Analysis of PNTR status for china and its effects on certain economic sectors

            Congress will soon be considering whether or not to grant Permanent Normal Trade Relations to China.  Granting PNTR means that China will receive treatment equal to our other trading partners, currently China is the only partner that does not have permanent status.  Presently, China’s ‘Normal Trade Relations’ status is voted on every year, and has also been approved every year by the president and congress.  The current bilateral agreement that is going to be voted on has been negotiated in light of China soon joining the WTO.  Although voting on PNTR has no affect on the WTO accession, the bilateral agreement will go into affect when China does join the WTO.  Under this agreement, China will increase the openness of its market and liberalize its economy.  This could potentially offer unparalleled opportunities for some economic sectors to expand into a market of 1.2 billion people.  In my district particularly, the wheat industry and farmers, and the telecommunications industry both stand to profit from approval of PNTR, and strongly support the measure.  Labor unions do not, however, approve of granting permanent status.  Below I will outline the positions of these three groups.

Wheat Farmers

China is currently the world’s largest wheat market, comprising 10%-12% of the world’s total imports for wheat, and this number is expected to rise.  China also presently has restrictions on importing wheat from the U.S., particularly the Pacific Northwest, because of phytosanitary restrictions.  China will not buy the wheat because they believe it to have a fungus, or smut.  Wheat farmers from this district have not had access to the largest wheat market in the world.  Wheat farmers support PNTR and accession into the WTO for China because it will gain the following benefits.

            *China agrees to eliminate all sanitary and phytosanitary restrictions that have no sound
                 scientific basis.

This means that China will no longer deny the importation of U.S. wheat because of the believed presence of ‘smut’.

            *China will eliminate non-tariff barriers.  This includes the elimination of export subsidies
             for its own agricultural products.  This also means that China will increase transparency of
             all regulations and practices.  Once they are in the country, imports will receive national
             treatment. Therefore, all discriminatory taxes and regulations will be eliminated.

American wheat farmers importing to China will be able to compete with Chinese products on a fair and market based system.  With transparency comes increased rule of law, so importers will have a better understanding of the system as well as access to a fair dispute settlement process.

            *China will broaden rights to import and distribute within the country without middlemen
             or state trading enterprises.  The role of middlemen and STEs will be phased out.

            *A Tariff Rate Quota will be set for wheat at 7.3 million metric tons, increasing to 9.6
             million metric tons by 2004.  In 1998 China imported less than 2 million metric tons in total from all countries. 

            *Under the TRQ system the tariff rate for wheat will be set at 1%.

            On February 28 of 2000, China for the first time since 1973, purchased wheat from the Pacific Northwest.  Under the bi-lateral agreement, China agrees to continue to purchase wheat from the region.  This initial purchase was done as a gesture to show purchases will continue if PNTR is approved.  USDA calculations indicate that if China continues such purchases and brings the Northwest into the China market, it could mean as much as US$7 billion[i] back to U.S. farmers.

            Wheat farmers support PNTR as a necessary measure to ensure this access to China and its accompanying profits.  Wheat farmers are urging a quick approval and accession, pointing out that the tariff rates China has agreed to are lower even than those of Japan or Korea, both PNTR status nations.  According to H.D. Cleberg, “The future economic well being of American agriculture is closely tied to our success in expanding markets”[ii].  China currently stands to give the most room for expansion into a new market.

Telecommunications Industry

            Currently China prohibits foreign investment in telecommunications.  Like U.S. Wheat farmers, the telecommunications industry will for the first time gain access to the Chinese market if PNTR is approved.  Like wheat farmers, this industry will also benefit from China’s agreement to lift all non-tariff barriers, and increase transparency.  The bilateral agreement also presents the following benefits.

            [SHS1] *China will permit direct investment by foreign companies in telecommunication
                             businesses.

            *China agrees to participate in the Basic Telecommunications Agreement and the
             Information Technology Agreement, binding them to the rules agreed on by other
             member nations.

            *China will implement pro-competitive regulatory principles, including interconnection
             rights and an independent regulatory authority, further removing state control.

            *Foreign suppliers will be allowed to use any technology they choose in order to provide
             telecommunications services, including satellites.

            *All geographic restrictions for paging and value added services will be phased out over
             two years.  Such restrictions on mobile and voice data services will be phased out over
             five years and domestic and international services over six years

            *Elimination of tariffs, quotas, and import restrictions on information technology
              products and telecommunications equipment.

            *After two years a 50% foreign equity share will be allowed for paging and value added
             services.  After five years a 49% equity share will be allowed for mobile voice and data
             services.

            *Trading rights and distribution services will be progressively phased in over 3 years, and
               related sectors such as repair and maintenance will be opened up.

