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Stanley O. Roth
Assistant Secretary for East Asian and Pacific Affairs
U.S. Department of State
Testimony Before the House Ways and Means Committee,
Subcommittee on Trade
Washington, DC, June 8, 1999

Blue Bar rule

Renewal of Normal Trade Relations With China

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 U.S.-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.

[end of document]

Blue Bar rule

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