Issue Position: Trade - Other Trade Issues: Permanent MFN Status for China

Issue Position

Contrary to what certain special interests said to Capitol Hill, it was neither necessary nor desirable to grant China permanent Most Favored Nation (MFN) trading status. Instead, Congress could and should continue to review China's trading status on an annual basis.

Permanent MFN was not necessary -- The WTO does not require that the U.S. grant China permanent MFN. In fact, the international trade agreement only requires that China receive MFN, but it does not specify that the award must be on a permanent basis. We could continue to review China's trading status on an annual basis and satisfy the WTO. So long as the U.S. does not allow the status to lapse, we would be in compliance with international trade obligations. There is no legal reason requiring Congress to give China permanent MFN status. This isn't just my legal opinion - it's also that of the Secretary of Commerce during the last administration, William Daley. At a news conference on December 16, 1999, Secretary Daley admitted to a reporter for a Washington trade journal that permanent MFN is not legally necessary. However, the Administration "emphatically" wanted permanent status.

Permanent MFN is not desirable -- Permanent MFN for China has cost the U.S. the best leverage we have to influence China to enact worker rights, human rights and religious rights and protections. At the current time, the U.S. buys about 40 percent of China's exports, making it a consumer with a lot of clout. So long as the U.S. annually continued to review China's trade status, we would potentially have had the ability to use access to the U.S. market as leverage for gains in worker and human rights. But once China was given permanent MFN, we lost that leverage, and China will now be free to attract multinational capital on the promise of super low wages, medieval workplace conditions and prison labor. Recent history shows that the current Chinese regime is completely incapable of reform on its own.

Consider the case of the 1992 Memorandum of Understanding between the United States and China on prison labor, when China agreed to take measures to halt the export of products made with forced labor. According to a recent U.S. State Department report, "In all cases [of forced labor identified by U.S. Customs], the [Chinese] Ministry of Justice refused the request, ignored it, or simply denied the allegations without further elaboration." If Congress gives up its annual review of China's trade status, Congress will be unable to do anything about worker rights there.

Furthermore, giving China permanent MFN will be harmful to the U.S. economy, since the record trade deficit with China (and attendant problems such as loss of U.S. jobs, and lower average wages in the U.S.) will worsen. For 2000, the trade deficit was nearly $84 billion. Now that China has been awarded permanent MFN and is close to WTO membership, the trade deficit will worsen. In a September 30, 1999 report, the U.S. International Trade Commission concluded that China's accession to the WTO would cause "an increase in the U.S. trade deficit with China".

Conclusion -- There was no legal requirement to award China permanent MFN. Permanent MFN will be a drag on the U.S. economy and has cost us the best leverage we have to promote justice in China and throughout the world.

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