1998 Congressional Hearings
Special Weapons
Nuclear, Chemical, Biological and Missile

Mr. Chairman, thank you for the invitation to address the Ways and
Means Committee Trade Subcommittee on the important issue of China's
MFN status. This is, of course, a timely hearing, with President
Clinton's historic trip to China just a week away. I thus welcome this
opportunity to make the Administration's case for MFN renewal and look
forward to engaging Committee members in a productive dialogue on this
matter.


My testimony today will be divided into three parts. First, I will
review the reasons why a stronger, more constructive relationship with
China is in the U.S. interest. Second, I will outline the Clinton
Administration's strategy of engagement, highlighting what we have
accomplished while noting the obstacles we still face. Finally I will
examine the issue of MFN within the broader context of our overall
China policy, examining the serious impact revocation would have on
our ability to engage the Chinese.


China Affects U.S. Interests

Mr. Chairman, peace and stability in East Asia and the Pacific is a
fundamental prerequisite for U.S. security and prosperity. Nearly one
half the world's people live in countries bordering the Asia Pacific
region and over half of all economic activity in the world is
conducted there. Four of the world's major powers rub shoulders in
Northeast Asia while some of the most strategically important
waterways on the globe flow through Southeast Asia. The U.S. itself is
as much a Pacific nation as an Atlantic one, with the states of
Alaska, California, Oregon and Washington bordering on the Pacific
Ocean and Hawaii surrounded by it. American citizens in Guam, American
Samoa, and the Commonwealth of the Northern Marianas live closer to
Asian capitals than to our own, vast numbers of Americans work in the
Asia-Pacific region, and an increasingly large number of Americans
trace their ancestry back to the Pacific Rim.


For these and many other reasons, the U.S. has remained committed to
the Asia-Pacific region and has spent its resources and blood
defending and strengthening our stake in the region. Since coming to
office, President Clinton has repeatedly made clear that America will
remain an Asia-Pacific power. We maintain a sizable military presence
in Asia; enjoy a vibrant network of mutual security alliances with
Australia, Japan, the Philippines, the Republic of Korea and Thailand;
and have significant economic ties with most countries in the region.


China's sheer size means we must deal with China in our capacity as an
Asia-Pacific power. China is home to one quarter of humankind and
occupies vast territory that borders on 14 nations. But China's
remarkable economic achievements, increasing diplomatic prominence and
growing military strength make it a nation that affects not only our
interests in Asia but our vital national interests across the board.


In terms of security, China is already a global player. China holds a
permanent seat on the UN Security Council. It possesses nuclear
weapons, the world's largest standing army, and a rapidly advancing
industrial and technological capacity. It borders some of the globe's
most troubled regions: the Indian Subcontinent to the West, the Korean
Peninsula to the East, and the opium-producing region known as the
Golden Triangle to the South.


Its economic importance is no less profound. The Chinese economy is
already one of the largest in the world, and many observers predict
that if current growth rates can be sustained, it will be the largest
within several decades.


With 1.3 billion people rapidly modernizing, moreover, China is having
and will continue to have a global impact on the environment. Early in
the next century China will be the world's largest producer of
greenhouse gases. China will thus be key to finding a solution to the
pressing problem of climate change.




Engagement Works

China, therefore cannot be ignored. In recognition of this reality,
the Clinton Administration is working to encourage the emergence of a
China that is stable and non-aggressive; that tolerates differing
views and adheres to international rules of conduct; and that
cooperates with us to build a secure regional and international order.
Our strategy has been to engage China by working to identify areas on
which we agree while continuing to forthrightly confront issues on
which we do not.


We have made significant progress in many aspects of our relationship
with China since this committee last heard testimony about MFN renewal
in June 1997, and I would like to take this opportunity to note some
of those achievements.


First, the Chinese have played a constructive role in working to
defuse tensions on the Korean Peninsula. China encouraged North Korea
to come to the negotiating table and now joins us in Geneva at the
four party talks. China hosted recent North-South negotiations and is
actively addressing the humanitarian crisis in North Korea as its
largest donor of food and fuel.


Second, China is playing a similarly important role in seeking to roll
back escalating tensions on the Indian subcontinent. China chaired a
recent meeting of the permanent members of the U.N. Security Council.
It has condemned both parties for conducting nuclear tests and has
joined us in urging them to refrain from further testing; sign the
CTBT; avoid deploying or testing missiles; tone down their rhetoric;
and work to resolve their differences -- including over Kashmir --
through dialogue. These efforts have been complementary to our own. By
contrast, if China were on the sidelines or actively opposing us, this
message would be both less effective and the prospects of a solution
more distant.


