S. Rept. 106-305 - 106th Congress (1999-2000)
May 25, 2000, As Reported by the Finance Committee

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Senate Report 106-305 - TERMINATION OF THE APPLICATION OF TITLE IV OF THE TRADE ACT OF 1974 WITH RESPECT TO THE PEOPLE'S REPUBLIC OF CHINA




[Senate Report 106-305]
[From the U.S. Government Printing Office]



                                                       Calendar No. 574
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-305

======================================================================



 
  TERMINATION OF THE APPLICATION OF TITLE IV OF THE TRADE ACT OF 1974 
             WITH RESPECT TO THE PEOPLE'S REPUBLIC OF CHINA

                                _______
                                

                  May 25, 2000.--Ordered to be printed

                                _______
                                

               Mr. Roth, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2277]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, having considered the bill (S. 
2277), to terminate the application of Title IV of the Trade 
Act of 1974 with respect to the People's Republic of China, 
reports favorably thereon, without amendment, and recommends 
that the bill do pass.

                             I. BACKGROUND


           Normal Trade Relations Policy of the United States

    For most of its early history, the United States accorded 
its trading partners non-discriminatory tariff treatment, 
referred to under U.S. law as ``normal trade relations'' (NTR), 
only on a bilateral basis. The United States most commonly 
extended NTR through bilateral commercial agreements known as 
treaties of friendship, commerce, and navigation (FCN). Those 
FCN treaties would normally contain a clause granting NTR, 
although generally on a conditional, rather than unconditional, 
basis.
    The passage of the Reciprocal Trade Agreements Act of 1934 
(Pub. L. 73-316, ch. 474, 48 Stat. 943) marked a departure from 
that practice. The 1934 Act authorized the President to enter 
into trade agreements providing for a reciprocal reduction in 
tariffs and to give domestic legal effect to such agreements by 
proclaiming the required changes directly into the U.S. tariff 
schedule by executive order. The 1934 Act also required, with 
limited exceptions, that the President apply any tariff 
reductions proclaimed under the authority granted by Congress 
to all U.S. trading partners on a non-discriminatory basis--
effectively establishing a general policy of granting NTR to 
all U.S. trading partners.
    Congress renewed the authority granted to the President on 
a regular basis over the next three decades. President Truman 
relied on just such a renewed grant of authority as the basis 
for the United States agreement in 1948 to the General 
Agreement on Tariffs and Trade (GATT). Subject to a protocol of 
provisional application, the United States assumed all of the 
obligations of an original GATT Contracting Party, including 
the obligation to extend full NTR to all other GATT contracting 
parties.
    With the onset of the Cold War, however, Congress modified 
this NTR policy. In the next renewal of the President's 
authority to enter into reciprocal trade agreements following 
the formation of the GATT, the Trade Agreements Extension Act 
of 1951 (Pub. L. 82-50, 65 Stat. 360), Congress directed the 
President to suspend NTR tariff treatment previously accorded 
to the Soviet Union and all countries under Communist 
domination or control. Pursuant to that law, President Truman 
suspended the People's Republic of China's (China) NTR tariff 
status as of September 1, 1951. China's occupation of Tibet in 
1952 obliged President Truman to suspend Tibet's NTR status as 
well.
    The policy established by the 1951 Act remained the basic 
framework for U.S. trade relations with the Soviet Union, much 
of Eastern Europe, China, and a number of other Communist-
dominated countries until 1974. With the passage of the Trade 
Act of 1974, Congress largely revised the basis for U.S. trade 
relations with Communist countries, expressly allowing for the 
grant of NTR status under certain conditions. Those conditions 
were incorporated in title IV of the 1974 Act, together with a 
procedure for the restoration of NTR status to ``nonmarket 
economy'' (NME) countries which were not accorded NTR treatment 
as of the date of enactment of the 1974 Trade Act.
    Under title IV of the 1974 Act, the process for restoring 
NTR status to an NME country required: (1) conclusion of a 
bilateral trade agreement which contains a reciprocal grant of 
NTR treatment and additional provisions required by law, and 
which is approved by the enactment of a joint resolution of 
Congress; and (2) compliance with the freedom-of-emigration 
requirements (the so-called ``Jackson-Vanik amendment,'' 
section 402 of the 1974 Trade Act, 19 U.S.C. 2432). These 
requirements can be fulfilled either by a presidential 
determination that the country in question allows the free 
emigration of its citizens, or, under specified conditions, by 
a presidential waiver of such full compliance.
    As it applies to the People's Republic of China, the 
procedure was first invoked in 1979. Then, President Carter 
transmitted to Congress a trade agreement he had reached with 
China, its proclamation (Pres. Proc. 4697; 44 F.R. 61161), and 
the Executive order (E.O. 12167; 44 F.R. 61167) waiving the 
application of the Jackson-Vanik requirements to China (H. Doc. 
96-209). The bilateral agreement with China was approved by 
Congress on January 24, 1980 (H. Con. Res. 204, 96th Congress) 
and entered into force on February 1, 1980 (together with the 
reciprocal grant of NTR status, which it contains in addition 
to all other provisions required by section 405(b) of the Trade 
Act of 1974; 19 U.S.C. 2435(b)).
    In the succeeding years, China's NTR status would remain 
contingent on: (1) triennial extensions of the underlying trade 
agreement; and (2) continued compliance with, or waiver of, the 
Jackson-Vanik amendment. The bilateral agreement with China, 
concluded for a 3-year initial term, itself provides for 
automatic 3-year extensions. The agreement has thus far been 
renewed six times, most recently by Presidential Determination 
No. 98-14 of January 30, 1998 (63 F.R. 5857) through January 
31, 2001. The President has renewed the Jackson-Vanik waiver 
for China each year since 1980, most recently on June 3, 1999. 
Although the House of Representatives passed disapproval 
resolutions with respect to China's NTR status in 1990, 1991 
and 1992, the Senate did not act on those resolutions. After 
1992, neither the House nor Senate passed disapproval 
resolutions.
    The President must recommend the renewal of the Jackson-
Vanik waiver by June 3 of every year. The effect is to extend 
the existing waiver for another 12-month period (through July 3 
of the following year), subject to annual review by the 
Congress. The waiver continues in effect unless it is 
disapproved within 90 days of the enactment of a joint 
resolution (i.e., passage of a joint disapproval resolution by 
Congress and signature of the joint resolution by the 
President).
    The Jackson-Vanik amendment prescribes the exact text of 
the disapproval resolution and provides a specific fast-track 
procedure for its consideration in Congress. Under the Jackson-
Vanik amendment, the resolution must be reported by the 
committee of jurisdiction within 30 calendar days, after which 
the committee may be discharged from further action. The 
resolution may be amended only with respect to the country (or 
countries) to which it applies. The debate on the resolution is 
strictly limited in either Chamber to 20 hours, divided equally 
between those favoring it and those opposing it. The resolution 
must be approved by August 31. A presidential veto of the 
resolution must be overridden by the August 31 deadline or 
within 15 session days after the Congress has received the veto 
message, whichever is later. If the resolution is enacted, the 
waiver and NTR treatment cease to be effective on the 61st day 
after its enactment.

