Statement of the International Mass Retail Association, Arlington, Virginia

        This statement is submitted on behalf of the International Mass Retail Association (IMRA), the world’s leading alliance of retailers and their product and service suppliers. IMRA is committed to bringing price-competitive value to the world’s consumers. IMRA improves its members’ businesses by providing industry research and education, government advocacy, and a unique forum for its members to establish relationships, solve problems, and work together for the benefit of the consumer and the mass retail industry. IMRA represents many of the best-known and most successful retailers in the world, who operate thousands of stores worldwide. IMRA equally values among its members hundreds of the world’s top-tier product and service suppliers, working with their retailer partners to further the growth of the mass retail industry.

        All of IMRA’s members are dependent upon imports to provide American consumers with high-quality, low-priced goods. Many IMRA members import products directly from China, while others sell products that have been imported by American brand-name consumer product suppliers. China is an important source of supply for such every-day products as clothing and toys. In addition, a handful of IMRA member companies actually operate stores within China.

        Consequently, IMRA’s member companies have a strong interest in seeing stable U.S.-Sino relations, both political and economic. IMRA supports the U.S.-China bilateral agreement on accession into the World Trade Organization (WTO) that was completed in November 1999, as well as additions to that agreement recently concluded. IMRA also supported the passage of permanent Normal Trade Relations (PNTR) status last year. Unfortunately because China has not yet become an official member of the WTO, Congress must once again vote for on the annual renewal of NTR.

        For this reason, IMRA believes this year's NTR vote is the trade equivalent of an "extender" designed to maintain the status quo until China becomes an official member of the WTO. With both the U.S. and EU wrapping up the major outstanding WTO accession issues, China is sure to become a full member of the WTO by the end of the year. Disapproving NTR now, will upset negotiations that are of vital importance in opening China's markets for many industries, including retailing, since the accession agreement contains significant market access concessions on retailing services.

        The revocation of China’s NTR status could have serious economic repercussions on IMRA's members who import or who rely on imported merchandise as well as harm U.S. consumers and manufacturers. The loss of NTR status would mean markedly higher import tariffs on a wide range of products, from footwear to toys to consumer electronics. Tariffs would increase on from an average of about 4% to an average of 60%. In some cases, the duty would jump to as high as 100%.

        Such steep duty increases would result in products simply disappearing from the marketplace. Suppliers would not be able to shift production swiftly; and in many cases alternate suppliers cannot produce products at the same value price. In the past, the NTR vote has occurred in June or July, which are the peak months for importing Christmas merchandise. Revocation of NTR would mean significantly higher prices and shortages of key Christmas products. This obviously would hurt American families more than it would the Chinese. The 5 weeks of the Christmas shopping season account for about 25% of U.S. retail sales for the entire year.

        Consider the following holiday products that could be affected:

        China accounts for more that 50% of all toy imports. Revocation of NTR would sharply increase the price of toys in the U.S. This would lead to a reduction in the variety of toys available on IMRA members’ shelves. Many of today’s most popular toys might not be affordable for American consumers if NTR is revoked.

        China is also a major exporter of portable tape and compact disc players to the United States. The average price for these products is about $84. Without NTR, these products would jump to a price of about $110. That’s a 31% jump. Importers might be able to shift supply to Malaysia, but the average price for this product is about $98.

        Apparel is another important Christmas product for mass retailers. China is an extremely important source of value-priced cotton and man-made fiber products, and is one of the only sources of silk apparel products such as high-quality women’s silk blouses. A loss of NTR would mean a price increase of over 50% for these products. This dramatic increase would affect many consumers’ ability to afford these products and would force value-priced silk and cotton products off the shelves of mass retailers.

        Over 60% of the footwear sold in the United States is produced in China. Many U.S. consumers rely on the inexpensive footwear produced in China and sold in mass retail stores. The inexpensive boys leather sports footwear, such as high tops, tennis shoes and snow boots would all increase by an average of 15%. This could be devastating to the low-income consumer, preparing to outfit their kids for back-to-school this fall.

