Human Rights and Most-favored-nation Tariff Rates for Products from the People's Republic of China

• Jurisdiction: United States,Federal
• Citation: Vol. 17 No. 03
• Publication year: 1994

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 17, No. 3SPRING 1994

Human Rights and Most-Favored-Nation Tariff Rates for Products from the People's Republic of China

Randall Green(fn*)

I. Introduction

The issue of human rights in China has been in the news with increasing frequency the past few years. In May 1989, the Tiananmen Square prodemocracy demonstrations(fn1) were vividly brought into our homes on television, and the unarmed demonstrators captured our hearts with their sincere yearning for liberty and democracy.(fn2) The brutal crackdown by a unit of the ironically named People's Liberation Army outraged American viewers. The poignant smashing of the "Goddess of Democracy"(fn3) and the fatal shooting or bayoneting of 500 to 1,000 of the demonstrators(fn4) can never be forgotten nor forgiven. Most important, the hard-line government earned "the resentment of the people China needs most: the young, the intelligent, the energetic and innovative."(fn5) This incident is but one example of China's poor record on human rights.(fn6)

The human rights situation in China has been documented by many observers, including the U.S. State Department.(fn7) The United States places primary importance on concerns such as the denial of a fair public trial,(fn8) the harsh implementation of population control programs,(fn9) strict restrictions on the freedoms of speech and press,(fn10) the lack of ability for peaceful and legal change of government or government officials,(fn11) the de facto discrimination against women despite legal equality,(fn12) and the inability of workers to form a trade union independent of government control.(fn13)

There are a few bright spots, however. For example, China released some prominent political prisoners on medical parole in 1993.(fn14) Moreover, China continues to allow more citizens to emigrate than the United States allows to immigrate.(fn15)

Despite recent improvements, most observers agree that the quality of human rights in China needs to be improved.(fn16) The question is which course of action the U.S. government can take to help the situation improve. It is tempting for Americans to try to improve human rights in China by using the threat of trade sanctions, specifically the denial of Most-Favored-Nation (MFN) tariff rates. This course of action, however, may harm the very people we most want to help and may slow, rather than accelerate, the improvement of human rights in China.

Because there is an historical link between the economic power possessed by any group of people and the political rights enjoyed by that group, this Article argues that the best way for the United States to promote human rights in China is to assist China's economic development. This argument is supported by logic (e.g., demonstration of cause and effect) as well as by example (e.g., the recent histories of Korea and Taiwan).

Part II of this Article takes a detailed look at what MFN status really means and looks at the history of U.S. grants of MFN status to China. Part II also analyzes the 1993 executive order conditionally renewing MFN status for China and explores some of the grounds for opposing MFN status renewal.

Part III explains the causal connection between economic development and the resulting development of human rights. Part III also examines the Chinese economy and suggests that the U.S. policy of using MFN status as a reward or punishment is misguided. Part IV lends further support to the relationship of economic development and human rights by reviewing the past and present shift of economic and political power from central governments to citizens. Finally, Part V warns of the effects of the perceived hypocrisy in U.S. foreign and domestic policy.

II. Use of MFN Status to Promote Human Rights

A. Definition of MFN Status

Most-Favored-Nation status is a misnomer, as it is really the ordinary tariff level applicable to most of our trading partners.(fn17) Products from some nations receive reduced or no tariffs under various free trade agreements or under the system of tariff preferences for certain goods from certain developing countries.(fn18) A nation that does not have MFN status is subject to the punitively high tariffs under the protectionist Smoot-Hawiey Act,(fn19) which is widely regarded as having contributed to leading the United States into an economic depression into which the rest of the world followed.(fn20)

MFN status is not preferential treatment for products from a few countries. MFN status does not imply the granting of a favor, nor is it reserved to a few favorite trading partners. The United States currently denies MFN status to only ten countries.(fn21) The primary effect of granting MFN status to a country is that merchandise produced there may enter the United States under normal (Column 1) rates of duty for each product, rather than under the discriminatory Smoot-Hawley (Column 2) rates.(fn22)

