U.S.-China Relations

Transcript

M. Armacost: Thank you for coming. I'm Mike Armacost, the president of the Brookings Institution. It's a pleasure to welcome you here today. The obvious purpose of the briefing is the visit of Premier Zhu Rongji. He is one of the most open and articulated of China's leaders, and therefore it seems to me his visit is important not simply to the administration but to you in the press and to the American public as well. He's coming at a time that's rather delicate as the Congress and the Executive Branch are poised for one of the periodic food fights we have over a variety of aspects of China policy.

And if you'll indulge me just a moment of reflection, based on having to deal with this relationship in a previous incarnation. It has always seemed to me that there was no issue in our foreign policy which required harder thinking and straighter talking than our relationship with China. It doesn't come easily for Americans. As you know, public attitudes in this country fluctuate pretty wildly toward China, from naive sentimentality to extraordinary cynicism and back again.

Special interest groups in our country feel passionately about various aspects of China's internal and external conduct. And yet the ventilation — even the aggregation of these intense feelings — doesn't automatically add up to a very clear definition of national interests. And China policy is often in jeopardy of being hijacked by partisan struggles which rearrange themselves in no particular logic.

At the moment, the administration is of course being attacked from both the right and the left for China policy, as was its predecessor. The center appears a little beleaguered and a little tentative. And it's in this context that a lot of misguided ideas seem to me flourish, and even sensible ideas get simplified or misinterpreted in ways that mislead rather than illuminate.

To take a couple of examples, it's often suggested that China is an emerging power akin to Germany or Japan at the end of the last century. And certainly it's the case that China is a rising power, and certainly there are major uncertainties about how it will use this tremendous power that is gradually being accumulated.

And yet apart from the way in which the analogy implies a certain inevitability of conflict between China and the West, it's not entirely accurate. At the turn of the last century, Germany and Japan had largely closed the gap between themselves and the major industrial powers of the world. Germany was surely on a part with England as an industrial nation as the 20th century dawned.

China by contrast has grown swiftly, to be sure, but it remains a poor and developing country with impressive potential but huge problems to surmount before it can generally claim the mantle of a mature industrial power.

The administration sometimes I think contributes to misunderstanding. It claims to seek a strategic partnership with China, and yet that characterization begs questions that no one has been able to answer: partnership for what? And partnership against whom? It gives a too military cast to our relationship. It provokes anxieties among some of our other friends in Asia. It implies a convergence of strategic aims that aren't always self- evident, particularly when China's complaining about our alliances in Asia, or when it's approaching non-proliferation policy in a very selected way.

Some Americans of course characterize China as a threat. And there's no doubt that China has the capacity and will become a major military power in time. But that's no reason to exaggerate its current military capabilities, or to neglect the limits on its power or indeed the considerable incentives for avoiding a contest of wills with us.

At the moment, certainly just of its equipment is antiquated. It has no very impressive capacity to project great military power over distance, it has neither Asian allies nor blue water navy, and it's no closer to being able to mount an amphibious assault on Taiwan than it was more than 20 years ago, when we normalized relations with Beijing.

Sometimes people talk about China as a mercantilist threat, and unquestionably our trade deficit with China is too big, and China's market openings are too few and offered perhaps too grudgingly. But that notwithstanding, the principal reason for China's huge trade surplus with us is the fact that Americans have a voracious appetite for consumer products which Chinese manufacture with great efficiency and at low prices.

The Chinese tend to buy the bulk of their capital equipment and machinery from the Japanese rather than us. And a lot of American companies are investing huge quantities of money developing operations inside the Chinese market, not least export to our own market. And if the trade deficit's growing rapidly at the moment, it's not least because of the fact that over the last 18 months as China's economy has slowed down, ours has continued to expand at a very toward pace.

Sometimes people focus on China's politics, and they speak of it as a kind of diehard illiberal state. And I don't think anybody would describe China as a paragon of constitutional liberalism. It's a country run by a party bureaucracy, and there are political prisoners and the religious groups are on a kind of a tight leash, the press is subject to censorship, and neither the representativeness nor the accountability of the Chinese political institutions meet the tough standards of our democratic sensibility.

But still, anyone who's traveled with any frequency to China knows that it is a more open — far more open — and pluralistic society than it's been in half a century; knows that the personal freedom enjoyed by individual Chinese has expanded dramatically; knows that access about the outside world has proliferated rapidly; knows that economic planning has been decentralized, that involvement in the world economy is forcing the development of at least an embryonic commercial law; knows that lawyers are bringing class action suits against the government, occasionally winning them; knows that experiments with grass-roots election shave taken place, and that the talk radio shows involve rather pointed criticism of official acts.

So, democracy may be a distant dream still for China, but it seems to me that one has to acknowledge that totalitarianism has given way to authoritarianism, and authoritarianism's face is a far softer face than it has been through most of our lifetimes.

Nor, finally, it seems to me is it clear that China will inevitably emerge as our foremost diplomatic rival in the world. Sometimes Chinese officials talk about the need for counterweights against American domination of the unipolar international system. They speak like Brookings folks, I guess. And one can find some evidence, if you look for it, of efforts to create those counterweights through strategic cooperation with the Russians or through occasional attacks on the U.S. alliance with Japan, or sensitive sales of technology to countries that we don't much care for.

But there are a lot of regional and global issues on which our interests converge, Korea perhaps being the most immediate and urgent. And in dealing with China, as dealing with all other countries, the purpose of our diplomacy is to establish the basis of agreement or the basis for disagreement, as the case may be. This is what engagement's all about. We need it now I would say more than ever — not as a slogan to conceal disagreements or differences, but as a means of pursuing shared aims when they exist, and by limiting disagreements when they can be attenuated.

Where our interests conflict or collide, there's no reason to hesitate to acknowledge that. And I've always felt that when we're dealing with the Chinese, the best method is to call a spade a spade — and remember one can do that without being rude. And in our discussion about China here, it seemed to me we should set the shibboleths aside and strive for a more balanced and a more nuanced appreciation of what the Chinese are about — where they are, where they're going, what it means for our relationship.

And that's the purpose of this briefing this afternoon. We have three splendid presenters, Richard Haass, Bob Suettinger, Nick Lardy. Their bios are in the materials that you've been handed out. Richard's the director of our foreign policy studies program, Bob Suettinger is a guest scholar at Brookings, coming to us after a distinguished career in the Central Intelligence Agency. Nick Lardy is one of the country's foremost economists working on China as a senior fellow at Brookings.

Each of them, starting with Richard, will offer five, 10 minutes of comments. And after that, they will take your questions. Even better, I'm sure they will answer your questions — at least I hope they will. Richard.

R. Haass: I'm going to move this down here. I'm in the unenviable position of speaking after Mike Armacost and before Bob Suettinger and Nick Lardy. The good news, however, from your perspective, is that it allows me to be brief.

As Mike pointed out, he called it a delicate time, this visit. That's because he was a diplomat for 30 years. It's a rough time. And even if the reports that the Chinese were considering canceling the visit were a bit drummed up or overblown, the fact is this is an inauspicious moment to be coming here. And indeed, if you take yourself back just three weeks, before Kosovo came to dominate the news, to the extent foreign policy was debated in this country at all, it was the U.S.-China relationship that was at the center of what foreign policy debate there was.

