Commerce, Trade and Consumer Protection Subcommittee of the House Energy and Commerce Committee - US-China Trade Panel II - Part 2
REP. STEARNS: Mr. Levinson. Thank you. Go ahead.
MR. MARK LEVINSON: Mr. Chairman and members of the subcommittee, I want to thank you for the opportunity to testify today. I especially appreciate, Mr. Chairman, your opening statement where you stressed the importance of linking trade to labor rights. And Bruce Raynor, the president of UNITE, asked me to be sure and tell Congresswoman Schakowsky that UNITE members are especially proud that one of our own members, such as a distinguished member of this committee and of Congress, and we look to you all the time for your important leadership.
We are in the midst of an incredible crisis for manufacturing workers in this country. Every month since this administration has been in office, manufacturing jobs have declined -- 2.8 million manufacturing jobs have been lost since this administration has been in office. One of the reasons is our trade relationship with China.
On March 16th, UNITE participated with the AFL-CIO in filing a petition with the U.S. Trade Representative under Section 301 of the Trade Act of 1974, asking the Trade Representative to take action to promote the human rights of China's factory workers.
It is the first time in the history of Section 301 that a petition has invoked the violation of workers' rights as an unfair trade practice, although it is quite common for corporations to use Section 301 to challenge other unfair trade practices such as violations of intellectual property rights. In Section 301, Congress said that it is an unreasonable trade practice if one of our trading partners persistently denies workers' freedom of association, rights to organize, and rights of collective bargaining, freedom from all forms of compulsory labor, freedom from child labor, standards for minimum wages, maximum hours, and safety and health.
Even before the enormous loss of jobs to China in the last three years, Congress recognized that the denial of basic worker rights overseas was the cause of capital flight and the loss of U.S. jobs, and Congress directed the president to act to stop it.
The AFL-CIO petition shows overwhelmingly that the two preconditions for presidential action under 301 are met. First, China persistently denies the basic rights of its workers. And second, the denial of those rights adversely affects U.S. workers.
The president has 45 days to decide whether to accept the petition and launch an investigation.
If he denies the petition, he must publicly state his reasons. He must publicly declare either that China doesn't persistently violate its workers' rights or that China persistently violates its worker rights but that this has no effect on U.S. jobs.
Either declaration would contradict the overwhelming evidence presented in the AFL-CIO petition. Indeed, Section 301 authorized the president to take action on his own initiative even before the AFL-CIO filed this petition, but he hasn't enforced Congress's will.
The AFL-CIO petition shows that China's violations of worker rights gives manufacturers a cost advantage ranging between 10 and 43 percent of overall production costs. That illegitimate cost advantage displaces approximately 720,000 jobs in the United States.
I want to stress, these are very conservative estimates. They're calculated from the trade model used by the International Trade Commission, and they use the most conservative assumptions at every step in the calculation. China's illegitimate cost advantages probably displaces many more than 727,000 jobs.
The AFL-CIO petition doesn't challenge China's comparative advantage as defined by classical trade barriers. China has a number of competitive advantages apart from its all-out denial of worker rights.
But China's all-out denial of worker rights gives China an additional increment of cost advantage in its manufacturing sector, and that increment is an illegitimate advantage. It's illegitimate under universal norms of human rights and it's illegitimate under congressional legislation.
Section 301 authorizes the president to take any actions within its constitutional powers to enforce fair competition and worker rights overseas. The AFL-CIO petition demands that the president take three actions to remedy China's persistent denial of worker rights.
First, the president should impose trade measures against China that are sufficiently large to induce China to enforce worker rights and to stop the unfair competition.
Second, the AFL-CIO demands that the president negotiate an agreement with China to phase out the trade measures in incremental steps as China complies with benchmarks on compliance with worker rights, benchmarks that are specific and verifiable by the International Labor Organization.
