China: Why The U.S. Wants To Play `Let's Make A Deal'

With the clouds lifting over the troubled U.S.-China relationship, a breakthrough may be near. The Clinton Administration is quietly signaling Beijing that the U.S. is ready to end the stalemate blocking Chinese membership in the World Trade Organization. The Administration still wants China to agree to stiff commercial conditions before it can enter the new global trade club. But for the first time, the U.S. is willing to haggle over terms--and it's ready to be flexible. Already, U.S. policymakers are offering a negotiating sweetener that Beijing craves: permanent most-favored-nation trade status.

National Security Adviser Anthony Lake privately outlined the shift in policy in talks with Chinese leaders in July. Next month, Acting U.S. Trade Representative Charlene Barshefsky and Commerce Secretary Mickey Kantor will reinforce that message when Wu Yi, China's Trade Minister, visits Washington. To avoid any partisan wrangling, the real bargaining won't start until after the November Presidential election. But Administration officials aim to cut a deal with Beijing on WTO entry early in 1997.

SPECIAL PROTECTION. The outlines of a possible agreement are starting to emerge. Washington will insist that China eliminate tariffs, quotas, and licenses on a slew of goods; provide access to key U.S. service sectors such as telecommunications and insurance; and end rules that force foreign companies to do business through Chinese middlemen. China would get permanent MFN and gradual phaseouts of subsidies for state-owned enterprises, plus special protection for sensitive sectors such as autos and machinery.

What's driving the U.S. to jump-start moribund WTO negotiations? Administration officials figure they have too much to lose. "There's a growing awareness that China's economy will soon be too big to shut out of the world trading system," says one Administration Asia hand. Once in the WTO, Beijing would be obliged to play by international rules--and be subject to international sanctions for noncompliance. U.S. officials know that the Chinese see WTO accession as a litmus test of America's commitment to a stable Sino-U.S. relationship.

Striking a deal would also get the U.S. off a treadmill of waging nasty bilateral battles for piecemeal trade gains. Instead of repeatedly threatening sanctions to force concessions, Washington could wrap most spats with China into one multilateral negotiation. That would give the U.S. a better shot at mustering up support in Europe and Japan for its aims while minimizing Beijing's ability to play the U.S. off of its trading partners by steering contracts to foreign business rivals.

The economic imperative to rev up WTO talks dovetails with a crucial shift in sentiment on Capitol Hill. Influential lawmakers such as Representatives Doug Bereuter (R-Neb.), chair of the House Asia subcommittee on international relations, and Bill Archer (R-Tex.), chair of the House Ways & Means Committee, are quietly mulling ways to end annual debates over MFN for China. They and other Hill free-traders are weary of the yearly China-bashing in Congress.

Sounds easy. But achieving an agreement will be anything but. The lure of permanent MFN may not be enough in itself to get China to agree to conditions the U.S. regards as must-haves. The Chinese view normal trade privileges as their due. "MFN isn't really too much of a bargaining chip," scoffs Fan Gang, director of the China Reform Foundation in Beijing. "Chinese officials know the U.S. will give it to them anyway."

Beijing is sure to insist on special treatment for emerging Chinese industries. Already, there are growing calls inside the Middle Kingdom to shield beer, chemicals, and consumer electrical goods companies. Such a din will make negotiating conditions for WTO entry extremely contentious. "We're trying to integrate the biggest nonmarket economy into the global trading system. It will probably be the most difficult trade negotiation the U.S. has ever tried," warns Greg Mastel of the Economic Strategy Institute.

Even if both sides strike a bargain, Congress could still spoil the deal. Lawmakers may balk at ending the legal requirement for the President to review China's MFN status each year, especially with Hong Kong's reversion to Chinese control looming next July 1. U.S. officials already are sweating over plans by House Minority Leader Richard A. Gephardt (D-Mo.) to introduce a bill this fall that would give Congress veto power over any WTO deal. A yea vote may be hard to resist--there's no love lost for the WTO, which many lawmakers view as intrusive on U.S. sovereignty.

There are plenty of risks. But the Clinton Administration is determined to forge ahead. The potential benefits of securing China's commitment to abide by established rules are too alluring.

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