From our point of view — and by "our" I mean the American public — several issues have become quite prominent over the last few months, and four in particular seem to be motivating a good deal of animosity towards China on the eve of this visit.

The first are the multiple allegations of espionage. Second is the pattern of increased repression against dissidents and others in China over the preceding months. Thirdly, early on in this year, the trade statistics for last year came out — roughly $57 billion trade imbalance. And economists may explain to non- economists like myself why that doesn't and shouldn't matter. But for those of us who did not get our doctorates in economics, it somehow seems to. And lastly, the reports of the increased Chinese missile build-up against Taiwan.

And as Mike Armacost quite properly said, there's multiple advocacy groups and interest groups involved in the U.S.-China debate. And each one of those developments tended to motivate a different group or groups. But together, what had formed was a very powerful constellation of forces quite critical of China and quite critical of the U.S.-Chinese relationship.

Now, the United States however does not have a monopoly on dissatisfaction with the state of the bilateral relationship. Indeed, what's interesting is the backdrop to Zhu Rongji's visit here--that the debate in China, not to say they're parallel to the debate here but to the extent there is an open debate there about the U.S.-China relationship, from their perspective.

And here again one could cite a number of developments that are clearly causing heartburn on the other side. One is the growing interest in this country in theater missile defense, and China is clearly worried about that — whether it defends Japan, but obviously if it were to come to defend Taiwan.

Secondly, also related to ballistic missile defense, is the growing interest in this country in a national missile defense system. And what you're essentially seeing in this country now, more than a quarter of a century after the signing by the United States and the Soviet Union of the ABM Treaty is a fundamental rethink of the relationship between offense and defense. And there's many reasons to explain it. I won't go into it right now, we can talk about it later.

But the bottom line is, clearly defense is enjoying a newly-sung life in this country and has new potential. And for a country such as China, with a relatively small arsenal of ballistic missiles and weapons that could be delivered across great distances, this raises fundamental questions of the viability of its nuclear capability.

Thirdly, something that's materialized in the last two weeks, China like Russia is extremely unhappy with the NATO military intervention in Kosovo. And what this does, is highlights two things. One is the difference between American and Chinese views — quite a fundamental difference — on one of the basic tenets of international relations, which is the right of one country to involve itself, or what the Chinese would call "to interfere," but that in itself is a loaded word, in the internal affairs of another country.

And this has been fundamental, whether it was the Chinese five principles of international relations or more recent pronouncements by the Chinese authorities, that in their view, sovereignty ought to be something that precludes what again they would call "interference." The United States and many other countries take a different view, do not see sovereignty as an absolute, and believe that countries have not simply the right but at times the obligation to involve themselves in the affairs of other countries if governments abuse the rights and freedoms of the governed. And China obviously does not see this simply as a theoretical concept, but sees it very much as a challenge to its own rule. It's only a decade after Tiananmen Square, and also again it gets into the Taiwan question, because for China that is, as you know, an internal affair.

And this also gets to one last question about the Chinese unhappiness with the United States — and again, it was alluded to by Mike Armacost — which is the entire perception of the American role in the world. What Brookings scholars such as myself might describe as American primacy, or American preponderance, what have you — the unipolar moment — for China is often called hegemony. And the American position in the world, which I see first of all as a fact of life and essentially as a benign force, needless to say is not always seen quite as benign when viewed from Beijing. And what this suggests again is a larger question in the relationship between China and the United States.

And again, it's important to remember here that this visit comes approximately at the end of the first decade of the post-Cold War world. Well, for the last few decades of the Cold War — roughly the last decade and a half — China and the United States did have a basis for a relationship that was in many ways aimed at a common interest vis-a-vis the Soviet Union.

But with the end of the Cold War with the demise of the Soviet Union, that foundation stone fell out from under the U.S.-China relationship. And now, a decade on, a decade after the end of the Cold War, the United States and China have yet to plug in a new foundation stone under themselves and under their bilateral relationship. We're still casting about for a strategic rationale. And that is one of the reasons that this relationship seems to be as buffeted as it is, 'cause every issue comes along, people have complaints from either side.

What has yet to emerge is a consensus that brings together people on either side, much less between them, over what ought to constitute a post-Cold War strategic relationship between the United States and China.

Let me just end with a little bit of perspective, though, on where I see things. Despite what one may hear and read in most of the press, this relationship is not a failure. Or to put it another way, yes, there are problems, yes, there are particular failures. But it is not right to characterize it overall as a failure.

There are areas of progress that one can point to, there are areas that are ongoing. And whatever problems it has, one can imagine a situation that would be far, far worse than is the present. There is the ongoing challenge of dealing with the situation in Korea, which is I think still one of the principal threats to post-Cold war security for the next decade. China has been helpful — and Nick Lardy will talk about this — in dealing with the Asian economic crisis, by what it hasn't done — by avoiding a devaluation.

In the arms control realm, there are a host of developments over the last few years that I think constitute progress by any measure, China supporting the Missile Technology Control regime, the Zanger [ph] nuclear export supplier arrangements, the Chemical Weapons Convention, the Comprehensive Test Ban. There has been improvement in Chinese export policies, whether as regards ballistic missiles to Pakistan or anti-shipping missiles to Iran.

And again, I'm not here to be a Pollyanna and paint a perfect record of Chinese behavior in proliferation-related areas. But again, one can see examples of significant accomplishment.

What does this mean for the U.S.-China relationship? I think visits such as this are helpful. The fact that it's been over — if I'm correct — over a decade since we've had a premier from China visit this country is way too long. The regularization of this relationship still is very much in the interests of both countries. In a sense, I would welcome the day when we could have high-level Chinese-American visits, and we don't need to do events like this — that it would become so much part of the normal fabric of the relationship, that it would not be particularly newsworthy development.

I think for its part, the administration has hurt itself by talking about constructive strategic partnerships, about setting the bar up this high. That may or may not be a worthy goal, but whatever it is, it is certainly not a realistic description of where we are or are likely to be any time soon.

The real challenge I would say on this side — let me just speak more to the American side, as Bob is going to offer his perspectives on the Chinese side — is to regain control of this relationship. I think the U.S.-Chinese relationship has been in something of a free fall for the last six months or so, where again the various critics have all fastened on to aspects of Chinese behavior that are worthy of criticism. But collectively, it's added up to a very powerful attack on a bilateral relationship. And no one or very few people have been pushing back to defend it. And the reason is that it is terribly important to the United States. It will be one of the defining relationships that will ultimately give a character and a personality and conceivably even a name to the post-Cold War world.

But it's not just going to happen with an inside-the-Beltway debate, and it can't just happen if the president speaks out about the relationship on the eve or mid-summits. It's going to take regular attempts at public education on both sides.

And that is essentially where I'd end it — that what it will require is not simply private consultations, which are necessary but as we used to say not sufficient, but it will take public consultations. That this is a good example where the diplomats in private cannot sustain a relationship in the absence of domestic political support.

And on this side, the requisite degree of political support for the U.S.-Chinese relationship has been fast disappearing. And I think what is needed essentially on our side is a repair job to essentially shore up the foundation of the relationship — not again by using phrases like "constructive strategic partnerships," which simply set people up for disappointment or even failure, but to essentially lay it out in fairly sober terms: here is where we are, here are the benefits, here are the problems. And that we've got a lot of time to work this out right, but it is clearly very much in the interests of the United States to work it out right.

