TEXT: KRISTOFF ON CHINA AND WTO TO HOUSE SUBCOMMITTEES
(Kristoff says China entry to WTO benefits U.S.)Washington -- While serious issues becloud the U.S.-China relationship, they should not be used as reasons to block China's entry into the World Trade Organization (WTO), according to Sandra Kristoff, a former special assistant to President Clinton.
Kristoff, now a senior vice president with New York Life International, Inc., has previously served as Senior Advisor for Asian Affairs at the National Security Council, U.S. Coordinator for Asia-Pacific Economic Cooperation (APEC), Deputy Assistant Secretary of State for East Asian and Pacific Affairs, and Assistant U.S. Trade Representative for East Asia.
In testimony before a joint hearing of the subcommittees on Asia and the Pacific and International Economic Policy and Trade of the House Committee on International Relations April 21, Kristoff advocated Chinese accession to the WTO as being in the United States' "strategic interest."
"This is a critical time in our relations with China," Kristoff said, noting that "legitimate questions about Chinese intentions" had been raised. But, she stressed, non-trade issues "should be resolved on their own merits, in their own arenas."
China's recent WTO market access commitments represent an historic breakthrough for the U.S. insurance industry in China, Kristoff said. "Did we get everything we wanted as quickly as we wanted it? No," she said. But "through its market opening commitments, China is sending a strong signal to foreign investors that it is moving toward the rule of law in trade matters. China's current WTO offer eliminates an array of Chinese barriers and creates new opportunities for American business, farmers and workers. China's offer is a comprehensive market opening agreement on agriculture, sanitary and phytosanitary barriers, industrial products and services. China has agreed to a series of bold steps including significant and permanent tariff cuts, elimination of most import quotas, application of national treatment, extension of trade and distribution rights, greater access for information technology and telecommunications firms, and resolution of longstanding agricultural disputes over meat, citrus and wheat."
The remaining problem, Kristoff said, is that the progress achieved by those commitments cannot be translated into market access for American exports until the U.S.-China bilateral agreement is completed and the remaining negotiations on China's accession are finalized.
If the United States does not conclude an agreement with China, she warned, "prospects for China's WTO membership will fade for several years."
Following is the text of Kristoff's statement, as prepared for delivery:
(begin text)
Statement for the Record
Sandra J. Kristoff
Senior Vice President
New York Life International, Inc.
Before the House Committee on International Relations
Subcommittee on Asia and the Pacific and
Subcommittee on International Economic Policy and Trade
April 21, 1999Mr. Chairman and Members of the Committee:
My name is Sandra Kristoff, and I am Senior Vice President for International Government Affairs of New York Life International, Inc., an indirect, wholly-owned subsidiary and the international business arm of New York Life Insurance Company. New York Life is one of the nation's largest insurance companies -- a Fortune 100 company with assets under management in 1998 of $122.6 billion and operations in all 50 states and overseas through a network of 12,000 employees and 10,000 agents. New York Life International has overseas business operations in Argentina, Mexico, Indonesia, Korea, Taiwan, Hong Kong and representative offices in China. To date, the company has over $156 million in foreign sales and has created 4,600 jobs in these markets.
We are committed to strengthening New York Life's presence in the international marketplace and believe U.S. leadership on international trade is essential to achieving our goal. It is for this reason that I am honored to be here today to discuss our observations of Premier Zhu Rongji's recent visit and our assessment of China's WTO offer.
The Role of the Services Sector
First, I would like to offer a brief review of the role of services industries in the U.S. economy.
In 1997-98, the U.S. services sector represented three-quarters of U.S. national economic output and employed 80 percent of the U.S. workforce. In 1998, the services sector created 2.9 million net new jobs. On the international trade scene, services exports in 1998 constituted nearly 30 percent of all U.S. exports, totaling $260.3 billion and achieving a trade surplus of almost $80 billion. To understand the astonishing growth of the services sector, one only has to consider that in 1985 the services export surplus was $300 million. The services sector export surplus for 2001 is projected to be $105 billion.
The expansion of trade in services has been a powerful engine of growth for the global economy. Trade in services now represents more than 20 percent of the world's cross border trade, or more than $2 trillion; services account for at least 60 percent, or some $210 billion, of annual flows of direct foreign investment.
The Importance of China
New York Life and other leaders in the business community fully recognize this is a critical time in our relations with China. The public policy debate surrounding Premier Zhu's visit to the United States has raised legitimate questions about Chinese intentions and how the United States should interact with the world's most populous nation. Some voices are suggesting that these concerns are reason not to proceed with China's WTO accession. We at New York Life believe these issues should be resolved on their own merits, in their own arenas.
