U.S. Firms Lobbying Hard to Save China Trade Benefits : Markets: From farms to footwear stores, businesses are urging Congress not to change favored-nation status.

If you want to see why Congress is reluctant to cut off China’s trade privileges in this country, just check out the shelves of the closest shoe store or the nearest Toys R Us.

About 38% of all the shoes sold in this country now come from China. Representatives of American footwear distributors--including brand names such as Reebok and retailers such as Sears, Roebuck & Co.--recently told Congress that China will export 500 million pairs of shoes to the United States this year, or roughly two pairs for every person in America.

U.S. toy manufacturers say that more than a third of all the toys sold in this country by Toys R Us, the nation’s largest retailer, are made in China.

U.S. grain companies, meanwhile, have rushed to Capitol Hill to tell lawmakers that the future of American wheat farmers depends on continuing China’s trade benefits.

“A vote in favor of continued (trade benefits) to China is a vote to keep our nation’s wheat farmers in business,” Ron Rivinius, president of the National Assn. of Wheat Growers, told lawmakers last month. “At this time, China represents our best market.”

Over the last few weeks, U.S. businesses have mounted an intensive lobbying campaign aimed at persuading Congress to continue China’s most-favored-nation (MFN) trade status.

The House voted last week to cut off China’s trade benefits now and to impose conditions--such as an improvement in the human rights climate and a curb on Chinese arms sales--on any renewal of China’s trade benefits next year. China last week rejected these conditions as “a gross interference in China’s internal affairs.”

Actually, granting most-favored-nation status to a country doesn’t give it any special treatment. The phrase merely means that the recipient country gets the same treatment for its exports that most other U.S. trading partners now have.

If MFN benefits for China were suddenly cut off, Chinese goods would be subject to tariffs far higher than those currently in effect. Last month, President Bush formally extended China’s trade status for another year, arguing that a loss of that benefit would serve to isolate China and set back chances of reform in that country. Bush’s action takes effect unless both houses of Congress vote to block it.

The lobbyists have been focusing most of their attention on the Senate, which is expected to vote on China’s trade status in the next two weeks. The Senate is not likely to vote for an outright cutoff in trade benefits, but it may vote along with the House to impose a series of tough conditions for 1992. If so, President Bush could veto the bill and force a new congressional battle on the issue of overriding the veto.

A year ago, in the wake of China’s bloody 1989 crackdown on anti-government protests in Beijing’s Tian An Men Square, U.S. companies doing business with China were caught off guard by Congress’ efforts to restrict China’s MFN trade status.

Some refused at first to believe that Congress was serious while others were reluctant to become publicly involved in lobbying for a cause seen as aiding the Chinese regime.

But this year the wraps are off. Business executives, industry trade groups and lobbyists have swamped Capitol Hill with letters and position papers urging continuation of China’s trade benefits. Some U.S. retail firms have encouraged employees to write to Congress.

“Last year, when I broke the news to companies like Boeing and Weyerhaeuser that MFN was in doubt, it was such a shock to them,” said William Abnett, director of the Washington State-China Relations Council, a Seattle-based business group. “It took them a long time to come around. This year, we started early. We began having lunches with our congressional delegation last February.”

The Chinese leadership is doing what it can to encourage the lobbying campaign by U.S. businesses. Officials in Beijing have warned American exporters and investors that their business in China will be subject to retaliation if Congress alters China’s trade status.

At a dinner in Beijing last month, Premier Li Peng pointed to Thomas E. Lane, chief Beijing representative of the Boeing Co., and declared: “With the MFN status revoked, they (Boeing) will have no more orders (for airplanes). And if the MFN status is retained, they will have more orders coming.”

Boeing has orders to send 18 airplanes to China this year, a record number. Sale of these planes could be worth roughly $1 billion to the Seattle-based company.

“I’m sure the premier was just trying to make a point,” Paul Fang, director of public affairs for Boeing, said last week. “We certainly understand the point he was making. . . . I don’t think we lose a lot of sleep over that one incident.” Boeing, like many other American companies, is urging Congress to extend China’s trade status without conditions.

Other Chinese leaders have met in Beijing with representatives of the U.S. toy, footwear and clothing industries. On May 29, for example, Vice Premier Tian Jiyun saw a delegation headed by Peter T. Mangione, president of Footwear Distributors and Retailers of America, and thanked the visitors “for their efforts to promote Sino-American trade,” China’s government-run New China News Service reported.

