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Hearing of the Subcommittee on East Asian and Pacific Affairs - U.S.-China Relations: Status of Reforms in China - Part 1

Location: Washington, DC

Federal News Service










TIME: 2:30 P.M.


SEN. SAM BROWNBACK (R-KS): We'll now call to order the hearing on China. Since the passage of the permanent normal trade relations, or PNTR in 2000 and China's accession to the World Trade Organization, the WTO in 2001, a key issue has been whether or not China has made any meaningful progress in the kind of reforms that are expected of a country like China. Increasingly China is becoming an aggressive and important player in such diverse areas as trade, to geopolitical issues in Asia, to the global war on terrorism. At the same time, internal social stability in the PRC has become more problematic, including greater labor unrest, growing misallocation of resources tied to managed industrial policies, and more assertive public dissatisfaction and discontent with official corruption and lack of basic freedoms. For this reason China's current policies, whether it be in trade, in economics, human rights, or geopolitical ambitions demands close scrutiny because they impact both U.S. national security policy and U.S. jobs.

Yesterday the United States and China held high level talks on trade, a critical issue with high stakes for American businesses and consumers alike. Myself, coming from a heavily agricultural state, I'm aware of how important trade is to our economy, especially trade with China. As one of the world's fastest growing economies, China is a growing market for U.S. exports including from my own state of Kansas, and an important provider of inputs and products for U.S. manufacturers and consumers. However, in here I want to put my full statement in the record and I want to note for Mr. Craner and those here, if we could get order back in here in the back of the room we'd appreciate that. If we could have that.

This last week I was traveling around the state of Kansas and talking with a number of individuals about what's taking place in China and the issue of outsourcing, the issue of lack of labor rights, the issue of religious freedom, the issue of China, China, China continues to come up on a very regular basis. If you just look at the statistics and you understand why. China's total worldwide exports were about $438 billion in 2003. The percentage of that export which ended up in our market was about $163 billion, or 37 percent, over a third of all their exports. In contrast, our exports from the U.S. were $714 billion, but our percentage going to China was 4 percent. It's no wonder our trade deficit with China will likely top $130 billion this year. It is a huge amount.

At the hearing later on today we will have the chief economics for the AFL-CIO testifying about their Section 301 case and the question of whether China is using labor in a trade disrupting illegal, GATT-illegal fashion. We may want to, and I will try to deal with the issue as well, currency manipulation is taking place in China and hear from other witnesses on that.

I welcome our two witnesses here today to testify about the important relationship and what's taking place between the United States and China. Our first witness is the assistant secretary of Democracy, Human Rights and Labor at U.S. Department of State, Mr. Lorne Craner.

Mr. Craner, before you begin I'd like to commend you for your efforts to pass a resolution condemning China's human rights practices in the U.N. Human Rights Commission. It sends an important signal and it's a proper signal that needs to be sent. It's not the easiest body to work within, but your efforts have had a great impact and I appreciate that very much.

Our next witness will be Mr. Richard Lawless, deputy assistant secretary for the Department of Defense, and we will go to him after Mr. Craner.

Lorne, welcome to the committee and look forward to your testimony.

SEN. BROWNBACK: Thank you very much, Mr. Lawless. I'll have questions for both you gentlemen. We have a vote that's on right now and I've got about four minutes left in the vote. With your permission, I'd like to put us in recess while I run over and vote and then come back, if you'd be willing to stay around for that period of time to answer some questions we'd appreciate that.

This committee will be in recess for probably about 10 to 15 minutes and I'll be right back.

(Vote recess.)

SEN. BROWNBACK: Gentlemen, thank you very much. Sorry for the inconvenience.

Mr. Craner, let me start with you if I could. In the next panel we'll have one of the chief economists for the AFL-CIO who's filed a section 301 case based on labor practices in China and saying that those are illegal trade advantage, that is being expressed or used by China. The administration will have to make a decision whether or not to take this 301 case. Have you, can you articulate a position or where you are in the appraisal process of whether you'll be making any recommendations regarding the 301 case?

MR. CRANER: We're working with other agencies to come up with a recommendation. As you know, the USTR has to announce a decision by April 30th and so the right response is under discussion between the State Department and other agencies. Clearly the petition itself refers numerous times to the human rights report that we put out, as you know, and that report outlines that genuine freedom of association and collective bargaining does not exist. We all know that most workplaces have substandard conditions and a high rate of accidents and that wages, hours and safety laws and regulations are generally not enforced.

SEN. BROWNBACK: When I first saw that suit was filed, I looked at it and I thought about it and then I read about it again, and then I read about it again. The more I read about it, it seemed as if a number of the things that were being alleged were items that I'd been pushing on, on issues of human rights, on issues of the lack of any sort of democracy in the workplace or any sort of rights in the workplace. And that while this was a different angle or shot than I would have taken at it, it seemed to me to be a very interesting angle and hitting at much of the same issues that I'd been running in against China for some period of time. And that is that it's a rampant capitalism without a legitimate means for workers to be able to express themselves in the system, without balance, without morality with it.

