China in the Trade Club

DESPITE two decades of modernization, China remains a poor nation still looking for a great leap forward.

It must feed 22 percent of the world's population, but with only 7 percent of the globe's arable land. Its air and rivers are among the world's most polluted. A single-party system has led to wide corruption. Its Communist leaders still support many state-run factories awash in red-ink.

Further, China has a relatively weak central government - contrary to its public image abroad. Only 11 percent of China's income passes through Beijing's coffers - one of the lowest ratios in the world. China's regional governments are powerful.

How can this regime with its frequent violations of human rights be encouraged to develop a more civil and prosperous society?

One way is for Congress to give it full trading rights with the United States and to help it join the world trading system, thus opening China's door wider to the winds of international commerce - and ideas.

Congress should vote to give China something called permanent normal trade relations (PNTR), or what was known as most favored nation (MFN) status. China would then have the same trading status as, say, France.

A vote needed soon

For China to win PNTR during an American election year, however, Congress must vote on it before the end of May. A vote in the House could be close because of pressure from labor unions that claim increased imports from China will bring job losses to its members. That may be true for many jobs. But in the long-term, opening up trade has only created more and usually better jobs for Americans.

Congress isn't voting on China's membership in the World Trade Organization. That question is up to the WTO's 135 member nations, including the US. Undoubtedly China could well join the WTO without congressional approval of PNTR.

But if Congress fails to act, the US would lose some of the benefits that it and other nations have negotiated in return for OK'ing China's entry into the WTO. The US could not, for instance, take trade complaints to the WTO for adjudication. American business would not likely have the same rights as its foreign competitors to set up distribution facilities in China.

And without PNTR, China would not have a full WTO partnership with the world's strongest and most innovative economy. It would not swim so deeply in the cultural and commercial circles of developed nations with their more-humane rules for government and progressive business practices.

With China's military likely able to pose a serious threat to the US within 20 years, Congress should act to bring China more closely into the international system and give it economic incentives not to be belligerent.

What would the US give up by granting PNTR to China and supporting its entry into the WTO?

For one, Congress will no longer be able to threaten to withhold MFN status each year, an event it uses to criticize China's human rights record.

But more seriously, the US will give up its ability to threaten China with unilateral trade sanctions when there's a trade fight. And American quotas on textile imports from China will fade out by 2005.

A few points of caution

On balance, though, the political and economic advantages of PNTR outweigh its disadvantages. But we have a few important cautions:

First, China is infamous for not living up to its trade deals with the US and other nations. The US will need to be diligent to pursue trade complaints through the WTO - and in that regard perhaps make use of the special protective provisions it negotiated with China on WTO accession.

Second, recognize that the massive $70 billion trade deficit the US has with China isn't likely to shrink quickly just because China drops its tariffs a little. China's huge nontariff trade barriers won't disappear fast.

Third, China must not be allowed to ignore WTO rulings against it, thus jeopardizing a system that helps keep the world economy growing. The WTO - imperfect and incomplete as it is in its scope and its rulings - is still a young international agency in need of support.

Building a partnership

Dealing with a China inside the WTO won't be easy. Its leaders may, for instance, devalue the currency after joining, thus hurting American exports. Mexico had to do that in 1995 after it approved the North American Free Trade Agreement.

But dealing with a China that's been left out in the cold on trade is not the way to build a partnership between the world's most populous nation and its strongest.

(c) Copyright 2000. The Christian Science Publishing Society