Testimony of Steve Beckman, Assistant Director
Governmental and International Affairs Department
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW)
before the U.S.-China Commission U.S. Trade Policies Toward the People's Republic of China

August 2, 2001


Mr. Chairman, members of the Committee, my name is Steve Beckman. I am the Assistant Director of Governmental and International Affairs for the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW). The UAW appreciates the opportunity to present its views on U.S. trade relations with the People's Republic of China and their consequences for the U.S. economy and security.

U.S. trade with the People's Republic of China has produced sharply higher U.S. deficits year after year and 2001 will not break that streak. Whatever may be accomplished by the policy of economic "constructive engagement" with China, it is not opening China's market to U.S. exports or reducing China's dependence on the U.S. market as a critical destination for its exports, nor is It creating opportunities for independent union activity for Chinese workers. Intense worker repression and deplorable human rights conditions are characteristics of the Chinese government's control over the economy and society.

U.S. imports from China are now five times the value of U.S. exports to China. As U.S. companies accede to Chinese government demands to invest in production facilities there and to transfer advanced technology to local producers, the trade imbalance will become far worse and the displacement of American workers from high value-added jobs will grow. This trading relationship is not serving the interests of American workers or our national economic interests.

The UAW has identified China's industrial policies for the automotive and aerospace industries as violations of the 1992 U.S.-China Memorandum of Understanding. That agreement committed China to end its import substitution policies and to refrain from adopting new ones. The auto industrial policy China adopted in 1994, with its import-restricting, export-promoting measures, made the auto industry a "pillar industry" for China's economic development. That policy has been recognized in many U.S. National Trade Estimates Reports, beginning in 1995, as a direct violation of the 1992 Memorandum. Despite this recognition, no U.S. government action was taken under U.S. trade law to force its elimination.

The provisions of the WTO accession agreement negotiated between the U.S. and China that cover automotive products have the same appearance as many "market opening" agreements that the U.S. government has reached with other countries with closed markets. In each instance, when such an agreement has been negotiated, the U.S. automotive trade deficit has worsened rather than improved. This has been the case for numerous agreements reached with Japan, for the North American Free Trade Agreement's coverage of Mexico and the recent agreements with Korea. We expect the provisions in the WTO accession agreement to produce the same result: despite reductions in tariffs and liberalization of quotas, China's market will remain effectively closed, limiting the increase in U.S. exports of vehicles and parts to that market; the assurance of open access to the U.S. market will encourage an even faster pace of investment in China by U.S. assemblers and parts producers; and, U.S. imports from China, especially of auto parts, will soar. We have already seen the U.S. automotive trade balance with China shift from a surplus of $0.5 billion in 1993 to a deficit of $1.4 billion last year.

China has accomplished this turnaround in automotive trade with the U.S. by forcing companies that want to sell in China to produce there and to use locally made parts and materials. General Motors, Ford and DaimlerChrysler all have assembly plants in China, as do many other multinational vehicle assemblers. Because of local content requirements, the attraction of low wages and the absence of worker rights protections, U.S.-based auto parts producers and their foreign competitors have also established production facilities in China. Parts producers, under considerable pressure from assemblers to lower their costs, are particularly prone to shifting production to China, where wages are a tiny fraction of U.S. levels. These companies are already in China and they have an interest in making their Chinese plants as profitable as possible. We believe that will lead to significant exports, displacing U.S. production and the jobs of American autoworkers.

The situation in the aerospace industry presents similar prospects for American workers. China has given preferential treatment in aircraft orders to companies that transfer production to China. These "offset" deals have shifted significant production to China in recent years, at the expense of American workers' jobs. Even worse, the companies have succumbed to Chinese pressure to transfer advanced aerospace technologies to China in return for market access. In this way, sensitive technologies, with defense as well as civilian uses, have been transferred and new competitors for U.S. companies have been created.

