Commerce, Trade and Consumer Protection Subcommittee of the House Energy and Commerce Committee - US-China Trade Panel I - Part 1

Federal News Service March 31, 2004 Wednesday

March 31, 2004 Wednesday

HEADLINE: PANEL I OF A HEARING OF THE COMMERCE, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE OF THE HOUSE ENERGY AND COMMERCE COMMITTEE

SUBJECT: U.S.-CHINA TRADE

CHAIRMAN: REPRESENTATIVE CLIFF STEARNS (R-FL)

WITNESS: CHARLES FREEMAN III, DEPUTY ASSISTANT U.S. TRADE REPRESENTATIVE

LOCATION: 2123 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

BODY:

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. STEARNS: I thank the gentlelady. And the distinguished chairman of Telecommunications, Mr. Upton of Michigan.

REP. FRED UPTON (R-MI): Thank you, Mr. Chairman. I appreciate the opportunity of this hearing.

I do believe in free trade and I've supported it. Most of the time, I think free trade is beneficial for our U.S. manufacturers and for our economy. However, with respect to China, it does seem like something has gone awry. In fact, the playing field looks so uneven, I don't blame folks back home for wanting to plow it over. Our trade deficit with China is beyond the point of acceptability.

I'm concerned about a number of aspects of our relationship with China on trade. First of all, I think the ongoing currency manipulation is a real problem. The drastic undervaluation of the currency makes it seem like it is cheaper to do business than it really is. And as chair of the Telecom subcommittee, I'm very worried about piracy issues, particularly in the realm of computer software, movies and music. I'm worried about the safety issue when it comes to things like counterfeit medical devices, and I have not been satisfied with the level of response by the Chinese government with regard to piracy in counterfeit goods, and I hope that our witnesses today will talk about that issue.

I also believe that when China joined the WTO, that there was an expectation that they would adhere to principles of fair trade through that organization. It doesn't seem like that is happening when we watch continuing to move there on a routine basis. I've got grave concerns when it comes to steel and China's impact on the steel industry. It seems like China is the only country that's immune to the current shortages and inflated prices. Why it is-why is it a problem here and it doesn't seem to be a problem there?

Thank you, Mr. Chairman. I look forward to today's testimony and the ability to engage our witnesses on these important issues. I yield back.

REP. STEARNS: I thank the gentleman. Mr. Strickland.

REP. TED STRICKLAND (D-OH): Thank you, Mr. Chairman.

Mr. Chairman, members of this committee, I feel a deep sense of anger today because yesterday our treasury secretary, John Snow, was in Ohio, and our president was in Wisconsin. According to newspaper accounts, Mr. Snow, in Ohio, in economically hard-hit Ohio, said that outsourcing was an integral part of our global trading system, and the president, in Wisconsin, was defending outsourcing apparently, in a state that had lost 80,000 manufacturing jobs. And I just-I mean, I am frustrated. The American people are frustrated. How anyone can come to Ohio and with a straight face support such a statement is almost beyond belief.

I quote, this is from the "Cincinnati Inquirer"-The treasury secretary said that the practice of moving American jobs to low-cost countries, quote, "is part-is a part of trade," and the quote, "There can't be any doubt about the fact that trade makes the economy stronger." And then there's the comment that his remarks were reminiscent of the remarks made by Mr. Manque (sp), in the report that the president signed, the economic report to the nation, where he said, among other things that if a good or a service can be produced at lower cost in another country, it makes sense to import that product rather than to produce it domestically.

And I asked our secretary of treasury last-or of commerce last week-to please give me a list of the products that cannot be manufactured for lower costs in another country. I think given the fact that the people that I talked with in Mexico were getting $38.00 a week, and that situation exists around the world, that nearly every product can be produced at lower cost in another country.

Now, those remarks required Mr. Manque (sp) to apologize to our House speaker, Mr. Hastert. I wonder if the president and Mr. Snow will apologize.

According to a report in the national political news, the president told this audience in Wisconsin that he understood there was concern about jobs going overseas-for some people looking for work, I understand that. The some people looking for work are hundreds of thousands of people who have seen their jobs outsourced.