Beyond working indirectly through U.S. businesses, China has retained Hill and Knowlton, a public relations firm whose president, Craig Fuller, formerly served as head of Bush’s vice presidential staff, to lobby Congress in the fight over trade benefits. China will pay the firm $150,000 for its first month’s work.

The British government has gotten into the act, too.

Last month, the British ambassador to the United States, Antony Acland, personally wrote senators to urge a continuation of China’s trade status, arguing that any restriction would harm the economy of Hong Kong, a British colony.

“I hope that in the forthcoming debate, you will not lose sight of the fact that withdrawal of MFN or conditional renewal would cause grave hardship to the innocent people of Hong Kong,” the British ambassador asserted.

For influencing congressional votes on China, the most successful lobbying group is probably American agribusiness. The efforts of U.S. grain companies and wheat farmers appear to be the key factor prompting some “grain Democrats” from the Midwest and Great Plains states to balk at imposition of trade restrictions on China.

According to Agriculture Department statistics, during the year that ended June, 1990, China was the leading purchaser of American wheat, importing 5.5 million metric tons. The China market “is certainly one that we cannot afford to lose,” Rivinius, the Wheat Growers’ representative, told Congress last month.

Sens. Max Baucus of Montana and Quentin N. Burdick and Kent Conrad of North Dakota are among the few Democratic senators who have so far refused to support the effort of Senate Majority Leader George J. Mitchell (D-Me.) to impose conditions on any renewal of China’s trade benefits next year.

“Montana wheat growers are very concerned about revocation of MFN (for China),” Baucus said. He recalled that in the early 1980s, when the Reagan Administration sought to restrict China’s textile exports into the United States, China retaliated by cutting its purchases of U.S. wheat.

American textile producers, whose businesses are hurt by competition from low-cost imports, are among the few businesses that have lobbied against continuing China’s trade benefits. In the House action last week, all six Republican congressmen from the textile states of North and South Carolina abandoned the Bush Administration and voted to impose new restrictions on China’s trade status.

At least in dollar terms, U.S. companies that import from China now have much more at stake in the battle over MFN than the firms that export to China. U.S. exports to China have held flat at roughly $5 billion a year for the last three years, while Chinese exports to the United States shot up to the record level of $15 billion last year.

“The importers have such a large stake in the China trade now,” a congressional staff member said. “I don’t think there’s any American export industry with as great a stake in China’s trade benefits as importers like, say, the toy industry.”

One of the importers’ most frequent arguments is that a cutoff in China’s trade benefits would mean higher prices for American consumers because higher tariffs would be imposed on goods from China.

“The elimination of MFN status would mean that a doll such as Ariel, the Little Mermaid, which currently retails for $7, would go up to over $10,” Harry J. Pearce, chairman of the board of the Toy Manufacturers of America, told Congress last month.

However, there would also appear to be at least a few instances where American consumers might benefit by falling prices if China loses its trade benefits.

“If China refuses to buy U.S. wheat, the resulting weaker demand and larger U.S. stocks could combine to reduce U.S. wheat prices,” a recent study by the Congressional Research Service estimated. The study predicted that the price of wheat would plunge by about 10%, or 27 cents a bushel.

At the moment, it appears that business lobbying will succeed. Most observers believe that the Senate will approve a bill to impose conditions on China’s MFN benefits next year but that the margin will fall short of the two-thirds vote necessary to override a presidential veto.

But China’s MFN benefits come before Congress for annual renewals. And spokesmen for American businesses admit that, even if they win the fight to preserve the benefits, they may have to start again soon on a battle for next year.

“This year, I think we’re OK,” Abnett of the Seattle business group said. “The big question is what will happen in 1992. If the Chinese don’t stop selling weapons in the Middle East, it (China’s MFN status) could be a major problem by next year.”

Top 10 States for U.S. Exports to China in 1990

RANK/STATE EXPORTS LEADING EXPORT PRODUCTS 1 Washington $770 million Airplanes, lumber 2 California 543 million Transportation equipment, industrial machinery 3 Louisiana 482 million Agricultural products, chemicals 4 Texas 481 million Agricultural products, machinery, chemicals 5 Florida 368 million Chemicals 6 New York 108 million Machinery, chemicals 7 Pennsylvania 93 million Industrial machinery 8 Tennessee 85 million Chemicals, agricultural products 9 Virginia 83 million Chemicals, machinery 10 Alaska 79 million Chemicals, paper

Sources: U.S.-China Business Council, Commerce Department