Compromise in Works on China Trade : Foreign policy: Congress tackles issue of whether to continue favored-nation status.

The outlines of a possible compromise between supporters and critics of the Bush Administration’s China policy emerged Wednesday as Congress opened debate on the sensitive issue of whether to continue China’s low-tariff trade benefits.

At a congressional hearing, several lawmakers and witnesses suggested the possibility of extending China’s “most-favored-nation” trade status while making it subject to new human rights conditions. Under these standards, China could lose the trade privileges next year if it fails to ease political repression inside the country.

“Frankly, I don’t see how we can face ourselves in the mirror if we just extend the benefits” without any new conditions, said California Rep. Nancy Pelosi (D-San Francisco).

Pelosi spearheaded the opposition in Congress to President Bush’s policy of seeking reconciliation with the Chinese leadership after it crushed the nation’s pro-democracy movement last year.

Pelosi’s remarks, and those of other Administration critics, suggested that any new dispute over U.S. China policy will not focus on whether to continue or revoke China’s most-favored-nation status. Rather, the controversy will involve whether to make the trade benefits contingent on human rights standards or to extend them unconditionally.

It was not clear whether the tentative efforts at finding a middle ground would succeed. Representatives of U.S. companies doing business in China suggested that attaching new human rights conditions would create uncertainty for their firms and could be just as offensive to the Chinese regime as an outright revocation of trade benefits.

China has enjoyed most-favored-nation status since 1979, enabling it to export goods to the United States under the same low tariff rates that other countries enjoy. Bush must tell Congress by June 3 whether he plans to grant China another extension of those benefits, which have been extended routinely for the past decade.

At a news conference Wednesday, Bush said that he had not yet decided what to do. But he hinted that he would seek to extend China’s trade benefits rather than revoke them.

“Some of the people that opposed my earlier approach are urging that MFN continue,” the President said. “. . . I still am of the mind that having contact and working in an area where there has been progress, on the economic side with China, is important.”

At Wednesday’s congressional hearing, former U.S. Ambassador to China Winston Lord, who has been one of the leading critics of the Administration’s efforts to improve ties with Beijing, said that he favors a carefully qualified extension of China’s trade benefits.

Lord suggested that the President and Congress join to continue China’s trade benefits, while at the same time paying tribute to China’s pro-democracy movement and reaffirming existing curbs on military ties and World Bank loans to China. He also called for support of Taiwan’s application for membership in the General Agreement on Tariffs and Trade and for more liberal immigration rules for residents of the British colony of Hong Kong, which is scheduled to revert to Chinese sovereignty in 1997.

The congressional hearing was sponsored by three House subcommittees on Asia, human rights and international trade. The Administration may take a position on China’s most-favored-nation status by next Wednesday.