I look forward to the testimony because I also have questions about the steel industry, about the restrictions on the exporting of coke, about the importation of scrap metal from this country that is providing a serious, serious problem to our steel fabricators, and our machine shops, and our steel-producing companies.

We are facing a crisis, and I simply ask myself-and I think the American people are asking-when is this administration going to understand what is truly happening and take actions which will save the American economy.

Thank you, Mr. Chairman.

REP. STEARNS: I thank the gentleman. Mr. Otter.

REP. C.L. OTTER (R-ID): Thank you, Mr. Chairman. And I want to thank you, Mr. Chairman, and the Ranking Member, for holding this hearing, and allowing us the opportunity to highlight some of the important commerce issues facing the United States and China.

As an Idahoan and as a rancher, I know the importance of private property. There, we talk in terms mostly of dirt. Here, I think we have to talk in a much broader concept, and as you know, the Founding Fathers defended private property rights as a fundamental tenet of our United States Constitution. In the Fifth Amendment, in fact, to the Constitution, it says, "Nor shall private property be taken for public use without just compensation." Compensation must be required to pay for all properties taken-physical, dirt, or intellectual, creative. Through this -- (inaudible) -- founding concept, our copyright system preserves the rights of authors of intellectual properties and their estates to profit from their creativity. And I fully support protecting the rights on the international scene. Copyright laws encourage people to creatively express themselves and to make a livelihood in doing so.

As we enter into another round of talks in the U.S.-China Commission on Commerce and Trade next month, I think it's important to recognize the importance of protecting our citizens' intellectual property, not from under-cost, not from low-cost producers, as has been suggested by the other side, but from theft, out and out theft. The effects of China and other nations to protect intellectual properties can only be described at best as very, very lax, and probably insincere. An estimated nine out of every 10 CDs sold in China are pirated. That means no one in American is compensated for his or her investment on 90 percent of the transactions in music trade. In 2003, the Motion Picture Industry estimated that they lost at a minimum $175 million in China. Interestingly enough, that's more money than the film industry made in China in 2003.

As we move forward in outlining an appropriate exchange of markets with China, we must recognize the importance of protecting our resources and our interests. We must also recognize that we in the U.S. have to continue in the effort to be more responsible in how we value those intellectual properties.

In minutes, a child in the United States can purchase a CD or a DVD uploaded on a file-sharing Internet service shortly after someone in China can download a perfect copy-a perfect copy of that CD or DVD, package it and illegally sell it in an open street market with little or no concern about any repercussions. Protecting intelligence property must be a collaborative effort. I'm pleased to see this listed as a high priority in the upcoming discussions with China.

And diverting from my prepared testimony, Mr. Chairman, I would only suggest, as I have with many, in many cases with much of our trade negotiations and efforts, that I want to invite the USTR and all those who are really concerned about getting the best deal that we can-as I have in farm products, as I have in some of our manufactured products-to put a person on that negotiating team that knows what they're doing in real life, rather than just out of theory and because they went to college somewhere. I'd like to see a person that actually drove the wheat combine negotiating on wheat trade. I'd like to see somebody who worked in a processing plant, perhaps a union member sitting at that table. I've had the opportunity to negotiate contracts with both union members and farmers, and they're pretty tough negotiators, and I think we need that kind of advantage at our negotiating table.

And finally, I would say in this context, I would hope that you would invite somebody from the motion picture or the entertainment industry to the negotiating table to help you find that safe road for fairness in our negotiations.

Thank you, Mr. Chairman.

REP. STEARNS: I thank the gentleman. The gentleman from Texas, Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. And I thank you and the ranking member for holding this hearing on U.S.-China trade, and I'm pleased that both the chairman of our full committee has an interest in trade issues, and I think it's very appropriate that our subcommittee exerted jurisdiction over trade issues.

Article One, Section Eight of the Constitution clearly states that the U.S. Congress has the sole authority to regulate trade with foreign countries. With the approval of fast track authority, I think Congress abdicated a lot of our authority, except for one vote on the floor of the House. However, I wholeheartedly support the efforts-our committees' efforts to renew, so our voices can be heard.

