China Gripes, but Stuck with US Debt

BY MARK A. GROOMBRIDGE | DECIDE AMERICA

Wednesday, August 10, 2011

This article originally appeared on Newsmax.  Click here to see the article as it originally appeared.

China, the world’s No. 2 economy, has sharply rebuked the United States for spending beyond its means and what state-run media outlets have called an “addiction to debt.” However, with the rest of the world economy struggling and until China reorients its economy away from exports, it is not feasible for China to unload its $1.1 trillion in U.S.-government debt.

Over the course of the past few days, China has issued stinging criticisms of the United States for its failure to bring down spending and resolve its structural debt problems. In demanding that the United States take action to protect Chinese assets, official media outlets run by the state, such as the Xinhua News Agency, lambasted the United States for its failure to get its economic house in order and holding the world’s economies “hostage.” The reaction to the debt ceiling deal was also cool, with Xinhua noting that the 11th hour deal “failed to defuse Washington’s debt bomb for good, only delaying an immediate detonation by making the fuse an inch longer.”

As is customary in China, the response by the senior leadership in Beijing was more restrained. Chinese Premier Wen Jiabao, in a statement issued by the State Council, commented on Tuesday that “China urges nations to coordinate and implement concrete and responsible fiscal and monetary policies to secure the safety of investments.”

Currently, China has $3.2 trillion in foreign exchange reserves, two-thirds of which are estimated to be invested in dollar assets around the world. According to official figures, China holds $1.16 trillion in U.S-government debt instruments. It is well-known, however, that China also buys U.S. Treasuries through intermediaries in places such as Hong Kong and London. When those estimates are included, some analysts conclude that China holds closer to $1.6 trillion, or roughly 17 percent of the federal debt in public hands.

Earlier in the week, Zhou Xiaochuan, the Governor of the People’s Bank of China (China’s central bank) remarked that China would “closely observe” the situation in the U.S. and that China would continue to diversify its foreign currency investments. While China has routinely issued statements on the need to diversify its holdings, it has taken few steps to do so.

The factors most often cited for China’s refusal to stop buying U.S. Treasury bills and other securities include the lack of suitable alternatives, and that a large-scale sell-off would jeopardize China’s economy, particularly its policy of export-led growth. China intentionally keeps the value of its own currency, the yuan, low against the dollar in order to artificially promote exports. A sudden and massive selling of U.S. debt holdings would mean that the dollar would weaken further and the yuan would appreciate. The consequence of such a sell-off would be a further erosion of China’s assets and more competition for Chinese exports, something it has not been willing to tolerate.

Analysis

Despite the enjoyment the Chinese officials no doubt got from zinging Washington for its inability to cure its “addiction to debt,” they are stuck for a straightforward reason – there is nowhere else to go. Neither Europe nor Japan offer an attractive alternative, since both have their own share of economic problems, and neither offer asset markets deep or liquid enough. While down ten percentage points to 60 percent, compared to 70 percent a decade ago, the U.S. dollar is still the dominant foreign exchange reserve currency. Moreover, if China did attempt to diversify more into Europe or Japan through, for example, buying sufficiently large quantities of euros or yen, they would likely risk a protectionist backlash. Increasing the gap in value between the yuan and the euro and yen, respectively, would make Chinese exports against European and Japanese goods more competitive. Neither Europe nor Japan are as accommodating and willing as the United States is to run a long-term, artificially created trade deficit with China.

More broadly, though, China’s ‘addiction to U.S. debt’ is a direct consequence of their own domestic economic policies. For several decades now, China has encouraged exports and done little to encourage domestic consumption at home. They have essentially starved the middle-class of resources by having the People’s Bank of China borrow from the Chinese people and keep the value of the yuan low in order to subsidize exports. With massive amounts of state-led investment, they relied on world markets to absorb excess capacity. The result of this policy is that China has accumulated massive foreign exchange reserves to the tune of $3.2 trillion.

For years now, Chinese leaders have said they will take steps to increase domestic consumption at home and try to wean the country off what even they acknowledges is an over-dependence on exports. Beijing has been reluctant to do so, however, given its paranoia about social unrest. It is well-known that many of the state-led investment projects have been questionable, particularly in areas such as construction. Some economists estimate that roughly up to a quarter of all loans issued by Chinese banks in recent years could sour. The government is fearful that if it adopts much-needed market-oriented reforms too quickly, there will be massive unemployment and widespread protests, threatening the stability of the government.

The Chinese government knows its export-led growth policy is increasingly unsustainable and cannot continue indefinitely. A growing number of countries, most notably India and Brazil as of late, have made clear their impatience with the slow pace at which China has allowed the yuan to appreciate. They have so far, however, only taken minimal steps to reorient the economy away from exports. Many analysts, including this author, believe that the yuan is still undervalued by some 25 percent.

China may not like Washington’s economic policies, nor like its dependence on economic developments overseas more broadly, but they have no one to blame but themselves. Until China reorients its economy away from one based largely on exports, its criticism of U.S. economic policy will fall on deaf ears and its threats to diversify are largely empty. There simply is no place else for China to go.

Mark A. Groombridge has worked on a wide range of international security and trade issues for the U.S. Department of State, the U.S. Mission to the United Nations in New York, and the U.S. Commerce Department. He is Executive Director of Decide America, an organization dedicated to generating discussion on national security. Dr. Groombridge holds a Ph.D. in Political Science from Columbia University and a B.A. in Chinese and International Relations from the University of Minnesota.

 © 2011 Newsmax. All rights reserved.

China’s Two-Pronged Maritime Rise

 
July 24, 2011 

 

China is following a two-prong strategy with its impressive maritime build-up. The West is making a mistake if it underestimates the implications.

 

For the past decade, while the West has been consumed battling Islamic extremists in the Middle East and Central Asia, China has been engaged in a rapid and impressive effort to establish itself as the supreme maritime power in the Eastern Pacific and Indian Oceans. 

For years, China focused its military spending on the People’s Liberation Army, while the Air Force and Navy served as little more than adjuncts to the Army. But with the launch of its first aircraft carrier next month, the rest of the world – and especially the United States’ Asian allies – is taking note of how dramatically things have changed. China has big maritime ambitions, and they are backed up by a naval build-up unseen since Kaiser Wilhelm II decided to challenge British naval power with the building of the High Seas Fleet at the turn of the last century.    

