Index

"Renewal of Normal Trade Relations with China"

Testimony of Stanley O. Roth
Assistant Secretary of State for 
East Asian and Pacific Affairs

Before the House Ways and Means Committee
Trade Subcommittee


Tuesday, June 8, 1999
Longworth Building, Room 1100
1:00 p.m.


Mr. Chairman, thank you for the opportunity to address the Ways and
Means Committee, Trade Subcommittee, on the important issue of Normal
Trade Relations -- NTR -- with China.

Introduction

Last year when I addressed this topic on the eve of the President's
state visit to China, I began my testimony by noting that the hearing
was very timely. I then made the argument that engagement with China,
and specifically what was then termed "Most Favored Nation" status for
China, were in the best interest of the United States. This year, with
circumstances clearly much more difficult, I am still persuaded by the
fundamental reasoning in favor of engagement with China in general and
"Normal Trade Relations" in particular: they are in America's
best-interest.

Engagement 

In his speech of April 7, the President explained the purpose of
engagement with China as the means to "build on opportunities for
cooperation with China where we agree, even as we strongly defend our
interests and values where we disagree. ... [The purpose is] to use
our relationship to influence China's actions in a way that advances
our values and our interests."

The President's words were spoken before the tragic accidental bombing
of the Chinese Embassy in Belgrade, before the infliction of severe
damage on the U.S. Embassy in Beijing by angry Chinese mobs, before
the hiatus in our negotiations over China's accession to the World
Trade Organization (WTO), and before the findings of the Select
Committee regarding Chinese efforts to acquire sensitive information
concerning U.S. nuclear capabilities. Clearly, however, the
President's articulation of engagement is just as applicable now as
the day it was given.

Despite our current bilateral differences, there remains a lot at
stake in U.S.-China relations: the U.S. and China continue to have
compelling mutual interests in promoting peace and stability on the
Korean Peninsula, working to minimize nuclear tensions on the Indian
subcontinent, and advancing the economic well being of Asia. We need
to continue serious discussions with the Chinese about the importance
of reducing tensions across the Taiwan Strait, as well as potential
areas of friction in the region, such as the South China Sea.
 
China's cooperation is essential to keep under control technologies
used in the production of weapons of mass destruction and their
delivery systems. China has joined us in the Nuclear Non-Proliferation
Treaty and the Chemical Weapons Convention, and has said it will soon
submit for ratification the Comprehensive Test Ban Treaty. It has
committed to provide no new nuclear assistance to Iran, joined a major
international nuclear suppliers group (the Zangger Committee), and put
into place comprehensive nuclear export controls. The U.S. and China
have agreed that we will not target nuclear weapons at each other, and
China has agreed to actively study joining the Missile Technology
Control Regime.

We and China should continue to cooperate on economic issues in APEC
and other regional fora. Engagement helped solidify China's
constructive response to the Asian financial crisis. China maintained
its exchange rate at a time when other currencies in the region were
extremely vulnerable and has accelerated the reform of its own
troubled financial sector.

Some might argue that China would take all of these measures
regardless of U.S. policy, regardless of engagement, simply because
these steps are in China's self-interest. I disagree. Persistent,
principled, and purposeful engagement with China's leaders and China's
people enables us to identify, and work towards, shared goals. As a
result of our engagement we have been able to persuade China to work
with us on an increasing number of important issues, some of which had
previously been contentious such as South Asia, the Persian Gulf, and
Nuclear Non-proliferation. China is acting on the basis of its
self-interest, but we are helping to define that interest in ways that
complement U.S. objectives.

Earlier I mentioned some of the changed circumstances surrounding this
NTR hearing and that of last year. Clearly, the issue of Chinese
efforts to acquire sensitive information regarding U.S. nuclear
capabilities is a significant factor. In this context, the question is
whether abandonment of engagement with China, or specifically denial
of NTR status, is the best and most appropriate response? It is not.
Abandoning engagement with China will not reduce Chinese efforts to
acquire sensitive information. We didn't have an engagement policy
with the former Soviet Union but we certainly had a great deal of
espionage.

The effective response is better security. In this regard President
Clinton has launched a comprehensive effort to address U.S.
vulnerabilities. Punishment of the Chinese for their activities by
disengaging, or denying NTR status, would come at a very high policy
cost to the U.S. -- we would no longer be able to actively pursue U.S.
interests with China as we have over the past decade -- and at a very
high economic costs to U.S. businesses and consumers.
 
The Merits of NTR  

In his statement last week regarding his decision to seek renewed NTR
status with China, the President urged this Congress to maintain NTR
with China because renewal will promote America's economic and
security interests. "Normal trade relations" is, of course, a status
we have extended to all but a handful of nations, e.g. Cuba and North
Korea.
 
Exports to China and Hong Kong support an estimated 400,000 U.S. jobs.
Over the past decade, U.S. exports to China have more than tripled to
$14.3 billion and China has now become our fourth largest trading
partner. These gains have been fostered by extending NTR, or at the
time "most favored nation," status to China. A decision not to renew
NTR could cost U.S. consumers up to half a billion dollars more per
year in higher tariffs on shoes and clothing alone.
 
And, although I have promised to leave the primary analysis to my
colleague, I cannot help but touch on the potential impact on
U.S.-China WTO accession negotiations. Assuming that China agrees to
the necessary commercial changes to join the WTO and thereby becomes
subject to standard international trade rules and opens its market,
U.S. companies and workers could develop major new export
opportunities. By contrast, refusal to renew NTR would effectively
derail efforts to finish the necessary WTO negotiations. My colleague
this afternoon, Amb. Fisher, is, I know, an excellent negotiator, but
I would not want to be in his shoes if this Congress chooses not to
renew NTR for China.

Refusal to renew NTR would also undermine those in the Chinese
leadership who have advocated better relations with the U.S. As the
President recently noted, we must remember that the debate we are
having about China today in the United States is mirrored by a debate
going on in China about the United States. We have an opportunity to
influence the course of China's development in the next century. We
should use it.
 
Refusing to renew NTR with China would also have repercussions on
other Asian economies already battered by the 1998 Asian Financial
Crisis. Hong Kong and Taiwan would be particularly susceptible. With
contracted investments of more than $30 billion in the mainland, much
of it in export industries geared towards U.S. consumers, Taiwan
investors would take a serious hit if normal trade relations status
with China were revoked.

More than 40% of U.S.-China trade goes through Hong Kong's port.
Refusal to renew NTR, clearly a serious disruption to US-China trade,
would therefore severely damage Hong Kong's well being. In fact, Hong
Kong authorities estimate that refusal to renew NTR with China would
slash Hong Kong's trade by up to $34 billion and reduce its income by
$4.5 billion. These figures do not incorporate any additional damages
which might be the consequence of retaliatory Chinese actions.
Clearly, such blows would undermine Hong Kong's ability to maintain
its open economy, civil liberties, and way of life. This would be
contrary to the U.S.'s fundamental policy to support Hong Kong's
autonomy.

Conclusion

Each year when this subcommittee has reviewed the renewal of NTR --
previously MFN -- status for China, the bilateral relationship has
experienced formidable problems in such areas as Taiwan, trade, human
rights, and non-proliferation -- to name only a few of the familiar
issues. Each year this subcommittee has recognized that not renewing
NTR status would only make the existing problems worse.

This year, there are tough problems in our bilateral relationship with
China. Nonetheless, continued engagement with China is the best path,
as is renewal of NTR. A clear-eyed strategy of principled, purposeful
engagement with China remains the best way to advance U.S. interests.