Emergency Committee For American Trade - Publications

China

Opportunity Knocks

In early March of this year, the President sent legislation to Congress granting China Permanent Normal Trade Relations (PNTR) status. The top priority on the U.S. trade policy agenda this year must be to secure China’s WTO membership and enact PNTR legislation for China in order to reap the full benefits of China’s WTO membership. Making China--the world’s largest developing country with a population of over one billion, a Gross Domestic Product (GDP) of over $1 trillion, and one of the fastest growing economies--subject to the rules and disciplines of the multilateral trading system promotes America’s commercial, foreign policy, and strategic interests.

After 13 years of painstaking negotiations, last November the United States and China reached a pathbreaking, comprehensive agreement on the terms of China’s WTO accession that will create new opportunities for American working men and women in all sectors of the economy for decades to come. Never before have the benefits of a U.S. trade agreement been so clear or so one-sided. Due to the skill and perseverance of U.S. negotiators, the U.S.-China WTO bilateral agreement requires China to remove major market-access barriers to U.S. goods, services, and agriculture, subject to tight timelines and strict enforcement mechanisms. The bilateral agreement also achieves a longstanding goal of U.S. labor groups to end China’s policies designed to draw jobs and technology away from other countries by requiring China to eliminate local content, export performance, and technology transfer requirements and other related policies.

While the United States gains historic new market-access opportunities in China under the WTO bilateral agreement, China gains no new access to the U.S. market. In fact, the agreement will allow the United States to enjoy even greater protection against surges of Chinese imports in the form of new safeguard provisions--tougher than any in current WTO rules or ever included in a WTO accession agreement--and the maintenance of strong antidumping rules.

As President Clinton and Ambassador Barshefsky have both stated, the United States cannot open the door to these historic opportunities in China’s market unless it extends PNTR status to China. The United States is obliged to provide unconditional NTR treatment to all WTO members, and China has said that its willingness to extend the benefits of the WTO bilateral agreement and WTO benefits to the United States is contingent on receiving unconditional NTR treatment from the United States. Anything less than a grant of PNTR treatment to China, free of any annual renewal or review requirements or conditions, will not meet this requirement.

If we do not open the door to this historic opportunity by extending PNTR treatment to China, the United States will lose the full benefits of China’s WTO membership and our bilateral relations with China will be severely damaged. Moreover, by denying China PNTR treatment, we would give our competitors in Europe and Asia a major advantage as they already extend unconditional NTR treatment to China and will be entitled to the full benefits of China’s WTO membership.

As Ambassador Barshefsky has testified, the 1979 U.S.-China bilateral commercial agreement is far narrower in scope than the 1999 U.S.-China WTO bilateral agreement and would not entitle the United States to enjoy the full benefits of China’s WTO accession in the absence of granting PNTR treatment to China. For example, the 1979 agreement does not cover areas such as services, trading rights and distribution, or investment--the latter an area critical to U.S. labor groups. Moreover, the 1979 agreement would not allow the United States to enforce China’s commitments under WTO dispute settlement procedures.

Bringing China into the WTO and extending PNTR treatment to China are critical to help ensure that U.S. trade and investment remain powerful engines of economic growth. With 96 percent of the world’s customers outside of the United States, the future growth of the American economy depends on expanding world markets. For example, in agriculture, the American Farm Bureau has stated that China is "the most important growth market for U.S. agriculture in the 21^st century."

China’s WTO accession will enable American companies to continue to provide opportunity to their employees and their families and advance U.S. living standards. As documented in ECAT’s study, Global Investments, American Returns, American companies with global operations are able to contribute more to U.S. growth and living standards than companies with purely domestic operations through their research and development, exports, and investments. Expanded market-access to China, the world’s largest emerging economy with the greatest market potential, is key to helping American companies sustain these positive contributions to the U.S. economy.

China’s WTO accession is not just important to major American companies; it is also critical to the growth of small and medium-size American companies, which now account for over 80 percent of U.S. exports to China. Small and medium-size firms also stand to benefit as U.S. suppliers. As documented in Global Investments, American Returns, American companies with global operations buy over 90 percent of their intermediate inputs from U.S. suppliers.

