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U.S. Department of State

Great Seal Secretary of State Madeleine K. Albright
Statement before the Senate Finance Committee
Subject: China MFN
Washington, D.C., June 10, 1997
As released by the Office of the Spokesman
U.S. Department of State

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As Prepared for Delivery

"China MFN"
Chairman Roth and Members of the Committee, I am pleased to have this opportunity to testify before you.
Largely as a result of strong U.S. leadership from Administrations of both parties, we now have an unprecedented opportunity to integrate the world around basic principles of democracy, open markets, law and a common commitment to peace.
Not every country is yet able to participate fully in this integration. Some are in transition from centralized planning and totalitarian rule to democracy. Some have only begun to dip their toes into economic and political reform. Some are still too weak to participate meaningfully in the international system. And a few have governments that actively oppose the premises upon which that system is based.
It is in America's interests to strengthen the system, to ensure that it is based on high standards and sound principles of law, and to make it more inclusive. We do this by helping transitional states to play a greater role, by giving a boost to the weak states most willing to help themselves, and by making it clear to the outlaw states that they cannot prosper at the expense of the rest; they must either reform or suffer in isolation.
Mr. Chairman, there is no greater opportunity--or challenge--in U.S. foreign policy today than to encourage China's integration as a fully responsible member of the international system. President Clinton's decision to extend most-favored-nation or normal trade relations with China reflects our commitment to this goal.
At the same time, the Administration fully shares many of the concerns expressed in Congress and elsewhere about some Chinese policies and practices. Principled criticism of Chinese actions that offend our values or run counter to our interests is vital--because it demonstrates that the concerns we address through our diplomacy are deeply rooted in the convictions of the American people.
We believe that America's leadership in Asia and our interests in China--including Hong Kong--can best be advanced by continuing to engage Chinese leaders on a wide range of security, economic and political issues. This would not be possible if we revoked MFN.
In two weeks, I will begin a trip to Asia that will end in Hong Kong, where I will attend the joint reversion ceremony. I will emphasize America's continued interests and our support for the Hong Kong people as they enter China. Mr. Chairman, as I will describe in more detail later, the revocation of MFN would undermine Hong Kong's prosperity at the very moment when the Hong Kong people most need to demonstrate their strength and autonomy. For this reason alone, the denial of MFN would be a bad idea.
But this morning I want to describe the forest as well as the trees. In particular, I would like to clarify our interests in relation to China, explain how the Clinton Administration has been promoting them and discuss how a revocation of normal trade status would harm them.
Since coming to office, President Clinton has repeatedly made clear that America is and will remain an Asia-Pacific power. In a region where we have fought three wars in the last half-century, our role continues to be vital--from the stabilizing effects of our diplomatic and military presence, to the galvanizing impact of our commercial ties, to the transforming influence of our ideals. Our commitment is solid because it is solidly based on American interests.
Because of China's relative weakness for the past several centuries, its emergence as a modern power is a major historical event. Indeed, no nation will play a larger role in shaping the course of 21st-century Asia. Already, China affects America's vital interests across the board.
China possesses nuclear weapons and the world's largest standing army. It also has a rapidly advancing industrial and technological capacity. And it seeks to re-unify its national territory and settle its contested borders with its neighbors. For all these reasons, China affects our core security interests: the nonproliferation of weapons of mass destruction; the protection of sea lanes in the Pacific and Indian Oceans; the stability of the Korean Peninsula; and the peaceful resolution of issues between Taiwan and the PRC.
The Chinese economy is already one of the largest in the world, and many observers predict that if China's current growth rates continue it will be the largest within several decades. Therefore China affects our primary economic interest in expanding American exports and creating a more open global trade and investment regime in the coming century.
With its 1.2 billion people rapidly modernizing, China will have a huge impact on the environment. In addition, China borders on the world's largest opium-producing areas, and it is a potentially huge source of human migration. That is why China affects our urgent global interests in preventing environmental degradation and in combating terrorism, narcotics and alien smuggling.
