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These records pertain to China's Most Favored Nation status.
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China MFN [1]
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China MFN [1]
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These records pertain to China's Most Favored Nation status.
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Records of the White House Office of Legislative Affairs (George H. W. Bush Administration)
James Dyer Subject Files
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Originally Processed With FOIA(s):
FOIA Number:
2012-1098-F
2012-1098-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin:
Legislative Affairs, White House Office of
Series:
Dyer, James W., Files
Subseries:
OA/ID Number:
08451
Folder ID Number:
08451-005
Folder Title:
China MFN [1]
Stack:
Row:
Section:
Shelf:
Position:
G
20
11
6
1
REQUEST FOR APPOINTMENTS
To: Officer in charge
WAVES Center
Rm. 065, OEOB
Please admit the following appointments on Wednesday, June 19
91
19
for
The President
of
NAME
DATE OF BIRTH
SOCIAL SEC. NO.
Senator Bob Dole
Senator Bob Packwood
Senator Nancy Kassebaum
Senator Mitch McConnell
Senator William Roth
Senator Orrin Hatch
Senator John Danforth
Senator David Durenberger
Senator John Chafee
Senator J. Bennett Johnston
Senator John Breaux
Senator James Exon
Senator Brock Adams
Senator Chuck Robb
Barces
MEETING LOCATION
Building White House
Requested by Fred McClure/Becky Anderson
Room No. Cabinet Room
Room No. WW 2nd fl Tel 2230
Time on Mtg. 3:00 pm
Date of Request 6/18/91
Additions and/or changes made by telephone should be limited to five names of less.
WAVES Ctr. SIG/OEOB . 395-6046 or WHITE HOUSE . 456-6742
UNITED STATES SERVICE
SSF 2037 (03-81)
Dole
then extended 2tter 1yn It wave not
Brucus letter
Chinese have done hombing
things
Johnstne
cent tike m Tiamm Sq,
OK w) Beucus
oppose Support smple ves. of dis,
#
Denforth doescand. MFN 2mant to denial.
is MFN to be ? foreign policy tool.
KASEBM lose smy leverge five shm door
Right on policy.
Triumn-GAAT doest create diffeculty
Signed Bavers letter.
Chatee
EAGLE very persuasive.
Duren, Students- only come us partnership
Hist. IS that of isolationsm
we what bully then w) threats
hope process is best MFN -temfic
Bus prondesplos w)om ssociation
process, Close to blank check.
Jobs thing in R.I.
ROBB)
Sense of dejevu
Exon
Logictressm PR, emotion
mode decision,
real concern-
havent Major cmcern IS >ms 5765 to
use bitty pripit,
All logic m our side,
3d world,
Brucus
2pplaud approach
MCCONNL) Almost persived GB convect
Similarto to Fast treck
can get more support if we
any additional steps2
indicate precise actions on
tnde, N2+1 sect, multi lendue
CHI compotmentablize each allegstn.
prohib. slave labor,
Dised today,
ROTH
working w) Baucus
agree w) EAGLE on need to
Continue MFN
review Taimn- GATT
Brezux havent decided, Chinz out A touch
CIV rights, human vts,
people think we're giveng them
same thing.
HATCH GBold Chiw? brad, mat to support Pres
ADAMS prepard to support MFN, \ yr. w) conditions
severe political problem if we dut
need mesingful political Vetoms.
missile tech cantrol regime
Product bamers.
June 18, 1991
U.S. Senate
Washington, DC
Honorable Senators:
We are a group of former Chinese government officials. We are among those who initiated and
implemented the reforms of the past decade. After the events of 1989, we lost or left our government
posts and are currently studying and working in the States.
Based on our experiences, we support President Bush's proposal to renew China's Most Favored
Nation trading status. We fully believe that this will be in the best interests of the Chinese people and
the United States. We offer the following reasons:
1. The termination of China's MFN status will damage the cause of economic reform in China,
especially in the non-state and export-oriented sectors, which are the driving force for the transition
from a state controlled to a free market economy.
2. We respect efforts to improve human rights in China. However, we also believe that the
attachment of human rights conditions to a'renewal of MFN is the wrong way to further human rights
in China. Instead, it will create more difficulties for reformers within China. Cancellation of MFN
status is the last thing that China's remaining reformers want, while the acceptance of written
conditions would mean political suicide for them.
3. Conditional extension of MFN will embarrass political dissidents inside China by making it
appear that their demands have damaged the economic interests of millions of people who now
benefit greatly from MFN.
China is now in a difficult period of transition. We reformers, like other Chinese, hope for a
democratic and prosperous China. We also believe strongly that a peaceful and gradual transition is
in the best interests of the Chinese people and other nations as well. MFN has and will continue to
contribute to that peaceful transition.
Thank you.
Li, Xianglu
Former Personal Assistant of Zhao Ziyang
Director, Institute of International Affairs, CITIC
(212) 785-1838
Lu, Mai
Former Dir., Experimental Area Office for Rural Reform,
Research Center for Rural Development of the State Council (RCRD)
1309 Commonwealth Ave. #1
Allston, MA 02134, (617) 787-1581
Luo, Xiaopeng
Former Trustee of RCRD
Senior Researcher of Development Institute. RCRD.
Fairbank Center of East Asia Studies, Harvard University
Cambridge, MA 02138, (617) 625-1214
Former Deputy Director of the Institute of Economic System Reform, China.
Wang, Xiaoqiang
University of Pittsburgh, (412) 681-3439
Zhou, Qiren
Senior Researcher of Development Institute, RCRD.
UCLA. (213) 398-5392
THE WHITE HOUSE
WASHINGTON
June 10, 1991
To:
From:
Jim
Doug Dyer MD
Re:
Chinese Missile Sales
Doug, I assume you saw the article in Sunday's "New York Times"
regarding proposed missile sales to Syria and Pakistan. Needless
to say, if this is true, this can be damaging to our MFN efforts.
Do we have any information on the validity of this article or do
we have any press guidance on what actions we propose to take?
I'm also attaching a letter drafted by Baucus for signature by
several of his colleagues on MFN. It seems to me that if we can
meet his concerns, we may be able to recruit him and his
colleagues to our side.
Any thoughts?
attachment
SENT BY:The TICKET CENTER
; 6- 7-91 ; 4:20PM LEGISLATIVE AFFAIRS-
20245662216# 2
10'17
SENRIC TELECUPTI DEPT
002
Dear Mr. President:
Congress will docide in the next few weeks whether to
nosept your recommendation and extend most favored makion trade
status to Chane. We are writing to shaws our concerns.
In the debate over the appropointe U.S. policy towards
thine, one thing Lo clear. Chine's behavior must change. The
United States has serious foreign policy concerns with China.
Every American remembers the vivid images of the
massacre. In the two years since Tiananmen Square. evidence of
democratic reform has been acant at bust. We also have learned
of Chinase sales of advanced missiles to Syrin and Pakistan,
and of nuclear technology sales to Algeria.
The United States also has serious economic concerns with
China. The U.S Trade Representative's annual report on foreign
trade barriers lists ton pages of Chinese barriers. China
maintains restrictions including & preclusive licensing eystem,
discriminatory testing and certification standards, and
catright import bans. China also fails to protect U.S.
intellectual property. resulting in snormous losses to U.S.
producers of films, books, chemicale and pharmaceuticals.
The United States cannot continue to tolerate Chinoco
intransigence. We must Unilor active responses to our w4de
ranging concerns. But MFN is the woong tool for the job.
Revoking HIFE would not promote human rights in China. Instead,
it would punish China's most progressive regions and Hong Kong.
Revoking MFW also would hurt Americans. China La an
important market for U.S. goods ranging from wheat to
airpianes. If MFN were revoked, Ohina simpst certainly would
retaliste against U.S. exports. The Australians, Canadians,
suropeans and Japanese are ready to #111 the void. No other
country 1s contemplating outting off China's MFN.
We believe the Administration must be more active in
addressing American concerns with China. You have taken
meaningful stops in some areas. You have moved to protect U.S.
intellectual property under provisions of the 1988 Trade Act.
You also have taken steps to restrict certain technology
transfers to China in response to its missile and nuclear
sales. These steps are examples of the types of actions the
U.S. should take.
We urge you to take appropriate actions in other areas.
Human rights Le a foremest concern. Kevoking MFN would be
counterproductive. But other steps can be taken. For example,
the U.S. could reinvigorate its opposstion to multilateral
loans for China. The V.S. also could take strong action under
U.S. law to address china's unfair trade barriers. In the ****
of nuclear and missile preliferation. the U.S. could
immediately negotiate for strict, multilateral technology
SENT BY:ine TICKET CENTER
TE/19/99
0- 10:10 7-91 , 4.21PM , LEGISLATIVE AFFAIRS-
SENHIE TELECUMENT DEPT
J
003
restrictions conditioned upon Chinese adherance to accepted
international standards.
These measures do not represent an exhaustive liot. But
Lt Le essential that the Administration take concrete eteps. If
Congrees is to extend China's MVN, we must pas tangible
evidence that the Administration is taking action. We look
forward to hearing your response to our concerns.
FILE,
THE WHITE HOUSE
Office of the Press Secretary
(Kennebunkport, Maine)
For Immediate Release
May 27, 1991
REMARKS BY THE PRESIDENT
IN CONMENCEMENT ADDRESS TO YALE UNIVERSITY
Yale University Quadrangle
New Haven, Connecticut
11:55 A.M.
THE PRESIDENT: Thank you very, very much. President
Schmidt and members of the faculty, and the Yale community, fellows
of the Yale Corporation, and especially with congratulations to my
fellow honorands -- it is an honor to be here today. Mayor Daniels,
it's nice to be back in the city. And most importantly, to the
graduating students -- congratulate each and every one of you.
(Applause.) May I single out Yale's band. They've cleaned up for
today, and they ve never been better under Mr. Tom Duffy. Thank you,
sir. (Applause.) And thank you for the warm welcome. si res
prehensio en canolest non oves sic vacio. That means, if you're
holding up the sign, you can't throw eggs. (Laughter and applause.)
I remember my own commencement. Like SO many of my
classmates, I'd come to Yale fresh from war -- ready to make up for
"lost time." I remember our impatience and our optimism. And we
sensed upcoming adventure. I imagine it's the same today for all of
you. It's almost as if life is about to begin -- that is, if the
commencement speech ever ends. (Laughter.)
Twenty-nine years ago, President Kennedy stood right
here, and my dad was honored with him. And he said, "I have the best
of all worlds -- a Yale degree and a Harvard education." (Laughter.)
He had it wrong. I've got the best of all worlds -- a Yale education
and a Yale degree. (Applause.)
My day was no different. There's an excitement in the
air, and Barbara and I spent a good part of our senior year thinking
about, literally, becoming farmers. We talked about life on the land
and rising early and working hard and raising a crop and a family.
And we looked into the finances of running a farm. In the end, we
decided against the whole idea. We realized that when it came to
pigs and chickens and cattle or corn, we didn't know the first thing
about farming.
so, of course, thore was only one alternative: I went
west and became an oilman. (Laughter.) The days after -- the day --
the very day after the ceremony like this one, I traded the familiar
surroundings of this beautiful old campus for the dust and grit and
searing heat of the Lone Star State.
Odessa, Texas, became my world. And yet far beyond 37
Hillhouse Avenue where Barbara and I lived, or the Flatlands of West
Texas, change rocked the whole world in ways that would affect us all
for more than 40 years. On June 20th, 1948 -- my graduation day --
the United Nations sent out its first peacekeeping force -- 49 men
from the United States and six other nations -- to bring the promise
of peace to the Middle East. And on that day, the Soviet Union tried
to clamp down on the free sectors of Berlin -- the Berlin Blockade
had begun. And on that day, Congress, after an all-night session,
passed a bill to help the nations of war-torn Europe. That package
would become known, as we all know, as the Marshall Plan.
Today's world -- your world -- is every bit as
MORE
- 2 -
astonishing. Back in my day, opportunity knocked. And yours -- your
pager beeps.
We have seen in two short years the end of & long era of
Cold War and conflict. The Iron Curtain collapsed -- it's gone, the
wall is down. (Applause.) And with it the myth of an ideology
called communism. On the barren ground that once separated East and
West, the democratic idea sprouted anew.
As a nation, we can take great pride in this triumph. It
vindicates more than 40 years of American vigilance -- a lesson
learned on the battlefields of Europe and the seas of the South
Pacific -- that this nation could no longer pursue a policy of
"splendid isolation."
The democratic renaissance in Central and Eastern Europe
-- the blossoming of democracy here in the Americas -- the emerging
consensus on the African Continent that democracy is the road to
development -- none of this would have taken place if America had
turned inward, away from the challenges of a new world.
So today, as we seck to promote freedom and democracy and
human rights -- as we seek to strengthen stability within the
international community -- an America confident enough to engage the
world remains our best hope for peace, security and shared
prosperity. (Applause.)
Look in every corner of the globe and you will fine that
the American example has consequences. When we reach out, we offer
more than cars or grain or MTV. We exemplify an ideal -- an ideal
that conquers circumstance and suspicion, that conquers despots and
empowers people. Some argue that a nation as moral and just as ours
should not taint itself by dealing with nations less moral, less
just. But this counsel offers up self-righteousness draped in a
false morality. You do not reform a world by ignoring it.
(Applause.)
East Asia is a case in point. Today, this dynamic region
plays an important role in the world economy. As it has grown more
prosperous, it has also grown more free. Driven forward by the
engine of economic growth and trade, especially with the U.S., South
Korea and Taiwan have shed their once authoritarian rule in favor of
democracy and freer trade.
This same approach guides our policy towards the People's
Republic of China, home to fully one-fifth of the world's people.
China easily can affect the stability of the Asian-Pacific region --
and therefore, affect the entire world's peace and prosperity. The
Chinese play a central role in working to resolve the conflict in
Cambodia and relax tensions on the Korean Peninsula. China has a
voice now in the multinational organizations. And its votes in the
United Nations Security Council against Iraq's brutal aggression
helped us forge the broad coalition that brought us victory in the
Gulf. (Applause.)
And 80 when we find opportunities to cooperate with
China, we will explore them. When problems arise with China's
behavior, we will take appropriate action.
After the tragedy of Tiananmen, the United States was the
first nation to condemn the изе of violence against the peacefully
demonstrating people of Beijing. We were the first to guarantee the
rights of Chinese students studying on campuses across the country --
including here at Yale. (Applause.)
The United States was the first nation to impose
sanctions -- and we are now the last, alone among the Western
democracies, to keep those original sanctions in place. At every
high-level meeting with the Chinese government, U.S. officials
reiterate our position on human rights violations.
Unfair trade is also high on our agenda. Just last
- 3 -
month, WG cited China under the trade rules of a special 301 for
pirating U.S. copyrights and patents. And for the sake of national
security, we will ban technologies and equipment to any Chinese
company found to violate rules outlawing transfer of missile
technologies.
We will continue to advance our interests and ideals:
for free and fair trade -- for broader democratization -- for respect
for human rights throughout China.
Let me be clear: As a member of the United Nations,
China is bound by the U.N. Declaration of Human Rights. We will hold
China to the obligations that it has freely accepted.
And, finally, we continue urging China to exercise
restraint in its weapons exports. Our recent experience with Iraq
proves how dangerous the deadly trade can be. And very soon, I will
announce significant new steps that we can take to control arms
exports to the entire Middle East. (Applause.) Every nation must
play a part in this effort. That's why we urge the Chinese
government to abide by the letter and spirit of international
agreements on missile technology controls -- and to do what 141 other
nations have already done: sign the Nuclear Nonproliferation Treaty.
(Applause.)
And this is one way that the United States can be a
catalyst for positive change. This woek, I will employ another by
proposing formally that MFN trade status continue for China. This
policy has generated considerable controversy. Some critics have
said revoke MFN, or endanger it with sweeping conditions -- to
censure China, cut our ties and isolate it. We are told this is a
principled policy, a moral thing to do.
This advice is not new. It's not wise. It is not in the
best interests of our country, the United States. And in the end, in
spite of noble and best intentions, it is not moral.
First, MFN is special.* It is not a favor. It is the
ordinary basis of trade worldwide. Second, MFN is a means to bring
the influence of the outside world to bear on China. Critics who
attack MFN today act as if the point is to punish China -- as if
hurting China's economy will somehow help the cause of privatization
and human rights.
The real point is to pursue a policy that has the best
chance of changing Chinese behavior. If we withdrew MFN or imposed
conditions that would make trade impossible, we would punish South
China: in particular, Guangdong Province -- the very region where
free market reform and the challenge to central authority are the
strongest. Right now, there's an estimated two million Chinese who
are working, and proving that privatization can work -- all in South
China. Withdraw HFN and their jobs would be in jeopardy. In
addition, endangering MFN would deal a body blow to Hong Kong -- the
bastion of freedom and free trade in the Far East.
But the most compelling reason to renew MFN and remain
engaged in China is not economic, it's not strategic, but moral, It
is right to export the ideals of freedom and democracy to China, It
is right to encourage Chinese students to come to the United States,
and for talented American students to go to China. It is wrong to
isolate China if we hope to influence China, (Applause.)
For two decades after the communists seized power in
1949, the Western world followed a policy of isolation toward China.
This period proved to be among the most brutol episodes in Chinese
history -- a nightmare of anguish and death and suffering that will
scar the soul of China for decades to come.
* not special.
- 4 -
So it comes down to the strength of our belief in the
power of the democratic idea. If we pursue a policy that cultivates
contacts with the Chinese people, promotes commerce to our benefit,
we can help create a climate for democratic change.
No nation on Earth has discovered a way to import the
world's goods and services -- while stopping foreign ideas at the
continent -- so, too, change will inevitably come to China.
border. Just as the democratic idea has transformed nations on every
This nation's foreign policy has always been more than
simply an expression of American interests --- it's an extension of
American ideals. This moral dimension of American policy requires us
to remain active, engaged in the world. Many times, that means
trying to chart a moral course through a world of lesser evils,
That's the real world -- not black and white. Very few moral
absolutes. Enormous potential for error and embarrassment. But all
are ideal. part of the risks that we willingly take to advance the American
Many times in the past 40 years, people have encouraged
us to adopt a policy of righteous isolationism -- but we remained
engaged. We cannot advance principles if we curl up into a defensive
ball. We cannot transform a world if we hide from its unpleasant
realities. We can advance our cherished ideals only by extending our
hand, showing our best sides, sticking patiently to our values --
even if WG risk rejection.
Look at the way American encouragement and the American
example -- the power of the American example -- is paying off in
Taiwan and Korea. We will have no leverage. We will not be able to
advance our cause or resist repression if we pull back and declare
that China is simply too impure a place for us. He want to promote
positive change in the world through the force of our example -- not
simply profess our purity. We want to advance the cause of freedom
-- not just snub nations that aren't yet wholly free.
Let me close today with some modest pieces of advice.
First, understand that you often will confront moral ambiguity.
There will come times when you will have difficulty distinguishing
between good guys and bad guys. When these situations arise,
identify your principles and stick by them. Stick by them even when
people jeer, when people urge you to find a quick and easy out.
(Applause.) If you remain patient and true to yourself, you can't go
wrong.
Second, remember that the corner of the world that
matters most is one right here at home, the one you share with
friends and family.
And finally, your destiny and the currents of history
will most likely intersect more than once. You will have ample
opportunity to make your mark. And take care to make it count.
To all the graduates of the Class of '91 who now join me
as proud alumni of this great University, congratulations, good luck
to you, and may God bless the United States of America. (Applause.)
END
12:15 P.M. EDT
RENEWAL OF CHINA'S MFN STATUS
--Shared Goals on China. Both the Administration and Congress
want to see greater respect for human rights, a stronger
Chinese commitment to nonproliferation and fair trade, and a
continuation of positive social, political and economic
change. At question is how to achieve these goals. As
President Bush said at Yale, "The real point is to pursue a
policy that has the best chance of changing Chinese behavior."
--China Benefits from Contact-Not Isolation. The most brutal
period of communist rule occurred at a time when China was
isolated from the outside world and committed to a policy of
economic self-sufficiency. MFN helped to open China to outside
progressive change. We will not help the Chinese people by
depriving them of employment, cutting off our contacts with
them, and permitting hardline, xenophobic elements to blame the
U.S. for China's economic problems. These will be the effects
of MFN withdrawal.
--MFN Promotes Reform. Foreign trade and investment support
the economic forces that have been driving political and social
change and encouraging a loosening of state control and more
personal freedom. "MFN," in the words of the President, "is a
means to bring the influence of the outside world to bear on
China." Withdrawing MFN would have the greatest adverse impact
on Chinese in the most dynamic, market-oriented coastal
regions. These and other groups who depend on a healthy
commercial relationship to justify business, social and
academic contacts with the U.S. would be grievously hurt.
Old-line convervatives in China will use MFN withdrawal as
reason to close the door on these contacts.
--Other Means Available to Pursue U.S. Interests. The U.S. has
set the agenda for improving the bilateral relationship and has
engaged the Chinese--with tangible results--on key issues of
concern, including human rights, nonproliferation, prison labor
exports and trade issues. Eliminating what the Chinese
consider to be a fundamental pillar of the economic
relationship--MFN trade status--will seriously erode, if not
destroy, our ability to engage the Chinese on these issues.
The President has a broad range of authority to target specific
issues, for example, proliferation and trade problems. He is
using that authority forcefully to press U.S. interests. MFN
withdrawal is the wrong tool for doing this. It hurts our
friends and eliminates a vital avenue of influence.
--A Trade War Will Hurt U.S. Business and Consumers. Raising
tariffs on Chinese products will provoke trade retaliation.
This will put at risk $5 billion (1990) in U.S. exports,
including wheat ($511 million), aerospace ($749 million),
computers and electrical machinery ($860 million), fertilizer
($544 million), cotton ($259 million) and wood products ($281
million). Since no other country is withdrawing MFN, U.S.
business would be forced to cede its market share to others.
Trade actions on both sides could also adversely affect over $4
billion in U.S. investment in China. Without MFN, U.S.
consumers would pay substantially higher prices for
Chinese-made clothing, footwear, toys, tools and electronics.
Hong Kong's economy and our $6-billion investment there would
also be hurt because of close commercial links with South China.
SANCTIONS AND OTHER MEASURES IN PLACE ON CHINA
The U.S. currently has the toughest position on China
sanctions. While the EC, Japan and Australia have
gradually relaxed their sanctions, the U.S. has reaffirmed
its existing sanctions and taken additional measures.
Post-Tiananmen Sanctions
All the measures authorized by the President following the
Tiananmen Square crackdown remain in effect, with only
minor modifications to take into account U.S. interests:
-- Arms and Military Cooperation. Weapons deliveries
remain suspended as does military cooperation.
-- Embargo on Sales to Military/Police. No licenses are
being issued to dual-use civilian technology items for the
Chinese police or military.
-- Munitions List. Licences for items on the munitions
list remain suspended. (The only exceptions in 1990-91
have been for the Australian AUSSAT satellite project and
Swedish Freja scientific satellite project).
-- Trade and Development Program (TDP) and Overseas Private
Insurance Corp. (OPIC). No new activities since June 1989.
-- Export Control Liberalization. The U.S. remains opposed
to considering proposals for easing COCOM controls on China.
-- World Bank Lending. The U.S. remains opposed to all
World Bank lending except for basic human needs.
-- High-Level Exchanges. Regular, high-level exchanges,
particularly those of a formal, ceremonial nature, remain
suspended. Exceptions have been granted only to pursue
issues of vital concern (e.g., human rights,
nonproliferation issues, trade problems and regional
issues, such as the Persian Gulf and Cambodia).
Additional Measures
Over the past year the following additional measures have
been taken to pursue specific U.S. interests:
Proliferation. The President rejected licenses for a
Chinese satellite project and stated that the U.S. would
impose additional sanctions on any Chinese company found to
violate international guidelines on missile sales. Other
measures are now under consideration.
Trade. The President authorized the designation of China
for trade action under Special 301 for violation of U.S.
intellectual property rights. Over $85 million in Chinese
textile overshipments were blocked because of violations of
the bilateral textile agreement. USTR has stepped up its
consultations with China on the trade imbalance, with talks
scheduled for mid-June.
WHY CONTINUING MFN STATUS FOR CHINA SERVES U.S. INTERESTS
The Administration and Congress share the same goals in
China. Both want to see greater respect for human rights,
a stronger Chinese commitment to nonproliferation and fair
trade, and a continuation of positive social, political and
economic change. At question is how best to achieve these
goals. As President Bush said in his commencement address
at Yale University, "The real point is to pursue a policy
that has the best chance of changing Chinese behavior."
Many in Congress have urged withdrawing or conditioning MFN
as a way of forcing China's leaders to address our
concerns. We believe this would be counterproductive and
would make achievement of these goals even more difficult.
MFN withdrawal is the wrong instrument. It is the
equivalent of an undiscriminating blockbuster weapon that
hurts friend and foe alike. Maintaining MFN enables us to
take a more discriminating approach. It helps us stay
engaged, keep China in the international system and use the
commercial relationship to promote reform. In the
President's words, "MFN is a means to bring the influence
of the outside world to bear on China." At the same time,
we are still free to take, as we have already, focussed
measures to address specific problems.
MFN should continue because it serves U.S. interests. By
threatening to withdraw or condition MFN, we allow this
vital link to be held hostage to the reactions of a small
group of hardline leaders in Beijing.
The most brutal period of communist rule occurred at a time
when China was isolated from the outside world and
committed to a policy of economic self-sufficiency. MFN
helped to open China to outside progressive change. We
will not help the Chinese people by depriving them of
employment, cutting off our contacts with them, and
permitting hardline, xenophobic elements to blame the U.S.
for China's economic problems. These will be the effects
of MFN withdrawal.
Foreign trade and investment have been key factors over the
past decade in launching reforms that have loosened state
control and expanded personal freedom. By maintaining MFN,
we ensure an active commercial presence in China which
provides a channel for introducing American values and
ideals--on free enterprise, democracy, freedom of
expression and human rights. The Chinese Government can
control the flow of goods across its borders but not the
ideas which accompany them.
o
Withdrawing MFN would hurt reformist elements that count on
us for support. Those most seriously hurt would be in the
large, dynamic coastal provinces where market-oriented
reforms have gone the farthest. Millions of Chinese who
depend on a healthy commercial relationship to justify not
only business but social and academic contacts with the
U.S. would be harmed. Maintaining our extensive web of
contacts with the Chinese people and Chinese institutions
would be impossible in an atmosphere of trade retaliation
and mutual hostility.
-2-
We have succeeded in setting an agenda in our relations
with China that focuses on human rights, arms control and
trade issues--issues which the Congress is also deeply
concerned about. Withdrawing MFN would undermine the
foundation on which this process of engagement was built
and remove an important incentive for China to respond to
our concerns. Our policy of engagement is producing
tangible results.
On human rights, our continued strategy of sanctions and
engagement has led to the release of about 1,000 political
prisoners, freedom for prominent dissident Fang Lizhi and
his family, public commitments to prevent the export of
prison labor, and positive assurances on family
reunification cases. The Chinese have agreed to have a
high-level human rights dialogue with the U.S. This new
dialogue would likely be one of the first casualties of MFN
withdrawal. Emigration and student travel to the U.S.,
which has continued since Tiananmen, would also suffer.
On proliferation, we have China moving in the right
direction. We have made clear that proliferation concerns
will affect our willingness to cooperate with China, for
example, on high-technology exports such as satellites and
high-speed computers. China has acknowledged, in
principle, the need to act responsibly on military sales,
including the transfer of missile, CBW and nuclear
technology. China agreed to attend the Nuclear
Nonproliferation Treaty (NPT) conference in 1990.
President Yang Shangkun recently stated unequivocally that
China has not sold any intermediate range missiles to the
Middle East since the CSS-2 transfer to Saudi Arabia three
years ago. On the Sino-Algerian nuclear facility, China
has publicly expressed a willingness to follow-
international practice on IAEA safeguards and gave
assurances that the facility is strictly for peaceful
purposes. Senior Chinese officials have agreed to an
in-depth discussion of nonproliferation issues with Under
Secretary Bartholomew in mid June.
To underscore our proliferation concerns, we are informing
the Chinese that we will be sanctioning a Chinese
enterprise for violation of international missile transfer
guidelines and will not license satellite and high-speed
computer exports to China until we reach an understanding
on appropriate guidelines for the export of missile
technology and related equipment.
On global/regional issues, China's cooperation has proven
helpful--even essential--for achieving U.S. objectives. A
permanent UN Security Council member, China played a
crucial role in facilitating passage of UN resolutions on
the Persian Gulf and maintaining international solidarity.
The U.S. and China are working together to find a
comprehensive political solution to the conflict in
Cambodia. China has been exerting positive influence on
Pyongyang to reduce tensions on the Korean peninsula.
-3-
Other Asian countries also look to China as a force for
stability in the region and believe a constructive
U.S.-China relationship is important for that goal.
On trade, China has acknowledged that it needs to import
more from the U.S., responding to concerns about the large
trade imbalance and problems with market access. A Chinese
buying mission is now in the U.S. and will reportedly
purchase over $1 billion in grain, chemicals, fertilizer,
and precision machinery. China has also acknowledged that
it must do more to protect U.S. intellectual property
rights. U.S. trade agencies are engaged in a high-level
dialogue on both market access and IPR problems, which will
continue in June. The Administration is prepared to take
action under U.S. trade law to pursue U.S. interests, as it
did recently in designating China under Special 301 for an
IPR investigation and possible trade measures.
Continuing MFN protects the interests of U.S. business and
consumers. MFN is not a special trade status. It is the
basis for trade that we have with most countries. Raising
tariffs on Chinese products will provoke trade
retaliation. This will put at risk $5 billion (1990) in
U.S. exports including wheat ($511 million), aerospace
($749 million), computers and electrical machinery ($860
million), fertilizer ($544 million), cotton ($259 million)
and wood products ($281 million). Since no other country
plans to withdraw MFN, trade retaliation would put U.S.
business at a competitive disadvantage. Trade actions on
both sides could also adversely affect over $4 billion in
U.S. investment in China. Without MFN, U.S. consumers
would pay substantially higher prices for Chinese-made
clothing, footwear, toys, tools and electronics.
MFN is also important for the stability and prosperity of
Hong Kong's free enterprise economy. Withdrawing China's
MFN status would be a body blow to confidence in the
territory since Hong Kong's economy is increasingly tied to
the growth of South China's export industry. Approximately
2,500 Hong Kong enterprises have shifted their export
production to factories in neighboring Guangdong Province.
An additional 10,000-15,000 South China enterprises do
assembly work for Hong Kong companies. U.S. business,
which has invested over $6 billion in Hong Kong, would also
be hurt. A 1990 survey revealed that 70 percent of
approximately 900 U.S. companies in Hong Kong would face
business difficulties and 50 percent would have to reduce
staff if China's MFN status was discontinued.
The bottom line is that withdrawing MFN would seriously
damage U.S. foreign policy interests, limit our contacts
with China, weaken the economic forces for reform and hurt
U.S. business and consumers. Our influence over Chinese
behavior would be weakened, not strengthened. We should
continue MFN because it is in our interest. It enables the
U.S. to stay engaged with China and pursue the issues which
are of vital concern to the American people. As the
President said, "It is wrong to isolate China if we hope to
influence China."
PROPOSALS TO CONDITION RENEWAL OF CHINA'S MFN STATUS
Conditional renewal of China's MFN status has been
presented as a way to force China to address our human
rights and other concerns. It is in fact a high-risk
approach that holds the single most powerful instrument we
have for promoting reform in China as hostage to reactions
of a small group of hardline leaders in Beijing.
Continuing MFN is in the U.S. interest. By facilitating
trade, it acts as a key catalyst to reform, keeps China
open to the outside world, sustains a wide range of
contacts with the Chinese people and provides incentive for
China to stay engaged on issues of vital interest to us.
Conditionality overlooks the importance of MFN for these
long-term objectives and, in effect, accepts them as
expendable in the quest for more limited, short-term goals.
MFN conditionality risks making the Chinese less apt--not
more--to take positive steps on issues of concern to us.
Confronted with a public ultimatum to change policies,
nationalist and hardline elements of the Chinese leadership
are likely to argue--effectively--tha national pride and
the need to preserve sovereign authority do not permit
concessions under such duress. Positive actions which the
Chinese might have been willing to take in the context of
negotiation could become politically impossible. The
bilateral dialogue on human rights that we succeeded in
establishing could be the first casualty.
