US Torn on Renewing China's Most-Favored-Nation Status

THE calendar has forced an awkward decision on President Bush - whether, on the June 3 anniversary of the Tiananmen Square crackdown, to renew China's most-favored-nation trade status. It is especially awkward since Mr. Bush's mild-mannered China policy for the past year is matched by little if any improvement in the repressive Chinese regime, by the administration's own accounts.

Impatience with anything smacking of conciliation is running high in Congress.

Yet to revoke most-favored-nation status would be the most powerful weapon yet brought to bear against the Chinese, one that would deal a huge blow to the economic basis of United States relations with China just as the military basis - the anti-Soviet alignment - is fading.

And many of the wrong people are caught squarely in the line of fire: China's most reform-minded, market-oriented regions and networks; the Hong Kong economy; and many American businesses.

``It would certainly hit the wrong people,'' says a foreign policy official in the administration, although, he added, ``it would not hit them exclusively.''

Bush admitted last week that debate was ``lively'' on the heavily lobbied issue within his own staff.

The chief resistance comes down to a revulsion against any move that would allow Chinese hard-liners to claim a low political cost abroad to repressing democracy at home. This is the same revulsion many claimed when watching national security adviser Brent Scowcroft toast China's leaders on a mission to Beijing in December.

``I think that rarely in modern history has a president's policy been more obviously a failure,'' says Senate majority leader George Mitchell (D) of Maine. ``To follow that up with a renewal of the most-favored-nation status would be to confirm that there is no price to pay'' for Chinese human rights abuses.

China clearly cares about the decision. It is arguing its case to the US press and drawing attention to some recent moves toward democratic reform, such as releasing more than 700 of the people detained over the demonstrations last year.

Most China-watchers peg these moves to China's concern over the most-favored-nation decision. Some see no substance, only appearances, in the moves.

US officials take a measured view: ``We have welcomed them. We are not hyping them. We are not describing them as cosmetic, as others obviously are,'' an official says.

``All of these things are very much noticed both by the executive branch and the congressional branch,'' says Carla Hills, the US trade representative.

Virtually no one now supposes that the US has more than a very marginal chance of nudging the Chinese government toward reform with a decision one way or another. The impact of the decision on China itself, however, could be considerable.

Most-favored-nation status is the standard tariff treatment the US gives to goods from most of its trading partners. The average tariff rate in 1989 for the major US imports from China was 8.8 percent, according to the US-China Business Council. If the favorable treatment expires, then average tariff will rise to 50.5 percent, the council says.

The US president has renewed China's favorable treatment every year since 1979. This year the decision has become more difficult. And once the president decides to renew the low-tariff status, Congress can block the renewal by passing a joint resolution against it.

Both Republicans and Democrats are torn over the question, but many observers expect Congress will seek to block a renewal. Bush could then veto the resolution, but he would again find himself using his political muscle to the favor of a regime Americans generally find offensive.

The effect of sharply higher tariffs would be significant, especially because the Chinese could be expected to retaliate with trade barriers of their own. In 1989, the Chinese sold more than $12 billion of goods - much of it apparel and textiles - to the US. Without most-favored-nation treatment, estimates of the drop range from $2 billion to $10 billion. Of the roughly $6 billion goods the US sold to China, a US official estimates that half the business would be lost.

``It would be devastating to the reformists [in China], devastating to Hong Kong, and devastating to American businessmen who have already been hard hit,'' says Anthony Kane, director of the China Council of the Asia Society.

Business ties to China have already suffered considerably in the past year. US exports to China dropped several billion dollars, and new US investment screeched to an almost total halt. But Chinese sales to the US continued to rise slowly, according to Martin Weil of the US-China Business Council.

More than 70 percent of those Chinese exports are shipped through Hong Kong, which has a large stake in this decision.

So does Southeast China, where many of the quasi-private factories producing for export have sprung up and where many regional bureaucrats have resisted the clampdowns of Beijing.

Gerrit Gong, a former US State Department official now with the Center for Strategic and International Studies, was stationed in Beijing during the military crackdown last summer. ``No one can tell me how horrific it was. I saw that.'' But cutting off favorable tariffs is the wrong way to send the Chinese a message, he says. ``By reducing their ties to the outside, it only strengthens the hand of those who want to cut off those ties.''

Paul Kreisberg of the Carnegie Endowment for International Peace says the US can renew most-favored-nation status but attach strong conditions or strong criticisms to it, hence keep the economic ties that promote China's opening to the world while sending them a critical message.

``In the short grace of less than a decade, look at the enormous influence the US has had in that country, that a new generation was being formed quoting Thomas Jefferson and raising a Statue of Liberty,'' notes Tom Robinson of the American Enterprise Institute. ``I wouldn't want to jeopardize that.''