Or to just leave you with one last thought. It becomes a very different post-Cold War era if the U.S.-Chinese relationship essentially becomes adversarial. It becomes a far more demanding environment for the United States to operate both in the region, and in Northeast Asia and globally.

On the other hand, if the U.S.-Chinese relationship can be one that is more cooperative at least in large part, it obviously creates a much more benign international environment for the United States to go about promoting and defending its interests. So it is very much in our interests to try to see the relationship move in those ways.

To prematurely try to put the U.S.-Chinese relationship in some sort of a negative box, where we are talking about China being the next adversary or the next competitor, seems to me wrong in two ways. One is it's not sustainable. We have very few allies if any who would sign up to such a relationship at this point. And secondly, it's premature. Why we would want the relationship to turn out that way when we still have the opportunity to see it unfold in more positive ways is beyond me.

So our position at this point ought to be that we are open to whatever sort of relationships we can get, but one based upon Chinese behavior. And at the end of the day, it's China that will decide the tenor of the relationship, the personality of the relationship by its deeds. We can lay out yardsticks, we can lay out our expectations. But essentially then we ought to make it clear to China: we are prepared for whatever relationship your behavior announces, or speaks for you that you are ready for. And it is very much in the interests of the United States that it have a positive relationship with China; but if it turns out that that's impossible, if it turns out that the United States relationship with China does turn out to be more adversarial than not, it ought to be clear where the responsibility lays, and it ought to be clear from the record that the responsibility is China's rather than our own.

Thank you very much. Bob. [Applause]

R. Suettinger: I feel a little bit like Madeleine Albright up here. [Scattered Laughter] Thank you. I think Michael and Richard have very adequately and admirably laid out the importance of the U.S.-China relationship from a strategic and from a U.S. national interests perspective.

In the division of labor, my lot fell to try and explain what the Chinese are coming here for. And I'm going back to a certain degree to my roots as a Pekingologist or tea-leaf reader of Chinese affairs to try and give you a brief explanation. And I will try to be brief, because I think the most fun in these kinds of events is the question-and-answer stuff. So I want to get to that as soon as we can.

But let me first try to give you my analysis of Beijing's take on the current state of the relationship and what Zhu Rongji's agenda is for coming to the United States.

First, it seems to me that he is clearly demonstrating the importance of this relationship from China's perspective. He is continuing a process that was started by President Jiang and President Clinton of developing a better, more predictable relationship with the United States that would have to include high-level visits on a regular basis.

Now you'll notice I didn't use the term "strategic relationship" or anything of the sort. This relationship needs positive contacts at a high level in order to get problems resolved, in order to get communication lines straight. And I think the Chinese recognize that, even though they continue to use the formal titles for the process.

This is after all the first visit by a premier to the United States in more than 13 years. And all one has to do is recite the name of Zhu Rongji's predecessor — that is, Li Peng — in order to understand why there hasn't been a visit to the United States in quite a long time.

I think the Chinese have talked about their anxiety concerning this visit in relatively straightforward if somewhat exaggerated terms. Zhu has said that he has asked himself whether it was useful — whether he could accomplish anything — in this visit. Other accounts have indicated that there were Politburo standing committee meetings held until late in the evening to consider whether or not Zhu should be allowed to go to the United States and face the firestorm of criticism here.

But I think the fact of the matter is that China's consideration is that the relationship with the U.S. is still their most important foreign tie, and they're going to go to a great deal of length to preserve that tie and if possible, to improve it.

Another important aspect of this visit is this is Zhu's most important foreign policy activity. Heretofore in his year incumbency as premier of China he's focused primarily on domestic affairs and Jiang Zemin has had the opportunity to develop the U.S. relationship more fully. This is going to be Zhu's maiden voyage into this very rough water of U.S.-China relations. And to be sure, he is going to be scrutinized very carefully back in Beijing.

I think it is fair to say that even though the body politic in China is not as divided over the relationship with the United States — perhaps — as the United States is divided over relations with China, nonetheless, there are critics. And they are serious critics, and they do not like a lot of what the United States is doing. They don't like the direction of the relationship. And if Zhu missteps, he will certainly be called into account for it.

Second is, as Richard implied, I think Zhu is here on a mission of relationship repair. And clearly from reading the media, there's lots of work to do. And I think it would be unrealistic to expect that all of the damage that's been done to the bilateral relationship over the last couple of months can be undone by one individual. Somebody referred to Zhu's visit to the United States to me this morning as a "charm offensive," which struck me as being a rather odd term.

Zhu Rongji is not a man to whom the word "charming" would ordinarily attach itself very readily. But nonetheless, he is coming here with a very serious mission, and that is to try and improve the levels of understanding of the U.S. public and of U.S. officials about what China is all about, and about what this relationship can bring about.

He is going to be meeting not only with American officials and World Bank and International Monetary Fund officials, he is going to be meeting with business people around the country and in Canada. He's going to be meeting with all sorts of people from the media, and is going to have a fairly full plate of meetings, and he is going to hear lots of criticism of himself, of his country, and of the relationship.

But his principal purpose is I think probably to offset all the negative images of China that abound in the United States these days. And perhaps, if I may digress a little bit into Zhu's career, there is probably no one better suited to that kind of task at the highest levels of China's leadership than he is.

He's an extraordinary individual in many ways and a little bit out of your mold of your average party hack from China. First of all, born in Hunan in 1928, orphaned at an early age, he really scrambled his way up and was able to gain attendance to one of China's most prestigious universities from which he graduated in 1951. He got his degree in an engineering field, and worked in China's machine-building and electronics industrial ministry shortly after his graduation.

From 1958 until 1978, he kind of disappeared. And the reason for that he doesn't talk about very much, but in fact he fell afoul of political orthodoxy in China in a fairly serious manner, was sent down to the countryside to teach in rural schools, and eventually ended up slopping the pigs out in one of the farms during the Cultural Revolution — but recovered his balance and his edge very quickly after he returned in 1978, again working his way up through the industrial ministries and the economic commission, becoming mayor of Shanghai in 1987, and then vice premier in 1991. By any stretch of the imagination, a meteoric rise — and he owes his own intellectual capabilities for that rather rapid return.

So he is again quite an extraordinary individual. He is different from many in his ability to be able to speak on his feet. He will answer questions directly, he will admit when he doesn't know something, and he's just as demanding of his interlocutors as they are going to be of him.

Finally, let me just briefly sort of say — going into Nick's presentation — I think one of the principal goals for Zhu's trip to the United States, in addition to kind of repairing the overall relationship is making further progress on gaining access for China to the World Trade Organization. Obviously this has been one of the plums. It's been high on the expectation list of everybody looking forward to this visit. But it bears repetition that we've been working on this negotiation now for 13 years. And it is a difficult, extraordinarily complex and highly controversial issue. It will continue to be controversial over the course of the next week, I assure you.

Zhu has made some important concessions, and I think it's fair to say that he is principally responsible for China's change in position on WTO-related issues. He was considered a lukewarm supporter of WTO for a long time, principally because of anticipated damage to China's state-owned industrial sector by exposing it to competition from foreign businesses.

But let me leave this discussion principally to Nick, with just a statement that this issue will be one of the primary issues of discussion while Zhu is here. I am not at least all that optimistic that it will be resolved, but I do expect that there will be a public announcement of considerable progress having been made in the course of the last couple of months. Thank you. [Applause]

N. Lardy: Let me focus specifically on the WTO issues, and begin by agreeing with Bob. I think it's an uphill battle to get an agreement or the completion of agreement during Zhu's visit, and let me just say a little bit why.

