The China Question - Page 2

Tearing Down the Wall

Breaking down the barriers to doing business with China has long been a priority of U.S. technology companies. Over the past few years, the industry has made gradual but substantial progress in opening trade and loosening export controls on technology.

The Clinton administration, in a series of executive actions, loosened restrictions on exports to China and other countries of so-called dual-use technologies — strong encryption and powerful computers that traditionally were used only for military and intelligence, but are now increasingly used for business and consumer applications.

Then last year, after intense lobbying by the technology sector, Congress narrowly voted to grant China permanent normal trade relations, which would eliminate the need for an annual vote by Congress to provide China with the preferential trade treatment the U.S. grants to most countries. PNTR, as it is known in Washington, was the only concession the U.S. had to make in order to enjoy the benefits of the landmark bilateral trade agreement it negotiated with China as part of Chinas entrance into the World Trade Organization.

Getting Congress to approve PNTR, however, was tough for Clinton and its supporters, and it wont take effect until China finalizes negotiations on the terms of its WTO entrance.

Thats not expected to happen until later this year, which means Bush must notify Congress by June 3 if he intends to renew Chinas normal trade relations (NTR) status for another year, a move he is expected to make. Congress will then have 90 days to try to pass legislation to block the move if it so chooses.

Computer, software and telecommunications companies are eager to resolve all the issues so they can enjoy much greater access to the worlds most populous nation and narrow the huge trade deficit the U.S. has with China.

In 1999, China shipped $19.8 billion in IT and electronic products — such as computers, telecommunications equipment and consumer electronics — to the U.S., compared with $3.3 billion in such exports from the U.S. to China, according to AeA, formerly known as the American Electronics Association. Besides driving up the cost of imports from China, denial of NTR could spark a retaliatory response against U.S. products.

China is already one of the fastest-growing markets for technology goods — it increased 40 percent between 1999 and 2000 — and is expected to become one of the top markets for computers and cell phones.

"Our relationship between China and the U.S. is of paramount importance," said John Chen, president and CEO of software maker Sybase, which has extensive operations in China. "Its not only important to Sybase, but its definitely important to the entire software industry."

But many worry that these hard-won gains could be threatened by the political dispute that has erupted in the wake of the April 1 collision between a U.S. spy plane and a Chinese jet fighter.

Although China released the crew after 11 days, its refusal to release the plane itself has given new ammunition to members of Congress critical of China. Tensions could be exacerbated by Bushs decision last week to approve the sale of a large arms package to Taiwan. Also at issue is Chinas recent detention of some U.S. residents — intellectuals visiting their homeland.

"Generally these geopolitical disputes are potentially going to have a negative impact on important trade relations from both sides," said Harris Miller, president of the Information Technology Association of America. "Clearly, people in the U.S. Congress, and even some in the administration, are notreal comfortable getting real close to China, and people in the Chinese government and military . . . have similar [concerns] with the U.S. We have to realize our relationship with China is always very tenuous."

Critics of China have already signaled that they will mount a new effort to deny China its annual NTR extension.

"This situation is indicative of the regard in which the Communist regime in China holds our government," said Rep. Duncan Hunter, R-Calif., in early April after he introduced a bill that would repeal normal trade relations for China. "The fact is, while we trade with China, they prepare for war."

Industry lobbyists said they are confident they can rebuff such moves as Hunters. But they are bracing for anti-China amendments to other legislation.