when the United States continues to experience large trade deficits, and when United States business faces growing competition abroad-and not only from traditional competitors like Japan and Europe, but also from the newly industrialized economies that are located mainly in Asia-we should give serious thought before taking actions which might further disadvantage our exporters, particularly in a market like China that has such important long-term potential for growth.

EFFECTS ON HONG KONG'S STABILITY AND PROSPERITY

As costly as the impact of denying MFN to China would be on the PRC and the United States, the most severe impact, however, is likely to be on Hong Kong, a small territory whose colossal economic success has made it a premier example of free market policies in action. As Hong Kong's Governor Sir David Wilson recently put it, denial of MFN would deal a "body blow" to the future of the territory. And vital U.S. economic and foreign policy interests are affected here as well.

Trade with the China Mainland has always been important for Hong Kong. In recent years, however, Hong Kong's economic ties with China have extended beyond trade to include the integration of entire manufacturing industries in south China. Hong Kong companies have invested in more than 2,500 south China enterprises. An additional 10,000-15,000 south China enterprises do processing and assembly work for Hong Kong companies. The employment of 2 million workers in south China's Guangdong Province is related directly or indirectly to Hong Kong trade and investment. The Hong Kong government estimates that about 20,000 Hong Kong manufacturing jobs would be lost if MFN were denied.

Hong Kong continues to be a major entrepot for Chinese exports. Of the U.S. dols 25 billion in Chinese exports to Hong Kong in 1989, U.S. dols 24 billion were reexported to other countries. This represents 48 percent of all Chinese exports. The United States is by far the largest market for Hong Kong's reexport of Chinese products, taking U.S. dols 8.5 billion in 1989.

Denial of MFN to China would cause catastrophic losses to those Hong Kong enterprises-including many which are American-owned-which produce United States-bound exports in cooperation with Chinese enterprises. Thousands of other companies involved in transshipment of goods to the United States-banking, insurance, shipping, and legal services-would also be affected trade retaliation by China against United States products-almost U.S. dols 2 billion of which were transshipped through Hong Kong in 1989-would magnify the impact.

Perhaps the most irreparable damage, however, would be to Hong Kong's confidence in its future viability. In 1997, sovereignty over Hong Kong will revert from the U.K. to China. Although Beijing has committed itself to maintain Hong Kong's capitalist economic system for at least half a century; and to a separate legal and governmental system based on Western law and democratic principles, many in Hong Kong are now skeptical about their future.

Over the past several years, net emigration out of Hong Kong has been running about 40,000 a year. This has already led to a serious shortage of skilled labor and mid-level managers. A sharp deterioration in United States-China trade relations would only serve to reinforce these trends and encourage more Hong Kong residents to seek resettlement in the United States and other countries. United States action against MFN for China would be seen by many in Hong Kong as callous disregard for the welfare of Hong Kong's residents.

It is in our foreign policy interest to see that Hong Kong endures as an entity based on free enterprise and Western values of personal freedom, the rule of law and, increasingly, democratic government. The United States also has important economic interests in Hong Kong. The territory is one of our larger trading partners in Asia, with bilateral trade totaling U.S. dols 16 billion. The United States has invested approximately U.S. dols 5-6 billion in Hong Kong and over 900 firms have established a presence in the territory. Their profitability depends on both the health of the Hong Kong economy and on United States-China trade. The American Chamber of Commerce in Hong Kong reports that 70 percent of its member companies would suffer from a loss of MFN to China and one-half would have to consider reducing staff or otherwise cutting operations.

CONCLUSION

In summing up, I want to emphasize that our policy toward China seeks to encourage reform and human rights through a considered mix of engagement and sanction. The President has decided in favor of extending China's MFN status because it serves clear United States interests: in promoting our objectives of reform, modernization, and the advancement of human rights; of maintaining productive of

ficial contacts; of protecting the interests of American business and American consumers; and in working to maintain Hong Kong's stability and future viability.

The extension does not in any way imply acquiescence to political repression and human rights violations. The sanctions initiated by the President in June 1989 and those enacted by the Congress last February remain essentially in place. These measures clearly define our dealings with the current regime in Beijing as significantly less than normal.

