44 Recommendations on China

1. The Commission recommends that Congress urge the Administration to take to the World Trade Organization (WTO) and the International Monetary Fund (IMF) a complaint about China’s manipulation of its currency. This manipulation contravenes both the letter and the spirit of WTO rules and the IMF charter.

2. The Commission recommends that Congress pass legislation to modify the requirements of the Treasury Department’s biannual report on countries that practice currency manipulation, by making it clear that countries that artificially peg their currency in order to gain an export advantage should be identified as violating the principles of international trade. The Commission also recommends that Congress eliminate the requirement that a country must be running a global trade surplus to be designated a currency manipulator.1

3. The Commission recommends that Congress enact legislation to define currency manipulation and loan forgiveness as illegal export subsidies subject to countervailing duty penalties levied against an offending country’s exports.

4. The Commission recommends that Congress pass legislation to allow the U.S. Department of Commerce to impose countervailing duties against non-market economy subsidies. (Although current U.S. practice does not allow such duties to be imposed against non-market economies, such actions are permitted by the WTO.)

5. The Commission recommends that Congress direct the Treasury and Commerce Departments to examine how the collection of data regarding foreign investment in the United States can be improved, placing particular emphasis on the feasibility of tracking how foreign central banks invest their reserves in dollar denominated assets.

6. The Commission recommends that Congress encourage the executive branch to protest any Chinese restrictions on the free flow of financial information.

7. The Commission recommends that Congress urge the executive branch to open negotiations with China to secure approval for foreign credit reporting agencies to provide uncensored ratings of all Chinese securities, and to obtain Chinese central government agreement that Chinese regulators will drop licensing and regulatory requirements that dictate criteria for the hiring of ratings analysts. Dispute resolution

8. The Commission recommends that Congress urge the U.S. Trade Representative to press ahead aggressively with a WTO case against China for its manifest failures to enforce intellectual property rights, selecting the best of many potential cases in order to establish a strong precedent, and that Congress urge the U.S. Trade Representative to enlist other nations to join in the case.

9. The Commission recommends that Congress monitor the recent steps taken to strengthen and enlarge the international trade law enforcement office within the Office of the U.S. Trade Representative and, if the Representative needs additional resources to investigate and prosecute dispute settlement cases before the WTO, that Congress provide those resources.

10. The Commission recommends that Congress direct the Administration to increase the number of intellectual property attache´s in China from the Office of the U.S. Trade Representative, the U.S. Patent and Trademark Office, and the Departments of State, Commerce, Justice, and Homeland Security, and provide sufficient funding to the parent agencies to support these additional attache´s. Fair trade

11. The Commission recommends that Congress urge the U.S. Trade Representative to strengthen its annual review of China’s compliance with WTO rules by adding conclusions and recommendations to its report. (Congress instituted the requirement that the Representative prepare this report when it granted China permanent normal trade relations as part of China’s admission to the WTO.) Criminal penalties for intellectual property rights violations

12. The Commission recommends that the U.S.-China Interparliamentary Exchange raise with the National People’s Congress the need to lower the threshold for criminal prosecutions of Chinese intellectual property rights violation cases.

Chapter 2 — China’s Global and Regional Activities and other Geostrategic Developments

13. The Commission recommends that Congress urge the Administration to seek direct dialogue and cooperation with China with regard to securing a resolution to the conflict in the Darfur region of Sudan that will halt the genocide occurring there and provide security and basic human rights for the affected population. Congress should instruct the Administration to report semiannually on China’s actions in Sudan and any progress that has been made through dialogue with China.

14. The Commission recommends that Congress encourage the Administration to intensify engagement with Latin American nations in light of expanding Chinese interests in the region.

15. The Commission recommends that Congress encourage the Administration to seek observer status for the United States in the Shanghai Cooperation Organization and that Congress also encourage the Administration to monitor closely Iran’s participation in this organization.

16. The Commission recommends that in response to China’s efforts to isolate Taiwan, Congress encourage the Administration to implement a long-term policy to facilitate Taiwan’s participation in international organizations and activities for which statehood is not a prerequisite, such as the World Health Organization, the Community of Democracy, the Proliferation Security Initiative, and other multilateral public health, counterproliferation, counterterror, and economic organizations as appropriate. Congress should instruct the Administration to report annually on its actions to ensure that Taiwan is not isolated in the world community.

17. The Commission recommends that Members of Congress, when visiting mainland China, also visit Hong Kong, and that Congress encourage senior Administration officials, including the Secretary of State, to make visits to Hong Kong part of their travel to China.