This subcommittee's trade jurisdiction extends to non-tariff related trade issues. It is my opinion that most of this country's trade problems with China fall squarely within that jurisdiction. China's currency manipulation, lack of regulation, and state subsidies gives them an unfair competitive advantage when it comes to trade with the United States. But their largest advantage, and our largest disadvantage remains in the issue of the standard of living. The United States cannot engage in a race to the bottom to be able to compete in the global market place that regards low wages-rewards low wages and substandard living conditions. The American people simply can't afford that kind of battle.

Faced with this reality, we have few options that can help us truly level the playing field. And considering the $124 billion trade deficit with China, we must take avenue available. I've joined several efforts in this chamber to encourage China to stop undervaluing its currency. The Chinese currency has been fixed at 8.3 yuan to the dollar, which results in a seriously undervalued yuan. This makes Chinese exports even less expensive and results in an unfair competitive advantage that American products simply can't compete against. In fact, many economists have concluded that the undervalued currency amounts to a 40 percent subsidy for all Chinese exports to the U.S., and a 40 percent tariff on all U.S. exports to China.

Mr. Chairman, I represent the port of Houston, which is the largest U.S. port in foreign tonnage. The ships that come from all over the world, particularly China, have kept my port busy and provided good-paying jobs for my longshoremen. Yet but as simply as I like to see those ships coming in, full containers into the port of Houston, I'd like to see them leave our ports full of American goods going to a foreign market. The cost of the containers is so cheap in China, sadly in most of our foreign ports we have an excess in containers, because it's cheaper to build a container in China than it is to ship one back empty. Again, it would be much better if we could ship it back with some of our products.

There's no question we must take quick action against the unfair trading practices with China, and I'm interested in the suggestions that our witnesses have to offer, and I thank them for appearing today. And again, Mr. Chairman, I thank you and yield back my time.

REP. STEARNS: The gentleman from Oklahoma, Mr. Sullivan.

REP. JOHN SULLIVAN (R-OK: Thank you, Chairman Stearns. As a new member of the committee, I'm very interested to hear the testimony presented today. The U.S.-China Joint Commission on Commerce and Trade has played a very important role in issues of trade between our two issues. Issues of intellectual property protection and piracy, non-tariff barriers to the U.S. manufacturing products in China are extremely important to me and the people in the First District of Oklahoma.

My district has lost over 16,000 jobs in the last year. While not all of this is in the manufacturing sectors, much of it is. And part of that concern involves trade with China. For the second time, the U.S. Trade Representative found that China continues to have problems meeting its WTO obligations, especially with regards to agriculture, services, IPR protection, tax policies, trade rights and distribution and transparency of trade laws and regulations.

If the U.S. is to continue in the multi-billion-dollar trade relationship with China, these issues must be addressed. I look forward to hearing today's testimony and yield back the balance of my time.

REP. STEARNS: I thank the gentleman. The gentleman from Florida, Mr. Davis.

REP. JIM DAVIS (D-FL): Thank you, Mr. Chairman. Obviously there's a lot of anxiety in the country, as manifest in this committee today over the aggressive business activity in China and the increasingly sophisticated manner in which the country is taking advantage of trade. This is understandable. It is the same approach we take here in the United States with our trade with China and other countries.

But at the core of the issue here is the rule of law. The Chinese government has bind itself, its businesses and its citizens to the rule of law and to the terms and conditions of the WTO and our bilateral. And it is essential that we focus on living up to that agreement and that they live up to it -- (audio break) -- trade agreements that were presented by the Clinton administration and this administration.

I think it's time for us to take a second look at how we define success. I think it's fair to say success has largely been defined at the USTR's office under any administration in the number of agreements that were signed, as opposed to how effectively we enforce the ones that were signed. If that presents resource issues on your part, I hope that you'll mention that today, or your office will follow up with this committee and others. But it is important that we do a better job and put more priority on making sure these agreements are adhere to.

I also hope that you will comment upon what efforts we are taking to help the country of China start to develop a more reliable and sophisticated judiciary. I have heard anecdotally there are some judges in China who don't even have a law degree. There's a lot of democracy building that needs to be done there, both on the human rights, the political and civil rights and on commercial. This should be an era where we can bring all the competing interests together.

Finally, I don't see any reference in your testimony to the issue that you're going to hear from everybody here about the monetary policy of China. If you don't think it's an issue, or you don't think there are any easy solutions, you should say so. And I'm sure there are other committees that will be talking about that as well, but it's clearly something we should at least be discussing.