As Bob said, the negotiations have been underway since 1986, obviously in certain periods with very little progress. But in the last few months, or particularly in the last few weeks, quite a bit of progress. And the Chinese have been more forthcoming in a number of areas, which at least gives rise to some optimism,.

The reason that I still am a little bit cautious on the outlook, however — I would say that both sides are under more constraints than they were let's say last June, when there was a previous effort made to try to break the deadlock, just prior to President Clinton's trip to China.

And I think the constraints in the United States have actually increased since then. The deficit is larger, as has already been mentioned. I think in Congress there's greater and greater expectations about what a WTO agreement is going to do, in terms of providing increased market access — that is, there are more and more sectors out there expecting that a WTO agreement is going to provide them with much greater access, high profits and so forth in the China market. That is being reflected in congressional opinion as well.

I think we've also heard — Richard went down the list of all the other issues that have arisen in recent days. The accusations that China has orchestrated theft of nuclear weapons designs from our national labs, and so forth. So there's a rising coalition of forces in the Congress that want to use WTO perhaps as a lever to try to bring about changes in other areas.

There are similar increasing constraints, I would argue, on the Chinese side as well in recent months, and particularly since about the time of President Clinton's trip there in June of 1998. China's economy has slowed down significantly. Most people don't take too seriously the 7.8 percent growth rate that the officials claim was achieved in 1998. And the prospects are that 1999 is also going to be relatively weak, in terms of economic growth.

Exports in the first few months of 1999 are down substantially. 1999 may be the first year in the entire reform process beginning in 1978, in which China has suffered from an absolute shrinkage in export growth.

Similarly, foreign direct investment has actually declined in recent months for the first time ever in the reform period. This has been going up and up and up, and obviously one concern is that foreign direct investment could actually decline significantly as we go through the year of 1999.

Similarly, China has lost its access — or it's certainly lost much of its access — to international capital markets in recent months. They have been unable to sell any of their equity offerings in the Hong Kong market. They have not been able to sell bond issues except for sovereign issues, and non-sovereign issues have been postponed. And foreign banks are pulling their credit lines from China, particularly in recent months in the wake of the bankruptcy of one of the major trust and investment companies — the Guangdong Company that went under in January of this year.

So there are many elements of the capital account, in other words, that look much less strong than they did a year or two ago, so that capital inflows could be down significantly — foreign direct investment, bank borrowing and international equity offerings. All of these are putting pressure on the economy.

Already we have in China the highest level of unemployment since the depression China went through in the early 1960s. And the obvious question is given these adverse economic circumstances, what is the appetite of the Chinese leadership to open up to more competition.

We can tell a nice story about how increased competition in the long run will improve the efficiency of resource allocation and lead to even more rapid growth. But in the short run, almost certainly it's going to cause much more pressure on domestic firms, increasing levels of unemployment, and thus potentially contributing to political instability in China.

Nonetheless, I do think an agreement, if it could be achieved, would be very much in U.S. interests, and I would just highlight three reasons.

First of all, it would strengthen the World Trade Organization. China is now one of the largest trading countries in the world. I think it's eighth or ninth according to the data of the World Trade Organization. And the last couple of years are the only years in the history of the WTO or its predecessor organization, the General Agreement on Tariffs and Trade, in which one of the top 10 trading countries in the world has not been a member and has not been subject to all the disciplines and principles of the international trading system.

And of the 30 countries in the queue to come in, China's entry is extremely important. But I think we do not want to be in a position where one of the largest trading countries in the world remains outside the disciplines of the World Trade Organization. I think over time, it could have a negative effect on the strength of the organization, and I think those that are concerned about the strength of the international trading system and its long-term viability should be interested in getting China in and subject to those disciplines.

Secondly, from the point of view of the United States, it would provide some increase in market access. Even though the Chinese economy has opened up substantially in recent years, tariff levels have fallen by more than half, huge — hundreds and hundreds of non-tariff barriers, quotas and licensing requirements have been eliminated, there are still several sectors that are quite highly restricted in which there is a very high degree of protection. An agreement would get rid of many of these barriers, some of them in the short run, some over time. And so there will be increased market access for U.S. firms, as well as firms obviously from other countries as well.

Thirdly, I would say the advantage of getting China into the WTO is that implicitly it provides a fixed timetable for further economic reform in China. In other words, an agreement will have phase-ins for various requirements and thus China will have not just open up its economy, but take the necessary domestic measures that that implies and will get China further down the road towards a market economy. And I think that enhances the prospect that China will contribute to economic growth and stability in the region. As Richard mentioned, they have certainly done some of that in the last two years by holding their exchange rate constant. But in the long run, the major contribution China can make is of course to be a source of growth in the region and contributing to the general dynamism in the region.

Some have suggested that even if a WTO agreement could be reached, that it should be withheld as a sanction for China's behavior in other areas, in particular the nuclear weapons allegations, the deteriorating human rights situation, and so forth. I would argue most strongly against this. I think an agreement is likely to provide much more to the United States and U.S. firms than it does to China.

One of the problems, quite frankly, in this negotiation over the last 13 years is that we really haven't had very many carrots to offer China. China already has permanent MFN from every country in the world and it has been getting it from us on an annual basis now for 20 years. Obviously there will be some advantage to China getting permanent MFN status in this market. But it's not really at the end of the day all that important to them economically.

So the idea that we would withhold approval on an agreement that by its very nature is going to provide more to U.S. companies than it is going to provide to the Chinese side I think makes no sense for the United States at all. I can't see that it would really advance the many other interests that we do have in our relationship with China. So I think the idea of a sanction really is a misperception of what an agreement is likely to bring to both sides and fails to reflect the fact that the United States, at least in economic terms, is going to be a much bigger beneficiary from this agreement than the Chinese.

I think if we can get an agreement in the current environment, it's likely to be a very good one. We've heard the statements from Charlene Barshefsky and everybody else in the administration that has been involved in the negotiation. It's fairly clear what our expectations are in many areas. I think if we can get an agreement that comes close to meeting most of those expectations, it's going to do much more for the U.S. than it is going to do for China, and the idea that we should withhold this as a sanction of their behavior in other areas, would not advance our interests. [Applause]

R. Haass: If people have questions, let it be known, we'll recognize you. And then wait for a microphone so we can pick you up. And I just ask two things, that you identify yourself and you keep your questions on the brief since I can already see a lot of hands. Paul Blustein.

Participant: Paul Blustein with The Washington Post. A question particularly for Nick Lardy. In one of the pieces you wrote recently, you questioned the U.S. position as being a little bit overdone in the negotiations, particularly with regard to the financial sector. You suggested that the U.S. negotiators were pressing the Chinese to do things that had obviously proven not particularly wise for other Asian countries in opening up their financial sector and subjecting themselves to the Asian economic crisis.

As I understand it, the Treasury's position about this is that they are just asking to open up the Chinese market to competition from foreign banks and other financial institutions and that they are not talking about liberalizing capital flows. Should we take this position as--I mean, is there something more nuanced about what's going on here that we should understand about this issue?

N. Lardy: Well, let me begin by saying that the whole negotiation process of course is at least to me very non- transparent. I don't know what the precise positions of the U.S. government or the Chinese government has been on various issues.

