PNTR and the Prospects for a More Open China

Gene Sperling
Director, National Economic Council
Remarks to the Committee for Economic Development
Washington, DC
May 18, 2000

Remarks As Delivered

Thank you Paula Stern. And many thanks to Charles Kolb, President of CED, and to your whole organization for its tireless work educating the public about PNTR and also for all the good reports that have come out of CED that we in the Administration have relied upon.

I'm here today to discuss the topic that is occupying the majority of our time at the White House right now: the passage of permanent normal trade relations (PNTR) for China. This is as much of an all-out, all-hands-on-deck effort as I can recall since the 1993 budget. Every White House principal and Cabinet-level person on the Administration's economic and security teams are working very hard on this. At this point I can say that we are not there yet, but we believe we can get our share of the undecided votes in Congress. This is a winnable vote. And we're going to do everything we can to cross the finish line victoriously in the middle of next week.

This is probably the most important foreign policy and economic issue our country will face this year – and perhaps the most profound foreign policy issue this country will face over a ten-year period.

Those who oppose the legislation don't dispute its benefits for the American economy. Instead, they claim that PNTR will destabilize the well-being of some of our workers by throwing them to the vagaries of the global economy -- or that PNTR will send the wrong signal to China about its poor human rights record.

We certainly disagree. Today, I would like to explain why we believe that this agreement does not require a trade-off between our economic prosperity and our values. To the contrary, this deal is not only right for our economy; it is also right for our workers and right for the progress – however slow -- of reform in China.

Economic Benefits of the Agreement

A number of opponents of this agreement speak about it as if it were a free-trade deal in which both signatories agree to lower tariffs in the hopes of boosting prosperity in both countries. We in the Administration believe that such agreements – when they incorporate sound labor and environmental standards – can be beneficial.

But whatever the merits of these types of agreements, these considerations have no relevance in the debate about China-PNTR. That's because when it comes to market opening, the agreement we negotiated with China is a one-way deal. So the economic question about PNTR boils down to this: will we accept China's market-opening concessions or will we not? We agree merely to support China's candidacy for WTO membership and to make permanent the Normal Trade Relations for China that we have passed each year for the past 20 years. So, I repeat, if we pass PNTR, we do not open our market or lower our tariffs one bit. Our market stays the same either way.

If we choose to accept the benefits – if Congress passes PNTR – we will choose economic growth for our country.

But if Congress rejects PNTR for China, we would pay a heavy price indeed. Under that scenario, our firms may 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, telecom and internet areas 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 in Japan and Europe to gain full access to these benefits. Simply put, our Congress would be going out of its way to put our companies at a competitive disadvantage by explicitly denying them the access to the world's largest new market that we would be granting to our top foreign competitors, such as Japan and Europe.

Why on earth would our 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 would be the closest thing to unilateral economic disarmament that I have ever heard of.

The Agreement Will Bolster Reform in China

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.

But before I make the case that, in fact, this agreement will push reform in China in the right direction, we should be clear about where the Administration agrees and differs with opponents of PNTR.

The opponents 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. The question before the Congress is not whether China's record on human rights is defensible (it is not). The question is whether passage of PNTR will make positive change in China more or less likely.

We believe it will make positive change more likely. We base that belief not on a simple-minded faith that increased trade automatically engenders democracy or more respect for human rights. We base it on the conviction that increased engagement, openness to ideas, and movement to new market forces will promote economic freedom and strengthen reformers trying to move policy there in the right direction.

That's why we strongly support a two-pronged strategy for encouraging political and economic reform and human rights in China. This two-pronged strategy seeks to first pass PNTR to maximize the positive change that comes from spurring more market opening, more free flows of information, more reliance on market forces over arbitrary government discretion; and secondly, to continue to apply pressure and increased scrutiny on China's human rights, religious rights, and labor rights record through not only the actions of the Executive, but through a new Helsinki-like Commission that Democratic Congressman Sandy Levin and Republican Congressman Bereuter will be announcing later today. This bipartisan commission will have the ability to shine a spotlight on abuses in China at any time. It would be a far more constant and effective tool than the annual Jackson-Vanik vote, which had become little more than an empty ritual. The Levin-Bereuter proposal allows us to deepen our scrutiny without jeopardizing the engagement that advances our national economic and security interests and the cause of reform in China.

