Illustration by Bob Dahm
Just before the November election, concern about foreign influence over U.S. trade policy suddenly emerged amid revelations that the Clinton campaign had accepted (and then returned) illegal donations from wealthy East Asian nationals. But as the media focused on the connections of one fundraiser to the White House and the debate became tinged with xenophobia, a bigger story of influence-peddling got lost: the role of multinational corporations that nominally fly the American flag.
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Nothing reveals this pattern better than the recent history of the U.S. relationship with China. China has been under fire for violations of both human rights and commercial rights. It routinely ignores intellectual property protections, and it closes its domestic market to much that the U.S. might export. By 1995, China's trade surplus with the United States had ballooned to an embarrassingly high total of $34 billion, heading upwards. [See Chalmers Johnson, "Breaching the Great Wall."] Yet the renewal of China's most favored nation (MFN) status was easily approved by Congress in 1996, and its membership in the World Trade Organization will likely follow. Bipartisan trade policy takes it for granted that integration of China into the global trading system serves both U.S. and Chinese interests, with surprisingly little attention to the terms of engagement. The real issue, however, is not whether China, with its 1.2 billion citizens, should be admitted to the global trading system, but whether that admission should be essentially unconditional. Thanks to the new China lobby, the interest of U.S. firms in China's cheap labor has overwhelmed all other concerns.
THE POWER BEHIND MFN
The power of the new China lobby was evident in Beijing last March 7, when more than 100 representatives of major U.S. firms held their annual conference under the auspices of the U.S.-China Business Council. Delivering his first major speech since taking office just weeks before, U.S. Ambassador James Sasser told them that the Clinton administration was counting on aggressive pressure from business to secure renewal of MFN status for China. "[Sasser] also suggested that CEOs make personal calls on Congress when they wish to relay their concerns on major China-related issues, such as MFN," reported the China Business Review, the bimonthly magazine of the U.S.-China Business Council. "Nothing," he said, "makes an impression on a member of Congress like a visit or phone call from a CEO from the member's district or state."
Of course, the Fortune 500 companies that comprise the U.S.-China Business Council—led by Boeing, Motorola, Caterpillar, AT&T, and the American International Group (AIG)—hardly needed Sasser's encouragement. They have been working the halls of Congress intensely since the 1972 opening to China by President Nixon. Lured by the prospect of 1.2 billion low-wage workers and eager consumers, America's corporate elite have done a fine job unofficially representing the Chinese government in Washington.
Even as Sasser spoke, the lobby's troops were being mobilized back in Washington. A coalition of America's largest companies, drawing on their experience in the battle over the North American Free Trade Agreement (NAFTA), had already begun to rally trade associations, lawyers, and corporate officials for the perennial battle to assure that China continue to receive the benefits of MFN. The business lobbyists were worried that, however unlikely, a coalition of labor, consumer, environmental, and human rights groups in Washington, joined in odd alliance with the dwindling remnants of the right-wing Taiwan lobby, might manage to raise a brouhaha about China and win a House of Representatives vote later in the year revoking MFN.
Three months before the vote, the omens were not good. China, unpredictable as always, had roiled the situation by firing missiles in the Taiwan straits on the eve of elections there. A controversy had erupted over China's cavalier treatment of U.S. intellectual property in computer software, movies, and compact disk recordings. Concern was growing about the environmental implications of Beijing's plan to erect a dam in the Three Gorges area of the Yangtze River. There were reports that China was selling nuclear technology to Pakistan. And there was the ever-present worry about China's human rights policies, from suppression of dissidents to the use of slave labor to forced abortion and sterilization. All of the uncertainty worried lobbyists for business. "We never take anything for granted," says Calman J. Cohen, head of the Emergency Committee for American Trade.
Yet in the end, the 286-141 vote in the House on June 27 endorsing China's MFN status was so lopsided that opponents minced no words about how badly they were defeated. "There wasn't even a debate. There wasn't even a contest. We just got shellacked," said Jock Nash, Washington counsel for Milliken & Co., a large textile company that objects to the flood of Chinese-made clothing coming into the American market. So powerful was the lobbying to renew MFN that the issues involved in a debate about what kind of trade policy America ought to have—about whether unfettered trade with developing nations adds jobs through exports or subtracts them through cheaply made imports, and about using America's economic power to balance business concerns with labor rights—were lost. Instead, members of Congress gave in to unrelenting pressure from industry, which claimed in estimates writ large and in district-by-district totals, that denying MFN to China would cause hundreds or thousands to be laid off back home. The 1990s version of the 1950s-era McCarthyite query "Who Lost China?" was, "Who wants to be responsible for losing jobs created by trade with China?"
