U.S. Appeals to China for Direct-Sales Companies

America’s top trade official Friday asked China to exempt American direct-sales companies--including Amway Corp., Avon Products Inc. and Mary Kay Corp.--from a recent ban against pyramid schemes.

“The ban has effectively shut down the legitimate operations of these and other U.S. companies in China,” U.S. Trade Representative Charlene Barshefsky said in a news conference following meetings Friday with Chinese officials. “These companies have invested over $120 million in China and provide income to more than 2 million Chinese.”

China’s State Council announced the broad ban on the eve of Barshefsky’s arrival here this week, instantly opening a new front in trade negotiations here. Also at issue are China’s bid to join the World Trade Organization and the continuing battle over piracy of American entertainment and computer products.

Barshefsky said Chinese trade officials assured her that the ban was not directed at U.S. companies, and promised to meet next week with representatives of Ada, Mich.-based Amway, New York-based Avon and Dallas-based Mary Kay--companies that have thrived in the emerging market economy here.

“We will be watching the progress of those talks,” Barshefsky said. “Obviously the intent here is to reestablish the operations of these companies as soon as possible.”

Meanwhile, the official Chinese press continued its extensive, mostly critical coverage of fraudulent home-grown direct-sales operations that have mushroomed in recent years, inspired in part by the success of the American companies.

In an editorial Friday, People’s Daily, official newspaper of the ruling Communist Party, strongly justified the government’s action, declaring that “due to immature market conditions, inadequate legislation and immature consumer psychology, direct sales have proved unsuitable for China and thus must be resolutely banned.”

But Barshefsky described the Chinese ban as overly broad and asked that the major American direct-sales companies, which offer money-back guarantees and a “cooling off” period during which unsatisfied customers can return their products, be distinguished from fly-by-night operators that sell everything from foot massagers to magic health potions.

However, such a distinction may be difficult for Chinese authorities because it is tantamount to saying that the American companies are trustworthy while hundreds of Chinese companies are not.

Moreover, it is not clear if consumer fraud is the main issue bedeviling Beijing, which has watched uncomfortably as the giant American sales operations have begun to play a social role outside the state-controlled marketing system. State media have compared the direct-sales operations to “religious sects.”

On Friday, Avon announced through a spokesman here that it had “ceased all direct-sales operations indefinitely.” The door-to-door cosmetic company had enjoyed remarkable success in China’s major cities, where many office workers spent their lunchtime breaks attending Avon sales meetings and beauty seminars. The company said its sales last year in China totaled $70 million.

Amway--the largest American operator in China, which last year recorded $178 million in sales--also temporarily halted its nationwide sales operations until the State Council edict is clarified. So far, Amway representatives say, they have not experienced a major panic from their several hundred thousand sales agents.

Amway’s distribution center in Beijing stayed open late Friday night so that sales representatives and distributors could return unsold products and receive full refunds. But Richard Holwill, the director of international relations for Amway, said the big test of confidence will come today, when sales agents from rural areas around the major cities arrive with their unsold goods.

“Saturday will be the day to watch,” Holwill said, “when we see how many people living in the countryside come into the city to make their returns.”