US-China Commission Report - Fatal System Error

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344 ADDITIONAL VIEWS OF COMMISSIONER DANIEL BLUMENTHAL During its fact-finding trip to Asia in August 2008, Commissioners learned that the governments of Taiwan and South Korea place enormous importance on signing free trade agreements with the United States. The Commission has not taken a position on this critical issue. In the case of South Korea, a free trade agreement is pending, the biggest one the United States has negotiated since the North American Free Trade Agreement (NAFTA). The agreement promises billions of dollars of new American exports into South Korea across every sector. In the case of Taiwan, the Bush Administration has failed to negotiate a free trade agreement for one reason alone: fear of angering China. The United States cannot maintain its leadership position in Asia if it does not ratify free trade agreements that make eminent sense economically and strategically. China is signing countless trade agreements throughout the Asia Pacific. Leading the process of continued trade liberalization is one sure way America can check China’s growing regional dominance.
345 ADDITIONAL VIEWS OF COMMISSIONERS PATRICK A. MULLOY AND PETER VIDENIEKS We are pleased to sign the Commission’s unanimously adopted 2008 Report to the Congress. Members of the Commission, assisted by an able staff, worked in a very collegial and bipartisan manner to elucidate key aspects of the U.S.-China economic relationship and its implications for our nation’s national security. It has been a privilege to participate in the effort. One facet of the relationship which we wish to highlight is China’s policy of underpricing its currency both to gain advantages in trade and attract foreign investment. Foreign-invested companies presently account for the majority of China’s exports. The Chinese government has offered economic incentives, including an underpriced currency, to encourage foreign company participation in its economy. In its very first Report to Congress issued over six years ago in July 2002, this Commission stated that China’s underpriced currency was an important contributing factor to our growing annual trade deficit with that nation, which was then about $90 billion; it is now three times that amount annually. In addition, the Commission stated that China maintained its underpriced currency by having its central bank make large official purchases of U.S. dollars and noted further that China’s very large dollar reserves, accumulated as part of its exchange rate strategy, could in the future, if not stemmed, be used as an ‘‘economic weapon’’ against the United States. The Commission stated that China’s policy of ‘‘currency manipulation,’’ which contravenes China’s International Monetary Fund (IMF) treaty obligations, needed to be addressed. In each of our Reports issued since 2002, the Commission has pointed to the damage being done particularly to the manufacturing and industrial base of our economy by the strategies of China and other Asian nations that underprice their currencies against the dollar. We noted that our government needed to rectify this problem and that to persuade the Asian nations to take appropriate steps, it was necessary to get China to act first. The U.S. Treasury Department has a statutory charge from Congress in the 1988 Omnibus Trade Law to identify in annual reports to Congress nations that manipulate their currencies to gain trade advantages. Treasury further was charged by Congress to work with any countries so named to stop the IMF illegal practice. The Treasury Department has failed to carry out this Congressional mandate. In September 2005 when the Treasury’s under secretary for International Affairs publicly criticized the IMF for failing to police its own charter provisions forbidding currency manipulation by China, the IMF’s managing director retorted that the Treasury Department had not named China a currency manipulator in its own reports to the Congress. There was mutual finger-pointing. While this shameful failure of responsibility by both the Treasury and the IMF has gone on, many more thousands of U.S. manufacturing jobs have been lost, and communities dependent on those jobs were decimated. Our nation’s cumulative total bilateral trade deficits with China since 2001 have exceeded $1 trillion. China is now running a massive global current account surplus of over 10 percent of its gross domestic product. In order to maintain its
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USCC 2008 ANNUAL REPORT
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1 2008 REPORT TO CONGRESS of the U.