Support for China’s WTO accession must not be mistaken in any way as condoning China’s track record on human rights and individual freedoms or turning a blind eye to other serious problems that exist in China. China’s WTO accession is an important part of addressing these issues. By opening and reforming China’s economy, WTO accession will provide new economic freedoms for Chinese citizens and promote the rule of law in many areas now subject to state control. China’s WTO membership can also serve as precedent for China’s willingness to accept international standards of behavior in other fields. It is for this reason that Martin Lee, leader of Hong Kong’s Democracy Party, and Ren Wanding, a leading Chinese human rights activist, support China’s WTO accession as the most important step toward reform in the past 20 years.

The record of the last quarter century of America’s bipartisan policy of maintaining trade ties with China has taught us that positive change is the product of engagement, not isolation. While maintaining China’s NTR status has been the cornerstone of our engagement policy with China, this policy and our relations with China have been buffeted by the uncertainties of the annual NTR renewal process. Achieving China’s WTO accession and extending PNTR treatment to China--without any conditions or annual review--will provide a solid foundation that will allow our policy of engagement to bear greater fruit.

China’s WTO accession and the extension of PNTR treatment to China also promote U.S. foreign policy interests by strengthening U.S.-China bilateral ties and encouraging China’s continued cooperation on sensitive issues such as, weapons proliferation, maintaining financial stability in the Asian region, and other matters.

Benefits of China’s WTO Accession

China’s accession to the WTO will provide tremendous new opportunities for American goods, services, and agriculture in the world’s largest and fastest growing market. The U.S.-China bilateral agreement that sets out terms for China’s accession is: 1) comprehensive, removing major trade barriers in all major sectors of the economy, 2) fully enforceable, and 3) designed to produce rapid results. The bilateral agreement builds upon reforms obtained in previous negotiations and reflects U.S. experience in enforcing previous agreements. Highlights of some of the major achievements in the bilateral WTO agreement are summarized below.

Agriculture: The bilateral agreement provides expanded market-access for U.S. wheat, corn, soybeans, cotton, barley, and rice under a new system of tariff-rate quotas, reduces Chinese tariffs on priority products such as beef, citrus, and dairy from over 30 percent to 12 percent, and eliminates Chinese export subsidies. In a separate side-agreement, the Chinese have agreed to eliminate non-science-based food safety measures that restrict entry of U.S. beef, pork, poultry, and wheat.
Trading and Distribution Rights: The bilateral agreement provides full trading rights for U.S. companies to import, export, and distribute products directly to Chinese customers, including after-sales service and repair, without going through a local trading company or distributor.
Tariffs: The bilateral agreement cuts Chinese tariffs from the current overall average of 24.6 percent to 9.4 percent by 2005, including major tariff reductions on the farm products noted above. In the auto sector, China agreed to reduce its current 80 to 100 percent tariffs on autos to 25 percent by 2006 and to reduce tariffs on auto parts from 23 percent to 10 percent. China also will join the WTO’s Information Technology Agreement (ITA) that will require China to reduce its tariffs on computers, semiconductors, telecommunications, and other high-technology products to zero.
Services: The bilateral agreement requires China to provide comprehensive market-access for U.S. telecommunications and financial services under the WTO Telecommunications and Services Agreements. China has made specific market-access commitments in all services industries of primary interest to the United States, including the Internet, audio-visual, banking, insurance, securities, and auto finance. U.S. publishing and information services also will benefit from China’s commitment to remove restrictions on distribution and to reduce restrictions on investment.
Safeguards: The bilateral agreement contains an unprecedented twelve-year product-specific safeguard provision that ensures that the United States can take action against increased imports from China that cause market disruption in the United States. The agreement also guarantees the United States the right for the next 15 years to continue to use special non-market economy methodologies in antidumping cases brought against China.

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

It is important to remember that that these tremendous market-access opportunities are one way. The U.S. market is already open to China and the rest of the world, and the United States is not required to make any concessions to China. In contrast, China has committed itself to major economic reform and restructuring and to tear down its trade barriers.

Bringing China into the WTO is the best means to stem our rising trade deficit with China, as China would have to reduce its high tariffs and eliminate quotas and other major market-access barriers. It is to the U.S. advantage to be able to have China enter into binding market-access commitments that are enforceable under WTO dispute settlement procedures, rather than have to enforce existing bilateral agreements unilaterally and in a piecemeal fashion. The longer China’s WTO accession is delayed, the more business opportunities are lost for U.S. suppliers and the greater the pressure within the United States to impose unilateral, trade-disrupting measures against China.

