Director, National Economic Council
Remarks to the Committee for Economic Development
Remarks As Delivered
Thank you Paula Stern. And many thanks to Charles Kolb, President of
CED, and to your whole organization for its tireless work educating the public
about PNTR and also for all the good reports that have come out of CED that we
in the Administration have relied upon.
I'm here today to discuss the topic that is occupying the majority
of our time at the White House right now: the passage of permanent normal trade
relations (PNTR) for China. This is as much of an all-out, all-hands-on-deck
effort as I can recall since the 1993 budget. Every White House principal and
Cabinet-level person on the Administration's economic and security teams
are working very hard on this. At this point I can say that we are not there
yet, but we believe we can get our share of the undecided votes in Congress.
This is a winnable vote. And we're going to do everything we can to cross
the finish line victoriously in the middle of next week.
This is probably the most important foreign policy and economic issue
our country will face this year and perhaps the most profound foreign
policy issue this country will face over a ten-year period.
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
We certainly disagree. Today, I would like to explain why we believe
that this agreement does not require a trade-off between our economic
prosperity and our values. 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 our country.
But if Congress rejects PNTR for China, we would pay a heavy price
indeed. 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
The Agreement Will Bolster Reform in China
However obvious the economic benefits of this agreement, I would feel
very differently about it if I believed we would get those benefits at the
expense 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.
That's why we strongly support a two-pronged strategy for
encouraging political and economic reform and human rights in China. This
two-pronged strategy seeks to first pass PNTR to maximize the positive change
that comes from spurring more market opening, more free flows of information,
more reliance on market forces over arbitrary government discretion; and
secondly, to continue to apply pressure and increased scrutiny on China's
human rights, religious rights, and labor rights record through not only the
actions of the Executive, but through a new Helsinki-like Commission that
Democratic Congressman Sandy Levin and Republican Congressman Bereuter will be
announcing later today. This bipartisan commission will have the ability to
shine a spotlight on abuses in China at any time. It would be a far more
constant and effective tool than the annual Jackson-Vanik vote, which had
become little more than an empty ritual. The Levin-Bereuter proposal allows us
to deepen our scrutiny without jeopardizing the engagement that advances our
national economic and security interests and the cause of reform in China.
To understand how PNTR will push reform in China in the right direction,
we should start by looking at the various groupings within China and how they
line up on this issue. 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? Let me read from a March 13th article
by the Washington Post's Beijing correspondent, John Pomfret:
"On the other side [of the PNTR issue within China], China's
security services, its military and certain ministries and economic interests,
such as the Information Industries Ministry, China Telecom, steel
conglomerates, and some agricultural firms oppose the agreement. China's
security agencies, including the People's Liberation Army, are concerned,
analysts say, that joining the WTO will mark another step toward privatizing
China's economy and importing even more Western ideas about management and
civil society a headache for those whose job is to ensure the longevity
of the one-party Communist state."
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
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
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
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?
As a CED White Paper puts it, "Ultimately, it will prove impossible to
maintain a closed and regulated society in an open economy that is dependent on
the free flows of information that increasingly drive productive
"Liberty," in the words of Chief
Justice Earl Warren, "is the most contagious force in the world." So is free
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
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 power 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.
These are tremendous changes for
China. But they are not enough. The American business community needs to show
that we are not just talking the talk, but walking the walk. It's important
that we export not only our capital, but also our values.
That means our firms in China need to pay employees a decent amount,
treat them better than do state-owned enterprises, expose them to our values on
participation and the right to speak freely. All that needs to be a part of how
we do business in China.
Meeting this challenge will
require 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."
One firm that is taking steps in
the right direction is Intel, a manufacturer of semiconductors, with 1,000
employees in China, most of them at its factory in Pudong, near Shanghai.
Each Intel employee 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. And that type of example will help in the next legislative battle
over trade because it will help us make the case that commercial engagement has
positive social and political effects as well.
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. And that's why
we are so supportive of the Levin-Bereuter proposal to create a commission to
keep a continuous spotlight and pressure on the Chinese government regarding
its human rights, labor rights, and religious rights record.
The majority of human rights and democracy activists support this
two-pronged approach of engagement and pressure. Dai Qing, a prominent Chinese
environmentalist and independent political thinker, wrote in an editorial in
the Los Angeles Times: "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
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, has
been here in town and talking to us in the Administration as well as lawmakers
on Capitol Hill. I wish everybody could have the chance to hear him, because he
is impressive. He begins his speeches by listing the many points where he
agrees with critics of China's human rights record. Then he recounts the
innumerable personal indignities he has endured from the Chinese regime. Then
he asks his audience, "So why am I for PNTR? Simple: what is the alternative?"
He points out that if the United States the country that most represents
freedom stops engaging China, how will things ever get better? Who will
expose the Chinese people to notions like democracy and rule of law? He also
points out that WTO accession will require that the Chinese government itself
be held to a high standard of the rule of law internationally. In a country
with a weak tradition of rule law, it will come as a big change for ordinary
Chinese citizens to see their government held accountable and even sanctioned
in the name of rule of law. It is hard to believe that, after having seen their
own government held accountable to the rule of law in international forums,
more and more Chinese will not start demanding greater rule of law at home.
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. I would be happy to take questions.