And so I was looking at that and that's why I was pleased to see that we'll have that on the next panel. I know the administration has to make a decision some time soon. It will be a tough decision to make.

I was looking as well, the currency case that the administration is bringing against China seems to me to be a clear, perhaps easier, shot to make at what China is doing on manipulating its currency and by that impacting global marketplace, impacting us-probably more impacting other countries that sell into this market than maybe-it may have more of an impact in Mexico and Central America than it even does directly here, because by them under-pricing or devaluing their currency and a footwear or baseball cap that comes in here relative to Mexico, China's appears to be cheap under that.

But that's not the issue that would be assessed by your agency or department. I would hope you could spend a great deal of time giving us a lot of thought about how bringing this 301 case on forward could have positive impacts in the field that you're concerned about-and have done a very good job and that I've been working on a great deal as well.

MR. CRANER: I can assure you myself and my staff and others at the State Department have been spending a great deal of time on this including Secretary Powell.

There's not a lot in the petition that I don't find factually accurate. I have a difference with one of the categories that they address but, as I said, a lot of it has been drawn from documents that we ourselves have put together. I think the issue is whether it meets the 301 test and what the outcome of accepting it-what remedies could be applied through that process. We have been trying up to now-and we intended even before this came up-to try and intensify the kind of activities in China, both at the corporate level, but also down at the factory level, to try and improve conditions in China.

The Department of Labor has also been pursuing a pretty wide program.

I met with Secretary Chao about it just a few weeks ago, especially in the area of mining safety which clearly in China is way substandard from what you see in almost any other country in the world.

SEN. BROWNBACK: Are there other routes of remedies? You've brought cases in front of the U.N. Human Rights Commission, had difficulty there. Are there other avenues or venues that we can pursue more aggressively given the case we know that exists currently against the Chinese? You mentioned the 301 would be a bit of a novel way of putting this forward. There are a set of remedies that are available there that is not available in other fields. Are there other fields we can pursue?

MR. CRANER: Well, the areas I talked about in the last half of my testimony are essentially new. Those are things that we have been doing over the last two years and, though modest, a total of $27.5 million over three years, I would argue they're already having a good effect in terms of getting people in China to think a little more broadly-people in China to think a little more broadly about what kind of society they should live in, about their access to information, about whether or not they should be able to organize, at least at the factory level, about what their government ought to be doing for them, and ultimately about the possibilities of electing their own government. Those are all new questions that people in China are starting to ask and those are very good questions to be asking.

Obviously, you know, as a result of our doing the resolution, the Chinese threatened to and did, indeed, cut off our human rights dialogue, which was a formal, almost annual exercise that we had been through. I made it clear to them that if we were going to have a dialogue it had to be based on results. And because we had not seen results-because in part of the fact that we'd not seen results from that dialogue, we hadn't had one in over a year. That said, whenever anybody-myself, the deputy secretary, Paula Dobriansky, Secretary of State Colin Powell, the president and the national security adviser-and I would tell you other officials in this government not traditionally concerned with human rights-whenever they meet with the Chinese they push these particular issues. And I think over time we're beginning to have an effect, partly because I think the Chinese are starting to understand that, at least in a public way, they need to be starting to get interested in these issues.

What do I mean by that? I mean that China, as you heard, wants to be a great power, and in today's world you cannot be a great power without having an open society. It was fine 20 or 30 years ago to not have an open society and to try to be a great power. The Soviet Union managed to do it. But to be accepted as part of the club in today's world you cannot do that and be repressive with your people. And I think they are beginning to understand that.

SEN. BROWNBACK: One final thought on this, and then I'd like to go to you, Mr. Lawless, and that is that if China sets and gets away with a low bar on how it treats its own people in labor situations, in human rights situations but particularly I'm thinking in labor situations now, it drives the rest of the world's bar down. And it has an impact on workers in Honduras, it has an impact on workers all over the world that are impacted having to compete with labor that's put in very difficult situations in China. So the degree that we can press on the Chinese aggressively here and try to get more rights and more opportunities for them, I think it will have-I know it will have a global impact. To the degree that we're not successful will have a global impact as well.

MR. CRANER: I think you're right and that's part of the reason we press it, especially as we get closer to 2005 and the end of quotas in places like a Bangladesh or a Guatemala, or a Haiti that have been able to import goods into the U.S. under their quota. When I talk to corporations that operate in a Guatemala or a Bangladesh or a Honduras and I say where are you going in 2005 they all say China because that's where the cheap labor is going to be.

