Testimony of Richard L. Trumka
Secretary-Treasurer
American Federation of Labor and Congress of Industrial Organizations
Before the United States-China Commission
On U.S. Trade and Investment Policies toward China

June 14, 2001


Mr. Chairman, members of the Commission, I thank you for the opportunity to speak to you today on behalf of the thirteen million working men and women of the AFL-CIO about U.S. trade and investment policies toward China. This Commission is charged with a very important task: to study, evaluate and report to Congress on the economic and security implications of the bilateral economic relationship between the United States and the People's Republic of China.

Our economic relationship with China is one of the most controversial and complicated relationships we have with any country, and for good reason. The AFL-CIO recognizes that refusing to engage with China is not an option in today's interconnected global economy. The question is thus not whether to engage with China, but how. How do we trade with China without sacrificing our own manufacturing sector and forcing workers worldwide into a downward spiral of ever lower wages and ever more aggressive assaults on worker's rights? How do we invest in China without providing unconditional support to a government that routinely violates the human rights of its citizens? How do we help China reform its economy in a way that promotes freedom, not just for the multinational companies that do business with China, but for ordinary Chinese men and women? Unfortunately, the policy options Congress and the Administration may employ to address these difficult questions will be severely limited once China becomes a member of the World Trade Organization and enjoys Permanent Normal Trade Relations with the United States.

The AFL-CIO has supported a policy that maximizes the benefits of trade and investment with China, but that also recognizes the risks of allowing rampant violations of human and worker's rights to go unchecked. WTO rules do not allow such a policy of responsible engagement, because they prohibit any linkage between trade and human rights. Thus the already limited tools to which we had access in the past to address violations of human rights and unfair trade practices, tools such as our unilateral trade laws and annual reviews, will no longer be available to us once China's accession to the WTO is complete.

Many argue that these tools are unnecessary, and that as U.S. companies invest and produce more in China, and as U.S. consumers buy more goods made in China, we will automatically be contributing to the country's economic development and political opening by "exporting American values." But these promised benefits are far from guaranteed.

In fact, our own State Department reports that the human rights situation in China deteriorated markedly in 1998, in 1999, and again in 2000, despite record growth in our trade and investment with China over the same period. According to the State Department's most recent human rights report for China, in 2000 (the authorities were quick to suppress any person or group, whether religious, political, or social, that they perceived to be a threat to government power or national stability, and citizens who sought to express openly dissenting political and religious views live in an environment filled with repression.)

This environment of repression envelops workers as well. The Chinese government continues to systematically deny workers their fundamental rights ñ universal human rights defined in the ILO Declaration of Fundamental Principles and Rights at Work as freedom of association, the right to organize and bargain collectively, the right to reject child labor, refuse forced labor, and be free from discrimination in the workplace.

Independent trade unions are illegal in China. Chinese workers who try to form independent unions risk their jobs, their freedom, and sometimes their lives. U.S. multinationals directly profit from this abuse. They can pay workers depressed wages, force them to work long hours, and expose them to unsafe working conditions without ever having to worry about organizing drives in their factories or the prospect of facing independent worker's representatives at the bargaining table.

Over the past year, reports of labor protests, arrests, and violence have become more frequent as economic transformation and dislocation have left many Chinese workers without jobs and without any legal recourse to press their claims for compensation. As China struggles to live up to its WTO obligations, these pressures will only intensify.

Meanwhile, child labor and forced labor continue. Just this May, 39 Chinese men died while performing forced labor for a prison-run mine when the coal shaft they were working in flooded. In March of this year, 42 people, including 38 children, were killed in an explosion at a school where children between the ages of 9 and 11 were forced to manufacture fireworks. Finally, China still refuses to allow inspection by U.S. Customs officials of facilities suspected of exporting prison labor products to the U.S., in direct violation of numerous agreements between the Chinese and U.S. governments.

Our current trade and investment relationship with China, marked by exploding flows of money and goods and increasing corporate freedom on the one hand and the drastically unequal distribution of wealth and severe constraints on human freedom on the other, has profound implications for our own economy and for our national security. This Commission is uniquely positioned to spell out these implications and to suggest policies to address them.

There are many htmects of our relationship with China that merit your attention, but I would like to focus my remarks on two: the unique nature of our trade deficit with China, and the impact of U.S. investment in Chinese export production on workers in the U.S. and other countries. If we value human rights, and hope for democracy and stability in China and the Asian region, the U.S. must use our bilateral economic relationship to press the Chinese government to pursue an economic development model that is based on respect for worker's rights and human dignity, not just compliance with investor rights and WTO rules.