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U.S.-CHINA ECONOMIC AND SECURITY RE
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CONTENTS Page TRANSMITTAL LETTER TO
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INDEX OF TABLES AND FIGURES 2008 RE
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2 economic, security, diplomatic, a
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4 China’s Capital Investment Vehi
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6 • Antidumping penalties imposed
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8 rities of other nations and cause
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10 Conclusions China’s Current En
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12 other countries that rely on Chi
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14 vein, there appears to be a stro
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16 lator of all financial services
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18 • Identifying substandard ship
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20 During the year, China continued
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22 U.S. inspections of prisons to e
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24 to the uncertainty during the su
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26 U.S. exports to China were 20 pe
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28 currency for RMB to obtain forei
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30 of supply and demand in the fore
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32 troversial is whether the treaty
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34 erty (IP) rights holders from en
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36 New Currency Rules China’s und
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38 brought in 2006 by the United St
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40 sectoral talks on farm trade. In
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42 tinue buying foreign exchange, t
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44 difference between temporary, th
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46 The Administrative Structure and
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48 U.S. dollar and has appreciated
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50 Development Committee and other
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52 drawn some fairly conventional l
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54 demonstrates the great length to
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56 cent revelations of the activiti
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58 of China by way of the investmen
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60 Ltd. attempted to acquire the U.
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62 not be applied necessarily in th
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64 economy—from ports and telecom
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66 asset allocations, benchmarks, a
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68 the investments, viewing them as
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70 and printed circuits in order to
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72 2006, R&D spending in China from
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74 tios—two of Asia’s technolog
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76 The last time the United States
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78 pendent players. However, this m
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80 aviation industry and has a role
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SECTION 4: A CASE STUDY OF THE LOCA
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85 The rise of industrial fish farm
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87 According to the Southern Shrimp
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89 the increasing import base. The
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91 nated fish are discovered after
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93 At the time this Report was comp
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95 port with the hope it will be ad
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97 Restaurants also are exempted by
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99 entire dusted product is from Ch
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101 written and approved, which is
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RECOMMENDATIONS The U.S.-China Trad
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105 gress could enable consumers to
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107 26. ‘‘China Central Bank to
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109 82. USTR, ‘‘2008 National T
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111 121. U.S.-China Economic and Se
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113 173. ‘‘China’s Stake in B
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117 282. International Working Grou
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121 361. Food & Water Watch, ‘‘
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123 Louisiana and the U.S. Gulf Coa
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126 While witnesses concluded that
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128 China’s Nonproliferation Comm
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130 State during the interdiction o
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132 Northwest National Laboratory
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134 UN Security Council resolutions
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136 ployment, this change would inf
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138 ing Iran’s missile program on
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SECTION 2: CHINA’S VIEWS OF SOVER
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142 ficing the principle behind it.
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144 baseline. Other states enjoy ov
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146 India, Vietnam, Taiwan, and oth
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148 as, ‘‘What constitutes a sp
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150 The proposed PAROS treaty itsel
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152 enhance China’s assertions of
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154 Media and Public Opinion Warfar
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SECTION 3: THE NATURE AND EXTENT OF
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158 Today, China’s space program
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160 The Management Structure for Ch
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162 • Launching geostationary orb
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164 bility to conduct cyber operati
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166 tions between the NIPRNet and t