18. The Commission recommends that Congress extend the reporting requirements in Section 301 of the United States Hong Kong Policy Act of 1992, P.L. 107–115, 22 U.S.C. 5731, for five more years. China’s proliferation and involvement in North Korea’s and Iran’s nuclearization activities

19. The Commission recommends that Congress urge the Administration to seek high-level dialogue with China intended to obtain strengthened and expanded nonproliferation commitments and activities from China and, in particular, (1) to obtain China’s agreement to participate in the Proliferation Security Initiative and the Illicit Activities Initiative; and (2) to VerDate Aug 31 2005 12:26 Nov 20, 2006 Jkt 211675 PO 00000 Frm 00221 Fmt 6601 Sfmt 6601 D:\DOCS\211675.XXX APPS06 PsN: 211675 208 strengthen its export controls and their enforcement. Toward this end, the Commission recommends that Congress— • direct the Administration to provide increased export control technical assistance to China, and • appropriate funds to support that increased assistance.

20. The Commission recommends that Congress urge the Administration to seek agreement with China to carry out inspections at sea of ships bound to or from North Korean ports and establish a U.S.-China joint operation to inspect for contraband all shipping containers being moved to or from North Korea when they pass through Chinese ports, in fulfillment of the obligations under U.N. Security Council Resolution 1718 to prevent the sale or transfer of missiles, and nuclear and other weapons-related materials and technologies, to and from North Korea.

21. The Commission recommends that current sanctions against Chinese companies that proliferate equipment and technology related to weapons of mass destruction and their delivery systems be broadened and harmonized for increased effectiveness. The Commission recommends that Congress expand current sanctions regimes to extend penalties to the Chinese parent company of a subsidiary that engages in proliferation activities, regardless of the parent company’s knowledge of or involvement in the problematic transaction. Access to U.S. markets (including capital markets), technology transfers, and U.S. government grants and loans should be restricted from proliferating companies and their Chinese parent companies and related subsidiaries irrespective of the related firms’ knowledge of the transfers in question.

22. The Commission recommends that Congress instruct the Administration to insist that China fulfill its obligations under U.N. Security Council Resolutions 1695 and 1718 and take more significant measures to denuclearize the Korean peninsula and counter North Korean proliferation activities. The Congress should further instruct the Administration to report semiannually about specific actions the Chinese government has taken in this regard.

23. The Commission recommends that Congress instruct the Administration to engage in a strategic dialogue with China and report to Congress the specific actions that China is taking concerning (1) its past and current proliferation activities to Iran; (2) its public stance in support of Iran’s nuclear energy program; and (3) the impact of Iran’s secondary proliferating transfers, and to encourage Middle Eastern and European states to seek to persuade China’s government to act more responsibly and diligently to curb Chinese proliferation to Iran. China’s energy needs and strategies

24. The Commission recommends that Congress support the Administration’s current policy dialogues and technical exchanges with China pertaining to energy, and urge the Ad- VerDate Aug 31 2005 12:26 Nov 20, 2006 Jkt 211675 PO 00000 Frm 00222 Fmt 6601 Sfmt 6601 D:\DOCS\211675.XXX APPS06 PsN: 211675 209 ministration to seek additional opportunities for the United States to assist China to increase energy efficiency, reduce pollution from energy consumption, and facilitate the use of alternative fuels.

25. The Commission recommends that Congress obtain detailed information on the nature, specific sources, and extent of China’s air pollution, and its detrimental effects both in China and in the rest of the world, with specific attention to the effects in the United States. Chapter 3 — China’s Military Power and its Effects on American Interests and Regional Security China’s military modernization

26. The Commission recommends that Congress direct the Administration to engage in a strategic dialogue with China on the importance of space surveillance, the military use of space, and space weapons. Such a dialogue should include strategic warning and verification measures.

27. The Commission recommends that Congress instruct the Director of National Intelligence, working with the Department of Defense, to formulate and establish a more effective program for assessing the nature, extent, and strategic and tactical implications of China’s military modernization and development.

28. The Commission recommends that Congress require the Department of Defense to include in its annual report to Congress on China’s military power an assessment of U.S. weapons systems, force structure, basing, doctrine, and tactics in order to maintain a favorable balance of military power in the region and to ensure U.S. forces will prevail as rapidly and effectively as possible in the event of a conflict with the Chinese military over Taiwan or other interests in the Asia-Pacific region.

29. The Commission recommends that Congress enact a new Export Administration Act to clarify U.S. export control policy and the U.S. approach to multilateral export control regimes. The new legislation should take into account new and emerging national security threats, unique U.S. technological advances, and global trade developments since the expired Export Administration Act was enacted in 1979. It also should establish strengthened penalties against violators.