China’s build-up is driven by a two-pronged strategy. First, China seeks to deny access by the United States and other naval powers to the Yellow, East China and South China Seas, thereby (1) establishing its own equivalent to the way the United States saw the Caribbean in the 20th century, from which its blue water navy can operate globally; (2) dominating the natural resources and disputed island chains such as the Spratly and Senkaku Island chains in those seas; and (3) giving it the capacity to reunify Taiwan with the mainland by force and without US interference, if necessary. China’s assertiveness in confronting and harassing Asian and US civilian and naval ships in the region over the past decade shows a sustained level of determination on this front.

Second, China seeks international prestige and a power projection capacity in the Pacific and Indian Ocean sea lanes by deploying multiple aircraft carriers and fifth-generation stealth fighter-bombers. The booming Chinese economy has become ever more dependent on imported minerals and oil from Africa and the Middle East, and the ability to protect its Indian Ocean and Strait of Malacca sea lanes is a responsibility that China is no longer willing to delegate to other powers.

The officially reported Chinese military budget for 2011 is $91.5 billion, a massive increase from its $14.6 billion budget in 2000.  China acknowledges that a third of its spending is now devoted to its Navy, yet even this big leap is almost certainly understated. China is notoriously non-transparent with its military expenditures, and most analysts believe that it spends significantly more on its armed forces than the publicly reported number. Further, Chinese military labour costs for its soldiers, sailors and airman is a fraction of what Western governments spend, where salaries, benefits and pensions are usually the largest share of defence budgets. This allows China to devote more of its budget to building weapons systems than its competitors. Unlike Western governments, which are slashing defence spending, China will continue to increase spending in coming years. 

A key goal of China’s maritime build-up is access denial. While multifaceted, China is building its access denial strategy around two backbone platforms: the DF-21D (Dong Feng) anti-ship ballistic missile (ASBM), described as a ‘Carrier Killer,’ and an ever expanding and modern attack submarine fleet. US Navy Pacific Commander Adm. Robert F. Willard has characterized the DF-21D as already having reached the Initial Operational Capability stage of development, meaning that they are operable, but not yet necessarily deployable. Taiwan sources report that China has already deployed at least 20 ASBMs.  Whether deployed now or in the near future, the US Navy believes China already has the space-based intelligence, surveillance and reconnaissance, command and control structure, and ground processing capabilities necessary to support DF-21D employment. China also employs an array of non-space based sensors and surveillance assets capable of providing the targeting information necessary to employ the DF-21D.  With a recently reported range of 2,600 kilometres, these missiles will give naval planners real concern when operating anywhere nearby the Chinese mainland. 

The Chinese submarine programme has been especially vigorous. For most of the Cold War, China operated outdated Soviet-era coastal submarines. In the 1990s, China purchased Russian Kilo-class diesel-electric attack submarines, and has been launching two indigenously-built Song-class diesel-electric attack submarines per year for the past decade. It has also developed and launched the high tech Yuan-class diesel-electric attack boat, which may have the silent air-independent propulsion system. Analysts believe that China will in the coming years also launch the Shang-class nuclear-powered attack submarine, further strengthening its already robust submarine fleet. It has surely not escaped China’s notice that US anti submarine warfare capability has atrophied significantly since the end of the Cold War. 

 

But China’s maritime capabilities are set to extend beyond access denial, into power projection. The systems that have gained most international attention are China’s planned aircraft carriers and its new fifth-generation fighter bomber. Anytime now, the PLA Navy will commence sea trials for its first carrier, the ex-Ukrainian Varyag, which has been renamed Shi Lang. The former Soviet ship is larger than European carriers, but one-third smaller than US Nimitz class carriers. Moreover, China has publicly confirmed it has a second, larger, conventionally powered carrier under domestic construction that will likely be launched in 2015. China has planned or is constructing a third conventionally-powered carrier and two nuclear-powered carriers are on the drawing board, with a planned completion date of 2020. 

Equally important as the warships, are the aircraft China plans to deploy on its flat tops. The main fighter-bomber in the PLA Navy carrier air wing will be the J-15 Flying Shark, which under current configuration is comparable in size and capability to the US Navy’s retired F-14 Tomcat. The jet will have limited range given its weight taking off from the ski deck-configured Shi Lang, however, it’s believed that advances in Chinese aeronautics and avionics, as well as a catapult launch system on forthcoming carriers, could put the J-15 in the same performance class as the USN F-18 Super Hornet in the future. China may also have developed a carrier-based airborne warning and control systems (AWACS) aircraft, which would be a major development. An Internet-sourced photograph that appeared in mid-May, meanwhile, shows a corner of a model of what is clearly a small AWACS aircraft inspired by the E-2 Hawkeye and the unrealized Soviet Yak-44 designs.   

To put China’s carrier programme in perspective, with the retirement of the USS Enterprise this summer, the United States will have only ten carriers to meet worldwide commitments; China will likely have five carriers devoted to the Asia-Pacific region alone. 

China’s build-up is being noted even in the popular Western media, which has given significant coverageto China’s prototype fifth generation twin-engine stealth fighter-bomber, the J-20 Black Silk. The jet is larger than the USAF F-22 Raptor and could prove to be comparable in capability (although some US observers claim it is more similar to the slightly less sophisticated US and allied F-35 Joint Strike Fighter, which will be the frontline US carrier fighter). 

The J-20 prototype took off on its ‘maiden’ test flight in January from an airfield in the southwestern city of Chengdu, flying for about 15 minutes on the same day then-US Defence Secretary Robert Gates was in Beijing meeting with Chinese President Hu Jintao, sending a strong political message and earning the jet a spot on evening news programmes worldwide. 

China is believed to have received a major assist in developing the J-20 by obtaining materials from a downed US F-117 Night Hawk from Serbia, as well as from the believed cyber theft of JSF plans from US defence contractors. (With this in mind, US planners should also assume that Chinese engineers have had access to the rotor tail of the stealth helicopter that was ditched in the Osama bin Laden raid in Pakistan).   

These rapid and high-level technical achievements have apparently surprised many Western observers, and the consensus is that the West has consistently underestimated the strength of China’s military industrial capability and its determination to expand and modernize its armed forces, especially the PLA Navy. But it should now be more than clear that the world is facing a significant challenge to a maritime system that has been dominated for the past 200 years by Anglo-American navies. How the United States responds to China’s challenge will define the balance of power in the Asia-Pacific for the rest of the century.  

Robert C. O’Brien is the Managing Partner of Arent Fox Los Angeles. He served as a US Representative to the United Nations. He can be followed on Twitter @robertcobrien.

Click here to see this article as it originally appeared in The Diplomat.

Kissinger: China Poses ‘Big Challenge’ for United States

STAFF WRITER |  CNN
Given China’s increasing power and economic security, dealing with the Communist nation poses a “big challenge” for the United States, former U.S. Secretary of State Henry Kissinger said Sunday.