                 china and the world trade organization

    China was one of the original Contracting Parties to the 
GATT, but the Nationalist government of the Republic of China 
withdrew in 1950. Neither the People's Republic of China nor 
Taiwan were members of the GATT during the intervening years. 
In 1982, however, the PRC requested and was officially granted 
observer status to the GATT. The People's Republic applied for 
accession shortly thereafter and a formal Working Party on 
China's accession to the GATT was established in 1986.
    China made a push for accession immediately prior to the 
end of the Uruguay Round of multilateral trade negotiations in 
1993, in an effort to become one of the founding members of the 
World Trade Organization. The negotiations foundered because of 
a number of issues, including China's request that it be 
treated as a developing country, its attempt to treat the 
negotiations as a political rather than a commercial decision, 
and substantive differences on the level of commitments that 
China proposed to make with respect to tariffs, services, 
investment, intellectual property, and other issues.
    Although China did not join the WTO as a founding member, 
negotiations on its entry continued at both the bilateral and 
multilateral level. On November 15, 1999, the United States and 
China signed a bilateral market access agreement as an 
intermediate step toward China's entry into the WTO. China is 
now engaged in completing bilateral agreements with a few other 
WTO member countries and multilateral negotiations on the 
protocol of accession and the Working Party report. China will 
not become a member of the WTO until it has completed these 
negotiations, the General Council has approved China's 
accession by a two-thirds vote and China has completed its 
domestic ratification procedures and deposited its instrument 
of ratification.
    The Committee held hearings on the negotiations on April 
13, 1999 and on the agreement on February 23, March 23, and 
April 6, 2000.