U.S. aerospace companies have gone beyond simply transferring technology to Chinese partners. In addition, they are training production and managerial workers in the advanced technology manufacturing techniques of the industry and building the infrastructure for industry growth and expansion. Under the Chinese government's direction, these developments are essential elements in the creation of a local industry that competes with U.S. producers. There is no doubt that the Chinese government htmires to expand and strengthen its aerospace industry.

The WTO accession agreement contains a provision committing the Chinese government not to require technology transfers, offsets or local content requirements as a condition for investment or sales. We believe there are loopholes in this provision that will allow the Chinese government to continue to insist on these kinds of deals for companies that want to do business in China. The WTO accession provision applies only to government actions, not to private agreements. Many Chinese state-owned enterprises have been privatized, so arrangements involving these firms and U.S. companies would not be affected by the accession agreement. However, the effective separation of these firms from government influence and control, in China's still government-controlled economy, is questionable. There are a number of mechanisms available to the various levels of government in China to influence the behavior of nominally private firms, rendering the agreement's technology transfer provision irrelevant.

The product-specific safeguard provision in the accession agreement has been identified as a response to the obvious potential for increased imports from China to cause U.S. worker dislocation. It has been described as an improvement over Section 201 of U.S. trade law, which normally covers such import surges. Despite that description, the potential benefit of this provision for American workers is entirely at the discretion of the U.S. and Chinese governments. The provision allows China to agree to voluntary export restraints and the U.S. to adopt import restrictions that apply only to China. The key word is "allows." Under what circumstances is the government of China going to agree to limit its exports to the U.S.? Given its history of avoiding initiating safeguard measures, when would the U.S. government initiate such an action solely against China? We expect that neither of these discretionary government actions will be taken. As a result, this provision provides no effective response to the demands we have made for automatic import surge protections in any agreement with China.

In addition to the inadequacy of the negotiated provisions of the U.S.-China WTO accession agreement, there is one very large area that is completely missing ñ provisions covering worker rights in China. The UAW has made clear for years that we would oppose any agreement that failed to ensure China's prior compliance with internationally recognized worker rights protections, the ability of workers to enforce compliance through domestic laws and regulations and China's support for including worker rights in the WTO, initially through the creation of a WTO working group on this subject. The agreement reached does none of these; in fact, this issue was never made the subject of negotiations.

The massive abuse of workers' rights in China has been well documented. In fact, the U.S. State Department's annual Country Reports on Human Rights and Practices has made clear that the worker rights situation in China is deteriorating. Child labor, prison labor, repression of independent unions, the lengthy imprisonment of independent union activists are all too common occurrences in China. American workers will never accept trade and investment that takes place under these conditions to be considered "fair." The fact that many American companies have invested in China to take advantage of these conditions, that the massive U.S. trade deficit with China is fed by these injustices makes their exclusion from the WTO accession negotiations all the more abhorrent.

The UAW believes that China's accession to the WTO, without its commitment to incorporating worker rights into the WTO work plan by creating a working group, is the single most effective way to prevent the WTO from taking this step. As long as the WTO rules contain protections for the rights of owners of capital, ensuring that broad rights for multinational corporations are enforced by governments, but fail to contain rights for workers that are at least as strong, workers worldwide will see the WTO as an instrument solely for the benefit of the wealthy and the economically powerful.

Our experience with the 1992 Memorandum of Understanding has added one more element to China's long history of violating its trade agreements and commitments. This calls into question whether there will be substantial U.S. trade benefits from the market opening agreements that China has reached. Bilateral agreements on prison labor, intellectual property rights, textiles, and market access have all been violated by China, eliminating the potential benefits of those agreements for U.S. interests. The recent statements of many Chinese government officials also lead to skepticism regarding the impact of the Chinese WTO commitments. Those officials have indicated that agreements on tariff reductions, quota increases and liberalized foreign ownership are no more than words on paper -- they describe what is possible, but they will not necessarily determine what will happen. If the past is any guide, there will be far less effective market opening in China than proponents of WTO disciplines expect.

