changes with the People's Republic. I think our situation may be a little different from that of the other two committees. That exception was a delegation which came to this country in September from the China Council for Promotion of International Trade. The Chinese regarded this as a delegation which came with the agreement of the two governments. Our Government had no record of any such specific agreement being reached but we were prepared to accept the Chinese view. The other delegations that have come here this year, came entirely in response to invitations submitted directly by the National Council to one or more of the State Trading Corporations. The other possible exception would involve a future return trip by a National Council delegation this coming year. The Chinese told us that a visit by a National Council delegation would require government approval from both sides. With the exception of our organization, the National Council, and the China Council for Promotion of International Trade, the other trade exchanges have been nongovernmental in their initiation. It is interesting to hypothesize why that is the case. It is also interesting that no industry trade delegations from China came before 1975. Whether that is coincidence or not, I don't know, but I note that the very first Chinese industry delegation arrived within a month after the People's Congress was held last January. At that time Chou Enlai emphasized very strongly China's determination to become a major industrial power. Whether a decision may have been made at that time to move ahead with U.S.-PRC trade exchanges, I don't know. TRADING PARTNERS Regarding China's major trading partners in 1974, I would like to read the list to you. Mr. HAMILTON. Give me the top five. Mr. PHILLIPS. Japan, the United States, Hong Kong, West Germany, Canada, Malaysia, and Singapore. Mr. HAMILTON. Hong Kong recognizes the People's Republic diplomatically? Mr. PHILLIPS. No. Hong Kong is in an anomolous position because it is a British crown colony. The Chinese regard it as an integral part of the People's Republic of China. Mr. HAMILTON. Do these nations also trade with Taiwan? Mr. PHILLIPS. Yes. I would say that all of those-I am not sure about Malaysia and Singapore. Mr. MURRAY. There is some. Mr. HAMILTON. And the People's Republic doesn't object to that? Mr. PHILLIPS. No. SINO-SOVIET TRADE Mr. HAMILTON. Does the People's Republic today engage in trade with the Soviet Union? How far down the list are they? Mr. PHILLIPS. They are down near the bottom, Mr. Chairman. It is No. 11 out of 12. In 1974 its total two-way trade was something around $200 million in contrast to our approximately $1 billion. UNRESOLVED QUESTIONS Mr. HAMILTON. Do you believe that the assets/claims question is a very serious obstacle to the increasing of our trade with the People's Republic? Mr. PHILLIPS. I would characterize it as a serious impediment because it is the failure to resolve this problem that does prevent a number of things from happening, which in my opinion could expand trade considerably. I mentioned already the question of direct shipping links, the question of banking. Mr. HAMILTON. What can we do to resolve that? Mr. PHILLIPS. That is a very difficult question to answer because I think frankly that the ball is in the Chinese court at this point. I think that the United States has made proposals but the Chinese have not indicated a serious desire to resolve the problem. I judge that to have something to do with perhaps the Chinese wish to resolve this particular problem in the context of a package proposal involving some other issues, perhaps nondiscriminatory tariff. Mr. MURRAY. This is further complicated by the fact that the Chinese insist the ball is in our court. ASSETS/CLAIMS AND RECOGNITION Mr. HAMILTON. Can we separate this question from the question of assets/claims and the question of diplomatic recognition? Will the Chinese deal with it separately from normalization? Mr. PHILLIPS. I think it is possible to resolve the frozen assets issue. Mr. HAMILTON. Why do you say that? Do you base that on specific conversations or just general feeling? Mr. PHILLIPS. Not on the basis of specific conversations, only the assessment of what the mutual interests are here. The Chinese clearly would benefit by the establishment of direct air links with this country, to have major industrial exhibitions in this country, which they clearly would like to do. I think it is probably as much in their interest as in ours. I don't know of anything that would suggest-perhaps my colleagues know differently-that this would be dependent upon diplomatic relations. Mr. MURRAY. I believe legally it is a separate issue and could be resolved separately. But for some reasons and they are not indicating what those reasons are the Chinese seem to be holding back on the issue, possibly for further leverage on diplomatic relations, seeing it as something that the U. S. side wants. But until they are prepared to separate it, there is not much the United States can do to separate it. UNITED STATES-TAIWAN ECONOMIC TIES Mr. HAMILTON. As our economic relationships with the People's Republic improve does that mean that our economic relations with Taiwan will decline? Mr. PHILLIPS. Economic relations? Mr. HAMILTON. Yes. Mr. PHILLIPS. No; I don't think that necessarily holds true at all. I think conversely one could say that a country such as Japan, which has established formal diplomatic relations, has continued to trade with Taiwan. I don't think there is any necessary contradiction between the two. SELF-RELIANCE OR LONG-TERM DEBT? Mr. HAMILTON. One of the concepts the Chinese have stressed in their trading is the concept of self-reliance. Are there any signs that the People's Republic might be willing to incur long-term debt in order to finance national development? Mr. PHILLIPS. I would say that as one looks down the road the Chinese probably will become less adamant against longer-term financing. They are already showing signs of modifying their rather