The Joys of PNTR
According to the Fortune 500
U.S. businesses want two things from China: access to its markets, and the right to exploit its cheap labor, or at least to import goods made in China with cheap labor.
The U.S. business push for granting China permanent normal trade relations status (PNTR, formerly known as permanent most favored nation) and corporations' eagerness for China to join the World Trade Organization (WTO), reflects this dual desire. The U.S. Congress is set to vote on granting PNTR to China in late May.
In interviews with Multinational Monitor and in their policy papers which are swamping Capitol Hill, multinational corporations are open -- and sometimes hyperbolic -- about what they hope a pro-PNTR vote will accomplish. Depending on the corporation or industry sector, they cite various political factors or provisions in the November 1999 U.S.-China bilateral deal as critical factors which will benefit their business. The bilateral agreement includes Chinese trade concessions related to China's WTO accession and the U.S. grant of PNTR.
Among the top goals of the U.S. businesses frothing at the possibility of ripping down Chinese trade and investment barriers:
Here is what the trade associations themselves say they hope to get from PNTR and Chinese accession to the World Trade Organization:
American Insurance Association
There is also enormous potential in corporate and property insurance. "China is particularly in need of property-casualty insurer expertise as its infrastructure and economy expands," says John Savercool, vice president of federal affairs at AIA. "Currently most Chinese are uninsured and our companies can meet their needs so individuals and families are not left destitute when faced with an accident or natural disaster."
Current Chinese regulations limit U.S. insurance companies to selling in two cities only -- Shanghai and Guangzhou. All geographic restrictions will be phased-out within three years of granting of PNTR. Reinsurance, master policy insurance and large-scale commercial risk insurance can be provided nationwide immediately upon the grant of PNTR and WTO accession.
Current regulations impose arduous licensing requirements on U.S. companies, according to the AIA. U.S. multinationals must sell through Chinese companies. Under the U.S.-China agreement, they will be permitted to have 50 percent equity-shared branches and wholly-owned subsidiaries within two years. U.S. multinational insurers especially hope to sell to companies going into China who want multi-peril commercial insurance coverage from providers they know.
If PNTR is granted, U.S. companies will be able to obtain a license if they have more than 30 years of experience in a WTO member country, a representative office established in China for two consecutive years, and global assets of more than $5 billion.
National Retail Federation
Retailers' overriding interest is in removing the annual Congressional review of the Chinese human rights record and guaranteeing a stable flow of goods with minimal tariffs from China to the United States.
"Our interest in the bill is primarily as importers of textiles, apparel, footwear, consumer electronics and toys," says Autor. "This agreement doesn't affect trade that directly, but what it does do is eliminate the uncertainty and difficulty of the annual review and vote on NTR, which we think will stabilize the trading relationship and make China an even more reliable supplier of those products for U.S. retailers."
Electronic Industries Alliance
U.S. electronics exports to China grew from $1.3 to $2.5 billion between 1994 and 1998, according to the EIA. The country adds 15.1 million fixed telephone lines annually, and the Chinese personal computer market is expected to double by 2005 and "could even rival the U.S. market in 10 years," claims the trade association spokesperson.
By 2000, China had nearly 40 million mobile phone subscribers, with an annual growth rate of 58.8 percent. The number of Internet users more than doubled between June and December of 1999, from 4 million to 8.9 million.
By 2005, the U.S.-China information technology agreement will eliminate tariffs on a wide range of high tech products. (In 1998, tariffs averaged 18 percent, and 40 to 60 percent for consumer products).
The EIA acknowledges that there might be some companies interested in manufacturing equipment in China, but claims that China will be a much bigger market for exports as a result of PNTR. High-tech exports to China grew 500 percent between 1990 and 1998, and will continue to grow, the spokesperson says.
Auto Trade Policy Council
As the industry has in Latin America and elsewhere, it will invest and produce in China. But it claims that a lot of parts will come from North America.
"None of our companies have any plans to export Chinese-built vehicles to the United States," adds the Auto Trade Policy Council's Steve Collins.
Current barriers to exporting to China include high tariffs (80 to 100 percent) and industrial policies governing investment. The policies dictate specific levels of technical transfer and local content thresholds --requirements that would be phased out after China enters the WTO. Tariffs would go down to an estimated 25 percent by 2006.
Grocery Manufacturers Association
Products with good potential to benefit from the Chinese market are snack foods (chips, crackers, cookies), ready-packaged noodles, biscuits, chocolate and even pet food, which is a "major growth market," according to Fogarty.
Many companies are looking to sell to the middle class and younger age groups who tend to eat non-traditional foods, she says.
Fogarty says that while some GMA members already manufacture in China, many are poised to expand their brand range.
American Farm Bureau
Without the agreement, sales barriers include high applied tariffs and strict controls on distribution rights.
The market was $2 billion in 1999, Jackson says, and is expected to grow to $3 billion in 2000, assuming China's entry into the WTO. Jackson claims that by 2020 China could account for a quarter of all U.S. agricultural exports.
What about China's own farmers? [See "Doomed Harvest," on page 16.] "There will be structural changes as in all industrializing nations, but we don't think there will be massive relocation," Jackson says. "Other developing countries have entered the WTO at different times where we've heard the same thing, but it hasn't happened."
-- Charlie Cray