; CIGNA Corporation; Citigroup; Coca-Cola Company; Corning Incorporated; Eastman Kodak Company; Eaton Corporation; Emerson Electric Company; ExxonMobil Corporation; Federal Express Corporation; Ford Motor Company; GE Fund; General Motors Corporation; Honeywell Inc.; Ingersoll-Rand Company; Jones, Day, Reavis & Pogue; Kaye, Scholer, Fierman, Hays & Handler; Lehman Brothers; Merrill Lynch; Microsoft Corporation; Motorola Inc.; Nationwide Global Holdings; Payless ShoeSource; Praxair, Inc.; Timken Company; United Technologies Corporation; and Wm. Wrigley Jr. Company.

Information on the Fund may be found at its web site: www.uschinalegalcoop.org. The next deadline for submitting applications for Fund grant will be April 16, 2001, with the next set of Fund awards expected about May 31, 2001.

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