Charlene Barshefsky

Foreign Affairs Briefing on U.S.-China Trade Relations - March 10, 2000

Charlene Barshefsky
March 10, 2000— Washington, DC
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Thank you. With me is Bob Novick, my general counsel. I always take my lawyer with me.

I thought I would actually go through three separate legislative initiatives. I'll spend most of my time on China but, inasmuch as you like about all sorts of things apart from China, I'd like to plug two other things. The first is legislation that's pending on Africa and on the Caribbean Basin area. And you may have heard about this this morning so I won't belabor it if that's the case.

Let me take the Caribbean region first. We have an existing set of legislative commitments to the Caribbean to give Caribbean and Central American countries preferential access into our market for goods they produce. These are initiatives that date back 15 years ago or so, and the rationale for them at the time was consistent with the rationale generally for so many elements of trade, and that is to use trade as a means to effect economic reform and economic diversification within the Caribbean and Central American regions, as well as to promote greater stability and democracy in those regions.

CBI was initially passed at a time when the democratic leader in the region was Trinidad. It was the leader because it had oil money. It doesn't have oil money any more. And you had a number of countries at the time that were on the margin -- Jamaica, for example, democratization-wise.

When NAFTA came along, it sucked investment that had been put into the Caribbean and Central American regions out of those regions into Mexico. This is, indeed, an operation of the law of unintended consequences. So there has been a push for a number of years to rectify that imbalance that was created because of NAFTA and to put the Caribbean countries on a par with Mexico, particularly in areas like textiles and apparel, areas where the Caribbean is competitive with Mexico and competitive with other global producers. The legislation that's pending would do that. The short form of it is called CBI parity, parity meaning parity with NAFTA, but it's not quite so broad. It's not a free trade agreement with the Caribbean; it's one-way preferential access to ensure that these economies can continue to grow and diversify and to support development needs in many of these economies.

A companion piece of legislation, or what's become a companion piece, is the Africa Growth and Opportunity Act. The President, as you know, has been to Africa. Africa as a continent has been largely ignored as an element of US trade policy. It's now inconceivable to me to even report this, but as of two or three years ago USTR had never had an Office of African Affairs. It's an entire continent never represented at all in trade policy in any respect. It was strictly an aid policy, having ceded the market long ago to Europe, largely given their colonial ties to Africa.

Sub-Saharan Africa, in particular, is a market with 640 million people but has the largest concentration of the poorest countries in the world. If you can imagine 30 years ago, Africa, sub- Saharan Africa, was wealthier than Asia -- and now look at the difference. A combination of Africa having been a Cold War pawn for many years, of total and strict reliance on foreign aid regardless of the uses to which that aid was put. And we know, of course, in retrospect where much of that aid went -- into private pockets -- and a function as well of the US having such a range of other higher priorities that Africa was sort of left to its own devices.

The situation has changed not only because economically it makes sense to better engage sub-Saharan Africa but there is, a la the Caribbean Central American region, there is a moral imperative to attempt to do what we can by way of using trade as an element of democratization and using trade as a carrot toward economic reform in many of these countries. So the Africa Growth and Opportunity Act is pending and it is an act, like the Caribbean act, which provides preferential access into the US market for products of -- and this is the kicker -- reforming African economies. This is not intended as aid, although foreign aid will continue and, of course, the President's foreign aid budget has continual increases for sub-Saharan Africa. This is an additional carrot designed to move African nations toward greater economic reform, toward the market, in exchange for preferential access for their products in the US. And preferential access means zero tariffs, zero tariff treatment.

Both of these bills are pending. The Africa bill has passed the House and the Senate. It awaits a conference committee to iron out differences. The Caribbean bill passed the Senate but it will be thrown into the same conference during which the Africa bill is considered because they raise similar issues for textile and apparel producers in the US.

