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SCMP Reporter

THE present danger in Sino-United States trade relations is that, as far as the US is concerned, China's delivery of only the bare minimum on trade issues is no longer of any consequence.

   US politics in a presidential election year demands there should be more.

  This means that even if China lived up to everything demanded by previous Sino-US agreements, such as the intellectual property rights (IPR) agreement, it might not be enough.

  It makes the job of the US negotiator on IPR and trade matters, Lee Sands, all the tougher.

  If Mr Sands returns to Washington with nothing more than in the previous agreements, it may not be enough to ensure no action is taken against China.

   Before Mr Sands set off for Beijing, the US warned that the posturing on both sides would increase, with charges and counter-charges lobbed across the Pacific.

  This appears to be happening with China's Ministry of Foreign Trade and Economic Co-operation director general, Zhang Yuejiao, warning any action against China by the US would bring an equal and opposite reaction from the mainland.

  The Americans are far from satisfied that China has taken all available action to abide by the IPR Agreement made about 15 months ago.

  Because of the political situation in the US, it is important Mr Sands returns with something to placate opposition to China trade agreements in the US Congress and by the public.

  The danger with the IPR is that sanctions imposed by the US will be followed by retaliation from China, followed by further action from the United States. This would worsen US-China trade relations, with implications for China, Hong Kong, Taiwan, the US and the rest of Asia.

  At least the IPR issue will be decided quickly, with the US deadline set for next Wednesday, whereas the Most Favoured Nation status (MFN) issue is likely to drag past the June 3 deadline for a Presidential decision on extension.

  The latest Sino-US stand-off on trade comes at a sensitive time for Hong Kong with overall external trade growing much slower in the opening three months of 1996.

  Exports for the three months to March were up just 5.7 per cent compared with 20 per cent growth in the same quarter last year and 9 per cent in the first quarter of 1994.

  Re-exports showed just 8.2 per cent growth compared to 22 per cent and 13 per cent previously, and domestic exports were down 6 per cent.

  In 1995 they grew 13 per cent but fell 8 per cent in 1994. Imports grew only 6.4 per cent compared with 27 per cent growth in the first three months of 1995, but resulted in a trade deficit of $39.8 billion, up from $35.6 billion a year earlier.

  Unfortunately, the narrow IPR issues cannot be divorced from the wider MFN situation.

  This is partly due to timing. The IPR debate is within a month of the June 3 deadline for President Bill Clinton to declare he will extend MFN status for another year.

  The IPR outcome will not affect Mr Clinton's decision.

  The administration is in favour of MFN extension, but it could have an impact within Congress which decides the future of the MFN extension when both the House and the Senate cast their votes on the President's decision.

  At the end of last week, Governor Chris Patten, appeared to have not only secured Mr Clinton's and Vice President Gore's assurances on China's MFN status, but Senate Leader Bob Dole's as well. With Mr Dole all but confirmed as the Republican Party's presidential candidate in November and his considerable clout in the Senate, that is definitely a step forward.

  It may be the crucial element of support necessary to ensure MFN extension, especially if as expected, the House of Representatives votes against MFN and the Senate vote is close.

  Mr Dole's pledge of support could be critical if it comes to a two-thirds vote in the Senate being required to overturn a Presidential veto of votes in the House and Senate not to renew MFN.

  This may occur because of the complicated mechanism by which the MFN renewal process is undertaken.

  First, the President will take the decision to extend MFN on or before June 3. His decision then goes to Congress to be approved or rejected.

  If it is approved, there is no further problem, but if it is rejected then the President would be forced to use his veto power to over-ride the Congressional vote.

  The President's veto decision then goes back to the Congress for further consideration but can only be overturned by a two-thirds vote against the President's veto.

  In the past, the House of Representatives has proved the biggest problem, easily getting the two-thirds majority to overturn the veto.

  The vote in the Senate has tended to be close, but without the two-thirds majority being achieved, the President's veto has stood and MFN been extended.

  However, the situation is more complicated this year because of the many new members of Congress, mostly Republican, who are largely an unknown quantity in the MFN debate.

  It is also further complicated by it being a presidential and congressional election year, and the fact that the mainland has been getting very bad press in the US.

  The extent of this bad press has ranged from human rights issues, through nuclear proliferation to the recent crisis across the Taiwan Straits and the failure of Boeing to get Chinese aircraft contracts, to market access and the trade balance.

  Furthermore, recent US electorate polls show three-to-one support for some action to be taken against China on the trade issue while Republican presidential candidate, Pat Buchanan, has spoken out publicly against MFN.

  The situation now facing Congress could be made even more difficult by the independent actions of Congress members to introduce Bills seeking to impose conditions on future US-China trade.

  In such circumstances, it may be up to three months from President Clinton's June 3 decision before it is finally known whether MFN is secure, and in what form this takes (with or without conditions). Ian Perkin is assistant director and chief economist with the Hong Kong General Chamber of Commerce. The views expressed are his own and may or may not reflect chamber policy.



US presidential politics the key to MFN renewal