                    II. GENERAL DESCRIPTION OF BILL


 Section 1: Termination of Application of Title IV of the Trade Act of 
             1974 to the People's Republic of China (China)

Present law

    The People's Republic of China's (China) trade status is 
subject to title IV of the Trade Act of 1974, as amended by the 
Customs and Trade Act of 1990, which governs the extension of 
NTR to nonmarket economy countries ineligible for such status 
as of the date of enactment of the Trade Act. Title IV provides 
that the President may only grant NTR if the country meets the 
freedom-of-emigration provisions specified in section 402 (or, 
as explained below, such provisions are waived), and a 
bilateral commercial agreement remains in force between the 
United States and that country providing for reciprocal 
nondiscriminatory treatment and other minimum requirements. The 
extension of NTR is subject to congressional disapproval. The 
Trade Act authorizes the President to waive the requirements 
for full compliance with respect to a particular country if he 
determines that such a waiver will substantially promote the 
freedom-of-emigration objectives of title IV, and if he has 
received assurances that the emigration practices of the 
country will lead substantially to the achievement of those 
objectives.
    The United States and China completed a bilateral trade 
agreement in 1979, which was approved by Congress on January 
24, 1980, and entered into force on February 1, 1980. The 
agreement has been renewed six times, most recently by 
Presidential Determination No. 98-14 of January 30, 1998 (63 
F.R. 5857) through January 31, 2001. The President waived the 
title IV freedom-of-emigration requirements with respect to 
China on October 23, 1980 and has renewed the waiver annually 
thereafter. The President issued the most recent waiver on June 
3, 1999; this waiver will remain in effect through July 3, 
2000.

Explanation of provision

    Section 1(a) of this bill authorizes the President to 
determine that title IV of the Trade Act of 1974 should no 
longer apply with respect to China, and afterward to proclaim 
the extension of nondiscriminatory treatment (normal trade 
relations treatment) to the products of China.
    Section 1(b) of this bill requires the President, prior to 
making the determination provided for in subsection 1(a) and 
pursuant to the provision of section 122 of the Uruguay Round 
Agreements Act (19 U.S.C. 3532), to submit a report to Congress 
certifying that the terms and conditions for China's accession 
to the WTO are at least equivalent to those agreed between the 
United States and China on November 15, 1999.

Effective date

    The effective date is provided for in section 2 of the 
bill.

Reason for change

    On November 15, 1999, the United States and China signed a 
bilateral agreement as an intermediate step to China's entry 
into the WTO. Several steps still remain, however, before China 
can join the WTO: (1) China must conclude the outstanding 
bilateral negotiations with members of the WTO working party 
handling China's accession; (2) the WTO working party must 
complete multilateral negotiations on the protocol of accession 
(which lists the commitments that China agrees to make to bring 
its laws into conformity with the WTO rules) and present it 
(along with the schedules of China's market access concessions) 
to the WTO General Council (composed of all WTO members) which 
must approve China's accession by a two-thirds majority; and 
(3) China must complete its own domestic ratification of its 
agreement to join and abide by the rules of the WTO.
    Once China enters the WTO, the United States will be 
obligated by Article I of GATT 1994, Article I of the General 
Agreement on Trade in Services (GATS), and Article 4 of the 
Agreement on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS Agreement) to extend to China unconditional most-
favored-nation (NTR) treatment. If the United States fails to 
meet these requirements, it will invoke the ``non-application'' 
provision of Article XIII of the General Agreementon Tariffs 
and Trade 1994. As a practical matter, this means that (1) the United 
States will not be able to use the WTO's dispute settlement mechanisms 
to resolve disputes and enforce China's WTO commitments; and (2) China 
will not have to apply to the United States the concessions that it has 
made in connection with its WTO membership application, including the 
commitments in the November 1999 U.S.-China bilateral agreement, except 
to the extent that these commitments are included in separate (non-WTO) 
bilateral agreements between the United States and China (such as the 
1979 Bilateral Trade Agreement).
    Currently, the United States' application of title IV of 
the Trade Act of 1974 conditions NTR treatment on China's 
freedom-of-emigration practices. As a result, the grant of NTR 
to China under United States' law is not consistent with the 
commitment the United States made to provide unconditional NTR 
treatment to all WTO members. Even if the conditionality on 
freedom-of-emigration were removed, it is the view of the 
Committee that the Jackson-Vanik annual review procedure would 
still subject China to treatment different from other WTO 
members and would similarly not be consistent with U.S. 
obligations once China enters the WTO. Removal of China from 
title IV would satisfy the WTO requirements of MFN non-
discrimination and unconditional NTR treatment.
    Section 1(b) requires the President to submit a report to 
Congress certifying the terms and conditions of China's 
accession to the WTO as at least equivalent to those contained 
in the bilateral agreement between the United States and China. 
This provision is necessary because the provisions of the 
bilateral agreement are not binding until they have been agreed 
to unanimously by the Working Party and included in the Working 
Party Report to the General Council of the WTO or the appended 
schedules of concessions. This provision will, therefore, 
ensure that the United States will benefit from terms and 
conditions at least as favorable as negotiated by the United 
States in the bilateral market access agreement reached on 
November 15, 1999.

