THEM, IN FACT, ARE RUN BY AMERICAN OR HONG KONG COMPANIES

WHOSE OWN BUSINESS WOULD BE SHARPLY AFFECTED IF IMPORTS FROM CHINA WERE HALTED.

BY

OUR COUNCIL'S STANCE ON SANCTIONS IS BASED ON OUR BELIEF THAT
CHINESE INTEGRATION INTO THE WORLD ECONOMY AND CONTACT WITH
WESTERN BUSINESS HAVE PROVIDED A POWERFUL IMPETUS FOR
POLITICAL, ECONOMIC, AND SOCIAL PROGRESS IN CHINA.
MOVING TO DISMANTLE THE STRUCTURE OF US-CHINA ECONOMIC
COOPERATION, THE US GOVERNMENT WILL BE SHUTTING OFF THE ENGINE
THAT IS DRIVING THE PROCESS OF CHANGE, BOTH POLITICAL AND
ECONOMIC. IT SEEMS LOGICALLY INCONSISTENT TO DO THIS WHILE
CALLING IN THE SAME BREATH FOR INCREASING POLITICAL CHANGE.
IT GOES WITHOUT SAYING, OF COURSE, THAT WE MUST CUT OFF
SUPPORT TO THE REPRESSIVE APPARATUS IN CHINA, IE THE MILITARY,
THE POLICE, AND THE PROPAGANDA MACHINE.

WHERE, THEN SHOULD WE GO FROM HERE? THE US GOVERNMENT MUST CONTINUE TO FORCEFULLY EXPRESS ITS DISPLEASURE WITH EVENTS IN CHINA, AND BOTH THE ADMINISTRATION AND THE CONGRESS SHOULD CONTINUE TO FREEZE MILITARY COOPERATION AND HIGH-LEVEL GOVERNMENT CONTACTS. WE MUST BRING HOME TO THE LEADERS IN

BEIJING THE DAMAGE THEY HAVE INFLICTED ON THEMSELVES.

-7

PRIOR TO ADOPTING ANY FURTHER SANCTIONS THE US GOVERNMENT

SHOULD CONTINUE THE PROCESS OF CONSULTATION WITH OTHER WESTERN
COUNTRIES TO ENSURE THAT THE REACTION TO EVENTS IN CHINA IS
COORDINATED AND MULTILATERAL. US HIGH-TECH EXPORTS TO CHINA
ONLY ACCOUNT FOR ABOUT 10 PERCENT OF THE WORLDWIDE TOTAL, AND
US CREDITS TO CHINA ARE A TINY FRACTION OF THOSE FROM JAPAN
AND EUROPE. NOTHING THAT THE US GOVERNMENT DOES WILL BE
EFFECTIVE UNLESS JAPAN AND OTHER WESTERN COUNTRIES FOLLOW

SUIT. FOR THE CONGRESS TO UNILATERALLY SUSPEND MOST FAVORED
NATION STATUS, ALONG WITH OPIC, EXIMBANK, AND TRADE AND
DEVELOPMENT PROGRAMS IN CHINA WITHOUT COMPARABLE ACTIONS BY
OTHER GOVERNMENTS WILL SIMPLY PENALIZE US EXPORTERS, IMPORTERS
AND INVESTORS WITHOUT, FOR THE MOST PART, HURTING CHINA.
SUSPENSION OF MEN WOULD, IN ADDITION, INVITE CHINESE
RETALIATION AGAINST AMERICAN EXPORTERS OF GRAIN, LUMBER
PRODUCTS AND OTHER COMMODITIES.

US COMPANIES COMPETING IN THE CHINA MARKET HAVE HAD TO DEAL WITH THE LEGACY OF GIVING JAPAN AND EUROPE A 10-YEAR HEAD START IN CHINA DUE TO THE EARLIER FAILURE OF THE US TO RECOGNIZE THE CHINESE COMMUNIST GOVERNMENT, AND IT WOULD BE A PITY TO REPEAT THE EXPERIENCE.

MUCH MORE IMPORTANTLY, OUR GOVERNMENT SHOULD DO ITS BEST TO PRESERVE WHAT CAN BE PRESERVED OF THE FRAMEWORK OF THE USCHINA ECONOMIC RELATIONSHIP IN RECOGNITION OF THE IMPORTANCE

OF THIS RELATIONSHIP TO POSITIVE CHANGE IN CHINA.
ADMINISTRATION AND THE CONGRESS SHOULD ACT WITH THE

THE

REALIZATION THAT BUSINESS IS ALREADY APPLYING THE MOST EFFECTIVE SANCTION OF ALL--A SERIES OF DECISIONS TO REDUCE ECONOMIC ACTIVITY WITH CHINA BASED ON NEGATIVE PERCEPTIONS ABOUT THE BUSINESS CLIMATE. IF OUR GOVERNMENT REACTS WITH PRUDENCE AND RESTRAINT, THE CHINESE GOVERNMENT WILL REACH THE CORRECT CONCLUSIONS ABOUT THE ADVERSE CONSEQUENCES OF ITS ACTIONS MUCH MORE QUICKLY, AND THE US WILL BE MUCH BETTER POSITIONED TO PLAY A POSITIVE ROLE WHEN CHINA RETURNS TO THE PATH OF PROGRESS.

