Sleepless After Seattle

The WTO fiasco has scared business into mounting a massive drive to normalize trade ties with China

The 17,000 workers at Farmland Industries Inc. know who butters their bread. Imprinted on the paycheck stubs of the giant Kansas City (Mo.) agricultural cooperative are such messages as: "China will account for nearly 40% of the future growth of U.S. agricultural exports. Support normal trade relations status for China." At CNH Global, the message is no less subtle. Suppliers of the Racine (Wis.) maker of farming and construction equipment have been given spiffy toolboxes stuffed with brochures and a videotape noting that CNH exports more than one-third of its farm equipment. CNH is telling suppliers it counts on China to be its principal growth market.

Until recently, most U.S. exporters didn't go to such efforts to "educate" assembly-line workers and small subcontractors about the importance of international trade. When the time came to lobby Congress for new trade legislation, big exporters just flew in their chief executives for a day of Capitol Hill arm-twisting. But a string of defeats in Congress, followed by the trade talks fiasco in Seattle last December, has finally awakened Washington's business reps to the power of grassroots lobbying. Now, businesses are prodding employees and subcontractors to make their own visits and phone calls to congressional offices--by the tens of thousands. With a $10 million war chest, Corporate America's effort to win permanent Most Favored Nation (MFN) trade status for China is shaping up as one of its most forceful lobbying drives in years.

The Clinton Administration, which offered only halfhearted support for major trade legislation over the past four years, isn't wasting any time, either. President Clinton on Jan. 10 promised "an all-out effort" and picked Commerce Secretary William M. Daley to reprise his successful 1994 lobbying campaign to secure congressional approval for NAFTA. "We are hearing that companies are going to engage their workers and suppliers in the effort and not just have the CEO meet their congressman once and think that's going to mean something," Daley told BUSINESS WEEK. Daley has already enlisted executives from Boeing, Honeywell, AT&T, and Citigroup for the effort.

Nevertheless, the battle to grant China permanent MFN status, as called for in the deal the Clinton Administration struck with Beijing last November, is anything but a sure bet. Election-year politics and a combat-tested coalition of China critics could sink the effort. The critics--labor unions, environmentalists, and citizens groups--want to hold China accountable for labor and human-rights abuses and to blunt Beijing's potential influence within the World Trade Organization. An extended congressional debate would be their ally since the closer the vote gets to Election Day, the less likely it is that Congress will grant permanent MFN to China.

The stakes for business are huge: To join the WTO, China has promised to cut its tariffs in half over five years and to open up vast sectors of its economy to foreign investment and even ownership. The political risks are also enormous. Potential losers in the fight include two prominent Democrats, Vice-President Al Gore and House Minority Leader Richard A. Gephardt, whose support of China's bid to enter the WTO may cost them backing from labor, environmental, and consumer groups.

CAREFUL TIMING. Gore supports permanent trading rights for China. But the Veep has been endorsed by the AFL-CIO in the Democratic primary, and he is counting on labor's help against challenger Bill Bradley. Gore's candidacy could be wounded if his labor allies fail to mobilize the troops, especially in the crucial California primary.

Gephardt's dilemma is just as tricky. He says he backs China's entry into the WTO, but for the past two years has opposed renewing China's MFN status. Aides say Gephardt is leaning toward supporting the Administration, yet labor's political muscle could determine whether the Democrats win back the House this November--and elevate him to House Speaker.

To prolong Democratic infighting but still leave time enough to pass the legislation, the GOP must time the vote carefully for this summer. That would allow China to complete its remaining negotiations with the European Union and the Geneva-based WTO. But the vote will also have to await hearings by at least three House committees. "We don't want anyone to say that we shortchanged the deliberative process on this," says House Rules Committee Chairman David Dreier (R-Calif.), who supports permanent MFN for China.

While business is irked with Democrats and Republicans alike for risking the deal with China over partisan politics, it thinks it has a winning argument: that WTO rules require each member country to grant all other members "unconditional" MFN treatment. To the White House, that means "permanent" MFN; others disagree. Without permanent MFN, business will say, Beijing could deny the U.S. the benefits of its market-opening trade concessions. Deutsche Telekom and Fiat would get the business that would have gone to AT&T and Ford.

But that legal issue has never been addressed directly by any WTO court. "It's not clear precisely what is meant by `unconditional' and whether some temporary grant of MFN could satisfy the requirement," says Frederick M. Abbott, an international law professor at the Chicago-Kent College of Law. In all likelihood, though, anything less than permanent MFN would set the stage for a battle in the WTO's court.

China's critics also see opportunities for victory. If labor, environmental, and human-rights groups can persuade Congress to keep China in suspense each year with an annual renewal, rather than permanent MFN, the U.S. will retain the leverage to push for political reforms. And should the controversy derail Clinton's effort to get China into the WTO, so much the better. "Letting China into the WTO will only make a bad organization worse," says Lori Wallach, head of Public Citizen's Global Trade Watch, a Naderite group.

Another big question involves China's reaction to any slight from Congress. Beijing has tried to sell skeptical Chinese business leaders on the idea of making painful market-opening concessions as a trade-off for full MFN status from Washington. "WTO is already a very sensitive topic in China," and anti-reform groups would welcome any excuse to scuttle the deal, says Wang Yong, a professor at Beijing University's School of International Studies.

With real possibilities for failure, business and the Clintonites acknowledge that they can't take the same lackadaisical approach that led to past trade fiascos. If they are to improve their chances of winning, it will be because the workers at Farmland and the suppliers at CNH Global get the message.

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