TEXT: UNDER SECRETARY EIZENSTAT 3/5 REMARKS TO AMCHAM SHANGHAI
(China must reduce trade barriers to become WTO member)

Shanghai, China -- China must reduce trade barriers to foreign products and services if it wishes to become a member of the World Trade Organization (WTO), according to Stuart Eizenstat, under secretary of commerce for international trade.

Although the United States supports China's accession to the WTO, such accession "can only go forward if it is on a sound, commercially viable basis," Eizenstat said March 5 at the American Chamber of Commerce in Shanghai.

"Without meaningful commitments to reduce trade barriers consistent with norms and obligations under the WTO, market access will be elusive at best," he added.

Trade barriers have contributed to the growing U.S. trade deficit with China, which in turn complicates U.S.-China relations, according to Eizenstat. Currently the U.S. trade deficit with China accounts for almost 24 percent of the U.S. global deficit, second only to that with Japan, and continues to increase each year.

"With China now holding foreign exchange reserves exceeding $100 billion and the highest annual growth rate of any major economy in the world, there is no reason why U.S. exports should not be performing better," he said. "Let me make this clear -- the real debate should not focus on dueling figures about whose calculations of China's trade surplus with the United States is correct. The fact is that it is large and growing. It should focus on real and sustained market access. Our market is open to China's products; China's market should be more open to ours."

"As China plays an ever larger role as one of the world's leaders, it is critical that economic opportunities be widely perceived in the United States as equitable. Without a level playing field, China may come to be seen more as a lone economic actor rather than as a responsible member of the global community," he said.

Eizenstat stressed the importance of continued dialogue between the United States and China.

"Both countries have made important strides in key trade areas -- effective enforcement of intellectual property rights and a major breakthrough agreement in textiles," he said. "These are important signs that China wants to remain engaged and make progress. We must now sustain the momentum."

Following is the official text of Eizenstat's remarks:

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ADDRESS BY AMBASSADOR STUART E. EIZENSTAT
UNDER SECRETARY FOR INTERNATIONAL TRADE
AMERICAN CHAMBER OF COMMERCE
SHANGHAI, PEOPLE'S REPUBLIC OF CHINA
MARCH 5, 1997

I want to thank the American Chamber of Commerce for their hospitality in hosting this lunch. I want to briefly review my visit to China thus far, including meeting with government leaders and your business colleagues in Beijing.

In Beijing, I met with government leaders including my counterpart at the Ministry of Foreign Trade and Economic Cooperation, Vice Minister Sun Zhenyu, who joined me to open the Shanghai Commercial Center; Vice Chairman of the State Planning Commission Gan Ziyu; State Economic and Trade Commission Vice Minister Yu Xiasong; and Vice Minister of the Civil Aeronautics Administration of China (CAAC) Shen Yuankang.

I held discussions on a full range of issues, including those affecting our broad business interests in China, advocacy for major projects, project finance, impediments to trade and investment, the WTO, China's enterprise reform agenda -- perhaps the most challenging aspect of economic reform -- and Hong Kong.

Many of you have had lengthy exposure to China's commercial conditions which has prompted municipal leaders since Mayor (now Vice Premier) Zhu Rongji to sponsor government-to-business symposiums on trade and investment. Last year's conference on implications for U.S. business investing in Shanghai, co- sponsored by the American Chamber here and the Shanghai Association of American Studies, continues in that tradition.

My visit and Secretary Albright's last week is symbolic of the Clinton Administration's reaffirmation of the importance of our relationship with China. We are entering a critical period when U.S.-China relations are likely to receive greater attention and scrutiny than they have since the Shanghai Communique.

Last Friday marked the 25th anniversary of the Shanghai Communique, a document of immense historical importance. As we celebrate the legacy of the vision represented by the Communique, it is not sheer coincidence that this "new" beginning occurred here in this dynamic city, a traditional crossroads of East/West culture.

The bonds of commerce between our two countries illustrate most starkly the evolution and maturation of our relationship.

In 1980, according to U.S. figures, the value our bilateral trade with China amounted to just under 5 billion dollars. In 1996, the value our bilateral trade surpassed sixty billion dollars, a twelve-fold increase in sixteen years.

Shanghai's position in this nexus and as an engine of growth for both the regional and national economy have allowed it to benefit from and serve as a catalyst for stronger economic ties between our countries and, consequently, better overall relations.

About two thousand American companies have contracted to invest almost $4 billion in this city alone, more than anywhere else in China. This represents almost 25 percent of U.S. total foreign direct investment in China.