I would say, with respect to the liberalization in the financial sector, however, that certainly it's highly desirable for the Chinese to increase competition in the banking sector. The point I would make simply is that opening up that sector very rapidly — liberalizing it rapidly, even if there's no capital account convertibility involved — would pose a major problem for China, in that even if you just allow foreign banks to do domestic currency business, you have a huge potential disintermediation problem. That is, funds would flow out of Chinese institutions into foreign institutions, even if they were still being denominated in terms of domestic currency.

So I do think that we have to recognize that this will be one of the areas in which the Chinese will insist — and I think quite properly — on a fairly long phase-in requirement, in terms of increased competition. There are already about nine or 10 banks that have been licensed to do domestic currency business in China, but by and large they are not allowed to do business with Chinese customers. They are restricted to serving primarily foreign ventures and foreign customers within China, rather than Chinese corporates or Chinese households.

R. Haass: Sir. Again, if you —

Participant: Anton Chaitkin with Executive Intelligence Review. Since there is a faction in the United States and Britain that seems to be pushing for a conflict with Russia and China both — Brzezinski saying we should break Russia up and possibly China, looking at people saying the same thing, shouldn't we consider going back to a previous mission orientation of the United States towards these countries? Specifically from Lincoln to McKinley, and then with FDR and Kennedy, the vision of the United States was to help to industrialize these countries out of poverty.

Aren't we going to get ourselves in World War III if we continue with this — if we allow this faction to push for this kind of a conflict to try to break off our relations with these countries? Don't you think we should step back and go back to this previous idea? Because Russia, China and India have decided to form an alliance for their own development. Why don't we join them?

R. Haass: Let me try to tackle that. I don't know of anyone who's calling for breaking off relations with these countries, and I think the goal of most people who think about these issues is looking for a way to integrate China and Russia into a form of what you might call international society that is to our liking. And that emphasizes two things.

One is how they organize themselves domestically. We prefer them to be essentially open, more democratic than not, more market- oriented than not domestically. And then secondly, we want them to sign up to certain rules of the road for the conduct of international relations — not to make the use of force the staple currency, not to in any way promote the proliferation of weapons of mass destruction or other destabilizing technologies, and so on,.

So it is our goal to bring China and Russia into what you might call a post-Cold War version of international society. I think in both cases, the jury's out, in part because their domestic evolution is uncertain, and in part because in both countries we see aspects of their external behavior that are to our liking and we see aspects of their external behavior which quite frankly are troublesome.

And I think that the challenge for American foreign policy over the next decade — just as it's been over the last decade — is to try to promote a pattern of behavior at home and abroad for both China and Russia that is essentially more to our liking than not. And again, I think what you're hearing up here is an argument at least that we ought not to look to exclude China from international arrangements.

To follow up on one point, Nick Lardy said that we ought not to use the WTO membership as a club or as a sanction. But rather that's a form of integration that I think Nick is arguing makes sense on its economic merits, but I would argue also makes sense ultimately on its political merits as well.

Participant: Paul Mann, Aviation Week. Question for one or all of you. On the domestic side in this country, is the Clinton administration too weak and too distracted politically to reach a WTO accord now?

N. Lardy: No, I don't think political constraints on this end are the major problem. I think really the major problem, if you go back and look at this as it's developed over the years, is really the Chinese having enough confidence in their own domestic economic reforms and their success to take all the additional steps that would be required to come into compliance with WTO principles — getting rid of a lot of non-tariff barriers, coming into compliance on, you know, intellectual property, and all of the other principles built into the WTO system. I think that has been the central constraint all along.

Participant: [Off mic] — to reach a WTO accord?

R. Suettinger: I don't think so. He gave an interesting interview over the weekend, in which he indicated that in fact more concessions are indeed possible. So I think what the Chinese are looking for is evidence that the United States is prepared to move toward this middle ground that's been there all along, in terms of finding the right details on phase-in periods and issues that can be decided or others that can be put off for a while. They're looking evidence that the United States is prepared to make a few concessions of its own.

R. Haass: I actually, Paul, have a different answer than Nick, because I do think there would be a domestic political fight at this end. And to the extent we're talking about giving up the right of an annual review on MFN, that would mean the administration would have to go out and make the case that a structural trade relationship with China made sense. And in and of itself, that would be something of an engine not simply for a better economic relationship, but for internal economic reform in China, would lead to a more open China, and so forth.

That is a debate that the administration would have to wage and win. Clearly there would be people who would be against it who would worry about giving up what they perceive to be the leverage that stems from the annual review over MFN status. So I think that would be something of a political debate on this side of the ocean.

Yes, ma'am.

Participant: I'm a graduate student at Johns Hopkins University at SAIS just across the street. And the question I had was with regards to the MFN debate in the U.S. Actually, two questions.

The first one is how might perhaps Dr. Haass or even Nicholas Lardy characterize the future debate of the extension of this preferential tariff treatment and its importance to U.S.-China relations, and then secondly could it not be argued that China has become a non-market economy and then would therefore would not be subject to the Jackson-Vanik Amendment for MFN extension.

R. Haass: Well, let me take the first half of it. And if we had a scenario where China met the objective criteria for WTO membership as the United States essentially has articulated it and negotiated it; and indeed if the administration were to reach an agreement with China on WTO accession in whatever form that would take, and then if the administration could not follow through domestically with whatever degree of implementing legislation was required, I think that would cause a major problem in the U.S.- Chinese relationship.

What it would do — beyond any immediate repercussions, it would clearly reinforce the views of those in China who have been arguing for sometimes — I think wrongly, but who have been arguing — that a principal purpose of American foreign policy is the maintenance of American hegemony and the repression of China's emergency. And it would take on tremendous symbolic consequences and proportions beyond any immediate trade or economic consequences.

So again, if we do get to the point where we are able to reach a satisfactory arrangement with the Chinese, then I would say it becomes extremely important that the administration put all of its political resources behind the successful sales effort here at home.

N. Lardy: Let me just comment on the non-market economy issue. This will be what is referred to as a protocol issue. And in fact — this is for anti-dumping purposes — China is considered a non-market economy and it affects the methodology that is used to calculate dumping margins in those cases.

The Chinese would certainly like to be classified, for that purpose, in the provisions on dumping as a market economy. It would be much more favorable to them. I suspect but I don't know — I'm sure the U.S. view probably would be we would to want to classify China as a non-market economy until we got through perhaps the bulk of the phase-ins that China is asking for, and then we would go to the market economy classification once China had come into full compliance and had met the phase-in schedule.

R. Haass: The gentleman all the way in the back with the yellow tie.

Participant: David Lax [ph], president of the U.S.-ROC-Taiwan Business Council. My question is for Bob Suettinger. Bob, there's so much — actually I have two questions, the first one aimed at Bob.

There's so much hyperbole in the press over whatever is really the change in the missile status of the PRC with respect to what's positioned opposite Taiwan. Drawing on your past experience as NIO and NSC, is there anything at all you can say about what the real situation is there?

My second question is to all of you, and that is any comments from any of you on the beneficial impact of the trade and investment in the cross-strait relations?

R. Suettinger: Let me try to address your first issue. You have to recognize that I no longer work where I used to, so I don't know what I used to know. [Laughter] And I've forgotten everything that I learned while I was there. [Scattered Laughter] But the fact of the matter is that without a doubt, China's production of short-range and intermediate range ballistic missiles conventionally armed has increased. And that has directly increased the sense of threat that is felt in Taipei and elsewhere on the island — and has increased the concerns of a lot of people about what in fact the Chinese are planning to do with that increased number of missiles.