I think the ranking member's comment about labor environment has some merit from the standpoint. I also would encourage you today and in the future to simply try to address those issues. One of the ways that President Clinton was trying to develop a center on trade agreements-and I'm referring specifically to Jordan, Singapore and to some extent Chile-was to begin to put more emphasis on labor and environment. We will not always agree as to how we get there and how quickly we get there, but it is a mistake not to at least address those issues and try to develop some common ground, both in the enforcement on the China trade agreement in the WTO and in other trade agreements we'll be talking about. So I hope you'll take those comments to heart in a constructive way that we can try to figure out how to solve some of these problems instead of just spending most of our time identifying them.

Thank you, Mr. Chairman.

REP. STEARNS: I thank the gentleman. Mr. Shimkus.

REP. JOHN SHIMKUS (R-IL): Thank you, Mr. Chairman. Briefly I want to welcome Mr. Freeman here, and basically a lot of us are talking about job losses as well as job gains. And I've been really talking about the difference between household surveys and the payroll surveys, because I have a lot of self-employed individuals, and they're never counted in a payroll survey, because their household employed. And I think we lose that argument in this whole job. And I just throw that out for the public to understand that when self- employed individuals are not counted in job gains or job losses, we lose a lot of people who are really entrepreneurs.

On the subject particularly, China's currency is significantly undervalued. I agree with Congressman Davis. I think it's a WTO violation and we ought to be aggressive in addressing that issue. Piracy would be another I think breaking of the WTO agreement. We ought to be very aggressive, especially on intellectual property. I'm also concerned about the safety of products. Again, a big conflict when we're concerned about the safety of mainly manufactured goods and we're not concerned about the safety of reimported drugs. But that's the political debate that we'll continue to have.

We have an additional cost of manufacturing in this country with this high health insurance, high worker comp, high litigation, high regulations, that also has to be part of the debate on the competitive nature of our manufacturing sector. That's also part of the struggle that we have as we try to define where we're doing well and how we're having challenges. So I look forward to the hearing. We all have great concern on this issue, and I yield back the balance of my time, Mr. Chairman.

REP. STEARNS: I thank the gentleman. The gentleman from Ohio, Mr. Brown.

REP. SHERROD BROWN (D-OH): Thank you, Mr. Chairman. I appreciate your leadership and Ms. Schakowsky's leadership on trade issues, and your support for fair trade that you have both advocated for us as members of this body.

I share Mr. Strickland's concern about the president's trip to Wisconsin and his comments, and the president-and Secretary Snow's trip to Ohio. When I hear the president calling us economic isolationists, that is not helpful in this debate, and calling people who believe in fair trade, and Mr. Chairman Stearns does and Ms. Schakowsky and most of us here, who believe that trade should include environmental labor standards, doing name-calling like that doesn't really help us engage in the debate we need.

I want to welcome Mr. Tonelson and Mr. Levinson, friends of mine-thank you for being here, and lending your thoughts to this debate.

Free trade idealogues are quick to point out that America has significant exports to China. That's true. But stopping the analysis there is like trying to balance your checkbook by counting only the deposits and ignoring the withdrawals. It makes for an assessment that makes us feel better, but it really isn't terribly accurate. The U.S. trade deficit topped $124 billion last year-the largest deficit as we all know with one country in U.S. history. The monthly trade deficit with China the last month we know, this past January, stood at a record $43 billion. That's four times-the trade deficit in January is four times the annual trade deficit we had with China my first year in Congress, in 1993.

The main reason for China's comparative advantage, when we harken back to the ideology of 16 decades ago, is obvious: an exiled Chinese labor activist Wei Jingsheng told the Washington Post the reason Chinese products are so cheap is that workers have no rights. China's government employs forced labor, slave labor, child labor to minimize costs; they prevent workers from joining unions; they prevent workers from bargaining collectively; they deny citizens safe working conditions; they provide no minimum wage.