Although China is undeniably more open today than two decades ago, its people still lack basic civil and political liberties. The manner in which China is governed affects virtually all of our security and economic interests in the region as well as our abiding interest in promoting respect for universally recognized standards of tolerance and law.
The fundamental challenge for U.S. policy is to persuade China to define its own national interests in a manner compatible with ours. That's why we are working to encourage China's development as a secure, prosperous and open society as well as its integration as a full and responsible member of the international community.
In so doing, we have not acquiesced in Chinese violations of international norms--and we will not. On the contrary, we have taken determined actions to curb such violations and to protect our interests.
For example, the United States continues to be concerned about Chinese sales of dangerous weapons and technologies. Through our dialogue, however, we have built a record of cooperation on agreements to ban nuclear explosions, outlaw chemical arms and enhance international nuclear safeguards. In addition, by stating our willingness to use targeted sanctions or by actually imposing them, we have obtained China's commitment not to assist unsafeguarded nuclear facilities, and its agreement not to export ground-to-ground missiles controlled under the Missile Technology Control Regime as well as to abide by the regime's guidelines and parameters. And last month, in accordance with both our policy and U.S. law, we imposed economic penalties against Chinese companies and individuals for their knowingly and materially contributing to Iran's chemical weapons program.
The United States has also contributed to a lessening of tensions in the Taiwan Strait. In March 1996, responding to Chinese efforts to influence Taiwan's historic presidential elections through military exercises and missile tests, President Clinton dispatched two U.S. aircraft carriers to the area. Our deployment helped lower the risk of miscalculation by authorities in Beijing and Taipei. Moreover, our action reassured Asia and the world that the United States stands by its commitment to both a "one China" policy and the peaceful resolution of outstanding issues. The situation in the Strait has since improved, and commercial ships have sailed between Taiwan and the mainland for the first time in almost 50 years.
In the economic area, as Ambassador Barshefsky will describe in greater detail, we have made progress in opening China's markets. In February, we reached a bilateral agreement that provides, for the first time, significant steps to increase U.S. access to China's textile market. It also strengthens enforcement against illegal trans-shipments.
Last year in response to China's inadequate implementation of an agreement to protect U.S. intellectual property (including music, videos and software), President Clinton prepared to apply tariffs of 100% on $2 billion of Chinese exports to the United States. The President's action led to an important follow-up accord providing more effective protection for our intellectual property and expanded access for our movies and videos. During the past year, China has taken strong measures to implement this agreement, seizing 10 million pirated disks, closing some 40 illegal CD factories and establishing hot-lines that are offering rewards 20 times the size of the average annual wage for tips leading to the closing of such a factory.
We have also advanced negotiations on China's accession to the World Trade Organization. The Clinton Administration has taken the lead in insisting that China make meaningful commitments to lowering its trade barriers before it could join the WTO. At the same time, we made clear that the United States supports China's membership on commercially acceptable terms. We have worked closely with China to identify the steps it must take to broaden access to its markets and bring its trade practices into line with WTO rules. Our combination of rigorous entry criteria and generous technical assistance has paid off. Although differences remain in the negotiations and the outcome remains uncertain, China has become increasingly serious in the proposals it has put forward, and is coming to understand that membership is not a right but a privilege accompanied by responsibilities.
In the environmental field, our two governments have increased our cooperation by establishing the U.S.-China Environment and Development Forum. Vice President Gore inaugurated the Forum during his recent visit to China. The Forum has set an ambitious agenda for collaboration in four areas: energy policy, environmental policy, science for sustainable development, and commercial cooperation. The combined efforts of our two Environmental Protection Agencies have already resulted in China's recent decision to eliminate the use of leaded gas and in the undertaking of joint studies on the health effects of air pollution.
On human rights, overall progress has been hard to quantify. On the one hand, China's exposure to the outside world has brought increased openness, social mobility, choice of employment and access to information. On the other hand, as we have documented in our annual human rights report, China's official practices still fall far short of internationally accepted standards.
It is our hope that the trend towards greater economic and social integration of China will have a liberalizing effect on political and human rights practices. Given the nature of the China's government, that progress will be gradual, at best, and is by no means inevitable.
