Mr. Chairman, Members of the Commission, thank you for the opportunity to testify today on this very important topic on behalf of the thirteen million working men and women of the AFL-CIO and the fourteen unions of the Industrial Union Council.
China formally acceded to the World Trade Organization (WTO) in 2001. The terms of China’s accession are contained in many hundreds of pages of obligations, deadlines and tariff schedules, many negotiated originally in a bilateral agreement with the U.S. government.
While U.S. proponents of granting China permanent normal trade relations (PNTR) claimed that WTO accession would significantly expand U.S. access to the Chinese market, reduce our bilateral trade deficit, and improve China’s adherence to international norms, the last two years tell a different story. China’s compliance with its WTO obligations is problematic and even deteriorating in dozens of areas. Numerous deadlines have been ignored or evaded. Partial compliance measures appear to be adopted, only to be circumvented by offsetting rules and regulations. Our trade deficit has ballooned from $83 billion in 2001 to a projected $125 billion in 2003.
In the face of this record of non-compliance, the Bush Administration has repeatedly failed to use the tools at its disposal to ensure that China meets its WTO obligations, allowing an imbalanced trade situation to grow progressively worse, burdening American workers and producers. Meanwhile, China has not hesitated to use WTO dispute settlement mechanisms to challenge the United States, on our use of safeguard measures in the steel industry, for example. This situation cannot be allowed to continue.
At the time of the U.S. congressional debate over granting PNTR to China, the American labor movement argued that the U.S. government should have insisted that concrete improvements in workers’ rights, human rights, and democracy be included as conditions of China’s accession to the WTO. Without these essential elements, we argued, China’s accession to the WTO would only accelerate the exodus of U.S. jobs, while perpetuating and rewarding a system in China where workers are legally prohibited from joining unions, and where labor laws are routinely violated. We have long argued that trade agreements also need to contain effective mechanisms to address currency imbalances. These provisions were not explicitly incorporated into China’s accession agreement, however, and now we believe the ballooning of the bilateral U.S.-China trade deficit reflects, in part, these crucial omissions.
In my testimony today, I will address two separate issues: first, China’s compliance with its WTO commitments; and, second, other crucial issues affecting the U.S.-China trade and economic relationship. Finally, I will offer my views on necessary and appropriate action needed by the Bush Administration and the Congress to rectify ongoing problems.
China’s Compliance with WTO Accession Commitments
Two years after China’s accession to the WTO, there are significant and, in some cases, escalating, compliance problems in virtually every important area. The USTR’s 2003 report to Congress documents the following problem areas, among many others: tax policies that favor domestic production; failure to implement obligations regarding retail, trading, and distribution rights as they apply to foreign investors or joint enterprises; failure to implement conforming customs regulations; failure to enforce intellectual property rights protections; systemic problems with biotechnology and sanitary and phytosanitary measures; and widespread allegations of illegal export subsidies in electronics, bio-medicine, textiles, steel, petrochemical, machinery, copper, and corn, among others. Together, these violations negate many of the promised benefits of China’s WTO membership for American workers and companies.
In the area of subsidies, not only has the Chinese government failed to eliminate export subsidies as promised, it has failed even to submit the required notifications that list existing subsidies. It missed deadlines for notification in 2002 and 2003, so U.S. officials tasked with investigating subsidies must do so without crucial information. The USTR’s response to China’s flouting of these agreed-upon deadlines is to “urge China to submit a full and updated notification as soon as possible,” to “continue to investigate,” and to “raise concerns” directly with China.
Throughout the 67 pages of the USTR report, the words “urge,” “seek,” “engage,” “monitor,” “pursue,” “clarify,” and “discuss” appear repeatedly. Even when China is in egregious violation of its WTO commitments, the most USTR offers is a vague promise that the “Administration is fully prepared to enforce U.S. rights through . . . means [other than bilateral consultations], including dispute resolution at the WTO” (page 8).
The AFL-CIO believes that the Bush Administration needs to move beyond “bilateral consultation” and continued dialogue to address the urgent problems in the U.S.-China trade and economic relationship. Certainly, the Administration needs to initiate WTO dispute resolution immediately in several areas to ensure that China meets its obligations in a timely and effective way.
