OPENING TRADE

November 15, 1999
		Following a background report, Margaret Warner leads a discussion on the trade deal struck between China and the U.S. and how it might pave the way for China's entry into the World Trade Organization.

Nov. 15, 1999: A backgrounder on the China-U.S. trade deal Nov. 2, 1999: China at 50 Sept. 27, 1999: The world market. April 16, 1999: China's business Feb. 26, 1999: Dealing with China Oct. 20, 1998: Declining demand in Asian hurts U.S. farmers July 2, 1998: An Online Forum on President Clinton's China policy June 24, 1997: China retains Most Favored Nation trading status Complete NewsHour coverage of Asia     World Trade Organization U.S. Trade Representative WTO's 3rd Ministerial Conference Chinese Embassy	MARGARET WARNER: For more on today's deal, and what it will mean, we turn to Kenneth Lieberthal, special advisor to the president and senior director for Asia affairs at the National Security Council-- he just returned from the negotiations in China last night; Liu Xiaoming, deputy chief of mission at the Chinese embassy in Washington; Robert Kapp, president of the U.S.-China Business Council, which represents more than 250 American companies doing business in China; and Robert Scott, an international economist at the Economic Policy Institute in Washington, a research and policy organization. Welcome, gentlemen. Mr. Lieberthal, tell us what the U.S. and the U.S. economy gets out of this deal. KENNETH LIEBERTHAL: The most fundamental thing we get out of this deal is an enormous increase in our access to the Chinese economy. This is in services, it's in the export of our industrial products, of our agricultural products. Essentially China will now, after a brief phase-in, have to play by the same rules that we and many other countries around the world play by: Greater transparency, more rules-based, fairness to farm firms that will be treated in most sectors just as Chinese firms are. So, we should see a very substantial increase in our exports to China, a very substantial increase in our economic engagement with China. At the same time this builds in key protections for American labor to protect us from surges of Chinese exports to the United States and also from the possibility of Chinese dumping of goods in the United States. So this is a very, very significant agreement for U.S.-China economic relations and, as your people mentions, it also has substantial political significance for our overall relationship. MARGARET WARNER: Mr. Liu, the minister in China who negotiated just called it -- he used a very American phrase -- a win-win. What's in it for China? LIU XIAOMING: I think it serves China in further developing the economy, to further to reform, and it means a lot of business opportunities. It means a lot for China's exports. And what's more, it serves the interest of our two countries. It means more job opportunities, and it means more exports to both sides, and it also means that we'll stabilize our relations, you know, without permanent N.T.R..... MARGARET WARNER: What's that? LIU XIAOMING: The normal trade relations. MARGARET WARNER: Which we described at the end of the taped piece. LIU XIAOMING: That's right. That will stabilize relations and now China is the fourth largest trading partner to the United States, while the United States is the second largest trading partner to China. So it's very important for these two major trading partners to do trade according to the international practice. It also serves the interest of the world trade, and China is the 7th largest economy and the 9th largest exporter and the 10th largest importer. So you can hardly imagine the World Trade Organization could be complete without China's participation. So I think China will contribute to the further development of the world trade, both in terms of expanding its trade and also in terms of actively participating, formulating the rules and laws of the World Trading Organization. MARGARET WARNER: How will it actually... give us some examples of how it will change the rules of the road for American businesses doing business in China -- in other words, following up on what Mr. Lieberthal said and Charlene Barshefsky as well.
	Changing the rules of business
	ROBERT KAPP: Margaret, if you sell a machine into China, currently you're not allowed to run your own service operation there. Once the machine is in Chinese hands, you can't open your own service shop without having a Chinese partner. This is going to open up all sorts of opportunities for American services firms. After all services are a very big part of our economy to operate on their own in China for the first time. That's just one simple example. American banks and I might say that the United States negotiating this, of course, is negotiating for the whole rest of the world because under the WTO, what any country agrees to provide to one other WTO member is provided to all. So we've really led the charge on this. Banks are now going to be operating increasingly in the local currency, which was almost unknown before. Insurance companies will have a much wider scope of action. On the agriculture side though there's just no overestimating the importance of agriculture in this agreement. The farm and agricultural groups are estimating that this is the biggest single market-opening opportunity for American agriculture in decades. And I think we'll see very substantial improvement there and of course manufacturers are in many cases extremely happy with this as well. MARGARET WARNER: Are Chinese industries and Chinese farms and Chinese agriculture ready for this kind of competition? LIU XIAOMING: I think so. We expect there might be some negative impact on certain sectors. MARGARET WARNER: Some negative impact? LIU XIAOMING: On agricultural manufacturing, but the goal for the Chinese government is to introduce the maximum of competition. That's part of the reform of the state-owned enterprises. Since we are building a market economy, which is more integrated with the world economy, so we have to push our companies and enterprises to the world competition, you know, compete in accordance with international practice -- so we believe in the long run it serves China's interests, serves China's economic growth, and also serves the enterprises in the long run. MARGARET WARNER: Now, I know you're more skeptical. What are your problems with this?