Attempts to craft even "soft" (i.e., realistic)
conditionality would be counterproductive. With the
situation on key issues continuing to evolve and so
many Congressional perspectives on what constitutes
acceptable conditions, the end product is likely to
include provisions that provoke the Chinese to
disengage or do not accurately address the current
state of affairs.
Many of the objectives contained in earlier
conditionality legislation (e.g., the lifting of
martial law, freeing of prominent dissident Fang Lizhi
and release of Tiananmen detainees) were eventually
achieved through our strategy of engagement. This
strategy is working and should continue.
Conditional MFN renewal would severely handicap U.S.
business in China. No other foreign companies in China
face the uncertainty of MFN withdrawal by their
government. U.S. companies can't make long-term business
decisions knowing that the renewal of MFN trade status--a
fundamental operating condition--will depend on the
subjective judgments of Congress regarding China's
political behavior.
-2-
Renewal of MFN under the Jackson-Vanik already entails
risks which many U.S. companies find burdensome.
Additional conditions would greatly increase those
risks and discourage U.S. companies from trading and
investing in China, leaving the China market to our
competitors and costing American jobs in the process.
MFN is the basis for trade that we have with most
countries of the world, even those with which we have
serious human rights and other concerns. If we start
down the road of attaching new political conditions to
trade, U.S. global competitiveness will suffer.
Legislative ultimatums on the Chinese Government are likely
to create a hostile environment that will work against the
expansion of contacts between American and Chinese people
and institutions. Despite our bilateral differences, China
has continued to permit a wide range of contacts, including
emigration, student travel and academic exchanges. MFN
conditionality will give ammunition to old-line
conservatives in China who want to restrict the
liberalizing impact of contact with the U.S.
Other more targeted means, aside from MFN withdrawal, are
available to pursue specific U.S. interests, and the
Administration is prepared to use them. To underscore our
concerns about possible Chinese proliferation, we recently
sanctioned a Chinese enterprise for transferring missile
equipment in violation of international guidelines. We are
also informing the Chinese Government that we will not be
licensing high-speed computers to China or waiving
legislative restrictions on satellite exports until we
reach an understanding on the export of missile technology
and equipment. In the trade area, we recently designated
China under the Special 301 provisions for an
investigation--and possible trade action--because of
inadequate protection of U.S. intellectual property
rights. We are also pressing China at a high-level on
market access and have broad trade authority to use as
leverage, if necessary.
--
Our post-Tiananmen sanctions on military sales,
munitions list licenses, OPIC and TDP programs remain
in place. The U.S. still leads the Western
democracies in the scope and impact of sanctions on
China.
Fact Sheet
Chinese Attitudes Toward MFN Renewal
Our posts in China have been actively soliciting views on
MFN from a very broad range of Chinese citizens. We have
paid particular attention to the opinions of those who are
known to favor further reforms and democratization, and to
those who would be most at risk if repression deepened. We
have also discussed the MFN issue with hundreds of Chinese
students and scholars in the U.S.
Our Embassy and Consulates have reported nearly unanimous
support for renewal of MFN among all sectors of the Chinese
population. While Chinese government officials have tended
to reiterate their government's official arguments, those
who want more reform and democracy in China have actually
used significantly stronger language in urging renewal.
The Washington Post correspondent in Beijing quoted a
Chinese intellectual offering a toast to MFN renewal,
saying "if it was taken away, we would not be able to
meet and talk." "
In the same report, a student at Beijing University
(which led the 1989 demonstrations) argued against
conditionality, saying that students "don't agree that
economic blackmail should be used to bring about
democracy in China."
Two of the most prominent dissidents now active in
China acknowledged to us recently that withdrawal of
MFN would seriously jeopardize their ability to
continue speaking out against repression.
Among Chinese students and scholars in the West, the range
of opinion is much more diverse, but still overwhelmingly
in favor of renewal in some form.
o
In a recent random poll conducted by Chinese scholars
among their colleagues throughout the U.S., only 12
out of 402 supported withdrawal of MFN. Most of the
remainder favored unconditional renewal or modest
conditions.
Of the letters we have received on MFN from many
Chinese in the West, one to the President from England
best reflects the general trend of thought: "As a
Chinese student from the poorest province in China, I
understand what a disastrous effect could a revocation
of China's MFN status bring to my poor parents, who,
as many ordinary Chinese, desperately need, and in
fact have already benefitted from, the influence of
the West. Do not shut up the door that was opened
only after thousands and millions of people sacrificed
their lives. I support your policy on China's MFN."
MFN Decision and AIMS
MFN Decision Advances U.S. Interests. Continuing China's MFN
status preserves a PRC stake in moving toward the international
consensus on nuclear, missile, and CW nonproliferation, an
objective the Administration and Congress share.
Engagement Pays Off in the Long Run. Beginning in the
mid-eighties, both China's policies and the global
nonproliferation context began to change. China, which once
held an antagonistic view of multilateral controls on nuclear
exports, joined the IAEA in 1984 and sent observers to the NPT
Review Conference in 1990. China's 1987 sale of CSS-2 missiles
to Saudi Arabia pre-dated the INF Agreement, the establishment
of the Missile Technology Control Regime. In 1989, China made a
public commitment to refrain from medium-range missile
deliveries to the Middle East--and has kept to that commitment.
Nuclear Proliferation. Our expression of concern about
Sino-Algerian nuclear cooperation has led to commitments by both
countries to place the cooperation under IAEA safeguards and
their pledges that the cooperation is strictly for peaceful
purposes. We await the next step, i.e. Algeria's discussions
with the IAEA. We view favorably China's public position on
nuclear exports, but would like to see China take the further
steps of joining the NPT and adopting Nuclear Suppliers
Guidelines. Serious concerns remain; the Administration will
not ignore current problems in this area.
Missiles. We have engaged in intensive dialogue with Beijing on
its missile export policy. It is clear that in some cases China
has declined proposed missile exports because of foreign policy
considerations. More broadly, the Chinese Ambassador said
recently that China supports effective international control on
military sales, including missiles. That statement constitutes
a modest step toward our objective of a PRC commitment to
observe MTCR guidelines. China's missile export policy remains
a high priority in our bilateral dialogue; problems that
originated before the establishment of the MTCR have not
disappeared, but we have seen some progress over the past
half-decade. China's proliferation policy is gradually changing
in a favorable direction. We aim to accelerate that trend.
Chemical Weapons. China is on record opposing the manufacture
and transfer of chemical weapons, and is participating in
multilateral efforts to ban chemical weapons. We have made some
progress on the subject of controls over exports of CW
precursors, and we hope to advance discussions in this vital
area.
Next Steps. We are encouraged by progress in some areas and
still see a need for progress in others. It is because of our
continuing concerns that we want to maintain a constructive
nonproliferation dialogue with Beijing. Under Secretary Kimmitt
raised these issues in Beijing in May, and Under Secretary
Bartholomew will follow up during his upcoming visit to China.
ECONOMIC EFFECTS OF MFN WITHDRAWAL
U.S. Exporters and Investors Would Be Hurt. If MFN is
withdrawn, Chinese trade retaliation is certain, including
reciprocal loss of MFN status for U.S. exports to China and
possibly other administrative measures to market access.
Since no other countries would be withdrawing China's
MFN status, U.S. companies would be put at a
competitive disadvantage. Major exports at stake and
their sales in 1990 include:
Wheat $511 million
Aircraft/Aerospace Equipment $749 million
Fertilizer $544 million
Cotton $259 million
Timber/paper $281 million
Computers & Electric Products $860 million
Chemicals $273 million
U.S. joint ventures in China, which now total almost
1,000 and have invested capital of over $4 billion,
would pay higher duties on U.S.-made components and
their exports to the U.S. would be subject to higher
non-MFN U.S. duties
-- Consumers Would Suffer. U.S. consumers and retailers would
have to pay the sharply higher non-MFN duty rates on
Chinese-made imports, including footwear, clothing and toys
and electrical products. Examples include:
MFN Duty (%)
non-MFN Duty (%)
Footwear
6.0
35.0
Sweaters
6.0
60.0
Stuffed Toys
6.8
70.0
Fans
4.7
35.0
-- Other Tools At Our Disposal to Resolve Key Trade Concerns.
We have ongoing discussions with the Chinese on key
economic and trade issues, including market access,
intellectual property protection (where China was recently
identified under Special 301), textile transshipments and
dumping. We have made progress in some areas and utilized
existing legislation to take additional action where
necessary. China has expressed a willingness to stay
engaged to resolve our concerns. Withdrawing MFN would
seriously weaken our negotiating position on these issues.
IMPACT OF MFN WITHDRAWAL ON HONG KONG AND U.S. BUSINESS THERE
Impact on Hong Kong's Economy. The health of Hong Kong's
economy is increasingly tied to the growth of south China's
export industry. Approximately 2,500 Hong Kong enterprises
have shifted their export-bound production facilities to
the Pearl River delta in Guangdong Province. An additional
10,000-15,000 south China enterprises do assembly work for
Hong Kong companies.
China is Hong Kong's largest trading partner, accounting
for 39 percent of total 1990 trade. Re-exports, which grew
by 20 percent in 1990, underpin Hong Kong's trade
performance.
o
According to the Hong Kong Government, loss of MFN
status could cut Chinese re-exports via Hong Kong by up
to 44 percent or $4.6 billion.
First-year effects could include $1.2 billion in lost
income and 43,000 jobs or 1.5 percent of Hong Kong's
labor force.
Body Blow to Local Confidence. MFN denial would further
erode local confidence, already badly shaken by Tiananmen,
in the run-up to resumption of Chinese sovereignty in
1997.
o The drop in confidence would accelerate outward
migration from Hong Kong, which now exceeds 50,000 a
year and includes many professionals and managers.
-- U.S. Business Interests Would Be Hurt. The U.S. has the
largest number of regional headquarters in Hong Kong, with
over 40 percent of the total or 252 offices. Almost half
are engaged in trading activities with China, a principal
market and source of supply.
0 U.S. investment of over $6 billion accounts for almost
one-quarter of foreign direct investment in Hong Kong.
A 1990 American Chamber of Commerce survey indicated
that 70 percent of the approximately 900 U.S. member
firms would be adversely affected and 50 percent would
consider reducing staff.
CHINA'S EMIGRATION AND FOREIGN TRAVEL POLICIES
Emigration
China's relatively free emigration policies have continued
since the renewal of MFN status in 1990. In FY 1990,
16,751 U.S. immigrant visas were issued in the PRC. The
U.S. numerical limitation for immigrants from China was
fully met.
The principal restraint on increased emigration continues
to be the capacity and willingness of other nations to
absorb Chinese immigrants, not Chinese policy.
Foreign Travel Policies
-- China continues to adhere to a relatively open foreign
travel policy. According to Chinese officials, 255,000
persons were issued passports for private travel of all
kinds in 1990, a more than three-fold increase from 1986.
U.S. diplomatic posts in China issued 60,687 nonimmigrant
visas in FY 1990. Last year, 33,800 nonimmigrant visas
were issued worldwide to Chinese students and tourists, a
19 percent increase over FY 1989 and an 84 percent increase
over FY 1988.
Chinese officials report that several thousand students
have returned from overseas for visits after June 1989 and
have been allowed to depart again under expedited
procedures. We cannot verify these figures, but we are not
aware of any cases in which Chinese living in the U.S. who
returned to China for visits after June 1989 were prevented
from leaving again.
-- Foreign travel officially sponsored by the Chinese
Government continued to decline in FY 1990, reflecting
economic austerity measures and concern about extended
delays in the return of officially sponsored scholars to
China.
-- In February 1990, China issued a new directive requiring
recent college graduates and fourth-year undergraduates to
work for five years before applying for overseas study,
with some exceptions. This directive has undoubtedly
forced some students to defer their plans for overseas
study. However, its full impact is unclear since student
visa applications and issuances continue to increase.
-- We are aware of a small number of individuals who have had
difficulty in obtaining permission to travel abroad,
apparently because of the political activities of their
relatives in the U.S. We have discussed these cases with
Chinese authorities, who have indicated a willingness to
address the issue.
U.S. -CHINA TRADE AND INVESTMENT
U.S. -China Trade
($ billions)
1979*
1988
1989
1990
%Chg 89-90
Total Trade
2.3
13.5
17.8
20.0
12
US Exports
1.7
5.0
5.8
4.8
-17
US Imports
0.6
8.5
12.0
15.2
27
Trade Balance
1.1
-3.5
-6.2
-10.4
-68
* Last year before U.S. granted MFN status to China.
U.S. Exports to China
($ millions)
1990
Cereals
512
Computers & Electric Products
860
Aircraft & Parts
749
Fertilizer
544
Chemicals
273
Prof. & Sci. Instruments
227
Iron & Steel
44
Cotton Yarn & Fabric
281
Electric Machinery
264
Plastics & Resins
166
Chinese Exports to the U.S.
($ millions)
1990
Apparel
3,197
Toys, Games, Sporting Goods
2,139
Electric Machinery
1,926
Footwear
1,477
Travel Goods
874
Petroleum
661
Fish
396
Plastics
387
Iron & Steel
247
Furniture, Lamps, Bedding
276
- 2 -
Selected Chinese Import Tariffs
Commodity
MFN Tariff(%)
Non-MFN Tariff(%)
Wheat
0
0
Aircraft & Parts
6
11
Fertilizers
30
40
Cotton
30
40
Rough Wood
3
8
Polycarboxylic Acids
15
20
Specialized Machinery
20
30
Selected U.S. Import Tariffs
Commodity
MFN Tariff (%)
Non-MFN Tariff(%)
Manufactured Articles
0-32
0-110
Apparel
0-34.6
25-90
Telecommunications
2.4-8.5
35
Footwear
0-48
10-84
Travel goods, handbags
4.6-20
35-90
Petroleum, oils
$.105/bbl
$.21/bbl
Sources of Foreign Investment in China, 1979-89
(Contracted value, $ billions)
Cum.
%
1979-86
1987
1988
1989
Total
Share
National Total
19.99
4.32
6.19
6.29
36.80
100.0
Hong Kong, Macau
12.40
2.36
4.16
3.73
22.66
61.6
United States
2.72
0.36
0.38
0.65
4.11
11.2
1.91
0.39
0.37
0.52
3.18
8.7
Japan
Others
2.96
1.21
1.27
1.39
6.84
18.6
SECMEC 1692
Xerox Telecopier 7020 : 5-27-91 : 8:57PM ;
" 041 V6**
- FORGIGN FREE
P.01
THE WHITE HOUSE
Office of the Press Secretary
(Kennebunkport, Maine)
For Immediate Release
May 27, 1991
REMARKS BY THE PRESIDENT
IN COMMENCEMENT ADDRESS TO YALE UNIVERSITY
Yale University Quadrangle
New Haven, Connecticut
11:55 A.M.
THE PRESIDENT: Thank you very, very much. President
schmidt and members of the faculty, and the Yale community, fellows
of the Yale Corporation, and capecially with congratulations to my
fellow honorands -- it is an honor to be here today. Mayor Daniels,
it's nice to be back in the city. And most importantly, to the
graduating students -- congratulate each and every one of you.
(Appleuse.) May I single out Yale's band. They ve cleaned up for
today, and they ve never been better under Mr. Tom Duffy. Thank you
sir. (Applause.) And thank you for the warm welcome. Si res
prehensio en cano est non oves sic vacio. That means, if you're
holding up the sign, you can't throw eggs. (Laughter and applause.)
classmates, I'd come to Yale fresh from war -- ready to make up for
I remember my own commencement. Like 80 many of my
"lost time." I remember our impatience and our optimism. And we
sensed upcoming adventure. I imagine it's the same today for all of
you. It's almost as 12 life is about to begin -- that is, if the
commencement speech ever ends. (Laughter.)
here, and my dad was honored with him. And he said, "I have the ben
Twenty-nine years ago, President Kennedy stood right
He had it wrong. I've got the best of all worlds -- a Yale educatio
of all worlds an a Yale degree and a Harvard education." (Laughter.
and a Yale degree. (Applause.)
My day was no different. There's an excitament in the
air, and Barbare and I spent a good part of our senior year thinking
about, literally, becoming farmers. No talkod about life on the lan
And and rising early and working hard and raising a crop and a family.
decided against the whole idea. We realized that when it came to
we looked into the finances of running a farm. In the end, we
pigs and chickens and cattle or corn, we didn't know the first thing
about farming.
so, of course, thore was only one alternative: I wont
west the and became an oilman. (Laughter.) The days after -- the day
very day after the ceremony like this one, I traded the familiar -
searing heat of the Lone star State.
surroundings of this beautiful old campus for the dust and grit and
Hillhouse Avenue where Barbara and I lived, or the Flatlands of West
Odessa, Texas, became my world. And yet fer beyond 37
Texas, change rocked the whole world in ways that would affect us al
for more than 40 years. On June 20th, 1948 -- my graduation day --
the United Nations sent out its first peacekeeping force -- 49 men
of from the United States and six other nations -- to bring the promise
peace to the Middle East. And on that day, the Soviot Union trie
to clamp down on the free sectors of Berlin as the Berlin Blockade
had begun. And on that day, Congress, after an all-night session,
would become known, as we all know, as the Marshall Plan.
passed a bill to help the nations of war-torn Europe. That package
Today's world -- your world -- is every bit as
- 2
estonishing. Back in my day, opportunity knocked. And yours -- y
pager beeps.
We have seen in two short years the end of a long ora
cold Mar and conflict. The Iron Curtain collapsed -- it's gone, :
wall is down. (Applause.) And with it the myth of an ideology
called communism. On the barren ground that once separated East a
Hest, the democratic idea sprouted anew.
As a nation, we can tako great pride in this triumph.
vindicatos more than 40 years of American vigilance -- a lesson
learned on the battlefields of Europe and the seas of the South
Pacific -- that this nation could no longer pursue a policy of
"splendid isclation."
The democratic renaissance in Central and Eastern Euro
-- the blossoming of democracy here in the Americas -- the emergin
consensus on the African Continent that democracy is the road to
development -- none of this would have taken place if America had
turned inward, away from the challenges of a new world.
So today, as we seek to promoto freedom and democracy
human rights -- as we seek to strengthen stability within the
international community -- an America confident enough to engage t
world remains our best hope for peace, security and chared
prosperity. (Applause.)
Look in every corner of the globe and you will find th
the American example has consequences. When we reach out, we offe
more than care or grain or MTV. He exemplify an ideal -- an ideal
that conquers circumstance and suspicion, that conquers despots an
should not taint itself by dealing with nations less moral, less
empowers people. some argue that a nation as Moral and just as ou
just. But this counsel offers up self-rightecuanoas draped in a
false (Applause.) morality. You do not reform a world by ignoring it.
plays an important role in the world economy. As it has grown MOI rog
Bast Asia is a case in point. Today, this dynamic
engine of economic growth and trade, especially with the U.S., Sou
prosperous, it has also grown more free. Driven forward by the
Korea and Taiwan have shed their once authoritarian rule in favor
democracy and freer trade.
China and assily can affect the stability of the Asian-Pacific region
Republic of China, home to fully one-fifth of the world's people.
This same approach guides our policy towards the Peopl
Chinese therefore, affact the entire world's peace and presperity. TH
Cambodia and relax tensions on the Korean Peninsula. China has
play a central role in working to resolve the conflict in
helped us forge the broad coalition that brought us victory in the
United Nations security Council against Iraq's brutal aggression
voice now in the multinational organizations. And its votes in tr a
Gulf. (Applause.)
China, we will explore them. when problems arise with China's
And no when we find opportunities to cooperate with
behavior, we will toko appropriate action.
first nation to condemn the use of violence against the peacefully was
After the tragedy of Tiananmen, the United States
demonstrating people of Beijing. No were the first to guarantee t
rights of Chinese students studying on campuses across the country
including here at Yalo, (Applause.)
sanctions -- and we are now the last, alone among the Nestern
The United States was the first nation to impose
democracies, to keep those original sanctions in place. At evary
high-level meeting with the Chinese government, U.S. officials
reiterato our position on human rights violations.
Unfair trade is also high on our agenda. Just last
MORE
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- 3 -
month, we cited China under the trade rules of a special 301 for
pirating U.S. copyrights and patents. And for the sake of national
security, we will ban technologies and equipment to. any Chinese
company found to violate rules outlawing transfer of missile
technologies.
We will continue to advance our interests and ideals:
for free and fair trade -- for broader democratisation -- for respect
for human rights throughout China.
Let me be clear: As a member of the United Nations,
China is bound by the U.N. Declaration of Human Rights. We will hold
China to the obligations that it has freely accepted.
And, finally, we continue urging China to exercise
restraint in its weapons exports. Our recent experience with Iraq
proves how dangerous the deadly trade can be. And very soon, I will
announce significant new steps that we can take to control arms
exports to the entire Middle East. (Applause.) Every nation must
play a part in this effort. That's why we urge the Chinese
government to abide by the letter and spirit. of international
agreements on missile technology controls -- and to do what 141 other
nations (Applause.) have already donet sign the Nuclear Nonproliferation Treaty.
And this is one way that the United states can be &
catalyst for positive change. This woek, I will employ another by
proposing formally that MFN trade status continue for China. This
policy has generated considerable controversy. Some critics have
said revoke MFN, or endanger it with sweeping conditions -- to
censure China, cut our ties and isolate it. We are told this is a
principled policy, a moral thing to do.
This advice is not new. It's not wise. It is not in the
best interests of our country, the United States. And in the end, 1
spite of noble and best intentions, it is not moral.
First, MFN is special.* It is not a favor. It is the
ordinary basis of trade worldwide. Second, MFN is a means to bring
the influence of the outside world to bear on China. Critics who
attack MFN today act as if the point is to punish China -- as if
hurting China's economy will somehow help the cause of privatisation
and human rights.
The real point is to pursue a policy that has the best
chance of changing Chinese behavior. If WQ withdrew MFN or imposed
conditions that would make trade impossible, we would punish South
China: in particular, Guangdong Province -- the vary region where
free market reform and che challenge to central authority are the
strongest. Right now, there's an estimated two million Chinese who
are working, and proving that privatisation can work -- all in South
China. Withdraw MFN and their jobs would be in jeopardy. In
addition, endangering MTN would deal a body blow to Hong Kong -- the
bastion of freedom and free trade in the Par East.
But the most compelling reason to renew MFN and remain
engaged in China is not economic, it's not strategic, but moral. It
is right to export the ideals of freedom and democracy to China. It
is right to encourage Chinese students to come to the United States,
and for talented American students to go to China. It is wrong to
isclate China 12 we hope to influence China. (Applause.)
For two decades after the communists seized power in
1949, the Western world followed a policy of isolation toward China.
This period proved to be among the most brutal episodes in Chinese
history -- a nightmare of anguish and death and suffering that will
scar the soul of China for decades to come.
* not special.
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so it comes down to the strength of our belief in the
power of the democratic idea. If we pursue a policy that cultivates
contacts with the Chineco people, promotes commerce to our benefit,
we can help create a climate for democratic change.
No nation on Earth has discovered a way to import the
world's goods and services -- while stopping foreign ideas at the
border. Just as the democratic idea has transformed nations on every
continent -- so, too, change will inevitably come to China.
This nation's foreign policy has always been more than
simply an expression of American interests -- it's an extension of
American ideals. This moral dimension of American policy requires us
to remain active, engaged in the world. Many times, that means
trying to chart a moral course through a world of lesser evils.
That's the real world -- not black and white. Very few moral
absolutes. Enormous potential for error and embarrasement. But all
are part of the risks that we willingly take to advance the American
ideal.
Many times in the past 40 years, people have encouraged
us to adopt a policy of righteous isclationism -- but we remained
engaged. He cannot advance principles if we curl up into a defensive
ball. He cannot transform a world if we hide from its unpleasant
realities. Me can advance our cherished ideale only by extending our
hand, showing our best sides, sticking patiently to our values --
even if we risk rejection.
Look at the way American encouragement and the American
example -- the power of the American example -- is paying off in
Taiwan and Korea. He will have no leverage. we will not be able to
advance our cause or resist repression if we pull back and declare
that China is simply too impure a place for us. He want to promote
positive change in the world through the force of our example -- not
simply profess our purity. no want to advance the cause of freedom
-- not just anub nations that aren't yet wholly free.
Let me close today with some modest pieces of advice.
First, understand that you often will confront moral ambiguity.
There will come times when you will have difficulty distinguishing
between good guys and bad guys. When these situations arise,
identify your principles and stick by them. Stick by them even whet
people jear, when people urge you to find a quick and easy out.
(Applause.) If you remain patient and true to yourself, you can't
wrong.
second, remember that the corner of the woria that
matters most is one right here at home, the one you share with
friends and family.
And finally, your destiny one the currents of history
will most likely intersect more than once. You will have amplo
opportunity to make your mark. And take care to make it count.
To oll the graduates of the Class of '91 who now join
as proud alumni of this great University, congratulations, good Lue
to you, and may God bloss the United States of America. (Applause
END
12:15 P.M. 80
June 7, 1991
SUMMARY OF PROPOSAL
BY CONGRESSMAN WILLIAM S. BROOMFIELD (R-MI)
FOR LEGISLATION ON U.S.-CHINA RELATIONS
-- Freestanding legislation, independent from renewal of
most-favored-nation (MFN) status, that could be put
forward at any time during the debate over MFN or
afterward;
-- Framework for addressing the major issues in U.S.-China
relations through legislation and further action by the
Administration;
-- A way to improve coordination between the Executive and
Legislative branches and enhance public understanding;
-- Main elements would include:
- Statement of Congressional findings on and purposes of
U.S. relations with China;
- Establishment of a special Presidential commission, to
be comprised of leading Executive branch officials,
Congressmen and distinguished private citizens, that
would report its recommendations after nine months;
- Review and consolidation of current political actions
against China and consideration of additional
measures;
- Further steps on trade issues, including unfair trade
practices, structural issues, and export of
convict-made goods.
DRAFT
June 4, 1991
UNITED STATES RELATIONS
WITH THE PEOPLE'S REPUBLIC OF CHINA
ACT OF 1991
Title I -- Findings and Purposes
This title would lay out Congressional findings with respect
to China and the general purposes of U.S. policy toward China.
While recognizing the importance of normal relations between
China and the U.S., the findings and purposes would focus on
major issues of concern.
The main issues of concern include but are not limited to:
Failure of the Chinese government to account for the massacre at
Tiananmen Square in 1989 and its aftermath; the continuing
political repression in China; proliferation of sensitive
military technologies; unwillingness to cooperate fully in the
resolution of regional conflicts; reluctance to enter into
multilateral arrangements to resolve important political and
technological issues; limitation of U.S. participation in the
Chinese economy through import restrictions, investment obstacles
and misappropriation of intellectual property; and aspects of the
structure of the Chinese economy that unfairly subsidize exports
to the U.S.
Title II -- Special Commission on U.S. Relations with China
This title would establish a Special Commission on U.S.
Relations with China which would be intended to provide a means
to reduce the disagreements between the Executive and Legislative
branches of government on policy toward China and lay a basis for
national consensus on our relations with China. The Commission
would be appointed by the President, with appointees to be drawn
from the upper ranks of government, the Congress, and the private
sector.
With respect to Congressional appointees, the President would
be requested to consult with the Leadership of Congress in order
to identify two members from each house -- equally divided
between Democrats and Republicans -- to be nominated. With
respect to private sector appointees, the President would be
directed to nominate persons of high reputation with special
expertise on U.S.-China relations, regardless of political party.
The President would be directed to consult with the Leadership of
Congress before making such appointments.
The Commission would be empowered to hold hearings and pursue
investigations, including if necessary travel to China and other
locations, and be given a small budget and the ability to request
assistance from federal agencies on a non-reimbursable basis. A
small staff would be created under the direct supervision of the
Commission, through its Chairman (who would be one of the private
sector appointees).
The Commission would be requested to submit its report to the
President within 9 months. If the Commission deems it desirable,
the report could include recommendations for legislative as well
as executive action.
Title III -- Interim Political Actions by the United States
This title would include actions which could be taken by the
United States, outside the trade area, to influence the Chinese
government to address the major issues in U.S.-China relations.
These could include:
--
Review and consolidation of current U.S. sanctions,
including restrictions on transfer of U.S. technology,
official credits and U.S. support to multilateral bank
lending;
--
Legislative enactment of further sanctions, including
the recent Presidential actions to limit Chinese access
to satellite and other technology;
--
Consideration of further U.S. actions in response to
human rights, proliferation and other political
concerns, including additional restrictions on exports
of munitions items in the event China continues to
transfer sensitive military technology to potential
troublespots.
Title IV -- Trade and Related Actions by the United States
This title would include new trade and related action by the
United States in response to economic and political developments
in China. These could include:
--
Consideration of action under Section 301 of the Trade
Act or similar procedures in order to respond to unfair
trade practices, particularly in the area of import
controls and restrictions by China which affect U.S.
products and services;
--
Delineation of criteria for successful renewal of the
three-year trade agreement with China, required for
continuation of most-favored-nation status, to resolve
the issues of restrictions on U.S. exports, etc. as well
as subsidies and other aspects of the Chinese economy
which have also contributed to the recent trade
imbalance. (This agreement must be renewed in February
1992) ;
:
Consideration of action under Section 406 of the Trade
Act, related to special relief for market disruption by
imports from a communist country; and
--
Exploration of further investigatory and rulemaking
action by the Department of the Treasury and its
component agencies to improve the enforcement of U.S.
laws, such as Sec. 307 of the Tariff Act, which prohibit
the importation of convict-made goods.
SENATE RECORD VOTE ANALYSIS
101st Congress
Vote No. 1
January 25, 1990, 2:31 p.m.
2d Session
Page S-382 (Temp. Record)
CHINESE STUDENTS/Veto
SUBJECT:
The Emergency Chinese Adjustment of Status Facilitation Act of 1989
H.R. 2712. Passage, upon
reconsideration, the objections of the President not withstanding.
ACTION: VETO SUSTAINED, 62-37
SYNOPSIS:
On July 31, 1989, the House passed H.R. 2712, the Emergency Chinese Adjustment of Status
Facilitation Act, by voice vote. The Senate amended and passed the bill by voice vote on August 4.
1989. Following conference, the House passed the conference report to H.R. 2712, 403-0, on November 19, 1989. and
the Senate passed the conference report by voice vote on November 20, 1989.
H.R. 2712 assists Chinese nationals in the United States by: (1) waiving the two-year home country residence
requirement for nationals of the People's Republic of China in the United States on an exchange visitor (J)
(student, teacher, research); (2) continuing the legal status of nonimmigrant Chinese nationals lawfully in the United
States as of June 5, 1989, for change of status purposes; (3) permitting Chinese nationals lawfully present in
United States as of June 5, 1989, on (F), (J), or (M) visas (student, exchange visitor, vocational student) to work
(4) requiring the Attorney General to send explanatory notices of visa expirations (instead of deportation notices
Chinese aliens during the deferred departure period. As well, H.R. 2712, as amended, would allow Chinese nation
who fear persecution as a result of their opposition to Chinese policies of mandatory sterilization and/or abortion
be granted asylum in the United States.
On November 30, 1989, President Bush returned H.R. 2712 to the House of Representatives unsigned. In
memorandum of disapproval accompanying the bill, the President asserted the bill was unnecessary because he
already extended additional protection to Chinese nationals covered by the Attorney General's June 6, 1989.
deferring their enforced departure. Specifically, the President issued an executive order on November 30, 1989. to
waive the two year home country residence requirement until January 1, 1994; (2) assure continued lawful immigrat
status for Chinese individuals who were lawfully in the United States on June 5, 1989; (3) authorize employment
Chinese nationals in the United States on June 5, 1989; and (4) send notice of expiration of nonimmigrant
rather than institute deportation proceedings for individuals eligible for deferral of enforced departure
(See other side)
YEAS
(62)
NAYS
(37)
NOT VOTING (1)
Republicans
Democrats
Republicans
Democrats
Republicans (0)
Democrats (1)
(8 or 18%)
(54 or 100%)
(37 or 82%)
(0 or 0%)
Armstrong
Adams
Johnston
Bond
Lott
Breaux
Boschwitz
Baucus
Kennedy
Burns
Lugar
Cohen
Bentsen
Kerrey
Chafee
Mack
Gorton
Biden
Kerry
Coats
McCain
Helms
Bingaman
Kohl
Cochran
McClure
EXPLANATION OF ABSENCE:
Kasten
Boren
Lautenberg
D'Amato
McConnell
1-Official Business
Pressler
Bradley
Leahy
Danforth
Murkowski
2-Necessarily Absent
Wilson
Bryan
Levin
Dole
Nickles
3-Illness
Bumpers
Lieberman
Domenici
Packwood
4-Other
Burdick
Matsunaga
Durenberger
Roth
Byrd
Metzenbaum
Garn
Rudman
SYMBOLS:
Conrad
Mikulski
Gramm
Simpson
AY-Announced Yea
Cranston
Mitchell
Grassley
Specter
Daschle
Moynihan
Hatch
AN-Announced Nay
Stevens
PY-Paired Yea
DeConcini
Nunn
Hatfield
Symms
Dixon
Pell
Heinz
Thurmond
PN-Paired Nay
Dodd
Pryor
Humphrey
Wallop
Exon
Reid
Jeffords
Warner
Ford
Riegle
Kassebaum
Fowler
Robb
Glenn
Rockefeller
Gore
Sanford
Graham
Sarbanes
Harkin
Sasser
Heflin
Shelby
Hollings
Simon
Inouye
Wirth
Compiled and written by the staff of the Senate Republican Policy Committee
William L. Armstrong, Chairman
Page 2 of 3
VOTE NO. 1
JANUARY 25, 1990
nonimmigrant status has expired. As well, the President instructed the Immigration and Naturalization Service to grant
asylum to any person who feared persecution as a result of their opposition to mandatory government policies of
forced sterilizations and/or abortions. In addition, the President argued that the bill impeded his ability to conduct
foreign policy.