And I mention these because they are a wonderful segue into China inasmuch as we are finding more and more ways of using trade as an element of foreign policy provided -- provided -- the underlying agreement can be justified fully on economic grounds alone. That is to say, these are not giveaway agreements; they are economically important agreements to the United States. In the case of Caribbean and Africa, we want these countries wealthier. They will be much better trading partners for us. There are extraordinary opportunities, particularly in sub- Saharan Africa which is so resource-rich.

And you'll see a similar set of themes emerge as we discuss China but there are, apart from the economic justification to these agreements, important spillover effects that we attempt to effect through economic means=2E So Africa , CBI are point one. Point two, Congress is going to vote this year on whether we stay in the WTO. This is a little surprise package that was inserted into the Uruguay round implementing act in 1993 which says that at the five-year mark of the anniversary of the WTO, Congress gets to vote whether we should stay in or not. And that vote will be this year. It's called -- and you'll see this referred in reporting as the Section 125 vote because it's Section 125 was the Uruguay round implementing the act.

And we have sent up a very -- and I won't spend much time on this. We have sent up a very detailed report to Congress on the operation of the WTO in the first five years and talking about, of course, the importance of a rules-based, multilateral trading system to US domestic economic prosperity, as well as to global stability -- indeed, the very reasons for the creation of the multilateral trading system immediately after World War II when the IMF and the Bank were created when the UN was created and so on. So we don't expect Congress to vote to pull us out of the WTO, but I would encourage you to look at the executive summary, which I think makes a very compelling case for the US remaining engaged with the world and not take what would truly be a catastrophic action, including to our own domestic health, of pretending we can actually withdraw from the world and not be the worse for it.

Which brings me to China, which I guess combines elements of all of these. And let me just make a couple of points on the China side. Point number one, the agreement we negotiated will form the basis for the global agreement on China's accession to the WTO. Point number two, it's a one-way deal. We do not change any market access policies toward China. We don't change a tariff, we don't do anything on the market access side. We don't change our export control laws, we don't change our trade laws, we don't change in any way our ability to exclude products made from prison labor from China, we don't do anything on the market access side in the United States. So this is not NAFTA. This is not the US-Canada Free Trade Agreement. This is not a multilateral negotiation where we lower our barriers, other countries lower their barriers. We don't lower anything or alter anything with respect to China's market access.

All we do in return for the range of concessions they have made is to give to China on a permanent basis the trade treatment they have received in every year since we normalized diplomatic relations with China in 1979. Every year -- year in, year out -- China has achieved normal trade relations status with the United States.

And what we need to do is to make that status permanent. It is, in effect permanent in essence because every President and every Congress has determined that normal trade relations status is in our national economic interest -- and indeed it is.

The third point I'd say is I think you know a fair amount about the agreement. It is a very comprehensive, market-opening agreement. It has many elements to it that are -- the agreement itself is of historic proportion but it has many elements to it that are historic in terms of the Chinese economic regime. The agreement covers all goods, all services, all agriculture; it's market-opening across the board.

But if you parse through the agreement, for the first time since the 1940s China will allow Chinese businesses as well as foreigners to import directly into China. Right now, you can't do that into China. This is the first time since the communist takeover in 1949.

If you look at information technology sectors, whether telecom or its spinoffs like the net, for the first time since the 1940s, companies will be able to invest directly into telecom in China. Now you go through this really quite extraordinary web. But this is really quite remarkable.

And, for the first time ever -- ever -- China will allow multilateral review of its commitments and will subject itself to dispute settlement, including binding dispute settlement and the provisions for binding arbitration in the WTO. So this is an international tribunal judging the merits of claims against China, and China being bound by that judgment. These are not Chinese courts we're talking about.

This, I think, presents to us really a remarkable series of opportunities. On the economic side, as the President has said, this is a no-brainer. It's all one-way, market-opening by China to the US and to the globe: slashing tariffs, removing import bans, removing discriminatory licensing, discriminatory taxation, the full range of issues that pertains to goods trade including full rights to distribution of products within China, full rights to import and export to and from China directly.

