The debate in Washington over granting permanent
normal trade relations (NTR) status to China has been fractious.
Conservatives and liberals disagree, even among themselves, over
whether increased trade with China will effect improvements in its
human rights record, religious freedom, fair labor practices, or
the President is asking Congress to grant China permanent normal
trade relations, and the House and Senate are expected to take up
the issue later this month. It is the breadth of the concerns over
China that makes the decision so difficult. If these concerns are
dealt with piecemeal, then the United States will face trying to
stamp out a myriad of small but regenerating brush fires while
failing to bring about real change in China's political or social
environment. Clearly, foreign and trade policy--and
relations--would flounder. A carefully designed long-term strategy
dealing with Beijing, Washington should seek policies that generate
mutual benefits for the people of both countries in addition to
protecting U.S. national security and promoting a climate of
stability in China and the Asia-Pacific region. Encouraging China
to move toward democratization and establish a market economy based
on international norms and the rule of law can facilitate such a
climate and help improve its human rights practices. Granting China
permanent NTR--a status afforded to most other countries that trade
with the United States--will boost this process. It will increase
people-to-people contact and give important sectors of the U.S.
economy greater access to China's market.
Granting permanent normal trade relations
to China, therefore, is good policy. Trade expansion will enhance
America's ability to address a broad range of interests, such as
its long-standing commitment to protect U.S. national security and
promote freedom in Taiwan and China. To demonstrate its commitment
to these goals, the United States should:
Grant an unconditional extension of
permanent normal trade relations status to China. Granting
permanent NTR to China would allow America's strongest economic
sectors, particularly the agricultural, automobile, computer,
financial services, and telecommunications industries, to compete
in China's market and help expand its small but growing private
Seek the simultaneous entry of
Taiwan and China into the World Trade Organization (WTO). U.S.
access to China's potential market and Taiwan's significant current
market will grow once they accede to the WTO.
Explore new ways to monitor and
address human rights concerns in China. The Helsinki Commission,
for example, recommended coordinating the monitoring of human
rights developments on a continuing basis rather than annually.
Identify Chinese companies that
produce armaments or serve as fronts for the People's Liberation
Army (PLA). The names of these companies should be made available
to the public and to U.S. allies.
- Enforce existing legislation, such
as the Export Administration Act and the Arms Export Control Act.
This would ensure that American companies do not do business with
the PLA. The U.S. embassy should verify that U.S. products reach
the approved recipients.
such a long-term strategic approach to U.S.-China trade relations
will achieve America's goals in helping China to further liberalize
its political and economic systems and promoting increased
opportunities for American businesses and consumers.
WHY TRADE WITH CHINA?
the first time since the normalization of diplomatic relations with
China 20 years ago, the United States is considering granting a
permanent extension of China's normal trade status. Between 1979
and 1989, Congress approved the President's extension of this
status (then called "most favored nation" status) annually and
without objection. Throughout the 1990s, concern over human rights
abuses in China, as well as threats to U.S. national security and
ominous gestures toward Taiwan, motivated Members of Congress
consistently though unsuccessfully to introduce resolutions to
block the extension of NTR to China.
Having concluded a comprehensive market
access agreement with China--a prerequisite for its entry into the
World Trade Organization--last November, the Clinton Administration
is calling on Congress to make China's normal trade status
permanent. The U.S. House of Representatives is scheduled to
address the issue during the week of May 22. The Senate is expected
to follow soon thereafter.
Permanent extension of China's normal
trade status is important for U.S. interests. Beyond economic
development and profit, it will promote private initiatives,
support U.S. jobs, lower barriers to trade that raise prices,
increase people-to-people contact, help to limit government control
of people in China, and, as choice increases, empower the Chinese
people to take charge of their own destinies.
Contrary to some arguments, the vote in
Congress on granting permanent NTR to China is not a vote on the
merits of China's accession to the WTO. China will join the WTO
with or without permanent normal trade relations with the United
States. Instead, this vote will be a referendum on the terms of the
recent agreement giving America access to China's market. Moreover,
failure to extend permanent NTR to China would deny Americans the
opportunity to benefit from trade concessions made by China during
the WTO accession process.
