Following is the text of Davidson's prepared statement:

STATEMENT BY GENERAL COUNSEL DAVIDSON
TO U.S.-CHINA SECURITY REVIEW COMMISSION

August 2, 2001

I am pleased to appear before the U.S.-China Security Review Commission today to discuss the Administration's perspectives on the United States' trade relationship with the People's Republic of China and, particularly, its imminent accession to the WTO.

Market Access

China's accession to WTO will be a major and direct step forward in ensuring significantly greater market access for U.S. businesses and farmers to China's large and expanding market. The groundwork for this achievement was laid by the United States in November of 1999, when the United States concluded a bilateral agreement with China on the terms of China's accession to the WTO, capping nearly fourteen years of intense, often difficult negotiations.

The U.S.-China bilateral agreement provided us with a set of comprehensive, verifiable, one-way trade concessions that substantially open China's market across the spectrum to U.S. goods, services and agriculture. By now, this Commission is familiar with the terms of our bilateral agreement, and there is no need to review them all in detail today. The major market access concessions under the agreement are as follows:

-- China will reduce average tariff levels on goods of interest to the United States from 24% to 7%;

-- China will phase-out all tariffs on Information Technology Products by 2005;

-- China will broadly open up its services sectors, such as insurance, banking, securities, telecommunications, express mail, legal, accounting and computer-related services; and

-- China will permit U.S. companies to operate wholesale, retail, and franchised distribution networks.

The 1999 U.S.-China bilateral agreement, critical though it was, did not mark the end of China's WTO accession process. Still to be completed was the negotiation of the multilateral documents essential to the accession package -- China's Protocol of Accession and the Report of the Working Party on China, These two documents describe how WTO rules will apply to China and how China intends to implement the commitments it is undertaking in the areas of goods, services and intellectual property rights. It is principally the finalization of these documents that has occupied us since 1999.

As it now stands, we have been able to achieve international consensus on Working Party Report provisions on numerous additional issues crucial to ensuring market access with China -- including, inter alia, technical barriers to trade (or standards), administration of tariff-rate quotas, intellectual property rights and agricultural and industrial subsidies.

All of these market access concessions supplement more broad-based reforms to which China has also committed, in an effort to address practices that have not only made it difficult for U.S. companies to do business in China but have also hindered the development of China's own economy. For example, China has agreed to commitments to greater transparency in the operation of its trade regime. Laws, regulations and other measures will be published before they are enforced and interested parties will have an opportunity to comment on these provisions before they are implemented. Administrative actions relating to trade matters will be subject to judicial review, and China has agreed that the practices of all levels of government will comply with WTO requirements.

Protection Against Chinese Imports

Now, let me turn to the area of trade remedies and, specifically, the provisions in China's WTO accession package that strengthen the ability of the United States to safeguard itself against unfairly traded imports from China once China becomes a Member of the WTO. Here, as part of our 1999 bilateral agreement with China, we were able to negotiate three separate mechanisms. Last month in Geneva, all aspects of these mechanisms were multilateralized and have now been made part of China's accession package.

Perhaps the most important of these mechanisms involves the antidumping laws. These are the laws that we use the most frequently to protect U.S. industry and workers against low-priced, injurious imports from China. Historically, in antidumping cases involving Chinese products, we have used a special methodology -- known as the "non-market economy," or NME, methodology -- to make the key measurement when calculating the amount of dumping that is taking place. Although this methodology has long been apart of U.S. law, it is not expressly incorporated in the WTO rules. We achieved a significant concession when we were able to gain China's agreement that we (and other WTO Members) could continue to use this methodology for 15 years after China's accession to the WTO.

Another significant concession that we obtained is the creation of a special safeguard mechanism protecting U.S. industry and workers against import surges from China. This mechanism, known as the "product-specific" safeguard, will be available to the United States (and other WTO Members) for 12 years after China's accession. It is distinctive because it goes beyond the normal safeguard mechanism authorized by WTO rules in two important ways. First, it employs a relatively lenient injury standard known as "market disruption" (rather than the normal standard of "serious injury"). Second, it is China-specific, meaning that it allows us to apply safeguard measures that are targeted solely at Chinese products (rather than at imports from all countries).

The third mechanism is a safeguard that applies to textile products. This mechanism will be available to the United States and other WTO Members for approximately 7 years after China's accession, or until the end of 2008. Like the new product-specific safeguard, this textile safeguard employs a market disruption injury standard, and it is China-specific.