On January 24, 1990, the House voted, 390 to 25, to override the President's veto.
NOTE: A yea vote was a vote to override the President's veto; a nay vote was a vote to sustain the veto. A two-
thirds majority of those present and voting (66 in this case) is required to override a veto.
Those favoring the veto override contended:
President Bush's veto of H.R. 2712 last November tarnished America's proud history of support for human rights.
To remain true to that past, this Senate must pass H.R. 2712, the objections of the President notwithstanding.
June 4, 1989, was a day of shame in the history of China, when its government of old men slaughtered hundreds, if
not thousands, of young students peacefully advocating democracy. This barbaric act, condemned by all civilized
nations, was followed by wholesale arrests, imprisonments, and executions of Chinese youths whose only crime was to
have studied in America and to have brought back with them to their homeland our democratic ideals. As part of its
policy of terror and intimidation, China's government intimated that Chinese students who had to return home
following the expiration of their visas would be dealt with harshly. To obviate such punishment, last year the House
(by a vote of 403-0) and Senate (by voice vote) passed H.R. 2712, which exempted the 40,000 Chinese students
studying in the United States from returning to China.
This statutory protection, though, was capriciously eliminated by President Bush. Claiming that he would by
executive action waive the return-home obligation. and that he needed a free hand to conduct China policy, the
President returned H.R. 2712 to us unsigned.
To begin with, many question the President's authority to declare such a change in immigration regulations. His
order provides no statutory legal protection for the Chinese students and can be revoked by the President at his
discretion. In addition, the President's order may be open to court challenge, as it appears his action is inconsistent
with current immigration statutes. Only legislative changes in present law would unquestionably allow these students to
remain in the United States.
As well, while the President argued that he needed to be free of Congressional interference in the conduct of his
China policy, his strategy since June 4, 1989, deserves our intense scrutiny. Merely a month after the Tianamen Square
murders, the President dispatched a secret mission to Peking to express the outrage of the United States at the action
of the Chinese government. This was to no effect; since July, 1989, the government of China has detained or arrested
more than 10,000 people, imprisoned more than 800 citizens for counterrevolutionary crimes, and executed up to 1,400
students and workers who participated in the democracy protests. In November, the President sent another delegation
to meet the Chinese and, while martial law had been recently lifted in Peking, the government promulgated harsh new
laws suppressing political dissent, combined the Peking police with several army units, and began a wholesale
"purification" campaign of the Chinese Communist party, aimed at identifying and punishing democracy advocates. In
the face of these facts. the President continues to insist that his policies are succeeding, and that Congressional
protection of Chinese students seriously threatens his policy.
We do not subscribe to the President's point of view. While our relationship with China has always been
complicated, the President's veto called into question United States support for human rights, and was seen as a
cowardly kowtow to the butchers of Peking. We must not allow the Chinese government to believe that their brutal
actions of last June are in any way endorsed by the government of the United States, and we strongly urge our
colleagues to override the President's veto, pass H.R. 2712, and restore the luster to our tarnished human rights legacy.
Those opposing the veto override contended:
We share the revulsion and outrage of our colleagues over the deplorable behavior of the Chinese government last
June, when it sent tanks into Tianamen Square to kill peaceful students whose only offense was to demonstrate for
democracy. Such abhorrent behavior deserves the opprobrium of the world community. However, the Congress was
carried away on an emotional tide last year when it passed H.R. 2712, and the President rightly vetoed the bill.
Uniquely qualified to judge the nuances of our relationship with China (George Bush served as America's liaison to
China in 1975-76), the President believed that statutory protection would wreak havoc on the strategic U.S.-China
relationship (and according to the Chinese Foreign Ministry, the consequences of a veto override would be quite
grave). Instead, to protect the Chinese students and uphold our historic advocacy of human rights, the President by
executive action altered the immigration status, not only of these 40,000 Chinese citizens, but all Chinese nationals
currently in the United States who do not wish to return, protecting them for at least four years. Further, the President
has promised, in his veto message, in communications with Senators, and in press conferences, that no Chinese student
will be sent back to China until the conditions in China change.
Page 3 of 3
JANUARY 25, 1990
VOTE NO. 1
Since the President has done more by executive action than H.R. 2712 ever could, why then are we considering an
override of the President's veto? Those who advocate passing H.R. 2712 argue that the President's China policy has
been unsuccessful. We do not share that view. By carefully preserving the fundamental elements of the U.S.-China
strategic relationship throughout the past several months, progress has been made in several areas. For example, China
has: assured the United States that it will refrain from selling missiles in the Middle East; lifted martial law in Peking:
released nearly 600 Chinese political prisoners; opened many previously sealed Catholic churches; taken an active and
flexible role in the negotiations over the future of Cambodia; initiated discussions on a renewal of Fulbright
fellowships and the operation of the Peace Corps in their country; and allowed over 7,000 new students to study in the
United States. While the Chinese situation remains unsatisfactory, it is clear that the careful and measured diplomacy
of President Bush has yielded progressive dividends.
With the President protecting all Chinese nationals in the United States, and the government of China relaxing its
grip, we can only conclude that those who wish to override the President's veto are engaged in a crass partisan exercise
that fouls any legitimate differences Senators may have regarding the President's foreign policy. It is no coincidence
that all Democratic Senators support the override effort, that the Democratic leadership of both the House and the
Senate have criticized the President's veto throughout the last two months (some using the pejorative term "kowtow
to describe the President's actions), and that this override attempt was scheduled as the first item of business for the
Senate this year. We hope our colleagues will join us to reject this political exercise, support the President in
conduct of foreign policy, and resolve, in the future, to debate our differences on a more elevated plane free
partisan wrangling. We strongly urge all Senators to sustain the President's veto of H.R. 2712.
An
Inside the White House
Inside
Washington
Publication
an exclusive weekly report on White House economic, trade and regulatory policies
As Bush okays 'conditions'
JUIEVI
Vol. 10 No 21 - May 23, 1991
TREASURY URGES HILL TO KEEP CHINESE TRADE STATUS DESPITE MONEY FIXING DISPUTE
A senior Administration official last week urged Congress to retain Most Pavored Nation status for
China while the Treasury Dept. initiates negotiations with China over allegations that the country is
possibly manipulating its currency to bolster its exports to the U.S., which have grown by 300% in the
past three years. At the same time, the White House said it would accept "conditions" on continuing MFN,
AT
which gives Chinese exports duty-reduced access to the U.S. market.
Willingness by the White House to accept conditions is in recognition of growing opposition on Capitol
Hill to MFN based on allegations of human rights abuses, unfair trade practices and unwillingness to
continued on page 20
Warns of sluggish recovery
GREENSPAN SAYS CREDIT CRUNCH MAY HAVE BOTTOMED OUT; END OF RECESSION NEAR
Federal Reserve Board Chairman Alan Greenspan last week said that the credit crunch appears to have
bottomed out, laying the groundwork for an economic recovery this quarter. At the same time, he said
there are pervasive, underlying problems related to the low savings rate in the U.S. economy that will
continue to keep the economy from growing at its full potential. As a way to remedy this, he offered
lukewarm support for a bipartisan proposal in the Senate to significantly expand participation in
Individual Retirement Accounts, which the White House opposes.
Greenspan was quick to point out that the credit crunch has not yet eased, and he joined the White
continued on page 6
BUSH VOWS TO CONTINUE TO PURSUE VETO STRATEGY; WINS SUPPORT OF SENATE GOP
Senate Republican leaders last week strongly endorsed President Bush's VOW that he would continue to
pursue his successful veto strategy aimed at defeating Democrats' proposals on key legislative initiatives
such as civil rights. The President's position promises another year of legislative gridlock between the
White House and Congress and the likelihood that important pieces of legislation may die because
Republicans and Democrats cannot bridge the gulf that separates them.
The President's pledge was greeted with strong support by Senate Minority Leader Robert Dole (R-KS)
who agreed with Bush's assessment that the veto was the only way for the Republicans to block the
Democrats. Dole even gave the President a "veto card" that resembles a Visa charge plate, Bush's
continued on page
Calling it 'playing politics' with tax code.
ROSTENKOWSKI DENOUNCES GORE, GEPHARDT BID TO CREATE 35% TAX RATE
President Bush last got an unexpected ally in his efforts to defeat any income tax increases this year
when the powerful House Ways & Means Committee Chairman Dan Rostenkowski (D-IL) denounced two
Democratic presidential hopefuls Sen. Al Gore (D-TN) and House Majority Leader Richard Gephardt (D-
MO) -- for "playing politics" with the tax code by seeking to raise taxes on the wealthy for purely self-
serving political purposes. He said that last year's budget agreement specifically renounced playing politics
with the tax code, but now Gephardt and Gore are trying to re-open the fairness and "tax-the-rich" debate
to further their own political ends, without considering the consequences.
continued on page 2
Inside this Issue
War Reparations: Bush hints he will allow Iraq to pay a portion in oil
p3
ITA Cutbacks: Hill failure to pass export bill forces drastic cuts at trade agency
p3
Defense Spending: House appropriators may follow Aspin bid to cut B-2
b4
War Costs: White House says it won't ask Hill for any more than $15-billion
p9
Fast Track: Mitchell indicates personnal opposition to Mexico trade deal
p19
Currency Manipulation: Treasury sees evidence China fixed money to boost trade
p22
While not mentioning the Gore/Gephardt proposal by name, Rostenkowski made it clear that he. would
oppose the effort on several grounds, not the least of which would be his strong opposition to re-opening
the tax code to make a "symbolic stand." He clearly indicated that he would oppose the Tax fairness"
effort by stating his strong doubts the bid would pass the House, much less get the President's signature,
hinting that he would vote to uphold Bush's veto and likely swing many Democrats over to his side, should
it come to that.
He said the efforts to raise taxes violates the spirit of the budget agreement, which Rostenkowski said
was a repudiation of playing politics with the tax code. "It was supposed to be a five-year agreement. Now
less than a year later, some people are talking about undoing it. And that bothers me a lot. Maybe it's
naive to think that the budget agreement could last five years but surely it could last two,"
Rostenkowski said May 16 in a speech before the American Institute of Certified Public Accountants.
Still, he said that there was only a "50-50 chance" lawmakers would leave the tax code alone this
year. There is strong opposition from Bush and Rostenkowski to re-opening the tax code, the chairman
said. In addition to the political considerations, there are pressures created by the new budget law that
make it virtually impossible for lawmakers to spend money on new programs likely without re-opening the
tax code.
The Gore proposal would create a top tax rate of 35% for those earning more than $250,000 annually
while giving families an $800/year tax credit for each child living at home (Inside the White House, May
16, p4). The Gore proposal is said to be attractive to Democrats because it revives the "fairness" and "tax
the rich" issues that were so successfully used during last year's budget debate that eventually forced the
President to accede to a tax increase, which led to a plummet in the polls that some say only a war
could reverse.
There is another leading tax proposal, sponsored by Senate Finance Committee Chairman Lloyd Bentsen
(D-TX), that seeks to make Individual Retirement Accounts more accessible by allowing everyone to
contribute up to $2000 in pre-tax dollars to the accounts. This proposal received the lukewarm support of
Federal Reserve Board Chairman Alan Greenspan last week, who said it is better to err on the side of
increasing savings than to do nothing. But Greenspan warned lawmakers against offsetting the IRA
expansion cost by raising taxes, saying higher taxes could have a deleterious effect on the economy (see
related story).
Rostenkowski opposes any changes in the tax code, but he said he views the "smoke signals coming
from my party's camp with mixed emotions." Rostenkowski said there is no bigger proponent on Capitol
Hill of tax fairness than himself. "No one believes more fervently than I do that middle-income Americans
desperately need some help. But I think it would be a particularly tough sell to convince middle-income
taxpayers that they're better off with an $800 credit, rather than a $2100 personal exemption," he said,
referring to the Gore proposal.
"But from my perspective, waging a battle over tax fairness this year is not without its risks,"
Rostenkowski said. He noted the changes to the tax code last year, especially the elimination of the
"bubble" by imposing an explicit 33% rate on upper-income taxpayers. He said that the creation of the
bubble in the first place, which he called "foolishness," had to do "with playing politics with the tax code.
To my way of thinking, last year's agreement was an implicit renunciation of tax tinkering for political
purposes."
He said he is bothered by the "threat to tax stability a new tax bill promises. I've said many times
this year that 1 believe the American taxpayer needs a rest. I'll say it again. The practice of annually
rewriting the tax code imposes a tremendous burden and creates tremendous uncertainty. We should not
engage in political tax wars lightly."
Rostenkowski said he believes in taking action with the idea of getting something accomplished. I'm no
fan of symbolic stands. And frankly, I'm very doubtful that a tax fairness package would pass the House
of Representatives much less get the President's signature."
SUBSCRIPTIONS:
Chief Editor: Peter Busowski
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2
INSIDE THE WHITE HOUSE May 23, 1991
Budget Briefs
Bush Says He May Accept Iraqi Oil
go procedure is, in my view, a direct challenge to the agreement
As Partial War Reparation Payment
and to the good faith undertakings of the agreement.
President Bush last week indicated that he may accept Iraqi
No one fought hard for the Brown-Domenici amendment
oil in lieu of hard cash as a partial payment for war reparations
in conference committee. Neither Brown nor Domenici sat on
that the U.S. is insisting Iraq pay for its occupation of Kuwait
the conference committee. Brown wasn't selected and
that led to the Persian Gulf war. While the Administration's
Domenici chose not to participate.
position is still being worked out, the President did not dismiss
One of Domenici's major initiatives was adopted, accord-
out of hand Iraq's offer to pay 25% of its reparations in oil.
ing to sources. This requires a 60-vote majority in the Senate to
When asked if he would accept Iraq's paying 25% of its
make any changes to the Social Security trust fund, virtually
reparations in oil, the President last week said "I don't have a
guaranteeing that any subsequent efforts in the Senate to refund
percentage in mind." He spoke to reporters at the White House
the surplus in the form of a payroll tax cut would be defeated
shortly after he returned from Capitol Hill where he attended a
unless there was overwhelming support. The only proposal to
meeting with Senate Republican leaders.
be voted on the floor this year. was sponsored by Sen. Daniel
"We're working out an Administration position on that,"
Moynihan (D-NY), which was defeated by a60-38 vote (Inside
Bush said. He added that the "main thing is full compliance with
the White House, May 2, p7).
all U.N. resolutions
that's the key point." This is being
interpreted to mean that if the U.N. says oil would be an accept-
able form of currency for war reparations, then the U.S. likely
Hill Failure to Pass Export Control Bfll
would support it. The U.N. is expected to okay the payment of
Leads to Drastic Cutbacks at ITA
war reparations partially in oil, although it was not known by
Congressional failure to pass a bill to reauthorize the
press time May 21 how great a percent of oil would be able to
Export Administration Act (EAA) has led to a budget crunch at
be used as reparations, the level of which has not been decided.
the International Trade Administration (ITA), according to
informed sources. As a consequence, Commerce Undersecre-
tary Michael Farren has had to make drastic cutbacks and
Foley Denounces Brown-Domenici Budget
prepare agencies involved in export promotion for possible
Amendment as Conferees Yank It from Bill
summer furloughs.
House Speaker Thomas Foley (D-WA) last week de-
Because of a projected $18-million shortfall deriving from
nounced an amendment to the Senate budget resolution pre-
the lack of a higher authorization that last year's EAA would
cluding tax increases to pay for new entitlement spending, that
have provided, ITA has imposed a hiring freeze, a prohibition
was subsequently removed in House-Senate conference last
on all but highest priority travel, and tightened procurement
week, as a violation of the spirit of the five year budget
policies for its export promotion sub-agencies. Hardest hit is
agreement. In unusually harsh language during the actual nego-
expected to be the U.S. Foreign & Commercial Service, al-
tiations on the budget between the House and the Senate, the
though the International Economic Policy and Trade Develop-
Speaker made it clear that he was strongly opposed to the
ment Administration divisions would also be affected. ITA.
amendment and wanted to see it taken out of the conference
personnel directly involved in the administration of U.S. trade
report, which was expected to be filed by the House Budget
laws would not be affected by the cuts, according to an ITA
Committee on May 21 with floor action anticipated as early as
source. On May 9, Farren sent a memo to the heads of the
May 22. The Senate could also take up the budget resolution on
affected divisions, outlining the situation and noting that fur-
May 22 if the House passes it early in the day. The budget
lough notices may have to be delivered in June to provide the
resolution is non-binding and the President has no direct role,
30-day notice required before they would take effect in July,
given neither the power to approve nor veto.
according to an informed ITA source,
The amendment, sponsored by Hank Brown (D-CO) and
The EAA vetoed by President Bush last year would have
the ranking Republican on the Budget Committee Pete
authorized $165-million for ITA operations this year, Without
Domenici (R-NM), would have precluded lawmakers from
it, the Commerce agency cannot spend any more than the $146-
raising taxes to pay for new spending on entitlements, as the
million it was appropriated at the beginning of the year. The
budget agreement currently permits. Instead, according to the
Senate passed an amendment on May 9 that would have
amendment, all entitlement spending would have to be paid for
restored ITA funding, but the House has yet to approve a similar
with offsetting spending cuts in other entitlement programs. But
measure, according to sources.
the amendment was doomed from the outset. Senate Budget
Committee Chairman Jim Sasser (D-TN) opposed it and told
Brown he would work to have it removed in conference com-
In Surprise Move, Aspin WIII Ask House
mittee, which he did.
To Add $200-Million to Phase SDI
Foley told reporters last week that he regards the "so-called
In a turnabout from last week's move by the House Armed
Brown amendment as a direct violation of the spirit of the
Services Committee to zero the Brilliant Pebbles-centered
budget summit agreement, and I think it is absolutely unaccept-
phase I strategic defense program element, panel Chairman Les
able. The proposal to interfere with a solemnly undertaken
Aspin (D-WI) surprised observers by offering an amendment to
agreement on fundamental questions relating to the pay-as-you
the defense authorization bill on the House floor which rein-
INSIDE THE WHITE HOUSE - May 23, 1991
3
Budget Briefs
states funding for the line item at $200-million. Aspin's amend-
there now appears to be substantial support for the B-2 among
ment joins nine other proposed modifications to the bill, ranging
Appropriations defense subcommittee members, it is doubtful
from restoration of the Brilliant Pebbles space-based intercep-
such support will translate into a final committee vote support-
tor program, to termination of the SDI Organization altogether.
ing an Administration request for $2.46-billion in B-2 procure-
It was unclear at press time which of these proposed amend-
ment funds, the sources say.
ments would gain the support of the House, which votes on the
Denial of B-2 procurement funds led the White House this
bill early this week.
week to threaten to veto the Defense Authorization bill (see
Reportedly Aspin offered the amendment to respond to
related story). It is not known whether the President would
protests of SDI supporters and detractors alike who criticized
ultimately veto the Appropriations measure because of inade-
the committee's earlier move because it had the effect of killing
quate B-2 funding, although at least one White House source
some programs which support the more popular ground-based
said he would.
defenses in addition to supporting Brilliant Pebbles. The
If the committee vote were to produce a defense appropria-
Administration had requested $1.61-billion for phase I in FY-
tions bill allowing for new B-2-buys in FY-92, the measure
92, $659-million of which was for Brilliant Pebbles. Aspin's
would result in a direct conflict with the Armed Services
amendment restores just $200-million to the phase I category,
Committee bill and would likely end up being resolved in the
drawing funds off other program elements to do so. The amount
House "behind closed doors," one source said.
reinstated into the program element may be enough to salvage
"I don't think it's very likely that the appropriations com-
some supporting research and development programs, but
mittee is going to do something that is in direct conflict with the
likely could do little to maintain Brilliant Pebbles as the center-
armed services committee," the source said. "It could happen,
piece of SDI, as the Defense Dept. would like.
mind you. But I don't think it will."
The House Armed Services bill authorizes $2.66-billion
Nevertheless, at least a half dozen Appropriations defense
for SDI, granting the Administration request for $857.5-million
subcommittee members favor full funding for the B-2. Two
for tactical defense but moving it into a proposed separate Army
more are undecided on the issue. The subcommittee's apparent
account called the Joint Tactical Missile Defense Program. The
support for B-2 leads some observers to believe there is a chance
Administration had requested a total $5.15-billion for SDI,
the Appropriations Committee will go against the vote pro-
including funding for the currently SDI Organization-run Thea-
duced by the Armed Services Committee. The authorizers' vote
ter Missile Defense Initiative.
was spearheaded by the committee's chairman Rep. Les Aspin
The proposed Aspin amendment maintains the earlier
(D-WI).
committee provision that only those programs which "have as
House Appropriations subcommittee members known to
their primary purpose the support of the Brilliant Pebbles"
be in favor of B-2 funding are: Norman Dicks (D-WA), Jerry
system may be funded under the phase I heading. This would
Lewis (R-CA), Bob Livingston (R-LA), Clarence Miller (R-
seemingly force the SDI Organization to move the more widely
OH), Charles Wilson (D-TX) and Bill Young (R-FL). Reps.
supported programs currently funded under phase I, such as the
Julian Dixon (D-CA) and Bill Hefner (D-NC) are still unde-
ground-based Endo/Exoatmospheric Interceptor (previously
cided on the issue, according to aides for both members.
known as "HEDI"), over to another program element, such as
Subcommittee chairman John Murtha (D-PA) is believed to
"limited protection systems."
support B-2, but aides for the congressman failed to respond this
Brilliant Pebbles is the SDI Organization's centerpiece for
week to inquires seeking clarification on Murtha's position.
its newly revised strategic defense system, dubbed Global
Known to solidly oppose B-2 are Reps. Les AuCoin (D-
Protection Against Limited Strike (GPALS). SDI proponents
OR) and Martin Sabo (D-MN).
maintain that the space-based interceptors will be effective
Dicks is busily working to drum up a wider base of support
against strategic ballistic missile launches in their boost phase,
for B-2 funding among Appropriations Committee members,
as well as against theater ballistic missiles with ranges over 300-
according to congressional insiders. The Oregon Democrat got
600 miles. SDI chief Henry Cooper last week said that the
himself into "a bit of trouble with Aspin last week" when he told
House Armed Services Committee "took a meat axe to Brilliant
reporters that the powerful Armed Services Committee chair-
Pebbles, and slipped a knife in the back of any effective ground-
man was maneuvering to reach a compromise plan to fund some
based defense" by separating strategic and theater defense
level of B-2 procurement this year, one source said.
funding, and by zeroing the phase I program element despite
Aspin's aides spent the latter part of last week and much of
funding under that category for non-space-based programs.
this week denying that their boss was wavering in his long-held
opposition to the B-2. But despite those denials, numerous other
sources reported that Aspin is indeed willing to compromise on
Appropriators Expected to Follow
the issue this year if such a compromise will, in the words of one
Aspin's Lead on Zeroing B-2 Buy
congressional observer, "put an end to the perennial B-2 debate
The House Appropriations Committee will likely zero out
once and for all."
funding for B-2 Stealth bomber procurement in FY-92, follow-
Meanwhile, Pentagon sources say that should an Appro-
ing the lead of the chamber's Armed Services Committee,
priations Committee vote result in a bill calling for appropria-
which last week produced an authorization bill denying B-2
tion of B-2 procurement funds for FY-92, the Defense Dept.
procurement funds, sources on Capitol Hill say. The Appropria-
would, in essence, ignore the authorization bill. Whether fund-
tions Committee begins its mark-up this week and although
ing is authorized matters little to DOD if funding is, in fact,
4
INSIDE THE WHITE HOUSE May 23, 1991
Budget Briefs
appropriated, the sources say.
The Feb. 2 memo does detail the benefits of establishing
the military personnel accounts as revolving funds, which
suggests the idea is not dead, sources note, "Changing the
Pentagon Backs Off Plan to Set Up
military personnel accounts to revolving funds will provide the
Personnel Accounts as Revolving Funds
flexibility that a totally reimbursable approach requires," the
The Office of Secretary of Defense (OSD) has backed
memo states. "The revolving fund approach will provide the
away from a plan to set up the Service's military personnel
corpus to adjust to short run changes in requirements, and allow
accounts as revolving funds, Defense Dept. sources say. The
the costs to using activities to be charged on the basis of an
plan, first floated last December, was designed to make com-
average cost per individual and stabilized," the memo notes.
manders in the field more "cost conscious" by giving them
responsibility for determining personnel levels, these sources
say. But the military Services objected to the proposal, claiming
House Panel Urges Major Funding Boost
it was not workable,
For U.S. Tank Development, Production
The "proposal is based on [the] premise that military
The House Armed Services Committee May 8 approved a
personnel are purchased and used by a customer and that the
measure that would breathe new life into the deflated U.S. tank
customer has freedom to choose. This is not the case," Army
industry by creating considerably more M1A2 tank research &
Under Secretary John Shannon explained in a Dec. 21 memo to
development, procurement and upgrade work than was re-
Deputy Defense Secretary Donald Atwood. "Military person-
quested by the Administration,
nel costs are tied to the Force Structure which is centrally
The Committee argued in its FY-92 defense authorization
derived from analysis of the threat and should not be subjected
report that buying 60 more top-of-the-line M1A2 tanks and
to business management in the same sense as other business
upgrading possibly thousands of current M1 tanks to M1A2
functions," he wrote. Shannon also noted that there is no
configuration would preserve the U.S. tank industrial base and
demonstrated benefit to bringing military personnel costs.into a
boost U.S. warfighting capabilities. Accordingly, the Commit-
revolving fund; there are, however, plenty of "readiness risks"
tee authorized $90-million to build an additional 60 M1A2
if the system fails.
tanks on top of the 62 already planned for production by the
Under the revolving fund concept, a customer in this case
Army. The Committee urged the Army to budget its remaining
the military - pays for the goods and services it needs. By
r&d money for the M1A2 in order to begin full rate production
applying this concept to the military personnel accounts, com-
by December 1992.
manders "in the field" would be responsible for determining
The additional M1A2 production is envisioned by the
what personnel levels they needed. Because these commanders
Committee to keep the tank production lines moving until late
would have to set up a personnel budget, OSD hoped they would
1994 when the tank lines should begin delivering upgraded
be more frugal with their spending and not ask for more
M1A2s, which are to be converted from the current inventory of
personnel than they could afford. But, as Shannon explained,
about 3,000 basic M1 tanks. For that upgrade program the
military force levels are determined by the military departments
committee set aside $64.4-million for development and $225-
after a lengthy threat anal ysis.
million in advance procurement funds, and it directed the Army
Shannon's comments - as well as comments from the
to proceed at a rate of 20 tank upgrades monthly as soon as
other Services were delivered to Atwood when OSD was still
possible. Pentagon budget officials overruled initial Army
seriously considering arevolving fund approach for the military
requests to fund an upgrade program during the internal De-
personnel accounts. But a Feb. 2 memo approved by Atwood,
fense Dept. budget deliberations and instead opted to apply all
which outlines a series of Defense Management Report (DMR)
tank-targeted money toward the development of the next gen-
actions, indicates QSD was stepping away from the original
eration Block III tank.
plan to set up military personnel revolving funds beginning in
The Committee's decision to impose the upgrade program
FY-93. "Nothing in this proposal would require changes in the
fits the general philosophy of the panel that existing conven-
levels where decisions are made, such as requiring or allowing
tional systems should be improved upon and next-generation
each operating unit to establish its personnel requirements, the
weapons efforts should be slowed. "The Committee does not
Feb. 2 memo states. "Nothing in this proposal will negate the
agree with the Army's position to accept the near- and mid-term
need to assign personnel for training, rotation, or career devel-
risk of having no U.S. tank production base for what could be a
upment purposes."
period of six to seven years between the end of the M1
But the memo also notes that "the alternative would make
production and the beginning of the Block III tank production,
the current Military Personnel accounts reimbursable in FY-93;
if future foreign military sales orders do not materialize," the
would establish these accounts as revolving funds; but would
Committee report language said.
make no changes to the appropriation distribution at this time."
The experience of the Persian Gulf War illustrated the need
DOD sources point out that although the memo calls for making
to have upgraded tanks, the Committee argued. During the
the accounts revolving funds, without a change in the actual
conflict, U.S. commanders initially chose to deploy the M1s but
distribution of military personnel funds the budgeting process
later decided to withdraw the older tanks in favor of the newer
essentially remains the same. The wording in the DMR decision
M1A1 tanks. "This fact itself serves to mute those who would
paper is intended to get the Services "thinking about" the
argue that an upgrade program should not be pursued and
military personnel accounts as revolving funds, said one Army
reinforces the Committee belief that the Army cannot afford not
source.
to proceed with upgrading its inventory of older M1s rather than
INSIDE THE WHITE HOUSE - May 23, 1991
5
Budget Briefs
have them rendered unusable in any future conflict," the
be put aside for M1 upgrades in the Senate, but the question of
Committee said.
how much funds has yet to be determined. But while it may
As part of its decision to significantly boost the current
appear that Congress clearly favors the M1 upgrades - it
domestic tank works programs, the Committee specifically
appropriated funds in the last session for the current fiscal year
urged the Army to keep open beyond FY-92 a facility in Idaho
for such upgrades- it appears just as clear that the Pentagon is
that makes depleted uranium armor for new model tanks.
resisting taking money out of other priority programs to perform
Senate sources this week said they expect some funding to
them.
GREENSPAN SAYS CREDIT CRUNCH MAY HAVE BOTTOMED OUT
begins on page one
House in criticizing the tight lending policies of banks as largely responsible for the economic downturn
that private-sector economists now say began in July. Greenspan spoke before the Senate Finance
Committee May 16 at a hearing on the U.S. saving rate and whether expanded IRAs will help.
The widely held conclusion that the recession began in July was disputed by the White House this
week. Budget Director Richard Darman, while agreeing that the credit crunch is partially responsible for
the recession, said this week that it was Iraqi President Saddam Hussein's Aug. 2 invasion of Kuwait and
the resulting spike in oil prices that led to the recession. Darman also blamed the Fed's tight monetary
policy as being partially responsible for the recession. He spoke May 19 on NBC's Meet the Press.
Darman's comments are important because the White House is trying to portray this recession as
shorter and shallower than the post-War II average of 11 months. Most economists now agree the recession
could equal the post-War average in length, but they also agree with the White House that it will be
"shallow." Democrats, on the other hand, say that this recession, by post-War standards, is serious.
While indicating his belief that the recession would soon end and that banks are likely to begin easing
credit availability, Greenspan also sent the markets downward by indicating that it may be impossible to
keep worldwide interest rates low. Greenspan's comments on the near end to the recession are also being
interpreted as an indication that the Fed will not reduce interest rates further, a belief that sent bond
prices sharply downward last week.
Regarding interest rates, Greenspan said there is "no reason they can't be kept low," but he refused to
say whether he would seek to lower them again to help in the economic recovery. It is widely believed
among economists that the Fed will not lower interest rates further mainly because of expectations that a
softening of the credit crunch will lead to economic recovery. Lowering interest rates during recovery
could ignite inflation. The Fed has a stated policy of trying to keep inflation low, which is why it has
steadfastly refused to loosen its grip on the money supply and cut interest rates.
