effective, private organization for developing scholarly exchanges. The CSCPRC subsequently evolved into the leading American organization with such responsibilities.

Mr. HAMILTON. Thank you, Ms. Keatley.

Mr. Phillips.

STATEMENT OF HON. CHRISTOPHER H. PHILLIPS, PRESIDENT, THE NATIONAL COUNCIL FOR UNITED STATES-CHINA TRADE

NATIONAL COUNCIL FOR U.S.-CHINA TRADE

Mr. PHILLIPS. Thank you, Mr. Chairman, gentlemen.

I am very happy to appear before you today on behalf of the organization I head, the National Council for United States-China Trade. This organization was formed in May 1973 as a private nonprofit organization funded entirely by membership dues. Its purpose is to promote and facilitate United States-Sino trade. We have a membership, currently, of some 300 private firms, large and small, importers and exporters. You will find a list of those firms as an appendix to the formal statement I have submitted to the committee.1

We cooperate with the Chinese Council for the Promotion of International Trade, hereafter referred to as the "CCPIT." This organization considers itself nongovernmental. The Chinese describe it as a "people-to-people" organization. We work with this organization, with the foreign trade organizations of China which are State trading monopolies, and we work closely with the Chinese Liaison Office here in Washington.

Since I have little time to summarize a very lengthy statement I would like to turn immediately to a quick review of where we stand in our trade relations with the PRC. I would not want you to have the impression, however, that the National Council is not also involved in exchanges. I will be happy to respond to questions about those exchanges later in our hearing.

TRADE WITH CHINA

Let me say a few words about what has happened in our trade with China since that trade was renewed in 1971. It was in June 1971 that legal barriers to trade with the PRC were lifted. Since then there has been an impressive rise in trade between the two countries, from just under $5 million in 1971 to about $935 million last year. We estimate accumulated trade with the People's Republic of China at something like $2.2 billion by the end of this year.

One must look at these figures with some perspective. In the first place this trade has been lopsided in our favor, almost 8 to 1 in our favor last year. Some 80 percent of our exports to China until recently have been in the form of agricultural commodities; cotton, wheat, corn, soybeans, et cetera.

TWO-WAY TRADE

In 1975 there has been a sharp change in both the composition and the volume of our trade with China. With the exception of about $77 million of cotton which we have sold to China, the Chinese this year have discontinued all agricultural purchases from the United States. See appendix 6, p. 226.

By that action they have reduced their trade imbalance with us by approximately 8 to 1, to what we estimate to be 2 to 1 this year.

This has brought total two-way trade in 1975 down to about $450 million. That is almost a 50-percent reduction. In sharp contrast to previous years when agricultural goods predominated, about 60 percent of our exports to China this year will comprise manufactured goods and technology. That compares with only 3 percent for such exports in 1972. This year's increase in the export of manufactured goods is not only a percentage increase due to the end of grain sales but it is also reflected in the increased dollar value of such sales, from about $130 million in 1974 to an estimated $150 million this year.

U.S. EXPORTS

It is in this area of manufactured goods, plant machinery, equipment where I believe the most significant long-term expansion of our exports to China is going to take place. I don't mean to say by that that China will no longer be in our market for agricultural commodities. They will undoubtedly turn to us whenever their needs exceed what they can obtain from their regular suppliers, their regular suppliers being principally Canada, Australia, Argentina.

But over the longer term, manufactured goods and technology will in all probability become the most significant element of our sales to China. That very briefly is where we are on the export side.

U.S. IMPORTS

What about imports? What has been happening there since we began our trade? As I have already noted, imports have lagged far behind our exports to the PRC. The Chinese have made clear their unhappiness with the size of their trade imbalance with us.

Beginning in 1971, Chinese sales to the United States totaled just under $5 million. In 1972 they rose to a little over $32 million. In 1973, $64 million. 1974, $115 million. For this year we estimate U.S. imports of Chinese goods will amount to between $140 and $150 million.