With this investment presence has come the social, cultural, economic and physical exchanges that serve as the threads weaving the tapestry of our relationship. Through these exchanges, undertaken by you, Shanghai has served as an important model of innovation and liberalization that has served to benefit China overall and deepen our relationship.

The sheer scale of construction has been transforming Shanghai (Pudong and Puxi) into a new city every year. As many as twenty-three percent of Shanghai's residents have had to move to make way for new skyscrapers and highways.

Economic growth has materially benefited Shanghai residents. Ninety-eight percent of Shanghai residents have a color television in their home, ninety-one percent have refrigerators, eighty percent have washing machines, thirty-three percent have a telephone, twenty percent have an air-conditioner -- and these percentages keep rising.

Traffic jams, the bane of modern existence and unfortunate testimony to a rising affluence, seem to have also arrived with a vengeance.

From aerospace and computers to capital markets and life insurance, our businesses and their workers are turning Shanghai into an engine of growth and innovation not just for China and the United States, but for the world as a whole. Recent liberalizations in financial services (expanded insurance licenses, the growing presence of law firms, some banks being allowed to operate in domestic currency) -- albeit "experiments" in access, thus falling short of real access and not providing full national treatment -- are encouraging.

As the epicenter of these critical economic and commercial linkages, the U.S. Department of Commerce chose to open the Commercial Center in Shanghai. First proposed by Secretary Brown in 1994, the center is the first export promotion facility of its kind in China and only the third in the world.

Commercial Centers, as envisioned in the "Jobs through Exports Act" which I authored then, are intended to serve as a model for public-private and federal-state partnerships. Their purpose is to provide overseas Commerce facilities that achieve critical mass through co-location with other federal agencies, state export development representatives, industry associations and other market development cooperators.

The Shanghai Commercial Center is best positioned to take advantage of the critical role which Shanghai plays in the Chinese economy. As an important financial, commercial and manufacturing hub, the Commercial Center can serve an important role in assisting the U.S. business community to access, develop, expand and strengthen contacts with important local corporate and individual decision-makers.

By bringing together in one location the combined resources of Commerce and other trade facilitation organizations, including a number of state governments, the center can provide an important key to unlocking the Chinese market via the gateway of Shanghai. This presence will also greatly extend the reach and ability of small businesses by providing businesses infrastructure and services that normally only large businesses can afford.

The Shanghai Center will serve as a home away from home for small and medium size businesses unable to afford their own offices. They will have all the facilities and equipment necessary to meet with their Chinese colleagues and establish a deeper commercial presence throughout China.

The Center will serve as one additional means of strengthening our economic and business links and developing new and innovative ways to bring all size businesses together. We will continue to seek to expand those links by cooperating to meet China's future needs in, among others, agriculture, energy, and infrastructure- areas where American know-how is unrivaled.

Our interests in China are both clear and broad. And we are making commitments of resources as we never have before in this important relationship. I want to spend some time identifying our interests, discussing how we need to pursue them, and how to sustain a better relationship overall.

The United States has a strong economic interest in China's development -- several hundred thousand U.S. jobs depend on exports to China. China's plans to develop its infrastructure, requiring as much as $700 billion in investment in the next five years, and its extraordinary domestic economic growth make it a critical market for U.S. companies. U.S. investment currently in China is less than 2 percent of our total foreign direct investment abroad, $640 billion.

The United States has a broad range of security and political interests with China, which hold the key to maintaining a stable, peaceful and prosperous Asia. Both countries face challenges in the global community that shape and define shared interests, like the environment. Third, the United States also has a deep cultural stake in relations with China, from whom we can learn a great deal.

I raised many issues with senior officials in the Chinese government. But no single issue is more important than explaining that continued support for U.S. engagement with China depends on the American people and the Congress seeing continued concrete progress in this relationship. After a difficult period with many strains in our relationship, we have begun to create a more positive environment for our relationship. A relationship which will be one of the most important and complex the United States must manage. Both countries have made important strides in key trade areas -- effective enforcement of intellectual property rights and a major breakthrough agreement in textiles. These are important signs that China wants to remain engaged and make progress. We must now sustain the momentum. Over the next few months, additional progress -- market opening, nonproliferation, and human rights -- will help us demonstrate that sustained dialogue can help achieve a means to productively resolve our differences.

As China aspires to a role of international leadership in a variety of areas there are commensurate responsibilities to adopt and implement international norms of behavior which China, like all nations, must uphold.