Third, the AFL-CIO demands that the president enter into no new trade agreement until all members of the WTO are required to comply with core worker rights as a precondition of enjoying the benefits and privileges of WTO membership.
Global trade rules should fairly enforce basic worker rights and end the race to the bottom.
Thank you so much.
REP. STEARNS: I thank you. And I'll start with the first set of questions.
Here we are; you know, it's a little after noon, and we've heard your opening statements. And some of the complaints you have made are very valid. And we've heard from Mr. Tonelson indicated 23 percent unemployment. I think that's --
MR. TONELSON: Once again, that's the estimate of Charles Wolf, the RAND Corporation. Again, I --
REP. STEARNS: I know, but I think most people would say that probably there's 200 million people who are unemployed in China.
MR. TONELSON: A good way to look at it is there are more unemployed workers in China than there are workers in the United States.
REP. STEARNS: That's a good way to put it. You could put that in perspective. So obviously the incentives are there for the people in China to work at a very low wage. And when you hear, Mr. Levinson, what he would like to see, it's a whole litany of things that you would like to see.
Mr. Attaway, I think I'll start out with you and ask you, what would you like to see the U.S.-China Joint Commission on Trade accomplish for your industry? Can you just give me two or three points that would just again reiterate what you would like to see done?
MR. ATTAWAY: Mr. Chairman, I outlined a number of specific steps we would like the Chinese government to take. But the one thing that covers everything is simply to set a timetable to reduce piracy to more acceptable levels. We would like to see the Chinese government set a goal --
REP. STEARNS: You say in your testimony from 95 percent to less than 50 percent by the year 2004.
MR. ATTAWAY: That's correct.
REP. STEARNS: I mean, do you think China can do this in that short amount of time?
MR. ATTAWAY: Yes.
REP. STEARNS: And how would they do it?
MR. ATTAWAY: They can do it by --
REP. STEARNS: Because it's a totalitarian state, so to speak, they should be able to do it better than most.
MR. ATTAWAY: Well, that's exactly right. They should be able to energize their law enforcement authorities.
REP. STEARNS: You mentioned in Singapore and Taiwan they brought it down, so certainly Singapore is a free democracy and so is Taiwan. If they're able to bring it down, you would think China then should be able to bring it down.
MR. ATTAWAY: Throughout the region, when I first came to MTAA, almost all of Asia was 100 percent pirate. Now most of the Asian markets are vibrant markets, not only for U.S. films but domestic films, in Korea in particular.
China can do the same thing if it has the will to do it.
REP. STEARNS: You heard me talk to the U.S. trade representative about have we lost jobs to China, and he sort of indicated he could not speak on it because he was not an economist. You said in your opening statement that the industry directly employs 500,000 U.S. workers.
Can you tell me, has there been any fluctuation in this number due to privacy? And, if so, what quantitative analysis or statistics can you give me?
MR. ATTAWAY: I can't give you any kind of quantitative analysis of how many more people in the United States would be employed but for the high piracy rate in China. However, it certainly-the more revenue the industry can achieve from China and elsewhere, the more money we can put into making films.
REP. STEARNS: Well, let me ask Mr. Lowenstein. What, in your opinion, is the dollar value estimate of sales lost because of privacy and counterfeiting in China?
MR. LOWENSTEIN: Well, we estimate the value of pirated software available in China is around $500 million. That's an annual figure.
REP. STEARNS: Five hundred million?
MR. LOWENSTEIN: Million.
REP. STEARNS: Million.
MR. LOWENSTEIN: Million, with an 'M'.
REP. STEARNS: Okay. And what do you think it's doing in terms of jobs in the United States? I mean, is there any quantitative statistics that you have? Mr. Attaway said he does not have any.
MR. LOWENSTEIN: We don't have quantitative statistics vis-...-vis China. But I can tell you that the typical American game software company is generating about 50 percent of its revenue by exporting games to foreign markets.
Just the mere-and this is in a very high-growth industry in the United States. So just the very fact that this huge market is effectively shut off, I would guess that a vibrant market in China could only have a salutary effect on employment in the United States.