Kissinger was national security adviser in President Richard Nixon’s administration, and almost 40 years ago he made a secret trip to confer with the Chinese, a voyage that paved the way for the normalization of relations between Washington and Communist China. He recently has written a book, “On China,” and appeared Sunday on CNN’s “Fareed Zakaria GPS.”

Asked whether he had any inkling four decades ago that China would become the global power it is today, competing with the United States economically and technologically, Kissinger said, “It would have been inconceivable. Nobody had any such perception or expectation.”

Since those talks, relations between China and the United States have remained stable, Zakaria noted. In recent years, China has tried to get America’s help in modernizing its economy, tacitly supporting a lot of U.S. foreign policy, Zakaria said. But some believe that may be changing now and that a new chapter of Chinese foreign policy may be beginning.

“There are elements in China who, particularly after the financial crisis, feel that there has been a fundamental shift in the balance of power and that the international conduct of China and the results of its conduct should reflect this,” Kissinger said. “But one shouldn’t think that all of this is America’s fault, because the Chinese – we have been dominant in the last 50 years – they’ve been dominant in 1,800 of the last 2,000 years.

“And you know, I think America is entering a world in which we are neither dominant nor can we withdraw, but we are still the most powerful country,” he said. “So how to conduct ourselves in such a world – it’s a huge test for us. And China is the most closely approximate country in terms of power. And one with such a complex history. It’s a big challenge.”

Read the rest of the article and see the video at www.cnn.com

Obama’s Reckless, Ridiculous China Policy

John R. Bolton |  Daily Beast

President Obama’s disinterest and inexperience in foreign and national security affairs are nowhere more evident than in his China policy. Consider his administration’s record in just one year:

  • We have lurched from Secretary of State Clinton dismissing any possibility of progress on human rights, just before her visit to China last year, to the president planning to meet with the Dalai Lama this month.
  • We announce major new U.S. weapons shipments to Taiwan even as we eagerly look to China to fund major portions of President Obama’s massive U.S. government budget deficits.
  • We avoid pressuring China for cyber attacks on American companies, its tolerance of intellectual property theft, and other rule-of-law violations, and instead lean on China to reduce its carbon emissions to combat global warming.
  • We allow China to evade taking serious responsibility for North Korea’s nuclear weapons program, while we simultaneously seek China’s support for additional Security Council sanctions against Iran’s program

Pursuing competing or inconsistent priorities is hardly new or unusual for the United States, given our global commitments and obligations, which make it nearly impossible to pursue any single priority to the exclusion of others. Indeed, one real metric of foreign-policy success is juggling these varying interests. Obama’s China policy is different–and potentially quite deleterious for the United States–because it unfolds in almost random fashion.

The secret of what’s wrong with his foreign policy is what’s wrong with his domestic policies. Obama’s central focus is domestic, and neither his inclinations nor his experience afford him the judgment required for serious foreign-policy decisions. Accordingly, having proposed $8.5 trillion in deficits over the next decade, and lacking enough gall to propose the requisite taxes to fund such extraordinary spending, Obama has only the alternatives of printing money or issuing debt. Both are harmful, but the debt route is a less visible way to debase the currency. Implicitly, Obama expects China to purchase a major portion of this debt, adding to its existing enormous share of Treasury obligations. Unfortunately for the president, however, China appears unwilling to play. In particular, China worries about the potentially devastating effects these mountainous additions to the national debt will have on the U.S. economy, and thus our ability ultimately to repay all or even most of it.

Of course, this is precisely what Washington should be worried about, not Beijing. It is little wonder that Chinese leaders now question not only America’s grip on its own economy, but its grip on international politics as well. This U.S. implosion is mirrored in Obama’s fascination with the multilateral regulatory regimes favored by the Kyoto/Copenhagen global-warming negotiating process. Assuming both the seriousness of global warming, and its anthropogenic causation, however, does not dictate self-evident solutions. In fact, many Copenhagen advocates would favor the same government-imposed “solutions” even if the problem were global cooling, or if there were no earth-temperature issue at all. Ironically, China is the world’s one large economy that could easily adopt the near-authoritarian, command-and-control economics favored by the Copenhagen crowd, and yet it refuses to do so. Beijing argues, not unreasonably, that drastic limitations on carbon emissions will thwart its plans for economic growth, which it simply has no intention of doing. China must also wonder why a purportedly free-market country like America is following this decidedly statist path.

Not only are Obama’s domestic priorities driving him in the wrong direction with China, perhaps even worse, he seeks the wrong answers from China even on strictly national-security issues. U.S. policy on Iran’s and North Korea’s dangerous nuclear-weapons programs highlights this anomaly most clearly. In both the Bush and the Obama administrations, we have allowed China to escape responsibility for stopping Pyongyang’s nuclear program, something it has the unique capacity to do, given the North’s reliance on China for energy, food and other critical resources. Although China says it opposes a nuclear North Korea, it is unwilling to take tough measures because it fears even more the collapse of the Pyongyang regime and the possible reunification of the Korean Peninsula. While eliminating North Korea would end Northeast Asia’s nuclear problem and lead to regional and international stability, China will not act for fear of enhancing the U.S. position in the region. Our response for eight years has been to allow China to pursue its interests aggressively, while forfeiting our own.

By contrast, on Iran, we face a regime determined to acquire deliverable nuclear weapons, and resolutely undeterred by three existing UN Security Council sanctions resolutions. Nonetheless, the Obama administration proclaims that a fourth set will somehow achieve what the first three have failed to do, despite China’s repeated and very public statements that it does not support such an approach. Of course, even if another resolution is adopted, the real question is whether it will have the slightest impact on Iran’s decision making. The near-certain answer is “no.” Instead of practically begging China for support, therefore, America should be making its own hard decisions to do what is necessary to prevent what now looks almost inevitable absent an Israeli military strike: Iran with nuclear weapons.

Many people blame China for pursuing its national interests in such a bold and unembarrassed fashion. They are mistaken. China is just doing what comes naturally. The real question is why the United States is not doing the same.

Google Didn’t Kowtow and Neither Should You

By John R. Bolton |  Wall Street Journal Asia

Google’s threat to withdraw from China has attracted considerable attention in business circles and the critical but arcane world of cyber warfare. But the unfolding story also has far broader implications for how U.S. businesses approach the Chinese market and for the U.S. government, which has often failed to vigorously assert U.S. political and economic interests. Far from being a retreat, Google’s move may represent an aggressive corporate step forward in insisting on reciprocal fair dealing.

