U.S.-China Economic and Security Review Commission, "Hearing: WTO Compliance and Sectoral Issues," January 18, 2002

January 18, 2002
Room 124 Senate Dirksen Building
1st & Constitution Ave., NE
Washington, D.C. 20510

PREPARED STATEMENT OF CHAIRMAN C. RICHARD D’AMATO

This morning’s discussion laid out the significant hurdles China faces in implementing its WTO obligations. Whether China can successfully overcome these hurdles, and how long this process may take, is an issue that will underlie the U.S.-China economic relationship for years to come.

As part of its assessment of the implications of China’s WTO accession on U.S. national security, the Commission has sought out testimony from representatives of impacted U.S. industry sectors. In prior hearings we have heard from the steel, aerospace, automotive, agriculture, and electronics industries. Today we will hear from three additional sectors, all of which supported China’s accession—financial services, entertainment, and communications. They will enlighten the Commission on both the potential business opportunities they foresee in post-WTO China and the obstacles they face in achieving this potential.

Our first panel of the afternoon will examine the prospects for banking, insurance, and financial securities firms in China. We are pleased to welcome David Hale, Global Chief Economist for Zurich Financial Services and Chairman of the Board of China Online, William Overholt, Senior Fellow at the Harvard University Asia Center and formerly an international banker posted in Hong Kong and Singapore, and Andrew Shoyer, a partner with Powell, Goldstein, Frazer & Murphy who served for several years in legal advisory positions at the Office of the United States Trade Representative.

Our next panel will focus on the entertainment industry and the protection of foreign firm’s intellectual property rights in China. We will hear from Bonnie Richardson of the Motion Picture Association of America, Larry Spiegel, President of Appledown Films, an independent production company in Los Angeles, Eric Smith, President of the International Intellectual Property Alliance, and David Quam, General Counsel to the International AntiCounterfeiting Coalition.

The last panel of the day will offer the perspectives of the communications industry. Serving on that panel will be Roger Uren, Vice President for International Affairs at Phoenix Satellite Television, which recently became the first foreign firm to obtain a broadcast license in China, Lyric Hughes, CEO of China Online and an expert on the Chinese media and advertising market, Hurst Lin, U.S. General Manager and Vice President of Business Development for SINA.com, a prominent Chinese Internet service and content provider, Stephen Hsu, Chairman and CEO of Safeweb, a proxy service that allows users to circumvent Internet censorship efforts, and Laura Sherman, Communications Counsel at Paul, Weiss, Rifkind, Wharton & Garrison who previously worked on international telecommunications issues at the Federal Communications Commission and the United States Trade Representative.

The entertainment and communications industries present particularly sensitive issues. The value produced by these industries is to a large degree attributable to the content of their works. To this end, foreign companies face concerns regarding China’s willingness and ability to protect their intellectual property rights through enforceable copyright, trademark, and patent laws. Some reports suggest that the vast majority of foreign audio/visual products and computer software sold in China are counterfeit despite enforcement efforts there. In addition, many entertainment and communications works are subject to restrictions on content imposed by the Chinese Government in its attempts to limit the free flow of information. I look forward to a lively discussion with the panelists on these important issues.

With yesterday’s hearing on export controls and today’s discussion of WTO issues, the Commission has completed ten hearings, evenly split between trade and investment and security issues. We have heard from over 100 witnesses that have generated more than 3,000 pages of transcript. The Commission has no other public hearings presently scheduled during our initial reporting cycle, which concludes with the issuance of our first report to Congress in June. We will of course continue to seek input from relevant government, academic, and private sector individuals where needed to assist us in preparing our report. Should the Commission determine that additional public hearings are necessary, we will notify the public accordingly.

PREPARED STATEMENT OF CO-CHAIRMAN PATRICK A. MULLOY

I am pleased to have been asked by Chairman D’Amato and my fellow Commissioners to co-chair today’s hearing.

Congress established the U.S.-China Security Review Commission in October 2000 for the purpose of monitoring and investigating, among other things, the national security implications and impact of the bilateral trade and economic relationship between the U.S. and the People’s Republic of China. We are charged with providing an annual report to Congress with our findings and recommendations, if any, for legislative or executive action. Our first report to the Congress is due this June.

