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104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-634
_______________________________________________________________________


 
         DISAPPROVAL OF MOST-FAVORED-NATION TREATMENT FOR CHINA

                                _______
                                

 June 25, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                             ADVERSE REPORT

                             together with

                            DISSENTING VIEWS

                      [To accompany H.J. Res. 182]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
joint resolution (H.J. Res. 182) disapproving the extension of 
non-discriminatory treatment (most-favored-nation treatment) to 
the products of the People's Republic of China, having 
considered the same, report unfavorably thereon without 
amendment and recommend that the joint resolution do not pass.

                            I. INTRODUCTION

                         A. PURPOSE AND SUMMARY

    H.J. Res. 182 would disapprove the extension of 
nondiscriminatory treatment (most-favored-nation treatment) to 
the products of the People's Republic of China.

                             B. BACKGROUND

    Prior to 1951, the United States extended 
nondiscriminatory, or unconditional most-favored-nation (MFN) 
treatment, to all of its trading partners, in accordance with 
obligations undertaken when the United States joined the 
General Agreement on Tariffs and Trade (GATT) in 1948. However, 
the Trade Agreements Extension Act of 1951, directed the 
President to withdraw or suspend the MFN status of the Soviet 
Union and all countries under the domination of international 
communism. As implemented, this directive was applied to all 
then-existing communist countries except Yugoslavia. Poland's 
MFN status was restored by Presidential directive in 1960.
    Title IV of the Trade Act of 1974, which includes the so-
called ``Jackson-Vanik amendment,'' represented a 
liberalization of the 1951 law. Title IV authorizes the 
extension of MFN treatment to nonmarket economies which meet 
freedom of emigration requirements and conclude a commercial 
agreement with the United States. Title IV authorizes the 
President to waive the freedom-of-emigration requirements of 
that title, and to grant MFN status to a nonmarket economy 
country, if he determines that doing so will substantially 
promote the freedom-of-emigration objectives of that title.
    MFN status was first granted to the People's Republic of 
China on February 1, 1980, and has been renewed annually since 
then on the basis of Presidential waivers. (A bilateral 
commercial agreement, as required by the Jackson-Vanik 
amendment, has remained in force during that time.) On May 31, 
1996, the President, formally transmitted to the Congress his 
recommendation to waive, once again, the 1974 Trade Act's 
freedom-of-emigration requirements and to thereby extend 
China's MFN status for an additional year, during the period of 
July 3, 1996, to July 3, 1997.
    The President's waiver authority under Title IV expires at 
midnight on July 2 of each year. It may be extended on an 
annual basis upon a Presidential determination and report to 
Congress that such extension will substantially promote the 
freedom-of-emigration objectives of the 1974 Trade Act. The 
waiver authority continues in effect unless disapproved by the 
Congress--either generally or with respect to a specific 
country--within 60 calendar days after the expiration of the 
existing authority. Under Title IV amendments adopted as part 
of the Customs and Trade Act of 1990, disapproval takes the 
form of a joint resolution disapproving the extension of 
Presidential authority to waive the 1974 Trade Act's freedom-
of-emigration requirements. Under the 1990 amendments, Congress 
can consider any veto message before the later of the end of 
the 60-day period or within 15 legislative days. The 
disapproval resolution is privileged for a Member. This 
generally guarantees a vote in the House if it is introduced.
    If both chambers of Congress do not pass a resolution of 
disapproval within the 60 calendar days following the July 2, 
1996 expiration of the existing waiver authority, China's MFN 
status is automatically renewed through July 2, 1997. House 
Joint Resolution 181 was introduced by Representative Walker 
(R, PA) on June 12, 1996. House Joint Resolution 182 was 
introduced by Representative Rohrabacher (R.,CA) on June 13, 
1996. The resolutions provide for disapproval of extension of 
the waiver authority recommended by the President on June 2 
with respect to China for the period beginning July 3, 1996.