Although there have been prior examples of corporations leaving China, Google’s is the most noteworthy potential precedent because of its global prominence. China’s apparent hacking into Google’s email system also raises broader questions about the country’s inadequate protection of intellectual property and what place the rule of law actually has among Chinese policy-making priorities, political as well as economic. Human rights, freedom of religion and ethnic discontent all cloud China’s reputation as a “responsible stakeholder” in world affairs.

Nonetheless, the lure of China’s market has quieted many complaints by foreign businesses loathe to provoke Beijing or cede such a potentially huge market to competitors, either domestic or foreign. Inevitably, the refrain is that “China will soon be the world’s largest economy,” and firms are simply expected to bite their tongues and plow ahead.

For years, U.S. administrations of both parties have held much the same view. Analysts and “experts” repeatedly advise not to “press too hard” on China on (a) currency manipulation; (b) North Korea’s nuclear-weapons program and proliferation generally; (c) domestic human-rights policy; (d) Tibet; or (e) [fill in the blank] because “China will not be pleased.” Of course, this is a prescription for doing nothing to change undesirable Chinese policies, and indeed implicitly encourages Beijing to continue them.

These widespread strategies of appeasement simply give China what it wants for free. Bringing China appropriately to diplomatic battle on any given issue can hardly be worse than surrendering without a fight, which has occurred all too often in recent years. If fear of retaliation over the immediate issue in dispute—or in a perhaps completely unrelated area—inhibits the U.S. from objecting to unsatisfactory Chinese policies, China will simply proceed to have its way. This analysis is not a criticism of China, which forthrightly does what it can get away with, but of limp-wristed American policy.

Take, for example, China’s massive store of U.S. government debt, the current all-purpose reason not to rouse the slumbering Chinese dragon. China’s holdings should not inhibit Washington from strongly asserting U.S. views, whether on North Korea, human rights or trade. If Beijing actually acts in a way that exacerbates the looming debt problem, it would only be making concrete what we already know, and should already be resolving on our own—which is that our growing public debt is unwise and unsustainable. China already runs its own considerable economic risks as a U.S. creditor. It may be China that is the paper tiger—but how will we know, if we never test it? (Ironically, the U.S. should be delighted that China worries about exploding U.S. government budget deficits and the risks of massive inflation. Too bad the Obama administration doesn’t have Beijing’s acuity, but perhaps China will save us from our own misdirection.)

China’s advocates make a critical mistake trying to justify the country’s aberrant commercial behavior. Businessman Tang Jun, for example, recently questioned Microsoft’s position against piracy of its intellectual property by telling the Washington Post that “in a lot of other countries that can work. But China is a very unique country.” Unique in saying that stealing intellectual property is the norm in China and must be accepted? Hardly an “open for business” sign or the reputation that any country, no matter how large its market, should want.

Supineness only convinces Beijing that a “take it or leave it” approach will work in more and more circumstances. Here, Google’s conduct in the immediate future is critical: If Google can negotiate satisfactory protections for its operations in China and decides to remain, then its hard line will have proven successful. But if Google cannot get essentially what it wants, and nonetheless remains in China, that will be the worst signal of all. Google must remember never to make threats unless the company is fully prepared to carry them out.

The U.S. government and American businesses should do what they naturally do elsewhere: defend their own interests vigorously. Make deals in or with China when they meet the tests of satisfying those interests, not out of generalized fear of retaliation or lack of cooperation from Beijing down the road. In reality, Beijing is more likely to respect a determined interlocutor, business or government, than a weak-willed one. It is incomprehensible that Americans have not appreciated and acted upon this lesson in recent years. Perhaps Google is about to educate us.

President Obama Didn’t Impress Asia

John R. Bolton |  Wall Street Journal

Barack Obama’s first visit to Asia since his inauguration was one of the most disappointing trips by any U.S. president to the region in decades, especially given media-generated expectations that “Obamamania” would make it yet another triumphal progression. It was a journey of startlingly few concrete accomplishments, demonstrable proof that neither personal popularity nor media deference really means much in the hard world of international affairs.

The contrast between Asia’s reception for Obama and Europe’s is significant. Although considered a global phenomenon, Obamamania’s real center is Europe. There, Mr. Obama reigns as a “post-American” president, a multilateralist carbon copy of a European social democrat. Asians operate under no such illusions, notwithstanding the “Oba-Mao” T shirts briefly on sale in China. Whatever Mr. Obama’s allure in Europe, Asian leaders want to know what he means for peace and security in their region. On that score, opinion poll ratings mean little.

What the president lacked in popular adulation, however, he more than made up for in self-adulation. In Asia, he labeled himself “America’s first Pacific president,” ignoring over a century of contrary evidence. The Pacific has been important to America since the Empress of China became the first trading ship from the newly independent country to reach the Far East in 1784. Theodore Roosevelt created a new Pacific country (Panama) and started construction on the Panama Canal to ensure that America’s navy could move rapidly from its traditional Atlantic bases to meet Pacific challenges. William Howard Taft did not merely live on Pacific islands as a boy, like Obama, but actually governed several thousand of them as Governor-General of the Philippines in 1901-1903. Dwight Eisenhower served in Manila from 1935 to 1939, and five other presidents wore their country’s uniform in the Pacific theater during World War II—two of whom, John F. Kennedy and George H.W. Bush, very nearly perished in the effort.

But it was on matters of substance where Mr. Obama’s trip truly was a disappointment. On economics, the president displayed the Democratic Party’s ambivalence toward free trade, even in an economic downtown, motivated by fear of labor-union opposition. On environmental and climate change issues, China, entirely predictably, reaffirmed its refusal to agree to carbon-emission limitations, and Mr. Obama had to concede in Singapore that the entire effort to craft a binding, post-Kyoto international agreement in Copenhagen had come to a complete halt.

On U.S. national security, Mr. Obama came away from Beijing empty-handed in his efforts to constrain both the Iranian and North Korean nuclear weapons programs, meaning that instability in the Middle East and East Asia will surely grow. In Japan, Mr. Obama discussed contentious issues like U.S. forces based on Okinawa, but did not seem in his public comments to understand what he and the new Japanese government had agreed to. Ironically, his warmest reception, despite his free-trade ambivalence, was in South Korea, where President Lee Myung-bak has reversed a decade-long pattern by taking a harder line on North Korea than Washington.

Overall, President Obama surely suffered his worst setbacks in Beijing, on trade and economics, on climate change, and on security issues. CNN analyst David Gergen, no conservative himself, compared Mr. Obama’s China meetings to Kennedy’s disastrous 1961 encounter with Soviet leader Nikita Khrushchev in Vienna, a clear indicator of how poorly the Obama visit was seen at home. The perception that Mr. Obama is weak has already begun to emerge even in Europe, for example with French President Nicholas Sarkozy, and if it emerges in Asia as well, Obama and the U.S. will suffer gravely.