            *China will allow foreign firms to distribute products other than those produced in China, and will phase in               
              companies control over their own distribution networks.  Wholesaling and retailing services will be liberalized
             throughout China in three years.

            The telecommunications industry will also benefit from improved intellectual property rights protection.  The above mentioned reforms will make it possible to invest in telecommunications in China and to import equipment and products without forced technology transfers or relocation of factories to China.  The telecommunications industry is rapidly expanding into information technology, PNTR approval will allow U.S. firms and investors a chance to take part in the growth of this sector from nearly the bottom up in China.  The demonopolization and liberalization of after sales services offers incredible growth potential for foreign firms. This sector will also benefit from the phasing out of middlemen and state trading enterprises.  Importers and American firms in China will be able to offer complete product service, from the control of distribution to customer service and product servicing, allowing the opportunity to create established markets for their products outside of any state control.  The Telecommunications industry in my district supports PNTR as necessary to make this potential for growth and access available.  Both the Telecomms industry and wheat farmers fear that if PNTR is not approved, these benefits will be enjoyed only by other nations. 

Labor Unions

            The labor unions in this district are strongly opposed to granting PNTR status to China.  They feel that China is a ‘rogue’ nation that continually fails to live up to its agreements, and feel annual review of NTR provides the only leverage available to make China comply.  They also feel it provides leverage in forcing China to improve its human rights and workers’ rights.  The following are key points in the unions’ argument against PNTR.

            *PNTR will only benefit large multinational corporations who will be more likely to
             relocate to China for cheap, exploited labor at the cost of American jobs.

            *The bi-lateral agreement fails to ensure that China will recognize and enforce core
             worker and human rights standards as defined at the UN summit in 1995, the WTO in
            1996 and the international labor organization conference in 1998.

            *PNTR and accession undermines attempts to incorporate labor and human rights
             standards into the WTO

            *There is no mechanism present to ensure China ends discriminatory policies and forced
            company relocation

            *There is no meaningful protection against import surges, which can cause prices to drop
             and subsequent layoffs in U.S. companies.

            *The trade deficit with China will only increase from the current -57 billion USD.

            *PNTR and accession jeopardize efforts to reform the anti-democratic WTO.  China will
              impede efforts to ensure members honor rules on trade relations.

            The labor unions feel that PNTR is the equivalent of a ‘blank check’ to China. They say it sends the message to the world that the U.S. values profits over people and it will not force compliance on trade issues.  Again, they feel annual review is the only leverage available to force China to change.  The Unions also believe that about 600,000 jobs will be lost as big corporations move factories to China.  They do not trust China to live up to its end of the bargain and feel the agreement is a one-way street, China will receive our money, technology and jobs.  They feel the increased support of the U.S. in helping China develop new technology in various fields will only hurt the competitive edge of American industries and farmers. 

            The Unions have stated that they will not support PNTR for China until it does the following:  Recognizes core labor and human rights, allows labor unions to organize and bargain, releases activists and religious leaders and supports efforts to incorporate enforceable workers’ rights into WTO rules, and honors commitments to end protectionist policies that harm American workers.  Labor unions in my district feel that denying PNTR is necessary to maintain leverage over China.

            President Clinton strongly supports PNTR for China.  He is urging congress to approve the measure so that when China joins the WTO, the United States may enjoy the benefits of its bi-lateral agreement.  He believes, contrary to the unions, that a vote against PNTR will cost American jobs.  Supporting China in the WTO and approving of PNTR means that the United States will be able to participate in the momentous change that is occurring in China.  Otherwise, the U.S. will have to sit back and watch as our competitor nations enjoy the benefits of open trade relations with China.  He believes America has a stake in what happens in China, and to deny PNTR would be to deny the 30 years of effort that the United States has gone through to support change in and influence China.  Denying PNTR would be to turn our backs on China and lose any ability we have to influence the direction of China’s change. 

            Clinton also believes the bi-lateral agreement is a one-way street, but one that benefits the U.S.  We only agree to maintain the present access that China has, while China must open its market to us in unprecedented ways.  While the labor unions fear more companies will relocate, Clinton believes the agreement will allow companies to distribute in China what was made in America.  Lower tariffs and increased liberalization mean America can export products without exporting jobs.[iii]  

            Clinton does not feel that approving PNTR is supporting China’s  rights violations, he sees it as the best opportunity to create change in China.  China has made a choice to further economic reforms by opening its markets, supporting PNTR is supporting this choice.  Welcoming China into the world community will prove more beneficial in influencing change than shutting it out will.  Clinton thinks congress should support PNTR and bringing China under the influence of an international regulatory body, with rules and dispute settlement processes.  This will give us the means to ensure China complies, without PNTR we will not enjoy the benefits of China in the WTO.