But I would tell you one other thing that a lot of these corporations tell me, which is a little counterintuitive, which is that they're looking for countries-remember a lot of these corporations have been through scandals over the last five or ten years about the kind of places their clothing is manufactured in or the sneakers or whatever, and what they tell me is they're actually starting to look for places that want to make an issue out of better conditions for workers. And granted these are name brand firms like a Patagonia or a Reebok or whoever, but they're actually looking for countries where the government is making an effort to jack the standards up because they don't want to get caught in a scandal two or three years from now about a rotten factory that they're making their goods in.

That's a good thing, that these high-end manufacturers are doing it. They are beginning to drag along some of the lower-end manufacturers but a lot of no-name manufacturers, it doesn't really matter to them because it's not going to hurt their brand name.

So to the extent also-we can encourage better conditions in the factories but we've also got to encourage corporations to understand that they commercially, for the good of their own name, don't want to go through the kind of boycotts that some of these firms have seen over the years because of the conditions in which they manufacture. And many of them are beginning to understand that.

SEN. BROWNBACK: That's a good point.

Mr. Lawless, you point to a defense industry in China doubling, I think you said, double digit growth in its defense spending on an annual basis all but one year over the last 10. Where was your number-up to $70 billion in defense spending this year in China. You said somewhere at the outset but where are they going with all of this defense spending and do you see it capping out any time soon?

MR. LAWLESS: I guess really that is in a way the $64 question, Mr. Chairman. I think that the incredible breadth of the economic basis that's being established there and the growth in GDP and its ability to develop and acquire and integrate advanced technologies into this society, into this economy gives us great cause for concern as to where they can take their industrial base for defense. So I don't know that we see a capping out. They have simply the potential to devote an increasingly greater amount of net resources to their defense spending. They've shown the ability to spend hard currency very aggressively when they want to acquire a given system or technology.

And I think the combination of their ability to spend hard currency in ever increasing amounts, for example in their weapons shopping excursions to the Soviet Union and other sources of technology and weapons systems, coupled with the base that now exists gives us great cause for concern in the future and what they're going to be able to do with that industrial base and that economic base.

SEN. BROWNBACK: You were talking in your testimony about it being a regional offensive projection, no longer a defensive orientation as I gather but only on a regional-do you believe that's where it stops, is as a regional offensive projection or does it move on from that point or do we really even know?

MR. LAWLESS: I don't think we know the answer to that but we do see clearly that the intention is to very rapidly in some cases-in most cases more rapidly than we had originally projected-the ability to flesh out that regional capability, and particularly the ability to project power offshore. The ability to evolve from an essentially defensive force that would wage a defensive war on one's own territory and the ability to project force out, even regionally, is a very big step that requires development of not only systems themselves but doctrine and, as I mentioned, ideas and concepts of jointness, ever increasing sophistication of the systems they bring to bear. So I think for the near term as we watch the development of this regional projection capability, that is in and of itself pause for concern.

SEN. BROWNBACK: If Chinese leadership does not change but remains held in the small Communist party over the foreseeable future, is China our most likely competitor militarily that we see growing in the world today? If it remains on the path that it's projecting today with the doctrinal change, with the shift in investment, with the ability to integrate technology rapidly?

MR. LAWLESS: It certainly would be working from the most robust base in the world to do that, and so I think that the combination of where they've grown their military today and the economic and industrial base which they'll have to grow it on in the future suggests that they would, indeed, become the main competitor both regionally and possibly globally.

SEN. BROWNBACK: I guess to put the question another way, is there anybody else that has the same set of factors out there that would concern you as a military-as a person from the Department of Defense here?

MR. LAWLESS: Not really in terms of projecting to the future, no.

SEN. BROWNBACK: They're it?

MR. LAWLESS: Pardon me?

SEN. BROWNBACK: They're it?

MR. LAWLESS: Again, a combination of the growth of the economy, which is truly impressive, and the ability to integrate advanced technologies into that economy is something that we haven't seen perhaps in recent history. I'm not attempting to make a direct comparison to the former Soviet Union, but the fact remains that this is a very robust economy, growing at-and establishing a very sophisticated industrial base, which I'm not sure that the Soviet Union was working from the same basis at all. I think that's what gives folks most pause for concern.

SEN. BROWNBACK: So that if they really wanted to turn it on and aggressively turn-even more aggressively turn this Defense military-or this military industrial complex on, they could really move it rapidly?

MR. LAWLESS: I think it's a question of where they elect-where they decide to invest their resources. When you work from an economy of this size with this growth rate, you perhaps don't need to invest as, say, a North Korea or another country would have to invest very high levels of GDP to their Defense budget. You can still grow your military at very strong rates over a period of 10 or 20 years. So, again, I concur with what you just said.

