China and the WTO: Labor Issues

China and the WTO: Labor Issues

Order Code RS20582
Updated July 21, 2000
CRS Report for Congress
Received through the CRS Web
China and the WTO: Labor Issues
Mary Jane Bolle
Specialist in International Trade
Foreign Affairs, Defense, and Trade Division
Summary
China’s prospective membership in the World Trade Organization (WTO) raises
issues among some U.S. workers and organized labor about job and wage security.
Many labor groups argue that Mexico’s threat to U.S. jobs and wages since the North
American Free Trade Agreement (NAFTA) could be dwarfed by China’s threat as a
result of closer economic ties. China’s average manufacturing wages, at about $0.25
per hour, are about one-fifth as great as Mexico’s, and about one-fiftieth as much as total
compensation for manufacturing workers in the United states. China’s labor force is 18
times that of Mexico and five times that of the United States. Most business groups
argue that U.S. businesses in China pay much higher than average wages, that free trade
creates both “winners” and “losers,” and that China’s WTO accession will greatly expand
U.S. exports and jobs. On May 24, 2000, the House passed H.R. 4444 granting
permanent normal trade relations (PNTR) with China. It would also set up a
Congressional-Executive Commission to monitor Beijing’s human rights compliance and
codify anti-surge protection measures contained in the U.S.-China bilateral agreement.
Related legislation includes proposals for an expanded adjustment assistance program
for workers displaced from their jobs by possible increased trade with China. The Senate
is not likely to vote on its version of PNTR legislation (S. 2277) until September.
China is the world’s most populous nation. It has a labor force of about 700 million,
five times that of the United States (at about 130 million). China’s imminent membership
in the World Trade Organization (WTO)1 has crystalized concerns of some U.S. workers
1 On November 15, 1999, the United States and China announced a bilateral agreement on China’s
WTO membership whereby China, upon its WTO accession, would reduce or eliminate barriers
to trade in agriculture, industrial products, and services. Before the full WTO membership can
vote on its WTO entry, China must complete bilateral negotiations with other key WTO members
and the WTO working party. In addition, to assure that the WTO agreements would fully apply,
Congress would have to pass legislation granting Permanent Normal Trade Relations (PNTR)
status to China – a status currently renewed on an annual basis. Source: U.S. Library of Congress.
Congressional Research Service. China and the World Trade Organization, by Wayne M.
Morrison. CRS Report RS20139. Also, the author would like to thank Wayne Morrison for
(continued...)
Congressional Research Service ˜ The Library of Congress

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about their welfare in the new world economic order, “the global economy.” As one result
of globalization, goods such as autos may be assembled from components produced in a
dozen or more countries. At the same time, some services (e.g., processing of
information) may be performed in localities far from where the service is received. Some
labor groups have expressed concern that, with China’s entry into the WTO, increasingly
fewer manufacturing and service jobs may be performed by workers in the United States.
China’s economic power has grown substantially in the past decade. Its roughly 125
export processing zones2 – huge industrial parks located at or near ports – have provided
an engine for economic growth and an increasingly sophisticated training ground for
workers. Total U.S.-China trade rose from $18 billion in 1989 to $95 billion in 1999,
while China climbed from tenth to fourth position among U.S. trading partners. Although
its eager and massive working population has quickly made China a top world economic
player, enforcement of worker rights protections and social policies are still lagging behind
those of more developed countries.
Debate Over the Effects of China’s Economic Growth
Some key concerns of some U.S. workers about the global economy and China’s
growing role in it, together with responses of business groups and some economists are:
Job Loss. Labor economists note that many low-skill production jobs have been
“lost”3 as U.S. firms have shifted production to developing countries, leaving behind a
predominance of low-skill service jobs and high-skill production and service jobs. Labor
unions argue that China has the potential to absorb a large proportion of remaining U.S.
moderate-skill production jobs including textile and auto production jobs. Business groups
counter that the United States is already at full employment, and the opening of China’s
markets will force workers in both countries into more productive jobs. This will reduce
prices on goods that are imported rather than produced at home. Thus, cheap imports
both raise living standards and increase demand for other products.
Wage Loss Among Low-Skilled Workers. In a Business Week/Harris poll, 68%
were of the opinion that trade agreements with low-wage countries drive down U.S.
wages. Anecdotal evidence documents stories of workers who accepted wage cuts to
keep their company from relocating abroad. Economists have found that wages in
developed countries have become steadily skewed in favor of high-skilled workers relative
to low-skilled workers. Moreover, three sets of data show that real U.S. wage and
compensation averages (adjusted for inflation) have declined between 1978 and 1999:
total private average hourly earnings by 7%; average hourly earnings for manufacturing
production workers by 12%; and hourly compensation (including benefits) for
1 (...continued)
assistance in preparing this report.
2 The Flagstaff Institute. WEPZA International Directory of Export Processing Zones & Free
Trade Zones. May, 1997
3 Economists like to point out that in an economy operating at full employment, jobs are not “lost,”
but merely shifted – typically from a declining industry to a growing one.