While it is critical to lock in the historic market-access commitments in the U.S.-China WTO bilateral agreement, we must also continue to press China to remove remaining barriers such as restriction of trading rights on fertilizer. We must also ensure that China does not impose new restrictions, such as the recently announced regulations on the use of encryption products and attempts to limit Internet access.

It is also in China’s interest to move forward with WTO membership as a means to future growth and prosperity. China’s President Ziang Zemin and Premier Zhu Rongji have committed China to move away from isolation and a state-led economy to a more open, market-driven one that plays a major role in the world trading system. China’s WTO membership is key to locking in China’s ongoing reforms. While in the short term the necessary economic reforms in China and its dismantling of state-owned enterprises will not be an easy process, China’s market-opening measures and the certainty of WTO commitments and rules will create a more open climate for imports and investment that will spur economic growth. For example, ending existing barriers to distribution rights in China would create new business activity and increase dramatically the access for U.S. manufacturers, farmers, and service providers.

WTO membership is important to China in order to improve its access to markets other than the United States that are now able to erect barriers to Chinese imports without violating WTO rules. China must seek markets beyond the United States if it is to ensure its continued economic growth.

WTO Requirements for China’s Final Accession

As comprehensive as the U.S.-China WTO bilateral market-access agreement is, there are a number of steps that must occur before China can accede to the WTO. It is important to understand, however, that none of the remaining work that must be done will in any way weaken China’s commitments in the bilateral agreement. In fact, the negotiations that have yet to be completed will not only preserve China’s commitments to the United States, but may even provide even better market-access.

Negotiations on the terms of a country’s accession to the WTO result in four documents: 1) the consolidated schedules containing a country’s market-access commitments for goods and services, the so-called market-access package, 2) the protocol, containing the terms of accession, 3) the working party report; and 4) the draft decision of the working party on the applicant’s request for accession. The market-access package consists of schedules of tariff reductions and other commitments that the applicant country has made on goods, services, and agriculture. Market-access commitments are negotiated bilaterally with WTO member countries and then combined into a single package of concessions, which applies to all WTO member countries on a MFN basis.

The protocol of accession is negotiated multilaterally within the WTO working party on accession. The protocol sets out the applicant country’s commitments to abide by WTO rules and provides for transition periods or other special rules. The working party report also contains a discussion of the terms a country has agreed to and the specific commitments that it has made in the course of negotiations. Once the market-access schedules are finalized, they are incorporated into the protocol of accession. The working party then must reach consensus on the draft protocol package that is sent to the WTO General Council for approval. While the General Council generally approves accession by consensus, a country may request a vote. In such a case, approval of an accession requires a two-thirds majority vote.

China has now reached bilateral market-access agreements with roughly 15 WTO members including the United States, Canada, Japan, Brazil, and India. The major remaining bilateral negotiation that China has yet to complete is with the EU. The EU is seeking greater tariff reductions for auto parts, cosmetics, fruit, and leather goods, as well as improved market-access in China’s telecommunications and insurance sectors. China is making every effort to complete these negotiations as soon as possible. The WTO Working Party on China’s accession has resumed its effort, and the United States has asked that it proceed on an expedited basis. Much of the work on China’s Protocol of Accession has been completed.

Finance Committee Chairman Roth, as well as other members of Congress, have indicated that Congress is ready to proceed with consideration of legislation granting PNTR treatment to China. The Administration has submitted legislation to the Congress providing PNTR treatment for China.

Importance of PNTR Legislation for China and Other U.S. Laws Affecting China’s WTO Accession

Need for PNTR Treatment for China

The first and most important action that the United States must take in order to reap the full benefits of China’s WTO membership is to secure the enactment of legislation granting China permanent NTR status and exempting it from the coverage of the Jackson-Vanik provisions of the Trade Act of 1974. Once China becomes a WTO member, the United States is obliged to provide unconditional most-favored-nation treatment to China, as it does to all current 134 WTO member countries, in compliance with Article I of the GATT/WTO agreement. As a result, as noted by Professor John Jackson, a leading authority on GATT/WTO law, the United States cannot comply with its WTO obligations in extending WTO benefits to China unless it extends Permanent Normal Trade Relations (PNTR) treatment to China.

