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Mr. GEJDENSON. Thank you very much. That was excellent testimony.

Mr. Lewis.

STATEMENT OF HOWARD LEWIS III Mr. LEWIS. Thank you, Mr. Chairman. My name is Howard Lewis. I am vice president for International Economic Affairs for the National Association of Manufacturers. I do have a longer statement, which I will submit for the record, and I will summarize this very briefly.

I am here today to discuss the issue of economic sanctions against China. I approach this subject not as an expert on U.S.China trade but, rather, as someone who has spent a great deal of time over the past decade working on the issue of foreign policy export controls.

To begin my testimony, I want to make one thing clear. American industry shares the disgust and anger of the Congress and the American people over the massacre of civilians in China, the execution of their leaders, and the suppression of efforts in that country to achieve greater political and economic freedom.

The issue before us today, however, is not whether we abhor what has happened in China-this is something we all share in common. Instead, the issue is how we respond to these events. This leads me to the subject of today's hearings-economic sanctions against China, including the possible controls on U.S. commercial exports.

Almost seven years ago to the day, NAM's president, Sandy Trowbridge, appeared before the House Foreign Affairs Committee to express industry's concern over the growing use of foreign policy export controls. Basically, what we said in 1982 about foreign policy controls, whether applied under section 6 of the Export Administration Act or some other statute, was that they don't alter the target nation's policies or behavior, they frequently embroil the U.S. in diplomatic disputes with our allies, and they tar U.S. industry worldwide with the label of "unreliable supplier.

This is still our view today, and I would be hard put to find a better example to prove the point than recent U.S. sanctions against Panama. In short, we believe foreign policy export controls don't work.

Turning to the subject of economic sanctions against China, the actions taken by the administration as well as much of the debate in the House over the legislation which essentially codifies these actions, demonstrates a welcome recognition of the limited utility of foreign policy export controls. The U.S. has not imposed controls on a wide range of commercial products and has instead focused its response.

In imposing sanctions, U.S. officials have had to balance vital political, economic, strategic, and intelligence issues. This includes consideration of how economic sanctions will affect Hong Kong, which has already been caught up by controls on satellite launches. Implementation of more sweeping sanctions, in particular the denial of most favored nation treatment, could have profound implications for the political and economic stability of Hong Kong.

U.S. companies already face a very difficult situation in deciding what to do about their operations in China. U.S. firms won't stay in this market if more sweeping controls make an already difficult situation impossible.

I would like to comment briefly on three proposals to increase economic sanctions against China. These are the denial of MFN, a ban on Eximbank financing, and the cutoff of high-tech exports. I have already mentioned the MFN issue in connection with Hong Kong, and I would urge these subcommittees to very carefully examine this matter.

I might pause here, Mr. Chairman. I know the staff director for the Subcommittee on International Economic Policy and Trade had a chance to hear Mr. Peter Lowe, Minister for Hong Kong Economic and Trade Affairs, last Friday, at a meeting in our offices, discuss the impact of denial of MFN on Hong Kong. I would urge members of this committee to avail themselves of an opportunity to have a briefing from Mr. Lowe.

I have also spoken with representatives of American firms operating in China who say they will be forced to shut down if additional sanctions such as denial of MFN are implemented.

With regard to the Eximbank financing issue, it is my understanding that the Eximbank is not open for normal business. All transactions are being cleared by the State Department with the Eximbank allowed to proceed only on those cases where the U.S. exporter will lose the business. A complete ban on Eximbank financing would affect nearly $500 million in requests for Eximbank support.

Proposals to stop the export of all commercial products-
Mr. GEJDENSON. Excuse me, Mr. Lewis. Was that $500 million?
Mr. LEWIS. Yes, $500 million.

Proposals to stop the export of all commercial products on the control list would involve nearly $2 billion in high tech U.S. exports. Halting or rolling back the liberalization of national security controls for China would also affect this trade, with the exact impact depending upon whether this was a unilateral or Cocom action. All the preceding proposals, in short, would significantly disrupt U.S. commercial relations with China and certainly would be a major setback to the current U.S. policy goal of maintaining these relations.

