CONTROVERSY WITH CHINA IRKS TRADERS

Byline: Joanna Ramey

WASHINGTON — The unfolding drama over China’s detention of a U.S. spy plane and its crew is like a recurring migraine for those anxious to see China become a member of the World Trade Organization.
While China trade watchers aren’t ready to say the latest diplomatic stalemate could shelve China’s long-sought bid to join the WTO, there are concerns.
“There’s always something. You can almost predict there won’t be a smooth road,” said Brenda Jacobs, general counsel of the U.S. Association of Importers of Textiles and Apparel.
Jacobs recalled a similar diplomatic slight between the U.S. and China in May 1999, when a U.S. plane accidentally bombed the Chinese Embassy in Belgrade, killing several Chinese. It led to China suspending WTO talks for several months, despite repeated apologies from the U.S. Eventually, China and the U.S. reached agreement on Chinese tariff reductions once it joins the global trade body.
Jacobs said it’s too early to say how the latest twist in U.S.-China relations will play itself out in the realm of global trade. At the minimum, she said, the spy plane episode will be more fodder for congressional opponents to China’s permanent normal trade relations status, which must be renewed this year because China hasn’t yet joined the WTO.
“Ultimately, I’m sure China [PNTR] will prevail,” Jacobs said.
China is in delicate talks with the U.S. and other WTO members over the rules under which its membership in the body will be governed. While there remain major differences between the U.S. and China over agricultural issues, a meeting last week in Washington with Chinese officials signaled some progress.
But this hopeful picture has been clouded after Saturday’s episode in which a Chinese fighter jet was downed after colliding with a U.S. spy plane, forcing the U.S. plane to make an emergency landing on the Chinese island of Hainan.
The Chinese, whose pilot is missing, are investigating and asking for a U.S. apology. The U.S., declining to take responsibility, is demanding its crew be released and China not enter the U.S. plane and view secret equipment.
“This accident has the potential of undermining our hopes for a fruitful and productive relationship between our two countries,” President Bush told reporters Tuesday, taking care not to inflame the situation, but also showing a growing impatience with the Chinese recalcitrance.
Steve Pfister, senior vice president for government relations with the National Retail Federation, called the latest U.S.-China dispute “significant because it’s an international incident involving the Chinese and the U.S. military.”
It’s difficult to forecast how the dispute could affect U.S. trade with China or Chinese accession to the WTO, Pfister said.
“Something like this could have reverberations that last for some time,” Pfister said.
Robert Cassidy, a trade consultant who was a China trade negotiator in the Clinton administration, said China isn’t likely to stop its WTO bid, noting that WTO negotiations are farther along than when the U.S. bombed China’s embassy so “there is more at stake.”
Cassidy said there are no signs that Chinese politicians who are protectionist and opposed to joining the WTO are using the spy plane incident to stop China from opening its markets. Such anti-WTO sentiment was rampant after the U.S. bombing of China’s embassy. Cassidy added that Chinese President Jiang Zemen won’t want to offend other Asia-Pacific Economic Cooperation countries, since China is hosting the next APEC meeting in October.
Bush’s blunt but diplomatic calls for China to release the U.S. crew and plane have received kudos from both parties on Capitol Hill, whose members aren’t sounding any notable trade alarms.
“It’s critical that cool heads prevail on both sides,” said Sen. Max Baucus (D., Mont.) the lead Democrat on the trade-legislation-writing Senate Finance Committee. “I think it was wise for the administration to withdraw war ships from the area.”
Baucus forecasted that China’s PNTR would be renewed despite the incident.
Sen. Kay Bailey Hutchison (R., Tex.), a member of the Commerce Committee, said she’s concerned about the implications a prolonged stalemate in China could have on trade relations.
“They must conduct themselves according to international law,” Hutchison said. “The world will be watching the Chinese.”
Cal Cohen, president of the Emergency Committee for American Trade, a free-trade association which has some apparel and retail companies as members, said he expects the Chinese and U.S. to keep political issues and trade issues separate no matter how much the spy plane incident escalates. That’s because China is counting on joining the WTO as a means to expand its economy.

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