REP. STEARNS: Mr. Papovich, you mentioned in your testimony that the Chinese government has significantly curbed privacy in Shanghai. So now we have an example, contrary to what we're hearing, that the Chinese have actually done something to curb privacy. What have they done, and why is it just isolated to Shanghai?
MR. PAPOVICH: I have no idea why it's just isolated to Shanghai. But we have gotten reports in the last few months-and so this is very recent-that the authorities in Shanghai have put together a coordinated program, run by the city government, not by one agency competing with another agency --
REP. STEARNS: It's not a state but it's a city government.
MR. PAPOVICH: It's a city, but it's the biggest city in China.
REP. STEARNS: Yeah, sure. It's huge.
MR. PAPOVICH: They made it clear-I think this is the best way to put it-the people who are in charge, the mayor and the people around the mayor of Shanghai, made it clear to all of those various people in the Shanghai government who are responsible for law enforcement that significantly reducing policy is a city-wide priority. And we have seen the results.
And the message-thank you for asking me the question, because the message that I have then to the rest of the Chinese government is that this is what needs to be done. Until all of the various law enforcers around China who are responsible for enforcement of all kinds of laws are instructed by someone who has that central authority-like in the case of Shanghai, the mayor-that this needs to be done, it won't be done. But if someone says it must be done, it will be done.
It's not a matter of it being a totalitarian country, frankly. It's a matter of doing law enforcement. We do law enforcement here. They can do law enforcement there.
For the time being, aside from Shanghai, the rest of the country, from the national and the provincial and the local level, has chosen not to do so with respect to our product.
REP. STEARNS: My time has expired. But can you give specific how this has been curbed? I mean, like Mr. Attaway talked about, 95 percent; he wants to bring it down to 50. Do you have some statistics like that to say, because of what happened in Shanghai, it went from 95 to 50 or something like that?
MR. PAPOVICH: Coincidentally, that's exactly how much it dropped.
REP. STEARNS: It dropped in a very short amount of time.
MR. PAPOVICH: From 90 to 95 to 50.
REP. STEARNS: In what kind of period of time?
MR. PAPOVICH: I'm not certain, but I would say over six months.
REP. STEARNS: Okay. My time has expired. Ms. Schakowsky.
REP. SCHAKOWSKY: Thank you, Mr. Chairman.
Mr. Levinson, as UNITE members, you and I share a particular concern over the welfare of textile workers in the United States. In your written testimony, the numbers you presented are just staggering; China's exports of textiles and apparel up 320 percent during just the last two years of President Bush's administration, while U.S. employment in the same sector has declined by 323,000.
If the president were to take action on the AFL's 301 petition, would that help the situation? Do we have hope of reclaiming those jobs?
MR. LEVINSON: The situation in textiles is a little different. And, in fact, we're on the verge of something much worse in textiles. At the end of this year, the global quota system that has regulated the apparel and textile industry for 40 years expires. That means there will be no quotas on any apparel and textile goods coming from China.
It is expected that China's share of imports in the U.S. will increase from its current level of about 13 percent to about 70 percent. That means our calculations are within two years of the expiration of quotas, about half a million U.S. apparel and textile workers will lose their jobs.
That is why we are calling and others are calling for an extension of the quota system to head off what is really a catastrophe. This is-not enough people, I think, are aware of this. This is an issue really a little separate and apart from what we addressed in the 301 petition. But it's very important nonetheless.
If what we're asking-if the administration did what we're asking for in the petition, it would definitely help. And it would help not just the U.S. It would help developing countries around the world. Millions of apparel workers in Africa, the Caribbean, Mexico, Asia are on the verge of losing their jobs when all quotas come off China.
So for developing countries around the world, they are also facing a catastrophe here. And they simply cannot compete in an unregulated way against China with the kind of labor repression that exists there.
