At a December 2 House Ways and Means Committee hearing on "Supporting U.S. Workers, Businesses, and the Environment in the Face of Unfair Chinese Trade Practices," a number of witnesses testified, and members of Congress asked questions and made statements about various aspects of Chinese trade practices, as well as U.S. trade policy towards China and the Indo Pacific region. Some of the key issues discussed were the following: forced labor practices in Xinjiang and in distant water fishing; fisheries subsidies; the possibility of the U.S. joining the CPTPP and of WTO reform; China's compliance with the Phase One agreement obligations; and strategies to change China's behavior.
We provide excerpts from the hearing below, starting with the witness statements and then turning to the Q & A.
Kimberly Glas, National Council of Textile Organizations
If I were to offer one overarching recommendation today, we need to hold China accountable and ensure our trade policies are keeping pace to address the rapidly emerging predatory challenges we are facing from China and others. China's abusive environmental and labor record is on full display in our sector and has been well documented. China makes up 44% of US imports of textile and apparel products. One in five of our garments coming from China are made with forced labor from Xinjiang with the worst human rights abuses imaginable. These items are bleeding into our supply chains and making it to our store shelves and into our closets.
Roy Houseman, United Steelworkers
While the 301 tariffs were really about forced tech transfers and IP theft, they also highlighted multinational corporations' reliance on Chinese manufacturing. Anti-competitive, non-market conditions combined with worker rights violations still exist in China. And we cannot accept that solving forced tech transfers and getting the country to buy more US goods justifies a blind eye to China's actions towards Hong Kong protesters, independent labor movements, the Uighur ethnic group, or other violations of international norms.
Tabitha Mallory, University of Washington
China not only has a significant impact on global seafood trade, but also on global security because of illegal, unreported and unregulated, or IUU, fishing. These activities are associated with criminal activity, labor abuses and environmental destruction. IUU fishing, which is as much as 1/5 of global catch, causes estimated losses of up to $50 billion annually. And also governments lose a lot of revenue through taxes, up to $4 billion a year. And China scored the highest in the world on one index measuring IUU fishing activity. Much of China's seafood trade consists of raw material that is imported into China for processing and then re-exported. China is both the top destination country for US seafood exports and the largest source of seafood imports from the US. But very little of this trade is tracked as re-export, which increases the risk of IUU catch or mislabeled product entering the US seafood supply chain.
I'll turn to fishery subsidies. Subsidies skew the bottom line, making fishing more profitable than it would be otherwise. About 85% of China's subsidies were harmful in nature. (This is in 2019). China seems to have genuinely decreased domestic fuel subsidies, but it's been accompanied by a loss in transparency. China used to report fuel subsidies, but now the funding is given to lower levels of government to allocate, and is no longer tracked at the central level. Subsidies are disproportionately higher for distant water fishing than for domestic capture fisheries. Even though this distant water fishing accounted for only 22% of China's overall catch, distant water fishing received 42% of China's total subsidies and 49% of the harmful subsidies. And more of the support goes towards high seas fishing, which is largely unregulated.
Clete Willems, Akin Gump Strauss Hauer & Feld LLP
As you know, China uses numerous unfair trade practices in an effort to supplant the United States as the world's economic and national security leader. This includes massive industrial subsidies, illicit acquisition of sensitive technology, outright economic coercion, and more. This morning, I will outline a three part framework to counter these practices and thwart China's ambitions.
First, the United States must run faster with policies that encourage growth in key technology sectors where we are competing with China. ...
Second, the United States must adopt a robust defensive strategy to counter China's practices. If utilized appropriately, trade remedies, investment screening and export controls can protect US industry from harm and achieve national security goals. But if not well targeted or coordinated with allies, they risk unintended economic consequences and limited effectiveness. ...
Finally, we should seek WTO reforms to ensure its rules cover China's unfair practices and ensure adjudicators don't deprive us of the tools needed to counter them and hold China accountable for breaking WTO rules.
Turning to the Q & A, we note here several questions or comments from members of the committee and the response by the witnesses:
Congressman Earl Blumenauer:
I'm very supportive of ongoing negotiations at the WTO to address harmful fishery subsidies, although ... shall we say progress has been slow. I am hopeful that high standard outcome can be achieved. Do you have any guidance for how our subcommittee can effectively encourage the enforcement of a potential fishery subsidies agreement with China?
Thanks for the great question. So one of the challenges is that ... exactly as you say, what China's doing is, because there's been so much scrutiny of fuel subsidies in the fishing industry across the board, not just China, what China has done is ..., in order to comply with the letter of the law on this front ..., what they've done is stopped keeping track of the subsidies at the central level and just kind of kick them down, so they can in all honesty say that ... they don't know what the fuel subsidies are, and ... they don't technically provide a program for fuel subsidies ... but these are still being provided at the lower levels.
Congressman Devin Nunes:
The last administration worked very hard to change the trade relationship with China, putting on tariffs and numerous other matters. And in your testimony, I thought it was very thoughtful, the need for USTR to deliver a report to Congress on China's progress. And so my question is kind of twofold. Can you kind of expand on that thought, on what USTR should look at ... and what they should base it on? And then also what your assessment is of China living up to their Phase One obligations?
Thank you very much, Congressman, for the question. ... I may take them backwards, if you don't mind. In terms of their general track record, and this is based on the limited information we have from public sources, from companies who do business in China, generally speaking, I would say it appears that they are implementing most of the structural commitments. And in my opinion, the structural commitments were the most important in the deal, because those really got China to change systemic laws and regulations, rather than simply purchasing more products over a two year horizon. So I think the structural is more important. It seems like they're doing most of the IP, USTR in its national trade estimate criticized some of the things on counterfeit, which is ... an area where they obviously can improve. I've heard at agriculture, I think USTR said they've done 50 of the ... 57 structural components. The one area where companies have complained is on biotechnology. On financial services, they were supposed to open up those sectors where you wouldn't require majority Chinese ownership anymore, and I've heard some companies starting to get licenses to operate in that market. So there are some successes, but it's mixed.