When violations of China's WTO commitments do take place, we believe that the WTO dispute settlement process will fail to address the inevitable trade problems that will arise. The WTO mechanism, which has been in place since 1995, has been slow to produce final decisions, cumbersome in its operations and opaque in its procedures. Because of the limited scope of the WTO's rules, which are biased in favor or more trade and less government regulation for worker, consumer and environmental protections, several of its decisions have challenged legitimate U.S. laws and regulations. It has also become clear that the ways in which discrimination against foreign products and services takes place in many countries, like China, through market structures and non-market relationships, cannot be successfully challenged in the WTO. By leaving these systems in place, the WTO puts open, rules-based countries like the U.S. at a disadvantage.

Being bound by the WTO process would also prevent the effective use of U.S. trade laws, such as Section 301, from addressing unfair Chinese practices that are not directly covered by WTO rules. Even though U.S. cases on such issues, including worker rights and toleration of restrictive business practices, could be filed and pursued, retaliation which raised U.S. tariffs or limited access to the U.S. market would not be allowed by the WTO.

China's auto industrial policy will have been in place for seven years before its formal structure is transformed by WTO accession. It is accomplishing its objective of attracting multinational investment and technology transfer to China. The U.S. government's claims that a WTO accession agreement would prevent China from developing a competitive automotive industry through unfair policies and practices and discriminatory treatment have proven to be simply wrong.

A continuation of the "pillar industry" auto policy in China will mean a growing trade imbalance and greater pressure on American autoworkers' jobs. As it is very hard to win protection for a U.S. industry through domestic procedures, we are especially concerned about this potential. There are some actions that, at a minimum, must be taken by the U.S. government to lay the groundwork for preventing substantial job losses for American autoworkers. The U.S. must insist on a full accounting of all Chinese government programs, at the national, provincial and local levels, related to auto industry development and commitments to the elimination of export performance requirements and other similar unfair practices, in reality as well as on paper. In addition, vastly improved U.S. safeguard measures to respond to injury or the threat of injury related to imports from China must be available to American workers. The size and the non-market structure of China's economy make such protections essential. The U.S. government must be ready and willing to act quickly when imports from China cause job displacement for American workers and injury to domestic producers.

The UAW is also concerned about China's ongoing policies toward aerospace trade and investment that promote its industry. As a large, government-controlled economy, China's demands for technology and production offset deals are rarely resisted by U.S. companies. As a result, civilian aircraft assembly is already taking place in China, as is production of a variety of sub-sections of complete aircraft, aircraft parts and components. Some of this production displaces U.S. exports and some is shipped back to the U.S., displacing production for the U.S. market. In both cases, American jobs in the aerospace industry are lost.

To ensure that further job losses in this critical industry do not continue, the U.S. government must, again, at a minimum, insist on China's full accession to the Civil Aircraft and Subsidies Codes in order to address all forms of government inducements for local production and to establish transparency in aircraft procurement decision-making by government-owned and other entities. The U.S. must also obtain a complete listing of all government support programs, direct and indirect, for China's industry.

The U.S. government has not taken action to end these unfair Chinese government practices in the past. There is no reason to believe that accession to the WTO by China would increase the U.S. government's leverage to eliminate these practices or prevent China from effectively pressuring U.S. producers to continue to transfer production and technology, and the jobs of American workers, to China in return for sales opportunities.

What is needed, then, is for the U.S. to develop strategies for promoting production and employment in these critically important industries, just as China has adopted industrial policies in the automotive and aerospace industries. The new skills and technologies developed in these industries contribute to advances in related and other manufacturing industries. The value-added they generate contributes to improving living standards for all Americans. It will take positive actions by the U.S. government to defend and promote jobs in these industries; without such actions, the U.S. economy overall will fail to produce the equitable, sustainable economic development that workers expect and deserve.

There are other factors that influence U.S. trade and investment with China and must be considered in any overall assessment of the impact of U.S. economic policy toward China on U.S. national interests. One of these factors is the restructuring in China's economy, which will lead to the privatization or sell-off of state-owned enterprises. Currently, many of these operations are receiving massive government subsidies to keep them running. While there are long-standing international trade rules on subsidies, the treatment of past subsidies that benefit newly privatized firms is not clearly established. China could have thousands of such firms conducting a substantial amount of international commerce. We believe that the subsidies embedded in the cost structure of such firms could give them an advantage in international trade.

