US and China: Tethered by Trade

Despite its missile sales to Iran and human rights abuses, China probably won't suffer trade penalties from the US. Here's why.

What to do about China? The question bedevils American political leaders.

Ignoring American concerns about its human rights, trade, and weapons-proliferation policies, the Asian giant has suddenly become the biggest foreign-policy problem for the United States. But how to respond to Beijing's provocative diplomacy is not altogether clear.

In no other country are the moral and security interests of the US so at odds with its economic interests.

That means a dilemma for the White House: It doesn't want to anger conservative Republicans and liberal human rights Democrats in Congress, both of whom want the US to impose punitive sanctions on Beijing. But neither does it want to alienate US business leaders, who say sanctions will cost thousands of needed American jobs.

The issue is being thrust to the forefront as President Clinton and Congress prepare to grapple with the question of whether to extend China's preferential - or most favored nation (MFN) - trade status for another year.

'Most favored nation' trade status

The US first granted MFN to China in 1980. Under a cold-war-era law, the president has to certify annually that China allows free emigration before MFN privileges can be renewed. Unable to do so, presidents have sought annual waivers to keep MFN intact.

The process, once perfunctory, grew controversial after China crushed a pro-democracy movement in 1989. Candidate Clinton criticized then-President Bush during the 1992 presidential campaign for "coddling" China's "dictators," but ended up delinking trade and human rights after becoming president.

He announced a plan on May 20 to renew MFN for another year that is supported by Senate majority leader Bob Dole (R) of Kansas, Clinton's expected campaign rival. Congress has until Sept. 3 to give its consent, which is expected but not without loud protest from a coalition of anticommunist, anti-abortion, and pro-human rights lawmakers from both parties.

On the eve of the debate over MFN, Washington's bill of particulars against China is long and growing:

Selling nuclear-weapons technology to Pakistan

According to the Central Intelligence Agency, China last year sold Pakistan 5,000 ring magnets that could be used in centrifuges to enrich uranium for nuclear weapons. The sale arguably violated China's commitment as a signer of the 1968 Nuclear Non-Proliferation Treaty not to transfer nuclear-weapons technology to facilities not subject to international inspection.

A 1994 US law, meanwhile, mandates withholding US Export-Import Bank guarantees from American companies doing business in countries that export nuclear information and technology.

Without admitting the sale, China recently promised it would "not provide assistance to unsafeguarded nuclear facilities." Satisfied, the Clinton administration waived sanctions, which would have suspended up to $10 billion in loan guarantees. The decision was welcomed by major companies, such as Boeing and Westinghouse, which would be at a huge competitive disadvantage without American guarantees. It was mourned by arms-control advocates, who say it makes a mockery of American antiproliferation efforts.

Selling missiles to Iran

According to unconfirmed intelligence reports, China has also sold components for medium-range missiles to Iran, possibly in violation of the Missile Technology Control Regime (MTCR), an international agreement limiting the proliferation of ballistic-missile technology.

China has also sold C-802 cruise missiles to Iran, one of which was test-fired last January. Pentagon officials say the missile, which has a range of 60 miles, poses a threat to shipping in the Persian Gulf, the transit route for nearly half of the world's oil. Judging the sale too small to be destabilizing, the administration decided not to invoke a 1993 law mandating sanctions against nations that transfer advanced conventional weapons to Iran.

Violating human rights at home

In a report issued last month, the State Department accused China of "widespread and well-documented human rights abuses" including the torture of political prisoners, arbitrary detention, child-labor abuses, and such coercive family-planning practices as forced sterilizations and abortions.

Despite the American policy of political and economic engagement with Beijing, China's human rights practices - already among the most egregious in the world - have grown worse. Other countries - like neighboring Burma, for example - also have bad human rights records. Unlike with China, the US has no significant economic interests on the line in Burma. Washington has felt freer to support punitive measures against Burma, including a ban on World Bank loans. China, on the other hand, is the world's largest recipient of World Bank loans, despite its human rights record.

Violating human rights in Tibet

At least 1 million Tibetans have died under the heavy hand of Chinese rule, which began when Chinese troops invaded Tibet in 1949. Since then, the country's Buddhist culture, including thousands of monasteries and temples, has been destroyed. Millions of Chinese have flooded into Tibet over the years, resulting in what Tibet's spiritual leader, the Dalai Lama, calls "cultural genocide." Some members of Congress have called for the US to send a special envoy with the rank of ambassador to Tibet, which would be a direct challenge to China's claim of sovereignty. Mr. Clinton, like all his predecessors, protests Chinese repression, but has been unwilling to sacrifice relations with Beijing on the alter of Tibetan autonomy.

