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Panel I of a Hearing of the Commerce, Trade and Consumer Protection Subcomm. of the House Energy and Commerce Committee-U.S.-China Trade

Location: Washington, DC

Federal News Service March 31, 2004 Wednesday







REP. STEARNS: Good morning. The subcommittee will come to order.

Today we'll hear from a number of distinguished witnesses on a topic that is both important and timely. The U.S.-China Joint Commission on Trade is scheduled to meet on the 21st of April and the 22nd for its annual Cabinet-level meeting.

It is a significant meeting, because there are many pressing issues involving U.S. trade in China. The subcommittee called this hearing to further a dialogue with industry about what industry priorities are with regard to the joint commission meeting. I thank the witnesses in advance for their participation today, and obviously we look forward to a frank and hearty discussion on this matter.

U.S. economic ties with China have been growing in remarkable ways over the past 25 years. Since 1980, U.S.-China trade has risen from roughly $5 billion a year to $181 billion a year. China is now the third-largest U.S. trading partner.

On the whole, this has been a benefit to United States businesses and workers because China is becoming an increasingly important market for U.S. exports. Since China has one of the world's fastest-growing economies, this export trend is likely to continue. In addition, Chinese imports have brought lower-priced goods to many U.S. consumers.

However, obviously there are challenges as this trading relationship evolves. The U.S. trade deficit with China is $124 billion as of 2003. But this trade deficit is continuing to grow.

A healthy bilateral trading relationship with deficits of this magnitude is not sustainable in the long term. Obviously all of us would like to see increased attention to privacy (sic/means piracy) and counterfeiting issues. Counterfeiting of manufactured products and privacy (sic/means piracy) for intellectual property are big business in China. Privacy (sic/means piracy) of U.S. intelligence property in China may exceed $1 billion per year.

This is a real problem for U.S. exports, and a remedy would help in balancing the U.S.-China trade deficit. In short, my colleagues, we are buying Chinese products. They are stealing many of ours.

We have several distinguished witnesses here to testify about the privacy (sic/means piracy) problem and intellectual property and the counterfeiting problems with manufactured goods. I want to tell those witnesses that I am committed to assisting them in their efforts to reduce counterfeiting and privacy (sic/means piracy) in China. I think we've had some success in Singapore and some success in Taiwan.

China's entry into the World Trade Organization was a watershed event. WTO entry required China to reform its trade practices significantly. China's progress in meeting WTO requirements has been mixed. Progress has been consistent, but we still have a very long way to go to really ensure fair trade practices.

Each year the United States representative, USTR, issues a China WTO compliance report. The report, issued in December of 2003, found that while China had significant progress in meeting WTO obligations, many problems still remain.

These are just a few: Agricultural and industrial quotas; tariff rate quotas and industry subsidies; confusing and discriminating regulation of service businesses; discriminatory taxes on imports; insufficient transparency regulation and lack of protection for U.S. intellectual property rights.

So I look forward to the hearing and to hear from the honorable Charles Freeman, deputy trade representative, who will testify about his feelings here. I commend the USTR for its tireless efforts in promoting the interests of U.S. industry around the globe, and in China in particular.

My colleagues, these are difficult issues, but they must be solved if the U.S. is to have someday fair trade with China. I encourage the administration to ensure that China fully complies with its WTO obligations. And it seems the administration is willing to do just that.

One of the important issues we debated in the 106th Congress, when we considered permanent normal trade relationship with China, was the issue of human rights. I do believe that free trade can increase freedom for people living under communist or totalitarian governments. But it can only do so if democratic trading partners insist on those freedoms as part of the trade negotiations and insist on those freedoms as part of the implementation.

China's international trade commitment requires them to develop institutions that respect the rule of law. The U.S. has not just an economic incentive, but a moral obligation to ensure China does just that.

The work the U.S. government does today must aim to nurture the fledgling freedom of the Chinese people.

