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Permanent Normal Trade Relations
and the Potential
for a More Open China
Gene B. Sperling, Director
National Economic
Council
Remarks before the Dallas Ambassadors Forum
Dallas, Texas
May 12, 2000
As Delivered
In only two weeks, Congress will vote on what is probably the most
important foreign policy and economic issue our country will face this year
– and perhaps in recent years: whether to grant China permanent Normal
Trade Relations (PNTR).
Those who oppose the legislation don't dispute its benefits for the
American economy. Instead, they claim that PNTR will destabilize the well-being
of some of our workers by throwing them to the vagaries of the global economy
-- or that PNTR will send the wrong signal to China about its poor human rights
record.
We certainly disagree. Today, I would like to explain why we believe
that this agreement does not require a trade-off between growing our economy
through more trade and the cause of human rights in China or helping our
workers here at home. To the contrary, this deal is not only right for our
economy; it is also right for our workers and right for the progress –
however slow -- of reform in China.
Economic Benefits of the Agreement
A number of opponents of this agreement speak about it as if it were a
free-trade deal in which both signatories agree to lower tariffs in the hopes
of boosting prosperity in both countries. We in the Administration believe that
such agreements – when they incorporate sound labor and environmental
standards – can be beneficial.
But whatever the merits of these types of agreements, these
considerations have no relevance in the debate about China-PNTR. That's
because when it comes to market opening, the agreement we negotiated with China
is a one-way deal. So the economic question about PNTR boils down to
this: will we accept China's market-opening concessions or will we not? We
agree merely to support China's candidacy for WTO membership and to make
permanent the Normal Trade Relations for China that we have passed each year
for the past 20 years. So, I repeat, if we pass PNTR, we do not open our market
or lower our tariffs one bit. Our market stays the same either way.
If we choose to accept the benefits – if Congress passes PNTR
– we will choose economic growth for the country and also for Texas. Texas
has $91 billion of exports each year – second highest of any state in the
U.S. In Texas, 614,000 jobs depend on such exports. But less than $1 billion of
this total trade is with China. As Mayor Kirk and Albert Black wrote in their
op ed this morning – Dallas does tremendous trade with China, but only $63
million represents exports. Why? Because our market is already open. If we pass
PNTR and get the full benefits of market-opening with China, there is no
question that Texas' trade can expand dramatically. Taiwan is already
Texas' third largest export market. If we pass PNTR and people are as
smart as Mayor Kirk and the businesspeople planning a delegation to China next
month, the opportunities for Texas can be enormous.
Consider a few examples, sector by sector:
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Cotton: Texas is the country's largest cotton producer;
China is the world's largest cotton consumer. Under this agreement, China
will more than quadruple the amount of cotton it would allow to be imported,
with Texas a big winner.
Beef: For Texas ranchers, tariffs on beef will decline from 45
percent to 12 percent. Moreover, China has agreed to eliminate unscientific
barriers that in the past have been used to discriminate against Texas beef.
Demand in China is expected to dramatically increase.
Let there be no mistake about it: passing PNTR will provide a tremendous
economic boost to the Lone Star State.
The economic merits of the deal become even more clear when we consider
what would happen if Congress rejects PNTR for China. Under that scenario, our
firms may have some residual rights in China from earlier trade agreements. But
we would lose virtually all market access we negotiated in the most cutting
edge service, telecom and internet areas and we would lose distribution and
enforcement rights contained in the November agreement for all of our products
– from agriculture to machinery – while allowing our competitors in
Japan and Europe to gain full access to these benefits. Simply put, our
Congress would be going out of its way to put our companies at a competitive
disadvantage by explicitly denying them the access to the world's largest
new market that we would be granting to our top foreign competitors, such as
Japan and Europe.
Why on earth would our Congress specifically vote to deny our farmers,
workers and companies the right to compete on even terms with our foreign
competitors in the world's fastest growing major market? That would be the
closest thing to unilateral economic disarmament that I have ever heard
of.
The Agreement Bolsters Reform in China
However obvious the economic benefits of this agreement, I would feel
very differently about it if I believed it would set back the cause of human
rights in China.
But before I make the case that, in fact, this agreement will push
reform in China in the right direction, we should be clear about where the
Administration agrees and differs with opponents of PNTR.
The opponents argue that China's poor record on human and labor
rights should disqualify it from WTO membership. We in the Administration share
their diagnosis of the problem, but reject their remedy. The question before
the Congress is not whether China's record on human rights is defensible
(it is not). The question is whether passage of PNTR will make positive
change in China more or less likely.
