China and the United States failed to agree today on payment for the accidental bombing of China's embassy in Yugoslavia and scheduled more talks for later this month.
Disagreement over how and how much the United States should pay China for destroying the embassy and killing three Chinese reporters has become the most serious obstacle to normal relations between Washington and Beijing. Following the embassy's destruction by three NATO missiles on May 7, China suspended high-level contacts and stopped important trade negotiations.
Western businessmen and economists voiced concern that if a compensation agreement is not worked out quickly, little time will be left to iron out remaining wrinkles in a deal to get China into the World Trade Organization by year's end. U.S. and Chinese negotiators were close to a deal in April, during Prime Minister Zhu Rongji's trip to the United States, but talks on that issue halted after the bombing.
"The clock is ticking," said Andy Xie, an economist at Morgan Stanley in Hong Kong. "The failure today cuts down the WTO probability quite a bit. I believe China is pushing for it but they need to get past this bombing issue before a deal can be reached."
A statement read by the State Department's legal adviser, David Andrews, said the compensation talks were "productive and professional" and that progress was made "on these sensitive and complex issues." He declined to take questions.
U.S. sources said that at root a clash of cultures is holding up the talks.
On one side, the U.S. team has a legalistic interpretation of the issue, sources said. It is concerned about setting precedents and is also concerned with fairness--all five diplomatic missions of the United States in China were damaged during government-orchestrated protests following the May 7 strike. American announcements about the issue, for example, never use the word "compensation," because that would indicate an acknowledgment of fault, and have chosen "humanitarian payments" instead.
China, on the other hand, is interested in face--or respect. It wants a concrete sign of deep repentance from the United States.
"The Chinese want kowtowing and ritual payment," said one source, "Andrews on the other hand is worried about the legal precedent of paying for damage in a war zone. So it's natural that the two sides can't immediately get it right."