Report - U.S. underestimates Chinese

Friday, July 12, 2002

The United States is underestimating the threat to its security, jobs and technological competitiveness caused by the exploding trade with China, according to a fact-finding report to be sent to Congress on Monday.

The 209-page document, prepared by the U.S.-China Security Review Commission, is skeptical of China's attempts to open to the West and of the dangers that could pose to the United States. The commission was set up by Congress in 2000 to be a permanent watchdog on relations between the countries after the bruising battle over extending permanent trade status to China.

The report is the latest congressional effort to define the issues that have dogged U.S.-China relations for years. It calls for increased scrutiny of U.S. corporate activities in China to prevent the erosion of the U.S. industrial base, stronger penalties for violating arms control agreements and greater protection for U.S. industries such as steel that face stiff competition from China.

The commissioners took particular aim at the potential harm created by the rapidly-deepening economic ties linking the two countries . They maintained that China, through its trade and access to more than $14 billion raised on U.S. capital markets, was able to modernize its military and expand its influence in Asia at the expense of the United States. The report also blamed the rush of multinationals to China for aggravating the U.S. trade imbalance, which has ballooned to $87 billion.

'Global manipulation'

"This kind of behavior is not trade, this is global manipulation by companies for their own bottom line," said Richard D'Amato, a Democrat state lawmaker from Maryland and co-chairman of the commission.

While acknowledging China's dramatic economic achievements, the commission argued Communist leaders had made little progress toward granting Chinese political and religious freedom, protecting human and labor rights or stopping illegal weapons sales. The government was described as a suspicious and often hostile force that viewed the United States as a "unilateralist" superpower intent on imposing its values on other nations. Opening the economy to free-market forces could lead to widespread domestic upheaval or the creation of a wealthy dictatorship, neither a positive for the United States.

Even before it hit the printing press, the report had touched off controversy in a U.S. business community. Commission member William Reinsch, the head of the National Foreign Trade Council, a business lobbying group, refused to support the findings, saying they were a simplistic effort to blame China for "virtually every economic problem the U.S. has." His was the only dissenting vote on the 12-member commission, which was heavily weighted toward military experts.

"The truth is our bilateral relationship is doomed to be difficult," explained Reinsch, in his statement. "We vie for influence in the region. This is neither unnatural nor unusual and should not be justification for demonizing China and turning our relationship into a struggle for good and evil." Trying to turn Washington's attention to a complex matter such as China relations won't be easy given the distractions of unfolding corporate scandals, tensions in the Middle East and the war on terrorism and the November elections, so the fate of the recommendations is unclear.

Warming relations

U.S.-China relations have warmed in recent months, helped along by China's entry into the World Trade Organization and the government's support for the U.S.-led anti-terrorism campaign.

"I think people's security fears in Washington right now are pretty close to home," said Edward Gresser, a former Clinton administration trade official who was not on the panel and is now at the Progressive Policy Institute, a Washington think tank. "People remain well aware of the problems in our relationship and are unsure of the future direction China will take, but the image of China has generally improved during the course of this terrorist campaign." The emotions surrounding the U.S.-China relationship reflect the challenges of balancing economic and military interests in a world where a free flow of capital, goods and people have blurred the lines between friend and foe. Proponents of closer economic ties with China say the $121 billion in two-way trade will lead to warmer political ties, and foster a more democratic, prosperous country capable of buying American airplanes, wheat and pharmaceuticals. But skeptics worry that the United States is blindly sacrificing manufacturing jobs, technology and military security in the pursuit of a quick buck.

"We do not claim that all is sweetness and light," said Robert Kapp, president of the U.S.-China Business Council, a Washington trade group. "We do not claim there is no potential for conflict between these two great nations. But we do believe much progress has been made and the way forward lies in closer engagement and better communication." Supporters of strengthened economic ties with China embraced some aspects of the report, including its finding that the U.S. understanding of China's world view and political machinations were woefully inadequate and contributed to misunderstanding and conflict. The report urged Congress to beef up funding for Chinese language and study programs and resume military-to-military programs .

Nicholas Lardy, a China expert at the Brookings Institution, agreed with the commission that the United States should carefully monitor China's adherence to market-opening measures under the WTO. He said China had a mixed record, moving quickly to lower tariffs and quotas but proceeding with caution in more complex areas such as developing a new policy on genetically modified organisms in food imports.

But Lardy said commission recommendations to consider closing U.S. markets to Chinese imports - such as textiles or steel - would threaten China's economic stability and hurt U.S.

consumers.

"We have a long list of goods we think are competitive and we should sell more," he said. "We don't want to talk or face up to the fact, that China is also competitive in some sectors." (Optional add end) In the area of arms control, the commission already has strong support from its chief backer, Sen. Robert Byrd, D-W.Va., who has been an outspoken critic of China's alleged role in the spread of weapons of mass destruction.

Though Beijing has signed the Nuclear Nonproliferation Treaty and the Comprehensive Test Ban Treaty, it has denied knowledge of illegal weapons transfers by Chinese companies. In November 2000, China promised it would stop helping Pakistan and other countries develop ballistic missiles but that export control system has not yet been implemented, according to the commission.

Byrd has already endorsed one of the commission's recommendations, which would dramatically expand the penalties the White House can impose for illegal weapons sales. It would give the president the authority to sanction offending governments, as well as companies, for illegal weapons transfers and impose a wide range of economic penalties including restrictions on trade and investment and access to U.S. capital markets.

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