China is fast becoming America's most troublesome trading partner. The growing imbalance, which this fall became America's largest trade deficit, is no accident. It is the result, at least in part, of aggressively nationalistic policies by the Chinese government designed specifically to build up surpluses with such wealthy consumer nations as the United States. Whether revoking MFN is the right instrument for correcting that imbalance is admittedly a complicated question: It could force trade concessions from the Chinese or it could—as defenders of MFN status claim—provoke a backlash, in the form of military tensions or economic retaliation. But those questions never got a fair hearing in 1996, thanks to industry pressure.
The story of the MFN battle is a parable for U.S. foreign policy after the Cold War. Globally, U.S. policy is a themeless pudding, consisting of seemingly ad hoc reactions to random hot spots from Bosnia to Somalia, from Haiti to central Africa. Yet if any consistent theme is beginning to gel, it is that American foreign policy is reverting to dollar diplomacy. In championing NAFTA and the General Agreement on Trade and Tariffs (GATT), in delinking China trade policy from concerns about human rights, and in pushing the Commerce Department toward unprecedented promotion of U.S. exports and investment opportunities abroad, Clinton has cemented economic concerns as the cornerstone of foreign affairs. Even the State Department, the Pentagon, and U.S. intelligence agencies have been asked to use their special skills to advance American commerce. For 1997, Willard Workman, international vice president for the U.S. Chamber of Commerce, says that business wants to strengthen the Overseas Private Investment Corporation and Export-Import Bank, adding, "We'd like to see a further reorientation of our embassies in the direction that, now that the Cold War is over, it's economic policy that's most important. We won the war. Let's reap the benefits."
This transformation of foreign policy into economic policy was inevitable and, in many ways, welcome. Ambassador Sasser and the U.S. diplomatic corps in China excel at representing the interests of American exporters seeking markets, U.S. importers seeking cheap goods, and investors in search of opportunities for joint ventures and low-wage labor. But whether such activity serves the interests of the average American remains an open question. Representatives of U.S. industry argue that freer trade with China means more access to Chinese markets and thus more jobs back home in the states. But U.S. exports to China amount to a mere 2 percent of overall American exports. Industry's real interest in China is its direct investment there (more than $25 billion), and its revenue from exporting such Chinese-made goods as electrical machinery, clothing, textiles, shoes, and toys back to the states. These exports are highly profitable for the companies, but they undercut labor's bargaining hand—and frequently take away jobs—in the United States, even as they provide a cheap source of goods. Meanwhile, China demands that U.S. companies relocating there hand over access to high-technology trade secrets and know-how. The companies don't much mind, but are such transfers really in the best interests of the U.S.?
Although quid-pro-quo sanctions and managed trade are practically taboo in most elite circles, there are legitimate and well-respected arguments for aggressively pursuing a more balanced relationship with China—one in which China could continue to grow economically, but not by exploiting Chinese workers or depressing living standards in the United States. These arguments come not just from organized labor, whose skepticism of rapidly expanding free trade is well known, but also from centrist organizations that understand the strategic value of economic power, such as the Economic Strategy Institute, which is headed by a former Republican official, Clyde Prestowitz. These arguments are sure to come up again in the next four years, yet if the battle over MFN last year is any indicator, lobbying by U.S. business interests will bolster the policies of the status quo.
CHINA'S BEST FRIENDS
Officially, Beijing is represented in Washington not only by its embassy, but also by Jones, Day, Reavis and Pogue, a large blue-chip law firm with offices in 10 countries, including Hong Kong, Taipei, Tokyo, and New Delhi. More than 150 lawyers populate its offices in downtown Washington, D.C. The Cleveland-based firm, which is also a member of the U.S.-China Business Council, was paid $75,000 for lobbying services in 1995. Yet that minuscule amount pales in comparison to the tens of millions of dollars spent by the business community lobbying for China's MFN status.
In effect, the Fortune 500 have become China's public relations machine. In a presentation to the Chinese embassy in November 1995, Robinson Lerer Sawyer Miller, one of Washington's leading public relations firms, sought to win China's support for a nationwide campaign that would use America's business community as spokesmen for China. "Allies who have credibility and influence over public opinion can be a critical component of China's communications program. These include business leaders with an interest in Chinese investment," said the firm's proposal. "These allies can be organized into a force for change. They can be thought leaders and commentators who present China's viewpoints to the American public with impact and credibility." The firm, which did not get the contract, has since broken up. But it appears that Beijing is making use of precisely that model.
The leading organization of the new China lobby is the ad hoc Business Coalition for U.S.-China Trade. The coalition is coordinated by the Emergency Committee for American Trade, headed by Cal Cohen, a $1 trillion bloc of 55 major U.S. companies committed to free trade, including General Motors, Mobil, Exxon, Caterpillar, United Technologies, Boeing, Cargill, Philip Morris, Procter and Gamble, TRW, Westinghouse, IBM, and a few dozen more.
