And You Thought Japan's Trade Hurdles Were High

It's a nuisance that U.S. grain producers have learned to tolerate. A small percentage of their annual wheat crop is contaminated with TCK smut, a fungus. While plant experts say there is no chance of the smut being spread, bureaucrats in China disagree. Alone among nations, China refuses to accept any U.S. grain unless it's fungus-free.

Has Beijing gone green? Not really. The ban is part of an effort to insulate China from foreign competition, say U.S. trade officials. From a confusing tariff system to onerous licensing rules, China is emerging as the greatest creator cf trade barriers. "It's pretty blatant," says Marcus Noland, an expert on Asian affairs at the Institute for International Economics.

The rocky transition to a market economy is one culprit in keeping out U.S. goods. For instance, the byzantine duty system differs from province to province, and import quotas often go unpublished. Moreover, to cool off its overheated economy, China this year began forcing state enterprises to give Beijing their foreign exchange earnings. Companies that get Beijing's O.K. can get 50% back to buy foreign goods. "There's a conscious slowing down of imports," says Ian Perkin, chief economist at the Hong Kong General Chamber of Commerce.

China has made some progress in opening its markets. It recently slashed tariffs on fertilizers, lead, zinc, and 231 other products. And it abolished quotas and import licenses on 283 more items, including coffee and civil aircraft. But it continues to protect autos, electronics, and machinery through quotas. Other imports such as chemicals must be registered, another deterrent to trade.

What to do? America's key leverage is its veto power over China's GATT application. Also, by yearend, the U.S. Trade Representative's Office will name companies marked for retaliation unless Beijing cracks down on copyright piracy, which costs U.S. software makers $400 million a year.

But companies hoping to win contracts fear sanctions would create more friction. "There's a fear the Administration may be pushing too far too fast," frets Richard A. Bresher of the U.S.-China Business Council. China may be closed to many U.S. products, but it has opened enough to make a crackdown threat too scary for many in U.S. to swallow.

         CHINA'S MANY
      --  Shifting, confusing tariff system
      --  Tricky licensing, regulatory structure
      --  Suppressed demand among state enterprises because of Beijing's credit squeeze
      --  Strict quotas on products like autos, electronics, and machinery
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