However, economic openness can create conditions that brave men and women dedicated to freedom can take advantage of to seek change. It diminishes the arbitrary power of the state over the day to day lives of its people. It strengthens the demand for the rule of law. It raises popular expectations. And it exposes millions of people to the simple, powerful idea that a better way of life is possible.
It is worth noting, for example, that China recently passed legislation that addresses some of the most serious concerns about its criminal justice system. These changes resulted in large part from China's engagement with the international community and its exposure to foreign legal systems.
We will continue to actively promote human rights in China through bilateral dialogue as well as public diplomacy. We regularly raise our concerns with Chinese officials at the highest levels. We continue to call for the release of dissidents such as Wei Jingsheng and Wang Dan, who have been sentenced without due process to long prison terms for their non-violent advocacy of democracy. We are working with U.S. businesses and NGOs to promote the rule of law and civil society. We have increased the flow of uncensored world news by launching Radio Free Asia. And again this year we co-sponsored a resolution at the UN Human Rights Commission that urged China to improve its human rights practices.
We have important differences with China on several issues in addition to human rights.
For instance, we remain concerned about China's arms-related export practices, particularly to Iran and Pakistan. We are troubled by the growth of our bilateral trade deficit to almost $40 billion in 1996. We are seeking closer Chinese cooperation on investigating suspected cases of prison-labor exports to the U.S. And we are concerned by recent measures to disband Hong Kong's elected legislature and to amend various ordinances on civil liberties.
Because of these and other frustrations, some members of Congress conclude that our engagement with China has failed and that we should adopt a confrontational approach: revocation of normal trade status. The Administration agrees that we are not yet where we want to be in our strategic dialogue with China; China has not evolved as thoroughly or rapidly as all of us have hoped. We believe very firmly, however, that the potential for further progress in China and for the overall advancement of American interests is far greater through continued dialogue than through revocation of MFN.
It is important to remember, first of all, that MFN is a powerful symbol of America's global commitment to open markets. Despite its name, MFN is not a privileged status accorded only to our closest allies and friends. On the contrary, it is the standard tariff treatment we extend to virtually every nation in the world, including many with whom we have substantial disagreements. We offer low tariffs because of our fundamental belief that open trade is a foundation for peace and prosperity.
Moreover, the revocation of normal trade relations would eliminate prospects for U.S.-China cooperation on a wide range of issues. Unlike the targeted sanctions we have used in specific areas, revocation would affect policies across the board, harm our interests as much or more than China's, and imperil innocent bystanders such as Hong Kong and Taiwan. Since the United States and China normalized relations in 1979, every American President, Democratic and Republican, has shared this view.
Revoking MFN would not only damage our growing commercial relationship; it would also deny us the benefits of our entire strategic dialogue. And because China's politics are in flux, especially during the run-up to this fall's Party Congress, the withdrawal of MFN would almost surely strengthen the hand of those who have been seeking to fill the country's ideological void with a belligerent nationalism. It would postpone rather than hasten improved Chinese behavior in the areas where we have the greatest concern.
Mr. Chairman, let me explain in more detail how ending normal trade relations would harm U.S. interests.
China's economic ties with the world are important because they give it a huge incentive to participate in 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. The consequences would be grave, indeed.
First, on regional security, we could lose China's critical cooperation on dismantling North Korea's nuclear program and on pursuing a permanent peace settlement on the Korean Peninsula. We might see a renewal of tension in the Taiwan Strait and a stiffening of China's attitude on its territorial claims in the South China Sea.
Second, in the area of non-proliferation, the denial of MFN would surely undercut our efforts to get China to strengthen its export controls and to expand our cooperation in the development of peaceful nuclear energy. It would disrupt our initiatives to curtail China's transfers of advanced weaponry and technology to unstable regions.
Third, we would risk losing Chinese support for U.S. initiatives at the UN--including organizational reform, peacekeeping and sanctions on Iraq. On other global issues, we would find it more difficult to cooperate on stopping drug shipments--especially from Burma, the world's major source of heroin. And China, destined to displace the United States as the largest producer of greenhouse gases, could withhold its participation in a global agreement on preventing climate change that is scheduled for completion in Tokyo this December.
