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| Introductory Speaker: | Leslie H. Gelb, president, Council on Foreign Relations |
|---|---|
| Speakers: | James R. Schlesinger, chairman, The Nixon Center Advisory Counci |
| Edwin J. Feulner, The Heritage Foundation | |
| C. Fred Bergsten, Institute for International Economics | |
| Nicholas R. Lardy, The Brookngs Institution | |
| Greg Mastel, New America Foundation | |
| Phillip Crane, member, U.S. House of Representatives (R-Il) | |
| Carla A. Hills, Hills and Company | |
| Moderator: | Sander Levin, member, U.S. House of Representatives |
| Speaker: | Steve Beckman, United Auto Workers |
May 5, 2000
Council on Foreign Relations
This transcript has not been edited. For complete speaker information please view the video presentation.
Leslie H. Gelb (President, Coouncil on Foreign Relations): Welcome. My name is Les Gelb. I’m president of the Council on Foreign Relations and I welcome you on behalf of the eight participating foreign policy think tanks in this debate and exchange of views of China, WTO, and permanent normal trading status for China. This is, for the participating think tanks and I think for American generally an historic event. We’re talking not only about WTO status for China or permanent trading relations for China with the United States, but the future of strategic relationship between our country and another major power, and that does require serious debate. That’s what today is about. Secondly, today is important and historic because it’s critical to have a serious debate on the subject. Basically, we’ve had alot of advocacy events. People arguing their position without engaging their position with other knowledgeable people involved in this debate. Today is a chance to have a real debate without the doctrinaire fulminations, or at least if we’ll have the doctrinaire fulminations, to have them answered as well, so a real exchange. It’s historic as well because this marks the first occasion where these eight foreign policy think tanks have gathered together to try to do something consequential for the country and I hope there will be many to come. I want to stress that this an educational exercise for the American people. It’s not a lobbying event and we will really try to conduct the day that way as best we can. The panel of questioners we’ve gathered we’ve tried to do in a way that represents fairness to all parties concerned. We can control who we invited. We could not control who accepted. So we have done the best we can, but the spirit was exactly as I’ve said. We did make every effort to make sure the different parties were fairly represented on each panel. Sometimes we succeeded, sometimes we did not, and you will judge the consequences. I want to thank my colleagues who run the other think tanks for their effort in this enterprise, and I’d like to thank them by name. The other participants. Michael Amarcost of the Brookings Institution, Fred Burkston of the Institute for International Economics, Ed Feulner who is chairing this panel from The Heritage Foundation, John Hamwrath, Center for Strategic and International Studies, Jessica Matthew, President of the Carnegie Endowment for International Peace, and James Thompson, President of Rand. We also had help from John Wineferter of the Congressional Economic Leadership Institute. We thank him for his efforts. I also want to thank the people who put this event together. The fellows and staff of the eight participating institutions, and since I’m prejudiced toward my own and since they bore a particular burden in this enterprise, I’d like to thank Paula Dobrianski who is Vice-President and Director of the Washington Programs of the Council and Paula’s staff who worked mightily on this enterprise, Sam Feda, Lorraine Synder, Amy Drapeau. Let me tell you about the ground rules for today’s event. Oh, Dimitri. I left one person, Dimitri Sans, President of the Nixon Center. My apologies Dimitri. Let me thank you, let me tell you the ground rules. We’re in Congress, we’re largely going to do as the Romans do. The question is up here, the answer is facing them with their backs to you and the only un-Congressional part of our approach is we intend to keep everybody to strict time limits. The presents will have three limits to make their case. The questioners will have a minute to state their questions. The presenters will have two minutes each to respond. If they is time left over, we hope there will be, if there’s time left over, we will use questions sent up from you in the audience and to do that I believe there will be cards passed among you, you ship them over to the side and we’ll ship them to the chairs of each of the panels for use. At this point I would like to introduce the Chairman of the Advisory Board of one of our participating institutions—Jim Schlesinger who is Chairman of the Advisory Board of the Nixon Center. Jim, as you know, has been Secretary of everything and also Director of Central Intelligence. I welcome him and he will continue the proceedings. Thank you very much.
James R. Schlesinger (Chairman, The Nixon Center Advisory Council): Thank you Les. And let me join Les in welcoming all of you to this session. We face a moment of national decision on a crucial issue. We will be charting the course ahead in our relations with China, with our trading partners, and with, in particular, with the neighbors of China. The question before us is the American interest, which is the proper basis for decision in this case, the American interest, both immediate and longer range. We have,as Les has indicated, three panels. The first one is devoted to the economic issue. There is a good deal of misunderstanding about the economic issue. This is not about the loss of jobs in the United States. This is not about China’s access to U.S. markets. China already has access to U.S. markets as reflected in a very substantial trade deficit at the moment. The issue is about U.S. access to Chinese markets—access that will be available to other members of the WTO even if we fail to join. China will be joininga second issue—China will be joining the WTO, irrespective of what we do. Thus, our decision to deny permanent NTR to China means that others will get the benefit of China’s concessions on the trade issues and we shall not. Third—this is not about the presence size of the trade deficit. The impact on the trade deficit over time will be to reduce it, if we have access to Chinese markets. Thus, at least in my judgment, on the economic issue, there is a reasonably clear case for proceeding. Let me turn to the third panel, because the second panel is the most controversial one. The third panel is on the geopolitics—the impact on our strategic relationships, not only with China, but with other nations in the world. The geo-political impact of our decision to deny permanent NTR status to China will be to embarrass those in China who have been most supportive of reform and most supportive of modernization, both domestic and international. It will be a substantial aid within the Chinese system to those who have been most hostile to reform and those most hostile to the West. Confrontation would result if we were to turn down PNTR and confrontation is not supported by China’s neighbors. Taiwan favors approval by the American Congress. Hong Kong favors approval by the American Congress. Singapore