Why China Should Receive MFN Status

Article excerpt

PRESIDENT BUSH has decided to request extension of the People's Republic of China's "most-favored-nation" (MFN) status, which significantly lowers US tariffs and permits China to sell to the United States on the same basis as other trading partners. Congress has the power to reverse or modify the president's recommendation, and some congressional leaders have already expressed their intention of blocking renewal of MFN for China. There is also some sentiment in Congress to approve extension of MFN for a limited time, with future renewal conditioned on specific improvements in China's human rights positions. Congress has 30 days to overturn or modify the president's request, and it is possible the issue could become a political hot potato, especially because of the coincidence of a renewal failing during the anniversary of the events in Beijing last June.

The Chinese are fearful that we may eliminate this trade benefit based on the Tiananmen Square and the suppression of the democracy movement in China. While China's MFN status represents very little to the US financially, denying China this trade advantage would be truly disastrous for the fragile Chinese economy. Moreover, denying China MFN status would most injure the wrong Chinese - urbanites who favor economic and political reform. There would also be an immediate increase in prices to US consumers of several products we import from China - apparel, toys, and radios. Even Japanese banks, which have made large loans to China, are concerned about the ability of the Chinese economy to make loan payments if US trade is cut.

There are several additional reasons we should not terminate China's MFN status:

1. Further trade sanctions against China won't work. China will retaliate. It will erect barriers to US sales and investment. In 1988, the US exported $5 billion worth of goods to China. During the past decade the US invested an estimated $3.5 billion there. These sales and investments may well be threatened if China retaliates in kind. Wheat sales, in particular, will suffer. Markets once lost would be hard to regain. US competitors elsewhere would benefit at our expense.

Moreover, it has been proven that trade sanctions are effective only when used for limited purposes and against small countries. This is simply not the case with sanctions to obtain changes in China's human rights policies. The US does not have the leverage with the Chinese leadership to effect policy changes through the use of sanctions. China will simply dig in its heels. …