While the actions taken so far by the United States demonstrate a welcome recognition of the limited utility of foreign policy export controls, there also exists ample evidence that a "control psychology” is alive and well in this country. By control psychology, I am referring to a phrase coined by Ken Abbott of Northwestern University Law School. Mr. Abbott maintains that, as the use of foreign policy controls becomes commonplace, issue-oriented groups in the United States will increasingly call for trade controls, seeing any program of governmental action not including them as insufficient. In other words, we are talking about the idea that we can't let business continue as usual. I wish we would ban this expression from our vocabulary.

I have included with my testimony today a chart outlining 30 different kinds of economic and diplomatic actions the U.S. could take before resorting to export controls. Some of the suggested actions, in fact, have been taken by the U.S. and its allies in responding to the situation in China. I would hope you might consider building upon the ideas in this chart through a series of hearings and reports over the next year which examine the impact and the utility of various economic and diplomatic actions in response to international developments.

I should note that the G-7 statement issued this past Saturday in Paris is an example of the type of diplomatic initiative which could be added to the 30 different actions mentioned above. The importance of such multilateral action should not be underestimated. The aim of our sanction efforts should be to pressure the Chinese government by isolating them in the world community. This is exactly what the G-7 statement accomplished, and the fact that the Chinese government responded to it shows that we scored a hit. We can avoid giving comfort to the Chinese government and increase their sense of isolation by continuing this unity among the Western powers.

Mr. Chairman, this concludes my testimony. I would be glad to answer questions.

[The prepared statement of Howard Lewis, with attachments, follow:]

STATEMENT OF

HOWARD LEWIS III
VICE PRESIDENT, INTERNATIONAL ECONOMIC AFFAIRS

NATIONAL ASSOCIATION OF MANUFACTURERS

ON

FOREIGN POLICY CONTROLS AGAINST CHINA

BEFORE THE

SUBCOMMITTEE ON ASIAN & PACIFIC AFFAIRS
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY & TRADE
SUBCOMMITTEE ON HUMAN RIGHTS & INTERNATIONAL ORGANIZATIONS

FOREIGN AFFAIRS COMMITTEE
U.S. HOUSE OF REPRESENTATIVES

JULY 19, 1989

Mr. Chairman, members of the Subcommittees, my name is Howard

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this subject not as an expert on U.S.-China trade, but rather as

someone who has spent a great deal of time over the past decade working on the issue of foreign policy export controls.

To begin my testimony, I want to make one thing clear: American industry shares the disgust and anger of the Congress and the American people over the massacre of civilians in China, the

execution of their leaders, an the suppression of efforts in that country to achieve greater political and economic freedom.

In imposing the sanctions noted above, U.S. officials have had to balance vital political, economic, strategic and intelligence issues. This includes consideration of how economic sanctions will

affect Hong Kong which has already been caught by current controls on satellite launches. Implementation of more sweeping sanctions, in particular the denial of MEN, could have profound implications for the political and economic stability of Hong Kong by jeopardizing its status as an entrepot (80 percent of Hong Kong's re-exports come from China) and its substantial manufacturing investment in China. Sanctions that affect Hong Kong would also hit the operations of many of the 900 U.S. firms located there.

There is no denying that commercial considerations are a factor in this situation. official u.s. policy supports continued commercial ties between the U.S. and China. This policy is based

upon the belief that continuation of such ties serve not only

long-term u.s. interests but also those forces in China which we want to see prevail. Proponents of more sweeping sanctions should

realize the extent to which their proposals could undermine this

policy.

U.S. companies already face a very difficult situation in

deciding what to do about their operations in China. U.S. firms won't stay in this market if more sweeping controls make an already difficult situation impossible. I would like to comment briefly on three proposals to increase economic sanctions against China:

1) Denial of MFN: I have already mentioned the MEN issue in connection with Hong Kong and I would urge very careful examination of this matter. I have also spoken with representatives of

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