Under the umbrella of the Business Coalition is the National Association of Manufacturers, the U.S. Chamber of Commerce, the Business Roundtable, and various trade associations for specific industry groups, like the American Petroleum Institute, the Pharmaceutical Research and Manufacturing Association, and the Business Software Alliance. Also included is the ubiquitous U.S-China Business Council, which was founded in 1973 to help American companies do business with the People's Republic. Its 300 members include banks, insurers, law firms, oil companies, defense companies, drug makers, the Big Three automakers, financial services companies, retailers, high-tech companies, and scores of major industrial firms.
Heading this powerful coalition, and so vocal in putting forward Beijing's point of view that he might be called the unofficial Chinese ambassador to the United States, is Maurice R. Greenburg, the chairman of the American International Group, Inc., one of the world's largest international insurance companies. Some detail on Greenberg and AIG is useful here because it shows the array of power assembled by just one company—one out of hundreds that worked the halls of Congress during the MFN fight.
By a curious twist of fate, AIG was founded in 1919 in Shanghai, China, where it prospered until the communists forced it to leave in 1950. Now headquartered in New York, in 1992 AIG won for itself the honor of being the first foreign insurance company to secure a license to operate in the People's Republic, beginning in Shanghai and expanding last year to Guangzhou. Greenberg, an aggressive, take-no-prisoners manager, is an influential player in both the political and business worlds, and was once even mentioned as a possible candidate for director of the Central Intelligence Agency. AIG's operations in China are a growing part of the company's revenue stream, and the company employs thousands of Chinese insurance agents. Standing tall above the Shanghai skyline are the gleaming towers of the AIG-owned Shanghai Centre, an office complex that houses AIG, Merrill Lynch, and many other firms. In a skillful move, Greenberg created an economic advisory body for the city of Shanghai that later helped him win his China contract when a Shanghai official became a top policymaker in Beijing.
During the China MFN campaign in 1996, Greenberg was chairman of the U.S.-China Business Council. He was also a member of the Emergency Committee; one of five members of the policy impact panel on U.S.-China relations of the Council on Foreign Relations, chaired by Henry Kissinger and Cyrus Vance; one of a handful of corporate sponsors of the so-called Committee of 100, a pro-business group of influential Chinese-Americans; an active member of the Atlantic Council and the National Committee on U.S.-China Relations, which co-sponsored a largely pro-MFN conference; and, last but not least, a key player on the President's Advisory Committee for Trade Policy and Negotiations, the official private-sector advisory committee to the Office of the U.S. Trade Representative. AIG's own board of directors includes several former Washington policymakers, including Carla Hills, a former U.S. trade representative, and Barber Conable, the former congressman and ex-president of the World Bank. Kissinger is on AIG's international advisory board. In Washington, AIG is represented by a team of eleven lobbyists and a stable of four elite lobbyist/law firms, including Skadden, Arps, Slate, Meagher & Flom, where AIG's affairs are handled by Robert Lighthizer, a top Dole adviser and former deputy U.S. Trade Representative.
In May 1996, Greenberg testified at a key congressional hearing on U.S.-China economic ties. Against a background of worries about China's aggressive military posture, human rights violations, and cutthroat business practices, he offered an apologia: "Patience is essential. We should step back, take a deep breath and examine carefully the ties that bind us together," he said. "An increasing number of Chinese genuinely wonder if the U.S. has embarked on an orchestrated campaign to obstruct their progress and to contain China's development and interests in Asia and internationally." Concerning MFN, Greenberg added, "Rather than subject ourselves each year to an unproductive war dance, we should make MFN permanent, without conditions."
CALLING FOR REINFORCEMENTS
So hot and heavy did the lobbyists flock to the Hill during the preparations for the MFN vote that swinging the proverbial dead cat would have felled numbers of them. For example: At the height of the frenzy, Representative Howard Coble, Republican of North Carolina, mentioned at a breakfast meeting that he was leaning against renewal of MFN. By lunchtime that same day, his office had logged more than 40 phone calls from corporate lobbyists urging him to rethink his vote. And, three weeks before the vote, a Pennsylvania Democrat found his office swarming with a team of lobbyists led by Westinghouse Electric Co., a large Pennsylvania employer, provoking a call to an opponent of China's MFN status from a staffer, who said, "Help! Send reinforcements! Our office is being invaded by Westinghouse."
But reinforcements were hard to find.
"Big Labor?" asks Mark Anderson of the AFL-CIO Task Force on Trade. "I wish!" Measured against the contingent of business lobbyists—totaling 700, according to one estimate—a mere handful of opponents tried to stem the tide. They included perhaps a dozen lobbyists for the AFL-CIO and its member unions, a couple of environmentalists, Human Rights Watch, a handful of firms such as Milliken and Burlington Industries (whose business is threatened by cheap Chinese textile imports), and a few conservative anticommunists and Buchananites. Lori Wallach, who coordinated the Citizens Trade Campaign for Public Citizen, says, "Add up all the opponents of China MFN, and it equals the staff of just one of the major corporations supporting it."