The composition of our imports from China has been fairly steady. This year tin represented over 28 percent. Other categories have included rather traditional imports from China; materials of animal origin, principally bristles, raw silk, cotton fabrics, works of art, essential oils, shrimp, prawn, cigarette leaf, to mention a few. In general the number of imports is far in excess of the number of exports. Last year for example there were 236 categories representing exports to China in contrast to 951 categories of imports from China, many of course in very small quantities.

Just a word or two about some of the problems that remain to be resolved. Despite this promising beginning in United States-China trade there do remain several outstanding issues between the United States and China which until they are resolved will inhibit to some extent the further growth of our trade.

CLAIMS ASSETS

One of these issues concerns the so-called claims assets problem. In 1950 during the Korean war the United States blocked some

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$77 million of Chinese assets in this country, primarily bank deposits and dollar securities. Peking in turn seized certain U.S. private property in China that are estimated to be worth some $197 million.

Those private American claims are registered under the International Claims Settlement Act of 1949. Until those claims are resolved anything that China legally owns that comes to be within U.S. territorial jurisdiction is subject to potential attachment and therefore it is impossible to have direct scheduled flagship maritime service between the United States and China or for that matter to have direct flight services between the two countries. For the same reason it is not possible to have direct banking links, which now of course have to be handled entirely through third-country banks. The holding of trade exhibitions is similarly precluded because of the threat of attachment which would exist with respect to Chinese property exhibited in this country.

That is of particular interest to the National Council because we have an agreement between ourselves and this organization I referred to, the CCPIT, that our two organizations will be the contact points for arranging major trade exhibitions in our respective countries.

MOST FAVORED NATION

Another issue to be resolved concerns a bilateral trade agreement between our two countries. Closely related to this matter is that of nondiscriminatory tariff treatment for China, or what is known as most-favored-nation tariff status. At the present time American importers pay duties on Chinese products four or five times higher than they do on similar products from countries with which we have mostfavored-nation agreements.

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There is no doubt that the Chinese resent this discrimination, as much for political and psychological reasons as for economic reasons. From the point of view of our own interests I think it makes very little sense to discriminate against Chinese imports when we have enjoyed such a consistently favorable balance of trade with the People's Republic.

THE 1974 TRADE ACT

Under the terms of the Trade Act of 1974 it is only possible to negotiate MFN status with China as part of a bilateral trade agreement. Technically speaking the Trade Act does not require settlement of the claims issue before trade negotiations start. But the U.S. Government appears to take the position that we will not enter into negotiations until after there has been a resolution of the claims issue.

Assuming a satisfactory disposal of the claims assets problem, the provisions of the Trade Act of 1974 would impose, I think, some very major obstacles to the negotiation of a bilateral trade agreement with China, the most difficult of course being the requirement of free emigration practices by China, the so-called Jackson amendment.

BILATERAL TRADE AGREEMENT

Furthermore if past experience is any guide it is very unlikely that the PRC will enter into negotiations for a trade agreement with us until after we have established diplomatic relations. Of course a for

mal bilateral trade agreement would be welcomed by all firms involved in trade with China, whether they are exporters or importers. In addition to providing a basis for negotiating MFN treatment it would provide for patent and trademark protection, arrangements for settling disputes, safeguard clauses, and various trade promotion activities. Briefly, those are some of the outstanding problems.

PROSPECTS FOR TRADE

Just a quick glimpse now at the future prospects. After a very, expansive period during which trade with the PRC rose to almost $1 billion 3 years after it began, we can expect, I think, to see trade settle down to a somewhat more balanced, stable growth period in which technology, machinery, plant, and equipment will become major elements of our exports.

However I think it would be unrealistic to pretend that the lack of diplomatic relations will not have an inhibiting effect on the growth of United States-China trade. There is no doubt that for the Chinese the development of trade with the United States is judged not only for its economic benefits but also as an integral part of the process of normalizing relations between our two countries.