The AFL-CIO estimates that by using abusive labor policy to stack the deck in its favor, China has unfairly cost U.S. companies and businesses and workers 727,000 jobs. The AFL-CIO has sought relief from the U.S. Trade Rep under Section 301 of the Trade Act of 1974. That petition, the first of its kind in trade history, filed on the basis of labor policy, is an important first step toward a level playing field with China. I urge Mr. Freeman, Mr. Zoellick the USTR, and President Bush, to act quickly and forcefully in support of the AFL-CIO petition. I think this would substantially dramatically change the trade relationship we have with China.

If hearing could lead to one thing it would be, Mr. Freeman, your support of that AFL-CIO petition to give workers-put workers on the same field as we put intellectual property.

While I totally agree with my friends on the other side of the aisle and Mr. Davis, both who mentioned-many of whom mentioned the whole issue of intellectual property-while we need to stand strong on that issue, we should stand strong, as the Jordan agreement did, on labor and environmental standards. It's the right thing for human beings, it's the right thing for trade policy, it's the right for jobs here, and it's the right thing ultimately for economic development in the developing world.

I yield the balance of my time, Mr. Chairman.

REP. STEARNS: I thank the gentleman. The gentleman from Nebraska, Mr. Terry. Waives. The gentleman from Arizona, Mr. Shadegg.

REP. JOHN SHADEGG (R-AZ): Mr. Chairman, other than to thank you for holding this hearing and welcome our witnesses, I too will waive.

REP. STEARNS: The gentleman from Georgia, Mr. Norwood.

REP. CHARLIE NORWOOD (R-GA): You're very kind, Mr. Chairman, but I'm just here to listen today. Thank you.

REP. STEARNS: With that it appears the opening statements are complete, and so we welcome our first panelist, the Honorable Charles W. Freeman, III, the deputy assistant United States Trade Representative, Office of the United States Trade Representative. I understand, Mr. Freeman, you just arrived here from China, I think my staff said. So we appreciate very much your attendance and your willingness to participate. With that, we look forward to your opening statement.

MR. FREEMAN: Well, thank you, Mr. Chairman, and Congressman Schakowsky. It's an honor and privilege to be here, members of the committee, and to testify here today.

I have to tell you that I've just had two trips to China in the last three weeks, so I'm not exactly sure whether I'm coming or going right now. So to the extent that I am at all incoherent today, I hope you'll blame me and not the administration's trade policy. But that said obviously China's trade issues are high profile issues. These days China is our third largest trading partner now. It's our sixth largest export market.

In the last three years, while the global economy has stagnated, and trade or exports to the rest of the world have declined nine percent, to China they've actually increased-about 76 percent. The pace of export growth to China is actually faster than the pace of import growth on a percentage basis, for what it's worth. That's of course the good news.

As you all know, it's not what any of us really focus on. The trade deficit with China, as you pointed out, is over $124 billion in 2003, and you can rationalize and credibly explain some of the reasons for that number, but by any count it's striking.

When President Bush met with Chinese Premier Wen Jiabao this past September, they talked about the rising deficit and the powerful impact it's having not only on the American psyche, but also on the consensus in this country that favors open markets.

To his credit, Premier Wen agrees with President Bush that the right way to deal with the deficit is actually increase U.S. exports to China rather than to reduce the ability of U.S. consumers to purchase Chinese products.

One of the decisions that was taken during those discussions last September was to take the Joint Committee on Commerce and Trade, the JCCT and elevate it. It's nominally been a U.S. Department of Commerce-Chinese Ministry of Commerce exercise. The president and Premier Wen agreed to elevate that so that it's actually an exercise between Vice Premier Wu Yi chairing her side, and a group of ministries on the Chinese side. And Ambassador Zoellick, USTR, Secretary Evans of Department of Commerce, with support from Secretary Veneman of Agriculture and others to actually not only try to resolve some of the bilateral problems that we face in our trade relationship, but actually to promote U.S. exports to China.

USTR's fundamental role in U.S.-China trade policy is to ensure that U.S. manufacturers, farmers, workers, service providers and consumers actually get the benefits of the deal that we struck that brought China back into the-China into the WTO in 2001. While therefore some of the discussions within the JCCT deal with some of the fundamental concerns that some of you have raised with respect to the structural underpinnings of the U.S.-China trade relationship, many of our priority concerns have to do with China's lack of implementation-or lack of complete implementation of their commitments upon entering the WTO.