REP. SCHAKOWSKY: I appreciate your getting on the record the fact of the expiration or potential expiration of these quotas. And hopefully that's something that we're going to be able to address, perhaps at a near-future time as well.
If China enforced workers' rights, what would wages look like in China compared to the United States? And wouldn't China still enjoy a significant advantage over the United States labor force even at that level? So how do we think about that?
MR. LEVINSON: It would. China-and it's important to understand this distinction-China is a poor country. Even if labor rights were enforced, wages would be low. But they would not be as low as they are now. And wages would rise in China, and that's good for Chinese workers. It's good for American workers. It would help China develop its domestic market.
And what we point to in the petition is the job loss figures we point to are not all jobs lost to China. It's only the jobs lost due specifically to the artificial repression of wages.
So, you know, wages in China are extremely low, 15 to 30 cents an hour in some places.
REP. SCHAKOWSKY: So when you calculate that job loss due to excessively low wages, you're not saying compared to the minimum wage or the average wage of that industry here in the United States.
MR. LEVINSON: That's right.
MS. SCHAKOWSKY: Okay.
MR. LEVINSON: The figures that we point to are the job loss due to the artificial suppression of wages caused by the denial of worker rights in China. And so if worker rights existed in China and wages, say, tripled or even quadrupled, it would still be well, well below the levels in the U.S. And that, I would argue, is China's legitimate competitive advantage. What's illegitimate, you know, is depressing wages even below that level, which is what, in fact, exists.
MS. SCHAKOWSKY: On which you based your calculation.
MR. LEVINSON: Yes.
MS. SCHAKOWSKY: Thank you.
REP. STEARNS: I thank the gentlelady. You're welcome to stay. I think we're going to have another round. But I understand you have another commitment.
I think I'll go to Mr. Primosch. You mentioned the need to halt production of counterfeit U.S.-branded products. What is the impact? Do you have specific statistics of something on U.S. businesses?
Most of your recommendations to address counterfeiting require changes to China's enforcement regime. And what can the United States do? Can we help our own cause with better domestic enforcement or other alternatives to prevent this counterfeiting?
MR. PRIMOSCH: First, on the question of statistics, we don't have statistics. But just to give you an idea of kind of a global range of what the magnitude may be, there are estimates that global counterfeiting is about $300 billion to $350 billion and that China is the leading counterfeiter.
In fact, in seizures worldwide by the Customs Service, I think it's between 46 and 50 percent of all the goods sold originated in China. So that's not a statistic, but it is-I mean, it gives you a sense of the scale of counterfeiting and also of China's participation in counterfeiting.
On the question of what we can do and what the Chinese can do, certainly the Chinese can do a lot more. We've discussed here on the panel a number of different things. I have some suggestions in my written statement.
One of the most important things they can do-and they have agreed to do it in a 1992 agreement with the United States-is to stop counterfeit goods from leaving China at the Chinese border. And the Customs officials frequently get information on the export of counterfeit products.
They are not taking action. Part of it is apparently the result of lack of coordination. In part it's also apparently because of the lack of clear legal authority. So we have made some suggestions on how to clarify the legal authority.
We would also like to see our U.S. Customs Service devote more time to examining imports for counterfeit products. We recognize that homeland security has to be its absolutely top priority. But we do think that more effort could be expended, and that would help.
REP. STEARNS: Mr. Tonelson, you painted a pretty bleak picture earlier for the future of the U.S. standard of living. You know, I think you used such words as-also you talked about possibly a deep depression, double crash. That was in China.
MR. TONELSON: Well --
REP. STEARNS: Worldwide.
MR. TONELSON: If we take macroeconomic theory seriously-I hope that we do-we know that current U.S. trade deficits are running at entirely unsustainable levels. We know that the China deficit is an enormous and growing component of the overall total.
So it's quite obvious that no one can predict the day of reckoning with any certainty, but what we do know for sure is that the farther we go down the road of the trade strategy that's been followed by this administration and the --
REP. STEARNS: And the Clinton administration.