The arena for economic and commercial issues is the WTO. The WTO is the foundation of an open, rules-based international trading system, and membership is a privilege not a right. WTO membership requires a country to meet standards of market openness and agree to apply WTO rules, including the rules of dispute settlement, which provide a credible and effective tool to enforce U.S. rights, backed up by the threat of WTO-authorized sanctions for non-compliance. There is no question that WTO accession is American's best tool for opening China's market. It is a vast improvement over our current trade destabilizing approach to gaining market access in China -- an approach that relies on piecemeal, bilateral agreements and the threat of unilateral sanctions. It permanently locks China into an open, transparent, non-discriminatory trade regime enforced by dispute settlement procedures.
Reducing the trade deficit and guaranteeing China lives up to its agreements does not require us to punish China by keeping it outside of the system of global trade rules. As the largest emerging economy in the world, China's integration into the rules-based international trading system is essential to ensuring that it undertakes the obligations and responsibilities of the trading system from which it benefits. It is in the U.S. strategic interest to anchor China in the WTO legal framework, which will create new incentives and pressures for China to undertake economic and regulatory reforms and abide by international trade rules.
New York Life also maintains that if China and the United States conclude an acceptable accession agreement, we will firmly support the extension of permanent Normal Trade Relations (NTR) status to China. NTR status is not a favor for China. It simply provides to China the same treatment the United States offers virtually all of its trading partners. More importantly, the United States will not receive the full benefits of China's WTO market access commitments until it takes this step. WTO accession requires the reciprocal extension of permanent NTR by the United States and China, and with that reciprocity we can end the need for the divisive an annual debate in Congress on NTR renewal.
Over the past several years, a broad range of American business interests encouraged the Administration and the Chinese to reach a commercially acceptable WTO accession agreement as soon as possible. The expansion of U.S.-China trade is vital to America's continued and future economic prosperity. Over the past decade, U.S. exports to China have increased over 20-fold. It is conservatively estimated that those exports to China support more than 200,000 export-related U.S. jobs, as well as tens of thousands of jobs in U.S. retail, transportation, entertainment, financial, telecommunications, marketing, consumer goods and services firms.
China's WTO accession is particularly important to us at New York Life because we have made international market expansion one of the keys to our company's future. Since 1845, life insurance has been New York Life's vital product. It is a product that fulfills a unique social responsibility and New York Life possesses a unique competency and leadership in life insurance. Since the insurance markets of the more developed economies have matured, New York Life needs to find other avenues to grow in order to support our financial strength well into the next century.
China's demographics of 1.2 billion people, with 26 percent under age 14 and 68 percent ages 15 to 64, make it the world's prime market for the financial security of life insurance, annuities and pensions. Currently only 30 percent of the Chinese population has any type of life insurance. And while the 1997 per capita GDP was $3,460, the annual savings rate has averaged over 40 percent. Currently 13 Chinese firms and nine foreign insurance companies offer products in China; this does not include the four firms approved to apply for licenses on April 6, 1999.
I am sorry to say New York Life and approximately 20 other American insurance companies are not currently allowed access to the Chinese market. But even our competitors operating in China do so under severe restrictions. They can pursue business in only two cities -- Shanghai and Guangzhou. They are limited to minority ownership, are restricted with whom they can joint venture and are constrained in the scope of the products they can offer.
The Recent WTO Negotiations
New York Life, like most observers of the China WTO accession process, was discouraged last year when it appeared Beijing was reluctant to make the hard decisions necessary to complete the negotiations. We had hoped the momentum in bilateral relations sparked by the exchange of state visits in October 1997 and June 1998 would create the necessary impetus for concluding the decade-long negotiations. But we also had always maintained that China should not be allowed into, or be kept out of, the WTO solely on political considerations.
To ensure the Administration understood our position, the insurance industry developed a priority agenda for the USTR to pursue. We developed this agenda working with the American Council of Life Insurance, the U.S. Chamber of Commerce, the U.S.-China Business Council, the Emergency Committee for American Trade (ECAT), the Coalition of Service Industries and the U.S. Committee of the Pacific Basin Economic Council (PBEC-US).
By working with organizations representing a broader coalition of American trade interests with China, New York Life is confident the insurance industry's objectives were consistent with the principles of full market access, national treatment and transparency and with the scope of concessions and levels of WTO discipline being sought by other industries. We believed our objectives would enable us to be competitive in China and allow our potential Chinese policyholders to enjoy the full benefits of our insurance products. We also believed and made clear to the Administration and the Chinese that an agreement satisfying one industry, but failing to address the issues of other core industries, such as agriculture or telecommunications, would not win broad support. Finally, we insisted the negotiations yield immediate real benefits on market access to all sectors of the U.S. economy.