Although improving economic ties with
China may increase its stake in a stable and peaceful international
system, trade should be seen as only one element--albeit an
important one--in a comprehensive approach to protecting U.S.
security and promoting freedom in China. There are limits to what
permanent normal trade relations can do in affecting the human
rights climate in China, particularly in the short term. A
comprehensive strategic approach, however, would enable permanent
normal trade relations to bring about deeper reforms in China than
will the annual issue-by-issue fight that now occurs in
People who support freedom and democracy
in Taiwan and Hong Kong--indeed, some of Beijing's harshest
critics--find permanent extension of normal trade relations with
China to be consistent with their broader goals. Former Hong Kong
Governor Chris Patten and Hong Kong Democratic Party leader Martin
Lee have strongly supported permanent U.S. extension of NTR to
China while holding nothing back in their criticism of Beijing for
its failure to respect international human rights norms and
democratic principles. Taiwan's President-elect, Chen Shui-bian,
also believes that permanent extension of NTR to China will be
conducive to Taiwan's accession to the WTO and will facilitate
economic development as well as more normal and stable relations
with the mainland.
Benefits for America
Granting permanent normal trade relations
to China will afford many benefits to Americans. It will allow the
strongest sectors of the U.S. economy to compete in China--most
notably, the agricultural, automobile, computer, financial
services, and telecommunications industries, as well as commercial
businesses on the Internet.
U.S. agricultural sector is the most productive in the world, and
access to China's market will enhance this productivity. China's
tariffs on U.S. farm products will drop from 31 percent to 14
percent over a four-year period once China accedes to the WTO. At
the same time, competition will compel China's agricultural sector
to become more efficient. Thus, while American farmers will profit,
the standard of living and nutritional levels of the Chinese people
argument that permanent NTR is only good for America's big
businesses is misleading if this is interpreted to mean that only
large multinational companies will benefit. "Big business" does not
package or transport grain or agricultural products; American
workers do. Thus, increased trade with China should increase jobs
in the agricultural sector in the United States.
the financial services sector, American companies should compete
very well in China. In Shanghai, China's most populous city with 13
million residents, foreign-owned insurance companies enjoy a 10
percent share of total premium revenues. Allied Insurance has sold
some 700,000 personal life insurance policies in China. International
credit standards are being applied to these agencies and
these examples and the following facts show, the agreement
negotiated by the U.S. Trade Representative in November will
directly benefit Americans once China becomes a member of the WTO
and the United States extends permanent NTR to China.
China would no longer be able to impose
unacceptable protectionist barriers on imports of U.S. wheat,
citrus products, fruit, and meat.
China would have to eliminate export
subsidies on its agricultural products, allowing American corn,
cotton, and rice to become more competitive in the world
China would reduce its tariffs on U.S.
products from 31.5 percent to between 14 percent and 17 percent,
making these products more attractive. Tariffs on U.S.-produced
dairy products such as cheese and ice cream would be slashed by
more than half. Tariff rates on bulk American agricultural
commodities, now as high as 121 percent, would decrease to an
average of between 1 percent and 3 percent, making the sales of
products such as barley, corn, cotton, rice, soybean oil, and wheat
more profitable in China. China's prohibitive tariffs on American
fruit would be cut to about one-third of current levels.
Agricultural trade between private parties
would be allowed so that American businesses would no longer have
to go through China's government and Communist Party-controlled
state trading companies.
American industrial products would enjoy
approved import and distribution rights. Imports of priority goods,
such as fiber optic cable, would be allowed without requiring that
the manufacturing capability for these goods be transferred as
The huge tariff reductions would help
sales of American cars, trucks, and auto parts in China. Moreover,
Chinese citizens would be able to get automobile loans from U.S.
Tariffs on electronic equipment from the
United States, such as computers, semiconductors, and
Internet-related equipment, would be eliminated over five
Professional services such as financial
and business consulting, as well as travel and tourism-related
services, would be able to operate in China.
- Geographic and customer restrictions on
U.S. banks in China would be reduced or removed over a five-year
Trade is a major component of the income
of U.S. workers. Improving trade will benefit labor union members
and their families. The goods that come from China will be unloaded
at U.S. ports by American workers. Containers of goods will be
shipped across the United States on American rail lines and
delivered by American truckers. And American workers will stock the
shelves in the stores that sell the goods.