Another important factor is the People's Liberation Army (PLA), which is a major economic force in China. Its factories account for sizable production of traded goods, but there is a limited amount of information available on the PLA factories. How will the WTO's rules be applied to these operations? It has been reported that there is an effort underway in China to reduce the PLA's role in the Chinese economy; how will WTO rules be applied to products made in formerly-PLA factories that may become state-owned enterprises or privatized firms? Because the economic impact of these operations is large, the situation in China presents a new and different set of problems. U.S. national security interests certainly will be affected by the establishment of joint ventures between U.S. corporations and privatized, former PLA companies.

The financial crisis that engulfed Asia in 1997 continues to affect workers in the U.S. as a result of its impact on production costs in Asia and competition among Asian countries for investment and global markets. The measures adopted by Thailand, Indonesia and Korea to obtain loans from the International Monetary Fund ensured that domestic austerity would keep workers' living standards depressed. Production there has focused on export markets, especially to the U.S. market, in order to earn the foreign currency needed to repay IMF and other international loans. American manufacturing workers suffered from the intensified import competition at depressed prices due to dumping and Asian currency devaluations. The interests of workers in the U.S. and Asia have been harmed in the process and the U.S. trade deficit has grown dramatically.

U.S.-based multinational corporations and the international financial community have been significant beneficiaries of this hardship for workers. Many U.S.-based corporations have been able to acquire financially strapped Asian firms at bargain prices. Dollar-denominated costs for their Asian production have fallen sharply, along with the purchasing power of the wages of workers there. Yet, consumers in the U.S. may not see any of that cost reduction, as these savings can be shifted to the bottom lines of the multinational corporations. In addition, U.S.-based firms that were previously prevented from investing in Asia by local capital controls now find it easier to establish production facilities, as the IMF has insisted on further capital market liberalization. In this context, it is worth keeping in mind that many analyses of the Asian financial crisis have acknowledged that the inflow of foreign short-term financing was a critical factor in precipitating the crisis last year.

The relevance of this situation for U.S. trade with China is that many of the Asian countries affected by the financial crisis have become more competitive with Chinese producers' exports to the U.S. market. To maintain their U.S. sales, Chinese companies will be pressing the Chinese government to keep their exports competitive by any means necessary, including a currency devaluation. The already outrageous U.S. trade deficit with China and other Asian countries would be widened even more by this kind of competition. As the technological sophistication of the products made throughout Asia increases, the resulting dislocation in the U.S. becomes more serious for highly skilled workers and the U.S. economy.

Finally, there is the situation of workers in China, which is particularly disturbing to UAW members. China has no independent unions and the use of forced labor, through the military and prison system, as well as child labor is widespread. Sadly, the situation in China appears to be growing even worse for workers who dare to attempt to create an independent voice in the workplace. Recent arrests and lengthy prison sentences demonstrate the resolve of China's government to repress efforts to create an independent union movement. American workers must not be forced to compete with products made under these horrendous conditions without recourse to the provisions of U.S. law that address workers' rights, just because China becomes a member of the WTO.

It is the responsibility of the U.S. government to ensure that such unfair competition is prohibited, by incorporating worker rights provisions as core elements of all trade agreements, by vigorously enforcing U.S. trade laws that incorporate worker rights protections and by insisting on the inclusion of core labor standards in the rules of the WTO itself. Governments must not be allowed to suppress the cost of labor, just as they must not be allowed to suppress other costs of production, to gain an advantage in international trade. The severity of the abuses in China and the size of the Chinese labor force demand that this injustice be remedied immediately.

Mr. Chairman, thank for providing the opportunity for the UAW to appear before the Commission to address the bilateral trade relationship between the U.S. and the People's Republic of China. U.S. national and economic security are of the utmost interest to UAW members. We look forward to assisting the work of the Commission and in answering any questions you may have.