Now in terms of what is located where, my sense is that since most of these missiles are mobile missiles, we probably don't have a particularly accurate count of how many there are or where they are located. But I think there's general consensus, as was indicated in the Defense Department report recently released, that the numbers are growing, and that China is increasingly making it clear that it can and will deploy those missiles within range of Taiwan.

Now again, it bears repeating that Taiwan has been vulnerable to a missile strike from larger Chinese missiles for quite a long period of time. So there's nothing that's particularly new about all of this. But the fact of the matter is that now having tested on two occasions those missiles in the Taiwan Strait, there is a much more palpable sense of threat involved in these deployments and there is a much greater sense of dissatisfaction here and in Taipei with those deployments.

So it is of great concern and it is an issue that has to be discussed between the United States and China.

R. Haass: Do either one of you want to talk to the second half of that?

N. Lardy: Yeah. Now, David, on your second question, I would say that over time, China's admission to the WTO would be highly for improved cross-straits economic relations and I say that because first of all, Taiwan would gain from admission to the WTO. As most of us know, Taiwan has been shall we say closer to meeting all of the obligations and is practically ready to come in now. There are a couple of countries that haven't finally settled every detail.

But basically, the problem we will soon encounter is that if China does not get in, we will be in the unfortunate position of not having Taiwan come in because China has the votes from the Europeans and the Japanese that they will not allow Taiwan to come in. And I think it would be highly beneficial to have Taiwan in the World Trade Organization. So that would be a big benefit.

Secondly, I believe it would be the case, once Taiwan gets in and once China is in, that Taiwan would be forced to reduce many of the highly restrictive practices it has on trade with China, particularly they deny the right of entrepreneurs in Taiwan to import quite a broad range of products of Chinese origin, particularly of manufactured goods.

So I presume that once they're both in and they have to apply WTO principles on trade with each other, there will be a substantial pick-up in trade, and in particular the large imbalance that now exists in their trade because of these restrictive practices in Taiwan would be eroded.

R. Haass: Sir.

Participant: Hal Millikan, affiliated with Washington Independent Writers. I'm wondering how much do any of you care about issues such as the reports coming out regarding slave labor, the harvesting and marketing of human body parts, as well as the policies of forced abortion, forced sterilization, and the increasing religious persecution. Do any of you care much about these issues, or do you think these are better avoided and denied?

R. Suettinger: I'll take a cut at that one, since it was an issue that came up repeatedly when I was at the National Security Council. I will try not to be offended by the question, because the notion that we don't care about those sorts of issues and never did is demonstrably untrue.

The fact of the matter is that the United States has raised these issues repeatedly with the Chinese government at all levels. I sat in on some of these sessions. Part of the problem is that our information base on what is in fact taking place in rural areas in particular, where most of these abuses are thought to have taken place, is not very good.

And so I think we have to be very careful to make sure that we are able to substantiate the kinds of charges that are made. Some of the charges that have been made have turned out to be not true or inaccurate. So I think we need to be very careful about how we deal with this issue. And we need to deal with this issue in responsible ways with the authorities that are involved.

I think it's fair to say that over time, accusations of this sort have led to changes in behavior on the part of the Chinese government, certainly in issues pertaining to forced sterilizations and abortions. I believe that the record suggests — and again, you can't substantiate it — that in fact there has been improvement in this score, that the numbers of reports of those kinds of practices has decreased.

Now I am certainly aware that they haven't been eliminated, nor would I make the claim that China's human rights practices across the board have increased. But certainly these are issues that need to be borne in mind, they need to be raised by U.S. government officials, they need to be raised informally in conversations with Chinese across the board.

R. Haass: Let me just piggyback on that and say two things. The first is to the extent these are correct accusations, the question then for policy makers — and I'm not normally accused of speaking for the Clinton administration, but let me just say that the challenge for policy makers is how do you then promote what it is that you want to promote. And the issue is, is it speaking out from the mountaintops, is that going to help you, is it going to be sanctions, is that going to help you.

And in many of these cases, the forms of response on our side that might make us feel best won't necessarily bring the best results. And at the end of the day, foreign policy can't be about therapy for us. It's got to be about positive change in the other country.

Secondly, we've got priorities as well. We do not have the luxury of simply conducting a policy vis-a-vis China that only looks at these issues. So I'm not saying we ought to ignore them. On the other hand, we have a whole range of strategic concerns. And I would say Chinese behavior vis-a-vis stability in the Korean Peninsula, Chinese behavior vis-a-vis Taiwan, Chinese behavior vis- a-vis missile or nuclear exports to South Asia or the Persian Gulf--I would say those are also policies on their part with real consequences for American interests.

So whatever it is we do — however it is we do decide to promote our interests vis-a-vis Chinese domestic behavior — it has got to be conducted against a backdrop that we have got an awfully complicated menu of interests vis-a-vis China.

Yes, ma'am.

Participant: My name is Marina Rhoda. I'm a student at Johns Hopkins, at the Center for American Government. And I have two questions. One is just very quick. I just wanted to know, yes or no, whether it's possible that China be admitted conditionally. I've read in the National Journal — someone suggested that they give them a rolling membership, that their privileges be tied to their performance.

Then I have a more pressing question, and that is I understand that there's a question regarding admitting China in as a developed versus an industrial country. I believe that the U.S. wants them to come in as an industrialized country. And I want to know whether it's in the global interests to have China come in as a developing country, and also whether perhaps in the long term it might be in the interests of the U.S. to have them come in as a developing country.

Related to —

R. Haass: Why don't we just take that, because we've got a lot else more. Nick.

N. Lardy: Well, let me take the developing country. The Chinese years ago used to argue quite strongly they should be treated as a developing country. And the most important thing about this status is that countries with that classification have permanent dispensations from coming into full compliance with certain standards under certain conditions.

The U.S. view has been — and I certainly think that this is quite proper — that China is, you know, one of the major trading countries. It has had export growth of 15 percent per year over the last 20 years, it does not need the special dispensations that are provided to developing countries in order to encourage its integration in the world economy.

And in fact, what the United States has said is that we will talk about phase-in periods for many conditions, many principles, phase-in periods for reducing tariffs and so forth, and we can talk about how many years those should be. But we're not prepared to give a blanket developing country status.

And I think the Chinese have come to accept that. From time to time, you still do hear Chinese officials talking about having a developing country status. But quite frankly, it's not on. We can talk about phase-in periods for certain requirements, but I don't believe that the United States is going to accept the developing country status as a blanket condition.

Now, in terms of your first question, again I don't think it's feasible. I think China will come in and be a full member and then will come in to full compliance with the various provisions of the WTO over time. But there is not really a very good way of, you know, phasing it in the other way around, as the first part of your question suggested.

R. Haass: Yes, sir.

Participant: Thank you. Rich Miller at USA Today. I wonder — I think, Mr. Suettinger, you mentioned that a few missteps here he might be called into account back at home. I wonder if you could expand a little bit on that, you know, who are the opponents he faces, how strong are they. Is the recent slowdown in growth there strengthening their hand, et cetera.

R. Suettinger: It's all too easy to try and paint a picture of the Chinese leadership as being divided along issue-oriented lines. Unfortunately, it's also all too incorrect.