On the non-proliferation front, we have built upon the successful
efforts of this and previous administrations to help bring about
Chinese adherence to international norms. Within the past year the
Chinese have: committed to phase out nuclear cooperation with Iran;
reaffirmed their commitment to refrain from assisting unsafeguarded
nuclear facilities anywhere; implemented strict, nation-wide nuclear
export controls; passed in principle and are prepared to publish
regulations controlling the export of dual-use items with potential
nuclear use; joined the Zangger NPT exporters' committee; signed and
ratified the chemical weapons convention; and adopted chemical export
controls -- which they have just expanded.


There is, of course, still much work to be done. We continue to be
concerned about reports of missile equipment and technology transfers
to Iran and Pakistan and reports that Chinese commercial entities have
done business with Iran's chemical weapons program. Still, we have
come a long way and there is good reason to believe that continued
engagement will lead to a further positive evolution of China's
attitudes and actions vis a vis non-proliferation norms.


Even in the contentious area of human rights, engagement with China is
yielding tangible results. Just six months ago members of this
Congress as well as the international community at large had grave
concerns regarding the health and status of two of China's most
prominent political dissidents, Wei Jingsheng and Wang Dan. Against a
backdrop of intensive dialogue with the United States and continued,
public U.S. criticism of China's human rights record, the Chinese
authorities have released both Mr. Wei and Mr. Wang on medical parole
and have permitted some other dissidents to depart China. China has
also signed and submitted for ratification the UN Covenant on
Economic, Social, and Cultural Rights and has pledged to sign the UN
Covenant on Civil and Political Rights. President Jiang Zemin also
recently hosted a delegation of U.S. religious leaders, and the
Chinese government has agreed to follow up this visit with further
dialogue and exchanges. These exchanges can and do produce results, as
the recent release from prison of Bishop Zeng Jingmu demonstrated.


This is not to suggest that human rights abuses in China are a thing
of the past. On the contrary, we have reported to Congress that
serious and widespread human rights abuses continue in violation of
internationally accepted standards and norms. But the steps the
Chinese have taken within the space of just a few months are
nonetheless noteworthy, even if systemic change to protect fundamental
rights remains inadequate.


These are not meant to be exhaustive examples of the fruits of
engagement; nor are they meant to mask the persistence of serious
differences between our two countries. They are intended simply to
show that engagement is working and that we have made progress in
encouraging China's development as a full and responsible member of
the international community.


MFN:  A Critical Component of Engagement

MFN provides a vital underpinning for this strategy of engagement.
Access to the American market is the most tangible evidence there is
of the benefits of being part of the international community. China's
economic ties with the world give it a huge incentive to participate
in and abide by the rules of the international system. If the United
States, the world's largest and most open economy, were to deny China
a normal trading relationship, China's stake in the international
system would shrink significantly.


Withdrawal of MFN would devastate our economic relationship. Denial of
MFN to China could invite Chinese retaliation against our $13 billion
in exports; endanger the roughly 170,000 jobs in the United States
those exports support; hurt American consumers through price increases
on basic goods; disadvantage American business people hoping to
compete in China's burgeoning market; and derail ongoing multilateral
and bilateral trade negotiations intended to increase access to the
China market and ensure China's compliance with international trade
rules.


The Administration is concerned about our growing bilateral trade
imbalance with the PRC. But the most prudent way to address this
problem is to get China into the WTO on a sound, commercially viable
basis. We need to remove barriers disadvantaging our exports to China,
not create barriers to imports from China, which would actually harm
our own consumers as well as manufacturers who depend on Chinese
inputs for their products. We are pursuing this goal with all the
tools available, including WTO accession negotiations and bilateral
trade negotiations. Progress in these talks would certainly be
jeopardized should MFN be revoked.


For the PRC, loss of MFN status would of course hurt its export
sector. But more important for the United States, it would threaten
China's ambitious plans for structural economic reform. China has
unveiled a bold plan to reform China's mammoth state sector and
troubled financial system. This plan is intended to rapidly accelerate
China's transition from a command to a market economy and thus is very
much in line with our own economic interests.


