FREE ESSAY ON CHINA AS MOST FAVORED NATION

CHINA AS MOST FAVORED NATION

China as Most Favored Nation
Essay written by Luke Allison
What is the debate on weather or not China should retain favored-nation trading status
all about? Is it really a decision on what is best economically for the United States,
and China. 
Or is it: the issue of Chinese human rights violations and the fact that if the United
States where to revoke the favored nation status of China it would have a profound
negative impact on the U.S. economy alone. 
(+)Most-favored-nation trade status started in the United States as a version of the
European preferential trade system. The Carter Administration first granted
most-favored-nation trading status to China in 1980, following the historic efforts of
President Nixon during the 1970's to restore diplomatic ties. Historically, a significant
difference existed between the unconditional most-favored-nation clause in European trade
law and the American version of conditional most-favored-nation. Under unconditional
most-favored-nation status, one country's extension of tariff concessions guarantees the
same concessions to all nations associated with it through commercial treaties. American
conditional most-favored-nation status provided treaty signatories only the opportunity
to negotiate most-favored-nation status when most-favored-nation status was extended to
another trading partner. Thus meaning that the United States gives significant economic
advantages to one nation in the form of most-favored-nation trading status. 
Under the Trade Act of 1974, most-favored-nation status could only be granted to China
through a Sino-American bilateral commercial agreement and satisfaction of the
Jackson-Vanik Amendment requirements. The Jackson-Vanik amendment states that the
President of the United States may grant a communist country such as China
most-favored-nation trade status if it was in conjunction with a trade agreement and upon
proper improvement that China would permit emigration. Also China would have to satisfy
that they are moving toward improving current policies. The conclusion of the US-PRC
commercial accord in July 1979, and the initial waiving of the Jackson-Vanik
requirements, and with Congressional approval, most-favored-nation status was granted to
China. This action sealed the successful efforts of the Carter Administration to create
social and economic ties through Sino-American relations. 
The renewal of China's most-favored-nation trade status has been supported by Chinese
liberalization of its own emigration policies. Six hundred and twenty-five thousand
Chinese citizens traveled abroad in 1990. The Chinese government in 1990 issued 280,000
new passports. During the same year, the United States issued seventeen thousand
immigrant visas through consular offices in China, the full number allowed by American
immigration law. The principal restraint to Chinese emigration has arisen not from
Chinese emigration policies but from the unwillingness of other countries to accept
immigrants. Most-favored-nation status for China continues to provide an incentive for
further advancement in this area as well as facilitating the contacts that the Carter
administration established well over a decade ago. 
By granting China most-favored-nation trade status the United States has started that
long and difficult process of bringing China out of its international dark ages. In order
to live up to the terms of most-favored-nation trade status China has had to become more
open to social and economic changes. These reforms included more economic freedom, easier
access for foreign direct investments. The economic developments these reforms have been
to a main cause for China's newly increased gross nation product. Over a ten-year period
from 1978 to 1988 most-favored-nation trade status was directly responsible for an annual
ten percent growth in China's gross national product. 
China will likely prove to be a significant market for the U.S. in the future. China is
one of the world's fastest growing economies, and with its efforts to reform, improve,
and modernize its economy could come a significant increase in demand for imports.
Infrastructure development, in particular, has been made a major priority, and the
Chinese government has also announced that foreign firms will be allowed to participate
in a wide variety of projects. This is very important to the United States because it
mean that there is for the foreseeable future a market for their goods and services in
China. Also as a result of the most-favored-nation trade status that China currently
holds it makes the opportunity for international business ventures there even that much
interesting because of the possibility of high profits. 
Another advantage for the United States is in the area of imports from China. The surge
in United States imports of Chinese products over the past few years can be largely
explained by two factors. First, China's production of low-cost, highly labor-intensive
products has grown greatly in recent years. A main reason for this is that the price that
which the Chinese are able to produce goods is at a lower level than almost any other
producer. In addition the United States demand for product of this type has and mostly
likely will continue to rise in the future. In response Taiwan and Hong Kong have moved
many of their production firms into China to take advantage of lower labor costs. This is
good for the economy of China and it also helps to supply the United States with low cost
goods. 