Pirating US Intellectual Property

For years, Chinese companies have been producing pirated versions of American software, videos, and CD-ROMS, all in violation of US copyrights and at a cost of billions in lost overseas sales.

China agreed last year to crack down on bootleg operations. Not satisfied, Clinton administration officials announced May 15 that $2 billion in Chinese goods, including silk and electronic products, would be subject to stiff tariffs if China failed to take further action.

China responded with threats of countersanctions, including 100 percent additional tariffs on products ranging from cars to telecommunications equipment.

The two sides have until June 17 to resolve their differences before the sanctions and countersanctions take effect. Assuming MFN is renewed, all goods not on the targeted list of Chinese imports would continue to enjoy preferential tariffs.

Threatening Taiwan

The United States has long insisted that Taiwan's unification with mainland China be achieved peacefully. China has agreed. But stepped-up military activity in March, including military maneuvers and war games in southern China and the firing of missiles into the East China Sea off Taiwan, signals that Beijing's patience is running short. Taiwan does not claim independence but insists on autonomy within a single China, with the goal of delaying unification indefinitely.

Though it shuns any commitment to defend Taiwan, the United States champions Taiwan's economic and political liberalization, symbolized by democratic presidential elections last March.

Relations with Beijing took a plunge last year when the US allowed Taiwan's president, Lee Teng-hui, to visit his alma mater, Cornell University in Ithaca, N.Y. China viewed the trip as a threatening step toward Taiwanese independence and accused the US of intervening in its internal affairs.

Conservative Republicans in Congress are pressuring Clinton to do more to protect Taiwan. Other Republicans, led by former Secretary of State Henry Kissinger, are pressuring Clinton not to do anything that would jeopardize America's longstanding policy of recognizing only one China.

US-China trade

China is the fifth-largest trade partner of the US and one of the world's largest economies. The United States exports fertilizers, cereals, airplanes, vegetable oil, and rawhides to China. China exports apparel, shoes, toys, sporting goods, and electrical machinery to the US.

Last year, United States exports to China totaled $12 billion. But American imports from China totaled $46 billion, resulting in a $34 billion trade deficit. For the past five years, the American trade deficit with China has totaled $117 billion.

The Case For Extending MFN

As many as 200,000 US jobs are now linked to the China trade and thousands more will be created as China's fast-growing economy absorbs hundreds of billions more in new overseas investment over the next decade - mainly in aircraft, telecommunications, power generation, and other high-wage industries. If MFN is suspended, the US will lose lucrative business opportunities to Japanese and European companies. By helping to raise living standards, expand economic freedom, and reduce state controls, foreign investment indirectly stimulates human rights improvements. Conversely, cutting US economic ties would alienate Beijing, complicating US diplomatic objectives in Asia and in the UN, where China holds a permanent seat on the Security Council.

''Removal of MFN would be taken as an act of economic war and would result in a more difficult relationship. We would then have less ability to influence social, political, and proliferation issues in China. By trading with China we have access to Chinese leadership that we otherwise would not have.' -- Alan Tonelson, US Business and Industrial Council

The Case Against Extending MFN

Given China's record on human rights, proliferation, and trade, it's time for the US to put principle over profit. Ignoring China's rights and other violations is tantamount to appeasement. Instead, the US should use the leverage that comes with trade to force China to make needed reforms. Forty percent of China's exports go to the US. Even a partial loss of the US market would have crippling economic effects in China and would discourage investment from other countries, most of which goes into industries that produce primarily for the US market. MFN is not the ideal policy instrument but is the only one the US has to prod changes in China. Without such changes, China will continue to violate human rights and sell lethal weapons or components to nations that could soon threaten the US and its allies around the world.

''It's still reasonable to argue that the greater exposure the mass of Chinese have to Western products, ideas, values, and business practices, the freer their lives will be. But this has to be balanced against the need to draw a line in the sand. In the present context, approving MFN tells China that it can challenge the US across the spectrum of issues with near impunity.'

-- Calman Cohen, Business Coalition of US-China Trade

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