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manufacturing production workers by 11%.4 Over the same period of time, productivity
measured as the growth in U.S. output per hour in manufacturing, has grown by roughly
30%.5 Historically, until recently, real wage growth has tended to track productivity
growth. Economists are uncertain about the cause of poor wage performance and the
wage-productivity spit, but most researchers have concluded that trade’s impact on wages
may be 15-20% or less, with the remainder attributed largely to technology.6
Loss of Leverage on Worker Rights. Despite some worker rights protections in
Chinese law, China’s workers are not permitted to organize freely, and “forced labor in
penal institutions is a problem.”7 In addition, when a plant opens an operation abroad,
worker protections mandated by U.S. law may not convey to workers in a developing
country unless a business voluntarily adheres to a professional “code of conduct.” On the
other hand, businesses argue, when operations are transferred abroad, the combination of
U.S. management and transferred machinery typically introduces into the developing
country greater worker rights and safety protections, and higher wages. U.S. firms report
that, in China for instance, the average hourly U.S.-paid manufacturing wage is $3.86
versus China’s national average of $0.25. 8 Some labor unions counter that even with
embedded protections, multinational firms can still exploit workers overseas by paying low
wages, and can then potentially harm workers at home by exporting the goods back to the
United States, threatening U.S. jobs where labor rights exist.
Loss of Leverage on Human Rights. For some Members of Congress, the annual
renewal of China’s NTR status provides an effective tool for influencing U.S. policy
toward China on a variety of issues including human rights. United Auto Worker president
Stephen P. Yokich concurs, arguing that the WTO accession agreement is “fatally flawed”
because China “has a horrendous record of religious persecution and oppressing the
freedom of its citizens to speak and assemble freely.”9 John J. Sweeney, president of the
AFL-CIO, agrees: “The AFL-CIO fervently believes that the rules of the global economy
. . . must take into account all of society. Human values, not just business values, must
4 U.S. Department of Labor, Bureau of Labor Statistics. International Comparisons of hourly
Compensation Costs for Production Workers in Manufacturing, 1975-1998, table 3; and
Economic Report of the President (EROP), February 2000, p. 360. Current figures were
translated into “real” figured by dividing them by the consumer price index, EROP, p. 373.
5 U.S. Department of Labor, Bureau of Labor Statistics data.
6 See CRS Report 98-441, Is Globalization the Force Behind Recent Poor U.S. Wage
Performance?: An Analysis, by Craig K. Elwell.
7 U.S. Congress. Joint Committee Print. Country Reports on Economic Policy and Trade
Practices. Report to the Senate Foreign Relations Subcommittee of the Senate Finance Committee
and the House International Relations Subcommittee of the House Ways and Means Committee,
April 2000. S. Print 106-45, p. 26-27.
8 Source for U.S. figures: Business Coalition for U.S.-China Trade (BC). This figure may include
benefits as well. Nike reportedly pays Chinese workers a minimum of $44 per month, plus free
housing, meals and medical care valued at $108. In sharp contrast to the BC figure, this Nike
figure divides out to $38 per week, or, depending on hours worked, less than $1 per hour.
9 Bureau of National Affairs (BNA). Inside U.S. Trade. Text: UAW Letter on China Vote. Feb.
4, 2000.

