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Monday, May 27, 1996 - Page updated at 12:00 AM

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Boeing's Campaign To Protect A Market -- Corporations Lobby To Save China Trade

Seattle Times Business Reporter

During a United Nations dinner in New York for Chinese President Jiang Zemin, one of China's top ambassadors chided The Boeing Co.'s chairman, Frank Shrontz, for not lobbying hard enough against Taiwan supporters in Olympia.

Jiang made no mention of Boeing's lobbying efforts in the defeat of two bills in the Washington state Legislature - bills that would have recognized Taiwan's status as an independent nation.

His comment underscores the huge expectations China places on Boeing to influence government policy-makers, whether in Washington, D.C., or the state of Washington.

And with Congress about to consider most-favored-nation trading status for China and at a time of increased tensions between China and the United States, the stakes for Boeing are immense.

Boeing is not only lobbying to extend MFN for China this year, but also working with other corporate giants to secure "permanent MFN" status for China.

If the aircraft giant doesn't deliver for China, Boeing's chief international strategist, Lawrence Clarkson, conceded, "We're toast."

That's why Boeing is one of several big American exporters leading a national lobbying campaign to procure MFN status for China, an unapologetic human-rights violator but potentially the single largest market for Boeing and all of U.S. business in the coming generation.

Outcome uncertain on China's MFN status

Over the next 20 years, China expects to spend $140 billion on 1,500 new planes for a rapidly expanding market. Boeing's ability to retain its 70 percent market share in China hinges, in large part, on a favorable MFN vote. For Washington, the nation's largest exporting state, the stakes are equally high. Two-way trade with China amounted to $8.1 billion in 1994.

Nearly all countries that trade with the United States enjoy most-favored status, which results in lower tariffs on exports to this country. A handful of countries - Cuba, Syria, Iran, Iraq, Libya and North Korea - are denied that status because of human rights violations and other issues.

Lower trade tariffs would continue to bolster China's rapidly expanding export market to the United States. Last year, China exported $47.5 billion worth of goods and services to America while the U.S. sold $12 billion. For the first three months of this year, the U.S.-China trade deficit is 7 percent higher than for the same period last year.

But as Beijing's image gets uglier, it makes Boeing's job even more difficult.

There have been revelations about children left to die in orphanages, sales of Chinese nuclear technology to Pakistan, persistent violations of a software-piracy agreement, a continued crackdown on political dissidents, new restrictions on religious beliefs, and attempts to intimidate Taiwanese voters with missile tests and military exercises.

President Clinton's announcement that he will recommend renewing MFN status for China comes as the United States prepares to impose punitive tariffs on $2 billion in Chinese exports for that nation's failure to enforce copyright and piracy agreements. China has responded by saying it will impose retaliatory 100 percent tariffs on U.S. products.

Congress has 60 days to decide whether to support the president on MFN status. Analysts and lawmakers say the fight will be tough and the outcome uncertain.

"China should not receive unconditional renewal of MFN because human-rights abuses have worsened, software piracy has increased and they continue to violate proliferation treaties," said U.S. Rep. Nancy Pelosi, D-California, who leads the opposition in the House of Representatives to continuing MFN status for China. "While the president has the power and the business community has the money, we in Congress have the floor and the debate will go on."

In Washington state, Republican U.S. Sen. Slade Gorton and U.S. Rep. Randy Tate, R-Puyallup, remain undecided. U.S. Rep. Linda Smith, R-Hazel Dell, opposes renewal. The rest of the delegation is expected to support the president.

Boeing's effort to sway Congress also was bolstered by a renewed treaty with China to stop the sale of nuclear technology to Pakistan. And GOP presidential hopeful Bob Dole issued his support for extending MFN status.

But the goal of Boeing and the other multinationals is not just to preserve MFN for another year. They want to change the terms of the debate.

Boeing launches PR campaign to educate U.S. about China

To combat the anti-China climate that had been building like a pressure cooker for about a year, Boeing and its allies have launched a two-pronged strategy: support renewal of MFN for China this year but begin a long-term campaign to eliminate congressional politics from the China trade debate.

Last winter, the company quietly launched its first project, called the China Normalization Initiative.

The initiative is a broad corporate effort to dispel the "misunderstanding and mistrust" surrounding U.S.-Chinese relations, Boeing officials say. Its aim is to sway lawmakers and the public over several years through videos, brochures, TV ads and forums. About a dozen blue-chip companies such as Motorola Corp., General Electric Co. and Chrysler Corp. also have signed on.