	Do trade agreements benefit all?
	ROBERT SCOTT: Margaret, this is a lose-lose agreement for workers in both the U.S. and in China. This agreement failed to obtain progress, in particular, on labor and human rights. No progress was made in those areas at all. The agreement is a commercial failure. The benefits that have been promised by the administration are illusory. They're not going to be there. In fact, this agreement can be very costly for both our economy and for China's. And finally, the agreement itself is unenforceable. So I'm concerned, I think, that China is not yet ready to join the WTO, and I think this agreement is premature. KENNETH LIEBERTHAL: May I say something to that. MARGARET WARNER: Yes, quickly. KENNETH LIEBERTHAL: As you are well aware, we disagree almost across the board on that sort of comment. American labor is well protected in this agreement. I think you'll agree with that. Chinese labor conditions will improve as the overall Chinese economy improves. Most foreign enterprises in China apply labor conditions that are in fact better than those mandated by Chinese law. That is especially true for European and American enterprises in China. This will vastly expand our presence there and our ability to do that. In terms of enforcement, WTO has enforcement mechanisms. These are not perfect, but they are better than anything that currently exists out there so that I think you never get from zero to 100 in one step, but if anything moves China along the path to a wealthier population, a better educated population, a population more in tune with the rest of the world with a more rule-based system in a more sophisticated environment, if anything will move China along that path, this agreement does that. I just have a hard time understanding the kinds of comments that you have just made about it. I don't think that they really capture what's going on here. ROBERT SCOTT: My concern is with your assumptions. I think this agreement is actually going to lower incomes in China, not raise them. And we can look to our experiences under the NAFTA agreement to see that after NAFTA was implemented, almost immediately Mexico was hit with a peso crisis and wages fell, employment fell. And today three or four years after the peso crisis, real wages for Mexican workers remain 29 percent below where they were before the NAFTA agreement was put into effect. China has already announced that it may have to devalue in the first quarter of 1999. This is history repeating itself again and again. We saw it with the Canada-U.S. Free trade agreement -- when Canada devalued after the agreement was put into effect -- we saw it with Mexico. And I expect we're going to see it again with China. I think the key factor here is that China has one of the most abusive labor markets in the world. And nothing was done in this agreement to protect worker rights. Instead, what we've done is protect investor rights. That's what this agreement is all about is protecting the rights of U.S. investors to do business in China, but that's not going to do anything for the interests of workers in either country. LIU XIAOMING: I cannot agree with what you are saying, that China has abused its labor forces. In fact, if you look at the road China has covered in the past 20 years, the livelihood of the Chinese people has improved tremendously with the opening up and the reform. So there's a broad, you know, universal support in China for continuing reform and opening up and also these, you know, China's interaction with the outside world. It will help China's economy grow steadily. MARGARET WARNER: Let me get Mr. Kapp back in this. What do you think is going to be the impact on jobs both in China and in the United States? ROBERT KAPP: Well, I can't really speak on the Chinese side, Margaret. The studies that have been conducted on this side tend to be rather method logically rigid. It's a little hard to tell. I've pointed out, for example, that the real impact is not going to be on the day that China joins. It's going to be affected by whether the Chinese economy is growing by 10 or 15 percent a year or shrinking by 10 or 15 percent a year. A country which is in the economic doldrums is not able to purchase as much from the rest of the world and generate much employment abroad as much as a country that is moving along. The Chinese economy right now is not in the best of shape. It still looks pretty good by global standards, 7 plus percent. But there's a lot of unemployment and there's a lot of uneasiness for the future.
