Congressional Press Releases, June 10, 1997 COMMITTEE LOOKS AT RENEWAL OF CHINA'S MEN STATUS WASHINGTON - Senate Finance Chairman William V. Roth, Jr. (R-DE), made the following opening remarks at today's Committee hearing: "I am pleased to hold this hearing on an issue so critical to our nation's trade and foreign policies -- the renewal of China's MFN status, or as I and virtually every other Member of this Committee prefer to say, the renewal of Normal Trade Relations for China. "At the outset, I believe it is imperative the Administration address this issue at the highest levels possible, and make its case not only through hearings such as this, but directly with Members who have concerns over normal trade relations. "The atmosphere surrounding the consideration of China's normal trade I status this year has become more contentious than ever. A diverse coalition of interest groups is working hard to defeat China's normal trade status. "Certainly, the coalition raises valid concerns about China. I agree that we ,cannot passively accept abuses of human rights, religious persecution and the proliferation of weapons of mass destruction. But we cannot let the emotions generated by these issues prevent us from making a clear-headed assessment of our national interest. "As I see it, there are five reasons why we must renew China's normal trade status. First, it is in America's strategic interest, and central to any responsible China policy. If we revoke China's normal trade status, it will be Lantamount to a declaration of economic war. We will have chosen a path that cuts us off politically and economically from an Congressional Press Releases, June 10, 1997 emerging global power that has approximately one-fifth of the world's people. I am convinced that cutting off economic and political ties will make that country more belligerent and less cooperative on critical geopolitical matters, such as efforts aimed at stabilizing the Korean Peninsula. "Second, by continuing normal trade relations with China we also maintain the best environment possible to encourage the reforms we seek in China. Beijing's behavior will be influenced positively by a trade relationship that engages China, one that establishes economic links of trust and communication. "Third, revoking normal trade relations with China will threaten hundreds of thousands of American jobs and billions of dollars in U.S. exports and investment, and also will be economically disastrous for the people of Hong Kong. Some estimates predict as many as 200,000 well-paying high-skilled U.S.jobs could be lost if MFN were revoked. The economic devastation that Hong Kong would experience if MFN were revoked cannot be overstated. "To paraphrase the recent comments of a Hone Kong official 'The logic of MFN opponents is that if China takes away the political liberties of the Hong Kong people, the U.S. will respond by taking away the jobs and economic hopes of the Hong Kong people.' I very much hope our colleagues in the House will hold their vote on normal trade relations, before rather than after Hong Kong reverts to Chinese sovereignty, and give Hong Kong a vote of confidence by rejecting any attempt to revoke China's normal trade status. "Fourth, by extending MFN to China we are not awarding them any favors, or privileges or special access to the U.S. market. We are simply giving China Congressional Press Releases, June 10, 1997 access to the U.S. market on the same terms we give virtually every other country in the world. MFN is the normal, not the exceptional trading status. "In fact, we extend tariff treatment that is more favorable than MFN to specific products from over 130 nations under special trade programs and agreements. To clarify, this matter, I, Senators Moynihan, Chafee, and Baucus, and 15 other colleagues on the Finance Committee have introduced legislatio' to replace MFN in U.S. trade law with a more apt term -- "normal trade relations." "Finally, I oppose the withdrawal of China's normal trade status, because I do not believe it will bring about any of the improvements we all seek in China's policies. It has never been adequately explained to me how revocation of MFN will Advance our China policy goals. As I said earlier, I believe revocation will just make it more difficult to obtain these goals. "This does not mean we are without policy options to address our problems with China. More targeted, specific policy tools exist for dealing with China. For example, we can impose specific trade sanctions if China fails to honor a trade aggreement, and sanctions specific under U.S.law if China transfers restricted technology, as the Administration recently did upon discovering China provided assistance to Iran's chemical weapons program. And we can support efforts undertaken by groups both inside and outside China, which are working hard to achieve greater democracy and freedom in China. "I will close by saying that I believe that Beijing's normal trade status should be made' permanent, in conjunction with China's accession to the WTO on commercially viable terms. "We have a number of very Congressional Press Releases, June 10, 1997 distinguished witnesses today due to the importance of the China MFN question and the breadth of the issues we have to consider. In particular, our first panel includes the Administration's top cabinet officials on foreign policy and international trade, who are two of the most capable public servants today - Secretary of State Madeleine Albright and U.S. Trade Representative Charlene Barshefsky. "I am looking forward to hearing their testimony." LANGUAGE: ENGLISH LOAD-DATE: June 11, 1997 LEVEL 1 - 2 OF 19 STORIES Copyright 1997 Federal Information Systems Corporation Federal News Service JUNE 10, 1997, TUESDAY SECTION: CAPITOL HILL HEARING WITH DEFENSE DEPARTMENT PERSONNEL LENGTH: 13609 words HEADLINE: HEARING OF THE SENATE FINANCE COMMITTEE SUBJECT: MOST FAVORED NATION TRADE STATUS FOR CHINA WITNESSES: SECRETARY OF STATE MADELEINE ALBRIGHT AND U.S. TRADE REPRESENTATIVE CHARLENE BARSHEFSKY CHAIRED BY SENATOR WILLIAM ROTH (R-DE) 215 DIRKSEN SENATE OFFICE BUILDING WASHINGTON, DC BODY: FEDERAL NEWS SERVICE 620 NATIONAL PRESS BUILDING WASHINGTON, DC 20045 FEDERAL NEWS SERVICE IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. Federal News Service, JUNE 10, 1997 COPYRIGHT 1997 BY FEDERAL NEWS SERVICE GROUP, INC., WASHINGTON, DC 20045, USA. NO PORTION OF THIS TRANSCRIPT MAY BE COPIED, SOLD, OR RETRANSMITTED WITHOUT THE WRITTEN AUTHORITY OF FEDERAL NEWS SERVICE GROUP, INC. TO RECEIVE STATE, WHITE HOUSE, DEFENSE, BACKGROUND AND OTHER BRIEFINGS AND SPEECHES BY WIRE SOON AFTER THEY END, PLEASE CALL CORTES RANDELL AT 202-347-1400. COPYRIGHT IS NOT CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS A PART OF THAT PERSON'S OFFICIAL DUTIES. THIS IS A RUSH TRANSCRIPT. ------------------------- SEN. ROTH: (Sounds gavel.) The committee will please be in order. First of all, I do want to welcome our two very special guests. Senator Moynihan, I think these are two of the most distinguished Cabinet members. They leave me with pride when I look at their accomplishments, their performance, and we're indeed pleased to have them here on this most important matter today. SEN. PATRICK MOYNIHAN (D-NY): We'll make a Democrat out of you yet, Mr. Chairman! (Laughter.) SEN. : I doubt it. (Laughter.) SEN. ROTH: Well, I am pleased to hold this hearing on an issue so critical to our nation's trade and foreign policies. The renewal of China's MFN status, Federal News Service, JUNE 10, 1997 or as I and virtually every other member of this committee prefer to say, the renewal of normal trade relations for China. Out the outset, I believe it's imperative the administration address this issue at the highest levels possible and make its case not only through hearings like this, but directly with members who have concerns over normal trade relations. And the atmosphere surrounding the consideration of China's normal trade status this year has become more contentious than ever. A diverse coalition of interest groups is working hard to defeat China's normal trade status. And certainly the coalition raises valid concerns about China. I agree that we cannot possibly accept abuses of human rights, religious persecution and the proliferation of weapons of mass destruction. But I also strongly believe we cannot let the emotions generated by these issues prevent us from making a clear-headed assessment of our national interest. And as I see it, there are five reasons -- five reasons why we must renew China's normal trade status. First, it's in America's strategic interests and central to any responsible China policy. If we revoke China's normal trade status, it will be tantamount to a declaration of economic war. We will have chosen a path that cuts us off politically and economically from an emerging global power that has approximately one-fifth of the world's people. And I'm convinced that cutting off economic-political ties will make this country more belligerent, less Federal News Service, JUNE 10, 1997 cooperative on critical geopolitical matters, such as the effort aimed at stabilizing the Korean Peninsula. And second, by continuing normal trade relations with China, we also maintain the best environment possible to encourage the reforms we seek in China. Beijing's behavior will be influenced positively by a trade relation that engages China, one that establishes economic links of trust and communication. Third, revoking normal trade relations with China will threaten hundreds of thousands of American jobs, billions of dollars in U.S. exports and investment, and also will be economically disastrous for the people of Hong Kong. Some estimates predict as many as 200,000 well-paying, highly skilled U.S. jobs could be lost if MFN were revoked. The economic devastation that Hong Kong would experience if MFN were revoked, cannot be overstated. And to paraphrase the recent comments of a Hong Kong official: The logic of MFN opponents is that if China takes away the political liberties of the Hong Kong people, the U.S. will respond by taking away the jobs and economic hopes of the Hong Kong people. I very much hope our colleagues in the House will hold their vote on normal trade relations before, rather than after, Hong Kong reverts to Chinese sovereignty and give Hong Kong a vote of confidence by rejecting any attempt to revoke China's normal trade status. Fourth, by extending MFN to China, we are not awarding them any favors or privileges or special access to the U.S. market. We are simply giving China Federal News Service, JUNE 10, 1997 access to the U.S. market on the same terms we give virtually every other country in the world. MFN is the normal, not the exceptional, trading status. In fact, we extend tariff treatment that is more favorable than MFN to specific products from over 130 nations, under special trade programs and agreements. To clarify this matter, I and Senator Moynihan, Chafee, Baucus and 15 other colleagues on the Finance Committee have introduced legislation to replace MFN in U.S. trade law with a more apt term "normal trade relations." And finally, I oppose the withdrawal of China's normal trade status because I do not believe it will bring about any of the improvements we all seek in China policies. It's never been adequately explained to me how revocation of MFN will advance our China policy goals. And as I said earlier, I believe revocation will just make it more difficult to attain these goals. This does not mean we are without policy options to address our problems with China. More targeted specific policy tools exist for dealing with China. For example, we can impose specific trade sanctions if China fails to honor our trade agreement and sanctions specified under U.S. law if China transfers restricted technology, as the administration recently did upon discovering China has provided assistance to Iran's chemical weapons program. And we can support efforts undertaken by groups both inside and outside China, which are working hard to achieve greater democracy and freedom in China. Federal News Service, JUNE 10, 1997 I'll close by saying that I believe that Beijing's normal trade status should be made permanent in conjunction with China's accession to the WTO on commercially viable terms. Well, we have a number of very distinguished witnesses today, due to the importance of the China MFN question and the breadth of the issues we have to consider. I'm looking forward to hear their testimony. So that Ambassador Barshefsky can make a commitment to testify later this morning in the House, we'll move directly to the testimony and questioning of the two witnesses on our first panel after Senator Moynihan's opening statement. Senator Moynihan? SEN. MOYNIHAN: Thank you, Mr. Chairman. And I have excellent news for the committee, particularly for our chairman, which is that as of today, we have had our first official diplomatic recognition of "normal trade relations" as the term of choice. Secretary Albright, in her op ed article in the Washington Post this morning, "Frank Talk With China," in her second sentence states, "Some argue that we should suspend normal trade relations until Chinese policies" -- and so forth. That is the first. I don't see any turning back from there -- (laughter) -- and we want to express our thanks. And just to make a point that you have made, we all have to deal with, absent normal trade relations, a country's tariff relation with us goes back to the Smoot-Hawley tariff of 1930, with an average tariff rate of 60 percent, Federal News Service, JUNE 10, 1997 trade-weighted, perhaps 44 percent for China -- something unprecedented in the world, particularly with a major trading partner. Thank you, Mr. Chairman. I look forward to the hearings. And I know that -- I think you want to proceed directly so we can accommodate our witnesses. SEN. ROTH: Thank you, Senator Moynihan. Madame Secretary, we look forward to your comments. SEC. ALBRIGHT: Thank you very much, Mr. Chairman, and members of the committee. I am delighted to be here in the company of Ambassador Charlene Barshefsky, the U.S. Trade Representative. I am very glad to have this opportunity to testify and answer your questions regarding U.S. policy towards China and China MFN. SEN. ROTH (?): (Inaudible.) SEC. ALBRIGHT: -- normal trade -- (laughter). It's just so people know what we're talking about. (Laughter.) SEN. : (Off mike.) (Laughter.) SEC. ALBRIGHT: (Laughs.) I'll get to it. Mr. Chairman, the debate over the Chinese trading status and the larger debate about U.S.-China policy is not about goals; it is about means. Whether you are a human-rights monitor, a business person, a missionary, a military planner, a senator or secretary of State, you will want to see a China that is observing international norms, participating actively and constructively in the international system, and defining its interests in a way that is compatible Federal News Service, JUNE 10, 1997 with our own. The question we face is how best to encourage the evolution of such a China. Although we have a variety of tools, none is a magic want. We have and will continue to have serious differences with China on human rights and other issues. Some suggest that in response to those differences, we should take the dramatic and confrontational step of severing normal trade relations. The administration strongly disagrees. We believe it is more productive to raise our differences with China within the context of a dialogue that expands the full breadth of our bilateral relationship. And we believe that revoking MFN would harm America's strategic interests, and here's why. First, America and China are working together today in a number of areas that are important to both. For example, when the Clinton administration took office in 1993, the U.S. and China generally did not see eye to eye on nuclear issues, and the Chinese were selling dangerous weapons and technologies without regard to our concerns or those of others. Through our dialogue, we have built a record of general cooperation, agreeing on measures to enhance international nuclear safeguards, ban nuclear tests, and make chemical weapons illegal. China has also accepted in principle, although not yet fully implemented, effective export controls on sensitive technologies. China has the same interest we do in preventing instability on the Korean Peninsula. Accordingly, China has been helpful in encouraging North Korea to accept the agreed framework under which that country will dismantle its nuclear program and has been supportive of Federal News Service, JUNE 10, 1997 talks aimed at long-term reconciliation between Seoul and Pyongyang. At the U.N. Security Council, China has endorsed or accepted many actions aimed at resolving international conflicts, or bolstering the rule of law. These include peacekeeping missions in the Balkans, sanctions against Libya and Iraq, and the creation of the international war crimes tribunal. On economic matters, as Ambassador Barshefsky will describe, we have made progress in opening China's markets, and we're moving ahead on efforts to achieve China's accession to the World Trade Organization on commercially acceptable terms. And on the environment, the U.S. and China have developed a broad agenda for cooperative action that befits the world's two largest producers of greenhouse gases. For America, the strategic benefits of our dialogue with China are significant. Although China has not evolved as thoroughly or as rapidly as all of us would hope, the overall trend is in the right direction: towards greater interaction with the world community, and greater acceptance of international norms. Mr. Chairman, there's a second reason why our current policy is preferable to revoking MFN. Engagement does not mean endorsement. We do not need to take the drastic step of ending normal trade relations to demonstrate our concern about specific Chinese policies. We do that now. As our trade representative will discuss, we have available, and we use Federal News Service, JUNE 10, 1997 targeted trade sanctions to achieve specific commercial objectives. We have imposed sanctions against Chinese companies that have sold chemical weapons-related materials to Iran, as you noted. President Clinton has used U.S. naval power to reinforce America's commitment to a peaceful solution of differences between Beijing and Taipei. And on human rights, we continue to document Chinese practices in our annual report. We again supported a resolution on China at the U.N Commission on Human Rights, and we have repeatedly called upon China, both publicly and privately, to respect internationally recognized standards. So, Mr. Chairman, our strategic dialogue has advanced American interests where we and China agree, and revoking MFN is not needed to show our concern in areas where we do not. Moreover, severing normal trade relations is such an extreme step that it would slam into reverse the current trend towards greater engagement with China, and propel us downhill towards hostility and confrontation. This would severely damage America's strategic interests. For example, the likelihood of further constructive Chinese actions toward the Korean Peninsula, where 37,000 American troops are deployed, would diminish. We might see a renewal of tension in the Taiwan Strait. Our efforts to encourage greater restraint on China's arms and arms-related exports would be frustrated. China could well use its veto as a permanent member of the U.N. Security Council to block initiatives that serve U.S. interests. Federal News Service, JUNE 10, 1997 Economically, revoking MFN would invite retaliation against our exports to China, which directly support 170,000 U.S. jobs. And it would add an estimated half billion dollars to the cost of products we import. On human rights, it would likely reduce U.S. influence even further. This explains support for continuing MFN from a number of groups now conducting religious outreach programs in China, and also from well-known dissidents such as Wang Xi Hou (sp), one of the heroes of Tiananmen Square. Denial of MFN would also cut the legs out from under the free market economy of Hong Kong. Mr. Chairman, at the end of this month I will be traveling to Hong Kong to witness its reversion to Chinese authority. My purpose will be to express American support for the people of Hong Kong and for the continuation of their democratic way of life. If Congress votes to suspend MFN, I will have no leverage and very little credibility in conveying that message. To eliminate MFN is to say to the people of Hong Kong: We don't care about your economy, your future or your freedom. Hong Kong's democratic leaders are unanimous in asking us to remain engaged with China and to continue normal trade relations. Finally, Mr. Chairman, we return to the question I asked at the outset: What U.S. policy has the greatest potential to encourage China's evolution as a fully responsible and active participant in the international system? Clearly, revoking MFN is not. Just as clearly, a policy of acquiescence in which we fail to make clear to China our own interests and values is not it. We believe our current approach is the right one, not because it guarantees instant results, Federal News Service, JUNE 10, 1997 which we do not in any case expect, but because it best suits the reality of the U.S.-China relationship over the long term. The economic and security future of Asia is not a zero sum game. A China that is integrated economically, that is militarily neither threatened nor threatening, and that is working with others to combat shared global problems would serve the interests of all people, and a China moving in that direction will be exposed constantly to healthy influences from abroad. We cannot and do not base our policy on assumptions about the future. The purpose of our policy is to influence, as best we can, the shape of that future. Through our strategic dialogue with China, we are doing that -- working together where we can; being honest, even blunt, about differences where they persist. To me, the debate in Congress concerning U.S.-China policy is instructive, not so much for the differences that are aired, but for the similarities of sentiment that are revealed. As secretary of State, I know that, regardless of how the MFN issue is decided, I can express American support for open markets, responsible export policies, human rights, and the preservation of Hong Kong's way of life, and know that I will have the full support of the American people behind me. I must also add, however, that it is my judgment, as secretary of State, that I will be far more effective in making that case, using the means of engagement than by denying normal trade relations. Thank you, Mr. Chairman and members of the committee. And I now will yield Federal News Service, JUNE 10, 1997 the floor to my colleague Ambassador Barshefsky. SEN. ROTH: Madame Ambassador, we look forward to your comments. AMB. BARSHEFSKY (USTR): Thank you, Mr. Chairman and members of the committee. It's a pleasure to appear before you again. This is becoming a weekly event, and I enjoy it. I appreciate very much this opportunity to discuss the administration's policy toward China, and particularly the trade aspects of that policy. Our bilateral relationship with China is complex and multifaceted, including as the secretary has testified, political, strategic, human-rights and trade elements. President Clinton has implemented a comprehensive policy with China, one which is based on continued engagement on the full range of issues. The reason for that policy is clear: U.S. interests are best served by a secure, stable and open China. How China evolves over the next decades will be of profound importance to the American people. The manner in which we engage China will help determine whether it abides by international norms, and becomes integrated into the international community, or whether it becomes an unpredictable and destabilizing presence in the world. We will not achieve China's full integration into the international community by building walls that divide us. The most repressive periods in modern Chinese history did not occur in times of open exchange, they occurred in times of isolation. While the administration's policy toward China is one of engagement, let me be Federal News Service, JUNE 10, 1997 clear about what we mean by engagement. As the secretary has said so well, engagement with China does not mean ignoring our differences. It means actively engaging China to resolve our differences, and it means protecting our interests when consultations do not produce results. The vote on normal trade relations, or MFN, is thus a vote on how best to protect U.S. interests. It is not an endorsement of China's policies. It does pose, however, a choice, a choice between engaging China and making progress on issues that Americans care about, or isolating ourselves from China by severing our economic and, in turn, our political relationship. Our friends and allies, the global community, will continue to conduct normal trade relations with China, displacing U.S. interests and diluting U.S. influence. Let me turn to the trade aspects of the administration's policy of engagement, and why continuing normal trade relations is in the national economic interests of the United States. I use the term "normal trade relations," because that is really what we're talking about. "MFN status" is a misnomer. MFN tariff treatment is the standard tariff treatment we accord virtually all governments, and it is this normal treatment that the president's waiver seeks. As I noted, the U.S.-China relationship is complex. But trade has played an increasingly central role in that relationship. Just as we should not make apologies for China, we should not apologize for our economic interest in China. The administration has clear goals that it wants to achieve in its trade policy with China, neither of which would be furthered by MFN revocation. Federal News Service, JUNE 10, 1997 First and foremost, we continue to pursue actively market-opening initiatives on a broad scale for U.S. goods, services, and agriculture. U.S. businesses should have access, and the necessary protection for their property, in China's market, equivalent to that which China receives in the United States. Especially in light of our trade deficit with China, due in part to multiple overlapping barriers to trade, we must seek greater balance in our overall trade relationship, with high growth in our exports to China in areas where U.S. companies maintain a comparative advantage. Second, a fundamental principle of our policy has been working to ensure that China accepts the rule of law as it applies to trade; that is, ensuring that China's trade and economic policies are consistent with international trade practices and norms. Mr. Chairman, neither of these goals will be achieved if MFN is revoked. Rather, bilateral negotiations and the use of targeted trade sanctions where necessary have resulted in landmark textiles and intellectual property rights agreements with China and in the 1992 market access agreement. Each is based on international norms, and each commits China to a rule of law with respect to that particular area. Under the textiles agreements, China's shipments to the U.S. have been reduced, illegal transshipment punished, and for the first time, market access for U.S. textiles and apparel into China will be possible. Under the intellectual Federal News Service, JUNE 10, 1997 property rights agreements, China has revamped entirely its administrative and enforcement regimes at both the central and provincial levels for IPR protection. It has closed some 40 pirating factories, imposed harsh penalties against offenders, and provided market access to our sound recording and motion picture industries. While serious problems remain, particularly with respect to computer software, important progress has been made. And under the 1992 market access agreement, China has eliminated over 1,000 non- tariff barriers, made its trade regime more transparent and lowered tariffs. While we have made some limited progress on agricultural market access, the use by China of non-scientific sanitary and phytosanitary barriers to our agricultural trade remains a persistent problem. This must be rectified. But MFN revocation would only set us back. Maximizing market access and accelerating the development in China of the rule of law are also at the heart of our accession negotiations for China's entry into the WTO. At this juncture, while China has shown a greater seriousness in the accession talks, it has yet to put forward acceptable market access offers for goods, services and agriculture. We will continue to work with China on a commercially meaningful protocol of accession, negotiations we should foster rather than jeopardize were MFN to be revoked. The effects of MFN revocation, of course, go beyond our current and future bilateral and multilateral initiatives. MFN revocation would, as the Federal News Service, JUNE 10, 1997 secretary has said, cut U.S. exports to China, increase prices for U.S. consumers, and cost jobs in this country. An added factor this year is the destabilizing effect that MFN revocation would have on Hong Kong. We estimate that the revocation of MFN would increase tariffs on imports from China to a trade-weighted average, as Senator Moynihan has pointed out, of about 44 percent from their current level of about 6 percent. Even accounting for changes in trade flows, revocation would result in U.S. consumers paying approximately $590 million more each year for low-end goods such as shoes, clothing and small appliances. For manufacturers, the cost of goods made with Chinese components would increase, reducing the competitiveness of their finished products abroad. If MFN treatment were revoked, China would be likely to retaliate against U.S. exports by increasing tariffs, exacerbating a negative economic situation. U.S. exports to China have nearly quadrupled over the past decade. Those exports support more than 170,000 jobs in the U.S. Jobs based on goods exports pay 13 to 16 percent more on average than non-export related jobs. Revoking MFN would jeopardize U.S. exports and U.S. jobs, thus transferring those opportunities and those jobs to Europe, Japan and other competitors. The situation in Hong Kong this year provides another compelling reason for continuing normal trade relations with China. MFN revocation would deal Hong Kong a devastating economic blow and would have a destabilizing effect. Trade is a particularly important part of the economic life of Hong Kong. Somewhere Federal News Service, JUNE 10, 1997 between 50 and 70 percent of U.S.-China trade is handled through Hong Kong, thus making it highly dependent on continued normal trade relations between China and the U.S. Hong Kong authorities estimate that MFN revocation would slash its trade volume by $20 billion to $30 billion, resulting in the loss of as many as 85,000 jobs. Hong Kong's economic strength is one of its chief assets in assuring its autonomy and viability. Hong Kong leaders, including Democratic Party leader Martin Lee, British Governor Patten, and Anson Chan, the most senior civil servant, have spoken out strongly in favor of renewal of MFN. The implication is clear; bilateral trade between the U.S. and China, encouraged by MFN treatment, provides needed stability at a time of dramatic change. Mr. Chairman and members of the committee, as I noted earlier, providing MFN tariff treatment is the norm in U.S. trade, not the exception. In every year since 1980, every U.S. president has supported extending it. Granting MFN treatment means that China will receive the same tariff treatment as nearly every other U.S. trading partner. We have a long history of providing the same basic level of tariff treatment to other countries and maintaining normal trade relations with the global community. Congress has enacted into our law a presumption that normal trade relations will exist between us and other countries. Maintaining such relations is vital to a broad array of U.S. interests, as Secretary Albright has said. Federal News Service, JUNE 10, 1997 And maintaining normal trade relations with China is no less vital. Thank you. SEN. ROTH: Thank you, Madame Ambassador. Madame Secretary, every year we have a fight over whether or not to renew China normal relations or MFN -- whatever you call it -- despite the fact that a majority of Congress, at least to date, have been supportive of continuing it. One alternative to this would be permanent MFN, or normal trade relations. Under what circumstances would the administration agree to give China permanent MFN? SEC. ALBRIGHT: I think, Mr. Chairman, you are quite correct in stating that this discussion is one that in many ways is a complicating factor in terms of the way we approach our whole relationship with China. It does raise some very important issues, and I think that we always welcome the raising of issues. But I think it would be -- it is our intention to consult very closely with all of you about such possibilities as you are discussing. And we would just like to at this stage say that w would like to be involved in consultations widely on the Hill in order to determine whether to move towards a permanent status. SEN. ROTH: There have been concerns voiced recently that China may take advantage of the fact that our export control laws are more relaxed for Hong Kong than for China. What steps is the administration taking to ensure that Federal News Service, JUNE 10, 1997 the Chinese do not exploit this difference in treatment? Let me ask you this further question: What steps is the administration taking to ensure that China does not use its recent purchases of supercomputers from the U.S. for the production of more sophisticated weapons? SEC. ALBRIGHT: Let me first answer the first part of the question on Hong Kong. First of all, the way that the Hong Kong reversion is being set up, it will have a separate customs area. And we will be monitoring very closely, specifically, the transfers you had discussed the possibility. And we are going to maintain highly disciplined approach in looking at high-tech, dual-use items. So the way that it is set up is one that allows us to distinguish between what it going on in Hong Kong and in China. In terms of the supercomputer question; I think that it is -- if I might give you a fairly full answer on that, because this issue has come up today. The administration, in 1995, revised its controls on supercomputers, recognizing that supercomputers were becoming more powerful and increasingly available worldwide. But in liberalizing these controls, the administration made special provision for licensing supercomputers to China, and other countries of proliferation concern, so as to ensure against sales to the Chinese military or for any military end use. As a result, we require licenses in the range of 2,000 to 7,000 MTOPs for military-related sales, and licenses for all computers to China whose capability is greater and poses a potential national security risk. Federal News Service, JUNE 10, 1997 It is true that we are investigating some cases of supercomputer sales to China, and we're looking at additional ways in which we might be able to provide exporters with more information on entities of proliferation risk. But we continue to believe that our policy takes into account the significant changes in computer technology, while protecting our non-proliferation goals. SEN. ROTH: Madame Barshefsky, our growing bilateral trade deficit with China is indeed troubling, and particularly in view of the fact that much of it is due to the numerous trade barriers China has imposed on U.S. imports. My question to you is: What is the administration doing to address these barriers, to provide market access, to open up more export opportunities in China for U.S. companies? AMB. BARSHEFSKY: Let me say first, Mr. Chairman, that we should look at what the causes of the trade deficit might be. We do know that there has been a fairly significant shift of productive capacity from Japan, Taiwan, Hong Kong, and other Asian nations to mainland China. If we look at a couple of specific examples, we see that, for example, in footwear, China's share of U.S. imports used to be about 50 percent, and the rest of the world's share -- or the rest of the Asian share -- was about nine percent. Those numbers have now basically -- I'm sorry. The rest of the world was 50 percent, China's was nine. Those numbers have virtually flipped, and now China is supplying the bulk of footwear, with the rest of the world supplying much less, and the Asian nations Federal News Service, JUNE 10, 1997 supplying lesser still. So, we know there has been a substantial shift, and a change in our trade balances with some of the other Asian countries. Apart from that, though, it is absolutely vital that we continue the market opening efforts that we've begun, through the textiles and intellectual property rights agreement, the market access memorandum of understanding. The best opportunity for comprehensive market access and reform of China's trade regime generally, is through WTO negotiations. SEN. ROTH: My time is up, but I'll ask one more question. Those who cite the trade deficit with China as one reason to oppose MFN, believe that revocation of most favored nation or normal trade relations for China will severely curb our imports of Chinese goods, and thus improve our trade balance. What is your view of this argument? AMB. BARSHEFSKY: First off, certainly there would be a curb of Chinese imports into the U.S. But the unfortunate assumption made in the argument -- or presumption of the argument is that that means that those products would be produced or supplied by U.S. manufacturers. China exports to the U.S. very low-end goods; low-end apparel, low-end toys, low-end consumer electronics -- goods that we have been importing from many sources over many, many years. We would simply be shifting China's trade imbalance to other nations. SEN. ROTH: We're limiting members' questions to five minutes. Further questions can be submitted in writing any time today. Federal News Service, JUNE 10, 1997 Senator Moynihan? SEN. MOYNIHAN: Mr. Chairman, I'll just ask one question of the secretary. On an aspect of our continued engagement with China, which you describe as essential, and absent normal trade relations is certainly much less likely to produce -- have consequences. It's almost a half century since the Korean War, the first and last war fought under United Nations auspices as a -- and the work being in the manner that the U.N. Charter anticipated. At one point in the war, China invaded the peninsula. U.S. forces and Chinese forces were at war, the first time really ever. And it's -- a half century has gone by and that war is still on. It is the only such conflict left in the world. And do you have any feeling about the Chinese view on this matter? And are we engaged with them? And do you feel that in the context of continued trade relations, normal trade relations, why, we would have an opportunity to deal with this anomaly? SEC. ALBRIGHT: Senator, I think you have, as is characteristic of you, put your finger on a very important point of this discussion. For the most part, as the discussion plays out, people think that it's a trade-off between human rights and trade policy, when in truth the issue that we are looking at here is a strategic relationship with the growing power of China within its region. We need to keep our eye on that. Chairman Roth spoke about the importance of Federal News Service, JUNE 10, 1997 the strategic relationship. That is the issue here. And while we are talking about trade and human rights and those are important from the perspective of the secretary of State, the strategic relationship is key. And where it is very pointed is especially in the area that you are talking about, is Korea. The Chinese have, in fact, been very helpful with us -- helpful to us in terms of dealing with the issue of North Korean potential in the nuclear area and have been backing us in terms of the framework agreement. They also are very much a part of where we are heading with the Koreans, which is to try to get four-party talks ultimately on the unification -- potential unification of the Korean peninsula. And of all the examples that we have been talking about, their role in terms of our long-range interests in Korea is very important. And their strategic relationship on nuclear nonproliferation issues and on Korea are what we need to keep our eye on. And so this is a strategic issue we are talking about, not a trade-off between trade and human rights. SEN. MOYNIHAN: And do you have some grounds for optimism? You can't have your post without being optimistic. SEC. ALBRIGHT: It's true. Well, I think that there is some -- we have had some fairly positive discussions in New York as we have moved forward towards four-party talks. We are looking at -- I do remain optimistic, but I also don't want to get overly optimistic about dates. SEN. MOYNIHAN: No. SEC. ALBRIGHT: But I think that we are moving in that direction, and I think Federal News Service, JUNE 10, 1997 we should have some of those talks in the near future, soon. SEN. MOYNIHAN: Good. Thank you. Thank you, Mr. Chairman. SEN. ROTH: Senator Gramm? SEN. PHIL GRAMM (R-TX): Mr. Chairman, thank you very much. I want to thank both of our witnesses for excellent testimony. I'm on their side, so I'd like to take most of my time in making basically an opening statement. The newest estimates I've seen from the Heritage Foundation tell us that about 220,000 American jobs are generated by trade with China, and about 10 percent, or 22,000, of those jobs are in the state that I represent, in Texas. I am not for normal trade with China because it's good for China, though it is good for China; I am fundamentally for it because it is good for the United States of America, and it's good for my state. It creates jobs and growth and opportunity in my state and also the flip side, which is seldom discussed in the politics of trade; it expands consumer choice in America. It lowers prices for consumer goods, and it raises living standards in America. I have never been impressed by the protectionist arguments. So let me address the isolation and the political argument. I think there are circumstances where, as a matter of foreign policy, we might want to try to isolate a nation. But I don't think you can isolate a billion people. I don't think you can isolate a country that really represents the Federal News Service, JUNE 10, 1997 only country in the world that has the potential of being our rival in the 21st century. So I don't see isolation as an option. But I would say that if isolation really produced reform, that North Korea would be utopia. (Laughter.) And it's hard for me to believe the people who are making the argument for isolation in the name of reform are serious. Basically, if we want reform, we want more freedom. And what is clearly happening in China is that China, very wisely, is expanding economic freedom because that is the key to their economic growth. Now, I don't doubt that those who run a repressive government in China would like to have economic freedom without it's corollary political freedom. But in wanting that, they are hoping for something that has never, ever existed. Nor do I believe you can preserve political freedom while being oppressive economically. I guess I would have to say that I view freedom as being like pregnancy; you can't have a little of it. And so I support trading with China because it's in our interest. But I also support it because I believe that their economic liberalization is unleashing a thirst for freedom that cannot and will not be suppressed, and that ultimately China cannot have economic growth and political repression. And in the end, I believe that our current policy and China's economic liberalization will ultimately change their political system and in the process will lift the very repression that those who oppose the -- that those who oppose MFN are Federal News Service, JUNE 10, 1997 claiming to want. But I would say -- and I do throw this out as a question in conclusion -- I think it's bad policy that we're undertaking here, where we're -- we vote on this every year. I'm sure everybody here will recall that in the last year of the Bush administration, he was forced to veto a bill that would have ended normal trade relations with China. And I don't doubt that there are some people who voted for that bill for political reasons. Perhaps the same thing is starting to happen now. The problem with it is that when people cast these political votes, they then find it difficult to come back when they're shooting with real bullets. And if we can find some way to end this policy where we have to vote every year on normal trade relations, it seems to me that we eliminate the potential that each year or as elections occur and different parties are in the White House, we get more and more people who have staked out the wrong position. Ultimately, it is going to put us in a position of really jeopardizing trade. And if we could come up with a way of ending this process and grant as a permanent status normal trade relations, where the vote would always be on revoking those trade relations, and that would be an extraordinary event, I think we could benefit ourselves greatly and eliminate the risk of what could be a virtually economic insane policy. And I'd like to throw that open to both our witnesses to get their response. SEC. ALBRIGHT: Let me just start on that. Federal News Service, JUNE 10, 1997 First of all, thank you very much for that statement, Senator Gramm, because I think that you encapsulated the points very clearly about the importance of having these normal trade relations. And I agree with you in the way that you describe the effects of isolation on China. And also, I would like to say -- and this has to go with the second -- with your real question here, I do think it is important to raise our concerns about Chinese behavior, and we would do that whether there was this annual debate or not, because it does -- Chinese behavior does concern us. It does concern us in the human rights area, and it does concern us in terms of nonproliferation issues, and it obviously concerns us in the kinds of important issues that Ambassador Barshefsky was talking about of opening access to their markets. But I do not think it is necessary always to have this kind of a debate that undercuts the strategic value of our relationship. But as I have said, any grant of MFN permanently would require a change in the legislation and, therefore, does require extensive consultation with all of you. And I think that it's important for us to hear what you are saying on this subject now. AMB. BARSHEFSKY: I don't have anything to add to that. Thank you. SEN. GRAMM: Mr. Chairman, I'd like to put -- (off mike). SEN. ROTH: Without objection. Senator Baucus? SEN. MAX BAUCUS (D-MT): Thank you, Mr. Chairman. Federal News Service, JUNE 10, 1997 First, Madame Secretary, I want to compliment you on your speech at Harvard. SEC. ALBRIGHT: Thank you. SEN. BAUCUS: It was very bold, it was forthright, it was a statement that should have been made. Second, I'm very impressed with and very much agree with American strategic policy in Asia. I was in Korea, North Korea, China, Hong Kong two weeks ago for one week, and I was very impressed with our military forces on the peninsula in Korea, and generally with American foreign policy. I think our strategic goal in trying to establish stability in that part of the world is working in the main quite well, and I compliment the administration. My main point, though, is -- to follow-up a little bit on the points of Senator Gramm. This is really a nutty debate that we're having here. It doesn't make any sense whatsoever. We obviously should extend MFN to China. This annual debate I think is destructive. It undermines our ability to, quote, "engage" properly with China. We don't have this debate with any other country. What would happen, for example, if we had an annual debate whether to extend MFN to Japan, or an annual debate whether to extend MFN to France, or to Germany, or to any other -- or to Italy, or any other country? We'd come up with all kinds of reasons why we've got problems with those countries, and, you know, everybody under the sun would come before the Congress and introduce his resolutions, Federal News Service, JUNE 10, 1997 you know, limiting or conditioning MFN, and what not. So, my real question is it's really Senator Gramm's question in a sense, is: how do we get this issue behind us so that we're dealing with real issues with China, not with MFN? And I have two suggestions. One is that we do grant permanent MFN, once China enters the WTO on commercially acceptable principles. That's only fair, because if China does become a member of the WTO, then it's only fair that we have the same trading relations with China as we do with every other country that's in the WTO. But beyond that, I urge the administration to -- in addition to yourselves, I'm talking about the president and the vice president -- to become more deeply involved in our strategic trade policy for the rest of the year and into the -- the rest of this century. I'm worried, frankly, that fast track is slowing down. It's not that fast. I'm worried that the administration perhaps is getting a little sidetracked, or perhaps the Chinese are, too, about alleged campaign violations. I think we should -- if there is any truth to any of those violations, any of those allegations, they could be handled separately, and delinked, and not in the consequence -- not in the context of whether we have MFN with China, and not in the context of WTO. There are precedents, for example. I think some years ago, people from India were giving campaign contributions in violation of the law. And those people were summarily prosecuted, and I even think, if I recall correctly, an Federal News Service, JUNE 10, 1997 ambassador was dismissed. We dealt with it separately from trading issues or other issues that we had with India. They were delinked. And I do fear that if we don't step up to the plate here, as a country, and the president and the vice president themselves get more engaged, that we're going to slip, we Americans, with respect to other countries in Asia. When I was over there, I heard constantly that other countries are much more active than we Americans. We Americans are liked in China, but other countries are much more active. And if we're going to be number one in the world, and we want to be as Americans, I think it's critical that we find a way to extend MFN here, with as few votes as possible, because it's stupid, in my judgment, not to extend MFN -- if you stop and think about it for any length of time at all -- then try to work with China on a mutually acceptable basis, to try to get China really into WTO on time, so President Jiang Zemin can come over here, and then we can grant permanent at WTO, and maybe we can start working on fast-track. But it just -- I am very concerned that we're slipping. And we're talking around the edges here, to a great degree, and -- rather than