SEWING UP THE CHINESE MARKET

The CorporatePNTRLobby

How BigBusiness isPayingMillions to Gain Billions in China

By Ian Urbina

IN late May, the U.S. Congress will vote on whether togrant permanent normal trade relations (PNTR, formerlyknown as most favored nation (MFN) status) to China, andthe U.S. business community is sparing no expense to pushthe case for approval. The impending vote and China'sparallel entrance into the World Trade Organization represents the final obstacle for U.S. corporations in their longpursuit of China's fabled "one billion new consumers."

Spearheading the PNTR push is a coalition of four maintrade associations the U.S.-China Business Council, theBusiness Roundtable, the Business Coalition for U.S.-ChinaTrade and the Emergency Committee for American Trade representing hundreds of the nation's largest companies.Each of these outfits wields million dollar budgets and vastpolitical clout.

The U.S-China Business Council runs on a $4 millionannual budget and maintains offices in Beijing, Shanghai,Washington, New York and HongKong. Headed by RobertA. Kapp, the Business Council is a 30-year-old organizationrepresenting over 250 major corporations with investmentsin China.

The Business Roundtable is an organization consisting ofthe CEOs of leading U.S. corporations. It is currently led byPhilip Condit, chair of Boeing whose airplane sales toChina now total $18.5 billion.

The Business Coalition for U.S.-China Trade and theEmergency Committee for American Trade are more ad hocorganizations, focused on pushing the corporate agenda on

Ian Urbina is a Washington, D.C.-basedfreelance writer.

Pepsi ad in western China.China trade and trade policy generally. Caiman Cohen, alongtime Washington lobbyist, chairs both organizations,which draw support from over a thousand CEOs from arange of industries.

Other trade associations and companies with high profilesin the lobbying blitz include the National Association ofManufacturers, General Electric, ExxonMobil, Ford, Aetnaand New York Life Insurance Co., all of which are calling intheir own legions of hired guns. A fairly new arrival amongthe ranks is America Online, which has hired veteran international lobbyist Lisa Barry, who formerly worked the issuefor Boeing, to make the PNTR case.

"Silicon Valley is a gold mine for campaign contributions," says a spokesperson for Rep. Nancy Pelosi, D-Cali-

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SEWING UP THE CHINESE MARKET

fornia, one of the leading Congressional opponents of per- but it's a huge sum of money."manent MFN status for China. "Now that they're in on it, a Some figures are clear, however. Last September, businesslot of politicians are really hustling." leaders announced they were ready to put up $10 million to

The China lobby is certainly not new on the scene. What fund a massive advertising and lobbying campaign. Morehas changed is the scope and intensity of its efforts. "The recently, the Business Roundtable (BRT) promised to spendbusiness community has been ratcheting up the level of over $6 million on its "GoTrade" campaign, in addition tomoney behind this for the last 10 years," says the Pelosi the halfmillion dollars it recently paid to run 13 different adsspokesperson. "It's hard to guess at a single number since so in Congress Daily, Roll Call, The Hill, Congressional Quar-many of these China shops overlap but have different names, terly, National Journal and CQ Monitor. The U.S. Chamber

THE JOYS OF PNTR, ACCORDING TO THE FORTUNE 500

U.S. businesses want two things from Lower tariffs that will enable them Current regulations impose arduousChina: access to its markets, and the to increase exports to China; licensing requirements on U.S. companies,right to exploit its cheap labor, or at least to Removal of retailing and distribu- according to the AIA. U.S. multinationalsimport goods made in China with cheap tion regulations that limit the effec- must sell through Chinese companies.labor. tive ability of many U.S. businesses Under the U.S.-China agreement, they will

The U.S. business push for granting to sell their goods and especially be permitted to have 50 percent equity-China permanent normal trade relations services in China. shared branches and wholly-owned sub-status (PNTR, formerly known as perma- Here is what the trade associations sidiaries within two years. U.S. multinationalnent most favored nation) and corporations' themselves say they hope to get from PNTR insurers especially hope to sell to compa-eagerness for China to join the World Trade and Chinese accession to the World Trade nies going into China who want multi-perilOrganization (WTO), reflects this dual Organization: commercial Insurance coverage fromdesire. The U.S. Congress is set to vote on providers they know.granting PNTR to China in late May. American Insurance Association if PNTR is granted, U.S. companies will