MR. TONELSON: -- previous administration-absolutely, equally at fault-the farther and faster down this road we go-again, locking ourselves into structural deficit with enormous and extremely populous portions of the world that cannot possibly, in any policy (or?) relevant future, consume anything proportionate to what they can produce, the closer we get to that day of reckoning. And it seems to me and to my organization that the height of responsible policy is trying to move us away from that day of reckoning, not ever closer to it.
REP. STEARNS: So you would advocate tariffs in sectors --
MR. TONELSON: Absolutely. And, in fact --
REP. STEARNS: And tariffs across the board, or in sector industries?
MR. TONELSON: I think we need a very substantial across-the- board tariff on Chinese products. In fact, we are in such desperate shape with the American manufacturing sector and with our entire economy, which is currently being propped up by short-term financial gimmickry-low interest rates; heavy, heavy deficit spending-if we're going to put ourselves back on the path of healthy and sustainable growth, unfortunately we're going to have to resort to substantial tariffs.
Now, I wish that this were not the case, but unfortunately we've gone down this road so far and so fast, we have no choice. If there are any alternatives to this that are not already proven failures, I'd love to hear them.
REP. STEARNS: You heard when I asked Mr. Freeman earlier about Mr. Samuelson's article in which he pointed out that the adverse labor conditions in China have really no effect on the United States, and he said less than 1 percent, and he said protectionism will not generate job growth. And so he went on to say 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, I mean, most people respect him as an economist. He's been writing for many years. And so it's quite dramatic what he says compared to what you're saying.
MR. TONELSON: It certainly is. I --
REP. STEARNS: So you discount every-you probably haven't read --
MR. TONELSON: I haven't read it yet, but I certainly know his larger body of writing. And I was struck by this trade-war point, because Representative Shimkus made that also. And we are talking about a U.S. market that consumes roughly 40 percent of China's exports, and we're talking about a Chinese economy that, at least as of 2002, according to Stephen Roche of Morgan-Stanley, a very respected economist himself, with probably considerably more credentials in the field than Mr. Samuelson, saying that China relied on exports for three-quarters of its growth; again, an economy, 23 percent unemployment rate, extremely low wages, relying for its robust growth overwhelmingly on exports.
So the notion that there will be a trade war that we might possibly lose-I mean, I don't play poker, okay. But if I did, I would love to play it with Mr. Samuelson, and, in fact, with Representative Shimkus also, because I think I would win a lot of money.
REP. STEARNS: You know, we should have really had a third panel and had the Chinese government here to talk about this too. But we're talking about some really fundamental issues.
But I think we all would agree, relative to the recording industry and the DVDs that are being pirated, that this is something that the Chinese government can solve. I see in some of my notes, in Singapore they had a policy there that was very effective. And so that type of policy, Mr. Attaway, could be done in China. We've seen in Shanghai what they've done to bring it down from 95 to 50 percent.
So the original purpose of the hearing was to explore what should be done and what the administration should do relative to this commission and the negotiations. So I think we've laid out some of the things that should be done. But I think we're also trying to see in this committee, what is the long-term effect not just in your particular industries, but what is the long-term effect in our present trade policy? Obviously Mr. Samuelson has one particular view and you people have another.
Mr. Levinson, is there anything you'd want to add to what-he mentioned in terms of he paints a pretty bleak and dire picture. Do you sort of agree with him here?
MR. LEVINSON: Yes. And I would just reiterate the point that China needs the U.S. market. And as you said in your opening statement, we should use the access to that market to achieve ends that we all believe in.
REP. STEARNS: When you talk about a lot of the information you provide, is that true in the state-owned as well as the public industries? Does that apply to both of them? Is it applicable?
MR. LEVINSON: The petition that we submitted focuses on the migrant workers in China --
REP. STEARNS: Oh, okay.