getting to the heart of the matter and getting on with it. And I just urge you to get on with it. SEC. ALBRIGHT: Let me just take up the latter part of your point and then let Ambassador Barshefsky address the first. On the issue of, generally, our relationships with Asia; I know it might have Federal News Service, JUNE 10, 1997 seemed symbolic, but I think it was an important symbol that on my first trip abroad, I made it a point of going to Europe and Asia, simultaneously almost, in order to show the equal importance of the regions to American foreign policy. And we are pursuing that tack in terms of making sure that it is clear that we are a Pacific nation, as well as an Atlantic nation -- (bell is rung); that we have broad not only trade interests but strategic interests in the region; and also, Senator, that we are progressing on a road map that we have in terms of elaborating and enlarging our relationship with the Chinese across the board: in terms of military-to-military contacts; moving, in terms of meetings that we are having, at higher and higher levels; and in fact, making clear that our relationship with a country that will have a billion-two people -- have now and will have more -- is essential in terms of our looking at all of regional strategic stability. And we will, obviously, be talking about this a great deal more. AMB. BARSHEFSKY: Yeah. Senator, may I just say that I don't think that what you see in the current discussion is actually, as you said, sort of "talking around the edges." I think what you are seeing is an evolution in thinking, on the part of many people, with respect to the best way in which to conduct a strategic trade relationship and a strategic overall relationship with China. There's been as lot of evolution, I think, in the thinking of many, many people: first, that the MFN debate that we have tends to be corrosive of the relationship -- and I think that there is a more widespread feeling that that Federal News Service, JUNE 10, 1997 may be the case; second; that we should not have a single-issue relationship with China, but that we should work to ensure that the broad array of interests that we have with China -- whether human rights, nonproliferation, trade, other matters -- can be fully and effectively addressed. And that suggests in and of itself a more strategic way of thinking about China. Third, I think there is a growing consensus that without helping China to develop notions of the rule of law, we will not make long term the kind of progress that we would like to see with respect to the broader strategic relationship or with respect to China's adherence to individual commitments, whether with respect to nonproliferation, human rights or trade. On the trade side, of course, the WTO negotiations embody many of these aspects. It would place the trade relationship on a predictable footing. It would provide a rule-of-law basis on which to judge China's actions in the commercial field. And it would bring China into a global trading community that would, to be frank, discipline many of China's current practices. SEN. BAUCUS: Yeah. I agree with your policy. I'm just suggesting that the president himself get more directly involved so we can get there more quickly. That's what I meant when I said talking around the edges. AMB. BARSHEFSKY: Certainly the president will be more directly involved. May I add one footnote on fast track, since you raised fast track, and that is, fast track is on a fast track. We will be proceeding in consultations with Federal News Service, JUNE 10, 1997 the committee on developing a bill, and we will introduce that bill in the fall. Thank you. SEN. BAUCUS: That's on fast track. But how far away is the end? AMB. BARSHEFSKY: The end is 1997. SEN. BAUCUS: Okay, thank you. SEN. ROTH: Senator Rockefeller? SEN. JOHN ROCKEFELLER (D-WV): Thank you, Mr. Chairman. I welcome both our witnesses. The -- we have had, obviously, as a country just an overwhelming fascination with China. I know that Senator Moynihan and others will remember Teddy White's book in 19 -- I think it was '37, called "Thunder Out of China." And it was sort of the whole process of how we did not at all understand what was going on in China at that time, and that we've -- but because there's always been this very good relationship in terms of our relationship with them, a feeling back and forth, we've had this feeling that we can manipulate or bend China's internal habits to our own instincts. That's a little bit like, you know, the Christians trying to reconvert the Japanese. They've been at it for 400 years, and there's still less than one half of 1 percent. I mean, these are not the same kinds of countries that we deal with. China has a 5,000-year history. It's never for a single day of that period had a democracy. There's no concept -- it was feudal lords, it was Federal News Service, JUNE 10, 1997 emperors, empresses. You know, it's just -- it's very different. You yourself, Madame Secretary, have pointed out their usefulness in Korea and also in Cambodia. And I -- it seems to me that we have to face the fact that what we're doing here is discussing whether or not to do a truly negative thing. In other words, we're not saying, "Are we going to give MFN to China?" We're going to say, "Are we going to reject the president's request to -- for his granting again?" And if we were to reject that, that would be a highly negative thing. Now I think you have to sort of take China where it is right now -- at least this is my own view -- a country with a history 100 times -- 500 times longer than our own; one which is -- through little things called satellite dishes, through certain provinces on the Eastern Coast, is awakening dramatically to the whole question of economic capacity. If you look at what's happened in Taiwan and then imagine what will be happening in -- on -- in China, PRC, it's an extraordinary thought. It also occurs to me that if we were to reject the president's request, then we would be saying to China, "We look at you as we look at Cuba. We look at you as we look at Laos. We look at you as we look at North Korea. We look at you as we look at Serbia, Montenegro, et cetera." And that, I think, would be an extremely damaging thing to do. So I want to just sort of say that I think that the real question for each of you is the question of how do you maximize the leverage that you need, to Federal News Service, JUNE 10, 1997 whatever extent America can influence trade relations, to whatever extent we can influence the diminution of repression of protests in China. And your own report, State Department report, says that there really isn't any of that allowed now. And we understand that. There never really has been. And it was tried at Tiananmen Square with terrible results. But that does not mean China cannot evolve. And I think the great equalizer in the way countries change is what happens to their economy and the way their people sense -- have a sense of their own future. If they have a sense of their own future which is positive, and if the younger generation of government leaders coming up in China, who are going to be over the next 10 years gradually taking over, more practical people, it seems to me that represents our best hope for leverage. And that, therefore, to take away your leverage, as you say, to send you to Hong Kong and having rejected the president's request, rejected MFN for China, would be no favor either to ourselves or to you. And if foreign policy, which is today more and more foreign economic policy as well as foreign diplomatic and political policy, it seems the best thing we can do is to send you with this MFN well intact. I think I also would be inclined to think that it ought to be there on a permanent basis, simply because I think that inconsistency is the enemy of Federal News Service, JUNE 10, 1997 sort of the continuity that you're trying to build, each of you in your own way, with China. So I think I would just say that, and then add one more thing for Ambassador Barshefsky on fast track. And that is, there are, I think, at least two bills -- and that's not related to MFN, I understand it, but you've been discussing it. That there are at least two bills, I believe, in the Senate now which specifically ban the phrase "or appropriate." They include the word "necessary" in fast track, but not "or appropriate." And it's amazing how many people don't know about the importance of the word "or appropriate" and how that relates to your ability in terms of Section 337, intellectual property, circumvention, anti-dumping, all kinds of other areas. And so, I would just point that out to you and to the committee -- that I think having our colleagues understand the importance of the word "or appropriate" is part of the leverage, the overall leverage, that we're talking about. It's like the Seventh Fleet. That's part of our leverage. And so is our trade, the ability to sanction, and to go back and forth on those. All of these are forms of leverage, and I think a form of leverage, frankly, which will be positive but very slow in coming, and not perfect, is a continuation of MFN. I thank the chairman. SEN. ROTH: Senator Grassley. Federal News Service, JUNE 10, 1997 SEN. CHARLES GRASSLEY (R.-IOWA): Thank you, Mr. Chairman. I know that each of our witnesses would expect me to say that the stakes are very high, in this debate, for agriculture, because it's quite obvious that agriculture's going to be our -- that China's either going to be our biggest competitor, or our biggest market. But I also think that the stakes are very, very high for everybody, on every issue. Not only for us, but for the world. I think comity among nations, besides the economic issues that are involved -- it isn't only a question of comity between the United States and China, but this relationship's going to have an impact on our relationships with a large section of the world, particularly in Asia. And it's not something that we can be namby-pamby about. We've got to look at this straight on. A policy of isolationism is going to not work with China. It might work with some countries, but it's not going to work with China. And it seems to me that through trade, we are going to promote not only our liberal political philosophies, but also our economic policies of free enterprise. And our belief that these raise the standard of living throughout -- through the United States and throughout the world, has got to apply to the Chinese people as well. And I think we've seen that policy already paying dividends. And, as that standard of living in China has been raise,d it's just going to open up opportunities for trade that are beyond even the possibility of belief today; at least, that's what I believe the future holds for us on this issue. Federal News Service, JUNE 10, 1997 I believe that not only the United States is better off, but even the Chinese people are better off and the world's better off as a whole as we strengthen our relationships with other countries through trade. So, revoking this tool of normal trading relations is a very blunt and ineffective way of making our points with the Chinese. I applaud what we've done to be tough with the Chinese when we need to be. But we've done it with a rifle-shot approach in each instance, not with a shotgun approach that would be the case if we were to revoke normal trading relations. We have problems with the Chinese. Well, we have opportunities and forums to deal with those, and right now what we're doing through the World Trading Organization debate and the conditions on which they come are the way of developing open markets and transparency, and also the balance-of-trade issues, and all the things that even involve agriculture. So I think that's a better forum. It's a legitimate forum. It's a forum where we don't have to worry about the Chinese, if they don't get everything the way they want it, turning inwardly. But this is a condition we've had and a relationship we've had with them now, I think, for 16 years, and it's doing some good; I think economically, a miraculous amount of good, not only for our country, but for theirs. And we can continue to improve the political and economic environment relationships with China in the process. Federal News Service, JUNE 10, 1997 If I could, I would like to ask the first question of Ms. Barshefsky, on the point that you made, I think, of hundreds of millions of dollars, that if we revoke normal trading relations with China, that we're going to have higher prices for our consumers, particularly for clothes and shoes. And so let me ask from an economic point of the good to the American consumer, if that does happen, isn't that going to fall hardest on the lower-income people within our country? AMB. BARSHEFSKY: Yes, Senator. It's our estimate that, given the quality of the Chinese merchandise that comes in and its general price level, that revocation of MFN would fall most hardest on economically less- advantaged people in the United States. SEN. GRASSLEY: And you've already discussed that our trade deficit with China should be addressed at the WTO negotiations and not by revoking normal trade relations. So maybe you could give us an update. To what extent can we reverse the direction of our deficit, then, during these negotiations? Are you hopeful that that -- or maybe the extent to which you're committed to doing that through these negotiations. AMB. BARSHEFSKY: Certainly. We have to be committed to seeing substantial improvement in the bilateral balances through bilateral market access, opening Federal News Service, JUNE 10, 1997 efforts, as well as through WTO accession. Thus far, China has demonstrated an increased seriousness in the talks. It has come forward with better offers than in the past, though clearly still unacceptable to us with respect to goods, services and agriculture. We have made some progress on the rules side of the equation, you know, that any accession necessitates not only market access but also adherence to the full range of WTO rules. And here, China has been somewhat more forthcoming. We will be meeting with the Chinese bilaterally next week. We will be meeting with them in Geneva in July. And we would hope to prod them to make further significant progress in the talks. SEN. GRASSLEY: Thank you. Thank you. SEN. ROTH: Senator Graham? SEN. BOB GRAHAM (D-FL): Thank you, Mr. Chairman. And I, too, wish to applaud our two witnesses for their very helpful testimony. Madame Secretary, in your column that appeared in this morning's Washington Post, you have the sentence, "Whether our particular interest in China is diplomatic, security, commercial or humanitarian, our overriding objective is to encourage in China full respect for the rule of law." Implicit in that sentence is the feeling that we have some capacity to encourage China towards that recognition and respect of the rule of law. Your testimony today has urged that we put aside the issue of normal trade relations as one Federal News Service, JUNE 10, 1997 of the factors in that influencing of China towards the objective of rule of law. I'd like to ask, therefore, a couple of questions. One, what are the other items that are within our portfolio to influence China towards the full respect for the rule of law? And second, looking at this chronologically, do you believe that our capacity to use that portfolio of influences is greater, less or about the same today than it was 10 years ago? And what are the prospects of our ability to influence China towards the rule of law 10 years into the future? SEC. ALBRIGHT: Senator, let me just say here, first of all, that I think that there are numbers of ways that -- tools that countries have to influence the behavior of other countries, and they are different, I think, at different stages for the countries, and also different for different countries. That is what we're all paid to do. I believe that actually there is a close connection between having normal trade relations with China and also encouraging the rule of law, because what we're finding is that there is legislation or patterns of conduct that are necessary in carrying on trade relations that encourage the rule of law, whether it be in having more organized investment relations, or issues to do with any number of the issues that my colleague works on that require a legal basis. We are pressing this also, for instance, in the former Soviet Union or the new independent states; ways that their investment treaties and tax legislation Federal News Service, JUNE 10, 1997 that does create within a country a basis for recognizing the importance of the rule of law. So there is kind of incremental understanding of the necessity of rule of law in order to carry on normal relations. Also, there are a number of other tools that we have, specifically in the human rights area where we raise the issues that concern us in a number of fora -- at the United Nations, also in bilateral relationships; and where we are pressing the Chinese to become a part of the international rule of law by signing-on to the Human Rights Covenants. We also are in fact looking at ways to increase the amount of freedom of expression by -- we are looking at the possibility of funding additionally for Radio Free Asia that would allow us to talk with them more about the importance -- or with the people about the importance of the rule of law. And in fact, thinking also about funding, specifically some work that would enable us to work with the Chinese on expanding the rule of law specifically. I happen to think that it is -- well, you asked the question ten years, ten years -- is that basically, we have a much greater influence if we can, in fact, engage with them to kind of perpetuate our ideas, and seed our ideas there, in terms of the importance of the rule of law. And therefore, while China, in fact, is becoming more powerful, I would say that we -- our influence with them will increase geometrically with our engagement with them. We are less likely to have an influence on them at all, if we do Federal News Service, JUNE 10, 1997 not engage and talk. But as I said in my remarks, engagement is not endorsement, and therefore, by engaging and having a dialogue, we are more likely to be able to get our ideas about the rule of law across. SEN. GRAHAM: Ambassador Barshefsky, one of the areas of that influence over China, is in attempting to resolve some of our specific outstanding disputes. Just to mention two: In 1992, there was a memorandum of understanding on market access for agricultural products, which has largely gone unrealized. China in 1958 became a member of what is referred to as the New York Convention relative to the use of arbitration as a means of resolving commercial disputes. There are now a series of those arbitration awards which China has refused to recognize. How do you see us using our influence, other than that which is contained in the denial of most favored nation, in order to facilitate the resolution of these and other existing commercial disputes with China? AMB. BARSHEFSKY: With respect, senator, to the disputes on agriculture, I indicated in my testimony that China continues to use non-scientific sanitary and phytosanitary standards, as a means of keeping many of our agricultural commodities out. We have made some progress with China in selected areas: cherries, apples, most recently in grapes just two weeks ago. Poultry, several other areas. And of course China is a major purchaser of U.S. wheat -- though not Pacific Northwest wheat -- U.S. wheat, cotton, coarse grains, and so on. The areas most heavily impacted by its non-scientific sanitary and Federal News Service, JUNE 10, 1997 phytosanitary restrictions are citrus, as well as Pacific Northwest wheat, and some of the stone fruits. And we are working with China on those. China understands that it will need to resolve agricultural trade issues if it is to be a member of the WTO. With respect to this question of the enforceability of arbitral awards in China, this is a persistent and continuing problem. Our embassy in Beijing has been actively engaged on these issues, and we will continue to press the Chinese. May I add one other point with respect to your question to the secretary, when you talked about means of influencing the development of rule of law in China. When we did the intellectual property rights agreements, one of our goals was, in fact, to remedy inadequate access to China's court system with respect to intellectual property violations. Included in that were, first off, the question of uniform filing fees, the payment to get into a court; second, the evidentiary rules that would apply; third, the need to make decisions coming out of a case; and then fourth, the imposition of fines or criminal penalties for persistent violators. We worked out rules with China in each of these areas, not only because we needed them with respect to an effective IPR enforcement regime, but also because better understanding by China of the way in which judicial systems operate in most countries will enhance the rule of law over a broader spectrum Federal News Service, JUNE 10, 1997 of issues than simply intellectual property rights. SEN. ROTH: Senator Murkowski? SEN. FRANK MURKOWSKI (R-AK): Thank you, Mr. Chairman. And I, too, want to greet our secretary of State and our U.S. trade representative. It would be probably inappropriate, and I won't do it, Mr. Chairman, to mention to Secretary of State Albright the concern we have continuing on the Canadian-Alaska Pacific Northwest Salmon Treaty and the problems we've had associated with Canadian action; and further, the outstanding $287,000 that the State Department paid the Canadian government three years ago to release Alaska-bound fishermen that were in transit, and that's still an outstanding item, as the secretary knows. So I won't bring that up, Mr. Chairman, because -- (laughter) -- we're here today for the annual spring ritual of renewing China's Most Favored Nation status, or, more accurately, normal trading status. But I would predict, Mr. Chairman, that we will in the end retain trading relationships with one of the world's largest emerging economic powers. Of course, much has been written about the debate over MFN, and I think that we have the issue before us of the question of whether fundamental change has actually occurred and what is our alternative. Do we choose engagement, striving to bring China into the international community on terms we support, or the other alternative, which appears to be isolation, allowing China to enter the Federal News Service, JUNE 10, 1997 international arena on terms beyond our control? Which path will achieve the goals we want and help the people of China, the people we really want to help? I think the answer is obvious to all of us. I think MFN should be renewed unconditionally, not because it's a reward to the government of China but because revocation of Most Favored Nation status hurts the very people that we want to help. We have many concerns with China, ranging from the treatment of dissidents, Christians, weapons proliferation, I could go on and on; but serving -- severing economic ties is not the right tool to address these issues. And I think revoking Most Favored Nation status only succeeds in hurting Americans, hurting reformers, and hurting the people of Hong Kong and Taiwan, which leads me to two questions. I have the honor of leading the Senate delegation to Hong Kong for the transfer from Great Britain to the PRC on the 30th, and I noted today -- I must admit, in full disclosure, I didn't note it but it was provided to me -- from the Los Angeles Times June 10th: "Washington. Secretary of State Madeleine Albright would boycott if invited to the installation July 1st of the new Hong Kong legislature, officials said Monday. To attend, quote, 'would not be appropriate,' unquote, the State Department's Nicholas Brown (sic) said, because Hong Kong already had a perfectly good legislative group elected under British rule." Federal News Service, JUNE 10, 1997 My question, Madame Secretary, is it likely that you won't be invited? SEC. ALBRIGHT: Well, first of all, can I answer your question that you didn't ask? SEN. MURKOWSKI: (Chuckles.) Sure! (Laughter.) SEC. ALBRIGHT: Let me say that the issue of the salmon is something that has been on my mind, as well as the breakdown in terms of the negotiations. And in the last several -- couple of weeks, I've been on the phone several times with Foreign Minister Axworthy on this subject and trying to make sure that the negotiations can resume so that the stakeholders can have some of their issues dealt with. So on this non-issue, we will continue to have a non-discussion. SEN. MURKOWSKI: Thank you for that assurance. (Laughter.) That gives you a little more time on the other one! SEC. ALBRIGHT: Let me say on the issue of Hong Kong, I had decided some time ago that I would accept the British invitation to go to witness the reversion of Hong Kong to the Chinese. But I have decided that if invited to go to -- at this moment, a conditioned, hypothetical installation of the non-elected Legislative Council, that I personally would not attend that, and that it is important for us to make clear that we, at a high level, do not endorse what they are doing. Besides, it's going to be at 1:30 at night! (Laughter.) So we can talk more about, I think, what your intentions are and how we can work together. SEN. MURKOWSKI: Well, I thank you. I don't know whether the members of the Federal News Service, JUNE 10, 1997 Senate delegation that I'm going to lead are going to be up that time, but I assume that we're likely to follow your lead. And you're telling us you're not a late-night person on that particular night. SEC. ALBRIGHT: On that particular subject. SEN. MURKOWSKI: I got the message. (Laughter.) The last -- the last question relative to the other side is, we talk about hurting the reformers and the people of Hong Kong and Taiwan, is what effect do you think actions in Taiwan, prior to the transfer in Hong Kong, will have on China-Taiwan relations, recognizing the so-called "rally" which is going to appear in Taipei on the 28th of June? And I believe the rallying cry is "Just say no to China." SEC. ALBRIGHT: Well, I think that here, it's important from the American perspective to keep this all separated. I think that from our perspective, we would like to see -- to make sure that the Hong Kong way of life is preserved. It is a point we are making over and over again to the Chinese in a variety of settings. We will continue to do that. That, frankly, is also one of the purposes of my going in the first place there, is, one, to make clear that -- how important it is to us that the way of life be preserved. And I think that it is essential that the U.S. keep very clear track of this. I don't particularly want to comment on how the Taiwan -- the people of Taiwan -- are looking at this. They have their own agenda on this, but the U.S. Federal News Service, JUNE 10, 1997 agenda here is to make sure that the reversion is such it does, in fact, preserve the way of life of Hong Kong, and that the very important trading relationships that we have with Hong Kong continue to be preserved, and that the Chinese recognize they have the right for us to have a consulate there, that ship visits continue. Those are the issues that are of concern to us. SEN. MURKOWSKI: And you'll just watch the 28 demonstrations in Taiwan, relative to -- SEC. ALBRIGHT: Yes. SEN. MURKOWSKI: -- "just saying no to China." SEC. ALBRIGHT: Yes. SEN. MURKOWSKI: Thank you very much. Thank you, Mr. Chairman. SEN. ROTH: Thank you. Senator Kerrey. SEN. BOB KERREY (D.-NEB.): Thank you, Mr. Chairman. Madame Secretary, my phone has been ringing a lot on China. And most of the calls are coming in urging me not to support MFN, and most of the calls have some sort of script that they're reading. And they're very much concerned about human rights. I mean, that's the dominant concern. I must say I very much appreciate that increased attention that people in my state are paying to human rights, and my state benefits enormously from trade with China. And I know that in your testimony, you say that our policy has not failed, at least in that regard. Can you help me with what you think I should be saying to people in Nebraska when they call up and talk to me about how our trade policies, if not our Federal News Service, JUNE 10, 1997 overall policies with China, have not resulted in improvement in their treatment of their own citizens? SEC. ALBRIGHT: Well, first of all, I think, senator, that it is very important for your constituents and other Americans to understand what this debate is about. It is about whether to have normal trading relations with one -- a country that has 1.2 billion people. And that is important to the United States for strategic reasons. This debate, to a great extent, comes down in the popular media to a discussion of trade versus human rights. And that's not what this ought to be about. It ought to be about what our relationship with this huge and potentially powerful country should be. And strategically, they have been useful and important to us, in terms of dealing with Korea, Cambodia, issues of non-proliferation, environmental issues. So, to do a trade-off here is, I think, a mistake in terms of how this discussion is portrayed. But I do respect those who are concerned about human rights in China. I have been and continue to be myself. But I think the issue here is what the right tool is. And we will pursue trying to get China to improve its human rights record, whether it's through the United Nations or through our continued sanctions as a result of the Tiananmen Square problem -- incident, and also by making it clear that it is essential for them to improve their human rights record generally. Federal News Service, JUNE 10, 1997 Senator Rockefeller spoke a lot about the history of China, and I think it's very important for us to understand that. It is also very important for us to understand American history and our own dedication to human rights. But -- SEN. KERREY: Well, I mean -- I guess what impresses me, Madame Secretary, is that people are saying, we understand that we get tremendous benefits from the trade, but we're willing to pay a price. We had 60,000 people turn out in the rain to see the moving wall that came to Nebraska. Senator Hagel and I sponsored its coming there. And though there was great disagreement in the country about whether that war should have been continued, I'm very much impressed with how people are saying that America fought for freedom. We fought for the liberation of a people. What was moving about the end of the Cold War was the liberation. It must have been far more moving for you than for me. We paid a price in the Cold War. I mean, that wasn't -- we didn't achieve victory as a consequence of saying that we're going to just do business as usual. We're saying we're going to -- we are going to pay more, we are going to put ourselves on the line, we're going to take some chances. And I have voted for MFN and I intend to this time around. But it seems to me that we need a strategy that puts liberty at the top of our agenda and says that at times we are going to subordinate our economic interests and we are going to be willing to put ourselves on the line for somebody else's freedom. You spoke very eloquently about this on the 50th anniversary of the Marshall Plan at Harvard last week. And I must say, I was very moved myself by the -- by the Federal News Service, JUNE 10, 1997 words. But at some point, we -- as you quite know -- need to act. Let me ask whether or not specifically -- because it seems to me that one of the things that we need to be doing is shifting this agenda, this debate over into the WTO. One of the problems we have in just going bilateral with China is that, you know, Airbus comes in right behind us and takes advantage of whatever it is that we do. And one of the reasons that the Cold War was successful is that it was multilateral. I mean, are you -- as you look at ascension in the WTO, are you, Ambassador Barshefsky, looking at and considering some kind of both carrot and stick to get the Chinese to do what's necessary to ascend in the WTO, specifically, on the stick side, looking at the possibility of saying that, you know, some kind of tariff is going to be applied if ascension doesn't occur? In other words, it seems to me it's in our interest, as well as long-term interest of the Chinese, for them to ascend in the WTO, but I also believe that China's going to suffer some tremendous dislocation as they move into a market economy. I mean, they've got, what, 400 people living on farms, 40 percent of their -- 40, 50 percent, maybe as much as 50 percent live in the rural areas. A straight market economy, they can tolerate maybe 3 or 4 percent. So there's no question there's going to be disruption that will occur as a consequence of meeting the requirements of WTO. So I'm wondering if you've considered some sticks as well as carrots and you could talk to me a little Federal News Service, JUNE 10, 1997 bit about what the administration is doing to expedite this process of getting China into WTO. SEC. ALBRIGHT: Before Ambassador Barshefsky answers, let me just make the following point. I appreciate your kind words about my speech, and I obviously stand by them. And I think the issue here is that it is not a matter of denigrating our own interest in human rights in China by saying that we ought to go forward with MFN. The mistake, I think, is that many people believe that by linking human rights to trade, that we are actually getting more purchase or more leverage on getting human rights situation rectified in China. We have found that that is not true and that it is very important to go at the human rights agenda separately and to make sure that we stay engaged with China. And as I've said, engagement is not endorsement. But it is essential that we keep the human rights agenda front and center but not literally cut off our nose to spite our face here, because not only would we lose trade, but we would lose access to the Chinese society. And in order to, I think, push for human rights, we need to have that kind of engagement and then make very clear our -- the importance that we place on human rights. AMB. BARSHEFSKY: Senator, let me just say that the accession talks are moving slowing, but they are moving. China understands that it is in its interest to join the WTO, both because it accords China a kind of political recognition it Federal News Service, JUNE 10, 1997 does not now have, and also because, particularly with respect to reform elements in China, it locks China into a path that they view as one leading to greater prosperity within its own country. While we have not raised with China specifically an increase in duties were it not to become a member of the WTO in a timely fashion by making market access and other commitments, we have communicated to the Chinese that the benefits of the recently concluded information technology agreement and telecommunications agreements will not be provided to China unless it is a member of the WTO. SEN. KERREY: Would you just -- the red light's on, and I'm done. But would you be friendly to or opposed to changing U.S. law imposing -- that would impose tariffs or duties if accession doesn't occur? AMB. BARSHEFSKY: I think this is an issue we would want to look at fairly carefully and work with you. Certainly, there may be some difficulties with that approach, but we would like to sit down with you and work on the issue. SEN. KERREY: I don't fear it works for me. SEN. ROTH: Well, I want to thank both of you for being here today. We said we would get you out by 10:40, and I think we will achieve that. Let me just emphasize that I think this is only the opening salvo for ensuring that normal relations continue. I think, as Bob Kerrey and others have expressed, there are strong forces to the contrary and they raise some very, very legitimate points. But I do think by working together and by leadership being provided not only by the two of you, but at the highest level, we can Federal News Service, JUNE 10, 1997 assure that Most Favored Nation treatment will be continue, but it should not be taken for granted. I thank you for -- both for being here, and we look forward to continue working with you on this most critical issue. SEC. ALBRIGHT: Thank you very much. Thank you. AMB. BARSHEFSKY: Thank you very much. SEN. ROTH: Thank you. END LANGUAGE: ENGLISH LOAD-DATE: June 11, 1997 LEVEL 1 - 3 OF 19 STORIES Copyright 1997 The Chronicle Publishing Co. The San Francisco Chronicle APRIL 3, 1997, THURSDAY, FINAL EDITION SECTION: NEWS; Pg. A1 LENGTH: 763 words HEADLINE: Asian Funds Probe Widens To California $ 250,000 donated to state politicians BYLINE: April Lynch, Susan Yoachum, Chronicle Political W BODY: The key figures in the investigation into Asian fund raising by the Democratic National Party have quietly contributed nearly a quarter of a million dollars to major California politicians in recent years, according to a Chronicle analysis of state campaign spending reports . The donations have come from former Democratic National Committee fund-raiser John Huang, Johnny Chung, a Taiwanese American fax machine dealer from The San Francisco Chronicle, APRIL 3, 1997 Southern California, Charlie Trie, a former Little Rock restaurateur with ties to President Clinton and the Chinese government, and from the Lippo Group, Huang's employer before he went to work for the Commerce Department and the Democratic National Committee. In a previously unreported series of contributions, the Indonesian Lippo Group donated at least $ 20,000 to Democrat and then state Treasurer Kathleen Brown during her unsuccessful campaign for governor in 1994. Federal sources told The Chronicle yesterday that the FBI is investigating California campaign contributions, including those made to statewide officeholders and members of the Legislature. Under federal law, political contributions from foreign sources are illegal at any level of office. To date, none of the state contributions under scrutiny have been determined to be illegal and no recipient has been accused of wrongdoing. State politicians or groups who have received the money include Brown, Lieutenant Governor Gray Davis, Governor Pete Wilson, State Treasurer Matt Fong and the state Democratic Party. The contributions so far total about $ 240,000 in the past 10 years. The San Francisco Chronicle, APRIL 3, 1997 But regardless of the size of the contributions, the appearance of names from the national controversy in state campaigns adds to the focus on California in the ever- widening probe. For example, national investigations have revealed that even though key figures such as Huang and Chung may not have given millions of dollars themselves, they may have been involved in gathering and directing illegal overseas contributions. In California, Huang donated at least $ 36,000 to state candidates over the past 10 years, including Davis, former state Senate President Pro Tem David Roberti and U.S. Senator Dianne Feinstein. Chung, whose $ 300,000 in contributions to the Democratic National Committee has been returned because of suspicions the money may have come from foreign sources, also turned up in state records, with a $ 2,000 contribution to Davis in 1995. Unlike the Democratic National Committee, which has returned some $ 3 million in contributions, the California Democratic Party has returned no money. The San Francisco Chronicle, APRIL 3, 1997 ''We feel really confident that the contributions are appropriate and that it is legal to retain the money,'' said Kathy Bowler, the state Democratic Party's executive director. State Democrats are not the only ones to receive money from donors caught up in Washington's so- called ''Asiagate.'' State Treasurer Fong, a Republican, received about $ 15,000, including about $ 9,000 from Huang or other Lippo officials. Former Republican Assemblyman Paul Horcher received a $ 4,000 donation in March of 1995 from the Washington-based Trie. It was Horcher's vote that allowed then-Speaker Willie Brown to remain in control of the Assembly despite a Republican majority. Horcher, who was recalled by the voters in his Southern California district, now works for San Francisco Mayor Brown. Republican Governor Wilson has received about $ 4,000 from several sources, according to campaign records. Sean Walsh, Wilson's deputy chief of staff, said the governor's office is ''examining'' the donations and ''trying to ascertain whether there are any problems.'' ''We scrub our money really hard,'' he said. The San Francisco Chronicle, APRIL 3, 1997 Investigators believe overseas interests would have ample reason to be interested in California politics. High-tech companies in Silicon Valley have repeatedly pressured Asian governments and U.S. politicians to clamp down on copyright infringement and software piracy costing millions of dollars a year. In Southern California, a major Chinese shipping company is trying to lease prime port space at a former Navy base in Long Beach. California's congressional delegation figures prominently in China-related issues ranging from trade to human rights. The state Legislature also considers trade and other issues and is currently deliberating the fate of a resolution calling on China to honor democracy and political freedom in Hong Kong when China regains control of the territory in July. LANGUAGE: ENGLISH LOAD-DATE: April 3, 1997 LEVEL 1 - 4 OF 19 STORIES Copyright 1997 News World Communications, Inc. The Washington Times March 25, 1997, Tuesday, Final Edition SECTION: Part A; COMMENTARY; Pg. A15 LENGTH: 910 words HEADLINE: Thwarting China's democracy coterie BYLINE: Bruce Fein BODY: The proof is in. Foreign trade and investment with Communist China thwarts freedom of speech and paladins of democracy. If President Clinton determines to grant Communist China most favored nation trade status or to promote United States investments there, the reasons should rest on national security realpolitik. The theory that economic liberalization is the mother of democratic evolution is bogus, and neither President Clinton nor Vice President Al Gore ever guaranteed Asian el dorado The Washington Times, March 25, 1997 bankrollers of the Democratic Party handsome returns on their investments. The Chinese intimidation and orchestrated secondary boycott of Hong Kong's Next Media Group illustrates the counter-democratic influence of foreign trade and investment in a country where the rule of law is scorned. The Group is largely owned by businessman Jimmy Lai, a bold and enthusiastic champion of free speech. Mr. Lai incurred the wrath of China in 1995 by penning an irreverent column that likened Chinese Premier Li Peng to a "turtle's egg." Economic retribution followed. The Chinese communists closed the Beijing branch of Lai's Giordano clothing chain and have thrown spanners into its Chinese ventures ever since. In an attempt to assuage China, Mr. Lai sold his voting shares in Giordano. Jimmy Lai's economic flogging sent a riveting message to the foreign business community: To make profits in China, either direct or indirect association with political criticism of the communist tyranny is verboten. That transfixing message has predictably been both mastered and scrupulously attended. Thus, the Next Media Group has been treated like a pariah in recent weeks in searching for an underwriter to go public. Its chairman, Mr. Yeung Wai-hong, complained that the five top Hong Kong banks shunned any interest in even the marginal role as a receiving bank for Next's stock market listing. The Washington Times, March 25, 1997 Sung Hung Kai International initially agreed to underwrite Next's stock distribution, but then reneged. According to Mr. Yeung, Sung Kung's managing director, Peter Fung, explained the turnabout with the terse phrase "pressure understood." In other words, China insinuated either directly or with circumlocutions that Sung Hung would be excluded from potentially rich stock trading or distribution opportunities there if the company associated with Mr. Lai and his Next Media Group. Media mogul Rupert Murdoch, ostensibly devoted to freedom of expression, demonstrated no greater starch when the fearless BBC was booted off his television satellite programming in China for presenting a documentary unflattering of communist Chinese icon Mao Tse-tung. United States business giants with rich opportunities in China, such as Boeing or General Motors, chorus loudly for thickening economic links but turn mute when the issues of democracy and human rights are raised. Disney Corp. distanced itself from a film portraying the plight of Tibet to safeguard a prospective theme park in China. Indeed, to paraphrase Adam Smith in Wealth of Nations, a businessman who puts democracy above profits is a rara avis, and little argument is needed to persuade him that Mammon is more fulfilling than martyrdom. The Washington Times, March 25, 1997 It speaks volumes that the billions in foreign investments and trade with Communist China that have burgeoned under the economic liberalization policies of the now deceased patriarch Deng Xiaoping have wrought not a millimeter of democratic progress. Indeed, China has grown more, not less repressive. The 1996 State Department Human Rights Report laments that all active Chinese dissidents now dwell either in prisons or labor camps. The latest annual session of the National People's Congress unfolded without even the faint cries of popular protest that bedeviled previous years. China criminalizes any voice questioning the infallibility or legitimacy of the Communist Party. Economic liberalization in China without any parallel strengthening of the rule of law has softened or silenced the voices of would-be missionaries for democratic norms who might make a buck there. Only the politically docile are permitted economic dividends. It is dollar diplomacy to entrench Chinese Communist dictatorship. And it is working splendidly in the West. In a recent press conference, President Clinton labeled China a "former" communist country, testimony to the power of political delusion when trade and investment are at stake. Foreign economic boycotts of tyrannical regimes, however, seem to militate marginally in favor of democracy. Western restrictions on trade with the former Soviet empire nudged its downfall by accentuating popular discontent. On the The Washington Times, March 25, 1997 other hand, U.S. trade and investment restraints on Cuba, Iraq and North Korea have not budged their brutal dictatorships from the political Stone Age. There may be sound national security reasons unrelated to democratic change that would justify promoting United States trade and investment ties with Communist China. The promotion might be conditioned on greater Chinese cooperation in stanching nuclear and missile technology proliferation, a lessening or renouncing of bellicosity toward its Asian neighbors and Taiwan, or scaling back its swaggering military profile. But the notion that foreign trade and investment in China is a harbinger of democracy is less than nonsense on stilts. Bruce Fein is a lawyer and free-lance writer specializing in legal issues. GRAPHIC: Illustration, NO CAPTION LANGUAGE: ENGLISH LOAD-DATE: March 25, 1997 LEVEL 1 - 5 OF 19 STORIES Copyright 1997 Federal Information Systems Corporation Federal News Service MARCH 18, 1997, TUESDAY SECTION: IN THE NEWS LENGTH: 5785 words HEADLINE: PREPARED TESTIMONY BY ROBERT KAGAN BEFORE THE SENATE FOREIGN RELATIONS COMMITTEE SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS SUBJECT - "PREPARING FOR CHINA'S FUTURE AFTER DENG" BODY: Relations between China and the United States in the new, post-Deng era call for a prudent strategy, one that is capable of responding to both optimistic and pessimistic scenarios for Chinese behavior in the future. A prudent strategy should also aim at trying to shape that future, insofar as we have the power to do so. But a prudent strategy should not be confused with timidity. Those who usually claim the mantle of prudence in dealing with the problem posed by Federal News Service, MARCH 18, 1997 post-Deng China insist that the only safe strategy is one that does not seek confrontation, does not use pressure, does not ruffle Chinese feathers, does not, in fact, treat China as if it were a problem at all. The history of this century, however, has taught us that a strong assertion of interests, the exertion of pressure, and even, on occasion, confrontation over key issues, is often the more prudent strategy. Certainly no one looking back at the 1930s would argue that the attempts to accommodate Nazi Germany's ambitions in Czechoslovakia or Imperial Japan's in Manchuria were prudent -even though they were advertised as such at the time. Nor would it have been prudent to fail to respond to the Soviet Union's ambitions with a policy of containment in the late 1940s. I raise these historical examples not because I consider China to be the historical equivalent of a Nazi Germany or a Soviet Union, but merely to establish the point that a prudent strategy toward any emerging power as powerful and ambitious as China is today prudent strategy toward any emerging power as powerful and ambitious as China is today does not call merely for accommodation. It may be the case, and I will argue it is the case, that the most prudent approach to the present Chinese government requires strength, pressure and, on some rare occasions, confrontation. Mere accommodation to Chinese ambitions could prove to be not merely imprudent but dangerous. Engagement: The "Good News" Policy As we look ahead to try to guess the direction of post-Deng China, it would Federal News Service, MARCH 18, 1997 seem obvious that the least prudent thing we could do is to shape our foreign and defense policies around the most optimistic scenarios. Yet the present strategy of engagement, as articulated by administration officials and outside supporters, seems to me to err in precisely this way. We have been told that China is in the midst of a sweeping transition from totalitarian communism to a market economy with greater political openness and even, at some point in the not-too-distant future, the increasing likelihood of an evolution toward democratic governance. One respected analyst, Henry Rowen, has predicted that China will be a democracy by 2015. Others are more reluctant to give such a precise date, but they express confidence that economic forces unleashed as a result of Deng Xiaoping's reforms must eventually lead to a consequent unleashing of political forces, that economic modernization must go hand in hand with politica1 liberalization. Our present policy of commercial engagement has been justified as a spur to this modernization process. Economists like William H. Overholt have expressed the view that the way to "promote freedom and democracy in China" is to promote China's economic development by increasing foreign, and especially American, trade and investment. In a recent New York Times op-ed, the former chairman of the Council of Economic Advisers, Laura D'Andrea Tyson, insisted that "the best way to encourage reform and democratization is to strengthen China's trade and investment with the