Our trade relationship with China is severely unbalanced and is still deteriorating. In 2000, our trade deficit with China continued to break records, jumping more than 20% above its level in 1999 and zooming past the $80 billion mark. China replaced Japan as the country with which we hold the largest single bilateral trade deficit. Not only is our trade deficit huge and growing, but the ratio of exports to imports is grossly lopsided. For every dollar of goods we send to China, China sends more than six dollars worth of goods to us. Figures for this year show that, despite the slowdown in our economy, our trade deficit with China is set to rise again and may top $90 billion.

Just as exports can generate new jobs for American workers, import competition often displaces American jobs. When consumer demand is met with imports instead of domestic production, existing jobs can be lost, and new manufacturing jobs are not created in the U.S.

Just since July of 2000 we have lost 675,000 manufacturing jobs in this country. In fact, the (90's boom is the only recovery in modern history during which we actually lost manufacturing jobs. This latest loss means that we now have fewer manufacturing workers in the United States than we did in 1965. U.S. workers who lose manufacturing jobs due to import competition take a pay cut of over 9% on average ñ when they are lucky enough to find a new job.

Many people know that China enjoys a huge trade surplus with the United States, but they do not know that the goods we buy from China are not just the inexpensive toys and clothes we see on store shelves. In fact, in 2000 the two largest single categories of products we imported from China were electronics and machinery. Tellingly, these are also the sectors in which we have been losing the most manufacturing jobs. While our largest deficit with China is in electronics, some of our largest surpluses with China are in raw materials like seeds, fertilizers, and wood pulp. American companies are leaving to manufacture relatively high-tech products in China and export them back to the U.S.

Other developed countries do not have the same kind of lopsided trade relationship with China. While reliable figures on international trade with China are hard to come by, statistics from the International Monetary Fund show that the United States is the single biggest market for China's goods, buying anywhere from 25 to 50% of China's exports to the world. We import two to three times more from China than either Europe or Japan does, while Europe and Japan each export more than we do to China. As a result, the European Union enjoyed a trade surplus with China of almost $5 billion in 1999, and Japan had a trade deficit with China of less than $20 billion, about a quarter of our deficit.

These figures show that U.S. consumers are a huge source of growth for the Chinese economy, and a significant source of hard currency for the Chinese government. Since this trade relationship is not likely to become more balanced anytime soon, the real question is how the U.S. will use the enormous leverage this trade relationship gives us. The U.S. International Trade Commission predicted that China's accession to the WTO will not improve our bilateral trade balance over the medium term. What China's accession to the WTO will do is make it much more difficult, although not impossible, to use this trade leverage to promote human rights and democracy in China.

This Commission must decide if the U.S. government should use the leverage of our massively imbalanced trade relationship to support the Chinese people and press the Chinese government to respect basic human rights like freedom of speech and freedom of association, or if this leverage should only be used to enforce WTO rules and extract further concessions for U.S. investors.

The second issue I would like to address is U.S. foreign direct investment in China. Like our trade deficit, U.S. investment in China has been on the rise. In 1999, U.S. companies had $7.8 billion invested in China, up almost 20% from the year before and nearly three times what the U.S. had invested in China in 1995. During this same period, U.S. direct investment in manufacturing in China grew even faster than overall direct investment. Total stock of U.S. investment in manufacturing in China nearly quadrupled from 1995 to 1999; and while investment in manufacturing represented 46% of total investment in China in 1995, it now accounts for more than 60% of our total investment in the country.

From 1995 to 1999 the total stock of U.S. investment in China grew twice as fast as our foreign direct investment in the rest of the world. The picture for investment in manufacturing is even starker, with U.S. investment stock in the manufacturing sector in China rising three times as fast as our investment in this sector in the rest of world. In fact, as the portion of total investment in China devoted to manufacturing has been growing during the second half of the 1990s, the share of manufacturing investment in total U.S. foreign direct investment to the world has actually been declining. In 1999, only 28% of our investment stock worldwide was in manufacturing (compared to 62% in China).

This disproportionate rise in investment is directly linked to the rise in our trade deficit. In China, many U.S. companies are manufacturing for export back to the U.S. The sectors where we import the most from China, electronics and machinery, are also the manufacturing sectors where U.S. companies invest the most. Investment in these two sectors increased five-fold from 1995 to 1999, together accounting for more than two-thirds of all of our manufacturing investment in China.

It was only after the House passed permanent normal trade relations for China last year that the news media began to report on the real motivations of the U.S. companies that lobbied hardest for the new trade status. Companies such as GE, IBM, and Motorola are much more interested in China's WTO membership as a way to increase their use of China an export platform than they are in selling more American-made goods to China. The day after the House vote, the Wall Street Journal reported, "this deal is about investment, not exports Ö U.S. foreign investment is about to overtake U.S. exports as the primary means by which U.S. companies deliver goods to China" ("House Vote Primes U.S. Firms To Boost Investments in China," The Wall Street Journal, May 25, 2000).