China currently receives Normal Trade Relations (NTR) treatment from the United States pursuant to the Jackson-Vanik provisions of Title IV of the Trade Act of 1974, which governs the extension of NTR treatment to non-market economy countries. The Jackson-Vanik provisions provide conditional NTR treatment because they tie extension of NTR to compliance with freedom of emigration criteria and require that NTR be renewed annually. As long as China’s NTR status in the United States remains subject to the Jackson-Vanik provisions, the United States will not meet the requirements under Article I to provide unconditional MFN treatment. Removing the freedom of emigration provisions from Jackson-Vanik would not cure this defect, as long as China’s NTR treatment remained subject to the discriminatory annual renewal requirements that the United States does not impose on current WTO members.

Of equal importance to the legal arguments on the necessity of extending PNTR treatment to China are very real political considerations. In the course of the U.S. negotiations with China on WTO accession, Chinese negotiators made it clear that their willingness to extend the benefits of their bilateral WTO agreement and WTO obligations to the United States is contingent on receiving PNTR treatment from the United States. Moreover, the failure of the United States to grant PNTR to China could be used by anti-reform forces within China as an excuse to backtrack from market-opening and economic reform.

Some have argued that even if the United States decided not to extend PNTR treatment and WTO privileges to China that the United States would still be entitled to enjoy the benefits of China’s WTO accession under the U.S.-China 1979 bilateral commercial agreement. This is inaccurate. The 1979 bilateral agreement is far narrower in scope than the U.S.-China bilateral WTO agreement. For example, it does not provide comprehensive coverage for services, nor does it require the elimination of state trading or discriminatory taxes and regulations. The 1979 agreement also does not provide for the enforcement of commitments through WTO dispute settlement. In addition, the WTO Working Party on China’s accession is considering restricting the eligibility for China’s agricultural market-access opportunities to only those countries that apply the WTO to China.

Clearly if we do not extend PNTR treatment to China, U.S. goods, services and farm products will be seriously disadvantaged, if not virtually shut out of the Chinese market. Failure to grant PNTR treatment to China would give a huge edge to our Japanese, European, and Asian competitors in the Chinese market. This is not a risk we should take, particularly when we are being asked to do virtually nothing in our home market to gain so much.

Other U.S. Laws Affecting China’s WTO Accession

Another provision of U.S. law relating to the U.S. decision to support China’s WTO accession is a provision included in Section 1106 of the 1988 Omnibus Trade and Competitiveness Act requiring that before China joins the WTO the President must make certain determinations regarding China’s state enterprises. The state-trading provision requires the President to decide whether 1) China’s state-trading enterprises account for a significant share of either China’s exports or goods that are subject to import competition in China, and 2) these enterprises adversely affect U.S. foreign trade or the U.S. economy. If both determinations are affirmative, the WTO agreement cannot apply between the United States and China, unless China enters into a bilateral agreement addressing its state enterprises, or Congress enacts legislation approving the U.S. extension of WTO benefits to China. It is anticipated that the President will make a determination that the provisions of Section 1106 should not be invoked based on China’s current effort to reduce the level of state ownership and the commitments China has made under the U.S.-China WTO bilateral agreement.

Finally, the Uruguay Round Agreements Act requires that the U.S. Trade Representative consult with appropriate congressional committees before any WTO General Council vote on WTO membership, if the vote would substantially affect U.S. rights or obligations under the WTO or require a change in federal law. In view of the importance of China’s economy to the United States, this consultation requirement would clearly apply to a vote on China’s membership. The Administration is engaging in intensive consultations with the Congress on the details of the U.S.-China WTO bilateral agreement and on the progress of China’s overall accession negotiations.

Bilateral Issues Likely to Impact Debate over China PNTR Legislation
U.S. Trade Deficit with China

According to U.S. Department of Commerce statistics, China’s trade deficit is likely to approach $70 billion for 1999 and may exceed that level this year. The best response to this rising deficit is to facilitate the removal of Chinese market-access barriers that contribute to the deficit by securing China’s WTO membership. A recent study by the Congressional Research Service estimates that China’s WTO accession would increase annual U.S. exports by as much as $11.5 billion by 2005. Refusing to extend PNTR treatment to China and failing to support its WTO membership would deny the United States the opportunity to seek these important new export opportunities and reduce our bilateral deficit with China.