"It's really an overall grass-roots education effort to help (Americans) understand China relations," said Clarkson, a Boeing senior vice president for planning and international development. "We're not trying to apologize for China, but we're trying to help explain what the Chinese are all about."

But Congress and the American public are not the only groups Boeing has to influence. The company also must convince the Chinese that it's working hard on China's behalf.

"Boeing is playing for two audiences," said an aerospace official, who spoke on the condition of anonymity. "They clearly want MFN restored, but they must be perceived by the Chinese as actively bringing it about."

Should China's political record be distinct from trade policy?

At the same time Boeing launched its initiative, a broader coalition of business groups began meeting to devise strategies to influence Congress.

The Business Coalition for U.S.-China Trade has been spearheading the lobbying effort that one staff member described as a "big-tent approach."

The coalition decided to focus on congressional districts that benefit from China trade. California is the primary target, because it has a huge aerospace industry and is a critical state in presidential politics.

California, for example, is home to Boeing's biggest supplier network outside of Washington state. The company points out in a brochure that it spent $2.3 billion there in 1993, contracting with 4,350 large and small suppliers and providing 67,000 direct and indirect jobs in "every congressional district" in the state.

The business coalition, of which Boeing is a leading member, conducted its first meeting with Capitol Hill lawmakers Feb. 1.

"I indicated that it was essential that companies and associations explain the positive contributions that U.S.-China trade makes to the U.S. economy and to specific congressional districts," said Calman Cohen, who helped organized the session between lawmakers and pro-China lobbyists.

While Clinton separated trade from human-rights policy in 1994, Boeing and its backers argue the United States should "delink" trade from other political issues such as Taiwan or nuclear proliferation. The ultimate aim: to change U.S. law so that China can have permanent MFN status.

"Our long-term objective is to see a restructuring of the U.S.-China business relationship," said Cohen, vice president for the Emergency Committee for American Trade, one of the key groups in the pro-China business coalition.

U.S. Sen. Max Baucus, D-Mont., has indicated he will introduce a bill that would give China permanent MFN status. Baucus, whose state is a huge wheat exporter to China, has been one of the Senate's staunchest supporters of MFN status for China.

Outside the nation's capital, Boeing's strategy involves pressuring its vast network of suppliers to lobby their congressional representatives.

Said a Senate staff member, who has negotiated with Boeing on trade issues: "When it comes to China, they put out the full-court press. They're everywhere and they're smart. They do it through front organizations, they publish studies on exports, they know where their suppliers are and they put pressure on them. And when they have people sitting on the fence, they bring out Shrontz."

Boeing's ability to influence Congress and the administration is overrated, Clarkson said.

"Boeing, being one of the top exporters, is always listened to," he acknowledged. "But we're a democracy and there's also other countering influences. The problem is that the Chinese see industry leaders in Europe and Japan, who have more influence over their governments, and they assume we have the same clout."

During his 1992 campaign for president, Clinton raised the issue of linking Chinese human-rights improvement to MFN renewal. He argued, recalling the brutal Tiananmen Square massacre in June 1989, that if China didn't restore human rights, and end the persecution of political dissidents, MFN privileges should be immediately withdrawn.

That campaign position proved unfeasible after Clinton was elected because China threatened to stop buying Boeing airplanes, Pratt & Whitney engines, Montana wheat, Hughes satellites and Motorola cell phones.

By May 1994, nearly 800 U.S. companies and trade organizations had written letters to Clinton, urging the president to separate the two issues. Pro-business lobbyists swarmed Capitol Hill and mixed it up with the human-rights groups.

Clinton ultimately bowed to business pressure and decided to separate human rights improvements from MFN in May 1994. He said that "delinkage" offers "the best opportunity to lay the basis for long-term sustainable progress in human rights and for the advancement of our other interests with China."

Advisers hatched a new strategy that outlined a policy of "constructive engagement," in which the United States would lobby the Chinese on issues ranging from trade to human rights but not link them to MFN.

"The administration undercut its own policy and eventually backed away from it and somehow had to dress up its retreat," said Mike Jendrzejczyk, a lobbyist for the human-rights group Asia Watch. "The business community came up with the argument that trade will improve human rights and gave Clinton the cover he needed to abandon his own policy."