Before I move on, let me make one more point that underscores the level of protection that we have put in place for U.S. industry and workers. The terms of China's accession to the WTO are directed at the opening of China's market to U.S. industry, not the opening of the U.S. market. China already has wide access to the U.S. market, and it has had it for years. So, accession will not increase the penetration of Chinese products in the U.S. market. Nevertheless, we have still negotiated the mechanisms described above in order to ensure protection against any injury that U.S. industry and workers might suffer following China's accession to the WTO, and the Administration is committed to invoking and applying those mechanisms whenever necessary.

The Bigger Picture

I now want to step back for a minute and let you see the bigger picture:

-- First, the agreement on China's accession, as I have mentioned, will reduce China's trade barriers across a broad range of goods and services, eliminate or significantly reduce restrictions on freedom to import and distribute goods within China, and rectify industrial policies intended to draw jobs and technology to China.

-- Second, China's commitments are effective immediately upon accession. China will be required to, take concrete steps to open its market from day one in virtually every sector. The phase-in of further concessions will be limited to five years in almost all cases, and in many cases to three years.

-- Third, the agreement is enforceable. China's commitments are specific, with timetables and dates for staged and full implementation. We will enforce them through our trade laws, WTO dispute settlement processes, as necessary, and other mechanisms including an annual multilateral review of China's implementation and compliance for eight years, with an additional review in the tenth year. We intend to set up a network to help us identify and act upon problems as early as possible, drawing on the assets of our Embassy and Consulates in China, the Departments of Commerce and Agriculture, and the American Chambers of Commerce in China and the region. At USTR, we have also added personnel who will focus on monitoring and implementation efforts.

-- Fourth, as I have already discussed, the agreement helps ensure, through a variety of mechanisms, that trade with China does not injure U.S. industry and workers.

-- Fifth, the increased transparency and accountability that WTO Membership and implementation of WTO rules compel can only have a positive effect in other areas. The essence of the WTO is that it is a rules based system that requires its members in turn to play by the rules and to operate with openness and transparency, both when making their laws and regulations and when enforcing them. WTO provisions and philosophy also stress the central role of markets and private enterprise. The reforms China is undertaking to enter the WTO and comply with its new WTO commitments will provide the basis for further liberalization in China, including an increased commitment to the rule of law.

Remaining Steps

Now, let me turn to what remains to be done before China can formally accede to the WTO.

At this point, China has completed the negotiation of all of its bilateral agreements, with the principal exception of Mexico, which is currently engaged in intensive bilateral negotiations with China. Along with our other trading partners, we are in the process of verifying and rectifying each of the commitments China has made in its various bilateral agreements to ensure the most liberalizing one is reflected in the final accession documents.

On the multilateral side, last month we were able to produce a completed Protocol of Accession and a Working Party Report with only one or two unresolved issues.

In mid-September, what we hope will be the final Working Party session will convene to approve final texts of these documents. If we are successful, this package will then be sent to capitals for review.

The full accession package will be reviewed by Ambassador Zoellick and other concerned agencies of the U.S. Government. After that review, the President will decide whether he can certify to the Congress, as required in the PNTR legislation, that the final package is at least equivalent to the bilateral agreement negotiated in 1999. We believe that the final package will meet that standard. If the President is able to provide such a certification and other countries provide their approvals, WTO members, at a meeting of the General Council, possibly at the WTO Ministerial meeting in Doha in mid-November, would then approve the terms of China's accession to the WTO.

China will then need to complete its domestic approval process and formally accept WTO membership. China will become a WTO member thirty days after filing its formal acceptance with the WTO.

One final point is that we fully expect the WTO to approve Taiwan's accession in the same time frame as China's accession. As a major player in international trade and a new and thriving democracy, Taiwan deserves membership and a larger role in the international community. We have discussed our expectations on Taiwan's accession thoroughly with all concerned parties, and we are confident that there is a consensus on this point.

Conclusion

Let me conclude by saying that China's accession to WTO will be a benefit to China, of course. But, it is not a favor to China. Indeed, it contains the most rigorous and broad-ranging commitments ever required of a new member to the GATT or WTO. Major beneficiaries will be American businesses and farmers and their workers. Accession will significantly open the world's most populous country, and arguably the fastest-growing economy in the world, to our exporters and service suppliers, without changing China's access to our own market.

I look forward to your questions.