rest of the world." The bulk of American imports from China comes from the "private or quasiprivate sectors," she argued. And it is upon Federal News Service, MARCH 18, 1997 the success of these sectors that "a developing Chinese middle class and China's continued evolution toward a more democratic system depends." Following this logic of economic determinism, President Clinton himself has declared it "inevitable" that political change in China will follow economic growth. With this assumption as a backdrop, the goal of the Clinton administration's policy today is to try and integrate China ever more fully into the international community as a means of hastening the inevitable. As former Secretary of State Warren Christopher explained the administration's thinking last spring, We strongly support China's development as a secure, open, and successful nation that is taking its place as a world leader. China has an important and constructive role to play in the coming century -- and we welcome it. The United States and China share many interests that can only be served when our two countries deal constructively and openly with each other. By deepening China's integration into the international system, we can best ensure that China's development as a strong and responsible member of the international community promotes our interests as well as its own. The integration of China into the international community is a worthy goal, but it too rests on a set of optimistic assumptions about China's course in the post-Deng era. The strategy of "integration through engagement" assumes that China can be guidedpeacefully toward playing a full and responsible role in the existing international order; that Chinese leaders desire to be part of that Federal News Service, MARCH 18, 1997 order or at least can be persuaded to see its interest in becoming part of it; that China' s ambitions at home and abroad need not be incompatible with the broad interests of the United States; and that, therefore, the best way to guide China toward peaceful integration in the international order is through patience, forbearance, and active efforts at accommodation and cooperation, not through pressure and confrontation. Do these optimistic assumptions about the course of post-Deng China reflect anything more than wishful thinking? To judge from the analyses of most prominent China scholars, even those who generally incline toward a sympathetic view of China, the answer would seem to be "no." Most Sinologists agree that China is not currently on a course toward democratic governance. And most are skeptical that the Chinese leaders in the post-Deng era want to be integrated into an international order dominated by the United States and its allies, unless the Chinese can rewrite the rules of the game to suit their own interests. A Democracy by 2015? Not Likely With regard to China's political course after the death of Deng Xiaoping, there is little reason to believe that the current clique of powerful Chinese leaders is any less hostile to political pluralism than Deng himself was. Even before the upheavals of the late 1980s, Deng's reforms aimed at achieving the maximum economic growth with the minimum of political liberalization. Maintaining the unchallenged supremacy of theCommunist Party hierarchy, even as communism Federal News Service, MARCH 18, 1997 itself faded as the guiding ideology, has been the consistent policy of Chinese leaders. Deng sacked the two party leaders he had once chosen to succeed him, Hu Yaobang and Zhao Ziyang, because they apparently strayed too far toward political liberalism. After the 1989 Tiananmen Square massacre, Deng declared that any effort to challenge the Communist Party leadership and the primacy of"Marxism, Leninism, and Mao Zedong Thought" had to be crushed, along with any effort to introduce "the American system of the separation of the three powers." The post-Deng leadership in China is the product of this history. If there have been two camps in the Chinese reform movement since the death of Mao, a "moderate" wing and a "radical" wing, the latter, which was always associated with the drive for political liberalization, would not seem to have a strong foothold in the present structure of leadership. As many scholars have pointed out, the dramatic events of 1989, when communist rule crumbled in the Soviet Union and Eastern Europe, and when liberalization in China helped unleash unrest in the heart of Beijing, have powerfully shaped the Chinese leadership's worldview. As China scholar, David Shambaugh, has written, the events of 1989, the "mass demonstrations, massacre, international isolation, and the collapse ofCommunist Party rule elsewhere .... left an indelible mark on the psyche of these elites." Chinese leaders are perfectly aware of the risks that economic liberalization will lead to political pressures for reform -- and they seem bent on resisting Federal News Service, MARCH 18, 1997 those pressures. The extinguishing of all domestic dissent over the past two years, a campaign so ruthlessly efficient that the State Department declared this year that the Chinese dissident movementwas almost completely suppressed, is obviously aimed at forestalling any future political liberalization. This is not to say that pressures for greater political freedoms will not persist in China in the post-Deng era. In China, as in some other East Asian countries, much of the talk about the "Asian Way" is really nothing more than the elaborate self-defense of worried dictators. And many Western observers have taken it far too seriously. The Democracy movement crushed in 1989 was, as America's premier China scholar, Jonathan D. Spence, has written, "a movement with profound historical echoes, echoes carried forward by the recurrent determination of educated Chinese to insist on their obligation to criticize the shortcomings of their, even in the face of that goverment's implacable insistence on preventing them from doing so." The history of China, Spence points out, has been one in which "again and again, ordinary Chinese people with little or no education and no particular guiding ideology had risen against those who oppressed or exploited them." Nor is it even the case that Chinese rulers are immune to the tug of Western ideals. Communism, after all, including Chinese communism, is an eminently Western creation, containing within it notions of egalitarianism and people's rights that, even though they may be ignored, have a tendency to erode dictatorial authority, as they did in the Soviet Union. And if the Chinese Federal News Service, MARCH 18, 1997 have abandoned communism for capitalism, another Western import, this hardly lessens the pressure for individual liberties. Meanwhile, just as the Soviet Union once did, the Chinese government has long rested on a pretense of liberal constitutionalism. Chinese leaders feel the need to use the word "democracy" and practicethe hollow, and sometimes not-so-hollow, forms of democracy, to the point where the National People's Congress shows occasional signs of obstreperousness. Some China scholars, like Andrew Nathan, believe that at some point in China's future there could well be a "constitutional" alternative to today's centralized authoritarianism. Whether or not that is realistic, the Chinese leadership is far more vulnerable to the kinds of internal contradictions and pressures which helped destroy Soviet Communism than they would like us to believe. Nevertheless, precisely because Chinese leaders are aware of the dangers, and have the cautionary example of Mikhail Gorbachev always before them, they are likely to fight political liberalization with all their might. And that might is increasing. China's economic boom may create pressures for political reform, but it also gives the government resources to contain those pressures, both internal and external. It is worth recalling that, according to the theory of political and economic modernization, pressures for change are usually greatest when rising expectations of increasing prosperity are frustrated. It was Deng's view that the best way to avoid pressures for political reform was to keep the economy growing at such a fast rate that the burgeoning entrepreneurial class Federal News Service, MARCH 18, 1997 would be more interested in making money than in making trouble for the government. Thus China' s current economic success puts off the day when the leadership must face the apparent contradiction between tyrannical government and a more open economy. China's growth as a global economic giant also gives it strength to repel foreign pressures for political change.These are some of the reasons why most Sinologists predict that a post-Deng China will be characterized not by political liberalization but by what has been variously called "bureaucratic capitalism," "cadre capitalism," rule by capitalist "princelings," etc. - in other words, continuing control at the top by communist party cadres closely tied to or directly involved with profit-making enterprises. The main question for most China watchers is whether this bureaucratic, authoritarian style of government will be more or less decentralized, whether the center of power in Beijing will continue to lose influence relative to the provincial baronies of Shanghai and Guangdong, for instance, or whether that influence can be restored to the communist party hierarchy. Some scholars expect the current trend toward the decentralization of power to continue, though without bringing anything like political pluralism. Others expect a "neo- conservative" attempt to bring power back to the center. Among the more optimistic scenarios, painted by Kenneth Lieberthal, is for a more open, more decentralized, but yet more militarily powerful China. Even Lieberthal, however, expects the Chinese leadership to "employ a range of strategies to fend off challenges from a developing society." Federal News Service, MARCH 18, 1997 Few scholars would go as far as Samuel P. Huntington has in his recent book, The Clash of Civilizations, and argue that Chinese leaders have discovered a new model of modern society in which economic modernization and authoritarian rule are compatible. Most believe that, in the long run, China must become either more democratic or less economically viable. The problem is, no one knows if the "long run" is going to be twenty, fifty, or a hundred years. It would certainly seem to be a mistake to base U.S.policy over the next five or ten years on the assumption of China's "inevitable" transformation into a more liberal society. Can China's Leadership be Domesticated? It is equally imprudent to base American strategy on the assumption that Chinese international behavior in the post-Deng era can be tamed merely through "integration" into the international order. The fact is, while Deng and now his successors have wanted to reap the benefits of full membership in the international economic system, they have hoped to do so without paying the kind of price in political and strategic terms that Western advocates of Chinese "integration" insist upon. Chinese leaders don't want to play by the rules; they want to change the rules to suit the needs of their peculiar form of capitalist authoritarianism. As much as we would like to see China caught in the web of the international system, Chinese leaders in the post-Deng era hope precisely to avoid that fate. They would like to grab the bait without springing the trap. Even Sinologists devoted to the policy of"integration through engagement" do not conceal the fact that China has little interest in playing by the rules of the Federal News Service, MARCH 18, 1997 international game. Thomas J. Christensen, who spent several months interviewing Chinese military and civilian government analysts and then published his findings in a recent issue of Foreign Affairs, writes that Chinese strategic thinkers tend to "view international organizations and their universal norms as fronts for other powers." They participate in international conferences on economic, environmental, non-proliferation, and regional security issues in order "to avoid losing face and influence," but they have no intention ofletting the decisions of the organizations constrain their behavior on matters of importance. According to Christensen, they consider "complaints about China's violations of international norms" to be part of "an integrated Western strategy, led by Washington, to prevent China from becoming a great power." As Kenneth Lieberthal admits, China is not willing to enter the international system without changing it. "China wants the world to accept its 'Chinese characteristics' as part of the price of having the country join international councils. Though a new player, China wants to be a rule setter and not just a rule acceptor." The present Chinese leadership saw what happened to Mikhail Gorbachev and a seventy-year-old communist party dynasty when he tried to "integrate" the Soviet Union peacefully into the Western system. It is not surprising, given this recent history, as well as China's hundred- year-old history of subjugation to Western "rules," that the post-Deng Chinese leadership will look to evade the system rather than be integrated into it. As one China scholar, David Federal News Service, MARCH 18, 1997 Shambaugh, has pointed out, Chinese elites are "wary of multilateralism, internationalism, and interdependence ....China will cooperate only when it is in its specific national interests to do so; not because of a commitment to international behavioral norms." This raises a difficult obstacle to any strategy of"integration through engagement. " How can post-Deng China be brought into the international system through a policy of engagement, when the international system itself is viewed by the present Chinese leadership as a U.S.-designed system of hostile containment? This problem arises not only on general questions of international behavior, but also on specific matters that are of thegreatest importance to Chinese leaders, like the future of Taiwan and the ability of China to exercise a measure of hegemony in East Asia commensurate with its growing power. As Shambaugh has explained, "Because of its domestic politics, China cannot and will not reciprocate the Western policy of 'engagement' because, on the one hand, the regime views it as a policy of subversion and, on the other, the costs of adapting to international rules and norms are too high." The Rise of Nationalism and International Belligerence In fact, trends which began to be visible in 1989, and which have persisted until the present, have suggested that the present crop of Chinese leaders are more than ever inclined to resist what they regard as Western entrapment. In Federal News Service, MARCH 18, 1997 response to both internal and external pressures, they have resorted to a common tactic of governments in such perilous times. They have appealed to a fervent Chinese nationalism, based on resentment at their past century of subjugation at the hands of the West and on a conviction that their new economic and military power entitles them to a bigger place on the world stage. Much of the appeal to nationalism has been a necessary antidote to the dangerous ideological vacuum created by Deng's economic reforms. As domestic changes have "undermined faith in communism," Kenneth Lieberthal points out, China's leaders have tamed to nationalism "to tighten discipline and maintain support." And there are signs that this strategy works, at least up to a point. Many ordinary Chinese seem to have been genuinely stirred up by anti-American or anti- Japanese campaigns in the Chinese media, and especially on specific issues like Taiwan. As Thomas Christensen reports, "continuingeconomic reforms and exposure of the Chinese people to Western ideas and international news [have] cut ever more deeply into CCP legitimacy," and there are "few issues left that do not trigger debate and exacerbate tensions between the state and society. Yet in all sectors of politically aware Chinese society a consensus remains on the legitimacy of using force, if necessary, to prevent Taiwan's independence." Advocates of engagement in the United States often warn that a failure to accommodate the Chinese will somehow spark a dangerous nationalist backlash. But clearly the sources of the new Chinese nationalism are chiefly internal, driven by the leaders' need to replace communism with some other unifying ideology. Federal News Service, MARCH 18, 1997 The Chinese, in other words, need an external enemy. But nationalist ambitions are also the outgrowth of increasing Chinese power and the perception of Chinese leaders that others mean to constrain China's emergence as a superpower. Lieberthal has warned that "should the People's Republic hold together and continue its economic development, yet still perceive major threats to its security and internal stability, it will more likely become a nationalistic bully on the regional level and an obstructionist on global issues." Unfortunately, it will be very difficult, if not impossible, for the United States to convince China that it is not an obstructionist. After all, even the advocates of engagement hope that integration of China into the international system will tame Chinese ambitions, not fulfill them. Insofar as Chinese ambitions include reacquisition of Taiwan, regardless of the wishes of the Taiwanese people, and by force if necessary, then it certainly is the case that the United States will be an obstacle. This is also true of China's ambitions to control the South China Sea. David Shambaugh holds out little hope that Chinese nationalism can be softened by American behavior. "The stronger China becomes," Shambaugh writes, "the more virulently nationalistic will be its external posture. It is unlikely that increased strength will produce a quiet confidence and moderate behavior; rather, it is likely to result in increased defensiveness and assertiveness." The current tendency toward international assertiveness is most pronounced in the Chinese military. Richard Bernstein and Ross Munro, in their new book, The Federal News Service, MARCH 18, 1997 Corning Conflict With China, point out that in 1993 the Chinese government, prodded by the military, adopted a far more aggressive foreign and defense policy armed specifically at what senior military leaders for the first time officially designated as China's main enemy: the United States. The collapse of China's most dangerous adversary, the Soviet Union, and the startling performance of the U.S. military in the Gulf War combined with Chinese leaders' fears about internal stability after the Tiananmen Square demonstrations and massacre to stir up a new belligerence in military circles. In April 1993, Bernstein and Munro report, 116 high-ranking officers of the People's Liberation Army wrote Deng and Jiang Zemin demanding an end to Deng's policy of"tolerance, forbearance, and compromise toward the United States." In November a meeting of top foreign and military specialists produced a report describing the U.S. as China's "international archenemy." The report argued that "From the present stage to the beginning of the next century, the major target of American hegemonism and power politics is China .... Its strategy toward China is, through economic activities and trade, to control and sanctionChina and force China to change the course of its ideology and make it incline toward the West." The great belligerence, and paranoia, of Chinese military leaders could be seen shaping Chinese policy toward Taiwan at the end of 1995 and in the spring of 1996. It manifested itself in the Chinese seizure of Mischief Reef in the Spratly Islands. It is reflected in increases in the defense budget and attempts to acquire more modem weapons systems, including Federal News Service, MARCH 18, 1997 increased capabilities for force projection. It is difficult to see why, in the post-Deng era, the Chinese military should alter its perception of the world and the requirements for Chinese security. And it is also hard to see why the military's influence now should be any less than when Deng was alive. For although Jiang Zemin appears to have consolidated his position as primus inter pares within the ruling oligarchy, there can be little doubt that China is still in the midst of a period of succession. And it is clear that in periods of succession, the influence of the military, without whom no leader can hope to gain or maintain power, is great. To quote David Shambaugh once more, "Under conditions of succession politics, foreign and national security policy "become sensitive barometers of political maneuvering among the elite." At such times as the present, "No Chinese politician can afford to appear soft on 'hegemony' or 'imperialism' and expect to stay in power. Relatively little leeway has been available to civilian Party leaders on litmus-test issues like Hong Kong, Taiwan, the South China Sea, and pressure from the United States because the military High Command has defined the parameters of policy options by defining these issues as core to national sovereignty." Shambaugh points to Chinese belligerence over Taiwan in 1995-96 as acase in point. In times of succession, like the present, leaders have to operate in a "supercharged nationalistic atmosphere." This obviously reduces severely any flexibility they might have in responding to the entreaties of other nations like the United States. Federal News Service, MARCH 18, 1997 Some in the United States would clam that this is an argument for waiting until the succession situation is clarified before undertaking any difficult initiatives to shape Chinese behavior. But, again, the question is, how long? What if the succession process takes five or ten years, as it easily might? It would hardly be prudent to put American foreign policy, and American interests, on hold until we had a more pliable government to deal with in Beijing. Few advocates of engagement have honestly confronted the core problem, which is that the conflict between the United States and China stems not from misunderstanding but from genuine and probably irreconcilable differences. One confidential assessment of the situation by the Chinese military in 1993 summed up the situation bluntly, and almost certainly correctly: "Because China and the United States have long- standing conflicts over their different ideologies, social systems, and foreign policies, it will prove impossible to fundamentally improve Sino-U.S. relations." Samuel P. Huntington has similarly argued that "The underlying cause of conflict between America and China is their basic difference over what should be the future balance of power in East Asia .... China is unwilling to accept American leadership or hegemony in the world; the United States is unwilling to accept Chinese leadership or hegemony in Asia." This a sobering statement but it is difficult to refute. The question is, what can be done about it. Preparing for More than One Chinese Future The beginning of preparedness for what is at best an uncertain future in Federal News Service, MARCH 18, 1997 Chinese internal and external behavior is frankness about the possibility that such behavior will not conform to U.S. hopes and about what the U.S. might do in such circumstances. But frankness about China has been in short supply in recent years. One of the peculiar qualities of the engagement strategy is that its advocates do not permit themselves to say that things could go wrong in China, or that the Chinese might choose an unhelpful path in international affairs, because to say as much would offend the Chinese and cast doubt on American goodwill. Much less has it been acceptable to set forth what the U.S. might do in response to Chinese behavior that threatens American interests and violates our principles. It is a sign of this American self-censorship that the hardest question for an administration official to answer is: Are there any circumstances, any at all, under which you would consider revoking MFN or would consider even a tougher approach to China? Administration officials, and their supporters in Congress, cannot answer such a question because merely to answer it would undermine the strategy of treating China as a friend. But this is not a strategy. It is an un-strategy. Any strategy for dealing with another great power like China ought to tell you what you might do if things go well in that country and what you might do if they do not. In the case of Russia, the United States is openly taking steps to hedge against what could, someday, perhaps twenty or thirty years from now, be a resurgence of Russian Federal News Service, MARCH 18, 1997 power and ambition in Europe. American officials welcome positive developments in Russia, maintain a close working relationship with Russian leaders, and yet manage to speak openly about their concernsabout Russia's future. By contrast, the engagement strategy toward China seems to require speaking only about the good news, never about the bad. I don't believe we can prepare ourselves to meet the kinds of challenges that China may pose in the future so long as we refuse to say candidly what those challenges might be. And I don't believe we can build the necessary flexibility into our strategy toward China so long as we are unwilling to declare a willingness to contain Chinese ambitions if and when they manifest themselves. Today "containment" is a dirty word, indeed a forbidden word, when applied to China. It shouldn't be. Any sensible strategy toward China, indeed, any prudent strategy, must have elements of containment in it. Chinese leaders need to know not only what we are prepared to offer them to entice them toward good behavior, but how we intend to respond when they behave badly. A policy that offers carrots only, and that does not even admit the possibility of sticks, can only tempt Chinese leaders to try and get away with as much as they can. Nor is it the case, as some claim, that a containment strategy amounts to a policy of isolating China. The truth is, the strategies of engagement and containment are entirely compatible. The United States engaged the Soviet Union even as we were containing it. The containment during the Cold War included summits, constant communication between Russian and American diplomats, constant negotiations, Federal News Service, MARCH 18, 1997 numerous joint agreements, and even cooperation in many troubled spots of the world. Containment of the Soviet Union did not obscure the many areas of common interests shared by the twosuperpowers. A strategy that blended engagement and containment of China would similarly allow for such cooperation, consultation, and negotiation. But by making clear that the United States also had the ability and the will to confront China over international misbehavior and domestic repression, such a policy would be more effective in shaping the direction Chinese leaders take in the post-Deng era. Insofar as China is in the midst of a succession now and for the foreseeable future, the best way to influence the course of that succession is not through carrots alone. For, if it is true that there are both hard-line and soft-line impulses within the Chinese leadership, we should not make the mistake of assuming that the best way to aid the softer line is to try and accommodate all China's desires. As Bernstein and Munro have noted, "The hardline nationalists, ignoring Deng Xiaoping's advice, believed that China could have it two ways -- both preparing to confront the United States militarily and politically and at the same time benefiting from trade and investment ties with the Americans." The soft-liners, on the other hand, have argued that a more open and accommodating approach is essential to avoid international isolation and economic calamity. To the degree that we bend in China's favor on every issue, we strengthen the hard-liners. It may seem paradoxical to some, but it is nevertheless true that the best way to help Federal News Service, MARCH 18, 1997 moderates in the Chinese government is to make very clear the price that China will pay, both economically and strategically, for pursuing aggressive polices at home and abroad. The goal of a containment strategy would be to steer China away from hegemonic pretensions, much as we are now trying to steer Russia away from any lingering hegemonic pretensions in Europe. We should not be afraid that incorporating elements ofcontainment into our present strategy is too risky. It is worth recalling that, in the long Cold War between the United States and the Soviet Union, the years from 1981 through 1984 were a time of the most intense confrontation. At the time, opponents of the Reagan administration's hard line clamored for accommodation, for ending the arms buildup, for a "nuclear freeze," for more summits, for "engagement."he late 1980s were due at least in part to an American strategy that might in retrospect be called "integration through containment and pressure for change." Employing a successful strategy toward China, one that can respond effectively no matter which course post-Deng China takes, requires a few simple but important steps. It means beefing up our military capabilities in the region, strengthening our securit. or doing business with finns they own or operate. And it means imposing stiff sanctions when we catch the Chinese engaging in proliferation of dangerous weapons. Above all, it means increasing, not decreasing, our overall defense capabilities. Today, the perception of our military decline is already shaping Chinese calculations. An internal Chinese government document in 1992 complained that Federal News Service, MARCH 18, 1997 "since becoming the sole superpower, the United States has been grasping wildly for a new hegemonism and power politics," but that "its strength is in relative decline and that thereare limits to what it can do." This perception is dangerous and needs to be dispelled as quickly as possible. Our strategy toward China must also go beyond containment to seek a change in the nature of the Beijing regime, for only a more liberal government in China can truly be integrated into our liberal world order. We should seek an improvement in China's human rights behavior not only because it is in accord with our principles, but because it is really the only way out of the looming prospect of endless confrontation. That means we should continue to threaten the denial of Most Favored Nation status as a way of putting pressure on Chinese leaders to open their system. We should block their membership in the World Trade Organization and the G-7 as long as they fail to live up to those organization's high standards of economic and political behavior. And we should pay careful attention to the way China handles the coming transition in Hong Kong. When they crack down on prodemocracy forces, as they almost certainly will, we should be willing to use economic sanctions to punish them. Contrary to the prevailing wisdom, this is the only prudent strategy for dealing with a China whose future course is unpredictable but may be antithetical to American interests. Today, the American people are being told that everything will work out, and that there are no tests ahead of them. This is not only misleading; it is also dangerous because it almost guarantees that we will be Federal News Service, MARCH 18, 1997 unprepared for problems in the future. At the very least, we owe ourselves an honest and open debate about China. END LANGUAGE: ENGLISH LOAD-DATE: March 19, 1997 LEVEL 1 - 6 OF 19 STORIES Copyright 1997 The Weekly Standard The Weekly Standard February 24, 1997 SECTION: CHINA; The Issue; Vol. 2, No. 23; Pg. 15 LENGTH: 1009 words HEADLINE: REALITY AND MFNTASY BYLINE: by Jesse Helms; Jesse Helms, a Republican from North Carolina, is chairman of the Senate Foreign Relations Committee. BODY: A REPORT PERSISTS IN WASHINGTON that the Clinton administration will soon seek permanent most-favored-nation status for the People's Republic of China - - possibly in exchange for some concessions on human rights or for shaping up on standards for admission to the World Trade Organization. The office of the U.S. trade representative has denied the report, but it is becoming more and more credible considering Clinton's references to his new "inevitability" policy, according to which the United States need not confront China over its human The Weekly Standard February 24, 1997 rights abuses or violation of agreements because China's peaceful transformation to democracy is inevitable. Even if freedom and democracy are inevitable in China, do not expect that I will greet the first elected president of post-Communist China by saying: "I thought about depriving the old regime of economic and political benefits, but since your success was inevitable, I had Jiang Zemin and Gen. Chi over for coffee at the Senate Foreign Relations Committee." The inevitability theory does have one thing going for it: predictability. We can all fill in our 1997 calendars now. In mid-March, pencil in "U.S. cave-in at Geneva U.N. Human Rights Commission." In the last week of May, jot down "Renewal of MFN." You can be pretty specific about exactly what moment that will occur: Put it down for 6 p.m. the Friday before Memorial Day when the administration traditionally delivers the notice just in time to make the Saturday papers but after members of Congress have left for home. Needless to say, supporters of permanent MFN look forward to the time when the annual debate over renewal can be avoided. They decry the "sterility" of the debate. Lobbyists for business interests chortle over the "annual exercise" and smugly shake their heads at misguided anti-MFN diehards. Their attitude is that America should put a stop to the annual debate over MFN because the Chinese know we are not serious. This is a variation of the inevitability theory: "Best not The Weekly Standard February 24, 1997 to have a debate over principle among elected representatives because when the majority favoring MFN wins, it just confuses the Chinese." The idea that it would be valuable for China to enjoy permanent MFN status rests on the myth that all trade is a moderating force on repressive regimes and encourages reform. China's MFN status was restored in 1980, yet there is no evidence that this has led to an improvement in human rights in China. The 1996 State Department human rights report, just released, acknowledges that repression in China increased last year. According to the report, human rights abuses were widespread; the government used intimidation, exile, prison terms, and other measures to silence dissent. Persecution of independent Protestant and Catholic churches intensified. Minorities, including Tibetans, who are Buddhists, and Uighurs, who are Muslims, also experienced serious repression. China's human rights performance is dictated by the nature of the regime -- an arbitrary, one-party state struggling to maintain as many aspects of totalitarianism as it can while reaping economic benefits for party leaders and the military. In China, the government controls international trade and the economy. While the United States grants China the same trading terms we give to nations where our businessmen compete on a level playing field, China limits our access to its markets. Rushing to conclude an agreement before Madeleine Albright makes her The Weekly Standard February 24, 1997 first visit to China as secretary of state, U.S. and Chinese negotiators last week cracked open China's markets for drapes and home furnishings. Typically, negotiators declined to specify how much greater access U.S. companies will have under the agreement. The U.S.-China Business Council and other MFN proponents rarely acknowledge that the United States has a $ 35-39 billion trade deficit with China. (China says the deficit is $ 10 billion.) So China is not buying American; Belgium buys more U.S. goods than China does. Who benefits from this state of affairs? The Chinese government, of course. When China does buy from the United States, it predominantly buys aircraft, power-generating equipment, computers, and telecommunications equipment. U.S. trade with China is putting sophisticated technology -- including machine tools useful in making not just commercial aircraft but bombers and missiles -- in the hands of military-owned and controlled companies. The withdrawal of MFN for China is an effective tool precisely because China needs our markets. The trade surplus figures show that China relies on our consumers to buy its products. China's growth is raising living standards, but wealth and property do not in and of themselves enable individuals to resist arbitrary government. Law does. It restrains the government and protects the citizens. But in China, the rule of law does not exist. Entrepreneurs who run afoul of a Chinese business with The Weekly Standard February 24, 1997 official connections often find themselves not in court but in jail. American businessmen have been targets of what amounts to official extortion for attempting to enforce a contract. Even companies with an ironclad legal claim against a state-owned enterprise are left holding the bag. Revpower, an American company, has been trying since 1993 to enforce a $ 6 million arbitral award that China is obligated to honor as a party to international agreements. Supporters of "engagement" claim that China will be transformed into a responsible law-abiding state by its membership in the World Trade Organization and other multilateral organizations. China's behavior disproves this theory. Receiving MFN treatment for its products has not led to a more democratic, humane, or internationally responsible China, as demonstrated by its failure to respect either its citizens or agreements on issues from intellectual property to nuclear nonproliferation to Hong Kong. Renewing MFN will continue to help China's economy and military expand and modernize, while its citizens look for crumbs. LANGUAGE: ENGLISH LOAD-DATE: February 20, 1997 LEVEL 1 - 7 OF 19 STORIES Copyright 1996 P.G. Publishing Co. Pittsburgh Post-Gazette December 21, 1996, Saturday, SOONER EDITION SECTION: NATIONAL, Pg. A-2, ALMANAC LENGTH: 352 words HEADLINE: ON THIS DATE BYLINE: COMPILED BY ALICE DEMETRIUS STOCK BODY: One year ago (Thursday, Dec. 21, 1995) -- Robert Byrd, one of the most senior members of the U.S. Senate, had issued the verbal equivalent of a spanking to one of the most junior, as he sharply rebuked Sen. Rick Santorum for a speech that the Pennsylvania Republican had delivered Friday. ''It is one thing to criticize the policies of the president and his administration,'' Byrd said. ''But it is quite another matter to engage in personal attacks that hold any president up to obloquy and opprobrium and Pittsburgh Post-Gazette, December 21, 1996 scorn.'' Five years ago (Saturday, Dec. 21, 1991) -- Despite another bad economic forecast, Gov. Robert P. Casey reiterated he would not raise taxes in 1992. Ten years ago (Sunday, Dec. 21, 1986) -- About 30,000 students marched through the streets of Shanghai, China, waving banners and demanding freedom and democracy in the biggest demonstration in China since the turbulent era of the Cultural Revolution. -- The House Intelligence Committee had summoned a key figure in the Iran arms sale scandal to determine whether any money from the sales went to Nicaraguan rebels. The committee wanted retired Air Force Maj. Gen. Richard Secord to explain what happened to money Iran paid for the sales and deposited in a Swiss bank. Twenty-five years ago (Tuesday, Dec. 21, 1971) -- Earth-moving work at the Wabash Tunnel for Skybus had halted temporarily Pittsburgh Post-Gazette, December 21, 1996 because city officials had failed to approve a permit for the work. The permit difficulties appeared to be another move in Mayor Peter F. Flaherty's war against the Skybus-Early Action Program for rapid transit. Fifty years ago (Saturday, Dec. 21, 1946) -- The British Broadcasting Corp. disclosed that it had abandoned the idea of televising a new program featuring hypnotist Peter Casson in action because some people viewing an experimental screening had fallen asleep. The BBC considered it ''too dangerous'' to continue the program after four of six BBC staff members who had volunteered as guinea pigs for the test were affected and had to be awakened by shaking. Today is Saturday, Dec. 21, 1996 GRAPHIC: PHOTO, PHOTO: Sen. Robert Byrd LOAD-DATE: December 24, 1996 LEVEL 1 - 8 OF 19 STORIES Copyright 1994 The Washington Post The Washington Post April 29, 1994, Friday, Final Edition SECTION: FIRST SECTION; PAGE A35; DEFENSE & DIPLOMACY LENGTH: 375 words HEADLINE: Advice From Dalai Lama SERIES: Occasional BYLINE: Daniel Williams, Daniel Southerland BODY: The United States ought to maintain human rights pressure on China by threatening to withhold trade privileges, the Dalai Lama, Tibet's spiritual and political leader, said yesterday. He made his comments in an interview before a 15-minute meeting with President Clinton to ask for help in easing Chinese political repression in The Washington Post, April 29, 1994 Tibet. Protection of religious and cultural heritage in Tibet were among seven conditions placed by Clinton on China to receive renewal this year of its low-tariff, or most favored nation (MFN), trade status with the United States. Administration officials say China has made little effort to ease human rights abuses in the mountain region. The Dalai Lama, a Nobel Peace Prize winner for his devotion to nonviolence, said international pressure on China has led to less torture and fewer beatings of Tibetan political prisoners. He said he agreed with Chinese dissidents who say it is "very important to continue conditions [on MFN] because there has been no progress on human rights." Clinton's meeting with the Dalai Lama drew an angry response from Beijing. Foreign Ministry spokesman Wu Jianmin accused Clinton of "interference in the internal affairs of China," claiming the meeting meant "instigation and support of separationist activities." Clinton met the Dalai Lama by dropping into the office of Vice President Gore, who officially hosted the White House visit. Such drop-ins give Clinton a chance to show interest without the public boost of receiving the Tibetan leader in the Oval Office, a venue which might have ignited an even tougher Chinese The Washington Post, April 29, 1994 response. In calling for continued pressure on China, the Dalai Lama tied Tibet's struggle against Chinese rule to the battle of dissidents in China for democracy. "My main concern is that the outside world, particularly the United States, should send the right kind of signal to people in China who fight for democracy and freedom, " he said. China invaded and forcibly annexed Tibet in 1950. Despite opposition from some Tibetans, the Dalai Lama has been advocating not full independence but "genuine autonomy" for Tibet "within China" as long as it can protect its religion and culture and prevent the continuing influx of Chinese settlers. LANGUAGE: ENGLISH COUNTRY: CHINA; LOAD-DATE: April 29, 1994 LEVEL 1 - 9 OF 19 STORIES Copyright 1993 Orange County Register THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday MORNING EDITION SECTION: EDITORIAL; Pg. B08 LENGTH: 1116 words HEADLINE: ORANGES & LEMONS; Passing out Oranges and Lemons for 1993 BYLINE: ELDON GRIFFITHS BODY: As 1993 sinks with the sun into the darkening ocean of tomorrow, I sit on the beach near Dana Point and contemplate the follies, frailties, and occasional triumphs of the human spirit that have marked the year that's gone. The most obvious candidates for 1993's plaudits are those four men who made history by signing peace agreements that few thought possible: Arafat and Rabin over Palestine, Mandela and de Klerk in South Africa. Neither of their THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday settlements are done deals. Either or both could still fail. But all four leaders were rightly named by Time magazine as its men of the year. Let this column add another, Jorgen Holst, the foreign minister of Norway, who, with his wife, did most of the spadework that led to that famous handshake at the White House for which President Clinton (he would, wouldn't he?) claimed most of the credit! This column's 1993 awards go to less obvious candidates: First an Orange _ unpopular I don't doubt _ to that wizened and ailing dwarf, Deng Xiaoping of China. For one overwhelming reason: Because the best economic news of the 90s has been _ still is _ the world's biggest-ever boom in its oldest and most populous nation. There is a lot about China's government to dislike. Freedom and democracy are still so feared by China's rulers that even the first hint of them, for instance in Hong Kong, drives Beijing into paroxysms. Yet when I consider the squalor of Calcutta or the poverty of ex-communist Russia and contrast these with the bustle of China's prosperous cities, I find it hard to argue that the "democracy" of India or the "market economics" so far practiced by THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday Boris Yeltsin, are offering something better than Deng is nowadays delivering for most Chinese. My second Orange goes _ again contrarily _ to the "sherpas. " To those nameless, faceless officials who paved the way for the GATT world trade agreement. Like the battle of Waterloo, this was "a damned close run thing. " If it had failed, the world economy could well have split into protectionist blocs, pulling down living standards worldwide. In the event, these unknown bureaucrats, far more than Mickey Kantor and Sir Leon Brittain who claimed _ and got _ public credit engineered just enough last minute "deals" to launch the world on what conservatively is expected to produce a $ 500 billion expansion in free trade. A third Orange _ less popular still _ goes to Lord David Owen, the European emissary charged to make peace in Bosnia. Owen hasn't succeeded. Maybe no-one can _ or will _ succeed in devising and selling to the embittered protagonists any formula THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday that will bring to an end the shifting kaleidoscope of racial and religious conflicts that even before this winter's snows had claimed 300,000 lives. Owen's proposals, too, are marred in Washington's eyes by his acceptance of the need to partition Bosnia, thereby implying a "reward" for the Serbs' aggressive action in grabbing territory from the Moslems. But what were the alternatives? Bombing the Serbs _ what about the Croats? _ to the conference table? No one, not even Margaret Thatcher, any longer believes this option makes sense. Arming the Muslims, as President Clinton proposed? Every military man on the spot, including U.S. Army observers, opposes this on the grounds that it would be "like throwing paraffin onto the fire. " Owen went too far in accusing President Clinton of "prolonging the war" by leading the Muslims to hope (falsely) that the United States would come to their aid. But for sheer patience, persistence, and a willingness to keep on trying, until "hope," as Shelley wrote, "creates from its own wreck the things it contemplates," Owen deserves our backing. THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday And so to last year's Lemons. There's only space for one, and it goes to Bill Clinton for one of the worst year's performances on record in presidential mismanagement of U.S. foreign policy. The Heritage Foundation got it right when it said, "The United States is leaping from one crisis to the next, adrift in a bewildering landscape of wars and crises, without any unifying theme. " Clinton gets the Lemon, first for surreptiously changing the mission of "Operation Restore Hope" in Somalia from the relatively simple one of ferrying in and protecting food and medical supplies to the vastly more complex task of defeating Somalia's warlords. This led Washington (unwisely) to declare war on General Aidid, who Clinton said he'd bring to trial as a "war criminal," and to the bungled attack in Mogadishu that led to the killing of 17 and the wounding of more than 50 of the U.S. Army's elite Delta Force. Only then did the president order the removal of all U.S. forces next March. They come home, valor unsullied but their mission, let's face it, unaccomplished. THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday Haiti was a repeat of Clinton's vacillation. First, he said he'd reverse George Bush's policy of sending Haitian refugees home. Then he reversed himself by ordering the U.S. Coast Guard to intercept them at sea. Next, the president sent U.S. and U.N. emissaries to accept what he thought would be a virtual surrender of the Haitian military to an unarmed delegation that landed at Port au Prince only to skedaddle when the bad guys started firing guns. And now, at year's end, what's the word from the White House on restoring President Aristide? "We're getting pretty frustrated," a top U.S. policy maker is quoted saying. Amen to that. It's a verdict that applies to virtually all President Clinton's performances to date overseas. Sir Eldon is president of the Orange County World Affairs Council, a former member of the British House of Commons, and director of the Center for International Business at Chapman University. LANGUAGE: ENGLISH THE ORANGE COUNTY REGISTER December 28, 1993 Tuesday LOAD-DATE: March 12, 1997 LEVEL 1 - 10 OF 19 STORIES Copyright 1993 Federal Information Systems Corporation Federal News Service APRIL 20, 1993, TUESDAY SECTION: MAJOR LEADER SPECIAL TRANSCRIPT LENGTH: 7318 words HEADLINE: CONGRESSIONAL HUMAN RIGHTS CAUCUS BRIEFING REGARDING HUMAN RIGHTS CONDITIONS IN CHINA WITH: REPRESENTATIVE NANCY PELOSI (D-CA) REPRESENTATIVE BEN GILMAN (R-NY) JOHN KAMM, US BUSINESSMAN IN HONG KONG ESTRELLITA JONES, AMNESTY INTERNATIONAL CHRISTINE LO, LEGAL ASSISTANT TO JOHN KAMM HAICHANG ZHAO, CHINESE HUMAN RIGHTS ACTIVIST 2220 RAYBURN HOUSE OFFICE BUILDING BODY: Federal News Service, APRIL 20, 1993 REP. PELOSI (In progress): -- very much I appreciate that invitation. But I know we are here to hear some hard information about what the situation is in China, so I will just say how pleased I am that the Human Rights Caucus is focusing on this important issue. It is very timely, because in the weeks ahead the administration and Congress will have to make some decisions about what our policy will be toward China. And, as you know -- as many of you know, because some of you in this room have been helping us with it -- we will be introducing legislation related to most- favored-nation status. And that will be related to the human rights situation in China and Tibet. There are many people in the Congress who were concerned also about trade issues, barriers to our products going into China, and to the proliferation issue. But, central to every piece of legislation that has ever been introduced, and in fact it was exclusively human rights when we started off with it, the MFN issue, was the issue of human rights in China. Some of us think that you can make a case for any scenario in China, that you look there and you can find an improvement in human rights circumstances, and you can find continued repression. As long as that repression continues, we will be ever vigilant. And we have to recognize