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Is This A China Policy Or A Bad Dream?


Economic Viewpoint

IS THIS A CHINA POLICY--OR A BAD DREAM?

The issue of China's admission to the World Trade Organization poses difficult questions of principle and tactics for the Clinton Administration. These include the trade-offs among geopolitical, military, and economic objectives, as well as the connection between U.S. goals for its well-being and for the trading system as a whole. But the Administration is hobbled both by institutional weaknesses in its negotiating team and a muddled strategic vision. As a result, the nation is on the verge of a historic blunder.

U.S. trade negotiators are rushing to complete a protocol agreement on China's accession to the WTO in time for a September summit between President Clinton and Chinese President Jiang Zemin. Unfortunately, key issues remain unresolved, and the Administration's giddy eagerness to reach an accord this summer undercuts its bargaining power with Beijing. That leverage, if used discerningly, is considerable. The U.S. trade deficit with China is now approaching 5 to 1. America imports fully one-third of China's exports.

Advocates of China's early admission to the WTO contend that the U.S. will have more influence to promote economic and political liberalization if China is in the WTO. But as the history of trade negotiation with Japan has shown, the most useful leverage is often bilateral rather than multilateral. Once China is in, much of the effective leverage would disappear. It would make far more sense to reward China after it liberalized.

PRESSURE TACTICS. According to the Draft Protocol, some progress was made at the most recent meeting of the WTO working group in March. China did agree to provisions on intellectual property and to phase out its state monopoly on trading companies. But a big unresolved issue is China's welter of subsidies to state-owned industries--which make free trade a charade. Many Chinese state enterprises run at an operating loss. While the negotiations have made some progress on market access for manufactured goods, they are deadlocked on access for financial services and telecommunications, which are major U.S. exports.

To honor WTO norms, China will have to revise its entire economic system. That will take time. It is odd that in the case of Cuba, the U.S. insists it will normalize diplomatic and commercial relations only after Cuba liberalizes its political and economic system. A powerful lobby of anti-Castro emigre groups in the U.S. reinforces Washington's hard line. But with China, different interest groups predominate. Everyone--from the Pentagon to the overseas Chinese community to American corporations with investments in China--wants a soft line. Multinational corporations are happy to work with the Chinese government to set up export platforms in the People's Republic, notwithstanding wretched labor conditions and often coercive demands for technology transfer. Such companies serve as a domestic China lobby for one-way trade liberalization.

PIT STOP. Perhaps the weakest link on the U.S. side is its negotiating apparatus. Every other major trading nation has a large staff of career professionals who function as institutional memory. The office of the U.S. Trade Representative, by contrast, is often seen as a mere pit stop en route to a lucrative law and consulting practice. Despite strong rhetoric about the importance of trade, White House actions signal that USTR is a low priority. Charlene Barshevsky, who succeeded Mickey Kantor as head of the trade agency last month, did the job on an acting basis for nearly a year before finally being officially nominated. Several key senior trade positions remain unfilled.

This reflects the low strategic priority accorded trade negotiation, and it insults trade professionals. The ranks of the U.S. Trade Representative's office are even thinner a level or two down. The two most experienced China negotiators, Lee M. Sands and Deborah Lehr, recently gave notice. They will join a new law and consulting firm headed by Kantor. By all accounts, Kantor is setting up a virtually parallel USTR. Conflict-of-interest rules prevent Sands and Lehr from lobbying the USTR or Congress, but they are permitted (and well placed) to advise U.S. corporations doing business with the Chinese. The Commerce Dept. also has been denuded of much of its trade expertise.

This is, alas, the American way. Japan and China have large teams of career experts on the U.S.; the U.S. has a revolving door. But if the Administration is serious about defending U.S. interests in a global economy, it must respect professionalism and clear strategic priorities. Right now, Clinton's China policy has neither.BY ROBERT KUTTNER


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