CHINA DEBATE'S LEGACY: UNREALISTIC EXPECTATIONS

CHINA DEBATE'S LEGACY: UNREALISTIC EXPECTATIONS

Particularly in an election year, no one should be too surprised that political debates in Congress and on the election trail contain a fair bit of exaggeration and gilding of the lily. But the rhetoric on permanent normal-trade-relations status for China, however, threatens to set a new high-water mark for fibs and misinformation.

Since the bulk of my criticisms here rebut claims made by the Clinton administration in favor of granting permanent NTR, I feel obligated to note two things at the outset.First, provided sufficient measures are taken to ensure enforcement of the World Trade Organization accession agreement with China, I favor permanent NTR for China. Second, I am a lifelong Democrat who twice voted to elect William Clinton president of the United States.

Nevertheless, consider the following.

* Claim: The 1979 agreement that established trade relations between the United States and China obligates China to extend to the United States all the benefits of WTO membership even if the United States turns down permanent NTR.

Counter: On paper, the 1979 agreement does oblige both the United States and China to extend to each other most-favored-nation trade status, also known as permanent-normal-trade relations. But these commitments do not cover issues such as investment or services.

Further, neither side has taken this commitment seriously. After all, the 1979 agreement, read plainly, would also bar the United States from withdrawing MFN from China - as critics of permanent NTR desire to do - or the imposition of trade sanctions against China.

Under the scenario hypothesized by opponents of permanent NTR, it may be true that the United States could deter China from denying it benefits by threatening to withdraw benefits from China in retaliation. However, the 1979 agreement would be of little relevance in such a confrontation.

* Claim: WTO accession will reduce the U.S. trade imbalance with China.

Counter: Most credible economic estimates project that WTO membership for Beijing, with the resulting opening of the U.S. textile and apparel market to China, will actually increase the size of the trade deficit, at least in the short term. Any projection of export gains depend upon China's compliance with the commitments it has made and a stable Chinese currency - both of which are questionable assumptions.

* Claim: China has a good record of complying with past trade agreements.

Counter: This claim is a favorite of the Clinton administration and is usually supported by pointing to the 1992 and 1995 agreements on intellectual-property protection. But the claim overlooks the fact that the United States almost imposed sanctions on China on three occasions over Chinese tolerance of intellectual-property piracy.

Beyond that, U.S. industry estimates are that intellectual-property piracy rates in China remain at more than 90 percent, and that total losses have actually risen since 1995. All in all, the intellectual-property agreements hardly provide evidence of Chinese trustworthiness with regard to trade agreements.

* Claim: WTO membership will bring the Internet to China and speed the arr ival of democracy.

Counter: Just as was the case with the telegraph, the telephone and the fax machine, the Internet will likely become an important channel of communication in China. As anyone whose e-mail address has been publicized in China can attest, many wealthier Chinese, students and academics already have Internet access, and the poorer Chinese are unlikely to be able to afford it in the foreseeable future.

WTO membership will likely bring new Internet providers into China, but it will not arrest the penchant of Beijing's bureaucrats for blocking Internet sites they find offensive, screening e-mail, or otherwise seeking to control communication via the Internet.

* Claim: The United States gives up nothing to China in the WTO agreement.

Counter: This whopper would have everyone believe that the Chinese are foolish rubes who were taken to the cleaners by U.S. trade negotiators. The United States did win many important concessions, but the Chinese also achieved their main objective - a commitment to permanent, unconditional NTR access to the U.S. market.

This a ccess will not only allow China to build exports to the United States, it will also assist China in securing foreign investment. As a WTO member, China will also benefit in the short term from the phase-out of U.S. restrictions on textile and apparel imports. The combined economic impact of just these two concessions could well outweigh all the benefits the United States secured for itself and other WTO members.

It now appears likely that Congress will approve permanent NTR for China. Even if that is the case, however, the unfortunate truth is that in the near future the trade deficit with China may well widen, China will most likely not keep all of its trade promises, U.S.-China relations will almost certainly remain tense, and the Internet will not revolutionize China.

In short, few of the expectations raised in the debate will be fulfilled.

If permanent NTR is approved, the next president - whoever that may be - will have the enormous task on his hands of reducing expectations for U.S.-China relations to a more realistic, achievable level. More than anyone else, he is likely to regret the excesses of the permanent NTR debate.