Bush Backs Trade Status for China : Tariffs: The President admits ‘major problems’ in Beijing’s rule. But he says he will urge extension of most-favored-nation benefits, setting stage for a showdown in Congress.

President Bush served notice Wednesday that he intends to ask Congress to continue China’s most-favored-nation trading benefits, even though he acknowledged that the Asian nation still has “major problems” that need addressing.

“I want to see MFN (most-favored-nation status) for China continue, and I made a strong pitch for it,” the President told reporters after a luncheon meeting with Senate Republican leaders. “We do not want to isolate China.”

His announcement set the stage for a major showdown this summer or fall in Congress, where sentiment has been rising to deny China the trade privilege or to impose new conditions on their continuation. Senate Majority Leader George J. Mitchell (D-Me.) intends to introduce legislation today that would strip China of the low-tariff benefits unless it improves the human rights climate inside the country.

“The fact that the President has made up his mind to go ahead means to me that he thinks he can win the legislative battle,” said one congressional source.

Under existing law, Bush is required to decide by June 3 each year whether to maintain China’s most-favored-nation status. If he decides to do so, his action stands unless both houses of Congress vote to disapprove the trade benefits within 90 days. Administration officials said they are unsure exactly when Bush will formally notify Congress of his decision--and they insisted that, despite Bush’s remarks Wednesday, no final decision has yet been made.

Some human rights officials complained that the President’s early signal of a desire to continue China’s trade benefits will ruin the ongoing U.S. efforts to obtain new concessions from the Chinese government.

“He (the President) has let the cat out of the bag before the deadline,” said Mike Jendrzejczyk of Asiawatch, an organization that has been seeking to win the release of jailed Chinese dissidents. “Now, when we have the most leverage over China, he’s basically told them this is yours for free, without making use of this strategic opportunity.”

Nations with most-favored-nation status are permitted to export goods to the United States with the same low tariffs available to most other U.S. trade partners. The benefits are of enormous importance to China, because the United States is the top market in the world for its exports, which include billions of dollars worth of toys, shoes and clothing.

A study prepared last month by the U.S.-China Business Council concluded that if China lost the trade benefits, its current exports to the United States would cost American consumers an additional $6 billion.

The group said that China would retaliate against a denial of the special trade status by cutting back on imports of American products, thus hurting U.S. grain exporters, aircraft companies and fertilizer manufacturers.

As he has in the past, Bush argued Wednesday that no matter how bad the situation in China may be now, it is better than in 1975, when he served as head of the U.S. liaison office in Beijing before the two countries had diplomatic relations.

“I go back to the days when I was in China as the equivalent of ambassador,” he told reporters. “And though there are major problems in China, things that we don’t like about their system, things are an awful lot better than they were back in 1975. So I look at the big picture.”

The President also gave China credit for its support last fall of U.S. efforts against Iraq. China--which has veto power as one of the five permanent members of the U.N. Security Council--voted for all but one of the prewar U.N. resolutions against Saddam Hussein’s regime. On the crucial resolution authorizing the use of force, China abstained, permitting the measure to go forward without its endorsement.

Earlier this month, Bush dispatched Undersecretary of State Robert Kimmitt to Beijing for talks with Chinese leaders. The talks focused on U.S. concerns over human rights in China and China’s efforts to export ballistic missiles and nuclear technology to countries in the Middle East and elsewhere in the Third World.

China reportedly signed a deal three years ago to export M-9 missiles to Syria. While it has never delivered the missiles, they are now reportedly developed, tested and ready for export. U.S. officials informed Congress earlier this spring that China appears to be helping Algeria in the development of a nuclear weapons program.

According to a State Department source, Kimmitt made a series of “reasonable, achievable private demands” to Chinese officials. “He told them in detail what the Administration wants them to do. The things we asked them for are things that are certainly achievable in quiet, behind-the-scenes terms. . . . Much of what we want from China is just better information. They say they’ve released so many people from jail--OK, just give us the names.”

It was not clear whether China has already met the conditions spelled out by Kimmitt, or whether Bush made public his intention to continue the trade benefits before China had a chance to respond to his mission.

Last October, the House of Representatives voted to strip China of most-favored-nation benefits. It also approved, by an overwhelming, veto-proof margin of 383 to 30, a separate bill that would have imposed tough human rights conditions on any further renewals of the benefits. But both measures died when the Senate failed to act on them.

A number of congressional sources have said that the House probably will approve similar measures again and that the fate of China’s trade benefits probably will depend on whether Bush can muster the 34 votes in the Senate needed to avoid a veto override.

“The battle will be in the Senate. That’s where you don’t have to give away so many post offices to get votes,” said one congressional source.

California Rep. Nancy Pelosi (D-San Francisco), who has sponsored a bill to make renewal of China’s trade status conditional on improvements in its human rights record, said that she is “disappointed, but not surprised” by Bush’s public statement.

Criticism of China’s human rights situation burgeoned after the 1989 crackdown on pro-democracy demonstrators in Tian An Men Square and ensuing prosecutions.

Earlier in the day, Bush traveled to Capitol Hill as part of his continuing effort to lobby for approval of “fast-track” procedures for congressional consideration of a trade agreement with Mexico.

Bush also lashed out at critics who have said that he lacks direction on domestic policy. “I am sick and tired of people saying we don’t have a domestic agenda,” Bush said. “We’ve got a good one.”

The main part of the agenda he emphasized, however, is negative--blocking Democratic proposals that he dislikes.

At the meeting with Republican members of the Senate, Minority Leader Bob Dole (R-Kan.) presented Bush with a poster designed to look like a credit card and labeled “Republican veto card” with “unlimited credit” good until 1996. Bush has issued 20 vetoes in his first 2 1/2 years in office, more than nearly any other President, and none have been overridden.

“I wanted to mention the veto strategy,” Bush told reporters later. “It is very important because when we’re in a minority, the only way we’re going to get something done is to beat down the bad idea.”

Meanwhile, the Senate called upon Bush to sell the Soviet Union up to $1.5 billion worth of U.S. grain and other farm products on credit as requested by Soviet President Mikhail S. Gorbachev.

It approved, 70 to 28, a non-binding resolution urging Bush to approve the sale on condition that the food not be withheld from Baltic or other Soviet republics to coerce them into accepting Moscow’s control.

Times staff writer David Lauter contributed to this story.