In 2000 the U.S. Congress established the U.S.-China Economic and Security Review Commission (USCC) to “monitor and report on the national security implications of the U.S.-China economic relationship.” 2020 REPORT TO CONGRESS of the U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION, December 2020, at 27, https://www.uscc.gov/sites/default/files/2020-12/2020_Annual_Report_to_Congress.pdf. The annual report reviews the work undertaken by the USCC during the year and provides recommendations to the U.S. Congress to address matters viewed as of critical importance by the USCC. The report this year is another excellent review of concerns from the U.S. perspective of the directions China is pursuing and the challenges those directions pose to U.S. interests and the global order that has maintained relative peace and stability for the last seventy years. The issues and concerns raised highlight the likely challenges for WTO Members in finding a path forward to reforming the organization and updating the rules to ensure a global trading system that actually works for all trading nations. Below are copied two segments of the report — the Introduction (pages 27-30) and what the USCC considers the 10 key recommendations to Congress (pages 22-25). Because the USCC looks at both economic and security issues, the introduction provides the USCC’s views of the security implications of Chinese actions as well as the economic concerns raised by Chinese government policies. Similarly, many of the key recommendations are security related versus purely economic-centered.
“In 2000, Congress established this Commission to monitor and report on the national security implications of the U.S.-China economic relationship. Over the years, we have tracked the People’s Republic of China’s (PRC) accountability to its global commitments, including those made in its accession to the World Trade Organization. Two decades later, the Chinese Communist Party (CCP) selectively adheres to its global economic, trade, and political obligations and has abandoned any concern for international opinion. Now the CCP envisions itself atop a new hierarchical global order in which the world acquiesces to China’s worldview while supplying it with markets, capital, resources, and talent.
“The novel coronavirus (COVID-19) pandemic has focused public attention on China, but the PRC’s ambitions are neither new nor secret. For decades, the CCP has made its ambitions clear through industrial policy and planning documents, leadership speeches, and military directives. Under General Secretary Xi Jinping, however, the CCP is aggressively asserting its interests both domestically and globally.
“In the past, the CCP focused its attempts at economic dominance on legacy sectors of steel, aluminum, and transportation, among others. Its current goals are to dominate the world’s newest and most cutting-edge industries, including biotechnology, semiconductors, artificial intelligence, and clean energy. Though the focus of China’s industrial policies is changing, the government’s strategy and objectives retain the same mercantilist and coercive tools: compelling foreign entrants to transfer technology to their domestic competitors for limited market access, lavishing generous subsidies on state-owned enterprises and domestic national champions, and leveraging illicit methods, including cyber-enabled theft, to obtain valuable intellectual property and mountains of data.
“China’s security laws threaten the arrest of anyone who criticizes China, its leaders, or its policies. This threat now extends to Americans inside China as well as those who live in or travel to countries that have an extradition treaty with China. Foreign journalists live in fear of detention or expulsion.
“The CCP claims to protect the interests of the Chinese people. Its true purpose, however, is to protect its own existence and grow its power, no matter the costs. Party leaders judge any sign of criticism to be too great a risk to CCP rule. The CCP’s response is harsh and swift whether reacting to the single voice of a doctor raising health alarms about the emergence of COVID-19, to internal criticism, or to millions of peaceful prodemocracy demonstrators in Hong Kong. This year, the CCP undertook new levels of effort to silence critics and prevent the flow of information.
“The CCP’s actions in Hong Kong show the Party’s lack of tolerance for any sign of opposition to its interests and its lack of intent to honor its international commitments. Acting with swiftness and brutality, the CCP imposed draconian restrictions in Hong Kong, bypassing citizens’ rights, the local government, and the legislature with a law drafted and directed by Beijing. Moving mainland authorities into Hong Kong, the CCP has arrested hundreds and threatened thousands of citizens who have simply demanded China honor its pledge to guarantee Hong Kong a ‘high degree of autonomy’ in its legal, social, and economic life. That the CCP’s brazen assertion of power violated a legally binding treaty registered with the UN did not constrain its actions. Responding to global criticism, the head of China’s Hong Kong and Macau Affairs Office affirmed the new CCP approach, replying, ‘The era when the Chinese cared what others thought and looked up to others is in the past, never to return.’