(=)The growing U.S. trade imbalance with China, and the exclusive market segments of
China's trade regime have become of major concern to many U.S. policymakers. Over the
past few years, the U.S. trade deficit with China has surged. It rose to nearly 50
billion in 1997 and could top or exceed 60 billion in 1998. 
China's trade policies have become a focal point in the annual congressional debate over
renewing China's most-favored-nation trade status. Along with other non-trade issues,
including but not limited to human rights violations, weapons sales, and foreign policy
issues. Over the past several years, efforts have been made in Congress to terminate, or
attach additional conditions to, China's most-favored-nation trade status, although none
have as of yet succeeded. This policy was opposed by the Bush Administration, which
sought to deal with these issues outside the most-favored-nation trade status process. As
a result, President Bush vetoed congressional attempts to revoke or condition China's
most-favored-nation trade status, and such vetoes were consistently sustained in the
Senate. As a presidential candidate, Bill Clinton criticized the Bush Administration's
China policy and pledged to take a tougher approach to United States-Chinese trade
relations, including conditioning China's most-favored-nation trade status renewal. To
date many of the very same issues that the United State objected to in the past are still
going on every day in China. 
From the American political viewpoint it would seem only right to continue to renew
China's most-favored-nation trade status. Politicians are concerned about is whether or
not the United States economy is strong and if it is not, then finding something that
they can do to make it that the economy is getting better. So most of the world turns a
blind eye to many of the issues that China is currently having and just disregards them.
This meaning that if there were any human rights violations or other types of acts that
violated the pact that China signed to earn most-favored-nation trade status, then the
United States have a responsibility. A responsibility to do whatever it can as the United
States to ease and or end any of the suffering or unfair hardship that the people of
China are currently experiencing. It is our duty as human beings to ensure that a high
global standard of living. This should be the bottom line. Because the way that it seems
now, the United States is much more concerned about getting inexpensive goods from China
and being able to help China update its infrastructure. The question that has to be asked
annually when a vote about China's most-favored-nation trade status comes up is that if
it is all right for China to do the things that they do. If we decide that China's
violations of their most-favored-nation trade status are not forgivable then the United
States need to cut its economic ties with China. Decisions like these would be very
difficult for the economies of both nations, but it comes down to the fact that money is
not the most import thing. Other values have to be placed before the interest of making
as much money as possible. 
(-) Other concerns about future dealings with China have also arisen. The United States
has voiced its concerns in recent about China's missile and nuclear proliferation
activities. These concerns led the United States to limit United States exports to China
of supercomputers, satellites and parts, and missile technology. Why is our most favored
trading partner-stockpiling weapons? For what reason is China moving nuclear related
materials and technology to Pakistan? Needless to say these were some very unsettling
events that took place in the early months of 1996. Actions likes these could very well
be reason alone for China to lose its most-favored-nation trade status. But yet they were
allowed to keep it. 
The United States Customs Service has found evidence on multiple occasions that China has
attempted to circumvent or otherwise break United States textile quotas laws. This was
done by transshipping Chinese products through other countries to the United States by
the use of false country of origin labels. Another method was the misclassification of
textile and apparel products. The United States Customs Service estimates that such
transshipments and other circumvention methods may total up to two billion dollars each
year. In addition, the United States has charged that certain Chinese entities have
sought to avoid United States tariffs by undervaluing textile and apparel shipments 
On January 6,1994, the United States announced that a large reduction of 25-35% below the
1993 level of China's textile and apparel quota would result due to China's refusal to
accept anti-circumvention provisions in a new textile agreement. The new quota levels
were set to take effect on January 17, 1994. However, on that date, the United States and
China came up with a new textile agreement that would effectively reduce the growth rate
of China's textile exports to the United States by allowing United States to
significantly reduce China's quotas if China violates the agreement through
transshipments. Charges by the United States Customs Service of illegal transshipments by
China have led the United States on separate occasions since the signing of the agreement
to reduce China's textile and apparel quotas on specific products. The most recent
incident occurred on September 6, 1996, when the U.S.T.R. announced that the United
States would impose a $19 million dollar punitive charge against China's 1996 textile
quota allowance due to China's repeated violations of the United States-China textile
agreement dealing with illegal transshipments. China in turn has threatened to fight back
by imposing restrictions on the importation of certain United States products. 