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inform these trade agreements.”10 Business groups counter that granting China PNTR,
opening it to greater U.S. influence and to a higher standard of living, will encourage
greater respect for human rights as has occurred in other nations moving from developing
to industrialized status.
Possible Lessons from NAFTA
Some lessons from the North American Free Trade Agreement (NAFTA) with
Mexico and Canada, which went into effect January 1, 1994, may be applicable to the new
U.S.-China WTO relationship. For instance, with or without NAFTA, trade with Mexico,
a developing country like China, was growing and would have continued to do so; after
NAFTA, it accelerated. Second, on balance, about two U.S. jobs have been “gained” for
every U.S. job “lost” to increased trade with Mexico since NAFTA.11
However, some lessons from NAFTA might not transfer exactly to the U.S.-China
experience. First, NAFTA, as a free trade agreement, and PNTR, as a designation of trade
status, provide very different forms of economic integration. Second, Mexico’s
geographic proximity to the United States has encouraged a unique symbiotic relationship:
U.S. components are often assembled in Mexico and sent back to the United States. With
China, suppliers are more likely to be located in Asia. Third, whereas Mexico is a final
assembler of U.S. components, China, among other things, is also a producer of
components (e.g., computer components) assembled in the United States. Fourth, U.S.
exports appear to have more growth potential with China than with Mexico. Under
NAFTA, both Mexico and the United States reduced trade barriers. Under the U.S.-China
bilateral agreement, only China is liberalizing its trade. With its huge population and low
economic base, China holds a greater potential for absorbing large volumes of U.S.
exports. Finally, U.S.-Mexico and U.S.-China trade involve some different industries. The
largest U.S. export to China is airplanes and parts. Beyond the primary imports from both
Mexico and China (electronics, computers, apparel), the United States also imports a large
volume of furniture and housewares from China.
Legislative Issues
The Vote on PNTR Status.. A “yes” vote in Congress on PNTR would seal the
U.S.- China WTO relationship, if China wins WTO membership which requires other
similar bilateral agreements. China’s WTO membership, according to business interests,
could widen the doors for greater U.S. exports to China and provide greater balance to
the $82-to-$13 billion 1999 import-to-export ratio. To protect U.S. industries and
workers against job “loss” from increased imports, the bilateral trade agreement with
China includes several specific provisions: 1) anti-dumping provisions to prevent Chinese
goods from being sold in the U.S. market below cost; 2) product-specific safeguards,
which allow the United States to target rapidly increasing Chinese imports if they are
10 BNA. Inside U.S. Trade. Text: Sweeney Letter on China Vote. Feb. 7, 2,000.
11 NAFTA: Estimated U.S. Job “Gains” and “Losses” by State Over 5 ½ Years, by Mary Jane
Bolle. CRS Report 98-782 E.

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disrupting or threatening to disrupt the U.S. market; and 3) special safeguards for U.S.
textiles, which will be available until the end of 2008.
Business interests argue that a “no” vote in Congress on PNTR could diminish future
U.S.-China trade and investment relations. The United States might not get all the
benefits of China’s WTO accession, since China would have no obligation to grant them
under the WTO. In addition, the United States would not be able to use the WTO dispute
resolution process, if China uses trade barriers to unfairly discriminate against the United
States. On the other hand, labor interests argue, a “no” vote could slow economic
integration that might accelerate plant relocation, and also add more leverage to the annual
NTR review process, permitting closer scrutiny of China’s human rights treatment.
Amendment to PNTR.. On May 25, the Senate Finance Committee passed S. 2277,
simply granting China PNTR status upon its accession to the WTO. One day earlier, on
May 24, 2000, the House passed H.R. 4444, granting China PNTR status but adding
several provisions that were proposed by Rep. Sander Levin and Rep. Douglas Bereuter,
including a Helsinki-type Congressional-Executive Commission to monitor Beijing’s
human rights compliance, and codifying anti-import surge protection measures contained
in the U.S.-China bilateral agreement.
H.R. 4444 provides that the Commission shall: 1) monitor acts of China which reflect
compliance with or violation of certain human rights; 2)compile lists of persons believed
to be imprisoned, detained, placed under house arrest, tortured, or otherwise persecuted
by the China government due to their pursuit of human rights; 3) monitor the development
of the rule of law in China; 4) monitor and encourage programs of the U.S. government
and private organizations that increase enforcement of human rights and develop the rule
of law in China; and 5) issue annual reports and require congressional hearings on the
reports.
Other provisions offer further monitoring and enforcement activities. These include:
1) an annual review within the WTO, of China’s compliance with its terms of accession;
2) authorization of appropriations for three U.S. Government entities (the Departments
of Commerce and Agriculture, and the Office of the U.S. Trade Representative), to
expand U.S. monitoring and enforcement of U.S. trade agreements and trade laws with
respect to China; and 3) monitoring of U.S. importation of products of forced or prison
labor, through a task force which would work closely with the U.S. Customs Service.
The bill also authorizes funds for programs to support China in its development. The
Secretary of Commerce in consultation with the Secretary of State, is authorized to create
a program to conduct rule of law training and technical assistance for commercial activities
in China.
An Expanded Trade Adjustment Assistance Program. It is clear that the ongoing
expansion of trade with China and other countries, while supporting many jobs, also
involves disruption for many U.S. workers. Two Federal programs, the Trade Adjustment
Assistance Program (TAA) and the NAFTA-Transitional Adjustment Assistance Program
(NAFTA-TAAP) support workers adversely affected by imports. Under both programs,
workers may receive cash payments, job training, and training allowances. The difference
between the TAA and NAFTA-TAAP programs is that while both offer benefits to
workers dislocated by increased imports, only NAFTA-TAAP offers benefits to workers
who lose their jobs because their plant relocates abroad. Most job losers under NAFTA
are eligible for both programs. Of these, 55% typically lose their job because their plant

