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Some other obstacles to increased U.S.-China trade are evident from a speech delivered by Chou Hua-min, China's Vice Minister of Foreign Trade and Head of the Chinese delegation to the April meeting of the United Nations Conference on Trade and Development in Chile. Addressing the plenary meeting of that conference on April 20, Vice Minister Chou charged that "in international economic and trade relations, the United States has all along pursued a policy of expansion and plunder and of profiteering at the expense of other countries." It is instructive to note that this expression of Marxist views follows, not precedes, the hopeful expression of the Joint Communique, and demonstrates that whatever improvement in bilateral contracts between the U.S. and China occurs, will not be at the expense of the ideology of China.

This is not at all to say that the Chinese are uninterested in pursuing trade with the U.S. But it is important for us to keep in mind that the Chinese are very sensitive to the possibility of exploitation, and they are striving to be self-sufficient. In that same speech, the Vice Minister of Trade sounded a theme which I heard repeatedly during my visit, namely that “international trade should be based on equality and mutual benefit.” In view of the experience of China in matters of trade with the West, these are understandable concerns.

TRADE POSSIBILITIES

China's trade policy rests on three fundamental points: First, that trade should be conducted on the basis of the principles of equality and mutual benefit; Second, that its trade must complement its domestic objective of national selfsufficiency; Third, that trade should be kept in balance-export proceeds being used to purchase needed imports.

These points do not rule out trade with more developed nations. So long as China believes it can accelerate technological development by trade, for example, it will use foreign exchange gained in exports to purchase sophisticated technology. While it seeks a balance of trade, and can achieve such a balance by State planning, a trade imbalance with one nation will apparently not be unsatisfactory to the Chinese so long as the imbalance is made up elsewhere. This is, of course, one of two ways China can remain the cash customer it seeks to be and still purchase such expensive items as advanced aircraft. The only other way for China to have high-cost-high technology imports is to accept long-term credit-and I found no indication that the Chinese have significantly altered their vigorous resistance to debt financing;

In view of China's production objectives in industry and agriculture, there are a number of areas in which opportunities exist for U.S. exports of China. Obviously, these include the items in which China has already made its interest known by actual purchase, namely advanced aircraft and communications satellite technology. In addition, the U.S. has advanced the state of the art in other areas which coincide with China's plans for development. These include farm machinery and techniques; steel production; mineral oil and gas extractive methods; chemical fertilizer production; food processing technology; chemical production; computers; electronics; improved breeding stock; and so forth.

An important point for the U.S. to bear in mind as far as exports to China are concerned is that there are few items even in the category of advanced technology which China cannot obtain from any one of a number of sources: Japan, Germany, France, Britain and the Soviet Union. The U.S. must therefore be sufficiently competitive to gain Chinese business. On the other side of the ledger, China is of course, not without goods which have a market in the United States. These include a variety of foodstuffs, handicrafts, light manufactures, minerals and soft goods. It seems probable that in any expansion of trade, the U.S. will enjoy a favorable balance of trade with China; the high cost of advanced technology to the Chinese very likely cannot be financed with the proceeds from sale in the U.S. of the current range of Chinese exports.

RECOMMENDATIONS

As far as specific recommendations respecting trade are concerned, I believe the following deserve attention:

1. Commercial Commission.-On last May 26, during his visit to the Soviet Union, the President concluded an agreement establishing a U.S. USSR commercial commission whose_responsibilities include negotiation of such trade matters as reciprocal Most Favored Nation treatment, credits, business facilities for trade promotion, and so forth. I believe a similar commission with a similar

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function could be established to begin serious work toward improved U.S.China trade relations. Until we have more normal State relations with China, an effort of this sort could be undertaken in the same way that such an effort produced improved trade relations between China and Japan-namely utilizing some quasi-public body in each country to review and lay the basis for further accord in such matters as:

Most Favored Nation treatment; export licensing; end-use restrictions; commercial arbitration; shipping and port facilities; reciprocal trade fairs; patent protection; exchange of trade missions; extension of credit; and elimination of discriminatory import restrictions on Chinese goods.

