TEXT: DEPUTY USTR FISHER JUNE 8 REMARKS ON CHINA TRADE STATUS
(China trade status renewal helps long-term U.S. interests)

Washington -- Failure to renew Normal Trade Relations (NTR) with China would not only derail negotiations concerning China's accession to the World Trade Organization (WTO), but would also hurt America's long-term commercial and strategic interests, according to Deputy U.S. Trade Representative Richard Fisher.

In June 8 testimony before the House Ways and Means Subcommittee on Trade, Fisher warned that ending NTR, formerly known as most-favored-nation (MFN) trading status, could lead China to "reduce or end enforcement of our intellectual property agreements; refuse to implement our bilateral Agricultural Cooperation Agreement of last April, which lifts long-standing bans on American meats, citrus and grains; and halt much of the human contact between Americans and Chinese, limiting the exchange of ideas and values across the Pacific."

Fisher added that "these effects in trade would likely be matched by severe damage to relations, in areas from cooperation on drugs and international crime to human rights. And it could threaten cooperation in national security questions such as the four-party talks on Korea and missile sales in the Middle East."

Ending Normal Trade Relations with China would also damage many Asian allies and trading partners, according to Fisher.

"Most deeply affected would be Hong Kong, whose experts have estimated in the past that ending NTR would slash the territory's trade volume by up to $34 billion, and income by some $4.5 billion. This would dramatically worsen the economic pain caused by Hong Kong's current recession," he said.

"At the same time, the economic upheaval created by revocation of NTR would gravely complicate our efforts to end the Asian financial crisis, at the very moment when Thailand and South Korea are beginning to show signs of recovery, and a newly elected Indonesian government will begin its effort to recover from an extraordinarily difficult economic crisis," Fisher continued.

"Altogether, then, the vote on whether to disapprove Normal Trade Relations is a vote on whether to protect fundamental U.S. interests from jobs and growth at home to stability and return to economic health in Asia. The Administration thus strongly supports renewal of Normal Trade Relations," Fisher said.

Following is the text of Fisher's remarks, as prepared for delivery:

(begin text)

PREPARED TESTIMONY OF AMBASSADOR RICHARD FISHER
DEPUTY U.S. TRADE REPRESENTATIVE

BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
TRADE SUBCOMMITTEE

NORMAL TRADE RELATIONS WITH CHINA

Mr. Chairman, Congressman Levin, Congressman Rangel, Members of the Subcommittee, thank you for inviting me to testify on the President's recommendation to renew Normal Trade Relations with China.

The past weeks have been eventful ones for our trade relationship. Since the beginning of this year, in the context of China's accession to the World Trade Organization, we have carried on highly productive negotiations in all major areas of American trade concern: agriculture, industrial goods, services and rules. China has made significant commitments across the range of sectors and issues of concern to us, but a number of issues remain to be resolved. At the same time, of course, recent events outside the trade relationship -- notably the accidental bombing of the Chinese Embassy in Belgrade, the resulting demonstrations in China and damage to U.S. diplomatic facilities, and the release of the Cox Committee report on allegations of espionage in nuclear and other technological areas -- have created new tensions in the broader relationship.

Our colleagues in other agencies are addressing the broader US-China relationship. With respect to trade policy in general, and to the renewal of Normal Trade Relations and the WTO negotiations in particular, the Administration intends to remain focused on the long-term commercial and strategic interests of the United States: a more open, transparent and rules-based Chinese market; support for economic reform within China; and the accession, on commercially meaningful terms, of China to the WTO.

This afternoon I will review with the Committee the role of trade in our broader China strategy, the basis on which the President has decided again to renew Normal Trade Relations, and the progress we have made towards China's accession to the WTO.

TRADE IN U.S. CHINA POLICY

Fundamentally, American trade policy in China rests on the vital interest our country has in a peaceful, stable and prosperous Asia-Pacific region. Essential to realizing this interest, as a commercial goal and a complement to our strategic and security policies, is support for China's economic integration into the Asia-Pacific region and the world economy.

China's economic isolation during the Cold War was vastly damaging to both China and to the Pacific region. For nearly forty years, China's economy was almost entirely divorced from the outside world. The consequent loss of foreign markets and investment impoverished China at home, and meant that Asia's largest nation had little stake in prosperity and stability beyond its borders. Every Pacific nation felt the consequences not only in economics and trade but in peace and security.

Our effort to undo this isolation is a bipartisan, patient policy continuing over the nearly thirty years since President Nixon's visit to China in 1972. It has included the lifting of the U.S. economic embargo in the mid-1970s; our initial Commercial Agreement and mutual grant of Normal Trade Relations (NTR; then Most Favored Nation or "MFN" status) in 1979 and 1980 -- a decision in which I participated as a member of the Carter Administration; the consistent renewal of NTR for the past 20 years; and the market access, textile and intellectual property agreements we have negotiated in the 1990s. The effort has had multiple goals: creation of opportunity for American businesses, working people and agricultural producers; guarantees of fair trade principles; support for economic reform and the rule of law within China; and strengthening China's own stake in the stability and prosperity of its neighbors.

