Trade With China Becomes Political Battleground

Nonwovens Industry, March, 2000 by Peter Mayberry

1999 deal sets the stage for legislative confrontations.

Exports of nonwoven roll goods from the U.S. to the People's Republic of China have grown steadily over the past five years, increasing from just under 0.6 million kg in 1995 to just over one million kg in 1998. By 1998, in fact, China had become the 19th largest destination in the world for nonwoven roll goods exported from the United States. While this is a mere fraction of total U.S. exports, the only Asian countries that received larger numbers of roll goods in 1998 were Taiwan (2.2 million kg), the Republic of Korea (1.8 million kg) and the Philippines (1.1 million).

The fact that U.S. exports of nonwoven roll goods are increasing to the People's Republic of China is even more impressive considering the restrictions that are placed on trade by the communist government of the PRC. Indeed, this can be witnessed by the fact that U.S. exports of nonwovens to Hong Kong have decreased since communist rule began there (falling from 2.9 million kg in 1995 to 1.5 million kg in 1998).

With more than a billion potential consumers, the Chinese market for all things nonwoven is impossible to estimate. Yet if that market is to be maximized, steps must be taken to reduce or eliminate current restrictions on exports imposed by the PRC. To that end, many members of the business community applauded a deal that was reached late last year between representatives of the Office of the United States Trade Representative (USTR) and the Chinese government that intended to pave the way for the PRC to become a member of the World Trade Organization (WTO). The applause was tempered, however, by the knowledge that the deal would have to be ratified by entities around the world before it can take effect, and the fact that ratification by many of these entities will be difficult, if not impossible, to achieve.

Nevertheless, even the possibility that the PRC may become a member of the organized, global trading community for the first time since 1949 is encouraging political bodies around the world to take action. Moreover, within the next few months, decisions will be made in the European Union and the United States regarding China that could impact the global economy for decades to come.

As with most things related to international trade, however, political forces are at play--especially in the United States--which could squelch the deal and basically preserve the status quo. In many cases, these political forces may be beyond the influence of organized business, party politics and economic interest. Perhaps the only certainty at this point is that the U.S. Congress is under tremendous pressure to vote within the next 120 days on the status of our country's trade relations with the PRC. This vote is expected to have a make or break impact on access to the Chinese market that could last for years and years to come.

The November Deaf

On November 15, 1999, U.S. Trade Representative Charlene Barschefsky announced that a "profoundly important agreement" had been reached with her counterparts in the PRC. Based on six days of around-the-clock negotiations, trade representatives from the U.S. and China were able to pen a deal that, among other things, would grant full trading, distribution, and import/export rights to U.S. firms doing business in China.

Under the deal, which would be phased in over the next eight years, Chinese tariffs would be reduced to an average of 9.4% overall and virtually all quota and licensing restrictions would be lifted. PRC red tape requiring that U.S. imports be managed and distributed through governmental entities would also be cut. In fact, for the first time in the country's history China would grant U.S. firms the right to import and distribute products directly. By the year 2003 U.S. firms would be able to establish wholesale and retail operations within China, conduct sales away from a fixed location in the PRC and even distribute goods manufactured in China.

In addition, the agreement contains safeguards against the possibility that Chinese goods will flood the U.S. market. Under a "Product-Specific Safeguard" provision included in the agreement, for example, the U.S. government would be able to unilaterally restrain the import of specific products from China for 12 years following PRC entry into the WTO. These safeguards would be in addition to those that already exist under WTO rules.

All in all, it could be a very good deal. In a report released on February 15, 2000 by the Congressional Research Service, for instance, it is estimated that by the year 2005 U.S. companies could boost sales to China by nearly $12 billion under the agreement, and U.S. investments in the PRC could grow by $2.4 billion. There could be national security benefits as well. As National Security Advisor Samuel "Sandy" Berger noted during a February 3 speech in Washington, D.C., the agreement, "...will obligate China to deepen its market reforms and open its economy to the world. It will increase the pace of change...as [Chinese citizens] become more mobile, more prosperous and more aware of alternative ways of life, I believe they will seek a stronger voice in shaping their destiny."