US Stiff-Arms China on Joining New Trade Pact

TENSIONS between China and the United States are escalating once again, as Beijing chafes under yet another attempt by Washington to modify its behavior under a deadline.

Intent on taking what it sees as its rightful place among the world's powerful nations and greatly expanding its exports, China is pushing to become a founding member of the new World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade.

But trade officials in Washington see China's need for US backing as leverage to resolve a number of bilateral trade issues.

The US wants to redress its burgeoning trade deficit with China, which for the past several years has been second only to that of Japan. The White House blames the deficit on protectionist tariffs, hidden quotas, and a host of other unfair commercial practices in Asia's emerging economic giant.

Officials in the US Trade Representative (USTR) office say they will block Beijing from joining the WTO until it agrees to operate by the rules of free trade. With the WTO's scheduled start-up date Jan. 1, China has less than four months to meet those demands, which include eliminating protectionist tariffs, removing hidden quotas, easing currency rules, and making trade rules transparent.

Topping the list of Trade Representative Mickey Kantor's complaints is China's refusal to enforce its laws protecting copyrights and patents. An often-cited example is China's huge industry of pirated compact discs. Dozens of Chinese factories produce pirated compact discs for domestic consumption and up to 75 million for export markets throughout Asia and even North America -

a $1 billion annual loss to the US, Mr. Kantor says.

Chinese officials assert that because their economy is unique, it should be allowed WTO membership under more relaxed requirements - such as a delayed date for adhering to WTO rules - a right reserved for economies struggling to compete with the industrialized world.

``On intellectual property, for example, that's too long a phase- in given their potential to blow away some important US industry,'' says Karan Swaner, manager for Asian affairs at the US Chamber of Commerce.

``Given the size of their economy and their export power, they should be treated as a developed country,'' she says.

In defining China's participation in WTO, Ms. Swaner says, the US is experiencing a clash of cultures. ``The issue is a question of power. China is already a strong economy. As the world's most-populous country, they believe they are deserving. Their awareness of thousands of years of their history and leadership is a whole cultural attitude that spills over into business: they expect to have special treatment.''

Given the history, Swaner says ``that's exactly why we need to get China to commit to the [WTO] rules as much as possible by putting it all down on paper with their membership.''

While Kantor appears unrelenting in his approach, other Clinton administration officials want to welcome China into the new trade community.

``The sooner they're in an international organization, the better, because it will change the way they operate.'' says a senior administration official. In that event, he says, ``if they're censured for bad behavior, they will be censured by a multilateral body.''

It's absurd, he says, that ``we have decided it should be our role [to discipline China], that we're out there all alone, instead of acting in unison with others, like the Europeans.''

China's controversial bid to join the WTO was discussed at this past weekend's meeting of the so-called Quad - trade ministers from the US, the European Union (EU), Canada, and Japan - which gave the WTO its final push last year. Kantor, who hosted the meeting in Los Angeles, knows that the US position stands in contrast to that of its European partners, who endorse China's entrance into the multilateral group by this year's end.

Ella Krucoff, Washington spokeswoman for the EU, calls US expectations ``unrealistic.'' She says, ``The EU feels that [China's] path to economic re-forms has been established. And that we can accomplish a lot more by letting them into WTO than by obstructing their [admittance].''

International Trade Commission economist Janet Whistler, who runs the ITC's China desk, says that while the EU's trade deficit has been climbing with China, it is dwarfed by the US deficit with the Asian country.

Ms. Whistler says Chinese negotiators will make final concessions with their US counterparts this month. For the US business leaders who accompanied US Commerce Secretary Ron Brown last week in a high-profile marketing mission to China, that won't come a moment too soon.

While several US firms succeeded in signing multimillion dollar contracts for manufacture in China, their newly brokered agreements could be imperiled.

At every meeting, Mr. Brown was confronted by strong Chinese objections to US pressure - and threats to reexamine any number of US-China agreements - to prevent China from joining the WTO.

Swaner says there is a great risk if China does not quickly become part of the new trade pact: ``The Chinese policymakers operate with a long-term strategy.''

``They can afford to be patient. When they run into periods of instability, they may well tighten up economic regulations where they previously liberalized them in order to preserve their power. That stability is key to their pursuit of their cultural expectation to resume China's natural place at the head of the line of nations,'' Swaner says.