SEN. BROWNBACK: I chair the Science, Space, Technology Subcommittee and we're looking at adjustments in our space program. One of the things that we're going to hold a hearing on in the future is other competitors in the space field, and China is the one that really steps forward-and there are others, but China key one. What are they looking to do, can you determine from a Defense or military perspective, in the space program? Other than you were saying about imagery targeting, are there other designs that you've been able to determine from a military aspect of their space program?

MR. LAWLESS: Well, quite obviously they have a very aggressive manned space program. They've made no doubt about the fact that they intend to work and live in space. So I believe that the combination of the resources they're devoting right now, the fact that they're able to induce reasonably sophisticated technologies where they can't home grow them, and the fact that they're devoting a lot of resources to the development of space capabilities suggests that they see space as an important area for security policy in the future.

SEN. BROWNBACK: And for me this wouldn't be much of particular concern if it were a democracy, if it was an open society. You would look at it and you'd go, great, there's a competitor and we will compete vigorously as well. It's when it comes from a leadership that's very narrow and self-selected and can move aggressively and-I won't say whimsically, but cavalierly, easily, that's when as a policymaker I look at it and I just grow concerned. If it were a democratic society, if it were an open society, you'd go, fine, we'll compete. But this is what draws my concern greater.

MR. LAWLESS: I would say that in this year's China Military Power report, which is in the final stages of preparation, and in fact I think we'll be able to deliver that in an early June timeframe this year, some larger relative portion is devoted to the area of space and military use of space. And we make some judgments in there as to where we think the Chinese plan to take their programs-their security programs in space. So we've anticipated that and have addressed that in this year's report.

SEN. BROWNBACK: Mr. Lawless, a final question. It's one that I'll put in the record, a Business Week article, March 26, 2004. And this is regarding the pending government contract to build Marine I. It's a helicopter for the White House and according to the article, one of the companies that's vying for this contract had as one of its development partners a Chinese company that helped design and assemble some tail parts for its fleet of helicopters. That's no problem. But the problem is that the development partner, the China National Aero Technology Import and Export Corporation, was indicted by the U.S. government in 1999 for illegally buying and transferring machine tools to the Chinese military. This company was also barred by the State Department for two years from any U.S. government contract for technology sales to Iran. I've got questions about that, but I wonder could you comment about this possibility of this group getting the U.S. government contract while it's working with this Chinese company? Or is this article inaccurate? If you could clarify that, I would appreciate it?

MR. LAWLESS: I'm quite familiar with the procurement itself. I'm not familiar with this aspect of it and what I'd like to do is take this under advisement and come back to you with a more detailed response.

SEN. BROWNBACK: I'd appreciate it if you would do that, because it caught my eye that this was sitting out there. And, again, you'd look at it and, one, I don't like it, period. But it also seems to come on the heel of several of these where we've had trouble with technology transfers getting to China. And we hope no scenario that's a military one ever develops, but you just hate to see this continued violation and technology transfer happening. And if-particularly if we're involved in funding any of it we don't want to see that. So if you could get back to me on that in more detail, I would appreciate that.

MR. LAWLESS: I would do that. And if I could make one final comment on this? I do agree with you in that technology leakage and technology transfer becomes exponentially more dangerous to us in the Chinese context when you do have an industry, particularly the micro technology industry and other aspects of this commercial industry which are growing apace and are able to induce and use this cream skimming technology, if you will. So it's a very important problem for us and I think it's one that we're paying increasing attention to.

SEN. BROWNBACK: Thank you. Gentlemen, thank you very much for joining me today and I appreciate very much your insights.

We have a second panel and I'd like to call forward Dr. Arthur Waldron, lauder professor of International Relations, University of Pennsylvania out of Philadelphia; Ms. Thea Lee, chief international economist for the AFL-CIO; Mr. Pieter Bottelier, adjunct professor of China Studies at Johns Hopkins; and Mr. Roger Robinson, junior chairman of the U.S.-China Economic and Security Review Commission out of Washington. He will be accompanied by Mr. C. Richard D'Amato, vice chairman of the U.S.-China Economic and Security Review Commission. I want to thank you all for joining us today, and appreciate very much you staying here while the hour has gotten late.

Mr. Robinson, let's start off with you as chairman of the U.S.- China Economic and Security Review Commission, if you wouldn't mind. We will put your complete statements in the record, so you can summarize if you would choose to. That would be just fine and we'll have some questions afterwards. Mr. Robinson.

MR. ROGER W. ROBINSON: Thank you very much, Mr. Chairman. We appreciate this opportunity to testify on the work of the commission and our assessment for the Congress of the priority areas in U.S.- China relations. I'm joined at the table by commission vice chairman Richard D'Amato, demonstrating the strongly bipartisan nature of our views and the work of the commission.

I should also note at the outset that the views expressed in this testimony are those of the commission's chairman and vice chairman and, except where specifically stated, do not necessarily reflect the views of other commissioners. The commission will be delivering its 2004 report to Congress next month, which will present the full commission's consensus findings and recommendations in fulfillment of our legislative mandate.

