March 1, 2005

A New Policy for China

The National Association of Manufacturers' 2005 China Trade Agenda is a balanced approach to trade that combines the opening of new markets and tougher enforcement of trade agreements and U.S. trade laws.

For the first time, the National Association of Manufacturers (NAM) and a smaller group of its domestic members are in agreement on a comprehensive new trade policy that the association will pursue with the 109th Congress and second Bush administration.

The agreement, put together by NAM's internal China Working Group, was reached after weeks of discussions between NAM policy executives and members of the Domestic Manufacturing Group (DMG). NAM and the DMG have advocated a more confrontational approach to China on currency issues, enforcement of WTO agreements and trade barriers. The compromise policy, announced by NAM in February, is a blend of domestic manufacturing concerns with existing NAM trade positions.

“Every year we do an international trade agenda, but this year we specifically put together a China trade agenda because China is such an important factor in our trading relationship,” says Patricia Mears, NAM's director for international commercial affairs. “Much of the China trade agenda is what we have been working on in the past, but there are some new things we are calling for as well as some enhancements to our older initiatives.”

The trade agenda for China is intended to strengthen manufacturing in the United States, make North American products more competitive in global markets, and thus reduce the trade deficit with China, which soared to a record $162 billion in 2004, up more than 30% from 2003.

Elements of the agenda include:

Continue to push for a revaluation of the yuan based on market pricing and economic fundamentals, replacing the peg of the yuan to the U.S. dollar
Enforce and enhance intellectual property laws
Refuse to grant market economy status to China until it is in full compliance with all of its trade agreements
Eliminate Chinese administrative, regulatory and standards barriers to imports
Expand exports to China through export promotion programs and expanded export financing
Promote fair competition by applying countervailing duty laws to China to counteract Chinese subsidies.

“NAM has taken some major strides with a much stronger position on China,” says Jonathan Kalkwarf, Metals Service Center Institute vice president, finance and administration, and the Institute's leading public policy executive. “NAM's 2004 trade agenda strives to balance the needs of domestic and multi-national manufacturers. It also correctly uses the U.S. bilateral trade deficit as a benchmark to measure our competitiveness. This is an important change. It envisions the U.S. government and domestic manufacturers working together to reduce these huge deficits.”

Dave Frengel, director of public affairs at Penn United Technology Inc., Cabot, Pennsylvania, and DMG coordinator, says his group plans to take NAM's new 2005 China trade agenda and lobby Congress on the initiatives geared toward bolstering domestic manufacturing. These issues include not only the undervalued currency but also intellectual property theft and the countervailing duty trade bill. If passed, the bill would allow U.S. petitioners to file countervailing duty trade cases against nonmarket economies, which would enable the United States to get tougher on China's trade abuses.

“If we pass this countervailing duty bill against subsidies, the currency manipulation could be proven to be a subsidy,” Frengel says. In the past, he says, the U.S. government had no reason to get tough on international subsidies because the competition wasn't enough to affect the U.S. economy.

Times obviously have changed. “Now you have China coming along and subsidizing their industries in ways we can only guess, such as free land and free housing,” Frengel says.

FINDING COMMON GROUND
Frank Vargo, NAM's vice president for international economic affairs, says that there is far more common ground among NAM member companies—of all sizes—than there are differences on the need to level the international playing field. “The agendas we've released reflect that common ground, and we're optimistic that the Congress and the administration will work cooperatively with us to reach our shared trade goals,” Vargo says.

Arnold Allemang, chair of NAM's International Economic Policy Committee and a member of the Dow Chemical Co.'s board of directors, says the trade agenda reflects input from NAM members of all sizes and represents a balanced approach. “All NAM members share the common goal of strengthening manufacturing in America and improving the competitiveness of our manufacturing sector in the global economy,” Allemang says. “We call on the government to fully enforce trade agreement commitments and rules with the necessary resources and the authority of applicable domestic and international trade law with a focus on seeing that U.S. trade agreements work better for small companies.”

Mears, who also is the executive director of the Coalition for a Sound Dollar, says NAM believes that the United States can compete with any country when it comes to manufacturing. The problem doesn't stop with the currency imbalance: NAM also is committed to remedying the counterfeiting issue in Asia, which costs the United States billions of dollars every year.

2005 NAM CHINA POLICY

In pursuing the following five objectives, NAM expects that U.S. and international trade law will be administered to effectively level the trade playing field with China.

