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U.S.-China Economic and Security Review Commission, "Hearing: China and the WTO: Assessing and Enforcing Compliance," February 3-4, 2005

This hearing was conducted by the U.S.-China Economic and Security Review Commission on February 3-4, 2005. The U.S.-China Economic and Security Review Commission was created by the U.S. Congress in 2000 to monitor, investigate, and submit to Congress an annual report on the national security implications of the economic relationship between the United States and the People’s Republic of China.
February 3, 2005

February 3-4, 2005
Dirksen Senate Office Building
1st & Constitution Avenue, NE
Washington, DC

Co-Chairs: Commissioners Patrick A. Mulloy and June Teufel Dreyer

Opening Statement of C. Richard D’Amato, Commission Chairman

Welcome to our two-day hearing evaluating China’s progress in meeting its WTO commitments and how the WTO might be used to address continuing problem areas.

The Commission has evaluated China’s progress toward meeting its broad array of WTO commitments in our past reports and has highlighted a number of key problems, particularly China’s undervalued currency and poor protection of intellectual property rights (IPR), both of which are fueling a dangerous, ballooning trade deficit in the U.S. The viability of the WTO itself, as the preeminent global trade organization, depends on whether it can deal with issues of the magnitude of China’s IPR and exchange rate practices. If the WTO is to serve as steward of the global trading system, it must actively and successfully confront those practices that threaten the basic structure of that system. Clearly the U.S. must take the lead with the WTO if these issues are going to be resolved.

Another key concern of the Commission has been the fate of the WTO’s special oversight system for China, the Transitional Review Mechanism (TRM). During China’s accession negotiations, the U.S. pressed for the TRM in order to institutionalize a formal review of China’s efforts to pull its economy and government in line with WTO standards. The hope was that the TRM would expose key problem areas and put collective pressure on China to address them.  Instead, China’s failure to fully cooperate with this process, despite having agreed to it, has left the TRM little more than an information gathering session.

Outside of the WTO, China is pressing its trading partners to confer market economy status on its decidedly non-market economy. Not only would such a designation confer market legitimacy on China’s economy, it would diminish the ability to bring antidumping actions against low-cost Chinese imports. In the U.S., the Commerce Department controls this designation, though U.S. law provides guidelines as to what constitutes a market economy.  At high-level meetings in the spring of 2004, the U.S. agreed to set up a joint working group to help China understand the non-market designation and work toward achieving market economy status. Obviously, the Commission would be pleased to see China actually move toward becoming a market economy.  We are concerned, however, with the possibility that market economy status will be treated as a bargaining chip to be traded away as part of a political strategy, rather than granted only when warranted by economic developments. China is a far, far cry from a market economy, by any stretch of the imagination, today.

Also on our agenda today is a discussion of the Continued Dumping and Subsidies Offset Act of 2000 (CDSOA), known as the Byrd Amendment. When the U.S. collects anti- dumping duties, the Byrd Amendment authorizes the government to distribute them to injured domestic producers, making it an important form of relief for U.S. firms. The WTO has ruled against the Byrd Amendment and has authorized U.S. trading partners to impose retaliatory duties.  This ruling is despite the fact that nowhere in the WTO treaty is such a practice referred to, much less prohibited.  We would like to determine how the U.S. should respond to this ruling – repeal the provision, accept retaliation, or search for other options.

Additionally, data collected for the CDSOA process has revealed that $250 million in antidumping duties -- nearly half of the total imposed -- has gone uncollected, primarily related to agricultural imports from China. We hope to shed light on this issue at today’s hearing and examine ways to resolve this problem that undermines the effectiveness of our trade laws.

As evidenced in our agenda, the WTO is involved in wide range of economic concerns that China presents to the U.S. In examining China and the WTO, we intend to maintain a sense of perspective, that we might improve our understanding of the broader trends in U.S.-China trade.

After a statement by the Commission’s vice chairman, Roger Robinson, we’ll turn the proceedings over to Commissioners Pat Mulloy and June Dreyer, who will co-chair this hearing.  For myself and for the Commission, I thank them for the excellent work they have done in preparing this hearing.

All written statements submitted to the Commission by Members of Congress and other witnesses will be made a part of the record in full, and are available on the table in the back of this hearing room.

Vice Chairman Robinson.

Opening Statement of Roger W. Robinson, Jr. Commission Vice Chairman

The Commission is holding this hearing as part of our continuing assessment of the U.S.- China economic relationship, as we return to Washington, D.C. after two field hearings. In Akron, Ohio and Seattle, Washington, the Commission heard powerful testimony from manufacturers and other producers. Our panelists at these hearings represented a substantial part of the base of the U.S. economy, and they are under considerable strain as the challenges of China’s economic presence multiply. They pinpointed some of the difficulties they face from China, some of which – like the exchange rate and violations of intellectual property rights – can be addressed through the WTO.