Others say the problem was with Clinton's initial approach.

The president's China policy has been flawed because it failed to recognize the positive contribution of market forces and then later failed to set clear objectives, said Nicholas Lardy, a China scholar at the Brookings Institution, a Washington, D.C.-based think tank.

"China as a political regime has become more pluralistic," Lardy said. "Economic interchange has been the catalyst."

U.S. business interests argue China will improve its behavior only if it develops a prosperous, well-informed middle class. That won't happen, they say, unless foreign investment - U.S. investment - helps create and stimulate a market economy.

They say business can play a constructive role there over time, but that critics are naive to expect China to change overnight. They argue that MFN is the wrong platform to force Beijing to change its behavior.

Yearly trade decision began with eye on Soviet policies

Under the Jackson-Vanik Amendment to the Trade Act of 1974, the U.S. adopted a policy of "conditioning" MFN for China and other "nonmarket economies" on freedom of emigration. This policy was designed to address restrictions by the Soviet Union on Jewish emigration.

By law, the president must determine annually whether a waiver for China will promote the objective of free and unrestricted emigration - even though emigration has long since ceased to be a real issue between the United States and Communist governments.

Most favored nation status "has become a vehicle, the honey pot, for any number of bees to swarm around," said Robert Capp, president of the U.S.-China Business Council. "MFN is now the focal point for a vast, often flamboyant set of denunciations and condemnations of China, virtually none of which have anything to do with the terms of the law, which is immigration."

Ron Woodard, president of the Boeing Commercial Aircraft Division, said Boeing supports the advancement of human rights, but argues that such issues should be resolved in a "multilateral way" by all of China's Western trading partners.

The U.S. use of unilateral sanctions such as MFN have proven ineffective against China and has no international support, he argues.

"Every country has a long way to go to get to a level of respect and human dignity that we all want," Woodard said. "And (China's) position is: `Who are you coming over here to tell us this stuff when you got all of these problems and we're trying to work out our problems?'."

Boeing executives say Chinese officials frequently counter U.S. human rights lectures by pointing to U.S. shortcomings such as rampant crime and racial tensions.

Companies argue that they effect change in China

In small ways, U.S. businesses have promoted individual freedoms in China, Cohen contends.

Cohen said Procter & Gamble executives refused to hire government-chosen employees and forced the Chinese to let them hire people based on merit.

McDonnell Douglas executives discovered that their assembly workers never questioned authority, even when they knew supervisors were approving substandard work. McDonnell Douglas officials had to educate their employees to question their supervisors.

"In a small but very significant way, you have American companies in China changing China, teaching workers about freedom, choice and responsibility," Cohen said. "I would suggest to you that while (Chinese workers) were learning all of this in the workplace, what they learned would have implications for other aspects of their lives."

But human-rights groups argue that successful business ventures in China ultimately depend on a stable, open government backed by the rule of law. Foreign companies, they say, have very little influence or clout in China.

"If companies are going to be involved in China, we would hope they would press for specific human-rights improvements and defend workers who may be intimidated or detained for their peaceful activities, to investigate on their own allegations of the use of prison labor, including by their own subcontractors," said Jendrzejczyk.

The point is not to change China, Rep. Pelosi said, but to encourage the Chinese government to support the basic human rights that are spelled out in the national constitution.

"We're saying free prisoners from Tiananmen Square, stop repressing the expression of religion in China and Tibet and stop silencing the press," she said. "We're asking them to live up to their own constitution. The difference is that, in our country, if we have a violation of human rights, there is a remedy.

"In China, no such rights exist. In fact, the families of people executed because of their Tiananmen Square activities were sent a bill for the bullets."

With the political battle heating up in Washington, D.C., each side will begin pressing Congress.

And if the economic stakes weren't clear enough for Boeing and other American companies, then China's vice premier, Li Lanqing, issued a stern reminder to Clarkson.

The two met at an unscheduled meeting last February, one that foreshadowed much of the turbulence that blows today.

"Our developing economy will create many great opportunities that should probably go to U.S. firms," Clarkson recalls Li saying. "But because of the unstable relationship between the U.S. and China, it will go elsewhere."

------------------------------ No MFN trading status with U.S.. ------------------------------

North Korea.

Syria.

Libya.

Iran.

Cuba.

Iraq.

Copyright (c) 1996 Seattle Times Company, All Rights Reserved.

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