To understand how PNTR will push reform in China in the right direction, we should 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.

Who is the opposition? Let me read from a March 13th article by the Washington Post's Beijing correspondent, John Pomfret:

"On the other side [of the PNTR issue within China], 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.

This deal will help reform by helping the reformers. But it will also help by creating a number of social and economic conditions that favor reform.

First, consider the flow of information and how that can undermine an authoritarian regime. Right now only 12 percent of Chinese have phones; less than 1 percent have Internet access. But passage of PNTR coupled with Chinese accession to the WTO will help change this situation dramatically by allowing our world-beating telecomm firms to compete in the Chinese market. This will not only create jobs in the USA; it will also make the tools of communication cheaper, better, more reliable, and more widely available to the Chinese people. Because of this agreement, individual Chinese citizens, with a few clicks of a mouse, will be able to communicate with each other and with the outside world in a volume that nobody would have believed possible a few years ago.

There is no question that some in China's leadership are nervous about this new-found freedom and have sought new regulations seeking to restrict the flow of information on the Internet. Good luck. How can the hard-liners hope to stuff the information genie back in the bottle when hundreds of millions of Chinese citizens will be using the web?

As a CED White Paper puts it, "Ultimately, it will prove impossible to maintain a closed and regulated society in an open economy that is dependent on the free flows of information that increasingly drive productive enterprises."

"Liberty," in the words of Chief Justice Earl Warren, "is the most contagious force in the world." So is free expression.

Second, the agreement will also promote reform in China by freeing up the movement of goods and delivery of services. Currently, anybody who does business in China will describe distribution as, at best, an enormous headache. Until now, Beijing has severely limited rights to import and export, to distribute goods once inside the tariff walls, and service those goods once they are sold. That the right to engage in ordinary commerce is a privilege granted by the Chinese government to an exclusive few has helped no one.

China's WTO commitments turn these scarcely allotted privileges into rights that will be widely available to both Chinese and foreign businesses. China has agreed that within 3 years, all individuals and entities in China will be able to import most products into any part of China, and that foreign firms will be able to establish, own and operate their own distribution and related services.

The impact of these changes goes far beyond economic efficiency. 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. In the process, they will learn new skills and develop broader horizons. Indeed, it is precisely in the regions of China where foreign enterprises are clustered that entrepreneurial attitudes among Chinese are most pronounced.

Third, consider access to capital. Capital not only feeds economic growth, but also makes possible personal independence. As in other areas of economic life, this WTO agreement – by injecting competition into China's capital markets -- promises to enhance private initiative in China at the expense of state power.

By some estimates, 80 percent of bank lending in China goes to inefficient state-owned enterprises, which produce just one-third of GDP. It is not surprising that the line of bad debts in China is a mile long-- 25-40 percent of GDP by most estimates. WTO accession promises to scale back Chinese government control in banking and finance by letting foreign banks play a more significant role. An increased foreign presence will help bring modern banking practices to China. Domestic banks will be forced by competitive pressure to develop a more advanced "culture of credit."

But again, more is at stake than a growing market of 1.2 billion people for our banks. The new rules required under this agreement will help break the one-party state's monopoly on capital flows. Private citizens and entrepreneurs will find themselves less dependent on the power of the state when they wish to turn their entrepreneurial ideas into economic reality.

Fourth, the agreement will also strengthen the rule of law in China – that indispensable building block of a healthy polity, economic confidence, and civil society. Currently, economic activity in China is often hampered by vague, unwritten, or unpublished rules that maximize the arbitrary power of Party officials. To obtain even the simplest permit in China, a petitioner needs "connections". You can imagine the scope this systems allows for petty despotism, cronyism, and outright corruption. WTO membership will reduce these abuses. For in order to join, China must publish its commercial rules and regulations in full, making it easier for our firms to do business without official harassment and for Chinese citizens to advance based on what they know, not whom they know.