                       Section 2: Effective Dates

Present law

    There is no applicable statute in present law.

Explanation of provision

    Section 2(a) states that the extension of nondiscriminatory 
treatment pursuant to section 1(a)(1) shall be effective no 
earlier than the effective date of China's accession to the 
WTO.
    Section 2(b) states that on and after the effective date 
under subsection 2(a) of the extension of nondiscriminatory 
treatment to the products of China, title IV of the Trade Act 
of 1974 shall cease to apply to that country. The Committee 
notes the effective date referred to in section 2(b) is the 
date the President proclaims the extension of nondiscriminatory 
treatment. The President cannot make such a proclamation until 
after the determination in section 1(a) is made and the date of 
China's accession to the WTO, pursuant to section 2(a). The 
determination in section 1(a) cannot be made until the 
President has reported to the Congress pursuant to section 
1(b).

Effective date

    The provision sets forth the effective date.

Reason for change

    While the bilateral agreement between the United States and 
China has been completed, China's protocol of accession and the 
Working Party report have not. It is the view of the Committee 
that it is in the interest of the United States to retain the 
negotiating leverage provided by the potential removal of China 
from title IV of the Trade Act of 1974 until China has actually 
acceded to the WTO. As well, the United States is not obligated 
to provide unconditional NTR to China until it actually accedes 
to the WTO. Therefore, section 2(a) of the bill specifies that 
the President cannot proclaim the extension of 
nondiscriminatory treatment until, at the earliest, the date 
China has acceded to the WTO.
    Section 2(b) specifies that once the President has 
proclaimed the extension of nondiscriminatory treatment, title 
IV of the Trade Act of 1974 shall cease to apply to that 
country from that day forward.

                       III. CONGRESSIONAL ACTION

    On March 8, 2000, President Clinton, in a letter to the 
Congress, transmitted legislation terminating the application 
of title IV of the Trade Act of 1974 with respect to the 
People's Republic of China, and requested its consideration. S. 
2277 incorporated the legislation transmitted by the President 
and was introduced March 23, 2000, by Senators Roth and 
Moynihan. It was read twice and referred to the Committee on 
Finance.

                       IV. VOTE OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that S. 2277 
was, with a quorum present, ordered reported favorably without 
amendment by a recorded vote on May 17, 2000, as follows:
    Yeas (19).--Senators Roth, Grassley, Hatch, Murkowski (by 
proxy), Nickles, Gramm, Lott, Mack, Thompson, Coverdell, 
Moynihan, Baucus, Rockefeller, Breaux, Conrad, Graham, Bryan, 
Kerrey, and Robb.
    Nays (1).--Jeffords.

                          V. BUDGETARY IMPACT


                         A. Committee Estimates

    In compliance with sections 308 and 403 of the 
Congressional Budget Act of 1974, and paragraph 11(a) of rule 
XXVI of the Standing Rules of the Senate, the Committee 
estimates that there will be no effect on the budget as a 
result of the bill.

                B. Budget Authority and Tax Expenditures

1. Budget authority

    In accordance with section 308(a)(1) of the Budget Act the 
Committee states that S. 2277 involves no new or increased 
budget authority.

2. Tax expenditures

    In accordance with section 308(a)(2) of the Budget Act, the 
Committee states that S. 2277 will result in no increased tax 
expenditures over the period fiscal years 1999-2009.