We believe it will make positive change more likely. We base that
belief not on a simple-minded faith that increased trade automatically
engenders democracy or more respect for human rights. We base it on the
conviction that increased engagement, openness to ideas, and movement to new
market forces will promote economic freedom and strengthen reformers trying to
move policy there in the right direction.
As in any country, politics in China features groups who favor change
and those who resist. Whatever problems we have with the current Chinese
leadership, these leaders are clearly engaged in a daring attempt to change
China's command-and-control system into a modern, market economy. And they
are taking significant political risks to make it happen.
Who is the opposition? The entrenched managers of China's
state-owned industries, old-guard communists determined to preserve one-party
rule, and the hardest-line elements in the People's Liberation Army who
feel their position – and military budgets – would be bolstered by
tension with the United States, tension with China's neighbors, and
tension with Taiwan.
Why would Congress wish to hand a major victory to these opponents of
reform and a stinging defeat to its champions? That's exactly what
Congress would do if it rejects PNTR.
And I'll never understand why some opponents of China-PNTR --
people like Pat Buchanan, who have spent an entire career denouncing communism
– now turn their backs on those in China working to move it from a
command-and-control economy to one more based on markets and free
enterprise.
This deal will help reform by helping the reformers. But it will also
help by creating a number of social and economic conditions that favor
reform.
First, consider the flow of information and how that can
undermine an authoritarian regime. Right now only 12 percent of Chinese have
phones; less than 1 percent have Internet access. But passage of PNTR coupled
with Chinese accession to the WTO will help change this situation dramatically
by allowing our world-beating telecomm firms to compete in the Chinese market.
This will not only create jobs in the USA; it will also make the tools of
communication cheaper, better, more reliable, and more widely available to the
Chinese people. Because of this agreement, individual Chinese citizens, with a
few clicks of a mouse, will be able to communicate with each other and with the
outside world in a volume that nobody would have believed possible a few years
ago.
There is no question that some in China's leadership are nervous
about this new-found freedom and have sought new regulations seeking to
restrict the flow of information on the Internet. Good luck. How can the
hard-liners hope to stuff the information genie back in the bottle when
hundreds of millions of Chinese citizens will be using the web?
"Liberty," in the words of Chief
Justice Earl Warren, "is the most contagious force in the world." So is free
expression.
Second, the agreement will also promote reform in China by
freeing up the movement of goods and delivery of services. Currently, anybody
who does business in China will describe distribution as, at best, an enormous
headache. Until now, Beijing has severely limited rights to import and export,
to distribute goods once inside the tariff walls, and service those goods once
they are sold. That the right to engage in ordinary commerce is a privilege
granted by the Chinese government to an exclusive few has helped no one.
China's WTO commitments turn these scarcely allotted privileges
into rights that will be widely available to both Chinese and foreign
businesses. China has agreed that within 3 years, all individuals and
entities in China will be able to import most products into any part of China,
and that foreign firms will be able to establish, own and operate their own
distribution and related services.
The impact of these changes goes far beyond economic efficiency. As the
weight of the bureaucracy on everyday transactions lightens, more and more
Chinese will come into direct and daily contact with each other and with
foreign firms. In the process, they will learn new skills and develop broader
horizons. Indeed, it is precisely in the regions of China where foreign
enterprises are clustered that entrepreneurial attitudes among Chinese are most
pronounced.
Third, consider access to capital. Capital not only feeds
economic growth, but also makes possible personal independence. As in other
areas of economic life, this WTO agreement – by injecting competition into
China's capital markets -- promises to enhance private initiative in China
at the expense of state power.
By some estimates, 80 percent of bank lending in China goes to
inefficient state-owned enterprises, which produce just one-third of
GDP. It is not surprising that the line of bad debts in China is a
mile long-- 25-40 percent of GDP by most estimates. WTO accession promises to
scale back Chinese government control in banking and finance by letting foreign
banks play a more significant role. An increased foreign presence will help
bring modern banking practices to China. Domestic banks will be forced by
competitive pressure to develop a more advanced "culture of credit."
But again, more is at stake than a growing market of 1.2 billion people
for our banks. The new rules required under this agreement will help break the
one-party state's monopoly on capital flows. Private citizens and
entrepreneurs will find themselves less dependent on the arbitrary largesse of
the state when they wish to turn their entrepreneurial ideas into economic
reality.
Fourth, the agreement will also strengthen the rule of law in
China – that indispensable building block of a healthy polity, economic
confidence, and civil society. Currently, economic activity in China is often
hampered by vague, unwritten, or unpublished rules that maximize the arbitrary
power of Party officials. To obtain even the simplest permit in China, a
petitioner needs "connections". You can imagine the scope this systems allows
for petty despotism, cronyism, and outright corruption. WTO membership will
reduce these abuses. For in order to join, China must publish its commercial
rules and regulations in full, making it easier for our firms to do business
without official harassment and for Chinese citizens to advance based on
what they know, not whom they know.