I can only begin to imagine the great cost that it takes on a yearly basis to keep a
watchful eye on the export practices of the Chinese textile and apparel industries. 
As if the problem of Chinese textile and apparel exports were not bad enough already
there is information that would led to cast an even darker shadow on this portion of the
Chinese economy. It is believed the use of forced labor is widespread and a long-standing
and accepted practice in many parts of China. Evidence leads us to believe that China
might be using forced labor on a large scale in hopes to increase its exports, and a
significant number of these products may be for the United States. I have a problem with
making people work against their will. I just think that it is just another form of
slavery, and at all cost the United States should try to limit its dealing with nation
who use economic practices that involve forced labor of any kind. 
Another problem with the Chinese exporting goods that may be produced in a forced labor
environment is that it not legal. United States law prohibits importing goods or other
commodities from any country produced through the use of forced labor, although getting
actual proof of violations for certain imported goods is and will remain to be a very
large challenge. 
In 1994 despite supposed violation, China's most-favored-nation trade status was renewed.
The renewal of China's most-favored-nation trade status came with the ideal in mind that
China would follow the guidelines on the use of prison labor that it had agreed to two
years before. In 1996 it was said that the progress that China had made in reducing the
exports produced by prison labor export was good enough to warrant the renewal of
most-favored-nation trade status. Only two years later the United States Customs Service
confirmed that an iron firm in China had been using prison labor and then illegally
exporting their product to the United States. As a result the United States Customs
Service placed a important restriction on all product from that iron. 
So what does this mean? As I have shown cases where China does not follow rules that are
to govern its most-favored-nation trade status, nothing more than a fine or
non-acceptance of their product ever happens. I cannot say that I really see the point of
the United States having some of the laws that it does. Laws are written and then when
they are broken they are not enforced to the severity to which they were broken. China is
being treated like it has unconditional trade status. As of the last time I checked China
has most-favored-nation trade status that is still very much conditional on many things.
And it would appear that on more than one occasion the United States has caught China
breaking laws, rules, or other governing factors that should at least result in some type
of economic sanctions. But what happens is that every time that China's
most-favored-nation trade status comes up for vote they campaign really hard to convince
us that they are really work to try to improve the condition of their nation. So what
ends up taking place is that when the United States tries to follow through with China's
punishment for doing something wrong they then make threats to turn it all around and
counter attack us. We try to enforce agreement that they have signed and we end up in an
economic power play. To solve this one of several things needs to happen. First, just
accept the fact they were caught trying to sneak around United States Customs laws and
take the according penalty. Second, the United States must sticks to the agreement and
pacts that it has made with China. When a violation is committed the United States just
does what it should do by fining or posing other such penalties for that said action, and
it does not worry about the possibility of counter threat from China. Third, would be to
just step back from a crack down of Chinese infractions and rework our foreign trade
status policies. In particular, Congress would have to reword or void Title IV of the
Trade Act of 1974, commonly known as the Jackson-Vanik Amendment. Which prohibits the
President of the United States from granting most-favored-nation trade status to China on
a permanent, unconditional basis. Heck, since the United States has not cared enough to
pull most-favored-nation trade status from China why not grant unconditional trade status
to the People Republic. 
I do not know which of the three above ideas is the best, but I do have a very
interesting thought about the first one. If the United States is going to stand by and
let China break the agreement that we have set then what is the point of having these
rules or laws in the first place? If we can accept the fact that China is breaking our
laws then we can also understand that this behavior can very well lead to a state of
anarchy and lawlessness. These are all things that are breed by a lack of law, and also
facilitated by a lack of proper enforcement of our current laws. This is a warning also
for the future as we show China that the United States will not stand for the flagrant
breaking of its laws. 