favors approval. The net effect of our denying PNTR to China would be to isolate to some extent the United States, both in the region and more broadly and it would lead to greater pressure on China’s neighbor. In the second panel, we will have Martin Lee, and it will be interesting to see what his views are since he has been one of the great proponents of democracy in China. Let me turn now to the second panel because this is the area of controversy that involves primarily human rights. We throw in environment, we throw in labor, but that’s because they are normally bundled together. On environmental issues, China is making substantial progress. The nature conservancy has a large project ongoing if I recall in your Knon Province. The World Wildlife Fund has operated a large wildlife refuge west of Hong Kong. I was in China in 1976 and I was a guest of the Chinese government at the time of Mao’s death and I went to the reception after the funeral of Mao. It was the eeriest experience that i have had politically in the course of my life. The tension in the room was high. There was fear about what the Gang of Four might do. They appeared to be dominant. There was great fear throughout China. Two years later, Dong Chow Ping became the dominant leader in China. Reform started, modernization started, and in the course of the last 22 years, one has seen in China greater improvement in terms of the standard of living, of the well being of the population that one has ever seen for so large a number of people in the history of the world. But that is not all. There is greater freedom, greater civil liberties compared to what it was years ago. Now, of late, there has been some retrogretion. The fall of Dong (?), some repression of religious expression, but the broad trend in China has been towards improvement. Nonetheless, there are limitations that we all understand, so the crucial question that will have to be decided today it seems to me is would denial, because of human rights issues, improve human rights in China sufficiently to offset the gains, clear gains on the economic front, substantial gains on the geo-political front, avoidance of losses in both areas, and here are the queries for you to address. First - if we were to deny China permanent, normal trade relations because of its status with regard to human rights, would that actually assist human rights in China or would it be a futile gesture by the United States at high cost? Secondly—if we were deny permanent, normal trade relations to China, would this result in an isolation of the United States and a loss of influence and leverage, not only in the other areas that are being discussed, but with regard to our capacity to influence human rights? Those are the issues that will be presented today, and we now turn to our first panel and I want to introduce the Chairman of that panel who is, I was about to suggest, a noted Centrist (?) but I’ve been advised that perhaps I should say that he is part of a broad coalition, Ed Feulner, the head of The Heritage Foundation. Ed.
Edwin J. Feulner (The Heritage Foundation): Thank you very much. Secretary Schlesinger. Good morning ladies and gentlemen. I also want to add my deep appreciation to Paula Dobrianski particularly and her colleagues at the Washington Office of the Council on Foreign Relations, who really did bring together the divergent both organizations and the divergent panelists and questioners for today’s very exciting and I think very interesting program. As Les Gelb has already outlined the program today. We will hear from each of the three presents for three to five minutes. I do have a very tough gavel, gentlemen. Then we will hear from each of the questioners, who will direct a question to a presenter and hopefully we’ll have time for a number of rounds like that. In the meantime, if you, our invited guests and distinguished guests have specific questions that you would like to throw in the mix, we urge you to send them forward on the three by five cards which will be distributed and which will, we will then hopefully have time to get to. The three panels this morning are well known to everyone who has been involved in issues of international trade, particularly with regard to Asian matters and Chinese matters. Introduced as they will speak in alphabetical order, the first is Fred Bergsten, Director for the Institute for International Economics, a position which he has held now for almost 20 years, former Assistant Secretary of the Treasury and a former fellow at the Brookings Institution, the Carnegie Endowment. The second speaker will be Professor Nick Lardy, Senior Fellow on Foreign Policy Studies at the Brookings Institution, whose specific area is China in the world economy. The third panelist will be Dr. Greg Mastel, Director of the Global Economic Policy Project at the New America Foundation, former Senate Finance Committee Staffer, where he specialized in trade issues and formerly with the Center for National Policy. I would also express to the audience and to both our panelists and our questioners, the regrets of Maurice Greenberg, Chairman of AIG, who had confirmed, but who unfortunately was not able to be with us and hence sends his best to all of us, I’m sure for a successful meeting today. The four questioners, a role which they have all become accustomed to in their various careers are again in alphabetical order—Congressman Sherrod Brown, former Secretary of State of the State of Ohio, a member of the House of Representatives of the 13th District of Ohio, a member of the Commerce Committee, and the International Relations Committee, including the Asian Pacific sub-committee, an individual just whispered to me that perhaps he represents somewhat of a minority viewpoint in this panel or in the audience today. He was in fact on yesterdays, as well as I understand it, one of the 110 who opposed the Conference Committee vote on the Africa-Caribbean base and trade conference committee bill which passed the House, as I said, by a vote of 309 to 110. The second questioner is the vice-chairman of the House Ways and Means Committee, the Chairman of its Trade Sub-committee, the representative from the 8th District of Illinois, the Dean of the House Republicans, Congressman Philip Crain, who in fact was the original sponsor and the primary mover of that measure, which I’ve already referred to which passed yesterday on the House floor. The third questioner, Ambassador Carla Hills, former Secretary of Housing and Urban Development, former Special Trade Representative, is currently Chairman and CEO of Hills and Co. She serves on numerous boards, commissions and organizations. She’s the former Chairman of an extraordinarily fine institution, the Urban Institute. She’s the questioner, the ranking minority member on the Trade sub-Committee, hence a member also of the full Ways and Means Committee, Congressman Sandy Levin from the 12th District of Michigan, is known at the moment as being much involved in trying to put together a Helsinski type accord, which is a question that he might want to address to our panelists, but i will leave that to him to decide, but as you can see, we have a first-rate both group of presenters, and a first-rate group of panelists, My job will be a simple one, that is to keep the train running on time. So, it’s over to you Fred, for your first opening comments.