The Fed's belief that the credit crunch, which banks say does not exist (Inside the White House, May
9, p1), may be easing is based on its national summary of the May 1991 Senior Loan Officer Opinion
Survey on Banks' Lending Practices, released last week. While the study does not see any evidence that
banks have loosened up on making credit available, the credit crunch appears to have hit its trough, the
report says, because "banks on balance reported no change in their willingness to lend in the last three
months, compared with some reduced willingness to lend in the three months ending in late January." And,
the number of banks reporting tighter lending standards for approving loan applications for nonmerger-
related purposes "was substantially lower than in the survey taken in late January. This drop continues a
downtrend in the number of banks reporting tighter standards," the report states.
The reduced evidence of further restrictions on lending "may be related to the recent marked
improvement in [the banks'] ability to raise capital. With bank share prices up and with spreads of yields
on bank debt over Treasury securities down, domestically chartered banks have issued a large volume of
debt and equity thus far in 1991," the report says.
And, significantly, of those banks that did report tightening of credit in May "virtually none
mentioned pressures on capital positions or deteriorating loan portfolios as a reason." In earlier surveys, "a
number of banks had cited these factors as motivating tightening," according to the report.
Even if the credit crunch is ending and the recovery begins, it likely won't be a robust one because
there are inadequate saving levels in the U.S., Greenspan said at the Finance Committee hearing. "Put
simply, inadequate domestic saving is impairing our economic prospects for the longer run," he said. While
offering only lukewarm support for the IRA expansion proposal, sponsored by Finance Committee Chairman
6
INSIDE THE WHITE HOUSE - May 23, 1991
Lloyd Bentsen (D-TX) and William Roth (R-DE), Greenspan said it might be appropriate for the government
to somehow intervene in the marketplace to encourage a higher level of savings.
"I say this with full recognition that the appropriate level of saving for any economy is best left to
private preferences, as reflected in the marketplace. However, as a society, we have in recent decades
clearly intervened in the market process through subsidies that enhance consumption at the expense of
saving. And, we would be well-advised to endeavor to redress such imbalances," Greenspan said.
Failure to save now limits "our ability to expand and upgrade our stock of capital," Greenspan said. "It
is the size of that stock and the new technologies embedded within it that, together with the quality of
the labor force, ultimately determine our overall productive capacity and the future standard of living of
our population," he said. Greenspan said that, with the aging of the population, he "agrees that" it will be
important to provide incentives to bolster the savings rate at the beginning of the 21st century. "We will
have to supply capital investment in the early part of the next century," Greenspan said, "not only to
provide a standard of living for the workers [but to maintain one] for the retirees. Savings enhances the
ability of families to support their own needs. Do I think there should be private savings? Indeed, do,"
Greenspan said.
Greenspan failed to wholeheartedly endorse the expanded IRA concept, as Bentsen and Roth had hoped.
He offered lukewarm support by saying that it is "probably worth a chance." He said there was no
statistical evidence that expanding IRAs would increase the national savings rate. But, he pointed out,
there are no data to suggest the opposite. "If you look at the statistics, it is difficult to say" what would
happen to savings if IRAs were expanded. It's "probably worth a chance, even if [there were] no major,net
addition to savings [because] very limited damage would be done." He took this point, he said, because "I'm
more inclined to take chances [to improve the savings rate] even though [I'm] not analytically convinced
The evidence is inconclusive. It is a question of whether one wants to risk in this direction
If
you
succeed, the payoffs are large."
But Greenspan warned that the new budget law requirements mandating that offsets be found to pay
for the money the government would lose by expanding IRAs estimated at over $25-billion in five years
-- may negate any positive benefits expanded IRAs could have to the economy. "Tax increases might be
proposed under the requirements of the statute which might be counterproductive," Greenspan said. "If you
view incentives as beneficial, be careful you don't take other actions that are deleterious to the economy,"
Greenspan said. He added that he would prefer to see spending cuts to make up the offsets rather than
tax increases. "I'm biased toward cuts in spending rather than increases in taxes," Greenspan said.
BUSH SAYS HE WILL CONTINUE TO PURSUE VETO STRATEGY
begins on page one
reiteration of his veto strategy was almost immediately followed by a White House threat this week to
veto the Defense Authorization Act because Democrats seek to eliminate the controversial B-2 Stealth
bomber while making deep cuts in Space Defense spending (see related story).
Bush said the veto was, very important. When we're a minority, the only way we're going to get
something done is to beat down the bad ideas before we get a shot at the good idea." Bush made this
remarks in the Capitol on May 15 during a half-hour meeting with the Senate Republican Leadership. Bush
commended the Republican leaders for supporting him last Congress and helping him to have a perfect veto
record, which is unprecedented for any modern President, according to sources. He added that "sometimes,
I know it's not easy; sometimes you can't join us, but for the most part, we've been very good about it,
and I just urge your strong support for this veto strategy. It's the only way we can get decent Republican
ideas" passed.
In support of the veto strategy, Sen. Orrin Hatch (R-UT) handed the President a letter with the
signatures of 35 senators (mostly Republicans) vowing to support Bush if he vetoes, as threatened,
legislation that would prohibit the use of alternate, non-union personnel during strikes. The bill, S.55,
known as the strike-breaking legislation, was sponsored by Sen. Howard Metzenbaum (D-OH) and has 30
cosponsors.
The meeting with lawmakers was called to discuss the domestic agenda, which the President told
reporters at the top would dominate. He chastised his critics for saying the White House has no domestic
agenda. "I get sick and tired of people saying we don't have a domestic agenda, because they've get their
eyes closed and they don't want to hear." Back at the White House after the meeting, Bush told reporters
that the transportation and crime strategies were discussed.
At the Capitol, Dole said the President opened the meeting with a discussion of Bob Gates, Bush's
nominee to direct the Central Intelligence Agency. Dole said the President expressed his strong support for
INSIDE THE WHITE HOUSE - May 23, 1991
7
Gates and asked the Republicans to back the nomination, which Dole said they would.
Despite the President's emphasis on the domestic agenda, international issues dominated, according to
sources. During the meeting, Bush discussed the "fast track" legislation that precludes amendments to trade
treaties (in this case with Mexico) when they reach the Senate floor. The President also discussed
renewing most favored nation trade status for China and the Soviet Union's request for $1.5-billion in
agricultural credits to purchase grain from the U.S.
REPUBLICANS ENCOURAGE BUSH TO INVOKE LINE-ITEM VETO, TEST CONSTITUTIONALITY
A coalition of House and Senate Republicans last week urged President Bush to invoke a line-item veto
to settle once and for all whether the Constitution implicitly grants this power to the President. The
White House has long maintained that the President has implicit line-item veto authority in the
Constitution, a contention Democrats in Congress dispute. The President has been steadily building a case
for the line-item veto and last year began signing bills into law while, at the same time, telling lawmakers
which provision he would not follow. In doing this, the President has been invoking a de facto line item
veto and sources expect the issue to be challenged in the Supreme Court once the President refuses to
execute a key portion of a law he has de facto line-item vetoed.
But the Republican coalition, led by Sen. Bob Smith (R-NH) and Rep. Tom Campbell (R-CA), last week
urged the President to take a more direct route and veto line items specifically out of appropriations bills
when they cross his desk. While not pointing to any specific piece of legislation for the test case, the
Smith-Campbell coalition is seeking to pass a resolution in Congress that would express the support of
the lawmakers for such a step. The resolution likely won't pass because of strong opposition from
Democrats, according to sources.
The most likely vehicle for line-item veto would be for Congress to pass an omnibus continuing
resolution designed to fund the government for the coming fiscal year, rather than individual
appropriations measures, according to sources. The strategy widely expected in the White House is that,
should Congress present the President with an omnibus bill, he will item-veto an entire functional
appropriation that should have been sent to him separately. The thinking behind this, according to sources,
is that the President would be exercising his clear constitutional veto authority by technically vetoing one
single bill (that would have otherwise come to him under separate cover) while invoking line-item veto by
removing the bill from the larger piece of legislation.
"Clearly it was not the intent of the framers [of the Constitution] that Congress roll unrelated items
into a single, massive, take-it-or-leave it bill," said Campbell, who serves on the House Judiciary
Committee. "But omnibus pork bills are par for the course in Congress today."
Smith and Campbell say Article I, sec. 7 of the Constitution grants line-item veto power to the
President. Clause 3 of the section says "every order, resolution or vote
shall be presented to the
President of the United States; and before the same shall take effect, shall be approved by him
or
disaproved by him."
This clause, say Smith and Campbell, gives the President line-item veto authority. White House Counsel
C. Boyden Gray agrees with Smith and Campbell. Gray is the chief architect of the White House strategy
designed to win line-item veto for the President.
Democrats say there is no line-item veto authority contained in the Constitution, implicitly or
otherwise. They say the concept of line-item veto authority is relatively new and was not contemplated by
the framers.
BUSH THREATENS TO VETO DOD AUTHORIZATION BILL OVER B-2, SPACE DEFENSE CUTS
President Bush this week threatened to veto the Defense authorization bill over cuts made by the
House in the controversial B-2 "Stealth" bomber and in the Strategic Defense Initiative programs. The
threat came days after the President informed the Senate Republican Leadership that he would continue to
pursue an aggressive veto strategy aimed at defeating initiatives by Democrats with which the White House
and GOP do not agree (see related story).
The President's veto threat also came on the heels of a similar threat by Defense Secretary Dick
Cheney, who told CNN's Evans & Novak May 18 that the B-2 bomber and the SDI are "absolutely vital"
defense systems to the Administrations defense strategy. "And if the bill the finally is approved by the
Congress does not contain the B-2 and adequate funding for the SDI, I will recommend a veto," Cheney
said.
continued on next page
8
INSIDE THE WHITE HOUSE - May 23, 1991
He added that, ultimately, the Administration would like 75 B-2s, noting that the President sought four
in the FY-92 budget. When asked if he would compromise on the 75 B-2s, Cheney hedged. "You don't want
to foreclose what ultimately is going to come out of the legislative process. But if the bill is inadequate in
our strategic systems, the B-2 and SDI, I will recommend a veto."
The White House, in a statement of policy containing the veto threat, said this week that the bill
contains a "number of objectionable provisions that would severely compromise the Administration's
national defense objectives." Of "particular concern" to the White House is the fact that the House
legislation seeks to: 1. "eliminate funding for continuation of B-2 Stealth bomber procurement, despite the
importance of this system in maintaining strategic deterrence; 2. underfund the SDI program, terminating
key elements of the Administration's initiative to provide global protection against limited strikes," the
cornerstone of the President's revamped SDI program; 3. fund unrequested or low priority programs, such
as the V-22 [tilt rotor "Osprey"] aircraft; and 4. limit planned reductions in Reserve and National Guard
forces, which would cause imbalances in the total force structure."
The White House plans to work with the Senate, which is considered to be more sympathetic to the
Administration's defense program, when it readies its legislation for passage in July, according to sources.
It is not certain whether the Senate will ultimately agree with the President's defense plan there is
opposition to the B-2 and the SDI in the Senate, though Armed Services Committee Chairman Sam Nunn's
(D-GA) thinking is seen as more in line with the President's than with Nunn's counterpart in the House,
Rep. Les Aspin (D-WI). If the Senate agrees with the President and opposes the House, there likely will be
a major dispute between the two chambers when they meet for conference to hammer out a single bill
sometime this summer.
Cheney said he ultimately expected lawmakers to be more sympathetic to Bush's defense budget for
FY-92, following the tremendous success of the Persian Gulf war. When asked on the CNN program if he
expected to get a "bump" out of the Gulf war from a Congress that may have had a different attitude
about anti-missile defense, Cheney said, "I would think so. I find it very difficult to understand why my
former colleagues in Congress, some of them, feel that we don't need ballistic missile defenses. But there
are people up there who honestly believe it's a mistake for us to develop ballistic missile defenses. But
after you watched the Scuds fly in Tel Aviv and Riyadh, I find that impossible to understand, Cheney
said.
Though still in dispute with GAO over total cost
WHITE HOUSE: WAR WON'T COST U.S. MORE THAN THE $15-BILLION ALREADY RECEIVED
The Administration last week told Congress that the Persian Gulf war won't cost U.S. taxpayers any
more than the $15-billion Congress has already appropriated, even though the White House continues to be
in dispute with the General Accounting Office over the total cost of the conflict, according to sources.
While congressional sources say the Administration and GAO moved closer than they've ever been last
week on the total cost to the U.S. taxpayer, there remains a dispute of between $20- and $30-billion on
what the ultimate cost of the war will be, with the Administration saying between $60- and $70-billien
and GAO putting the cost at $40-billion (Inside the White House, May 16, pl).
It is widely believed on Capitol Hill that the White House is "highballing" the total war cost in an
effort to avoid the appearance that the U.S. is profiting in any way from the allied pledges of support
for the war, according to sources. Defense Comptroller Sean O'Keefe last week denied this during a
hearing before the House Budget Committee in which the discrepancy between the Administration's and
GAO's total war cost figures was discussed. Congressional sources say the Administration is lumping in its
cost figures the replacement costs of all weapons expended during the war even if the Pentagon has no
intention of replacing them. The Administration does not deny this charge, with one source saying that
even if no replacement is planned, a value has to be put on the hardware to determine what the war cost
the U.S.
The Administration continues to deny it is trying to avoid either having to return money to the allies
or creating the impression that the U.S. would profit from the conflict, according to sources. But it is
clear that the White House's figures, which are not final, tend to be on the high side with an eye toward
the $54.5-billion in allied pledges, of which about $36-billion have been received. One Administration
source noted that there is some concern inside the White House that the allies will not fully pay their war
pledges if it appears that the war will not cost what the U.S. originally projected. But be was quick to
point out that this was not a factor in developing the cost estimates.
The Pentagon and the Office of Management & Budget said recently that the incremental cost of the
war from August 1990 through March 31, 1991 is $36.1-billion, but O'Keefe pointed out that these "are
INSIDE THE WHITE HOUSE . May 23, 1991
9
partial and preliminary. They do not include such items as total costs of equipment repair, rehabilitation,
and maintenance caused by high operating rates and combat stress They also do not include the total costs
of phasedown of operations and return of deployed forces. Further, certain long-term benefit and disability
costs have not been reflected in the estimates. Costs through March, plus costs not yet reported, are
expected to result in total incremental costs of $60-billion or more," O'Keefe said.
One of the unknowns involves removing equipment from the Gulf theater, O'Keefe said. "This task is
proving to be slower and more involved than some may have expected. Loading ships and planes takes
longer than unloading, even without the added requirement of thoroughly cleaning and inspecting
everything." Another unknown cost is for U.S. personnel required to support the equipment removal and
for other tasks. "It is uncertain how many personnel will be needed. As of May 14, 128,000 U.S. military
personnel were in the CENTCOM [Central Command] area of responsibility (as distinguished from the
European Command's area in eastern Turkey and northern Iraq). Over 413,000 troops have redeployed from
the Gulf war which is over 76% of the total force there during the war," O'Keefe said.
Also not yet fully reported are "certain special pay, benefits and veterans costs.
The dollar
amounts of these are relatively low, but they reflect our nation's gratitude to its uniformed men and
women and their families," O'Keefe said.
The costs already reported include an estimate for most losses of major "end items (aircraft, tanks,
etc.)," O'Keefe said. "However, decisions on replacing those major losses have not yet been completed.
Additionally, there is still a great deal of assessment going on to determine the actual consumption or
degree of damage to support equipment, munitions, and other items. Much of this is being done at the
deployment ports. We also are analyzing the magnitude of the wear and tear on major equipment to
determine what refurbishment may be necessary. So it will be a while before we know all the repairs,
rehabilitation, or restocking that will be required as a result of Gulf operations."
GAO says that, on balance, most of the costs reported by OMB thus far appear to be "reasonable, but
we believe that the estimate of future costs is unsupported and appears high," according to Assistant
Comptroller General (national security & international affairs) Frank Conahan. "More importantly, we
believe that incremental funding requirements will be substantially less than OMB's cost estimate, and that
FY-91 incremental funding needs can be fully financed through allied contributions to the Defense
Cooperation Account," a statement the White House disputes.
DOD estimates the cost for a three-month post-combat period redeployment will be $12.2-billion,
according to GAO. The remaining cost of at least $16.2-billion is primarily due to the cost of equipment
refurbishment. "We have not had an opportunity to evaluate DOD's $12.2-billion estimate for the three-
month post-combat period and redeployment, but have seen no evidence to dispute it," Conahan said.
"The residual $16.2-billion for additional costs is unsupported," according to Conahan. "DOD has not
yet developed an estimate for the majority of these costs. In addition, the residual cost appears high
because some funds are already available for equipment refurbishment," GAO says, noting that the FY-91
defense budget includes $8.4-billion for depot maintenance, which fund the overhaul, repair, and
maintenance of aircraft, missiles, ships, combat vehicles and other equipment. "While this budget is for all
of DOD, given the large volume of equipment deployed to the Persian Gulf, it is reasonable to assume that
a portion of these funds would have been available for refurbishing this equipment," Conahan said.
"Furthermore, DOD's post-combat phasedown cost estimate includes $600-million for all equipment to
be inspected and fully repaired using in-theater spare parts. Consequently, while the final cost of
equipment repair and maintenance remains unknown at this time, we believe the incremental cost could be
less than $16.2-billion," according to Cohanan.
"Finally, although there may be additional costs, there may also be reductions in future budget needs
because of the buildup of inventories that were not needed as a result of the war's short duration,"
Conahan said.
Far below OMB figure
GAO SAYS TOTAL WAR FUNDING REQUIREMENTS WILL BE $33-BILLION FOR FY-91
The General Accounting Office last week said it expects total funding requirements for the Persian
Gulf war will be $33-billion in FY-91, a figure that is far below the $50- to $60-billion the Office of
Management & Budget says will be needed for the year. The total cost of the war, including money
expended in FY-90, is expected by the White House to top $60- to $70-billion, a figure GAO says likely
will only be about $42-billion.
The differences in the estimates have led to charges on Capitol Hill that the White House is
overstating the true cost of the war in an effort to make sure that none of the allied contributions
10
INSIDE THE WHITE HOUSE May 23, 1991
(pledged at $54.5-billion, with $36-billion already received) would have to be returned. Lawmakers also
charge the White House with inflating the figures to avoid the appearance that the U.S. is profiting from
the war, a charge the White House denies.
GAO calls "unsubstantiated" most of the figures on the total cost of the war being presumed by the
Office of Management & Budget and the Defense Dept. At the same time, though, GAO is noting that an
"important distinction needs to be made between costs and funding needs," according to Assistant
Comptroller General (national security & international affairs) Frank Conahan, who testified before the
House Budget Committee on the issue on May 15. "Funding represents outlays that the United States will
ultimately be required to make, either from funds contributed by the allies or from the new budget
authority provided by Congress."
It is not expected that the White House will seek to get Congress to appropriate any more than the
$15-billion it already has given for the war because of the expectation that the lion's share, $54.5-billion,
will come from the allies, based on their pledges. Still, GAO says that the entire $15-billion may not have
to be spent by the Pentagon on expenses related to the war because much of the equipment already
expended will not be replaced and there was a ramp up in production of certain missiles and equipment
that was expected to be used but never was.
Administration estimates for the incremental costs of $43.8-billion include "actual expenditures, the
value of assistance-in-kind, and anticipated expenditures for which DOD has not actually obligated funds,"
Conahan said. He defined anticipated expenditures as "replacement of equipment destroyed in the war, the
deactivation of Ready Reserve Fleet ships, and the restocking of maritime prepositioned ships. Some
anticipated expenditures may never translate into obligations because DOD may choose not to make
certain expenditures," he said.
GAO says the incremental funding requirements for FY-91 will be $33-billion, not the $43.8-billion
OMB is expecting. The $43.8-billion OMB is projecting is on top of the more than $13-billion it said was
expended in the first part of the war, which comes to more than $56-billion. But OMB is also saying that
other "unknowns" will likely bring total costs to over $60-billion, with Budget Director Richard Darman
recently stating the number could be as high as $70-billion.
There are three reasons for the discrepancy between OMB and GAO on the FY-91 numbers ($43.8-
billion vs. $33-billion). These involve money that GAO believes was expended in FY-90 and already paid
for, but which OMB is "double counting" as part of FY-91 expenditures. "OMB's report includes FY-90
costs of $3.3-billion, which have already been funded."
A second reason is that "OMB is using cost estimates rather than actual costs. Using DOD's
obligations data as a measure of actual costs suggests such costs are considerably lower than OMB's
reported costs." For example, DOD reported obligations for the first quarter of FY-91 of $5.8-billion for
the operation while OMB reported estimated costs of $9.9-billion, a difference of $4.1-billion. The
difference is "in part higher than obligations because costs include the value of assistance-in-kind provided
by our allies, which do not require DOD to obligate funds since they are received free," Conahan said. In
the first quarter of FY-91, OMB reported assistance-in-kind of $1-billion, about 25% of the disputed $4.1-
billion. Regarding, the rest, "we have been attempting to correlate obligations and reported costs to better
understand the balance of the disparity between the two; however, to date DOD has not provided us with
a reconciliation."
The third reason that obligations are lower than costs is that "anticipated expenditures, which are
included in OMB's reports, do not result in DOD's immediately obligating funds and may never result in
the obligation of funds," Conahan said. For example, in its April 27 report, OMB reported procurement
costs of $6.9-billion for the first five months of FY-91. "This amount included $1.2-billion to reflect the
value of major equipment destroyed during the conflict. However, because equipment losses were limited
and the Administration's current budget proposal included a substantial reduction in the armed forces over
the next several years, it may be unnecessary to replace destroyed equipment," Conahan said.
GAO believes that the reporting of anticipated expenditures, including combat losses, "accounts for the
substantial disparity between reported procurement costs and DOD's supplemental funding estimate. DOD
originally estimated procurement needs of $6.4-billion in FY-91, but it revised this figure down to $2.9-
billion following the war's rapid conclusion." But, DOD's revised estimate is "$4-billion less than OMB's
reported cost, which suggests that many of the reported costs are anticipated expenditures that may never
result in the obligation of funds."
INSIDE THE WHITE HOUSE May 23, 1991
11
HOUSE PANEL SAYS WAR REVEALED SHORTCOMINGS IN TACTICAL INTELLIGENCE SUPPORT
Operations Desert Shield and Desert Storm revealed significant shortcomings in U.S. tactical
intelligence support and the subsequent need for better intelligence collection capabilities, according to the
House Armed Services Committee's FY-92 defense authorization report. Accordingly, the committee
authorized millions of dollars in its version of the FY-92 defense spending bill to obtain lighter and more
rapidly deployable intelligence support systems with better communications.
The committee noted that during Operation Desert Shield/Desert Storm, the Services were competing
for "limited transportation means." The first concern was to bring as much combat power into the theater
as quickly as possible. "These forces, however, did not have, for the most part, exploitation systems that
were easily transportable," the committee's report noted. "Moreover, to be effective, these forces must be
supported by theater airborne intelligence collection assets" such as reconnaissance aircraft and requisite
communications to provide direct support to the commander."
The committee said one of the clear "lessons learned" from Desert Shield and Desert Storm is that
there is a significant requirement for a variety of wide area imagery intelligence, or IMINT. "It is clear
that imagery support during Operation Desert Shield/Desert Storm struggled to meet these requirements,"
the committee's FY-92 report states. The committee approved the FY-92 bill on May 8.
To help resolve the IMINT problems, the committee is recommending the acceleration of the Follow-On
Tactical Reconnaissance System (FOTRS), which includes the development of the reconnaissance variants of
the F/A-18 and the F-16, the Advanced Tactical Air Reconnaissance System (ATARS), and the Joint
Services Imagery Processing System (JSIPS). The committee is calling for $20-million for the addition of a
"reconnaissance strip" and Radar Beacon Forward Air Controller (RABFAC) capability to the radar upgrade
of the F/A-18 fighter. Another $9.2-million should be added for the integration of a similar reconnaissance
strip mode and an electro-optical long-range oblique photography system into ATARS, the committee said.
Roughly $20-million should be added to the F-16 program for the long-lead development and long-lead
procurement of software, pod design and electronic control system specifications, the FY-92 report states.
The addition of these funds is expected to help accelerate delivery of the first F-16 reconnaissance variant
-- the RF-16 -- by one year as well as provide for risk reduction and schedule protection.
"As currently programmed the imagery taken by an RF-16-18 can only be down-linked to a receiver
that is in the vicinity of the reconnaissance aircraft," the committee's report states. "Due to the operating
characteristics of a manned penetrating reconnaissance aircraft, this often requires that data be
temporarily stored on the aircraft until the aircraft returns to the vicinity of a receiver. This time delay
reduces the tactical utility of the data." To improve this situation, the committee is calling for the
addition of $15-million to the ATARS program for the development of an airborne relay capability to allow
imagery being taken by an F-16/18 or medium-range unmanned aerial vehicle to be transmitted immediately
to a relay aircraft and then to any unit that is in the "footprint" of the relay aircraft, the House Armed
Services Committee said.
The committee said it is concerned with JSIPS, which was instituted in 1986 as a joint effort with the
Air Force as the lead Service. While the program was intended to consolidate separate imagery processing
systems, "each Service, however, is buying a different set of capabilities that are tailored to its mission
requirements, are packaged differently, and have no single design meeting the needs of joint operations."
But the committee said the capabilities of these various systems can be combined without a major
redesign and, given the advances in technology since the inception of the program, they can also be
downsized.
To consolidate JSIPS, the committee is recommending the addition of $25-million for the development
of a common synthetic aperture radar processor and another $4-million for the development and
procurement of an interface for national sensors that can be integrated into existing processing
equipment.
In. its FY-92 report, the committee notes the intelligence support shortcomings are especially troubling
due to the fact the U.S. had the "luxury of time - from August until January -- to prepare for
hostilities." In a future crisis, the committee said, this may not be the case. The Air Force conceded in a
recent white paper that "tactical intelligence support was not always timely" during the Persian Gulf war
and is an area where the Service needs to make improvements.
The committee also scolded the Administration for devoting so much of the intelligence community's
time on the Soviet Union. "Prior to August 2, 1990, data bases on Iraq were less than complete," the
committee wrote. "Operation Desert Storm/Desert Shield has taught us that we can no longer afford the
luxury of concentrating so much of our intelligence resources on one possible adversary."
12
INSIDE THE WHITE HOUSE - May 23, 1991
On Capitol Hill
Senate Democrats Split on Fuel Economy,
eroding. This source adds that S.279 may not be going to the
Suggesting Floor Fight, Sources Say
floor because "Bryan doesn't have the yotes" to avoid a filibus-
A group of Senate Democrats are pushing to bring an
ter. A congressional source notes that there is a "hold" on S.279,
aggressive automobile fuel efficiency bill to the floor, an effort
explaining that at least one senator has notified Mitchell of an
that threatens a bipartisan effort to attach new fuel standards to
intention to filibuster the bill if it comes to the floor in its current
national energy strategy legislation, congressional sources say.
form.
The move by eight senators goes directly against the wishes of
Sen. Bennett Johnston (D-LA), chairman of the Senate Energy
Rellly Says Hayes Wetlands Bill Marks
& Natural Resources Committee and head of the Democratic
Retreat on Bush's 'No Net Loss' Goal
energy task force, say congressional sources, who add that the
Environmental Protection Agency Administrator William
move suggests a tough floor fight when fuel economy legisla-
Reilly has expressed strong opposition to a wetlands bill intro-
tion goes to the Senate floor.
duced by Rep. James Hayes (D-LA) that would strip EPA of its
The move to push S.279, a bill offered by Sen. Richard
veto power over wetlands permits and classify wetlands accord-
Bryan (D-NV) requiring stringent new corporate average fuel
ing to their value. While Reilly has said he favors classifying
economy (CAFE) standards, comes at à time when the Senate
wetlands in order to determine which ones should receive
Energy Committee is marking up a bipartisan comprehensive
priority protection, during à May 4 television interview he said
energy policy bill, S.341, proposed by Johnston and Sen.
the Hayes bill signals a retreat on the national commitment to a
Malcolm Wallop (R-WY). Provisions in that bill seek to im-
goal of "no net loss" of wetlands. The statement was his first
prove energy efficiency in federal facilities, increase explora-
public comment made about the bill.
tien and production of domestic oil, promote the use of alterna-
Responding to a question about how the Hayes bill would
tive fuels in automobiles, and improve efficiency in passenger
affect the President's goal of "no net loss" of wetlands, Reilly
cars and trucks. A Senate source says Johnston wants fuel
pointed out that the agency has stepped up its enforcement
economy standards to be part of his energy bill, and feels that if
against wetlands violations. He said that the tougher posture has
S.279 is considered by the Senate before his bill, he could lose
stimulated "a backlash." Some of the backlash "is reasonably
the support of pro-CAFE Democrats who have concerns with
related to some confusions about defining and delineating
other sections of S.341.
wetlands," Reilly said, referring to a controversial federal
The eight senators, all members of the Democratic Energy
wetlands manual used to identify wetlands. Developers and
Task Force chaired by Johnston, express their desire to push
farmers have charged that the manual defines millions of acres
S.279 in a recent letter to Senate Majority Leader George
of private property as wetlands, even though many should not
Mitchell (D-ME). They maintain S.279 is "the single most
be covered by federal regulations. EPA would fix that manual
important step we can take to promote energy conservation"
soon, he said.
and urge Mitchell to "allow floor consideration at the earliest
But on the Hayes bill, which was crafted partly in response
possible date." One Senate staffer indicates that the senators
to the backlash over the federal manual, Reflly said, "I think it
feel that it may not be in the best interest of Senate Democrats
very undesirable. I think it sends a signal that the country is not
"to wait for Johnston's bill," explaining that "there are several
going to maintain its commitment to no net loss of wetlands. It's
provisions that some senators just can't live with allowing oil
not consistent with the President's commitment. And I strongly
exploration in the Arctic National Wildlife Refuge (ANWR) for
oppose it." An agency source says Reilly was not expressing an
example would guarantee a filibuster."
official Administration view, which has not yet been crafted.
The Energy Committee markup May 14 of the fuel effi-
A congressional source faults Reilly for focusing so much
ciency section of S.341 highlighted the differences among
on the bill's provisions to remove EPA from the wetlands
Democrats on the issue. Johnston offered an amendment calling
regulatory program. Theaim of the provisions is to "streamline"
for standards of 30.2-miles per gallon by 1996, 34-mpg
the wetlands permitting process so that velopers de not have
by 2001, and 37-mpg by 2006, with wide Transportation Dept.
to wait months or years to receive permits, the source says. The
discretion to adjust standards. Sen. Tim Wirth (D-CO) offered
purpose is to place the program with one agency, not to strip
S.279, which calls for 34-mpg by 1996 and 40-mpg in 2001, as
EPA's powers per se, the source The source also points out
an amendment.
that Reilly favors classifying wetlands by their function and
The split among Democrats does not bode well for passage
value and says the administrator should spend more time
of the Johnston/Wallop bill, according to industry and congres-
discussing that aspect of the bill.
sional sources. One industry source acknowledges that Senate
Democrats who advocate a national energy strategy are in a
tough situation. If CAFE advocates are unhappy with
Levine, Wolf Introduce Bill to Strengthen
Johnston's fuel economy approach, they will oppose the energy
U.S. Authority Over Foreign Investment
bill, or try to amend the bill with S.279 again on the floor, which
Reps. Mel Levine (D-CA) and Frank (R-VA) intro-
would guarantee a filibuster from CAFE opponents, this source
duced legislation last week that would increase Administration
reports. Another industry source sees the situation differently,
scrutiny and authority to block foreign investments by strength-
arguing that supporters of S.279 are anxious to get the bill to the
ening the so-called Exon-Florio provision of U.S. law. It would
floor, because they see support of "such a stringent approach"
ask the interagency committee responsible for administering
INSIDE THE WHITE HOUSE - May 23, 1991
13
On Capitol Hill
Exon-Florio to broaden its review of foreign investments be-
colleague letter next week urging support for the bill, a congres-
yond national security protection to include long-term U.S.
sional source said.
economic security, Levine and Wolf announced at a May 13
press conference.
That concept is not now mentioned explicitly in the Exon-
Congressional Insiders Report Aspin's
Florio provision of the Defense Production Act, according to a
Threats, Arm-Twisting Measures on B-2
Levine-Wolf fact sheet released last week.
