U.S.-China Economic and Security Review Commission, "Hearing: The Impact of U.S.-China Trade and Investment on Pacific Northwest Industries," January 13, 2005

January 13, 2005
The Bell Harbor Hotel - Bell Street, Pier 66
(3rd Floor Bell Harbor International Conference Center)
2211 Alaskan Way, Seattle, WA 98121

Co-Chairs: Chairman William A. Reinsch and Vice Chairman Roger W. Robinson, Jr.

OPENING STATEMENT BY CHAIRMAN C. RICHARD D’AMATO

Good morning, and welcome to the Commission’s first hearing of 2005. We are delighted to be in Seattle to learn about the short and long term impacts of U.S. - China trade and investment on the Pacific Northwest economy. I want to express my gratitude to those who made this hearing possible and to Representative Jim McDermott for taking the time to be with us.

The Commission was established by the U.S. Congress to investigate the national security implications of our trade and economic relationship with China. Members of the Commission are appointed by the Republican and Democratic leaders of the U.S. Senate and House of Representatives.  Congress has directed us to examine how our deepening economic relationship with China affects our basic economic health and prosperity. In conjunction with this mandate, we have been holding a series of hearings throughout the country to get a first hand look at how this relationship is affecting different sectors of our economy.

This time last year the Commission held a hearing in Columbia, South Carolina, where we heard testimony from local manufacturers about China’s impact on jobs and the U.S. industrial base. In September of last year, the Commission held a similar hearing in Akron, Ohio that focused on industries particular to the upper-Midwest region. At both hearings witnesses expressed concern that China is unfairly advantaged by the continuing under-valuation of its currency and its extensive use of subsidies for its export industry.

There is a stark comparison with our hearings in Ohio and South Carolina, states whose economies are suffering badly from the effects of so-called globalization, including massive shifts in manufacturing capacity to China, outsourcing, competition from artificially cheap imports, and unfair Chinese trade practices. Seattle and the American Northwest have been a major American success story in marketing aerospace, software, high technologies, agriculture and forest products. Nevertheless, our hearing intends to explore early signs of concern in all these sectors with China, and we want to understand what long-term challenges face the Northwest, in hopes they can be effectively met and countered.

Today, we have a series of panels on how U.S.-China trade and investment patterns are impacting the aerospace, information technology, agriculture, forest products, and shipping and maritime industries. In addition to general economic impact, the Commission is interested in the larger security related questions. What is the nature of the U.S. aerospace industry’s contribution to China’s growth as an aerospace power? How has this affected the U.S. defense-industrial base? What are the implications of U.S. software and high-tech firms adopting China as a base for research and development? What impact does that have on our ability to innovate? These are just a few of the questions we hope to examine today, and I know that the Congress will be keen to learn the answers as well.

With that I would like to turn over the proceedings to the co-chairs of today’s hearing, my colleagues, Commissioner George Becker and Ambassador Robert Ellsworth.

OPENING STATEMENT BY HEARING CO-CHAIR GEORGE BECKER

The Commission is pleased to be meeting today in Seattle to continue its comprehensive investigation of how the U.S.-China trade and investment relationship is affecting vital regions and sectors of our economy. This is the fourth in a series of field hearings the Commission has held across the United States since early 2004.

Before we begin I would like to join the Chairman in thanking Representative Jim McDermott for taking time out of his busy schedule to speak before the Commission and kick off today’s hearing.

In June of last year, the Commission issued our second comprehensive report to Congress. We did so with a unanimous vote – Democrats and Republicans, Commissioners with varied backgrounds in government and in the private sector.  While the Commission’s report is comprehensive, it’s conclusion was simple: “a number of the current trends in U.S.–China relations have negative implications for our long-term economic and national security interests, and therefore that U.S. policies in these areas are in need of urgent attention and course corrections.”

Washington State’s economy is deeply involved in trade with Asia, which is the destination of almost half of Washington state’s exports. China, is the destination of almost 10 percent of Washington exports - - the third largest export destination for the state.

The key Pacific Northwest industries we are focusing on today -- aerospace, high- tech, agriculture, forest products, and shipping -- have all been affected by China’s rise as an economic and technology power. These industries see China as a vital market, but they also face major challenges from China’s own development in these sectors. How these industries seize these market opportunities and meet these challenges has ramifications not just for the Pacific Northwest economy, but also for the U.S. economy as a whole.

There are several key concerns that the Commission hopes to explore today. First, U.S. aerospace and aviation industry corporate strategy has focused on China as both a manufacturing base and a consumer market. The Commission is deeply concerned about the transfer of aerospace jobs and technology to China. The loss of high-paying quality jobs is a blow to the well-being of working families, while the transfer of technologies risks creating a future commercial rival and also holds national security dangers.
 