In interviews with Multinational Monitor From the insurance industry point of view, be able to obtain a license if they have moreand intheir policy papers which are swamp- China is massively underinsured. Zimbab- than 30 years of experience inaWTO mem-ing Capitol Hill, multinational corporations weans spend more per capita on insurance ber country, a representative office estab-are open

and sometimes hyperbolic

than the Chinese, according to the Ameri- lished in China for two consecutive years,

about what they hope a pro-PNTR vote will can Insurance Association (AIA). Since and global assets of more than $5 billion.accomplish. Depending on the corporation there is no governmental social security pro-or industry sector, they cite various political gram

and old-age protections were con- National Retail Federation

factors or provisions in the November 1999 nected to state enterprises, many of which The PNTR agreement will affect U.S. retail-U.S.-China bilateral deal as critical factors are now shedding old responsibilities, down- ers which are looking to open stores inwhich will benefit their business.The bilater- sizing and/or facing bankruptcy life insur- China. "But Idon't know who, beyond Wal-al agreement includes Chinese trade con- ance is most popular among Chinese con- Mart and some of the direct retailers, arecessions related to China's WTO accession sumers. really interested in going into China at thisand the U.S.grant of PNTR. There is also enormous potential in cor- juncture," says Eric Autor of the National

Among the top goals of the U.S. busi- porate and property insurance. "China is Retail Federation.nesses frothing at the possibility of ripping particularly in need of property-casualty Retailers' overriding interest is in remov-down Chinese trade and investment barri- insurer expertise as its infrastructure and ing the annual Congressional review of theers: economy expands," says John Savercool, Chinese human rights record and guaran-

Elimination of the Congressional vice president of federal affairs at AIA. "Cur- teeing a stable flow of goods with minimalreview of Chinese human rights rently most Chinese are uninsured and our tariffs from China to the United States.practices in connection with the companies can meet their needs so Individ- "Our interest in the bill is primarily asannual vote on providing most uals and families are not left destitute when importers of textiles, apparel, footwear, con-favored nation status to China. End- faced with an accident or natural disaster." sumer electronics and toys," says Autor.ing the annual certification process Current Chinese regulations limit U.S. This agreement doesn't affect trade thatwill provide more certainty to U.S. insurance companies to selling in two cities directly, but what it does do is eliminate theinvestors and importers. only Shanghai and Guangzhou. All geo- uncertainty and difficulty of the annual Removal of investment regulations graphic restrictions will be phased-out with- review and vote on NTR, which we think willthat place limits on the ability of U.S. in three years of granting of PNTR. Reinsur- stabilize the trading relationship and makecorporations to invest in China, ance, master policy insurance and large- China an even more reliable supplier ofwhether for manufacture of goods scale commercial risk insurance can be pro- those products for U.S. retailers."for the Chinese market or for export vided nationwide immediately upon thebade to the United States; grant of PNTR and WTO accession. Electronic IndustriesAffiance

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SEWING UP THE CHINESE MARKET

of Commerce, which has 3,000 state and local affiliates, sofar has thrown $1 million in the pot.

Because virtually all of the big business community isunited behind the PNTR push, the campaign contributionsof proponents are on an even vaster scale. The U.S.-ChinaBusiness Council reports that its top 20 campaign contributors distributed $26.1 million to federal candidates and parties in the 1996 elections.

Despite renewed funds, business leaders continue to recy

cle old arguments, best summed up in the Business Round-table's panglossy booklet on "Corporate Responsibility inChina." The booklet explains that while seeking the richrewards to be had in China, U.S. companies would also servethe higher purpose of "bringing with them U.S. ethical andmanagerial practices," which set "a positive example of corporate citizenship." Big business is also runningTV ads in22states and nationally on CNN which state that the newagreement would force China "to play by the rules" and

For the electronics industry, "China is thekey market: 1.3 billion people who are justentering the information age," an ElectronicIndustries Affiance (ElA) spokesperson toldMfinatkmlMonitor.