MR. LEVINSON: -- which, for the most part, you know, work in the vast export sector.
REP. STEARNS: I'm going to ask a few more questions. I think we've heard that one member would like to come down and ask some questions, so I'm going to continue before I close here.
Mr. Attaway, the administration has said they prefer to resolve trade concerns through a collaborative method like the JCCT. Now, what happens if it's not successful? I'd like to ask-just go down here and tell me, if it's not successful, what would you think should be done?
What should be necessary to curb the privacy (sic/means piracy), and you may put on the record some of your suggestions in the event nothing happens here. Just put your mike on.
MR. ATTAWAY: Excuse me. In the unhappy event that negotiations are not successful, then the only alternative is for the U.S. government to exercise its rights under international agreements, including the WTO. I am hopeful --
REP. STEARNS: Take the court to the WTO and then fine China.
MR. ATTAWAY: That's correct. That's correct. I'm hopeful that won't happen. But that's the alternative if negotiations don't work.
I'd also like to point out, one of the fellow panelists was talking about erecting barriers to imports into the United States. Well, I represent an industry that does what it does better --
REP. STEARNS: You have a surplus.
MR. ATTAWAY: -- than any other country --
REP. STEARNS: One of the few.
MR. ATTAWAY: -- any other country in the world. And when you start erecting barriers, we're the first American industry to be harmed, because then other countries erect barriers to our exports.
REP. STEARNS: Mr. Lowenstein, also what would you suggest?
MR. LOWENSTEIN: Well, I would echo Fritz's comment and hope that the JCCT process and the voluntary cooperative process is successful. We're certainly hopeful it will be. If it's not, I think that every remedy and option available to the American government has to be on the table and evaluated and used aggressively. Mar 31, 2004 16:38 ET .EOF
I would also like to add one other point on the broader question here, because I think, on the one hand, enforcement, we've all talked about, is the touchstone of progress in China right now. And I think we all agree the example in Shanghai is rather vivid testimony to how quickly the situation can improve with enforcement and the will to enforce.
It is a mistake to think it's only about enforcement, though. There are, as we've outlined in our testimony, very clear deficiencies still in specific areas of the law in China. It talked about the (OSCO?) statute, the organized-crime statute. I talked about the NET Act type laws that we have here that they don't have there.
REP. STEARNS: On the judiciary side, not --
MR. LOWENSTEIN: Well, not judiciary, but the legal side. There is still deficiencies in the policy framework. There are no laws to criminalize trafficking and circumvention devices that I showed you earlier. So we need to keep our eye on both sides of the equation.
REP. STEARNS: So actually we probably need to somehow ask them to put in place the legal remedies at the same time we're asking for the enforcement.
MR. LOWENSTEIN: Absolutely.
REP. STEARNS: Yeah. And Mr. Primosch, my question is, in the event that the commission does not adequately solve this problem, what would you suggest? I mean, Mr. Attaway-each of them are giving-and so I'm just going to go down --
MR. PRIMOSCH: That's right, yeah. I mean, with a slightly different application, we believe that we should use our rights under our U.S. law, but also-and under international treaties and the WTO rules. But we feel very strongly that whatever action we take should be within the WTO rules, because we can also be hurt if we violate those rules.
And that's what concerns us about the AFL-CIO petition is that there's no allegation that the international trade rules have been violated and that we would have to take unilateral action, which would violate our obligations. And it's very difficult for us to tell the Chinese --
REP. STEARNS: If we're violating WTO.
MR. PRIMOSCH: -- "You should live up to your WTO obligations" when we're not doing it ourselves. And, you know, exports are so important. We tend to forget-when we think about job losses, we tend to think, oh, it's imports that are causing so many job losses. We estimate that we have lost 900,000 jobs over the past three years because our exports have declined. And actually, imports have been relatively level.
So we need to keep both parts of the equation in mind. Exports are very important for the U.S. economy and for U.S. manufacturers. The United States is the largest manufacturer in the world. We're also the largest exporter of manufactured goods. We have to keep that in mind.
