Top US-China panel urges halt to normal trade relations if no WTO compliance

Congress should suspend normal trade relations with China if Washington determines Beijing has not complied with the World Trade Organization market access agreement it signed decades ago, the US government's top advisory panel on China policy said on Tuesday.

In a sweeping annual report comprising 39 recommendations and covering nearly every aspect of the bilateral relationship, the US-China Economic and Security Review Commission also called on US lawmakers to study the feasibility of blockading Chinese energy imports in the event of a military conflict involving Beijing, particularly those transiting the Strait of Malacca.

And in the latest sign of Washington's growing alarm that Chinese leader Xi Jinping may attempt to invade Taiwan, the panel urged Congress to put more manpower into preparing for economic punishment and military resistance against Beijing if it were to attack the self-governed island.

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"Xi's personal and strategic ambitions for his and China's place in history are clearer than they've ever been before," said Alex Wong, the commission's chairman, on Tuesday. "And so is the need for the United States to take resolute steps to preserve and defend our interests and ideals in response."

The 785-page report comes as tensions between Washington and Beijing flare at their highest level in years, and it reflects the enormous distrust in Washington towards Beijing on essentially every aspect of the relationship - from trade policy to human rights to its sabre-rattling towards Taiwan.

It also comes just one day after US President Joe Biden and Xi met face-to-face for the first time since Biden took office in early 2021. The two leaders committed to working together on climate change and agreeing to communicate more, but are otherwise staunchly opposed on almost every other issue of consequence.

"We're not going to be able to work everything out," Biden said after the three-hour meeting on Monday. "I'm not suggesting this is kumbaya."

Xi, who last month secured a precedent-breaking third term as Communist Party leader, has packed his inner circle of advisers with loyalists, observers note.

"Critical decisions about everything, from education and popular culture to war and peace, now appear to rest in the hands of one man," Tuesday's report said.

Biden, on the other hand, faces intense pressure from members of both parties in Congress to maintain a hard line against Beijing. After last week's midterm elections, Democrats will retain control of the Senate, as Republicans' gains in the House of Representatives put them closer to taking over that chamber.

Among the issues Biden raised with Xi was China's "non-market economic practices", the White House said afterwards. Tuesday's report focused heavily on trade policy.

"After many years of attempting to engage China and persuade it to abandon its distortive trade practices, it is clear this approach has not been successful," the report said.

In particular, it said the US trade representative should assess China's compliance with the "terms and conditions of the 1999 Agreement on Market Access", which Beijing and Washington signed before China joined the World Trade Organization.

If that assessment "concludes that China has failed to comply with the provisions agreed to for its accession to the WTO, Congress should consider legislation to immediately suspend China's Permanent Normal Trade Relations treatment", the report said.

"Following the suspension of PNTR, Congress should assess new conditions for renewal of normal trade relations with China."

The commission, an independent panel set up by Congress in October 2000, reports directly to lawmakers about the national security implications of the US-China trade and economic relationship.

Tuesday's report grew out of seven hearings involving 74 experts from government, business and research organisations over the past year. The 12 commissioners behind this year's report are not lawmakers, but are appointed by Congress.

Kurt Tong, a former US consul general and current managing partner at Washington-based risk consultancy The Asia Group, called the commission's reports "a cataloguing of the year's bad news about China". He noted that lawmakers and academics use the reports to frame their policy recommendations on China.

The report devoted a chapter to Taiwan, one of the top areas of concern for US policymakers that has taken on new urgency since Russia's invasion of Ukraine in February. It said China had significantly ramped up its diplomatic and economic coercion towards the island, on top of its displays of military force.

"The Ukraine conflict is a sobering reminder that war by and between major powers is a real threat in the present day," said Wong.

"That should force us with a new urgency to realistically evaluate how to reduce our own dependence on China for critical goods, how to bolster our means for deterring conflict and how to build strong coalitions to respond to conflict and coercion."

Five of the commission's top 10 recommendations addressed responding to potential Chinese military action in Taiwan, including the creation of a permanent executive branch committee charged with implementing sanctions against China, new powers for the president to force US businesses to pull out from China in the event of a war, and a Pentagon report on the US military's "capacity to resist force".

The panel also called for increasing defence funds and supporting joint defence planning with Taiwanese military officials.

Beijing claims Taiwan as part of its territory and has said it will eventually unite the island with the mainland, by force if necessary. Beijing opposes other nations' contacts with Taiwanese government officials.

Under official US policy, Washington does not recognise Beijing's claim of sovereignty over Taiwan but "acknowledges" that the claim exists.

The US has not had formal diplomatic relations with Taipei since 1979, when Washington switched its diplomatic recognition to Beijing.

But under the 1979 Taiwan Relations Act, Washington maintains an unofficial relationship with Taipei and is obliged to sell Taiwan arms used in a "defensive character".

The report accused Chinese officials of spreading "falsehoods about a global consensus underpinning their 'one-China' principle" and of blocking Taiwan "sharing its valuable expertise on issues ranging from global health to oceanic science".

It included scathing criticism of Xi's "zero-Covid" policy, saying it had badly weakened China's economy and led to increased repression of the Chinese people.

"Despite the economic damage caused by the lockdowns, the CCP [China's Communist Party] remains committed to its zero-Covid policy, demonstrating its ability to maintain political control even in the absence of economic growth," the report said.

"China's strict adherence to the zero-Covid policy in 2022 demonstrates the extent to which top-down centralised management has displaced local discretion under Xi."

The report added that, despite the economic downturn, Beijing "continued its relentless arms build-up" with increased military spending.

It noted that Beijing's energy strategy - which seeks to reduce the country's vulnerabilities to maritime energy chokepoints - would intensify US-China technology competition and that China's activities in cyberspace and outreach to South Asia and Central Asia posed escalating challenges to the US.

The Chinese embassy in Washington did not immediately respond to a request for comment.

The report also devoted a full chapter to Hong Kong, highlighting both the city's deepening subordination to Beijing's control and its continuing importance as a bridge for China to global financial markets.

"With Beijing's hand-picked chief executive now at the helm, China firmly controls all branches of Hong Kong's government, ushering in a new era of total control by mainland authorities," the report said.

"By overhauling the election process, it created a rubber-stamp parliament full of so-called patriots, and it has also leveraged the new chief executive's authority to appoint judges."

It urged Congress to eliminate diplomatic privileges for the Hong Kong Economic and Trade Offices operating in the US, which serve as official representatives for the city government in the US, unless Beijing negotiates with Washington to have the offices included under its own diplomatic control or it grants the city more autonomy.

The report further urged lawmakers to do more to protect US supply chains of critical resources like semiconductors, rare earth metals and life-saving medications, noting how Russia's weaponisation of energy showed the threat of excessive dependence on potentially hostile foreign powers.

In particular, it called for a crackdown on medicine imports from China, and urged the US Food and Drug Administration, which oversees medical products domestically, to identify all drugs with active ingredients from China "and develop alternative sourcing arrangements".

This article originally appeared on the South China Morning Post (SCMP).

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