Mr. HORMATS. I would start out with monitoring and then see if you need to go beyond that. I think the outline of what you have suggested makes a lot of sense, monitoring and having them report, and also talking to businesses who, in many cases, are closer to the problem than the government, and probably in some circumstances can give you a warning if something is not being done. Senator BAUCUS. All right.

Sam?

Mr. GIBBONS. Can I take a crack at that?
Senator BAUCUS. Yes.

Mr. GIBBONS. I have no objection to the government monitoring these things. I think it ought to, and it ought to be vigorous. We should have no illusions about, this is going to be simple or easy, because nobody on earth has got a bigger adjustment problem, not just because there are so many China, but because they are so different than all the rest of us. They have got a tremendous amount of adjustment to make, and it is going to tend to destabilize their economy and their political system. So, we have got some rough roads ahead of us.

My suggestion is that the members of Congress just face up to the news media and say, hey, I am going to China. It is important for our country that I go to China. Just go over there and look around, all the Senators, all of the Representatives. I do not mean all go at one time, or any great show, but get over there, get there regularly, and get there often, because we are dealing with onefifth of the people on earth. We are dealing in the most important

areas.

National security is a very important problem for us, and for the Chinese, and for the world as a whole. Get the American business people over there. They will tell you the unvarnished truth about whether the Chinese are living up to the agreement.

I think we need to engage with those folks. Get the air fares down. Make it possible and not so much red tape on our side, or their side either, to permit a decent amount of travel to look and see, and examine the Chinese system, and how they are carrying out their obligations.

Senator BAUCUS. I agree with you, Sam. Frankly, I have found when I take, for example, Montana businessmen to China, and I have done it several times, it helps all the way around.

Mr. GIBBONS. Wonderful.

Senator BAUCUS. Big articles in the press of how it is a good idea and how Montana businessmen are getting some contacts. It is not immediate, of course, but it is a beginning. I know Senator Rockefeller has done this for years with West Virginians. It is something that works and is a good idea.

Dr. Lardy, I am wondering about your view on how well the people in China recognize the benefits, short-term, medium-term, longterm, of reform? There are a lot of riots, a lot of dislocations, urban and rural. How deep is the understanding, if it exists, among the people that maybe this is important?

Dr. LARDY. I think the best way of summarizing what is going on, is obviously large numbers of people do see the benefits. In this economy, exports have gone from nothing to almost $200 billion in a relatively short period of time.

Senator BAUCUS. I am talking about the people.

Dr. LARDY. The people that have moved to Shunjian and the areas where exports have been growing rapidly, they have moved from poor, rural areas and are now living in a modern city with a level of consumption and welfare that they never dreamed of a decade or so ago, now, obviously, that is part.

On the other side, you have got people working in coal mines that are going to close down, or other industries that are not competitive that will shrink. So, I think it is very much a mixed picture of winners and losers, and I think that is why the balance that we have been discussing is very much worth watching, and I think we ought to be doing what we can to support those who are in favor of moving ahead on the reforms, even though there are the short-term costs.

I think it has trickled down. I think even people in the rural areas today understand that product prices in China are a function of what is happening in the international economy. They used to operate almost in a vacuum, where international prices had very little effect on what was going on, the government set prices for everything. Now they are following international prices quite closely.

If I could come back on your question about monitoring. I would urge that, in addition to whatever else is done, that as much as possible be made multilateral. I think a very strong trade policy review mechanism probably will be more effective in the long run than something we do unilaterally on our own. I think the human rights shows that.

I mean, the Chinese do not pay any attention to the State Department Annual Report on Human Rights. They pay very close attention to what happens in Geneva. They lobby like mad to get an outcome they want. When the international community as a whole brings pressure on them, they are much more responsive than when they feel it is a single country that perhaps, on its own, does not have a perfect record in most areas.

So I think the extent to which you can have a powerful trade policy review mechanism, that will be one of the issues negotiated in a multilateral process in the protocol and the report of the Working Party. If we can get the Europeans and other countries to support that, it will serve our long-term interests probably more effectively than something we do unilaterally on our own.