C. Fred Bergsten (Institute for International Economics): Thank you very much and let me start by indicating my big pleasure that our Institute for International Economics is co-sponsoring the—my even greater pleasure in having the chance to lead off with initial panel on the economic effects of the DNER (?) legislation. By now, I think the basic economics of the deal are well known. As Jim Schlesinger said, Chian will be joining the World Trade Organization whatever the Congress does in the upcoming vote. The Congressional vote is not, it is not on Chinese membership in the WTO. Rather, the vote is whether the United States will take advantage of Chinese membership in the WTO, whether US companies will benefit from the dramatic reduction of barriers to trade investment that China will implement as part of its membership in global trade organization. If the United States does not fulfill its WTO obligation to provide the PNDR to China, then China of course will not be obligated to extend its liberalization to the United States and we can be virtually sure they will not. In short, a deceit (?) of PNDR would deal a very severe blow to U.S. economic interests in China. Now, I think everybody acknowledges that U.S. exports will increase substantially if we extend PNDR to take advantage of China’s reduced barriers, dependent on its membership on the WTO. But some say that U.S. imports will also grow sharply and that would be a bad thing undermining the U.S. economy and costing jobs to American workers. I would respond fourfold. First, imports are a good thing to the American economy. Indeed, the increase in imports in recent years has kept inflation under control. That has permitted us to increase our number of jobs much more than we had ever thought possible, bring the unemployment rate down to an imagined level and enable our economy to run strongly and faster than any economist had thought we could do five years ago. Second, as Jim Schlesinger also said, the United States would not be reducing any import barriers as part of the PNTR legislation. We already extend most favorite nation treatment to China. This will make it permanent, but there will be no reduction in barriers, so even if we were (inaudible)—the final point I would make is that the most important economic effect of the whole WDOB and DR package is really none of the above but rather the impact on Chinese economic policies. The Chinese reformers, the political reformers, as well as the economic reformers see WTO entry and PNTR as crucial to their effort to complete the Chinese transition from a command Marxist control economy to a market economy. The reason of course is that WTO entry requires liberalization of the Chinese economy. It locks in the reforms that had been made and will be made which is extremely important in China with the volatile history that Jim Schlesinger referred to, and which we all know could indeed happen. Locking in China’s reforms through international compacts is absolutely crucial. The reforms require China to change domestic policies in its economy as well as trade and investment measures per se because the trade and investment measures reflect domestic concerns, if you liberalize externally, you have to do the same internally as well. I close with a story from my latest trip to Beijing which was in November when I add the opportunity to meet with President(inaudible)in a small group right after the PO (?) had been signed. President Jon (?) said the following. We, the leadership of China view WTON (?) as directly related to China’s deep sleep during its feudal period in the 19th and early 20th centuries when we rejected the world economy. Jon—then said, we do not want to make that mistake again. I would submit it is enormously in the world—to help China avoid making that mistake again—with enormous political instability, economic weakness and damage to the entire world that results. Chinese reformers want WTO entry and PNDR. We certainly have a major interest in accommodating their desire for that, it is in our interest and that compounds the economic gains we will get in a direct sense from passing PNTR.
Moderator: Thank you, Dr. Bergsten. Dr. Lardy.
Nicholas Lardy (The Brookings Institution): Thank you very much. I’d like to thank the organization for inviting me to participate int his program. I think that one of the central questions we have to ask is why do the Chinese would agree to a deal that is favorable to U.S. interests, Dr. Schlesinger said, and as Fred said, it’s a unilateral opening in the march on Chinese side here and not going to immediately reduce any of significant trade barriers or tarries or non-tariff barriers that would provide greater access to our market. And beyond that, as Fred as mentioned, the Chinese agreed to a variety of steps that subject them to much tougher controls on their sales in the International Market than any other WTO member. They have agreed to a safeguard standard that would deal with surges that will last for 12 years that is far stronger than that that applies to any other member of the WTO. They have agreed to allow the United States to use an anti dumping methodology for 15 years which is tougher on them than that imposed on any other member of the World Trade Organization, and they have also agreed to restrictions or potential restrictions on their tax dollar apparel exports that are tougher and will last 4 years longer than those imposed on any other member of the World Trade Organization. So, and given the fact that it’s a one-sided market opening, and they’ve agreed to these additional steps that provide instruments to restrict the sales of their goods in this and other markets, you have to ask really what is.. what is the motivation for signing up to.. on a deal that appears to be so one-sided, and I think the answer has already been suggested by Fred, and that is China really is searching for a new growth paradigm. They’ve had a very successful reform program as measured by economic growth for a decade or two, but in recent years growth has slumped substantially. They are confronting major problems. They have used short term fiscal stimulus.. stimulus programs over the last few years as a temporary expedient to try to prevent the growth rate from falling further, but I think there is a very wide spread recognition in China as Fred’s quote from Johnson—points out that sustaining economic growth at a reasonably high rate over the longer term depends on much more efficiency than they have been able to achieve in the semi market economy that has evolved over the past 20 years. The WTO agreement is clearly a agreement that will further open the domestic economy. That will increase competitive pressures on firms within China. It will force further restructuring. Particularly of State owned companies and State owned banks that are an obstacle to the efficient allocation of resources. I think there’s also a full recognition among the leadership that this is politically a relatively risky course. That there will be substantial increases in the short run in unemployment. There will be layoffs. There will be restructurings of firms that go bankrupt. There will be further expressions of political opposition, worker unrest, riots and so forth could easily become much worse. But I think the leadership is of the view that their alternative is permanently slower economic growth that would even.. lead to even more problems, and so they are willing to take the short run risk. Now what are implications if we deny PNTR? I don’t think there’s any doubts. I think Dr. Schleshinger and Fred are correct. That it will provide support for those conservative elements in China that seek to constrain the role of the private sector in terms of economic development. To limit the role of the market, to restrict the development of the Internet, and more tightly control the flow of information, and I think our interests would be best served by supporting China’s commitment to further economic reform and to its entry into the WTO, and it clearly entered into the bi-lateral agreement with the United States with the exclusive obligation on our part to provide them with permanent normal trade relations. I think it will have profoundly transforming affects. Within China over time their participation in the WTO will not just on the economy, but also on its social and political system as well. In closing I’d just like to say one thing about compliance. Several people—it has been suggested by several people that China’s failure to fully comply with previous agreements suggest we should not provide PNTR. I don’t think that’s a standard that should be used. I think that first of all it’s debatable the extent to which they have complied with previous agreements. Their record obviously is mixed, but in some areas it’s actually improved substantially over time. Furthermore, if the standard were imposed universal, there would be no members of the WTO. If the standard were perfection, we wouldn’t have any members of the WTO. I don’t think we should be applying that standard to China. I think we should bring them in. Subject them to the discipline of the rules based system. Use the multi lateral dispute settlement mechanism which I think will be more effective than unilaterally attempted solutions. I think compliance will be problematic. I think it is best addressed by a very tough trade policy review mechanism in the final protocol accession. I know this is something that Congressman Levin has devoted considerable thought to. I think the problem would be if Congress does not pass PNTR that when we get to the multi lateral process of negotiation of the terms of accession, the protocol and so forth, that the voice of US negotiators will be undermined. We will not be in a strong position to demand a tough trade policy review mechanism. In other words, without.. without having passed PNTR, I think the leverage of our negotiators will be substantially reduced. There are many, many other elements of an overall agreement that remain to be negotiated in the multi lateral process. It’s not really a completely done deal yet, and I think we will have the best chance of getting a favorable agreement if we have fulfilled our end of the obligation. Our side of the obligations that we entered into in November, and that is to provide permanent.. pass the legislation that will authorize the President to provide permanent PNTR to China when it does finally enter the World Trade Organization. Thank you.