2. Frozen Assets/Foreign Claims.- Negotiation on the matter of frozen Chinese assets and U.S. private claims should be pursued, if possible, through existing channels of communication between our country and China. A resolution of these problems can be an important step to improved commercial relations, and can be undertaken in the spirit of the language of the Joint Communique which calls for the facilitation of the development of trade. If existing channels are unsuitable or inappropriate for this purpose, a special negotiating team should be constituted to begin work.

BACKGROUND The future of U.S.-China Trade must be viewed in light of past trade relations between our countries. We should understand that the PRC has quite a different view of these relations from our own. We must therefore take into account the views from their side. It is the PRC view that the history of the trade relations between China and the United States for the century or more preceding World War II has not been a chronicle of mutual benefit and equality. Since early in the 19th Century, America viewed China as a nation in continuous turmoil, incapable of successfully coping with foreign affairs because of her domestic inadequacies. The United States, like other western powers, began over a hundred years ago to mold China policy to take advantage of a nation not capable of advancing it own interests. Great Britain, and later France, Germany, and Russia, expressed outright colonial ambitions for China's territory.

By the time that the United States emerged as a srrong potential trading partner in the 20th century, China's experience with a century of Western imperialism manifested itself in vigorous anti-foreignism. The tension and resentment produced by the general Western presence in China, therefore, has inevitably affected U.S.Chinese relations. While China has never represented a vital part of American trade, the United States in the past has viewed the Far East as a great potential market. The history of Sino-American trade relations, however, stands as basically unstable and weak, often resting as much upon mutual suspicion as upon genuine amity.

Its traditional view of trade immediately placed China at a disadvantage in its dealings with the West, for a policy that deemphasized business could not compete with the mercantilistic spirit of America and Europe. Traditionally, Chinese society rested upon agrarian economy engaged in crop production rather than in trade. The Confucian ethos exalted the gentry class and acknowledged the peasant as the back bone of society, but it relegated the merchant to inferior status. Chinese officials, regarding the business class as non-productive and parasitic, maintained a firm check on its wealth and power. Consequently, Chinese merchants sought investment in land and in the scholarly pursuits of the gentry rather than in trade. Furthermore, the traditional ethic stressed the notion of limited wealth; businessmen sought advancement by competing with each other for available resources instead of by developing new markets.

The imperial governments in China presented a formidable barrier to private enterprise because all large scale industry lay in imperial hands. Officials relied upon the manipulation of government monopolies to control the activities of the merchants. In all business ventures, the government demanded adherence to a policy of merchant management and government supervision that encouraged mperial profit while stifling private initiative. In such a system, social privilege verwhelmingly favored the gentry-bureaucracy. Chinese businessmen failed to reak away from their dependence upon officialdom to create an independent ndustrial and entrepreneurial power.

Finally, the traditional Chinese foreign policy offered no place to a vigorous rading partner. The tributary system stood as the model for imperial policy: China not only insisted upon recognition as the West's cultural and economic uperior, but also denied any need for foreign goods. The Chinese, then, were nequipped to handle aggressive Western traders who came to the East schooled in he traditions of mercantilism.

Through most of the 19th century, the imperial government tried to limit trade to a few coastal ports and restricted business activity to dealings with the special class of compradors and hong merchants. But this policy could not withstand the entrepreneurial onslaught of Western traders whose influence and power eventually reduced China to a subordinate position in trade relations.

This unhappy experience with Western traders has not been forgotten in China. Vice Trade Minister Chou at the UNCTAD Conference reminded the delegates that:

“For over a century, the imperialist powers . . . divided China into their spheres of influence, interfered in China's internal affairs, backed the reactionary authorities, subjected the Chinese people's revolutionary struggle to bloody suppression, engineered civil wars among warlords, controlled China's customs, shipping and insurance, manipulated China's financial and monetary affairs and extorted privileges of running mines and factories, building railways, inland navigation, etc. They flagrantly plundered China's resources, Reeced the Chinese people and seriously disrupted the national economy of old China. As a result, its rural areas were on the brink of bankruptcy and its industry of its own. Even major necessities like grain and cotton had to be imported in large quantities. Its entire foreign trade was in the hands of imperialists and their running dogs.'