Today we want to highlight for the committee our preliminary assessment of the priority areas of concern in U.S.-China relations, those requiring the most immediate attention of the Congress, and reinforce some of the recommendations we have made to Congress on these topics over the past year. We see the priority areas as follows: (1) effective management of U.S.-China trade and investment; (2) the changing dynamics of the cross strait relationship; (3) holding China to its commitments on Hong Kong, and; (4) China's pivotal role in the North Korean nuclear crisis.

Before we address these specific areas, we would like to offer our summary assessment of the current direction of U.S.-China relations, at least with regard to the broad areas covered by our mandate. In short, we believe that a number of the current trends in U.S.-China relations have potential negative implications for our long term economic and national security interests, and therefore that U.S. policies in these areas are in need of urgent attention and course corrections. We believe that the time is ripe for putting the U.S.- China relationship on a more solid, substantial footing from the perspective of long term U.S. interests.

The U.S.-China relationship is still in the relatively early stages of its development and is marked by a fluid, rather than a static, environment. The United States has played and continues to play an enormous role in the economic and technological development of China. As we have documented through our hearings and reports, U.S. trade, investment and technology flows have been the critical factor in China's rise as an economic power. We need to employ the substantial leverage this provides to develop an architecture that advances both countries' long term interests. We have the leverage now and perhaps for the next decade, but this may not always be the case.

Within this framework, let me turn to a discussion of the key near term areas of concern and our thinking on possible U.S. policy responses. I'd like to begin with effective management of U.S.-China trade and investment. First, our trade and investment relationship with China, with current trends continuing and the deficit expanding, is not just a trade issue for the United States but a matter of our long term economic health and national security. Beyond these immediate challenges are the implications for globalization writ large. The commission believes that the U.S.-China economic relation is of such large dimensions that the future trends of globalization will depend to a substantial degree on how we manage our economic relations with China and shape the rules of the road, if you will, for broader global trade relations.

Our written testimony contains numerous specific recommendations the commission has made to the Congress on actions to right the imbalance in U.S.-China trade. We meet today during the same week that a high level trade dialogue took place in Washington between U.S. and Chinese officials. As we understand, the Chinese side made commitments to significantly improve their poor record of protecting intellectual property rights and not to move forward with a restrictive standard that would have been a barrier to U.S. wireless goods. Time will tell whether these commitments will be fulfilled.

We have too often seen China's trade promises, particularly on IPR, be worth no more than the paper they're written on. We also are concerned --

SEN. BROWNBACK: Well, I've got to jump in. I think this is the third or fourth time around I've heard them commit to protecting intellectual property rights now. I was in Bush, one of the trade reps field, they promised then. I was here during the Clinton years and they promised then. They're promising now. You know, at some point in time action-I know that's what you're saying, but I just-this is personally for me, seeing this song over a decade period of time, and nothing happened that needs to yet.

MR. ROBINSON: I don't --

SEN. BROWNBACK: Please proceed.

MR. ROBINSON: I don't disagree. We're also concerned that several vital issues in U.S.-China trade, including China's currency and subsidies policies, were not on the table for these talks.

Second, the changing dynamics of the cross strait relationship. The committee is well aware of the significant events in the Taiwan Strait over the past few months, and the growing tensions between the two sides; particularly following President Chen's reelection last month. The state of cross strait relations appears to be entering a new era, one that will require new thinking by the administration and the Congress. The Taiwan Relations Act has served U.S. interests well over its 25 year history and we as a government and nation need to remain faithful to it, especially now when the cross strait situation is as complex as it's ever been.

In sum, given the current economic and political trends in the strait that we've identified in our written testimony, developments that call into question the state of the status quo in cross strait relations, we believe there is an immediate need for Congress and the administration to review our policies toward Taiwan and cross strait relations and to determine an appropriate role for the United States in reinvigorating cross strait dialogue.

Third, holding China to its commitments on Hong Kong. The recent events in Hong Kong point to troubling signs of an erosion of the autonomy promised Hong Kong by the mainland under the one country-two systems formula. These events have no doubt played in to developments in Taiwan, where such a formula for any eventual unification has become a nonstarter. We know this committee is deeply concerned, as is the commission, about the maintenance of Hong Kong's basic freedoms. We urge the Congress and administration to let the Chinese leadership know that Beijing's moves to limit Hong Kong's autonomy and democratic aspirations are not in any party's long term interest, and that U.S.-China relations will be adversely affected by a continuation of Beijing's current course.

