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China: Most Favored Nation? Recently, China was again granted Most Favored Nation (MFN) status by the United States. This year, though, China was granted permanent MFN status by the U. S. contingent on when China is accepted into the World Trade Organization (WTO). This decision was, of course, very controversial.
There are many reasons why the U. S. should not grant China MFN status or advocate their membership in the WTO. To explain, lets start with a brief history of the legislation dealing with Chinas MFN status. Beginning in 1934, MFN status, which lowers tariffs on imported products significantly, was generally granted to all trade partners of the U. S.
as part of statutory policy. In Sept, 1951, the Trade Agreements Extension Act made it obligatory for President Truman to suspend MFN status to the Soviet Union, and all other countries associated with the Sino-soviet bloc. In July, 1952, due to Chinas occupation of Tibet, its MFN status was suspended. At this time, the only way to have MFN status reinstated was by a specific law. This all changed in 1974 when the Trade Act of 1974 was passed. In this Act, Title IV set procedures for attainment of MFN status.
The procedure calls for a bilateral trade agreement between a country and the U. S. and that counties observance of the freedom-of- emigration requirements set up by the "Jackson-Valid amendment. " The Act also states that the President has to decide by early June whether to renew a MFN status for another year. Congress then must decide whether or not to support the Presidents decision. The Tiananmen Square massacre occurred on June 4, 1989. Hundreds of thousands of students were after the government ordered the army to fire on the crowd protesting Chinese politics.
This incident and the repressive policies and violations of human rights by the Chinese government that followed it, caused the U. S. to rethink its MFN status policy with China. Attempts to take away Chinas MFN status have been seen numerous times since this incident. These attempts cited the human rights violations, amongst other concerns, as reasons for passing legislation. None of these attempts procured any laws.
In 1993, though, President Bush approved Chinas MFN status for another year but took additional action. Through executive order, he set specific conditions for the next years reinstatement. These conditions were the required observance of the 1992 U. S. -China prison labor agreement and significant progress with respect to China's implementation of the Universal Declaration of Human Rights: releasing and accounting for Chinese citizens imprisoned or detained for the nonviolent expression of political and religious beliefs and the humane treatment of prisoners by allowing access to prisons by international humanitarian and human rights organizations, protecting Tibet's religious and cultural heritage, and permitting international radio and TV broadcasts into China.
A new year, a new president, a new foreign policy. President Clinton failed to uphold the link between human rights and MFN status in 1994. He reinstated Chinas MFN status under the original terms of the Trade Act of 1973. Throughout the rest of President Clintons two terms in office, MFN status was renewed for China every year.
Most recently, though, the debates in Congress went from taking away Chinas MFN status, to granting it to them permanently. The Clinton Administration, which has been supporting Chinas membership with the WTO from the beginning, engaged in intensified negotiations of a bilateral agreement between China and the U. S. These six-year old negotiations were finally completed on Nov. 15, 1999. This crucial agreement paved the way for lobbying on the permanent MFN status of China.
Legislation to this effect was passed on Sept. 19, 2000. An important trend occurring in the world economy is the process of globalisation. Globalisation is the progressive integration between national economies and the breaking down of barriers between trade and financial flows around the world, which will eventually lead to the emergence of a single world market. Globalisation has affected many different nations in different ways, depending on their degree of development and extent to which they are open to the flows of the world economy. China is said to be the next economic super power. Many guru economists such as Lawrence Summers predict that in the opening decades of the 21 st century, china will match the US and Japanese economies.
China currently ranks seventh strongest economy on a global scale. Chinas economic success has not been confined to raw economic growth, especially with a huge trade surplus of over 40 billion according to world guide from 1998. China has an annual per capita Gross Domestic Product (GDP) of $ 750. China has shown amazing growth averaging 10 per cent per year and shows no slowing down because of globalisation. Today China would have to be the most alluring country, ever since November 1999 when the country began talks with the US. The international community and US business sector have seen the Communist country as offering immense opportunities.