American firms became involved in the external trade with China in the early 19th century, frequently associating with established British associations and participating in the lucrative tea and opium trade. Despite official American denunciation of the opium traffic because of the destructive effect of the drug upon the population of China, many private U.S. firms engaged in the trade.

From the mid 19th century until World War II, China also suffered in its dealings with the West under the burden of a series of unequal treaties. America eagerly participated in this program too; not to seek colonial gains, but to share in favorable commercial benefits.

America's first commercial treaty with China was conducted in 1844, Treaty of Wanghia, which granted to the United States concessions similar to those won by the British two years earlier in the Treaty of Nanking. The Treaty of Wanghia granted extraterritoriality to American citizens, limited Chinese tariffs on American goods to 5%, expanded trading rights to five ciastak ports, branded opium as an illegal article of trade, and guaranteed to the United States the "preferred nation” status that England had already gained. This clause automatically assured the United States of all commercial benefits awarded European nations in other treaties. These unequal treaties, wrung from a China weakened by imperial governments preoccupied with internal problems, shackled China economically. The Western powers eventually penetrated all Chinese trade barriers by establishing low duty rates and obtaining favorable concessions for their own goods while refusing to negotiate reciprocal rights for Chinese products. The West made such powerful inroads into the Ch'ing Dynasty's economic sphere that China could not withstand recurring pressures for treaty revision which progressively reduced her position of inferiority. In the Treaty of Tientsin in 1858, the Chinese allowed the United States direct audience with the Imperial court and some access to the interior of the country. Not surprisingly, perhaps, the American trade with China trebled during this period.

After the Civil War, however, the United States appeared to lose interest in her trade with China. By 1894, China constituted only 1.75% of the foreign trade of America, while in 1860, 3.15% of American foreign trade had belonged to China.

Despite a comparative lull in Sino-American commercial relations that prevailed until the end of the 19th century, the United States continued to take advantage of the concessions granted to other powers. In accord with the Most Favored Nation clause, the United States benefited from Japanese gains of the Treaty of Shimonoseki of 1895, which authorized the introduction of foreign machinery for manufacturing purposes and permitted foreign presence throughout the interior of the country. These new gains revitalized American business interest in China. However, unlike its European rivals, the United States sought commercial advancement solely through trade and investment. England, France, Germany, Russia and Japan, advocating outright colonization, fought to extend their territorial spheres-of-influence.

At the turn of the century, the United States used a period of growing instability in China to win further concessions for itself. The Treaty of Shanghai in 1903 expanded the Most Favored Nation privilege in extraterritoriality and inland transportation. The China Trade Act of 1922 sought to aid American firms in the Far East by offering them special tax exemptions and establishing a uniform code of laws under which business would operate.

America was slow in recognizing the inequities of the treaty system it had promulgated for almost a century. China did not receive tariff autonomy until 1929; the United States did not relinquish extraterritoriality until 1943. Even in treaties negotiated after World War II, particularly the Treaty of Friendship, Commerce, and Navigation of 1946, America maintained its special privileges without corresponding benefits accorded to the Chinese. This treaty called for the elimination of discriminatory trade practices, but only nominally extended equal rights to Chinese corporations in the United States. The unequal treaty system, then, prevailed even after its formal abolition. Although the United States exploited China to a lesser degree than did most of the other powers, American eagerness' to profit from an essentially prostrate China earned this Chinese resentment which has yet to be overcome.

Another important development in the late 19th century had an impact upon Sino-American trade relations. In the 1880's the United States passed the first in a series of exclusion acts designed to limit Chinese immigration into America. This move produced deep bitterness in China, climaxing in a boycott of American goods in 1905.