Fuelner: Thank you very much Dr. Lardy. I am in the role right now of being the referee in the Super Bowl and being directed by the commercial producer. Let’s pause for one minute to..
Greg Mastel (New America Foundation): Once again thanks for being here. As it has already been much mentioned this morning, there are undeniable theoretical benefits to bringing China into the World Trade Organization. Beyond that the WTO Accession Agreement negotiating with China has some very effective features. Still, there are fundamental challenges that must be—before bringing China into the WTO. Very simply the WTO is a rule based market oriented organization. China is neither a fully rule based country nor a market oriented economy. To bring China into the WTO is the ultimate example of trying to put a square peg in a round hole. Largely as a result of these systemic problems, China has a poor record of keeping it’s trade commitments it has with the United States, and bi-lateral trade agreements. The experience of the electoral popular—is well known. The United States negotiated a conference in electoral property agreement which was signed in 1992. Unfortunately, the agreement was not fully implemented by China. Piracy in the electrical property in China skyrocketed. after several ransom negotiations under threats of retaliation, Beijing has made some progress in—property. It is important to recognize that the United States has invested considerable time and resources in enforcing this agreement. More perhaps than any other single trade agreement. It certainly has yielded some results, but according to industry estimates, piracy rates remain over ninety percent for most categories to copyrights in China. Losses are actually higher than they were in 1995 when—started. The United States also signed an important bi-lateral market access agreement with China in 1992. This impressive agreement called for a sweeping decrease in Chinese trade barriers. In fact, if that agreement had been fully implemented, Beijing would be in the WTO today. Unfortunately China also ignored important—of this agreement. Some—have been implemented, but on important issues like in—substitution, transparency, government procurement and other matters China has openly violated the agreement. Aside from identifying China’s short comings, the United States has taken no official action on these matters. The United States also maintains agreements with China limiting imports of textile and apparel import to the United States. According to the US Customs Service, these agreements are widely violated after mislabeling and transhipment. In total this problem results in billions of dollars and legal shipment to the United States every year. A final pressing example in regards to an agreement negotiated early in the Clinton Administration to end Chinese exports to then to the United States of—with prison labor. According to the recent report by the US State Department, China’s openly violating this agreement. All in all, it’s impossible to avoid the conclusion that China’s record of pre—implication and compliance is quite poor. Other countries have also violated agreements with the United States, but none to this level. Further, cheating on trade agreements by other countries, hardly justifies ignoring China’s trade agreement violations. Many seem to assume that WTO membership will some how solve these—problems automatically. The WTO has a well defined procedure for.. it has the advantage of potential multi-lateral support for actions—in China, but it is also an organization that is based on the rule of law. In China, many trade policies are still made unofficially with no paper trail. It may be difficult to even prove cases of Chinese cheating to the satisfaction of a WTO dispute settlement panel, and as the recent experience with the WTO union demonstrates, forcing other companies to change policies even when it is part of the WTO is far from certain. In short, WTO membership by itself locks in nothing in China. There is a tendency in some circles to dismiss enforcement as a trivial issue. Added onto this, you often argue that China’s likely to comply with the leases on provisions even if not all. There are two serious problems with this argument. First, quite simply if you want to create real reformers (sound’s like) in China, the only way to do that is to press China on enforcement continuously and vigorously. If we really want to help Chinese reformers like, we should spare no effort on enforcement. Second, if China is allowed to enter the WTO without reform, the rest of the world is actually worse off and it will be a China State outside the WTO. Outside of the WTO, the United States would retain the option of employing unilateral sanctions to improve Chinese trade behavior, an option effectively blocked by WTO membership. In addition, if China’s let into the WTO without reforming its policies, other countries are likely to take note, and also—the WTO on important issues. The credibility of the WTO would be severely compromised. If the United States were willing to commit itself to enforcing the WTO accession agreement with China I would support it. Without—commitments, I would prefer to see China stay outside the WTO until the domestic reform process is moved.. made much more process. In closing, I want to raise an important.. another important topic. China’s not the only Power attempting to join the WTO. Taiwan has also in—accession negotiations, and it stands ready to join. China’s opposition had delayed Tai Pei’s membership, but Taiwan is a much better candidate for WTO membership than China. Especially in light of the blossom of true democracy in Taiwan,—must be committing at least as much effort to securing Taiwan’s WTO membership as China’s. Thank you very much.
Feulner: Okay.—the first question to be directed to one of the three panels please.
Sherrod: This question is for Fred Bergsten. This opponent of permanent most favorite—of China. I’ve been outnumbered today. I’m inside the beltway conservative think tanks as represented here. Essentially unanimously support unregulated both local commerce and a more liberal.. supposed liberal think tanks like—regulating local commerce—lobbyists that—all over the hill especially to reach the you know China vote,—vote,—vote, city owned—in Congress. The largest members of—and newspapers around the country. In 1993 the largest newspaper in the country to oppose—trade agreement between—and all of this was free—trade. Yet in recent polling numbers for the most recent poll that came out about permanent—for China, showed seventy nine percent of the American public opposed Congress’s passing this legislation. Poll after poll shows that the American public supports capitalism with rules. Capitalism with rules about the environment, about food safety, about worker rights, about minimum wage, and poll after poll shows that the American public supports trade around the world with rules. Rules about minimum wage, rules about worker safety, rules about the environment, rules about.. food safety all of that so, Mr. Bergsten why do you think that the economic elite in this country most of whom will benefit as investors from these kinds of trade agreements, and all of whom continue to extol the virtues year after year after year after year of free trade—local commerce. Why do you think even with all that a majority of Americans continually oppose NAFTA, oppose fast track, oppose MFN for China? I think the NAFTA’S isn’t working or not happy with this global economic rules that we set up. What’s the disconnect?