Rep. Les Aspin (D-WI) put an enormous amount of pres-
The two House members also released a report by the
sure on members of the House Armed Services Committee, a
Defense Science Board, prepared a year ago but not formally
panel he chairs, in order to secure an overwhelming majority
endorsed by the Administration, warning against a loss of U.S.
vote two weeks ago to zero out procurement funds for the B-2
control over its defense industrial base. The report urged in-
bomber, congressional insiders say. In the words of one Capitol
creased congressional oversight of the interagency process
Hill source, Aspin played "hard and fast politics, pushing every
assessing foreign investment in U.S. firms, and recommended
button he could" in order to produce the 45-6 vote culminating
that the Defense Dept. encourage domestic buyers for a domes-
in a committee markup plan that denies an Administration
tic company targeted by a foreign company with loans, pur-
request for $2.46-billion in B-2 procurement funds and a de-
chase guarantees, and R&D grants. When domestic buyers
fense authorization floor debate nearly absent of any B-2-
can't be found, DOD should be allowed to impose performance
related amendment. The absence of B-2 procurement funds led
standards on foreign buyers to ensure that critical technologies
the President this week to threaten to veto the defense authori-
will remain available in the U.S., according to the report.
zation bill.
In areas where DOD wants to ensure access to critical
"I've been on Capitol Hill for more than eight years," one
technology that are controlled by a small number of foreign
source said and "I've seen a lot of hardball played during my
firms, it should actively encourage foreign investment in the
time, but I've never seen it played as hard as this," a reference
U.S. for the purpose of bringing their technologies to the
to Aspin's reported behind-the-scenes maneuvering to produce
domestic market, according to the report. DOD should consider
a strong anti-B-2 vote in the House chamber.
restricting access to its procurement if foreign firms are reluc-
Another congressional source said the Wisconsin Demo-
tant to invest in the U.S. or should seek authority from Congress
crat even resorted to the use of threats as a means of swinging
to use the leverage of the commercial market to ensure they are
votes on B-2. Aspin reportedly told some committee members
bringing their technologies to the U.S., the report said.
that he would use his influence to deny them subcommittee
The Levine-Wolf bill would also transfer control of the
seats and/or chairmanships if they did not support him in
Committee on Foreign Investment in the U.S. (CFIUS) from the
opposing the B-2.
Treasury Dept. to the Commerce Dept. It seeks to increase
"I don't know what he [Aspin] accomplished with all the
foreign companies' reporting responsibilities to CFIUS to in-
arm-twisting," the source said. "Everybody on the Hill knows
clude all the information concerning a planned purchase that
the story behind that vote. If the idea was to present a unified
they provide to their home governments. It would also require
front in the House [to kill the B-2], Idon't think it's going to have
CFIUS to report to Congress on each of its investigations, but
much impact down the road."
that report would be confidential and would not include proprie-
The House Rules Committee last week released a list of
tary information, congressional sources said.
amendments expected to be offered on the House floor during
The bill's proponents argue that shifting CFIUS leadership
debate this week on Aspin's bill. The list is conspicuously
to Commerce is necessary because having the Treasury in that
absent of any B-2 amendments. That absence virtually insures
role creates a conflict of interest given its activities in encour-
that authorization for additional B-2 procurement will not reach
aging foreign investment in Treasury bills needed to finance the
the floor of the House for a vote. In fact, the sole B-2-related
U.S. national debt and deficit. The bill, which is entitled the
amendment listed in the authorization bill has to do with
Foreign Investment and Economic Security Act of 1991, also
congressional philosophical support for continued develop-
would require CFIUS to investigate any case where foreign
ment of stealth technology.
investors would gain 10% or more of a company, up from the
A House Armed Services subcommittee two weeks ago
current requirement to investigate investments of over 50% of
delivered a 15-4 vote to zero out procurement funds for B-2,
the ownership. The new threshold is needed because often
sources close to the panel said. "But that vote is not at all an
smaller purchases offer an window into technology and can be
accurate picture of how the subcommittee really feels about this
a wedge for future control, the sponsors said.
issue," one source said. "Congressman Aspin's antics produced
In addition, the bill would expand the criteria the President
a totally lopsided result. Had he left the subcommittee members
must consider in evaluating investment in critical U.S. firms. He
alone to vote their own consciences and convictions, he would
would have to consider the concentration of foreign direct
still have gotten a recommendation to zero the B-2; but the vote
investment (FDI) in an industry and the impact of further
would probably have been closer, a lot closer."
investment. Also, it would require him to consider the U.S. and
A close vote on B-2 was something that Aspin reportedly
global market position of the firms in question, whether the
wanted to avoid, other congressional sources say. The con-
company received any government funds, and the effect on
gressman wanted to send a strong anti-B-2 message to the
technologies defined as critical inreports by the Departments of
House Appropriations Committee, which begins its mark-up
Defense and Commerce. Levine will be circulating a dear
this week and is expected to follow the Armed Services panel
14
INSIDE THE WHITE HOUSE - May 23, 1991
On Capitol Hill
lead and zero funding for the B-2 (see related story). He also
slow the Air Force's $35-billion C-17 transport aircraft pro-
wanted the Senate to perceive a tough anti-B-2 stance in the
gram, expressing many of the same concerns about the
House.
program's rising costs and the schedule delays as have the
"He's a realist," one source said. "Les knows that the B-2
Office of Secretary of Defense (OSD)and the General Account-
issue will ultimately be decided in a conference committee. He
ing Office (GAO). The committee approved the
wants to go into that session with strength on his side.
He
Administration's request for six aircraft in FY-92, but is requir-
wants to be in a position to exert some control."
ing the Air Force to provide more accurate cost and production
Aspin's aides strongly deny that the congressman supports
estimates before the money is released. In addition, the commit-
any other position than the one his committee produced two
tee slashed the FY-93 procurement from 12 to six aircraft
weeks ago. But other sources also close to the congressman say
because testing is behind schedule.
he is prepared to agree to a compromise on B-2 procurement
In its markup of the FY-92 defense authorization bill, the
once the issue goes to a conference committee.
committee recommended $1.775-billion for six aircraft in FY-
Aspin's staff spent a portion of last week and this week "in
92, and $122-million for advance procurement of six aircraft in
damage control," according to one congressional source. "Les
FY-93. The full House and the Senate must also approve this
may have done himself more harm than good in exerting the
measure.
kind of pressure he resorted to on B-2 this year. A lot of people
The committee essentially endorsed studies recently
are still smarting from the tactics he used."
completed by OSD and GAO analysts. In March, following a
Aspin's "tactics" were designed to help him secure a cap
three-month review of the program, acting Defense Under
on B-2 numbers, congressional sources say. He reportedly
Secretary (acquisition) Donald Yockey approved release of
wants this year to be the last year in which the B-2 is a
FY-90 and FY-91 procurement funding to C-17 contractor
congressional issue. "He's tired of the B-2," one source said.
McDonnell Douglas. But Yockey recommended no new fund-
"He doesn't want to keep fighting the same battle over B-2 year
ing for McDonnell Douglas, which OSD analysts said was
after year."
between $800-million and $2.6-billion over ceiling on its $6.6-
Aspin would agree to a compromise worked out with the
billion full-scale development contract.
mostly pro-B-2 Senate which would allow a maximum number
Although Yockey's team uncovered numerous prob-
of planes to be built now and in the future, sources say. He would
lems, he essentially adopted a "wait-and-see" approach, ac-
prefer that such a cap hold the force to a total of about
cording to sources. He intends to monitor McDonnell
35 planes, the sources say. But that may be a tough goal for
Douglas's progress over the next year before making further
Aspin to achieve; the Air Force seeks a total force of 75B-2s and
reconamendations.
a classified Rand Corp. study says no less than 60 would be
The GAO also expressed reservations about the C-17
adequate to serve the nation's needs. (Congress has already
program in a briefing given to members of the House Armed
authorized funding for a B-2 fleet numbering 15. Two of the
Services Committee last month. The GAO warned that current
bombers are now in the USAF inventory.)
Air Force plans called for authorization of 28 aircraft nearly
25% of the total program -- before completion of testing in
House Panel Echoes DOD, GAO Concerns
August 1993. The committee subsequently reduced the re-
And Slows C-17 Air Transport Program
quested FY-93 buy to six aircraft to reduce the concurrent
The House Armed Services Committee voted May 8 to
production and testing of such a large number of aircraft.
ИЮ
CONGRESS CALLS FOR 3RD INVESTIGATION OF CONTROVERSIAL KOREAN FIGHTER DEAL
Lawmakers have asked the General Accounting Office (GAO) to investigate the Korean fighter program
for a third time amid continuing congressional concerns over how that proposed deal to jointly produce
120 F-16 fighters may harm the U.S. industrial base. The Investigation request follows closely the findings
of a classified GAO study of the deal given to lawmakers in March.
Five senators, led by Alan Dixon (D-IL), and two key House leaders -- Majority Leader Richard
Gephardt (D-MO) and Government Operations Committee Chairman John Conyers (D-MI) -- requested the
latest investigation after having concerns about the most recent GAO findings about the deal. Specifically,
sources familiar with the classified findings say, the primary area of concern is on the amount of
technology that is expected to be transferred to Korea; the affect of the deal on the U.S. industrial base;
the offset requirements permitted in the deal; and the production share that is likely to go to some
European countries.
While no memorandum of understanding (MOU) has yet been negotiated between the two countries to
close the deal, a draft MOU exists that was based on a previous agreement negotiated when Korea was set
to buy McDonnell Douglas-built F/A-18s. Korea later abruptly switched its decision, opting instead for
INSIDE THE WHITE HOUSE . May 23, 1991
15
General Dynamics' F-16, claiming that cost considerations swayed them to reconsider. Lawmakers requesting
the investigation fear the switch was also driven by greater technology transfers and more offsets than
were offered by McDonnell Douglas.
GAO had found that the MOU reached between the governments to close the F/A-18 sale had language
that could have permitted more liberal production share and technology transfer benefits than the initial
agreement reached between the Korean contractor and McDonnell Douglas, one congressional source said.
"The GAO [in its most recent investigation]
found that the commercial agreements between the U.S.
prime contractors and third-party transfers was far stronger than the MOU between the U.S. and Korean
governments," said Dixon and four other senators in a May 7 letter to GAO chief Charles Bowsher.
Lawmakers worry that some provisions of the MOU for the then-expected F/A-18 sale cannot be
renegotiated for the F-16 sale and sources say that Korea is strongly resisting U.S. attempts to change the
terms of the MOU originally negotiated for the F/A-18 sale. A team of U.S. negotiators is going to Korea
next week to begin negotiations on a new MOU for the F-16 sale.
Congressional and Administration sources say they are expecting the same purchasing agreement
between the Koreans and General Dynamics as was agreed upon before with McDonnell Douglas: 12 planes
would be bought by Korea "off the shelf," 36 planes are to be assembled in Korea with U.S.-made kits, and
72 planes are to be built completely in Korea from Korean-made parts. However, congressional sources say
they are concerned by reports that Korea is insisting on a larger production share.
Another key question is the amount of third country production share. Under a pact negotiated by the
Air Force in the late 1970s, four European countries are entitled to 15% of the production share of every
foreign F-16 sale. But what appears to be in question is whether the European countries Norway,
Belgium, Denmark and the Netherlands get a production share of all 120 planes in the deal, as some
lawmakers would like, or just those planes not completely made in Korea, which Korea argues is the case.
Also under congressional scrutiny is the question of offsets offered to Korea by General Dynamics.
There is concern that a loophole in the MOU negotiated for the cancelled F/A-18 purchase agreement
would have permitted Korean companies to bid on repair work for the Navy's F/A-18s, despite assertions
from the government that the MOU contained no "directed buy-back" provisions.
There are also concerns that the Commerce Dept. has not yet undertaken a study of the effect of the
Korean fighter program on the U.S. industrial base. In the wake of the stormy debate over similar
concerns raised by the U.S.-Japan FSX fighter program, the Congress required the Administration in the
1989 defense authorization package to involve Commerce Dept. officials in the policy making and MOU
negotiations surrounding similar defense programs.
Sources said that Congress had been given assurances by Commerce officials that an industrial base
study was undertaken in preparation for the Korean deal, but no study has yet been delivered to either
Congress or GAO. "When we asked for it, it wasn't there," one informed source said. "There is a purpose
theoretically for having Commerce involved." One Administration official this week said Commerce and DOD
were currently completing such a study on "all of the impact assessments,"
DINGELL SAYS OMB SEEKS TO UNDERCUT HILL INTENT ON GROUNDWATER CONTAMINATION
House Energy & Commerce Committee Chairman John Dingell (D-MI) and other members last week
expressed great concern that the Office of Management & Budget is seeking to undercut congressional
intent to prevent groundwater contamination and faulted the Environmental Protection Agency for not
acting aggressively enough to oppose OMB. The hearings mark the first public airing of a significant policy
issue that the agency is grappling with and which agency sources say EPA will certainly need to resolve
before long, possibly through broad public forums, because SO many agency rules are impacted by the issue.
The issue arose at a May 8 hearing which was directed mainly at EPA's failure to prevent pesticides
from leaching into groundwater but which quickly broadened to encompass a fundamental dispute the
agency is having with OMB over groundwater policy. Agency sources recently described a major
disagreement EPA and OMB are having over whether to protect groundwater resources that are not
currently being used as drinking water supplies, a disagreement that threatens to stall numerous EPA
regulations that affect groundwater. While EPA believes groundwater pollution must be prevented, even for
sources not currently being used, OMB has raised fundamental concerns that it costs too much to provide
such protection, especially because costly protection provides few health benefits in terms of cancers
prevented.
But House members strongly opposed OMB's position, and cautioned EPA to defend a groundwater
contamination prevention policy against OMB's pressures for a policy that would rely on cleaning up
16
INSIDE THE WHITE HOUSE -May 23, 1991
already contaminated water.
"I'm concerned that EPA and OMB are essentially turning on its head what Congress intended as the
central strategy against groundwater contamination. What Congress intended, particularly through RCRA
[Resource Conservation & Recovery Act], is a strategy of prevention," said committee member Ron Wyden
(D-OR). Wyden objected to language in a new EPA groundwater strategy, released the day of the hearing
along with other stalled rules affecting groundwater. He said that wording in the strategy -- stating that
EPA will "consider the use, value, and vulnerability of the [groundwater] resource, as well as social and
economic values" -- was "gobbledygook" that did not "sound like what Congress intended."
EPA Deputy Administrator Henry Habicht noted that the agency recognizes it must "develop an
understanding of the benefits and risks to groundwater* that encompasses more than OMB's narrow
concern with the number of cancer cases prevented by a groundwater regulation. But he also said that
there are substantial "economic and welfare impacts' that must be evaluated in assessing rules that affect
groundwater. He also said that "we all need to come to a better view of the impacts of contamination of
groundwater on future generations," touching upon the central dilemma EPA is facing as it tries to resolve
its policy dispute with OMB.
Wyden charged that OMB officials are undermining the health and environmental protection mandate of
RCRA by substituting cost/benefit decisionmaking that Congress never intended, and insisted that impacts
on future generations must be considered when rules are developed that will protect groundwater.
Habicht acknowledged that OMB differs from EPA on prevention of groundwater policy, but remarked
that OMB is "not closed minded about it," noting in particular that the agency is thrashing out differences
over a RCRA corrective action rule proposed last year that will have major groundwater protection
elements. Strict cost/benefit should not be the final deciding factor in groundwater rules, but "clearly
society had not said that no price is too high to pay for groundwater cleanup," he added.
Wyden questioned Habicht on an April 8 briefing at which EPA Administrator William Reilly was
informed that OMB was having significant problems with EPA's rule for garbage landfills, which contains
strong provisions to protect groundwater. He asked Habicht if Reilly decided to firmly resist OMB's
opposition to the rule. Although assuring the committee that EPA would oppose OMB if it insisted on a
rule that would clean up groundwater rather than prevent its contamination, Habicht nonetheless said it
was unclear what OMB's "bottom line" was on the rule. Both Wyden and Dingell said it was "not good
administration" for the agency to not know OMB's "bottom line" even after its landfill rule had been at
OMB for more than seven months.
"This is one of the most concerted attacks on groundwater policy in a long time that's been initiated
by OMB and I don't think EPA is standing up for what was the intent of Congress in going after the
implementation of this law," Wyden said.
OMB PRESSING EPA FOR MORE INDUSTRY FLEXIBILITY IN-TOXIC CHEMICAL DRAFT RULES
The Environmental Protection Agency, in a very recent draft of its rule to promote voluntary early
reductions of toxic chemicals under the Clean Air Act, has further expanded the flexibility it would allow
for facility-wide pooling of emission cuts. But it is facing intensive pressure from the Office of
Management & Budget to go further, according to sources.
EPA Assistant Administrator (air & radiation) William Rosenberg has said the rule could be one of the
most important the agency issues under the new law because it promotes voluntary pollution prevention. It
has been bogged down since the end of March when industry, environmentalists, and state experts could
not agree upon a draft.
Under the new law, if a facility commits to reducing sources of toxic emissions 90% before EPA
proposes maximum achievable control technology standards for the sources, then those sources would be
exempt from the standards for six years. The agency is trying to craft a final proposed rule that will
provide industry as much flexibility for facility-wide pooling as possible, hoping to attract industry
participation in the voluntary program. A May 10 draft provides more flexibility than previous drafts. But
it would still require that pooling achieve up to 40% reductions facility-wide for the plant to receive the
six-year deadline extension, a restriction OMB reportedly wants eliminated.
"The basic goal is to allow as much flexibility as the law allows," says an agency source, noting that
the key issue until recently centered on what is permitted by the new act. Environmentalists and state
regulators believe the law requires that the definition of a "source" be strictly limited to individual units
at a facility or geographically and functionally related units for pooling. Only those narrowly defined
"sources" would be eligible for a six-year deadline extension if a facility agreed to reduce the sources'
emissions before a MACT standard is proposed for the particular emission point. But industry and EPA
INSIDE THE WHITE HOUSE. May 23, 1991
17
sources believe the law's basic goal is to strongly encourage maximum early reductions, and have argued
for more flexibility as a means to achieve that goal. EPA's Office of General Counsel recently concluded
that the Air Office has more flexibility under the law to allow for facility-wide pooling than it had
previously believed, opening the door for the proposed rule to allow for even more facility-wide pooling
than in earlier drafts of the rule.
The May 10 draft, which an EPA source says may not be the final version, offers a "multi-part
definition of source" for the early reductions program. Source is defined as: (a) a building, structure,
facility, or installation identified as a source in Appendix B; (b) the entire contiguous facility; (c) any unit
consisting of one or more emission points that can be characterized as a building, structure, facility, or
installation; (d) any combination of sources defined in (c), provided that reduction from the aggregation of
sources constitutes significant reductions of hazardous air pollutant emissions of the entire contiguous
facility under common ownership or control; and (e) any individual emission point or combination of points,
provided that reductions from such point or points constitutes a significant reduction of hazardous air
pollutant emissions of the entire contiguous facility.
The draft explains that a "significant" reduction under the (d) and (e) definitions means that cuts must
be made from a baseline of not less than a total of 10 tons/year for facilities emitting more than 25
tons/year or five tons/year for facilities with less than 25 tons/year of emissions. EPA and sources closely
following the rule say that OMB has called for even more flexibility, arguing that EPA should not require
a "floor" of 10 and five ton reductions for a facility to be eligible for the program. Industry has also
argued for a flexibility program without a "floor."
SENATE PANEL SAID TO LEVERAGE BXA NOMINATION FOR PASSAGE OF EXPORT ACT
The Senate Banking Committee has sent word informally to the Bush Administration that it will not
approve any nominee to replace departed Bureau of Export Administration (BXA) Under Secretary Dennis
Kloske until the nominee has a charter under which to operate, according to Administration, congressional
and industry sources. Democrats on the committee reportedly believe that the Administration could do more
to aid the passage of a House bill reauthorizing the Export Administration Act (EAA).
The House bill is a companion measure to S.320 passed by the Senate earlier this year.
While the Administration has yet to formally nominate a candidate to the vacant BXA post, a variety
of government and non-government sources indicate that Commerce Secretary Robert Mosbacher's preferred
choice is current Assistant Secretary (import administration) Eric Garfinkel.
The EAA, under whose authority most dual-use export controls are administered, lapsed last October. A
bill that would have reauthorized the act for an additional 18 months subsequently was vetoed in November
by President Bush, who has retained authority to control exports under the International Economic
Emergency Powers Act (IEEPA). This year, during discussion leading up to the passage of S.320, the
Administration made commitments to members of the Senate Banking Committee that it would not veto a
final measure emerging from the conference-committee if it resembles S.320.
But the likely sponsor of companion House legislation, Rep. Sam Gejdenson (D-CT), has yet to
introduce the measure. He is said by industry sources to be wary of pressing for the bill, which liberalizes
some East-West export restrictions but tightens sanctions on chemical & biological and missile-tech-related
exports, because of the lack of assurances that the Rules Committee will facilitate the measure's passage
by limiting the number of amendments that could be offered on the floor. Industry sources say that
without the benefit of a tightly drawn rule for floor consideration, the bill could be subject to
amendments that would tighten rather than lift controls and strengthen the roles of the State or Defense
departments over the Commerce Dept. in commodity jurisdiction or license review in light of the political
climate generated by the Persian Gulf War.
FAST TRACK CLEARS COMMITTEE HURDLES; FLOOR VOTE EXPECTED THIS WEEK
The Bush Administration last week overcame a major hurdle toward obtaining two years' additional
negotiating authority for trade agreements under expedited procedures when the House Ways & Means
Committee and the Senate Finance Committee by large margins backed the extension of that authority.
By votes of 27-9 and 15-3, the House Ways & Means Committee and the Senate Finance Committee on
May 14 recommended that the full House and Senate this week back the fast track negotiating authority
sought by President Bush and reject a resolution that would deny that authority. The other committee of
jurisdiction, the House Rules Committee, reported the same provision out the same day without a
recommendation. Ways & Means also favorably recommended by voice vote a resolution offered by House
Majority Leader Richard Gephardt (D-MO) and panel Chairman Dan Rostenkowski (D-IL).
Congressional sources say that the Rules Committee will meet on May 21 to consider the rule it will
18
INSIDE THE WHITE HOUSE - May 23, 1991
issue governing debate on the floor for the disapproval resolution introduced by Rep. Byron Dorgan (D-ND)
and the Gephardt-Rostenkowski resolution. The latter "memorializes" Administration pledges made to
Gephardt, Rostenkowski and Senate Finance Chairman Lloyd Bentsen (D-TX) that it will take into account
congressional concerns in the areas of environment and labor standards and worker displacement
assistance.
Rep. Sam Gibbons (D-FL) said that there would be two hours of debate on the Dorgan resolution,
followed by one hour of debate on the Gephardt-Rostenkowski measure should Dorgan be defeated.
At the May 14 Ways & Means markup, several members of the committee lamented the exclusion of the
topic of drugs from the list of negotiating objectives outlined in the Gephardt-Rostenkowski resolution,
citing it as a top national priority worthy of inclusion in any bilateral talks. After the markup,
Rostenkowski acknowledged that drugs had been left off the list in deference to opposition to its inclusion
by the Mexican government.
Several others chastised President Bush for statements on the weekend that reportedly inferred racial
prejudice to opponents of fast track for the trade talks with Mexico.
Reps. Donald Pease (D-OH), Jim Moody (D-WI) and Sander Levin (D-MI) indicated that they would
have preferred to have a vote that would have allowed them to remove fast track for talks with Mexico
and Canada while leaving in place the expedited consideration of any accords negotiated in the Uruguay
Round of multilaferal trade talks in Geneva. Levin voted against the Dorgan resolution, while Pease and
Moody joined Dorgan, Pete Stark (D-CA), Charles Rangel (D-NY), Andrew Jacobs (D-IN), Ed Jenkins (D-
GA), Marty Russo (D-IL) and Richard Schulze (R-PA) in supporting the measure. Schulze indicated that his
opposition stems from mistrust of the European Community in the Uruguay Round rather than negative
feelings toward trade talks with Mexico.
Dorgan, Pease and Levin blasted the Administration for pursuing a trade policy that put free-trade
ideology ahead of the interests of U.S. producers. "Free trade, if it's not fair, is not worth a damn to
anybody," Dorgan said. Pease charged that the Administration's hierarchy of allegiances is topped by free-
trade ideology followed by long-term U.S. interests, diplomatic commitments to help the Mexican
government and, lastly, "concern for the farmers of North Dakota or the industrial workers of northern
Ohio."
Rostenkowski expressed surprise that the House Rules Committee sent the Dorgan resolution to the
floor for a vote without a recommendation. He said he had been "under the impression" that the Rules
Committee would report it' out unfavorably. He said he is also "under the impression" that the House
Democratic Leadership will not allow a separate vote on removing fast track procedures only for trade
talks with Mexico and Canada.
Rostenkowski called the NAFTA "the first step in a hemispheric trading partnership" that the U.S.
should negotiate "for our own protection."
MITCHELL HINTS AT PERSONAL OPPOSITION TO FAST-TRACK FOR MEXICO TRADE PACT
Senate Majority Leader George Mitchell (D-ME) last week strongly hinted that he opposes an extension
of fast-track authority for a free-trade agreement with Mexico even though he voted in the Senate
Finance Committee against a resolution that would deny that authority to the Administration altogether.
Mitchell told the committee on May 14 that it has not yet been satisfactorily explained to him why
Congress cannot consider a proposed trade pact with Mexico under normal congressional procedures.
Mitchell warned that his vote in committee against a resolution sponsored by Sen. Ernest Hollings (D-
SC) denying an extension of fast-track authority for multilateral and bilateral agreements is not an
indication of how he will vote once the measure comes to the floor, when proposals to amend the process
for considering a free-trade agreement with Mexico arise, or when approval of the final agreement is
sought. But he pointed out that fast-track was originally created to accommodate multilateral, not bilateral
negotiations. He also emphasized that the Congress has a responsibility to protect the environment and
U.S. workers in a free-trade agreement with Mexico.
The Bush Administration's May 1 response to congressional concerns gives negotiators "almost total
latitude" on these issues, according to Mitchell. "Either now or in the future, Congress may want to
reserve a greater role in this process," Mitchell told the committee. He explained his vote against the
Hollings resolution as a way of accommodating the chairman and of allowing the issue to be aired on the
Senate floor.
But there were indications last week that Mitchell will not pressure other Democratic Senators to vote
INSIDE THE WHITE HOUSE - May 23, 1991
19
with him on the issue of fast-track for a North America Free-Trade Agreement (NAFTA), according to an
informed congressional source. Mitchell told the Senate Finance Committee he wanted to permit a full
debate of the fast-track issue by all Senators and to permit Sen. Don Riegle (D-MI) to present and debate
his proposal. But the Senate Majority Leader apparently had not decided at press time whether he would
bring up for a vote next week a Riegle resolution that would allow amendments to a NAFTA in five
limited areas during next week's floor debate on the Hollings resolution. Mitchell may choose to bring the
issue up after the recess or may choose to let the resolution pend until a, later time in the negotiations as
a way to keep the Administration in line, congressional sources speculated.
Riegle last week formally began to solicit cosponsors for his resolution, S. Res. 109, with a dear
colleague letter dated May 10 pointing out that the Administration's action plan does not offer "specific
and concrete solutions" to address the environmental protection and labor issues raised by an agreement
with Mexico. He had held off on doing so before because he did not want to split the opposition against
fast-track, giving Hollings a chance to rally both the opponents of the Uruguay Round and the Mexican
free-trade agreement, congressional sources said. The Riegle resolution as introduced last month would
allow amendments in the areas of fair labor standards; environmental standards; the rule of origin; dispute
settlement; and adjustment assistance for displaced U.S. workers. Riegle said in his May 10 letter that he
plans to circulate additional dear colleague letters illustrating in detail why it is necessary to reserve the
congressional right to offer amendments in each of the five areas.
Riegle told reporters after the May 14 committee markup that his resolution, which has the status of
regular legislation, is "not necessarily" affected by the June 1 deadline by which Congress has to deny
fast-track. The change of rules as proposed in the resolution can be decided at any time, he said. It
remains unclear if Riegle wants to bring the resolution up on the Senate floor without having the
committee consider it, but so far he has not sought committee action, according to congressional sources.
To bring the bill directly to the floor, Riegle could use several procedural steps that would allow it to be
placed on the calendar. But several congressional sources said it would be difficult to do without the
necessary 60 votes to halt a threatened filibuster. Sen. Lloyd Bentsen (D-TX) said on May 14 that he
"strongly opposed" the resolution and congressional sources said that the staff of other Senate Finance
Committee members last week raised several substantive objections to it.
During a May 13 committee meeting, staff insisted that the Riegle resolution effectively is a repeal of
fast-track, according to informed sources. They pointed out that amendments in five limited areas would
open the door to sector-specific changes that Riegle says he wants to avoid. As an example, staff members
pointed out that the area of environmental standards could invite amendments that would stipulate that the
negotiated tariff concessions for a specific product would be suspended unless Mexico implemented certain
environmental rules, sources said. In addition, several staff members pointed out that amendments in the
rules of origin area would inevitably be sector-specific, these sources said.
The Senate Finance Committee rejected the Hollings resolution, S.Res. 78, by a vote of 15 to 3, with
Sens. Tom Daschle (D-SD), Daniel Patrick Moynihan (D-NY) and Donald Riegle (D-MI) voting for it. The
same day, nine members of the House Ways & Means Committee voted for a similar resolution of
disapproval.
TREASURY URGES HILL TO MAINTAIN CHINA MFN STATUS
begins on page one
cooperate with the rest of the world in restricting the proliferation of chemical, biological and nuclear
weapons technologies, according to sources. And it is seen as perhaps the only way the President can "buy
more time" on the China issue while the Administration seeks to impress on China the growing opposition
on Capitol Hill to maintaining the status quo while the alleged abuses continue.
The MFN request is also going to be debated against the backdrop of allegations by Treasury that
China may have been fixing its currency exchange rate to bolster exports. These allegations, according to
Joint Economic Committee Chairman Paul Sarbanes (D-MD), could cast a serious pall over the entire MFN
issue. "We're headed for a major issue on MFN," Sarbanes said last week. "The President wants it despite
human rights [abuses]. We're going to have to deal with what's being done there."
Some White House sources expressed fears that Congress would ultimately deny MFN for China,
throwing ever straining relations between the U.S. and China into complete disarray. These sources sharply
criticized Treasury for its report on alleged currency fixing, saying it is the "wrong time" for Treasury to
level such charges because the President is pressing for renewal of MFN. An Administration source
countered by noting that no such allegations were made -- saying that Treasury highlighted the issue as a
20
INSIDE THE WHITE HOUSE - May 23, 1991
possible irregularity - and added that, in any case, Treasury is required by law to make its findings
known to Congress.
leab
a Withdrawal of the MFN during the currency fixing negotiations would be a "highly offensive action" to
the Chinese, according to Treasury Under Secretary (international affairs) David Mulford. "Withdrawing the
MFN, the President would believe, is not the way to go when you negotiate," Mulford told the Senate
Banking Committee international finance & monetary policy subcommittee on May 16. It would create "an
atmosphere where we've taken a highly offensive action" and may not enable the U.S. to successfully
complete the currency fixing negotiations, Mulford said. (For a rundown on Treasury's allegations, see
related story.)
At issue is the fact that China has tripled its exports to the U.S. since 1988. In its annual report on
international economic & exchange rate policy, Treasury notes that Chinese exports to the U.S. rose in
1990 by 27%, which followed a 41% expansion in 1989. "These growth rates are significantly above those
for China's global exports during the same period." At the same time, imports to China from the U.S.
contracted 16% in 1990, after rising by the same rate in 1989, "due to China's desire to limit overall
the report states.
While quick to point out that there is no concrete evidence "at this time of direct manipulation of the
exchange
rate
itself
within
the
meaning
of
the
law.
recent
devaluations,
in
conjunction
with
large
external surpluses, raise concerns and indicate that a shift in exchange rate policy may be occurring aimed
at reinforcing China's attempt to generate sizable external surpluses," the report states. "Such a possibility
is a matter of concern to the U.S. government," according to the report.
Mulford said the U.S. planned to soon initiate negotiations with China on the currency issue, noting
that negotiations on the issue have been successful with Taiwan and Korea in the past when they tried to
manipulate their currencies to improve their balance of trade with the U.S. "We have had success with
Korea and Taiwan," Mulford said. In the case of China, imports to the U.S. have arisen in the past couple
of years, but from 1985 to 1989 "we have watched [and there has been] no clear pattern of exchange
rates" abuses, Mulford said. Why the balance of trade has turned SO much in China's favor in the last
three years is not certain, Mulford said. "We don't know why. It is time to engage in negotiations on what
is going on and why," he said.
