US Warns China With Trade Investigation

THE United States has fired what US executives call a legal "smart bomb" at China, warning Beijing in an escalating trade dispute to open its market or face sanctions.US officials have notified Beijing that it must dismantle several trade barriers within a year or confront tariffs of up to 100 percent and other reprisals. The decision to threaten China under the US trade code known as Section 301 follows what US Trade Representative Carla Hills calls "unsatisfactory" efforts by China to answer US complaints. China has pledged since August to begin reducing tariffs and curtailing licensing requirements for imports. But US officials believe China's initiatives would fail to meet standards of fair trade and redress a US deficit in bilateral trade likely to jump 50 percent beyond last year's figure of $10.4 billion. The latest episode in the trade wrangle has increased tensions in a Sino-US relationship already strained by China's arms sales abroad and human rights abuses. Trade officials and diplomats from China have denounced the US action as a counterproductive negotiating ploy. "Problems regarding trade between China and the United States should be settled through negotiations," says Foreign Ministry spokesman Wu Jianmin. "To bring pressure to bear does not help." Ms. Hills sought in Hong Kong Oct. 14 to keep the trade wrangle within the negotiating room. "We are not talking about retaliation - not at all," Hills said after meeting with Hong Kong officials and executives from Hong Kong and the US. "We're talking about negotiation." Although anxious about the possibility of an all-out trade war, US executives in Hong Kong and Beijing say the payoffs from the use of trade weapons like Section 301 often make the risks worthwhile. For instance, China suddenly imported more US products when it determined that such purchases would help it retain preferential tariff treatment in trade with the US. This is in response to threats from the US Congress in recent years to deny China the tariff benefits of most-favored-nation (MFN) trade status, primarily because of Beijing's human rights policies at home. As Congress debated MFN, "suddenly a lot more people in China were buying a lot more American goods," says Warren Williams, president of the American Chamber of Commerce in Hong Kong. The specific provisions of the Section 301 code will probably be even more effective in moving China to open its markets than the broad threat of MFN revocation, Mr. Williams says. "What we say to Congress is the MFN is a 'dumb bomb,' and let's use some of the 'smart bombs that destroy barriers to trade, he says. "Section 301 is definitely one of the 'smart bombs Indeed, Washington has compelled many trade partners toward more open market measures by just threatening to invoke Section 301. Under the code, Washington will begin a year-long investigation of several nontariff barriers in preparation for possible punitive sanctions. The areas for Washington's inquiry include: strict certification requirements, secretive laws and regulations on trade, unreasonable import-licensing requirements, and bans or quotas on many foreign products and some entire sectors. The investigation gives China's officials "an opportunity to prove to a somewhat skeptical world that they really do want to become respected members of the international trading system," Williams says. Washington has also threatened to impose sanctions if Beijing fails to implement copyright and patent protections for "intellectual property." US companies say that they lose millions of dollars each year from the piracy of computer software and other creative products in China.