Senator BAUCUS. I appreciate that. I agree with a lot of that. But, still, I am going to push vigorously to get some kind of monitoring and compliance provision enacted in conjunction with PNTR, because I think it is better to get something started early on. We will consider the multilateral aspect at the same time. Thank you very much.

Thank you, Mr. Chairman.

Senator GRASSLEY. Senator Robb?

Senator ROBB. Thank you, Mr. Chairman.

I thank all three of you for joining us today and for your insightful testimony. I think the vast majority of the people on this committee support the conclusion that you come to and the rational that you advance for getting to that conclusion.

Nonetheless, we have a real problem, particularly, Mr. Chairman, with some of your former colleagues on the other side, and

with some of our friends and allies for those of us on this side of the aisle, in particular.

I happen to believe that this is, on balance, good for the vast majority of those who, nonetheless, oppose it. I am just wondering how you deal with, particularly some of your former colleagues on the House side, and some of the emotional arguments that are presented.

How would you, as the former chairman of the Ways and Means Committee, persuade some of your former colleagues that this is ultimately in the best interests of the people that they are representing?

How do you break through the concern that you hear so often expressed, that either we lose leverage or we are rewarding the kind of behavior that we do not want to reward, or whatever the case may be.

I frequently use the analogy that it is hard to convince one person who may have a low-paying job that might be vulnerable, that it is going to be in his or her best interests to have two out-of-work cousins get a better-paying job in terms of trade if you happen to represent the person who has a current low-paying job. That is your responsibility.

How do we get past that? How do we provide the kind of reassurance to those who feel truly threatened by some of the changes that are taking place in this global economy today? Your arguments in all three cases are good, solid, objective, intellectual responses. How do we deal with the emotion?

Mr. GIBBONS. Well, I have given that a considerable amount of thought. I think, first of all, you have to not isolate them from the mainstream of the Congress here, and you must listen to them. You must, as your distinguished father-in-law used to say, come let us reason together. Come let us reason together.

Senator ROBB. But, as you know, reasoning is sometimes more difficult when there is emotion involved.

Mr. GIBBONS. It is very difficult in a public forum. But you have got to sit down on a one-on-one basis and reason with them. I find that they respond because they feel like they are being treated as an intelligent person, and I am not sure how many of them you would convert.

I would like to convert them all, but I found in my experience as a person in politics that you do not convert them all, you just get enough. So, let us go back to what President Johnson used to say when he would face some difficulties; come on, Sam. Let us sit down and reason together. Or come on, Mr. So and So, let us sit down and reason together. Do not vilify them, do not criticize them for their views, but be respectful of them. Just have a little prayer session with them, and listen to them. Most of them will come along.

Senator ROBB. Ambassador Hormats?

Mr. HORMATS. One point I would like to make, Senator Robb, is there is a tendency to look at this like people looked at NAFTA, which is, we open our market more to Mexico and they opened their market more to the U.S. There was this notion of this giant sucking sound that Perot talked about, which really, as we know, is not happening. But the basic point here is, this really was not

a give-and-take like NAFTA. This was, essentially, we did really nothing new to open our markets.

The Chinese did a lot to open their market. I think people sort of look at this in the NAFTA context. It is quite different. The vast change that has occurred here, has been China opening up their market to a very substantial number of American manufactured goods, farm products, and services.

What we essentially committed to was what we are discussing here today, PNTR. Therefore, the job risk here, I think, is far, far less. The people talk about it

Senator ROBB. I understand the facts, again.

Mr. HORMATS. But it seems to me that they look at it in the NAFTA context when it is really a very different thing. I really do not see so much of a threat as a result of this particular piece of legislation to American jobs. Psychologically, perhaps, but in real terms, relatively small.

Senator ROBB. Let me ask you another question, if I may. How do both Zhu Rongji and Jiang Zemin implement these changes quickly, hold on to power, and control the dissent over this unemployment that you alluded to earlier, simultaneously?