POLITICAL PROGRESS

Hints are being dropped with greater frequency that further expansion of trade will depend on progress on the political front. I don't mean to suggest by this that all decisions on trade matters are simply a reflection of political policies. That would be an exaggeration. The Chinese can be very practical and very pragmatic when it comes to buying something they really want. If they want to buy a 707 jet they go to Seattle. If they want some of the highest technology in off-shore drilling they go to Houston. But when satisfactory alternatives available decisions are frequently influenced by political considerations.

So assuming a resolution of our political differences with China during the next few years, and I think it is very important that we make determined efforts to do so, United States-China trade will undoubtedly pick up momentum. But I think we will delude ourselves if we think that a policy of standpatism in our political relations with the PRC will lead to anything but stagnation.

ECONOMIC GROWTH

China has set for herself an ambitious target for economic growth between now and the end of the century. At the Fourth National People's Congress last January Premier Chou En-lai spoke about the Chinese economy advancing in the front ranks of the world by the end of the century. He spelled out specific targets and stages to achieve that goal. The realization of that goal I think is bound to increase. Chinese needs for foreign plant, machinery, and technology, despite the continued emphasis on self-reliance.

And China's capacity to earn foreign exchange to pay for this expensive equipment will be greatly enhanced by the increasing sale of Chinese oil. This year she will sell some 8 million tons-that is 56 million barrels to Japan. The amounts exported have been increasing

substantially each year for the past 3 years. There is little doubt that in the not-too-distant future China will become a major producer of

oil.

PROJECTED TRADE

Although foreign trade today still represents only 6 or 7 percent of her GNP, China's foreign trade has been growing in recent years at a very rapid rate, some 25 percent a year. We estimate that at this rate by 1985 it could attain a level of close to $50 billion in contrast to this year's estimated figure of $15 billion. By that time China's GNP will probably rank among the world's top five and I think it will be an industrial nation of major consequence.

Clearly this poses opportunities and challenges for many segments of American industry. China will increasingly be in the market for a wide range of plant machinery, equipment and technology, in which American firms excel.

STEP BY STEP

I expect that our trade relations with China will continue to develop on what the Chinese like to call a "step-by-step basis." To a considerable extent they will grow in tandem with the development of our political relations with China.

Events are not likely to move with breathtaking speed; nor for that matter will there be an uninterrupted increase in all areas of our trade with China. But over the longer term, and assuming a resolution of the various problems I have referred to, the prospects for trade between our two countries can, I think, be characterized as very bright indeed. Thank you.

[The prepared statement of Ambassador Phillips follows:]

PREPARED STATEMENT OF HON. CHRISTOPHER H. PHILLIPS, PRESIDENT, THE NATIONAL COUNCIL FOR UNITED STATES-CHINA TRADE

Mr. Chairman, it is an honor to have this opportunity today to present to you and the members of the Subcommittee on Investigations the perspective of the National Council for United States-China Trade on the past, present and future status of trade and trade relations between the United States and the People's Republic of China. The National Council, of which I am President, was formed on May 31, 1973, as a private, non-profit organization funded by membership dues, whose purpose is to promote and facilitate Sino-U.S. trade in all ways possible. Our membership has advanced rapidly to include over three hundred companies, large and small, importers as well as exporters, indicating the growing and serious interest of American firms in doing business with the People's Republic of China (PRC). A list of these members is given in Appendix No. 1 to this statement.' We are not in any way a representative of or spokesman for the People's Republic of China or any of its agencies.

I would like to describe the development of Sino-U.S. trade during the past few years, in dollar terms and in terms of the considerable day-to-day practical progress that has been made. I will discuss some of the legal and practical problems that exist relating to the further expansion of bilateral trade. I will conclude with a discussion of the prospects and problems we see ahead in the development of U.S. trade with the People's Republic, the role of the National Council in that trade, and a statement of opinion concerning the future of trade within the context of U.S.-PRC political relations.

THE DEVELOPMENT OF SINO-U.S. TRADE TO DATE

While American trade with China has been going on almost since the founding of the United States, I would like to concentrate my attention today strictly on its development in the past few years since the embargo on direct trade with the People's Republic was lifted.

1 See Appendix 6, p. 226.