With a market of more than a billion potential customers, a figure equivalent to one fifth of the world population who would disagree. China also now has plans in joining the World Trade Organization (WTO). China has taken many steps in globalisation and it has definitely impacted greatly. Over the past two decades, with many radical economic reforms, China has achieved great success. Firstly by muting all international conflicts and geopolitical ambitions, China followed the examples of other newly industrial ising economies (NIEs), giving priority to industries and sectors where limited government investments would produce rapid growth. Farms were given back to the farmers and they were now free to plan production, distribution, which lead to huge increases in productivity, surplus income and output.
This new system led to surplus income being invested in the privately run town or village enterprises for light manufacturing. Young workers were now offered a contract system of employment instead of the previous lifetime assignment to a production unit. Permission to start small businesses such as restaurants and shops were now given to families and individuals. The government introduced a phased program of removing price subsidies on consumer good, which allowed the market to determine the price of goods to spur economic growth and encourage consumption. As these reforms began to stabilise in the Chinese economy, more goods appeared in shops and wages increased for several years. Amazingly the enduring problem of unemployment and underemployment reduced because of more and more people becoming self-employed.
Also China was very encouraging to foreign investment due to globalisation, it announced a dramatic new openness to foreign trade, investment and borrowing. To achieve Chinas goals of reintegration with Taiwan and Hong Kong and an acceleration of outward economic development, four Special Economic Zones were established. Three of these SEZs were situated in Guangdong Province, Shenzhen, north of Hong Kong; Zhuhai, north of Portuguese enclave of Macau; and Shantou, opposite southern Taiwan. The fourth was Xiamen, which is in the southern part of Fujian Province along the Taiwan Strait. These Special Economic Zones offered a range of enticing incentives to attract foreign investors, such as exemption from taxes for a maximum of five years and permanently lower taxes, cheap land and labour and less stringent regulations. With these in place, trade grew from 10 % of GNP in 1978 to 36 % of GNP by 1996.
In major department stores today, shoes, shirts, sweaters and toys that once carried labels saying Made in Korea or Made in Taiwan now predominantly say Made in China. This shows Chinas increase integration with the world economy and China has now become a major trading nation due to globalisation, ranking eighth in the world as an exporter of manufactured goods. China runs a large current account trade surplus, which rakes in over 40 billion US dollars each year. This figure is ever increasing and doesnt look to be slowing down. China also has a low net external debt to GDP ratio of 16. 6 % and receives a great deal of foreign investment funds, which are used to finance export industries. This allows China to maintain large foreign currency reserves and receive technology transfers from industrial countries.
Globalisation has also led China to increase and improve banking facilities, which have led to network banking; establishment of stock exchanges and a more sophisticated capital market. The emergence of a financial market has also occurred due to globalisation, as China is looking much closer to a market economy. Financial markets are needed to control the money supply, with a reasonably tight fiscal policy and credit policy, this lead China to create a bond market, offering bonds with attractive interest rates to soak up excess money that threatened to fuel inflation. Chinas trade partners have also risen dramatically due to globalisation, as in 1950, China had only 60 trade partners, now it China has 227. Globalisation has clearly given Chinas people a much-improved lifestyle. In 1978 250 million Chinese lived in absolute poverty and this amazing dropped to around 20 million now because of globalisation.
The effective date of legislation, though, is "no earlier than the effective date of China's accession to the WTO. This is because if China were to be excepted into the WTO, under the General Agreement on Trade and Tariffs (GATT) Article I, the U. S. would have to grant general most-favored-nation treatment of all WTO members, including China.
Included in this legislation, though, is a provision for the establishment of a Congressional-Executive Commission to monitor and report on China's human rights issues and observance of WTO commitments, the establishment of a task force to monitor and enforce the U. S. anti-slave-labor statute in China, and the establishment of programs to develop programs to develop Chinas commercial and labor law. This progression of legislature is not without consequences.