Democrats in Congress oppose extending MFN while there are allegations of serious human rights
abuses and unfair trade practices. In an effort to forge a compromise that would allow MFN to be
extended while addressing congressional concerns, Senate Majority Leader George Mitchell (D-ME)
introduced legislation that would require the President to terminate MFN for China in six months after it
is renewed unless the Chinese government has taken steps to: improve on its human rights record (by
eliminating slave labor, releasing all political prisoners, stopping interference with Voice of America
broadcasts in China and Tibet, and permitting unrestricted travel and immigration); improve trade relations
with the U.S. (by protecting patents, copyrights and other intellectual property rights); end exports of
weapons (by participating in international efforts to control the proliferation of military weapons,
chemical, biological and nuclear technologies).
While not backing the Mitchell bill, the White House last week said it would accept conditions on
MFN. White House Spokesman Marlin Fitzwater said that the informal discussions inside the White House
on the issue have determined there are "possibilities, such as adding conditions or at least expressing our
views about human rights progress in China and other matters." Fitzwater, briefing reporters on May 16,
the day Mitchell introduced his legislation, said "the final decision will include that kind of discussion, as
well as decisions on whether there would be any conditionality." The President, later that day, told
reporters at the White House after returning from Capitol Hill to discuss the issue with Republican
leaders, *I stand by Marlin" on the issue. "Marlin put it right."
Accepting conditions may be the only way the President can get MFN renewed, these sources say. But
China has already indicated it would not accept conditional MFN renewal, with Chinese Ambassador to the
U.S. Zhu Qizhen saying May 7 that "putting pressure on China is not a way to handle state-to-state
relations between our two big nations" (Inside the White House May 16, p15).
The President's request to renew MFN status for China and subsequent indications the White House
would accept conditions, an unprecedented move for Bush - came amid allegations last week by the
powerful chairman of the Senate Banking Committee that the special access to the U.S. market was the
result of a payback to China for not opposing in the United Nations U.S. efforts to force Iraq out of
Kuwait. This allegation was denied by the White House, but it portends the serious and potentially
contentious debate on Capitol. Hill over the issue, which the President has indicated is a top trade and
foreign policy priority. And, because he was the U.S. Ambassador to China, Bush is said to consider
maintenance of U.S.-Chinese relations to be a matter of "personal integrity," as one Administration source
INSIDE THE WHITE HOUSE May 23, 1991
21
put it.
Meanwhile, Senate Banking Committee Chairman Donald Riegle (D-MI) charged that Bush cut a deal
with the Chinese promising renewed MFN status for support on the war resolutions in the U.N., which
the White House has denied. "The Chinese abstained on their vote on the war resolution," Reigle said.
"There was a question leading up to it on how they would vote, whether they would execute their veto
right. Was there implied understanding we might be more accommodating on the trade issue," Riegle
asked. He said he feared that such a policy by the U.S. -- whether it was carried out or not "could
start to reflect a pattern where in effect we make economic concessions favorable to these countries" in
exchange for support on touchy foreign policy issues. Reigle called this "very disturbing." "It is wrong to
have an appearance, let alone the fact."
Major Issue as Hill debates favored nation status
U.S. SAYS CHINA MAY BE MANIPULATING CURRENCY TO GAIN FAVORABLE TRADE BALANCE
The Treasury Dept. last week alleged that China may be manipulating its currency exchange rate to
gain a favorable trade balance with the U.S., a move that has thrown into turmoil the issue of whether
Congress will okay President Bush's request to renew China's Most Favored Nation trade status. The
allegations by Treasury have come at a time when lawmakers are considering denying MFN renewal or
okaying only a partial renewal based on allegations that China routinely abuses human rights, does not
protect U.S. intellectual property and is allowing the proliferation of chemical and nuclear arms weapons
and technologies to volatile regions of the world.
The issue has caused a slight rift between Treasury and the White House, with White House sources
saying Treasury's report "doesn't help matters any" and could have been the catalyst that caused the
President last week to say he may accept a conditional MFN renewal. But Treasury was quick to defer to
the White House on the ultimate decision on MFN, stating only that it recommended Congress continue
MFN while the U.S. seeks to enter into negotiations with China over whether it did, indeed, manipulate
its currency and, if so, whether this led to a three-fold increase in Chinese exports to the U.S. in the last
three years.
The Treasury report, which is required by law, also comes at a time when lawmakers are questioning
whether the President cut a deal with China on trade in exchange for support on United Nations'
resolutions that gave the President the authority to attack Iraq to drive it out of Kuwait. One lawmaker
noted last week that the President met at the White House with the Chinese Foreign Minister "just
before and after the U.N. vote," suggesting that China had been offered trade concessions in exchange for
not carrying through on its threat to exercise its veto power over the U.N. resolution authorizing the use
of force, a charge the White House denies.
Treasury says "the principal cause of China's bilateral trade surplus
appears to be generalized and
pervasive administrative controls over external trade, which inhibit imports, including from the United
States, and promote exports, particularly to the United States, China's largest export market." But
Treasury is quick to point out that "there is no clear evidence at this time of direct manipulation of the
exchange rate itself within the meaning of the law. However, the recent devaluations, in conjunction with
large external surpluses, raise concerns and indicate that a shift in exchange rate policy may be occurring
aimed at reinforcing China's attempts to generate sizable external surpluses."
China's command economy "has allowed it to control the allocation of foreign exchange. This has been
clearly done in a manner that impedes imports. There is, thus, a need to monitor this situation closely.
Certainly, given the substantial real effective depreciation of the official rate of the yuan to date and
China's reluctance to eliminate export subsidizes and liberalize imports, no case can be made for further
real effective depreciation" of its currency, the report states.
Treasury Under Secretary (international affairs) David Mulford told a congressional panel last week
that the "balance of payments and foreign exchange developments in China are a growing concern." He
noted that China has increased its trade imbalance with the U.S. threefold in three years, to $10.4-billion
in 1990, from just over $3-billion in 1988. In 1985 the U.S. and China were in balance.
China's balance of trade with the U.S. continues to grow, according to the Treasury report. In the
first two months of 1991, the overall trade surplus China had with the U.S. was $2.26-billion "an increase
of 183% compared to the same period of last year. Exports were up 24% while imports grew only by 12%."
China is claiming that it has a trade surplus with the U.S. of $180-million for the first two months of the
year, while U.S. data reveal a $1.7-billion surplus, a "30% increase over last year. This was our second
largest trade deficit, behind that with Japan."
22
INSIDE THE WHITE HOUSE May 23, 1991
THE WHITE HOUSE
Office of the Press Secretary
(Colorado springs, Colorado)
For Immediate Release
May 29, 1991
TEXT OF A LETTER FROM THE PRESIDENT
TO THE SPEAKER OF THE HOUSE OF REPRESENTATIVES
AND THE PRESIDENT OF THE SENATE
May 29, 1991
Dear Mr. Speaker: (Dear Mr. President:)
I hereby transmit a document referred to in subsection 402 (d) (1)
of the Trade Act of 1974, as amended, 19 U.S.C. 2432 (d) (1)
("the Act"), with respect to the continuation of a waiver of
application of subsections (a) and (b) of section 402 of the
Act to the People's Republic of China. The document includes
my reasons for determining that the continuation of the waiver
currently in effect for the People's Republic of China will
substantially promote the objectives of section 402, and my
determination to that effect.
Documents concerning the extension of the authority to waive
subsections (a) and (b) of section 402 of the Act, including
a determination with respect to other countries and the reasons
therefor, are transmitted separately.
}
Sincerely,
/8/ GEORGE BUSH
State
USTR
12th
SFRC
#
WAM
/
DOD,CIA - problemate
HFAC-13th
NSA
ISSUES OF CONCERN--THIS YEAR AND LAST YEAR
Last year, the primary issue of concern was the lack of
adequate progress on human rights. Attention was focused
on the continued detention of Tiananmen protesters, reports
of abuses in Tibet, increased control over the media
(including the jamming of VOA), heightened ideological
rhetoric, harassment of Chinese students and political
activists both in China and the U.S., and new controls on
student travel abroad. Helms tried to make an issue of
prison labor exports but it did not catch on.
This year other issues, in addition to human rights, have
also taken on a higher profile. Public and classified
reports of missile and nuclear transfers inconsistent with
international guidelines have made proliferation a priority
concern. To many, China is seen as a "rogue elephant" on
missile/nuclear technology sales. Trade issues have become
more prominent as a result of our $10 billion trade deficit
and China's designation under Special 301 as a serious
intellectual property rights (IPR) violator. Prison labor
exports have received considerable attention as a result of
the Asia Watch report and claims by Rep. Wolf that he
visited a prison export factory. Wolf and Smith's visit to
China also raised the profile of the reported detention of
some 70-80 Christian clergy. The treatment of Tibetans is
of continuing concern and was highlighted in press coverage
of the Dalai Lama's meeting with the President. China's
aid to the Khmer Rouge was raised as well.
Status of Issues Our policy of engagement and limited
sanctions has played a role in producing important
developments in almost all areas of concern, although many
fundamental problems remain.
Human rights. The situation remains of deep concern.
Freedom of expression, press, and association are still
tightly constrained. We still lack a detailed accounting
of those arrested. Due process is clearly lacking. A
number of Christian clergy remain in prison. But in some
respects the situation is better than last year. The
Chinese claim they have released most of those arrested
after Tiananmen demonstrations. Recent sentencing of
political detainees was light by Chinese standards (i.e.,
2-4 years). Fang Lizhi was allowed to leave. Harassment
of Chinese students in the U.S. appears to have ceased.
Large numbers of Chinese students continue to receive
permission to study in the U.S. In the Schifter visit,
China for the first time acknowledged human rights as a
subject for dialogue; the French and Australians now have
similar dialogues.
Tibet. The government maintains tight political controls
and continues to detain hundreds of individuals for
nonviolent political expression. Both diplomats and
foreign journalists, however, are permitted to travel to
Tibet and even to tour the main prison in Lhasa.
Prison Labor Exports During U/S Kimmitt's visit, the
Chinese reaffirmed their policy of prohibiting prison labor
exports and said that they were going to take steps to
ensure the policy was enforced. The Asia Watch report and
anecdotal evidence indicate that China has been exporting
the products of prison labor. We have yet to obtain hard
evidence of exports to the U.S. Customs Service is
continuing to investigate. The amount of the exports, if
indeed they are occurring, does not appear to be large.
Weapons Technology Proliferation Our dialogue with Beijing
on proliferation issues has borne fruit on the margins.
But despite our repeated urging, China continues to be
unwilling to commit explicitly to important multilateral
conventions, such as the NPT or the Missile Technology
Control Regime. U/S Bartholomew will seek progress on
these issues in his trip to Beijing. Long-standing
concerns about PRC assistance to Pakistan's nuclear weapons
and missile development programs have been exacerbated by
the discovery of heretofore confidential Sino-Algerian
nuclear cooperation. China's attitude is gradually
evolving toward the international nonproliferation
consensus. We have seen no deliveries of other than
short-range missiles since China's 1988 assurance. China
has also issued a public statement supporting effective
international control of arms sales, including missiles.
--
Apart from positive interim steps on the Sino-Algerian
nuclear issue, we have made only modest progress
recently on our other key objectives. Legislatively
mandated trade sanctions will probably be imposed soon
as a result of China's missile assistance to
Pakistan.
Trade Problems The rapid growth in Chinese exports to the
U.S. and the application of Special 301 legislation on IPR
have brought greater attention to trade problems of
long-standing concern. Neither the market access nor IPR
problems are new. On the positive side, the Chinese have
shown a willingness to engage on these issues, sending and
receiving high-level delegations for in-depth discussions.
But we remain far apart on fundamental solutions.
Assistant U.S. Trade Rep Massey is leading a delegation to
Beijing in June to seek progress on the deficit and IPR.
The Chinese have recently purchased 2.2 million tons of
grain and sent a 100-member buying mission here in an
attempt to show they are serious about increasing imports
from the U.S. If negotiations fail, we have powerful trade
authority at our disposal to press for fairer trade.
CONGRESSIONAL STRATEGY
Over the next few months, we face two alternative
procedures in Congress for denying MFN to China. We may
thereby win the fast-track but still face a second battle.
The first is a fast-track procedure that begins when the
President notifies the Congress of his intent to renew MFN.
O
The second is any normal bill to revoke or condition MFN
that are subject to usual committee consideration,
amendment and scheduling.
1. How Fast-Track Works
The President is required by law to report to Congress by
June 3 his intention to waive the Jackson-Vanik provision for
MFN status that relates to emigration rights from nations with
nonmarket economies. That report is to be transmitted 30 days
before the termination of last year's waiver on July 3. At the
point at which, following the report, a joint resolution to
deny MFN is introduced into the House of Representative, a 60
calendar day fast-track procedure begins. Congress has 60 days
from the introduction of that bill to pass a joint resolution
by both Houses. If the maximum amount of time is consumed--90
days including 30 days before termination plus 60 days to pass
a joint resolution--then the process will end on September 3.
In addition, the law provides that the Congress will have 15
legislative days to consider a veto message from the President.
The significance of delaying the President's notification:
The later the President sends his notification to Congress, the
later the process will extend. If the President notifies
Congress in May, then he may face a veto in July. If he waits
until June 3, then he may be able to consider his veto options
during the August recess. That option would put a veto
override fight into September. The problem, however, with
waiting until almost June 3 is that June 3/4 is the anniversary
of the Tiananmen crackdown.
2. Other Legislation: Five separate items of legislation now
exist that would deny MFN for China through normal procedures.
Others are expected to be introduced as well. Congress will
consider these at the same time as the fast track resolutions
and could use these to continue the pressure to revoke MFN
after the fast-track clock has run out. These five are:
Gerry Solomon -- simple resolution to revoke MFN for China
without conditionality.
Pat Moynihan -- simple resolution to revoke MFN for China
without conditionality.
Nancy Pelosi -- prohibits the President from extending MFN
next year unless the Government of China accounts for and
releases citizens detained during the Tiananmen crackdown
in 1989, has made progress in ending religious persecution,
removing press restrictions, terminating harassment against
Chinese citizens in the U.S., ensuring freedom from
torture, and permitting peaceful assembly in China and
Tibet. It also requires China to adhere to the Declaration
on Hong Kong signed by China and the United Kingdom.
Jesse Helms -- introduced a bill May 9 to amend the
Jackson-Vanik provision further so that, in addition to
free emigration as a criteria for China, it would require
an end to missile proliferation, aid to the Khmer Rouge,
and "slave labor."
George Mitchell -- introduced a bill which would terminate
MFN 180 days after enactment unless the President certifies
that China has released all political prisoners, granted
press freedom, ceased persecution of the pro-democracy
movement, stopped harassment of Chinese students outside
China, stopped religious persecution, ensured adequate
protection of intellectual copyrights, demonstrated good
faith in controlling the proliferation of weapons
technology, and stopped exporting products manufactured in
prisons.
Tactical Options:
Veto Override: There is little disagreement within the
Administration and on the Hill that we are facing a
veto-override scenario on the fast-track resolution. Following
a veto on fast track, the President may be forced to veto a
conditionality bill as well.
If we announce conditional MFN at the outset, we will see
Congress add on even more conditions, regardless of the
terms we impose. If we hope to end the battle with a
reasonable MFN resolution, the President should begin by
asking for unconditional MFN.
Because of extensive opposition in Congress, we are
unlikely to win the straight MFN vote in either chamber.
We will then have to veto whatever emerges from the first
phase of MFN voting. Based on past MFN and Chinese student
votes, we will not be able to sustain a veto in the House,
and our strategy will boil down to a veto-override strategy
on the Senate side.
Although we are unlikely to win the first phase -- the fast
track vote -- in the Senate, it is important that we win as
many Senators as possible -- otherwise we risk facing two
veto fights with the impression of overwhelming anti-MFN
power. Similarly, we must fight hard in the House in that
first round because an overwhelming vote against the
President could start an avalanche in the Senate as well.
As in the China student veto fight, we will have to appeal
to party loyalty for our votes at each stage. The fact
that Mitchell introduced the strongest anti-MFN bill will
help us to portray this as a partisan fight.
The second phase -- a veto fight -- will involve persuading
34 Republican Senators to vote with the President. The
only similar Senate vote we have had was the 1990 China
student override attempt in the Senate; 37 Republican
Senators voted with us, but we had Heinz (replaced by
Wofford, a Democratic cosponsor of Mitchell's resolution),
and Humphrey and McClure, both of whom have been replaced
by more conservative Republicans. In addition, another
Republican who voted with us -- Wallop -- is an original
cosponsor of Mitchell's resolution.
a The third phase will depend on working with Republicans to
develop an alternate conditionality bill, which is
acceptable to the administration. After we assess the
Congressional reaction to the President notification
message on MFN, we will have to decide whether or not we
need to offer the Republicans an alternative to voting for
MFN withdrawal and/or the Mitchell bill -- thus maintaining
34 votes.
The President should identify those things that he is most
concerned about in China and those issues would be the
targets of the Republican conditionality package.
O
The fourth phase may involve a second veto -- if Mitchell
wins phase three. We would veto Mitchell, knowing that we
maintained our thirty four vote margin in the Senate for
the Republican alternative.
Jim
Not F.R distubution
than
REPORT TO CONGRESS CONCERNING EXTENSION OF WAIVER
AUTHORITY FOR THE PEOPLE'S REPUBLIC OF CHINA
Pursuant to Subsection 402 (d) (1) of the Trade Act of 1974
(hereinafter "the Act"), having determined that further extension
of the waiver authority granted by Subsection 402 (c) of the Act
for twelve months will substantially promote the objectives of
Section 402, I have today determined that continuation of the
waiver currently applicable to China will also substantially
promote the objectives of Section 402 of the Act. My
determination is attached and is incorporated herein.
Freedom of Emigration Determination
China's relatively free emigration policies have continued during
the past twelve months. In FY 1990, 16, 751 U.S. immigrant visas
were issued in China. The U.S. numerical limitation for
immigrants from China was fully met. The principal restraint on
increased emigration continues to be the capacity and willingness
of other nations to absorb Chinese immigrants, not Chinese
policy. After considering all the relevant information, I have
concluded that continuing the MFN waiver will preserve the gains
already achieved on freedom of emigration and encourage further
progress.
Chinese Foreign Travel Policies
China continues to adhere to a relatively open foreign travel
policy. According to Chinese officials, issuance of passports
for private travel has increased more than threefold since 1986.
U.S. diplomatic posts in China issued 60,687 nonimmigrant visas
in FY 1990. In FY 1990, 33,800 visas were issued worldwide to
students and tourists from China, a 19 percent increase over FY
1989 and an 84 percent increase over FY 1988.
Chinese officials report that several thousand students have
returned from overseas for visits after June 1989 and have been
allowed to depart again under expedited procedures. We cannot
verify these figures, but we are not aware of any cases in which
Chinese living in the U.S. who returned to China for visits after
June 1989 were prevented from leaving again.
Foreign travel officially sponsored by the Chinese Government,
mainly involving businessmen and state-sponsored scholars,
continued to decline in FY 1990, this reflects the effects of
economic austerity measures and, in the case of scholars, concern
about extended delays in their return to China. In February
1990, China issued a new directive requiring recent college
graduates and fourth-year undergraduates to work for five years
2
before applying for overseas study, with some exceptions. The
directive most likely has forced some students to defer their
plans for overseas study, but its full impact is unclear since
student visa applications and issuances continue to increase. We
are aware of a small number of individuals who have had
difficulty in obtaining permission to travel abroad, apparently
because of the political activities of their relatives in the
U.S. We have discussed these cases with Chinese authorities, who
have indicated a willingness to address the issue.
Overall Human Rights Climate
In addition to the emigration considerations of Section 402, we
are continuing to monitor closely the overall human rights
climate in China and press our concerns vigorously at all levels
of the Chinese Government. Beijing has taken a number of steps
on human rights issues that we have urged since June 1989. No
part of China is now subject to martial law. The vast majority
of those detained in the wake of the 1989 demonstrations have
been released. Over 1,000 prisoners were released since the
beginning of 1990. Prominent dissident Fang Lizhi and his family
were permitted to leave China in June 1990, and most relatives of
Chinese citizens in the U.S. who sought to join them have been
allowed to do so. Chinese diplomats have ceased threatening
Chinese students residing in the U.S. Authorities in Tibet have
avoided violence in quelling demonstrations since March 1989.
Foreign officials and journalists are again able to visit the
region, and even to tour the main prison in Lhasa.
Beijing hosted an unprecedented visit by Assistant Secretary
Schifter in December 1990. The Chinese have agreed to receive
additional human rights delegations from the Congress, Australia
and France later this year. The Schifter visit inaugurated a
more formal human rights dialogue than we have ever had with
China. In recent weeks, Chinese officials have begun to respond
to some of our key questions on the status of cases against the
detainees, the judicial process, religious repression and family
planning. They have also provided assurances that China's
prohibition on prison exports would be enforced, and that no
special restrictions would be placed on people wishing to join
dissident relatives abroad.
I nonetheless still have serious concerns about the human rights
situation in China. According to official Chinese figures, 813
persons have been convicted by courts in Beijing on charges
stemming from the 1989 protests, including 26 so far this year.
Most were charged with crimes against persons or property but
nearly 100 of these were tried for "counterrevolutionary crimes"
(e.g., instigation or organizing rebellious activities) that
apparently involved nothing other than nonviolent political
actions. At least scores if not more have been convicted
elsewhere in China. Since 1989, others, probably including
3
peaceful demonstrators, have been sent to labor reeducation camps
for up to three years after administrative hearings. Freedom of
expression, religion, the press, and association remain tightly
constrained. The Chinese continue to jam the Mandarin- language
service of Voice of America.
In Tibet, participants in ongoing pro-independence activities
continue to be subject to legal prosecution. Several hundred
persons are currently incarcerated for what appear to be only
nonviolent political activities.
Impact of MFN on Other U.S. Interests
The granting of MFN tariff status to China was a key element in
the normalization of our diplomatic relations and provided a
framework for a major expansion of our economic and commercial
relations. Maintaining non-discriminatory tariff status is
fundamental for strong bilateral trade relations with China. In
1990, bilateral trade totaled $20 billion, with Chinese exports
of $15.2 billion and U.S. exports of $4.8 billion. The United
States is China's largest export market, absorbing 25 percent of
China's total exports.
If MFN were withdrawn, China would reciprocate by applying its
own higher non-MFN tariffs to U.S. products and possibly erect
other trade barriers as well. With U.S. companies placed at a
disadvantage, competitors from Japan and Europe would quickly
move to replace U.S. exports in our largest markets in China --
grain, aircraft and aerospace equipment, industrial machinery,
steel products, chemicals, fertilizers and computers. U.S. joint
ventures in China would pay higher duties on imported components
from the U.S., and their exports to the U.S. would be subject to
non-MFN tariffs, jeopardizing their continued operations. Loss
of MFN would lead to higher prices for U.S. consumers of products
made in China, including toys, apparel and footwear.
Maintaining MFN is essential for promoting reform in China. The
opening of China and expansion of bilateral commercial relations
made possible by MFN have contributed significantly to improving
living standards, introducing progressive ideas and further
integrating China into the world community as it continues its
drive to modernize. Withdrawing MFN would most hurt the dynamic
coastal provinces in China which have gone the farthest in
introducing market-oriented economic reforms. It would further
isolate those in China who look to the U.S. for support in their
effort to liberalize Chinese society.
Withdrawing MFN would have a major impact on Hong Kong's free
enterprise economy, which depends heavily on U.S.-China trade and
the health of export industries in South China. The economic
disruption which followed MFN withdrawal would further undermine
confidence in Hong Kong's future.
4
While U.S.-China relations still cannot return to normal under
current circumstances, withdrawing China's MFN status would harm
vital U.S. interests. On a variety of global and regional
issues, China has an important and sometimes crucial influence.
As a permanent member of the U.N. Security Council, China voted
for twelve resolutions on the Persian Gulf and abstained on two
others, enabling all to pass. China's cooperation is also
important for other U.S. foreign policy objectives, such as
seeking peace in Cambodia, reducing tensions on the Korean
peninsula, and restricting transfers of nuclear, CBW and missile
equipment and technology.
In summary, maintaining non-discriminatory trade status gives
China an incentive to stay engaged on issues of vital concern to
the U.S., including human rights, non-proliferation, global and
regional affairs and trade. I hope to work with the Congress to
achieve these shared objectives.
BASIS FOR RENEWING CHINA'S MOST-FAVORED-NATION TRADE STATUS
--China Qualifies Under the Emigration Standard of
Jackson-Vanik. China continues to maintain a relatively open
foreign travel policy. Approximately 17,000 mainland Chinese
received U.S. immigration visas in 1990. U.S. limits--and not
Chinese restrictions--prevent emigration in larger numbers.
U.S. visas issued to Chinese students and tourists rose
19 percent to 33,800 last year. Maintaining MFN promotes our
freedom of emigration and travel objectives.
--Commercial Relationship Promotes Reform. Foreign trade and
investment keep China open to the outside world and support the
economic forces that have been driving political and social
change and encouraging a loosening of state control and more
personal freedom. Withdrawing MFN would have the greatest
adverse impact on Chinese in the most dynamic, market-oriented
coastal regions. These and other groups who depend on a
healthy commercial relationship to justify business, social and
academic contacts with the U.S. would be affected. Hardline,
xenophobic elements in China will use MFN withdrawal to justify
restrictions on these contacts and a tougher, less responsive
position on issues of concern to us.
--Other Means Available to Pursue U.S. Interests. The U.S. has
set the agenda for improving the bilateral relationship and has
engaged the Chinese--with tangible results--on key issues of
concern, including human rights, nonproliferation, prison labor
exports and trade issues. Eliminating what the Chinese
consider to be a fundamental pillar of the economic
relationship--MFN trade status--will seriously erode, if not
destroy, our ability to engage the Chinese on these issues.
The President has a broad range of authority to take additional
action in specific areas of concern and is prepared to do so
when it serves U.S. interests. MFN withdrawal is not the
appropriate tool to use in pursuing these disparate interests.
--A Trade War Will Hurt U.S. Business and Consumers. Raising
tariffs on Chinese products will provoke trade retaliation.
This will put at risk $5 billion (1990) in U.S. exports,
including wheat ($511 million), aerospace ($749 million),
computers and electrical machinery ($860 million), fertilizer
($544 million), cotton ($259 million) and wood products ($281
million). Since no other country would face retaliation for
withdrawing MFN, U.S. business would be placed at a competitive
disadvantage. Trade actions on both sides could also adversely
affect over $4 billion in U.S. investment in China. Without
MFN, U.S. consumers would pay substantially higher prices for
Chinese-made clothing, footwear, toys, tools and electronics.
--A Constructive Relationship With China Serves World Peace. A
nation of over one billion people that is a permanent member of
the UN Security Council and has influence throughout the
developing world, China has an essential role to play in
promoting global peace and stability. China's support in the
UN helped maintain international solidarity in confronting
Iraq. Engagement with China is also serving U.S. interests in
promoting peace in Cambodia and the Korean peninsula.
CHINA'S EMIGRATION AND FOREIGN TRAVEL POLICIES
Emigration
China's relatively free emigration policies have continued
since the renewal of MFN status in 1990. In FY 1990,
16,751 U.S. immigrant visas were issued in the PRC. The
U.S. numerical limitation for immigrants from China was
fully met.
The principal restraint on increased emigration continues
to be the capacity and willingness of other nations to
absorb Chinese immigrants, not Chinese policy.
Foreign Travel Policies
-- China continues to adhere to a relatively open foreign
travel policy. According to Chinese officials, 255,000
persons were issued passports for private travel of all
kinds in 1990, a more than three-fold increase from 1986.
U.S. diplomatic posts in China issued 60,687 nonimmigrant
visas in FY 1990. Last year, 33,800 nonimmigrant visas
were issued worldwide to Chinese students and tourists, a
19 percent increase over FY 1989 and an 84 percent increase
over FY 1988.
Chinese officials report that several thousand students
have returned from overseas for visits after June 1989 and
have been allowed to depart again under expedited
procedures. We cannot verify these figures, but we are not
aware of any cases in which Chinese living in the U.S. who
returned to China for visits after June 1989 were prevented
from leaving again.
Foreign travel officially sponsored by the Chinese
Government continued to decline in FY 1990, reflecting
economic austerity measures and concern about extended
delays in the return of officially sponsored scholars to
China.
In February 1990, China issued a new directive requiring
recent college graduates and fourth-year undergraduates to
work for five years before applying for overseas study,
with some exceptions. This directive has undoubtedly
forced some students to defer their plans for overseas
study. However, its full impact is unclear since student
visa applications and issuances continue to increase.
We are aware of a small number of individuals who have had
difficulty in obtaining permission to travel abroad,
apparently because of the political activities of their
relatives in the U.S. We have discussed these cases with
Chinese authorities, who have indicated a willingness to
address the issue.
ECONOMIC EFFECTS OF MFN WITHDRAWAL
U.S. Exporters and Investors Would Be Hurt. If MFN is
withdrawn, Chinese trade retaliation is certain, including
reciprocal loss of MFN status for U.S. exports to China and
possibly other administrative measures to market access.
0
Since no other countries would be withdrawing China's
MFN status, U.S. companies would be put at a
competitive disadvantage. Major exports at stake and
their sales in 1990 include:
-Wheat $511 million
Aircraft/Aerospace Equipment $749 million
Fertilizer $544 million
Cotton $259 million
Timber/paper $281 million
Computers & Electric Products $860 million
-Chemicals $273 million
U.S joint ventures in China, which now total almost
1,000 and have invested capital of over $4 billion,
would pay higher duties on U.S. -made components and
their exports to the U.S. would be subject to higher
non-MFN U.S. duties
-- Consumers Would Suffer. U.S. consumers and retailers would
have to pay the sharply higher non-MFN duty rates on
Chinese-made imports, including footwear, clothing and toys
and electrical products. Examples include:
MFN Duty (%)
non-MFN Duty (%)
Footwear
6.0
35.0
Sweaters
6.0
60.0
Stuffed Toys
6.8
70.0
Fans
4.7
35.0
-- Other Tools At Our Disposal to Resolve Key Trade Concerns.
We have ongoing discussions with the Chinese on key
economic and trade issues, including market access,
intellectual property protection (where China was recently
identified under Special 301), textile transshipments and
dumping. We have made progress in some areas and utilized
existing legislation to take additional action where
necessary. China has expressed a willingness to stay
engaged to resolve our concerns. Withdrawing MFN would
seriously weaken our negotiating position on these issues.
IMPACT OF MFN WITHDRAWAL ON HONG KONG AND U.S. BUSINESS THERE
Impact on Hong Kong's Economy. The health of Hong Kong's
economy is increasingly tied to the growth of south China's
export industry. Approximately 2,500 Hong Kong enterprises
have shifted their export-bound production facilities to
the Pearl River delta in Guangdong Province. An additional
10,000-15,000 south China enterprises do assembly work for
Hong Kong companies.
-- China is Hong Kong's largest trading partner, accounting
for 39 percent of total 1990 trade. Re-exports, which grew
by 20 percent in 1990, underpin Hong Kong's trade
performance.
O
According to the Hong Kong Government, loss of MFN
status could cut Chinese re-exports via Hong Kong by up
to 44 percent or $4.6 billion.
O First-year effects could include $1.2 billion in lost
income and 43,000 jobs or 1.5 percent of Hong Kong's
labor force
-- Body Blow to Local Confidence. MFN denial would further
erode local confidence, already badly shaken by Tiananmen,
in the run-up to resumption of Chinese sovereignty in
1997.
O The drop in confidence would accelerate outward
migration from Hong Kong, which now exceeds 50,000 a
year and includes many professionals and managers.
-- U.S. Business Interests Would Be Hurt. The U.S. has the
largest number of regional headquarters in Hong Kong, with
over 40 percent of the total or 252 offices. Almost half
are engaged in trading activities with China, a principal
market and source of supply.
o U.S. investment of over $6 billion accounts for almost
one-quarter of foreign direct investment in Hong Kong.
A 1990 American Chamber of Commerce survey indicated
that 70 percent of the approximately 900 U.S. member
firms would be adversely affected and 50 percent would
consider reducing staff.
MFN Decision and Arms Proliferation Policy
MFN Decision Advances U.S. Interests. Continuing China's MFN
status preserves a PRC stake in moving toward the international
consensus on nuclear, missile, and CW nonproliferation, an
objective the Administration and Congress share.
-- Engagement Pays Off in the Long Run. Beginning in the
mid-eighties, both China's policies and the global
nonproliferation context began to change. China, which once
held an antagonistic view of multilateral controls on nuclear
exports, joined the IAEA in 1984 and sent observers to the NPT
Review Conference in 1990. China's 1987 sale of CSS-2 missiles
to Saudi Arabia pre-dated the INF Agreement, the establishment
of the Missile Technology Control Regime. In 1989, China made a
public commitment to refrain from medium-range missile
deliveries to the Middle East--and has kept to that commitment.