I know that many of the excellent witnesses later today will address these concerns in greater detail, but-along with other matters-but I wanted to briefly point out some of the broad areas on which we are focused as part of our attempt to utilize the JCCT to achieve the goals set by President Bush and Premier Wen.

The first broad area, as some of you alluded to, is intellectual property rights. There's no getting around it. Intellectual property rights in China are not well protected. Enforcement of IPR is very laxed, and piracy is absolutely rampant. Even though in 2001 China implemented a legal regime, which is (trips ?) consistent with the-the agreement on traded-related aspects of intellectual property rights, the actual level of enforcement, and the actual level of enforcement seems to have gone done, and the actual level of piracy seems to have increased.

Other areas on which we are-with which we are concerned are industrial policies that seem to discriminate against U.S. exports, including tax policies, in new industrial standards, in other areas, these are things which-which fundamentally alter the playing field for some of our companies that are not only trying to do business there, but trying to export U.S.-manufactured goods.

In services, we have a range of issues, whether it's through the incomplete implementation of China's agreements on trading rights and distribution services, which fundamentally is where the rubber meets the road in terms of China's WTO commitments. Trading rights are the ability to import and export products into China. Distribution services is the right to actually distribute those products to the Chinese people and to the Chinese marketplace. Incomplete implementation of those rights and services would, in essence, undercut the entire value of the deal.

With respect to agriculture, we continue to be troubled by what are-we perceive to be an effort by some Chinese bureaucrats to lean on the task (?) in terms of-of imports from the United States into China, of some of our key grains and other commodities. This is something that is critical to us and on which we have been extraordinarily concerned and focused for the last few years-couple of years anyway.

I should note, cutting across all of these areas is a-the critical issue of transparency. Really, what we need to see from China, and what China committed to in the WTO agreement, was a broad agreement to make sure that the processes and the (effort ?) for putting in place new regulations and for enforcing those regulations would be transparent. We would have the opportunity to comment on them, we'd have the opportunity to help correct them. That-China's transparency commitment has been very unevenly enforced.

I should say that while our primary goal through all this is to resolve these concerns through dialogue, we have not been shy about utilizing the measures we have available in the trade policy tool box to assert U.S. interests when it's not possible to resolve them through dialogue. As many of you know, we did utilize the special safeguards provided to us through the WTO agreement to impose remedies on three categories of textile products last year. We recently, on March 18th, brought the first WTO dispute settlement case against China, the first of any other WTO member, for its discriminatory treatment of foreign semiconductor products. And the administration has demonstrated its willingness and its right to employ other WTO legal means to ensure that our producers get a fair shake when faced with unfair competition with China.

So, the bottom line is that this country was built on open markets, and we'd like to keep our markets that way. It appears, at least from my discussions to date with the Chinese in preparing for the JCCT China would like us to keep our markets open too. I hope we've been effective in reminding our Chinese friends that that will in no small part be dependent on what they do over the next few months.

Thank you very much. I look forward to your questions.

REP. STEARNS: Mr. Freeman, thank you. I'll start with my questions.

I am going to go to the heart, I think, of this whole debate with China. I called attention to you earlier before the hearing the article by Robert Samuelson in today's Washington Post, and I hope you had a-perhaps your staff got a copy of that for you. And I think Mr. Strickland and people on this side, and Mr. Brown, Mr. Davis, and people on our side, this-this is, I think, the crux of what we're talking about here. It's almost a universal cannon or common perception that China is taking away all of our jobs. And I'm going to ask you this question. Mr. Samuelson (sp) posits a question that China is not likely to be a significant cause of U.S. job losses. He indicates that adverse labor conditions in China may affect less than one percent of U.S. jobs.

My first question, do you agree with that statement? And he points out that if the United States practices protectionism, it will not create new jobs in this country, and he points out the AFL-CIO's demand for tariffs would likely invite Chinese retaliation, which would have an immediate, negative impact on job growth in the United States. So, this universal cannon that-and I think both-people on both sides of the aisle feel this and it's universally accepted in America, now is a chance for you, as a representative of the administration, USTR, is to answer that question, whether the adverse labor conditions in China affect less than one percent of U.S. jobs?

MR. FREEMAN: I'm-I'm not an economist, so I'm not qualified to categorize --

REP. STEARNS: Okay.