1998 alone, over 1.5 million metric tons of goods were shipped
between China and the United States through the port of Seattle,
Washington--almost 20 percent of the value of all U.S. trade that
traveled through that port. All of these goods were loaded and
unloaded by American laborers. If trade with China were cut, as
many of the protesters at the Seattle meeting of the WTO last
November hope, the longshoremen whose livelihoods depend on this
commercial activity would be forced to take cuts in pay.
Despite rhetoric to the contrary, granting
permanent NTR status to China goes beyond party politics and big
business or special interests. The decision will affect the lives
of every American. China is the fourth largest U.S. trading
partner. Granting permanent NTR to China would ensure that jobs are
protected from the vicissitudes of congressional politics. Over the
long term, it will ensure that Americans fully benefit from China's
eventual accession to the WTO. Membership in that body will require
China to lower its current restrictions on many American products.
The increase in demand for U.S. goods that results from this should
lead to greater productivity, which in turn would mean more jobs
and job security for American workers.
TRADE RELATIONS AND NATIONAL SECURITY
recent uproar over the sales of sensitive technologies to China
brought attention to the Clinton Administration's loosening of
export restrictions. Granting permanent normal trade relations to
China does not mean that sensitive technologies would fall more
easily into the hands of the People's Liberation Army. Nor will it
mean that America must export goods to China. Rather, granting
permanent NTR (and China's accession to the WTO) would mean that
China would have to limit its tariffs on U.S. products. The United
States still would be able to exercise national security control
over the export of critical military and "dual-use" (military and
executive branch must protect U.S. national security through the
diligent enforcement of existing laws and regulations. The National
Defense Authorization Act of 1999 (P.L. 105-161) established
stringent requirements on the sale of commercial communications
satellites. In other areas, however, laws may be adequate but
enforcement weak. The executive branch should ensure that the U.S.
intelligence community and the U.S. Department of Defense are given
the proper authority over who receives export licenses in order to
prevent whole categories of exports and materials with military
application from being sold to China.
Strong congressional oversight can ensure
that no Administration ignores U.S. security in favor of trade with
China, as the Clinton Administration did when it transferred
authority to the Commerce Department to control sending satellite
launching technology and data to China. The Export
Administration Act of 1979 (P.L. 96-72), which controls the export
of dual-use items, and the Arms Export Control Act of 1976 (P.L.
94-329), which regulates the export of weapons and defense-related
information, should be thoroughly reviewed to ensure that they
prevent trade with China from strengthening the PLA's military
May 1999 report of the Select Committee of the United States House
of Representatives on U.S. National Security and
Military/Commercial Concerns with the People's Republic of
China contains a number of detailed recommendations on what
manufacturing processes and materials may require national security
protection. These prudent suggestions should be considered during
all licensing deliberations by executive branch agencies, and all
license decisions should be subject to congressional oversight.
Concerns About the People's Liberation
valid argument made by some opponents of permanent trade relations
with China is that a number of Chinese companies engaging in
business with the United States are owned by the People's
Liberation Army, which may use the products they acquire to
supplement its military budget or to acquire better technology. The
U.S. intelligence community, which has identified many of these
companies, has made little of this information available to the
public. In 1995, the U.S. Defense Intelligence Agency published an
unclassified directory listing many of China's defense industrial
trading organizations. However,
dissemination of this document was restricted to official use
within the federal government. U.S. corporations as well as U.S.
officials who approve and oversee export licenses should have
access to such information.
Former Secretary of Defense William
Perry's ill-conceived "Defense Conversion" program (under the Joint
Defense Conversion Commission) led to the 1995 release by the
Department of Commerce, in cooperation with the Department of
Defense, of a list of Chinese military-related companies. Secretary Perry and
the Administration announced that the goal of this program was to
convert China's military industry to civilian production. But
China's leaders were more realistic about the program. They made it
clear that the goal was to improve China's military production by
engaging in parallel civilian production of similar goods within
the same manufacturing plants--not to convert defense industries to
Fortunately, pressure from Congress and
the media forced the Administration to abandon this program, but the list of
PLA-related companies gathered during this effort provides a
baseline of valuable information that would enable U.S. companies
to avoid doing business with military-related companies in China.