Bergsten: Well I think there are different polling conclusions than those you cited which show some different results in terms of public attitude toward trade and trade agreements, but I think the answer is that the American public simply does not understand that the big beneficiaries from these agreements are the average American citizen, not the fat cat industrialists. I’ll tell you why I say that. Two reasons. We did a big study 5 years ago on the current textile apparel import restraint regime. We looked at its impact on every group of American citizens. Guess who the losers are? The lowest twenty percent of the American population. Why? Because the increased prices for clothing caused by the textile quotas, increase the entire annual cost of living to the lowest twenty percent of our population by five percent. That is a huge cost to be put on the American poor citizenship by American policy. In other words, when we liberalized the textile apparel import quotas, we will improve the standard of living of our poorest people by five percent. That’s not bad for government work. I think the consumers will be the biggest beneficiaries. Second, as I said briefly in my comment, the fact that our imports have risen sharply in recent years, have enabled us to run a much lower unemployment rate than we could have conceivably have in the past. Five years ago as you know, no respectable American economist, myself included I admit, thought we could have gotten unemployment below five and a half or six percent without inflation going up, interest rates going up, the Feds (sound’s like) stopping the party. What happened? Despite rapid growth, despite the huge reduction in unemployment, inflation is almost no where to be seen, and why is that? On studies we have done, others have done, about half of it can be attributed to globalization, more imports, more competition from the world economy. So we’ve been able to create an extra two to three million jobs many for the lowest income groups who are now being brought back into the labor force by the expansion, because of International trade and globalization. I think all of us in Washington have done a lousy job of communicating those facts to the American public. If we do, than I think that those polls that you cite will change dramatically.
Feulner: Fred reassured me these mikes are made in the USA. Ha, ha. I believe in trade.
Bergsten: I do too.
Philip Crane (Representative R-IL): Also I want to remind Sherrod that I too am opposed to MFN. That’s why I changed that designation to normal trade relations which is what it has always been, and we have it with all the nations on the face of this earth except for about six little countries like Cuba and unilateral trade sanctions are just a shot in the foot anyway. That was a dumb policy. We hurt the Cuban people, and we in no way hurt Fidel, and we hurt American businesses doing business there, but at any rate, that’s not our topic of discussion today, and I want to ask Dr. Lardy a question and it has to do with high technology sales to China and does that mean Dr. Lardy that the Chinese Army is apt to getter better equipment?
Lardy: Well I don’t think there’s any doubt the long term trend is that Chinese military is modernizing to some extent. They are relying on a technology they require from the outside world. The basic problem is how to.. how to restrict appropriately the flow of dual use technology to China, and I think the record is fairly clear that many other allies of the United States, other developed countries are less interested in doing this than we are. The Europeans, Japanese, etc., over the years have been less willing to follow restrictive policy, so the net result to the extent to which these policies had been pursued is that we have lost sales to China. That is US companies have lost sales to China, and there has been very little net reduction in the flow of technology to the Chinese. I think this is an enormous challenge, but it is not one that we can effectively deal with on a unilateral basis.
Fuelner: Thank you. Ambassador Hills.
Carla Hills (Hills and Company): Dr. Mastel last month you were quoted as saying the pro reform leaders in China like Premier Jiranji, have a stake in seeing that the World Trade Organization commitments are enforced. How would you think that a Congressional vote against permanent normal trade relations would effect the cause of reform in China?
Mastel: I said that again today in fact or something very much like it or tried to. It seems to me, I have a unique position on this panel, I have actually support PNTR. We called it MFN then for about eight or nine years for China, and my reasons are a little different than those expressed today. It seems to me that the.. the annual threat of withdrawing an MFN lost credibility about six or seven years ago at the very least, and so I don’t think we gain very much by threatening the Chinese every year, and so.. except perhaps undermining our credibility. So I’m not a big fan of condition MFN anyway for China, but that’s I think a little bit different than WTO membership which is what I focused upon. I think that the Congress.. that China will watch the Congress very closely. I think the signals they get from this Congressional debate are very important. I think one of the signals they should definitely get is that the US cares about enforcement. It cares about this agreement actually being implemented. I think that’s the greatest thing we can do to boost the hand of Jiranji and other reformers in China. These political and economic reforms in China are very controversial internally. They fought very hard. I mean if want to really—increase the strength of the reformers, we have to tell them that WTO is that you must meet these conditions. There’s no flexibility here. That’s a very important message that must be sent I think, and for us to do this in this process to make sure that we emphasize enforcement because in the past as you probably know, my belief at least is that we have a problem in the United States systemically. That we’re very good in negotiating agreements. We’re very bad in enforcing them. We tend to negotiate an agreement, have a press conference, and walk away and forget, and the result is not much happens on the ground. If we do that in the case of China, we’re going to have a very poor outcome. So I hope we force on enforcement here.
Hills: Which implicitly means you favor them getting in, otherwise you don’t have any rules to enforce.
Mastel: I guess I WTO for China is essentially inevitable at some point. I mean I would rather.. if we are not going to enforce it, which is something that I don’t want to kind of, if we’re not going to enforce it, I guess it’s better them to leave them outside for the time being, but my hope is that we can come to the conclusion where we do enforce where there’s something unilaterally in the WTO accession protocol to make enforcement meaningful.
Moderator: Congressman Levin.
