Statement of the National Association of Manufacturers

Submitted for the printed record of the July 10, 2001, hearing before the Trade Subcommittee, Ways and Means Committee, U.S. House of Representatives

The National Association of Manufacturers (NAM) represents 14,000 American firms. Manufacturing comprises approximately one fifth of all the goods and services produced by the U.S. economy and directly supports 56 million Americans—the 18 million American men and women who make things in America and their families.

Trade is of great importance to NAM members. More than 80 percent of U.S. merchandise exports are manufactured products. About one sixth of total U.S. manufacturing output is exported, and for many industries the ratio is much higher.

China represents an important market for U.S. manufactured goods. Last year total U.S. exports to China amounted to $16.3 billion, making China our 11th largest export market. More than 90 percent of U.S. exports to China were manufactured goods.

One of the fastest growing economies in the world, China will offer significant new opportunities for a wide range of U.S. manufactured products in the years ahead. It is already one of the largest markets in the world for some capital goods, such as commercial aircraft and electrical power plants. As personal incomes rise, the demand for U.S. consumer products will also grow.

But U.S. companies face strong competition in the China market from other foreign suppliers, particularly those in Japan, South Korea, Taiwan, Germany and France. Withdrawing NTR status from China, even temporarily, would lead to trade retaliation that would cut many U.S. manufacturers out of the market, perhaps for years to come.

The manufacturing sector is already experiencing severe problems because of changes in the domestic and international economy. Manufacturing production declined 1.7 percent in the fourth quarter of 2000 from the previous quarter and another 7.9 percent in the first quarter of 2001 from that level. Since July 2000, the manufacturing sector has lost 788,000 jobs.

U.S. manufacturers are trying to cope simultaneously with a slowing domestic economy, a 27-percent increase in the trade-weighted value of the dollar since 1997, which makes U.S. exports substantially less competitive, and declining growth in major overseas markets, such as Japan and Europe. A trade conflict with China over NTR withdrawal would only add to these other burdens.

The negative spillover effects on other Asian economies, including many U.S. friends and allies, would also be significant. South Korea, Thailand, the Philippines and Malaysia are still recovering from the Asian financial crisis. An economic slowdown in China resulting from a disruption in U.S.-China trade could affect the entire region and threaten further economic recovery.

There would be other adverse consequences as well. After 15 years of difficult negotiations, the United States has finally reached an acceptable agreement on most of the key issues relating to China’s membership in the World Trade Organization (WTO). WTO membership will require China to undertake substantial market-opening measures and begin adhering to internationally accepted trade rules. Congress has already endorsed China’s WTO membership by approving legislation in 2000 that grants China permanent NTR status when its membership becomes effective. This is expected to occur later this year or in early 2002. Withdrawal of NTR, however, could complicate that process and lead to further delays.

And more is at stake than just U.S. commercial interests. For nearly a quarter of a century, both Republican and Democratic administrations with bipartisan congressional support have pursued a policy of engagement as the best way to encourage positive change in China. It is in the U.S. national interest to see that China becomes a more open society that is based on the rule of law and allows more personal freedom. Trade with the United States and contact with U.S. companies help to promote those goals.

Trade helps raise living standards and exposes a broad spectrum of Chinese society to American values and culture. It allows many Chinese to see the political as well as economic benefits of American democracy and our free-market system.

This exposure comes not only to business representatives, workers and students that travel to the United States. It also comes from contact with American companies selling and producing their products in China. A recent study issued by the NAM and the Manufacturers Alliance (MAPI) showed that American companies bring their high ethical, labor and environmental standards to their operations in developing countries, including China.

The report revealed, for example, that 95 percent of the companies surveyed apply the same corporate code of conduct and ethical standards to their operations in developing countries as they do domestically. With regard to labor conditions, 87 percent of the companies surveyed have detailed policies on health and safety standards for workers. And 78 percent have environmental management systems that contain measurable objectives or targets for improved environmental performance.

Chinese who come in contact with American companies, then, are learning much more than just business and production skills. They are gaining insights into how successful companies in a modern democratic society manage the complex challenges of balancing the need for profits with high ethical, labor and environmental standards.

However, these economic benefits and positive social, cultural and political influences will be sharply curtailed if we were to terminate China’s NTR status and disrupt our growing trade and investment relationship. In this environment, engagement even in other non-economic spheres would be difficult.

Encouraging China’s economic engagement with the outside world has served U.S. interests well over the past two decades. It has brought economic benefits to the Chinese people and to American companies, workers and farmers. And it has helped to promote greater economic and personal freedom and respect for the rule of law in China. We should not undermine these positive developments by withdrawing China’s NTR status and allowing a major disruption in our bilateral trade and investment.

In highlighting the many positive aspects of China’s NTR status, we do not ignore the problems that exist in our trade relationship. Many U.S. firms are having difficulties competing with low-cost Chinese imports and selling their products and services in China. Withdrawing NTR status, however, is not the way address these problems.

Over the long term, our best hope of establishing a level playing field in our bilateral trade is to have China abide by internationally accepted rules. The sooner that China takes on its obligations as a WTO member the better position we will be in to achieve that goal. There will be other benefits as well. For example, in its agreement with China on WTO membership, the United States has negotiated a product safeguard provision to address market disruption and injury that occur because of surges in Chinese imports. The United States, however, cannot take advantage of these disciplines and safeguards if China’s WTO membership is delayed by withdrawing NTR status.

For all these reasons, the National Association of Manufacturers endorses President Bush’s decision to extend China’s NTR status and strongly opposes House Joint Resolution 50 to discontinue NTR.