                         C. LEGISLATIVE HISTORY

Committee resolution

    House Joint Resolution 182 was introduced on June 13, 1996, 
by Representative Rohrabacher (R., CA), and was referred to the 
Committee on Ways and Means. On June 18, 1996, the Committee 
ordered House Joint Resolution 182 reported adversely without 
amendment to the House by a recorded vote of 31 ayes, 6 noes.

Legislative hearing

    The Subcommittee on Trade held a hearing June 11, 1996 on 
the question of renewing China's most-favored-nation trade 
status. At this hearing, Members of Congress, as well as 
representatives of the Administration and the business 
community expressed their views regarding U.S.-China trade 
relations.

                   II. EXPLANATION OF THE RESOLUTION

Present law

    Title IV of the Trade Act of 1974, as amended by the 
Customs and Trade Act of 1990 (Public Law 101-382), sets forth 
three requirements relating to freedom of emigration which must 
be met, or waived by the President, in order for a nonmarket 
economy country to be granted MFN treatment. Title IV also 
requires that a bilateral commercial agreement that provides 
for nondiscriminatory, MFN status remain in force between the 
United States and the nonmarket economy country receiving MFN 
status. Title IV also sets forth minimum provisions that must 
be included in such an agreement.
    An annual Presidential recommendation under section 402(d) 
for a 12-month extension of authority to waive the Jackson-
Vanik freedom-of-emigration requirements--either generally, or 
for specific countries--may be disapproved through passage by 
Congress of a joint resolution of disapproval within 60 
calendar days after the expiration of the previous waiver 
authority. Congress may override a Presidential veto within the 
later of the end of the 60 calendar day period for initial 
passage or 15 legislative days.

Explanation of the resolution

    House Joint Resolution 182 states that the Congress does 
not approve the extension of the waiver authority contained in 
section 402(c) of the Trade Act of 1974, recommended by the 
President to the Congress on May 31, 1996, with respect to the 
People's Republic of China.

Reasons for committee action

    The Committee reports Congressman Rohrabacher's disapproval 
resolution adversely, primarily because the Members, in 
general, support the Administration's policy. The Committee is 
convinced that non-discriminatory trade treatment is the 
cornerstone of a policy of engagement and increased trade, 
which enables the United States to influence the growth of 
democratic and market-oriented policies in China, in a manner 
which will improve respect for fundamental human rights and 
lead eventually to political reform. The Committee, in general, 
recognizes that disapproving the President's recommendation for 
an extension of China's MFN status would permanently sacrifice 
U.S. leverage to bring about change in China, while at the same 
time harming U.S. exporters.
    Withdrawing MFN for China would also have a serious adverse 
effect on Taiwan and Hong Kong due to the high levels of trade 
and investment between Hong Kong and China, and between Taiwan 
and China. Finally, the majority of Members believe that 
revoking China's MFN status as of July 3 of this year is too 
blunt a sanction that would undermine U.S. Government efforts 
to bring China into the global community of civilized nations. 
While the U.S. has many serious problems with China, the 
Committee believes they are best addressed through expanding 
the involvement of U.S. citizens in Chinese society, and making 
full use of U.S. trade statutes where necessary.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statement 
is made relative to the vote of the Committee in its 
consideration of House Joint Resolution 182:

Motion to report the resolution

     House Joint Resolution 182 was ordered adversely reported 
without amendment by a recorded vote of 31 ayes, 6 noes on June 
18, 1996, with a quorum present. The rollcall vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw ......................        X   ........  .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Ford.........  ........  ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mrs. Kennelly....        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. Coyne........  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........  ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. McNulty......        X   ........  .........
Mr. Collins....................        X   ........  .........                                                  
Mr. Portman....................        X   ........  .........                                                  
Mr. Hayes......................  ........        X   .........                                                  
Mr. Laughlin...................        X   ........  .........                                                  
Mr. English....................        X   ........  .........                                                  
Mr. Ensign.....................        X   ........  .........                                                  
Mr. Christensen................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

