U.S.-China Economic & Security Review Commission

Release of the Commission’s 2004 Report to Congress

 I want to commend the Chairman for his leadership of the Commission’s work over the last year, and for the fair and energetic way he has acquitted his responsibilities.  And I wish to commend all the Commissioners, who have been as a group very active.  This is a group effort at consensus building on a wide variety of subjects in the context of the

U.S.-China relationship, and a unanimous result based on a comprehensive schedule of work.  I believe the Congress has been well served by our efforts.  We have tried to recommend Congressional action across the board to help correct the problems we have identified.

It is a cliché to say that the U.S.-China relationship is overall the most critical for the United States today, and involves large economic flows and a variety of matters of the highest importance to American national security.  Given the critical nature of the relationship and the stakes at play, it is increasingly disconcerting that U.S. policy toward China has been characterized by a lack of active management, vision, goal setting, and practical achievements.  We do not seem to have even the vaguest idea where the relationship should go, what we expect from China on many issues, which issues need urgent attention.  The relationship has not been well thought through and not well managed.  It needs renewed attention, from the bilateral trade deficit, to World Trade Organization (WTO) dynamics, to a range of festering security issues on the Asian rim.

This is particularly true when you look at the highly imbalanced trade relationship, characterized by a deficit of unprecedented scope and the relocation of manufacturing capacity, high technology and American jobs to China.  This is clearly critical to our economic health and competitiveness as a nation, and hence our essential national security.

When China was admitted to the WTO and given permanent normal trading status after contentious Congressional debate, certain assumptions were made.  First, we were told that economic, market-based reforms, including new openness in information flows, enhanced respect for the rule of law, and even, eventually, political reforms would come with China’s entry into the world economy.  Second, that enhanced U.S.-China engagement would result in strategic cooperation on proliferation, terrorism, and regional questions such as North Korea and Taiwan.  These economic and strategic reforms have been long in coming and disappointingly slim.  Mercantilist trade practices, poor observance of the rule of law underpinning the WTO, and broken promises on curbing proliferation, have continued. 

The Commission this year looked at China’s progress in four broad areas:  (1) market reforms and trade commitments,  (2) cooperation on national security matters, (3) policies toward openness and rule of law, and (4) the quality of the overall bilateral relationship.  In all these areas we believe China’s progress has been far less than satisfactory.  We should and must press China to do more.

Despite the disappointing lack of progress in many key areas, we believe the relationship is still in a fluid state and that the United States has a historic opportunity to help move China in directions beneficial for its own development and for peaceful relations with the U.S. and the world community.   The United States has substantial leverage to bring to bear in the relationship, the question is are we prepared to use it effectively?  The stakes are high.  For example, on the economic front, we think the direction of the world trading system, and so-called “globalization,” will be significantly influenced by the progress made in our bilateral relationship, such as in the creation of a more enlightened standards-based trading system.  If the United States can develop a trade framework with China that provides broad-based benefits for both sides, globalization will likely be affected in a positive manner.  If not, the opposite will likely be true. 

Our report is grounded on certain principles:

1. The United States’ large economic flows with China affect the health of the U.S. economy and hence our national security as a nation.

2. Enhanced use of U.S. leverage, economically and diplomatically, is needed for progress in trade relations, WTO practices, investment standards, nonproliferation, regional security and many other matters.  Such exercise of U.S. influence has not matched the gravity of the challenges posed by China.

3. Chinese unfair and mercantilist trade practices have tilted the playing field unfairly against U.S. interests and need to be addressed by the U.S. government more aggressively.

4. Cooperation on regional security issues, such as North Korea and Taiwan, is mainly illusory and needs fresh thinking and American initiatives to try to build consensus with China.

5. It is important for the United States to speak with one bipartisan voice on China and our economic and security interests in the Pacific.  This unanimous report is a bipartisan success and demonstrates that divisiveness in Washington is not inevitable and can be overcome.

6. Congress should play an active, constructive, and forward-leaning role, because policy based on a shared consensus, with the White House and Congress on the same sheet of paper, is ideal.

Again, I thank the Chairman and my fellow Commissioners for all of their hard work on this report, and hope it can serve as an important resource for the Congress and the public.