It is also important to put the U.S. trade deficit with China in perspective. First, the deficit reflects a shift in the production of low-cost, mass-market consumer products such as electronics, apparel, footwear, and toys to China from other Asian countries. According to a recent study, 90 percent of U.S. imports from China are replacing U.S. imports from other low-wage economies in Asia. In addition, many U.S. experts believe that U.S. Commerce statistics overstate the U.S.-China deficit by as much as one-third because the U.S. Commerce Department does not include U.S. exports to Hong Kong that are re-exported to China as exports to China, employs different methodologies to calculate the value of U.S. exports and U.S. imports, and underreports U.S. services exports to China. Finally, the U.S. trade deficit with China reflects the sustained U.S. economic expansion that has increased demand for imported products, as well as the continued relative weakness in Asian and European economies.

Human Rights

The rapid economic advance of the Chinese economy and the shrinking of the Chinese state sector over the last 20 years have improved the standard of living of the Chinese people. Median per capita income has quadrupled over the last 18 years. The World Bank estimates that over 200 million Chinese have escaped poverty since 1978. Economic growth and reform have also brought greater access to outside information that has led to greater individual freedom. Roughly 500 hundred million Chinese are participating in village-level democratic elections, and beginning last year, residents of some of China’s cities got the right to vote. More than one billion Chinese, representing 89 percent of Chinese households, have access to television and some 1,000-radio stations. Internet use is also expanding dramatically in China and is key to promoting personal freedom in China. Currently, 10 million Chinese citizens enjoy access to the Worldwide Web. It is estimated that over 70 percent of China’s students listen to the Voice of America. Greater freedom of the press and publishing is also evident in China as Chinese readers can now choose from over 8,000 magazine titles, compared with only 930 in 1978. One of the best-selling authors at Beijing University is Nobel laureate Friedrich von Hayek, whose works condemning socialism were banned in China until 1998.

American companies are a powerful force in producing positive change in China through the high standards, values, and management practices they employ in their operations in China and their commitment to local communities. American companies pay their employees in China high wages and provide safe work environments and meaningful job training--all of which improve the quality of their employee’s lives. From General Motor’s Shanghai automotive assembly plant with state of the art environmental technology, Caterpillar’s classes for Chinese employees on environmental management, and Cargill’s high workplace safety and environmental standards at its soybean crushing facilities in China, to the high wages and educational and housing benefits that Honeywell and United Technologies provide to their employees in China, American business’ "best practices" are helping to raise social, environmental, labor, and other quality of life standards in China.

Despite the positive change that has occurred in China over the last several decades, serious problems remain. Over the last year, China has carried out a nationwide effort to suppress the Falun Gong spiritual movement and the fledgling China Democratic Party. China has yet to ratify the two U.N. covenants on human rights that it agreed to sign in 1998. China has stepped up its efforts to control information flows over the Internet and use of encryption technologies. Last April, the United States sponsored a U.N. resolution condemning China’s human rights record.

These important issues can best be dealt with by continuing the bipartisan U.S. policy of engagement. The U.S. policy of engagement with China cannot move forward unless the United States extends PNTR treatment to China and ends the rancorous annual debates on the renewal of China’s NTR status. The United States and China should reinstitute their bilateral dialogue on human rights issues that can provide an important forum for achieving further progress in this area. In addition, once China ratifies the International Covenant on Civil and Political Rights, it will provide a useful multilateral mechanism for addressing China’s human rights standards.

Taiwan

Under the "One China" policy established pursuant to the 1972 Shanghai Communiqué, the United States agreed to recognize the People’s Republic of China as the sole government of China, acknowledge that Taiwan is part of China, and maintain only informal, commercial relations with Taiwan. This policy has allowed the United States over the last two decades to make progress in developing its political and economic relationship with China, and to expand commercial ties with Taiwan. The "One China" policy has facilitated Taiwan’s evolution into a leading industrial economy and growing democracy.

Under the "One China" policy, Taiwan and China have developed improved trade ties. Two-way trade between China and Taiwan exceeds $25 billion annually. Taiwan is the second largest investor in China after Japan. Taiwanese firms have invested over $35 billion in China over the last decade.