REP. STEARNS: My time has expired. And Mr. Stupak is here, so I'll let my colleague-I'll recognize him.
REP. STUPAK: Well, thank you, Mr. Chairman. And sorry I've been bouncing around all day, but it's just one of those days.
When I was asking Mr. Freeman those questions about intellectual property rights, and I mentioned back in the 1990s we sort of had the same problems there. And I was really-Mr. Lowenstein, Mr. Attaway, your statements and some of the visuals you had were quite revealing.
Back in the 1990s, we did crack down with China on the piracy and the counterfeiting things. Why can't we use that same mechanism to go to the film industry or to the games? Why can't we use that same kind of scheme that we used back then to crack down on the illegal CDs -- (inaudible)?
MR. ATTAWAY: We can. In the late 1990s, the export market from China was growing tremendously. And USTR negotiated actions by the Chinese government that pretty much shut it down. Unfortunately, now it's coming back again. But they can do it. It can be done. It just is a matter of the will to do it. And that's what we hope will come out of this joint committee meeting.
MR. LOWENSTEIN: I would echo that. I think it's sort of the Yogi Berra "d'j... vu all over again." We see this with the Chinese government. There is a pattern. You reach the brink, negotiate agreements, progress is made, then several years later you seem to be arguing the same issues all over again.
I don't think there's any question, as Fritz says, that, one, there's a question of will. And as I was saying earlier, there's also a question of changes still in some of the fundamental legal areas. But I think that the fundamental point is that it's absolutely crystal clear progress can be made where the will is there to make progress.
REP. STUPAK: I was really amazed at the pictures you showed of the factory producing counterfeit cartridge products. I mean, obviously you know where they are and where they're doing it. I just, for the life of me, can't figure out why the administration is being so slow.
If you take a look at it, it's $18 billion or a couple of percentage points of the gross domestic product. And your video sales there went from $20 million-you started off with nothing, but yet the number of DVD players and VCRs have gone up in the country. It just defies logic that we would just sit back and do nothing about it when we have a pattern we can follow.
The enforcement of time certain-I think one of my colleagues asked that-have you suggested that to the administration? The end of the year 2004, I think, was one of your testimonies to cut back like 50 percent and go from there. Have you suggested that to the administration? And, if so, what's been their response? I think, Mr. Attaway, it might have been your testimony, I guess.
MR. ATTAWAY: Well, absolutely, we have suggested it. And I believe that that is one of USTR's negotiating objectives. They haven't succeeded as yet. But, as I stated earlier, I'm hopeful that they will.
REP. STUPAK: This JCCT negotiation we're supposed to have in April, is that going to be one of the issues they're going to bring up, or are you reasonably confident they'll bring it up and push it?
MR. ATTAWAY: That is my understanding and expectation, yes, sir.
REP. STUPAK: Okay. Mr. Primosch, manufacturing-I've always said that in order to have a strong economy, any nation has to have a certain percentage of manufacturing as part of its base economy. Could you give me some estimation of what you think that base economy should be? I mean, is it 18 percent, 20 percent?
MR. PRIMOSCH: I can't give you that kind of estimate. I can tell you, though, that the manufacturing, as a percentage of our gross national product, has remained relatively stable over the past --
REP. STUPAK: What percentage is that, sir?
MR. PRIMOSCH: I think it is around 18 percent, 15 to 18 percent. The employment has gone down steadily. A lot of that is due to-probably most of it is due to productivity gains. U.S. industry is very productive. And in a broad sense, it is very strong and very dynamic, and in many areas, extremely competitive in the global marketplace. But it is challenged as never before. And there's no question that China is part of that challenge, a big part of that challenge.
REP. STUPAK: We-I've been here for a number of years, along with the chairman. We started with NAFTA and a number of these trade agreements. And I don't think it's just trade agreements. It's our tax laws that give incentives. We don't tax on foreign profits, things like this. There's a number of things we should do.