Fourth, China's pivotal role in the North Korean nuclear crisis. In the post 9/11 world there can be no doubt that stemming the tide of the proliferation of weapons of mass destruction and ballistic missiles is the highest national priority for the United States. The commission's charge to examine China's role in WMD proliferation is part of this effort. North Korea is heavily dependent on Chinese assistance in the form of fuel, financial aid, military to military ties, and food. These facts clearly indicate that the considerable leverage Beijing could exert over Pyongyang is evident, if it chooses to use it. To date, however, China has been playing more of a host and intermediary role in the six party talks and does not appear to be pressing for its expeditious resolution.

Time is not on our side in confronting this crisis. As the six party talks drag on, North Korea's nuclear weapons and ballistic missile programs keep moving apace. As these capabilities are attained, the prospects for achieving a complete verifiable and irreversible dismantlement by North Korea are dimming substantially. In our view, the U.S. government must make clear to China that its efforts in this crisis are a key, if not the key, test of the U.S.- China relationship. China's efforts in getting the six party talks underway must be followed up by the active use of its substantial leverage. In the event of continued stalemate and lack of Chinese success in persuading North Korea to accept these requirements, we believe the United States must develop other policy options with our partners in the region to resolve this highly critical situation in the near term.

Mr. Chairman, we thank you for this opportunity to testify. Through an appropriate mix of U.S. policies, we're optimistic that this complex relationship can be managed in such a way as to minimize the downside risks and enhance the prospects of moving China toward a more democratic and market oriented society to the benefit of both of our economic and national security interests. Vice Chairman D'Amato and I will be pleased to take your questions, thank you.

SEN. BROWNBACK: Well, I think you put your finger on the right button, on the right set of issues. Now, whether we can see progress made will be yet to be determined. Let's see, let's go back up to the top of the list.

Dr. Waldron, delighted to have you here today. Thank you for being here to testify. We'll run the clock at about six minutes. That will give you an idea and if we can kind of keep close to around that, that will give us a chance to have more active questions.

MR. ARTHUR WALDRON: Mr. Chairman, I will do my best. I prepared these remarks yesterday.

This morning I learned of the testimony of assistant secretary of State James Kelly, one of our best diplomats, to the House International Relations Committee yesterday and I wanted to quickly-and I have inserted into my printed testimony and on the disc-just say a few things about this. This is specifically about Taiwan.

In connection with what Mr. Robinson mentioned, the growing desire of the people of Taiwan to assert their own identity, Assistant Secretary Kelly said that this must be stopped. This was the strong words. On the other hand, when it came to the Chinese threats of use of force against the island, he stated only that "we strongly disagree with this approach." He did not say that it must be stopped. And let me just quickly make a few points. The first is that under international law, the United States has never recognized Chinese sovereignty over Taiwan. That continues to be our position, which is that the status of Taiwan under international law remains to be determined. Therefore, the question of independence seems rather odd. If we don't recognize that it's part of China, what is it becoming independent of?

The second point is that we have always insisted on only peaceful resolution of the issue, period. And I would say from my background as a professor of strategy that to deter, it must be absolutely crystal clear; there must be no wiggle room. The third point is that we must never allow Beijing to believe that they are intimidating or manipulating us. And my own sense is that there is some intimidation going on. I would note that I have learned informally that members of our American Institute in Taiwan have privately been telling people that there is going to be a war next year in the Taiwan Strait unless President Chen is somehow reigned in, which I think is unprofessional and probably inaccurate.

Fourth, I think the origin of this problem goes back to some faulty diplomacy. Mr. Robinson mentioned the need to reexamine the 1979 to 1982 framework, and I think that that is correct. We've had a policy that expected one thing to happen, we expected Taiwan to join China shortly after we broke relations. She didn't do that, she democratized instead, and we have a series of institutions that are simply incapable of dealing with the current reality. Or another way of putting that would be to say that all we have now is a military policy and, oddly enough, we don't have a political policy with respect to the island.

Now, having spoken about that very specifically, I felt I couldn't let this pass without commenting on it. Let me say a little bit about the situation in China today. I think it's more volatile than most people understand. Your chosen title was "reform." Well, frankly, I don't think reform is the word to apply. I think something more like "major change in several dimensions but without any goal specified" or "unplanned change" is more appropriate. Clearly, all sorts of dynamic forces have been released in China: intellectual, political, economic, travel, all of these things. Yet, if you ask the Chinese where are these going to lead? What is the end state that we're trying to achieve, there's absolutely no clarity about that at all. Are we aiming for a private, free enterprise economy or not? Are we aiming for democratization or not? There is complete sort of agnosticism about the future even as the future is being created by these forces that are unleashed.

Now, let me speak briefly about political reform. And here I think it's important to point out that one lesson of the end of the Cold War is that regime type is critical. It's not the case that it doesn't matter whether a country is a dictatorship or not, and that one can somehow deal with them economically, militarily regardless of whether their people participate in politics. The reason that we are no longer aiming thousands of warheads at the Soviet Union and they not aiming them at us, it doesn't have to do with SALT treaties, it doesn't have to do with summits, it doesn't have to do with people to people exchanges; although all of those things were important. The reason is that the Soviet Union gave up Communism, allowed people to vote, made its currency convertible, established a parliament, freed the press and allowed political parties to form. It transformed itself. And the result of that was peace in a Eurasian continent which had previously been threatened by massive destruction.

