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The China Trade

Membership in the World Trade Organization won't liberalize Beijing unless America insists on compliance with the rules

Mar 6, 2000, Vol. 5, No. 24 • By GREG MASTEL
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Each year, a list of companies involved in transshipment is released. On the most recent list, 23 of the 26 companies assessed penalties for illegal transshipment were from China, Hong Kong, or Macao. Despite such enforcement efforts, China continues to ignore the MFA.

P Prison Labor. China has an extensive system of prison work camps that produce products ranging from apparel to tools and machinery. Often, prison work forces are leased to private firms to assemble or manufacture various products. Under a 1930s U.S. law, it is illegal to import into the United States anything made with prison or forced labor.

Over the years, it has been alleged that a number of imports from China violated this law. In 1992, the Bush administration concluded a bilateral agreement to halt the export of goods made with forced labor and to hold periodic consultations between customs officials from both countries.

Despite the agreement, advocacy groups have produced evidence that various Chinese companies exporting to the United States are involved in prison labor commerce, products made with prison labor have been imported into the United States, and Chinese companies are prepared to export such products to the United States.

Because it is hard to distinguish goods made by prison labor from others, it is impossible to credibly estimate the size of the problem. However, the State Department's most recent "Report on Human Rights for China" found that Chinese cooperation under the 1992 agreement had been "inadequate" and that when complaints were brought by the United States, "the Ministry of Justice refused the request, ignored it, or simply denied the allegations made without further elaboration." The report also notes that Chinese officials have attempted unilaterally to define Chinese work camps as not covered by the 1992 agreement -- an interpretation that renders the agreement virtually meaningless.

This review of the evidence shows that there have been serious enforcement problems with every recent trade agreement with China. In some cases, the agreements produced improvements in Chinese trade practices, but Beijing's implementation still fell far short of the letter and spirit of these pacts. Without the extensive U.S. enforcement effort on intellectual property, little of the progress that has been made would have come about.

China's defenders often claim that its record is no worse than that of other countries. Certainly, a number of U.S. trading partners appear to have cheated on trade agreements over the years. Japan is most often cited.

It is difficult, however, to find another trading partner whose compliance with every significant trade agreement has been so deficient. Furthermore, difficulties go beyond China's mere ignoring of provisions offensive to important domestic constituencies. As Chinese leaders themselves concede, China lacks the rule of law. In the trade arena, this means that it is difficult or impossible for Beijing to direct policy changes that actually bind China's diverse ministries, state-owned enterprises, and provincial governments.

Unfortunately, the World Trade Organization is no magical solution. Indeed, the WTO itself is a law-based institution. It is unclear that it will be able to police a country that operates without a stable, reliable legal system. Trade policies in China are often made in secret, leaving no paper trail. It may be impossible even to document the existence of objectionable Chinese trade practices, much less win WTO rulings against them.

To some, enforcement may seem a side issue. But none of the benefits ascribed to China's accession to the WTO will be achieved without it. If China simply ignores the terms of the WTO, as it has other agreements, not only will the benefits vanish, but lasting damage will be done to the credibility of the WTO.

Furthermore, no one knows how long China will be governed by relatively reform-minded leaders. Given the uncertainties of Chinese politics, a regime led by the military or hardline elements could easily emerge. Such a regime would pose enormous challenges for WTO enforcement, as well as on many other fronts.

In fact, China's membership in the WTO will help reformers like Zhu Rongji only if it entails compliance. Thus, an energetic effort to enforce the WTO in China is the best contribution the United States could make to the cause of reform. But American performance in this area inspires no confidence.

In light of Washington's weak and unpredictable pattern of enforcement and China's poor record of compliance, Congress should construct a vigorous enforcement procedure. This could take the form of annual reviews with a direct role for Congress, backed up by the promise of trade sanctions. Such a mechanism should be made a quid pro quo for permanent most-favored-nation trading status for China. Without it, there are good grounds to doubt that enforcement of the WTO will be a priority for the United States.

In the coming months, this issue will be discussed in a highly politicized atmosphere. But our relationship with China will last beyond next fall's election. Even if, as seems likely, China joins the WTO this year, bringing it into compliance with the WTO's provisions will take decades. Success will require the vigilance of Congresses and administrations for many years to come. If this Congress and this administration can build a sturdy framework for attending to these important issues, they will perform a great service to future Congresses, future presidents, the cause of reform in China, and America as a whole.

Greg Mastel is director of the Global Economic Policy Project at the New America Foundation.