Many media analysts attributed the lack of significant agreements in Beijing to the “rising China, declining America” hypothesis, which suits their ideological proclivities. But any objective analysis would show that it was much more Mr. Obama’s submissiveness and much less a new Chinese assertiveness that made the difference. Mr. Obama simply seems unable or unwilling to defend U.S. interests strongly and effectively, either because he feels them unworthy of defense, or because he is untroubled by their diminution.

Of course, most Americans believe they elect presidents who will vigorously represent their global interests, rather than electing Platonic guardians who defend them only when they comport with his grander vision of a just world. Foreign leaders, whether friends or adversaries, expect the same. If, by contrast, Mr. Obama continues to behave as a “post-American” president, China and others will know exactly how to take advantage of him.

This Is No Time to Kowtow to China

John R. Bolton |  Globe and Mail

Barack Obama approaches his first official trip to China with his Asia policy unclear. Much depends on his view of China’s future and what he thinks America’s priorities should be.

Too many Americans, particularly business leaders, see China as a monolithic economic power, inexorably growing until its aggregate economy shortly surpasses America’s. China’s large U.S. debt holdings, its substantial foreign currency reserves and trade surpluses, its population size and its rapacious global search for raw materials, combined with the long-standing (if usually unfulfilled) allure of its domestic market, all have their impact in the United States.

Understandably, the hope is that China will be a “responsible stakeholder,” which would befit a major global economic power. Where many err, however, is in transforming this hope to current reality and believing, therefore, that propitiating China will ensure it acts responsibly. Thus, neither the Bush nor Obama administrations have pressed China enough to do what it can uniquely do to end North Korea’s nuclear weapons program.

Moreover, Mr. Obama has been unwilling to oppose China even on so basic an issue as the U.S. dollar’s remaining the world’s reserve currency. Secretary of State Hillary Clinton, flying to Beijing, famously announced that China’s human-rights record would not impede broader dialogue. Her remark may or may not have been wise, but one can at least ask whether Washington shouldn’t have got something back for throwing human rights under the bus.

Pre-emptive concessions rarely convince another important power that the United States is serious about asserting and defending its own vital interests. Nor is the reflexive inclination of some analysts to resolve essentially all Asia-related policies with Beijing, rather than balancing China by relying on traditional U.S. allies. But, more fundamentally, the model of China on which the deferential, Sino-centric policies of the past several administrations have been based is badly flawed.

We cannot know China’s future course, disturbing but for the reality that China itself does not confidently know its way ahead. The paradigm of continued economic growth, a straight line from Deng Xiaoping’s economic reforms, is one possible future, but far from the only one.

Rather than just the past few decades, look at China’s previous century: the collapse of the last imperial dynasty, the rise and repeated fall of the Republic of China, internal chaos among belligerent warlords, invasion and subjugation by Japan, civil war between Communists and Nationalists, Mao’s dictatorship–which brought two of world history’s greatest tragedies, the Great Leap Forward and the Cultural Revolution–and then the 1989 repression at Tiananmen Square, just for starters. This is a hundred years of radical discontinuity, and straight-lining that century rather than just the most recent decades predicts a very different future.

We also cannot ignore that the Communist Party remains China’s dominant political force, and that the People’s Liberation Army is the party’s hardest of hard cores. China is upgrading and expanding its strategic nuclear missile capabilities and its air force, implicitly threatening Japan and other Asian countries–and which should be of growing concern to the United States itself.

China is modernizing its huge but technologically immature ground forces, and rapidly building blue-water naval capabilities that could undermine U.S. pre-eminence in the western Pacific for the first time since the Second World War. No wonder China’s neighbours are worried, and worried also about the Obama administration’s response.

And China’s internal situation is far from rosy. The “one child per family” policy has left tens of millions of Chinese men with no realistic prospect of marriage, ever. China’s creatively derived economic statistics conceal huge unseen armies of unemployed, both in coastal cities and deep in the interior, with only remote job prospects. These and other factors portend potentially enormous social and political instability.

An effective U.S. Asia policy, therefore, should not assume an economically omnipotent China or ignore or understate the still-critical role of close allies such as Japan. Nor should we shrink from imposing intense pressure on issues important to the United States, such as North Korea’s nuclear threat or substantial trade barriers and internal rule-of-law problems China poses on issues such as intellectual property. If we simply assume it is too risky to be firm with China, Beijing wins by default, and American interests suffer.

China is frailer internally than its propaganda admits, and other Asian nations are far from ecstatic about a rising China and a declining America. We need a U.S. policy that does not uniformly defer to China but that asserts U.S. interests unapologetically. China would respect such an approach, because it appreciates how great powers routinely treat each other on vital national interests. The question for Barack Obama is whether he understands that it is not a strong American policy that could provoke China, but a weak one.

What’s Good for Taiwan

John R. Bolton |  Los Angeles Times

Taiwan continues to progress towards democracy, but must establish a beneficial economic relationship with China.

On March 22, Taiwan’s citizens, demonstrating their commitment to a free and open political system, overwhelmingly elected Ma Ying-jeou, the candidate of the Nationalist Party, as their new president. With 76% of eligible voters turning out, Ma beat the Democratic People’s Party candidate, 58% to 42%.This represents Taiwan’s second peaceful transition of power through free and fair national elections; the first came in 2000, when incumbent President Chen Shui-bian, of the DPP, defeated the Nationalists, who had maintained one-party rule for nearly half a century.

Many in Europe and the U.S. have misinterpreted what Ma’s victory, combined with an earlier Nationalist Party win in national legislative elections, means for Taiwan’s future. It does not mean that Taiwan is shifting from pursuing independence from China to its very opposite, reunification with the mainland. Quite the contrary. Certainly, many Nationalists do hope for ultimate reunification. But Taiwan’s political life is far more complicated than the simplistic dichotomy in many Western media reports.

Over the last several decades, there has been remarkable stability in the center of Taiwan’s politics. Faced with the options of reunification, independence or continuation of the status quo, substantial majorities of Taiwanese have chosen the status quo, at least for the foreseeable future. That status quo is that the island is a state–the Republic of China on Taiwan–that meets all the key customary international law criteria: a responsible government, a defined territory and a stable population.

In a 2007 survey of public opinion in Taiwan by Taipei’s Mainland Affairs Council, 81.5% of respondents said they supported maintaining the status quo while deciding on reunification or independence at an unspecified future date. Only 10.2% wanted independence “as soon as possible,” and only 2.2% wanted reunification “as soon as possible.”

