WTO, MFN, and U.S.-China Relations

As of late 1996, the Clinton Administration anticipated important progress in U.S.-China relations during 1997. The benchmarks would be a visit by Vice President Al Gore to Beijing in the spring, the potential granting of permanent most-favored-nation (MFN)1 trade status to China during the summer, the relatively smooth reversion of Hong Kong to Chinese rule in July, and a head-of-state summit in the fall that would highlight agreement on China’s application to join the World Trade Organization (WTO), the major global organization to set the rules for international trade.

While the administration secured annual renewal of MFN for China in 1997, as a result of political developments during the winter of 1996-97, permanent MFN has been dropped from the agenda. The focus in this essay is on the other major economic issue in U.S.-China economic relations during 1997, China’s accession to the World Trade Organization.

The following analysis supports a rather stark conclusion. There is evidence that the Chinese leadership is serious about making the compromises necessary to enter the WTO and that Chinese President Jiang Zemin may have built this into his strategy for solidifying his leadership position during the coming months. A Sino-U.S. agreement on the terms of China’s WTO accession consequently could be feasible in time for a fall 1997 summit. But there is mounting evidence that any such agreement would not prove sustainable in Washington, D.C., given the political cross currents swirling around China policy, and that the Chinese are worried about these developments. The worst possible outcome for Sino-U.S. relations would be the good faith negotiation of an agreement that the Clinton Administration then could not sustain because of obstacles in Washington. That outcome would leave the Chinese leadership embittered and distrustful and would further sharpen the edges of the debate over U.S.-China policy. The Administration should, therefore, calibrate its approach to the WTO negotiations to an assessment of its ability to protect the resulting agreement from domestic challenges.