These are tremendous changes for China. But they are not enough. The American business community needs to show that we are not just talking the talk, but walking the walk. It's important that we export not only our capital, but also our values.

That means our firms in China need to pay employees a decent amount, treat them better than do state-owned enterprises, expose them to our values on participation and the right to speak freely. All that needs to be a part of how we do business in China.

Meeting this challenge will require nothing more than honoring the principles of their own organization, the American Chamber in China, which declares: "[t]he American approach to doing business and to corporate responsibility can and does foster positive change in China…We empower our employees to take initiative and give them a voice on how to do things. They in turn convey these values to their families and associates. We introduce high standards of worker health and safety as well as environmental protection."

One firm that is taking steps in the right direction is Intel, a manufacturer of semiconductors, with 1,000 employees in China, most of them at its factory in Pudong, near Shanghai. Each Intel employee receives a home computer and the company is in the process of providing each with home Internet access. Moreover, Intel's operations in China are managed under the same environmental, health, safety and labor policies the company applies to its U.S. operations – all of which are higher than Chinese norms. Average base pay and health benefits are far more generous than those provided by Chinese competitors.

The more American companies bring not only our capital but also our values to Chinese soil, the more we can become a partner in unleashing positive change there. And that type of example will help in the next legislative battle over trade because it will help us make the case that commercial engagement has positive social and political effects as well.

But employment in American firms by itself can't ensure reform in China. And PNTR by itself cannot compel Beijing to respect the human rights of its people. Improvements will result from the internal changes sweeping China and external validation for China's human rights activists. That's why we sanctioned China under the International Religious Freedom Act last year, and why last month we again sponsored a resolution in the UN Human Rights Commission condemning China's human rights violations. And that's why we are so supportive of the Levin-Bereuter proposal to create a commission to keep a continuous spotlight and pressure on the Chinese government regarding its human rights, labor rights, and religious rights record.

The majority of human rights and democracy activists support this two-pronged approach of engagement and pressure. Dai Qing, a prominent Chinese environmentalist and independent political thinker, wrote in an editorial in the Los Angeles Times: "How does international pressure work in promoting human rights and environmental protection in China? I would like to argue that such pressure works only when doors are kept open, when pressure presents positive solutions and, above all, when engagement is involved…All of the fights – for a better environment, labor rights and human rights – these fights we will fight in China tomorrow. But first we must break the monopoly of the state. To do that, we need a freer market and the competition mandated by the WTO."

Democracy activist Bao Tong agrees: "Entry into the WTO will definitely promote China's economic reforms…and over the long term will help develop the legal system and moves toward democracy."

Martin Lee, courageous leader of the Democratic Party of Hong Kong, has been here in town and talking to us in the Administration as well as lawmakers on Capitol Hill. I wish everybody could have the chance to hear him, because he is impressive. He begins his speeches by listing the many points where he agrees with critics of China's human rights record. Then he recounts the innumerable personal indignities he has endured from the Chinese regime. Then he asks his audience, "So why am I for PNTR? Simple: what is the alternative?" He points out that if the United States – the country that most represents freedom – stops engaging China, how will things ever get better? Who will expose the Chinese people to notions like democracy and rule of law? He also points out that WTO accession will require that the Chinese government itself be held to a high standard of the rule of law internationally. In a country with a weak tradition of rule law, it will come as a big change for ordinary Chinese citizens to see their government held accountable and even sanctioned in the name of rule of law. It is hard to believe that, after having seen their own government held accountable to the rule of law in international forums, more and more Chinese will not start demanding greater rule of law at home.


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 is possible, 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.


PNTR and the Levin-Bereuter Proposal: The Prospects for a More Open China

PNTR and the Prospects for a More Open China

Permanent Normal Trade Relations

Remarks of the Honorable Gene B. Sperling

Consumer Interests in the Global Trading System

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