In anticipation of Taiwan’s Presidential elections in March of this year, China issued a policy paper in which it threatened to resort to drastic measures if Taiwan put off talks on reunification with China indefinitely. Last July, relations between China and Taiwan worsened when Taiwan President Lee Teng-hui spoke in defiance of the "One China" policy by describing the ties between China and Taiwan as state-to-state. China may be calculating that its policy statement will discourage the Taiwanese from electing a candidate who opposes reunification with China; however, China’s threat is unlikely to produce any major policy changes in Taiwan. All three of Taiwan’s presidential candidates support closer relations with Mainland China, but they also support Taiwan’s autonomy. The U.S. Administration and the Congress condemned China’s threat and urged China and Taiwan to resolve the issue of reunification without resorting to force.

It is possible that if China does not tone down its rhetoric and refrain from further threats to Taiwan, it could prompt the Senate to take up the Taiwan Security Enhancement Act, H.R. 1838, which was passed by the House in early February of this year. The bill, sponsored by Senator Jesse Helms (R-SC) and Congressman Tom DeLay (R-22 TX), calls for strengthening U.S. military ties with Taiwan, including requiring the Administration to report regularly to Congress on the military balance between China and Taiwan and on U. S. plans to respond to any military crisis that could jeopardize U.S. interests in Taiwan. The Administration strenuously opposes the bill on the grounds that it would endanger Taiwan’s security by worsening relations between China and Taiwan and is unnecessary because the Clinton Administration has gone further than any previous administration to provide for Taiwan’s security.

Taiwan has completed its bilateral market-access negotiations with the United States, as part of its effort to join the WTO. The package is expected to greatly benefit U.S. producers of pork, chicken, and other meat, as well as U.S. auto manufacturers. Under the market-access agreement, Taiwan has agreed to reduce its overall tariff rate below five percent, with two-thirds of the reductions to take place upon WTO accession. Taiwan also agreed to open a number of service sectors, including law, accounting, engineering, advertising, construction, and wholesale and retail distribution. Taiwan has agreed to enter the WTO as a developed country and has agreed to participate in the WTO agreements on government procurement, trade in civil aircraft, and information technology. Taiwan is now finalizing negotiations on the terms of its protocol of accession and has made an improved market-access offer on services and agriculture. Although Taiwan’s WTO accession negotiations are nearly complete, they will not be finalized until China’s WTO accession negotiations have been completed. Under an informal 1992 "understanding" reached among WTO members, Taiwan is not to accede to the WTO before China.

Export Controls

U.S. controls on the export of dual-use and commercial products and technologies to China are likely to continue to be a topic of debate this year. Last May, Congressmen Christopher Cox (R-47 CA) and Norm Dicks (D-6 WA) released a declassified version of their committee report on the alleged Chinese theft of sensitive U.S. technology, the so-called Cox-Dicks Committee report. While the committee report concluded that China had gained sensitive U.S. nuclear technology from U.S. energy labs, the committee report did not recommend that the United States discontinue its engagement policy toward China. Instead, the report recommended that the United States build consensus for a new, strengthened multilateral export control system. In releasing the report, Congressman Cox stated that he supported China’s WTO membership on commercially acceptable terms and warned that the Congress should maintain a clear separation between national security and trade issues with respect to China.

Allegations regarding the improper transfer of sensitive missile, satellite, and other technology to China resulted in the enactment of a provision in the 1999 Department of Defense (DOD) Authorization bill that transferred jurisdiction over satellite export licenses from the Commerce Department to the State Department effective in March of last year. The provision also requires that the President notify the Congress in advance of the export of any missile technology or equipment to China, and certify that such exports would not be detrimental to the U.S. space launch industry and would not substantially improve China’s space launch or missile capabilities. While Loral Space and Communications has been denied permission to provide technical assistance to China for satellite launches, the State Department did approve U.S. exports related to the launch of Motorola’s Iridium satellite in China and of the U.S. Apstar-3 satellite that will provide telecommunications services to China.

ECAT supports the President’s announcement in February of this year that he would liberalize controls on the export of U.S. high-speed computers and allow computers with capacities up to 20,000 million theoretical operations per second (MTOPS) to so-called Tier 3 countries that includes China. The President’s decision is an important step in attempting to ensure that government export controls keep in step with technological advances. The President’s decision is likely to remain an issue this year in the debate over Export Administration Act (EAA) renewal legislation.