U.S. electronics exports to China grewfrom $1.3 to $2.5 billion between 1994 and1998, accorrfng to the ElA. The countryadds 15.1 million fixed telephone linesannuaffy, and the Chinese personalcomputer market isexpected to doubleby 2005 and'could.even rival the U.S. market in 10years," claims the trade associationspokesperson.

By 2000, China had nearly 40 millionmobile phone sub-scribers, with an annual mhwigrowth rate of 58.8 per- _

____

Icent. The number of "'"""""'linternet users more than Idoubled between Juneand December of 1999,from 4 million to 8.9 mil-fan. i i3lT yBy 2005, the U.S.-China information tech-nology agreement willeliminate tariffs on awide range of high lechproducts. (In 1998,tariffsaveraged 18 percent,and 40 to 60 percent for HBlHconsumer products).

The ElA acknowledges thai there mightbe some companies interested in manufacturing equipment in China, but claims thatChina will be a much bigger market forexperts as a result of PNTR. High-techexports to China grew 500 percent between1990 and 1998, and will continue to grow,the spokesperson says.

expects that number to increase to 4.6 million vehicles by 2010.

As the industry has in Latin America andelsewhere, it will invest and produce inChina. But it claims that a lot of parts willcome from North America.

"None of our companies have any plansto export Chinese-built vehicles to the United States,"adds the Auto Trade Policy Council's Steve Collins.

Current barriers to exporting to Chinainclude high tariffs (60 to 100 percent) andindustrial policiesgoverning investmentThepolicies dictate specific levels of technicaltransfer and local content thresholds

uunaaw comeind "Nitry to ext

CHENG GU ZriAl

US.industry sales to China totaled 1.8 mil-ten vehicles in 2000, according to the AutoTrade Policy Council.The trade association

requirementsthai would bephasedout afterChina enters the WTO. Tariffs would go

Grocery Manufacturers AssociationDueto 'prohibitively hightariffs," there iscurrently limited access to the Chinese marketfor U.S. food companies, says Sarah Fogar-ty of the Grocery Manufacturers Association(GMA). It PNTR is granted, the tariffs areexpected to come down from an average of40 percent to 17 percent.

Products with good potential to benefit

from the Chinese market are snack foods(chips, crackers, cookies), ready-packagednoodles, biscuits, chocolate and even petfood, which is a "major growth market,"according to Fogarty.

Many companies are looking to sell tothe middle class and younger age groupswho tend to eat non-traditional foods, shesays.

Fogarty says that while some GMAmembers already manufacture in China,many are poised to expand their brandrange.

American Farm BureauChina is as "our number one growth market

in the world," saysfv.f* American Farm Bureau

irpf- (AFB) spokesperson' Alex Jackson. The bigmarket gainers in thefuture are expected tobe wheal, corn, soybeans and meaL Citrusis already being export-* edto China.I Without the agree-5 ment, sales barriers1include high applied tar-Iiffs andstrict controls on1distribution rights.| the market was $2|billion in 1999, Jacksonsays, and is expected to

grow to $3 billion in2000, assuming China'sentry into the WTO. Jackson claims that by2020 Chinacould account for a quarter of ailU.S. agricultural exports.

What about China's own farmers? (See"Doomed Harvest," on page 18.] 'There willbe structural changes as in aU incfustrializingnations, butwe don't think there will bemassive relocation," Jackson says. "Otherdeveloping countries have enteredthe WTOat different times where we've heard thesame thing, but it hasn't happened."

Charlie Cray

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SEWING UP THE CHINESE MARKET

"opens China's market to our goods and services."Nonetheless, most people in the United States remainunconvinced, as only 18 percent support PNTR status forChina, according to Peter D. Hart Associates.