This approach shows that we know where our interests lie, and that we are on a steady course-one that recognizes the dynamics of economic and political change, and the importance of the long-term relationships with the people of China that commerce can facilitate. It reflects our concern for the welfare of the millions of Chinese with whom we share a vision of the future. And finally it recognizes that we convey our concerns most effectively to the Chinese when we do so in unison with our major allies. As I have pointed out, no other ally supports eliminating MFN trade status for China, so that any United States action would be unilateral. We would have liked the Chinese leadership to respond more rapidly than it has to our concerns for reconciliation and reform. I have noted the positive, if limited, steps the Chinese Government has taken even as I have identified the continuing areas of repression that so offend us. The crucial point as we assess our response is that Beijing sees no alternative to a policy of economic openness to the outside world. Mr. Chairman, I for one have faith in the dynamism of the marketplace, in the inexorable effect of economic modernization on social and political reform, we should not underestimate the power of international commerce as a force for change. So long as China is engaged economically, the very forces for reform that erupted at Tiananmen will still be in play. China cannot sail against the winds of change.

We hope that the Chinese leadership will soon build on the steps it has taken to relieve repression and address other United States concerns, so that the American people, the Congress and the administration can be satisfied of its intention to improve relations and return to its earlier commitment to political and economic reform. But we must avoid the temptation to take punitive steps that harm our own interests and fail to enhance human rights and reform in China.

We should not let our frustration over the slow pace of Beijing's response lead us to take unilateral actions which will harm millions in China who look to us to help keep their country open-actions which would undercut vital long-term United States interests. The central authorities in Beijing would not bear the brunt of MFN withdrawal. Indeed, they would try to turn it to advantage by laying the blame for their economic problems on outsiders. The real losers would be China's economic reformers and workers in export industries, along with those Chinese hoping to emigrate, the people of Hong Kong and American economic and strategic interests in a long-term relationship with the People's Republic of China.

ny.

Senator CRANSTON. Thank you very, very much for your testimo

I am going to yield to Senator Helms, who has to go to another committee very shortly.

Senator HELMs. Mr. Chairman, before my time begins to run, Senator Wilson noted that he has asked the Customs Service to investigate the importance of Chinese white wine and all other products of Communist China. On behalf of Senator Wilson, I ask unanimous consent that his letter to the U.S. Customs Commissioner, Carol Hallet, be printed in the committee record. [The information referred to follows:]

U.S. SENATE, WASHINGTON, DC, April 6, 1990.

The Honorable CAROL HALLET,

Commissioner, U.S. Customs Service, 1301 Constitution Avenue, NW., Washington, DC 20229

Dear Madame Commissioner: We are deeply concerned about recent international media reports indicating that a Chinese wine vineyard has relied for a source of manpower on the inmate population of a political "reeducation" prison operated by the Communist Government of the People's Republic of China (PRC).

This vineyard, located in Tianjin in the PRC, exports approximately 400,000 bottles of wine under the brandname of "Dynasty" to the United States and other worldwide locations each year. In addition to the moral repugnance of the prospect of consuming an item processed by involuntary workers, this matter disturbs us because the marketing of Dynasty within the United States would appear to stand in violation of Federal customs laws.

As you know, Section 1307 of Chapter 19, United States Code, forbids the importation of any products made "wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor" if the competing product is also made in America.

The April 4 edition of the Financial Times of London, however, directly quotes a Dynasty vineyard official as acknowledging that his operation uses grapes grown at a "prison farm" outside of Beijing. A former inmate of this same camp also confirmed that the facility regularly exported grapes during the 6 years of his imprisonment in the 1960's.

Millions of innocent men and women have become victims of the PRC's political "reeducation" system since the Communist government came to power in 1949. In addition, international human rights organizations and investigative journalists have reported that between 10,000 and 20,000 people alone entered Beijing's brutal labor camps since the June 4, 1989, massacre at Tienanmen Square.

Because 19 U.S.C. 1307 gives the Customs Service the authority to deprive the Chinese Government of the financial profit that it gains from the use of slave labor, we urge you to immediately investigate whether the importation of Dynasty wine constitutes a violation of the law, and if so, to take the necessary corrective measures. We also request you to review the list of other American-bought merchandise from the PRC to ensure that their importation does not contradict our antislave labor code.