But my question I sort of alluded to with Mr. Freeman was, you know, back when NAFTA was going through, they -- (inaudible) -- manufacturing to the computer age. Then from computers, where do we go next? Some say it's the knowledge age. Where do we go as a country? And can we maintain an economy where manufacturing jobs pay on average about $44,000, service industry is about $23,000, and retail is about $19,000?
So what next movement-I mean, what do I tell my people in northern Michigan who lost their manufacturing jobs, they went back and got trained in computers, and now that's been outsourced? Where do they go next? Does anyone care to comment on that?
MR. PRIMOSCH (?): I'd just make one comment.
REP. STUPAK: Sure.
MR. PRIMOSCH (?): I mean, I certainly cannot predict where U.S. industry is going. We have a very strong industrial base. But I think one of the things that we need to be more focused on in this country is how do we continue to make the United States an attractive place to invest in manufacturing?
I think that's very important for your state. And I think what we've found-we published a study in December of last year; you may have seen it. It's a study on relative costs of manufacturing around the world. We compared the United States with those of other countries. And we found, I think, a very disturbing result, that the non-production cost for manufacturers in the United States are about 22 percent higher than they are compared to our major competitors in Europe, in Japan, and that this is a factor that is driving manufacturing out of the United States.
And I think we have to face up to this-the legal liability cost, the high cost of energy, regulatory burden, a variety of-the rising cost of health care; a variety of costs that are really putting our manufacturers at a disadvantage.
REP. STUPAK: Yes, sir.
MR. TONELSON: If I can make just three quick points about the high cost of doing business in this nation. First of all, we're a First World country. We should be happy about that. We've got First World incomes. We've got First World levels of social services. And they require First World level taxation.
Three years ago, I published a book on globalization titled "The Race to the Bottom." I hear a lot of talk, again, from the multinational business community that the only way the United States can remain competitive in its manufacturing is to start reducing cost levels toward Third World levels.
I don't think most Americans want that. I don't think that Congress would possibly approve that. And I don't think that would be good for our nation as a whole.
The second point is that many of the multinational companies that are sending so many jobs overseas, whatever their effective tax rate is, don't actually pay taxes. They're very good at avoiding taxes. So I'm not quite sure how much of a real issue this is as opposed to, again, what the rates look like on paper.
And the third point would be that if we continue to see our best- paying jobs go overseas, which are not only now manufacturing jobs, which pay the highest wages on average in the whole economy, but the higher-paying service jobs, IT jobs, professional jobs, we're not going to have a tax base unless we retain lots of high-income jobs and unless they are the types of jobs that ordinary Americans, most of whom still, the great majority of whom, three-fourths roughly, do not finish four years of college can realistically hope to assume.
And that situation, no matter what we do with our educational system, will be with us for decades. I'm sorry to say, but it will be, and we have to face facts. Unless ordinary Americans can hope to hold high-wage jobs, we will have no tax base.
REP. STUPAK: Mr. Levinson, -- (inaudible) -- economist on here, chief economist.
MR. LEVINSON: Yeah, I just want to reiterate the point that what's happening in manufacturing in the United States today is not business as usual. This is a crisis -- 43 consecutive months of employment declines, 2.8 million jobs lost since this administration took office. This is a crisis. It is lowering the standard of living of the workers I represent. And it is not sustainable, I believe, if the point is to maintain the American standard of living.
REP. STUPAK: Thank you. With that, Mr. Chairman, thank you for your courtesies.
REP. STEARNS: Yes. I thank you. And we have concluded our questions for the second panel. I appreciate you staying over while we voted. And also I thank you for your time for coming here, and I think we had a very successful hearing. And I thank my colleagues who did show. And the subcommittee is adjourned. HS EN AND COM/PANEL II/ CHINA PAGE 32 03/31/2002 .STX