Increased U.S. investment in export manufacturing in China not only contributes to our bilateral trade deficit, but also to a race to the bottom in labor standards around the world. U.S. investors argue that the pay and working conditions in their factories are much better than in other Chinese factories. Reports on the behavior of U.S. investors in China reveal a much less rosy picture. In a report released last year, the National Labor Committee found that American companies doing business in China (continue to systematically violate the most fundamental human and worker's rights, while paying below subsistence wages.)


ï Workers making Kathie Lee handbags for Wal-Mart at the Qin Shi factory, for example,
are forced to work 12 to 14 hours a day, seven days a week, with only one day off a month. Yet after months of work, 46 percent of the workers actually owed money to the company. And when the workers protested these conditions, 800 were fired.

ï Nike workers at the Keng Tau Handbag company sew Nike bags and backpacks
from 8 a.m. to 10 p.m., with just one day off a month. Some workers earn as little as 8 cents an hour. Factory managers instructed workers not to punch their time cards for night or Sunday work, to hide the illegal overtime.

ï When workers making New Balance sneakers at the Lizhan factory went on strike
to protest the grueling overtime and low pay, they were all fired. Factory
management explained to the remaining workers that they would not tolerate
unions, strikes, bad behavior, or the raising of grievances.

ï Finally, in a white paper distributed to Chinese government officials, the American Chamber of Commerce in China actually advised the Chinese government to cut labor costs, because the (high labor costs ha[d] already discouraged some potential investors.)

It is clear that American companies doing business in China are not just "bringing American values" to China. Some investors unscrupulously take advantage of the lack of worker's rights, and all investors, no matter how noble their intentions, directly profit from the official suppression of worker's rights in China. As long as Chinese workers are systematically denied their fundamental rights to organize and bargain collectively, Chinese workers will not enjoy their fair share of the bounty of new investment, and the price of Chinese labor and thus Chinese goods will be artificially depressed.

The denial of worker's rights in China does not just affect the livelihoods of Chinese workers. It creates a standard of treatment so low that workers in the U.S. and other countries simply cannot compete. Redirection of manufacturing investment from the U.S. to China and the resulting job loss for American workers is a familiar story, but the more immediate victims of China's accession to the WTO and aggressive penetration of global markets may be those workers in other developing countries who are struggling to exercise their core rights, demand a fair wage, and secure decent working conditions.

Once China becomes a WTO member, developing countries that respect worker's rights and thus pay higher wages will be scrambling to compete with China. This will only be exacerbated with the expiration of the textile and apparel quota system (the Multi-Fiber Arrangement) in 2005. As foreign investors leave other developing countries that respect worker's rights to take advantage of China's potent combination of guaranteed access to rich markets and a disenfranchised and vulnerable work force, developing country workers that have fought successfully for recognition of their fundamental rights will suffer the most.

An article in the Korea Times that appeared shortly after Congress's grant of permanent normal trade relations to China voiced this concern, "Multinational corporations are only turning China into a low wage production base. How can Korea, with its high wage structure, compete with China?" Mexico's border assembly plants (maquiladoras) are losing thousands of apparel jobs to China in anticipation of China's WTO accession ("Economic Changes Said Leading to Loss of Border Jobs," Associated Press, June 5, 2001).

The trade and investment relationships that I have outlined are profoundly troubling. Whether you are a worker in Detroit or Beijing or Seoul, China's pending accession to the WTO and permanent normal trade relations status present an uncertain future. Workers in all three countries may face economic dislocation, mistreatment on the job, and threats to their rights. Workers in China face even graver challenges: if they attempt to organize an independent union, and bargain with their employers for better pay and working conditions, will they be arrested and jailed without trial? If they dare to criticize the government or join with others to promote political reform, will they be risking their freedom and even their lives? Most importantly, if they take these risks ñ risks that must be taken if China is going to develop a mature economy and a vibrant democracy ñ who will lend them support? Many U.S. investors have more economic interest in stability and docility than in democracy and freedom; when these goals come into conflict, the U.S. government will have to decide whether to support our investors' desire for profit or the struggles of the Chinese people.

It is in the interests of the United States to promote sound economic development and a just and open political system in China. But unfettered trade and investment alone will not bring equitable, sustainable, or democratic development to China. They have not done so in the past, and they will not do so in the future.

We must use the leverage of our trade relationship and the influence of our investors to support the rights of Chinese workers and citizens, and to challenge the Chinese government to participate in a serious dialogue about reform. This challenge will only be taken seriously if it is backed by the threat of economic consequences, just as WTO rules are backed up by economic consequences. This challenge will only be productive if it is focused on allowing the Chinese people to exercise their fundamental human rights, both in the workplace and outside of it, and aims at opening up the space for democracy in China. I hope this Commission will recommend new policy tools aimed at fostering such responsible engagement with China.

Thank you for this opportunity to present the views of the American labor movement on this important issue. I look forward to your questions.