With the vote fast approaching, business leaders havebegun tailoring their ads toward specific districts andregions. Television ads convey tales of the vast Chinese wheatmarket to Northwest farmers, while others brief Floridianson the yet untapped Eastern demand for citrus. Robert A.Kapp recently lectured local businesspeople in Maine on theways trade with China will benefit their state's blueberryindustry. The Business Roundtable is circulating detailedstudies on the benefits of China trade in 62 congressionaldistricts and the Chamber of Commerce is hosting a numberof "education" drives to get local business leaders to write

their representatives.But by far the greatest activity is occurring on Capitol

Hill, where an impressive team of heavy hitters is going tobat for big business. Jeffrey Bergner, former staff director forthen Senate Foreign Relations Committee Chair RichardLugar, R-Indiana, and David Castagnetti, former administrative assistant to Senator Max Baucus, D-Montana, are onthe job, working for the Business Roundtable. So too areNicholas Calio and Kirsten Chadwick of Obrien Calio, whohave been hired to persuade Republicans. Steven Champlinof the Duberstein Group is lobbying key Democrats. SandyKristoff, former top Asian staffer at the National SecurityCouncil, is canvassing the issue for New York Life International, a subsidiary of the NewYork Life Insurance Co. ScottShearer, chief lobbyist for the large farming cooperative

THE MARLBORO MAN RIDES TO CHINABig Tobacco is one industry that has believe that the proposed tariff reductions ers, particularly women and children.made out surprisingly well in the U.S.- could have that result. If this were to occur "Providing open access to China's vastChina bilateral trade agreement negotiated by 'only' 1 or 2 percent, millions of addition- existing and potential tobacco market wiltas part of the process involving Congres- al deaths will result." create a huge economic incentive forsional consideration of permanent normal The Clinton administration adopted an domestic andforeign companies to competetrade relations (PNTR) status for China and informal policy of not using trade policy to aggressively for 'new smokers,' which inChina accession to the World Trade Organi- advance the interests of tobacco companies China means targeting traditionally non-zation (WTO). when it took office in 1993. In recent years, smoking women and children," notes the

The agreement contains specific provi- Congressional appropriations language has Campaignfor Tobacco-Free Kids in itsstate-sions mandating a reduction in tariffs on made that informal policy into law. merit. "Increased competition will also makeimported cigarettes, from a base rate of 65 The inclusion of the tariff reductions in highly sophisticated Western cigarettesto 25 by January 1, 2004. It also requires the U.S.-China trade deal does not appear much more available. Cigarettes such asChina's compliance with the WTO's Trade- to violate the administration policy or the Marlboro are carefully engineered to createRelated Investment Measures agreement, law, because both permit trade initiatives to andsustain addiction, and include flavoringswhich prevents discrimination against assure that U.S. tobacco products are treat- and other additives that make them moreimports on the basis of performance ed as favorably as those of other countries, appealing than Chinese cigarettes to tradi-requirements of any kind. including those of domestic manufacturers, tionally nonsmoking women and children."

"We believe that the deal would increase The law and administration policy were Administration officials contend that theU.S. tobacco company access to the Chi- enacted on the heels of the Reagan and trade deal's lowering of tobacco tariffsnese market, increase the companies' polit- Bush administration use of the U.S. trade should not significantly affect smoking ratesical influence in China, undermine tobacco bureaucratic machinery to knock down because the agreement specificallycontrols in China and result in increased tobacco trade barriers and tobacco control excludes "tobacco" from the retail and distri-smoking rates and tobacco-related deaths," regulations in Asia. bution rights granted to other importers.wrote the Save Lives, Not Tobacco coalition When the U.S. companies entered mar- But tobacco control advocates point outin a May letter to President Clinton. Save kets in Japan, South Korea andTaiwan fol- that the term "tobacco" is not synonymousLives is a U.S. national tobacco control lowing U.S. trade pressure, not only did they with "cigarettes" in the trade deal, and thatcoalition consisting of the American Lung gain substantial market share, but smoking cigarettes may in fact be covered by theAssociation, Public Citizen and dozens of rates rose significantly. In the case of South retail and distribution provisions.local, state and national tobacco citizen Korea, after the entry of U.S. companies, In any case, they say, the tariff reduc-groups. smoking rates among teenage boys went tions themselves represent a major gain for

"Smoking in China is already predicted from 18 to 29 percent in a single year, Philip Morris and other U.S. cigarette mak-to claim the fives crl more than 150 million according to the General Accounting Office, ers. And, as Save Lives notes, "the tariffcurrent smokers ami more than 50 million of the U.S. Congressional research agency, reductions will give Philip Morris a substantia children alive in China today," notes the The rate among girls nearly quintupled, ris- tial foot in the door to push for elimination onWashington, D.C.-based Campaign for ing from 1.8 to 8.7 percent. restrictions on its ability to do business inTobacco-Free Kids in a recent statement. Tobacco control advocates argue that China""While it was not the intention of the Admin- the introduction of slick U.S. marketing and Robert Weissmanistration to affect smoking rates inChina,we advertising techniques entices new smok-

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Coal-fired power plant in Beihai, China.