Now, China continues to be an extremely repressive regime. And let me just mention one fact, which is the assistance that American companies have given to the Chinese Secret Police in creating a very, very sophisticated network for monitoring the Internet, tracking individual users, blocking websites, they can even monitor cell phone conversations and text messaging, store this material, search it with high speed computers and obtain profiles of what individuals do. Now, not all Chinese are happy with this. According to Radio Free Asia there were some 10 million people participated in demonstrations, thousands of demonstrations at various places in China, last year. So my own feeling is that politically the situation is rather challenging and that an enlightened government would at this point have begun to make changes. But they have not done that, which implies that the change will come in a rather surprising way.

Let me now turn quickly to the economy. There I would say we have a-first of all, it's not a market economy despite what the administration said yesterday in their economic-there is no way that China is a market economy. It's growing fast, but the growth is based on exports, foreign investment and massive borrowing. In my written testimony I go into some detail about the unsustainable levels of borrowing and debt that are being created, and I think that it is the consensus of experts on the Chinese economy that it's headed for some kind of landing, hard or soft. A crunch is going to come.

Now let me briefly say something about the military build up. I thought Mr. Lawless' testimony was excellent, although as he said to me in the break, it's just the tip of the iceberg. The military is now the king maker in China. Politicians who want to advance, lavish money on the military, create generals and so forth. The Chinese build up is substantial and it does not affect just, for instance, Taiwan. It directly affects Japan, Korea, India, Indonesia, you name it. Even Russia. I always wonder why the Russians are selling all of this stuff to China. But they are, but it makes no sense. And if this military rearmament were to continue without some kind of countervailing rebalancing, we would have a very, very serious situation in East Asia.

Two specific points on this. First, Americans should understand that the new Chinese military is the only one in the world that is being developed specifically to fight the United States. If you look at, for instance, the purchases of missiles from the former Soviet Union, many of these have only one use and that is to destroy aircraft carriers, which they can do. We have no defense against these supersonic missiles. Now, you might say that their target was the aircraft carrier Charles de Gaulle, but I don't think so. I think that they have the great American carrier battle groups in mind. And, as I say, we have no defense against this. This is certainly not a cause for complacency.

The second point-and I thought your questioning of Mr. Lawless brought this out-is that although many people will say that China seeks only minimal deterrence and has no great power ambitions, my own view is that there's no objective reason that if the present regime stays in power-this is why regime change is so important and regime type-there is no reason that China should not become every bit as strong and threatening as the Soviet Union was at its height because, as Mr. Lawless pointed out, the conditions that constrained the Soviet Union, economic conditions and so forth, don't apply in the case of China.

To conclude, received opinion in Washington troubles me a bit because it seems to be that in spite of all of these worrying indicators, change is going on and the democratization is-eventually she's going to come right in the end and we'll all be friends. And let's say that I hope that happens. However, the only way that China can be a positive player in the region and in the world and be a real friend to the United States is for her to abandon the Communist dictatorship, as the USSR and the former satellites did, introduce freedom and democracy and redirect spending away from things like the military and prestige projects and toward the needs of the people. I would point out that as of September last year, the average Chinese farmer had an income somewhere between $300 and $400 U.S. per year. That's very, very low. The average urban resident about $700 or $800.

Now, let's hope that these changes will occur. There is much that we could do to help them occur, and we should. But we must not stake our policy on the idea that they will occur. Things could go well, or they could go very wrong. What we need is a China policy that can deal with either outcome. Thank you very much.

SEN. BROWNBACK: Thank you very much for those insightful comments.

Ms. Lee, good to see you again. I look forward to your testimony.

We've already-I don't know if you caught the earlier panel, but we've already spoken some about the case that's been put forward, but I look forward to hearing your specifics about that case.

MS. THEA LEE: Thank you so much, Mr. Chairman, for the invitation to come today and testify on behalf of AFL-CIO. We appreciate that. And I also appreciate your personal interest and concern in the issues that we've raised with respect to workers rights and human rights.

I want to talk today about the crucial issue in the U.S.-China economic relationship that we believe has not received the attention it deserves from this or previous administrations, and that is, as you've said, the brutal repression of workers rights by the Chinese government and the impact of that repression on American workers. And this is particularly important this week, as Mr. Robinson noted, that we've just concluded a very high level annual meeting, the Joint Commission on Commerce and Trade. And from all the press reports it appears that workers rights was not even on the agenda from the point of view of the Bush administration, while other issues such as intellectual property rights protections and some sectoral market access issues were discussed.