This effort has succeeded over the years. It has increased China's contacts with the outside world, bringing new ideas and opportunities to its people and giving China greater common interests with its Asian neighbors and with us. China's constructive approach to the Asian financial crisis may well be at least a partial consequence. And despite numerous trade barriers, it has created a market for over $14 billion in American goods exports, and $3.5 billion in services.

In summary, the goals of our trade policy in China are concrete American interests; and the results our policy has achieved over the years have helped realize those interests. Thus, our trade engagement with China has won bipartisan support for nearly twenty-five years, and has remained stable throughout periods of warmer bilateral relations and periods of tension.

THE ROLE OF NORMAL TRADE RELATIONS

Renewal of Normal Trade Relations is fundamental to any continuation of this policy.

Normal Trade Relations tariffs are the standard tariff rates, now averaging less than 4%, which we accord virtually all our trade partners. It is a non-discriminatory, non-preferential treatment which allows trade to proceed on an equal basis with virtually all our partners. Under the so-called Jackson-Vanik provisions of our trade law, however, certain economies, including China, are ineligible for these rates unless the President grants an annual waiver.

In accord with the law, on June 3rd, 1999, President Clinton sent to Congress this waiver, extending normal trade relations to China for another year. Congressional support for this decision will benefit American consumers and also allow American farmers, manufacturing workers and entrepreneurs to continue to benefit from our existing access to the China market. At the same time, it will allow us to continue our pursuit of a more open and fair Chinese market. By contrast, failing to renew NTR would severely damage American interests in a number of fundamentally important areas.

First, ending normal trade relations would amount to the severing of our trade relationship. It would raise tariffs on Chinese products to a trade-weighted average of 44%. This would make American consumers pay significantly more for goods such as shoes, toys, clothing and small appliances. Manufacturers would see the cost of goods made with Chinese components rise sharply, reducing the competitiveness of our goods in domestic and international markets.

Second, China would likely retaliate against U.S. exports by increasing tariffs and other measures, endangering direct U.S. goods exports valued at $14.3 billion last year, and services exports valued at $3.7 billion in 1997 (the last year for which we have figures). This would threaten the jobs of manufacturing workers, the income of farmers, the employment of young workers in retailing, software engineers and workers in every other walk of life.

Third, ending normal trade relations would also derail our bilateral and multilateral negotiations. As I noted earlier, and as I will explain in greater detail in a moment, we have come very close to completion of a WTO accession agreement with China that would dramatically open Chinese markets to American goods, services and agricultural products. Revoking NTR would be certain to end these talks.

It could also lead China to reduce or end enforcement of our intellectual property agreements; refuse to implement our bilateral Agricultural Cooperation Agreement of last April, which lifts long-standing bans on American meats, citrus and grains; and halt much of the human contact between Americans and Chinese, limiting the exchange of ideas and values across the Pacific.

Fourth, these effects in trade would likely be matched by severe damage to relations, in areas from cooperation on drugs and international crime to human rights. And it could threaten cooperation in national security questions such as the four-party talks on Korea and missile sales in the Middle East.

And fifth, ending normal trade relations would badly damage many of our other Asian allies, friends and trading partners. Most deeply affected would be Hong Kong, whose experts have estimated in the past that ending NTR would slash the territory's trade volume by up to $34 billion, and income by some $4.5 billion. This would dramatically worsen the economic pain caused by Hong Kong's current recession. At the same time, the economic upheaval created by revocation of NTR would gravely complicate our efforts to end the Asian financial crisis, at the very moment when Thailand and South Korea are beginning to show signs of recovery, and a newly elected Indonesian government will begin its effort to recover from an extraordinarily difficult economic crisis.

Altogether, then, the vote on whether to disapprove Normal Trade Relations is a vote on whether to protect fundamental U.S. interests from jobs and growth at home to stability and return to economic health in Asia. The Administration thus strongly supports renewal of Normal Trade Relations.

US TRADE AGENDA IN CHINA

As we look to the future, with NTR renewed, we have significant opportunities to improve our trade relationship.

Today, China retains high trade barriers and numerous unfair trade practices. China's formal and informal trade barriers remain high. Its agricultural standards are based on bureaucratic fiat rather than science. Key service sectors like distribution, finance and telecommunications remain closed. These create inefficiencies within the Chinese economy; slow the process of integration with the regional and world economies; and cause frustration and sometimes injury to American farmers, workers, and businesses.

China remains insecurely integrated, and only opportunistically so, with the world outside; and its economy faces severe challenges which, over time, more open trade could help to solve. Likewise, China's neighbors remain blocked from an economy which could be an engine of growth in the present financial crisis and in the future.

Our principal arena for addressing these issues is China's pending accession to the World Trade Organization. To enter the WTO, China must agree on a set of market access commitments, and negotiate a Protocol dealing with fair trade rules. Thus, China's WTO accession allows us to address the issues at the root of our trade problems in a comprehensive way. And it is an opportunity to advance broader interests beyond trade:

China, of course, is pursuing WTO membership as a matter of its own national interest. The reforms entailed in a strong, commercially meaningful agreement will help create jobs in labor-intensive fields such as distribution services, make rural and urban economies more productive, and create the competition necessary for innovation and sustainable growth. Thus, as WTO membership offers a short-term source of confidence, it will advance China's long-term goals of domestic economic reform and guarantees of access to world markets.