With that, I look forward to the testimony today, and I hope the hearing will bring focus on the important issues before the April joint commission meeting.

With that, the ranking member, Ms. Schakowsky.

REP. JAN SCHAKOWSKY (D-IL): Thank you, Mr. Chairman. And I want to welcome all of our witnesses, including Mr. Freeman, and all the others as well. I appreciate you taking the time to come here to discuss our trade policy with China.

I want to offer a special welcome to Mark Levinson, the chief economist and director of policy for UNITE. I'm a proud member of UNITE myself and really appreciate that a member of my union is here to present the critically important views of working Americans of organized labor to us today.

This is a very important hearing. For most Americans, the U.S. economy is in bad shape. We've lost over 2.3 million jobs since President Bush took office. China, an important strategic trading partner and world power, enjoys a trade surplus with the United States that has swelled over the last year in particular. China's trade surplus with the United States increased 20 percent in 2003 to $124 billion. We have a more imbalanced trade relationship with China than with any other nation.

I recognize the importance of China to the United States and the need for the United States to engage China in a constructive way. But our lack of engagement with China on issues of critical importance to our economy and to principal issues of labor rights, human rights and the environment, in my view, is shameful and misguided.

I visited China on a codel that was led by Congressman Don Manzullo, the chairman of the Small Business Committee. We met with top Chinese officials and had conversations about numerous issues, including China's lack of progress on human rights and labor rights. And I'm sad to say that since that trip, the situation in China has not improved, and workers in that country and the United States are paying the price.

Despite being morally reprehensible, China's disregard for workers' rights gives that nation an unfair trade advantage. That, according to the AFL-CIO, has cost more than 727,000 U.S. jobs. It's bad enough that China denies its workforce the right to join unions and to bargain collectively, and it is unacceptable that there is no true minimum wage in China. It's unacceptable because Chinese workers deserve better, and it's unacceptable for the United States in economic terms.

Chinese workers' wages are between 47 percent and 86 percent lower than they should be, which in turn reduces the price of Chinese manufactured goods. This provides China with an unfair market advantage over U.S.-made products and undermines the U.S. job market.

The AF of L and the Industrial Union-the CIO and the Industrial Union Council of the AFL-CIO recently filed a petition with the USTR under Section 301 of the Trade Act on behalf of the 13 million members of the AFL-CIO, including nearly 6 million manufacturing workers, because of the dangerous and damaging effect of China's behavior-the effects that China's behavior is having on the U.S. economy and on the rights of its labor force. And Mr. Chairman, with unanimous consent, I'd like to place that petition into the record.

REP. STEARNS: By unanimous consent, so ordered.

REP. SCHAKOWSKY: And I'll be spending most of my time in questioning exploring the subject today. But before I conclude my opening statement, I want to say that I'm really disappointed. I'm not just disappointed over the current state of our economy or the lack of leadership by the Bush administration in pressing China on core human and labor rights and environmental issues.

But I'm disappointed and actually surprised that the prepared testimony of our United States representative witness did not even mention labor rights or human rights or the environment and it doesn't even acknowledge the AFL's position. Is it any wonder that organized labor in this country feels abandoned by this administration? Judging from the USTR's testimony, it would be safe to say that labor is not even on the radar of the Bush administration. I share many of the concerns that are raised in the deputy assistant trade representative's testimony, but I think it represents a shameful trend in our nation's overall approach to trade.

While we race to the bottom, force free-trade agreements and expand U.S. market access, workers' rights, human rights and our natural environment take a back seat. It is just wrong. We need a fundamental shift in the way we approach the world, our trading partners and new trade deals. We need to put people and the environment right on a par with new profit opportunities.

If we fail to do so, we fail our economic obligation to America's workforce and we fail our moral obligation to the international workforce. We can do better.

Again, I want to welcome our witnesses and I look forward to their testimony.


REP. MARY BONO (R-CA): Mr. Chairman, I believe Mr. Norwood was here before me.

