• Military Menu                       

• Introduction
• Systems
• Facilities
• Agencies
• Industry
• Operations
• Countries
• Hot Documents
• News
• Reports
• Policy
• Budget
• Congress
• Links

• WMD
• Intelligence
• Homeland Security
• Space

TEN GOOD REASONS TO CONTINUE MFN FOR CHINA
Statement of
Stephen J. Yates,
Policy Analyst for China,
The Heritage Foundation, Washington, D.C.
JUNE 5, 1996
THE SENATE FOREIGN RELATIONS
SUBCOMMITTEE ON ASIA AND PACIFIC AFFAIRS
U.S. Senate

Mr. Chairman, members of the committee, I thank you for this opportunity to present to you my views and recommendations on this topic of great interest and importance. Indeed, the question of whether to continue MFN for China is fundamental to the direction we seek to guide American policy toward China.

The recent crisis in the Taiwan Strait, reports of weapons proliferation and intellectual property rights violations, as well as long-standing human rights concerns have reignited the annual debate over whether to extend most-favored-nation (MFN) trade status to China. As the debate intensifies, it is essential that members of Congress and other Washington policy-makers carefully consider the likely cost to U.S. interests of any action they might take to vent their anger toward Beijing. There are several reasons why Congress should approve an extension of MFN status for China. Today I will share my top ten.

1. FIRST AND FOREMOST, REVOCATION OF MFN WILL HARM THOSE WE SEEK TO HELP. Discontinuing MFN would harm U.S. workers. In 1995, the U.S. exported over $12 billion of goods and services to China. American trade with China supports over 200,000 high-wage American jobs, as well as tens of thousands of additional American jobs in U.S. ports, retail establishments, and consumer goods companies. The loss of exports from the inevitable China retaliation to MFN revocation poses a serious threat to the employment of these Americans.

2. REVOKING MFN WOULD THREATEN U.S. BUSINESS AND INVESTMENT. The International Monetary Fund estimates China is now the world's third-largest economy after the United States and Japan, and could emerge as the world's largest economy in the 21st century. The World Bank has calculated China will require nearly $750 billion in new industrial infrastructure over the next decade. China needs new aircraft, power generators, telecommunications, computers, and other high-skill, high-wage technologies that must be supplied from overseas. American companies should be getting the contracts to build these projects. Continued American leadership in these key technology sectors is vital to sustaining long-term U.S. economic growth and creating high-wage, high-skill American jobs. If MFN is revoked, China's needs will be filled by Japanese and European business and investment, with American jobs lost to overseas competitors.

3. REVOKING MFN WOULD JEOPARDIZE ECONOMIC REFORM IN CHINA. The last 15 years of economic reform in China have increased economic freedom and improved the livelihood of one quarter of the world's population. American companies operating in China have contributed to a significant expansion of economic freedom and choice for the Chinese people. The U.S. must build on this foundation to further open China's economy and society. MFN will not guarantee the rise of democracy in China, but at least it keeps China open to influences and pressures from the outside world. It fosters the development of a middle class or civil society that in the future will have the means and the will to demand more responsiveness from its government.

4. REVOKING CHINA'S MFN TRADE STATUS WOULD HARM THE ECONOMIES OF TAIWAN AND HONG KONG. The prosperity of both Taiwan and Hong Kong is highly dependent on investment and export production in China. In Hong Kong it is estimated that revocation of MFN would cut economic growth in half. Although this point is rarely discussed, billions of dollars in Taiwanese investment and labor-intensive industries have moved to the mainland, unabated by the recent tensions. Many of the light industrial goods on which Taiwan's economic miracle depends are now produced on the mainland and exported through Hong Kong to the United States and other markets. Threats of across-the-board tariff increases, MFN revocation, and boycotting of Chinese goods, ignore the fact that many of the goods marked "Made in China" are actually produced by representatives from countries the U.S. seeks to support -- like Hong Kong and Taiwan. The single most important action the U.S. can take to enhance and protect the security and prosperity of Taiwan and Hong Kong is to better manage our relations with Beijing. In this regard continuing MFN for China is fundamentally important.

5. REVOKING MFN WILL NOT IMPROVE HUMAN RIGHTS CONDITIONS IN CHINA. History shows that China is far more oppressive against its people during periods of isolation. This was clearly the case in the Cultural Revolution of the late 1960s. Human rights improvement is a long-term process that requires our attention, but also our patience. It is a process that does not lend itself to annual review. Many Chinese people have a very different view of what constitutes basic human rights. They typically refer to food, shelter, and work as basic human rights. In these areas, the Chinese experience of the last 15 years has been one of undeniable improvement. By contrast, most Americans, when asked to identify basic human rights, begin by listing the Bill of Rights -- freedom of speech, freedom of assembly, freedom of religion, etc. -- and the right to vote. Note the difference: Americans are talking about how to socialize and the Chinese are talking about how to survive. It will take continued long-term economic growth in China before people are wealthy enough to consider our political liberties as rights rather than luxuries. We should take heart, however, as Taiwan's success in improving the economic and political well-being of its citizens demonstrates that this transition is possible and desirable in a Chinese society.