Thank you in advance for your attention to this urgent matter. We look forward to the benefit of a reply as soon as possible.

Sincerely,

PETE WILSON,

U.S. Senate.
WALLY BERGER,
Member of Congress.

Senator HELMS. Now, in your unanimous consent, I understood you to request that there would be a record of this hearing, that it be printed?

Senator CRANSTON. Yes, that it be printed.

Senator HELMs. Very well. I have several human rights reports which I will not read, but I would ask unanimous consent that they be included in that record.

Senator CRANSTON. Without objection.

[The information referred to appears in the appendix.]

Senator HELMS. I thank you so much, Mr. Chairman. I have another committee meeting that I must go to, and if I told you what it was you would understand.

Sir, have you ever met the Dalai Lama.

Mr. SOLOMON. I cannot say that I have, Senator.

Senator HELMS. Well, you ought to do that sometime. I believe maybe many friends and a few enemies have had something to say, but the Dalai Lama is one of the greatest individuals I have ever met. He is going to come here in September, I believe it is.

Now the Congress is going to greet him with dignity. Will you recommend that President Bush meet with the Dalai Lama?

Mr. SOLOMON. Let me just say that we have authorized officials to meet with him and his people in the past. And I believe Assistant Secretary Schifter was supposed to have met with him a year ago. Beyond that, the White House makes up its own judgment about with whom the President will meet.

Senator HELMS. Well, I know that.

Mr. SOLOMON. We are certainly not talking contact with the Dalai Lama.

Senator HELMS. I know that. But would you be willing to recommend that to the President? I know you cannot dictate to the President, but would you be willing to recommend to the President that he see the Dalai Lama?

Mr. SOLOMON. I think the issue is the following: The Dalai Lama is viewed by many as a political leader, and by people who want the independence of Tibet.

Senator HELMS. Well, so is Gorbachev.

Mr. SOLOMON. We approach the Dalai Lama in terms of our human rights concern in Tibet. And we do not advocate, and neither does any other major country, the independence of Tibet.

Senator HELMS. So, the answer is no, you will not recommend that the President see him?

Mr. SOLOMON. No, I did not say that. I just wanted to emphasize the human rights dimension of the situation.

Senator HELMS. Well, Mr. Secretary, I have received a letter, it was in Chinese, and I had to have it translated, from a man who spent 20 years in Laki slave labor camps growing cotton. Let me read what he wrote to me.

Human life in the Laki camps is worthless. If America continues to allow the import of vast amounts of Chinese cotton textile goods, the inevitable result will be that the Chinese Communists will increase their oppression and their exploitation of those who live in the camps. This will, in turn, lead to even more good people being persecuted to death.

Now do you agree that MFN for China will or will not continue or increase the import of Chinese cotton textile goods into the United States? Will it or will it not?

Mr. SOLOMON. There is no question but that cotton textiles have been a major category of China's trade expansion with us.

Senator HELMS. Textiles are made in slave labor camps in Communist China. Then how can you justify MFN to increase the importation of goods made by slave labor which will result in the death of untold numbers of the Chinese people?

Maybe the other members of the committee understand, but I do not.

Mr. SOLOMON. Let me respond in the following ways. We take very seriously your concerns on this issue. The law is very clear, that if penal labor, or what the Chinese call labor reform labor, is used to produce goods that come into this country, and if U.S. producers are hurt, we will take action against it.

Moreover, as we have received reports, some of which you have very usefully called to our attention, and they are brought before us, we have called people to investigate these matters. In fact, we recently had someone from our embassy visit the Tuan Labor Reform Camp in the Tienjeng area to look at the concerns you have about the wine that you mentioned earlier.

So, we believe you are raising a very important issue. We take the concern very seriously. And if the evidence is there, we will take action against it as the law requires.

Senator HELMS. I have a couple of charts up here to which I would like to direct your attention. This one is U.S. textile imports from Communist China.

Now you can see for yourself, there is no point in my taking up my 10-minute time with this, what it says. And then the other chart is United States-Communist China trade balance.