Human Rights in China or Jobs in California? Clinton’s MFN Decision Poses a Question of Conscience

Not many people were thinking economics on June 3, 1989, the day Chinese troops mounted their brutal assault on peaceful pro-democracy demonstrators in Tian An Men Square. But five years later, business and trade are the watchwords for the anniversary of an event that horrified the world.

China’s economy is going gangbusters now, expanding 13% a year and emerging as a major engine for global trade. The Tian An Men blood bath is fading in memory, and persistent human rights abuses don’t seem to rouse the public or spook the American business community anymore.

Indeed, California companies are on the front lines of a nationwide movement urging President Clinton to put aside human rights concerns this June 3, which is, coincidentally, the deadline for his decision on whether to renew China’s most-favored-nation status in trade. (MFN permits nearly all U.S. trading partners to export goods to the United States at preferential, low-tariff rates.)

In a letter to Clinton late last month, a group of more than 400 California companies calling itself the Business Coalition for U.S.-China Trade warned that rescinding China’s trade privileges would have a disastrous effect on the California economy. Assuming China would retaliate and impose punitive tariffs on U.S. goods if its MFN status were revoked, the coalition estimated that more than $1.7 billion worth of California exports to China, representing some 35,000 jobs, would be at risk.

A study released last week by Sen. Mark O. Hatfield (R-Ore.) estimated that revoking MFN would cost American consumers $10 billion a year and hurt U.S. companies competing for some $400 billion in public works projects and capital goods orders that China is expected to put to bid over the next five years.

Southern California’s aerospace industry is especially vulnerable, said Mark Schlansky, manager of commercial aircraft for McDonnell Douglas’ Long Beach subsidiary, Douglas Aircraft, which manufactures and exports MD-80 aircraft kits for assembly in Shanghai.

“We look into our crystal ball and we see China. That’s where the market is for us,” Schlansky said. “And this is what President Clinton is talking about when he says he wants to protect high-skilled, high-paying jobs.”

Last June, under pressure from congressional critics of the Beijing regime, Clinton approved a one-year extension of the MFN status on the condition that China improve its human rights record. But a defiant Chinese government has continued to jail political dissenters, while denouncing U.S. interference in its domestic affairs.

Linking trade to respect for human rights has entangled the Administration in a diplomatic Gordian knot: Backing down would be an embarrassing display of weakness, while charging forward could endanger some $9 billion in annual U.S. exports to China--and strain political ties in the face of an emerging nuclear menace from Chinese ally North Korea.

Under the circumstances, the White House is considering compromise proposals intended to avert an all-out trade war.

One plan would involve selective sanctions against Chinese state-run enterprises; another would impose codes of conduct on U.S. companies operating in China, perhaps by executive order. The recently reinstated “Super 301” provision in U.S. trade law--which allows the President to impose sanctions on specific commodities--is yet another possibility for a limited approach to pressuring Beijing.

Leaders in the business community dismiss even these ideas, however. They say it is impossible to distinguish between state-owned and private enterprises in chaotic China economy and that a code of business conduct would be onerous because it would label companies “agents” of the U.S. government.

“Targeted sanctions would be as bad or worse than MFN withdrawal,” said Richard Brecher, director of advisory services at the Washington-based U.S.-China Business Council. “Going beyond whether it could be practically implemented, it would still leave us in the same box and invite retaliation.”

State enterprises, Brecher noted--not the private, export-oriented companies in China--purchase the most American goods and services in the critical aerospace, telecommunications and power industries.

“I think the Administration has got to step down and admit that its policy has been wrongheaded,” he said. “We can’t keep hammering on (the Chinese), threatening trade retaliation, without following through.”

Although many human rights advocates and some members of Congress still demand that MFN be revoked, other activists are beginning to shift their strategy--perhaps sensing a loss of momentum.

Richard Dicker, associate counsel for the group Human Rights Watch/Asia, said one alternative--short of withdrawing MFN--would be to quietly persuade U.S. corporations to adopt a uniform code of conduct for China voluntarily, before one is mandated.

Under the group’s code, which resembles one proposed by Sen. Max Baucus (D-Mont.), U.S. companies would certify that prison labor was not used by their Chinese suppliers. Companies would agree to bar political indoctrination from their premises, to protect employees from losing their jobs for political reasons and to “convey concerns about human rights violations” to Chinese authorities.

“I think it’s the same for California businesses as for New York businesses: They’re important players in Chinese economic transformation and development,” Dicker said. “They’re making real contributions, and they’re well placed to influence the Chinese on raising human rights standards.”

Such a code would have the potential to emulate the government-mandated “Sullivan Principles,” which guided U.S. corporate engagement in South Africa during the apartheid years, Dicker said. But he acknowledged that the American public is far less concerned about Beijing’s policies than it was about business ties to Pretoria’s white regime, which sparked widespread campus protests.

Brecher, of the U.S.-China Business Council, recoils from the idea of a conduct code. “We’re not part of the problem, we’re part of the solution,” he said.

Schlansky, the McDonnell Douglas executive, said U.S. companies are already carrying out a human rights mission on the ground in China.

“Many of us are there already with our own principles of conduct, our own way of doing business,” he said. “By letting us compete in the market, we’re bringing a lot of change--not necessarily revolutionary change, but certainly evolutionary.”

In its April 26 letter to Clinton, the California business group said U.S. trade and investment provide “crucial support for the entrepreneurial forces in Chinese society that advocate further economic and political reform and pose a fundamental long-term challenge to the hard-liners” in Beijing.

“All of us deplore human rights abuses in China and elsewhere around the world but believe that revoking MFN would undermine important steps toward greater respect for human rights and political freedom for the Chinese people,” said the letter, which was endorsed by firms such as Hewlett-Packard, Intel, Atlantic Richfield and Pacific Telesis.

Not all U.S. companies share this outlook. Levi Strauss pulled out of China in 1992. Timberland, the Hampton, N.H.-based sports shoe maker, this year dropped Chinese suppliers out of distaste for the authoritarian regime.

“Dealing with China seemed inconsistent with a broader sense of morality,” said Jeffrey B. Swartz, Timberland’s chief operating officer.

Ultimately, the debate over China’s MFN status may fade from the headlines not because the sticky human rights conflict is resolved, but because of a new interpretation of U.S. trade law.

China was accorded MFN status in a bilateral agreement, but only on the condition that the President each year waive the Jackson-Vanik Amendment to the Trade Act of 1974, which denies the trade privileges to countries with state-planned, non-market economies. Jackson-Vanik was a Cold War restriction meant for the Soviet Union and other communist nations, but it remains on the books.

Greyson Bryan, a Los Angeles lawyer specializing in international commerce, said the China problem could be resolved simply by redefining the Chinese economy as market-oriented.

“I think there is a serious question as to whether China has already evolved out of a non-market economy,” Bryan said. “If so, then Jackson-Vanik doesn’t apply and China’s MFN status shouldn’t come up for review every year.”

In any event, revoking MFN in June would be a devastating blow to California’s economic recovery, Brecher said.

“California, more than any other state,” he said, “would be hard hit by the withdrawal of MFN.”