Political interactions in Beijing are extraordinarily complex and have long defied the efforts of analysts like myself to try to put any kind of definition to them. But it's clear from what we read in the press, it's clear from the kinds of policy statements that are made, that there are disagreements within Beijing about the parameters of many issues, including foreign policy issues and including domestic policy issues.

Zhu Rongji has initiated some reforms in China over the course of the last year that have been highly controversial. Some of them have involved, for example, persuading the military to get out of business, for example, which has not been entirely popular with certain military officers. He has undertaken a campaign of eliminating a large number of redundant jobs in many of China's central bureaucracies--also a move that has deprived a number of people of the living to which they've become accustomed. So that one can easily state that he has a fair number of people who do not think that he's the best thing that's ever happened to China.

There are also those who have a more conservative ideological perspective who look on Zhu Rongji as a man who has sacrificed Marxist-Leninist principles to no better result than some of his predecessors.

So the fact of the matter is that coming into an environment in which he will be criticized and attacked and put under pressure is something that probably some of his opponents in China will welcome because they're just looking for an opportunity to hamstring him a little bit, slow down some of his policies, and perhaps even damage him politically.

R. Haass: We've got time for a few more questions. Yes, ma'am.

Participant: I'm Connie Huus with MSNBC.COM. First of all, I wonder what are the parameters? Everyone has said this is a delicate time. What are your worst- and best-case scenarios coming out of the visit? And the other question is a more general one about China, and previous episodes where we've had a lot of conflicts. The Chinese government used it to great effect to stoke kind of nationalist sentiment I guess in their own defense. And I wonder if you see that happening again.

R. Haass: Let me take a quick crack at your first one, and then invite my colleagues here to take a crack at that or your second question.

I think that probably the best that could probably be expected at this point — and it's a fairly modest best, which in and of itself tells you something. I think a full agreement on the WTO is probably beyond reach. But perhaps a statement of significant progress, something of a road map, maybe even a timetable; but a very clear sense that would package exactly where the agreements are, make all that clear and perhaps lay out a few of the areas still that remain to be done, and some sense of a serious process so there's a real sense of expectation and momentum towards that — which by the way has the advantage of beginning to prepare the way here politically for it.

Secondly I would say a clear sense of what comes next in U.S.- Chinese relations in terms of meetings and so forth. I get nervous when there's no clear next steps to this relationship, because then things become hostage inevitably to what's going on in the world. So to the extent stuff can be nailed down —

And a perfect example is this visit. It's to me highly unlikely this visit would have happened had it not already been set up for now. And so to the extent one can begin to plan ahead and lock in certain aspects of U.S.-Chinese relations, I think it helps gird it against what are inevitably going to be the bumps.

And thirdly, coming back to something I said at the beginning, to the extent the president really uses this as an opportunity, Zhu Rongji as well, to speak publicly about this relationship — to make the case for it; not that it's perfect, again, to move away from the high-blown rhetoric — but to make a case for what it is accomplishing and why it's in both countries' interests to still try to bridge their differences where they exist. I think that's the best.

Gee, the worst is almost the flip side of a lot of those things: that there's very little if any progress on the WTO to report; that in a sense the expectations of the last few weeks and months are not met; that there's no clear follow-up to this visit, it happens and then it's not clear what happens next; that there are very rough public receptions and private receptions everywhere Zhu Rongji goes.

It's not simply that he gets an earful, which I think is probably to be expected to some extent, but that there's nothing pushing back on the other side — there's no real articulation about why a workable or viable relationship with China is in the interests of the United States. He himself could say things that would make things worse that could seem to be insensitive or inflame the critics of the relationship.

So unfortunately, it's easy to paint out a pretty bad case. But I think there's a respectable chance that the more positive outcome comes. But again, I would say even the more positive outcome looks fairly modest. It is not a breakthrough in any ways. So it doesn't necessarily put this relationship on a firm plateau.

Do either of you guys want to —

R. Suettinger: Let me just speak to the issue of Chinese nationalism. I think at this point that's probably not something that we should worry excessively about. Obviously it's a concern. It has appeared on occasions in the past. And certainly if the United States is perceived as consistently and persistently trying to reduce China's economic growth, trying to contain it politically, trying to stand in between the reunification of China and Taiwan, then certainly nationalism will naturally appear, and the government will take advantage of that.

But I think in the context of a visit, in the context of the current relationship, I don't see the stoking up of nationalism as being a serious problem at this point.

R. Haass: Sir, in the third to last row.

Participant: Hartman Pond [ph] with CNA — Central News Agency. I have one question for Mr. Lardy and one question for Suettinger. On the WTO issue, I just wonder, one of the topics that's never been touched apparently is that the impact on the renminbi. If China and the United States reached an agreement during Zhu Rongji's visit, what will--because China will certainly pay some down payment on the first year, that means the trade imbalance might be improved. But what about the impact on the renminbi in the short term, and in the long term?

The question for Mr. Suettinger is Taipei has expressed their hope to join the theater missile defense system — the TMD. It's a hot issue right now, and Zhu Rongji just received an interview with Wall Street Journal, which was published yesterday. What Zhu Rongji said basically is that he not only opposed Taiwan to join the program, he opposed the TMD idea totally. He said it was wrong, and it was the Cold War thinking.

So do you think it is realistic for Taiwan? Because there is going to be an annual military purchase meeting later this month. Do you think it is realistic for Taiwan at this moment to purchase the (Aegis ?) destroyers or the submarines at this moment?

R. Haass: Nick, why don't you go first.

N. Lardy: Let me go first on what the question of the relationship between a WTO agreement and the Chinese currency value might be. It is true that a WTO agreement which provided greater market access might go some way towards reducing the U.S. trade deficit. But I wouldn't want to overestimate or overstate the degree to which the deficit would fall as a result of a WTO agreement.

And one of the main problems — Mike Armacost alluded to it — the large appetite here for consumer goods, combined with the movement of more and more companies into China from other places in Asia, means that the deficit is likely to persist — maybe not grow as rapidly but certainly likely to persist at very high levels, even if we get an agreement.

And I would not necessarily anticipate that an agreement would lead to a devaluation, both for the reason I've already mentioned; but also, there will be liberalization in telecoms, in certain other sectors that have been liberalized. These will lead to higher levels of investment inflows into China. So whereas there might be some deterioration in China's overall trade balance, although modest, there are likely to be some improvements on the capital account, because of the opening up of some new sectors to foreign direct investment.

So there is not necessarily any reason to believe that a WTO agreement would be followed by a deterioration in the balance of payments overall that would lead to the need for significant renminbi devaluation.

R. Suettinger: The theater missile defense issue has generated a lot of heat, and not much light. It is still a number of years away in terms of deployment, even in protection of U.S. forces. And I think decisions on how that system is going to operate and from what platforms and with what kinds of effectiveness are still very much in the planning stages.

It seems to me that there are a large number of issues that still need to be discussed about TMD. It's oftentimes portrayed as something of a magic weapon that will resolve all vulnerabilities to foreign missile systems. Those who know the TMD issue well and the technicians who work on it, are quite aware that that is not the case. And that in fact the system has flaws, weaknesses and vulnerabilities of its own that can be easily exploited.