                           IV. BUDGET EFFECTS

               a. committee estimate of budgetary effects

    In compliance with clause 7(a) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of this 
resolution, House Joint Resolution 182 as reported: The 
Committee agrees with the estimate prepared by CBO which is 
included below.

    b. statement regarding new budget authority and tax expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that the provisions of H.J. Res. 182 do not 
involve any new budget authority, or any decrease in revenues 
or tax expenditures. Enactment of H.J. Res. 182 would increase 
customs duty receipts due to higher tariffs imposed on goods 
from China.

      c. cost estimate prepared by the congressional budget office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, requiring 
a cost estimate prepared by the Congressional Budget Office, 
the following report prepared by CBO is provided:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 21, 1996.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.J. Res. 182, a joint resolution disapproving the 
President's recommendation to extend most-favored-nation (MFN) 
status to the People's Republic of China, as adversely reported 
on June 18, 1996, by the Committee on Ways and Means. CBO 
estimates that disapproving the extension of MFN status to the 
People's Republic of China would increase receipts by $110 
million in fiscal year 1996 and by $331 million in fiscal year 
1997.
    Under the Trade Act of 1974, MFN status may not be 
conferred on a country with a nonmarket economy if that country 
maintains restrictive emigration policies. Under present law, 
however, the President may waive this prohibition on an annual 
basis if he certifies that granting MFN status would promote 
freedom of emigration in that country. The People's Republic 
has received MFN status through presidential proclamation on an 
annual basis beginning in 1980. On May 31, 1996, President 
Clinton transmitted to Congress his intention to waive the 
emigration prohibition and extend MFN status to the People's 
Republic of China for an additional year, beginning July 3, 
1996. H.J. Res. 182 would disapprove the President's 
recommendation to extend MFN treatment.
    If the People's Republic were denied MFN status, tariff 
rates on its export to the U.S. would rise substantially. The 
higher tariffs on these goods would increase the prices faced 
by U.S. consumers for the goods imported from the People's 
Republic, reducing demand. Therefore, imports of goods from the 
People's Republic would be lower than they would be if MFN 
status were to be extended. CBO estimates that the increased 
tariff rates caused by the loss of MFN status would cause an 
overall increase in customs duty receipts measured relative to 
revenues generated under continued MFN status. Because imports 
from the People's Republic would decline substantially, customs 
duties collected on Chinese imports to the U.S. would fall, but 
it is likely that some of the decline in U.S. imports from the 
People's Republic would be made up by an increase in imports 
from other MFN countries. CBO estimates that the increase in 
revenues from this effect would outweigh the reduction in 
revenues from the reduced level of imports from the People's 
Republic. The budget effects of the bill are shown in the 
following table.

                                        REVENUE EFFECTS OF H.J. RES. 182                                        
                                    [By fiscal years, in billions of dollars]                                   
----------------------------------------------------------------------------------------------------------------
                                                         1996        1997        1998        1999        2000   
----------------------------------------------------------------------------------------------------------------
Projected Revenues Under Current Law \1\............   1,417.583   1,475.572   1,547.285   1,619.979   1,699.866
Proposed Changes....................................       0.110       0.331           0           0           0
Projected Revenues Under H.J. Res. 182..............   1,417.693   1,476.903   1,547.285   1,619.979   1,699.866
----------------------------------------------------------------------------------------------------------------
\1\ Includes the revenue effects of P.L. 104-7 (H.R. 831), P.L. 104-104 (S. 652), P.L. 104-117(H.R. 2778), P.L. 
  104-121 (H.R. 3136), P.L. 104-132 (S. 735), and P.L. 104-134 (H.R. 3019).                                     