REP. STEARNS: Mr. Norwood is not on the subcommittee. So --

REP. BONO: Thank you. I'm so sorry.

REP. STEARNS: -- so we take the members of the subcommittee first, and then as a-by unanimous consent we can let Mr. Norwood --

REP. BONO: I'm sorry. Forgive me for trying to act like I was the chairman, Mr. Chairman.

REP. STEARNS: Oh, no. That's okay.

REP. BONO: Just trying to be nice to Charlie Norwood.

Thank you, Mr. Freeman, for being here today. And, too, have the same concerns that Ms. McCarthy does, and all of my colleagues have expressed on piracy. The MPAA had testimony-they have an executive summary that's pretty much a wish list, which I appreciate. And they have a specific hope, and in this they say, "China should agree to a timetable to reduce piracy from its current market share of over 95 percent to less than 50 percent by the end of 2004." Is that a reasonable number? Other than just talking, can we actually achieve that number by the end of 2004?

MR. FREEMAN: That would be terrific. What we've tried to do is get China that they put in place certain metrics that would-bench- marking them to help them along. They haven't agreed to anything specific yet.

REP. BONO: All right. And then also, there are other barriers that are prohibiting American companies from entering the Chinese marketplace as well. And further in their executive summary they-they state this, the MPAA again-that they ask for a fixed timetable with removal of the various limits, restrictions, and structural distortions which hobble the ability of American companies to enter the marketplace and to compete fairly and effectively for market share.

For example, they say for theatrical expedition, they need to increase the number of films in which U.S. distributors may share in box office receipts. So, beyond piracy, the Chinese are not even allowing us to get in their-they-it's effectively-I don't know if you want to call it a trade barrier or what, but there are other mechanisms in place that are-that are keeping us from competing in what we do so well.

Can you address that a little bit, about how the entertainment industry is structured over there, keeping our companies out?

MR. FREEMAN: Yeah. I mean, we-we've spent a certain amount of time trying to push this issue and trying to get them to increase the number of films that, for example, that they'll allow in for a particular year. This is something that they negotiated with the WTO, a ceiling-or a floor, excuse me-a number that they would allow in per year. They've said they'll allow 20 films in per year. We said, "That's a floor. That's the minimum number you should allow. And you should feel free to allow in as many after that as you can."

They've said to us, "Oh, no, no, no. Our WTO commitment is very clear. It's 20 films. That's what we'll allow in." And we say, "We unilaterally in the United States increase market access all the time when it's in our interest. It's in your interest right now to do so with respect to that film limitation." And the response to that has not been as encouraging as I would hope.

REP. BONO: So they, in effect-this is an example of them encouraging piracy, because it's sort of a hypocrisy, heaven forbid, right?

MR. FREEMAN: I would agree that I think one of the problems is if you limit the number of legitimate product that comes into the marketplace and you have a certain amount of demand, that demand is going to be filled by counterfeit product.

What we've tried to stress is that linkage to the Chinese. So far they have been not as receptive to that argument as we believe they ought to be.

REP. BONO: I thank you. Also, changing gears a little bit, because my time-he's not paying attention; maybe I can go on really fast. Agriculture is my number one industry. China has long held different sanitary and phytosanitary regulations, not based on science. This affects my growers. Can you talk a little bit about the progress we're making in agriculture?

MR. FREEMAN: Yeah. I mean, there are a lot of limitations on products or standards, policies that prevent U.S. agricultural products from going to China. We don't think that they're science- based, so therefore they're not sanitary and phytosanitary issues to us. They're technical barriers to trade. So we address them on that basis, that there's no rationale for them and therefore they should be taken out.

We've made some good progress on SPS particularly with respect to soybeans again, but also with respect to certain other SPS issues. Nominally SPS issues are -- (inaudible). But we have a long way to go.

REP. BONO: Thank you very much.

REP. STEARNS: The gentlelady's time has expired.

REP. BONO: Thank you, Mr. Chairman.


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