30. The Commission further recommends that Congress encourage the Administration, as it reviews U.S. export controls aimed at China, to engage in substantive discussions with U.S. companies and business groups with the objective of avoiding the imposition of unnecessary export burdens that do not appreciably enhance U.S. security interests. VerDate Aug 31 2005 12:26 Nov 20, 2006 Jkt 211675 PO 00000 Frm 00223 Fmt 6601 Sfmt 6601 D:\DOCS\211675.XXX APPS06 PsN: 211675 210 2 Although the Manufacturing Extension Partnership Program is not explicitly discussed in the text of this report, it was an issue reviewed during the Commission’s July 17 hearing in Dearborn, Michigan. U.S.-China Economic and Security Review Commission, Hearing on China’s Impact on the U.S. Auto and Auto Parts Industry, testimony of Laurie Moncrieff, July 17, 2006.

31. The Commission recommends that Congress urge the Administration to engage in more vigorous diplomatic activity at high levels in order to obtain multilateral cooperation necessary for effective global export controls.

32. The Commission recommends that Congress provide adequate funding to support an increase in the number of initial and periodic follow-up end-use/end-user verification visits for exports licensed to China and Hong Kong. This should include increasing the number of qualified, Mandarin-speaking export control officers stationed in China and Hong Kong.

33. The Commission recommends that Congress encourage the Administration to discuss with key allies the establishment of a multilateral arrangement to ensure post-shipment verification of the status of certain sensitive technologies exported to China. The military balance across the Taiwan Strait

34. The Commission recommends that Congress urge the Administration to encourage Taiwan’s Legislative Yuan to approve the purchase of the remaining components of the arms package offered by the United States in April 2001, or alternative systems that will enhance Taiwan’s defense capability, and that additional arms requests from Taiwan be considered by the U.S. government on their merits. Protection of government computers from espionage

35. The Commission recommends that Congress examine the federal procurement process to ensure that all agencies consider security measures when purchasing computers. Chapter 4 — A Case Study of the Automotive Industry that Illustrates Challenges to U.S. Manufacturing and the U.S. Defense Industrial Base

36. The Commission recommends that Congress support the Administration’s WTO dispute resolution case against China’s proposed imposition of a 25 percent tariff on imported auto parts.

37. The Commission recommends that Congress fully fund programs such as the Commerce Department’s Manufacturing Extension Partnership Program (a nationwide network of expertise and advice to aid small and medium-sized American manufacturers) that provide counsel on such matters as worker training, process technology, information technology, and supply chain integration to help U.S. manufacturers compete globally.2 VerDate Aug 31 2005 12:26 Nov 20, 2006 Jkt 211675 PO 00000 Frm 00224 Fmt 6601 Sfmt 6601 D:\DOCS\211675.XXX APPS06 PsN: 211675 211

38. The Commission recommends that Congress require the U.S. Department of Defense to trace the supply chains of all components of critical weapons systems. Chapter 5 — China’s Internal Problems, Beijing’s Response, and Implications for the United States

39. The Commission recommends that Congress encourage U.S. companies to work with their Chinese suppliers to improve China’s environmental, labor, and safety standards, which would address some of the causes of unrest facing the Chinese government.

40. The Commission recommends that Congress encourage American nongovernmental organizations and the State Department to promote new and existing efforts to support independent Chinese nongovernmental organizations, especially those working on rule of law, healthcare, workers’ rights, and environmental issues.

41. The Commission recommends that Congress instruct the Administration to promote new and existing cooperative efforts with China that improve China’s responses to transnational problems, including infectious diseases and the environment. Chapter 6 — China’s Media and Information Controls

42. The Commission recommends that Congress urge the Administration to demand that China stop jamming Voice of America and Radio Free Asia broadcasts, and to instruct its officials to raise the issue of media and Internet freedom in meetings with their Chinese counterparts and to remind those counterparts that jailing journalists for publishing information China finds distasteful only draws negative attention from the international community.

43. The Commission recommends that Congress prohibit disclosure by U.S. companies to the Chinese government, in the absence of formal legal action by the Chinese government, of information about Chinese users or authors of online content. Congress should require that where a U.S. company is compelled to act, it shall inform the U.S. government. A compilation of this information should be made publicly available semi-annually.

44. The Commission recommends that Congress expand support for both the Broadcasting Board of Governors’ program for circumventing Chinese Internet censorship and the U.S. State Department’s Global Internet Freedom Task Force. VerDate Aug 31 2005 13:13 Nov 17, 2006 Jkt 211675 PO 00000 Frm 00225 Fmt 6601 Sfmt 6601 M:\USCC\211675\211675.DDD APPS06 PsN: DONNAK

212
ADDITIONAL VIEWS OF COMMISSIONERS
GEORGE BECKER, C. RICHARD D’AMATO,
THOMAS DONNELLY, KERRI HOUSTON,
PATRICK A. MULLOY AND
MICHAEL R. WESSEL

This year marks the 5th anniversary of China’s accession to the
World Trade Organization and the granting of permanent normal
trade relations by Congress. By almost any measure, the promises
made by China and the arguments offered by proponents of Congress’
decision to end the annual Most Favored Nation debate have
proven spurious. China increasingly threatens our national and
economic security interests. The current approach is failing to meet
our core objectives. The status quo approach must be changed.