“From its mismanagement of the COVID-19 outbreak in Wuhan to its imposition of full and direct authoritarian rule in Hong Kong and continued militarization of the South China Sea, the PRC has repeatedly violated its own pledges and international obligations. Enabled by its economic strength, China’s disregard for international rules and norms or censure from the international community raises grave concerns over future CCP policy choices and actions. The prospect is growing that the CCP will use military or other coercive means to forcibly absorb Taiwan. Taiwan’s thriving democracy and civil society stand as the ultimate rebuke to the CCP’s claim that Chinese people are not suited for democracy.
“As the CCP accelerates its aggressive pursuit of global power and leadership, this Report shows that the PRC considers its relationships with African countries to be a blueprint for building its new, Sinocentric world order. The PRC’s dominance of extractive industries on the African continent that are critical for technology and defense, combined with its influence over media and political parties, are key elements of a multidimensional approach it is now advancing in other regions, including Latin America and the Caribbean.
“China’s activities in Africa serve as the template for projecting power and influence far from China’s shores. Such activities include the establishment of a military base it calls a ‘logistics facility’ in Djibouti, the use of Chinese troops involved in peacekeeping operations in violation of the spirit if not the letter of its UN obligations, and political opportunism and interference enabled by predatory economic practices. Chinese companies’ construction of potentially dual-use ports and telecommunications networks along the ever-expanding Belt and Road Initiative are representative of the mutually reinforcing nature of its military-civil fusion strategy and expansionist goals.
“Meanwhile, the People’s Liberation Army is evolving into a formidable and increasingly modern force. It augments robust force projection capabilities in East and Southeast Asia with routine operations in the Indian Ocean, initial forays into the South Atlantic, and the asymmetric capability to project power globally in the space and cyber domains. The CCP employs its armed forces as a coercive tool during peacetime, carrying out large-scale intimidation exercises around Taiwan and in the South China Sea. This year, it provoked the first deadly clash on the China-India border in nearly half a century.
“China’s rising aggression has not gone unnoticed. Policymakers, businesses, civil society leaders, and citizens around the world have been awakened to the ambitions and tactics of the CCP. Governments in developed and developing countries alike have become more cautious about accepting China’s coercive terms of trade, technology products, and services. No trend exemplifies this shift in opinion better than rising restrictions in many countries limiting access to 5G infrastructure for Chinese companies beholden to the CCP by its national security laws.
“In addition to reporting on the current state of the U.S.-China relationship, the Commission has focused on new theaters and emerging dimensions of the threat to U.S. interests posed by CCP policy choices. This year, we examined how the CCP advances its interests in new domains of competition. In international organizations, both those falling under the UN umbrella and those bringing together regional partners, China is positioning trusted officials, whether nationals of the PRC or others vulnerable to Chinese influence, in key leadership posts. Long dependent on foreign technology, China is working to influence international technical standards for emerging technologies to promote Chinese companies and technologies as the basis for new global standards. The cumulative effect of China’s influence in these organizations was on full display this year when the director-general of the World Health Organization (WHO) publicly praised Beijing’s transparency and early response to the COVID-19 outbreak, despite the extreme measures Beijing took to lock down information while allowing infected persons to travel domestically and internationally, seeding a global pandemic. At the same time, the WHO, at Beijing’s behest, blocked Taiwan from meaningful participation in the global pandemic response despite Taiwan’s early and open communication and model epidemic control and prevention efforts.
“While General Secretary Xi and the ruling CCP have sought to project an image of confidence, their tone-deaf response to global criticism suggests the possible hazards ahead. By suppressing all criticism and dissent, General Secretary Xi has created a dangerous echo chamber leaving China’s government vulnerable to miscalculation. The United States and its allies and partners cannot afford, however, to simply wait out the PRC’s current rulers with a false hope of reform or policy change. The CCP’s repression of the Chinese people, and especially the atrocities it has committed against ethnic Uyghur and Tibetan minorities, may constitute crimes against humanity, even genocide. Concern about the Party’s abusive treatment of ethnic Mongolians is also rising.