MR. FREEMAN: I will say that-that --

REP. STEARNS: But-but obviously you're not an economist, but you're involved with trade negotiation, and you talk to a lot of economists, you have economists on your staff, and, I mean, you certainly-do you agree with that statement? Yes or no?

MR. FREEMAN: I'm not sure. I-with respect to the AFL-CIO petition, we've just received it, we're looking at it, we're reviewing it. Let me say a couple of things about the petition --

REP. STEARNS: Well, let me just ask you a question, though. If the perception is that China is taking our jobs away, and that Samuelson is saying it's not, do you think he's correct or not?

MR. FREEMAN: I --

REP. STEARNS: I'm putting you on the spot.

MR. FREEMAN: You are putting me on the spot. And I wish I was back on that plane, I'll tell you. (Laughter.) The-let me-again, let me say that that's one of the issues I have-we haven't-we haven't been able to analyze. But the AFL-CIO's petition --

REP. STEARNS: Okay.

MR. FREEMAN: -- is --

REP. STEARNS: I'll give you some leeway.

MR. FREEMAN: Give me a little leeway.

REP. STEARNS: Yes. Go to the AFL-CIO petition --

MR. FREEMAN: Let me --

REP. STEARNS: He points out it will invite Chinese retaliation and would have a negative impact. Do you think that's true?

MR. FREEMAN: I will say that in the course of U.S. history that protectionism has not resulted in job creation. In fact, quite the opposite. And I'm not sure that that's what we need to be doing with respect to China. I think the issue is making sure that the playing field is made increasingly fair.

That said, it's hard to deny that the substance of the AFL-CIO petition, which is that for all intents and purposes workers' rights in China are oppressed.

REP. STEARNS: That's-that, we agree on.

MR. FREEMAN: How that manifests in the trade relationship is another question.

REP. STEARNS: And how it impacts jobs is-is quite complex.

MR. FREEMAN: And that's something which I think --

REP. STEARNS: Okay.

MR. FREEMAN: -- we need to look at in the context of our review --

REP. STEARNS: Let me go through some quick things that really get to the jurisdiction of this committee.

Please describe some of the restrictions on U.S. service providers in China. Are there specific restrictions that apply to insurance, to other financial services, to telecommunication services, to accounting services? And please comment on our strategy for encouraging a more open market in China for services, which is really directly our jurisdiction. Do you want me to repeat that?

MR. FREEMAN: I got it.

REP. STEARNS: Okay.

MR. FREEMAN: I think the issue is, with respect to services, there are a number of areas that we're particularly concerned about. The primary thing we're concerned about is China seems to be really trying to limit the number of service providers that play in its marketplace, and how these large players, and just a limited number of them. So, what they have done is they have set very high capitalization requirements for companies that do business there. The capitalization requirements-there are nothing to do-have no relation really to what are prudential requirements. They're just-seem to be fairly arbitrary. So, there's no real rhyme or reason to those requirements.

They've also limited the scope of businesses that service providers can engage in. Seemingly arbitrarily, they've-they've limited the geographic scope of some of these businesses. They've limited the-the-again, the scope of the-of the kinds of businesses that these-they can engage in.

Really, the-the primary goal of these things seems not to be encouraging their own industries from-from-to grow, but really to prevent U.S. and other service providers to operate in the marketplace.

What we tell the Chinese is we have to come back and tell the U.S. Congress that, you know, we want to keep our markets open, and that you tell us you've got a comparative advantage in these X, Y and Z products. And we say, well, we have a comparative advantage in services, in high-tech, in some-certain manufactured goods, agriculture. Unless you're giving us a fair shake, unless there's reciprocity, we can't argue in front of Congress that we should keep our markets open to your products. So, in the area of services, we think we've got a comparative advantage, we think we've got a WTO deal that would allow us to assert that advantage, and we're going to continue to press it, to achieve the goals of the-of the WTO agreement.

REP. STEARNS: This would including accounting service, telecommunications service, financial services, as well as insurance?

MR. FREEMAN: Across-the-board. Mar 31, 2004 12:39 ET .EOF

REP. STEARNS: Okay. My time has expired. The gentlelady, Ms. Schakowsky.