At the same time, of course, Taiwanese of all political stripes complain about their international political isolation and about Beijing’s efforts to further that isolation, especially its effort to force nations to choose diplomatic relations with either Taiwan or China. Taiwanese fear that if China’s policy prevails and renders them completely isolated, Beijing would face minimal international opposition to increased hegemony over the island and, ultimately, to Taiwan’s unwilling absorption into the mainland.

Ma’s campaign focused on Taiwan’s economy, which, despite a 5.7% growth rate in 2007–which the United States or Europe would love to match–has lagged compared with some other Asian economies. In particular, many Taiwanese fear that long-standing political disputes with China have kept Taiwan from fully benefiting from the mainland’s economic expansion.

This is a threat because it is Taiwan’s enormous stature in the world economy that gives it political leverage, with or without formal recognition. In fact, Taiwanese investors, managers and workers already increasingly rely on the mainland for production and distribution facilities, although they often do so in concealed and tortuous ways to avoid scrutiny by the government in Taipei. The issue, therefore, is not whether economic closeness with China is going to happen, but whether it will happen openly and more efficiently, and thus more likely to be to Taiwan’s advantage. This is the change that Ma argued he could bring.

Ma’s strong support for closer economic ties with China reflects the widely held expectation that such ties will improve Taiwan’s economic position. Moreover, in pursuit of those ties, he will downplay Taiwan’s political challenge to China, not because, as many Europeans and Americans mistakenly believe, he ultimately seeks to lay the basis for reunification, but because he believes that enhancing Taiwan’s economic strength will lead to increased political strength for whatever negotiations come later with China. That is entirely sensible. An economically weaker Taiwan is hardly well-positioned to stand up to the rapidly growing Chinese economy.

U.S. policy has long held that the Taiwanese people should make their own decisions about their political future, free from Beijing’s political or military coercion. Unfortunately, during Chen’s administration, relations between Taipei and Washington grew chilly, as much or more because of mistakes in Washington than anything Taiwan did. Whatever the causes of the tension, however, now is the time for the United States to reaffirm clearly and unequivocally that it supports the expression of the people’s will in Taiwan’s elections and will continue to stand beside its longtime ally, including through necessary military assistance.

For the United States, the clearest way of expressing that support is to give full diplomatic recognition to the state that already exists and that the Taiwanese overwhelmingly wish to preserve. Maintaining ambiguous, informal ties to Taiwan is confusing and potentially dangerous; it obscures Beijing’s understanding of just how committed the United States is to Taiwan’s defense and self-determination.

Recognition would bring stability and certainty, thus actually lowering the risks that Beijing will misinterpret the U.S. position and threaten or actually commence military action to regain Taiwan. Extending diplomatic recognition would no more prejudice the U.S.’ “one China” policy (itself an exercise in confusion and ambiguity) or the ultimate issue of reunification than did U.S. recognition of the two Germanys during the Cold War.

China will not like this turn of events, but inevitably it will have little choice but to accept dual recognition. Now more than ever, the United States–and Europe and Japan–must be assertive in supporting a strengthening democracy in Taiwan.

Salvaging Our North Korea Policy

John R. Bolton |  Wall Street Journal

There are some signs that the Bush administration may be reaching the end of its patience with the Six-Party Talks on North Korea’s nuclear weapons program.
There are signs, albeit small ones, that the Bush administration may be reaching the end of its patience with the Six-Party Talks on North Korea’s nuclear weapons program. These signs could prove illusory. But as it nears its end, the administration has a serious responsibility: It must not leave its successor with an ongoing, failed policy. At a minimum, President Bush should not bequeath to the next president only the burned-out hulk of the Six-Party Talks, and countless failed and violated North Korean commitments.

Since they were conceived in spring 2003, the Six-Party Talks have stumbled around inconclusively. And for the last 13 months, Pyongyang has ignored, stalled, renegotiated and violated the Feb. 13, 2007 agreement.

Throughout all this “negotiation,” which has mostly consisted of our government negotiating with itself, North Korea has benefited enormously. It’s been spared the truly punishing sanctions that concerted international effort might have produced. In large part because of the appeasement policies of the two previous South Korean governments, Pyongyang has not felt the full impact of the Proliferation Security Initiative (PSI) on its outward proliferation efforts. The U.S. has muzzled its criticism of North Korea’s atrocious oppression of its own citizens. And, perhaps most humiliatingly of all, the U.S., in a vain effort at chasing the mirage, gave up its most effective pressure point–the financial squeeze–allowing Pyongyang renewed access to international markets through institutions like Banco Delta Asia.

In fact, the protracted Six-Party Talks have provided Kim Jong-il with the most precious resource of all: the time to enhance, conceal and even disperse his nuclear weapons programs. Time is nearly always on the side of the would-be proliferator, and so it has proven here. In exchange for five years of grace to North Korea, the U.S. has received precious little in return.

Pyongyang is now stonewalling yet again on its promise to disclose fully the details of its nuclear programs, including its uranium enrichment efforts and its outward proliferation. The successful Israeli military strike against a Syrian-North Korean facility on the Euphrates River last September highlighted the gravity of the regime’s unwillingness to do anything serious that might restrict its nuclear option.

President Bush should spend the next 10 months rectifying the Six-Party concessions and put North Korea back under international pressure–efforts that would be welcomed by Japan, and South Korea’s new, far more realistic President Lee Myung-bak. Here are the steps to take:

