05/12/1999
The Asian Wall Street Journal

By Greg Rushford

The Chinese government's angry reaction to the accidental bombing of its embassy in Belgrade by NATO has thrown negotiations over its entry to the World Trade Organization into doubt. Beijing has indicated that the trade liberalization package it put on the table during Premier Zhu Rongji's April visit to Washington -- concessions U.S. President Bill Clinton rejected despite the opposition of his advisors -- is now no longer operable. Despite all the progress made in the past, the two sides seem farther apart than ever.

But they are bound to come together to restart negotiations soon. Ultimately, China cannot afford to imperil economic growth. After the protests die down, China's leaders will recognize the need to reassure foreign investors with new progress on reforms and WTO entry.

The spectacle of rock-throwing students in Beijing notwithstanding, the real obstacle to an agreement lies not so much on the Chinese side as on the U.S. one -- in American domestic politics. In Washington, the steel and textile protectionist lobbies that scuttled a deal last month will continue to exert pressure on Mr. Clinton behind the scenes. Sooner or later, the U.S. is likely to resume its insistence that the Chinese sign on to provisions blatantly in contravention of past WTO agreements before Beijing is granted admission to the organization. In April, Mr. Clinton demonstrated that he was willing to jeopardize an important foreign policy goal rather than open America's protected markets to Chinese competition. That political equation hasn't changed.

And it's safe to say it won't change, given two factors. The first is the political strength of organized labor, combined with the steel and textile industry lobbyists. The second is President Clinton's record of allowing protectionism to drive foreign policy. This is the same president who in 1995 strained America's vital security relationship with Japan by raising the decibel level to advance the Detroit auto lobby's agenda. Now it's China's turn to feel the heat.On textiles, the U.S. has asked China to agree to be the only WTO member required to stick to nearly 90% of its quotas until 2010. If China were already a member, it would be illegal under WTO rules for the United States to continue to impose quotas beyond 2005. China has resisted pressure for such a dubious deal before. In 1997, Beijing bargained down to a four-year safeguard agreement, allowing the U.S. to impose temporary, one-year quotas to cap surges of textile and clothing imports between 2005 and 2008. But Chinese leaders were forced to make some difficult concessions, such as agreeing to cutbacks in some current quotas, to head off the U.S. demands for quota extensions. Now Mr. Clinton is again trying to get Mr. Zhu to give him a full 10 years of additional protectionism.

The dispute over steel involves American antidumping laws, and it is pretty much the same story. U.S. domestic steelmakers, the driving force behind antidumping laws, want China to allow Washington to treat it as a "non-market economy" whenever the Commerce Department, which makes antidumping findings, runs the numbers to determine whether or not Chinese products have been exported at prices below their cost of production. This has long been one of the most abuse prone of the American antidumping regime.

When a country like China is termed "non-market," the Commerce bureaucrats select a comparable "free market" country to determine the costs of production. This opens the door to wild guesses -- and high tariffs. Last year, for example, the crawfish industry in the state of Louisiana accused China of dumping frozen crawfish tail meat in U.S. markets. To determine Chinese costs, Commerce selected India as the surrogate free-market country. India doesn't even have a crawfish industry.Next, to calculate the value of Chinese labor, U.S. bureaucrats consulted the United Nations Yearbook of Labor Statistics. An article from the Times of India was used to determine the value of China's inland freight. This was absurd, but in the end China was officially branded an "unfair" trader and crawfish-tail importers were hit with prohibitive tariffs of 201%.

Part of the power of the textile and steel lobbies derives from their links to industry loyalists who hold key positions below the cabinet level within the Clinton administration. For instance, the steel companies backed Robert LaRussa, a former Congressional aide and a staunch backer of organized labor, to be the assistant secretary of commerce who oversees antidumping investigations.Rita Hayes, the current U.S. ambassador to the WTO, came to the administration to run the Commerce Department's bureaucracy that administers textile quotas from a perch on Capitol Hill, where she labored as a key aide to the head of the Congressional Textile Caucus. Ms. Hayes's successor at Commerce, Troy Cribb, formerly was an aide to Sen. Ernest Hollings, the venerable South Carolina Democrat who has been pressing U.S. presidents on behalf of textile protectionism for decades.

The irony of the China-WTO situation -- as in so many others -- is that Clinton administration policy is manifestly not in the U.S. interest. There are around 150,000 steelworkers in America, but they constitute only about one third of the number of people who work for the Ford Motor Co. alone. Steel-using companies like major exporter Ford employ about 40 times more people than the domestic steel industry, and their export competitiveness will be affected by higher steel prices.

Similarly, the U.S. textile and apparel industry employs perhaps 1.7 million workers -- a figure that is dwarfed by the number of jobs created every year in a growing American economy, an economy which thrives on exports. Yet again, relatively small U.S. domestic players have become the driving force in this important foreign policy decision. It is clear that the real threat to China's integration into the world economy comes not from bottle-throwers in Beijing but from lobbyists on Washington's Capitol Hill.

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