Mr. SOLARZ. Thank you very much.

I am going to have to leave now, so I will turn the chair over to Mr. Gejdenson. But, Mr. Gillespie, could you just answer one question for me?

Mr. GILLESPIE. Sure.

Mr. SOLARZ. Do you support the measure that was adopted by the House and which has more or less been approved by the Senate as well, or do you think that goes too far?

Mr. GILLESPIE. Mr. Chairman, we think that the President has done right now what is sufficient. We believe it is basically very important to preserve his flexibility.

Now, we understand Congress' frustration and the need to make a moral statement. I feel the same way. When we talk, we're all morally outraged. And we understand your need to have a stronger voice in U.S. policy and the messages that are conveyed to China. We would hope for the time being that these economic sanctions would not be imposed, and we are glad that Congress left open the two escape clauses.

Mr. SOLARZ. Thank you.

Mr. GEJDENSON [presiding]. The next witness is Mr. Handal.

STATEMENT OF PETER V. HANDAL

Mr. HANDAL. Thank you, Mr. Chairman. My name is Peter Handal. I am president of Victor B. Handal & Company, which is a manufacturer and importer of children's wearing apparel and accessories. I have been doing business in China since the early Seventies. I am also chairman of the trade policy committee and an officer of the American Association of Exporters and Importers, and it is in that capacity that I appear here today.

The AAEI is a national organization comprised of 1,200 U.S. companies, approximately half of which trade with China, and a very substantial number of which are involved in the textile and apparel business, several references to which have been made today. Our members export, import, distribute, and manufacture the complete spectrum of products, and they provide services to those who also are in the trade.

I have been asked to direct my comments to the MFN, most-favored nation, status. Business involved in nearly all these areas of international trade would be affected by the withdrawal or suspension of most favored nation status for the PRC. We feel this would lead to serious consequences for these firms, their employees, and the U.S. economy. MFN status has been the cornerstone of our trading relationship with China and it permits imports to enter the U.S. at a lower duty rate, whereas imports from countries not granted MFN status are subject to vastly higher duty rates. To give specific instances, duty rates increase in some cases from as low as 7 percent to as high as 90 percent.

I would like to discuss the effects on importers.

Mr. GEJDENSON. Can I just interrupt you there?

The MFN basically falls within the miltifiber agreement?
Mr. HANDAL. No, they are two separate--

Mr. GEJDENSON. They're separate, but clearly, the multifiber agreement limits how much each country can bring into the United States-

Mr. HANDAL. Yes.

Mr. GEJDENSON. But then the only difference would be that it would be far more costly to import from that same country.

Mr. HANDAL. Yes.

Mr. GEJDENSON. The quota wouldn't change because it would be difficult to change that unilaterally, the multifiber agreement. So the question is, do they bring it in, as you said, with a 7 percent duty or a 90 percent duty.

Mr. HANDAL. For example, gloves are something that we import, and gloves are limited in quantity from China to, I think, something like 860,000 dozen. So that's under the MFA. The duty rates currently are approximately 20 percent under MFN. If you take away MFN, the duty rates go from 20 percent to 90 percent, but you would be allowed to bring in the same 860,000 dozen.

Removing MFN status for China would seriously damage many U.S. firms dependent on the trade. It makes no difference from a businessman's perspective whether it's suspended or withdrawn. It's not there so it's not there. We have to pay the higher duties. I think my own company provides a good example of what would happen to small importers if MFN treatment were withdrawn. We import from China various items of children's clothing, including some that have popular cartoon characters such as Batman, Mickey Mouse, Garfield and the like printed on them. We do a substantial business with China every year, and loss of MFN would affect us swiftly and sharply in two ways:

First, we would immediately incur a significant loss on merchandise already contracted for sale at specific prices but not yet delivered to us. The duty increase would completely wipe out our gross profit in most instances. In some cases, the increased duty cost would be so substantial that we would actually have out-of-pocket losses even before considering overhead expenses. In my written testimony, I gave some detailed examples of that kind of thing. Such increased duty costs could put many small firms out of business in no time.

Second, in the future we would simply be unable to continue importing goods from China because the duty increase would make it impossible to sell the products competitively in the United States. The worst and most likely scenario for a company importing from China would be that they would not be immediately able to find any goods to replace those which they were purchasing from China. With the long lead times necessary in our businesses, companies could easily miss a whole season, or even a whole year, which would be very, very difficult to survive.

I might make a comment here, too, about an earlier witness talking about the MFN being an extraordinarily good deal for China. As someone who does business in China on a day-to-day basis, we find the MFN to be very, very restrictive. It hampers our business with them daily.

Let me discuss very briefly the effects on exports. Injury to the 15. would not be limited to those companies that import from

1. It was reported on Monday, for example, in both the Finan