1. IMMEDIATE REVALUATION OF THE YUAN BY UP TO 40%.

Press the U.S. Treasury Department to recognize currency manipulation in its semi-annual report to Congress and urge the International Monetary Fund to exercise its surveillance authority over exchange rates and to cite China under Article IV if progress is not made in consultations.
Encourage the Bush administration to work with the G-7, G-20, Asia-Pacific Economic Cooperation and other international organizations to press the Chinese government to revalue the yuan.

2. A DRAMATIC ACCELERATION OF INITIATIVES TO REDUCE AND ELIMINATE CHINESE INTELLECTUAL PROPERTY RIGHTS VIOLATIONS.

A dramatic acceleration of initiatives to reduce and eliminate Chinese intellectual property rights violations.
Encourage the Bush administration to press China to put into practice the newly announced interpretation of its anti-counterfeiting laws.
Declare China a Priority Foreign Country and consider taking it to the World Trade Organization (WTO) if the out-of-cycle Special 301 Review by the United States Trade Representative in early 2005 does not show sufficient Chinese progress in meeting U.S.-China Joint Commission on Commerce and Trade and WTO commitments.
Engage other countries to implement a program comparable to the recently announced U.S. STOP program to address Chinese counterfeiting.

3. RETAIN CHINA'S NONMARKET ECONOMY STATUS (NME) FOR THE FULL 15-YEAR PERIOD NEGOTIATED IN PERMANENT NORMAL TRADE RELATIONS (PNTR) UNLESS STATUTORY REQUIREMENTS FOR MARKET ECONOMY STATUS ARE FULLY AND CONSISTENTLY MET.

The U.S. government should set up an industry advisory group on NME status to include NAM.
Congressional oversight of China's progress in fulfilling its statutory requirements should be established. The U.S. Commerce Department should provide the appropriate Congressional body with an annual report of its progress.

4. ELIMINATE ADMINISTRATIVE, REGULATORY AND STANDARDS BARRIERS.

Establish a U.S.-China regulatory policy and standards forum to facilitate dialogue on technical trade barriers, promote openness and transparency in regulatory and standards development, and encourage harmonization where possible.
Press for reforms of China's quality mark system to permit U.S. testing bodies to offer certifications and make the process timelier and less costly to U.S. exporters, particularly small and mid-size companies.

5. EXPAND U.S. EXPORTS TO CHINA BY 300% BY 2008, I.E., TO MORE THAN $100 BILLION, PARTICULARLY OF HIGHER VALUE-ADDED MANUFACTURED PRODUCTS.

Strengthen and expand export promotion and financing programs, particularly for small and mid-sized manufacturers.
Double the U.S. Commerce Department China-specific trade promotion budget for fiscal year 2006.
Redeploy the U.S. Commerce Department's commercial service resources and personnel to focus on the China market.
Assist the U.S. Commerce Department in tailoring export promotion programs to the needs of manufacturing sectors.
Conclude by June 2005 an analysis comparing export performance by country and manufacturing
sector to better gauge China trade opportunities and challenges, and techniques of the European Union, Japan and other competitors in their export promotion programs to China to emulate global best practices.
Eliminate artificially created and maintained competitive advantages through WTO-inconsistent subsidization or other means.
The Bush administration should endorse, as a priority in the first session of the 109th Congress, legislation that would clarify the intent of Congress to apply countervailing duty provisions to both market and nonmarket economy countries.
The U.S. Commerce Department's new Unfair Trade Practices Group should undertake and publish an analysis of Chinese subsidization practices.

JOIN THE COALITION

From member organizations to your local congressman, here's what you can do to participate in the debate.

MSCI: The Metals Service Center Institute actively supports legislation, regulations and enforcement actions designed to create a level playing field in international trade. MSCI town hall meetings on manufacturing and public policy issues are conducted by chapters working collaboratively with the national staff. For more information on chapter meetings, visit WWW.MSCI.ORG.

NAM: The National Association of Manufacturers is the nation's largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states. Headquartered in Washington, D.C., NAM has 10 offices across the country. Visit NAM's Web site at WWW.NAM.ORG for more information on how to become a member.

CONGRESS: Elected officials have the responsibility to protect the well-being of all Americans and to represent the interests of their constituents. Letters from constituents are among the most effective ways to make them take notice. To write to your congressman, visit WWW.HOUSE.GOV/WRITEREP.

A New Policy for China

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