Currency Manipulation
The Chinese yuan has been pegged to the dollar at a fixed exchange rate since 1996. Underlying economic conditions (relative inflation and growth rates, among other things) have changed during that time, leading to a severe misalignment of the exchange rate, which can only be maintained through the Chinese government’s massive accumulation of U.S. dollar reserves – now over $350 billion.
Most estimates place the under-valuation of the yuan between 15 and 40 percent. A currency misalignment of this magnitude has enormous significance in the context of U.S.-China trade. While it is certainly not the only factor contributing to the massive U.S. trade deficit with China, it is a significant one, and one that ought to be addressed urgently. The Bush Administration’s weak efforts at dialogue on this topic have so far yielded no results.
Workers’ Rights Violations
Promoters of PNTR and China’s accession to the WTO argued that unfettered trade and investment would be the best way to raise living standards and promote human rights in China.
Unfortunately, the two years since China’s accession to the WTO have not borne out this prediction. Instead, increased trade and investment have coincided with continued harsh violations of workers’ rights, rising worker unrest, and a “strike hard” campaign against dissent by the Chinese government. Far from “exporting American values” to China, American companies have been complicit in this abuse and have profited from it.
State-sponsored repression includes the continued arrest and detention of labor activists. Li Wangyang was sentenced to ten years for publicizing harsh conditions endured during a previous prison term imposed for union organizing. Li’s sister was sentenced to three years for speaking to foreign reporters about the case. Cao Mobing was detained in a mental facility for more than 200 days as punishment for attempting to organize a union at his factory. Forced labor continues in China’s prisons, and, since 1997, the Chinese government has only granted one out of nine pending requests from the U.S. to visit Chinese prisons and ensure that goods made with forced labor are not being exported to the American market in violation of U.S. law.
Legal protections for wages, benefits, and hours are routinely violated in the private sector, and shoddy enforcement of health and safety standards costs workers’ lives in China’s export industries. According to a Workers’ Daily report from 2000, 31 workers were permanently disabled every day on the job in Shenzen factories. A lawyer who has brought a number of workers’ occupational injury cases to the courts in the Shenzen province, Zhou Litai, was declared unauthorized to practice law by the local authorities and ordered to shut down his law office.
Faced with growing worker unrest, the Chinese government continues to choose violence and repression as tools of control, and has made only cosmetic gestures towards legal reform. Reforms to China’s trade union law in 2001, while ostensibly designed to protect union organizing in the growing private sector and strengthen workers’ rights, maintains the ACFTU’s strict legal monopoly over all trade union activity in China. The Chinese government appeared to take a step forward in ratifying the International Covenant on Economic, Social, and Cultural Rights in 2001, but the government declared that the Covenant’s provisions on freedom of association would only be enforced to the extent they complied with existing national law, meaning that the legal prohibition on independent unions will remain intact and human rights will continue to be violated systematically.
Conclusion
Repression of workers’ rights is a key part of the Chinese government’s political and economic strategy. WTO rules allow U.S. businesses to profit from this repression, and pit workers everywhere against the Chinese workers who get thrown in jail for organizing a union and beaten for protesting corruption. These rules are not promoting sound economic development or democracy in China, they are not lifting up poor workers in other developing countries around the world, and they are not benefiting American workers.
Contrary to supporters’ claims, China’s WTO accession has not even improved China’s own compliance with international trade rules. China’s WTO accession has helped to expose the fundamental flaws in our international trading system, and the American labor movement will continue to fight for reformed trade rules that create more balanced trade relationships between countries, promote sustainable development, and protect workers’ rights at home and abroad.
In the coming months, we will be urging the Administration to take action under section 301 of U.S. trade law to challenge the Chinese government’s deliberate undervaluation of its currency and its systematic and egregious violation of workers’ rights. Currency manipulation essentially negates any tariff reduction or subsidy elimination agreed under WTO rules. Violation of workers’ rights is defined as an unfair trade practice under section 301. Both of these factors together combine to tilt the playing field against American workers and producers.
At the very least, the Administration must use all the enforcement tools at its disposal, under WTO rules and U.S. trade laws, to ensure China’s compliance with its WTO obligations and with its international obligations to respect workers’ rights.
I look forward to your questions.