So I think what is needed is a thorough discussion of both the practicality and the strategic feasibility of theater missile defense forces. You referred to Premier Zhu's statements. He made two statements about TMD that he explicitly said need to be separated. One was a reiteration of a long-held Chinese view that theater missile defense systems — like national missile defense systems — are essentially a violation of the ABM Treaty that was signed between the United States and the soviet Union.

Secondly, he implied very strongly that the TMD issue would be considered by China as an issue pertaining to national sovereignty were it to be deployed in or around Taiwan.

So I think the Chinese objections are twofold: One, that the rest of the international community should also oppose TMD as a violation of a treaty, and secondly that this is an extremely important issue from China's perspective.

I am not in a situation where it would be wise for me to recommend how Taiwan should seek to spend its money, in terms of seeing to its own defense. The fact of the matter is that there is an increasing threat to Taiwan from PRC missiles. But TMD is not the only way to eliminate that threat.

R. Haass: I would just add one thing. The most likely near-term driver of a TMD decision on the part of the United States will be the behavior of North Korea. And if China is sincerely interested in discouraging the emergence of an American TMD system in that part of the world, they should use all of their influence and then some to try to influence the course of events in North Korea, because that is the single most salient issue.

So if China is as disturbed as it claims to be about TMD, the thing they can do most about it, I would think, is to try to discourage continued provocative acts on the part of North Korea. Yes, ma'am.

Participant: I'm Marian Anderson. I'm with the East-West Center. I have two questions. First one, could someone touch on Mainland China's aggressive behavior in the Spratly Islands area? Also, about a recent pact — cooperative pact that's been signed between Mainland China and Thailand.

And then lastly, a question for Nicholas Lardy. There's been a report published by the Department of Commerce from the Bureau of Export Administration that suggest that American companies doing business on the mainland have been directly or indirectly pressured to share more technology than they really want to and set up R&D facilities in the mainland in order to get good contracts or set up their joint ventures. Could you comment on that?

R. Suettinger: Yeah. First of all, on the Spratlys obviously you're aware of the fact that five different nations claim different portions of the widely scattered and at high tide invisible Spratly Islands. The fact of the matter is that China, in the course of the last several months, has enlarged and enhanced the capabilities of one of the facilities that it established on a place aptly named Mischief Reef, which is relatively close to the Paolomin [ph] Island in the Philippines.

The Philippine government has protested this action on China's part, and they have been in negotiations over it. Up until this point, there has been no resolution of that issue.

I think it would be difficult to characterize this as a new major foray on China's part into seizing more of the territory in the Spratly Islands. This is a long-standing dispute. The countries of ASEAN are involved in it, and they are involved in discussions with China, and those discussions have been for the most part carried out reasonably well if not altogether successful in resolving an issue that probably cannot be really resolved.

As far as the relationship with Thailand is concerned, China has had a close relationship with Thailand for a long period of time. I'm not exactly certain which agreement you're referring to, because I haven't quite frankly followed it all that carefully, so I'm afraid I can't really give you much detail on that issue.

N. Lardy: On the technology transfer. I think most of the technology transfer that has been going on, quite frankly, has been voluntary. The biggest technology transfer to China is the fact that there's now a quarter of a trillion dollars in foreign direct investment in China. These firms are from the United States, Japan, Europe, Hong Kong, Southeast Asia, and they're bringing advanced technology management skills, marketing skills and so forth to China for their own economic self-interest. Obviously China benefits.

There are some contracts in which it is alleged that China requires technology transfer. But I think in most cases, you know, this is a two-way street. No company has to sign any of these contracts. Quite frankly, most of them are signing them because of competitive pressures. If General Motors isn't going to bring some technology to build Buicks in China, they're going to have an automobile plant with Mercedes, or Fiat or somebody who will bring them the technology they want. So it's I think in most cases driven by competition in the marketplace.

R. Haass: We've got time for one last question. Sir.

Participant: Marvin Liebstone [ph], Global Security and Trade Journal. As indicated by a lot of the questions and some of your comments, it appears that every time we manage to make economic and political progress in the U.S.-China relationship, we move a few steps forward. Suddenly some security issues surfaces to put us several steps back — whether it's Chinese military elements heading toward Taiwan or whether it's the missile problem or whatever, spying in the DOE, these issues surface and seem to be like Roman candles. Both sides kind of back off.

As serious as we would think they might be, they kind of disappear into the wind, and we continue on with the relationship. My question is: what does this say about the relationship, and perhaps this is a good summation opportunity for you.

R. Haass: Thank you. You stole what I was going to say, so let me turn to my two colleagues and let them take a shot at what you raised, and use the opportunity to make any last comments they'd like. Nick.

N. Lardy: Well yes, we do have these pyrotechnics from time to time, lots of opposition to the relationship. But I would point out that despite all these problems, the economic relationship has grown quite substantially over the years. Last year, U.S. firms exported three times more to China than they did in 1990. It's now our sixth-largest export market. It's by far and away our fastest-growing export market. So yes, there are some problems with access to the market.

But many U.S. firms have done quite well there. Similarly, I would point out that U.S. investment in China has actually increased significantly over the last two to three years, so individual businesses have decided that the economics are sufficiently attractive that they have increased their investments.

So this is despite problems that have arisen in many other areas — human rights, security issues and so forth. So i think it's important as we see the headlines and so forth that we don't lose track of the fact that the underlying economic relationship is actually fairly vibrant. It could be improved by a WTO agreement which would be very much in our interests. But this is an economic relationship that has been doing pretty well in the decade of the 1990s — despite these adverse influences from other spheres.

R. Suettinger: Just a brief comment. In the sort of half- full or half-empty glass metaphor. It seems to me that this has always been a relationship defined by its problems — that there has never really been on either side a full appreciation or definition of what are the long-term goals and benefits that are to be shared by both countries.

Those have become increasingly evident as the relationship has progressed. But the gap between the two sides, dating back to the 1950s — certainly to the normalization of relations in 1979 — has been enormous. And the dynamic change going on within each society, has been significant so that sometimes all of the fireworks and the smoke tend to obscure the fact that in fact enormous progress has been made, in terms of mutual understanding.

But the gaps of culture, of ideology, of ignorance, in many cases have really been substantial. And there's still an awful lot of work to be done on both sides to improve the levels communication, and to improve levels of understanding and to minimize the damage to the relationship that could be done by these kind of occasional events of bad news.

R. Haass: Your lead paragraph is that "Brookings Pleads For Perspective." [Laughter] Like Wagner's music, this relationship is perhaps better than it sounds, and that there are some real differences here. And it seems to me there is right now two enemies to working things out.

One is those who would refuse to see the areas of actual cooperation or the potential for more, or the price of not cooperating and the many opponents of the relationship. On the other hand is those who would sell it for more than it is — and to speak in overly flowery terms as though we were partners or allies, is way out of bounds.

And what this is — this is a relationship that is increasingly typical of the post-Cold War world. In some cases, it's quite competitive, we disagree sharply. In some areas, we find that we're actually able to disagree, but at least agree to disagree.

In other areas, we're actually able to cooperate. And it's a very situational relationship. It will depend upon what the issue is at hand. It's going to be very hard to classify it and we should probably resist all the temptations to put it in a nice, easy box.

With that, I really want to thank Nick Lardy and Bob Suettinger, who I think are two of the finest China experts not simply in this town but in any other town, and I want to thank all of you for coming to Brookings this afternoon.

[APPLAUSE AND END OF EVENT.]