U.S. and Hong Kong (1985-1997)

ALAN LARSON 6/5 SPEECH ON U.S.-CHINA RELATIONS

Following is the official text of Larson's remarks:

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Remarks before U.S.-China Business Council
Assistant Secretary of State Alan P. Larson
Thursday, June 5, 1997

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It is against this backdrop that the debate in Congress over MFN renewal and scrutiny of China's efforts to accede to the WTO are taking place. Indeed, some view the MFN debate as a referendum on our policy of engagement. Some have even attempted to cast it as a referendum on China's current policies. This year, the issue is further complicated by the reversion of Hong Kong to Chinese rule on July 1 and allegations of Chinese involvement in campaign financing. For all of these reasons, as Secretary Rubin said earlier, our task is especially difficult this year.

The real question, of course, is whether renewing MFN is in the United States' national interest. Are we more likely to achieve our goals by renewing MFN or by revoking it? Renewing MFN is clearly in the united States' national interest and it is more likely than not to further our goals vis-a- vis China and Hong Kong. Revoking MFN would be both ineffective and counter- productive. It would undermine Hong Kong's economy and autonomy. It would impose substantial economic costs on the united States. It would set back, if not derail, China's accession to the WTO. It would strengthen the hand of those within the Chinese leadership who oppose reform, thereby worsening the prospects for improved Chinese behavior in the areas of greatest concern to us. And it would hinder China's evolution into a more market-oriented, law- abiding and, it is hoped, more open society.

As this group knows, the term MFN is really a misnomer. Despite its name, Most Favored Nation status is not a privileged status accorded only to close friends. It is normal trade relations -- the ordinary tariff treatment we accord to almost all countries in the world. The United States offers MFN, or ordinary tariff treatment, on a near-universal basis because we fundamentally believe that free and fair trade is the foundation for peace and prosperity - - and frequently for democracy as well. That belief has informed the decision of every U.S. president since 1980, Democrat and Republican alike, to extend MFN status to China.

If Congress were to take the contrary course this year and vote to revoke MFN with China, it would effectively hurl a wrecking ball into the U.S.-China relationship. As Sandy Berger put it when the president's decision to renew was announced, ending MFN means essentially severing our economic relationship with China. And ending our commercial relationship would deal a severe blow to our political relationship with the world's largest nation -- and a nation that is of critical importance to the peace and stability of Asia and the world. We can not dictate China's behavior or direction but we can seek to influence it if we remain engaged with China. We will have almost no prospect of influencing china's course If we sever our economic relationship with China by revoking MFN.

As you know, this year concerns about the upcoming reversion of Hong Kong have prompted some in Congress to advocate using MFN as leverage to protect Hong Kong's current autonomy and freedoms after July 1. We in the Administration share those concerns but are convinced that renewing MFN provides the best hope for achieving those goals. And Hong Kong's leaders agree and have stated publicly that revoking MFN -- or approving MFN for a shorter term than one year -- would damage Hong Kong's free market economy and its political autonomy. Since more than 50 percent of U.S.-China trade flows through Hong Kong, its viability and autonomy are dependent on continued normal trade relations between the U.S. and China. MFN revocation would slash Hong Kong's trade with the U.S. by $20-30 billion, with a resulting loss of between 60,000 and 85,000 jobs, thereby undermining Hong Kong's viability and autonomy.

Revoking MFN would also damage Taiwan's economy, which has $20-30 billion invested in mainland China. In addition, the chill in U.S.-China relations that would result from revoking MFN would not create an environment conducive to a peaceful resolution of the Taiwan issue.

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