China's plan can only succeed, however, if growth can be sustained.
And yet growth in China slowed from 8.8% this time last year to 7.2%
in the first quarter of 1998, fueling speculation that China will be
unable to carry through with its reforms. Should the export sector --
already under pressure due to significant regional currency
depreciations -- suffer an external shock along the lines of MFN
revocation, reforms that are profoundly in our interest would be
endangered. This would increase uncertainty in the Asia-Pacific just
when stability is most desperately needed for regional recovery, with
MFN revocation likely prompting China to abandon its universally
lauded pledge to not devalue. Devaluation of the yuan would in turn
set off another round of competitive devaluations in the region,
raising the specter of destabilized financial markets in Asia and
beyond.


MFN revocation would also harm our friends in Taiwan and Hong Kong.
Taiwan has over $36 billion invested in the PRC, much of which is in
export industries. Hong Kong firms, for their part, own, finance,
supply or service thousands of export factories throughout China's
booming southern region. Hong Kong, moreover, handles almost 50% of
U.S.-China trade, making it highly dependent on continued normal trade
relations between the U.S. and China. Hong Kong authorities estimate
that MFN revocation would slash trade by up to $34 billion, jobs by
about 85,000 and income by about $4.5 billion. Hong Kong leaders
across the political spectrum, including opposition leader Martin Lee,
have thus spoken out strongly in favor of MFN renewal.


In short, severing normal trade ties with China would have severe
economic consequences, and would hurt U.S. interests as much if not
more than those of the PRC.


Revocation of MFN, moreover, would not only damage our growing
commercial relationship; it would affect our relationship with China
across the board. MFN, despite its name, is not a privilege we extend
to only our closest allies. It is, rather, the standard tariff
treatment granted virtually every nation in the world, including many
with whom we have substantial disagreements. To the leadership in
Beijing, therefore, the cessation of normal trade ties would be
tantamount to a reversal of engagement, thereby imperiling gains
painstakingly achieved and eliminating prospects for future progress.


More specifically, Mr. Chairman, revocation of MFN could:



-- Undercut our strategic cooperation, particularly in defusing
escalating tensions in South Asia, dismantling North Korea's nuclear
program, and pursuing a permanent peace settlement on the Korean
Peninsula.


-- Result in a more belligerent and xenophobic foreign policy.



-- Handicap our efforts to strengthen China's integration into
non-proliferation regimes and limit our ability to curtail technology
transfers to unstable regions.


-- Risk China's support for U.S. initiatives at the U.N. as well as
cooperation on global issues such as drug trafficking, alien smuggling
and climate change.


While risking vitally needed cooperation on all of the above fronts,
what would the United States get in return? Denial of MFN could
actually hinder our efforts to improve human rights in China.
Revocation of MFN would create a tense, hostile atmosphere in which
Chinese leaders would be less inclined to take the kind of actions we
have worked painstakingly to encourage: releasing political
dissidents, allowing international visits to prisoners, signing and
ratifying international human rights covenants, and engaging
international religious leaders.


Furthermore, the loss of the U.S. market might have the unintended
effect of weakening some of the most progressive elements of Chinese
society. Private entrepreneurs have been able to expand personal
freedoms by being independent of the state, and our trade and
investment have helped to expand the habits of free enterprise and
independent thinking. We need to encourage this sector, not stunt its
growth, and we can only do that by providing access to American
markets and ideas.


Mr. Chairman, as Secretary Albright has often said, there is no
greater opportunity -- or challenge -- in U.S. foreign policy today
than to encourage China's integration into the world community.
President Clinton's decision to extend MFN status to China reflects
our commitment to this goal.


The Administration shares fully many of the concerns expressed in
Congress and elsewhere about some Chinese policies and practices. But
our concerns can best be addressed and our interests best advanced by
continuing to engage Chinese leaders on the full range of security,
economic and political issues. This will simply not be possible if we
revoke MFN. Revocation of MFN could derail the entire US-China
relationship, eliminate prospects for cooperation, strengthen the hand
of those in China seeking to undermine reform, limit our ability to
influence China's development, and imperil innocent bystanders in the
region in the process.


The historic task of integrating China into the international
community requires nothing less than a comprehensive, rational
strategy of engagement. This strategy has met with considerable
success thus far, and I am confident that with Congress' support, we
will continue to make progress in the run up to the summit and beyond.


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