China Traders Waiting at Gate

0 Comments | Insight on the News, June 4, 2001 | by Sheila R. Cherry

President Bush and Congress must decide whether to follow the advice of free traders and continue favored trade relations with China despite increased tensions.

Washington lobbyists spent $113 million last year to try to secure "permanent normal trade relations" (PNTR) between the United States and the People's Republic of China, according to estimates by Public Citizen. The Center for Responsive Politics (CRP) says that more than half of those admitted expenditures -- roughly $85 million in soft money, political-action committees and individual contributions -- came from the 200 corporation members of the Business Roundtable (BRT).

But is the hype of a vast consumer marketplace in China the next "dot-com" bubble waiting to burst? Charles McMillion, chief economist for MBG

Information Services, a Washington-based business information analysis and forecasting firm, seems to think so. "The China hype has been very much like the dot-com hype. Profits didn't matter. It's very important to be there [China], just as with the dot-coms it was important to have a Web presence. It didn't matter how much money you were spending; it didn't matter that you weren't making any money, because one of these days it was really going to take off."

The difference between trade with China and dot-com ventures is, as McMillion sees it, that "the Chinese have been extremely successful in leveraging the promise of their market, sometime into the future, in exchange for the current transfer of technology and transfer of localizing production." This has convinced corporations to move more and more service and component-parts production to the People's Republic. Many of the corporations that have begun moving operations "are hoping to make money there" he says, "but they haven't yet." Meanwhile, here's the rub. Congress conditioned final passage of PNTR on China's acceptance into the World Trade Organization (WTO) within one year. That condition has not been met. However, the European Union (EU) has nearly concluded its WTO negotiations, indicating the EU is likely to offer China its support -- but even there, some details remain to be resolved.

So now, when free traders would rather be gearing up their lobbying to promote "Fast Track" trade authority -- now being called "trade promotion authority" which would prohibit congressional amendments and restrictions that might be added to international agreements -- comes the specter of a trade debate about China during one of the most tense political periods in recent U.S.-Sino history. In June, President George W. Bush must face reversion to the annual renewal of "most favored nation" tariff debates concerning China that preceded the PNTR scheme.

Before last year's PNTR vote, public-opinion polls had moved to 79 percent against expanded trade relations with China -- even before harassment and holding of a U.S. reconnaissance aircraft and its crew on Hainan Island.

And proponents in the United States are saying that revisiting the China trade issue will be trickier for lawmakers in the U.S. Congress this year because of Chinese ham-handedness in the aircraft incident, growing tensions concerning Taiwan, a weaker U.S. economy, an increasing unemployment rate ... and midterm elections in 2002.

Public Citizen called the U.S.-China Relations Act of 2000 (HR4444), last year's bill granting China permanent trade status as a "most favored nation" if it met certain criteria, one of the costliest lobbying campaigns in history. It was financed at the insistence of Beijing by U.S. corporations doing business in China. And that corporate effort, Public Citizen contended, was backed by the active support of the Clinton White House and all its political resources.

U.S. unions still were stinging from employment adjustments in the postNorth American Free Trade Agreement (NAFTA) era. They counterlobbied with a $31 million anti-PNTR campaign in the House, but were outmuscled by the corporate cash flow. On top of that, insiders say, it was an election year and unions were fearful of repeating the result of their 1994 scrap with the Democrats about NAFTA, which caused the rank and file to sit on their hands during the election and let Congress fall into Republican hands for the first time in nearly 50 years.

According to the Responsive Politics group, Republicans voting for PNTR received on average $47,000 from the Roundtable in corporate contributions compared to $6,400 from union interests. Democrats voting for PNTR pondered the issue with average contributions of $37,000 from Roundtable corporations and $59,000 from unions. PNTR passed the House by a vote of 237 to 197. The Senate vote was 83 to 15.

Then-president Bill Clinton, a beneficiary of union -- and allegedly Chinese -- largess, did his part. "To obtain support for the controversial measure, the White House assured many in Congress that it had locked down all of China's WTO concessions -- which, in fact, it had not," Public Citizen charged in an October 2000 release.