    The proposed legislation contains no intergovernmental 
mandates as defined in Public Law 104-4 and would impose no 
direct costs on state, local, or tribal governments. The 
increased tariff rates on products from the People's Republic 
caused by the loss of MFN would impose a private-sector mandate 
on importers of Chinese products into the United States. The 
private-sector mandate would exceed $100 million in both fiscal 
years 1996 and 1997. Taxes would increase by $0.1 billion in 
1996 and by $0.3 billion in 1997. In addition to these 
increased tariffs, firms would incur additional costs when they 
substitute goods from other MFN countries or domestic 
producers.
    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting direct spending or receipts through 1998. 
CBO estimates that H.J. Res. 182 would affect receipts. 
Therefore, pay-as-you-go procedures would apply. The pay-as-
you-go impact is summarized below.

                      PAY-AS-YOU-GO CONSIDERATIONS                      
                [By fiscal years, in millions of dollars]               
------------------------------------------------------------------------
                                       1996         1997         1998   
------------------------------------------------------------------------
Changes in Outlays...............        (\1\)        (\1\)        (\1\)
Changes in Receipts..............          110          331            0
------------------------------------------------------------------------
\1\ Not applicable.                                                     

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Stephanie Weiner.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee, based on public hearing 
testimony and information from the Administration, believes 
that revoking China's MFN status as of July 3, 1996 would be 
unwise and counterproductive.

    B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE ON 
                    GOVERNMENT REFORM AND OVERSIGHT

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, no oversight 
findings or recommendations have been submitted to the 
Committee by the Committee on Government Reform and Oversight 
with respect to the subject matter contained in the resolution.

                    C. INFLATIONARY IMPACT STATEMENT

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that 
House Joint Resolution 182 would not have an inflationary 
impact on prices and costs in the operation of the national 
economy.
                          VI. DISSENTING VIEWS

                              ----------                              


                  DISSENTING VIEWS OF HON. JIM BUNNING

    I can think of no reason to continue giving Most Favored 
Nation trading status to China, and I support the resolution of 
disapproval.
    Every year when Congress wrestles with this issue, we hear 
how improving trade with China will encourage change in that 
land. We hear that China is finally turning the corner and 
improving upon its pitiful record on human rights issues, and 
that China is going to stop supporting terrorists and shipping 
missiles to rogue nations like Iran. My friends who support MFN 
claim that continued engagement with China will help exorcise 
the ghosts of Tiananmen Square.
    But, each summer when MFN renewal comes up, I am reminded 
of the old saying, ``The more things change, the more they stay 
the same.''
    MFN supporters keep telling us how improving commerce with 
Beijing is changing China for the better, but nothing really 
changes at all. Since we visited this issue last year, China 
has not changed its brutal ``one child per family'' policy of 
forced abortion and sterilization. China has not stopped 
persecuting Christians, or reversed its oppressive policies 
toward Tibet, and it still uses slave labor to produce products 
for export to America.
    China continues to menace Taiwan, and Beijing even tried to 
undermine the recent elections with its saber-rattling and 
threats of invasion. China has not stopped smuggling automatic 
weapons into the U.S., and only recently claims to have stopped 
exporting nuclear bomb-making materials to Pakistan.
    Since the MFN debate last year, I can not see any evidence 
that China is mending its ways. In fact, if Beijing is headed 
in any direction, it is backwards.
    When dealing with China, I think that we should probably 
put a new twist on the old adage and instead say, ``The more 
things change, the more they get worse.''
    I know that the administration reached an intellectual 
property agreement with China in the last several days, but 
many of the early reports that I have seen about it are not 
favorable. Still, no matter how good a deal it is for the U.S., 
I am afraid that it is not going to mean anything to the women 
who are forced to undergo abortions, or for the little girls 
who are left for dead in the ``Dying Rooms'' in the state-run 
orphanages. Improving trade with China and continuing MFN is 
not going to make a difference in the slave labor camps, or for 
the Tibetan monks who are tortured for their beliefs.
    I can think of no reason to support MFN or to further 
encourage trade with China.

