Director, National Economic Council
Remarks to the Institute for International Economics
Remarks as Delivered
Thank you. And thanks Fred for inviting me here today to address this
I'm very happy to be here today. As Fred mentioned, there has been
a lot of activity in the White House today, most of it concerning PNTR. But
before I get to my speech, I have some announcements of late breaking news on
the trade front.
First, China and the EU have concluded their WTO bilateral negotiations.
We have not surveyed all the details yet. It is heartening that there has been
progress in mobile telephony and perhaps also in fuels. While there is nothing
major in this agreement, every little bit helps. And we welcome the progress of
China's accession into the WTO.
We were also pleased today that Vice President Gore announced that the
U.S. and China have signed a joint statement pledging stronger efforts to
protect the environment, particularly to combat global climate change. This
agreement affirms that growth and environmental protection can be harmonized.
And probably most significantly, it shows a willingness to enter into creative
and cooperative partnerships between LDCs and developed countries on climate
change and related issues. We feel this is an encouraging sign of how
engagement with China can produce positive results.
Third, today we are making public that on April 28 we reached an
agreement with China that will effectively provide our fertilizer firms access
to the Chinese market. This had been an open issue when Charlene Barshefsky and
I left Beijing back in November. Subsequently, we held negotiations at the USTR
and at the Department of Agriculture. We were able to work this out on April
28, but by agreement with the Chinese we agreed not to announce it until they
had completed their negotiations with the EU. I'm sure that USTR and the
Agriculture Department can provide more details for those interested.
Finally, the President of the United States will make a nationally
televised speech on China on Sunday evening. We feel that PNTR is important
enough to merit his making our case directly to the American people.
We in the Administration have long admired the outstanding work of the
Institute for International Economics and we in the National Economic Council
rely heavily on your publications. In fact, I liked one of your recent reports
on PNTR so much that I hired its co-author, Dan Rosen, who is here with me
For us in the Administration, this PNTR vote is as much of an all-out,
all-hands-on-deck effort as I can recall since the 1993 budget. Virtually every
White House principal and Cabinet-level person on the economic and security
teams are working very hard on this; this is their number one issue and has
been for several months. The President strongly believes that PNTR is not only
the most important economic issue of the year, and perhaps the most important
legislative issue of the year, it is probably the most important development in
our relationship with China since President Nixon's efforts in the early
Economic Benefits of the Agreement
I'm sure that everyone in this room knows the basics when it comes
to the economic benefits of the deal. The Chinese agree to lower their tariffs
dramatically. In return, we don't lower our tariffs one bit. Instead, we
agree merely to support China's accession to the WTO and to make permanent
the normal trade relations we have granted to China every year for the past 20
It is bit dismaying how even at this late stage in the debate, some
people still believe that the agreement we negotiated in November is a
NAFTA-type free trade deal. We in the Administration believe that such
agreements when they incorporate sound labor and environmental standards
can be beneficial. But whatever their merits, these
considerations have no relevance in the debate about China-PNTR. It is
not a free-trade agreement. This is a one-way deal. China lowers
its tariffs. We do not. And our farmers, workers and businesses are the big
The economic benefits of the deal become more clear if we consider what
would happen if Congress rejects PNTR for China. Under that scenario, our firms
might have some residual rights in China from earlier trade agreements. But we
would lose virtually all market access we negotiated in the most cutting edge
service, such as telecom and internet. And we would lose distribution and
enforcement rights contained in the November agreement for all of our products
from agriculture to machinery while allowing our competitors to
gain full access to all of these benefits.
Rejection of PNTR would not lock in the status quo in our trade
relationship with China. That's not the way this WTO process works. No
matter which way Congress votes, China will end up joining the WTO and our
competitors will get the full benefits of the agreement we negotiated in
November. I repeat: rejection of PNTR does not preserve the status quo;
instead, it would undermine our ability to compete in the most important
emerging market of the 21st century.
Why would Congress specifically vote to deny our farmers, workers, and
companies the right to compete on even terms with our foreign competitors in
the world's fastest growing major market? That is exactly what a vote
against PNTR does.
I'm sure a number of you are familiar with the 1979 bilateral
agreement between China and the United States. One could argue that under the
1979 agreement we might get some of the tariff reductions in some sectors that
China grants as part of its WTO accession package even if we were to reject
PNTR. However, in the most cutting edge areas of our economy-- in services, in
telecom, in the internet-- we would lose all of China's WTO concessions
while allowing our competitors to have them. The distribution rights, the
trading rights, the enforcement rights under WTO we would lose all these
benefits. In any event, even if one does get a tariff reduction in a particular
industry, what good is it without distribution rights on Chinese soil? If a
competitor has that privilege and you don't, you are at such a significant
disadvantage that even tariff reductions are virtually meaningless. Rejecting
PNTR is the closest thing to unilateral economic disarmament that I have
ever heard of.
The Agreement Will Bolster Reform in China
But however obvious the economic benefits of this agreement, I would
feel very differently about it if I believed we would get those benefits at the
expense of human rights in China.