Dr. LARDY. I think, in effect, they have made a calculated gamble. If they close their economy, that things will go worse faster than if they open their economy, have more competition in the market.

They have been trying to move ahead on some of these reforms, as we know, for quite a long time, restructuring enterprises, improving the financial system. They have done a lot of good things, but I think they have come to the view that it has not been fast enough, and they need additional.

So, I think it is a calculated gamble that they will have a better chance of resuming the growth momentum and being able to sustain it under the course they are now pursuing than if they had stayed on the old course.

Quite frankly, I think there is no better way to describe it than to say it is a gamble, and it may not work, but I think their view is, to not try this course would be even more risky.

Senator ROBB. Thank you, Mr. Chairman. My time has expired. I thank all three of our witnesses.

Senator GRASSLEY. All right. Thank you all very much. We appreciate your cooperation through the votes we had and all of the problems caused with that. So, thank you all very much.

Now, I am going to call our second panel. It is made up of three outstanding witnesses. We have Ira Shapiro, who is a partner with Long, Aldridge & Norman, and a former Deputy U.S. Trade Representative. Then we have Dr. Dermot Hayes. He is the chair in Agri Business at Iowa State University by the Pioneer Hi-Bred International Corporation.

And Mr. Douglas Lowenstein is president of the Interactive Digital Software Association. So we would take Mr. Shapiro, Dr. Hayes, and Mr. Lowenstein.

STATEMENT OF HON. IRA S. SHAPIRO, PARTNER, LONG, ALDRIDGE & NORMAN, FORMER USTR AMBASSADOR AND CHIEF NEGOTIATOR FOR JAPAN AND CANADA, WASHINGTON, DC

Mr. SHAPIRO. Thank you, Mr. Chairman. I appreciate the opportunity to be here with the Finance Committee, where I spent a lot of time in 1993 and 1994 when you were taking the lead, along with Chairman Gibbons, in implementing the NAFTA and the Uruguay Round. It brings back some fond memories, and it is always an honor to be here.

Frankly, it is also an honor to follow a panel like that, because that was an extraordinary group of people who covered many of the important issues, and I will not belabor them.

Very simply, I share the view of those who have said it is critically important that China enter the WTO and that Congress votes to establish permanent NTR. Frankly, the agreement negotiated by Ambassador Barshefsky and others was a remarkable accomplishment far exceeding what we reasonably thought could have been ascertained and obtained through negotiations.

This is not a case where we have traded off anything, as Bob Hormats pointed out. This is unilateral concessions by China. Nor is it a case, I think, where we have done something for our agriculture interests but not for our high-technology interests.

We benefit across the board, from agriculture, to services, to manufacturing, to high technology. I would say, the other thing about this agreement that is very important, if that was not enough on the economics, Ambassador Barshefsky and others made sure to protect our import-sensitive industries, recognizing where China was in its evolution, that it is not a market economy yet, fully. So, we made provisions for a special methodology in the dumping area, special safeguards for our import-sensitive industries.

I, frankly, believe that the only way to explain this agreement, besides the talent and tenacity of our negotiators, was that their efforts converged with the Chinese leadership decision to reform the economy.

That is the reason you get this kind of an agreement, a fundamental choice by the Chinese leadership, taken after only fierce internal debate, and risks that are still very high, as the previous panel said. We know there is an enormous amount of restructuring and dislocation that is going to follow.

Mr. Chairman, it is understandable, I think, that we focus on the costs and the benefits for the U.S., but I do think it is important that we not miss the historic importance of this moment in China. We need a sense of history and we need a sense of empathy.

One of the things about this agreement, I think, that is important, is that the opponents have made a couple of make-weight legal arguments, very frankly, that I hope this committee and others will brush past. There is no evidence and no reason to believe that we can deny China permanent NTR and then somehow claim the benefits of the agreement. There is simply no legal basis for that.

Hanging a Sword of Damocles over China's normal trade relations status is a discrimination against China. We cannot treat all