Industry Hails Senate Vote Approving Normal Trade Relations With China

Industry Hails Senate Vote Approving Normal Trade Relations With China

Sen. Fred Thompson

By Kerry Gildea, Contributing Writer

The Senate last week approved a bill granting permanent normal trade status to China, opening the door for what many high-tech officials believe will be a huge and profitable market.

The Senate Sept. 19 voted 83-15 in favor of Permanent Normal Trade Relations for China Bill (H.R. 4444), which the House approved in May.

"By opening, once and for all, the vast Chinese market, this legislation will also open broad new doorways of opportunity to our industry for exports and investments," said Jim Whittaker, director of international public policy for Hewlett-Packard Co. and chairman of the U.S. High Tech Industry Coalition on China that lobbied for approval of the bill.

The bill had cleared its last major hurdle Sept. 13 when the Senate voted 65-32 to table an amendment that would have imposed sanctions on China for weapons proliferation, and also limited export of any materials that could contribute to design or production of nuclear, chemical or biological weapons.

Many officials in the IT industry opposed the amendment, offered by Senate Government Affairs Chairman Fred Thompson, R-Tenn. They feared the bill would restrict much legitimate and safe trade of IT goods and services because it created too broad a definition of what items contribute to weapons development.

Senate supporters argued that granting permanent trade status would influence China favorably. "Exposure to democracy and capitalism, information and telecommunication technology will increasingly influence the course of global affairs, without any question," Sen. Pete Domenici, R-N.M., said during debate on the Thompson amendment Sept. 13.

Even if China's economic growth and military modernization appear to be threatening, the U.S. relationship with China will evolve within the context of a world that increasingly relies on information to achieve economic growth, prosperity and jobs, Domenici said.

Both the United States and China will benefit economically, he said, pointing to his own state.

Intel Corp.'s Rio Rancho plant in New Mexico, for example, manufactures flash memory microchips that are used in cellular phones, personal computers and digital cameras. The flash memory chips are sent to Shanghai for assembly and testing before they are shipped to customers worldwide.

In 2000, Intel earned over $500 million in revenue from the flash memory chips manufactured in New Mexico and tested in China, Domenici said.

"If we do not grant PNTR status to China, it is quite obvious that somebody else will take our place in each of these markets that I have described for my state in terms of being a manufacturer of products," Domenici said.

The Information Technology Association of America, an IT lobby group in Arlington, Va., argues that permanent trade status for China will be good for American jobs, the overall economy and particularly the information and communications technology industry.

"China is on its way to attaining mega-market status as a consumer of information and communications technology goods and services," ITAA President Harris Miller said in a white paper circulated on the Hill in recent weeks. "Access to China's growing market is vital to maintaining U.S. information technology global leadership."

A study called "Digital Planet 2000," published this summer by the World Information and Technology Services Alliance, said the China information and communications technology market reached $48 billion in 1999.

By way of comparison, the U.S. marketplace is $741 billion, India is $15 billion, and Russia is $7.6 billion.

Since 1992, China's spending on information and communications technology has experienced a compound annual growth rate of about 30 percent, according to the report. Were this rate of growth to be continued over the next five years, China would represent a $174 billion marketplace by 2004, according to Digital Planet.

Of the $48 billion in 1999, China spent 73 percent on telecommunications products and services. Another $9.5 billion went for computer hardware and $1.1 billion for computer software.

While telecommunications is the largest single segment of the Chinese market, software expenditures between 1998 and 1999 grew substantially faster, 46 percent vs. 21 percent.

China's IT and communications infrastructure also boasts very favorable growth trends, according to the study. The number of personal computers used in education, business and government has increased tenfold in seven years. PCs installed for education have climbed from 93,000 to 1.1 million, while those used in business and government have moved from 826,000 to 8.9 million.

China will be the world's second largest PC market by the end of 2000, has the fastest growing telecommunications market in the world, and Internet users in China are expected to reach over 20 million by the end of 2000, according to the study.

"These predictions add up to tremendous new market opportunities for [information and communications technology] companies poised to take advantage of them," Miller said.

China has agreed to allow foreign telecom service providers access to incumbent suppliers' networks under nondiscriminatory terms. For American telecommunications companies, this would mean the ability to provide their services over existing infrastructures via any means of technology, ITAA noted.

China also has pledged to sign onto the Information Technology Agreement that commits them to eliminating tariffs, which have run as high as 13 percent, by 2005 on all products covered by the agreement.

In the past, U.S. manufacturers have been forced to use state-run distribution middlemen and to use locally produced parts. With China's accession to the World Trade Organization, U.S. companies could sell directly without having to set up factories in China or release proprietary technologies to their competitors.

American companies would also be able to import most products into any part of China, and for the first time would be able to sell directly to customers.

In a letter to senators, Matthew Flanigan, president of the Telecommunications Industry Association, said U.S. telecommunications suppliers stand to gain much from China joining the WTO, including lower tariffs, the right to distribute and import goods without the mandated intervention of Chinese entities, increased
foreign participation in China's telecommunications services sector and much more.

"Through the third quarter of 1999, U.S. telecommunications equipment exports to mainland China totaled almost $428 billion, which is a 22 percent decrease from the prior year's period," Flanigan said.

"With export numbers currently decreasing, it is imperative U.S. telecom suppliers gain unhindered access to the Chinese market, which they could do if Congress grants China PNTR," he said.

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