The Debate Over China S Mfn

Status Essay, Research Paper

In 1998, United States imported more than $70 billion worth of Chinese consumer and industrial goods, up from $38 billion in 1994. Topping the list: toys, footwear, electrical goods, and all forms of apparel, from woven to knits. But the days when American consumers could go shopping in 99cents Store, or buy a mid-sized Donald Duck stuffed toy for $20 at the Disney Store, would be numbered. Because as the debate over most-favored-nation (MFN) status for China heats up in Congress every year, consumers wonder whether 2000 could be the last year they could see cheap .Made in China x goods in the market. The math is simple: With MFN, imports from China have an average tariff of 6 percent. Without MFN, they could sharply rise–to more than 40 percent on some items. Those costs are passed along to consumers.

What is little understood is that the term MFN is really a misnomer. Despite its name, Most Favored Nation status is not a privileged status accorded only to close friends. It is normal trade relations — the ordinary tariff treatment United States accord to almost all countries in the world. The United States offers MFN, or ordinary tariff treatment, on a near-universal basis. .Over 160 countries have MFN trading status with the United States, and only six countries Afghanistan, Cambodia, Cuba, Laos, North Korea, and Serbia/Montenegro are denied MFN status x (Bloch 196).

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I believe that free and fair trade is the foundation for peace and prosperity — and frequently for democracy as well. This belief has been proved by the decision of every U.S. president since normalization of diplomatic relations in 1979, Democrat and Republican alike, to extend MFN status to China. But there is still much debate over this simply normal tariff status in Congress every year, which found to American fundamental national interest. Why? Possible answers to this question surely would include the requirement of the Jackson-Vanik Amendment, a large and growing trade deficit with China, and using MFN as leverage to change objectionable Chinese policies, especially in human rights.

A fundamental cause of the debate over China s MFN status in Congress is the requirement of the Jackson-Vanik Amendment. According to .the Jackson-Vanik Amendment to Trade Act of 1974, MFN status for non-market economies became conditional on freedom of emigration, a move then aimed at restrictions on Jewish emigration by the Soviet Union x (Bloch 196). Obviously Chinese emigration to the United States is limited more by U.S. law than by Chinese government action. James Mann, the author of Beijing Jeep, tells us an early episode happened during Deng Xiaoping s trip to U.S. in 1979:

At a White House meeting on January 30, 1979, when the president raised the subject of the Jackson-Vanik Amendment, Deng quipped, .If you want me to release to million Chinese to come to the United States, I d be glad to do so. x Carter and his aides laughed. (107)

But China as a .non-market economy x is subject to an annual process of presidential certification in order to have its MFN status extended; Congress can reject this presidential decision, if it chose to do so.

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The rapidly growing U.S. trade deficit with China causes the debate over China s MFN status drastic in Congress. For Americans, the trade surplus with Japan is an old story, one that was told and retold for three decades until the mid-1990s. In the case of China, by contrast, the United States seems to have been struck almost overnight. Since 1985, U.S. imports from China have grown 25% per year, while exports to China have grown at less half this rate. In 1998, China s trade surplus with the United States was roughly $56.9 billion. In the same period, China and Japan together were responsible for about half of the U.S. deficit in merchandise trade (Scott). Increasing trade with low-wage countries can have a depressing effect on the wages of production workers in high-wage countries. .Moreover, the threatened competition with workers in China, where wages are often about $1 per day, has had a chilling effect on wage negotiations in the U.S. in the 1990s x (Bernstein and Munro 132).

China s market is heavily protected by trade barriers, which China has erected to protect its state-owned enterprises and to develop its key industries. Faced with theses barriers, foreign firms often opt to invest in China. So the greater trade deficit with China, the more debates in Congress over the MFN status to promote China .publish its trade regulations in a transparent form accessible to importers, stop using artificially low exchange rates to boost exports and impede imports, and ensure that all foreign and domestic companies receive the same treatment from the legal system x (Johnson).

Since the Tiananmen massacre, however, the annual certification process for China s MFN renewal has grown increasingly contentious. Going beyond the requirements of the Jackson-Vanik Amendment on freedom of emigration, MFN status is linked further to significant overall progress on human rights. Without a presidential certification of progress, Congress will

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disapprove any extension of MFN status, which has been renewed annually for China since it was granted in 1980. As President Reagan said at Shanghai s Fudan University in 1984, .Our entire system is founded on an appreciation of the special genius of each individual, and of his special right to make his own decisions and lead his own life x(qtd. in Feulner), the United States uses the debate over China s MFN status, which is a powerful leverage, as the threaten of economic sanction to force China to .observe the rule of law, respect political, religious and economic liberty, and honor the rights of the individual x ( Feulner).

U.S. business recognizes that human rights is a core American value and an element of American global diplomacy. . Persuasion rather than sanctions, private negotiation rather than public sermonizing are more likely to achieve the objective of improving human rights for the Chinese people x (Bloch 213). An argument is made that .over the long run, Microsoft software will do more to change China than all global preachments on human rights combined x (Bernstein and Munro 101). The U.S. government should use the principle of pursuing trade and investment agreements to liberalize trade and investment and further economic growth, while promoting human rights.

Since 1980, Congress reviews the China s MFN status annually for twenty years. I do believe that China one day might accept the principles of Western-style liberal democracy that have become the global norm, and when it does, the economic change fostered by trade with the West will have been instrumental in bringing about that result.

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Works Cited

Bernstein, Richard and Ross H. Munro. The Coming Conflict with China. New York: Knopf. 1997.

Bloch, Julia. .Commercial Diplomacy. x Living with China: U.S./China Relations in the Twenty-first Century. Ed. Ezra F. Vogel. New York: Norton, 1997

Feulner, Edwin J. .Let the People Change China from Within. x Los Angeles Times. 22 May. 1997: B9.

Johnson, Chalmers. .Breaching the Great Wall. x The American Prospect Online. 1997. http://www.prospect.org/archives/30/fs30john.html

Mann, James. About Face: A History of America s Curious Relationship with China, from Nixon to Clinton. New York: Knopf. 1999.

Scott, Robert E. China Can Wait: WTO Accession Deal Must Include Enforceable Labor Right, Real Commercial Benefits. Briefing Paper. Washington, D.C.: Economic Policy Institute. 1999