B. Methods for the United States To Extend MFN Status to Other Nations

Article I of the General Agreement on Tariffs and Trade (GATT)(fn23) presumes MFN status among the over one hundred states (called "contracting parties") that have acceded to the terms of GATT: "With respect to customs duties . . . imposed on . . . importation . . . any advantage, favour, privilege or immunity granted by any contracting party to any product originating in . . . any other country shall be accorded immediately and unconditionally to the like product originating in . . . the territories of all other contracting parties."(fn24)

Initially, nonmarket economies (NME)(fn25) were denied inclusion in GATT.(fn26) The basic reason for the exclusion was that the lower tariffs under MFN are designed to generate greater quantities of imports. This naturally occurs when private buyers in a market economy find imports relatively more attractive because lower tariff duties result in lower net purchase prices to those buyers.(fn27) But where a NME is itself the purchaser and, in effect, pays any import tariffs to itself, lower tariff rates do not lower the net purchase price to that NME and therefore do not increase the quantity purchased by the NME.(fn28)

The United States may choose to grant MFN status to a NME, as the United States intended to do with the U.S.S.R. after the May 1972 summit meeting in Moscow.(fn29) Restrictive Soviet emigration policies at the time caused Senator Jackson and Representative Vanik to sponsor legislation restricting the authority of the President to extend MFN status to any NME that denied its citizens the right to emigrate or imposed more than a nominal fee on emigration.(fn30) The so-called Jackson-Vanik Amendment was signed into law as Title IV of the Trade Act of 1974.(fn31)

The Jackson-Vanik Amendment provides the President with discretionary authority to grant nondiscriminatory trade status by Executive Order for successive twelve-month periods to any NME that adheres to certain standards regarding freedom of emigration.(fn32) Congress may, however, pass, within a prescribed time, a joint resolution denying the extension of MFN status.(fn33) If the President vetoes such joint resolution, Congress must override the veto within a prescribed time or the Executive Order will remain effective.(fn34)

Negotiations for the accession of the People's Republic of China to GATT are now underway.(fn35) The timing, and even the ultimate success, of the GATT membership negotiations are not known.(fn36) Whether or not China accedes to GATT as a NME, any U.S. extension of MFN status to China must, at a minimum, comply with the terms of the Jackson-Vanik Amendment.(fn37)

Renewal or denial of MFN status to China has many more implications than what tariff rate will apply to imported goods from China. The following sections trace the history of MFN status in China before 1993 and discuss the 1993 Executive Order granting MFN status, opposition arguments against further renewal, China's view of this as meddling with internal affairs, and finally an alternative nonpolitical measure of human rights.

C. MFN Status for China

1. History Before 1993

The United States first extended MFN treatment to the People's Republic of China on February 1, 1980, under the provisions of the Jackson-Vanik Amendment.(fn38) China has received an extension of MFN status each year since 1980, but not without significant congressional protests in several years.(fn39)

In both 1991 and 1992, Congress passed joint resolutions opposing extension, which former President Bush vetoed.(fn40) The House overrode those vetoes but the Senate narrowly failed to do so.(fn41) This set the stage upon which the new Clinton Administration entered.

2. 1993 Executive Order

On May 28, 1993, President Clinton by Executive Order No. 12,850 renewed China's MFN status for the twelve-month period beginning July 3, 1993.(fn42) The Executive Order described further renewal in 1994 as "subject to the conditions" set forth therein.(fn43) President Clinton's attachment of specific conditions to his renewal was probably necessary to avoid a congressional veto.(fn44)

It is unclear from the text of the Executive Order whether all the conditions must be met prior to granting MFN status or if some are only advisory. The language of the Executive Order suggests that compliance with the clauses listed in Section 1(a)...