Withdrawing MFN Won't Change China
By Robert A. Manning and Steven J. Nider
President Clinton's decision to renew China's most-favored nation (MFN) trade status for another year launches the annual spring referendum on China, one already more acrimonious than usual. The debate occurs in a hothouse climate fueled by allegations of Chinese influence-buying in the 1996 election campaign, apprehension about the July reversion of Hong Kong to Chinese sovereignty, and an array of single issue concerns from religious persecution to arms exports galvanizing a new left-right anti-China coalition against MFN.
The MFN debate reflects a growing apprehension about China which has fueled national discord since the June 4, 1989, Tiananmen massacre, when the televised specter of Beijing's brutality and the end of the Cold War shattered the longstanding bipartisan consensus on China policy. MFN has been the chosen instrument to express disapproval of Beijing's domestic and international policies. As one prominent critic put it, "We should deny MFN status as a way of putting pressure on Chinese leaders to open their system."
There should be a vigorous national debate over China and the meaning of its emergence as a major economic and military power. The singular challenge is to find a bipartisan consensus on what priorities to emphasize, what instruments provide real leverage, and what benchmarks to apply in measuring progress -- or the lack of it -- in China's behavior. But MFN is the wrong issue.
What is needed is a different way of addressing American economic, human rights, and security concerns about China. Even in the economic realm, for example, the MFN debate has diverted public attention from where it should be sharply focused: the terms of China's accession to the World Trade Organization (WTO), a crucial issue which will shape China's economic ties to the world into the next century, set precedents for the entry of Russia and other countries into the trade regime, and affect the very credibility of the WTO.
MFN is simply the wrong arena for the China debate. MFN is not foreign aid. It is not a favor to, or special privilege for, China. Nearly 100 countries do receive special trade status from the United States through agreements such as NAFTA or the Generalized System of Preferences (GSP). MFN is merely normal tariff status extended to all but a handful of countries with which we trade (Cuba, North Korea, Afghanistan, Laos, and Vietnam). Iran, Iraq, Libya, Syria and Burma all receive MFN treatment even as they face U.S. economic sanctions. It is simply the basis upon which international trade is conducted. No other country conditions MFN for China, nor would any country follow the U.S. in removing MFN for China.
Some argue that MFN is animated by what one critic calls "the great China market myth," the idea "that everything from human rights violations to weapons sales is worth enduring because glorious riches await us in the People's Republic." Since the days of the Clipper ship Empress of China 200 years ago, the allure of the China market has led the West to overestimate its potential. Nonetheless, with the World Bank and other forecasters projecting China likely to emerge as one of the largest -- if not the largest -- economies in the world in the early decades of the 21st century, what U.S. company is prepared to have the United States write off the China market entirely?
Since embarking on a course of market-oriented economic reform in 1979, China has increasingly sought to attract foreign investment and pursue an export-oriented economic growth strategy. China's dynamic economic growth during this period has led to a mushrooming of its trade with the United States. Over the past decade, U.S. annual two-way trade with China has grown eightfold, from less than $8 billion in 1986 to $63 billion in 1996. In addition, there is more than $10 billion in cumulative U.S. direct investment in China. Nearly 200,000 U.S. jobs depend on China trade. It is not credible to annually threaten MFN withdrawal: it is a onetime bullet, certain to result in mutual assured destruction.
Regardless of the outcome of the MFN debate in Congress, the President must lead a new national debate aimed at finding the balance in advancing U.S. interests and values in regard to China. Along with a policy review, the President needs to communicate clearly to the American people -- as he did in the NAFTA debate and on Bosnia policy when the decision to intervene was made -- the goals, priorities, benchmarks for success or failure, and logic of his China policy.
The emergence of China is the biggest challenge facing the international economic and political system into the 21st century. It requires focused, sustained attention and leadership from the executive branch and a working partnership with Congress.
Robert A. Manning is a senior fellow at the Progressive Policy Institute (PPI). Steven J. Nider is the executive director of the PPI Defense Working Group. This piece is based on a PPI policy report entitled "Reality Check: From the MFN Debate to a Tough, But Smart, China Policy."
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