Sander Levin (Representative D-MI): I want to pick up on that comment. First of all I think it’s a mistake to lump all of us together as if to say totally polarized or should be totally polarized discussion. Among the four of us here we’ve had our differences on trade issues. These are not simple matters and I think the over-polarization of debate over trade is done at a tremendous dis-service. I’m not an unrestricted trade advocate. I believe very much in shaping globalization. By the way in the bill we passed yesterday, the CBI Africa Bill, there are important core labor standard provisions in them. Ed Fulner talked, referred to one of the pieces that a number of us are working, increasing on a bi-partisan basis a Helsinki type commission. Also Nick Lardy referred to the anti-surge provisions as did Fred Bergston and I consider them a vital piece of what we do in the coming weeks, that we put them into legislation as we put the Uruguay round into implementation language, legislatively to make sure those vital surge provisions are there to stay with a standard which imposes on the executive the need to act. But I want to talk then about the third leg of the discussion that a number of us have been having in the proposals that a number of us are presenting. I think that with increasing interest and success, and that relates to enforcement. I don’t think there’s any disagreement that there needs to be active American enforcement. That’s why a number of us, for example, in this proposal are urging the Administration in the protocol discussions to work in Geneva so that there is an annual review, perhaps not using the DPR mechanism which is a bit clumsy. If there isn’t an annual review provision, there would be a review of China only every four years under the PTRM structure. Also, the suggestion that we have a task force of all the departments on prison labor. So, let me just ask you because I don’t quite understand the conclusion you’re reaching, that China is going into the WTO in any event. We can’t stop that. So you seem to say that one of the critical pegs of any piece of legislation, and I agree with it, would be adequate attention to enforcement. I take it you think our pushing in the protocol discussions that remain unresolved for a regular review of this important huge country that would be coming into the WTO is a critical piece, so comment a bit more what further we can do in terms of enforcement that I thin is one of the three critical pegs of legislation that I hope we’ll be considering in the next couple of weeks.
Male: Well, let me start out I guess with debating one of your premises a little bit. I think there is an agreement in the US about the need for enforcement. In fact, if you listen to the advocates very carefully, I think they assume their way past enforcement. And they even talk about the grand benefits of WTO membership with no realization that those benefits only materialize if we spend the effort to make an enforcement agreement. So I think there is a lot of implicit debate about it and I think if you look at the US generally in enforcing trade agreements, it’s not very good. I mean I think there’s a lot of reason to be skeptical that the US will do a good job in enforcing an agreement with China and so I think there is more implicit debate at least in that topic than you might think. It may be hard to say, I don’t care to enforce it, but many people I think do think that.
Male: But I’m not in that camp. I agree that we need to have strong enforcement provisions. Why don’t we work for them.
Male: Well, hopefully we are. As you may know, I actually support, at least the general concept even pursuing legislatively, I think that is the critical link. I think that having an effective enforcement scheme backing up makes the WTO membership and PNTR a very attractive proposition. I support unequivocally. But until that scheme’s in place I have my doubts. Now, I’ve read over your material and the Administration material on enforcement and much of it looks pretty good. I mean, I think much is in the same direction. I guess the question at the end of the day that I’m left with though is this. It’s usually not a problem of having not enough mechanisms, not enough ways to enforce agreements. We have 301, we have the threat of sanctions. In the past it’s been a matter of lack of political will. For one reason or another, we don’t want to challenge countries about on the trade issue. With China, given that we have issues on so many fronts, you know, human rights, arm sales and so forth, I fear there’ll be a real reluctance on the part of the future Administrations to really take China on aggressively on this issue. And I guess the last question I have is how do we ensure some sort of political, ongoing political commitment, and I guess to me, it seems to me, you are a critical part of that, because I think the Congress had a much better record of enforcing trade issues and caring about that issue than the Administration has. That’s why I would feel much more comfortable with an increasing amount of the responsibility of scrutiny shifted to Congress from the Administration.
Moderator: Thank you all for those insightful questions and for the responses from the panelists. We’ve had a number of interesting interventions from the floor. I direct the first one to perhaps either Chairman Crain or Mr. Levin or any of the others around who might know a specific question. Is Taiwan’s admission to WTO still specifically linked to the PRC’s membership? There was an argument some years ago that this was very specific and I’m just curious in terms of whether this has come up in the hearings or elsewhere. Chairman Crain?
Crane: It has not come in the hearings, but in discussions, yes, and there is a recognition that Taiwan will accede in the WTO immediately after mainland China.
Male: Could I just read one sentence from our proposal. This provision will express the sense of Congress that the WTO general council should approve both the PRC’s accession and Taiwan’s accession at the same general council session. I hope that would be part of the expression when we vote on a package related to PNTR.
Moderator: Thank you. Congressman Brown?
Brown: I think that begs the questions of Taiwan and China’s relationship. Only six months ago when Taiwan suffered a terrible earthquake because of the structure, the geo-political structure, under which they all lived, the international organizations that wanted to help Taiwan had to go through Beijing first, and Beijing actually waited 24 hours before they allowed alot of these international organizations to go to Taiwan. The NTR vote, the Chinese continue to assault Taiwan, continue to talk about, continue to move troops in the East—in the Eastern part of China, continue to talk about potential not war, something short of that with Taiwan. This is when China is wooing the United States and wooing the United States Congress to vote on PNTR. Once we let them in, what’s Chinese behavior going to be? And I think without any more commitment than—Congress resolution, what’s to stop China once they’re in, in the World Trade Organization, with full privileges from the United States. I would add something—today. What might happen with WTO when we shift to Taiwan. I think that question is still in the air.
Another Male: And briefly, the leadership, as I understand it. I’ve never been to Taiwan. I’m not in communication with the Taiwanese leadership. I believe they support China’s accession to the WTO and there is, I want to say this carefully, an implicit understanding by the Chinese government that Taiwan will accede after China becomes a member. Dr. Bergston.
Bergston: This raises a very serious question, but I would have thought the answer is the opposite. That to get Taiwan as well as China into the WTO, then gives Taiwan the international legal protection to being a member of the WTO and that then protects it at least in that area against capricious behavior any other members including China. Mr. Mastel said earlier we should do more to get Taiwan into the WTO. Well, the way to do that, given what Mr. Levin just said is to get China into the WTO because Taiwan comes in the next day, so I think you both raised serious problems, but the right answer is to move ahead on both fronts.