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relocates, and for 85% of these, the plant relocates to Mexico. Authorization for both
programs was extended through FY 2001 by the consolidated appropriations act, P.L.
106-113. For 1999, total funding for both the TAA and NAFTA-TAA programs including
income support , was $252 million, serving a total of 38,000, for an average of $6,613 per
recipient.
Critics of the TAA program, the only program which covers job loss as a result of
trade with China, point out that it does not cover workers whose plants relocate to China
– only those who lose jobs to increased imports from China.12 H.R. 4649 (Kaptur) would
rectify this by establishing a transitional adjustment assistance program for trade with
China similar to the NAFTA-TAA program. Some critics argue, additionally, that the
TAA program is inadequate in helping workers transition into higher-skilled jobs: The
Department of Labor found that only 29% of displaced full-time wage and salary workers
(with no reference to which had access to the TAA program) were able to gain re-
employment at the same or greater salary level one to three years later.13

A third criticism of the TAA program is that it does not provide for the collection of
specific data on U.S. job loss to various countries. For years, Congress tried unsuccessfully
to get the Department of Labor to document such job loss.14 Under the NAFTA-TAAP
program, reporting requirements led to the collection of data on job loss to Mexico and
Canada, separated into nine reasons for job loss. H.R. 4649, if passed, could likely lead
to the reporting of this data for trade with China. In addition, H.R. 1491 (Matsui), S. 220
(Moynihan), and President Clinton’s FY 2001 budget proposal would raise the training
funding cap for the combined programs from $110 to $150 million and extend TAA
benefits to all workers who lose their job either to increased imports or the relocation of
their plant abroad. Such a provision could provide a vehicle for collecting data on all plant
relocations abroad.15
Conclusions
With or without a “yes” vote on PNTR, U.S. trade with China will likely continue to
grow and accelerate, as U.S. trade is growing with other developing countries. Such trade
will continue to have “winners” and “losers” as U.S. workers shift from declining import-
competing to growing export industries. This suggests a continuing need to consider
assisting dislocated workers in ways that maintain their quality of life and help the U.S.
economy continue to grow.
12 Workers dislocated because of either increased imports from or plant relocations to Mexico or
Canada under NAFTA are eligible for benefits.
13 BLS Finds Risk of Displacement Higher Even as Job Losses Ease in 1995-97 Period. BNA
Daily Labor Report, August 20, 1998, p. D-5 – D-13.
14 See CRS Report 93-355, Plant Closings, Mass Layoffs, and worker Dislocations: Data Issues,
by Mary Jane Bolle.
15 See CRS Issue Brief IB98023, Trade Adjustment Assistance for workers: Proposals for
Renewal and Reform, by James R. Storey.