Moreover, U.S. companies should have access to the directory
published by the Department of Defense, China's
Defense-Industrial Trading Organizations, which lists more than
50 major state-owned, military-related industrial conglomerates and
factories in China that are seeking to improve their ability to
manufacture defense items by importing dual-use production
TRADE AND THE EXPANSION OF FREEDOM
Although productivity in the private
sector far surpasses that of the state-owned sector and the private
sector's share of gross domestic product (GDP) is ever increasing,
a majority of Chinese workers still are employed by some form of
collectively owned enterprise. The liberation of
China's workers from the state sector is a key to expanding freedom
in China. Trade and investment, the byproducts of extending China
permanent normal trade relations and its accession to the WTO, will
increase private enterprise and individual ownership of property in
Beijing exercises control over the
livelihood of the Chinese people largely through state-owned
enterprises. State workers are paid incredibly low wages--as low as
$400 a year--but subsidized housing, health care, child care, food,
clothing, and education are provided as non-wage compensation. The
level of compensation Chinese workers receive for their work is not
as important as the way they are compensated. State workers are
forced to depend on government-subsidized benefits. Because they
are not paid enough to be able to choose private alternatives, they
must comply with intrusive government regulations, like family
planning and controls on speech, or risk the loss of the vital
benefits. To break this cycle of dependence, Chinese workers need
greater access to private-sector employment alternatives.
Increasing the presence of American firms
in China can assist in the development of its private sector.
Employees at American firms earn higher wages and are free to
choose where to live, what to eat, and how to educate and care for
their children (yes, even more than one child). As the private
sector grows, so too will the scope of these freedoms. This real
and measurable expansion of freedom in China does not require
waiting for a middle-class civil society to emerge; it is taking
place now and should be encouraged by increasing trade with
Currently, the Chinese people lack the
means to change the officials and laws that govern them at the
national and provincial levels, but significant progress has been
made at the local or village level. Chinese citizens choose local
officials in competitive elections, and although these local
officials lack the authority to change national family planning
policy or to improve the incomplete legal and judicial process,
they are the level of government closest to the people and must
face the discipline of competitive elections. Thus, they are more
responsive to the interests of the citizens as they interpret and
apply the national and provincial regulations. Local village
elections are a small step toward freedom, but to the several
hundred million Chinese citizens in rural areas who now have some
measure of democracy in their lives, they are important.
Taiwan's Example. The experience of
democratization in Taiwan offers some lessons. Nearly 50 years ago,
when the Nationalists on the mainland fled to Taiwan after their
defeat in the civil war, the Kuomintang (KMT) under Chiang Kai-shek
began to hold elections at the village level. For much of the past
half-century, Taiwan remained a one-party state in which all
national, provincial, and county officials were loyal to the KMT
and citizens lived under martial law. Even at the village level,
only KMT and some "independent" candidates were allowed to run for
office. Despite significant amounts of diplomatic, military, and
economic assistance from the United States, it still took more than
35 years for the government of Taiwan to legalize opposition
parties and lift martial law.
Throughout the 1950s, 1960s, and 1970s,
U.S. assistance to Taiwan represented not only a short-term
investment in the strength of a strategic ally, but also a
long-term investment in a free Chinese society. Direct investment
helped stimulate growth in Taiwan's economy, but investments in
human capital had an equally profound effect. Decades of
broad-based business, cultural, and academic contact changed
attitudes and empowered the development of a strong middle class,
which began to push for political change.
the 1980s, Chiang Kai-shek's son, Chiang Ching-kuo, began to see
the need to open Taiwan's political system to those who had resided
in Taiwan before the "mainlanders" arrived. Taiwan-born leaders,
like current President Lee Teng-hui, were promoted and opposition
parties were legalized in order to allow the government to better
reflect the people governed. Martial law was lifted. In the 1990s,
direct popular elections were held for Taiwan's highest government
offices. In March 2000, Chen Shui-bian, the candidate of a former
illegal opposition party was elected President, and the first-ever
peaceful transfer of power in Chinese history from one party to
another is now underway in Taiwan.
Taiwan's experience demonstrates that
freedom and democracy are not inconsistent with Chinese
civilization. It also demonstrates that, even with a very close and
generous relationship with the United States, democratization can
be a slow and incremental process. In Taiwan, it began nearly 50
years ago with local village elections. Democratization on the
mainland does not have to take 50 years, but Americans should not
expect the development of democracy for the 1.2 billion people on
the mainland to be more rapid or smoother.