We believe that to win the full range of benefits, for both the U.S. and China, an agreement on WTO accession must be commercially meaningful, addressing our concerns in a detailed, enforceable and rapid way. This is the principle we have followed in all recent WTO accessions -- the most recent successful accessions were those of Latvia, Kyrgyzstan and Estonia, all of which made commercially meaningful commitments in the range of issues of concern to the United States. A weak agreement also would not yield the full potential for economic efficiency and growth in China. Thus, we are committed to a commercially meaningful accession. In the context of such an accession, the Administration is prepared to work closely with Congress to secure permanent NTR status for China.

PROGRESS THUS FAR

While we have not yet reached agreement on such a package, in the past months we have made significant progress toward the goal. In April we substantially completed a market access package on agriculture, industrial goods, and services as well as fair trade rules. This includes a commitment by China to participate in the most recent WTO agreements on Information Technology, Basic Telecommunications and Financial Services. Talks will continue on several unresolved market access and Protocol issues, however, including many that must be addressed multilaterally.

1. Major Features

With respect to our progress thus far, the set of commitments China has made includes four major features:

One other essential point is that all of these are basically one-way commitments by China. China's WTO entry will open export opportunities and strengthen our guarantees of fair trade, without requiring special concessions in return. American tariffs, together with our dumping and countervailing duty laws, will remain unchanged after China enters the WTO. Likewise, our export control policies will remain unchanged, and decisions on such policies will not be affected by WTO entry.

2. Specific Commitments

Let me also make a few comments on the specific commitments made before and during Premier Zhu's visit to the United States this April.

The Protocol, which establishes broad rules and frameworks for trade, creates a product-specific safeguard to address import surges. It also bans forced technology transfer policies for investors, including a commitment to refuse to enforce these provisions in existing contracts. It will ensure that we continue to use "non-market economy" methodology in anti-dumping cases, and take account of China's unique characteristics in subsidies. It will eliminate abusive investment requirements designed to take jobs to China: offsets, export performance, current account balancing and local content. And it will guarantee China's state trading companies and state-invested enterprises operate on commercial terms, and that their purchases are not subject to any different rules. Again, we continue to discuss several issues, notably the duration of special provisions. While they will not continue in perpetuity, very rapid phaseouts are not acceptable.

With respect to market access, some highlights are as follows:

Agriculture: China will apply sanitary and phytosanitary standards based on science.

It will cut tariffs to an average of 14.5% for our priority items, and bind them at the applied levels. Thus, unlike many countries, China will not have a right to raise tariffs again after it enters the WTO. It will adopt a new and more liberal system of tariff-rate quotas in bulk commodities. And it will agree not to provide agricultural export subsidies -- a major achievement in its own right, and a step toward our goal of totally eliminating export subsidies in the next WTO Round.

Industrial goods: China will grant rights to import and export products without Chinese middlemen, and to distribute products within China. It will cut its tariffs on average for U.S. priority items to 7.1% -- a figure comparable to most major U.S. trading partners. This includes participating in the Information Technology Agreement, and deep cuts in everything from autos to wood products, chemicals and construction equipment. And it will eliminate all quotas.

Services: China has made a comprehensive set of commitments extending from distribution to insurance, telecommunications, architecture, engineering, legal, travel and tourism, computer and business services, environmental services, franchising and direct sales, and more. Talks continue in several areas -- banking, audiovisual, securities -- but in several of these as well, China has made a set of commitments that already open significant opportunities.

These are a very broad set of commitments. They may well bring opposition from vested interests at home in China. But other countries have made comparable commitments, and China is entirely capable of making them as well. More important, WTO accession on commercially meaningful terms is good for China: it will mean increased employment, economic growth and social stability in the long run.

3. Work Remaining

Finally on the WTO accession, the work is not yet done. Some important issues remain unresolved in the services field, and in the Protocol as well. As in all accessions, conclusion depends on the acceding government, and China of course must meet the concerns of other WTO members apart from ourselves. But the issues which remain are limited, and I am confident that the trade policy challenges they raise can be resolved.

NEXT STEPS

At the same time, however, the political environment surrounding the WTO talks, of course, is clearly complicated by events outside trade policy.

Most notably, we have held no formal negotiations with the Chinese since the accidental bombing of the Chinese Embassy in Belgrade a month ago. Our colleagues in other agencies are preparing a report on the event, which they will review with the Chinese on completion. Our hope is that negotiations on WTO accession will resume shortly afterwards. We remain, of course, committed to a commercially meaningful accession, based upon the commitments China has made and mutually satisfactory resolution of the remaining issues.

CONCLUSION

This period is a test for the broader US-China relationship, and the ability of leadership in both capitals to focus on longer-term interests. The WTO accession is a key component of a longer-term strategy to achieve these interests. Completing it, on commercially meaningful grounds, will benefit both countries. This remains a shared view, as we continue the talks with a goal of entry this year.

Thank you, Mr. Chairman, and I will now take your questions.

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