        IMRA’s catalog and Internet members also depend upon the annual renewal of NTR. Many of these companies are putting the finishing touches on their Christmas catalogs right now. By August, their catalogs will be printed with final prices. A loss of NTR means that these companies, along with their suppliers would be unable to fulfill orders; and would be precluded, under state fair advertising laws, from raising prices. Holiday catalogs cost millions of dollars to print, and their shelf life is very long.

        Currently, American retailers face numerous obstacles in opening stores in China. Chinese licensing requirements are onerous and obtaining a license can take months or even years. More important, China has made the development of large-scale retail operations, with many outlets, nearly impossible, because it requires that each store location be separately licensed and financed with unique local partners.

        Under the WTO accession agreement negotiated by the United States and Europe, the ability to obtain licenses will be made easier, although equity restrictions will still be placed on stores larger than 20,000 square meters and retailers with more than 30 stores. While many IMRA members wishing to operate in China fit those categories, we still view the accession agreement as a positive step, because it eliminates the store-by-store approach. Obviously, having China become a member of the WTO, means that the United States can raise these remaining restrictions as part of the broader WTO Negotiations on Services now ongoing.

        Another key provision of the U.S.-China WTO accession deal is China’s agreement to liberalize restrictions on their distribution system. Currently, American companies can only distribute goods that they manufacture in China and cannot own or manage distribution networks or warehouses. The ability to control the distribution process is the lifeblood of an American mass retailer. Under the current deal, the Chinese agreed to phase out all restrictions on distribution services within three years.

        For retailers, this means removal of restrictions on foreign equity share, geographic restrictions and number of service suppliers. American retailers will now be able to import and distribute American made products to their stores in China. The easiest way for American products to penetrate the Chinese market is to be sold through an American mass retail store in China.

        Obviously, if Congress were to revoke China's NTR at this point in the WTO accession negotiations, it would "upset the apple cart" on the market access progress we have made as part of the WTO accession negotiations.

        Many in Congress have expressed concern about the ability to enforce the Chinese WTO accession agreement. It is important to remember that once China becomes a member of the WTO, it would be obligated to play by the rules or be subject to the WTO’s dispute settlement process. This process has proven to be very successful for the U.S. (e.g., WTO ruling on the EU banana dispute). What’s more, Chinese membership in the WTO provides ample opportunity for further negotiations to liberalize its trade regime, including services.

        There are also those who claim that allowing China to join the WTO will do nothing to further human rights or democratic change. These individuals couldn’t be more wrong. A strong economic and trade relationship—based on mutually agreed-upon rules such as those embodied by the WTO—will result in change. One has only to look at the progress being made in places like South America to see how economic relationships foster democratic processes.

        Progress can only be made when the rest of the world decides to push for change, not just the U.S. The best example of a failed attempt to bring about democratic change unilaterally is the 40 plus years of isolationism between the United States and Cuba. Cuba remains a Communist nation today because the rest of the world has decided to maintain commercial relations, while the United States, which could be Cuba’s closest trading partner, has decided to isolate Cuba in an attempt to end Communism. This will never work. As a member of the WTO, China will be forced to open its doors and allow not only goods, but also ideas into its closed economy. This is the greatest agent for change within China.

        Some have expressed a fear that once China gains entrance into the WTO, it will flood the U.S. market with cheap goods, displacing U.S. workers. Because of this fear, the current WTO accession agreement includes a product-specific safeguard as well as a special safeguard covering textiles and apparel.

        Granting China annual NTR and allowing it to join the WTO is a win-win for American businesses, both importers and exporters, and U.S. consumers. WTO accession will open a Chinese market that is currently closed. American retailers will be able to open up stores and act as a beachhead for U.S. consumer products in China. Congress has already granted permanent NTR for China, when it officially accedes to the WTO. It would be foolhardy, at this late date, with the accession negotiations so close to being finalized, to revoke China's temporary NTR. Such a step would undo years of work in negotiating market access terms that will inure to the benefit of many American businesses and consumers.