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Issues: Robert Rubin Treasury Secretary Remarks before the U.S.-China Business Council Washington, D.C. June 5, 1997

I appreciate the opportunity to speak to you today and I would like to thank the U.S.-China Business Council for inviting me and hosting this event. The U.S.-China Business Council is a strong and forceful voice for deeper ties with China to integrate it into the global economy. You know better than anyone the critical importance of U.S. engagement with China to our future prosperity -- and for progress on improved social conditions in China.
It goes without saying that the United States has a wide range of interests with respect to China. I'll return to that later, but I would like to start today with our economic strategy. I would like to speak with you about what is in the best interest of the United States when it comes to our economic relationship with China and how best to pursue those interests.

Our economic relationship with China should be viewed in the context of an overall strategy to strengthen economic ties in Asia. As a result of sweeping economic reforms, Asia today is the fastest growing economic region on earth and home to some of the world's most dynamic market economies. Developing countries in Asia now represent 24 percent of world GDP. Their share of world trade rose from 9.6 percent in 1981 to 16.1 percent in 1994. This, in turn, has resulted in an explosion of trade with the United States. We now export more to Asia than to Europe. Helping Asia continue on the development path is clearly in the interest of the United States and the key nation in this strategy is China. And if we turn our back on our relationship with China, it will affect not only that relationship, but relationships throughout the region.

The United States has three primary strategic interests in our economic relationship with China.

Our first strategic objective is to help promote China's integration into the global economy. The history of the last half century, a time when nations around the globe have become increasingly interdependent, clearly has proven that integration reduces conflict and provides a better foundation for stability and prosperity. This requires integrating China into the major economic institutions where we can work to address shared approaches to common problems.

This also involves China opening to the free flow of trade and investment. China obviously represents enormous economic potential for us, but also poses significant barriers to trade and investment.

This Administration has worked hard to open markets in China. Our exports to China have increased at an annual average rate of 16 percent from 1991 to 1996, compared with U.S. export growth of 11 percent to the rest of Asia and 7 percent to the rest of the world. But China still has average tariff rates of 23 percent and a range of non-tariff barriers -- there is a great deal of work yet to do. Negotiations with China on the commercially meaningful market-opening terms critical to its accession to the World Trade Organization provides a key opportunity to move forward.

China's openness is increasingly important because it is directly related to what many feel is an important argument for revoking normal trade relations with China: the trade deficit. Obviously, in recent years, our trade deficit with China has risen at a rapid rate and has emerged as a major issue in the debate over most favored nation status. What has been less reported, but is important to note however, is that our overall trade deficit with Asia has remained roughly the same in that period. The composition of the trade deficit has shifted to China largely because companies from other Asian economies are shifting their operations to China.

Trade deficits with a low-wage country like China are often seen by Americans as evidence that the United States cannot compete with low-wage nations. It is true that poor countries -- like China -- are able to produce some low-wage, low-skill items at much lower cost than U.S. firms, to the benefit of U.S. consumers. But in return they buy American goods such as airplanes or construction equipment produced by high-wage, high-skill American jobs. As a highly productive and competitive economy, the United States can -- and does -- trade with low-wage countries, including China, and the benefits of increasing trade with these countries vastly outweigh the disadvantages.

Our second strategic objective is to support Hong Kong remaining a growing, vital financial center and economic engine for China and the rest of Asia. As you know, many have concerns about the continuation of civil liberties in Hong Kong after transition of sovereignty to China. This Administration has made it clear that erosion of democracy and human rights in Hong Kong after the transition would be of grave concern to us.

We know, too, that the Chinese recognize how important maintaining Hong Kong's open economy is to their own economic prospects. There is no firewall between economic freedom and freedom in its many other forms. The unrestricted interchange of information and ideas is critical to economic growth and prosperity.

Our final objective is to help China succeed in its effort to move to a more market oriented economy. A successful reform process requires putting in place the full array of institutions that represent the foundation of a modern economy. A critical part of this is a sound legal framework which promotes the rule of law. As you know better than anyone, for business to prosper, it must know what to expect when investing or attempting to sell goods in another country, and then to get what it expects. Helping China establish these conditions is certainly in our interest by improving the prospects for U.S. businesses, but it also brings tangible rewards for the Chinese people, too. Building a just legal system, with enforceable rights and transparent procedures is critical to economic development -- but as we know so well in this country, it also is a fundamental part of a more open society.