the challenge ahead of us. If, as this Caucus believes, the human rights should be important to us wherever people live in the world, and if the President will be consistent with his campaign statement and his earlier foreign policy statements, it's better Federal News Service, APRIL 20, 1993 democratic principles fundamental to US foreign policy, and it's very important for us to know precisely -- or more precisely if it's -- (inaudible) -- to know as much as we possibly can about if the situation is improving in China, if the repression is continuing, and if we are going to be consistent with our own principles of spreading democratic principles and human rights. It would be a cruel hoax, I think, on the American people, if we had spent trillions of dollars fighting the Cold War under the flag of democratic principles, when all we really wanted was cheap labor and market access. We have to be consistent to the call for respecting human rights as well. What we see in Bosnia, what we see in former Yugoslavia, is all, I think, a result of world leaders not placing enough emphasis on regard for human life, regard for human rights, and respect for ethnic minorities. So I salute the Caucus for the work they do, the co-chairs, Mr. Lantos and Mr. Porter, and I commend everyone here. We have all worked together -- some new visitors from Hong Kong. We all worked with each other, against each other, and the rest. But I think we all have a common goal. And so let the meeting begin. And I appreciate the opportunity to be associated with it. I see that champion of human rights in Tibet, and China, and the world has arrived, my colleague, Mr. Ben Gilman. Nice to see you, Ben. Thank you. Thank you very much. MS. : (Off mike). MS. JONES: What I'll do is talk very -- in summary, and briefly, and we can go Federal News Service, APRIL 20, 1993 into detail during the question and answer. But what I hope to do in about five minutes or so is give a very quick overview of the status of human rights in China today, a look at the system that in essence fosters the abuse, to look at who the victims are, and to also look at the government response to the documentation and calls for respect for human rights; and, lastly, to see where the US government and the PRC go from here in terms of improve that situation in China, to improve that crisis, because, based on our documentation, it is a human rights crisis in China. Looking at the international human rights norms, if you go down them, China fails badly in most of them. You talk about torture. We just released a report saying that torture has actually increased and is far more severe today than it was 10 years ago. It's endemic. It's widespread. Some of the acts of torture are truly barbaric. You have those that are arbitrarily detained, through two parallel systems: the criminal justice system, the administrative detention system, of which hundreds of thousands people go through each year, particularly the administrative system. You have a lack of prosecution and conviction of those who commit these abuses in China, and therefore you have, you feel an impunity by which officials go ahead and commit all kinds of abuses in China. And last but not least, you seen an increasing, an alarming increase, in the death penalty. There are more people who get killed through the criminal justice system every year than were killed in Beijing at Tiananmen Square. And we feel that documentation, what we know, is only the tip of the iceberg. It Federal News Service, APRIL 20, 1993 is highly discriminatory, the death penalty, when it is applied. And that, coupled with an unfair trial procedure, which falls very short of minimal standards of trial procedure -- you have a very dangerous situation in which people could be executed after having unfair trials, or even after actually being innocent. So let me just kind of, in terms of just a summary of that, besides these actual types of abuses, let me go into a little who the victims are here. You have for example the poor and the powerless, particularly who are victims of the administrative detention, which has no safeguards, and which is not under the protection of the criminal justice system in China, what little protection there is in that system. You have ethnic groups that are targeted. You have, in minority areas such as Tibet, in Inner Mongolia, in Zhingzhangong (ph) Province -- excuse my pronunciation -- where Muslims are also detained. In these areas you have people calling for independence, speaking out with nationalistic views, and also demanding the right to pursue their respective religions; that is, Muslims, Buddhists -- you also have the Christians that are targeted -- Catholics and Protestants where often members are organized and participate in unofficial churches, which China -- which are not members of the official religious associations in China. So what you have basically, in summary, is a system in which -- a system that actually in many ways fosters these abuses. You don't have the safeguards. Federal News Service, APRIL 20, 1993 You have a system that has some laws, but are clearly violated. There seems to be a lack of respect for law. And you have practices and regulations that violate those laws, and also violate international norms. In terms of the government response to this, you can look at the government response in a number of ways. Let's start with the perspective that the government response is basically inadequate. For example, they have issued in the last two years, since 1991 up until now, three white papers on the human rights issues, and which if you examine them you can easily challenge the veracity and the documentation. For example, one paper says there are no political papers in China. With regard to amnesty specifically, we have yet to receive any responses from our appeals to observe trials, to take missions to China, responses to the reports that we send to the Chinese government when they are published. You also hear the Chinese government consistently saying that documentation from international human rights organizations or appeals from human rights organizations are basically an interference in China's internal affairs. So on the one hand you see a response that is inadequate, that they seem not to be listening. On the other hand, I think you need to look at the perspective that there are signs of -- indication of some positive change. For example, by the fact of producing three white papers on human rights related issues would have been unheard of as early as five or ten years ago. The fact that they released hundreds of people could be seen as an indication of a positive Federal News Service, APRIL 20, 1993 change. On the other hand, many that are released; you have just as many that are detained. You have in the last few years China allowing certain foreign dignitaries come in with human rights concerns. You had over the last several years legal journals, or government-sanctioned quarterlies, or publications, that speak very frankly about the problems in China. So in a sense these are positive indications, one could say. And from that -- oh, and the last one, for example, China, as we know acceded to the UN Convention Against Torture in 1988 -- that's a positive sign. They have recently submitted one of the required reports to the UN Committee Against Torture. But what we need to do then is take those positive changes and press the government to continue in this direction. In my mind, these positive signs only came about through pressure, the type of pressure that Amnesty and other organizations and other individuals have put on China. And I think the point is that China needs to be told the US government -- I mean, the Chinese government needs to be told that while these changes are welcomed, they are just the beginning; that this is about people's lives; that this is about people being abused in a horrendous way; that this is not a PR game, this is not to just clean up their image. This is for them to make substantive changes. And I think the US government and other governments need to, while signaling and giving them credit where due, that this is not getting at the systemic problems in China; that where these may be first steps, they are only first steps, and Federal News Service, APRIL 20, 1993 I think the US government needs to continue to push the Chinese government, as well as the international community. One thing that Amnesty has been urging is that the US government establish in a public document benchmarks and guidelines by which to assess China's human rights policies and practices, may become a standard by which to assess and measure, and that these benchmarks are based on international norms, that the US government should therefore encourage other governments to do the same thing. It certainly creates a certain consistency, diminishes confusion as to when something human rights related occurs -- an event or an action. It can then be assessed in that line. The objective is to press China to change, as opposed to simply condemn China. So, in summary, that's what Amnesty concludes. I of course have done this very quickly, but if there are any further questions, I would be glad to go into further details. MR. ZHAO: I'll quickly just give a brief situation -- human rights situation assessment in China, and then I would like to briefly comment in terms of what's the right US policy that can benefit in terms of promoting democracy and freedom in China. The current human rights situation in China, as we know, as of today -- we can sum it up by saying the repression is still continuing. Because we have, for example for the last year or so, we know at least 300 people were arrested for political reasons or religious beliefs. And even as close as March 1st, we Federal News Service, APRIL 20, 1993 know that there were two people in Shanghai -- one of them was a journalist and one was a worker -- were arrested just because they gave interviews to foreign journalists, and they received facts from overseas that has some kind of -- (inaudible) -- request. And they were arrested, and they are still locked up today. And others -- like for example Zhe Deseng (ph) who was arrested because of the -- (inaudible) -- last year. And we know at least four others arrested in the Hunan Province. But the whole situation is in China, the Chinese government trying to promote economic reforms and economic progress. But at the same time they are very tight politically. And in terms of, for example in terms of political dissidents, they have this new policy, what they call is you either go in or you get out. You cannot stay, meaning for those dissidents, they either would be locked up in prison, and stay in prison; or, if they are released, they will be kicked out -- out of the country. They are not allowed to stay in the country and conduct their political activity. That's this new Chinese government document and policy. And they have categories of those people, that what people would be kicked out and what people would be locked in, and -- but then they are not allowed to stay to make trouble. Another incident, for example, when last September when the Japanese emperor visited China, there were some people who tried to apply legally demonstrations within the system. And the government, they cannot really say no, because Federal News Service, APRIL 20, 1993 they are really -- they go according to the legal procedures. But what they did is they simply locked them up. If you file an application or petition for demonstration during that week, they just locked them up for a week or two and make sure they cannot make any trouble, and afterwards released them. That's their sort of -- (inaudible). And I think politically what they are doing now is -- (inaudible) -- internally, but because of the pressure, the international pressure for the last few years, they have kind of learned to make a face to the international community by making sure that when you have foreign visitors, or when you have some kind of event, they want to make sure they can show up a good face in terms of treating their own people. One example -- I just talked to one prominent journalist yesterday who just came out from China recently, Mr. -- (inaudible). He was a very brave reporter from Shanghai. And he was arrested actually three times over the last few years. Every time he was released he would continue speaking up for the -- (inaudible). And one thing I learned very interesting is we can see how the pressure from the US, particularly from the Congress over the last few years on the debate of the MFN -- and MFN was one of the key issues in terms of foreign pressure to the Chinese government -- that he told me personally that he could feel, even when he was in prison, he could feel the ease whenever there was a congressional debate on MFN, or the congressional debate or foreign pressure in terms of human rights. They can feel that inside China, in the prison, in terms of their Federal News Service, APRIL 20, 1993 treatment and their daily lives. Basically -- (inaudible) -- when they have the pressure was every year, almost every year during this time -- May, June, and just before the debate. The prisoners would get a relatively easy life in terms of their treatment. They'd probably get some better food or easier visits from their family members. And it was interesting, even when he was released -- he was last released last December, and when he was released, apparently his release was targeted for this new administration, so that they can show to the world that the human rights has somehow improved. And he was told by the officer who actually dealt with his release, said, "Well, it doesn't matter if Bush stays in or Clinton gets in: we will let you go anyhow. We will let you go not because Clinton gets in." Last December, remember that was a time -- the timing of his release was really right before -- it was after the election. But then the Chinese government was really trying to adjust to this new administration and try to figure out what to do. And one thing they were doing was to show some cosmetic gestures in terms of human rights, by releasing people like him. But it was interesting that the officer told him that. But he wasn't -- that kind of officer wasn't involved in any kind of foreign policy decision, but apparently he was briefed by high- level officials about the purpose of his release. What I am trying to say is that in general, over the last few years, the Chinese -- the -- (inaudible) -- attitude in China hasn't improved in terms of Federal News Service, APRIL 20, 1993 substance. But the Chinese government, because of pressures, they do respond to the international pressure, because they want to maintain their foreign investment coming in. And by (adjusting ?) little things, like for even for some of the political prisoners they use them as chips, as bargaining chips. In a way it shows their response. But, at the same, it also -- there is a new phenomenon that evolved from this, is that they are not doing this for genuine change of their political policy, but rather for making a face for the international world. And I think in that regard that shows the pressure, the international pressure works, to some degree. But it also shows we need to work more accordingly to make sure that they cannot just use those people as chips, and they have to change with substance, with real policy change. For example, when they released Wong Dan (ph) the last few months, that really didn't mean anything real, because he still is to be released in June anyway. But if they really want to change and show they're actually changing, they ought to release people like -- (inaudible) -- they have to release those political prisoners -- all of them, not just one, two, or few. And another thing. If they really want to demonstrate they have real change, they ought to be able to admit, or allow international human rights organizations to go in and to verify their release or their political prisoner situation. And I think that's one thing. One thing is release of those political prisoners, and another thing is to allow international human rights Federal News Service, APRIL 20, 1993 organizations to go in to verify, because that's very important. Once they allow that to happen, then they cannot lie. The international community would be able to see whether that's real change or not. But in terms of the political situation -- and I think many people have paid attention to the new Party Congress and People's Congress. But I think what's happening now, in terms of the government politics, is that with the new Party Congress, and the People's Congress, it's really a compromise between different factions within the government. There's no real change in terms of either political reform or political change. And I think, and many dissidents here feel the same way, that the situation there, the political situation there, is very delicate. I guess it's just because Deng is still alive, so nobody can make a move. But once he goes, and I guess the (wisdom ?) is we will see. Maybe there -- at the beginning there will be some kind of grace period, but then we'll see dramatic change. And that's why we're fighting so hard now, because of this prediction of this succession in I hope within the next few years, because once that happens the reformers, or the dissidents, or the people who are pushing for democracy ought to be able to engage and really fight for democratic change. So I think in general that's what -- (Audio break.) Q (Off mike) -- do you see any relaxation of -- (inaudible) -- in China at all? MR. KAMM: The only thing I see is what -- (inaudible) -- documented a week or Federal News Service, APRIL 20, 1993 so ago -- (inaudible) -- buying satellite disks and they are able to plug into some international media. But as far as their own press is concerned, I see no evidence whatsoever that we're seeing an increase in freedom of expression in China. And one of the concerns we have about Hong Kong, frankly, is I experienced, in terms of my own work, I see, you know -- when I give for instance an interview to the Associated Press, in which I say the recent release of Catholics do not constitute substantive improvement to religious freedom in China -- you know, lo and behold, there's a Chinese press in Hong Kong that is not there. That part is taken out. There's a great deal of self-censorship, taking place even now in Hong Kong. And I made a clear comment on that. I see that as a trend. I mean, people are looking at Hong Kong and the media. That's why I think Congressman Porter's bill to give visas, to establish a class of visas for Hong Kong journalists is one of the best things that I have seen recently in the area of promoting human rights. If these journalists are comfortable that they can get out, they might exercise their freedom of expression. MS. LO: If I could add on that. It's a strange thing, you know, and I think nobody is doubting the generosity of the Americans for offering these visas to working journalists. But I've spoken to a number of working journalists in Hong Kong. They feel like they are in a bit of a dilemma. I mean, in a way they feel if they were to take up US residency or US citizenship, then in a way it means Federal News Service, APRIL 20, 1993 it's only for a few of them: what happens to lots of other people back in Hong Kong? So it's a difficult issue for them. I mean, it's not something I think you're going to find the Hong Kong journalists come out and say, "Wow, thank you very much." It's very difficult for them to say that. But I think therefore silently it's appreciated as a generous gesture. The Hong Kong Journalists Association is I think fighting as hard as it can to keep freedom of expression alive in Hong Kong. They know self- censorship is a problem. In 1991, I believe in September, one of the (tertiary ?) institutions, conducted a survey among its working journalists, and as many as 30 percent of them indicated they were practicing self-censorship. Another issue in Hong Kong is that, you know, the democracy thing -- Chris Patten and all about that -- that's very sexy, because that's, you know, Britain and China having a row with each other every day -- that sells newspapers. But many of them do not consistently try to cover human rights issues, although I think the working journalist, himself or herself, is very concerned about in particular freedom of expression. So in a way, for a legislator like myself, I find it sometimes quite difficult to get messages through, you know, to urge people that this is something that they do have to stand up for, and to encourage them that if we expect our working journalists to be on the front line -- because, you know, it's always easy to ask somebody else to do it for us. You know, self-censorship -- we Federal News Service, APRIL 20, 1993 don't like self-censorship. Why are our journalists practicing self-censorship? We tend to forget that they are only as brave as we are. If we don't stand behind the working journalists, if we do not persuade the editors that they have a role to play, and ultimately if we cannot persuade the publishers that this is very important, then it's very difficult for us to really expect the front-line journalists to maintain freedom of expression for all of us. MR. ZHAO: I would like to just comment briefly on -- actually, I am glad Nancy brought this point up, because the freedom of speech -- it's really one of the most basic elements in terms of political (agendas ?) or human rights (agendas ?) in China. And we all know too well the Chinese government: that's one thing that they're really -- (inaudible) -- about, because they're afraid that the people will know the truth, and afterward that they won't be easily fooled. And that's why we see constantly the crush of any slight change or slight freedom in terms of press work. One very good example is this -- I just mentioned Mr. -- (inaudible) -- he was recently one of the prominent journalists in China, and he was arrested right after Tiananmen Square. And then, later on, they released him. But before they released him they asked him -- said, "Well, we'll release you, but you have to promise one thing: When you go out you don't speak against the government. That's the only condition. If you do that, we'll let you out and let you free." And he refused to comply. And after he went out he continued to speak for the freedom and change. And Federal News Service, APRIL 20, 1993 what happened was that after a half year he was locked up again. But it was because of the international pressure. The New York Times had a good piece on him, and then they had to release him. But eventually, recently, he was kicked out. But that was one example of why the Chinese government is so afraid of any slight change in terms of freedom of speech and press. And that's why we feel strongly -- that's one issue here -- that the recent initiative from the Congress, on Radio Free Asia, is so important, because it's really -- now, you may think the Cold War is over for the concept of Radio Free Europe -- that's one issue. But for China, for Asia -- that's one of the -- and I personally believe that's one of the most important issues that we should engage in and fight for -- is something like that from the West. And then let people know -- let people in China know what's going on within the country, and what's going on outside from the country. And that will really trigger an eventual real political change, I believe. Thanks. Q I'd be interested in hearing some of your perspectives on if we applied some type of -- (inaudible) -- as is proposed in the Congress here -- (off mike). First, whether China would respond -- (inaudible)? MR. KAMM: Let me answer that. You know, a lot depends on obviously how it is done and what the President does. That's my first point. I'm interested to see the bill is being introduced, and the language of the bills I think will form an integral part of the process of how conditions are imposed. I mean, again, MFN is conditional, and I always get back to that point. It took me a little Federal News Service, APRIL 20, 1993 while to wake up to that, but it is conditional, though it's not -- and whenever the Chinese ask me, you know, "Do you favor imposing conditions on MFN?," I always think, "Well, it's already conditional and it's going to stay conditional." The question is: What are the conditions and how will they be imposed? I think, again, based on my experience -- you know, I'll tell you what: They have been trying to make the case that they are reducing the population of counter-revolutionaries. They have been actually giving me quarter by quarter statistics on the number of counter-revolutionaries in Chinese prisons. Now, as I always point out when I talk about these statistics, that is not the same as saying the population of political prisoners. The total of counter-revolutionaries is not the total of political prisoners. It excludes, for instance, people in reeducation camps. It excludes people in detention centers. It excludes people under extrajudicial detention, like these elderly bishops in the old people's homes, who are often worse treated even than the people in prison. So, again, they go to the -- they're trying to make this a case that they are actually drawing down or reducing the number of political prisoners -- all the more reason why we have to focus on systemic issues. Recently I've been lobbying the Chinese delegates to the National People's Congress. I sort of -- I don't intend to do very much lobbying this year in Washington, but I do intend to do a lot more lobbying in Beijing. And there Federal News Service, APRIL 20, 1993 have been calls among certain National People's Congress delegates to eliminate from the criminal code the articles 90 through 104, which are the crimes of counter-revolution. Why? Not because I think if the Chinese eliminate crimes of counter-revolution that they will eliminate the problem of political prisoners. Quite the contrary: I think they will try to move the prisoners over to other categories. Again, let's look at -- (inaudible) -- the priest who was just released, who was at the center of the -- (inaudible) -- village incident in 1989 -- a fairly significant recent release in that he's young, he's charismatic -- you know, the Chinese government really didn't want to release him. He wasn't in jail because of counter-revolution; he was in jail for disturbing the social order. So they will find ways of moving these prisoners out. But why? Well, when I was in San Francisco recently I found a quote from Lenin, in 1922, when the Soviet Union was trying to put together it's first criminal code. And they got to this notion of crimes of counter-revolution -- and the Chinese concept is lifted straight out of the Soviet criminal code. This is what Lenin wrote about the crime of counter-revolution. "The definition of counter-revolution in the criminal code should be politically truthful, and not only a juridically narrow proposition, giving the grounds for, and justification of terror, its necessity and its limit." That's why. That's why we have to fight for those types of systemic changes. So, getting back to your question, I understand that both Congresswoman Pelosi Federal News Service, APRIL 20, 1993 and Senator Mitchell will again be introducing legislation. I see that in Senator -- I understand in Senator Mitchell's legislation there will be a mention of the universal declaration, and that one of the must-be conditions will be that China will demonstrate moves to -- or show compliance with its commitment under universal declaration. I would hope that at the end of the day the President will take the lead, that it won't actually be necessary to enact legislation, that the President will take the lead, and will articulate the kind of things we want to see, and that we will not restrict ourselves to releasing prisoners or even accounting for prisoners -- although those are very, very important -- but that somehow we get at the systemic questions. And in that sense I think the Chinese government will pay more attention. Well, there may be a way for them to address systemic issues by putting it in that language, that they live up to their commitments under the universal declaration. That's my contribution to that. MR. ZHAO: Yes, but I guess I have to comment on that. Because I agree with you, John, for a lot of things. And I am happy to see particularly in one change you seem to have this year, is economic reform, will not automatically lead to political reform or human rights reform. I am glad you have finally realized that -- (Laughter) And that's the position -- MR. KAMM: I am a businessman. (Inaudible) -- MR. ZHAO: But, in terms of -- I think in that regard we all agree. In terms of what we all know how important the last four years, the congressional debate on MFN, on human rights Federal News Service, APRIL 20, 1993 improvement in China. And even like people we talked to from the Chinese prison -- they told us the Chinese government pays a great deal of attention to the debate here on MFN. They were taped -- all the hearings were taped and sent back to the different ministries or agencies of the government, and they were being analyzed every year. And then people, the agency would write reports and recommendations in terms of how they should regard -- And we've seen a lot of them. For example, they're -- (inaudible) -- business capacity to buy different products from the US at certain times. Even we see that from the press a lot. Now, but I think one thing that we realize -- I hope people realize for the last few years -- the Chinese government, they try -- there are two things they are trying to do. One is they try to make money to improve the economy, regardless of what it means. If it's -- (inaudible) -- progress, let it be it. But as long as the economy can be improved -- and then will in turn help them sustain their power -- that's the only -- well, not the only -- but that's the most important incentive for them to do that. But at the same time they want to make sure the political change -- nothing -- nothing would be changed, because if anything changes, that will threaten their power, their maintaining of the power. And they really try to separate those two. And what we need to do is -- (inaudible) -- them, is to make sure that whatever the Western pressure or the foreign policy toward China will force them to link those two -- and I think that's the only -- and that's the most legitimate pressure that can push the Chinese government to change toward more human Federal News Service, APRIL 20, 1993 society. And one of the key elements in this is to link that in terms of the release of political prisoners. I mean, I can see that. The Chinese government would not be afraid to talk about human rights if you put that in the concept of academic exchange. They're not afraid: "Fine, we'll have white papers. We'll talk with Westerners or different governments about human rights as an academic discussion." Now, the only thing they're afraid is if you link that with economic development, because that's something they want very badly. And if you don't link that, they'll be happy to deal with you. It's only the -- the pressure will only have an effect when it's linked to something that the Chinese government wants, which is things like MFN or other economic development issues. And that's why we feel strongly that when you -- Well, what's the purpose of the pressure, if you really want to see genuine change from the Chinese society, then my view, and many Chinese dissidents' views are the same: that we need to put the pressure in terms of release of political prisoners and genuine human rights change with the economic development. We're not saying that we're trying to stop economic change: no, that's never our purpose. It's to the contrary, that we need to let the Chinese government know that you cannot just get enriched but at the same time oppress people. It's that simple. MS. JONES: I think the idea of condition -- let me just say parenthetically that Amnesty does not take a position on sanctions. But to answer the question of Federal News Service, APRIL 20, 1993 Chinese reaction, in just my own view, is that if this debate, if the US government is able to put this debate in a much more international context and pull it away from a simple showdown of pride, which in that context you can lose on, but that these are international norms that the US and the rest of the international community are sincerely interested in substantive change, I think it increases the likelihood that China will listen to these types of conditions. And it increases that likelihood. I'm not saying it would be ultimately successfully, but at least it certainly edges it more toward a successful recognition by China, that this is not a PR game, that this is something that is a multilateral pressure. And if it's put more in that context, we do stand a better chance to try to respond to human rights conditions. Let me just say while I have the microphone, what I was talking about. Amnesty has been pushing for specific benchmarks that the US government should lay out in a public document -- not just in private conversations with Chinese officials. We have circulated such a two-page document, just giving suggestions of very specific things that the US government should point for. And that whether it's in the MFN context -- because the MFN context may or may not succeed. It's important that the message that is trying to be delivered through human rights conditionality is done throughout our policy with China, that it is a consistent voice, and not an inconsistent voice which in some cases I think Federal News Service, APRIL 20, 1993 was the problem in the past -- that at least this pressure is kept on through our bilateral relations with China. And I do have copies here, which I can distribute if people are interested in looking at them -- as well as our report on torture. Q (Off mike)? MS. JONES: One of the simple things is that there has to be a clear message that that's what we're looking for. I mean, some people have said the release of prisoners is fine. You know, that's where it ends. There is confusion as to what the government is trying to convey. And that very simply can be a major step when the US government or any other government to China says, "We are talking substantive. We commend you, but this is not where it's at. This is just the beginning." And I think governments, including our own, have not done that. They have sent all kinds of mixed messages. Get a few more out and you may make it to the Olympics. Get a few more out and we'll satisfy them. So the message is not clear at all, and it isn't consistent. And I think that's a key step for any of a number of governments. We rarely, and very forthrightly, say we are looking for systemic change. And I don't think it's that simple, and yet it's that difficult to achieve, to get a government such as our own to do that. MR. KAMM: Well, one of the things in this proposal -- again, I am lobbying the Chinese Congress with no results at all, I might add -- I haven't found anyone yet to take it up. Federal News Service, APRIL 20, 1993 But, back in 87-88, in Chinese legal journals, there were proposals put forward to abolish counter-revolution. All right? There were legal experts who came forward and said, "This is really an odious crime. It is out of step with international standards. We should abolish it." And, now again, that's not enough. And then you move to judicial review of all sentences. Now, again, you're not only affecting those in prison, but that also helps people like in reeducation camps who are there for minor counter- revolutionary offenses -- it's one of six categories of offenses that people are put in reeducation camps -- and people who are being detained for suspicion for counter-revolution. So, again, this is a systemic change that I am advocating and pushing for. But I get back to that first step. I think my reading of the experience of Amnesty and the international human rights movement is that you always try to find indigenous techniques, methods, standards, movements -- and go back. And that gives that crucial element of faith, if you will, if the Chinese can say, "Well, we had a proposal to do this five years ago" -- see? "We're not caving into foreign pressure. This is our idea." I personally don't care if they make that proud boast, if indeed that's what it takes to actually do it. So, getting back to answering the question, there are ways of locating within -- in effect conducting archaeology of the Chinese reform process in 87 and 88, and looking for things that they themselves were promoting, or putting forward, and then latching on to those and giving them the faith they need perhaps to carry Federal News Service, APRIL 20, 1993 out those systemic changes. MS. LO: In response to that, the reason I brought up the issue of the international covenant, is that I think this is a terrific opportunity. You cannot always find something in China itself today that you can hang your hat on. But it's a rare opportunity that you have something that they've lodged with the United Nations. Of course if you can get China herself to accede to the international covenant, that is serious business, and it will include United Nations monitoring and periodic reporting. Now, she's not going to do that just on her own. But if we can try to say, "Well, you said you were going to let Hong Kong do it. How is Hong Kong going to do it without you acceding to the international covenant? Or are you saying that after June 4th everything has changed and you are revoking the joint declaration?" So what I am saying is that's actually a very good hat to hang on. Now, even if China doesn't want to accede to the covenant by 1997, if you can persuade her to go and find some method that allows a bit of China to continue doing that, that's a step in the right direction. So I think that's worth doing. You can press the British as well. The wonderful thing about this is you can press the British as well as the Chinese. MS. : Yes, just actually in response to that, because China did accede to the Convention Against Torture, it has to report to the UN, and then we can criticize what they say, and the dialogue continues. But, in addition to the issue of political will at the top to change, and I Federal News Service, APRIL 20, 1993 think the techniques that you've been talking about, and inter- governmental pressure, there is I think a level of pressure at the local level: the indigenous structures. I think several of the most important changes that are happening within Chinese society are the development of journalistic standards and lawyers who themselves who learn about international standards and agree with them. Now, they're stuck within a system, but there are generations that come through and even get corrupted into current system, but many of them don't, and they go ahead and write investigative articles for journals. So one thing that outsiders can encourage, in addition to this high- level lobbying, is academic exchange and education of journalists and academics. And, also, what Amnesty members do, which is to write out little bits of the Universal Declaration of Human Rights, and send that to low-level officials and blanket them -- you know, county officials everywhere. Occasionally they're going to read it and occasionally they're going to remember it. And it's going to build up a constituency for some of these standards out there in this society. Q (Off mike) -- multilateral discussion on China -- (off mike) -- and does that indicate -- (off mike)? MR. ZHAO: Actually I think you've made the point. The answer -- my feeling to that answer is yes and no, because I think we agree that MFN ought not to be the only focus of this bilateral relations, because it actually just puts too much pressure on one issue and other issues or other areas are ignored. There are Federal News Service, APRIL 20, 1993 a lot of other areas that I believe the US can exert pressure through those channels -- like the trade negotiation -- for example, 301, and others, and the World Bank loan. And there are a variety of areas that ought to be paid attention to in addition to MFN. However, that doesn't mean that we shouldn't continue to exert pressure on MFN in terms of attaching human rights conditions and so forth, because, as I mentioned before, that's one area that will bring a lot of leverage to the US that can actually bring about some improvement and change. We have seen that. I mean, we have seen for the last four years how much -- I won't say substantive progress, but at least even on the surface the ease that's brought by this debate on MFN. And, also, there has been the -- historically for the last few years it has been, in reality become a spotlight or a symbol of these bilateral relations. I mean, if you don't continue to do that, it actually will send the wrong message to the Chinese government and the Chinese people -- that the Western world, whether they really care about human rights or not. In that regard we believe that you just have to be sure that the conditions that you attach on are clearly reasonable and achievable. I mean, I think that's a key. We are not advocating for revocation of MFN; but, on the other hand, it is certainly wrong to just give it for free, because that sends the wrong message, as well as revocation. The key is really to make it reasonable and clearly achievable. And I think that's how we can see change, and most people would accept that as well. Federal News Service, APRIL 20, 1993 MR. KAMM: Again, following up on that and the earlier theme about looking for existing, if you will, indigenous methods for promoting human rights -- MFN is already condition. It must be renewed every year. A congressman or a senator doesn't have to vote one way or another, I mean other than for reasons of conscience. In the original trade agreement between the United States and China, it states very clearly that MFN will be granted subject to legislative approval. And China signed that agreement. MR. : (Off mike). MR. KAMM: It is. But if you look at the preamble of the Jackson- Vanik, it states very specifically that -- I think the wording is, "In order to demonstrate the United States' commitment to the promotion of human rights abroad," comma -- for doing it. So it is quite clear that immigration is a specific condition within a general conditionality; namely, it has to be renewed every year. And that's the leverage right there. And so China signed off on that. I mean, that's an agreement between the United States and China. END OF EXCERPT LANGUAGE: ENGLISH LEVEL 1 - 11 OF 19 STORIES Copyright 1992 Cable News Network, Inc. All rights reserved CNN NEWS October 1, 1992 Transcript # 128 - 2 TYPE: Package SECTION: News; International LENGTH: 456 words HEADLINE: A World of Difference - Foreign Policy on China BYLINE: RALPH BEGLEITER HIGHLIGHT: This segment of the series''A World of Difference'' takes a look at the CNN Transcripts, October 1, 1992 differing views held by President Bush and Bill Clinton on what the U.S. position should be in dealing with China. BODY: FRANK SESNO, Anchor: Today on the International Hour we begin a special weekly segment, 'A World of Difference,' focusing on the U.S. presidential candidates and how they feel the U.S. should fit into a changing world. We begin with China - a billion people, an emerging trading power house, and arms exporter. Today the U.S. Senate upheld President Bush's veto of a bill that would have imposed conditions on the renewal of China's trading status with the United States. The White House and Congress have long been at odds over China policy. It's an issue also that reveals sharp contrasts between George Bush and Bill Clinton. World affairs correspondent Ralph Begleiter reports. RALPH BEGLEITER, International Affairs Correspondent: The flames and tanks of China's Tiananmen Square massacre and the setback for China's pro-democracy movement are still reflected in the U.S. presidential election campaign. CNN Transcripts, October 1, 1992 Gov. BILL CLINTON, Democratic Presidential Nominee: When China cracked down on pro-democracy demonstrators, exported advanced weapons to radical regimes, and suppressed Tibet, this administration and its President failed to stand up for our values. Instead, he sent secret emissaries to China, signaling that we would do business as usual with those who murdered freedom in Tiananmen Square. BEGLEITER: Bush, who was once U.S. envoy to Beijing, has personally steered U.S. policy toward China, sending high-level aides to Beijing after Tiananmen Square, selling space satellites to China, and refusing to cut off or limit favorable trade tariffs. Pres. GEORGE BUSH: It is right to export the ideals of freedom and democracy to China. It is wrong to isolate China if we hope to influence China. The real point is to pursue a policy that has the best chance of changing Chinese behavior. BEGLEITER: Bush argues that some continuing sanctions coupled with his policy of staying engaged have moved China to cooperate with the U.S. China didn't use its U.N. veto to block last year's war against Saddam Hussein. China has promised to limit exports of products made by prison labor and has promised to CNN Transcripts, October 1, 1992 stop pirating U.S. computer software and other intellectual property. China has promised to limit sales of ballistic missiles around the world. But Clinton indicates he would use the carrots and sticks of the U.S. market to pressure China on human rights. Clinton backs legislation linking favorable tariffs to China's human rights record. Democrats in Congress have repeatedly failed to override Bush's veto of that. Clinton says China still abuses pro-democracy advocates, still sells nuclear and weapons technology to North Korea, Syria, and Iran, and still imposes repressive rule on Tibet. President Bush's approach to China has been similar to the Reagan administration's handling of racist South Africa - keep working with them to change their policies. Mr. Clinton's approach leans toward a tougher line like the economic isolation which ultimately pushed South Africa toward change. Ralph Begleiter, CNN, at the State Department. The preceding text has been professionally transcribed. However, although the text has been checked against an audio track, in order to meet rigid distribution and transmission deadlines, it has not yet been proofread against videotape. CNN Transcripts, October 1, 1992 LANGUAGE: ENGLISH LOAD-DATE: October 2, 1992 LEVEL 1 - 12 OF 19 STORIES Copyright 1991 The San Diego Union-Tribune The San Diego Union-Tribune December 16, 1991, Monday SECTION: NEWS; Ed. 1,2,3,4,5,6; Pg. A-3 LENGTH: 376 words HEADLINE: Demo debate goes national; White House hopefuls spar on TV, aim barbs at Bush SOURCE: AP BODY: Six Democratic presidential hopefuls sparred over tax cuts and fiscal policy yesterday in the campaign's first nationally televised debate but united to blame President Bush for the anemic economy. The 90-minute campaign curtain-raiser brought few surprises from the candidates on substantive issues, but their infighting sharpened distinctions within the field on taxes, trade and campaign finance. The San Diego Union-Tribune, December 16, 1991 "George Bush doesn't understand ordinary hard-working Americans," Iowa Sen. Tom Harkin said at the outset of yesterday's NBC-TV forum. "He has no concept of what's going on. He's isolated from the American people." Domestic policy wasn't the only issue that brought attacks on Bush. The Democrats also criticized Bush for being too slow to respond to the crumbling of the Soviet Union and too close to China's Communist leadership. "He let his friendship with the leaders in China obscure our devotion to freedom and democracy when those kids stood up in Tiananmen Square," said Arkansas Gov. Bill Clinton. Joining Clinton and Harkin were Nebraska Sen. Bob Kerrey, Virginia Gov. L. Douglas Wilder, former Massachusetts Sen. Paul Tsongas and former California Gov. Jerry Brown. All said they support abortion rights and would appoint judges who shared that view, all backed some form of universal health coverage and all promised a tough line on trade, particularly with Japan. The San Diego Union-Tribune, December 16, 1991 The candidate who got the most air time -- and caused the most confrontations -- was Brown, who broke the debate ground rules by twice giving his toll-free fund-raising number. Ironically, Brown spent most of the night criticizing his rivals for spending too much time raising money. Kerrey, who asserted himself throughout the debate, at one point angrily turned to Brown and said, "I resent this." The big debate of the debate was whether the middle class should get a tax break. Clinton, Wilder and Kerrey said yes, while Harkin and Tsongas said no. Brown said sort of -- he favors a cut in the Social Security tax that would benefit all income groups. With New Hampshire's kickoff primary two months away, the debate offered the little-known candidates a prime opportunity to introduce themselves. Missing was New York Gov. Mario Cuomo. GRAPHIC: 1 PHOTO From left, Bill Clinton, Paul Tsongas, Tom Harkin, Bob Kerrey and Jerry Brown await start of their debate The San Diego Union-Tribune, December 16, 1991 LOAD-DATE: December 20, 1995 LEVEL 1 - 13 OF 19 STORIES Copyright 1991 News World Communications, Inc. The Washington Times July 10, 1991, Wednesday, Final Edition SECTION: Part A; WORLD; Q&A; Pg. A8 LENGTH: 2601 words HEADLINE: Taiwan predicts Beijing will come around BYLINE: Arnaud de Borchgrave; THE WASHINGTON TIMES BODY: Arnaud de Borchgrave, editor-at-large of The Washington Times, is on an extended around-the-world reporting trip. This interview with Republic of China President Lee Teng-hui is the first of several conversations with world leaders. Question: In one week's time, the Soviet parliament has passed a privatization law that will denationalize two-thirds of the country's industry, and President Gorbachev himself has approved the formation of a rival centrist party by former Foreign Minister Shevardnadze. But the aging rulers of the The Washington Times, July 10, 1991 People's Republic of China have just celebrated the 70th birthday of one of the last communist parties left in power, vowing to defeat the forces of democracy and dismissing the worldwide decline of communism as a temporary setback. How long before the PRC system throws up a Gorbachev? Or a Yeltsin? Answer: It's quite clear that, even in the present leadership in mainland China, there are different views about future policies and how they should develop. It would be unrealistic to expect the old guard around Deng Xiaoping to change their views in the near future. First of all, they don't know how else to cling to power. Secondly, in Chinese culture it's very important to save face. So to change their policy now would be a total negation of what they've done and stood for. This does not preclude other views within the leadership. Many of those involved in the practical running of the state have a different idea about which direction to move. Even some of the PRC ministers, when they deal with day-to-day affairs, understand that communist ideology is