Trade alone cannot guarantee that China
will have a stable democratic transition. But the extension of
permanent NTR will be conducive to the spread of freedom throughout
China, allowing the people to take greater control over their lives
and enhancing the stability of free and democratic forces that
already exist in Hong Kong and Taiwan.
addition to efforts that promote freedom through private-sector
expansion in China, the United States should seek more effective
means to address China's failure to live up to the international
human rights covenants it has signed, such as the International
Covenant on Civil and Political Rights. The perennial debate in
Washington over China's trade status has not induced Beijing to
improve its treatment of the Chinese people.
method for addressing human rights concerns would be to establish
an executive-legislative commission to coordinate monitoring of
human rights developments on a continuing basis, rather than
annually seeking international censure of China's activities.
Representative Sander Levin (D-MI) advocates this approach based on
the Helsinki Commission as a means to press Beijing for progress on
human rights without tying it to an annual debate over China's
trade status. Senator Spencer Abraham (R-MI) made a similar
proposal in the China Policy Act of 1997 (S. 1164). This approach
would make clear America's intentions to press for substantive
progress on human rights while moving forward on the longer-term
strategy of expanding trade.
HOW TO ADVANCE U.S. INTERESTS
United States should extend permanent NTR to China, but throughout
the process it must not falter in its commitment to protect U.S.
national security interests and promote freedom in Taiwan and
China. Trade expansion is a critical factor in a comprehensive
strategy toward China that can enhance America's ability to address
a broad range of interests.
demonstrate its commitments to these goals, the United States
Grant an unconditional extension of
permanent normal trade relations to China. Granting permanent
NTR to China would allow America's strongest economic sectors,
particularly the agricultural, automobile, computer, financial
services, and telecommunications industries, as well as
Internet-related commerce, to compete in China's large market,
which would help expand China's small but growing private sector.
Greater private-sector employment will offer the Chinese people the
wealth and freedom they need to choose private alternatives to
government subsidies in education, health care, housing, and other
basic needs that come with increased restrictions and
Seek the simultaneous entry of Taiwan
and China into the WTO. WTO membership for China and Taiwan
would increase U.S. access to their markets. By emphasizing the
positive-sum benefits of trade liberalization as opposed to the
zero-sum sovereignty disputes, the WTO also will provide an
international forum through which cross-Strait economic relations
can be enhanced and normalized.
Explore new ways to monitor and address
human rights concerns in China. The White House and Congress
should review the lessons learned from the Helsinki Commission and
consider their applicability to the challenge of human rights in
China. The establishment of an executive-legislative commission, as
proposed by Representative Sander Levin and Senator Spencer
Abraham, merits Congress's thoughtful debate.
Identify the names of known Chinese
companies that serve as fronts for the People's Liberation
Army. The names of Chinese companies that produce armaments or
serve as fronts for the PLA, which seeks to improve military
production by engaging in civilian production of similar goods,
should be made available to the public and to U.S. allies.
- Enforce existing legislation, such as
the Export Administration Act and the Arms Export Control Act.
American companies should not do business with the PLA. Moreover,
the U.S. embassy should be staffed adequately to verify that the
approved end-users of U.S. products have received those goods.
Granting permanent normal trade relations
status to China supports U.S. interests in a number of ways. China
would be forced to reduce its restrictive tariffs on U.S. goods,
which would increase access to China's large potential market.
Moreover, it would help further the goal of democratization by
providing more choices for the Chinese people and supporting the
creation of a middle class whose lives are not dependent on the
Communist Party or the government. It would facilitate accession to
the World Trade Organization by China and Taiwan, improve the rule
of law, and facilitate cross-Strait dialogue and contact, which
would reduce tensions in the region.
of these goals can be achieved in ways that protect U.S. security
interests and do not improve China's military capabilities.
the long run, facilitating people-to-people interaction through
increased trade will benefit both America and China. It will help
integrate China into the world's economic system and create the
conditions that empower the people of China to seek additional
freedom and democracy. After all, people who can choose what to
buy, where to live, and where to work will want to exercise choice
in determining who will lead their government. A stable democracy
and free market in China is vital to the peace and stability of the
Asia-Pacific region, which is one of America's key strategic
Stephen J. Yates is a
former Senior Policy Analyst in, and Dr. Larry M.
Wortzel is Director of, the Asian Studies Center at The