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RECOMMENDATIONS China’s Prolifera
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170 ENDNOTES FOR CHAPTER 2 1. U.S.-
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172 41. U.S.-China Economic and Sec
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174 80. Janice E. Thomson, ‘‘St
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176 112. Reinhard Drifte, ‘‘Jap
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CHAPTER 3 CHINA’S ENERGY AND ENVI
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185 A growing share of energy deman
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187 pleted. Without the discovery a
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189 A Survey of China’s Interests
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191 projects that imports of natura
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193 and design of the units. 71 Chi
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195 dioxide, nitrous oxide, mercury
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197 sions are realized and producti
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199 ferent interests that motivate
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201 the oil, gas, coal, and power i
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203 fluential figures in business a
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205 The Terminology Used to Describ
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207 velop international and domesti
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209 that growth must occur in an en
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211 servation. Officials highlighte
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213 grated Gasification Combined Cy
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215 Obtaining sufficient movement f
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217 nology and finding ways to make
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219 • As the negotiations for a p
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223 tent.aspxdata=EmergingMktlconte
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225 13, 2008. These tools include s
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229 ergy Group, Environmental Energ
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CHAPTER 4 CHINA’S FOREIGN ACTIVIT
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233 China will seek to displace the
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235 China to help resolve them. 22
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237 presenting itself as an accepta
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239 China’s infrastructure invest
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241 IMF. The Angolan government exp
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243 China’s Conventional Arms Sal
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245 Kurlantzick testified that Chin
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247 pendent of their legislatures a
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249 diplomacy and in the internatio
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SECTION 2: CHINA’S RELATIONSHIPS
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PART 1: TAIWAN The Significance of
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255 PRC pressure directed against T
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257 this end. 150 (Additional infor
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259 Discussions Regarding Arms Sale
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261 ernment is committed to set ann
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263 • Arms purchases from the Uni
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265 China, appreciation of the RMB,
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267 Days later, although they did n
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Introduction PART 3: THE REPUBLIC O
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271 South Korean officials emphasiz
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273 mount among the ROK’s diploma
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275 Even after approving these grad
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277 exercising undue influence—be
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RECOMMENDATIONS China’s Expanding
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283 42. UN Conference on Trade and
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285 87. U.S.-China Economic and Sec
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287 134. Calculation performed by C
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289 184. ‘‘Factbox: Key facts o
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CHAPTER 5 CHINA’S MEDIA AND INFOR
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Page 307 and 308: 297 Some of the measures taken by C
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Page 313 and 314: 303 In addition to promoting a powe
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Page 317 and 318: 307 search engine and the servers s
Page 319 and 320: 309 media, the Internet, popular en
Page 321 and 322: 311 ENDNOTES FOR CHAPTER 5 1. David
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Page 328 and 329: 318 China’s prison labor system,
Page 330 and 331: 320 most literal sense, the term la
Page 332 and 333: 322 treatment of Falun Gong practit
Page 334 and 335: 324 lowing its signing. According t
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Page 338 and 339: 328 Mr. Marck, who is the partial o
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Page 342 and 343: RECOMMENDATIONS • The Commission
Page 344 and 345: 334 28. U.S. Department of Homeland
Page 347 and 348: COMPREHENSIVE LIST OF THE COMMISSIO
Page 349 and 350: 339 gram. By expanding this volunta
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Page 357 and 358: 347 ADDITIONAL VIEWS OF COMMISSIONE
Page 359 and 360: APPENDIX I UNITED STATES-CHINA ECON
Page 361 and 362: 351 (iii) make all subsequent appoi
Page 363 and 364: 353 (2) Information. The Commission
Page 365 and 366: 355 In each Section and Subsection
Page 367: 357 ecutive Schedule under section
Page 370 and 371: 360 member of the Academic Advisory
Page 372 and 373: 362 nomic, defense, and foreign pol
Page 374 and 375: 364 formulated by the Committee suc
Page 376 and 377: 366 Commissioner Shea is an attorne
Page 378 and 379: 368 than twenty years, leaving his
Page 381 and 382: APPENDIX III PUBLIC HEARINGS OF THE
Page 383 and 384: 373 May 20, 2008: Public Hearing on
Page 385 and 386: APPENDIX IIIA LIST OF WITNESSES TES
Page 387 and 388: 377 Alphabetical Listing of Panelis
Page 389: 379 Alphabetical Listing of Panelis
Page 392 and 393: 382 REPUBLIC OF KOREA, JAPAN AND TA
Page 395 and 396: APPENDIX V LIST OF U.S. SANCTIONS I
Page 397: 387 Date Imposed Entity/Person Cont
Page 401 and 402: APPENDIX VII ABBREVIATIONS AND ACRO
Page 403: 393 UNGA UN PKO USD USDA USITC USTR
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