“The CCP has launched determined and systematic efforts to hollow out global governance institutions, suppress internal opposition, subjugate free peoples in Hong Kong and around China’s periphery, dominate global economic resources, and project military power. These efforts threaten vital interests of the United States and the security and vitality of an increasing number of countries around the globe.
“Left unchecked, the PRC will continue building a new global order anathema to the interests and values that have underpinned unprecedented economic growth and stability among nations in the post-Cold War era. The past 20 years are littered with the CCP’s broken promises. In China’s intended new order, there is little reason to believe CCP promises of ‘win-win’ solutions, mutual respect, and peaceful coexistence. A clear understanding of the CCP’s adversarial national security and economic ambitions is essential as U.S. and allied leaders develop the policies and programs that will define the conditions of global freedom and shape our future.”
“THE COMMISSION’S KEY RECOMMENDATIONS
“The Commission considers 10 of its 19 recommendations to Congress to be of particular significance. The complete list of recommendations appears at the Report’s Conclusion on page 535.
“1. Congress adopt the principle of reciprocity as foundational in all legislation bearing on U.S.-China relations. Issues to be considered in applying this principle should include but are not limited to the following:
“• The ability of journalists and online media to operate without undue restriction;
“• The ability of nongovernmental organizations to conduct meaningful engagement with civil society;
“• Access to information, including but not limited to financial and research data;
“• Access for social media and mobile apps from U.S. companies;
“• Access for diplomatic personnel, including but not limited to diplomats’ freedom of travel and ability to meaningfully exchange views with the host country public; and
“• Market access and regulatory parity, including but not limited to companies’ ability to participate in trade, investment, and financial market transactions, cross-border capital transfer, and protections of intellectual property.
“2. Congress expand the authority of the Federal Trade Commission (FTC) to monitor and take foreign government subsidies into account in premerger notification processes.
“• The FTC shall develop a process to determine to what extent proposed transactions are facilitated by the support of foreign government subsidies.
“• The definition of foreign government subsidies shall encompass direct subsidies, grants, loans, below-market loans, loan guarantees, tax concessions, governmental procurement policies, and other forms of government support.
“• Companies operating in the United States that benefit from the financial support of a foreign government must provide the FTC with a detailed accounting of these subsidies when undergoing FTC premerger procedures.
“• If the FTC finds foreign subsidies have facilitated the transaction, the FTC can either propose a modification to remedy the distortion or prohibit the transaction under Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly.’
“3. Congress direct the U.S. Department of State to produce an annual report detailing China’s actions in the United Nations and its subordinate agencies that subvert the principles and purposes of the United Nations. Such a report would at a minimum document the following:
“• China’s actions violating United Nations treaties to which it is a party;
“• China’s actions to influence the votes of United Nations members, including through coercive means;
“• China’s actions to nominate or support candidates for United Nations leadership positions that do not adhere to United Nations standards for impartiality or are subject to the influence of the Chinese government;
“• Actions by nationals of the People’s Republic of China and others currently holding United Nations leadership positions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;
“• Actions by nationals of the People’s Republic of China serving in functional positions in United Nations organizations impacting hiring practices, internal policies, and other functions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;
“• Actions by Chinese military and support personnel engaged in United Nations peacekeeping operations that are inconsistent with the principles governing these missions, including China’s deployment of these personnel to protect its economic interests and improve the power projection capabilities of the People’s Liberation Army; and
“• The number and positions of United States personnel employed by the United Nations and its agencies.
“4. Congress hold hearings to consider the creation of an interagency executive Committee on Technical Standards that would be responsible for coordinating U.S. government policy and priorities on international standards. This Committee would consist of high-level political appointees from executive departments with
equities relating to international technical standards, including the Department of Commerce, the Department of State, the Department of Defense, the Department of Energy, the Office of Science and Technology Policy, and other agencies or government stakeholders with relevant jurisdiction. The Committee’s mandate would be to ensure common purpose and coordination within the executive branch on international standards. Specifically, the Committee would:
“• Identify the technical standards with the greatest potential impact on American national security and economic competitiveness;
“• Coordinate government efforts relating to those standards;
“• Act as a liaison between government, academia, and the private sector to coordinate and enhance joint efforts in relation to standards;
“• Manage outreach to counterpart agencies among U.S. allies and partners;
“• Set funding priorities and recommendations to Congress; and
“• Produce annual reports to Congress on the status of technical standards issues and their impact on U.S. national security and economic competitiveness.