These are our fundamental economic objectives with China, but as I said a moment ago, clearly the United States has other strategic interests with China, from non-proliferation to working on problems in the Korean peninsula to the environment to helping to fight infectious diseases. And we have serious disagreements with China concerning human rights, religious freedom, and prison labor. The question is what is the best way to advance our interests and address those problems.

Revoking normal trade relations, which some have proposed, would fundamentally undermine our ability to advance our economic and national security interests. Severing trade ties with China will not isolate China. It will isolate the United States.

It will undermine our ability to participate in the economic activity in the region, the most dynamic in the world, particularly with respect to the ongoing integration of the Asian economies. More importantly, it will lead other nations in Asia to question our commitment to the region. Around the world, it will undermine our leadership in the global economy and our efforts to pursue greater trade liberalization.

Revoking normal trade relations with China would also harm Hong Kong in the name of supporting it. As a coalition in Hong Kong of human rights leaders (including the current Democracy Party chairman Martin Lee) has made clear, it would be exactly the wrong step if our objective is to preserve an autonomous and free Hong Kong. They argue, rightly, that it would severely harm the Hong Kong economy, which is critical to maintaining autonomy.

Revoking normal trade relations is a blunt instrument. We need not choose between denying MFN and having no influence. Instead, we can maintain normal trade relations and use other economic and diplomatic tools when we disagree with the Chinese. When we raised the issue of rampant piracy of U.S. goods, after tense negotiations, our Administration reached an agreement with China over intellectual property rights, after the threat of targeted sanctions. China closed 39 plants that were producing the pirated goods and reached agreement on a new regime to protect intellectual property. Most recently, we instituted sanctions against eight Chinese firms which we suspect of trafficking in equipment that could be used to produce chemical weapons. Negotiating, enforcing, and then insisting on the full implementation of agreements is the best path to progress. This is no easy task, as our experience with the prison labor agreement illustrates. In 1994 we reached an agreement that Customs would be able to visit factories to determine if products are made with prison labor. Our experience in this agreement has been mixed. We must be vigilant in insisting on cooperation to fully implement the agreement.

The debate over our trade relations with China has always been difficult, but this year there is a confluence of forces at work -- those rightly concerned about human rights, the transfer of Hong Kong, the trade deficit, and religious persecution -- that make the challenge on Capitol Hill tougher than ever. The voices urging that we revoke normal trade status with China are louder this year and represent a broader range of the political spectrum. While these views are legitimate and important, revoking normal trade relations is the wrong way to attempt to solve those problems.

It is critically important that there be a vigorous involvement on the part of business in this debate. Business has both the means and the interest to build a shared understanding with your employees, among the public at large and, of course, with Congress of the importance of U.S. engagement and leadership in the global economy. And that leadership depends on issues such as maintaining normal trade relations with China. I urge you to let your voice be heard.

But involvement in the debate is not enough. I was speaking the other day to one of our most experienced diplomats, who pointed out to me that 25 years ago our most important international contacts were government-to-government. Today, they are business-to-business. That has brought tremendous opportunities to businesses around the globe. But it also brings with it considerable responsibilities -- responsibilities that are in the businesses' own interests to fulfill.

Business today must play a role in advancing non-economic objectives. Business can and must work with advocates of human rights and labor in China to help promote better human rights conditions, higher labor standards; and the rule of law. Sponsoring exchange programs with Chinese citizens so they can learn about our democratic standards here is one step. Maintaining high standards in your operations and leading by example in China are also critical steps to take.

John Kamm, who I believe is here today, has been honored at this meeting for his work in this area. His company, Asia Pacific Resources, a consulting firm assisting companies trading and investing in China, has worked hard to promote human rights and rule of law in China by working to obtain the release of individuals arrested for exercising their right of free expression, and for advocating strongly the benefits of human rights to the business community and the Chinese public. John's conviction that a good environment for human rights is good for business is an example to us all.

Let me conclude by reiterating what I said earlier. There is a confluence of voices this year in opposition to maintaining normal trade relations with China. But if we all work together, I believe we can develop the necessary support to maintain normal trade relations with China. This is a prerequisite for ensuring stability in Hong Kong, making progress on helping to establish a more open economy in China, integrating China into the global economy and dealing with human rights issues in China. I thank you for your time, and I look forward to working with all of you in the weeks ahead on this critical issue.