Those opposed to passing PNTR argue that China's poor record on
human and labor rights should disqualify it from WTO membership. We in the
Administration share their diagnosis of the problem, but reject their remedy.
Martin Lee spoke to us here in Washington earlier. He started his presentation
with an impassioned description of the lack of rule of law in China, even in
Hong Kong, and all the human rights abuses he has seen. Then he pointed out
that he himself may not set foot in China and that he had never even met
Premier Zhu Rongji. Then he asked his audience: "why would someone so
mistreated by the Chinese authorities support PNTR?" And he answered:
"It's simple, what's the alternative?"
This is also the case we have tried to make. Because in any policy
decision, you need to ask yourself a crucial question: which policy alternative
is more likely to move the ball in the right direction? What is more likely to
improve the situation in China?
We believe PNTR will make positive change more likely in China;
by opening China's markets, by engaging China more with the United States,
by forcing the Chinese to abide by the rule of law in the WTO, by encouraging
their economy to be more open to emerging technologies -- all of these things
are more likely than not to move China towards positive reform.
Let us start by looking at the various groupings within China and how
they line up on this issue. As in any country, politics in China features
groups who favor change and those who resist. Whatever problems we have with
the current Chinese leadership, these leaders are clearly engaged in a daring
attempt to change China's command-and-control system into a modern, market
economy. And they are taking significant political risks to make it happen.
I believe that making this rather daring transition clearly lies in
China's long-term interest, because it offers the only way of modernizing
their economy and raising the Chinese standard of living. But there is no
question that it will lead to significant dislocation. The leadership there has
made the decision to join the WTO because they believe that bringing in foreign
competition and opening markets will help lock in and advance the reform
process already underway. My question is simple: why would we choose not to
support those wishing to move in that direction?
Who in China opposes PNTR and WTO accession? Let me read from a March
13th article by the Washington Post's Beijing
correspondent, John Pomfret, who describes these opposition groups in
"China's security services, its military and certain ministries and
economic interests, such as the Information Industries Ministry, China Telecom,
steel conglomerates, and some agricultural firms oppose the agreement.
China's security agencies, including the People's Liberation Army,
are concerned, analysts say, that joining the WTO will mark another step toward
privatizing China's economy and importing even more Western ideas about
management and civil society a headache for those whose job is to ensure
the longevity of the one-party Communist state."
Why would Congress wish to hand a major victory to these opponents of
reform and a stinging defeat to its champions? That's exactly what
Congress would do if it rejects PNTR.
And I'll never understand why some opponents of China-PNTR --
people like Pat Buchanan, who have spent an entire career denouncing communism
now turn their backs on those in China working to move it from a
command-and-control economy to one more based on markets and free enterprise.
Nobody can predict exactly what will move China in the right direction,
but certainly passing the PNTR will, in my opinion, strengthen the hand of the
reformers who are trying to do just that.
It will also help by creating a number of social and economic conditions
that favor reform.
First, one needs to consider the power of ideas and free flow
of information in undermining authoritarian regimes. Less than 12% of Chinese
people have phones, less than 1% of people are on the internet. This WTO
agreement will help create an explosion of foreign competition in China's
telecom and internet sectors. The United States should allow its cutting edge
companies to take part in this competition. Not just because China offers a
huge market and because it will help create jobs in the USA. But also because
all of our telecom imports into China will serve as tools of communication for
millions of ordinary people in China
China's leadership is already nervous about this. But it will
ultimately prove impossible for them to stuff the information genie back in the
bottle. As Chief Justice Earl Warren once said, "Liberty is the most contagious
force in the world." Free expression is also contagious and when people taste
it, they will not give it up.
Second, in that it will break monopoly privileges to import
and export, PNTR will promote reform by freeing up the movement of goods and
delivery of services. China's WTO commitments turn these scarcely
allotted privileges into rights that will be widely available to both Chinese
and foreign businesses. As the weight of the bureaucracy on everyday
transactions lightens, more and more Chinese will come into direct and daily
contact with each other and with foreign firms, learning new skills and
developing broader horizons. More transactions will take place freely among
Chinese and between Chinese and foreign businesspeople. All this will undercut
the power of the one-party state.
Third, it will inject new competition into
China's capital markets. A look at these capital markets demonstrates
that 80% of lending goes to state-owned enterprises that generate only
one-third of GDP. Bad debts comprise fully 25-40% of China's GDP. This is
clearly a dysfunctional capital allocation structure. Competition will not only
be a boon to American financial institutions, it will also empower more Chinese
entrepreneurs to have access to capital. The result will make private citizens
less dependent on the power of the bureaucracy when they wish to turn their
entrepreneurial ideas into economic reality.
Finally, it will strengthen the rule of law in China.
The President and I had the opportunity to talk with Chairman Greenspan when he
was at the White yesterday. He described the situation in China and in other
countries like it, and how often the individuals at high levels make decisions
based not on price competition but on arbitrary discretion which they get by
granting their loyalty to somebody above them who also exercises arbitrary
discretion. What does this do to the average person? It makes him or her
completely dependent on bureaucratic caprice for the allocation of all sorts of
daily things in life. In that the WTO requires transparency, the publication of
rules, and the publication of tariffs, it will help reduce official meddling in
daily transactions and increase the economic freedom of people to
So I say this just to stress that these seemingly arcane requirements
of WTO membership will unleash powerful, pervasive social forces that should
help promote economic freedom within China.