Moderator: Dr. Mastel. Do you want?
Mastel: Just 30 seconds. Well, first of all, I get first in line, I believe we should never accept the de-linkage. But now that we have we have to be very careful with the implicit agreement. It is an implicit agreement, but as such it’s not binding. I mean, China has a poor record of keeping its written commitments. How confident can we really be that China won’t try some last minute maneuvers to keep Taiwan out. I think we should be very vigilant at this point. I think it requires great attention.
Male: I agree completely.
Moderator: Another question perhaps for Dr. Lardy or one of the other panelists. Of the major trading partners of China, only the US has consistently had a huge and growing deficit with China. Is there any specific reason that granting PNTR with China will provide better access for US products as opposed to her other trading partners and thus perhaps have a positive impact on lowering that trade deficit.
Lardy: A couple of points on this. I think first of all, it’s important to recognize that our exports to China have been growing very rapidly. Indeed if you look at our most important export markets of which China I believe is number six today that our exports over the decade of the 1990’s have grown to China as fast as those to any other country in the world. The only one that is in the same league is Mexico and our exports have grown quite rapidly. The problem with the deficit arises because of what Fred has already talked about. It’s the displacement effect that we are buying ten’s of billions of dollars worth of goods from China that we otherwise would have purchased from Hong Kong, Taiwan or South Korea, and so the deficit is growing because China is very open to foreign investment companies from those countries have moved their operations to China. I’ll just give you some numbers or orders of magnitude for our two largest import categories. The first is footwear. Twelve years ago 60% of the footwear being imported into the United States came from South Korea and Taiwan. Last year their share was down to about 3%. China’s share has gone over that same period from about 2% to 60%. So there’s been an entire displacement in the footwear category of product that originates in China that used to come from South Korea and Taiwan. The second largest import category is toys, games and sporting goods, and almost the same numbers prevail although the sources are somewhat different. Twelve years ago, more than 60% of those goods were coming from Hong Kong, South Korea and Taiwan. Today their share is down to less than 10%. China’s share which is less than 10% 12 years ago is now up to 60%. So the deficit has grown because we are buying larger quantities of these goods. The South Koreans, the Hong Kong and Taiwanese entrepreneurs have moved their factories to China to take advantage of lower cost labor and other production advantages that exist there and as long as China remains very open to foreign direct investment and there continues to be a strong demand for these products in the United States it’s almost inevitable that more and more products of this type will come from China. We will see the same thing in apparel as the restrictive quotas are phased out as we get towards the middle of this decade. China will displace products from Thailand, Indonesia and other production locations in Asia and our imports will go up quite substantially.
Moderator: Thank you.
Male: I just want to add two quick additions to that. One is that the US official data substantially overstates the magnitude of our real bilateral with China. The official numbers last year had it at 68 billion dollars, it’s really about 43 billion dollars when you properly account for tran shipments to Hong Kong, etc. That’s all outlined in the handout, the study that we recently did that I put on the table. But the second point is to note that even with that correction, U.S. imports from China are about 3 times higher than US exports to China. That means to bring the bilateral deficit down our exports have to grow three times as fast as our imports grow. That’s tough to do and so one should not be surprised given the imbalance that exists now to see the bilateral imbalance grow further. But, as Nick said, and I said before, that does not mean any increase in the global US imbalance and secondly there are benefits from that to our economy as well that we have to keep very much in mind.
Moderator: Thank you. Yes. Congressman Brown.
Brown: I hear talk of exports growing rapidly and Mr. Lardy, Dr. Lardy sounds more like President Clinton when he talks about—exports growing rapidly. Yes, but if the balance of trade continues to worsen, continues to worsen, continues to worsen, and second...factories is four dollars an hour. More than four times as high as comparable wages in Chinese state-owned factories, and 3,000 times higher than the critics and the comments just made. The fact is that U.S. and foreign investment have had a dramatic affect on the economic well-being of the Chinese people, not only in term of wages, but in addition, in terms of practices and that the practices of American industry in China is shining a light that is something that we as supporters of reform, liberalization, choice should very much endorse.
Speaker: I could I refrain. Yes, I would like to remind Sherrod of something and that is I was an exploited child laborer you know in my lifetime. That was part of U.S. history, as a kid we worked at the farm, you know, no safeguards, paid $.10 an hour, no overtime for overtime hours, put in 10 years in a day and made a buck and were we tickled about that. Worked a six day week. No overtime pay for the Saturday work we did, made another dollar - six dollars in a week and no security guaranteed in any way, shape or form such as health benefits. What I’m suggesting is in my lifetime I’ve experienced this and China is projected to go to almost well over 900 million people as middle income within a decade because of the projected economic growth opportunities and so I admit to you that this advancement of China’s interest is a win-win proposition. We are beneficiaries, they’re beneficiaries, but it will advance the welfare of the Chinese people too, and keep in mind that they got started after we did in this area, they are behind us, but they will make rapid progress and the elimination of the tariff barriers is one of the best ways we can make a positive contribution.
Male: Congressman?
Levin: Well maybe this is a good place to end. I think our time is up to show that there are different emphases here. I don’t think that trade is automatically going to lead to the kinds of conditions that we want in China. I think it’s an element. I do think we have to combine with trade pressure points on the Chinese to help move, it move in a direction that is free markets, including free labor markets, and ethical standards and enforcement of their agreement. The question I think is how we make that happen and I think we can help make it happen by approaching these issues with some comprehensivenes and some commitment. I just deeply believe for example that part of the processes engagement that it has to be engagement on our part with a purpose and with a structure in the United States that makes it clear where we’re coming from and where we want the Chinese to go. So I think that the panel, Mr. Chairman, has helped to bring out these points and in terms of American public opinion my feeling is there’s a leadership obligation on the part of us all, not only to explain the issues, cause I think the American public understands them, but also, though not the details, but to take the leadership in creating instrumentalities within the U.S. government that can help shape the globalization that is inevitable in this world of ours and that is more and more enveloping china. The only question is not whether it’s irreversible but the direction it’s going to take and I think what we have to do is to impact on that direction and not simply look the other way.