not only irrelevant but also an impediment to progress. We have seen, prior to the Tiananmen Square incident, officials at the highest level of administration develop unorthodox, non-ideological positions. They wanted total freedom to reform the economy, but they could not succeed unless they had total freedom to change the political system. But they couldn't obtain the latter and were themselves removed from The Washington Times, July 10, 1991 power. So it's hard to put a time frame on a Chinese Gorbachev emerging on the mainland. It depends primarily on whether the old guard can remain in the driver's seat. Change does not have to await their death necessarily. It could occur when they lose control. Hopefully, soon. But whether sooner or later, change is certain to come. So we're in no hurry. We can wait for five or 10 years, confident that it will happen in the end. Q: You have gradually lifted restrictions on travel and trade across the Taiwan Straits. More than 2 million people have made trips to the mainland and 17,000 mainlanders have come to Taiwan in recent years; Taiwanese investment in the PRC is now almost $2 billion, with some 2,500 companies involved; your trade with the mainland is now nearly $5 billion a year; 7 million direct dial phone calls have only met one-third of demand; 35 million letters have been exchanged and so forth. So hasn't the time now come for bold statesmanship to respond to Beijing's latest call for direct two-way economic and trade exchanges, reciprocal cooperation in technology, scientific research, advertising, transportation, long-term contracts to protect the rights and interests of business interests on both sides, and ensure the steady development of economic and trade ties over The Washington Times, July 10, 1991 the long run? A: It's clear that what is most important to the mainland authorities is to establish a dialogue with us leading to official contacts, baiting the trap of negotiations. The PRC knows full well this is a non-starter under present circumstances. They seek unification of the two sides, without any concessions, which means swallow us, slice by slice. Their latest proposals are the same merchandise, repackaged, designed to lure us with an optical illusion. They simply want to increase economic activity with us, officially instead of unofficially. This was the purpose of their latest five so-called principles. Our way of dealing with this is rather simple. At the end of April, we announced we were ending the "Period of Mobilization for the Suppression of Communism," which had been the law for 40 years. This means we do not want confrontation but peaceful change on the mainland, which would mean the mainland emulating Taiwan, which is what has been happening all over the world, except in the PRC. Until they are ready, we will continue to strengthen ourselves with domestic political reforms, which means more democratization of all our institutions. We also need a peaceful environment for our six-year, $300 billion economic development plan, which will raise per capita income from $8,000 to $14,000, The Washington Times, July 10, 1991 double our GNP, with emphasis on the quality of life and the environment. So you can understand why we emphasize peace between the two sides of the Taiwan Straits. This will allow more people-to-people exchanges. Hundreds of our journalists have been over there, and theirs are now free to come here to see for themselves. Some are coming soon. All we seek is the understanding in mainland China that we hold the keys to their freedom and economic development. This is why we refuse any direct negotiation, which would be nothing but a snare and a delusion. Our "Taiwan experience," as we call it, will not be bargained away. Q: So what are the guidelines for unification? A: Reciprocal, reasonable, peaceful change between mainland China and Taiwan. A unified China under the kind of freedom and democracy that is sweeping the world, which includes equitable distribution of wealth. We want people in the mainland to know as much as possible about our Taiwan experience and hope, in the end, they could also share and enjoy it. As you've indicated, millions of our people have visited the PRC, and I'm sure you won't be surprised when I tell you that very few decided to stay there. But if we didn't have strict controls, we would be swamped by at least 100 million (out of 1.1 billion) people. The more the mainlanders know about us, the more pressure The Washington Times, July 10, 1991 they will put on their totalitarian rulers for reform. Q: I still don't understand why you refuse to go to the negotiating table with Beijing. A total of $78 billion in reserves surely gives you the upper hand, the bargaining strength. A: I have made it quite clear they must first give up their insistence on "one country, two systems," and renounce the use of force. We are not another Hong Kong. As long as they insist on treating us as a mere local government and bully us with the threat of military intervention, as they did again when they marked the 70th anniversary of the Chinese Communist Party, there will be no direct talks. We will proceed at our own pace with three phases toward unification - first, exchanges and reciprocity; secondly, mutual trust and cooperation; thirdly, consultation and unification. It is now proceeding by osmosis, not by edict. We are one country, two areas, two political entities, a pragmatic characterization of the current situation. Q: After 45 years of reporting on world events, it is hard to escape the conclusion that statesmen who have applied shock therapy have solved seemingly insoluble problems - for example, President De Gaulle and the way he ended the eight-year war in Algeria; President Sadat, when he expelled 18,000 Soviet advisers in 1972, went to war in '73 to trigger the oil embargo to change the The Washington Times, July 10, 1991 balance of power in the Middle East and bring about a final peace treaty with Israel; President Gorbachev; President de Klerk of South Africa; President Bush with his 28-nation coalition in the Gulf - and so forth. With history on fast forward in your direction, why should the Republic of China (Taiwan) appear to be on the defensive? Your 22 million people outproduce the entire PRC, which has made you the world's 13th largest trading nation. A: A very important question. But what is most important to us is our own internal democratic reforms. Nothing has a higher priority. Elections in December, further democratization, constitutional amendments will strengthen our democracy and leave the mainland no alternative than to deal with us as a democratic system that is here to stay and that cannot be changed by force. I understand fully the historical parallels you have drawn, but they were specifically directed, each in a different environment. Sadat had to sign a peace treaty with Israel because he no longer wanted to be watchdog for the Arab world and concluded that internal development and democratization were more important. When we are fully successful in our democratization, dealing with mainland China will be seen by the whole world in a totally different light. We will also be in a more powerful position. The Washington Times, July 10, 1991 The Chinese communists have spared no effort to isolate us internationally. But we remain confident that the tide is now ebbing. The whole world deals with us, one way or the other, as the economic giant we have worked so hard to become. As long as we are a powerful and viable actor on the international stage, mainland China is bound to fail to isolate us. Your perspective, as explained in your question, is strictly from an international viewpoint. My own takes into account both international and domestic considerations. That's where we differ. After we have strengthened our own democracy, we will be ready to consider other important moves vis-a-vis the mainland. Q: So you see no need for dramatic moves with history on fast forward in order to stay ahead of the curve? A: I announced the end of the "Period of Mobilization for the Suppression of Communism." This is critically important because it is part of a chain reaction that we need to reconstruct our domestic political system. It has already affected the relationship between both sides of the Taiwan Straits. Communist China is no longer regarded by us as an illegal rebel, and all that. The Washington Times, July 10, 1991 This is the beginning of a new phase of our relationship with mainland China, and although this is unrelated to our own democratization, it is nonetheless true to say that our domestic reforms have a higher priority than improving our relationship with the mainland at this point in time. But the end of our state of mobilization against the communist regime does indeed imply constitutional amendments, which our National Assembly will work on after next December's elections. Q: Two separate tracks, then? A: Not necessarily. We're on a fast-forward track like the rest of the world. I'm simply saying that the sooner we successfully complete constitutional reform, the sooner we will be able to deal with mainland China. Q: You say there is nothing new in the PRC's five suggestions of July 2. But their minister of foreign trade did call for long-term contracts to protect the rights and interests of both sides and ensure the steady development of economic and trade ties over the long run and so forth. Shouldn't the Straits Exchange Foundation, the private organization set up by your government which now has a delegation on the mainland, at least explore what the PRC now has in mind? The Washington Times, July 10, 1991 A: There are several problems with the mainland's five so-called "new principles." First, they're not new. We already have, as you pointed out, not 2,500, but 3,000 Taiwanese companies that operate on the mainland. Their main concern is whether they make a profit or not. Most of our companies at this time are not encountering too many problems with their activities on the mainland or between here and there. So these topics are not relevant for the time being. It is true we do not have direct communications by air or sea with the mainland, and the principles would, therefore, promote the possibility of doing so in the future. And this is what Beijing really wants. But we are a country of laws and are actually debating in our legislative branch a law that would regulate our commercial and other relations with mainland China. This should go into effect before the end of the year. This, in turn, would allow us to proceed legally on that basis to deal with our relationship with mainland China. When all is said and done, we cannot consider the PRC a foreign entity. But we do need, in a country of laws such as ours, a special law to govern that special relationship. Q: Nevertheless, we are living in an age when adversaries, former enemies, are talking, negotiating, dealing. That's how Germany was reunified, on The Washington Times, July 10, 1991 Western terms, so quickly. Even North Korea is moving toward a summit with South Korea. Doesn't it hurt your image as a country when you say, "We refuse to respond, we refuse to talk?" A: You're quite right when you suggest that if I were to move to the negotiating table with mainland China I would achieve instant fame. But I wouldn't want that kind of fame, as it would damage our national interest. It would only be personal grandstanding. Our own house first. And no direct talks until they give up force as an option and stop treating us as a local government under their sovereignty. When these two conditions are met, there will be a totally different situation, conducive to direct talks. Deep in my heart, I really couldn't care less about international fame, headlines and the rest of what is frequently mistaken for real, tangible progress. What we have achieved on the road to real democracy is far more important and has gained us a more positive image among democracies the world over. And our refusal to move into a negotiating trap under present circumstances is fully understood. We are not in a contest for dramatic headlines. The Washington Times, July 10, 1991 As for your comparison with South Korea, you should remember that it enjoys a special relationship with the United States and is under a U.S. defense umbrella. Also with Japan. And President Roh Tae-woo has now obtained the endorsement and support of the Soviet Union. South Korea's economic leverage has been used to get mainland China to influence North Korea toward concessions and accommodation. Alas, we don't have such a formidable combination of forces supporting our own democratic efforts. If we went to the table with the mainland now, without strengthening ourselves further first, they would most probably swallow us live. Our democratic free enterprise system will prevail on the mainland. It is simply a matter of time. Communism is just as alien to Chinese as to Russians or Americans. Q: Your opposition party, the Democratic Progressive Party, seems to lean toward a unilateral declaration of independence. A: We are firmly opposed. Where we are headed is where the mainland is going, ineluctably. All the tired old guard in Beijing can do is slow down the evolution. This, of course, requires better economic linkage across the Taiwan Straits. So while we're not going to the negotiating table, economic and trade links are proceeding apace. I will never forget mainland China. The Washington Times, July 10, 1991 You mentioned Sadat. When he took over from Nasser in October 1970, he complained to his wife about constant insomnia. He kept pacing his bedroom, which, of course, disturbed his better half. "What's your problem?" she inquired. "There are so many things bothering me about what happened under Nasser for almost 20 years," he replied. "Forget Nasser," she advised, "and set your own course. Just think about the future." That's what I'm doing. No sense dwelling on the past. A better path to the future for China is our new course. GRAPHIC: Photo, NO CAPTION ; Photo, Republic of China President Lee Teng-hui announces the formal end to the confrontation with the mainland April 30., By AP LANGUAGE: ENGLISH LEVEL 1 - 14 OF 19 STORIES Copyright 1991 Federal Information Systems Corporation Federal News Service JUNE 26, 1991, WEDNESDAY SECTION: STATE DEPARTMENT BRIEFING LENGTH: 1083 words HEADLINE: PRESS STAKEOUT WITH SECRETARY OF STATE JAMES BAKER AND REPRESENTATIVE JERRY LEWIS (R-CA) FOLLOWING HOUSE REPUBLICAN CONFERENCE MEETING CAPITOL HILL WASHINGTON, DC BODY: Q Mr. Secretary, could you spare us one second? SEC. BAKER: I've got a meeting with -- Q If we could get you for just one second. SEC. BAKER: I have a meeting with the President at 10:15. Federal News Service, JUNE 26, 1991 Q Right. Well, if you could -- SEC. BAKER: One question. Q Okay, first -- well, how about on China and on Iraq. What -- did you persuade any on China? And what's the latest on Iraq? Is the US upset because you couldn't get in to inspect the nuclear weapons? SEC. BAKER: Well, we think that there has to be full compliance with the United Nations resolutions, just as we argued between August the 2nd and January the 15th. And we're sorely disappointed when we see that there has not been compliance with the United Nations resolutions. On China MFN, I explained why it is very much not in the interests of the United States to not extend MFN for China. It is very counterproductive and the people that are hurt when we cut off MFN for China are those people in China who want to move China toward reform and toward free markets. Q Are you concerned about Chinese missile sales to Iran, Mr. Secretary? Q Did you persuade anyone? Did you change any minds? (No response from the Secretary as he leaves the stakeout.) Q Mr. Lewis? Mr. Lewis? REP. LEWIS: You don't need me. Q Yes we would. Step right up to the microphones. Did he change minds? REP. LEWIS: Well, we had a very healthy exchange in the conference. There's not any question that there was a great deal of expression of concern about Federal News Service, JUNE 26, 1991 China's policies and the lack of movement in the policy. But there is not a single view in that room. There are members who are very concerned about the impact and potential value of increased trade with China, not just economically but in terms of moving that country in the right direction. The Secretary has a tough sale to make, but indeed he began that today effectively in the conference. I think some people were moved. There are others who were not. Q But do you think that there's any chance in the world the administration is going to get enough votes at all on the China policy? REP. LEWIS: I remember one of my colleagues saying there wasn't a chance in the world a couple of years ago. So the answer is, yes, there is a chance in the world. Q Do you think it's ironic that the Republican party, or the Republican members of Congress are perhaps softer on China than some of the Democrats? REP. LEWIS: I don't see any irony in this. When we leave the shore line theoretically partisan politics is set aside. Clearly, Republicans and Democrats are concerned about engergizing and trying to expand freedom in the world. So, indeed, we're going to hear dialogue of that kind from both sides of the aisle. The Secretary is trying to strongly communicate his view that the best way to influence China in the direction of improved policy is to have contact and increased trade. That's a tough sale in the Congress but, indeed, he's begun very effectively trying to make that sale today. Federal News Service, JUNE 26, 1991 Q Has he sold you on that? REP. LEWIS: I'm still open on the issue. I voted with the administration in the past. So far I haven't been convinced I should do otherwise. Q Did he actually change any minds in this meeting? REP. LEWIS: Well I haven't checked the minds yet, so -- (laughter). Q But what was your sense? REP. LEWIS: There were members who rose expressing grave concern about our walking away from China. There were members who rose and expressed grave concern about what appears to be intransigency in terms of the communist mindset. So indeed, there was view across the board, and the Secretary knew that when he came here. It was a very healthy exchange. Q Is anti-communism a thing of the past? REP. LEWIS: Well, communism is probably a thing of the past, it would appear. I mean the revolution that's on the move today is a thing called freedom and democracy. Q What about in China? REP. LEWIS: China one step at a time. But they walk slower than I do. Q What do you make of Li Peng's comments, the rather accusatory comments yesterday about how they would retaliate if we don't extend them MFN. Don't you think that's a bit arrogant, or -- REP. LEWIS: Well, one of the things that we do not try to do is to develop our views on the foreign policy or even a person like Li Peng relative to a Federal News Service, JUNE 26, 1991 headline in the local newspaper. I, frankly, haven't seen his statement yet. I know that the members are concerned about that, but, indeed, that's a part of the dialogue, the rain dance that often takes place in foreign affairs. I think it's really important that all of our members, Democrats and Republicans, remember that old line that we should be very careful about 435 secretaries of State. Q Did you have anyone rising up to echo the Secretary's point of view or was it all anti? REP. LEWIS: We did. No, it was not all anti. We had views expressed on both sides. There are people who are supportive of the Secretary's position, as there have been in the past. There were those who expressed serious concern as well. Q Was there any discussion about lifting South African sanctions? REP. LEWIS: Yes, there was discussion. I must say that the dialogue emphasized the China question, but the Secretary did explain that South Africa's change of circumstance has got people rethinking our relations there. They still have grave concerns. But I must say much of the dialogue flowed around China rather than other ways. Q Was there any other issue besides China and South Africa -- REP. LEWIS: People expressed a lot of concern about what's going on Eastern Europe -- Czechoslovakia, Yugoslavia, et cetera. So -- Q Iraq? Federal News Service, JUNE 26, 1991 REP. LEWIS: Iraq was raised as well -- the questions that were in the media today one more time raised some questions. The emphasis was China because of that vote being in the near term after the recess. But, indeed, I think our members are most impressed of the fact that under this Secretary of State and this President suddenly we're talking about this new world revolution that involves democracy. So it's a different circumstance. We're talking about how can we move Europe -- places like Yugoslavia -- further; and we're talking about the opportunity for extending and preserving freedom not authoritarian systems. So I think there's a lot of positive encouragement within our conference, but grave concern about China, of course. Thank you. Q Thank you. LANGUAGE: ENGLISH LEVEL 1 - 15 OF 19 STORIES Copyright 1991 Sentinel Communications Co. Orlando Sentinel Tribune May 28, 1991 Tuesday, 3 STAR SECTION: A SECTION; Pg. A1 LENGTH: 813 words HEADLINE: BUSH'S CHINA TRADE DEAL DRAWS LAWMAKER PROTEST BYLINE: Knight-ridder Newspapers DATELINE: NEW HAVEN, CONN. BODY: President Bush said Monday he will extend special trade preferences to Beijing for another year, saying "it is wrong to isolate China if we hope to influence China." But at the same time, administration officials said Bush would curb high-technology exports to China in retaliation for Beijing's policy of Orlando Sentinel Tribune, May 28, 1991 providing long-range missiles to Pakistan. The move also appeared aimed at softening expected congressional opposition to Bush's trade decision. Senate Democratic Leader George Mitchell, D-Maine, immediately denounced Bush's trade decision and vowed to lead a fight in Congress to block it. In his first major address on China since the Tiananmen Square massacre of pro-democracy demonstrators almost two years ago, Bush said he will extend Most Favored Nation trading status to China without new restrictions. This would continue to guarantee the lowest possible tariffs on Chinese goods entering the United States. The move had been expected since the president said two weeks ago that he wanted to renew China's favorable tariff treatment. "If we pursue a policy that cultivates contacts with the Chinese people, promotes commerce to our benefit, we can help create a climate for democratic change," Bush said in a commencement address at Yale University, where he received his bachelor of arts degree in 1948. Orlando Sentinel Tribune, May 28, 1991 A tough battle on the trade preferences - due to expire July 3 - is expected on Capitol Hill. Lawmakers concerned over Chinese human rights violations are certain to try to block the extension of trade privileges. Bush is expected to submit the extension to Congress later this week. It automatically will go into effect unless both houses reject it within 90 days. In a bid to soften the opposition, the administration announced new sanctions against the Chinese aimed at curbing nuclear and conventional arms proliferation. The sanctions include a ban on U.S. sales of high-speed and super computers to China that will prevent $30 million in pending sales and a ban on sales of U.S. satellite launch equipment that could block some seven proposed satellite launches through 1994, a senior administration official said. Mitchell, who was leading a Memorial Day parade in Portland, Maine, called the sanctions "a joke" and "a fig leaf." Orlando Sentinel Tribune, May 28, 1991 "What is especially offensive about the president's statement is that he seeks to clothe what is an immoral policy in moral terms," said Mitchell, who has introduced legislation to sharply restrict trade preferences for China until the Chinese demonstrate an improved human rights record. "The most compelling reason to renew MFN (Most Favored Nation trade benefits) and remain engaged in China is not economic, not strategic, but moral," Bush said after receiving an honorary Doctor of Laws degree at Yale's 290th commencement ceremony. "It is right to export the ideals of freedom and democracy to China. . . . It is wrong to isolate China if we hope to influence China, " Bush said in a 20-minute speech interrupted by sporadic protests, boos and hisses from the 2,850 degree recipients. "This moral dimension of American policy requires us to remain active, engaged in the world. Many times, that means trying to chart a moral course through a world of lesser evils," said Bush, who was U.S. envoy to China in 1974-75. In a document distributed to reporters, the administration contended that a trade war with China would hurt U.S. business and consumers and would have a Orlando Sentinel Tribune, May 28, 1991 devastating impact on Hong Kong's economy. U.S. exports to China last year totaled $4.8 billion and imports of Chinese goods totaled $15.2 billion. U.S. sanctions stemming from the June 3-4, 1989, Tiananmen Square confrontations remain in place even after most other Western governments have lifted their sanctions, the document said. By preserving elements of U.S.-China relations, the United States has received an accounting of the 1,804 people detained by Chinese authorities since Tiananmen Square, the document said. Bush made no mention of domestic issues in his Yale address but the local paper in a front page "open letter" to Bush set out the urban ills of crime, poverty and homelessness that afflict the town where Yale is located. "You, President Bush, could do a lot to turn things around here," the New Haven Register said Monday. Many students pasted large stickers on their black mortarboard graduation caps listing the domestic areas where they believe Bush has failed, including environment, education, civil rights, gay rights and abortion policy. Orlando Sentinel Tribune, May 28, 1991 Bush sidestepped these issues and another festering controversy, that of admitting women to Yale's most secret society, Skull and Bones. Alumni Bonesmen - Bush is one of them - were rumored to be voting Monday on whether to open Skull and Bones to women. But there was no evidence that Bush participated in the society's secret deliberations. GRAPHIC: PHOTO: Yale President Benno Schmidt Jr. waves cap and papers while walking with Bush. ASSOCIATED PRESS; BOX: What's ahead; CHINA'S TRADING privileges expire July 3. President Bush's action will take immediate effect unless both houses of Congress approve measures to reverse it or attach conditions to it. LANGUAGE: ENGLISH LOAD-DATE: May 24, 1993 LEVEL 1 - 16 OF 19 STORIES Copyright 1990 American Political Network, Inc. The Hotline July 9, 1990 SECTION: TV MONITOR LENGTH: 1360 words BODY: For S&Ls, see #12; For Atwater, see #13 THIS MORNING: All networks reported on the bill passed by both houses of the LA legislature last night that would ban abortion in all cases except for rape, incest and threat to the mother's life. (See Hotspots, #14) State Sen. John Saunders: "The foremost prinicple must be to prevent abortion as much as we can. The other option is gone." LA Planned Parenthood's Terri Bartlett: "We have just ... gone from the most restrictive abortion legislation offered in the United States to probably the most absurd. The only thing that matches it is the mockery of the process in which it was passed" (ABC). State Rep. Louis Jenkins (D), the bill's sponsor: "It is my hope and fervent (c) 1990 The Hotline, July 9, 1990 prayer that that legislation will be used to test the continued validity of Roe vs. Wade" (CBS). CBS' Erin Hayes: "Critics insist it will not hold up in court." All networks noted it passed with enough votes to override a veto. All networks looked at the upcoming economic summit. Treasury Sec. Nicholas Brady was interviewed on NBC. White House CoS John Sununu was on ABC. ECONOMIC SUMMIT IN HOUSTON: NBC: "You know, it is George Bush's hometown ... but he stands to get upstaged at his own show by other leaders here. That's because money talks at economic summits and budget deficits limit the U.S.'s ability to spend ... that will make it tough for President Bush to get his way on key issues here" (Irving Levine, 7/8). ABC, saying there's more at stake in the U.S./Japan relationship than the U.S./U.S.S.R. relationship, agreed: "The United States entered the 1980s the world's largest creditor nation; Japan now has that role, while the U.S. has become the largest debtor. That dramatic change is one reason the seven leaders in Houston disagree on a number of critical issues" (Forrest Sawyer, 7/8). CBS' Ray Brady also pointed out Japan is the world's top creditor nation, adding, "Few leaders at this summit are willing to fall in behind a debtor nation that must borrow $10 billion a month just to keep in the running" (7/8). (c) 1990 The Hotline, July 9, 1990 THIS WEEKEND: "Meet the Press" hosted Fang Lizhi, "Brinkley" and "Evans & Novak" hosted Sec. of State Jim Baker, and "Face the Nation" hosted Sec. of Defense Dick Cheney, McLaughlin's "One on One" hosted Robert Bork, "Newsmaker Sunday" hosted NSA Brent Scowcroft, "Newsmaker Saturday" hosted WH CoS John Sununu, "Business World" hosted Treasury Sec. Nicholas Brady (7/7-8). CBS 7/6 lead: Fang Lizhi. NBC and ABC 7/6 lead: NATO. NBC interviewed England's Margaret Thatcher (7/6). NBC 7/7 lead: LA's abortion vote. 7/6's "Crossfire" hosted San Francisco Mayor Art Agnos to debate homelessness and housing. ABC and CBS reported Agnos told homeless people to get off the streets because its safer in the shelters. ABC: "It is not yet clear whether the crackdown, which was ordered by the mayor, will contribute to the solution or to the problem" (Jennings, 7/6). CHINA: Fang Lizhi "criticized president Bush, and called on President Bush to step up sanctions against Beijing's hard line Communist regime" (Rather, CBS, 7/6). Fang: "First I say thanks for his hospitality the past year. Of course, we want to say he should be concerned with the human rights situation in China ... use something special, sanctions ... to push China to go to more freedom, more democracy" (CBS, 7/6). Asked by CBS' Tom Fenton if Bush is using "the same standards" of human rights with China as (c) 1990 The Hotline, July 9, 1990 he uses with the Soviet Union, Fang responded, "Sometimes we call as such the double standard, but this is a very common problem" (CBS, 7/6). Bush was then shown saying, "I thought he wanted to stay out of the public eye, I thought he himself said so" (NBC, CBS). CBS' Bill Plante: "The President seemed surprised and annoyed." NBC's Brokaw asked Fang if there was a "double standard": "Yeah, I think without doubt there is still some double standard there." TAX BITES: CBS, in an intro to a piece on higher state taxes: "It appears higher federal taxes are on the way, now that President Bush has kissed off his famous election campaign pledge; partly due to federal policy over the last ten years, for millions of Americans higher state taxes are already here" (Rather, 7/6). CBS' Richard Roth reported state taxes last year went up about $3.5 billion (mostly hikes in gasoline, tobacco, and alcohol taxes) and for the next fiscal year estimates are they will increase about $10 billion (with the addition of income and sales taxes). Roth: "Mostly because of cuts in federal aid, state officials say they've been pinned to the mat." NJ Gov. Jim Florio: "There are two ways you can deal with (a) deficit, one is cut expenses and the other is raise revenue. We did both" (7/6). SHOW STOPPERS: "Capital Gang" outrages ... Pat Buchanan, on (c) 1990 The Hotline, July 9, 1990 NC Dem Senate candidate Harvey Gantt, in response to Al Hunt's accusation last week that Jesse Helms was taking the "low road" by accusing Gantt in fundraising letters of being the candidate of the homosexual lobby: "Guess what, Al, Gantt is the candidate of the homosexual lobby. He asked for and got a $5,000 maximum contribution from the gay and lesbian political committee ... Gantt openly welcomes the support of the gay and lesbian organized community." Al Hunt's: "The efforts of Farrakhan and Stallings to politicize (Barry's) trial is an outrage; it would have been even more outrageous to play into their hands by making them martyrs." "Off the Record": Ken Walker's backpager was Effi Barry "on her way out ... I think Barry's about to lose a wife." Bob Beckel's star was Jimmy Carter, for receiving the Liberty Medal in Philadelphia. Mona Charen's goat was Bush, for backing down from dinner with released Chinese dissident Fang Lizhi: "If he can meet with Nelson Mandela, he can meet with Fang Lizhi." Tony Snow's goat was NY Dem Gov. Mario Cuomo, "who has already committed himself on one of the pivotal issues of the '92 presidential campaign," dwarf tossing and dwarf bowling." Bob Beckel's goat: "Molly Yard, President of NOW, who has again talked about a third party, which obviously would hurt Democrats; all the Democratic Party has done is stand behind women's rights. (c) 1990 The Hotline, July 9, 1990 I say Molly Yard, go, get out of here" (7/7). LANGUAGE: ENGLISH LOAD-DATE: 11/13/90 LEVEL 1 - 17 OF 19 STORIES Copyright 1990 Federal Information Systems Corporation Federal News Service JUNE 19, 1990, TUESDAY SECTION: COMMERCE & TRADE LENGTH: 13203 words HEADLINE: CB HEARING OF THE SUBCOMMITTEE ON TRADE OF THE HOUSE WAYS AND MEANS COMMITTEE SUBJECT: UNITED STATES-PEOPLE'S REPUBLIC OF CHINA TRADE RELATIONS, INCLUDING MOST-FAVORED-NATION TRADE STATUS FOR THE PRC CHAIRED BY: REPRESENTATIVE SAM GIBBONS (D-FL) WITNESSES: STEVEN A. MCCOY, PRESIDENT NORTH AMERICAN EXPORT GRAIN ASSOCIATION, INC. ROGER W. SULLIVAN, PRESIDENT THE UNITED STATES-CHINA BUSINESS COUNCIL JOHN T. KAMM, PRESIDENT THE AMERICAN CHAMBER OF COMMERCE IN HONG KONG Federal News Service, JUNE 19, 1990 DOUGLAS R. HANSON, VICE PRESIDENT ASIA-PACIFIC/CANADA 3M COMPANY ON BEHALF OF THE EMERGENCY COMMITTEE FOR AMERICAN TRADE FERMIN CUZA, MEMBER, BOARD OF DIRECTORS AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS ASSISTANT TREASURER, FOREIGN TRADE SERVICES, MATT BODY: REP. GIBBONS: Let's go to our next set of witnesses now. [From] North American Export Grain Association, Mr. McCoy; [from] United States-China Business Council, Mr. Sullivan; [from] the American Chamber of Commerce in Hong Kong, Mr. Kamm. By the way, Mr. Kamm flew here from Hong Kong just specifically for this testimony. [From] the Emergency Committee for American Trade, Mr. Hanson; and [from] the American Association of Exporters and Importers, Mr. Cuza. Mr. McCoy, you're the first, and you just go right ahead. MR. MCCOY: Mr. Chairman, thank you very much. I'm happy for the opportunity to appear before the committee. I've got to confess I think that the testimony's already been very ably introduced into debate here, and I'll attempt to -- REP. GIBBONS: That doesn't stop you from going ahead and stating your case. Go right ahead. Federal News Service, JUNE 19, 1990 MR. MCCOY: No, I would be happy to engage in that dialogue. I'll summarize my statement briefly and perhaps get into some of the issues that were raised previously. REP. GIBBONS: As you know, Mr. McCoy, all statements are going to appear in the record, so go right ahead. MR. MCCOY: Thank you, Mr. Chairman. I would also like to, Mr. Chairman, if you could introduce into the record an article that appeared in today's Journal of Commerce entitled "China Grain Imports Likely to Continue at Brisk Pace," which is an indication of the problems that the Chinese government is having in terms of domestic agricultural production. REP. GIBBONS: Without objection we will include that. MR. MCCOY: The North American Export Grain Association is pleased to join here with the other voices who have come together today to express support for extension of Most Favored Nation trade status to the Soviet Union. My Association represents US grain exporting companies and cooperatives. Few issues that the Congress will address this year will have as immediate and direct an impact on US agriculture as the issue that the committee has before it today. The People's Republic of China represents this country's current leading market for wheat, with sales in excess of $1 billion -- in 1989, nearly 20 percent of all US wheat exported last year. In addition, total US agricultural exports totalled -- of wheat, cotton, corn, forestry, and tobacco products -- amount to -- amounted to $1.5 billion in 1989 and related exports of Federal News Service, JUNE 19, 1990 fertilizer and paper for an additional $575 million. So, as you can see, this is a matter of tremendous, immediate importance to US agriculture. These agricultural exports have traditionally been among the leading trade categories in our trade with the Soviet Union. And it is our view that these exports would be imperilled and could be lost altogether if MFN status is denied to the PRC. Again, it's our contention that PRC retaliation in the event of a denial of MFN status should not be considered a matter in doubt. A retaliation against US exports will almost certainly and immediately follow denial of MFN status. Past PRC retaliation against the US and major bilateral trade disputes in the mid-80s and in the mid-70s have been directed against US farm exports. As previously indicated, US farm exports comprise the current largest single category in our trade with the PRC, so, consequently, these sales present the most substantial and likely target of retaliation by the PRC in response to any action which the US might take to disadvantage or damage PRC commerce in the US market. The Committee should understand and the members who are trying to grapple with agriculture's concerns in this matter should understand, that the PRC market represents one of American agriculture's best future long-term growth potential markets in the world. The PRC share of the world's gross national product has grown rapidly in recent years. It's share of world population -- total world population, alone, makes it a matter of vital concern for US agriculture. The Federal News Service, JUNE 19, 1990 dual impact of rising income and population in the PRC has the potential to substantially fuel demand for US agricultural commodities and products well into the next century, which is a matter I think that is well addressed in the article today. The US share of this growing market would be arrested and could be extinguished altogether if normal bilateral trade is disrupted by denial of MFN status. The result of denial of MFN status would be to offer up this agricultural market, this prime agricultural market, to our trade competition internationally, namely the European community countries, Australia, Canada, Argentina, and any other agricultural exporting nation. Now, advocates of denial of MFN have to understand that -- that from the position of US agriculture, that this is not a risk free, cost free action. We expect serious penalties. And indeed we do believe that denial of MFN status would be tantamount to the imposition of a de facto trade embargo against US exports. This isn't a matter of faith on our part, it's a matter of practical experience. We've gone through this scenario with the Chinese before, the Chinese are very sensitive about interference in their domestic affairs. You see it in the reaction of the Chinese government, they have no problems with taking retaliation in the form of trade. So, whether for ill or for good, it's a matter that the committee's going to have to consider in making -- in coming to terms with a decision regarding this issue. Federal News Service, JUNE 19, 1990 To understand the emotional aspect of this thing, I think, again, the members of the committee have to understand that agriculture has a bitter memory and legacy as far as grain embargoes go. And as Mr. Anthony said, this is a matter that is engrained in people operating in agriculture, in the farm belt, in industries affected by agriculture. The agricultural industry of the United States has to compete internationally in order to survive. Consequently, any action taken by government or by anyone else that would threaten our ability to compete in international markets is a threat to the survival of US agriculture. And it's -- again, this is one of the facts that we have to deal with in terms of this debate, whether for good or ill. Now, in concluding here, just briefly to touch on the issue of whether or not MFN status should be used as a tool to achieve foreign policy, we believe that it shouldn't. We believe that the -- that the commercial interests of the United States and the greater interests of the United States should work together to the greater benefit of both. We have a national commitment here to expand the US participation in international trade, to achieve the benefits of international trade. This committee has been very actively involved in the process of GATT reform that, well, is tending in that direction. It's debated Most Favored Nation status for the Soviet Union, again, an issue in this area. So, certainly, human rights are important considerations in any policy of the United States. And the United States has a great record and legacy in that area, but it's important also that the committee recognize that it has a Federal News Service, JUNE 19, 1990 responsibility to maintain the viability of US commerce in the international arena. Thank you, Mr. Chairman. REP. GIBBONS: (Off mike.) MR. SULLIVAN: Thank you, Mr. Chairman. I'd just like to -- (coughs) -- just like to say before I begin that I was struck by the fact that we seem to be dividing the world into the principled and the mercantilists this morning. And I'd just like to say I find it peculiar that those who want to follow a self-defeating and impractial course somehow get considered to be principled, while those who question whether restricting trade would even work or whether it would make matters worse, are dismissed as mercantilists. I submit that this tells us more about the -- about the moral illiteracy of American society than it tells us about the world of moral decisionmaking. But I would concede that this is a very difficult moral issue; I'm not dismissing the human rights aspect of this at all. I would not assert that sanctions never work, but I don't concede that sanctions always work. I think that you have to ask the question in each case, Is it going to work? What's it going to cost? Who's going to be hurt? And is it worth the cost? I think we've detailed in my statement the rather considerable cost -- the collateral damage as I called it -- to this drastic step of moving China from column A to column B. The -- I think anyone in business, anyone in agriculture, can supplement what I've said about the costs. And I know Mr. Kamm will go Federal News Service, JUNE 19, 1990 into great detail about the cost to Hong Kong. The -- We're not talking about a slight variation in the tariff schedule; we're talking about something very serious here. But the question is: Is it worth it? And that depends on what our policy goal is. I realize the frustration. I agree that we had not responded adequately to Tiananmen. And MFN comes along as the convenient stick to use. But before we pick it up and use it we have to ask, "Is it worth it?" If our aim is simply to express our outrage at what happened at Tiananmen, then I personally feel it's not worth it and I would hope Congress would agree. I think probably most people would agree, when they think about it, that it's a terrible cost to pay just to stamp our foot and express our outrage. But the more serious question is, "Will it bring about change in China's policies or bring about perhaps a change in the Chinese government?" That, I think, is the fundamental question. I say in my statement that I think the burden of proof that it would have that effect really ought to rest on those who advocate, again, taking a step that would injure so many innocent people. But nevertheless, I think I -- I would be prepared to say that I'm quite confident that it would not have that effect. We have -- we have to consider a number of things here. One is the history of China. The Chinese sanctions may work against some countries. We've seen some countries where we think they've worked. We had some mentioned this morning. In the case of China, the sanctions have never worked. We tried it in the Federal News Service, JUNE 19, 1990 '50s and all we got was 25 years of hostility. The Russians tried it with a much more severe sanction in the late '50s, and they got nothing but 25 or 30 years of anti-Soviet policy. But worse than that, it gave the Chinese regime the chance to rally the Chinese around this Chinese myth that everybody in China learns from his mother's knee; and that is that China has suffered a hundred years of humiliation at the hands of outside forces. I thought it was very interesting that when the Chinese closed down Tiananmen Square they didn't say -- just the last few weeks -- they weren't closing it down because of the demonstrations last year. They said they were closing it down in commemoration of the anniversary of the Opium War. And that is a very Chinese way of conveying to everybody out in the Chinese public that what the Chinese government is telling them they are facing is another attempt by the white Europeans and Americans to open them up by force and to force them to change their policy. And all we're going to do is give the Chinese government a rallying cry around which to gain a support from their people on nationalistic grounds that they lost by their suppression over the last year. I would go beyond that, though, and say that I think removal of MFN would not just not work. I think it would actually make matters considerably worse. I mentioned in the statement the destruction of this entrepreneurial sector that has developed in China under the reform. Congresswoman Pelosi mentioned that the Chinese government after Tiananmen changed its policies, has tried to Federal News Service, JUNE 19, 1990 bring all that under control, tried to stamp it out. The operative word here is "try". That's their policy; they haven't succeeded. These people have been very successful so far in dragging their feet and resisting it. So, as I mentioned in the statement, there were 20 million of these enterprises in China as of last -- of May 1988. These people were -- started out in the rural areas of China as a make work operation. They ended up producing more in the rural areas than the whole agricultural production of the rural areas. And something like 28 percent of China's total industrial product. And there were 20 million of those a year ago. Li Peng and his friends have managed to shut down somewhere between two [million] and four million of them -- and we're not sure how many. And removing MFN I submit is going to shut down most of the rest of them. I just don't think it makes any sense as public policy. And I just -- I'll conclude my commenting on the references to MFN with conditions. The conditions that I've heard outlined -- I'm sure others would be added to it -- would in my view -- and I think in the view of most people in the business community -- be tantamount to taking MFN away now. I mean as one company said to me, they called it the one year plant closing notice. What is the point of passing a law that says that unless China meets a whole lot of conditions that we all know they're not going to meet we'll take MFN away? All that's going to mean is that companies that have to plan their purchases and plan their investments -- thinking three, four, five years out -- they're just Federal News Service, JUNE 19, 1990 not going to do it. They're going to use the next year in order to shut down. If that's what you want to do just take it and file it away right away and let's have done with it. But the -- this is not even necessary. I'm not advocating -- I'm not advocating a policy of business as usual. As a matter of fact it was mentioned this morning we should follow a sort of incremental policy of giving China certain benefits and holding back certain ones. I submit that's what the private sector is doing right now. Investment -- foreign investment in China has been cut way back. Businesses are looking at the environment and holding back. And as -- if China improves its environment business will do more in China. If they don't improve their environment business will do less in China. So that the private sector's perfectly capable of following that kind of incremental policy. And that's the kind of policy that's going to force these people to begin to think about changing. And if it doesn't force them to change it's going to bring about pressures from people underneath them to change them or remove them. And I think my final point would be that we should not assume in discussing this issue that we're dealing either with a South Africa or with a situation that appears that it's going to go on forever and ever. Now, the distinction I'd make with South Africa is I don't think anybody every tried to make the case that trade and foreign investment is subversive of an apartheid system, but it sure as heck is subversive of a communist system. They just can't have it Federal News Service, JUNE 19, 1990 both ways. They have to make compromises with foreign business, or they're not going to -- they either choose one or the other. The other is that China -- this Chinese regime is not going to go on forever. I think almost all China experts would say that it's likely to be in power for another two, three, four years. They're all people in their 80s. They're out of touch with the world. They're out of touch with their own people. Why destroy a whole structure -- why destroy what little is left of reform in China in order to -- in order to, in a misguided view, hurry their departure from the scene. We would probably actually delay their departure from the scene. Thank you very much, Mr. Chairman. REP. GIBBONS: Our next witness is Mr. Kamm representing the Hong Kong -- American Chamber of Commerce in Hong Kong. Mr. Kamm, I know you've come a long way, so we'd be happy to hear from you. MR. KAMM: Thank you very much. Mr. Chairman, distinguished members of the committee, I do greatly appreciate the opportunity and the honor to be here today to address you on this important issue. The people of Hong Kong appreciate the concern and sympathy you are showing for our situation. It is the first time since the second world war that Hong Kong has figured prominantly in an American national policy debate. Mr. Chairman, revoking China's Most Favored Nation tariff status or imposing tough, new conditions which effectively accomplish the same thing, is equivalent to a declaration of economic war between the world's richest nation and the Federal News Service, JUNE 19, 1990 world's most populous nation. There will be no winners in such a war. No sanction is more severe, short of a trade embargo, than the imposition on a country's products of the infamously prohibitive Smoot-Hawley tariff of 1930. Before embarking on such a radical and dangerous course, it is prudent to examine the consequences for our national interests, and indeed for the entire fabric of international economic relations. Our submission to today's hearings and our submission to the hearings held by the House Foreign Affairs