Testimony of Robert A. Kapp
President, US-China Business Council
Trade Subcommittee, Committee on Ways and Means
U.S. House of Representatives
June 17, 1998
I am Robert Kapp, president of the US-China Business Council. Established in 1973, the Council is a private, nonprofit and nonpartisan association of nearly three hundred member US companies. Our main function is direct business advisory services to companies seeking to build their business relations with China. We publish The China Business Review, leading periodical on US-China business and economic affairs, as well as other papers. Our meetings and programs for member companies frequently include guests from the Congress, and our ongoing "China on the Hill" series offers opportunities for Members and staffers of single state delegations to the Congress to discuss the on-the-ground experiences of companies from that particular state who are active in China. I might thank both Committee Chairman Archer and Subcommittee Chairman Crane for working with the Council to hold "China on the Hill" sessions with Members and staffers from their respective states, and I would like urge other Members of this Subcommittee to consult with me on the possibility of similar sessions with them and their colleagues from their state's delegation to the Congress.
The US-China Business Council regularly analyses the US-China trade relationship and the Chinese business and investment climate. Rather than dwell on facts and figures in the body of this testimony, I append several Council documents that may help Members to review the growth and current dimensions of our trade and economic engagement with China.
Member companies in our Council have pooled their voluntary financial pledges to form this Fund, whose purpose is to bring needed private sector support to programs now being developed in furtherance of the October 1997 commitments by President Clinton and President Jiang Zemin to enhance US-China cooperation in key building-block areas of the so-called "Rule of Law."
American business knows from experience at home and abroad that economic and social progress in any society depends heavily on the creation and application of a comprehensive, transparently arrived-at, impartially applied, and universally implemented system of laws and regulations.
We hope that our gesture of support for what we believe to be an important US-China cooperative program will encourage others, very importantly including the US Congress, to make available the resources necessary to carry out America's side of a growing list of US-China cooperative endeavors, of which long-term collaboration in the area of legal development is surely one of the most important.
US companies do not engage with China for the purpose of transforming Chinese society or, for that matter, remaking Chinese politics in the image of any other country. Nor is the presence of US business in China a freestanding solution to the concerns that some Americans have over various aspects of China's internal affairs.
But it is not coincidental that the rapid growth of American business activity in China has corresponded with the rapid growth of China's modern economy, China's plunge into the mainstreams of global commerce and ideas, and the spectacular economic advances that have brought massive benefit to hundreds of millions of Chinese citizens. America's commercial engagement with China is a significant contributor, just as it is a beneficiary, of these changes, and the further growth of this commercial engagement should be viewed in the most positive light.
With that glowing affirmation out of the way, let me now turn to the less elevated issue of MFN.
We urge the House to do as it has done year after year since the early 1990s: vote down the Resolution of Disapproval, and sustain the baseline trade relationship so vital to the achievement of US goals with China.
We are well aware that, for some Members, the annual debate over MFN renewal is more important than its outcome; that the annual debate provides the opportunity for lusty condemnation of Chinese behavior that some Members find unacceptable; that the annual debate offers an opportunity to "send China a message," that the annual MFN debate is a device for the working out of legislative-branch exasperation with the executive branch, whether over China or other matters; that the annual China go-round has implications in domestic and international policy circles far removed from US-China relations themselves.
Let me urge Members today to face instead the essential facts on the MFN exercise, and to sustain normal trade with China -- not as a grandiose gesture with profound philosophical overtones, not to "send a message" about something else -- but simply as a modest reaffirmation of an unspectacular, normal condition among two mature trading partners.
1. The MFN debate over China gets nowhere year after year because it is misdirected. The Trade Act of 1974 that requires annual renewal of MFN for non-market economies was designed specifically to force the now-defunct Soviet Union to permit Jewish emigration. Its key substantive concern is that the country in question permit emigration.The Soviet Union is gone; emigration is not an issue with China. The Congress is left trapped in a box, if not of its own making, then at least forced upon it by the enormous historical changes of the past quarter of a century. The legislative basis for MFN is rooted in realities of another time and another world, and this annual bitter but unproductive exercise is the result.
In fact, the Congress for its own sake should face the facts of its dilemma and turn to the real common-sense task of moving out from behind the annual MFN 8-ball altogether.
We can go on like this indefinitely, if we have to, returning each spring, making familiar arguments or responding to new and ingenious charges. But surely this is not the best way to spend Congress's time.
2. MFN is not "most favored" anything. The term, like the Jackson-Vanik Amendment to the 1974 Trade Act, is a relic of another world. The term first came into the US-China relationship in the 1840s when, after the British won the Opium War against China and extracted a series of trade and other concessions from the Manchu dynasty in the ensuing peace treaty, the Americans steamed into the harbor and demanded the same concessions from China that had been given to the British -- i.e., treatment as favorable as that provided to the "most favored" nation trading with China!
Then, as now, "MFN" doesn't mean special treatment, or one-of-a-kind largess; it is instead the standard tariff treatment that a country applies to the incoming products of all other countries except those to whom it does not accord such standard treatment. For the U.S., the list of trade partners not receiving normal tariff treatment is minuscule, and consists of a few trade midgets worldwide. MFN with China simply means that China is not specially discriminated against in the application of US tariffs.