Farmland Industries, and NickGiordano, international tradecounsel for the National Pork Producers Council, are working theissue for a coalition of severaldozen large corporate farminginterests.

Practically every former secretary ofstate of the past 25 years hasbeen hustling to help get the wordout. Heading the pack is HenryKissinger, who was largely responsible for the Nixon-era thaw inU.S.-China relations. Since thenKissinger has been one of China'smost tireless advocates, whileopening or working for a range ofmulti-million dollar joint venturesin China, including China Ventures, which has paid Kissinger$375,000 for serving as chairman,in addition to nearly $1 million inmanagement fees.

After the 1989 Tiananmen Square massacre, Kissinger, asa paid consultant for ABC news, advised against imposingeconomic sanctions, arguing that no government in theworld should be expected to tolerate protesters' occupationof a public square. As chair of the America-China Society,Kissinger along with President Carter's Secretary of StateCyrus Vance, his co-chair, has opposed linking China's tradestatus to the government's human rights record. Members ofthe America-China Society include Chase Manhattan Bank,Coca-Cola and American Express all already heavilyinvested in China.

Kissinger's consulting firm, Kissinger Associates, describesitself as representing numerous companies doing business inChina, while Kissinger himself has also become the centraladviser for the Business Coalition for U.S.-China Trade,which includes over 1,000 members.

Also involved is Alexander Haig, secretary of state underRonald Reagan. For years, Haig has been hard at workpaving the way to China's booming military market, working for such clients as United Technologies, which builds jetengines, helicopters and aerospace systems, and International Signal & Control Group, which sold weapons fuses toChina. More recently, Haig served as editorial advisor toChina's "Official Guide" for U.S. businesses wishing toinvest in China.

Haig "doesn't register as a foreign lobbyist, but he'seffectively a voice for a foreign government," says MarkLagon, a former foreign-affairs adviser to the RepublicanHouse leadership.

A current Hill staffer who tracks China adds, "He's a guywe worry about because every time we try to put together apiece of legislation [critical of China] Haig gets on thephone to Republican members and we suddenly find thatwe've got less votes than we thought we did."

George Shultz, secretary of state under Ronald Reagan

and a board member of Bechtel Corp., a construction company with interests in over 60 projects in China, includingtwo nuclear power plants, is lending a hand as well.Lawrence Eagleburger, secretary of state under Bush, hasdone consulting work for Kissinger Associates on Chinesetrade issues.

President Clinton and his administration are not relyingonly on outside assistance. They have made approval ofPNTR their top priority. In 1992, Clinton campaigned forthe presidency criticizing George Bush for 'coddling dictators' and extending MFN treatment to China. Upon takingoffice, he promptly flip-flopped. These days the WhiteHouse is in a virtual frenzy pushing PNTR. "It's the president's absolute top priority right now. Everyone is movingon this. Albright was just sent to Boston, Barshefsky was inPhilly, Summers in New York, all at different speakingengagements on China trade," Daniel Cruz, a spokespersonfor the White House China trade working Group, remarkedrecently. "Daley runs the Commerce Department, but as oflate he spends 90 percent of his time promoting this deal."InApril, Clinton brought batches of House members to theWhite House on an almost daily basis for a discussion aboutwhy he wants Congress to pass PNTR.

Meanwhile, Big Business continues to spin the deal asgood for average people in the United States. InApril, business leaders staged a "workers rally" on the Hill which featured employees from a range of industries who visitedoffices of at least 100 different House members. Meant tocast permanent MFN as publicly popular and not just CEObacked, the rally fizzled, turning out only 400 or so employees.

"The corporate rally was pure astroturf," remarks PatrickWoodall of Public Citizen's Global Trade Watch. "Thesewere a few pilots and such, not American factory workersthat they turned out."

It

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