  • Declare North Korea’s repeated refusal to honor its commitments, especially but not exclusively concerning full disclosure of its nuclear programs, unacceptable. This is the easiest step, and the most obvious. It can happen immediately. Accept no further partial “compliance,” as the State Department continuously tries to do. Make public what we know about the North’s Syria project, and its uranium enrichment and missile programs, so our 2008 presidential candidates can have a fully-informed debate.
  • Suspend the Six-Party Talks, and reconvene talks without North Korea. Although the talks could be jettisoned altogether, continuing them without the North allows Japan, South Korea and the U.S. to begin applying real pressure to China, the one nation with the capacity to bring Pyongyang’s nuclear program to a halt. China has feared to apply such pressure, worried that it could collapse Kim Jong-il’s regime altogether–an accurate assessment of the regime’s limited staying power. Nonetheless, the effect of Chinese reticence has been to preserve Kim and his nuclear program. It is vital that China know this policy is no longer viable.
  • Strengthen international pressure on North Korea’s nuclear and missile programs. Ramp up PSI cooperation with South Korea. Remind Russia of its own voluntarily-assumed obligations as a PSI core member. Remind China as well to comply with the sanctions imposed on North Korea by U.N. Security Council Resolutions 1695 and 1718 (which followed the North’s 2006 ballistic missile and nuclear tests), and honor its other counterproliferation obligations. Tell them we will be watching with particular care, and that Chinese failure to increase pressure on North Korea will have implications in Sino-American bilateral relations. We can make this point privately to China rather that trumpet it publicly, but it should be made without ambiguity.
  • Squeeze North Korea economically. Return the regime to limbo outside the international financial system, and step up action against its other illicit activities, such as trafficking in illicit narcotics and counterfeiting U.S. money. These and other “defensive measures” are nothing more than what any self-respecting nation does to protect itself, and the U.S. should never have eased up on them. Even now they can have a measurable impact on Kim Jong-il’s weak and unsteady regime.
  • Prepare contingency plans for humanitarian relief in the event of increased North Korean refugee flows or a regime collapse. Both China and South Korea have legitimate concerns about the burdens they would face if the North collapsed, or if increased internal economic deprivation spread instability. America and Japan should make it plain that they will fully shoulder their share of providing humanitarian supplies and assistance if either happened. Moreover, President Lee should increase pressure on Pyongyang–by reiterating that South Korea will fully comply with its own constitution and grant full citizenship to any refugees from the North, however they make their way to the South.

Doubtless there are other steps. President Bush will not likely be able to solve the threat posed by North Korea’s nuclear weapons program. Nonetheless, he still has time to implement policies that will allow him to leave office with the nation back on offense–thereby affording his successor the chance to vindicate a return to the original Bush administration national security strategy.

Taiwan, the PRC, and the World Trade Organization

John R. Bolton |  Senate Foreign Relations Committee

In order to preserve the WTO as a non-political body, Congress would do well to consider the long- term benefits for the WTO that would accrue by supporting what could be an important and precedent- setting declaration of Congressional intention to insulate the WTO from extraneous political debates.

Mr. Chairman and Members of the Committee:

It is a pleasure to appear before you this morning to discuss issues relating to the proposed accession of the Peoples Republic of China (“PRC”) and the Republic of China on Taiwan (“ROC” or “Taiwan”) to the World Trade Organization (“WTO”). I have a prepared statement that I will summarize, and submit for the record, and I would be happy to answer any questions that Members of the Committee might have.

On February 21 of this year, just a month before Taiwan’s presidential election the PRC released an 11,000 word white paper reiterating Beijing’s position that it reserved the right to use military force in order to reunify Taiwan with the Mainland. Indeed, the white paper announced that Beijing would consider military force permissible merely if Taiwan, in the PRC’s view, unjustifiably delayed talks on reunification, a major escalation of the threat level against the ROC. (Previously, Beijing had said that invasion would be justified if Taiwan explicitly declared independence from the PRC, or if Taiwan was occupied by a foreign power.) Although the United States rejected this PRC assertion, and although many believed that it backfired on Beijing in the ROC election, the white paper unquestionable represented a major escalation of international pressure by the PRC against Taiwan.

Accordingly, since at least early this year, many have worried that the PRC would not adhere to the terms of the initial agreement under which both PRC and ROC applications to the General Agreement on Trade and Tariffs (“GATT”) (and now in GATT’s successor organization, the WTO) would be treated effectively in tandem. When criticisms of the white paper were raised in the United States, just a few days after its release, the PRC reacted angrily to any suggestion that its military threats against Taiwan should be considered in connection with Congressional deliberations over Permanent Normal Trade Relations (“PNTR”) status for China. PRC Foreign Ministry Spokesman Zhu Bangzao said: “Taiwan is purely an internal matter of China. Taiwan is an indivisible part of Chinese territory…….. Zhu said: “we view the white paper and the issue of normal trade relations as two entirely separate issues,” and that China “firmly opposes any attempt to link these issues.” The March 18, 2000, election of Chen Shui-bian as Taiwan’s President, and the effective demise of the “one China” policy reflected in the broad popular consensus on the island, have only exacerbated those fears.

Until the successful conclusion of the requisite bilateral negotiations between the PRC and the United States, the European Union, and other major trading partners, the issue of Taiwan’s accession pursuant to the original “understanding” had not received prominent attention in Washington. Just recently, however, Beijing has explicitly introduced the explosive political issue of Taiwan’s political status into the WTO’s consideration of the pending membership applications for China and Taiwan. Although apparently not directly challenging Taiwan’s application, the PRC is attempting to condition Taiwan’s WTO entry on accepting the long-standing PRC position that Taiwan is part of “China.” If the PRC’s insistence on this seemingly innocuous bit of nomenclature were to prevail, it would mark a significant victory in its campaign to assert sovereignty over Taiwan. Moreover, such a politicization of the WTO could gravely damage this already-shaky new organization, both in the United States and in the world as a whole.

The WTO is intended to be purely a trade organization, divorced from political questions that should be handled bilaterally or in other international organizations. Trade issues themselves are often intractable, and introducing political or other non-trade issues might bring the entire WTO process to a halt. Thus, neither the WTO nor its predecessor, the GATT, requires members to be “states” in international terms, but only “customs territories” that have effective control over customs policies within their geographical territories. Under this approach, Hong Kong, for example, is a WTO member, even though it is indisputably part of the PRC. This is an entirely salutary approach (and was long followed in the GATT context), one that is it in the long-term interests of the United States, and one that we should work hard to preserve. It clearly differentiates questions of WTO membership from membership in the United Nations, or the UN’s specialized and technical agencies, which almost invariably limit membership to “states” as understood under “customary international law.”

Taiwan is also currently on track for WTO admission as a “customs territory,” thus avoiding, for WTO purposes, the flammable issue of Taiwan’s international political status. When the accession process for Taiwan and the PRC was launched in late 1992, all agreed that the underlying political disputes would be put aside, consistent with GATT’s limited focus on trade. Under that arrangement, once all of the requisite bilateral and multilateral negotiations were successfully completed, the PRC was to enter GATT (and, subsequently, the WTO) slightly ahead of Taiwan, which would in turn become a member under the name “Chinese Taipei.” At that point, the PRC, Hong Kong and Taiwan would all be full WTO members as “customs territories,” with the still- unresolved political issues to be fought out elsewhere.

The PRC’s interjection of the disruptive political status issue into the WTO admissions process now was obviously carefully calculated in Beijing. Washington’s first reaction was that the PRC might have endangered the PRC’s quest for PNTR with the United States, which the Senate is still considering. To avoid unrest in Congress, the Clinton Administration correctly stated that it opposed the PRC effort. Significantly, however, Deputy U.S. Trade Representative Rita Hayes also said publicly that the 1992 arrangement was still in place, and that “China is going to live up to its commitments,” something that the PRC itself has not yet acknowledged. To the contrary, China’s Deputy Trade Minister, Long Yongtu, responded ominously: “the one China policy is a matter of principle for us.”