United States policymakers employ economic sanctions not only to equalize trade and
investment disputes, but also to reach non-economic policy objectives. This has been
especially true with respect to China. Currently, the United States imposes the following
economic sanctions on China. Restrictions on export licenses are things that the United
States may deny if it was determined that the product could make a direct and significant
contribution to the development of nuclear weapons and their delivery systems, electronic
and submarine warfare, intelligence gathering, nuclear power projection, and air
superiority. This restriction was placed on China on November 23, 1984. Another
restriction placed on China dealt with the withholding of generalized system of
preferences status. Section 502(b)(1) of the Trade Act of 1974 prevents the President of
the United States from designating any developing country as "dominated or controlled by
international communism" as a beneficiary of tariff reductions under this program. This
restriction took place on January 1, 1976. Section 902 of the Foreign Relations
Authorization Act for Fiscal Years 1990 and 1991 deals with the suspension of nuclear
trade and cooperation with China. This sanction was set on February 16, 1990 and may be
lifted if the President determines that China is making political reforms that reduce
oppression of the people of Tibet. On June 5, 1989 President Bush suspended
government-to-government and commercial arms sales to China. Also in June of nineteen
eighty-nine President Bush directed the United States directors at the World Bank and the
Asian Development Bank to seek postponement of new multilateral development bank loans to
China. The Suspension of Overseas Private Investment Corporation (OPIC) and Trade and
Development Agency (TDA) activities took place on February sixteenth nineteen-ninety.
Section 902 of the Foreign Relations Authorization Act for fiscal year 1990 and 1991
expressed suspension of first the granting of O.P.I.C. insurance, reinsurance, financing,
or guarantees to China and second the obligating of T.D.A. funds for new projects in
China. This sanction is not unlike many others placed against China, in that it may be
lifted if the President of the United States determines that China is making political
reforms in Tibet. In addition Section 902 of the Foreign Relations Authorization Act for
Fiscal Years 1990 and 1991 talks about the prohibition of the export of items on the
Munitions Control List, and of United States satellites. This sanction placed in February
of 1990 can be lifted if political conditions improve between China and Tibet. Another
restriction placed on China by the United States on February 16, 1990 dealt with the
prohibition of export licenses for crime control and detection equipment. This is among
the long list of restriction placed against China in the fiscal year of 1990 in hopes to
get China to change it political attitude towards Tibet. 
Again there is more mention of restriction against certain imports produced by prison
labor. The Customs Bureau has enforced Section 307 of the Tariff Act of 1930, which
forbids imports made by forced of prison labor goods. Examples pf such forced labor are
diesel engines manufactured by the Golden Horse Diesel Engine Factory, March twenty-third
nineteen ninety-two; tea grown by the Red Star Tea Farm, July thirteenth nineteen
ninety-two; sheepskin and leather processed by the Qinghai Hide and Garment Factory, July
thirteenth nineteen ninety-two; and again iron pipe fittings manufactured by the Tianjin
Malleable Iron Factory, April 29, 1996. On May 28, 1984, restrictions on the importation
of Chinese munitions and ammunition. 
In conjunction with the 1994 annual renewal of China's most-favored-nation trade status,
United States President Clinton prohibited the importing of arms and ammunition from the
Peoples Republic of China. These are only some of the many economic restriction that have
been placed against the People's Republic of China. Talk about a very complex system of
checks and balances, used to keep the economic practices of China under control. 
In Conclusion, it should now be obvious that the issues around China's
most-favored-nation trade status are both very complex and multi-dimensional. I have
mearly tried to provide the issues on both sides of the debate that surrounds the China's
most-favored-nation status. By giving stats and other figures that show just how this
issue has the ability to effect the economies of both the United States and China. 
Bibliography
Works Cited:
(-)Morrison, Wayne M. "91121: China-U.S. Trade Issues" Updated November 27, 1996
http://www.fas.org/man/crs/91-121.htm#summ
(+)Robertson III , Grayson R "The China-MFN Controversy: The Case For Maintaining China's
MFN Status Part 1" http://www.china-net.org/CCF94/ccf9409-3.html
(=)"MARKET ACCESS AND PROTOCOL COMMITMENTS"
http://www.ustr.gov/releases/1999/04/ch-memo.html
Delay, Tom "China-U.S. Trade Issues"
http://www.majoritywhip.house.gov/China/980717CRSTradeRelations.asp
Faison, Seth U.S. And China Reach Late Agreement on Textiles, New York Times, February 3,
1997 http://www.mtholyoke.edu/acad/intrel/chintex.htm