Diamond-in-the-Rough Proposals on China

Article excerpt


Trade is topical on Capitol Hill, where hearings on the Central American Free Trade Agreement and confirmation of the president's new U.S. Trade Representative, former Rep. Rob Portman, Ohio Republican, have been under way.

But when trade is the subject, China is the elephant in the room. And trade critics smell an opportunity to force the administration to clean up after the beast.

Since CAFTA is presumed a few dozen votes shy of House passage, the president must be open to negotiating. And Mr. Portman's recent testimony he would get tough with China shows he knows what his former colleagues have in mind.

Indeed there are important trade issues over which the United States must be more assertive with China. Intellectual property rights enforcement, liberalization of China's barriers to services trade, and government subsidization of industries come to mind. But Congress is simply losing its cool over China.

Recently the Senate voted against scrapping a ludicrous proposal to hit Chinese imports with an across-the-board tariff of 271/2 percent if the Chinese government refuses to revalue its currency. While the proposal is not yet law, its consideration provides insight into the Senate's combative state of mind.

Another recent proposal calls for appointing an enforcement czar in the office of the U.S. Trade Representative to facilitate the execution of trade complaints at the World Trade Organization. Yet another proposes the immediate revocation of China's "Normal Trade Relations" status, which would, among other things, subject China's products to tariff rates reserved for unfriendly nations. Whoa, Nellie.

None of those ideas reflects rational analysis. They are reactionary, needlessly provocative, economically dangerous, and would invite international condemnation as unilateral and contrary to U.S. trade obligations.

But there is one proposal floating around that has both economic merit and international sanction. Its adoption could help break the impasse between the administration and Congress on trade matters without breaking international rules or U.S. relations with China. It could even facilitate market reform in China.

Originally introduced in the last Congress as the "Stopping Overseas Subsidies Act," the purpose of the bill is to expressly permit using the U.S. countervailing duty (CVD) law in cases involving China. Pursuant to an administrative decision upheld by the courts in the 1980s, the CVD law has been ruled unusable against so-called nonmarket economies. The decision's rationale was that it is impossible to measure subsidies in an economy where prices are not market-based. …