In developing future export control policy, both global and China specific, excessive reliance should not be placed on unilateral export controls that lack the support of America’s principal trading partners which produce like products and technology. Such controls undermine national security and U.S. technological leadership. China is a dynamic market with considerable market opportunities for U.S. high technology industries. While the United States has a current advantage in high value, high technology goods and services, we face serious competition from European and Japanese suppliers. U.S. suppliers are at increasing disadvantage in meeting competition from foreign suppliers, as their governments have far less restrictive export control policies toward China. U.S. export controls can only be effective if all major suppliers implement them. As long as similar technology continues to be available from Europe and Japan, unilateral U.S. export controls will not advance our national security and may very well undermine it.

U.S. military superiority depends on maintaining our technological edge. Increasingly, technological advances flow from the private to the defense sector, rather than vice versa as was the case during the Cold War. Accordingly, U.S. technological superiority depends on healthy high technology industries. Ineffective unilateral U.S. export controls undermine the health of these industries by ceding China’s market and other foreign markets to our competitors.

Current U.S. law strictly prohibits the unauthorized sale of controlled technology to China or any other nation. If U.S. firms or individuals have engaged in prohibited transactions, they should be subject to prosecution and conviction under existing U.S. laws.

People’s Liberation Army

In an effort to curb smuggling and increase tax revenues, in 1998 President Jiang Zemin ordered China’s People’s Liberation Army (PLA) to relinquish control of its commercial operations, which consisted of as many as 20,000 businesses. The PLA was banned from using its letterhead, seals, or codes in any business. Last year, the ruling Communist Party issued a similar order directing that neither the party nor any state bureaucracies may control any business enterprises. The Finance Ministry and the central bank took over temporary administration of finance and investment companies. Local industrial authorities were ordered to take over small businesses. A newly created committee under the State Council is supervising 500 of the largest businesses.

Last year, in the Senate an amendment was mooted to the Defense Authorization bill prohibiting the use of funds to provide U.S. assistance that would enhance the capabilities of the PLA. The amendment was prompted by findings in the Cox-Dicks Committee report concerning the transfer of sensitive U.S. technology to China. The amendment would have prohibited Export-Import Bank financing of sales to China and banned U.S. Department of Agriculture credits and financing for U.S. farm exports to China. It would have cut off billions of dollars in commercial sales to China, as under the amendment virtually any U.S. sale could be construed to enhance the PLA’s capability. Moreover, the amendment would have been impossible to enforce as the PLA had a stake at that time in thousands of commercial businesses throughout China. In the end, the amendment was not formally proposed.

Hong Kong

On July 1, l997, the United Kingdom returned control over Hong Kong to China in a peaceful transition. The 1990 Basic Law of Hong Kong provides the constitutional framework for Hong Kong’s legal status under Chinese control. Under that law, Hong Kong is now a special administrative region (SAR) within China, with a capitalist economy, an independent judiciary and civil service, a separate legal system, and the authority to participate in international organizations involved in economic, cultural, and sports activities. As a SAR, Hong Kong has a high degree of autonomy in all areas except foreign affairs and defense, both of which remain under China’s control. With the return of Hong Kong to Chinese sovereignty, the Chinese government says that it has established a model of "one country, two systems."

Under the Sino-British Joint Declaration, Hong Kong is to continue as a capitalist system for 50 years after its reversion to Chinese sovereignty. The bi-partisan Congressional Task Force on the Hong Kong transition chaired by Congressman Doug Bereuter (R-1 NE) has reported that since the transition, China generally has refrained from direct involvement in Hong Kong affairs. It also found that political demonstrators have been able to carry out activities without restraint, that the media continues to operate freely, and that the Hong Kong judiciary continues, in general, to operate independently.

The maintenance of stable U.S.-China commercial relations remains vitally important to the vitality of Hong Kong’s economy, as more than half of U.S.-China trade passes through Hong Kong. Granting China PNTR treatment is vital to ensuring the continued vitality of Hong Kong trade and investment. A recent study estimates that any disruption in China NTR status would reduce Hong Kong’s trade by up to $34 billion and its income by $4.5 billion. It would also jeopardize the $16 billion in direct U.S. investment in Hong Kong and the 500 American firms that have their regional offices in Hong Kong.

The extension of PNTR treatment to China is also important to the ability of Hong Kong to maintain the stability of its financial markets.

ECAT POSITION: ECAT member companies support China’s WTO accession and urge the Congress early this year to enact legislation granting PNTR treatment to China without conditions. The legislation should not be tied to any annual review or approval process or conditioned in any way.