            In voting for PNTR and economic liberalization, Clinton feels we are also supporting political liberalization.  He believes economic liberalization will unlock the potential of its people, giving them more opportunity to become educated about  their rights.  With American investment also will come American values, Chinese people in American factories are exposed to higher standards in conditions and labor rights.  By supporting China, economic progress is accelerated and the government is forced to deal with issues relating to economic and political freedom.  PNTR will provide the chance to ensure that America can support and influence China when dealing with such issues.   

            Clinton supports PNTR in order to gain all the benefits of China’s accession to the WTO.  He believes that supporting this measure means supporting the reformers in China who desire positive change.  Being on good terms through PNTR allows us to have an influence on the direction China takes in reform, it also means jobs and profits for Americans.

            I feel that the labor unions raise some legitimate concerns about the status of human rights in China.  China has many activists and religious leaders in jail, and continues to oppress the peoples of Tibet and Xinjiang autonomous region.  It denies freedom of religion and speech as well.  Even though I am deeply concerned about the condition of human rights in China I will vote yes on PNTR status for China.  I would like to justify my position and address the concerns of my constituents in labor unions.  I will also explain why I think we should grant PNTR even though China has so many human rights violations.

            First, I would like to clarify that while voting for PNTR will signal our support for China in the WTO, it has no bearing on whether or not China will accede.  It is inevitable that China will join the WTO.  Once it does that, WTO rules state that all member nations must immediately grant unconditional normal trade relations.  Annual review of NTR by congress is not unconditional.  If the U.S. does not comply and grant PNTR as per our bilateral agreement, then China can opt to deny the U.S. access to its market.  Therefore, if the U.S. decides to annually review China’s status, China can essentially do the same to us.  China can open her markets to all other member nations, allowing the United States none of the benefits we have negotiated for.  

            This is, however, a very complicated issue.  My labor union constituents feel that not having access to China is an allowable loss to maintain the leverage of annual NTR.  The problem is, that once China joins the WTO, we lose that leverage anyway.  Annual review will amount to nothing more than unilateral sanctions, which have never proved successful.  China is at a transitional point in developing its economy, and it will continue with or without us, if we are left behind, than there are other nations prepared to fill our place.  So, as a point of leverage in bargaining over human and labor rights, annual review and denial of PNTR is very weak.

            What then, can approving PNTR do about the human rights situation in China?  I believe that this is an instance where it is easier to influence a friend than an enemy.  Supporting China with PNTR means securing a position of influence.  It will give us the power to sit at the bargaining table with China and talk face to face.  There are hard-liners in China who do not wish to become involved in the WTO, they oppose economic reforms and most certainly oppose human rights reforms.  Denying support to China would strengthen their cause, and hurt those who have worked for so many years in China on reforms.  While the WTO and PNTR address primarily economic reforms, these reforms, plus an open dialogue can pave the way for the reform of human rights.

            China has already begun many social reforms in the name of economic stability.  A majority of villages in China hold democratic elections, and reform of State Owned Enterprises has led to social welfare reform and labor rights reforms.  In the newly reformed SOEs, workers are given representation on the board of directors.  The government is encouraging their education about their own labor rights.  U.S. companies in China also represent an agent of change in this area.  U.S. companies have been shown to offer better working conditions, higher wages and first-hand lessons in market economics and American values.  In supporting PNTR we support these “islands of freedom” in China.  While the labor unions believe that laborers in these companies are paid less than a dollar an hour, studies show that American companies pay an average of four dollars an hour.  Those in skilled or management positions average about nine dollars an hour. 

            I feel that current U.S. economic involvement in China provides a force for change.  American corporations can also carry with them American values.  Leaders in China today believe in doing what is necessary and ‘pragmatic’ for economic growth and stability.  This has included giving greater economic freedom to the masses, and allowing free enterprise.  This also includes an increase in information available.  As people are given more economic freedom and more information about democratic rights, they will demand more rights.  Supporting PNTR will allow U.S. companies to have a hand in bringing information to the people.  The unparalleled freedom that will be given to the telecommunications industry under our bi-lateral agreement demonstrates the potential involvement that U.S. firms can have in bringing information about U.S. values and human rights to the Chinese people.  It is important that the U.S. continue to monitor the situation of human rights in China, using all the available resources of other multi-national organizations to bring about change. But I believe more change can be brought about by negotiating and talking to China as a friend than can be done by butting heads with China as an enemy. 

            Voting yes on PNTR is necessary to support the interest of the U.S. economy and exporting industries, but it is also necessary to support reforms in China.  Political freedom will follow closely on the heels of economic freedoms.  With a stable, friendly China, the U.S. can have a hand in influencing the direction and pace of reform, in the economy and in human rights.