The Commission has held ten hearings to examine the various issues designated in our legislative mandate. Today’s hearing will be the third to examine matters related to China’s accession to the World Trade Organization (WTO). Since the Commission’s last hearing on this topic in August, China has formally entered the WTO and is now in the process of undertaking the enormous economic reforms necessary to comply with its WTO obligations. In prior hearings, we heard an array of opinions about how China’s WTO accession will impact the U.S. economy and U.S.-China relations. Supporters of China’s accession have argued that it will open up China both economically and politically, in ways beneficial to U.S. interests. One of the key premises of this argument is that China has both the will and capacity to comply with its varied WTO commitments.

In numerous meetings with Chinese officials, members of this Commission have been assured of China’s intention to fully comply with its WTO obligations. Nonetheless, this will be a monumental task for China. China lacks a mature and transparent legal system and the judicial and administrative infrastructure that is essential to meeting its WTO obligations. In addition, China must still enact hundreds of new laws to come into compliance. Enactment of appropriate statutes and development of the requisite legal and administrative institutions will be an important indicator of China’s commitment, but the key indicator will be China’s actual implementation of its new policies. Further, even if the central government is committed to the WTO, it is uncertain whether it has the resources to enforce compliance by reluctant local officials who have a vested interest in the status quo.

During the morning session of today’s hearing, which I will chair, we will examine China’s ability to meet its near-term and long-term WTO commitments and whether and how the U.S. may be able to play a constructive role in assisting China in this effort. We will first hear from a distinguished panel of representatives from the U.S. Government agencies on the front lines of monitoring China’s compliance efforts— Assistant United States Trade Representative Jeffrey Bader; Assistant Secretary of Commerce William Lash; Acting Assistant Secretary of State Shaun Donnelly; and Patricia Sheikh, the Deputy Administrator for International Trade Policy at the Department of Agriculture.

A second panel will present important perspectives on this issue from outside the government. We will hear from Professor Donald Clarke of the University of Washington Law School; Jeff Fiedler, a consultant to the Food and Allied Service Trades Department of the AFL–CIO; Professor Margaret Pearson of the University of Maryland, who served on the Council of Foreign Relations’ task force on China’s WTO accession; and Terence Stewart, a very distinguished attorney whose law firm—Stewart & Stewart—is preparing a study for the Commission that will set benchmarks for future efforts to monitor and assess China’s WTO compliance.

During the afternoon session, which Chairman D’Amato will chair, the Commission will continue its survey of how key industry sectors in the U.S. view China’s WTO accession, with testimony from representatives of the financial services, entertainment and communications industries. In addition to market access issues, this afternoon’s session will examine the unique challenges facing U.S. entertainment and communications firms as a result of China’s nascent intellectual property rights regime and its attempts to restrict the free flow of information.

I look forward to an interesting and productive hearing.

Panel I WTO Commitments and Compliance
Jon M. Huntsman, Jr., Ambassador, Deputy USTR; or Jeffery Bader, Assistant USTR, Office of the United States Trade Representative
William H. Lash, III, Assistant Secretary of Commerce for Market Access and Compliance, Department of Commerce
Shaun Donnelly, Acting Assistant Secretary of State, Bureau of Economic and Business Affairs, Department of State
Mary T. Chambliss, Acting Administrator of Foreign Agricultural Service, Department of Agriculture (Invited)

Panel II WTO Commitments and Compliance
Donald C. Clarke, Professor of Law, University of Washington Law School
Jeffrey L. Fiedler, Consultant, FAST, AFL-CIO
Terence P. Stewart, Stewart and Stewart
Margaret M. Pearson, Associate Professor of Government and Politics, University of Maryland

Panel III Financial Services
David D. Hale, Global Chief Economist, Zurich Financial Services
William H. Overholt, Senior Fellow, Harvard University Asia Center
Andrew W. Shoyer, Partner; Powell, Goldstein, Frazer & Murphy

Panel IV Entertainment Industry and Intellectual Property Rights
Bonnie J.K. Richardson, V.P. Trade and Federal Affairs, Motion Picture Association of America
Larry Spiegel, President, Appledown Films, Co.
Eric H. Smith, President, International Intellectual Property Alliance
David C. Quam, General Counsel, International Anti-Counterfeiting Coalition

Panel V Communications
Roger T. Uren, Vice President - International Affairs, Phoenix Satellite Television Limited
Hurst Lin, Vice President of Business Development and General Manager of North America, Sina.com
Stephen Hsu, CEO, SafeWeb
Lyric M. Hughes, President and CEO, China Online Inc
Laura B. Sherman, Communications Counsel, Paul, Weiss, Rifkind, Wharton & Garrison