Just as we developed international norms for guiding our trade security, and economic interests in the past half century, human rights now too enjoys protection under international conventions.

In pursuing our dialogue, no one issue can or should hold the relationship hostage. At the same time, no issue -- including trade -- will diminish our resolve on other issues of principle or to make progress on key issues under engagement. As we make progress in some areas it will help us address other areas where progress is needed.

As China plays an ever larger role as one of the world's leaders, it is critical that economic opportunities be widely perceived in the United States as equitable. Without a level playing field, China may come to be seen more as a lone economic actor rather than as a responsible member of the global community.

The trade deficit with China needs to be addressed because it complicates our trade relationship. If the deficit continues to rise it will create an even more inequitable trade picture. The U.S. trade deficit with China accounts for almost 24 percent of the U.S. global deficit. Chinese exports to the United States are increasing at a faster rate ( 13 percent vs. 2 percent) and from a larger base ($51.5 billion vs. $12 billion) than U.S. exports to China. The result: China is the source of our second largest merchandise trade deficit, second only to that with Japan. Our deficit with China has increased four-fold since 1990.

With China now holding foreign exchange reserves exceeding $100 billion and the highest annual growth rate of any major economy in the world, there is no reason why U.S. exports should not be performing better. Let me make this clear -- the real debate should not focus on dueling figures about whose calculations of China's trade surplus with the United States is correct. The fact is that it is large and growing. It should focus on real and sustained market access. Our market is open to China's products; China's market should be more open to ours.

The best tool for achieving greater market access, expanding American exports, and pursuing a trade relationship on more equitable terms is through the WTO accession negotiations. We support China's accession and are fully engaged in ongoing discussions. The accession, however, can only go forward if it is on a sound, commercially viable basis. And without meaningful commitments to reduce trade barriers consistent with norms and obligations under the WTO, market access will be elusive at best.

American businesses in Beijing and Shanghai have told me that business here is complicated by a host of facts -- lack of transparency in rules and regulations, the adoption of new regulations without notice, an uncertain legal system, burdensome import restrictions, unfavorable certification and standards procedures. Under the WTO, we expect solid commitments across the board -- national treatment, trading rights, reducing tariffs, eliminating non-tariff measures and removing additional barriers.

While we have indicated that, where appropriate, we are willing to consider the question of transition periods, our discussions are indeed a "work in progress" moved along by solid and substantive commitments, and not by a political timetable driven by the larger relationship. If China can put forth a WTO package on a commercially viable basis allowing for real market access and adherence to WTO rules, then that may create greater confidence in the ability to work to further longer term trade relations.

We have taken unprecedented steps at Commerce to extend the reach of our market access concerns through innovative programs and support on the ground. These initiatives represent a significant commitment by the Commerce Department of staff and resources to provide more support for U.S. export sales and marketing efforts than we have ever done before.

Under the auspices of Commerce's U.S.-China Joint Commission on Commerce and Trade (JCCT), Eximbank will assign a loan officer to the U.S. Embassy beginning May 1. In addition to providing a direct link to our growing business community in China, this finance officer will meet with Chinese finance officials on critical issues such as project finance, China's most important challenge in expanding infrastructure, and travel to Shanghai, Guangzhou, Tianjin and other major cities to meet with U.S. businesses.

Under Commerce's Market Development Cooperator Program, nearly $2 million in matching funds supports the export interests of major multipliers and their constituents in critical areas in China, such as information technologies, medical construction, and printing equipment, and machine tools. While in Beijing, I announced an MDCP grant for the Milwaukee, Wisconsin-based Construction Industry Manufacturers Association which will support efforts in Beijing, China.

To ensure that we continue on this important course of cooperation, Commerce Secretary Daley plans to travel to China in the fall for the eleventh session of the JCCT.

A number of other issues will impact how the American public views U.S.-China relations.

The nature of the reversion of Hong Kong, an issue of immense significance to all of you and to the companies you represent here and in Hong Kong, will be closely watched in the U.S. We fully expect China to abide by its international commitments under the 1984 Sino-British Joint Declaration and Basic Law of 1990. Hong Kong's economic prosperity rests upon the rule of law, transparency openness, entrepreneurial spirit and the free flow of information.

We have a responsibility to ourselves and to the world to ensure that China's transition in becoming an integrated member and assuming its role as one of the leaders of the global community is guided by recognized multilateral norms and obligations -- in the observance of intellectual property rights, market access, non-proliferation human rights, and security, and in respecting the underpinnings of a truly open society in Hong Kong.

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