In fact, the PRC is trying to advance its political agenda in a non-political forum, rather than directly trying to keep Taiwan out of the WTO (although that might well be the practical consequence). Because the trade negotiators, business interests and lawyers who inhabit the ATTO world are relatively isolated from larger international political issues, the stakes will not appear to them as high as they really are. Mere questions of name cards” seem insignificant compared to “important” questions like PRC agricultural export subsidies (on which, not coincidentally, the PRC is also now backtracking). This is a familiar tactic in international organizations. The undisputed master is the Palestine Liberation Organization (“PLO”), which for years attempted to enhance its international status by campaigning for membership in such bodies as the World Health Organization (“WHO”), which requires that members must be “states” in international parlance. By so doing, the PLO hoped to enhance its international status (or at least the perception of that status, which may be nearly the same thing), and thereby create “facts on the ground” in its negotiations with Israel, thus bolstering its bargaining position.

The PLO began this effort in 1988, by declaring its “statehood,” and changing the name card in front of its desk at the UN from “Palestine Liberation Organization” to “Palestine…… Palestine,” of course, sounds much more like a “state” or at least a geographical entity than something with the word “organization” in its name. This name change the PLO could accomplish unilaterally, but membership in UN specialized agencies required affirmative votes of the existing memberships. Accordingly, in late 1988 and early 1989, the PLO began a massive diplomatic campaign to secure both diplomatic recognition, as well as the necessary majorities in international organizations. Although the PLO was blocked in its campaign to join the WHO in 1989, for example, its efforts at least briefly created chaos within the UN system, from whose members the PLO hoped to extract political or other concessions, even if it did not achieve the ultimate objective of full membership. (I have attached a brief description of the WHO controversy as an Appendix to this testimony.)

Even after its unsuccessful efforts in the WHO, the PLO tried similar, and ultimately unsuccessful approaches in a number of other international organizations. One of its last efforts to enhance its status was in the UN General Assembly. There, the PLO proposed that its desk on the floor of the UN General Assembly be physically moved closer to the location of the desks of the observer states (Switzerland and the Holy See), hoping thereby to pretend that it too was an observer state rather than an observer national liberation movement. One might say, correctly, that such apparent trivialities should not impinge on truly important policy issues, but, sadly, in international diplomacy almost nothing is too trivial.

The lesson of the PLO experience for the United States is that maintaining the non-political nature of specialized and technical international agencies is highly worthwhile, but that it is even more beneficial to strive to prevent them from becoming venues of political conflict in the first place. Even successfully opposing efforts to use such agencies for political purposes, such as in the PLO case, can impose significant costs on the organizations by diverting them from their underlying missions, and by setting adverse precedents that are often not easily overcome later. Moreover, the PLO example also demonstrates how seemingly arcane points of argument can assume enormous significance if not handled properly when they arise. Finally, had it not been for the leading role played by the United States in opposing the PLO, it almost surely would have succeeded in its quest for UN membership, with untold adverse consequences for the Middle East peace process and the UN system itself. The fact remains that, absent concerted American leadership and diplomacy, disruptive political agendas have a far higher chance of success in technical organizations, a point we cannot ignore in the present discussion.

Just as there is nothing so unedifying as the sight of Health Ministers attempting to resolve international political questions, also unappetizing is the notion of trade officials negotiating the political status of Taiwan. The PRC will doubtless offer compromises” on its initial demand, and insist that Taiwan’s subsequent unwillingness to give way is the real source of the “problem.” Trade officials, like their health ministry counterparts faced with PLO intransigence, will predictably hail the PRC “concessions,” and pressure Taiwan to accept what would otherwise be flatly unacceptable. This is the PRC’s real strategy, and Deputy USTR Hayes’ enthusiastic embrace of the Chinese view shows that Beijing has carefully measured its marks in the Clinton Administration.

But the fundamental point is that, as with the PLO, it is the PRC’s approach that is illegitimate, not Taiwan’s. It is China that is breaching the non-political nature of the WTO by inserting this entirely political question, and Taiwan that is, in effect, defending the WTO’s integrity by resisting. The people being intransigent and uncooperative here are from Beijing, not Taipei. If the United States and others succumb to the PRC’s ploy, not only will Beijing likely succeed against Taipei, but it will also have severely damaged the WTO’s ability to withstand pressures to consider other extraneous, non-trade issues, such as labor standards and the environment, to name just two. Certainly the past few years have shown us just how vulnerable the WTO is to such pressures, and it would be irresponsible not to take the implications of Beijing’s ploy seriously.

Here is where Congress must declare unequivocally that the PRC’s maneuver is unacceptable, and that there is no possible compromise on this point. This is a real trade issue, not one of human rights or weapons proliferation, and one that therefore is directly related to PNTR status. Congress should insist, before granting PNTR, that the PRC drop all political objectives in the WTO, and specifically that is should not attempt to derail Taiwan’s accession, or attempt to extract political leverage from the process. It should also insist, in the Clinton Administration’s waning days, that the President himself ensure that U.S. diplomats are not seduced by Chinese “reasonableness,” and not allow the 1992 accession agreement to be subverted.

Senator Kyl’s proposed amendment would go a long way toward achieving this objective. Because of the Administration’s weak defense of the original WTO understanding” on PRC and ROC accession, Congress has little maneuvering room if it wishes to take up the slack. The Kyl amendment attempts to overcome that problem, not by undercutting the granting of PNTR status to China, or by introducing extraneous non- trade issues, but simply by calling on China to adhere to its original agreement on the sequence of accession to the VY70 for both the PRC and “Chinese Taipei.”

The amendment is a limited and prudent step, and one that should not derail or unduly delay the PNTR process. There is no inconsistency between the Kyl amendment and a position fully supportive of free trade and the WTO. To the contrary, in order to preserve the WTO as a non-political body, Congress would do well to consider the long- term benefits for the WTO that would accrue by supporting what could be an important and precedent- setting declaration of Congressional intention to insulate the WTO from extraneous political debates. Whatever one’s position on PNTR, or on other amendments concerning PNTR that have been proposed, the Kyl amendment should be considered on its own merits as a genuine effort to expand the legitimate membership of the WTO, enhance trade opportunities for Americans, Chinese and Taiwanese alike.

Mr. Chairman, thank you again for the opportunity to testify today, and I would be pleased to answer any questions the Committee may have.