Congressional Commission’s Report: Revoke Permanent Normal Trade Relations for China

“China has subverted the global trade system and moved further from the spirit and letter of its obligations under its WTO accession protocol,” writes the nonpartisan government agency that examines U.S-China relations.

On the heels of the first meeting between Joe Biden and Chinese leader Xi Jinping since Biden became president, the U.S.-China Economic and Security Review Commission released its 2022 annual report Tuesday that outlined 39 policy recommendations to Congress to address differences between the world’s two largest economic powers.

Biden and Xi spoke candidly at their recent meeting in Bali, Indonesia about their respective priorities and intentions across a wide range of issues. Many of them are also addressed by the commission’s report, including 10 marked as “the most important for Congressional action.”

There is considerable strain in the U.S.-China relationship, and that is reflected here. Among the commission’s highest priority recommendations are revoking China’s Permanent Normal Trade Relations (PNTR) status; using the Domestic Production Act to re-shore production of pharmaceutical goods that depend on active ingredients from China; and establishing a new Economic and Security Preparedness and Resilience Office in the Executive Branch to monitor critical supply chains.

Key findings in the report found that Xi’s decision-making power has increased dramatically over the past decade, to the point that China Communist Party (CCP) media have recast the previously negative term “decision by one authority” as a positive feature of the country’s political system. Xi has overhauled party rules to give himself an outsized role in overall party governance and thus of China.

Under Xi’s leadership, the CCP has restructured China’s policymaking apparatus by taking decision-making functions away from government bodies and placing them into party organs. This shift bolsters the CCP’s oversight of policy formulation and implementation to ensure stricter adherence to the party line, marking a departure from prior CCP leaders’ more consultative policy-making process.

Meanwhile, China has grown more assertive in the outside world after a 20-year period of rapid economic growth. It’s now the world’s second largest economy; it’s on track to soon be number one.     

In its report the 12-member commission – a nonpartisan U.S. government agency created by an act of Congress in 2000 – called for more transparency from China in a variety of areas including manufacturing, intellectual property rights, climate change, and global macroeconomic stability including debt relief and global food security. The report also echoed President Biden’s concerns about China’s human rights practices in Xinjiang, Tibet and Hong Kong, as well as maintaining stability in the Taiwan Strait.

And it devoted an entire section to challenging China’s unfair trade practices.

“China has subverted the global trade system and moved further from the spirit and letter of its obligations under its WTO accession protocol,” the commission argues in its report. “China’s subsidies, overcapacity, intellectual property theft, and protectionist nonmarket policies exacerbate distortions to the global economy. These practices have harmed workers, producers, and innovators in the United States and other market-based countries.”

Alliance for American Manufacturing (AAM) President Scott Paul welcomed the findings:

“From tariffs imposed by the last administration to sharp restrictions in technology transfer prescribed by the Biden administration, policymakers have begun offering bold policy measures to protect American interests against unfair trade practices and other anticompetitive policies put into place by the Chinese Communist Party.

“The recommendations released today from the U.S.-China Economic and Security Review Commission will build on these initial steps, and we believe policymakers in Congress and the Biden administration should take heed. Suspending normalized trade relations status for China should be a priority for lawmakers. Also of note are recommendations to bolster domestic supply chain resilience and monitor our dependence on pharmaceutical supplies from China.”

Commission Chairman Alex Wong, a U.S. State Department official during the Trump administration, opened the hearing with remarks about the slowdown of China’s economy and ambitious growth in the world order.

“2022 was a year of difficulties for China. Domestically China continues to struggle against the Covid pandemic that featured a string of Draconian lockdowns even in China’s most modern and populous cities,” he said.

“China is also experiencing a slowing economy, one weighed down by those same Covid lockdowns that have strained the property sector that have long been an engine of China’s wealth creation. And externally, tensions between China and the free world became sharper.”

As such, Commission Vice Chair Kim Glas urged Congress to rethink the unbalanced U.S.-China trade relationship.

“Twenty-one years ago, PNTR was approved by congress to permanently normalized trade relations with China. At a time of congressional debate on this topic there was acknowledgment that the conditions to which China agreed, that if it complied with them, would address the systemic trade distortions experienced by U.S. companies and workers and level the playing field,” said Glas, president and CEO of the National Council of Textile Organizations. “China made a commitment upon its ascension to the World Trade Organization (WTO) to limit subsidies, prevent dumping, protect intellectual property, open market access across most sectors and to limit the role of state-run enterprise.

“Yet decades later the United States has experienced the substantial impact of excessive subsidies and overcapacity, IPS theft and coercive tech transfer and market access restrictions that have harmed the U.S. economy, workers and our supply chains creating significant vulnerabilities to the United States economic and national security.

“The Commission’s recommendation is for Congress to direct the administration to immediately undertake a review of China’s compliance with these commitments and if this analysis concludes that China has failed to comply with the provisions agreed to for the establishment of permanent normal trade relations and its ascension to the WTO, Congress should consider legislation to immediately suspend China’s PNTR treatment and further assess new conditions for renewal of normal trade relations with China.”

AAM welcomes the diligent work and study of China’s continuous violation of trade policy and its effects on so much of the American economy. President Biden has shown a willingness to stand up to the unfair trade and manufacturing polices of the CCP and its human rights violations and we applaud the administration for doing so.

“We believe there is bipartisan interest in strengthening domestic supply chains and demonstrating global leadership to contain China’s harmful trade and economic policies” said AAM’s Paul. “Commissioners should be commended for working together to identifying serious challenges and offering actionable and reasonable recommendations to safeguard American security and jobs.”