America's Current China Policy: a Bad Deal

The most-favored-nation debate should give way to an entirely new approach

The annual debate over normal (most-favored-nation, or MFN) tariff treatment for the People's Republic of China (PRC) has become the principal, fruitless vehicle by which Congress and the president engage in dialogue about China policy.

This process has produced virtually no discernible change in Beijing's policies, but it has locked successive administrations and Congress in unproductive debate annually for eight years. It has encouraged administrations to make commitments they cannot keep (such as President Clinton's 1993 pledge to link MFN to human rights in China). And it has made Washington look impotent to Beijing and dangerously unpredictable to allies and friends. In short, the MFN debate has been the poorest imaginable way to make coherent policy or to be credible to Beijing.

A new process is required that will involve Congress more intimately and constructively in China policy and that will be more effective with the Chinese. If properly managed, granting permanent MFN status to the PRC in the context of China's accession to the World Trade Organization (WTO) under commercially acceptable terms can gain results relevant to human rights and American economic interests.

It may also present an opportunity to get the MFN-debate monkey off our backs, and end the pointless argument about whether Americans care more about trade or human rights. They care about both, and under the right circumstances these objectives can be mutually reinforcing.

MFN review: an empty threat

The MFN review process is, in essence, a threat to withhold normal tariff treatment from China. To be effective such a threat needs to meet three criteria: It needs to be specific; it must hold out the prospect of inflicting unacceptable damage; and the person or nation delivering the threat must be credible.

In the past, American threats of economic sanctions have been effective with regard to intellectual property rights, specific negotiations over textiles, and similarly narrow economic issues. In each case, Americans have been united, the demands were limited and clear, we had usable tools (e.g. Section 301 of the Trade Act), and Beijing knew the administration had the ability and will to inflict unacceptable damage. The MFN stick lacks every one of these essential features.

In the context of this year's MFN debate, several alternatives have been proposed:

* One is to terminate MFN tariff treatment for the PRC. It is useful to recall why Congress has not adopted this course of action the last seven times the issue has been raised: First, more than 200,000 American export jobs could be lost and America would forgo a future market of unknown but sizable dimensions. Second, America's allies in Europe and Asia would move into the commercial vacuum created by an American withdrawal from the Chinese market. Third, there would be substantial collateral damage to Hong Kong, Taiwan, and China's own emerging middle class because of their stakes in US-China trade. Finally, such a hike in tariffs would constitute a declaration of economic war on the PRC. This would place America in strategic opposition to China, with consequences that would be destabilizing in East Asia and lead to a regional arms buildup, if not a new cold war.

Barring a debacle in Hong Kong's reversion to PRC sovereignty, discovery of a smoking gun in the "donorgate" scandal as it relates to alleged Chinese campaign contributions, or renewed conflict in the Taiwan Strait, outright denial of MFN is unlikely this year.

* A second option is to place conditions on MFN and/or increase the frequency with which the MFN issue is debated by Congress. Proposed by Speaker Newt Gingrich, with a closely related variation embodied in a bill by Sen. Connie Mack (R) of Florida, the idea is to extend MFN by three (Mack) to six (Gingrich) months to allow time to assess the outcome of the transition in Hong Kong.

Such an approach would turn the current annual debate of three to four months duration each year into permanent warfare, at least for the next year. In so doing, this procedure would immobilize American business and Chinese buyers of American products and services because they could never be sure of the tariffs or the political environment under which they'd operate.

Further, I am unaware of anyone in Hong Kong who wishes to see MFN held hostage to how Beijing handles Hong Kong after July 1. Because so much US-China trade flows through Hong Kong, this amounts to a promise to victimize the victim.

* A third proposal, advanced by many in the business community, is for the United States to grant permanent MFN to China promptly. Irrespective of the intrinsic merits of this proposal (and there is the problem that Washington would lose leverage in the WTO negotiations), there is virtually no support for this idea on Capitol Hill.

* A final alternative is simply to extend MFN for an additional year, as usual. And this may well be what happens, unless Washington takes an entirely new and far more effective course.

What would such a new approach look like?

First, the goal of US-China policy should be to induce China's entry into the global trading system in a way that maximally supports both America's economic and human rights goals. WTO accession is primarily a trade issue, but entry into the world body under appropriate commercial terms also has wide-ranging and positive implications for the long-term development of humane, open, pluralistic governance in China. If China enters the WTO under such terms, it would have to agree to a much more open, transparent, and rule-based system. Such a system would benefit both China's foreign economic partners and PRC citizens.

Regularly involve Congress

A second dimension of the proposed approach is to involve congressional leaders more regularly in discussion of China policy with the executive branch. Congress has grasped the MFN club so tightly because it is the easiest way to try to influence policy. There is a better way.

The White House should agree with the relevant oversight committees of Congress to submit a yearly report on comprehensive China policy objectives and the means by which those objectives are to be promoted. Further, the president ought to meet with congressional leaders on a regular basis concerning China policy, crisis or not. Presidents regularly met with the bipartisan congressional leadership during the cold war to build support for policy vis--vis the Soviet Union. The relationship with China requires similar, sustained leadership attention on both ends of Pennsylvania Avenue.

And finally, Washington must consult with allies in Europe and Asia on China policy. This administration, and past American administrations, have developed China policy with only marginal attention to what our allies thought or were willing to support. Ranking members of Congress should participate in these consultations. The United States should place more emphasis on multilateral approaches, reserving unilateral sanctions for circumstances where American leverage over Beijing is overwhelming and the capacity of allies to undermine the US is nil.

This three-pronged approach will certainly not halt all conflict between Congress and the administration over China policy, nor will it eliminate the many points of disagreement between Beijing and Washington. But it may extricate us from the endless and self-defeating MFN battle along the Potomac and across the Pacific.

* David M. Lampton is president of the National Committee on US-China Relations. This article was adapted from a fuller report sponsored by The National Bureau of Asian Research. The views expressed here are those of the author.

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