IT was a famous victory. The doughty Charlene Barshefsky emerged from days of tense negotiations waving a piece of paper and proudly declaring peace in our time. Phew! Another crisis has been averted when the warring giants came to their senses seconds away from trade Armageddon. Many people have been left scratching their heads asking what great good has come of all this drama. After all, no sooner is the crisis over Intellectual Property Rights (IPR) resolved than the next one over the renewal of China's Most Favoured Nation status begins. The criticism and indeed mockery of Washington's policy towards China have come from all directions but there is a strong case to be made for its trade policy. On one level, we have seen predictable and often preposterous posturing; China claiming she was going to close down those 15 factories making illegal CDs anyway, and what had American threats to do with Chinese state policies; and then Pat Buchanan, the hardline ex-Republican presidential candidate, greeting the deal with accusations of appeasement. Others have asked why, if IPR is important, the Clinton administration does not use the same hardball tactics over grander issues like nuclear proliferation in the form of China's exports of ring magnets and missile technology to Pakistan. On Monday night in the American embassy, when Barshefsky gave her press conference, some observers found it unseemly to see industry representatives lining up to praise the Clinton administration's stance, especially since the same people later privately conceded it was anyone's guess whether China's latest promises would be kept. Some ordinary Chinese agreed and thought that a great power which places such stress on lofty values should not stoop to bring its weight to bear over such relatively trivial matters. And those Chinese who in the 1980s looked to America to nudge China towards democracy and freedom now said they felt betrayed because all the Americans seem to care about these days is bullying China in order to make money. Of course, such cynicism about the United States delights China's leadership, which wants to discourage admiration for Western political values. Furthermore, to show the Americans reduced to haggling over CDs helps to reinforce the lack of respect for President Clinton which the top leadership has long harboured. Ever since Clinton failed to impose economic sanctions nearly three years ago when Beijing did not meet his terms, Chinese officials have naturally become convinced that his subsequent threats are all bluff. These and other objections to the showdown over IPR and over other issues are valid. Yet this latest episode is also a realistic attempt to get to grips with a huge historical phenomenon which has taken place concurrently with the collapse of communism. That is the economic rise of East Asia and the fantastic, unforeseen and destabilising trade surpluses which Japan and the Asian tigers have piled up. Since the early 1980s, the United States has borne the brunt of this largely one-sided trade. Its market was far more open to imports than its partners like Japan, South Korea or Taiwan. (Singapore and Hong Kong domestic markets are too small to matter.) This generosity put the US in the humiliating position of a supplicant, begging its allies to open their doors to US products. When entreaties did not work, successive administrations resorted to threats over all kinds of products - cherries, wheat, rice, microchips, tobacco and cars. The result: crowds of angry peasants gathering in Tokyo or Seoul shouting 'Down with US imperialism' and poker-faced Japanese politicians claiming that local stomachs are simply ill-adapted to eating American beef or rice. A succession of bruising face-to-face rows over these trade-related issues are now being extended to China under a policy not entirely invented by the Clinton administration but rather one which the president inherited. The cliff-hanger sanctions technique may be crude but there is evidence that it works. Japan has now opened its doors to foreign cars and many other products, even though Clinton was earlier accused of having compromised too much with Japan in the car negotiations. Japan's trade surpluses with the United States are now falling rapidly and those of South Korea, Hong Kong and Taiwan peaked a few years ago. Some claim that these heated trade disputes have caused lasting damage to America's relations with its allies and its image but this is difficult to prove - above all since no trade war actually took place. In the case of China, there is such ideological antipathy that the argument does not apply to begin with. The Chinese Communist Party does not want to allow the Chinese people to think well of America no matter what. Equally, the hand of the United States has been forced by the speed with which companies in Hong Kong and East Asia have been moving factories into China to churn out all manner of goods aimed at the US market. China's CD production has risen from next to nothing to billions of dollars' worth in just five years. Many remember, too, that Washington had reason to regret its failure to curb the rampant counterfeiting and copying which in the 1960s and 1970s formed the basis of many exports from Taiwan and Japan, despite the enormous political influence it could bring to bear on such allies. In the case of China, which is no ally and demands to be treated as an equal, this is bound to be still harder. As Winston Lord, the US Undersecretary of State, angrily remarked in Washington, it is hypocritical for the Europeans or Japanese to stand on the sidelines privately encouraging the Americans but publicly pooh-pooing them and reaping the benefits. European negotiators like Sir Leon Brittan have claimed that, in both Japan and China, a sophisticated softly-softly approach works in encouraging more open policies. Yet no one seriously believes that the Europeans deserve any credit for forcing open Japanese markets such as for cars, although Americans now sell fewer cars there than their European rivals. The European sanctimoniousness becomes still less credible when one recalls that European Union members are loath to open markets like telecommunications to each other. Some maintain highly protectionist restrictions: for example, Italy, which restricts Japanese car imports to 3,000 a year. When it comes to dealing with China the world faces particularly great challenges. These cannot be solved by waving a magic wand and simply allowing China to enter the World Trade Organisation on its own terms. With a market of such dimensions, China knows that it must protect weak domestic industries from competition if they are to survive and that it can gain greater leverage through bilateral negotiations in each sector than by an across-the-board lowering of trade barriers. In this way, China can help persuade Western companies to transfer the technology which it needs to modernise its industries and control the pace of change. Europeans undermine such negotiations by pretending they will offer easier terms, which Premier Li Peng suggested they do in his interview last week in the Financial Times. He pointed out that the Europeans would win contracts because they are easier to deal with than the Americans. The reality is that whether the negotiations take place in Geneva under the aegis of the WTO or bilaterally with the Americans, access to many sectors of the Chinese market is going to be a tough battle. And even if, as over IPR, an agreement is reached, China will still need time to adjust its economic and legal structures to integrate itself into the world trading system. It is also surely true that Washington, despite the growing commercial bent of its foreign policy, has on many issues taken a more principled position compared with Japan and the European Union. For example, Washington has frozen Eximbank loans over Chinese nuclear-related exports to Pakistan and will not back US companies bidding to supply generators for the Three Gorges Dam on environmental grounds. The moral status and actions of the Chinese government has at least been treated as a serious issue both by Congress and by Clinton, who has been squeamish about becoming too friendly with top Chinese leaders. The same cannot be said of France's President Jacques Chirac, Germany's Chancellor Helmut Kohl or Britain's Michael Heseltine who believe downplaying such issues will win contracts. On the contrary, perhaps it undermines Europe's potential influence because it shows that unlike the Americans, the Europeans do not take China seriously enough to force an issue.