Fourth, the withdrawal of MFN would devastate our economic relationship. It would invite Chinese retaliation against our exports, which have nearly quadrupled in the last decade and totaled $12 billion in 1996. These exports support an estimated 170,000 jobs in the United States.
The ending of MFN would also damage future opportunities for American investment, as China would steer contracts to our many economic competitors. According to World Bank estimates, China's new infrastructure investment will total $750 billion in the next decade alone. Revocation would also add more than half a billion dollars to the annual shopping bill of American consumers, due to higher prices on imports.
The disruption of normal trade ties would retard the progress gained from bilateral agreements to protect American intellectual property and to increase market access for American textile and telecommunications products. Perhaps most important, it would threaten the negotiations on China's membership in the WTO, destroying our chance to shape its participation in the global economy of the 21st century.
Fifth, the damage to our commercial ties could well spill over into our efforts to improve human rights in China. Because non-state firms account for half of China's exports, the revocation of MFN would weaken the most progressive elements of Chinese society. It would also create a tense atmosphere in which Chinese leaders might be even less likely to take the actions we have been encouraging: to release political dissidents, to allow international visits to prisoners and to open talks with the Dalai Lama on increasing Tibetan autonomy.
Further, our trade and investment have been helping to expand the habits of free enterprise and independent thinking throughout China. American and Chinese institutions are now engaged in thousands of educational, cultural and religious exchanges. Although China is still far from being a free nation, it is more open today than two decades ago in part because of its economic and cultural ties with the West.
Without MFN, many of these opportunities for the long-term opening of Chinese society might be closed. This is a concern shared by the China Service Coordinating Office, an umbrella organization of more than 100 Christian groups involved in outreach to China. And this concern is equally shared by many Chinese dissidents--including Wang Xizhe, who spent 14 years in prison and escaped re-arrest last fall by fleeing to the United States. Wang writes, "The goal of exerting effective, long-term influence over China can only be achieved by maintaining the broadest possible contacts with China, . . . thus causing China to enter further into the global family and to accept globally-practiced standards of behavior."
Sixth, as I have suggested, the denial of MFN to the PRC would deal a severe blow to the free market economy of Hong Kong and also damage that of Taiwan. Taiwan's investment in the PRC totals between $20 and $30 billion, much of which is in export industries. Similarly, Hong Kong firms own, finance, supply or service thousands of export factories throughout China's booming southern region. In addition, Hong Kong benefits from the billions of dollars of Chinese and American goods that every year pass through on the way to their final destination. The Hong Kong government has estimated that revoking MFN might cut as much as $30 billion of the territory's trade, eliminate as many as 85,000 jobs and reduce economic growth by half.
The United States must not undermine Hong Kong during the critical period of its reversion to Chinese authority. That is why Hong Kong leaders across the political spectrum support the continuation of MFN. In a recent letter to me, British Governor Chris Patten wrote, "Anything other than unconditional MFN renewal would be profoundly misguided." And the pro-democracy leader Martin Lee has stated: "If the United States is concerned about the handover, then the best thing is to assure the community by making sure nothing dramatic happens to Hong Kong. The Democratic Party [of Hong Kong] has always strongly supported renewal of MFN for China unconditionally."
In sum, revoking a normal trade relationship could seriously undermine our ability to influence China's development and instead turn China further in the direction of isolation, suspicion and hostility.
No matter how hard we might wish, we will not be able to transform China's behavior overnight. With all due respect, Mr. Chairman, there is neither a single piece of legislation by the U.S. Congress nor a single act of our President that could accomplish such a feat. Promoting positive change in China's domestic and foreign policies is a long-term venture that will require the broad and steady support of the American people and the international community alike.
Mr. Chairman, for the United States to proceed with the historic and vitally important task of helping to integrate China as a full and responsible member of the international system, we require nothing less than a comprehensive engagement that is guided by a clear-eyed view of our interests and fortified by the renewal of normal trade relations. Thank you very much.

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