MAY 5, 2000

Deep Thinkers Plead with Congress for China Trade

Though coming from a wide range of institutes, the scholars agree: Grant Beijing permanent normal trade relations

Members of Congress met with directors, chairmen, and fellows from eight of America's preeminent think tanks Friday to debate granting China permanent normal trading relations (PNTR) status. What did the nation's lawmakers hear? Virtually all the experts -- on both ends of the political spectrum -- urged Congress to do so.

Several members representing U.S. labor interests and conservative agendas are still indicating a reluctance to approve PNTR for China. Instead, they seek to maintain the status quo, which requires an annual approval of normal trade relations. The vote, scheduled in the House for May 22, is considered too close to call yet although the measure is expected to pass the Senate in June.

At least one holdout was in attendance Friday: Representative Sherrod Brown (D-Ohio) is against granting PNTR on "moral" grounds. But another Democrat in Friday's debate, Representative Sander Levin (Mich.), said such concerns could be addressed by a separate watchdog commission on human rights in China that he has proposed.

HUGE STEP. The group of scholars again tried to drive home the point to holdout members of Congress threatening to vote against PNTR that China likely will enter the World Trade Organization regardless of whether the U.S. grants PNTR this year. Membership in the WTO, the world's largest trade negotiating body, would be a huge step toward China enjoying the benefits of free trade. Voting against PNTR withholds the benefits of trade with China from U.S. companies and strengthens the hand of Chinese hard-liners who are arguing against internal reform, said the scholars, who came from the forum's sponsors, the Carnegie Endowment for International Peace, the Center for Strategic & International Studies, the Council on Foreign Relations, the Heritage Foundation, the Institute for International Economics, the Nixon Center, and RAND.

There was a broad consensus that without granting China PNTR, the U.S. will not get the benefit of tariff reductions and greater access to its markets that China says it will implement when it's permitted to join the WTO. "A defeat of PNTR would deal a severe blow to U.S. economic interests in China," said Fred Bergsten, director of the Institute for International Economics.

Bergsten tried to allay the concerns of organized labor, which fears that PNTR will send U.S. jobs to low-paid Chinese workers. He said the number of imports from China will not increase because of granting PNTR, and that cheap imports are at least 50% of the reason that U.S. inflation has remained low -- much to the benefit of poor and working-class Americans.

TRANSITION KEYS. "Our studies show that almost all the increase in China's imports to the U.S. -- perhaps 75% to 90% -- has been a diversion of imports that previously came from countries other than China. There is no increase in the total of U.S. imports. There is no impact on U.S. jobs, Bergsten said. "Therefore, the most important economic effect [of the U.S. approving PNTR] is the impact on Chinese economic policy. The Chinese reformers see WTO entry and PNTR passage as crucial to complete China's transition from a Marxist-controlled economy to a capitalist economy."

Nicholas Lardy, senior fellow at the Brookings Institution, echoed that line of reasoning. He cited statistics that showed 12 years ago, 60% of the footwear imported into the U.S. came from South Korea and Taiwan, while 2% came from China. Now those percentages are reversed, but the share of imports coming from those countries has remained constant: 60% of the footwear sold in the U.S. is now made in China, and 2% is made in South Korea and Taiwan.

The real impact of granting PNTR to China is the cause of reform in that nation, Lardy said. China's leaders need WTO make their economy more efficient and keep it growing, he added. "China really is searching for a new growth paradigm," he said. "In recent years, growth has slumped substantially, and there is the widespread recognition in China that sustained economic growth depends on much more efficiency than they have been able to achieve the past 20 years."

18 CENTS AN HOUR? Representative Brown countered the pro-PNTR argument by saying the American public doesn't support it, and that China exploits workers, pointing out that many workers put in seven-day weeks and make 18 cents an hour.

He was challenged immediately by former U.S. Trade Representative Carla Hills, who pointed out the danger of using statistics that may not be credible. Hills, the chief trade negotiator in the Reagan Administration, instead cited a recent study by the American Chamber of Commerce in Beijing. That study found U.S.-invested businesses in China paid workers "$4 an hour, four times as high as wages in China's state-run enterprises, and 3,000 times as high as those cited by Mr. Brown," said Hills. "There is evidence that U.S. foreign direct investment has had a dramatic effect on the well-being of the Chinese people, not only in wages but in practices as well." Were the lawmakers swayed? The May 22 vote count will tell.

Sheri Prasso