But beyond the specific provisions
that will encourage economic freedom, I believe employment in American firms
will expose Chinese to foreign ideas, new ways of thinking and new practices
– all of which will build momentum for reform. But a simple employment
relationship with Chinese workers is not enough. It is incumbent upon American
employers to go further, to start creating in each of their firms today
the building blocks of more open China tomorrow.
That means nothing more than honoring the principles of their own
organization, the American Chamber in China, which declares: "[t]he American
approach to doing business and to corporate responsibility can and does foster
positive change in China…We empower our employees to take initiative and
give them a voice on how to do things. They in turn convey these values to
their families and associates. We introduce high standards of worker health and
safety as well as environmental protection."
Intel, a manufacturer of semiconductors, is an American firm striving
to realize these principles. Each of Intel's 1,000 Chinese employees
receives a home computer and the company is in the process of providing each
with home Internet access. Moreover, Intel's operations in China are
managed under the same environmental, health, safety and labor policies the
company applies to its U.S. operations – all of which are higher than
Chinese norms. Average base pay and health benefits are far more generous than
those provided by Chinese competitors.
The more American companies bring not only our capital but also our
values to Chinese soil, the more we can become a partner in unleashing positive
change there.
These changes are already benefiting more and more Chinese – and
making them hungry for more. Listen to the words of Bing Ho – written in
English, I might add – an employee in the Shanghai office of Cargill
Investments :
"…In 1997, I was recruited by Cargill…and I could finally work
in Shanghai – the city which I dream to locate in…I, a common girl
with no power and money, could hardly imagine all these things could be done
several years ago. Now I have an apartment…a promising career and studying
for MBA degree…Many of the Chinese people are longing for knowledge,
techniques, and culture from western countries, especially U.S. We want our
country to be more open, more advanced, we want to improve our lives and at the
same time there will be mutual benefits for both our countries."
Bing Ho's story provides hope. But employment in American firms by
itself can't ensure reform in China. And PNTR by itself cannot compel
Beijing to respect the human rights of its people. Improvements will result
from the internal changes sweeping China and external validation for
China's human rights activists. That's why we sanctioned China under
the International Religious Freedom Act last year, and why last month we again
sponsored a resolution in the UN Human Rights Commission condemning
China's human rights violations.
The majority of human rights and democracy activists support this
two-pronged approach of engagement and pressure. Says Dai Qing, a prominent
Chinese environmentalist and independent political thinker: "How does
international pressure work in promoting human rights and environmental
protection in China? I would like to argue that such pressure works only when
doors are kept open, when pressure presents positive solutions and, above all,
when engagement is involved…All of the fights – for a better
environment, labor rights and human rights – these fights we will fight in
China tomorrow. But first we must break the monopoly of the state. To do that,
we need a freer market and the competition mandated by the WTO."
Democracy activist Bao Tong agrees: "Entry into the WTO will definitely
promote China's economic reforms…and over the long term will help
develop the legal system and moves toward democracy." Martin Lee, courageous
leader of the Democratic Party of Hong Kong, also stresses the link between WTO
accession and rule of law: "The participation of China in the WTO would not
only have economic and political benefits, but would serve to bolster those in
China who understand that the country must embrace the rule of law".
We must keep the faith with these heroes of democracy by passing
China-PNTR and continuing to keep the pressure on Beijing to respect human
rights.
That's why the Administration is pleased that in the past few days
a bipartisan group in Congress, led by Rep. Sander Levin and Rep. Doug
Bereuter, is seeking to design a Helsinki-style commission that aims to provide
an effective mechanism to press for improvement of China's human rights,
religious freedoms, labor rights and the rule of law, without sacrificing the
benefits that come from increased trade and commercial engagement.
Conclusion
As the President has said, we do not know what path China will take. All
we can do is make the decisions most likely to push China in the direction of
economic and political reform. It is hard to see how empowering communist
hard-liners, slowing economic transition, and keeping American companies out of
China will increase respect for human rights or lead to a more open society. It
is possible, however, to see a better future for China if it opens its
economy and reaches out to the world -- and to see how greater openness will
make China into a better neighbor.
In the words of Li Ke, former Chinese editor of the democratic journal
Fangfa: "For so many years of China's reform and opening, areas
couldn't be opened and remained state monopolies. But if the economic
monopolies can be broken, controls in other areas can have breakthroughs as
well. These breakthroughs won't necessarily happen soon. But in the final
analysis, in the minds of ordinary people, it will show that breakthroughs that
were impossible in the past are indeed possible."
Thank you. | 