                                                       Jim Bunning.
                  DISSENTING VIEWS OF HON. JOHN LEWIS

    We should not give unconditional Most Favored Nation status 
to China. As a Congress and as a country, we do not allow any 
business with Cuba or Iran. This year, we imposed sanctions on 
foreign businesses that do business with Cuba. Very recently, 
this Committee passed a bill to sanction foreign business that 
would help Iran.
    And yet, when it comes to China, we do not impose 
sanctions. We do not even impose trade barriers. We give China 
the same trade privileges that we give to democratic nations. 
We have tried a policy of business as usual with China, and it 
has not worked.
    China continues down its troubling path of human rights 
abuses and opposition to democracy. Human rights abuses have 
continued since Tiananmen Square. In fact, in Tibet, human 
rights abuses have worsened in the last year. China feels no 
need to improve, because the Chinese leaders know that we will 
allow business as usual to continue.
    Chinese companies--including one directly under the control 
of China's army--smuggled illegal assault weapons into our 
country. These assault weapons help fuel the deadly, terrible 
crime on our streets. China has violated its international 
nuclear nonproliferation agreements by sending materials for 
nuclear weapons to Pakistan and to Iran.
    China has made no progress in human rights. The slave labor 
camps in China and Tibet continue. Political prisoners are 
brutally tortured. Democratic reformers are imprisoned. 
Religious leaders are imprisoned. There is no freedom of 
speech, no freedom of press, no freedom at all!
    We should not reward China. We must send China a strong 
message. We must tell them that if they want to join the 
community of nations, they must treat their people with respect 
and dignity. We must make them understand that goods produced 
by slave labor are tainted. We must make it clear that selling 
arms to Iran, a terrorist nation, is unacceptable.
    It has been said that for evil to exist, all that is needed 
is for good people to do nothing. This is our opportunity to do 
something--to make a difference. Should we choose to do 
nothing--to continue business as usual with China, history will 
not be kind to us. When historians take up their pens to write 
about this debate, they will remember it as a day when good 
people did nothing.
    Human rights is and should be an important foreign policy 
goal. We cannot have trade at any cost. The price for MFN for 
China is too high. I for one am not willing to pay that price.

                                                        John Lewis.
        DISSENTING VIEWS OF HON. PETE STARK AND HON. JOHN LEWIS

    Each year the President must seek a waiver from Congress to 
allow China to have Most Favored Nations (MFN) status. Each 
year, China provides us with at least one new reason to oppose 
normalized trade with China.
    China consistently and flagrantly violates our laws and 
repudiates our values. China was caught red-handed sending 
materials to create nuclear weapons--last year to Iran and this 
year to Pakistan. World peace thereatened, just to make a 
profit.
    China's human rights violations have been a long-standing 
problem. Who among us could forget the sight of those tanks 
crushing students whose only crime was to meet publicly and 
peacefully to voice their opposition to their government? China 
still refuses its citizens the right to speak freely and to 
meet publicly.
    This year's transgressions implicate China's top government 
officials. A series of Chinese companies operated by the 
children of senior Chinese officials played a major role in the 
illicit copying of over $2 billion of US commercial goods.
    Even worse, the son-in-law of China's top leader, Deng 
Xiaoping, along with other relatives of top Chinese government 
officials, has been implicated in the biggest seizure of 
illegal guns in our nation's history. On May 22, 1996, US 
customs officials intercepted $4 million worth of illegal AK-47 
automatic weapons. The link between this illegal shipment and 
the Chinese government is direct and indisputable.
    We have urged the President to bar all trade in the US with 
the companies involved in this outrageous gun running scheme. 
The problem is not just the companies but the government of 
China which exhibits a pattern of flaunting US and 
international laws.
    The Chinese government has shown little regard for the 
safety of our streets and our children, or the safety of our 
world. For these reasons, we adamantly oppose granting China 
favorable trading status.

                                   Pete Stark.
                                   John Lewis.