Ending the annual Most Favored Nation debate was touted as a
path to greater openness, democracy and freedom in China. The
record proves the emptiness of these claims. China’s communist
leaders continue to hold their citizens’ rights hostage to the leadership’s
desire to maintain and increase power. The communist leadership
continues to govern virtually every aspect of the people’s
daily lives from child bearing to religious observance to how they
may express their opinions to their friends and neighbors. As the
Internet has flourished so has the Chinese leaders’ desire to contain
it: More than 30,000 Internet cops observe the electronic
musings, postings, communications and e-mail of their citizens.

Workers’ rights are controlled with an iron fist. Even in rapidly
expanding areas, where labor demand has increased, the ability of
workers to fully share in the fruits of their labors is almost nonexistent.
A formal filing on workers’ rights abuses with the Bush
Administration’s USTR documented broad workers rights violations,
including how many workers were never paid substantial
percentages of their wages.

And, we now see that U.S. business interests who claimed that
they would be agents of change in China are, in fact, fighting efforts
to promote workers rights’ in that country.

China continues to drag its feet, or completely ignore the commitments
it made as part of its accession agreement to the WTO. It
continues its massive subsidies to ensure the development and success
of its companies. And, while many said that China’s comparative
advantage would be limited to low-value, high labor content
products like toys and textiles, China has proven to be a fierce
competitor all up and down the economic food chain. Today, the
United States runs a huge deficit in advanced technology products
with China in some of the areas that, just a few years ago, were
viewed as the shining opportunity for America’s future.

PNTR proponents claimed that the vast Chinese market would
provide enormous opportunities for U.S. companies to sell and service
the expanding Chinese consumer market. Here, too, the promises
have fallen way short. Few profits are being made selling into
the Chinese market. The profits come from exporting back to America.
Almost 60% of the products China sells to the U.S. come from
foreign-invested companies. China has proven to be more of a site
for U.S. products to be ‘‘industrial tourists’’—component products
sent there by U.S. companies only to be assembled into the final
products that are shipped right back to our shores.

China is more interested in having our companies share their
technology and their production prowess than they are in them
reaping profits. And, they’re willing to get our technology by whatever
means—legal or illegal.

China continues to expand its economic infrastructure to expand
its capabilities as a production and export powerhouse. In steel, in
autos and in many other areas, China is rapidly expanding its production
capacity despite a global glut of overcapacity in many of
these products. China is only further exacerbating the precarious
economic position many American producers already face. Within a
few years, China will send finished autos to the U.S. as its production
capacity will exceed its domestic demand by almost 100 percent.
An industry that is already on the ropes here in the U.S. with
broad scale plant closures and workers thrown out of work will face
further decline. Our steel sector continues to face rampant dumping
and predatory efforts of the Chinese.

The limited and mostly one-sided economic benefits from China’s
entry into the WTO are irrefutable.

The Commission is tasked with reviewing both the economic and
security interests of the United States vis-a-vis China as well as
the interrelationship between these two issues. As in previous
years, the Commission’s work has shown that our national and economic
security are inextricably linked and that China’s actions
threaten our own interests.

Around the globe, China has sought to capture natural resources
so as to fuel its manufacturing sector. The result has been China’s
willingness to embrace the leadership of countries whose actions
and activities are adverse to our own. For example, in Sudan China
provides the weapons and support for those committing genocide.
In Iran, Chinese companies have proliferated weapons and missile
technology to a country that, many believe, is engaged in a nuclear
weapons development program. Other countries benefit as well.

The Bush Administration has noted that China’s military buildup
raises serious questions in terms of its intended use. The size
of its military, its capacity and its modernization is expanding rapidly.
Without adequate justification for its activities, we are left
only to guess as to their ultimate targets.

China is a great nation with a great people. Our goal should be
to seek mutual advancement to enhance the lives and opportunities
for the Chinese people, and our own as well. The two are not mutually
exclusive. Unfortunately, our current policies rely on outdated,
failed theories rather than realistic, honest approaches. And, the
status quo approach has only strengthened China’s communist
leadership’s power and hold on the people.

Our nation’s policy of engagement must be updated to adhere to
the reality of the competition and the approach that China’s leaders
have taken. We still have enormous leverage—leverage that, to
date, we have largely refused to use. And, our leverage declines as
our dependence on China increases.

Now is the time for us to review the lessons of past years and
admit that a serious course correction is necessary. We need a policy
that puts the interests of the American people first.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.