REP. SCHAKOWSKY: I want to echo some of the concerns that were raised by Mr. Brown over remarks-and I think Mr. Strickland as well-remarks that were made by the president and by the Commerce secretary over the last couple of days.

The president said, "When you hear people talk about let us reconsider free trade agreements," what they're really saying is that perhaps we ought to wall ourselves off from the rest of the world. See, I think that would be absolutely wrong for America to be so pessimistic about our ability to compete that we become economic isolationists."

And last week Secretary Evans said, "America is not a fortress. It's a bridge. Traffic goes two ways. Economic isolationists are waving a surrender flag rather than the American flag." That last comment is something that I really took great exception with, because I felt that was questioning the patriotism.

It seems that the term now, economic isolationists, is the term of the moment, of the week, of the month, to describe people who, in my view, are those that are concerned or alarmed about the job losses that, in our view, have accompanied free trade agreements.

And that's why the question by our chairman is very, very important. That hadn't even occurred to me that one would think that our relations with China, with Mexico, wherever our jobs are going, actually has nothing to do with job loss in the United States.

So I'd really like you to comment, first of all, if you think that those Americans who are out of work, who at least perceive themselves to have lost their jobs because they have gone overseas somewhere, are they economic isolationists? Are they not waving an American flag?

What is the view of this administration when we continue to hear what I consider to be sliming of people who are concerned about the effects of these trade policies?

MR. FREEMAN: I'm not particularly qualified to comment on whether or not workers or people who are concerned about job losses are economic isolationists.

REP. SCHAKOWSKY: Well, then, who are they? Who are the economic isolationists?

MR. FREEMAN: Again, my job is to focus on market-access issues with respect to China and to open the markets so that people in this country that are working extraordinarily hard to put food on the tables for their families and to produce quality products are able to make sure that those products reach the markets that they're intended to reach. And my strong sense is that this administration is committed 100 percent -- 110 percent, if you like-to making sure that that happens.

We continue to focus across the board, and with respect to China certainly, to make sure that the goal of this administration is to open markets overseas, not to shut down our markets here.

Again, I'm not going to get into the debate on economic isolationism or not. I think the key for this administration is opening markets overseas and not closing markets here.

REP. SCHAKOWSKY: It is important-the real crux of the issue was the question, though, that the question asked, whether or not this administration acknowledges that as we open up-as we do trade with countries like China, who have policies that exploit cheap labor, whether we acknowledge that that has an impact on jobs at home.

To me it's a no-brainer. It's obvious to me that that is the case. When I went to Ciudad Juarez, saw maquiladoras that are moving from Mexico to China, leaving behind workers for a pursuit of even cheaper labor, the jobs were lost. We see it along the U.S. border, on the U.S. side, jobs leaving.

So it seems to me troublesome at the very least if there's not an acknowledgement that we are losing jobs to other countries.

MR. FREEMAN: I think the issue is the jobs are going-there certainly are labor costs that factor into moving production overseas, absolutely. There's no argument there. But the question is whether, with respect to trade agreements, you're actually gaining more jobs here than you lose.

And that-again, I'm not an economist and I'm not going to cite the number of jobs that have been gained through any number of trade agreements with which we've been engaged, but certainly, from our statistics, the growth has been positive.

REP. SCHAKOWSKY: Do you believe that labor rights are important to be part of our trade relations with other countries?

MR. FREEMAN: I think certainly this administration has shown that it's willing and able to forcefully push for labor and environmental rights within trade agreements. I think that's part of our fundamental policy.

REP. SCHAKOWSKY: And where have we seen that?

MR. FREEMAN: We've seen it in the Jordan agreement, in the Chile agreement, in the Singapore agreement.

REP. SCHAKOWSKY: Isn't it true that you wanted to renegotiate the Jordan agreement? Am I wrong about that, that some of the labor rights-I thought that the Jordan agreement was negotiated under the Clinton administration and that some of those positions-am I wrong about this?

MR. FREEMAN: There was, I think, some-maybe you can help me if there's some-I don't think that's the case.

REP. STEARNS: You certainly can get back to us if you want.

MR. FREEMAN: Absolutely.

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

REP. SCHAKOWSKY: Oh, okay. Thank you.