            C. Consultation with Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has 
submitted the following statement on the budgetary impact of S. 
2277:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 22, 2000.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2277, a bill to 
authorize the extension of nondiscriminatory treatment (normal 
trade relations treatment) to the People's Republic of China.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Hester 
Grippando.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               congressional budget office cost estimate

S. 2277--A bill to authorize the extension of nondiscriminatory 
        treatment (normal trade relations treatment) to the People's 
        Republic of China

    Summary: S. 2277 would allow the President to grant 
permanent Normal Trade Relations (PNTR) status to the People's 
Republic of China (China). S. 2277 would become effective no 
earlier than the date of the accession of the People's Republic 
of China to the World Trade Organization (WTO). CBO concludes 
that enactment of the bill would likely increase revenues, but 
CBO has no basis for estimating the revenue impact of granting 
the President such authority. Since enacting S. 2277 would 
affect revenues, pay-as-you-go procedures would apply.
    S. 2277 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: S. 2277 would 
remove China from the list of countries under Title IV of the 
Trade Act of 1974 (the Jackson-Vanik amendment). The Jackson-
Vanik amendment sets forth freedom-of-emigration criteria which 
must be met or waived by the President and a bilateral trade 
agreement must be in place in order for a non-market economy to 
be granted normal trade relations (NTR) status. A waiver of the 
Jackson-Vanik amendment by the President is subject to 
disapproval by the United States Congress. Removing China from 
the Jackson-Vanik amendment would allow the President to grant 
PNTR to China.
    CBO estimates that in itself, granting PNTR treatment to 
China would have no impact on receipts relative to its revenue 
baseline. The People's Republic of China has received NTR, 
renewed annually on a basis of the Presidential waiver of the 
Jackson-Vanik amendment, renewed annually on a basis of the 
Presidential waiver of the Jackson-Vanik amendment, since 
February 1, 1980. CBO's revenue baseline assumes that the 
People's Republic of China will continue to receive NTR status.
    Granting China PNTR status could have an effect on receipts 
by allowing the United States to trade with China under the 
WTO, if and when China should enter the WTO. On November 15, 
1999, the President negotiated a bilateral trade agreement with 
China intended to govern the conditions under which the Untied 
States and China would trade once China enters the WTO. S. 2277 
would require that the President certify that the final terms 
of China's accession into the WTO are equivalent to that 
agreement. Without legislation enabling the President to grant 
PNTR to China, the United States would not be able to trade 
with China under the WTO.
    Imports of textile and apparel products from China are 
currently subject to quotas. If the United States were to trade 
with China under the WTO, these quotas would be liberalized. 
Imports of textile and apparel products from China would likely 
increase. CBO expects that increased imports from China would 
be partly offset by decreased imports from other countries. The 
results of these changes would be an increase in collections of 
tariff revenues. However, because of the complexity of the 
world market, undetermined issues facing if, how, and when 
China would join the WTO, and administrative mechanisms that 
could potentially be employed to alter the China's quota under 
the WTO, CBO has no basis to determine what the magnitude of 
such an effect would be.
    Intergovernmental and private-sector impact: S. 2277 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal Costs: Hester Grippando.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

              VI. REGULATORY IMPACT AND UNFUNDED MANDATES


                          a. regulatory impact

    In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of S. 2277:

1. Impact on individuals and businesses

    The Committee states that S. 2277 does not alter any of the 
substantive or procedural requirements of any programs of the 
United States Government, and would not, as a consequence, 
involve any new paperwork or regulatory burdens on individuals.

2. Impact on personal privacy and paperwork

    S. 2277 will have no impact on personal privacy or 
paperwork.

                          b. unfunded mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). 
The Committee on Finance has reviewed the provisions of S. 2277 
as approved by the Committee on May 17, 2000. In accordance 
with the requirements of Public Law 104-4, the Committee has 
determined that the bill contains no Federal private sector 
mandate.

                       c. tax complexity analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the IRS Reform Act) requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis for all legislation reported by the 
Senate Committee on Finance, the House Committee on Ways and 
Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code (the Code) and has widespread 
applicability to individuals or small businesses.
    S. 2277 does not directly or indirectly amend the Code, and 
therefore a tax complexity analysis is not required.

       VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee finds no changes in 
existing law caused by the passage of S. 2277.