	The U.S.-China trade deficit
	MARGARET WARNER: All right. A related question: What impact is it going to have on the U.S.-China trade deficit which last year was $60 billion? ROBERT KAPP: Well, it was. And that is a concern, but I think the point about the trade deficit, any trade deficit, is that if you can get the markets open, which is what this extraordinary achievement is aimed to do and which to me seems clearly designed to do well, the best answer to the trade deficit is to sell more goods to China, ship more to China. It's certainly not -- I think none of us would suggest that it was -- to shut the door to Chinese goods coming to this country. So, who knows whether it will take one, two or five for the trade deficit to be affected by the WTO, but the market openings and the reductions of non-tariff barriers and the lowering of tariffs and the creating of American companies in the same way that domestic companies are treated are all good for opportunities for American businesses and their workers and the farmers as well. MARGARET WARNER: So, shouldn't that be good for American workers? ROBERT SCOTT: It sounds great in theory. The problem when you look at what happens in reality when we implement these trade agreements. In fact, the U.S. Government's own International Trade Commission has done a study of a likely impacts of the WTO agreement that was put on the table in April, and they found that the U.S. Trade Deficit was likely to be increased as a result of this agreement. In fact, an increase in the trade deficit is going to reduce employment in the U.S., just as was the case under the NAFTA agreement. KENNETH LIEBERTHAL: Let's be clear as to why a trade deficit might decrease in the short term. China exports far more to the U.S. than it imports in the U.S. In percentage terms our exports to China will grow far more rapidly than China's exports to us will grow. But since they start from a much higher base for those exports in absolute terms, that trade deficit may grow in the next few years. It will not grow as much as it would have grown without this agreement and over time clearly it will shrink with this agreement. ROBERT SCOTT: The question is what does over time mean? I've done the forecasts and looked at the I.T.C. reports, and I've extrapolated those out into the future. It is going to take more than 50 years for the U.S. Trade Deficit with China to be eliminated given the rates of growth of imports and exports forecast by the I.T.C. Of course the deal that was negotiated this week has worse commercial terms than the one that was put on the table in the April. KENNETH LIEBERTHAL: That's not true.
	A trustworthy agreement?
	MARGARET WARNER: Can I throw another issue on the table, which is something a couple of people raised. It has to do with enforcement. One of the critiques has been that the U.S. is going to give up his ability to, for instance, impose unilateral sanctions. How do you guarantee that this is enforceable? KENNETH LIEBERTHAL: The question is whether this leaves better off than we were before the agreement. I think the answer to that clearly is yes. We can enforce certain provisions like provisions against export surges, provisions against dumping. There are stronger terms here than we had before this agreement was signed. In terms of enforcement on the Chinese side of how they treat foreign firms within China, that primarily relies on WTO dispute resolution mechanisms. Those are, you know, those are reasonably effective. There are problems with them but there are problems with any of these things. I think that one of the fundamental goals of this administration, let's keep in mind, has been to encourage an outcome where China joins multi-lateral institutions and becomes a constructive member of those major institutions. This advances that goal a great deal. I think the dispute resolution mechanisms within the institution are ones that will be reasonably adequate to the task over time. MARGARET WARNER: Is China ready to essentially play by the WTO rules? LIU XIAOMING: Yes, very much so. Once we become a member of WTO, we will abide by all the regulations and rules. We tend to believe that the rules will be set by all the players, not by just a few countries. So that's why we support the multi-lateral mechanism rather than resort to sanctions, unilateral, bilateral channels. We believe that serves the interest of all trading partners. MARGARET WARNER: You have doubts? ROBERT SCOTT: The problem we have is that China has consistently violated paper agreements it's made in the past. And we've given up the right to use unilateral sanctions in this case. We've weakened our own enforcement capabilities. ROBERT KAPP: I think one of the chimeras here - is the idea that unilateral sanctions have the power that sometimes are attributed to them. MARGARET WARNER: All right. LIU XIAOMING: We have a basic differences here. If you keep saying that China violates all agreements, it seems to me you have no interest in making any trade relations with China. We need to have a basic trust to each other, and you have to remember that the United States is not perfect and I believe the United States violated many agreements between our two countries. You have to keep that in mind. MARGARET WARNER: We can continue this but off the air. Thank you four very much.