Another issue that did not appear to be on the agenda was the Chinese government's manipulation and under valuation of its currency. These two issues together, the currency under valuation and the workers right repression, to us are the key economic problems in the U.S.-China relationship that account together for many of the hundreds of thousands of U.S. jobs that are lost in this economic relationship, and we are disappointed that the administration chose not to put a priority on these important issues in these high level talks.

As you know, on March 15 the AFL-CIO filed a section 301 petition with the U.S. Trade Representative alleging that China's violation of workers rights is an unfair trade practice under U.S. trade law. This is the first time that section 301 has ever been used in that way, but we think this is a really important innovation and an important message both to our own government and to the Chinese government: that the unfair cost advantage that comes from repressing human rights of workers is contributing to the $124 billion trade deficit the United States has with China, the highest bilateral trade deficit between any two countries in the history of the world, and contributing to many of the hundreds of thousands of U.S. jobs lost. We think we've clearly met the standard of section 301 that this is a burden and restriction on U.S. commerce, and that there is a persistent pattern of violation of workers rights on the part of the Chinese government.

If we don't address the systematic, egregious and institutionalized repression of workers rights in China, we'll continue to lose the hundreds of thousands of good jobs here. We're creating conditions of desperation and exploitation in China and fundamentally altering the nature of global labor competition in the rest of the world. Workers in developing countries, as I think Mr. Craner mentioned earlier, are impacted by the kinds of competition that we will or won't tolerate with respect to China. And I know you mentioned that as well. So our petition seeks to ensure that our government will give this issue the priority it deserves in its economic dialogue with the Chinese government.

Chinese Vice Premier Wu Yi said this week to the New York Times that the allegations in our petition are groundless, and she invited the AFL-CIO to come to China to see for ourselves what the conditions are. In terms of the allegations-that the allegations are groundless, as you know, the documentation in the petition is quite extensive and credible and, as Mr. Craner said, relies heavily on extremely credible sources like the U.S. State Department, the International Labor Organization, the International Confederation of Free Trade Unions, the New York Times, the Washington Post and so on. We are very confident that the evidence that we've put together will stand up to scrutiny.

We also would be very interested in being able to go to China and further investigate some of the allegations that were made. We've always said in the past to the Chinese government that if we are to go to China, we want to be able to have access to Chinese labor dissidents who are in jail, as well as the official union party members, and we want to be able to meet with workers on our own terms without any kind of government supervision or restriction and to bring our own translators and so on. So if we can meet all those conditions, we would be very happy to go to China and investigate further.

As you know, the allegations have to do with the denial of freedom of association, the right to bargain collectively. Chinese workers simply don't have the right to organize an independent union. They are kept within the government controlled body, the All China Federation of Trade Unions, and workers who attempt to strike or organize unions independent of that body have been arrested, imprisoned, beaten and tortured. Even speaking out at the workplace has been often grounds for severe reprisals and arrest.

We're very concerned about the conditions of forced labor essentially that exist for the migrant workers, as we've discussed. The migrant workers in China work under a system where they are disempowered and vulnerable, often caught between unscrupulous employers and an indifferent government. The Chinese government has simply failed to enforce its own labor laws with respect to minimum wage, maximum hours of work and health and safety. And the results are that workers are left really defenseless at the workplace, and this is simply an unacceptable situation.

We don't challenge the fact of low wages in China. We understand that a developing country with an excess supply of poorly educated rural workers will have low wages. We understand that even if China were to fully enforce workers rights, we wouldn't completely close the wage gap between Chinese and American workers. But we think it would surely narrow. And what the AFL-CIO petition challenges is the incremental cost advantage that comes from the brutal and undemocratic repression of workers' human rights. That incremental advantage is an illegitimate advantage under universal norms of human rights, and it's illegitimate under U.S. trade laws.

The AFL-CIO petition shows what the economic burden is on the United States; that there is a cost advantage between 10 and 77 percent that comes specifically from the repression of workers rights. We ask the president to take trade measures that will offset this illegitimate cost advantage, to negotiate an agreement with the Chinese government to meet concrete benchmarks of compliance with workers rights. As those benchmarks are met, the tariff can be gradually reduced. And, third, we ask the president not to enter into new WTO agreements until the WTO incorporates enforceable workers rights as a condition of WTO membership, so that we can have protection for workers rights throughout the trading system through multilateral rules. Global rules should fairly enforce basic workers rights to ensure that competition does not reward and encourage repression of human rights at the workplace.

I thank you very much for your attention and I look forward to your questions.

SEN. BROWNBACK: Thank you very much, Ms. Lee, for bringing this forward and addressing an issue that I care about a great deal in a different form and a novel way.

Mr. Bottelier, thank you very much for being here. Welcome, and I look forward to your statement.

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