--- Nuclear Proliferation. Our expression of concern about
Sino-Algerian nuclear cooperation has led to commitments by both
countries to place the cooperation under IAEA safeguards and
their pledges that the cooperation is strictly for peaceful
purposes. We await the next step, i.e. Algeria's discussions
with the IAEA. We view favorably China's public position on
nuclear exports, but would like to see China take the further
steps of joining the NPT and adopting Nuclear Suppliers
Guidelines. Serious concerns remain; the Administration will
not ignore current problems in this area.
-- Missiles. We have engaged in intensive dialogue with Beijing on
its missile export policy. It is clear that in some cases China
has declined proposed missile exports because of foreign policy
considerations. More broadly, the Chinese Ambassador said
recently that China supports effective international control on
military sales, including missiles. That statement constitutes
a modest step toward our objective of a PRC commitment to
observe MTCR guidelines. China's missile export policy remains
a high priority in our bilateral dialogue; problems that
originated before the establishment of the MTCR have not
disappeared, but we have seen some progress over the past
half-decade. China is not a rogue elephant on proliferation:
its policy is gradually changing in a favorable direction. We
aim to accelerate that trend.
Chemical Weapons. China is on record opposing the manufacture
and transfer of chemical weapons, and is participating in
multilateral efforts to ban chemical weapons. We have made some
progress on the subject of controls over exports of CW
precursors, and we hope to advance discussions in this vital
area.
Next Steps. We are encouraged by progress in some areas and
still see a need for progress in others. It is because of our
continuing concerns that we want to maintain a constructive
nonproliferation dialogue with Beijing. Under Secretary Kimmitt
raised these issues in Beijing in May, and Under Secretary
Bartholomew will follow up during his upcoming visit to China.
US-PRC RELATIONS: SERVING U.S. INTERESTS
Our Tiananmen sanctions remain in place, though most of the
rest of the G-7 and EC have ended their sanctions (our
sanctions: suspension of weapons exports and military
programs, TDP grants, and OPIC programs).
Our policy of preserving core elements of bilateral
relations has succeeded in motivating positive action from
China on human rights and proliferation issues.
--
U.S. dialogue on human rights has recently yielded:
An accounting of those detained since events of June
1989:
--A total of 1804 were detained for
investigation. 860 had been released by June 6,
1990 and 110 since then.
--Of those tried, by the end of 1990 715 were
convicted of "beating, smashing, burning,
looting, and killing" and 72 of "plots to subvert
the government and the socialist system."
Another 26 have been convicted in 1991.
--There are 21 still awaiting trial, including
some who are receiving medical treatment at home,
such as Han Dongfang.
-public commitment to prevent export of prison labor
products;
-positive assurance on family reunification;
-initiation of a human rights dialogue with U.S. and
other Western countries;
--a partial response to our queries on status of
detained Christians.
The Chinese are moving in the right direction on
proliferation:
China attended at NPT RevCon in 1990;
China acceded to the Seabed Treaty in 1991;
-Sino-Algerian Nuclear issue--public expression of
willingness to follow international practice in terms
of placing the cooperation under IAEA safeguards and
issuing assurance that it is strictly for peaceful
purposes;
- 2 -
China supported UN consensus on elimination of Iraqi
weapons of mass destruction;
--China recently issued a public expression of support
for effective international control of military sales,
including missiles;
-President Yang Shangkun recently stated
unequivocally that, apart from the 1987 sale of CSS-2
missiles to Saudi Arabia, China had not sold any
itermediate-range missiles. He explicitly denied
China had sold such missiles to Iran or Syria.
--We have a dialogue--not monologue--on proliferation
issues, including our desire for a Chinese commitment
to observe MTCR guidelines.
--
China continues to share common ground with us on
global/regional issues:
-China supported the international consensus during
the Gulf crisis, including enforcement of military and
commercial sanctions, observers to UNIKOM, relief
supplies to Kurdish and Shiite refugees;
--is cooperating with efforts to find a comprehensive
political solution to the Cambodian issue;
shares our objective of reducing tension on the
Korean peninsula and has taken positive steps to
achieve that objective, including upgrading ties to
Seoul.
The Administration has not flinched from tough action when
necessary, but has not been casual with tools to influence
positive change in order not to close off all opportunity
to engage constructively the Chinese:
--
The Administration is protecting U.S. interests in the
trade area, e.g. designating China under Special 301
because of inadequate progress on IPR and halting
illegal textile shipments;
--
the Administration is reviewing the tools available to
underline the seriousness with which we view
proliferation issues. We are looking at ways of
injecting new momentum in our discussions with Beijing
on the desirability of a PRC commitment to move close
to the international consensus on nonproliferation,
e.g. joining the NPT and observing Missile Technology
Control Regime guidelines.
We have maintained cooperation or achieved objectives
listed above by means of patience and principle:
- 3 -
--
Patience: we recognize that we cannot impose our
values on the Chinese. We have made clear where we
have different views, and have noted what we perceive
as the mutual benefit in narrowing the gap between us
on such issues as human rights and nonproliferation.
We cannot force Beijing to see it our way--China has
to have a stake in changing its domestic policies to
track more closely with international standards.
--
Principle: Have not abandoned basic principles of
human rights. We seek to narrow differences where
possible (e.g prison labor, family reunification) and
maintain firm advocacy where substantial progress has
not yet been possible (religious freedom, right to
express personal political views without fear of
persecution, etc.)
This combination of patience and principle is gradually
yielding progress. It is in the best interest of the
American and Chinese people to maintain this policy--it is
working.
China has come a long way since we first engaged in 1971.
Beijing has established the year 2000 as its target date
for "modernization." This may be unrealistically ambitious
solely in terms of the economic and commercial
implications. The political, social, and cultural changes
implied in China's transformation from a developing to a
developed country will take even longer.
-- Our policy is designed to maintain momentum in that
process to help China achieve the broadest possible
modernization at the earliest possible date.
The choice in China policy has been presented as a false
dichotomy: between expression of broad condemnation and
immediate imposition of maximum pressure to radically and
simultaneously alter China's domestic and international
policies or a complete sell-out of our fundamental values
in favor of cold calculations about our strategic interests.
--
In fact, a patient strategy as described in the
foregoing, that helps the Chinese people and serves
long-term U.S. interests, is practical and is working.
Page 2 of 3
VOTE NO. 1
JANUARY 25, 1990
nonimmigrant status has expired. As well, the President instructed the Immigration and Naturalization Service to grant
asylum to any person who feared persecution as a result of their opposition to mandatory government policies of
forced sterilizations and/or abortions. In addition, the President argued that the bill impeded his ability to conduct
foreign policy.
On January 24, 1990, the House voted, 390 to 25, to override the President's veto.
NOTE: A yea vote was a vote to override the President's veto; a nay vote was a vote to sustain the veto. A two-
thirds majority of those present and voting (66 in this case) is required to override a veto.
Those favoring the veto override contended:
President Bush's veto of H.R. 2712 last November tarnished America's proud history of support for human rights.
To remain true to that past, this Senate must pass H.R. 2712, the objections of the President notwithstanding.
June 4, 1989, was a day of shame in the history of China, when its government of old men slaughtered hundreds, if
not thousands, of young students peacefully advocating democracy. This barbaric act, condemned by all civilized
nations, was followed by wholesale arrests, imprisonments, and executions of Chinese youths whose only crime was to
have studied in America and to have brought back with them to their homeland our democratic ideals. As part of its
policy of terror and intimidation, China's government intimated that Chinese students who had to return home
following the expiration of their visas would be dealt with harshly. To obviate such punishment, last year the House
(by a vote of 403-0) and Senate (by voice vote) passed H.R. 2712, which exempted the 40,000 Chinese students
studying in the United States from returning to China.
This statutory protection, though, was capriciously eliminated by President Bush. Claiming that he would by
executive action waive the return-home obligation, and that he needed a free hand to conduct China policy, the
President returned H.R. 2712 to us unsigned.
To begin with, many question the President's authority to declare such a change in immigration regulations. His
order provides no statutory legal protection for the Chinese students and can be revoked by the President at his
discretion. In addition, the President's order may be open to court challenge, as it appears his action is inconsistent
with current immigration statutes. Only legislative changes in present law would unquestionably allow these students to
remain in the United States.
As well, while the President argued that he needed to be free of Congressional interference in the conduct of his
China policy, his strategy since June 4, 1989, deserves our intense scrutiny. Merely a month after the Tianamen Square
nurders, the President dispatched a secret mission to Peking to express the outrage of the United States at the action
of the Chinese government. This was to no effect; since July, 1989, the government of China has detained or arrested
nore than 10,000 people, imprisoned more than 800 citizens for counterrevolutionary crimes, and executed up to 1,400
tudents and workers who participated in the democracy protests. In November, the President sent another delegation
0 meet the Chinese and, while martial law had been recently lifted in Peking, the government promulgated harsh new
aws suppressing political dissent, combined the Peking police with several army units, and began a wholesale
"purification" campaign of the Chinese Communist party, aimed at identifying and punishing democracy advocates. In
he face of these facts, the President continues to insist that his policies are succeeding, and that Congressional
protection of Chinese students seriously threatens his policy.
We do not subscribe to the President's point of view. While our relationship with China has always been
complicated, the President's veto called into question United States support for human rights, and was seen as a
:owardly kowtow to the butchers of Peking. We must not allow the Chinese government to believe that their brutal
actions of last June are in any way endorsed by the government of the United States, and we strongly urge our
colleagues to override the President's veto, pass H.R. 2712, and restore the luster to our tarnished human rights legacy.
Those opposing the veto override contended:
We share the revulsion and outrage of our colleagues over the deplorable behavior of the Chinese government last
une, when it sent tanks into Tianamen Square to kill peaceful students whose only offense was to demonstrate for
lemocracy. Such abhorrent behavior deserves the opprobrium of the world community. However, the Congress was
arried away on an emotional tide last year when it passed H.R. 2712, and the President rightly vetoed the bill.
Uniquely qualified to judge the nuances of our relationship with China (George Bush served as America's liaison to
China in 1975-76), the President believed that statutory protection would wreak havoc on the strategic U.S.-China
elationship (and according to the Chinese Foreign Ministry, the consequences of a veto override would be quite
grave). Instead, to protect the Chinese students and uphold our historic advocacy of human rights, the President by
xecutive action altered the immigration status, not only of these 40,000 Chinese citizens, but all Chinese nationals
turrently in the United States who do not wish to return, protecting them for at least four years. Further, the President
las promised, in his veto message, in communications with Senators, and in press conferences, that no Chinese student
vill be sent back to China until the conditions in China change.
Page 3 of 3
JANUARY 25, 1990
VOTE NO. 1
Since the President has done more by executive action than H.R. 2712 ever could, why then are we considering an
override of the President's veto? Those who advocate passing H.R. 2712 argue that the President's China policy has
been unsuccessful. We do not share that view. By carefully preserving the fundamental elements of the U.S.-China
strategic relationship throughout the past several months, progress has been made in several areas. For example, China
has: assured the United States that it will refrain from selling missiles in the Middle East; lifted martial law in Peking:
released nearly 600 Chinese political prisoners; opened many previously sealed Catholic churches; taken an active and
flexible role in the negotiations over the future of Cambodia; initiated discussions on a renewal of Fulbright
fellowships and the operation of the Peace Corps in their country; and allowed over 7,000 new students to study in the
United States. While the Chinese situation remains unsatisfactory, it is clear that the careful and measured diplomacy
of President Bush has yielded progressive dividends.
With the President protecting all Chinese nationals in the United States, and the government of China relaxing Its
grip, we can only conclude that those who wish to override the President's veto are engaged in a crass partisan exercise
that fouls any legitimate differences Senators may have regarding the President's foreign policy. It is no coincider
that all Democratic Senators support the override effort, that the Democratic leadership of both the House and the
Senate have criticized the President's veto throughout the last two months (some using the pejorative term "kowle
to describe the President's actions), and that this override attempt was scheduled as the first item of business for
Senate this year. We hope our colleagues will join us to reject this political exercise, support the President in
conduct of foreign policy, and resolve, in the future, to debate our differences on a more elevated plane free
partisan wrangling. We strongly urge all Senators to sustain the President's veto of H.R. 2712.
THE WHITE HOUSE
WASHINGTON
JUNE 3, 1991
MEMORANDUM FOR VICE PRESIDENT
GOVERNOR SUNUNU
RICHARD DARMAN
MICHAEL BOSKIN
SERGEANT CASTLE
ALL COMMISSIONED OFFICERS
THROUGH:
DAVID DEMAREST
&
FROM:
BOBBIE KILBERG
to
SICHAN SIV sa
LEIGH ANN METZGER xam
SUBJECT:
UPCOMING BRIEFINGS ORGANIZED BY THE OFFICE OF
PUBLIC LIAISON
Below is the current list of White House briefings, events and
photo-ops scheduled by the Office of Public Liaison for upcoming
months. We would like you to participate in whatever briefings
or events interest you and suit your schedule. Also, if there
are any issues of importance you wish to raise with these groups,
please let us know.
If you would like more information about any particular briefing,
please feel free to contact the project officer at (X7845).
JUNE 3, 1991
National Council of Jewish Women
10:00-11:30 a.m.; Indian Treaty Room
40 attendees
Project Officer: Kathy Jeavons
National Federation of Independent Business (POTUS)
1:00-1:30 p.m.; Hyatt Regency
800 attendees
Project Officer: Jeff Vogt
JUNE 4, 1991
Iowa Chamber of Commerce
5:00-6:00 p.m.; Indian Treaty Room
100 attendees
Project Officer: Molly Osborne
JUNE 5, 1991
Meeting with the Leadership of the Orthodox Union
(POTUS)
of America
1:45 p.m.; Roosevelt Room
18 attendees
Project Officer: Kathy Jeavons
JUNE 7, 1991
U.S. Business and Industrial Council
10:45-11:45 a.m.; Room 22
35 attendees
Project Officer: Molly Osborne
First Friday Group
11:30 a.m.-12:30 p.m.; Indian Treaty Room
40 attendees
Project Officer: Kathy Rust
Pakistani-American Briefing
2:30-4:40 p.m.; Room 450
220 attendees
Project Officer: Jim Schaefer
JUNE 11, 1991
National Association of Meat Purveyors
11:00 a.m.-12:00 p.m.; Room 180
20 attendees
Project Officer: Molly Osborne
JUNE 13, 1991
National Cattlemen's Association
9:30-10:30 a.m.; Room 22
70 attendees
Project Officer: Molly Osborne
President's Dinner Supporters from the Korean-American Community
10:00 a.m.-12:00 p.m.; Indian Treaty Room
60 attendees
Project Officer: Jim Schaefer
Multiple Sclerosis Mother & Father of the Year Photo-op (POTUS)
11:15 a.m.; Oval Office
Project Officer: Helen Mobley
JUNE 14, 1991
"Congress on Cardiology"
9:00-10:30 a.m.; Room 450
100 attendees
Project Officer: Kathy Jeavons
1991 Farm Women's Forum
9:30-11:00 a.m.; Indian Treaty Room
100 attendees
Project Officer: Molly Osborne
JUNE 18, 1991
Meeting with Recreation Roundtable (POTUS)
1:15 p.m.; Roosevelt Room
(TBD) attendees
Project Officer: Kathy Jeavons
JUNE 19, 1991
Public Health Service Primary Care Policy Fellowship
9:00-10:30 a.m.; Indian Treaty Room
30 attendees
Project Officer: Kathy Jeavons
Insurance Federation of Minnesota
10:00-11:00 a.m.; Room 180
20 attendees
Project Officer: Molly Osborne
JUNE 20, 1991
National Council of Hispanic Women
9:00 a.m.; Room 450
150 attendees
Project Officer: Shiree Sanchez
International Dairy Foods Association
9:30-11:00 a.m.; Indian Treaty Room
100 attendees
Project Officer: Molly Osborne
Traditional Values Coalition
2:00-3:30 p.m.; Room 450
100 attendees
Project Officer: Kathy Rust
JUNE 21, 1991
Association of School Business Officials
10:00-11:30 a.m.; Indian Treaty Room
50 attendees
Project Officer: Jane Leonard
Heritage Foundation
2:00-3:00 p.m.; Room 476
30 attendees
Project Officer: Kathy Rust
JUNE 26, 1991
High School Student Ambassador Program
11:00 a.m.-12:00 p.m.; Room 450
200 attendees
Project Officer: Jane Leonard
Center for the Study of the Presidency's Board of Directors
1:15 p.m.; Ward Room
18 attendees
Project Officer: Helen Mobley
JUNE 28, 1991
Organization of Chinese Americans
Time (TBD) ; Room (TBD)
(TBD) attendees
Project Officer: Jim Schaefer
JULY 25, 1991
Photo-op with State President of Future (POTUS)
Farmers of America
11:15 a.m.; Room (TBD)
(TBD) attendees
Project Officer: Molly Osborne
National Paint & Coatings Association
1:30-2:30 p.m.; Roosevelt Room
25 attendees
Project Officer: Molly Osborne
A10
Bush Library Photocopy
THE WALL STREET JOURNAL MONDAY,
REVIEW & OUTLOOK
Winnie Mandela
As Her Neighbors
Helping China
See Her
By If
In the three da
With gut outrage Americans
Day weekend, S0
which handles some 70% of China's
By NOMAVENDA MATHIANE
watched two years ago as China's
exports and stands as Asia's greatest
SOWETO, South Africa - For four
tive Republicans
ine the condition
communist rulers massacred the
monument to the benefits of trade.
months, the trial of Winnie Mandela con-
Some may consider all this worth
sumed the attention not just of South Afri-
ment. "Movemer
Tiananmen Square democracy move-
cans but of the rest of the world. On May
The conferenc
ment. Today, Congress is pouring
the cost if China's leaders comply
13, Supreme Court Judge Michael Steg-
liam Buckley's N
similar feeling into a fight with Presi-
with demands to release various
mann convicted her of kidnapping four
of those attending
dent Bush over whether China de-
jailed dissidents, end slave labor in
conservatives fir
boys in 1988, and acting as an accessory af-
serves an extension of its "most-fa-
prison and generally desist from the
ter the fact to a beating that ended with
ond. By the end
cant reversal ha
vored-nation" trading status. Presi-
more visibly foul practices that come
one of the boys dead. The judge had re-
with the communist system. Problem
jected her alibi as the testimony of "a
that, under curr
dent Bush wants MFN renewed, argu-
ing in his speech at Yale University
is, that's hostage-politics. The signal it
calm, composed, deliberate, unblushing
were Republican
sends to Beijing is that it's all right to
liar.' When Mrs. Mandela stepped out of
second. George
last Monday that "It is wrong to iso-
armed Saddam
the Johannesburg courthouse that after-
late China if we hope to influence
jail and torture people, as long as you
noon. South Africa's newspaper offices ex-
large measure di
China." A vocal crowd in Congress
eventually and publicly release some
movement.
ploded with activity. But in Soweto it was
says that Mr. Bush is too soft on
of them.
just an ordinary day.
Two importar
China, that there should be no renewal
The human-rights issue should not
It is one of the many insults hurled at
pected revelation
of MFN without strict human-rights
be whether China at any given mo-
black South Africans that much of the
days. The first in'
conditions attached. Senate Majority
ment holds six political prisoners or
world believes we are one monolithic mass
policy, the secon
Leader George Mitchell accused Mr.
60,000, but whether the government
that follows the leadership of one political
Foreign polic
Bush recently of a double standard,
wields the power to jail people at
party with one uniform viewpoint. In fact,
tioned. The medi:
when the attorney general decided to pros-
of how the end of
"one for other nations and another for
whim. The Communist Party's control
ecute Mrs. Mandela, township opinion was
ated a sharp divis
China."
does not depend on driving tanks
as divided as ever.
with some comr
No doubt there are parties to this
through Beijing every day; only on
Many blacks who do not belong to the
mocracy," others
debate who truly understand the dis-
being in a position to order in the
African National Congress, especially
based on our na
gusting intricacies of China's commu-
tanks when it feels the urge. That
those who belong to rival political organi-
others trying to
nist regime and honestly care whether
zations, were quite happy to learn of the
World War II isol
must change if China is truly to re-
China's 1.1 billion people achieve the
form. For that, it is probably neces-
prosecution. On the other hand, blacks who
of opinion are re:
live outside of Johannesburg-and who had
not to have had a
freedom some died for in 1989. But if
sary for the Beijing communist rulers
not been on the receiving end of Mrs. Man-
percussions.
America's political leaders want to
not just to display better manners, but
dela's "football club"-often refused to be-
A Large Embr
advance freedom in China, it's time
to surrender power.
lieve what they read in the newspapers. As
The explanatic
they began plastering large-character
Better Options
for the unsophisticated people who live in
has managed to e
posters on Capitol Hill with slogans
rural areas, who find it hard to understand
reminding themselves that the matter
Rather than rant about MFN, per-
perhaps the more
what goes on in the cities at the best of
are by far the sn
at hand is supposed to be China, not
haps both Congress and the adminis-
times, the whole case was mind-boggling
ducting an eclect
tration should take another look at
to them.
power games between Congress and
that blurs these i
the President.
policy options that would be felt fore-
Even within the ANC there were divi-
policy that entir
most by the top cadres in Beijing.
sions. The dogmatists fumed: They simply
satisfies no one
Who Should Be Favored
A beginning, unorthodox but direct,
insisted that Mrs. Mandela was being har-
doesn't entirely (
would be to renew MFN, but rename
assed. The young zealots who will follow
From that base line, there might
satisfy anyone
her to the end danced and chanted outside
be a chance of sorting out the real is-
it. If we're going to send messages
ther. The upshot
the courthouse. By contrast, the ANC's
that conservati
sues. America's puzzle from the be-
with this device, call it Capitalism Re-
more educated adherents were embar-
have, in effect,
ginning has been how to punish
quires Democracy status.
rassed by the whole business.
trusted the issue
China's government for remaining
A deeper reprimand would be to
Many leading black South Africans dis-
foreign policy
communist, while at the same time
lobby against multilateral aid and
like Mrs. Mandela. They are offended by
President Bush. T
comfort to the Chinese government.
her imperious style, her vicious temper,
supporting China's people in their de-
may not last, but
The U.S. may not unilaterally control
her refusal to listen to advice and her bad
sire for freedom. The Chinese commu-
the time being th
nist state has snaked its way SO
disbursements by the World Bank, the
habit of shooting off her mouth.
is nothing that I
Mrs. Mandela profits above all from the
Asian Development Bank and United
be called a spec
deeply into most aspects of Chinese
high regard in which black South Africans
conservative
private life that separating the des-
Nations' charity organizations, but it
hold her husband. "I am not a member of
agenda-as disti
pots from the repressed is a delicate
has a strong voice. Any funds or pro-
the ANC," one upwardly mobile young
from a spectrum
job. Fortunately, there are finer pol-
grams these outfits administer must
black executive told me during the trial,
foreign policy.
icy tools for this task than the base-
be filtered through the control of
"but their enemies are also mine, even
Much the sam
ball-bat thwack of revoking MFN-if
China's central government, which
though their friends are not necessarily
issue of abortion
shores up the state institutions that do
mine."
only the politicians would stop emot-
But that regard is not unconditional,
passing but spar
ing long enough to think.
the filtering.
and it sometimes seems that the better
of those present
Rather than trashing trade, Amer-
The amounts involved are rela-
principles of the
you know Winnie, the less you like her. In
ica would do better to reconsider its
tively minor compared with China's
Phomolong, the area of Soweto where the
But they have C(
role in direct handouts to the Chinese
commercial trade. But the mere will-
the state of Ame
Mandelas and other older ANC leaders
live, people are not protective of her. Pho-
principles canno
government, such as multilateral aid.
ingness of these institutions to deal
lated into a polit
America would also do better to re-
with China provides a seal of approval
molong is where the incidents that led to
made of the poll
that is grossly inappropriate. The
the prosecution took place. Many people
mind Beijing that there are increas-
some 20% of Ame
ingly attractive rivals in Asia for
Asian Development Bank, for exam-
there still remember the night Mrs. Man-
dela's football club broke up the A-Train
Washington's favors-especially the
ple, has dumped $11.5 million in tech-
Tavern, or how they killed a deserter from
nical-assistance grants into China
Eu:
fast-reforming Nationalist Chinese
the club in broad daylight outside a local
government on Taiwan.
since the People's Republic joined the
social hall, or their burning down of a
Among the problems with the MFN
ADB in 1986-about half of that since
house, two doors from that of the late Pan
Why is it that
approach is that it is perilous for
Tiananmen-and is scheduled this
African Congress leader Zeph Mothopeng,
izing and restru
America even in the clearest cases to
month to consider the multimillion-
in which a teen-age girl lost her life.
walls, European
invoke trade sanctions as tools for the
dollar financing of a state railway
Most of the members of the club were
compete with the
political reform of foreign trading
project. The World Bank earlier this
children from the Phomolong area. Every-
and are again
one knew which of them were responsible
tion?
partners. And in the China MFN de-
year approved a $168.4 million loan to
for the murder of the beauty queen Ma-
A $5 million,
bate it is hard to track the fine line
China to help improve living condi-
sathaba Loate: everyone feels sorry for
ture of the aut
between the lofty moral urge and the
tions in three Chinese cities.
Lerotho di Ikaneng, who quit the gang and
James Womack,
dreary self-serving demands of pro-
What would best improve living
has survived three attempts on his life by
Roos at the M:
tectionist Congressman playing to
conditions in Chinese cities would be
his former comrades-even as they re-
Technology provi
the disappearance of the communist
member his victims while he still belonged
uncovered enorm
their local lobbyists.
Well before Tiananmen there was
party. That seems an appropriate
to the club.
tivity between E1
measure of when it would make sense
If anything, it was South Africa's and
plants. Insiders
already a protectionist fervor to some
the rest of the world's white press that was
differences for a
America's dealings with China. The
to resume the supply of any funds that
responsible for Mrs. Mandela's image as a
All it takes is
U.S. has for years imposed quotas on
originate with American taxpayers
black leader. It was white journalists who
age European pl
Chinese garment imports at the be-
and flow through the hands of China's
conferred the title "Mother of the Nation"
nese plant to cor
hest of the U.S. textile lobby-and the
government.
on her; if the matter had been left to the
ple who actually
masses T have no doubt the title would
who don't In a
pots from the repressed is a delicate
has a strong voice. Any funds or pro-
the ANC," one upwardly mobile young
from a spectrum
job. Fortunately, there are finer pol-
grams these outfits administer must
black executive told me during the trial,
foreign policy.
icy tools for this task than the base-
be filtered through the control of
"but their enemies are also mine, even
Much the san
China's central government, which
though their friends are not necessarily
ball-bat thwack of revoking MFN-if
issue of abortion
shores up the state institutions that do
mine."
only the politicians would stop emot-
But that regard is not unconditional,
passing but spar
ing long enough to think.
the filtering.
and it sometimes seems that the better
of those present
Rather than trashing trade, Amer-
The amounts involved are rela-
you know Winnie, the less you like her. In
principles of the
ica would do better to reconsider its
tively minor compared with China's
Phomolong, the area of Soweto where the
But they have C
commercial trade. But the mere will-
the state of Ame
role in direct handouts to the Chinese
Mandelas and other older ANC leaders
government, such as multilateral aid.
ingness of these institutions to deal
live, people are not protective of her. Pho-
principles cannc
America would also do better to re-
with China provides a seal of approval
molong is where the incidents that led to
lated into a polit
made of the poll
that is grossly inappropriate. The
the prosecution took place. Many people
mind Beijing that there are increas-
some 20% of Am
Asian Development Bank, for exam-
there still remember the night Mrs. Man-
ingly attractive rivals in Asia for
dela's football club broke up the A-Train
Washington's favors-especially the
ple, has dumped $11.5 million in tech-
Tavern, or how they killed a deserter from
nical-assistance grants into China
Eu
fast-reforming Nationalist Chinese
the club in broad daylight outside a local
government on Taiwan.
since the People's Republic joined the
social hall, or their burning down of a
Among the problems with the MFN
ADB in 1986-about half of that since
house, two doors from that of the late Pan
Why is it that
approach is that it is perilous for
Tiananmen-and is scheduled this
African Congress leader Zeph Mothopeng,
izing and restru
America even in the clearest cases to
month to consider the multimillion-
in which a teen-age girl lost her life.
walls, Europear
dollar financing of a state railway
Most of the members of the club were
compete with the
invoke trade sanctions as tools for the
project. The World Bank earlier this
children from the Phomolong area. Every-
and are again
political reform of foreign trading
one knew which of them were responsible
tion?
partners. And in the China MFN de-
year approved a $168.4 million loan to
for the murder of the beauty queen Ma-
A $5 million,
bate it is hard to track the fine line
China to help improve living condi-
sathaba Loate; everyone feels sorry for
ture of the au
between the lofty moral urge and the
tions in three Chinese cities.
Lerotho di Ikaneng, who quit the gang and
James Womack,
dreary self-serving demands of pro-
What would best improve living
has survived three attempts on his life by
Roos at the M
tectionist Congressman playing to
conditions in Chinese cities would be
his former comrades-even as they re-
Technology prov
the disappearance of the communist
member his victims while he still belonged
uncovered enorn
their local lobbyists.
party. That seems an appropriate
to the club.
tivity between E
Well before Tiananmen there was
already a protectionist fervor to some
measure of when it would make sense
If anything, it was South Africa's and
plants. Insiders
the rest of the world's white press that was
differences for ;
America's dealings with China. The
to resume the supply of any funds that
responsible for Mrs. Mandela's image as a
All it takes is
U.S. has for years imposed quotas on
originate with American taxpayers
black leader. It was white journalists who
age European pl
Chinese garment imports at the be-
and flow through the hands of China's
conferred the title "Mother of the Nation"
nese plant to COI
hest of the U.S. textile lobby-and the
government.
on her; if the matter had been left to the
ple who actually
masses, I have no doubt the title would
who don't. In a
expense of the American consumer.
Don't Punish Consumers
have gone instead to the motherly wife of
cult to find work
Currently there are quotas on such
Though cutting off a $600,000 grant
Walter Sisulu, the titular chief of the ANC.
European plant,
goods as yarn, fabrics, shoes and um-
such as that approved this past Janu-
And Mrs. Mandela reciprocated these at-
(many of them
brellas. American quotas apply also to
ary by the ADB for "Environmental
tentions: Although ignorant of the names
never should ha
many such items made in Hong Kong.
Impact Assessment Training" might
of the leading black journalists, she was on
According to
These policies have nothing to do with
sound like small stuff, it will be felt
a first-name basis
car makers wil
U.S. concern for human rights or the
immediately by the cadres on the re-
with white journal-
forces in half if
general prosperity-except to under-
ceiving end-where it translates into
ists.
efficient produce
mine them.
big money. If the aim is to train Chi-
But like many
fortable platfori
nese officials, the money could better
people who have
forming the soci
The Meaning of MFN
risen to powerful po-
promised by the
be spent offering scholarships to come
sitions, she soon be-
Where the M
A glance at the U.S. tariff sched-
to the U.S. and return home spiritu-
came arrogant. She
implying that E:
ules confirms that withdrawing MFN
ally polluted and schooled in the daily
started to treat her
widely different
would hurt the freest parts of China,
ways of a democracy. For Americans,
white
admirers
efficient mass-p
which are the small private enter-
taking this approach rather than
shabbily, refusing to
West, and the S(
prises along the southern coast. It is
slamming shut trade has the added
respond to phone
system in Japan
important to understand that MFN,
advantage that it doesn't punish U.S.
calls, breaking ap-
in Japan is, tec
pointments, and
from an asseml
despite its name, is not a status con-
consumers.
abusing those who
only difference j
ferred on a favored few. MFN is sim-
If anything, it would either save
questioned her. Now
Winnie Mandela
turers make mu
ply the odd label for routine trading
them tax money, or put it to better
the white press at home and abroad has
forces. This al
status with the U.S., conferred on all
use in countries where aid at least
turned on her.
workers to do t
but about a dozen hostile countries
stands a better chance of serving de-
White criticism of Mrs. Mandela puts
Japanese lev
such as North Korea, Vietnam and the
cent ends-such as the newly non-
many blacks in an awkward situation.
achieved only b
Soviet Union. Any country selling its
communist countries of Eastern Eu-
When one of the "returnees"-the old ANC
ing to participa
goods into America under MFN is ba-
members who have spent the past 25 years
with more resp
rope.
in exile-decided to curry favor with the
sically competing in the world mar-
Want another productive policy ini-
unfortunately, a
Mandelas by nominating Mrs. Mandela to
agement as imp
ket. That means any huge tariff in-
tiative? Lobby loudly for the admis-
be head of the ANC's Women's League,
out major socia
crease for Chinese goods would trans-
sion of Taiwan ahead of Communist
many of the ANC's white sympathizers ob-
The prevaili
late in effect into a blockade.