3. As long as Congress does have to continue to take it up, annual MFN renewal ought to be seen as a pit stop -- nothing more -- in a long and grueling race.
Keeping US-China trade and economic relations on an even keel by preventing their massive disruption through the canceling of MFN is like changing the tires, filling the tank, and topping up the radiator on a race car; doing it does not guarantee victory, but failing to do it virtually guarantees failure.
The real US challenge with China is much, much larger and longer-term, and it is not measured by the calendar of Jackson-Vanik deadlines. It is the challenge of responding to China's emergence as a major player on the world stage, and of maximizing American interests with China through the continued successful integration of a positive and influential China into the main currents of world affairs -- commercial and non-commercial. This historic challenge requires -- of us, of the Chinese, and of the world -- endurance, knowledge, strategic thinking, tactical flexibility, concentration, and a critical sense of change over time. All too often, US approaches to China demonstrate the opposite characteristics.
Toward all of this -- the real game in town -- the annual MFN imbroglio is simply misdirected. Particularly in the form it takes -- i.e., a vote to dismantle and destroy, which by definition offers its proponents the chance to encourage "Yes" votes with the darkest and most apocalyptic rhetoric -- the annual MFN exercise is profoundly inconsistent with a far-sighted and productive American approach to its real challenges with China.
4. This recurrent MFN debate, framed this year by the outbreak of sensational and as-yet unproven allegations in other areas of US-China contact and by the imminence of the first trip by the first presidential visit to the world's most populous nation in almost a decade, may center around specific trade concerns in this Trade Subcommittee of the House Ways & Means Committee, but in the Congress as a whole it is only tangentially about trade.
Instead, each year this debate becomes intertwined with broader and highly-charged issues, most of them not trade-focused at all: fidelity to American values, as defined by their various advocates; fidelity to ethical or religious convictions intrinsically interwoven with controversial American social issues; even ownership of the prevailing diagnosis of the American condition and America's place in the world.
Once again, this is overloading a humble, even technical matter, which happens to be subject to annual Congressional review because of the 1974 Jackson-Vanik language, with baggage it cannot usefully carry. The question of normal tariffs on incoming Chinese goods is not about Good and Evil; it is not about rewarding the vicious and betraying the virtuous (nor, I might say, about rewarding the Good and harming the Bad).
MFN renewal is about maintaining the most basic, lowest-common-denominator standard of civility in the economic and non-economic relations of two great nations, each a major trade and economic partner of the other, and each possessed of the power to shape world events. That unglamorous fact is the reason that Congress should sustain MFN this year, and free itself from this annual burden at the earliest moment.
5. In this regard, our Council was delighted that, within hours of the president's announcement that he would renew normal tariffs on Chinese imports, the chairman of this Subcommittee and the chairman of the full Ways & Means Committee joined with the Speaker of the House in assuring the president of their cooperation in support of continued standard tariffs.
We have also been deeply impressed to note the message that Representative Curt Weldon, a member of the House National Security Committee, has circulated among his fellow Committee members for subsequent dispatch to all Members of the House, supporting MFN renewal on the grounds that a) MFN is a completely separate issue from the questions of military security that have recently received heavy House attention, and b) the security of the United States would not be well served by the undoing of the enormous economic relationship between the US and China that today brings so much benefit to both countries.
These are important statements, both as to the distinctiveness of the MFN issue amid other controversies, and as to the essential role that normal trade relations play in the working out of the larger US-China agenda. We congratulate these Members for their forthright comments, and hope that other Members throughout the House will associate themselves with these statements.
MFN renewal, a necessary but unromantic "pit stop" in the long-term effort to maximize America's interests with a huge and rapidly maturing China, is today overloaded with cosmic baggage.
This relic of the confrontation with the Soviet Union, having lain dormant and utterly without congressional interest for the entire decade of the 1980s, now lives on year after year after year because no one seems able to give it a decent burial.
The advent of the MFN season each spring has historically provided the occasion for a new round of sensational allegations and political responses which, in turn, make it "politically infeasible" for yet another year to put the whole process out of its misery.
Since crippling an $80 billion trade relationship that generates hundreds of thousands of U.S. jobs, and undercutting the viability of $20 billion in U.S. investment in China, is an act of such magnitude and hostility that, in the end, judicious members of the Congress in both parties will always think twice before taking the fateful step, I urge this Subcommittee and its parent Committee to take the lead in breaking the MFN logjam once and for all. In addition to renewing normal tariffs on Chinese imports to the United States for the next twelve months, I hope that we will see the distinguished and conscientious members of this Subcommittee and its parent Committee, charged with so much of the House's responsibility for wise legislation in the trade arena, lead the way toward the permanence of normal trade relations with our nation's fourth-ranked trade partner in the very near future.
I welcome the opportunity to respond to specific questions or comments from the Subcommittee.
Thank you.
Last Updated: 17-Jun-98