|FOR IMMEDIATE RELEASE:||CONTACT: CHRISTI HARLAN|
|Thursday, July 20, 2000||202-224-0894|
Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, today asked Federal Reserve Chairman Alan Greenspan about the implications of S.2645, the China Nonproliferation Act, particularly the provision that would curtail China's access to U.S. capital markets.
Greenspan said the provision "doesn't have any capacity, of which I'm aware, to work" and, in fact, carries "a reasonable expectation that it would harm us more than it would harm others." Greenspan added: "I trust that it would not move forward."
Following is a transcript of the exchange between Gramm and Greenspan:
CHAIRMAN GRAMM: First of all, Mr. Chairman, as you are aware, we have spent years battling the effort by American government to use trade as a tool of foreign policy. Hardly anything is more denounced than export controls in terms of limiting the ability of our farmers to sell agricultural products or our manufacturers to sell manufactured products based on our approval or disapproval of potential customers.
And except for those pariah states where we have virtually a state of war, in terms of our conflicts in foreign policy, we have gotten away from using economic trade as a tool of foreign policy.
We now have a new proposal as I'm sure you're aware of called China Nonproliferation Act that was introduced by Sen. Thompson that seeks for the first time to use access to our capital markets, and access to our banking system, as an instrument of American foreign policy. The objectives of the bill are objectives that no one can disagree with, and that is, we would like nations not to proliferate in terms of weapons sales.
But the tools that are being used represent, in my opinion, a very real threat to our prosperity. And finally, in posing the question – a paradox – in the sense that we bargained harder in our relations with China, in the Normal Trade Relations agreements and the Chinese accession to WTO, we bargained harder to open the access our banking system and our investment system has to the Chinese market than almost any other area. Having looked at this proposal, I wanted to give you an opportunity to respond.
CHAIRMAN GREENSPAN: Well, Mr. Chairman I certainly agree with the comments you've made. And I clearly understand the motives underlying Sen. Thompson's bringing this amendment forward.
As you know my own view is that our gradual increase in engagement commercially with China is undermining many of the types of structures which I believe can lead to the problems we have. And I think that contrary to engaging them in less commercial activities, I think is very much to our advantage to significantly increase involving them in free-trade, open-market economics and basically the type of dynamics which raise the standards of living I think will ultimately create significant changes in societies.
In addition to questioning the value of this amendment, there's a very serious question as to whether it will produce indeed what is suggested it will produce. First let me just say that the remarkable evolution of the American financial system, especially in recent years, had undoubtedly been a major factor in the extraordinary economy we've experienced, and it's the openness and the lack of political pressures within the system which has made it such an effective component of our economy and indeed has drawn foreigners generally to the American markets for financing as being the most efficient place where they can, in many cases, raise funds.
But it is a mistake to believe that the rest of the world is without similar resources. Indeed, there's huge dollar markets all over the world to lend dollars. Because of the arbitrage that exists on a very sophisticated level throughout the world, the interest rates and the availability of funds are not materially different abroad than here. We do have certain advantages, certain techniques, which probably give us a competitive advantage, but they are relatively minor.
But most importantly, to the extent that we block foreigners from investing or raising funds in the United States, we probably undercut the viability of our own system.
But far more important is I'm not even how such a law could be effectively implemented because there is a huge amount of transfer of funds around the world. For example, if we were to block China or anybody else from borrowing in the United States, they could very readily borrow in London and be financed by American investors. Or, if not in London, if London were financed by American investors, London could be financed, for example, by Paris investors, and we finance the Paris investors.
In other words, there are all sorts of mechanisms that are involved here. So the presumption that somehow we block the capability of China or anybody else borrowing in essentially identical terms abroad as here in my judgment is a mistake.
So a most fundamental concern about this particular amendment is it doesn't have any capacity of which I'm aware to work. And by being put in effect, the only thing that strikes me is a reasonable expectation that it would harm us more than it would harm others. And therefore I must say, Mr. Chairman, I do join in your concerns about that amendment, and I trust that it would not move forward, even though I respect the motives of Sen. Thompson and understand where he's coming from, I trust that he will try to achieve his ends in a somewhat different manner and a more effective way.