The status of permanent MFN is one that the U. S. bestows on its democratic allies, such as Great Britain and Canada, which are held to very high standards. For the U. S. to advocate and grant China a WTO membership, it would mean U.
S. affiliation with Chinas countless violations of human rights, its unfair trade practices and obstacles to market access, lack of legal and regulatory transparency, its uncooperative attitude in weapons and nuclear nonproliferation, suspected nuclear espionage, and alleged illegal Chinese donations to the Democratic National Committee. This is clearly, ethically and politically, unacceptable. Trade relations with the U. S.
should be contingent upon worker rights, human rights, religious rights, and, overall, ethics not politics. Giving up the yearly renewal of MFN status for China takes away all the economic leverage the U. S. previously had because the U. S. buys about 40 % of Chinas exports.
It doesnt seem that Clinton is going about this in a way that advances the cause of freedom, and enables a peaceful transition to freedom and democracy (President Clinton in relation to the Cuban embargo, 1996). Judging from Chinas history of unfulfilled promises of reform, in fact, by continuing on the current political path, China might be allowed to amass a trade surplus with which it can re stabilize and empower its communist regime by promising very low wages, unsafe workplace conditions, prison labor, and permanent access to the U. S. market. Even recently, Chinese officials have said things indicating no intention to stick to their end of the bargain.
As reported in "Guangzhou Rico" on January 6, 2000, Long Yongtu, China's trade negotiator, said, On the issue of allowing more meat products into China, some people think that China has made a substantial compromise. In fact, no substantial compromise was made on the meat product issue. (P) eople (in the United States) think that China has opened its door wide for the import of meat. In fact, this is only a theoretical market opportunity. During diplomatic negotiations, it is imperative to use beautiful words. Neither are we able to grant China permanent approval or denial of MFN status though. Denying China MFN status would mean severe consequences for both Chinese and U.
S. economies. The implications for China would be, in the opinion of several China trade experts, severe. 95 % of the products imported by the U. S. from China would suffer a drastic increase in tariffs. This would result in over $ 80 million in extra tariffs.
Many Chinese products would be effectively priced out of the U. S. market as a result. This would especially affect the southern region of China where many exports originate.
Hong Kong would be affected indirectly because it is the port of departure for 70 % of Chinas exports to the U. S. and because Hong Kong businessmen have large manufacturing interests in the Southern China region. The effects on the U.
S. economy would also be great. Many products would suffer price increases but the distribution process would absorb most of the costs associated with the raise in tariff. The segment that would be most heavily affected would be the poor/ low-income economic group. This is because cost increases would be relatively high on low-margin retail goods such as clothing and household electronic products. If China were to retaliate against imports from the U.
S. , it could severely affect the grain, power generating machinery, aircraft, and fertilizer products export markets. Also, over-all business relations with U. S. companies in or looking to invest in China would all but deteriorate leaving a large hole for other countries multinationals to fill. The solutions to this issue are obvious after reviewing the facts. First of all, the U.
S. government should have continued to review China every year as per Title IV. Also, the U. S. should not have advocated China in any way, shape, or form until it got its various issues (human rights, etc) in check. Instead of keeping China in countenance, the U.
S. should have been more critical of critical of Chinese government and policy. As the Family Research Council stated in its Revoking Chinas Most Favored Nation Status document on July 22, 1998, We may not be able to save the life of every brave young student in the world, but we should always make it clear that our policies are on the side of those struggling against the tanks of tyranny. Bibliography: Ahmad, Ehtisham; Wang, Yan.
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Stanford, CA: Stanford University Press, 1992. Daniels, Christian and Menzies, Nicholas K. Science and Civilisation in China: Vol. 6 biology and biological technology: Part 3 agro-industries and forestry. (contr. Needham, Joseph).
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Research essay sample on China Most Favored Nation