strong ideological opposition to any kind of debt. They do currently permit what are called suppliers credits. I think there are some signs that through their banking relationships, accepting deposits from a number of major banks in the world, they are in fact accepting medium-term financing. My guess is that as their needs increase they are going to find ways around this ideological position. It will be a long time before they accept any government-to-government financing. I know they feel badly burned by the Soviet Union. I suspect that in due course they will find ways of modifying their present policy. NORMALIZATION TIMETABLE Mr. HAMILTON. A witness before this subcommittee testified that we should commit ourselves to complete normalization of relations with the People's Republic within the next 2 years. Do you all agree with that or disagree with it? Mr. PHILLIPS. I would hesitate to set a specific target date though I think it should be as soon as possible. I think it depends very much on the means by which that objective can be achieved. I don't think the United States should negotiate without regard to any other considerations. There have to be negotiations involving some give on both sides. Ms. KEATLEY. Setting a time frame for establishing formal ties implies that we have some idea what the answers are to some difficult legal and other problems. I would hesitate to set a time. Mr. MURRAY. I am more inclined to say that we should follow that model. The Chinese, I think, are well aware that it is unlikely President Ford is going to move on Taiwan in an election year, that nothing is likely to happen until after the next election. TIES WITH TAIWAN But normalizing relations, whatever the formula, necessarily involves removing our diplomatic recognition from Taiwan. That is the tough one. I don't think there is any prospect of fully normalizing with Peking until that particular nut is cracked. There are many ways, many conditions, that could be elements of the final formula. But to say that we ought to make every effort to do that within 2 years is, I think, a wise policy. We are in great danger of losing ground the longer we wait. I do not think Peking is going to sit indefinitely and wait pa tiently. There presumably are forces at work within China that seriously question the U.S. connection. It seems to me that the United States-China connection is terribly important to the United States, and that unless we make every effort to move in that direction quickly, we are in danger of losing the relationship altogether. CHINESE RAW MATERIALS Mr. HAMILTON. Ambassador Phillips, do you see any raw materials that are of special importance to the United States that we could expect to get from China in the near future? Mr. PHILLIPS. We have been buying increasing quantities of tin. Tungsten is another. Of course oil, potentially, is going to be a very important part of China's export earnings. However, I doubt that oil is going to become a major factor in U.S. imports for quite some time. Mr. HAMILTON. Why do you say it won't become a major factor? What is the status of their oil? Is it proven reserves of what? Mr. PHILLIPS. It is an educated guess. We do not know about proven reserves. But the best educated guesses from many sources indicate that China is a major oil power in terms of what it has in the ground and offshore. It is obviously placing a very high priority on the development of those resources. They have begun to export oil and they will continue to do so in increasing amounts. Mr. HAMILTON. We have another vote. I think I have run through most of the questions that I wanted to ask. I want to express my appreciation to each of you for your excellent testimony. The subcommittee stands adjourned. [Whereupon, at 3:55 p.m. the subcommittee adjourned, to reconvene at the call of the Chair.] UNITED STATES-CHINA RELATIONS: THE PROCESS OF NORMALIZATION OF RELATIONS WEDNESDAY, DECEMBER 17, 1975 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERNATIONAL RELATIONS, The subcommittee met at 2 p.m. in room H-236, the Capitol, Hon. Lee H. Hamilton (chairman of the subcommittee) presiding. Mr. HAMILTON. The meeting of the subcommittee will come to order. The Subcommittee on Investigations continues today its hearings on United States-People's Republic of China relations. We will be interested today in reviewing with executive branch witnesses both current problems and prospects for our relations with China and an assessment of President Ford's recent trip to Peking. Since the 1972 Shanghai Communique, our bilateral relations with China have developed in some cultural and economic areas, but little progress has occurred on key political issues of mutual concern to the two countries. We would like to review what progress has taken place since 1972 with the intent of surveying what developments might likely occur over the coming months as the United States moves toward a Presidential election. We are fortunate to have with us Assistant Secretary of State of East Asian and Pacific Affairs, Philip C. Habib. Mr. Habib has recently returned from a trip to China and other states in Asia. We are happy to have you with us, Mr. Habib. You have a statement. Perhaps you would like to make some brief remarks before questions by members. STATEMENT OF HON. PHILIP C. HABIB, ASSISTANT SECRETARY OF STATE FOR EAST ASIAN AND PACIFIC AFFAIRS Mr. HABIB. Thank you, Mr. Chairman. We have submitted the statement to the subcommittee in advance. If you wish, we could go straight to questions, or, if you prefer, I will read it into the record. Mr. HAMILTON. We are prepared to begin with questions if you are, Mr. Habib, unless you want to highlight your statement in some respect. Mr. HABIB. I would highlight it in a rather simple manner by stating quite clearly that with respect to the President's visit to China we can draw the fair conclusion at the end of that visit that our relations with China, with the People's Republic of China, are good and they will be improved gradually. 68-793-76- -8 (105) |