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of the examination of new requests for credit insurance and the postponement of the examination of new credits of the World Bank.10

The World Bank, which had provided more than $8.5 billion in loans since 1981, announced on June 26, 1989, that it was suspending $780.2 million in loans to China." Although the Bank publicly based its decision on economic, rather than political considerations, the EC and U.S. advocacy of such action may well have influenced its decision.

While actions by other Western governments and international institutions appear to complement steps take by the United States, the apparent reluctance of some governments to impose strong and explicit sanctions against China raises questions as to the effect and duration of the sanctions. Moreover, few Western governments appear ready to impose broader economic sanctions that would threaten the extensive commercial ties with China that they have nurtured in recent years.

CHINA'S COMMERCIAL RELATIONS WITH THE U.S. AND OTHERS

U.S.-Chinese commercial relations have expanded rapidly during the past decade. The brutal suppression of the pro-democracy movement has raised doubts about whether business will proceed as usual. The possibility of economic sanctions may lead to reduced U.S. investment in China as companies cautiously assess prospects for normalization of relations between China and other Western countries. Many U.S. importers, fearing the fallout from the crackdown and possible economic disruptions caused by sanctions, may shift their orders to other Pacific Rim countries, further reducing trade between the two countries.

China's importance as a trade partner of the United States has increased rapidly. In terms of the dollar value of total turnover, China rose from 43rd in 1978 to 14th in 1988. For the first four months of 1989, China was the 12th largest trade partner of the U.S. In 1988, the United States exported $5.0 billion worth of goods to China; imports from China amounted to $8.5

10New York Times. Economic Penalties are Placed on China by Italy and Belgium. June 25, 1989, p. 11; Washington Post. European Allies Resist Calls for Sanctions against China. June 24, 1989, p. A21; New York Times. Thatcher Opposes Sanctions. June 23, 1989, p. A5; European Community News. E.C. Summit Brings Agreement on Monetary Union. No. 21, June 28, 1989, p. 14-15.

"Washington Post, World Bank Refuses to Approve More Loans to Chinese Government. June 27, 1989, p. A18.

296

billion.

the

12

behind Hong Kong and Japan. (As a group, the twelve member countries of The United States is China's third most important trading partner, European Community trade more with China than does the United

States)

IMPORTS

EXPORTS

Source: International Monetary Fund. Direction of Trade Statistics, 1988.

During the past decade, US. investment in China, estimated at $3.5 billion, accounted for 12 percent of an estimated $28 billion in total foreign investment. The bulk of foreign investment in China accounted for by Hong Kong and Macao. Japanese investment amounts to 8 percent of the total. U.S. companies have reportedly expressed fears that a 62 percent - is reluctance to invest in China may result in lost opportunities and possible displacement by firms from countries that are more aggressive in exploiting investment opportunities. A recent New York Times article noted that "some Japanese companies, in particular, have been rushing to resume operations in China and to press forward with new investments despite the bloodshed, enough so that Foreign Minister Hiroshi Mitsuzuka recently criticized them

Department of Commerce.

Exports are f.a.s., while imports are

presented on a Customs basis.

13Stevenson, Richard W. Companies Hesitating on China. New York Times. July 3, 1989, pp. 25-26.

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FIGURE 4. Foreign Investment in China through October 31, 1988.
Total foreign investment amounts to $28.2 billion.

for creating an image of Japan as 'trying to make money like a thief at a fire.""14

U.S. IMPORT POLICY

Two key aspects of U.S. treatment of imports from China are the extension of most-favored-nation status, which determines tariff rate of imports, and the textile agreement, which determines the amount of textile imports allowed from China.

China's Most-Favored-Nation Status

Most-favored-nation (MFN; nondiscriminatory) status in trade, in practice, means that a country which has been granted such status by another country is entitled to all the benefits and concessions (primarily reduced tariff rates) which the latter has granted to any other country. As a consequence, all MFN countries are treated alike.

In a break with the longstanding U.S. policy of according the MFN status to all its trading partners, the Congress in mid-1951 enacted a law requiring the President to suspend such status of all countries of the Sino-Soviet bloc.

14Ibid, p. 26.

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The Trade Expansion Act of 1962, furthermore, made the restoration of the MFN status possible only by specific legislation.

This policy was changed by the so-called Jackson-Vanik amendment to the Trade Act of 1974 to the extent that the restoration of the MFN status to a "nonmarket economy" country was linked to that country's emigration policy. The amendment authorizes the President to restore and maintain in force such country's MFN status if he reports to Congress semiannually (mid-year, and end of year) that the country is not in violation of the freedom-ofemigration provision and either House of Congress does not disapprove the end-of-year report by a one-House resolution. 15 Alternatively, the President may waive full compliance with the freedom-of-emigration requirement if he finds that the waiver will substantially promote the objectives of the requirement and he has received assurances that the emigration practices of the country will lead substantially to their achievement. The waiver authority and any waivers granted under it remain in force for one year and are automatically renewable upon the President's recommendation, unless disapproved by a one-House resolution.

The MFN status is conferred by a Presidential proclamation based on a bilateral trade agreement with the country in question, which must be approved by a concurrent resolution. The agreement remains in force for three years, and is automatically renewable for additional 3-year periods if the President determines that there has been a satisfactory bilateral balance and reciprocation of concessions. Thus, the MFN status restored to a country under the Jackson-Vanik amendment can remain in force as long as both the waiver authority (and the waiver) and the trade agreement remain in force.

In the case of China, the President transmitted to Congress in October 1979 the trade agreement, signed in July 1979, and the Jackson-Vanik waiver issued under the authority extended as of July 3, 1979. The agreement was approved by the Congress on January 24, 1980, and entered into force (together with the reciprocal grant of the MFN status) on February 1, 1980.

The trade agreement with China has thus far been extended three times, most recently effective February 1, 1989, and the Jackson-Vanik waiver authority and waiver with respect to China have been extended annually. On two occasions, resolutions to disapprove the extension of the waiver authority with respect to China were introduced in the House: one, in 1982, died in the committee, the other, in 1983, was reported adversely and defeated on the floor.

15It should be noted, however, that this disapproval resolution (in effect, a legislative veto) as well as the one related to the extension of the waiver authority and the concurrent resolution approving the bilateral trade agreement (see below) are of extremely doubtful constitutionality in the light of the U.S. Supreme Court 1983 decision holding unconstitutional the legislative veto in Immigration and Naturalization Service v. Chadha.