US Advisory Body Tells Congress To Get Tougher With China

Wednesday, 16 November 2006
By Elizabeth Price, DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- China isn't living up to its obligations at the World Trade Organization and is expanding its influence in ways frequently harmful to U.S. interests, a congressional advisory commission said Thursday.

The U.S.-China Economic and Security Commission, in an annual report released Thursday, said the U.S. government needs to become tougher in insisting China carry out its promises and treaties - an area where the emerging economic and military superpower has consistently fallen short.

"China's adherence to its many WTO obligations remains spotty and halting in important areas five years after China attained membership," the commission said. "If China's willingness to honor its trade obligations is at issue, its commitment to accept its geopolitical responsibilities is even more in question, " the Commission said later in the report.

The commission, a bipartisan group appointed by Congress after it voted to grant permanent normal trade relations to China in 2000, made a list of 44 recommendations for Congress. These ranged from calls for bringing more WTO complaints against China to stronger retaliation against alleged currency manipulation, to measures to deal with what it said is a growing military threat.

The harshly worded report underscores Congress's frustration with the massive U.S. trade deficit with China and the pace of reform in China. It also reflects an exasperation that previous treaties with China on issues, like intellectual property rights enforcement and promises by Chinese leaders to rely less on exports for growth, haven't brought progress.

"In a lot of areas, China understands its obligations, and has even enacted regulations and laws recognizing those obligations...but then they ignore them," said Larry Wortzel, who was appointed by then Speaker of the House Dennis Hastert, R-Ill., and now chairman of the commission.

Carolyn Bartholomew, vice-chair of the committee, speaking to reporters along with Wortzel, said China's poor compliance calls into question the utility of making any agreements with the Chinese.

"I think for a number of years, the Chinese government has gotten away with making promises and not having to abide by them," said Bartholomew.

Over the past two years, the Bush administration has worked hard to prevent Congress from passing legislation to restrict Chinese imports, notably in retaliation for China's heavily managed currency regime. U.S. exporters complain that the yuan is undervalued against the U.S. dollar and unfairly cheapens Chinese goods.

Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., agreed to drop their tariff measure, which had a majority of Senate support to give U.S. Treasury Secretary Henry Paulson a chance to talk with the Chinese. Paulson, like Treasury Secretary John Snow before him, argued that diplomacy is the only effective way to get China to reform its currency.

The commission recommended Congress pressure the Administration to file complaints before the WTO and the International Monetary Fund against currency manipulation. It also urged Congress to revise its law against currency manipulation to make it clear that currency pegs and prolonged currency market intervention are violations of fair trade.

Congress should also define currency manipulation and loan forgiveness as illegal export subsidies, subject to U.S. penalties against dumping and subsidies, the commission said.

Noting that China has recently accelerated the rate at which they allow the yuan to appreciate,"the progress that has been made has been woefully inadequate," Bartholomew said.

The shift to Democratic control of Congress following elections last week could make Capitol Hill more receptive to these measures, said Bartholomew, who was appointed to the commission by Democratic leader Nancy Pelosi, D-Calif.

"There's a whole new crop of elected leaders, many from districts where they have experienced first hand these changes" stemming from trade with China, Bartholomew said.

Neither Wortzel nor Bartholomew expressed much hope that Paulson's initiative for a "Strategic Dialogue" with China, meeting for the first time in December, would move Chinese leadership.

"All of these strategic dialogues can be very useful; they educate the Chinese leadership about U.S. concerns," said Wortzel. "But let's face it - at some point you need action."

The commission urged U.S. Trade Representative Susan Schwab to file a WTO complaint against China for its failure to protect intellectual property rights as it has promised.

The problem is no longer confined to luxury goods and films, but is now an urgent health and safety risk with a sharp rise of counterfeit pharmaceuticals and auto parts, the commission said.

Meanwhile, China is extending its influence on other developing countries in South America and Africa to secure natural resources needed to power the economy.

"Of particular concern to the commission is China's seeming posture as a potential counterweight to the U.S., and its disposition to support volatile and repressive regimes as its client states," the commission said, adding that the most striking example of the problem is in Sudan.

"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 there and provide ongoing security and basic human rights for the affected population, " according to the report.

The commission also urged Congress to promote Taiwan's participation in international organizations, insist that China carry out inspections at sea of ships bound to and from North Korean ports, and toughen sanctions for nuclear proliferation by Chinese companies.