“5. Congress consider establishing a ‘Manhattan Project’-like effort to ensure that the U.S. public has access to safe and secure supplies of critical lifesaving and life-sustaining drugs and medical equipment, and to ensure that these supplies are available from domestic sources or, where necessary, trusted allies. Such a project would supplement the recommendation the Commission made in its 2019 Annual Report that Congress hold hearings with a view toward enacting legislation requiring the U.S. government to procure medicines only from U.S. production facilities or from facilities that have been certified compliant with U.S. standards.
“6. Congress enact legislation establishing a China Economic Data Coordination Center (CEDCC) at the Bureau of Economic Analysis at the U.S. Department of Commerce. The Center would be mandated to collect and synthesize official and unofficial Chinese economic data on developments in China’s financial markets
and U.S. exposure to risks and vulnerabilities in China’s financial system, including:
“• Data on baseline economic statistics (e.g., gross domestic product [GDP]) and other indicators of economic health;
“• Data on national and local government debt;
“• Data on nonperforming loan amounts;
“• Data on the composition of shadow banking assets;
“• Data on the composition of China’s foreign exchange reserves; and
“• Data on bank loan interest rates.
“7. Congress direct the Administration, when sanctioning an entity in the People’s Republic of China for actions contrary to the economic and national security interests of the United States or for violations of human rights, to also sanction the parent entity.
“8. Congress consider enacting legislation to make the Director of the American Institute in Taiwan a presidential nomination subject to the advice and consent of the United States Senate.
“9. Congress amend the Immigration and Nationality Act to clarify that association with a foreign government’s technology transfer programs may be considered grounds to deny a nonimmigrant
visa if the foreign government in question is deemed a strategic competitor of the United States, or if the applicant has engaged in violations of U.S. laws relating to espionage, sabotage, or export controls. Association with a foreign government’s technology transfer programs can include any of the following:
“• Participation in a foreign government-sponsored program designed to incentivize participants to transfer fundamental research to a foreign country via a talent recruitment program or in a foreign government-sponsored startup competition;
“• Acceptance of a government scholarship that requires recipients to study specific strategic scientific and technological fields, to return to the foreign country for a government work requirement after the scholarship term ends, or facilitates coordination with talent programs;
“• Association with a university or a department of a university that the U.S. government has designated as a participant in the foreign government’s military-civil fusion efforts; or
“• Status (current or past) as a scientist, technician, or officer for a foreign military, if the applicant does not disclose such information when applying for a visa.
“10. Congress direct the Administration to identify and remove barriers to receiving United States visas for Hong Kong residents attempting to exit Hong Kong for fear of political persecution.”
Recommendations from the USCC to Congress are just that. Congress may or may not take one or more of the recommendations into account in legislative activity in the coming year or years. It is also not the case that the recommendations will necessarily receive support from the incoming Biden Administration. But the report and recommendations provide background research on areas of actual or potential conflict between the United States and China and, as such, will be of interest to government and non-government actors.
Most of the recommendations deal with activities not trade related and even those that are trade related are not necessarily covered by the WTO’s set of existing agreements or current topics of ongoing negotiation. The need for secure supply lines for medical goods and medicines is a topic examined by Congress this year and likely to be of significant interest to the coming Administration. Access to medical goods and medicines is an issue of great interest to WTO Members generally and certainly during the pandemic. Onshoring, while opposed by some as potentially cost ineffective, is not necessarily in conflict with access to medical goods and medicines.
What is clear from the report and recommendations is that there are major differences between the United States and China that point to continued significant bilateral tensions moving forward even if both nations look for areas of cooperation and collaboration. Such tensions suggest great difficulties ahead in achieving meaningful reform within the WTO where many important issues for the United States (and others) will be likely blocked by China. May we live in interesting times.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
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