Ambassador Barshefsky and her lead negotiator, Robert Cassidy, have secured Chinese commitments that, pending WTO accession, will address the great majority of our industry's market access objectives. For example:
-- China will award licenses on the basis of prudential criteria and there will be no economic needs testing before licenses are granted.
-- All geographic limitations will be removed no later than January 1, 2005, with 12 cities opening no later than January 1, 2002 and 12 additional cities opening no later than January 1, 2003. Several cities of particular interest to American firms are included in the 2002 and 2003 liberalization commitments.
-- Over five years, China will open group, health and pension lines of insurance to American firms.
-- Life insurers may have 51% joint venture ownership no later than January 1, 2001 and non-life insurers may have 100% ownership no later than January 1, 2002.
-- Joint venture partners will no longer be narrowly restricted to Chinese insurance companies. Foreign firms will be able to select their own joint venture partners.
-- All restrictions on insurance brokerage will be removed no later than January 1, 2005.
This agreement represents an historic breakthrough for the U.S. insurance industry in China. Did we get everything we wanted as quickly as we wanted it? No. But the nature of negotiations is predicated on compromise and this agreement is truly a "win-win." American insurance firms will have the opportunity to enter the Chinese market and to compete. Chinese consumers will benefit from this competition and from the wide range of new products and services which we will offer. Even the Chinese insurance firms, which have enjoyed the protection of the current restrictions on foreign firms, will benefit from the professionalism and innovations we will bring to the Chinese marketplace.
Finally, through its market opening commitments, China is sending a strong signal to foreign investors that it is moving toward the rule of law in trade matters. China's current WTO offer eliminates an array of Chinese barriers and creates new opportunities for American business, farmers and workers. China's offer is a comprehensive market opening agreement on agriculture, sanitary and phytosanitary barriers, industrial products and services. China has agreed to a series of bold steps including significant and permanent tariff cuts, elimination of most import quotas, application of national treatment, extension of trade and distribution rights, greater access for information technology and telecommunications firms, and resolution of longstanding agricultural disputes over meat, citrus and wheat.
But we face one problem. The incredible progress achieved by USTR cannot start to be translated into market access for American exports unless and until the U.S. bilateral agreement is completed and the remaining negotiations on China's accession are finalized. Over the past several weeks, New York Life has communicated with the Administration and the Congress its clear position that we should press to wrap up the talks on the bilateral market access package as quickly as possible so the concessions gained from China are not lost, the momentum of the negotiating process is not lost, and the Chinese agreement to play by the rules is not lost.
New York Life, in particular, is working with members of Congress to increase understanding of the benefits that would accrue to the U.S. economy from an agreement that is implemented. We look forward to working with members, including those of this committee, to develop a broad bipartisan coalition in support of China's WTO accession and extension of permanent NTR status.
Conclusion
New York Life acknowledges that serious issues are being raised about the legitimacy of U.S. policy toward China and China's readiness to contribute to stability bilaterally, regionally and globally. But as noted above, we believe these issues should be resolved on their own merits, in their own arenas and that it is a false choice to suggest our relations with China are a zero-sum game.
The choices facing the United States and China are complex and nuanced, not the "black and white" suggested by some. Promoting American values does not require us to cut off interaction with China. Indeed moving China toward internationally accepted standards of conduct is more likely to be achieved if China is exposed to Western values, ideas and commerce. Such exposure will strengthen further the economic and political forces that are changing Chinese society.
No matter how stridently some may suggest that American business is seeking profits at the expense of other important American interests, New York Life believes it would be a mistake to turn back the clock on the twenty-five years of improvements in U.S.-China relations. Major gains have been made on security, trade, nonproliferation and human rights issues because of the engagement policy pursued by all Administrations since 1973 with bipartisan congressional support.
The WTO understanding announced two weeks ago is the culmination of 12 years of hard work and constant pressure. It is not a "political deal" or a gift to China. The concessions are all China's -- a fact perhaps not yet fully understood. China will earn its place at the table in Geneva the "old-fashioned way," by providing genuine access to its market and committing to accept the rules and standards of the international trade regime.
It is true the remarkable progress of the past four weeks was sparked by the action-forcing event of the scheduled visit of Premier Zhu. This is not surprising since the clock and the calendar each can help focus the vital issues and the real priorities. In fact, the intensity of the past month's negotiations and related breakthroughs are comparable to the increased activity and legislative agreements that occur at the conclusion of a session of Congress.
There seems little doubt that if we do not conclude the bilateral agreement, prospects for China's WTO membership will fade for several years. The next global trade talks, set to be launched in Seattle next December, would take place without the benefit of China's participation and China would remain outside the system of trade rules for an indefinite period of time. Finally, we urge members to recognize that even with China's market access offer in place, America's firms and workers will not reap fully the benefits of the agreement unless we extend permanent NTR treatment to China.
Thank you.
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