Committee on May 16, detail the substantial damage to Hong Kong and coastal China, the China of reform, which China's loss of MFN will engender. I invite you to study the 140 pages of testimony and accompanying exhibits. They bear grim witness to the terrible losses which the Cantonese economy will suffer. Hong Kong will be dealt a body blow to confidence and its viability will be threatened as $10 billion in trade contracts and at least 20,000 jobs disappear in the first year after Most Favored Nation is revoked. Guangdong Province, the model of economic reform and an engine of change in China, will be plunged into economic depression. One million people, mostly employed in the economy's most progressive sector, will be thrown out of work. Hardship in other coastal regions like Shanghai and Fujian will also be severe. The impact of losing Most Favored Nation will be considerably less for inland provinces, especially those with little foreign trade or those whose trade is directed to countries other than the United States. Moreover, the organs of the central government will probably suffer least of all for reasons I put forth Federal News Service, JUNE 19, 1990 in my testimony, which I will happy to expand upon in the question and answer period. Others here today have testified or will testify on the probable consequences of China's Most Favored Nation loss for American farmers, American importers and exporters and American consumers. Damage to these interests will be significant. The increased use of trade benefits as political weapons bodes ill for our country just at a time when real progress is being made in reducing our trade deficit. If Congress makes MFN conditional on a country's human rights behavior beyond the Jackson-Vanik's provisions, how many of the 178 countries presently enjoying the status would deserve to keep it? South Africa, Syria, Iraq? Should the United States grant MFN to countries branded as terrorist states? Presently, Laos does not enjoy MFN status, in large part because its government has not done enough in our eyes to combat the export of narcotics. Should other countries judged to be soft on drugs be stripped of their MFN status? Under current legislation, the President can waive the -- the MFN clause in the GATT in case a country discriminates against US products. Promoting human rights, fighting terrorism and the drug trade, and opening foreign markets to American products are all national priorities. But there must be better ways to pursue them then using MFN as a weapon. Bilateral and multilateral extension of Most Favored Nation has played a decisive role in the development of today's global economy. Taking MFN away from the world's most Federal News Service, JUNE 19, 1990 populous nation will set a dangerous precedent that will far-reaching consequences. Will revoking MFN lead to better observance of human rights and democracy for the Chinese people? The proponents of taking this step have not made convincing arguments that it will. And, in view of the damage to our own and to our friends' interests, the burden of demonstrating such gains rests with them. We believe that revoking China's preferential tariff status will not yield significant human rights dividends, nor progress towards democracy for the following reasons. First, it is a unilateral act, unsupported by any other country, taken one year after the event we seek to censor. Two, the Chinese government has, on three occasions since 1949, successfully stood up to external sanctions without modifying domestic policies. Three, China is a huge country with 30 provinces each the size of a European country. The pain which Most Favored Nation removal will cause is not evenly distributed, hurting coastal areas far more than the constituencies where China's hardliners are strongest. The damage to Hong Kong, coastal China, and overseas Chinese communities in Southeast Asia will engender resentment towards the United States and divide the opposition to the Beijing regime. Five, the state and party's propaganda apparatus will portray America as a bully and pin the blame for economic problems on US sanctions, stoking the flames of Federal News Service, JUNE 19, 1990 Chinese nationalism. And, finally, six, the state will employ administrative measures to build up foreign exchange reserves, enabling it to significantly dull the pain, as and when needed. Mr. Chairman, members of Congress, the choice is between certain loss and uncertain gain. Stripping China of MFN is the wrong weapon. It is counterproductive and sets a dangerous precedent. It hurts our friends and allies more than it hurts those we seek to punish. It is unlikely to produce human rights improvements and political reforms that we all desire. It is in our interest, in Hong Kong's interest, and in the interest of China's reformers that MFN be renewed. Thank you. REP. GIBBONS: Thank you, Mr. Kamm, for a very fine statement. Mr. Hanson? MR. HANSON: Thank you, Mr. Chairman. I appreciate being here to testify on behalf of the Emergency Committee for American Trade in support of a continuation of MFN trade status for China for another year. There's an intensifying scramble for markets throughout the world. While still a very major and formidable player, US business is under severe competitive pressure, both here at home and in the global marketplace. The United States cannot afford to ignore foreign market opportunities. While strongly recommending the continuation of MFN status for China, we are fully aware of the very sensitive moral and political issues that are involved. We in business abhor violations of human rights, and we certainly understand the moral Federal News Service, JUNE 19, 1990 outrage of those who would want to deny MFN for China. We are also aware, however, of the benefits to the citizenry of China that flow from a US business presence. There are large numbers of Chinese employed both directly and indirectly by American firms in China. Were MFN to be denied China, it would be very difficult -- and in some cases impossible -- for US firms to continue to employ them. Penalizing innocent Chinese citizens in such a manner would be a morally incorrect response to an already difficult situation in that country. Much of the business conducted by US firms in China is in the coastal provinces and cities, such as Shanghai. The denial of MFN for China would cause significant harm to these provinces, their workers, and their leaders through the shutdown or slowdown of US business operations. Pursuant to the exchange of MFN trade status by the United States and China in 1980, a number of ECAT member companies have made direct investments in China. Other companies have established a variety of other business relationships, including the development of export sales to China of several billions of dollars a year. The loss of MFN by China would obviously hurt our operations. This is because denial of MFN would result in an approximate ten-fold increase in the US tariff as well as similar increases in China tariffs. The Chinese government in most cases is the major purchaser of goods produced by US enterprises. In reaction to the denial of MFN by the United States, the Chinese government could logically be expected to switch its purpose -- purchases from US-related enterprises to those of other nationalities. Once Federal News Service, JUNE 19, 1990 this is done, it would be very hard to reverse. To a far greater degree than in a market economy, business enterprises in China depend heavily on the complete cooperation of Chinese government agencies to provide utilities and other requisites for the operation of a business. Without this cooperation and a good relationship, it is virtually impossible to do business in China. China has enormous market potential for the United States. It is important that US firms have the same opportunity as their foreign competitors to conduct business in and with China. There is every reason to believe that our Japanese, European, and other competitors would benefit through picking up the short and the long-term business lost to US firms by MFN withdrawal. Once you're out, you're out, and it is very tough to get back in. The major allies of the United States share the feelings of Americans about recent events in China. None of our allies, however, is proposing to suspend MFN trade status for China. They view such an action as contrary to their national interests, particularly their national economic interests. Unlike the United States, our allies do not invoke unilateral economic sanctions. Whenever the United States has invoked unilateral economic sanctions, they have never achieved their often intended purpose of forcing behavioral changes abroad. While the sanctions may have satisfied some as an expression of moral outrage or indignation, they have caused others to lose their jobs, and they have resulted in substantial short and long-term business losses for US firms. Federal News Service, JUNE 19, 1990 In the period immediatley following World War II, unilateral US economic sanctions might have achieved public policy purposes, since foreign purchasers have nowhere else to go but to the United States. It is hard to conceive of an instance where this would be true today. US national security increasing depends upon economic security. It is important for US global competition that US business have a continued and meaningful presence in China. Not to continue to be in on the ground floor of China's economic growth, a potential consequence of MFN denial, could cause great damage over the long term to US workers. In today's global market, the United States cannot afford to be on the sidelines. Before concluding, I would like to comment on what might be viewed as an attractive compromise for members of the Congress, and that is the concept of making the extension of MFN conditional in China, modifying its behavior in certain ways. To the extent that other conditions are added to Jackson-Vanik, additional uncertainties are created. The greater the uncertainty, the greater the possibility that US business will be forced to withdraw from China. This is clearly not in the interests of the United States, its workers and its businesses. Nor would it appear to be in the interests of those in China and elsewhere who want freedom and a degree of prosperity. We in ECAT urge your support of the continuaiton of MFN trade status for China, for we believe it to be in the national interests of the United States. Thank you much, Mr. Chairman. MR. CUZA: Good morning, Chairman and member of the subcommittee. I am the Federal News Service, JUNE 19, 1990 assistant treasurer for Foreign Trade Services of Mattel, Inc., a manufacturer and importer of toys. I am also a director of the American Association of Exporters and Importers, AAEI, and it is in that capacity that I appear here today. AAEI is a national organization comprised of 1,200 US companies. Our members export, import, distribute and manufacture the complete spectrum of products. US businesses involved in nearly all areas of international trade would be affected either directly or indirectly by the withdrawal of Most Favored Nation status for the People's Republic of China. On behalf of the significant number of AAEI members directly engaged in trade with China, AAEI strongly opposes withdrawal of MFN for China. US trade has grown tremendously in volume and complexity since the US first provided China with MFN status a decade ago. Rather than some special trade benefit, Most Favored Nation status is the cornerstone of normal commerical trading relationships with countries worldwide and is a key aspect of the bilateral trade agreement with China negotiated in 1979. The difference in duty rates between MFN and non-MFN countries in some instances is as much as from 7 to 90 percent. For the US toy industry, duty rates on toys would increase from its current 6 to 12 percent rates, all the way up to 70 percent. Removing MFN status for China would seriously damage many US firms, both exporters and importers, who depend on China trade. A recent report by the US-China Business Council estimates that without MFN status duties on 1989 Federal News Service, JUNE 19, 1990 imports from China would cost an extra $4 billion. With these phenomenal increases in cost, AAEI member firms would immediately incur significant out-of-pocket losses on merchandise already contracted for sale at a specified price but not yet delivered. If duty rates go up to Column 2 levels, they would have to absorb those increases, wiping out gross profits in most instances. Such an exorbitant increase in cost could cause dislocations both in the US market from job loss and higher inflation, and cause havoc in the international marketplace as US buyers compete for limited production capacity in other countries. Over the longer term, the cost of delays, lost time, and unavailability of alternative supply, could be even more damaging to small business than the immediate duty increases. Popular-priced textile and apparel products, like those imported from China, are not available in the US; and alternative sources of supply overseas would likely be twice the price of Chinese goods and of lesser quality, making it difficult for smaller firms to survive. For many AAEI members, denial of MFN would cut off supply for products that simply are not made elsewhere in the world at any price. China is the sole supplier for a vast amount of toys, a product category in which many US importers, retailers and workers have a very large stake. For instance, Mattel sources a significant amount of its product line from China, including such well known and popular toys as Barbie, Hot Wheels and Disney Preschool Toys. Denial of MFN for China would jeopardize the economic Federal News Service, JUNE 19, 1990 well-being of Mattel's 1,600 highly skilled workers whose jobs are related to our Chinese operations. Further, the enormous disrpution of business associated with denial of MFN would come during the toy industry's peak shipping system: Christmas 1990 would not be a merry one. Withdrawal of MFN would force discount retailers to raise prices on basic goods purchased by the lowest income consumers. For instance, a footwear member sourcing both domestically and internationally, and employing over 8,000 people, reported that the cost of Column 2 rates would simply prevent them from serving the low-income consumer with the same low priced shoes. The price increases caused by withdrawal of MFN could drastically cut the number of purchases of basic necessity consumer items and create considerable hardship for low-income consumers. China also represents a significant and very promising market for US exports, with over $6 billion worth of American goods purchased by the Chinese last year. If we remove MFN status from China, they will surely reciprocate by withdrawing MFN for American goods, a significant blow to some of our most competitive industries -- agriculture, aircraft and chemicals. And with our Western allies apparently keeping the door open for their goods to China, hard won US market share would be gone overnight. AEI couldn't agree more with USTR Carla Hills, when she recently said, "I don't think economic sanctions are ever successful." Withdrawal of MFN status and the resulting pull out of US business from China would take away the exposure to Federal News Service, JUNE 19, 1990 Western values and free market ideas, which clearly played a part in the pro-democracy demonstrations that we are trying to support. Further sanctions also are encountered through other US foreign policy interests, including the stability of the Hong Kong economy and the future of the Hong Kong people. Withdrawal of MFN status for China would devastate hundreds of companies in Hong Kong -- this has been mentioned here before -- costing Hong Kong up to 20,000 jobs. In this context the United States should not take unilateral action without the support of our major trading partners. Sanctions not universally imposed are certain to be unsuccessful. Furthermore, if the US were to impose all the sanctions available to it, we would be giving up any leverage the US might have over China. I think I speak for all Americans when I say that the events in Tiananmen Square and subsequent crackdowns should be condemned, and the US should not condone such acts by any government. However, before the US government essentially cuts off a normal commercial relationship with that country, we ask that you consider the following. Number one, in the short- and medium-term, denial of MFN treatment for China will threaten the viability of US small businesses, impose enormous costs on larger US manufacturers and retailers, lead to lost US jobs, cut off $6 billion of US exports to China, and come at the expense of US consumers least able to pay. Federal News Service, JUNE 19, 1990 Two, denial of MFN will cause havoc in the international marketplace, driving up prices both here and abroad as US firms compete for limited, more costly supplies elsewhere in the world. Three, trade sanctions imposed for foreign policy purposes have not proved effective in the past, especially if they are applied unilaterally. They will only reinforce some views that US businesses are unreliable partners. Four, as suggested by the US-China Business Council, Congress should allow US firms to make that decision, cushioning the negative impact of price increases and economic dislocation. Five, denying MFN treatment would severely injure Hong Kong and those most liberalized, free-market sectors of the Chinese economy that have developed explicitly because of trade with the West. And finally, there are many actions which this government could yet take short of a total break in trade relations implicit in denial of MFN, including those multilaterally agreed-upon sanctions already in place. Thank you, Chairman. REP. GIBBONS: And, let's see, Mr. Matsui? REP. MATSUI: Yes, thank you, Mr. Chairman. I'd like to ask perhaps just one of you a question unless others can add to it. Mr. Sullivan, in terms of other countries that have trading relations with China, do you know or are you aware of any of the other countries thinking of taking economic sanctions against the Chinese for Tiananmen? Federal News Service, JUNE 19, 1990 MR. SULLIVAN: No, there are none, Mr. Matsui. And I think the United States is really the only country among the developed countries of the world that thinks of trade as a weapon in the conduct of foreign -- REP. MATSUI: Okay. In other words, you have not -- and maybe I can ask all five of you -- of any other countries -- in all of your discussions and whatnot with your counterparts in other countries heard that any of the countries that do trade with China at this time are thinking of imposing some kind of economic sanctions? MR. SULLIVAN: It's very clear they're not. REP. MATSUI: All right. MR. SULLIVAN: They say they will not. REP. MATSUI: Okay. Now, let me make a proposal, let's say that we do suspend Most Favored Nation with China, and -- what is your prognosis as to what might happen in terms of the vacuum that might be filled with the US pulling out with their investments, with the cut off of trade? MR. MCCOY: Yes, Mr. Matsui, I could tell you that from the agricultural perspective we face a tremendous amount of competition in that part of the world from Australia, Canada, other countries. This would be a prime opportunity for these countries to go into China, which is -- where currently we control the lion's share of Chinese imports and offer themselves a more reliable trading customer. And I have no doubt that the Chinese would welcome that. REP. MATSUI: Any other -- ? Federal News Service, JUNE 19, 1990 MR. SULLIVAN: Now, I would say -- I would say certainly that the market is there. The vacuum will be filled by companies from Japan, by Europe and possibly some other Asian countries -- without question. MR. KAMM: Just a few quick comments on that. There are 99 other countries which grant Most Favored Nation treatment to China. I am unaware of a single one that is even considering removing that status. Point one. Point two. Since the June crackdown the Chinese have been amassing very large foreign exchange reserves and we presently estimate their foreign exchange reserves to be about $25 billion -- that's up more than 50 percent since June. They will be spending that money on imports. And if we take MFN away they will not be spending that money on American imports. MR. SULLIVAN: If I may just add a footnote, Mr. Matsui, that what we would lose also of course would not be simply the lost exports of the year or two or three that we took MFN away, assuming that we gave it back at some point. There is a long-term loss that because China would switch to other suppliers for a number of products. If for example they decided to shift away from Boeing to Airbus, for example, because they were upset, then I think it would be very difficult for Boeing to get that market back, even after trade relations went back to normal. So there are very unpredictable but frightening kind of long-term consequences of this kind of thing. REP. MATSUI: Yeah, I know. We have the same problem with respect to Eastern Europe at this particular time. As you know, I mean many of the Western Federal News Service, JUNE 19, 1990 Europe countries are moving in and we look like we're a little behind the curve, so to speak. And we may lose that market and I share your concerns in terms of the long-term consequences of even a one-year suspension because should it occur then we obviously are out of the market. And even if we try to revive this in June of 1991 we may be in a position where we're out of the market -- we're gone -- and others will fill the vacuum. Is that your basic sense, perhaps, Mr. Hanson? You were -- MR. HANSON: Yes, I would definitely concur with that. I think, as a matter of fact, when we think about the short term, that's not nearly as important as the long-term basis because once someone is in and established, and has a foothold and has the market, it's really difficult to take over that market from them. A very important issue. MR. CUZA: Mr. Matsui, as far as just our company alone, we employ over 3,000 Chinese workers in our two plants in China, so there's an immediate impact to 3,000 Chinese workers. For the US industry as a whole, we import -- basically 40 percent of the products or the toys sold in the US are sourced in China, and close to 60 percent of all the dolls. So there's an impact to the US toy industry, and clearly there's an impact to Chinese workers. REP. MATSUI: Now you all, obviously, have relations and dealings with the Chinese government, your companies do, and -- or your associations do. Assuming that the vacuum is filled by other countries, do you think that's going to have any impact on the Chinese in terms of what they might do in terms of human Federal News Service, JUNE 19, 1990 rights, emigration policies or others? MR. SULLIVAN: Well, let me -- let me try at that one. I say -- I think pretty clearly no. We have a very peculiar situation here. You have a government of China run by some people in their 80s who are reacting, as some of my Chinese friends told me when I visited China last October, as the leaders of any dying dynasty have acted in the history of China, namely, they regard foreign influence and reform both as threatening to their power position. And they -- and they look at what's happened in Eastern Europe and the Soviet Union, particularly the execution of Mr. Ceausescu as suggesting to them that reform is dangerous to their health, and that they should concentrate all their efforts at maintaining their power position. And this is why they have resorted, not to -- not to efforts to mobilize opinion and to gain support of their people the way Chinese communist governments have done in the past, but simply to naked repression. And I'm certainly not justifying that. I'm not apologizing for it. I'm simply saying, that's the way they are and that's the way they're going to remain, but what I'm really saying is they're not -- any policy which attempts to try to sweet talk them out of it isn't going to work, but by the same token, any policy that tries to force them to change is equally flawed, that what we need to do is to -- is to assume that this government is not going to change, look beyond it -- and beyond it isn't too many years away -- and think about what kind of sensible steps can we take to minimize the damage. And it seems to me the sensible steps are to try to Federal News Service, JUNE 19, 1990 preserve what structure we can while we are waiting for these people to pass from the scene, and meanwhile to keep the public contacts up -- travel, educational exchange, business exchange -- because these all put pressure on for reform and change. REP. MATSUI: Well, what's very interesting -- I've spoken with a lot of American citizens of Chinese ancestry who were born in China and who have subsequently come to the United States and have become US citizens. And these -- many of these people have no trade relations with China -- I wanted to make sure that I got an objective point of view from these people. And almost universally they indicate what you say, Mr. Sullivan, that if we attempt to apply pressure on the Chinese, current Chinese government, it would only backfire, because it would stiffen their backs and essentially become even more isolated, even more antagonistic. Obviously sweet-talking won't do either, but perhaps maintaining a trade relation, economic relations, with China and trying to raise an entrepreneurial class over a period of years might be the most appropriate way to go. Obviously we still have some time yet, and this matter is going to be developing. But in terms of where I'm coming from, I certainly want to see China become obviously more democratically inclined. But the question is how you do it. And I certainly don't want to put myself in a class that would just be reacting to events, and I certainly share the concerns of many of you in that respect. Federal News Service, JUNE 19, 1990 MR. HANSON: I'd make a comment on that, Mr. Matsui. We have -- our experience has been that the people that we're dealing with really want the kind of background and experience that we can bring in -- the management experience, the marketing, the way of doing business, the entrepreneurial spirit. The employees that we've hired really like and want to work for a multinational company that has this kind of background so that they can learn about what is going on outside their country. We feel that withdrawing MFN would in fact hurt and help the wrong people. We think that withdrawing MFN would hurt those reformers who want to progress, and in fact would help the hardliners. MR. KAMM: And very clearly, Mr. Matsui, taking Most Favored Nation away from China will badly hurt Hong Kong. And Hong Kong has been a critical force for change in China these last 12 years. I have not -- I've come to Washington three times in the last four weeks from Hong Kong on this issue, and I have not heard a single individual challenge the assertion that taking MFN away from China will badly hurt Hong Kong. Now, how will hurting Hong Kong help democracy and reform in China? REP. MATSUI: You raise an important point, because I -- it's my understanding, and maybe you can confirm this or elaborate on it more -- that many of the residents of Hong Kong now are moving to other countries such as Canada, where they feel there's a safer haven because of 1997. And eliminating Most Favored Nation would in fact perhaps even increase that flow, is that your sense? MR. KAMM: Great -- it would greatly accelerate the flow, because right now the Federal News Service, JUNE 19, 1990 people of Hong Kong are very concerned about what's going on across the border. If they are also worried about how their best friend in the world is going to treat them, then it will greatly, greatly accelerate the brain drain and the flow of people out. So by retaining Most Favored Nation -- and I might add, it would appear that since the efforts of the people of Hong Kong in this matter have begun, that we have seen a slight easing up of Chinese pressure on Hong Kong. If Congress were to retain Most Favored Nation status for China, at least in part out of consideration for Hong Kong, I think it would have a beneficial impact on confidence in Hong Kong. REP. MATSUI: I'd like to thank the panel, Mr. Chairman. REP. PEASE: Thanks very much, Mr. Chairman. And I'd like to thank the panel for what I thought was very good testimony. One of the questions we have this morning is whether we ought to extend the concept of limiting the granting of MFN based on human rights, as has been stated by a couple of witnesses, or even by whether a country is moving toward private enterprise, which I think was suggested by Mrs. Pelosi. Let's back off from that a minute and talk about whether MFN for China or any other country ought to be conditioned, as it currently is in the law, by emigration policy. What advice would you gentlemen give to Congress regarding the Jackson-Vanik Amendment, and whether it is a suitable provision for US trade law or not? MR. MCCOY: Mr. Pease, just to answer from the agricultural perspective to Federal News Service, JUNE 19, 1990 begin with, I think it's fair to say that agricultural groups throughout the country have traditionally been opposed to the concept of Jackson-Vanik, opposed to the issue of linkage between conditions -- political conditions or other conditions in trade. The primary reason, as the other witnesses have indicated here, is that we face tremendous competition internationally. None of our competitor nations are asking for the same kinds of conditions to be applied. So consequently, when we go out in the international arena we trade and then we pull back from trade because of decisions that are based on political considerations and not commercial considerations. We're deemed unreliable, and we've had this problem time and time again in US agriculture. And consequently, that's why we support not only granting of MFN in this instance, but waiver of the Jackson-Vanik with respect to the Soviet Union. REP. GIBBONS: Mr. Sullivan? MR. SULLIVAN: I would say I think that there is a general feeling that Jackson-Vanik is becoming an anachronism as more and more communist countries abandon communism. But beyond that we heard some criticism earlier this morning that there is an inconsistency here, that we give MFN to Syria and South Africa and so forth, and then to have this special category for so-called "non-market economies". And there is the feeling that we ought to make up our minds how we're going to treat countries. And if we're going to do that, then are we going to apply certain standards to every country in the world? Are we going to stop trading with Great Britain until they get out of Ireland, you know, Federal News Service, JUNE 19, 1990 things like that? Or are we going to -- or are we going to be -- or are we going to look at what other countries in the world do? And it seems to me that if we move away from something like Jackson-Vanik -- which, I think, is the trend -- that I would hope that the Congress would consider the point that we are after all now not the dominant economic power in the world but one country among many. And we're going to have to compete in this world; we're going to have to live in this world; the competition's going to get a lot tougher; and that we ought to follow the principle that I think you followed when you were debating the sanctions bill last year, and that is, don't take unilateral action. In other words, if other countries in the world aren't prepared to hold up certain standards like that then we shouldn't either. MR. HANSON: Mr. Pease, I'd just comment that we think it would be important and worthwhile that the period of time be extended from one year to three years. The one-year time frame provides with uncertainty. From a business standpoint, decisions may take two, three years to implement. And with just the limited time frame of one year it's very difficult for businesses from this side or within the country itself to make decisions because we just don't know what's going to happen a year from now. REP. PEASE: Mmm hmm. MR. HANSON: We would like to see it extended for a three-year period as a minimum. REP. PEASE: Mr. Kamm, Mr. Cuza? Federal News Service, JUNE 19, 1990 MR. CUZA: I would like to reinforce those comments, that the uncertainty that would develop by tying and putting conditions on granting MFN status to any country is very difficult for US businesses to accept. In this situation with China, extending the MFN status with conditions is better than not extending MFN status. But as a general policy, I think it would be -- it would hurt US businesses and hurt their ability to plan ahead and to promote the kinds of investments that we're trying to do today to reduce the trade deficit -- REP. PEASE: Right. MR. CUZA: -- and to promote US competitiveness. REP. PEASE: Yeah, I understand your general position. The question is on Jackson-Vanik, whether Jackson-Vanik's an appropriate part of our law or not -- trade law. MR. KAMM: I really feel it's an anachronism. It's outlived its use, Congressman Pease. I've lived overseas for almost 20 years. I went over just out of school. And in that entire period of time I've been involved in promoting the export of American products. We've made a lot of progress in the last few years in reducing our trade deficit. I'd be very concerned if we were to begin attaching more and more conditions to the granting of trade benefits, just at a time when we in our country are getting competitive again. So, I think Jackson-Vanik, as a conditional way of extending trade benefits, really has outlived its usefulness. REP. PEASE: Hmm-umm. One of you made the comment that the United States is no Federal News Service, JUNE 19, 1990 longer the dominant economic power. And unfortunately that is probably the case. We are, I think without question though, the dominant country in the world in promoting human rights. And one reason the United States is looked upon differently from other countries is because of our support for human rights. And I guess the question is: If we don't tie human rights considerations to trade and we don't react to Tiananmen Square in the trade arena, how do we, aside from beating our breasts and making meaningless statements that won't accomplish any change in China? MR. KAMM: Well, if -- just very quickly, the thrust of my argument certainly is that taking Most Favored Nation treatment away from China is actually counterproductive in the sense that it hurts Hong Kong, the coastal areas and American business, which are precisely the forces that have promoted change and respect for human rights. REP. PEASE: So, what can we do that would be productive rather than counterproductive? MR. KAMM: Bearing in mind that we are dealnig with a bunch of very old men who will be passing from the scene shortly, hard as it is for Americans to accept this, a patient continuation of the present policy of disapproval and constant approbation to the regime, I believe, is the better course. REP. PEASE: Okay. Mr. Sullivan? MR. SULLIVAN: My main comment is I, first of all -- I mean, I don't think we should separate human rights concerns from trade. I -- Federal News Service, JUNE 19, 1990 REP. PEASE: You do not? MR. SULLIVAN: I think we should not separate the two. I believe that if -- if someone could convince me that a trade embargo against China by the United States or withdrawal of MFN would actually bring about the change of the government in China, I would be all for it. I'm just saying that it's not going to -- it's not going to work, and that we should simply look at this -- that's what I meant by my opening comment. I mean, it seems to me that to embark on sort of quixotic gestures and saying, "Oh, we don't care that it's going to hurt the farmers. We don't care that it's going to hurt the people in Hong Kong. We -- we're mad and we want to express our outrage." It -- that is an immoral policy, it strikes me, that to -- we should think through what we're trying to do. Now, to get to your point, what can you do? I think trade is the wrong instrument here because it is going to make matters worse not better. It's not going to bring about a change in policy or change in the government. I think that, first of all, we could have made things a lot easier had we -- could -- if we could go back to -- to before the Scowcroft trip, and then not have the Scowcroft trip. There are a number of things that the United States government could have done earlier on to say that the United States does not regard this regime in China as anything more than a transitional regime, that we regard it as a government which is -- which has lost its legitimacy in the eyes of its own people and in the eyes of the world, and that -- and that we are going to conduct ourselves accordingly. Federal News Service, JUNE 19, 1990 And then when you come to renewing MFN, you can make it very clear you're renewing MFN not because you think this is a great government or that you want to prop it up because you think that renewing MFN is precisely going to have the opposite effect and that we -- things of that kind, statements of that kind -- a -- an abandonment of high-level exchanges of visits, not just as a statement of policy but giving the reason there that we no longer want to symbolize that the United States regards our relationship with China as something we particularly want to broaden and deepen, which is what we've done over the last 20 years, would do more to -- to serve notice on these people that their legitimacy is being questioned by the United States, which as you say correctly, is the country that stands up for human rights, but also that the regime is regarded as transitional, will do more to build up the morale of the pro-democracy forces in China than doing anything to take the MFN away. REP. PEASE: Thank you, Mr. Sullivan. I would -- I'd like to go on. I'd just like to make the observation that when I first came to Congress in 1977, Idi Amin was in power in Uganda and there was a bloodbath throughout that whole country. We discovered that almost all of the coffee crop on which Uganda was dependent went to the United States, and tried to organize a boycott which ultimately was -- although it was not a legally imposed boycott, was a boycott, voluntarily agreed to by American coffee purchasers. And it was not very long after that boycott was announced that Idi Amin was no longer in power. A couple of years ago, we were told that imposing sanctions against South Federal News Service, JUNE 19, 1990 Africa was fruitless, that South Africa would never change, we'd only be hurting American industry. And now South Africa is changing. So I'm not entirely sure we can accept your premise that economic action in the trade area is not useful and productive in changing administrations. MR. SULLIVAN: It's not a -- if I may, sir, it's not a premise. It's simply a judgment you've got to make. What I'm saying is that if it's going to work, by all means do it. If it's not going to work, don't do it, just because you want to express your outrage. You know, the judgment -- REP. PEASE: We -- MR. SULLIVAN: -- the judgment here is to look at -- look at the argument, look at the history and if your judgment is that it would work, then it's worth all the pain that you're going to cause these people. But my judgment is that it isn't going to work. It's not a premise, it's a judgment. I recognize other people have different judgments. REP. PEASE: Okay, thank you. One last question, Mr. Chairman, I've asked you before about your opinion of Jackson-Vanik and I think all of you are pretty much in agreement. However, for the moment, Jackson-Vanik is the law of the land. And Mr. Schulze in his testimony gave pretty convincing testimony that on emigration alone, China's getting worse, not better. Given Mr. Schulze's assertions, are they correct? And if so, should we deny MFN to China based on current American law? MR. MCCOY: Mr. Pease, I can simply tell -- I'm no expert, and don't follow Federal News Service, JUNE 19, 1990 emigration issues that closely, but I could tell you that Chinese government officials that I have talked to in general about trade -- trade-related matters associated with this issue contend that, in fact, the number of Chinese students entering the US has increased to -- rather than decreased in recent years, and so I guess there's a -- there's a difference of -- REP. PEASE: In recent years or in -- MR. MCCOY: In -- in -- REP. PEASE: -- the last 12 months? MR. MCCOY: In the last 12 months, I think. In the last -- most recent period. So -- MR. SULLIVAN: Sir, one thing that is clear, too, is that in the last 12 months, more Chinese have received permission of their government to apply for entry into the United States than the United States has been prepared to accept. So we come back to that old story, which is a true story of Deng Xiaoping saying to Senator Jackson, "How many million do you want in Seattle next Wednesday?" In that connection if I may tell a private story I was in the government at the time and I remember Senator Jackson said one time at a meeting at which I was present that he was startled to find out that people thought Jackson-Vanik applied to China. He said it never crossed his mind. MR. KAMM: And again, just to buttress that from the perspective of Hong Kong there are certainly many, many more Chinese who would like to come to Hong Kong than the Hong Kong government is willing to accept. And there has been an Federal News Service, JUNE 19, 1990 increase in outflow of Chinese legal immigrants into Hong Kong continuously for the last ten years. REP. PEASE: I see. Thank you very much. Thank you, Mr. Chairman. REP. GUARINI: Thank you, Mr. Chairman. I think, Mr. Chairman, it ran through your mind when we were talking with Deng Xiaoping -- and you've often told the story that he says -- "Yes, Jackson-Vanik, I know all about it." And Mr. Vanik was there. He said, "I have 100 million Chinamen I can send you." I want to reiterate the fact that all of us are interested in human rights and freedom and democracy in China and that's our common objective. The question is, how do we get there? And what we want to do is something that is multilateral in scope where all the countries of the world are exercising pressures. At the same time we are not just going it alone and letting them pick up all our trade and -- our losing our future trade opportunities in the marketplace. That could be enormous -- almost one quarter of the people of the earth are in this country that we're talking about. And you people are very, very close to the problem because you deal with China. You understand their thinking process. We make mistakes in our State Department thinking that everybody thinks like we do here in Washington. The fact is there are different cultures, mores, laws. There are different backgrounds where even their mental process is different. So we think we're going to have one given result in a State Department policy and we have just the opposite result. Now, in dealing with the hardliners and the Chinese leaders I'm in agreement Federal News Service, JUNE 19, 1990 with what you say. It appears to be from the basis of your testimony that it would have a negative effect. Instead of helping ameliorating the situation it would even worsen it. So therefore it would be the opposite as to what our State Department and Washington thinks. And we would only hurt the reforms in China and we'll only close off tens of thousands of jobs from our marketplace, threaten Hong Kong, and lose a great future market for our products. And I think that that would be a very, very negative result on every front. I'm wondering what the American businessmen have done in regard to their attitudes. How have they changed, if any, since Tiananmen Square? What are they doing that's constructive? And how do you evaluate the attitudes that they have taken since this past year? Mr. Sullivan? MR. SULLIVAN: Well, let me -- I -- there's a great variety there, but I think as a general rule you could say that the -- if you look back over the history of our economic and commercial relationship with China since the early -- since the '70s, that the American business community has responded to the environment that is presented by the Chinese, and in responding they have also influenced that environment. The high point, I think, of our relationship was 1987-1988, early '88, when Americans for the first time really were allowed to actually become investors in the Chinese economy, actually producing products in China on a broad scale. There were some experimental ones before that. But on a broad scale, to produce products for the Chinese economy, hire workers directly instead of getting Federal News Service, JUNE 19, 1990 them from the state, train workers, develop customers and marketing systems, and so forth, and really begin to push the government by their very presence to speed up the process of reform. Now, since Tiananmen, the environment has deteriorated. Business is reacting not so much to Tiananmen itself as to what Tiananmen symbolized, and Tiananmen symbolizing a return to pre-reform policy in many respects. And that is why we have seen -- and here it's not limited to Americans. I think this is a universal reaction. I mean, businesspeople are businesspeople anywhere in the world. We have seen, as I noted in my statement, a 75 percent drop in new export applications in China over the last year. People are -- people are pulling back. And this is what I meant by putting pressure on that government, that the regime there sees that on the one hand it says it wants foreign capital, on the one hand it says it wants foreign technology to come in; on the other hand it sees that to get it it's got to pay a certain price. And then they want to maintain their position of power, so they start cracking down an they start interfering in the work force at the factories, and then businesses say, "Well, wait a minute, we're not going to -- we can't do business in an environment like that" -- and so they start to pull out. And the government -- and it is useful that this is where the reform -- reform affect of foreign business really, really begins to bite. You force these people to face the contradition of their policy, that you can't run, you cannot modernize, you cannot move toward a market system. You can't move Federal News Service, JUNE 19, 1990 toward highly-motivated workers and run a Stalinist economic system at the same time. They've got to make choice and -- MR. KAMM: Let -- if I can briefly tell you a little bit what our chamber has done. We've done three things. First of all, we have tried to ascertain which of the cities and provinces are most pro-reform and adopted the most evenhanded treatment of the pro-democracy demonstrators. And we have gone to those cities and provinces and promoted business with them. Whereas those cities and provinces which supported the hardliners, we have stayed away from them altogether. That's one thing we've done. Secondly, we as a chamber have greatly increased our contacts with Chinese students and we're holding a number of programs on Chinese universities and meeting with the professors and the teachers who are the real supporters of reform in China. And, finally, every time we meet with senior Chinese officials, we point out to them that unless they release political prisoners and improve the human rights conditions, American business cannot return to normal. And I think we've had some salutary effects. REP. GIBBONS: Mr. Guarini? REP. GUARINI: Well, let me ask, in regard to the official sanctions that were already put into place, there are number of things concerning the loans to the bank -- from the banking institutions, exchange of government officials, the dialogues we've had with China, things regarding students and COCOM and Federal News Service, JUNE 19, 1990 technologies. I mean, there are things that we've had in place. How effective has this been? We've already had sanctions going. Has this helped or has this hardened China's attitude? Are we on a regressive program in trying to punish China that isn't working at all? MR. KAMM: I -- again, that seems to me to be to be a very good question and a critical question here. We have had sanctions in effect. They have been serious sanctions. China has lost access to something like $2 billion in loans. And yet, we don't really see the effect of those sanctions. Where's the argument that by using this bigger stick we're going to achieve what we haven't achieved so far. I really think that it's the private sector sanctions, the sanctions of the heart, that are more effective in dealing with this type of regime. MR. HANSON: Mr. Guarini, I'd like to comment on your previous question also as well as this one. We believe very strongly that our presence in the PRC demonstrated how business enterprise can function effectively by providing jobs -- substantial numbers now and in the future; showing how our business can operate; how we are growing; how we're helping to build the economy -- provide these jobs, pay the taxes; demonstrate how an enterprise like this works. They have been very appreciative of the fact -- of this fact. It's demonstrated to us by the local government officials. What Mr. Sullivan said is true relative to the lack -- to the reduction in investment in that because of uncertainty, but I can tell you from personal experience that the government, Federal News Service, JUNE 19, 1990 particularly in Shanghai where we're doing our -- the majority of our business, has really gone out of its way and bent over backwards to help us in this past year. Our business has grown very substantially in this period of time. They're aware of the fact that the impact of Tiananmen Square was very negative and they're trying -- they're doing everything possible to -- in their way -- to help assure us that we're wanted, that they want to see our kind of business flourish. They're very concerned that businesses like ours are successful. So we feel that, while the people in Beijing have done what they have done, that the local people in the local provinces really want us present and by being there we're demonstrating how this can best help their economy and their people. REP. GUARINI: So the bottom line, Mr. Hanson, is that by going it alone our other trading partners are picking up our share of our trade, causing a future loss of a possible great market in China, not affecting human rights issues or helping freedom and democracy at all in China, that the policy of the sanctions has not worked and that further sanctions would only be more detrimental to us as a nation than by keeping the door open and at least putting pressure on China, keeping a relationship with the people of China so that when the new leadership comes and most of these people are in their upper 80s, then we can hope for a better relationship and we'll be in place to be able to take advantage of a great market for our people and for our goods. MR. HANSON: Well, I think that's true. I think that whatever sanctions are taken that would cause us -- companies like ours and others -- to be out of Federal News Service, JUNE 19, 1990 business would be definitely negative and detrimental to the building of the economic reform and the social reform in that country. MR. MCCOY: Mr. Guarini, if I could just mention that if, in fact, as has been said here, the sanctions are counterproductive in the sense that they lend the current regime an argument, which is that they basically will be able to blame the United States for the failure of their own economic policies -- and this is something that Mr. Sullivan indicated, that they were celebrating the 150th anniversary of the Opium War -- I mean, this is clearly one of the options available to the Chinese regime, to withdraw away. As we disengage, they disengage. And in disengaging, then they cut the lifeline to all the forces of democracy that are basically supported by this whole process of economic liberalization that US business has been instrumental in facilitating in that country. REP. GIBBONS: Well, if Japan and the Common Market and the other trading partners of the world that we have were in lock-step with us, then sanctions would have some effect. But to go it alone and not to be multilateral in our approach is only trading pain and agony amongst ourselves, and probably not even producing any positive result. And you from your issues and from the fact that you have been involved with the China question say that it'd even be counterproductive, from what I understand. MR. HANSON: That's correct. Also, relative to the sanctions, it was mentioned earlier that the sanctions in South Africa did work to some extent. However, Federal News Service, JUNE 19, 1990 those were multilateral. Those were not a -- that was not a unilateral action. REP. GUARINI: That's right. That should be pointed out. Thank you, sir. REP. GIBBONS: (Off mike.) REP. CRANE: Thank you, Mr. Chairman. And thank you all for your testimony. I hope numbered among your exports to mainland China are great quantities of high cholesterol, low fiber food for the leadership that they might be called into early retirement before '97. You know, a concern I have with regard to some of our State Department people has been the denial of support that Carla Hills has evidenced of granting Taiwan GATT status. They as you know have petitioned for it and I am wholeheartedly in favor of it. I would not want to attempt to establish a linkage on denial of MFN or support for MFN for the mainland as a tradeoff. But on the other hand it seems to me illogical on our part to continue to try and deny the fact that Taiwan is our fifth largest trading partner and they are not seeking admission, as you know, as the Republic of China but as a customs territory. Do you think this would have a real negative impact on our relations with the mainland leadership if the United States went along with trying to get Taiwan into the GATT? MR. SULLIVAN: Let me try to respond to that, Mr. Crane. This really is in the category of other things we can do that Mr. Pease asked us about. I agree it shouldn't be linked to MFN but it can be linked to just a new policy toward China -- a change in our attitude toward China that before Tiananmen the Federal News Service, JUNE 19, 1990 United States was following a policy of giving China special treatment on a whole number -- in a whole range of areas. And the tendency was to sort of make exceptions for them. There was talk about China being eligible for GATT membership rather soon. And one would have to have assumed that China would have been given membership on some kind of exception to the general rule. And there was also, as you're well aware the policy that Taiwan's accession to the GATT would have to await China's accession. I think that without linking it to MFN that the United States ought to make clear that now the United States -- a, does not regard China as a special case anymore in anything. By, that China does not now qualify for GATT membership, and probably is unlikely to qualify for some time, unless they return to a policy of reform. And therefore, C, we're not going to force Taiwan -- which does qualify -- to wait around for them to do so. So by all means I think it's an appropriate step for us to take, to simply say, you know, we're not linking it to anything; we're just saying that "You have changed things, and therefore we're changing our policy." REP. CRANE: Well, I appreciate the expression of those sentiments, and I hope you folks could exert some influence on some of those folks at State, because I think you have very direct contact and knowledgeability and understanding of events over there. And that was a plausible argument that State has advanced in the past, that this could serve as putting a big wedge between our relations with the People's Republic. And I myself didn't feel that way and -- that Federal News Service, JUNE 19, 1990 there is not a basis for linkage. It's an acknowledgement of a reality. And I think also, Mr. Kamm's comments about the damaging influence -- well, all of you -- the damaging influence in terms of our input in a positive way. And I agree, I think that's more productive coming from the business community than from government. And to the degree that there are unsettling conditions on the mainland, businessmen back off, and that communicates a very powerful message. But it's very difficult, it seems to me, to maintain a totalitarian regime when you have expanding development in trade, that that is a kind of a precondition, really, for the establishment of democratic institutions. And so I want to thank you all for your testimony here, and keep up the good work. MR. MATSUI: Mr. Chairman, may I ask these gentlemen one more question. Perhaps Mr. Sullivan, since you're of the US-China Business Council -- I guess that's what the organization is -- it's my sense in Eastern Europe at this time they're going to need a lot of infrastructure development, for example, telecommunications, some high technology. And obviously we have to get our act together in terms of the Congress and the President making sure that we do loosen up some of our technology transfer requirements and laws and regulations at this time. Assuming for a minute that we eliminate Most Favored Nation status for China, is it your belief, given the stage of development the Chinese economy is in, that the Japanese, the French, the Germans, and others will go in and begin to develop infrastructure in China, and what would be the consequences of that Federal News Service, JUNE 19, 1990 for the US in terms of our ability, once the market is taken up by these other countries, to begin to go in? MR. SULLIVAN: Well, I think there's really no question that that's what would happen. I think we've seen in the past that, first of all, the Chinese government itself would take steps to declare the United States a source of last resort for anything, which means that China would seek to buy and to get investment from sources other than the United States whenever it could. And this would mean that, as China develops everything from its television industry to its power plants to its aircraft industry -- you know, just right down the line, I mean they've got all sorts of projects there to develop, telecommunications to develop, energy generation to develop, their electronics industry -- they would look to the Japanese and the Europeans for that. And the Japanese and the Europeans would be more than happy to oblige. And that would mean that we would not only lose those sales, but, more to the point, we would be out of the business for any number of those projects for all of the lucrative replacement market -- spare parts, whatever -- down the road. So the costs would be very difficult to quantify, but they would be severe. REP. MATSUI: Mr. Chairman, I just have one further -- if I may, because this was raised during the testimony of our colleagues in the first panel. At this particular time we have a trade deficit with the Chinese in terms of our export-import balance of trade with them. That appeared to be one of the reasons some of my colleages suggested that we may cut off Most Favored Federal News Service, JUNE 19, 1990 Nation, which I totally disagree with, if in fact the implication was that conclusion. In the next few years -- from your perspective as a member of the business community -- do you believe that we're going to reverse that trend and begin to have a positive balance of payment surplus with the Chinese? MR. SULLIVAN: Let me just comment first on that because I was struck by that as well. I would certainly hope that this committee would not think that eliminating a bilateral deficit was a great public policy objective since if the United States cut off all trade with China we wouldn't suddenly be $6 billion to the good. REP. MATSUI: Well, I was thinking if it would work, we ought to do it with Japan -- (both men chuckle). MR. SULLIVAN: That's right. I mean, the products would come in from someplace else. But that's a very good question, because the Chinese always point out to us that -- that on a cumulative basis -- and they're correct, the United States has a big surplus with China, in other words, going back to 1972 -- and the deficit is really a rather recent vintage. And the deficit -- the deficit has been caused in part because the Chinese have tried to slow down their importation of things to cool off an overheated economy and, meanwhile, in order to push out those exports in order to get the money they need to buy those things down the road. It's a little out of phase at this point. Federal News Service, JUNE 19, 1990 But China is a huge market for a lot of products that the United States is very competitive in, if not the preeminent country in the world -- in telecommunications, in power generation, in aircraft, in automotive industry, in the -- even the long-haul locomotive industry -- down -- right down the line -- electronics. And that -- the Chinese approach to trade is not to try to pile up surpluses. I mean, they're not following a -- they're not following a policy -- they haven't been following a policy of export-generated growth the way Taiwan and Korea did. They rather have followed a policy, because it is a large -- a large economy, not an island economy, a policy of trying to develop the exports, just the exports they need to spend on what they want to import. So that deficit will close. And I've told the Chinese over the last several years, and I think they see it coming too, that by 1992, or 1993 or so, we're going to see that deficit close, and that China over the long term is probably going to, and probably should, run a rather sizeable deficit with the United States, that's what developing countries should do. REP. MATSUI: Thank you. No further questions. Thank you, Mr. Chairman. REP. GIBBONS: I want to thank -- (off mike) -- and particularly to you, Mr. Kamm, for coming so far to be with us today. Thank you very much. LANGUAGE: ENGLISH LEVEL 1 - 18 OF 19 STORIES Copyright 1990 Federal Information Systems Corporation Federal News Service MAY 16, 1990, WEDNESDAY SECTION: COMMERCE & TRADE LENGTH: 14668 words HEADLINE: CB HEARING OF THE SUBCOMMITTEE ON ASIAN AND PACIFIC AFFAIRS, SUBCOMMITTEE ON HUMAN RIGHTS AND INTERNATIONAL ORGANIZATIONS, AND SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE OF THE HOUSE COMMITTEE ON FOREIGN AFFAIRS SUBJECT: MOST-FAVORED NATION STATUS OF CHINA CO-CHAIRED BY: REP. STEPHEN SOLARZ (D-NY) REP. GUS YATRON (D-PA) REP. SAM GEJDENSON (D-CT) WITNESSES (PANEL II): ROGER SULLIVAN, PRESIDENT US-CHINA BUSINESS COUNCIL Federal News Service, MAY 16, 1990 JOHN KAMM, PRESIDENT US CHAMBER OF COMMERCE IN HONG KONG MR. IRL R. HICKS, PRESIDENT OF THE US CHAMBER OF COMMERCE IN BEIJING, ON BEHALF OF NATIONAL FOREIGN TRADE COUNCIL MS. RONNI NASS, VICE PRESIDENT OF IMPORTS BODY: REP. STEPHEN SOLARZ: The subcommittees will resume their deliberations. I see we seem to have lost much of the audience, which I assume wanted to have something to eat, but I've always felt that food for the mind is at least as important as food for the stomach. (Some laughter.) And I'm sure we'll get much of it from our next panel. We'll hear now from Mr. Roger Sullivan, the President of the US-China Business Council; Mr. John Kamm, the President of the American Chamber of Commerce in Hong Kong; and then I understand, Ms. Ronni Nass, the -- who will be speaking on behalf of the American Association of Exporters and Importers; and Mr. Irl Hicks, who will speak briefly on behalf of the National Foreign Trade Council; both are very brief presentations. But let me urge all of you, if you can, to summarize your testimony. We will be -- your formal statements will be put in the record. You've had the benefit Federal News Service, MAY 16, 1990 of hearing the first panel and the colloquy with the Members and the statements that were made. And it would probably be most useful, really, to focus in on whatever points you think were not addresses or were not adequately addressed so that we can get the most out of your contribution. But, I do appreciate your willingness to appear. I'm sorry that we had to keep you on hold for so long. I didn't anticipate it would last quite as long as it did, but nevertheless, better late than never. So, Roger why don't you begin. MR. SULLIVAN: Thank you, Mr. Chairman, I appreciate your including me among the witnesses today. I will summarize because I think we pretty -- we have established, I think, to everyone's agreement that there would be substantial collateral damage done by removing MFN; not only to American consumers and retailers and so forth, but to the people in Hong Kong and to -- and to the progressive sector in South China. And I think that is -- that is a very important question that too often is not asked in hearings of this kind or in consideration of policies of this kind. I was in the government when the 1980 grain embargo was imposed on the Soviet Union after the invasion of Afghanistan and I don't think we ever would've imposed that grain embargo if we had asked that very basic question. Now taking MFN away from China is not quite such a misguided option as that; I mean, that hurt nobody but the American farmers, in fact, they're still living with the consequences of that decision. Removing MFN from China is a lot more complex issue, because there's no question in my mind at all but that this Federal News Service, MAY 16, 1990 would cause some very severe damage to China, but the question of -- after we go through all the collateral damage -- is really: What are we trying to accomplish? And you addressed that this morning. If our objective is to just express our outrage or to serve notice on the Chinese that these gross violations of human rights in their country are not without cost in terms of their relations with the United States, then removal of MFN certainly would send that message. I think we would have to ask, though, that -- is it worth that collateral damage to send that kind of message? I don't think so, and I certainly hope the Congress would agree, and I would add that we should ask the farmers who are still living with the after-effects of the 1980 grain embargo against the Soviet Union how they would feel about that kind of thing. But if our objective is to change China's policies, to encourage greater respect for human dignity and a return to the policies of reform, then it's something else again. It's very easy, as someone suggested this morning, to talk about costs when somebody else is going to have to bear them. But, nevertheless, I think that if there were any reasonable assurance that removing MFN would change Chinese government policy or would change the government itself, bring down this govenment, speed its removal from the scene, then I think that the costs would probably be worth it, and I think even to the innocent victims of the collateral damage: the farmers, the consumers, the retailers, the Chinese people in Hong Kong, and so forth. Federal News Service, MAY 16, 1990 But, this is where -- this is the most fundamental question: Would it work? And I think the burden of the proof for that really ought to be on those who suggest that it would. And I just don't think it will. I mean, I think that influence on the Chinese -- on this Chinese regime is going to be minimal. Someone suggested this morning that, "Hey, they're interested in economic development and economic growth." If they were interested in that to that degree, they wouldn't be doing what they're dong to Hong Kong, and they wouldn't have shot people in Tiananmen Square. I think their primary drive is to maintain their power, and I think that preoccupies them to the exclusion of almost anything else. But also I think we can look at the history of other countries' relations with China to see what the chances are of influencing them with pressure. I mean, we tried it in 1950 and all we did was to isolate them and enable them, actually, to become even more repressive in the name of nationalism, and it took us 30 years to work our way out of it. The Soviet Union tried it with, really, much more powerful sanctions than we're talking about today, when they yanked all their advisers and they -- and they ended credits and demanded repayment of their loans, as I recall, a very, very strong package, and China's response to that was just to tighten their belt and unite their people in an anti-Soviet campaign that continued for 25 years. So I don't think there's any convincing evidence that the MFN sanction would work. In fact, I suggest it would make matters worse because it would play into the hands of the repressors. Federal News Service, MAY 16, 1990 I think we should be clear that MFN does not prop up this antidemocratic, antireform central planning regime in Beijing. On the contrary, I think it -- MFN is what enables the pro-reform market-oriented sector in China, or some vestige of it at least, to survive. Over 50 percent of China's exports to the United States are produced not by the inefficient state sector, but by the very people in China who are resisting the Marxist-Leninist leadership, that is, the -- more entrepreneurial village enterprises, so-called collective enterprises, the foreign joint ventures in South China. I just don't see any sense in a policy that would destroy that sector. Economic freedom may not quickly lead to greater political freedom, but it's certainly a necessary and fertile seed-bed for democracy. The impoverishment of South China would not damage Li Peng and his colleagues. On the contrary, it would remove the last major obstacle to their campaign to stamp out the reforms of the past 10 years, and to bury, once and for all, what they call the putrifying corps of bourgeois liberalization. So -- but I want to make it clear that I'm not advocating business as usual. Business in China is not very usual. I think that we who live within the beltway are inclined to assume that nothing happens unless the government does it, that if there are no government-imposed sanctions, then business must go ahead as usual. In actual fact, over the past year we've seen that people and organizations have been quite capable of deciding that either they cannot or they will not do business with a centrally planned, bureaucratically Federal News Service, MAY 16, 1990 controlled antimarket and repressive transitional regime. It wasn't the State Department's travel advisory that kept tourists from going to China, it was the fact that the tourists didn't go to China, and the proof of that is the travel advisory was lifted and the foreign tourists are not returning. There are no sanctions on foreign investment in China by any country, and yet foreign investment -- and it's not just American, it's Japanese and European and Hong Kong as well -- fell 37 percent in number of contracts and 43 percent in value in the fourth quarter of last year. And that downward trend, I think, is continuing and will continue. But there are -- these private sector sanctions are the sanctions that bite, because the pain then can't be blamed on a foreign power. It's self-inflicted, and everybody in China knows it's self-inflicted. If foreigners don't invest in China, it's not because the government told them they couldn't invest. It's because the environment there is not appropriate, not attractive, and resentment therefore builds up among the Chinese people -- not against the foreigners, but against the misguided policies of their own government, although a faltering economy, provided it's a faltering economy that's faltering because they're doing it to themselves, puts pressure on the regime to modify its policies in an effort to make the environment attractive enough so that foreign companies will resume their investment in China. But the regime faces a dilemma. I agree with Ambassador Lord that the Federal News Service, MAY 16, 1990 ideologues of this current regime have made it very clear. Party Secretary Jiang Zemin said so in his National Day speech in October, that they regard foreign trade and investment as subversive of their system. And they're right. It is subversive of their system. They face the dilemma that on the one hand they need capital and they need foreign technology and they need a certain amount of trade, although I think they want to cut back and trim and control how much they're going to take. But at the same time they recognize that by taking some of it in they're taking in -- they're taking in subversion as well. I think the evidence of that is very clear over the past ten years, that the need for foreign investment prompted the government to make concessions and to accelerate reform: getting the Party out of the factories, getting the Party out of some kinds of economic decision making, allowing a certain degree of economic freedom, allowing the village and collective enterprises to grow at the expense of the state sector, all sort of things that they did. And the -- we now have over a thousand American joint ventures scattered around China, with a total committed capital of over $5 billion. And while they're -- you know, they're finding the going rough, and many of them have put their plans for expansion on hold. But their very existence in China is a force for change and -- by the way they respond to the environment in which they're in, by the way they decide not to go ahead, or by the way they decide to go ahead, influences the environment. And depending on which way the Chinese government moves in the next couple of years, these enterprises will either choose to close down, or to tread water, Federal News Service, MAY 16, 1990 or to expand. So their presence requires the Chinese government to face the contradictions of what Holly Burkhalter called market Stalinism, which is a contradiction. There is no such thing. It cannot work, and I think the effect of outside contacts, especially commercial contacts, will force the regime to see that they have to go one way or the other. Now, if MFN is revoked, and foreign enterprises in China are forced to shut down because of Chinese government retaliation, the ability of this kind of private contact, to promote a return to reform by its presence and by its reaction to changes in the environment, would be destroyed. I don't see where any inspiration for reform would come after we've helped bring about the destruction of the private and semi-private sector in South China and the withdrawal of foreign investment enterprises from China. Again, we would play into the hands of the hard line ideological minority in the Chinese leadership, who pay a lot of lip service to reform and openness, but actually, secretly favor a return to a much more easily managed isolation. I think the weight of the evidence is pretty clear that revocation of China's Most Favored Nation status would not lighten the suffering of the Chinese people, or change the Chinese government or its policies for the better. On the contrary, it would cause greater suffering in China and in Hong Kong, and probably delay any prospect for return to reform for many years. Let me just end this by commenting on the question that was asked this morning. I am very pessimistic about the chances of influencing this government in the Federal News Service, MAY 16, 1990 short term by anything we do. I think that the government is capable -- and they've demonstrated it by some of the superficial, cosmetic things they've done -- to engage in what people in China call "barbarian handling." You do a few things that make the foreigner think you're doing something, when in fact you're not. And we're going to be in no position to know what they're really doing. I went to China in 1973, and it was the view of every China scholar in 1973 that the cultural revolution was over. It was certainly my impression that the cultural revolution was over. Of course it was at its height, but I couldn't see that, and neither could any other foreigner. So we -- I suspect that the situation in China in terms of human rights is far worse than even what the human rights groups in the United States say it is. But we're not going to change that and the question is, what should our position be? I think that we should not be cutting private ties. These have been a positive influence in China and will continue to be. I think what we should be doing -- and I think I would align myself more with Ambassador Lord's position than with anyone else -- is we should be -- we should be distancing ourselves on the official level because it's really been on this official level in terms of both those high level visits and also the high level rhetoric that we -- where we have demoralized the pro-democracy forces in China and accorded to this regime a degree of legitimacy that its own people have denied it. And I think -- so that our position really ought to be --and I think I would Federal News Service, MAY 16, 1990 only modify Win Lord's position slightly -- and that is, that we should -- we should make it very clear that we are not extending MFN to -- in the hopes that this is going to influence this government or we're going to come back a year from now and try to assess what progress has been made. There isn't going to be any progress made. There may be some appearance of progress made but there won't be any real progress. What we need to do is to face the reality of this, which is that this government is a transitional government. It is not going to be influenced. It is going to be replaced and we need to be looking beyond this government and positioning ourself to deal most efficiently with the change, and most quickly with the change, when it comes about. And in the process not to demoralize the forces, not only the forces of democracy but the forces for reform. Thank you very much, Mr. Chairman. REP. SOLARZ: Thank you, Mr. Sullivan. Mr. Kamm? MR. KAMM: Thank you, Mr. Chairman. Mr. Chairman, if I happen to leave here around three o'clock it's not because I'm not totally enthralled with the testimony of the speakers or the question -- it's just that I have to get a plane to get me down to my office or I'll lose my job. Mr. Chairman, distinguished members of the House of Representatives, I come before you this morning as the president -- this afternoon now, I'm sorry -- the president of the American Chamber of Commerce in Hong Kong, our country's largest chamber in the Far East. I come also as an American citizen, a native Federal News Service, MAY 16, 1990 of New Jersey, Mr. Smith, who has spent his entire adult life working to build relations with China. As a businessman I have traveled the length and breadth of the country, establishing some of the first foreign offices in Guangdong (?) and Shanghai. As a teacher, I enjoy close ties to students and faculty at two of China's most liberal universities. As a social scientist and a writer, I have studied the great changes which have taken place in the country since the death of Mao Tse-tung, changes which I have both witnessed and participated in. You have my written testimony. You have other materials attached there too. I urge you to consider this submission carefully, especially the petitions from the Legislative Council of Hong Kong and virtually every major commercial and industrial association of Hong Kong and Macao. I will speak to you today from the heart, drawing on 18 years of experience fighting for American values in China, and I might add, I'll try to keep it very brief. The question which the Congress of the United States will soon consider, whether or not to extend China's most-favored nation status, is a matter of life or death for Hong Kong and the reform movement in China. This is neither hyperbole nor exaggeration, sir. Living in Hong Kong I am often asked what will happen after July 1st 1997, the day China resumes its sovereignty after 150 years of British rule. My answer, these days, is simple: 7 years is too far in the future. I'm worried not about 1997. I'm worried about the summer of 1990 and what will happen to Hong Kong Federal News Service, MAY 16, 1990 and our reform allies in China if Congress takes MFN away. Make no mistake about it, China's loss of MFN will devastate Hong Kong economically and psychologically. It will be a crippling blow to confidence; completing the job begun by Chinese troops that tragic night one year ago in Tiananmen Square. My testimony, the petitions, and the other materials in my submission bear grim witness to the deadly of impact of China's MFN loss. The open coastal provinces and cities, the China of reform, will be badly hit. Their leaders, supporters of the deposed party secretary Zhao Ziyang, will be severely undermined by rapid falls in living standards which owe much to export earnings. Worst hit of all will be Guangdong Province, the fountainhead of economic reform. It will sink into depression as factories close and as many as a million workers are thrown out of work. As much as ten percent of the province's productive capacity will be idled. Hong Kong, whose economy has in many respects merged with that of Guangdong in the ten years since China and the United States granted each other MFN, would lose eight to nine billion dollars in trade contracts, fully 12 percent of total exports. Jobs would be lost by the thousands, firms thrown into bankruptcy. The aftershocks would be felt in every sector of the economy; and whatever confidence in the future is left would evaporate. In short, China's loss of MFN would badly destabilize Hong Kong and South China. How, in God's name, will this result aid the cause of democracy and reform in Federal News Service, MAY 16, 1990 China as a whole? Consider for a moment the consequences of such an action on our interests in Hong Kong. Our country has more than 900 firms there. We are the largest investor in manufacturing, with 158 factories. We employ 250,000 people in Hong Kong; that's ten percent of the work force. Hong Kong is not only a major supplier to the United States, it is our country's 14th largest export market, with rapidly expanding purchases of American goods and services. Hong Kong's people consume more than $1,000 of American products per capita per year, compared to about $350 for Japan and less than $300 per head in Europe. Its government buys 36 percent of all its supplies from the United States. And American firms are poised to win billions of dollars in contracts for the massive infrastructure projects planned over the next few years. Loss of MFN for China and China's swift and sure retaliation puts all of this at risk and with it thousands of jobs in America, as well. I ask you to read the testimonial submitted by the Patton(ph) Electric Company of New Haven, Indiana. Who will explain to those hard-working Americans that they've lost their jobs in order to punish some old men in Beijing? And which of you will come to Hong Kong when we tell our staff that they've lost their jobs and their livelihood, stripping China of MFN, thereby ruining Hong Kong. And make no doubt about it, ruining Hong Kong will engender deep resentment and yes, anti-Americanism in one of the most pro-American cities in the world. A lesson to be drawn from stripping China of MFN will be that America is Federal News Service, MAY 16, 1990 incapable of separating politics from trade. I draw your attention to the list of 99 countries which have granted MFN to China. It's in my testimony. On that list is Japan. As Congressman Solarz pointed out, its companies are licking their chops in anticipation of Congress taking MFN away from China. Also on that list is Norway which infuriated Beijing by granting the Dali Lama the Nobel Peace Prize, and France, which is the headquarters of China's democratic opposition, as well as one or two countries which have recently switched diplomatic relations to Taipei. Not a single one of them is contemplating revoking China's tariff status. Do we seriously think that this sanction will be effective in changing Beijing's behavior if we are the only country to carry it out? One last point before we leave this list. There are two names which do not appear on it. They are South Korea and Taiwan -- nations which have fought vicious wars of survival against Chinese communism. They are both busy liberalizing trade with China, sending their businessmen to the mainland in the thousands while America readies itself to withdraw. Members of Congress, heed my words. China is now engaged in a great civil war, a war between those who favor change and those who resist it; a war between coastal reformers who seek a more open and prosperous China and hard-line idealogues who want to return the country to authoritarian central control. Whose side are we on? If we're on the side of the reformers, then we must renew Most Favored Nation. We must seek them out and do more, not less, business Federal News Service, MAY 16, 1990 with them. I'm not a military strategist, but I know enough to say that wars are not won by laying waste to your allies' bases of support. Stripping China of MFN will do precisely that. It will strengthen the hardliners by weakening their opponents. And it will give the Stalinists a tremendous propaganda victory. America, they will say, has done this to you. In its anger it aims a blow at us, but it actually hits you. What about human rights? Shortly after the killings in Beijing, our Chamber issued a statement, which I have attached to my submission, condemning the Beijing authorities and the units of the PLA which carried out the slaughter. We ran this statement in virtually every newspaper in Hong Kong for two days. We stand by it. We Americans in Hong Kong abhor the violations of human rights now going on in China, and we condemn them, both in public and private sessions with Chinese officials. Who knows better than the people of Hong Kong how bad the situation is? We are on the front line. There are young Hong Kong people in Chinese jails. I take this opportunity to call once more for China's leaders to release them to their families in Hong Kong. We, the American Chamber in Hong Kong, will continue to speak out and work as hard as we can to realize their freedom. Whatever capital we might earn by fighting further sanctions, we will gladly spend in the effort to free all Chinese prisoners of conscience. Will taking Most Favored Nation away from China help improve respect for human rights? Why not ask the people of Hong Kong. Their reply is in my Federal News Service, MAY 16, 1990 submission. Not even the most forceful advocates of democracy in Hong Kong and reform in China favor revoking China's Most Favored Nation status. They know the awful truth, that increasing China's isolation, undermining the reformers, and impoverishing Hong Kong, serve only to make those dark jail cells darker, the cries of their victims louder yet more difficult to hear. REP. SOLARZ: Mr. Kamm, if you'll permit me -- MR. KAMM: Yes, sir? REP. SOLARZ: -- just to interrupt you for a minute. MR. KAMM: Yes, sir. REP. SOLARZ: Yes, you're making a very powerful, and I might say even eloquent plea here for a continuation of MFN, but I feel you may perhaps be letting your rhetoric carry you away. I mean, we've just heard earlier today an extraordinarily moving presentation by Mr. ZHAO, who speaks for the federation of Chinese students in this country, a majority of whom seem to believe, rightly or wrongly, that precisely because of their concerns about human rights in China, that we should suspend MFN. Ms. Pelosi has just returned from Paris, where she met with Chai Ling, whom millions of Americans have seen in some extraordinarily moving reports on television -- this young woman who looks so fragile but who must -- who is really so strong, who has just emerged after almost a year on the lam -- MR. KAMM: Yes, yes. REP. SOLARZ: -- in the Chinese countryside, and apparently she says precisely Federal News Service, MAY 16, 1990 because of her concerns about human rights in China that we should suspend MFN. So it may be that Chai Ling and Mr. Zhao, with the best of intentions, advocate a course of action which would be counterproductive. But I think it goes a bit too far to suggest that everyone in China and everyone in Hong Kong who cares about human rights in China wants us to maintain MFN, as we've just heard some eloquent testimony from people who are no less concerned than you are about human rights in China, who think we should suspend MFN. MR. KAMM: Sir, I'm glad you've raised that question, and since I might not be around for the whole question-and-answer period, let me -- let me try to address that -- REP. SOLARZ: I -- I have to go at three also. (Chuckles.) MR. KAMM: Okay, well, good. I'm sure you, sir -- I'm sure you, sir, have met also in recent weeks with Martin Lee (ph?), a legislative counselor who is the voice of democracy and reform in Hong Kong. I don't think there's any question that Martin Lee feels very very strongly about human rights in China as well. Nor does -- I think, is there any question that Seeto Hua (ph?), who is in charge of the Association for Democracy in Hong Kong, who is also a legislative counselor. They too -- REP. SOLARZ: I -- I need to say, I'd be more impressed by Mr. Seeto Hua's expressions of concern for the human rights of the Chinese people if I occasionally heard some expressions of concern from him about the human rights of the Vietnamese people -- Federal News Service, MAY 16, 1990 MR. KAMM: Yes, sir. REP. SOLARZ: But that's neither here nor there. MR. KAMM: Well -- I -- you know I -- but I do -- you're right, sir. There -- the question of Vietnamese boat people has to figure into the equation when members of Congress consider Hong Kong. I only ask you to affirm here that in the 40 years of our relationship with Hong Kong, this is the only serious human rights issue which has come between us. Now, Martin Lee, Seeto Hua, and the people of Hong Kong are on the front line. They don't favor revoking most-favored nation. Chai Ling got out of China, thank God. Her husband was stopped twice at the border by officials who let him go. Hong Kong television is broadcast into South China. There are 16 to 20 million people who get Hong Kong television every day. I know because I travel and I see Hong Kong television, and I hope, Congresswoman Pelosi, you can get a message to Chai Ling that her interviews are being watched live in Southern China on Hong Kong TV. Now, Hong Kong is a force for democracy and reform in China. That's the only point I'm trying to make. When the economic sanctions were placed on China in January -- I read the entire testimony -- the impact on Hong Kong was never mentioned. I'm glad, sir, that in these hearings for the first time and in the previous weeks running up to it, we have at least gotten Hong Kong on the agenda. I do not see how the destruction of the Hong Kong economy is going to help democracy and reform in China. Federal News Service, MAY 16, 1990 And I certainly understand the bitterness and the emotion which would lead Chai Ling to say, "Now, impose more sanctions." But I do believe that in the long run if we look at the role Hong Kong is playing that we will stay our hand, at least for a period of time, to give Hong Kong a chance to adjust to what will be a terrible blow. Sir, I'd like to finish my testimony and the proceed. American business has been a force for change in China. We have pushed for greater openness, more transparency. We have taught new ideas. American businessmen, in alliance with their counterparts in Hong Kong, have demonstrated the superior qualities of free enterprise and respect for human rights, the moral inspirations which form the basis for democracy. Please let us continue our work. Tiananman square was a tragic loss, but it was a setback, not the end of reform and democratization. Don't be the ones that close the door. Don't be the ones that destroy Hong Kong. The fate of Hong Kong and South China is in your hands. The future of the American community in South China rests with you. I believe that you will do the right thing, that you will renew China's MFN status for the sake of Hong Kong and for the reform movement in China. In so doing, you will send a powerful message to those in China who seek to turn back the inevitable tide of history. America stands by her friends in their hour of greatest need. Thank you, Mr. Chairman. REP. SOLARZ: Thank you, very much, Mr. Kamm. That's a very helpful statement. Federal News Service, MAY 16, 1990 In the last century, in the very famous Dartmouth College case, Daniel Webster, in his presentation to the Supreme Court said, "it may be a small school, but there are those who love it." Hong Kong may be a small place, but there are those who love it, even over here. And I can assure you that the impact of what we do on Hong Kong will certainly figure in our deliberations. And I'm pleased you could come all the way over here to make your presentation. I assume you know that legislation is now working its way through the House, which would increase the number of visas for Hong Kong people to 20,000, with an arrangement in which those who receive the visas would be eligible for them until the year 2002. The purpose being to give them the confidence to remain in Hong Kong knowing that if things take a turn for the worse in the run up to '97, they'd still be able to leave. And it's our hope that if this is ultimately enacted it can help contribute to the confidence which is clearly necessary if Hong Kong is going to remain viable. So, while, obviously, the future of Hong Kong will primarily be determined in Beijing and in Hong Kong, to the extent that we can have an impact, we are, I think, trying to act in ways which are helpful. MR. KAMM: That's greatly appreciated, Congressman, thank you. REP. PELOSI: (Off mike.) Mr. Chairman. REP. SOLARZ: Yes, Ms. Pelosi. REP. PELOSI: Mr. Chairman, if you would yield for a moment? REP. SOLARZ: Certainly. Federal News Service, MAY 16, 1990 REP. PELOSI: A half a moment. Because Mr. Kamm may have to leave, I just wanted to make one comment. I hope we have the opportunity to ask him some questions because I think he's provided some very valuable information to us. And for the duration of his testimony I thought he had a healthy regard for the democracy movement in China. I was dismayed, however, by his characterization of Chai Ling's support for revoking MFN by saying, "I understand the emotion and bitterness." There is the possibility of disagreeing on this issue from an intellectual basis, and what brings peace -- freedom and democracy to China, and we're not talking about how to punish China, we're talking about how to bring democracy to China. You presented some very important information about the ramifications of MFN, but I would hope that your comment was more offhand rather than reflective of an attitude that Chai Ling, a person who doesn't need me to defend her, or others who have testified about carefully proceeding with MFN, are acting or speaking from bitterness or emotion. MR. KAMM: I'm sorry if I gave that impression, Congresswoman Pelosi. I have nothing but respect for Chai Ling and the other members of the pro-democracy movement. Remember, it was the people of Hong Kong who marched in their millions to support the pro-democracy and reform movement -- REP. PELOSI: I understand that. MR. KAMM: -- and continue to support the movement today. All we're saying is if you knock the underpinnings out from under our economy, we cannot continue to Federal News Service, MAY 16, 1990 support reform and democratization. REP. PELOSI: You were very clear in your testimony, but I'm just saying that that remark at the end discredited some of the credentials. MR. KAMM: I'm sorry if I gave that impression. REP. PELOSI: I thought you were establishing as an advocate of pro-democracy. Thank you, Mr. Chairman. MR. KAMM: Okay. Thank you. REP. SOLARZ: Thank you. Ms. Nass, please proceed. MS. NASS: Thank you. My notes tell me that I should be saying "Good morning," but in view of the hour I'll say "Good afternoon," and I didn't bring my pajamas, so I hope it's not a sleep-over. I am Ronni Nass, Vice President -- REP. SOLARZ: Well, the reputation of the Congress notwithstanding -- (laughter) -- let me assure you this is not a sleep-over. This is a legitimate congressional hearing. You can relax. MS. NASS: As Vice President of imports for McCrory's stores, I'm substituting here for Peter Hundell (ph), who was called away on an emergency. We ask that his testimony be submitted into the record. I have been in the import arena myself for 15 years and have been doing business with China for the last 10 years. I am also an officer of the American Association of Exporters and Importers, a national organization that is comprised of 1,200 US companies. Federal News Service, MAY 16, 1990 Association members export, import, distribute and manufacture a complete spectrum of products and services. On behalf of AAEI, I present the following. US businesses involved in nearly all areas of international trade would be affected, either directly or indirectly, by the withdrawal or suspension of Most Favored Nation status from the People's Republic of China. A significant number of AAEI exporters, importers and retailers are currently directly engaged in trade with China. And overall, probably half of AAEI's membership is involved with China in some capacity. US-China trade has grown tremendously in volume and complexity since the US first provided China with MFN status a decade ago. Total trade has almost tripled, from $5.6 billion in 1981 to more than $14 billion in 1989. Most Favored Nation status is the cornerstone of normal commercial trading relationships with countries worldwide, including China, and is a key aspect of the bilateral trade agreement with China negotiated in 1979. Imports from countries not granted MFN status are subject to devastating Smoot-Hawley Column II duty rates, and in some instances increase those rates from as much as seven percent to 90 percent, with an average of 40 percent. Removing MFN status for China would literally pull the rug out from under all trade, both exports and imports, and seriously damage many US firms dependent on that trade. In some cases, the increased duty costs would be so substantial that we would actually have out of pocket losses even before considering overhead expenses. Federal News Service, MAY 16, 1990 An April 23rd, 1990 report by the US-China Business Council estimated that without MFN status duties on 1989 imports from China would be an extra $4 billion. This additional $4 billion cost would first and foremost result in substantial out of pocket losses for US importers and retailers, and down the line price increases for the lowest income consumers and chaos in the international marketplace. For one AAEI member importing driving gloves, loss of MFN status would inflict an increase in duty from approximately $1.80 per dozen to $8.10 per dozen. Additionally, both large and small companies would immediately incur a significant loss on merchandise already contracted for sale at a specific price, but not yet delivered, which could completely wipe out gross profits in most instances. Over the longer term, the cost of delays, lost time, and unavailability of supply could be even more damaging to small business than the immediate duty increases, making it very difficult to survive. In my company's case, China is a major supplier for a vast amount of toys, a product in which many US importers, retailers and workers have a very large stake. McCrory is currently paying an average of 5-1/2 percent duty on imports of toys. Without MFN status for China, our duty would increase to approximately 70 percent on many toys, or an overall average of approximately 40 to 50 percent on all toys. Such an exorbitant increase in cost could cause dislocations, both the in US market, from possible job loss and higher inflation, and wreak havoc in the Federal News Service, MAY 16, 1990 international marketplace. McCrory alone would have to find alternate suppliers for millions of dollars worth of goods. Another example is a footwear importer who, employing over 8,000 people, reported that the substantial and unsustainable costs of Column 2 rates would simply prevent them from serving the low-income consumer with the same low-price goods. If goods coming from China were expensive luxury goods, then price increases caused by the increased duty, or by shifting to more costly suppliers, would not have such a devastating effect. However, with these basic consumer items, a price increase could drastically cut the number of purchases and create considerable hardship for price-sensitive consumers, a customer of our business, and many others represented by AAEI. I think I speak for all Americans when I say that the events in Tiananmen Square and subsequent crackdown are abhorrent. And the US should not condone such acts by any government. However, before the US government essentially cuts off a normal, commercial relationship with that country, we ask that you consider the following. In the short and medium term, denial of MFN treatment for China will come at the great expense of US small businesses dependent on that trade, job loss for US workers, US exporters' market share, and low-income American consumers. Denial of MFN will cause havoc in the international marketplace, driving up prices both here and abroad, as US firms compete for limited, more costly supply elsewhere in the world. Trade sanctions imposed for foreign policy purposes have not Federal News Service, MAY 16, 1990 proved effective in the past, especially if they are applied unilaterally without the support of other US trading partners. Furthermore, China, in particular, has been quick to retaliate against US exports when it construes foreign interference. Denying MFN treatment would injure those most liberalized free market sectors of the Chinese economy that have developed in China explicitly because of trade with the West. Lastly, thee are many actions that this government could yet take short of a total break in trade relations implicit in denial of MFN to bring about international condemnation. We ask for your consideration of all of these issues. And if I could comment just momentarily on that six month idea that's been floating around here all morning, as a business individual, six months would be meaningless to any business that might want to continue their trade, whether it be on an import or export