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Clinton's Trade Challenge: Playing the China Card Correctly

By Paul Blustein
Washington Post Staff Writer
Thursday, November 7, 1996; Page D01

Now, it's China's economy, stupid. That's one of the important ways in which President Clinton's next four years will differ from his last four. After more than a decade in which Japan was the chief target of U.S. trade negotiators seeking to pry open foreign markets, China is emerging as Washington's No. 1 trade headache. For Clinton, one of the biggest challenges of the second term will be trying to integrate China's fast-growing, heavily controlled economy into the global free-trade system.

Already, in fact, the administration quietly is stepping up its efforts to seek major liberalization of China's vast markets. In particular, Sino-U.S. negotiations concerning China's entry into the World Trade Organization, the Geneva-based body governing global commerce, have turned serious in the past several months after years of going nowhere. Beijing's interest in joining the group presents a historic opportunity to demand changes in the way China treats foreign companies and goods, and debate is raging among China hands and trade specialists over how tough Washington should be.

The issue may not seem as dramatic as, say, last year's fight with Japan over autos, but it's a lot more important. China's exports are rising at an explosive rate. Beijing has become the world's 10th-largest producer of goods for sale abroad, and its trade surplus with the United States has exceeded that of Japan — long the champion of trade surpluses — twice in this year's monthly trade figures. Although still dominated by peasant agriculture, this nation of 1.2 billion people may well become the world's largest economy within two decades.

The problem isn't that China is getting richer and more successful, but how it's going about it.

Although the Chinese economy has undergone far-reaching reforms since the days of Mao Zedong, the authorities still interfere heavily in markets to protect state-owned factories from competition and to nurture national industries in strategic sectors such as aerospace and semiconductors. For example, when U.S. companies such as Boeing Co. or AT&T Corp. want to sell their products in China, Beijing's bureaucrats often insist that they build plants there and transfer advanced technology. As a result, China — like Japan before it — threatens to become a destabilizing force in global commerce; trade experts fear that the world's free-trade regime will come under increasingly severe pressure if one of its biggest participants continues to play by such totally different rules.

Hence the priority the administration is attaching to China's WTO application. Bringing Beijing into the global trade group could significantly enhance U.S. interests, and not only because it would entail a lowering of Chinese tariffs and other barriers to U.S. goods.

Providing a multilateral forum for bringing grievances against Chinese trade practices would relieve Washington from the burden of constantly playing the bad guy with Beijing, which tends to hurt U.S. companies competing with European and Japanese firms for Chinese contracts. Small wonder that Robert A. Kapp, president of the U.S.-China Business Council, recently told a House panel that his group's members are "eager to see China admitted to the WTO."

But China's entry into the WTO involves a lot more than just getting Beijing to sign a membership card. China must first reach market-opening agreements with each WTO member — the United States being the most important — and then wrap its commitments together in a package applicable to all.

Beijing also must negotiate the elimination of practices that run counter to global trade rules, such as the requirement that companies obtain special government permission to import and export goods. That's hardly a simple bit of red-tape cutting; a lot of China's inefficient state-run factories, which employ millions of workers, depend on such government manipulation of the market for protection against foreign competition. Remember all the agony Americans went through over the North American Free Trade Agreement? China is facing the prospect of far more wrenching market-opening measures.

Thus some China experts — call them the "doves" — warn that Washington had better not set the bar too high for the Chinese, lest Beijing walk away from the negotiations.

"WTO membership provides insufficient benefits to persuade China to liberalize its economy prematurely," Robert Ross, a Boston College scholar, wrote in the current issue of Foreign Policy magazine. After all, this argument goes, China already enjoys the benefits of normal trading relations with most countries.

But others — call them the "hawks" — contend that the Chinese leadership badly hankers after WTO membership, both for the sake of global prestige and the protection that membership would provide against trading partners arbitrarily imposing barriers on Chinese goods.

Above all, according to the hawks, the United States — which absorbs about one-third of China's exports — would be crazy to pass up the chance to extract big changes in Chinese economic practices. "We would be happy to see China in the WTO, but our greatest leverage is now — not after they're already in," said a senior administration official.

If a deal is struck, both sides agree, it will require a delicately balanced compromise giving China several years to implement the most politically difficult market-opening measures.

"No one," said Calman Cohen, head of a group of U.S. companies involved in China, "is suggesting that this can be done overnight."

© Copyright 1996 The Washington Post Company

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