Towards a New Consensus on Trade and Globalization
Those of us who believe in the power of markets to strengthen economies
and spur reform and openness need to make sure that our belief in open markets
and free trade is not confused with a callousness to the concerns of human
rights or core labor standards or the environment. We must not allow our belief
in the power of trade to raise living standards and to promote a more open
society to become confused with the notion that we consider trade the sole
answer to these issues, or that if we open markets, we can take a laissez-faire
approach to human rights and simply go home.
As part of President Clinton's vision, we aspire to find the
vehicles that both promote open markets and put a more human face on the
global economy. That's why we disagree with many of our critics when they
claim that the remedy for social and economic ills is to slow down and even
halt free trade and increase isolationism. Most of us here today disagree with
that vision. We believe that trade generally raises living standards and indeed
can be critical for poverty reduction in developing countries. But our answer
can't be simply that -- we can't simply work for more trade. If we
present trade as the only solution, we miss the opportunity to create a new
consensus for open markets in our country and in the world. Our goal therefore
must be to find those avenues where we can project those conditionalities,
linkages, and blockages that prevent the minimization of the benefits from open
markets while finding the ways to still maximize our ability to ensure that
globalization raises living standards for all.
That's why I am proud that we at the NEC don't just develop
trade initiatives such as the Africa Growth & Opportunities bill, or the
Caribbean Basin Initiative, or China-PNTR. We also devise ways to secure debt
relief for developing countries, we develop strategies to combat infectious
diseases in developing countries, we conceive policies that get us closer to
universal education in developing countries, and to stop the most abusive forms
of child labor.
None of these initiatives stands in the way of progress towards open
markets. I believe we must search for ways to promote free trade and WTO
expansion, while incorporating discussions of core labor standards and the
environment in a way that does still facilitate the benefits of open markets.
The Levin-Bereuter Proposal
It is with that in mind that I congratulate Congressman Sandy Levin and
Congressman Doug Bereuter and others who have worked so hard on their proposal
announced today. As one who was very involved in these discussions over the
past couple of months, I can attest that it was an effort to find exactly how
to strike that balance between the concerns on human rights, on prison labor
and other issues, without putting forth the conditionality, the linkage, the
WTO-inconsistent provisions that would have undermined clean passage of this
Through these discussions there has been a fairly remarkable outcome --
a bipartisan agreement to support clean passage of the WTO-PNTR Agreement. At
the same time, included within it are several provisions that do not in any way
impede the non-discrimination principle or open trade that is inherent in the
WTO. Instead, they promote progress in various efforts to address the
legitimate concerns that people have about human and labor and religious
For example, Levin-Bereuter features a commission that will deal not
only with human rights, but also with labor rights issues, religious rights
issues, and that will have both congressional and executive representation.
Unlike the past annual NTR votes, which had become virtually nothing more than
an empty ritual, this commission will have the capacity to meet whenever it is
appropriate to address whatever issues are appropriate. And in this way, it
will have the capacity to shine a spotlight and to continue to apply pressure
on China when it is appropriatewhen human, religious, or labor rights
problems arise that we seek to address.
None of this conflicts with or contradicts the basic market opening and
non-discrimination rules inherent in our WTO agreement. But there is an
understanding that these things must be looked at in a larger perspective. In
the agreement there is a task force designed to look into prison labor, which
was agreed to in a bipartisan way. There is also an understanding that even
though we are opening markets and there will be a general raising of living
standards and improvements in the economy, there still can be instances when
import surges could negatively impact certain portions of our economy. In this
agreement, there exists a legislative application of the 12-year anti-surge
provision that Ambassador Barshefsky and I negotiated in China that will give
special bilateral protection beyond the conventional 201 protection for surges.
These provisions are part of a very serious and thoughtful effort by lawmakers
who believe in open markets, who believe in the power of engagement, but who
also wish to make clear that open markets and freer trade alone cannot be the
answer when we are dealing with a country that continues to abuse labor, human
and religious rights.
As the President has said, we do not know what path China will take. All
we can do is make the decisions most likely to push China in the direction of
economic and political reform. It is hard to see how empowering communist
hard-liners, slowing economic transition, and keeping American companies out of
China will increase respect for human rights or lead to a more open society. It
far more likely, however, to see a better future for China if it opens its
economy and reaches out to the world -- and to see how greater openness will
make China into a better neighbor.
In the words of Li Ke, former Chinese editor of the democratic journal
Fangfa: "For so many years of China's reform and opening, areas
couldn't be opened and remained state monopolies. But if the economic
monopolies can be broken, controls in other areas can have breakthroughs as
well. These breakthroughs won't necessarily happen soon. But in the final
analysis, in the minds of ordinary people, it will show that breakthroughs that
were impossible in the past are indeed possible."
Thank you. I would be happy to take questions.