Congresswoman Stephanie Murphy:
Everybody can acknowledge that China engages in pervasive and really profound unfair trade practices and I don't think anybody, maybe except for the Chinese themselves, even attempts to argue about that. But I think the question before us is a really hard one. And that's ... what policy steps does the United States actually take that would maximize the likelihood that the CCP would improve its behavior, while also minimizing the economic damage caused to US companies, US consumers and the US economy, especially in this moment when everyone is facing so many challenges from the pandemic and also from inflation.
I made my views on this issue pretty clear, to the point of maybe redundancy. But if the goal is to maximize our leverage over China and to minimize self inflicted pain, then I have to say that the US trade policy to date has been a failure. Some of the things are particular lowlights, ... and we've talked a little bit about this in this hearing, which was President Trump's unilateral withdrawal from the TPP. While it was a disappointing decision and a strategic mistake of the highest order, I was even more disappointed to see that it was greeted with almost silence from most Democrats and Republicans in Congress. And then ... the president imposed the Section 232 tariffs on aluminum and steel imports from adversaries and allies alike, basically leading to damage and counter tariffs on a range of our exports. And I think these 232 tariffs, they're of questionable legality, they've really ticked off and alienated partners in Europe and Asia, and they really complicated our efforts to create a united front against China's abusive conduct and trade in other areas. While I'm glad to see the US and the EU are now taking some steps, however belated and however incomplete, to defuse this tariff war, I think more has to be done there. And then finally, another low light, the section 301 tariffs on a lot of Chinese imports, which basically led to China retaliating against a variety of US exports.
I think notwithstanding the lackluster Phase One agreement, which China's not even fully adhering to, tariffs are pretty much the new normal now in the US-China relationship. And in my view, we've caused significant harm to the US economy without gaining any of the meaningful benefits in the form of improved Chinese conduct. And I have yet to really see a case made for why this ineffective policy is continuing. I think, unfortunately, it might just be that politicians are afraid to look weak or soft on China, and so rather than having an honest debate about this policy, and acknowledging that this policy is probably more painful to us than it is to the Chinese.
Congressman Don Beyer:
Dr. Mallory, would it help us at all in our struggles with China over fisheries if we endorse the Law of the Sea Treaty, if we ratified that?
Yes, I think that would be a great step. I mean, obviously the United States abides by UNCLOS's customary law, but China takes every opportunity it can get to point out the hypocrisy of the United States for not actually ratifying UNCLOS, while they have.
One of the things you wrote a lot about is the amazing Chinese subsidies for fishing. And I just read that a third of the world's fisheries right now are endangered, that they're beyond their biological limits. How much does China contribute to the overfishing of our oceans?
I mean, it has the largest fishing fleet in the world, so you know its own coastal waters are heavily overfished and then it's really working up the capacity to fish more on the high seas, because a lot of the high seas is not regulated. So they are a big contributor. And ... they make a big contribution through the processing. So a lot of countries will send their fish to China to be processed. And so ... I think it's important for us to think about ... where we get our seafood from, and not be indirectly supporting the labor abuses because we are buying seafood from China that has leaked in through other sources that are illegal and unreported, unregulated fishing.
Congressman Jimmy Panetta:
I want to focus on IUU fishing. ... Dr. Mallory, I want to focus on you. And obviously, you understand and you probably saw the 2021 National Marine Fisheries services report to Congress, which highlighted several ways in which Chinese fishing fleets were in violation of international conservation measures and downright guilty of illegal, unreported, unregulated fishing, IUU fishing. Now the report notes that over 30 Chinese vessels, ... there were 30 Chinese vessels of the national Pacific Marine Fisheries convention on that list, on the IUU vessel list, that were suspected of engaging in this type of illegal fishing. Dr. Mallory, do you know how IUU fishing is correlated ... just give us a brief explanation as to how it's correlated with forced labor. And why is that and what are the circumstances most conducive for forced labor on these ships that conduct this IUU fishing?
So what's been happening -- and this is not just China, but China is definitely putting a lot of effort to increase their activity doing this -- fishing vessels want to stay at sea for as long as possible because then they can operate and catch a lot of fish. And so what China is doing is building a lot more transshipment vessels or reefers to pick up catch from the fishing vessels and then transport it back to ports. And so what that does is it enables the fishing vessels to stay at sea for up to two years in some cases. And so you've got crew members -- there was recently a news story on this from a reporter at the AP who talked to one of the ... crew members who didn't -- this is recently -- and the crew member didn't know that the COVID pandemic was happening. That's how long these people have been at sea. And a lot of the people who are recruited to work on these ships are from either inland provinces in China, they're just not familiar with these this kind of work, or from other developing countries.
And I also want to point out too, that it's not just the forced labor on the ships that's a problem ... because the Chinese fishing vessels are fishing in the high seas off the coast of developing countries, in South America, off the coast of Africa, and in some cases also on the basis of bilateral fisheries agreements in their coastal waters, that is also negatively impacting those populations. A lot of the fish that China would have purchased from those countries is now just being caught by China directly themselves. There are things like unfair joint ventures that are being signed ... Chinese are operating them but it's ... technically still a local company so they ... take advantage of the benefits that the local company would get. And so this is also ... decreasing the food supply for a lot of these countries to ... subsistence level.