Text: Rep. Knollenberg on the U.S.-China WTO Agreement
(Knollenberg calls China's involvement in WTO "essential")Representative Joe Knollenberg (Republican from Michigan) told the House Ways and Means Committee February 16 that China's involvement in the World Trade Organization (WTO) "is essential to break down the barriers to economic opportunity and create a fair opportunity for everyone."
"By breaking down the long-standing Chinese barriers to U.S. products," Knollenberg said, "we create improvements to our own economy while strengthening our relationship with this growing world power."
Knollenberg said the WTO would act as a "referee" to ensure that China lived up to its commitments under the agreement negotiated between the United States and China last November, in which the U.S. stated its support for China's membership in the WTO while China "agreed to eliminate barriers which have encumbered specific U.S. industries, including the auto industry, insurance, financial services, agriculture, and many others."
Calling China "by far the world's largest emerging market and one of the last automotive frontiers," Knollenberg stressed the impact that China's membership in the WTO would have on U.S. automobile exports to China.
Chinese demand for automobiles is expected to account for 25 percent of the world's growth in vehicle demand over the next decade, but "due to Chinese trade barriers, U.S. car companies are practically locked out of this market" at present, he said.
According to Knollenberg, the U.S.-China WTO Agreement committed China to reducing the tariff rate on American automobiles to 25 percent (by the year 2006) from the present rate of 80-100 percent; reducing duties on U.S. automobile parts to an average of 10 percent from 25 percent; eliminating a variety of subsidies and special preferences for local Chinese firms which give them artificial advantages in the Chinese market; eliminating unique requirements for U.S. automotive firms, such as separate inspection regimes, technology transfer requirements, and content restrictions; allowing U.S. companies to engage in wholesale, direct sales, retail, advertising, and transportation of vehicles; and allowing U.S. firms to perform maintenance and repair work on the vehicles they produce.
Following is the text of Knollenberg's remarks, as prepared for delivery:
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Testimony by Rep. Joe Knollenberg
Ways and Means Committee Hearing
on the U.S.-China WTO AgreementFebruary 16, 2000
Mr. Chairman and Members of the Committee, I appreciate the opportunity to testify here today about the important benefits the United States will receive from China's entry into the World Trade Organization. I also commend you for holding this hearing, which I hope will provide Members and the American people with a greater understanding of why this Agreement is essential to level the playing field for U.S. interests, including an industry particularly important to my constituents: the U.S. automotive industry.
At long last, China has agreed to play by the global trading rules and all U.S. industries that export to China will benefit from broad reductions in Chinese barriers to trade. The WTO Agreement provides the greatest access to the Chinese market that American businesses have ever enjoyed, without requiring ANY reduction in ANY U.S. tariff or trade barrier. In other words, China has agreed to a UNILATERAL reduction in its trade barriers while U.S. industries remain protected.
In addition, China has also agreed to eliminate barriers which have encumbered specific U.S. industries, including the auto industry, insurance, financial services, agriculture, and many others. As we evaluate the significance of this Agreement it's important for all of us to understand what these changes will do to create new business opportunities for these exporting industries.
In the case of the automotive industry, China is by far the world's largest emerging market and one of the last automotive frontiers. As a result, the auto market in China is expected to more than double to 4.6 million vehicles a year by 2010. This increase is expected to account for 25 percent of the world's growth in vehicle demand over the next decade.
Currently, due to Chinese trade barriers, U.S. car companies are practically locked out of this market. However, under the U.S.-China WTO Agreement, these barriers will be eliminated and American companies will be able to expand their exports as Chinese demand grows.
Here are a few specifics:
First of all, under current Chinese trading laws, tariffs on U.S. automobiles equal 80 to 100 percent of the price of the car. This alone effectively prices out the vast majority of U.S. models.
However, under the WTO Agreement, this tariff rate will be reduced to 25 percent by the year 2006. Moreover, the phase-in of the reduction is front-loaded to provide steeper declines in the early years. Duties on parts will also drop from 25 percent to an average of 10 percent.
These tariff reductions will break down the wall that U.S. automobile companies have faced and increase access to Chinese markets for U.S. exports.
Secondly, current Chinese law contains a variety of subsidies and special preferences for local Chinese firms which give them artificial advantages in the Chinese market. To make matters worse, there are also unique requirements for U.S. firms, such as separate inspection regimes, technology transfer requirements, and content restrictions, which further prevent U.S. automobile companies from competing on a level playing field.
Under the WTO Agreement, all of these barriers will be eliminated. This provides the auto industry, as well as industries across the board, a more level, competitive business environment.
Third, under current Chinese practices, U.S. automotive companies are prohibited from distributing their vehicles. They cannot engage in wholesale, direct sales, retail, advertising, or even transportation of their vehicles. U.S. car companies, can't even perform maintenance and repair on the vehicles they produce.
However, under the WTO Agreement, American businesses will be able to participate freely in the distribution of their products. With these restrictions eliminated, American companies will be able to improve their sales through their ability to respond more effectively to the variations in the Chinese market.
Fourth, U.S. automobile companies currently are not permitted to provide financing for the purchase of vehicles in China. For that matter, not even U.S. financial firms are allowed to provide auto financing in China. The only type of financing allowed in China is through state-run banks, and they don't even make loans for cars.
However, under the WTO Agreement, both U.S. financial firms and U.S. auto companies will be able to provide this service. For the first time, the Chinese people will be allowed to borrow money to buy a car -- something that most Americans take for granted. Again, this creates increased business opportunities for American products.
We should also note this financing provision is a major improvement from the April agreement.
As we can all see, the U.S.-China WTO Agreement represents an incredible opportunity for all U.S. exporting industries, including the automotive industry. By breaking down the long-standing Chinese barriers to U.S. products, we create improvements to our own economy while strengthening our relationship with this growing world power.
In closing, I'd like to remind my colleagues that in order for the Chinese to play fairly, we need a referee. That's why China's involvement in the WTO is essential to break down the barriers to economic opportunity and create a fair opportunity for everyone.
Mr. Chairman, thank you once again for allowing me to testify here today and I look forward to working with you on this issue.
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(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)
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