On the agriculture side, elimination of export subsidies, a slashing of tariffs, very enhanced market access for all of our commodity products and our specialty agricultural products. We will create, for the first time, private trade in bulk agricultural commodities -- wheat, corn, cotton=2E There will be private trade, not just state trading enterprise trade but private trade in these commodities is very, very important for the longer term with China breaking the back of state monopolies over the export and import of agricultural commodities.

And China will subject all of its decisions on sanitary and phytosanitary restrictions on a scientific basis, which is not what occurs now.

And with respect to services, China will open the range of service sectors, whether it's telecom, including the net, whether it's banking, insurance, accounting, law distribution, construction. You name it -- environmental services, it's covered. And by opening we mean either the ability to own outright and/or control outright or the ability to invest directly and heavily in the full range of services providers and then to provide all the attendant services that go along with the provision of services in general.

The agreement also covers protections against unfair trade by China into the US, some of which do not now exist -- not because we're going to change our trade regime toward China, but I figured while we were at it we might as well just go for the whole thing. And that includes a special anti-import surge mechanism so that if Chinese imports in any sector are surging into the US market and disrupt the US market, we can impose quotas, tariffs, anything we would like for a two- to three-year period. This mechanism exists for no other country in the world. We think it's appropriate that it exist toward China, and that will be in effect for 12 years.

We've strengthened our dumping law with respect to China. The strengthened provisions will be in effect 15 years after accession, as well as our trade laws as enforcement mechanisms, WTO dispute settlement, multilateral review by 134 other countries who have a stake in market opening in China, as well as increased monitoring here at home of Chinese compliance with commitments.

So this is an economic no-brainer for us. The potential spillover effects, I think, are very important. We say potential because nobody knows, but this agreement will open China in a way that I think allows for freedoms beyond simply on the economic side. First off, of course, it will engender greater economic freedom, greater choice among consumers, greater choice among workers, more investment in the country in many respects, and so on.

But I think that there are important spillover effects. One has to do with reform generally in China. The agreement is a huge victory for economic reformers in China to deepen their internal reform not only in areas covered by the WTO per se, but in other areas of economic reform in China=2E And I think from that one could see the possibility that broader reforms come about. And let me give you one example, and that is the internet=2E A year ago, there were 2 million users of the net in China, and this years it's 9 and next year it's projected to be over 20. So take it out three or four years from now. If you look at the effect of the net on the US -- and we already have an open economy, we already have a democratic pluralistic system -- you look at the effect on us of the net. Imagine the effect on China. I think the Chinese Government will try and control what's on the net. As the President says, good luck.

So this agreement, I think, has the prospect of important spillover effects as well as I think really do two principal things, and I'll stop here. One is to bring China into the world community subject to a rule of law, which is not to the case today, and; second, to ensure that China integrates in a productive way into the Pacific economies and into the global economy in a way that bringing it into this multilateral institution can help do. It is the reason the multilateral trading system was created. It was created for two reasons in 1947: One was to rebuild basically a shattered world economic after the war, including a means to reintegrate Japan and Germany, and; second, to ensure countries had an interest in peace and stability beyond their own borders because that was the only way the post-war leaders could think of a fragile peace strengthening.

It's the same rationale today. It's why you see the former Soviet republics clamoring to join the WTO and why so many already have since the fall of the Berlin Wall, because it is economically reforming at home; it brings them into the community of nations; it provides a solidity to their trading relationships beyond their borders, and greater protection for themselves at home.

Permanent NTR is critical to achieve the benefits -- for the US to achieve the benefits of the agreement it has negotiated. Without it, China has no legal requirement to provide us most of the market opening we will have effected for the rest of the world. So this would be an entirely irrational outcome; that is to say, a denial of NTR would mean that China would provide the benefits we negotiated to everyone else but us. That would permanently cede markets to our competitors, not to mention just the devastating consequences in terms of the US-China relationship for having denied NTR. We're the only country in the world that I know of that does not already give China permanent NTR.

So I'll stop there. Questions?

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