We are using China’s accession to the World Trade Organization as the hearing’s frame of reference, considering both the obligations it placed on China and the trade remedies it provides for the U.S. We intend to not only evaluate China’s record of compliance with its WTO obligations, but to also take a step back to review the manner in which the U.S. does and should respond to compliance shortfalls.

The Commission has made a number of strong findings and recommendations following past hearings and in our Annual Report to Congress this past June. Our recommendations have been aimed at moving the ball forward on a number of key trade concerns, among them China’s undervalued currency, intellectual property rights violations, textile exports, and agricultural trade. We hope today to look at the specific mechanisms of our trade laws and the WTO as a means to redress problems in these areas.

For instance, in our 2004 Annual Report, the Commission found that “China is systematically intervening in the foreign exchange market to keep its currency undervalued.”  On intellectual property rights, the report found that “large-scale piracy – at levels of over ninety percent – continues to characterize intellectual property rights protection in China and is a major concern for U.S. exporters of high-tech goods and services.” In response, the Commission recommended that barring any progress U.S. trade officials should consider taking more aggressive measures, including fashioning WTO cases.  Today we have a distinguished array of panelists to help us evaluate the merits and methods of this approach.
This will be the modus operandi of this hearing.  In addition to cataloguing China’s failures to meet WTO commitments, we want to examine potential U.S. responses to encourage China’s compliance or ameliorate the effects on U.S. producers.  Where we have previously found shortcomings, we seek solutions.  Where we have previously recommended action, we seek to hone implementation of these recommendations.  In short, we want to build on our past work by exploring the options available to the U.S. to respond to the growing challenges of the U.S.-China trade relationship and its impact upon the U.S. economy.

I’d like to now turn over the proceedings to the co-chairs of this hearing, Commissioners Mulloy and Dreyer.


Congressional Perspectives I: China in the WTO
Senator Byron Dorgan (D-ND)
Congressman Sander Levin (D-MI) [Remarks]
Congressman Ted Strickland (D-OH) [Remarks]
Congressman Tim Ryan (D-OH) [Remarks]
Senator Larry E. Craig (R-ID) [Remarks]
Senator Mike DeWine (R-OH) [Remarks]
Senator Daniel K. Inouye (D-HI) [Remarks]

Congressional Perspectives II: The Continued Dumping and Subsidies Offset Act and China’s Unfair Trade Practices
Senator Robert Byrd (D-WV) [Remarks]
Congressman Sherrod Brown (D-OH) [Remarks]
Senator Mary Landrieu (D-LA) [Remarks]
Senator Lindsey Graham (R-SC) [Remarks]
Congressman Bob Ney (R-OH) [Remarks]
Senator Charles E. Schumer (D-NY) [Remarks]

Panel I: Administration Views
Henry A. Levine, Deputy Assistant Secretary of Commerce for Asia Pacific Policy [Testimony]
Shaun E. Donnelly, Deputy Assistant Secretary of State, Economic Bureau Trade Policy Promotion [Testimony]
Randal Quarles, Assistant Secretary of Treasury for International Affairs (statement submitted for the record) [Testimony]

Panel II: Evaluating Available Trade Remedies
Terence P. Stewart, Managing Partner, Stewart & Stewart Law Offices [Testimony]
Alan Wolff, Partner, Dewey Ballantine LLP [Testimony]

Panel III: Strategies for Enforcement - Exchange Rate Practices
C. Fred Bergsten, Director, Institute for International Economics
Franklin Vargo, Vice President for International Economic Affairs, National Association of Manufacturers [Testimony]
David Hartquist, Partner, Collier Shannon Scott PLLC [Testimony]

Panel IV: Strategies for Enforcement - Textiles
Cass Johnson, President, National Council of Textile Organizations [Testimony]
Auggie Tantillo, Executive Director, American Manufacturing Trade Action Committee Statement [Testimony]
        Tantillo Tables (PDF)
Harris Raynor, Vice President, UNITE HERE
Erik O. Autor, Vice President and International Trade Counsel, National Retail Federation [Testimony]
Julia Hughes, Vice President for International Trade and Government Relations, U.S. Association of Importers of Textiles and Apparel [Testimony]

Panel V: Evaluating U.S. Efforts to Monitor and Improve China’s Compliance
Loren Yager, Director of International Affairs and Trade, Government Accountability Office [Testimony]

Panel VI: Strategies for Enforcement – IPR
Eric Smith, President, International Intellectual Property Alliance [Testimony]
Timothy Trainer, President, International Anti Counterfeiting Coalition [Testimony]
Jason Berman, former Chairman and CEO, International Federation of the Phonographic Industries [Testimony]

Panel VII: Strategies for Enforcement - Agriculture
Nancy Foster, President, U.S. Apple Association [Testimony]
Gary C. Martin, President and CEO, North American Export Grain Association [Testimony]
Michael Coursey, Member, International Trade and Customs Law, Collier Shannon Scott PLLC [Testimony]

Additional Material Submitted for the Record:
Statement of Kevin M. Burke, President and CEO, American Apparel & Footwear Association