Companies may see such transfers as being in their private interest, but is it in the national interest? And is China applying illegal pressures to force companies to transfer production as a condition for winning contracts?

Second, high-tech and software companies such as Microsoft are finding China to be a desirable place to locate high-end R&D. Again, this erodes the high quality job base in the U.S., while shifting of R&D centers may undermine U.S. high-tech leadership. Again we must confront the question of whether what is good for companies at the individual level is also good for the nation.

Third, we will be looking at the apple and mint industries and the forest product industry. Apple and mint producers have battled with China over unfair trade practices and there are reports of China subsidizing its own forest product industry. All of these industries are at a competitive disadvantage because of China’s under-valued currency. This suggests that agriculture and forest products have some of the same unfair China trade concerns as manufacturing.

Lastly, given that the Pacific Northwest is a key shipping hub for U.S.-China trade we want to understand the components of this trade - - what is being shipped into the area, and how has the mix changed over time. This can give us a window into the nature of recent developments in the Pacific Northwest.

In general, we want to understand not only how industries are fairing in their trade with China today, but where current trends will likely take them in the next decade. I look forward to a fruitful and engaging dialogue with the panelists.

Our first panel will present an overview of Washington State trade and investment with China. We are pleased to have with us, Joseph Borich, Executive Director of the Washington State China Relations Council. Mr. Borich will discuss the Washington State-China trade and investment relationship from the perspective of private businesses. Next we have Rick Bender, President of the Washington State Labor Council, who will discuss labor’s perspective on this relationship. We will close the first panel with a presentation by Dr. Robert Scott of the Economic Policy Institute. Dr. Scott will present the findings from a recent commissioned study on the employment effects of U.S. trade with China.

We will break for lunch around noon before beginning our afternoon panels dealing with the software and high-tech industries and the agriculture, forest products, and shipping and maritime industries.

We will hear from the witnesses in the order in which they were introduced. So that all of the Commissioners can have adequate time to discuss these important issues with the witnesses, we ask that each witness speak for no more than 7 minutes. At the end of the panel’s presentation, each Commissioner will be recognized for 5 minutes.
 
We are very pleased to be in Seattle today and I look forward to today’s discussion.

OPENING STATEMENTS
OPENING STATEMENT BY CHAIRMAN C. RICHARD D'AMATO
OPENING STATEMENT BY HEARING CO-CHAIR GEORGE BECKER

Congressional Perspectives
Congressman Jim McDermott, (D-WA-7th District)

Panel I: Washington State Trade and Investment with China
Mr. Joseph J. Borich, Executive Director, Washington State China Relations Council, Seattle, WA
Mr. Rick Bender, President, Washington State Labor Council, AFL-CIO, Seattle, WA
Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute, Washington, DC

Panel II: Aviation/Aerospace
Mr. John Walsh, President, Walsh Aviation, Annapolis, Maryland

International Asssociation of Makchinists and Aerospace Workers (IAM)
Mr. Owen Herrnstadt, Director, IAM Department of Trade and Globalization, Upper Marlboro, MD,
Mr.Owen Herrnstadt,Executive Summary
Mr. Richard Schneider, IAM Aerospace Coordinator, Upper Marlboro, MD
Mr. Mark Blondin, President and Directing Business Representative IAM District 751, Seattle, WA
Ms. Heidi Wood, Aerospace/Defense Analyst, Morgan Stanley, New York, NY

Panel III: Software/High -Tech
Mr. Marcus Courtney, Washington A lliance of Technology Workers CWA Local 37083, Seattle, WA
Dr. Ron Hira, Assistant Professor, Public Policy, Rochester Institute of Technology, Rochester, NY
Mr.Jesse Feder, Director and Counsel for Intermational Trade and Intellectual Property, Business Software Alliance, Washington, DC

Panel IV: Agriculture
Dr. Thomas Wahl, Director of Impact Control Center, Washington State University, Pullman, WA
Mr.Christian Schlect, President, Northwest Horticultural Council, Yakima, WA
Mr.Rod Christensen, Representative, Far West Spearmint Oil Administrative Committee, Kennewick, WA

Panel V: Forest Products
Mr.Dale Lovett, Union Representative, PACE Union & PPRC Union, Wickliffe, KY
Dr.Ivan Eastin, Acting Director and Professor, Centerfor International Trade in Forest Products, Universityof Washington, Seattle, WA

Panel VI: Shipping/Maritime
Mr. Mic Dinsmore, CEO, Port of Seattle, WA
Mr. Nathaniel “Sam” Ruda, Marine Director,Port of Portland, OR
Mr.David Blackburn, President, Faria Corp., Uncasville, CT (representing the National Marine Manufacturers Association)