THE FALLOUT IS GLOBAL

Leverage Beijing seeks concessions on WTO and Kosovo

Editorial How the U.S. and China must fix this mess

CHERNOMYRDIN'S MISSION SUGGESTS THAT CHINA AND RUSSIA, which was also angered at being snubbed by NATO, have edged nearer, driven together by their deepening differences with the West, mainly the U.S. "The international situation is forcing the two closer," says Yang Dazhou, a Balkans expert at China's Academy of Social Sciences. Both Beijing and Moscow see Yugoslavia as a platform to assert what they perceive to be their rightful international stature.

How will the latest crisis affect China's WTO talks with the U.S.? Both sides were counting on a deal to bolster ties strained by disputes over charges of Chinese spying, human rights, China's growing trade surplus, and NATO's bombing of Yugoslavia. During a U.S. trip last month, Zhu came close to sealing an accord with the Americans that would have significantly boosted Beijing's 13-year campaign to join the global trade club. But Clinton, worried about domestic opposition, backed off despite overwhelming support from U.S. business for the commitments Washington wrangled from the Chinese.

Even before the embassy bombing, there were signs that the two sides might not be able to conclude a WTO pact as soon as anticipated. While Zhu was still on his tour, the Chinese complained strongly that the U.S. had jumped the gun by revealing details of a deal yet unsigned. Still, Beijing did not formally disown the 17-page document Washington released, which outlined bold liberalization measures in a wide range of sectors. Senior U.S. officials insisted that China's commitments were locked in.

But within days of his return home, Zhu encountered nettlesome domestic opposition to some of the key market-opening measures he promised. Rumors swirled that Information Industries Minister Wu Jichuan had resigned, unable to accept Zhu's offer to allow foreigners to hold majority stakes in telecom companies. On May 6, following 10 days of China-Europe WTO talks in Beijing, European Commission Vice President Leon Brittan declared that the Chinese were backtracking on foreign majority-ownership concessions they had made to the U.S. in telecommunications, banking and insurance. "There has been criticism in China on the extent to which they have gone with the Americans," Brittan said. "That means that before addressing fully our concerns, a period of consolidation, reflection and consultation may be necessary."

Then the missiles struck. Hours later, Chinese trade negotiators reportedly told Japanese counterparts that they did not recognize the U.S. list of commitments (which the Japanese later denied). "Why should we join something so disadvantageous to us?" says academic Yang. "The protests are good ammunition for Zhu's foes." Though he believes the bombing and commerce are separate issues, international trade specialist Wang Fuming says "U.S. concessions on WTO would be considered compensation for China's losses."

Sinologist David Shambaugh of George Washington University reckons the Chinese will seek better terms. "The Americans are clearly in a defensive position, and China is very good at exploiting that," he says. Segal believes the Chinese may yet maneuver their way into the WTO by the organization's ministerial meeting in Seattle in late November. "They will whisper that they really want [an agreement] but that they have to be very careful with their nationalists," he says. "If they are really clever, they will have then transformed diplomatic theater - what you have in the streets of Beijing - into real gain. China may end up with a WTO deal for non-economic reasons."

Precisely what the U.S. and Europe have insisted they would never allow. Certainly, a Sino-U.S. deal that did not have the backing of the powerful American business lobby would be bound to founder. Though Congress would not vote directly on a pact, U.S. lawmakers would have to grant China permanent most-favored-nation status, now called "normal trade relations" (NTR), as part of a deal.

Even if Congress were to vote down NTR, China could still join the WTO so long as it concluded deals with its other trading partners and a final accord with the body itself. Without permanent NTR, the Chinese could withhold from the U.S. pledges they had made, while offering them to other countries. For now, Clinton is likely to focus on just winning annual NTR renewal for China, which he must ask Congress to do by June 3. As for a WTO deal, the embassy fiasco has made the political quagmire that prevented a pact in April even stickier. Complicating Clinton's calculations are next year's U.S. presidential polls. If China fails to get into the WTO this year, membership may be delayed even longer if a planned new "millennium round" of trade negotiations begins without Beijing on board. That would be a definite blow to Chinese diplomatic ambitions - and stir up even more anti-Western sentiment.

- With reporting by David Hsieh/Beijing

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