China to both the General Agreement
jected. The issue then became racial, with
could be seen it
Should America withdraw MFN
on Tariffs and Trade and the newly
black members refusing to support the
Romiti, managi
from China, the new tariff schedule
formed Asian-Pacific Economic Con-
whites' objections. But when it came time
he spoke to a E
applied to Chinese imports would rise
ference. That would leave it even less
for the black members to vote on April 28,
mittee on the a
most drastically for the light con-
ambiguous that America likes to rec-
they voted against her.
the problem of J
Whichever way one looks at it, the Win-
sumer goods that make up the bulk of
ognize and reward the achievements
objective," expl
nie Mandela saga has retarded the strug-
1990, "must be to
China's sales to the U.S. Tariffs on
of democratizing Chinese govern-
gle of South African blacks by tainting a
and income oppo
cotton T-shirts would rise to 90% from
ments-but has less time for people
just cause with criminal activity-a crimi-
tunities that CO
21%. Tariffs on toys and music boxes
who drive tanks through Tiananmen
nal activity the ANC had nothing to do
ture and life st
would rise to 70% from 6.8%. Cotton
Square.
with. The organization may be guilty of nu-
In other worc
petticoats would take a 90% tariff hit,
It may be too much to hope that
merous sins, but it is not guilty of those
come and build
up from 17%.
Congress can resist cheap shots at
that occurred in Mrs. Mandela's house.
long as they do
George Bush over MFN, or that the
Unlike the white press, which suggests
Manufacturing for the export of
the Europeans
that Nelson Mandela is foolishly besotted
In the mid-19
such discount-store products is pre-
administration would actually throw
with Winnie, township people above all feel
cisely what has in recent years
its full weight into swaying the bu-
sorry for him. "What do white people ex-
brought a westward-looking boom to
reaucrats of the World Bank, ADB
pect the poor man to do?" they ask. "If he
Notabl
the coastal Chinese provinces of
and U.N. There would be stiff resis-
keeps quiet, they draw conclusions, and
Guangdong-next to Hong Kong, and
tance from the staffers of these organ-
when he opens his mouth, they criticize
Fujien-across the strait from Tai-
izations-who are important in China
him." And yet, the case cannot help but
Rep. Bern
wan. Guangdong alone, with some 65
only as long as they tender the com-
damage him too. "If Mandela cannot look
gressman fre
munists money and respect. But by
after one woman," asks a cynic I know,
million people or 6% of the Chinese
disdain for hi
"how can he hope to look after 26 million
in the June
population, accounted last year for
leaving trade to take care of itself and
blacks?"
If one did an
about $22 billion in sales abroad, or
by focusing directly on Beijing's more
and asked the
more than one-third of China's ex-
obvious vulnerabilities, the parties to
Ms. Mathiane, a reporter with the Jo-
Representative
ports.
the MFN debate would better help
hannesburg Sunday Star, is the author of
president, Geol
Revoking MFN would also deeply
both China and America, which is pre-
"South Africa: A Diary of Troubled
my guess would
damage free-market Hong Kong,
sumably the point of the exercise.
Times" (Freedom House, 1989).
say George Bu
Bush Library Photocopy
A12 THE WALL STREET JOURNAL MONDAY, JUNE 3, 1991
POLITICS & POLICY
Bush Library Photocopy
Rio Alg
Broad Coalition Opposes Bush on China Trade,
Remain
In Urani
But He Could Prevail With a Few Key Concessions
By a WALL STR
TORONTO
By PETER TRUELL
"oppressive in domestic policy," and de-
agreed to acqui
Staff Reporter of THE WALL STREET JOURNAL
Most Favored?
WASHINGTON-I was old China hand
clares that "we should stop rewarding
sources Inc. sh:
U.S. trade with China in billions of dollars
them for being SO contemptuous of Ameri-
own for $6.40 a
George Bush who decided to extend Bei-
$16
can interests and values."
$41 million.
jing's trade privileges for another year.
And Rep. Dan Burton (R., Ind. ) argues
The purchas
But it is politician George Bush who will
14
U.S. Imports
that "we didn't work with or cajole Adolf
count of about :
have to make the decision stick.
Hitler or Saddam Hussein" and shouldn't
gom offer mad
The president's intention to extend
12
do SO with China either. "The White House
withdrawn, was
China's most-favored-nation status despite
the 1989 Tiananmen Square massacre of
10
is going to work very hard to get this
justment for a
through, but for me they can't move far
Resources' sha
pro-democracy demonstrators and continu-
8
enough," he says.
cerns resumed
ing repression by the Chinese leadership
has aroused broad opposition in Congress.
Supporters of the president's decision
"I suspect th
6
counter that denying China most-favored-
pressed for so
But Mr. Bush's effort still stands a chance
nation status would set back the dialogue
Uranium Resou
of success. The reason: The very breadth
4
of the coalition makes it possible for him to
between the two nations by years and con-
the money and
break off parts of it by offering limited
U.S. Exports
tribute to what one senior administration
an analyst at E
2
concessions in a number of areas, from hu-
official calls an unstable "pendulum rela-
Uranium Re
man rights to intellectual-property dis-
0
tionship" with Beijing.
trol about 52%
"We believe
1984
'85
'86
'87
'88
'89
90
putes.
Impact on Hong Kong
tion is very fa
"We're starting perhaps a little behind
Source: Commerce Department
Further, Sen. Max Baucus, the Montana
sources] share
on this. but I think I can explain it," Mr.
Democrat who chairs the Finance Commit-
view of present
Bush, a former U.S. envoy to Beijing, told
hand-specifically, a further release of po-
tee's trade panel, argues that ending most-
uranium mark
reporters last week in Kennebunkport.
litical prisoners to follow some modest
favored-nation status would harm the U.S.
Larson, chairm
Maine.
steps Beijing has taken recently.
as well as China, denying U.S. exporters a
cer of Uranium
The president isn't likely to prevail in
Though it sounds highly privileged,
needed market. It also would hurt Hong
ment.
the first round. There's a good chance that
most-favored-nation status is a routine in-
Kong, which should be "a model for Chi-
The acquisit
both houses of Congress will vote against
ternational convention that allows a coun-
nese reform," he argues.
would give Tor
his decision by the end-of-August deadline.
try access to the lowest tariff levels ac-
Sen. Baucus likens revoking China's
cess to lower-co
But that would surely trigger a presiden-
corded to other trading partners. The U.S.
trade status to using carpet-bombing tac-
addition, Urani
tial veto, and the White House strategy is
accords the status to more than 100 coun-
tics when what's called for is a series of
Dallas, has peri
based on draining away enough votes-at
tries, most of them permanently. Under
surgical strikes-the more limited conces-
ing uranium b
least one-third in each house of Congress-
the 1974 Trade Act, though, the trade
sions the administration is pushing.
from the ore wl
to sustain the veto.
status of Communist countries must be re-
Mr. Bush himself says that, given the
Rio Algom has
Complicating the president's task are
newed either annually or semiannually.
controversy over his decision, "the easy
similar technol
the effects of Beijing's managed trade poli-
The opposition to Mr. Bush's decision to
cop-out, the easy election-year politics,
erty.
cies, which have exacerbated economic
renew China's status is being led by Senate
would be to go the other way." But, he in-
The transact
tensions between the two nations. While
Majority Leader George Mitchell. "It's
sists, "that's not good foreign policy."
and other appr
Chinese exports to the U.S. have boomed,
very clear the president's policy has
U.S. exports to China fell more than 17% in
failed," the Maine Democrat said on CBS
1990. according to the Commerce Depart-
News's "Face the Nation" yesterday. "The
ment. This year, the U.S. is expected to
response to a failed policy is more of the
run a trade deficit with China of as much
same."
as $15 billion; that would be sharply wider
"Support for Democracy'
than the $10.4 billion gap of 1990 and would
Along with 27 co-sponsors, Mr. Mitchell
make it second only to the U.S. trade defi-
has introduced the Support for Democracy,
cit with Japan.
Human Rights and Fair Trade Act of 1991.
Defusing the Opposition
The bill would extend China's trade status
The White House already has begun
for only 180 days; after that, it would de-
seeking to defuse some of the opposition by
pend on China meeting several conditions
offering concessions on specific issues.
concerning human rights, trade, weapons
"The president is trying to sketch out a
proliferation and forced labor. Mr. Mitch-
policy that shows there are a number of in-
ell yesterday said the bill would pass both
struments for addressing these issues,
houses by "a substantial majority" but
rather than taking away most-favored-na-
said he didn't know whether Congress
tion," says Harry Harding, a senior fellow
could override a presidential veto.
at the Brookings Institution.
Administration officials say it's highly
Among other things, the administration
unlikely that China could, or would, meet
has said that conditions on human rights
those conditions. "Most likely we will at-
might be attached to the extension. The
tach such tough conditions to it that for all
president also says he will restrict the sale
practical purposes it's a turndown of most-
of advanced computers to China to protest
favored-nation status," says Indiana Rep.
its sales of sophisticated weapons to other
Lee Hamilton, a senior Democrat on the
nations, particularly Pakistan. And Carla
House Foreign Affairs Committee who sup-
Hills, the White House trade representa-
ports the designation for China.
tive, has begun action against China's in-
It isn't only liberal Democrats such as
tellectual-property abuses; U.S. companies
Sen. Mitchell who are unhappy with the
are losing an estimated $400 million a year
president's decision. A number of conser-
in copyright and patent revenue for com-
vative Republicans, especially in the
puter software and other products.
House, are equally vociferous. Rep. Gerald
Solomon of New York accuses China of be-
OF
In addition, administration officials are
looking to the Chinese themselves for a
ing "irresponsible in foreign policy" and
Navy Bears the Brunt of Base Closings
In Expanded List Proposed by Panel
By ANDY PASZTOR
Works Committee contend doesn't come
Staff Reporter of THE WALL. STREET JOURNAL
under the commission's jurisdiction.
WASHINGTON-The expanded list of
The Navy facilities added to those pre-
potential base closings released by a con-
viously under review include: California's
gressionally created commission portends
Treasure Island Naval Station and home-
big problems for the Navy.
ports in Staten Island, N.Y.; Pascagoula,
The commission, asserting its independ-
Miss., and Ingleside, Texas. Budget pres-
ence from the Pentagon, added 35 more do-
sures have already scaled back the home-
mestic military facilities to 43 other sites
port program, and Defense Secretary Dick
previously targeted by the Pentagon for
Cheney recently told Congress he may
closure or cutbacks. The commission's ac-
seek further cuts. Some of the five ports
tion nearly doubles the number of major
announced by the commission Friday are
facilities it is of name
still
under
construction
POINTS TO BE MADE FOR
BIPARTISAN CONGRESSIONAL MEETING
In my message to the Congress arguing the case for MFN for
China, I told you I want to work with you.
:
Today, I would like to begin with a few points and then get
your views.
:
First, I firmly believe MFN is the strongest tool we have to
bring about long-term positive change in China. Ten years
of trade and openness set in motion the forces we saw in
those protests at Tiananmen.
--
We should not put this tremendous advantage at risk. We
should not give the hardliners in China an opportunity -- by
our placing conditions on MFN -- so that they can resist, so
that they can defeat their reformist rivals.
:
Second, our China policy is a package approach. When there
are opportunities to cooperate with China -- in the UN,
Korea, Cambodia -- we will do SO.
But when China transgresses, I will not kowtow, I will take
action. I have already done so on human rights, trade, and
proliferation.
You know we still have sanctions on OPIC, TDP, international
lending that is not for Basic Human Needs, all military
sales and high-level exchanges.
:
We have designated China a priority country under Special
301 for copyright pirating; we have lifted Chinese textile
visas in retaliation for illegal third-country transfers; we
will soon begin market access talks.
2
--
The Chinese have responded with a buying mission, and they
say more will follow.
-- Last week, we acted to press China to conform to
international standards on missile transfers. There will be
no new satellite licenses or high-speed computer transfers
to China until it meets those standards. There will be no
transfers of missile technology or equipment to Chinese
companies engaged in proliferation.
-- I am not sitting on my hands. I am prepared to do more when
circumstances require.
--
Third, we need to step back from the emotions of the moment
and calculate our long-term national interests.
--
We are the only nation in the world that would contemplate
removing or conditioning MFN. If we pull back, we isolate
ourselves, not China.
--
We may not like it, but China is a necessary part of the
solution to some important problems. It has a veto in the
UN Security Council.
--
The system that rules China today will not change
dramatically overnight. But that system cannot insulate
itself from inevitable change.
--
I believe the best course is to use economic involvement --
and all the human interchanges that go with it -- to
encourage long-term evolution in China.
--
Now I would like to hear your views.
3
-- There is a process in place to deal with China and MFN. I
am asking you today to look carefully at the big picture.
-- Please don't rush to a conclusion. Give us a chance to
address your concerns before you decide.
Dole- Godays
Mitchell- change basic low
KERRY vem much indecided
6 mos conditions
trying to find 2 usy to hong
No FAST TRACK
Persuaded on neqrtives to withdomal
hat on upside,
Bentsen
havent made up mind.
Not persisded on leverge ,ssves,
conc, access
tnde imbolance
COATS
human rights
may hone MFN + separate bills.
Pol, movement in Chinz
where we are,
BAUCUS Costals more reform minded
BROWN
Extend MIFN helps reform
provinces make their print,
undecided
intriqued by notion there are same
Keep going fisher in 301,
Conditions we might consider,
socan restricts
mush /stenl lending -
SEYMOUR
MAY have to 90 further.
give some signsh letter, N7 busness 25
SIMPSON
usn/
metw) Ambassador
agree w). Brucus,
GRASSLEY
enditions? N .
Extent to mich GB Siys tough thugs
Dbout Shinz,
LUGAR ScowenAl-P221 material goodstuff.
LIEBERMANN
All agree on policy
clein up human rights, want more
thde,
unreilistic Mitchell
15 there 2 ground to do both
MCCAIN concerned about Khner Rorge,
unacceptible
unconscimable Chinese not involved in peace process.
25 they should
THE WHITE HOUSE
WASHINGTON
JUNE 3, 1991
MEMORANDUM FOR VICE PRESIDENT QUAYLE
GOVERNOR SUNUNU
RICHARD DARMAN
MICHAEL BOSKIN
SERGEANT CASTLE
ALL COMMISSIONED OFFICERS
AD
THROUGH:
DAVID DEMAREST
BR
FROM:
BOBBIE KILBERG
SICHAN SIV
LEIGH ANN METZGER xam
Below is a current list of White House meetings scheduled by the
Office of Public Liaison for the week of June 3rd. If there are
any issues of importance you wish to raise with these groups,
please let us know.
JUNE 3, 1991
National Council of Jewish Women
10:00-11:30 a.m.; Indian Treaty Room
40 attendees
Project Officer: Kathy Jeavons
National Federation of Independent Business (POTUS)
1:00-1:30 p.m.; Hyatt Regency
800 attendees
Project Officer: Jeff Vogt
JUNE 4, 1991
Iowa Chamber of Commerce
5:00-6:00 p.m.; Indian Treaty Room
100 attendees
Project Officer: Molly Osborne
JUNE 5, 1991
Meeting with the Leadership of the Orthodox Union (POTUS)
of America
1:45 p.m.; Roosevelt Room
18 attendees
Project Officer: Kathy Jeavons
JUNE 7, 1991
U.S Business and Industrial Council
10:45-11:45 a.m.; Room 22
35 attendees
Project Officer: Molly Osborne
First Friday Group
11:30 a.m.-12:30 p.m.; Indian Treaty Room
40 attendees
Project Officer: Kathy Rust
Pakistani-American Briefing
2:30-4:40 p.m.; Room 450
220 attendees
Project Officer: Jim Schaefer
Prec
9 AP 05-28-91 07:38 EDT 92 Lines. Copyright 1991. All rights reserved.
PM-Congress-China, 2nd Ld-Writethru, a0459,800<
Democrats Will Fight Bush Plan TO Continue China Trade Status<
With PM-Bush Bjt<
EDS: Inserts 4th graf, "Mitchell, speaking XXX president's
policy'' with Mitchell comment on congressional support<
By DAVID BRISCOE=
Associated Press Writer=
WASHINGTON (AP) The Senate's leading Democrat says he'll fight
President Bush's plan to continue favored trade status for the
Chinese government.
Senate Majority Leader George Mitchell said the president was
ignoring China's human rights, trade and labor violations in
seeking unconditional renewal of China's most-favored-nation trade
status for another year.
Mitchell, D-Maine, also objected to Bush's claim it would not be
""moral" to punish Beijing.
"What is especially offensive
is that he seeks to clothe
what is an immoral policy in moral terms, Mitchell told reporters
Monday in Portland, Maine. ""I intend to make every effort to
reverse this mistaken policy.'
Mitchell, speaking today on NBC's "Today" show, said a "clear
majority'' in Congress opposes Bush's decision. But he added,
"Whether we've got two-thirds I don't know and we won't know until
the vote comes. Congress needs a two-thirds vote to reject the
president's policy.
Bush, announcing his decision Monday in a commencement speech at
Yale University, said his purpose was "to pursue a policy that has
the best chance of changing Chinese behavior.
TO censure China, cut ties and isolate it "is not moral, Bush
said. "We will not be able to advance our cause or resist
repression if we pull back and declare that China is simply too
impure a place for us.
Senior administration officials accompanying Bush said he also
was moving to retaliate against China for providing long-range
missiles to Pakistan by blocking sale to China of $30 million in
high-speed computers and barring satellite licenses. The officials
said the move would hinder China's satellite program.
Mitchell called Bush's sanctions "a joke. They aren't even a
slap on the wrist.
In Beijing, the Chinese Foreign Ministry said, "This is a
realistic and wise decision for which the Chinese government would
like to express its appreciation.'
White House officials said Bush would give Congress his proposal
for an unconditional extension of China's favored status later this
week. It would take effect if Congress does not pass a joint
resolution against it within 90 days. The House resumes sessions
Wednesday and the Senate next Tuesday.
2
Three bills are pending in Congress to either withdraw China's
status now or withdraw it in six months if Bush does not certify
that China is meeting human rights standards, trading fairly, not
using slave labor and not spreading the technology for nuclear,
chemical and biological weapons.
Most-favored-nation status is bestowed on nearly all major U.S.
trading partners. Bush said ""it is not special, it is not a favor.
It is the ordinary bases of trade worldwide.
The president said the United States was the first nation to
impose economic sanctions against China after the bloody crackdown
on the freedom movement at Tiananmen Square in June 1989 and "now
we are the last, alone among the Western democracies, to keep those
original sanctions in place.
A leading supporter of Bush's China policy, Sen. Richard Lugar,
R-Ind., agreed with Bush that good trade relations with China would
strengthen the chances for democracy and help Chinese citizens
trying to reform their economy.
"We must take care not to harm the most those who deserve it
least, Lugar said. "Those reform-minded entrepreneurs who are
struggling today to make a difference will be tomorrow's leaders of
democratic change.
The Footwear Distributors and Retailers of America cheered the
president's move. Its president, Peter T. Mangione, said it will
benefit American consumers "who now can purchase inexpensive
shoes, clothing, toys and other products from China.'
Rep. Nancy Pelosi, D-Calif., said the steps to block the Chinese
from providing missile technology to other countries would have
little impact on members of Congress who want conditions placed on
trade relations with China.
A restrictive China trade bill she has reintroduced this session
with 100 co-sponsors passed 338-30 in the House last year but
failed to come up in the Senate before adjournment.
Rep. Stephen Solarz, D-N.Y., chairman of the House Foreign
Affairs subcommittee on Asian and Pacific affairs, said Bush's
decision sends the wrong signal that we really do have a double
standards when it comes to human rights one for the Soviet Union,
Cuba,
Vietnam and another one for China.'
Bush's decision also brought criticism from a U.S.-based group
advocating Chinese reform.
"Bush continues to choose the wrong side of history, standing
with a dying generation of rulers who have lost the support of the
Chinese people, said Shen Tong, a Tiananmen Square leader and
chairman of the Democracy for China Fund. "The world must not let
the rulers in Beijing conclude that anything goes.
5-28-91
White House
faces battle on
Beijing's status
By Major Garrett
THE WASHINGTON TIMES
The White House will face hostil-
ity from conservatives and liberals
and skepticism from the center
when it asks Congress this week to
renew unconditionally the most-
favored-nation trading status with
China.
The renewed round of contro-
versy, triggered by President Bush's
announcement yesterday of inten-
tions to renew China's MFN status,
is expected because of previous bat-
tles over the communist nation's sta-
tus in the aftermath of bloody
crackdowns against pro-democracy
dissidents.
Many in Congress want to with-
hold MFN until China undertakes
significant human-rights reforms.
During a commencement speech
at Yale University yesterday, Mr.
Bush said any move to "isolate" or
"censure" China would be immoral.
Sen. George Mitchell
But Mr. Bush did impose some re-
strictions on China because of its ex-
port of missile technology.
mission in China in 1974-75, has ar'
The president's most outspoken
gued that China must be coaxed to-
ward reform. He has said access to
opponent on China, Senate Majority
Western commerce, ideas and cul-
Leader George Mitchell, led con-
gressional objections to the an-
ture inspire dissidents, thereby lay-
ing the groundwork for political lib-
nouncement.
"The president's decision is with-
eralization once Beijing's aging
rulers leave power.
out any moral or logical basis," Mr.
Mitchell said in a statement. "By
Congress has granted MFN status
granting unconditional most-fa-
to China, the country's 10th largest
vored-nation status again this year,
trading partner, every year since
there continues to be no incentive for
1980. But opposition to lax trade re-
the Chinese communist leadership
lations has grown since Beijing's
to change its policies."
murderous suppression of student
protests in Tiananmen Square in
Mr. Mitchell has introduced legis-
June 1989.
lation placing SO many conditions on
MFN for China that many observers
To many lawmakers, China's
believe it would effectively kill the
rogue image has been reinforced by
special trading status.
the show trials of the students ar-
rested after Tiananmen and wide-
Rep. Nancy Pelosi, California
spread reports of slave labor. Others
Democrat, said the steps to block the
protest China's trade surplus with
Chinese from providing missile
the United States, which last year
technology to other countries would
reached an estimated $11 billion.
have little impact on members of
Congress who want conditions
The president is expected to ar-
placed on trade relations with China.
gue that U.S. policy paid dividends
Rep. Stephen Solarz, New York
during the Persian Gulf war. China
Democrat and chairman of the
voted to "abstain" during U.N. Secu-
House Foreign Affairs subcommit-
rity Council deliberations over the
tee on Asian and Pacific affairs, said
resolution authorizing force against
Mr. Bush's decision "sends the
Iraq. A "no" vote would have robbed
wrong signal that we really do have
Mr. Bush of the U.N. approval to
a double standard when it comes to
prosecute the war and could have
human rights - one for the Soviet
undercut him at home.
Union, Cuba, Vietnam
and
an-
other one for China."
The White House gave China a
one-year MFN renewal last June.
A leading supporter of Mr. Bush's
The authority expires July 2. Con-
China policy, Sen. Richard Lugar, In-
gress will have 90 days to vote to
diana Republican, agreed with the
disapprove the MFN request. Mr.
president that good trade relations
Bush would veto any disapproval. A
with China would strengthen the
veto override would require two-
chances for democracy and help
thirds majorities in both chambers.
Chinese citizens trying to reform
their economy.
This article is based in part on
Mr. Bush, who headed the U.S.
wire service reports.
1995,98L
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18154 borb
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sne
2/12/15
THE WHITE HOUSE
WASHINGTON
MEETING WITH SELECT BIPARTISAN SENATORS
DATE:
June 19, 1991
LOCATION:
Cabinet Room
TIME:
3:00 p.m. (45 minutes)
FROM:
Frederick D. McClure 7m
I.
PURPOSE
To meet with key Senators to discuss the resolution to
grant China Most Favored Nation status.
II.
BACKGROUND
This meeting is a continuation of our bipartisan
consultations with Senators on the importance of
extending Most Favored Nation trade status to China.
Today's group includes Democratic Senators who are
potentially supportive because of their interest in
maintaining trade with China. The Republicans are
members of the Foreign Relations Committee; Commerce,
Science and Transportation Committee; and Finance
Committee, all of which have various interests in China
Most Favored Nation status.
III.
PARTICIPANTS
See Attachment A.
IV.
PRESS PLAN
White House Press Pool.
V.
SEQUENCE OF EVENTS
Members will be met in the West Lobby and escorted to
the Cabinet Room for the meeting with you.
Attachment A: Participants List
Attachment B: Talking Points (to be provided by NSC)
Attachment A
Participants List
The President
Richard Darman, Director, Office of Management and Budget
Carla Hills, United States Trade Representative
Lawrence Eagleburger, Deputy Secretary of State
Congressional Participation
Senator Robert Dole (R-KS), Republican Leader
Senator Brock Adams (D-WA)
Senator John Breaux (D-LA)
Senator John Chafee (R-RI)
Senator John Danforth (R-MO)
Senator David Durenberger (R-MN)
Senator James Exon (D-NE)
Senator Orrin Hatch (R-UT)
Senator J. Bennett Johnston (D-LA)
Senator Nancy Kassebaum (R-KS)
Senator Mitch McConnell (R-KY)
Senator Bob Packwood (R-OR)
Senator Charles Robb (D-VA)
Bavcis
Senator William Roth (R-DE)
White House Participation
John Sununu, Chief of Staff
Brent Scowcroft, Assistant to the President for National Security
Affairs
Andy Card, Assistant to the President and Deputy to the Chief of
Staff
Philip Brady, Assistant to the President and Staff Secretary
Dave Demarest, Assistant to the President for Communications
Marlin Fitzwater, Assistant to the President and Press Secretary
C. Boyden Gray, Counsel to the President
Ede Holiday, Assistant to the President and Secretary of the
Cabinet
Fred McClure, Assistant to the President for Legislative Affairs
Roger Porter, Assistant to the President for Economic and
Domestic Policy
James W. Dyer, Deputy Assistant to the President for Legislative
Affairs (Senate)
Steve Hart, Deputy Assistant to the President and Director of
Legislative Affairs
Virginia Lampley, Special Assistant to the President and Senior
Director of Legislative Affairs, National Security Council
Douglas Paal, Director, Asian Affairs, National Security Council
- 2 -
Others
Janet Mullins, Assistant Secretary of State for Legislative
Affairs
Bill Gribbin, Assistant to the Vice President for Legislative
Affairs
Mary Tinsley, Assistant United States Trade Representative for
Legislative Affairs
06/14/91
13:59
002
LLOYD SENTSEN, TEXAS CHAIRMAN
DANIE, PATRICK MOTHEMAN, NEW YORK
MAX BAUCUS, MONTANA
son FACKWOOD, OREGON
sos DOLE KAMEAS
DAVID L BOREN, OKLAHOMA
BILL BRADLEY. NEW JERSEY
WILLIAM V. ROTH, JR_ DELAWARE
GEORGE 1 MICHELL MAINE
JOHN C DANFORTH MISSOURI
DAVID PRYOR, ARKANSAS
JOHN M. CHARGE RHODE BLAND
DONALD W, RIBOLE JR MICHIGAN
JOHN HEINZ PENNSYLVANIA
JOHN a ROCKEFELLER IV. WEST VIRGINIA
DAVID DURENBERGER, MINNESOTA
TOM BASCHLE SOUTH DAKOTA
WILLIAM L ARMSTRONG COLORADO
United States Senate
STEVE SYMME IDAHO
JOHN BREAUX LOUISIANA
COMMITTEE ON FINANCE
VANDA a. MEMURITY. STAFF DIRECTOR AND CHIEF COUNSEL
WASHINGTON, DC 20510-6200
EDMUND & MIHALSKI, MINORITY CHIEF OF STARF
June 19, 1991
Dear Mr. President:
Congress will decide in the next few weeks whether to accept your
recommendation and extend most favored nation trade status to China.
We are writing to share our concerns.
Proposed
In the debate over the appropriate U.S. policy towards China, one
thing is clear: China's behavior must change The United States has
serious human rights and foreign policy concerns with China. Every
American remembers the vivid images of the Tiananmen massacre. In the
two years since Tianamen Square, evidence of democratic reform has
been scant at best. We also have learned of Chinese sales of advanced
missiles to Syria and Pakistan, and of nuclear technology sales to
Algeria. There are credible reports that China has forced political
prisoners to produce goods for export to the U.S.
The United States also has serious economic concerns with China.
The U.S. Trade Representative's annual report on foreign trade
barriers lists ten pages of Chinese barriers. China maintains
restrictions including a preclusive licensing system, discriminatory
testing and certification standards, and outright import bans. China
also fails to protect U.S. intellectual property, resulting in
enormous losses to U.S. producers of films, books, chemicals and
pharmaceuticals. Moreover, the Administration has allowed China to
dictate U.S. policy towards Taiwan, declining to support Taiwan's GATT
of the Kheer Rouge uncanbadin is counterpodents to us interests there.
application despite clear economic benefits to the U.S. China's Support
The United States cannot continue to tolerate Chinese
intransigence. We must tailor active responses to our wide ranging
concerns. But MFN is the wrong tool for the job. Revoking MFN would
not promote human rights in China. Instead, it would punish China's
most progressive regions and Hong Kong.
Revoking MFN also would hurt Americans. China is an important
market for U.S. goods ranging from wheat to airplanes. If MFN were
revoked, China almost certainly would retaliate against U.S. exports.
The Australians, Canadians, Europeans and Japanese are ready to fill
the void. No other country is contemplating cutting off China's MFN
status.
We believe the Administration must be more active in addressing
American concerns with China. You have taken meaningful steps in some
areas. You have moved to protect U.S. intellectual property under
provisions of the 1988 Trade Act. You also have taken steps to
restrict certain technology transfers to China in response to its
missile and nuclear sales. These steps are examples of the types of
actions the U.S. should take.
06/14/91 13:59
4 003
Page 2
June 19, 1991
We urge you to take appropriate actions in other areas. Human
rights is a foremost concern. Revoking MFN would be
counterproductive. But other steps can be taken. For example, the
U.S. could reinvigorate its opposition to multilateral loans for
China. The U.S. also could take strong action under U.S. law to
address China's unfair trade barriers and imports produced by prison
labor. In the area of nuclear and missile proliferation, the U.S.
could immediately negotiate for strict, multilateral technology
restrictions conditioned upon Chinese adherence to accepted
international standards. As for Taiwan, the U.S. could immediately
L
give strong support to Taiwan's GATT application.
These measures do not represent an exhaustive list. But it is
essential that the Administration take concrete steps. If Congress is
to extend China's MFN, we must see tangible evidence that the
Administration is taking action. We look forward to hearing your
to our concerns.
Bances
Dele
Bandech
ROLL
Johnsto-
Craig
Robb
Lugar
Kussebaum
06/14/91 13:58
001
Facsimile Transmission
Date: 6/14/91
Senator Richard G. Lugar
306 Hart Senate Office Building
Washington, D.C. 20510
202/224-4814
Total Number of Pages (including this sheet)
3
To: JIM D yer
From: Marry Monais
phone:
Please Note:
PLEASE ADVIS ME IN RE my
Boss SIGNING
May
Page 2
June 19, 1991
We urge you to take appropriate actions in other areas. Human
rights is a foremost concern. Revoking MFN would be
counterproductive. But other steps can be taken. For example, the
U.S. could reinvigorate its opposition to multilateral loans for
China. The U.S. also could take strong action under U.S. law to
address China's unfair trade barriers and imports produced by prison
labor. In the area of nuclear and missile proliferation, the U.S.
could immediately negotiate for strict, multilateral technology
restrictions conditioned upon Chinese adherence to accepted
international standards. As for Taiwan, the U.S. could immediately
give strong support to Taiwan's GATT application.
These measures do not represent an exhaustive list. But it is
essential that the Administration take concrete steps. If Congress is
to extend China's MFN, we must see tangible evidence that the
Administration is taking action. We look forward to hearing your
response to our concerns.
Sincerely,
Max Backus
Bue Ril
Nich Lugar
Air Brink
Richard Shelly
Bae Juey
Jack H. Muchardi
Orin
Sh McCain
Brucus letter:
tride trins for sinctius
Sect301 - self ,nit
ISA/JCS
Moviet Fruther - consultations w)
access
Wilfowt
Allies -
Bush Library Photocopy