The development of the Open Door, the policy first enunciated in 1899 by John Hay that evolved into the dominant American policy for China until World War II, is another fundamental basis for Chinese suspicion of American motives. The original Open Door notes of 1899 sought solely to protect American trade interests from the fierce competition of the European and Japanese powers carving out spheres-of-influence in the Chinese interior; no mention of the defense of Chinese territorial integrity appeared until 1900. The Open Door ultimately incorporated the two main tenets of equal treatment of all foreigners in China and preservation of Chinese integrity. Yet these aims were not stated in legal form until 1922 in the 9-Power Treaty signed at the Washington Conference. After a century of exposure of persistent demands for special privileges, China naturally resented the reluctance of the West to respect her sovereignty. Furthermore, despite America's earnest espousing of Chinese “territorial and administrative integrity,” the United States did little concretely to defend this doctrine. Instead, America concentrated primarily upon the defense of its own business interests in China.

By the end of the 19th century, China represented the great challenge to the American spirit of enterprise. To the business community of the United States, China beckoned as the world's largest untapped market and therefore, America's most promising potential customer.

The Open Door policy, in fact, emerged as a response to American business pressure to pursue a more vigorous course of action in the Far East.

After the promulgation of the Open Door, the United States sought to exert influence through investments and loans. This policy, actively begun in 1950, received the nickname of “Dollar Diplomacy” during the administration of President Taft.

In this period, American firms managed to secure very favorable investments in development of mines and railroads in China, and to gain important stakes in Chinese government loans.

In announcing the Open Door, America had called for international support not only to guarantee free trade, but also to preserve China's territorial integrity. By the early 20th century, however, as China faced Japanese aggression, America consistently declined to fight for Chinese territorial integrity, thus indicating that the territorial integrity of China was a distinctly subordinate American concern, well behind U.S. commercial interest in China.

While America did oppose colonialism in China, and while the Open Door did reflect the American humanitarian ideal of "territorial and administrative integrity.”, the policy of the United States in practice served commercial ends almost exclusively.

The history of Chinese-American trade relations from the 1830's to 1949, then is one in which commercial dealings were developed against a backdrop of mutual suspicion; Chinese resentment of the general Western presence on its territory manifested itself in a violent anti-foreignism; America expressed its insensitivity to the Chinese in a series of humiliating exclusion laws.

It is a period in which a great policy dilemma underlay the actions of both countries: economic conditions forced China to turn to America for trade although the Chinese desperately sought to avoid a reliance on loans from the United States. It is a period in which a dichotomy existed between America's word and deed in its dealings with China. The nature of the economic relations between the two countries at any given time, of course, heavily depended upon each nation's

internal and international concerns. In short, a strong, coherent pattern of SinoAmerican trade relations never emerged in the period from the mid-19th century to the mid-20th century.

Given the history of U.S.-Sino trade relations, and given current Chinese policy regarding independence, self-reliance and mutual benefit, we can expect the Chinese to be extremely cautious about reopening the channels of trade with the U.S.

It is not surprising, therefore, to hear the Chinese Vice M ter of Foreign Trade reiterating his country's international economic and trade views as follows:

Countries, big or small, should be equal. Big nations should not bully smaller ones and strong nations should not bully weaker ones. All countries, regardless of their social system, should handle their relations with other countries in accordance with the Five Principles of mutual respect for territorial integrity and sovereignty, mutual non-agression, non-interference in each other's internal affairs, equality and mutual benefit, and peaceful coexistence. We maintain that all international economic and trade relations should be guided by the above-mentioned basic principles.

These are principles which fair-minded men can support, and I know the United States subscribes to them. Consequently, the long-term projects for SinoU.S. trade should be promising.

In conclusion, let me repeat my appreciation to you and the Committee staff for initiating the publication People's Republic of China: An Economic Assessment, and for convening the valuable hearings related to that document in June. Both the study and the hearings will be immensely valuable to scholars and others interested in the historic process of normalizing diplomatic and commercial relations with China. Sincerely yours,

HALE Boggs, M.C.

Majority Leader Chairman PROXMIRE. The committee stands adjourned.

(Whereupon, at 11:40 a.m., the committee was adjourned, to reconvene subject to the call of the Chair.)

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