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, "Renewal of Normal Trade Relations With China," Washington, DC, June 8, 1999


"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]


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