Chairman: Thank you very much Congressman Levin. Actually I will have the last word on this panel by thanking all both the questioners and the participants. But ladies and gentlemen, I invite you keep your places. I’ll ask my counterpart, Jessica T. Mathews, please, to come up and take over the chair and we will go immediately into the second panel. Thank you again, Ambassador Hill and gentlemen. I’m grateful to your participation.
PANEL 2
Jessica Tuchman Mathews (Carnegie Endowment for International Peace): Returning now to the most contentious and often the most emotional issue involved in this debate. I want people in the back to either come back in or go out. Okay. We’re talking about the most contentious and often the most emotional issues in this debate. I’d like to say that American foreign policy is properly a blend of interests and values. It always has been and it always will be such a blend. And there have been times when the U.S. has hurt its short-term interest by standing alone in defense of certain values and when such a stance has yielded many fold greater long term gains to its interests. So this is not simply a matter of dollars and cents or short term interest to discuss. That’s said, i think it does very careful analysis on the part of our speakers, very active listening on all of our parts, to focus on the issue at stake, namely exactly what are the consequences for human rights, for labor, and for the environment of a yes vote on PNTR and what are the consequences for those things, not for our feelings, of a No vote. Let me briefly introduce our panel. Congressman Brown, Democratic of Ohio, has been introduced in the first panel. I won’t repeat that. David Lampton is Director of Chinese Studies at the Nixon Center and Hyman Professor of China Studies at the Johns Hopkin School of International Studies here in Washington. Before that for many years he was president of the National Committee on U.S.-China Relations in New York City. Martin Lee is chairman of the Democratic Party of Hong Kong, the largest and most popular political party in Hong Kong. Before that he was Chairman of the United Democratics of Hong Kong, the first politic al party there. He was first elected to the legislature council in 1985 and has been overwhelmingly re-elected in every election since. He served from ’85 to ’89 as a member of the basic Law Drafting Committee appointed by Beijing to draft Hong Kong’s post 1997 Constitution until he was expelled from the Committee following the 1989 Tenneman Square crackdown. He has been honored all over the world for his contributions to a democracy. Among our speakers, in alphabetical order, Steve Beekman, Assistant Director for government and International Affairs in the Washington Office of the United Auto Workers where he directs policies and positions on all aspects of international trade and investment issues. He’s a member of several government advisory committees on international trade including the Labor Advisory Committee for Trade Negotiation and the State Department’s International Economic Advisory Committee. Paul Joffe is Associate Director for Advocacy in the National Wildlife Federation Office in Washington. Between 1994 and 1998 he held several positions in the Commerce Department, including Deputy Assistant Secretary for Import Administration and leading positions in the General Counsel’s Office. Before that he was General Counsel to Senator Jay Rockefeller and Counsel to the Subcommittee on Commerce, Consumer Protection and Competitiveness. Doug Gutherie is Associate Professor of Sociology at New York University. He is an expert both on East Asian issues and on corporate behavior issues. He directs the program on the corporation as a social institution at the Social Science Research Council New York and is also Director of its East Asia Program. His 1989 book “Dragon in a Three Piece Suit” examines the emergence of capitalism in China. Lori Wallach is Director of Public Citizens Global Trade Watch. She and her organization have been leading opponents, leading actors on many trade issues, on fast track, on opposing the multilateral agreement, on investment and at the recent ministerial, the Seattle WTO ministerial. She is a trade lawyer by training and in 1999 published a book “Whose Trade Organization Corporate Globalization and Erosion of Democracy.” Let me remind the panelists to please be as brief as you can. I will give you a four minute warning, but if you could keep to three that will give us more time for questions and let us begin. Please, with Steve Beckman.
Steve Beckman (United Auto Workers): Thank you. It’s a pleasure to be here and discuss these issues in this form. The UAW testified on Wednesday this week at the Ways and Means Committee concerning the many reasons for opposition to granting PNTR to China, because of China’s history of vicious repression of independent unions and defenders of worker rights our concerns regarding labor conditions in China were clearly stated. For the UAW to support an accession agreement, China would have to demonstrate its compliance with internationally recognized worker rights, the ability of workers to enforce compliance through domestic laws and regulations and China’s support for including worker right in the WTO through the creation of WTO working group on this subject. Since none of these achieved, we opposed establishing a WTO establishing with China and insist on the continuation of Congress’s annual NTR review in order to exert pressure on China to change its labor laws, policies and practices. China’s WTO accession agreement makes no mention of worker rights. As a result China has made no commitment to observe the core labor rights that virtually universally accepted and have been included in the international labor organizations declaration on fundamental principles and rights at work - freedom of association, the right to organize an bargain collectiveness, the elimination of forced and child labor, the elimination of workplace discrimination. In assessing the impact of China’ accession on efforts to initiate a discussion on the relationship between worker rights and trade in the WTO by the U.S. government and the international labor movement’s effort to adopt WTO rules to protect the basic rights of workers, it’s clear that China will be an important obstacle, rather than a positive voice. This issue should have been addressed in the accession negotiations but it was not. It was not even raised. As a result the contribution of the violation of core worker rights to the unfairness of the international trading system and to economic inequality will be even less likely to be addressed through the trading system and its that trading system that transmits the serious negative efforts of worker rights violations onto declining workers’ living standards and diminished social justice. As you are no doubt aware China violates virtually all of the fundamental rights. The continued repression of independent union organizing and the repressive role of the all China federation of trade unions means that workers who try to exercise their rights are subject to beatings, arrest and worse. Despite an agreement with the U.S. to provide the information and access needed to prevent U.S. imports of products made in Chinese prisons by forced labor, China has not complied with, and the violations continue. Forced labor in re-education prisons remains a serious problem with the number of workers confined to these camps without a trial estimated at several million. Workers in China do not have the legal right to strike and of course there are numerous examples, citations of China’s failure to implement and enforce the rules which it does have regarding hours of work, minimum wages, health and safety conditions. All of these violations have been addresse
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