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Capitol Comment

    Capitol Comment 159 - Why America Should Renew MFN for China

    06/12/1997

    Members of Congress will soon be asked to vote on the unconditional extension of China's most-favored-nation (MFN) trading status for one more year. Legitimate reasons for concern over various policies implemented by the Chinese government do exist. However, revoking China's MFN trading status is at best the least effective -- and at worst the most counter-productive -- manner in which to affect those policies. It would be devastating for both Americans and the Chinese if Congress imposes trade barriers between the citizens of these two countries.

    MFN trading status really means normal trading status. MFN trade status simply guarantees that goods imported by the U.S. from China will face tariffs equal to those faced by other countries with which we trade -- no special tariff rates, no special quotas. The fact is that the U.S. grants MFN status to every country in the whole world, except for six -- Cuba, North Korea, Vietnam, Laos, Afghanistan, and Serbia & Montenegro (formerly Yugoslavia). The only reason the U.S. does not have normal trading status with China on a permanent basis is because of an antiquated law passed by Congress over thirty years ago called the Jackson-Vanik Amendment, which was designed to aid Soviet Jews attempting to emigrate from the Soviet Union.

    Moreover, MFN is reciprocal. As a condition of the U.S. granting MFN status to a country, that country must grant MFN status to the U.S. in return. This reciprocal trade arrangement guarantees that just as goods imported by the U.S. from all MFN countries face equal tariffs, American goods being imported by a country are not subject to higher tariffs than the goods of any of the importing country's other MFN trading partners. MFN status ensures equitable terms of trade and ensures that American companies are not disadvantaged in their efforts to compete with other foreign firms in a third country's market.

    Revoking China's MFN will reverse the progress of economic, religious, and political freedom for the Chinese people. Those claiming that China remains an authoritarian state that engages in sometimes brutal repression of its citizens' human rights are by no means incorrect. No less incorrect, however, are those who point out that China's growing economy has greatly improved the economic, religious, and political quality of everyday life for the overwhelming majority of its citizens. Foreign trade, investment and engagement -- including American trade, investment and engagement -- has played an important role in accomplishing that feat.

    Though one often hears about the atrocities being committed by the Chinese government, the State Department's Country Report on Human Rights states that:

    the standard of living and quality of life for the average Chinese citizen has improved significantly since the Chinese government began trading with the West;
    there are millions of Chinese citizens that are affiliated with non-state churches that have the tacit approval and cooperation of the state churches; and
    access to Western media and culture has significantly increased for all levels of Chinese society with the proliferation of satellite communications technology.1
    While these signs of progress have not yet transformed China into a completely free society, they promise enough success to support prudence in policies of patience and engagement. Furthermore, the loss of MFN status for China would seriously stem the flow of Western culture, ideas, business practices, and principles that accompany our trade. Not only do American citizens in China provide the Chinese with economic prosperity, they also bring new philosophies and examples of freedom. Chinese citizens engaged in trade with America become more independent of their central government and more supportive of democratization of their homeland. Denying MFN to China would significantly damage the political clout of parties there that support reform in the areas of human rights and democracy. Removing such advocates of democracy and human rights can hardly be deemed as humane by any standards.

    "For the people of Hong Kong there is no comfort in the proposition that if China reduces their freedoms the U.S. will take away their jobs."2 Among the loudest voices clamoring for support of continued trade with China are those with their political and economic prosperity most at stake. Both Hong Kong Governor Chris Patten and Democratic Party leader Martin Lee have said that denying China's MFN status would devastate Hong Kong both politically and economically. Hong Kong, whose largest trading partners are the U.S. and China, would get caught in the crossfire and could see its growth cut in half and its unemployment doubled.3

    We should not punish American citizens and businesses in what will likely be an unsuccessful effort to aid the citizens and businesses of China. China is our fastest growing export market. The U.S. exported roughly $12 billion dollars in goods to China last year alone, supporting more than 200,000 American jobs -- mostly (71%) high-skill, high-paying jobs like those in the aircraft, telecommunications, computer, and power generation industries.4 In addition, the resulting increases in tariffs will most hurt the low to middle-income families who are more likely to purchase imported goods from China. In fact, these tariffs are the equivalent of a $302 tax increase on each of the 96 million households in the United States.5

    By revoking MFN, Congress would do significant harm to both Americans and the Chinese.

    1 U.S. State Department, Bureau of Democracy, Human Rights, and Labor, "China Country Report on Human Rights Practices," February 1995 and January 1997, http://www. state.gov/www/issues/human_rights/index.html.

    2 Chris Patten, Governor of Hong Kong, The Wall Street Journal, May 22, 1997.

    3 Chris Patten, speech before the National Press Club, Washington, D.C., May 8, 1996.

    4 U.S. Department of Commerce, http://www.doc.gov.

    5 International Business and Economic Research Corporation, The Costs to the United States Economy that Would Result from Removal of China's Most Favored Nation Status, June 1996, p. 20.