basis. It would not serve our purpose in any way and would be the same as removal of MFN completely. Thank you. REP. SOLARZ: Thank you. Mr. Hicks? MR. HICKS: Thank you, Mr. Chairman. I'm delighted to be here at the pleasure of the Chairman and the other members of the subcommittee. I'm here on behalf of the National Foreign Trade Counsel. You have my written testimony for the record on that. I'm also here as the president of the American Chamber of Commerce of China, of which we have 117 members, and our Federal News Service, MAY 16, 1990 written position has been presented to you for that purpose on the record. I'm also here as the general manager of a joint venture. I live in Beijing; I have for the last five years. I employ 2,400 employees. They were my employees who were sitting in front of truckloads of troops last March -- last May -- feeding them sandwiches and pop, keeping them happy, from downtown. Some of those experiences are what I'm going to go into in my testimony. And finally, and most importantly here is a person who is a Christian, an Eagle Scout, a city councilman from Ohio, and a US citizen trying to do my best in China to do a good job, one, in managing a company, being a president of the American Chamber of Commerce, but also being an example of American virtue, American principles, and American freedom. In our joint venture we've had the opportunity to double people's salaries, we've improved their safety, attitudes, we've improved their health, we've improved the food in their cafeteria, we've improved their vacation time, we've improved their living conditions, we've established a hope and faith with 2,400 employees and probably 6,000 people when you include their families. We've been performing human rights by example. This has been done in over 100 -- 1,000 other joint ventures in China simply by our presence, and that would not have occurred without most favored nation. As I said last -- last May, our people were in front of trucks on the West Side of Beijing, stopping soldiers from going downtown, and we literally did serve them the Chinese form of sandwiches and pop. Our people were willing to do Federal News Service, MAY 16, 1990 that, because they knew that big nose and round eyes would protect them, and I've been able to do that. None of them have ended up in jail. Last June, I took 12 foreigners out, on June 8th, to -- because CNN was predicting over our satellite that maybe there was going to be civil war and the armies were fighting, and to protect their lives I decided to evacuate. There was a very tearful leaving, because a group of Chinese were at our gate, worried that we were never going to return. I returned one week later. I got losts of double-fisted handshakes and big smiles because we had returned, and because their hope and faith for a better future was again back there working. This would not have occurred without Most Favored Nation. As a general manager I get involved in the opportunity to have the responsibility for not only running a company, but also being responsible for the whole living community of our joint venture, our work unit, our donwei (ph). I'm responsible for marriages, divorces, passports, visas, hiring, firing, political activity, union activity, pregnacies, abortions -- not literally -- and so, I have a very intimate knowledge in what's been going on in the last year and in the previous four or five years, and the comparison of that. We have again the opportunity to influence those activities by being in China, and being joint venture operators, and selling and buying in China. We would not have that without most favored nation. In conclusion, I get the opportunity to work daily with the leaders in Beijing, the leaders in the state of China. Being there, and the other three Federal News Service, MAY 16, 1990 [thousand] or four thousand Americans who are in China continue to give us the opportunity to have regular influence on the freedom and human rights path. We support the continuation of most favored nation, so that we can continue to do the job that we have been doing. Thank you. REP. SOLARZ: Thank you very much, Mr. Hicks. Mr. Faleomavaega. Feel free to procede with your questioning. DEL. FALEOMAVAEGA: Mr. Chairman, thank you very much. I appreciate the testimonies that have been going before the committee. I just wanted to ask the gentle lady -- I'm sorry, I didn't get your name tag there, on the front there -- can you elaborate a little further as to how much impact the small businesses throughout the US will be affected by this, if we decide to -- not to give most favored nation treatment to the PRC? MS. NASS: I don't know if I can speak for all small businesses, and McCory Stores is not really a small business. But the impact will be on those small businesses that are supplying products to the consumer that's on low, fixed income or price sensitive consumer, as they are known today. That will be the major impact. The cost, in time, of developing a source such as China, which has taken us ten years to develop, in order to get quality merchandise at prices that our consumers can afford, would then have to be moved to another location, and we don't know where that location would be. It's also been suggested that perhaps some of those locations might even be countries where we, as the United States, may disagree with their form of Federal News Service, MAY 16, 1990 government as well, so I don't know that we would be doing anything to satisfy anyone at that point. DEL. FALEOMAVAEGA: I'm just particularly interested in this because, of course, we know that big corporations can take care of themselves but I'm wondering, based on your statement earlier that you said that a great number of small businesses will be affected by this if we decide not to give PRC MFN status and I'm just curious if you might have detailed information you could supply for the record or -- MS. NASS: Well, I don't have any -- DEL. FALEOMAVAEGA: are you talking about 2,600 small businesses throughout the US will be affected? Or 6,000? Or what -- MS. NASS: Well, it could be many more than that as well because you have to realize that in addition to those people that act as direct importers or retailers that may be small in terms of total volume that they do -- a great many products that are imported into the United States are also coming from China from maybe larger concerns. But that means that those smaller businesses would not be able to purchase those products even on domestic terms. So its impact could be very great indeed, and no, I'm sorry I don't have those statistics with me. DEL. FALEOMAVAEGA: I'd like to ask Mr. Hicks and Mr. Kamm -- maybe you could elaborate a little further. It's quite obvious that our business community definitely needs the MFN status as far as the economic issues are concerned. Federal News Service, MAY 16, 1990 But I wanted to ask you, how can we at the same time give such assurances so at least we can receive assurances from the PRC that human rights violations of the sort that we've been talking about all morning can be given in a little more positive perspective rather than what we've been faced with for the past seven months or so since the Tiananman Square massacre? I mean, I can see the economy of this situation, as far as the needs of our business community, by giving the MFN status. But what would you suggest is the question, Mr. Hicks, since he's a resident of PRC -- by way of understanding the situation out there more personally than I would -- what would be your recommendations to this committee and to the Congress on how we can have the People's Republic of China be more responsive to the concerns that we've indicated earlier about the human rights violations of this sort? MR. HICKS: I don't have a good answer for you, which is the truthful answer. In my written testimony I've talked about the economic impact. In my verbal testimony I've tried to talk about our presence and having a thousand Americans -- or 2,000 Americans there acting freely, and talking human rights and all of the virtues that come from that. The bottom line of what I'm saying is we -- I think we've got to continue Most Favored Nation, we've got to continue our presence of Americans there, and we've got to keep doing our thing, which is what we've been doing for 10 years and which has encouraged a lot of people to study America and its values. It's encouraged a lot of students to come to America. Federal News Service, MAY 16, 1990 They're now using our designs and our products in their country. There's becoming a very close association, not only to our technology and to our business practices, but also the freedom of our country. And I think -- none of us, I think, can predict exactly what's going to happen if we don't have most-favored nation, but I think those things will stop. And so I support continuation and maybe a strong condemnation and continued encouragement of what American citizens are doing there now. DEL. FALEOMAVAEGA: Mr. Kamm. MR. KAMM: Yes, this is extremely difficult. And the question that this morning's session -- it came down to is precisely, will revoking or renewing MFN get more prisoners out of those jails? That's the question, that's the bottom-line. What happens? You take it away, are more people freed? When you keep it, do you somehow get more people out? I don't know the answer to that. The American Chamber in Hong Kong is the largest Chamber in the Far East. It's probably the largest American Chamber in the world. We have people going into China all the time. We are meeting with the Chinese officials in Hong Kong. We make it very clear to them that their behavior is unacceptable, we abhor it. The day before I left Hong Kong to come here I met with the new senior representative in Hong Kong of the New China News Agency. I made it very clear to him that we had to have political prisoners released from jails. Now the next day I read that they had released some political prisoners. Federal News Service, MAY 16, 1990 I'm not saying that our appeal led to that. It may be just a coincidence; it probably is. But, I think we have to keep the pressure up and we have to keep telling them they have to release political prisoners and improve the human rights record. But, again, the people of Hong Kong have human rights, too. They have the right to a secure livelihood. Taking most-favored nation treatment away from China will undermine their right to a secure livelihood. DEL. FALEOMAVAEGA: Which raises another very serious question, Mr. Kamm -- MR. KAMM: Yes. DEL. FALEOMAVAEGA: It's my understanding that the residents of -- the people of Hong Kong are very, very concerned come 1997. MR. KAMM: Yes, sir. DEL. FALEOMAVAEGA: It's my understanding also that the general sentiment in Hong Kong is very very negative towards any affiliations with the PRC come 1997, and I was just wanting to note that, if you have any comments to that effect. And given the situation that those people there may not want to join the PRC -- MR. KAMM: Oh, well, sir, yes, the people of Hong Kong are very concerned about 1997, and I think the debate on MFN is actually heightening their concern over 1997, because now they see that really, there's no way they can win if both Hong Kong's friends and those who carried out June 4 are determined to make their lives more difficult. DEL. FALEOMAVAEGA: I see my time's up, Mr. Chairman. Thank you. Federal News Service, MAY 16, 1990 REP. SOLARZ: Thank you. I'm going to call on Ms. Pelosi in one minute, but I'd first like to ask you a question, Mr. Kamm. MR. KAMM: Yes, sir. REP. SOLARZ: You've come here today to say to us that if we suspend MFN for China, it could have very serious consequences for Hong Kong -- perhaps even devastating consequences. You also add that in your view, suspending MFN for China would be counterproductive in terms of our interest in human rights in China. Supposing you came to the conclusion that by suspending MFN for China, we would in fact advance the prospects for human rights in China. But under those circumstances, of course, Hong Kong would be obligated to pay a heavy price. Are you -- would it be your position under those circumstances that the future of Hong Kong is more important than the cause of human rights on the mainland? MR. KAMM: That -- that is -- REP. SOLARZ: Or would you say that under those circumstances, recognizing this is a hypothesis and an assumption you may not accept, but under those circumstances would you say that, as regretful as the consequences would be for Hong Kong, obviously, if we're talking about human rights for a billion people, that has to be given precedence? MR. KAMM: I'm no biblical scholar, sir; and I hope a bolt of lightning doesn't strike me. (Chuckle.) This is a very -- this is a question that goes back, to Federal News Service, MAY 16, 1990 me, thousands of years. When the Lord looked at Sodom and Gomorrah and decided to destroy Sodom and Gomorrah, Abraham went to him and said, "If there are 50 righteous people, will you destroy Sodom and Gomorrah? Will you destroy the righteous to punish the wicked?" And the answer was, "I would spare for the sake of the righteous." And the question I have is: Is Congress prepared? And I don't know the answer. Is Congress prepared for the sake of Hong Kong to stay its hand on this matter? I want to say one thing on this -- REP. SOLARZ: Are you saying Hong Kong uber alles? (Laughter.) MR. KAMM: I'm saying, sir, in the absence -- in the absence -- in the absence of a definite answer to your question -- that is, a definitive and definite answer that taking Most Favored Nation treatment away will improve the human rights condition in China, then I know it's going to hurt Hong Kong. No one here today has made a convincing argument that taking it away will improve the human rights situation in China. So, we are left to weigh a questionable situation. Will taking it away improve the human rights situation in China? No one has given a definite answer. But I can tell you taking it away will hurt the people of Hong Kong. REP. SOLARZ: Well, I think you're right, in a way, to focus on the impact of what we do on China, because that really is the main question. Even in terms of Hong Kong, it seems to me that a very persuasive argument can be made that the best way to ensure the future of Hong Kong is to facilitate the emergence of a more democratic government in China, which by definition would then be more Federal News Service, MAY 16, 1990 sensitive to the realities and concerns of the Hong Kong people. That leaves open the question of whether suspending MFN is the most effective way of facilitating the prospects for democracy in China. But if one concluded that it did, it would seem to me, one could be comfortable that whatever the short-term problems for Hong Kong, if it was really going to advance the prospects for democratization in China -- MR. KAMM: Yes. REP. SOLARZ: -- it would utlimately be beneficial to Hong Kong. MR. KAMM: If it were the case that taking MFN would definitely improve the human rights situation in China -- if that were the case -- then a strong argument would have to be made that the people of Hong Kong would have to bear their suffering and sacrifice. REP. SOLARZ: In the short run -- MR. KAMM: Well -- REP. SOLARZ: -- but in any -- MR. KAMM: Our economy has changed in that -- we can't go back to where we were. REP. SOLARZ: Right. (Pause.) Yes. DEL. FALEOMAVAEGA: Mr. Chairman? REP. SOLARZ: Yes? DEL. FALEOMAVAEGA: I would like to say to the gentleman, as a former pagan, your Abraham couldn't even find ten righteous souls in Sodom and Gomorah. MR. KAMM: That's right. (Chuckles.) Only I hope in this case that's not true Federal News Service, MAY 16, 1990 with Hong Kong. DEL. FALEOMAVAEGA: And so in your -- in your hypothetical I just wanted to know, you know, in the sense of the equation it still doesn't seem to -- whether it be one life -- loss of one life, as it were -- ten -- I mean, when you make it a number situation we're talking, of course, about 1.5 billion people on this planet, and how do you equate human rights in terms of saying, whether it's 3,000 or 100 of 1.5 billion whose lives are at stake, if the economy, or reverse is political situation, are not compromised. I'm -- MR. KAMM: Yeah, I -- you know, obviously I'm uncomfortable with these kind of numbers -- we're talking in big numbers. But the point I'm trying to make is I haven't heard the convincing argument that taking Most Favored Nation treatment away from China will improve the human rights situation in China. That's not certain. No one has made a convincing argument. All right? But I do know that taking it away will hurt Hong Kong. REP. SOLARZ: Ms. Pelosi? REP. PELOSI: I thank the Chairman for his question because I think that one of the reasons there was such tremendous support, among other reasons in Hong Kong, for the pro-democracy movement in China was because it would be beneficial to Hong Kong and remove much of the uncertainty of 1997. My question, Mr. Chairman, though, I'm going to address first to Mr. Sullivan. Mr. Sullivan, I was intrigued by a paragraph in your statement on page 8. It says, but -- and I think it goes right to the heart of the discussion that Federal News Service, MAY 16, 1990 we're having here about what the impact of MFN is going to do: "If MFN is revoked and foreign enterprises in Japan are forced to shut down because of the Chinese government retaliation that would follow." Could you take me through that? If MFN is revoked then the Chinese government is going to shut down all other foreign enterprises in China? MR. SULLIVAN: Well, I think that it's very clear that if the United States withdraws Most Favored Nation treatment from China, China withdraws Most Favored Nation treatment from the United States -- REP. PELOSI: Okay, but that -- you said, foreign enterprises. You mean, beyond the US? MR. SULLIVAN: No, I'm sorry. I'm talking about foreign enterprises operating in China. REP. PELOSI: Okay, so what you're saying is MFN is revoked, and foreign -- it said substitute US enterprises in China? MR. SULLIVAN: US enterprises in China, right. REP. PELOSI: Okay, so what percentage of the foreign enterprises in China are the US enterprises? What percentage? MR. SULLIVAN: About 14 percent. REP. PELOSI: So the US has -- MR. SULLIVAN: Well, wait a minute. It's not just the US who would be affected. If a Hong Kong factory -- and most of the Hong Kong factories that are operating in South Korea are making Ninja Turtle dolls for the American market, they're Federal News Service, MAY 16, 1990 going to be shut down too. And so I think -- I think that saying "foreign enterprises" is correct. Not all foreign enterprises would be shut down, but a good half of them would be, not just American -- REP. PELOSI: Okay, well just help me because -- MR. SULLIVAN: Yeah -- REP. PELOSI: -- you're an expert on it. We had heard earlier that the Japanese and everybody else are chomping at the bit to get in there if we revoke MFN to -- and increase their piece of the pie in China. Do you believe that that is the case? MR. SULLIVAN: I believe that -- I'd refine that. It depends on that. It depends on what we're talking about. That if the United States revokes MFN treatment for China, then a number of things happen: one is that foreign enterprises in China, American enterprises in China, first of all, that import component parts are going to be forced to pay astronomical duties -- REP. PELOSI: I understand that. MR. SULLIVAN: -- and so forth, so they shut down. All the people who are manufacturing for the US market are going to be shut down because they're not going to have the US market. But then, the additional retaliation would be that China would, as I indicated in here, declare the United States to be a source of last resort. They did this before, so that they -- would not buy wheat from the United States. REP. PELOSI: Okay. Federal News Service, MAY 16, 1990 MR. SULLIVAN: So I suppose the Canadians and Australians would be chomping at the bit. They wouldn't -- they might not buy Boeing 747s in which case then the European people begin chomping at the bit. So it's -- REP. PELOSI: I understand that and you made that clear. But let's just go to the point that you make here. You say that the ability of this -- but you do agree that there would be other foreign enterprise in China -- MR. SULLIVAN: Yes -- REP. PELOSI: -- apart from the US? MR. SULLIVAN: Right. REP. PELOSI: So therefore -- I just want to understand the -- how comprehensive your statement is. The ability of this type of private contact to promote a return to reform by its presence and its response to changes in the environment would be destroyed. MR. SULLIVAN: Mmm-hmm. (In acknowledgement.) REP. PELOSI: So if MFN were revoked by the US, it would have a destuctive impact this -- on private enterprise in China, and all these other countries -- MR. SULLIVAN: Not all, not all -- REP. PELOSI: -- of 86 percent that were left? MR. SULLIVAN: Excuse me. I'm sorry. REP. PELOSI: I'm just trying to figure out what is our impact? We can't have it both ways. I mean, in other words, we either have a certain amount of impact or we don't. And I -- again, I don't know where I'm coming down on MFN, but I'm Federal News Service, MAY 16, 1990 trying. I think -- MR. SULLIVAN: Yeah. No, it's substantial. I think it's very hard -- it's very hard to quantify it in precise terms, because -- but the -- so much of the foreign enterprises in China -- REP. PELOSI: Right. MR. SULLIVAN: -- that manufacture for export are manufacturing -- and this includes Taiwan factories, Hong Kong factories and American factories that are in that kind of business -- are exporting to the US market. REP. PELOSI: Okay. And they're in the small business -- MR. SULLIVAN: And we estimated about 50 percent of China's exports would be cut off. And that means a lot of enterprises, American and non-American. REP. PELOSI: Okay. But you don't -- I guess my point is as follows, Mr. Chairman. If we revoke MFN, what is the impact on private enterprise in China? Okay, that -- you say in this thing, "If we revoke MFN, private enterprise in China will close down -- will be destroyed." That's what you say in this paragraph. You're not paying any heed to the fact that maybe -- you said 14 percent -- 86 percent of that enterprise are other foreign countries -- if your answer to my question was what I understood it to be -- that is that we represent 14 percent of this commerce with China in the small businesses. MR. SULLIVAN: Well, we represent 14 percent in terms of the investment. We don't represent 14 percent in terms of the market for these factories. And the reason for -- Federal News Service, MAY 16, 1990 REP. PELOSI: So what percentage would that be? MR. SULLIVAN: -- part of the reason for the major impact on Hong Kong is that these factories which are owned by Hong Kong companies are manufacturing in China in order to sell in the United States. And they get affected, as well -- and Taiwan factories and others. MR. KAMM: About 60 percent, Congresswoman Pelosi, of investment in China is Hong Kong money -- 60 percent. REP. PELOSI: Um, hm. Is Hong Kong money, right. MR. KAMM: Yes, Hong Kong investments. And concentrated in South China, producing for the US market. REP. PELOSI: For the US market. So, 60 percent of what's going on in the free enterprise -- MR. KAMM: 60 plus 14. REP. PELOSI: -- the "private sector," so to speak, in China is US? MR. KAMM: The private sector is a bit of a misnomer here. REP. PELOSI: Okay. In the what? MR. KAMM: The foreign investment, the Hong Kong companies are private companies. The money that goes in and establishes those factories -- that's Hong Kong money; that's private Hong Kong money. But the state is still out there. The state -- REP. PELOSI: Yes, I understand that. MR. KAMM: -- the state still has large foreign exchange reserves -- about $17 Federal News Service, MAY 16, 1990 billion right now in reserves. They will continue to import needed commodities. They have the money to do that. REP. PELOSI: Thank you, Mr. Kamm. Mr. Chairman I was just trying to understand more clearly, because I've heard two different sides of this. One is that, "well, if we revoke MFN, we're going to destroy all this so-called private contact type of enterprise." And on the other hand, I'm hearing that the other -- our allies are chomping at the bit to take up the vacuum. I know it will have an impact on our businesses in our country. I think Ms. Nass made some very important statements about that as did our other witnesses, but I'm trying to understand what the impact is on the private sector there. Either it has an impact, or our allies will jump in there. But I don't know how you can have it both ways. And I -- in trying to understand what that does in terms of democracy in China, I think it's important to know. REP. SOLARZ: Well, let me -- let me try to clarify the confusion and the panel can correct me if I'm wrong. I think what they're saying is, if we take away MFN -- REP. PELOSI: Right. REP. SOLARZ: -- first of all, we can anticipate China will retaliate by taking away MFN from us in terms of what -- REP. PELOSI: Right, sure. REP. SOLARZ: -- and also, where possible, purchasing from other countries what they now purchase from the United States. Federal News Service, MAY 16, 1990 REP. PELOSI: Right. REP. SOLARZ: So, in that sense, if we take away MFN and they decide not to buy civilian aircraft from Boeing, the European Airbus or whatever, will jump in and get the contract. In terms of contact with Americans doing business in China, I think what they're saying on the other hand is that to the extent that there are a lot of export industries in China -- REP. PELOSI: Right. REP. SOLARZ: -- that primarily produce for export to the United States, to the extent that their production will no longer be exportable because it'll no longer be economical given the loss of MFN, those particular enterprises will probably close down. There's -- nobody else rushes to fill the vacuum because they're selling to us and they can no longer sell to us. So, I think in that sense you get the double whammy, am I correct? MR. SULLIVAN: Yes, you're absolutely correct, Mr. Chairman. I think your question's a very complex one because it covers a whole lot of different areas. It covers the points the Chairman pointed out. But it -- but it omits one other, and that is that the American investment in China is far and away the largest -- aside from Hong Kong, which is a very special case -- in investment in the Chinese economy, and I don't want to get too complicated in this, but until 1985 or 1986 most of the foreign investment in China was investment of foreigners serving other foreigners: building hotels for foreigners to stay in, Federal News Service, MAY 16, 1990 manufacturing drilling equipment for foreign oil companies to use, and it was only when reform went to the point that -- in 1985 and early '86, where they were prepared to make some compromises and free the economy, allow workers to choose where they were going to work, and that -- all this kind of thing, that you began to get interest in investment in China for investment that would be actually integrated into the Chinese economy. American companies, for a lot of reasons I don't need to go into, were most interested of all foreign countries in doing that, and we now have about a thousand enterprises in China. I think something like 80 percent of them are engaged not in making ninja dolls and baseball bats to sell in California, but to manufacture products in China that can compete with imports from Japan in China. And that kind of investment has a profound effect on the social fabric of a country, much moreso than, say, an export industry or an oil drilling operation, and so forth. It -- it -- because the -- the companies then have employees, they have distribution systems, they make demands on the government, and from the standpoint of the reformers in China, their greatest value was that they were models for what Chinese enterprises ought to be, and they were laboratories within which they could try things in a Chinese cultural context to see if these foreign free-market type of ways of doing things were applicable to the Chinese scene. And, the -- that is -- is -- REP. PELOSI: And would they be -- Federal News Service, MAY 16, 1990 MR. SULLIVAN: -- what would be shut down. REP. PELOSI: And they would be affected by MFN? MR. SULLIVAN: Oh, absolutely. They would be shut down. REP. PELOSI: Thank you, Mr. Sullivan. MR. HICKS: Well, we've got Chrysler -- or -- Chrysler Jeeps being built there that come from kits from Toledo, Ohio. We've got Otis Elevators being built there that come from kits from around Sacramento. We've got BMW boilers being built that have imports from the United States. We have Carrier air conditioners which have compressors coming in fron the United States. How are those businesses going to be affected? Well, one, you don't really do any business in China unless you have help and you have lao punyous (ph). That's going to disappear. The friends are going to go away, and the bureaucracy is not going to assist us. And so it's going to be more difficult for us to do business. The kits are going to become more expensive, so the jobs that are in the United States now, making those kits on those products going there, we may not be able to compete any more. What that turns into in regard to economic performance, who knows? But if we can no longer make a profit, then we've got to shut down and leave. And other people then will fill that gap. But that's been something that's been built over five or ten years, and will start a decline, I think, in my opinion. REP. PELOSI: I thank the gentleman. Mr. Sullivan, just for the record -- you've said you agreed with Mr. Lord's approach in terms of conditional approval of Federal News Service, MAY 16, 1990 MFN? MR. SULLIVAN: Well, I don't like to call it conditional approval because I associate conditional approval with some of the other suggestions of -- let's not extend it for six months until we see what happens, that kind -- I call that conditional. REP. PELOSI: Okay. MR. SULLIVAN: What I favor is -- and let me explain why I favor it -- it seems to me that the leverage we have over the Chinese does not lie in the economic area, that this -- you know, if this government was really so concerned about economics, they wouldn't be doing an awful lot of the things that they've done, and that's not just Tiananmen and the way they treat Hong Kong. It's been a retreat from economic reform, and a lot of ideological decisions in the economic area which are clearly contrary to their economic interests. So I don't think that they're going to be persuaded or influenced at all by that. What they are interested in -- and it's very clear by the way they trumpeted the Scowcroft trip to China -- what they are interested in is the fact that the United States -- the President of the United States -- gave them a legitimacy that their own people took away from them. And that -- and legitimacy is a very important thing to a government like that, that's running scared. And that is the Achilles heel of this government, and I think a statement -- joint statement -- by the President and the Congress, which says, we are extending MFN because of the -- all this collateral damage isn't worth making that kind of a Federal News Service, MAY 16, 1990 statement, and because we think that, over the long term, further private contact, including commercial contact, is going to bring the country back to reform. And -- but that we recognize that this government is not going to change. We recognize that this is a government that is in transition, and we are positioning ourselves to deal with its successors. If the President of the United States said that, you don't think that's a devastating statement to be made -- have an impact on this regime -- and, furthermore, would really restore a lot of the morale of the pro-democracy movement, which has been devastated by our behavior over the past year. REP. SOLARZ: Well, let me ask a few questions here. Supposing, Mr. Sullivan, that the President is unwilling to make such a statement. Supposing some of us meet with him in the next week and we urge him to pursue such a course of action and he says, "That's not my policy. I thought sanctions were a mistake to begin with. Now you're asking me to reaffirm support for them. You want me to make a testimonial to the students who gave up their lives, and that's inconsistent. I think you get more -- catch more flies with honey than with vinegar. I know China better than any of you. I served there. Trust me, and -- you know, I'm going to renew it, but I don't want to surround the statement with a lot of this extraneous potentially counterproductive argumentation. So I understand Mr. Sullivan means well, but -- Ambassador Lord means well, but they don't sit where I sit, and I know what's best." Federal News Service, MAY 16, 1990 Now under those circumstances, the ball would then be in our court. If the President really declines to renew MFN in a way that makes it clear that this is not a good-government seal of approval, what would you urge us to do? Should we just sort of accept it and let it go? Or under those circumstances, would you urge us to support a resolution of disapproval, which under the law of course we have the right to do? MR. SULLIVAN: Well, you certainly have the right to do that. I think that -- I think that that, with all due respect, would be the wrong reaction because it doesn't seem to me that it makes sense to disapprove MFN for China because we're unhappy with the President -- because we think the President's following the wrong policy. If we're convinced, as I am, that removal of MFN is not going to accomplish anything -- indeed it's probably going to keep this government in power, perhaps, longer than it otherwise would be, which is going to destroy the structures that we are going to have to work another 10 or 20 years to rebuild after they pass on the scene -- I, first of all, hope that the President has come to realize it in the last few months; that what he did with China in the early months after Tiananmen has not had the effect that he hoped for. But if he does not, I really don't know if I have any good suggestion except to say that the Congress should attach the strongest amendment to the resolution, expressing this as the view of the American people. And then making the best of a bad deal, perhaps, saying that by signing this, as the President now, I Federal News Service, MAY 16, 1990 guess, has to do, I don't know -- that he is endorsing it. But in a joint statement -- it's unsatisfactory, I recognize, because to have the kind of effect that we're talking about on China, it's really got to be a united view of the -- (inaudible.) REP. SOLARZ: Now, tell me, were you -- what was your position on the sanctions enacted by the Congress last year? MR. SULLIVAN: I was -- I thought that the sanctions you considered were appropriate. REP. SOLARZ: Now, we're told there are 1,000 US joint ventures in China. And you say that 80 percent of them produce for the Chinese market? MR. SULLIVAN: Just about -- just about that. REP. SOLARZ: Well, if 80 percent of them produce for the Chinese market, in what way would they be hurt if MFN were taken away? MR. SULLIVAN: Well, they're hurt because of some of the examples that Mr. Hicks gave that, for example, the Chrysler Corporation is making jeeps -- there it costs them $18,000 to make a $16,000 jeep already. And if the Chinese government decides, which they certainly would, that they are going to impose 150 percent duty on the kits coming in, these people are going to have a very difficult time operating. And the same would be true of almost any one of -- almost any American joint venture in China is a major importer of components, and spare parts, and raw materials, and so forth, from the United States. And the -- some people have Federal News Service, MAY 16, 1990 said when I've suggested this, say, "well, the Chinese wouldn't be so foolish." I mean, why would they want to cripple a joint venture in China that's manufacturing jeeps they need? I tell you, they would. I can just picture them saying to the Chrysler people when they complained, "Well, it's your government that did it. You go talk to your government." REP. SOLARZ: Right. MR. SULLIVAN: Because they think -- they think that businesses run our government. REP. SOLARZ: I had hoped to ask this question of Mr. Kamm, but I see he had to leave. Perhaps one of you can answer it. He was talking to us about the impact of a loss of MFN for China on Hong Kong. And the point is made in his presentation that $8.5 billion worth of Chinese products are re-exported to the US via Hong Kong. Now, it's not clear to me how that hurts Hong Kong. In other words, if there's a product that's made in China, and then it's sent by China, shipped to Hong Kong, and then from Hong Kong, it's shipped to the United States, where does Hong Kong get the benefit from that? MR. SULLIVAN: Well, I can answer it, in part; I think it is too bad John isn't here because he could answer it in much more detail. But, transshipment isn't just taking stuff off a barge and putting it on a ship. Places like Hong Kong survives on all kinds of things, including services in shipping and banking and so forth, and there are substantial numbers of jobs involved in that operation, serving as the transshipment point for goods coming out of China. Federal News Service, MAY 16, 1990 MS. NASS: I think I can answer some of that as well, if you don't mind. Hong Kong has changed tremendously over the last ten years when they used to be a production country. Production actually took place within the boundaries of Hong Kong. When we opened the door into China and started developing the southern China area, in particular, a lot of those factories moved over the border, where the labor was much cheaper, and what we have in Hong Kong today is a great deal of trading companies. Now, those trading companies, obviously, would not be purchasing goods on behalf of the US market, if in fact it has a country of origin of China to it, because when it hit the US borders, we would pay those very exorbitant duty rates. REP. SOLARZ: Do you, more or less, share the view, Mr. Sullivan, that a loss of MFN would result in about a 50 percent reduction in Chinese exports to the US. MR. SULLIVAN: Yes. REP. SOLARZ: And those are exports, they presumably wouldn't be able to make up elsewhere. MR. SULLIVAN: Well, when you look at the list, first of all, the types of goods they are. They are -- they're goods that China didn't even try to export to the United States before MFN was granted, and they are also -- you know -- low margin goods that are not -- that could not -- where the increased cost could not be absorbed, either by the company or by the consumers. And, they are not, in most cases, products that could go elsewhere. I mean, someone suggested to me that all they had to do was "They'll them in Japan." The Japanese don't Federal News Service, MAY 16, 1990 like imports from anywhere, including Hong Kong or China. But, beyond that, what we're talking about is not -- in most cases, in many cases here, at least, not goods that are made by Chinese factories, which the Chinese factory is then going to say, Gee, I've got to figure out a way to sell it someplace else. There are -- things made in a Mattel toy factory, which was moved into South China, and the Mattel Toy Company, if I were they, would say, we're going to pick up the factory and move it. Or they're made, under contract with an American company in a Chinese company, to specifications for the US market, and that company is going to say, well, we're not going to order any more from you. We're going to go to Thailand and order. So, yes, I think very little of it can be sold elsewhere. REP. SOLARZ: Do you have any estimate of the macro-economic impact on the US in terms of inflation if we were to take away MFN from China? MR. SULLIVAN: Well, we tried to look at that. It was very hard to quantify, and I think it would be -- I think it would be -- it's probably small. REP. SOLARZ: De minimis. MR. SULLIVAN: It's probably small. REP. SOLARZ: Now those -- mostly the stuff that China sends under MFN is low-cost items. MR. SULLIVAN: Right. REP. SOLARZ: Now, would in -- what would in fact happen to the people who buy Federal News Service, MAY 16, 1990 those items? I'm talking about the consumers. Would they find that other products, comparably priced, would come in from elsewhere to fill the vacuum, or would they be forced to either not get what they want, or to buy something like it but at a higher price? MR. SULLIVAN: Well, I think it's pretty clear that it wouldn't be comparably priced because in -- the reason why a company decides to make these things in China is they can make them there cheaper than they could, say in Thailand or Korea or someplace else. And so if the company's -- I think they -- first of all, there would be some great dislocation because certain things just wouldn't be available. Companies tell us they could adjust, you know, in a year or so, but they would adjust by moving to Sri Lanka, Thailand, some back to Taiwan if they could, to Korea, and the goods would then be available, but they'd be available at a higher cost. REP. SOLARZ: You -- you're someone who has been intimately involved in the Sino-American relationship, and you've studied China. Let's assume you're right in suggesting that it's unrealistic to expect any significant in human rights so long as the current regime is in power -- current crowd is in power. Presumably in the next few years, there will be a changing of the guard. Now, could you explain to me how the kind of people who benefit from MFN in China are likely to have any impact whatsoever on how the struggle for power inside the curtain is ultimately resolved, which will determine the fate and future of China? Federal News Service, MAY 16, 1990 I mean, when the Gang of Four were deposed I have the impression there were sort of a handful of people involved in making that decision. I imagine after the current leadership passes from the scene the number of Chinese who actually participate in determining who succeeds them and which policy they want to pursue may be very limited as well. So, unless one -- REP. SOLARZ: Yeah. REP. SOLARZ: -- envisions the political future of China being written on a much broader canvas -- perhaps it will be -- it's not clear to me how by continuing MFN and continuing to benefit the export sector, the coastal provinces, the other individuals who come in contact with people like Mr. Hicks, Ms. Nass and others -- how they are likely to have any impact on the future of China in terms of the key political decisions that are going to have to be made about which way the country goes. MR. SULLIVAN: I think -- I don't think they do have much impact. That's not -- that's not the point I think I was trying to make. The -- the -- this government is going to run into trouble and be replaced eventually by people we probably never heard of, perhaps by people in the -- now in the PLA -- who knows. But it will be replaced because it is following policies which are patently absurd in terms of the interests of China, the Chinese economy and Chinese political development. And an awful lot of people in China know that. I mean it's amazing to go to China -- I was there last October and even people fairly senior in the Chinese Federal News Service, MAY 16, 1990 government would tell you that privately, with the radio turned up loud. And the -- and a number of them commented to me, this is just like any other end of dynasty behavior -- typical of an end of a dynasty in China is the regime which regards foreign contact as subversive and opposes reform. And that's what these guys are doing. But, what we do by keeping MFN going and keeping this private sector alive is two things: One is we keep a flame alive. This regime has already demonstrated that it's far too interested in shutting down Tiananman Square than it is in going down to Guangdong Province and really shutting down the private sector. Mike Lampton mentioned the fact that the collective and private enterprises -- even though four million of them, I think, have been shut down -- have not all been shut down. It's not because these guys wouldn't like to shut them down, they just haven't got around to it, and it -- it's too much trouble. It's going to take them a long time, perhaps. But, you keep a flame alive, you keep some structures alive, so that this government should be replaced in, say, two or three years, you've got -- you've got a nascent reformist group operating in the provinces and operating in Shanghai, and operating elsewhere which can continue to function. But I think the most important argumnent here is that by keeping Most Favored Nation status in place you do not give this government the chance to pass the blame for the problems that the economy is experiencing on to us. And the history of this is very clear, that when -- anytime the Chinese government has Federal News Service, MAY 16, 1990 been able to do that they turn this into the whole mythology of their hundred years of humiliation and all this kind of thing, and -- and -- but now, in China, everybody in China knows that the problems they've been having, and they've been having some serious economic problems in the last year and they're going to be more serious, are the fault of the -- of the leadership. And that's what's going to do them in, eventually. REP. SOLARZ: Well, let me ask you one final question, because you're last comment suggests that we ought to have a decent respect for the opinion of the Chinese people, and even if our impact on the policies and practices of the leadership is limited, we certainly can influence the perceptions of the Chinese people in terms of the role we've played here in presumably advancing their aspiration for a more humane and democratic society. And I think the views of the Chinese people, to the extent that be determined, ought to be given considerable weight. Obviously, there are some differences of opinion. I'm sure the Chinese opinion is no more monolithic than ours is. But, how do you respond, given the concerns which you referred to, to the statements we heard from Mr. Zhao, speaking on behalf of the Federation of Chinese Students in this country, or to the comments of Chai Ling as relayed by Ms. Pelosi? The impression you get listening to those comments is that the Chinese people, or at least those active in the struggle for democracy, would be disappointed -- MR. SULLIVAN: Well -- REP. SOLARZ: -- if we renewed MFN. Federal News Service, MAY 16, 1990 MR. SULLIVAN: I -- I think, with all due respect, I don't think -- I don't -- I don't -- my own experience is that -- what testimony we heard this morning is not representative of even the students -- Chinese students in the United States. I've had considerable contact with the federation of students and scholars in the United States, and in fact when I discussed my views -- several of them came over to ask me what my views were, and I mentioned this point about -- that we just discussed, about the private sector in south China, and the need to keep the flame alive, and also not to give the government the pretext of blaming the foreigners. They said they thought that was a very strong argument. And at that meeting that took place up in Boston -- I was told over the telephone by one of them that there was no agreement on what their position should be, but that he thought the consensus was that it ought to be some kind of conditional renewal. So I -- in my -- in -- the only thing I have found that all Chinese agree on, and that's Chinese I've talked to in China, and Chinese students I've talked to here, is that the way to -- the way to get at this government is through the legitimacy question, not through -- not through trade. REP. SOLARZ: Well, I want to thank you all very much for your contribution to the hearing. We had no way of knowing it would last as long as it has, but you've certainly contributed greatly to our understanding of the issue. This is obviously a very complex question. Upon its resolution, you know, hinges important interests of our country and of China. You can be sure we will be Federal News Service, MAY 16, 1990 giving your views very careful and comprehensive consideration, so let me thank you for being with us and for bearing with us through a long but productive day. Hearing is adjourned. LANGUAGE: ENGLISH LEVEL 1 - 19 OF 19 STORIES Copyright 1990 Levitt Communications, Inc. Roll Call March 12, 1990 LENGTH: 349 words HEADLINE: Quotable BODY: Sen. Alan Cranston (D-Calif): "So long as our elected representatives must depend on private campaign contributions to be viable candidates, our political system will be suspect. "So long as a Senator votes in behalf of an economic activity important to his state while receiving campaign contributions from benefactors of his votes, he can be accused of being in the pocket of that economic interest. "So long as a Senator receives campaign contributions from the PAC or officer of a company which he subsequently tries to help for the most objectively legitimate of reason, an investigating reporter can accuse the Senator of a quid pro quo. 1990 Roll Call, March 12, 1990 "So long as any wealthy contributor benefits from any action a Senator takes, that Senator can be accused of selling out. "No matter how ethical we are, no matter how carefully we evaluate our activities in our constituents' behalf, our dependence on campaign fundraising from private sources casts a shadow on the ethics of all of us." (in testimony before the Senate Rules and Administration Committee, Feb. 27) Rep. David Obey (D-Wis.): "The stark fact is that the United States emerged from both World War I and World War II in a stronger position economically than we entered, but we are emerging from the Cold War in a weaker relative economic position than we entered it." Sen. Harry Reid (D-Nev): "I am happy to see the spirit of American democracy infusing the governments of the world. But I am equally happy to see that the practice of the American electoral process is not." Jiang Zemin, General Secretary of the Chinese Communist Party: "We believe that our democracy in China is the best democracy. When the young students in China talked about their understanding of democracy and freedom last year, what they aspired to was freedom or democracy that cannot be found in this world.... We do not regret, or criticize ourselves for the way we handled, the 1990 Roll Call, March 12, 1990 Tiananmen event, because if we had not sent in the troops I would not be able to sit here today." (in an interview in US News & World Report, March 12) LANGUAGE: ENGLISH LOAD-DATE: March 05, 1991 You have pressed the NEXT PAGE key when NEXIS had already displayed the last page of the last STORY for this search level. You can display preceding materials by using the PREV DOC, PREV PAGE, FIRST DOC or FIRST PAGE key. You have pressed the NEXT PAGE key when NEXIS had already displayed the last page of the last STORY for this search level. You can display preceding materials by using the PREV DOC, PREV PAGE, FIRST DOC or FIRST PAGE key.