6. REVOKING MFN WILL NOT ENCOURAGE CHINA TO ADHERE TO INTERNATIONAL LIMITATIONS ON TRANSFERS OF NUCLEAR TECHNOLOGY OR WEAPONS OF MASS DESTRUCTION. China should answer the charges that it is supplying Pakistan with key nuclear and missile components in violation of its obligations under the Missile Technology Control Regime (MTCR) and the Nuclear Non-Proliferation Treaty (NPT). In the past, China has shown its displeasure with America's overtures to Taiwan or criticisms of China's human rights record by selling dangerous technology to unstable regimes such as those in Pakistan and Iran. Revoking MFN could generate another series of sales. The U.S. must investigate the recent allegations of missile sales to Pakistan and has every right to ask China to explain itself. If such sales have taken place, American law dictates that technology and commercial sanctions be imposed. These sanctions, if not waived by the President, should be specific and targeted on the responsible Chinese enterprise, to avoid jeopardizing unrelated U.S. activities in China, rather than targeted on all U.S.-financed projects in China, as the law requires. Revoking MFN would go even further, adversely affecting all U.S. commercial interaction with China. In this area, MFN is simply the wrong tool.

7. WORST OF ALL, REVOKING MFN WOULD SET THE U.S. ON THE ROAD TO PROLONGED CONFRONTATION WITH CHINA. Abandoning MFN for China would make it less likely that China would integrate into the international system in a way that is favorable to our interests. For the United States and its allies to deal effectively with nuclear weapons proliferation, unfair trade practices, and human rights violations, China must be a partner, not an enemy. If U.S. policy makers wish to influence China so it will behave in a way that is consistent with international norms and international agreements, they should work for multilateral cooperation with our allies rather than engage in ineffective bilateral brow-beating. I view the manner in which China integrates or does not integrate into the international commercial and security system as the most important challenge for American foreign policy into the foreseeable future. It warrants more deliberation and care from the President and his Cabinet.

8. THIS YEAR ATTACHING CONDITIONS TO MFN RENEWAL IS THE SAME AS REVOKING IT. American credibility in conditioning MFN, not to mention in dealing with China in general, has been destroyed by Clinton Administration mismanagement. By linking improvements in human rights in China to the extension of MFN, and then a year later de-linking the issues, the Clinton Administration sent a clear message to Beijing: ignore U.S. threats. The lesson is not to threaten action that is counter to our interests. If we attach conditions to the extension of MFN, China will call our bluff end a year from now, because of irresponsible political rhetoric, we will be forced to revoke MFN or once again play the fool.

9. MFN IS NOT SPECIAL TREATMENT. I strongly support initiatives aimed at changing this misleading title. General trading status (GTS) is a good alternative. Together with national treatments MFN is a fundamental principle on which the World Trade Organization operates. It is normal trade status granted to all but a handful of countries -- North Korea, Cuba, Afghanistan, Azerbaijan, Cambodia, Laos, and Vietnam -- none of which has any substantial global trade. It is the foundation of basic international commercial relations, and, in the absence of the cold war strategic framework, commercial relations are now the foundation of our bilateral relations with China. Revoking MFN undercuts our entire relationship.

10. MFN FOR CHINA IS BASED ON THE PRINCIPLE OF FREEDOM. For more than a century the U.S. has pursued a policy aimed at free access to the markets of Asia and freedom of navigation on the high seas. In addition to being consistent with these long-term U.S. interests in freedom, MFN for China demonstrates American good will to the people of China, if not to the government, by extending our system of free enterprise to raise their living standards and increase their economic freedoms and choices. The U.S. has invested a tremendous amount in the establishment and management of the current liberal international system of trade. It's aim was to protect the United States and the world from the detrimental protectionist policies of the 1930s.It drew upon the lessons of the interwar period, and those lessons are still applicable today.

In conclusion I would like to draw an important distinction between policy and the context in which it is enacted. The United States is a great and powerful country in every respect, and it is capable of influencing the context in which its policies operate. I do not disagree with Administration decisions to de-link human rights and MFN, to approve ROC President Lee Teng-hui's visa application, or to send two carrier battlegroups in response to China's missile exercises. The problem is that the context of these policies was so damaged by Administrative mismanagement that the right policies were rendered less effective.

The President should never have threatened revocation of MFN over human rights concerns when neither he nor the country was prepared to pay the cost of such action. The Secretary of State, ignoring Congressional and public interest, should not have assured Foreign Minister Qian Qichen that Lee Teng-hui would not be granted entry into the United States only days before only- day before the visa was granted. Similarly, Administration officials should not have equivocated, delayed, and apologized for action taken in support of U.S. interests in Taiwan.

This is an extension of domestic politics, where the Administration says one thing but does another. The Chinese are told that the Administration is following a policy of engagement. Engagement, however, is not a policy. It is simply another word for diplomacy or a channel of communication still in need of a message. Under this policy of engagement, neither the President nor the Vice President have visited China and the Secretary of State has been only once. The President received Gerry Adams and Yasser Arafat in the White House, but forced the PRC head of state to meet instead in New York without the fanfare of a full state visit. This message is not lost on the Chinese leadership, and the mere suggestion of frequent high-level summits at the end of the President's term in office are little consolation.

I suggest that those frustrated with the lack of progress in China on certain interest areas need the support of a clear, consistent, and predictable policy to avoid miscalculation in the Taiwan Strait and to allow U.S. policy to be effective.

Conditioning or revoking MFN under current circumstances would eliminate any possibility of cooperation from Beijing, rendering the U.S. less effective in its efforts to limit transfers of nuclear technology and weapons of mass destruction, correct unfair trade practices, and foster development of the rule of law in Asia. Discontinuing MFN would not improve social and commercial conditions in China, but it would come at great cost to Americans and their friends in Hong Kong and Taiwan. For the U.S., revoking or conditioning MFN gains too lime and risks too much. For these and many other reasons, most-favored-nation trade status for China should be renewed unconditionally.