For labor, which ought to have provided the muscle against MFN, the issue got lost among a host of other, more high-priority issues that the AFL-CIO was dealing with in mid-1996. "We were fighting on a lot of fronts, including OSHA, the minimum wage, and Medicare. And this became just another fight," says a labor lobbyist. Agrees Wally Workman of the U.S. Chamber, "Labor didn't push this too hard. They were afraid of offending Bill Clinton in an election year."
In the House, opponents of China's MFN status started with a core of about 70 votes, comprising a bloc of liberal Democrats allied with labor and conservatives, led by Representative Dana Rohrabacher, Republican of California, who opposed China on grounds ranging from economic issues to abortion to treatment of religious groups. Led by Representative Nancy Pelosi, a California Democrat, and Representative Frank Wolf, a Virginia Republican, the anti-MFN coalition could count on a few key allies, including a few members of the otherwise staunchly pro-free trade House Ways and Means Committee and Democratic House leaders Richard Gephardt of Missouri and David Bonior of Michigan.
But the pressure—and the money—from the other side was simply overwhelming. So enormous is the flow of cash from corporate America to congressional campaigns that it is difficult to point to specific cases of influence. One brief study by the Center for Responsive Politics on the eve of the June vote showed that companies lobbying on China had funneled more than $20 million in PAC money to members of the House and Senate in little over a year. "The money has so corrupted the process that I am convinced that unless you have campaign finance reform you will get nowhere," says Milliken's Jock Nash.
From the start, opponents of MFN realized that victory was nigh impossible. To win, they would have to first win a vote in the House of Representatives, against incalculable odds. Then, they would have to win a Senate vote, which would mean first winning a majority in that hostile environment and then securing 60 votes to halt a filibuster. And then they would have to rally two-thirds majorities in both the House and Senate to overcome a certain presidential veto. Yet the apparent futility of the opponents' efforts made it all the more astonishing that the U.S. business community so vigorously opposed them, as if Greenberg and company were afraid that even a close vote, rather than the one-sided tally that resulted, would annoy the Chinese too much.
The U.S. Chamber of Commerce, the granddaddy of business lobbies, devoted nearly six months of intensive work to the MFN campaign. The Chamber's Asia Task Force contacted more than 200 local and state chambers and a select list of 6,800 member companies (out of 215,000) to gear up support for MFN, providing educational and public relations materials, a slide show, a television debate via the weekly It's Your Business, and a helpful breakdown of exports to China produced by each of the 50 states. Closely coordinating their work with the Clinton administration—a calendar of Chamber MFN activities for May 1996 shows four sessions between Chamber staff and administration officials, including Secretary of Commerce Mickey Kantor, in just the first week of May alone—the Chamber developed a list of 103 House members who were uncommitted but who might be convinced to support renewed MFN.
The Chamber's China MFN Congressional Lobbying Team, comprising more than 40 activist companies with interests in China, was divided into three teams, mixing manufacturers and retailers. Matching regional presence to House members from particular parts of the country, the three teams began setting up meetings with undecided votes. Meanwhile, last spring the Chamber launched its grassroots program, called GAIN (Grassroots Action Information Network), which sought to mobilize thousands of smaller companies to contact members of Congress. (For instance, a GAIN Action Call that went out to California companies on June 19, a week before the vote, said, "Call your Representative immediately. Tell him/her to support renewal of China MFN trade status. . . . There is no time to write.")
According to Workman, who oversaw the Chamber's efforts, once a meeting was set with a member of Congress, between three and fifteen company representatives would attend to make the pitch. "The 103 House members we targeted were up in the air not three weeks before the vote," says Workman. "We got 101 of them to vote with us."
Over at the National Association of Manufacturers, a similar process was underway, though even more than the Chamber of Commerce, NAM emphasized grassroots work and contacts with members of Congress back in their districts. "We tried to do our homework in a different way, with a lot of lobbying out in the districts," says NAM's Dianne Sullivan. The ten regional offices of NAM's Congressional Dialogue concentrated on getting local company officials and plant managers to bring the message to the congressmen. Like the Chamber, NAM emphasized U.S. exports—and the jobs sustained by those exports. But NAM created a highly detailed, company-by-company spreadsheet for each state, citing specific firms, the number of jobs dependent on exports to China, the companies' "impact on Chinese workers," and other data.
Among larger firms, NAM highlights the work of Boeing (which chaired NAM's China working group), Caterpillar (whose chairman leads the Business Roundtable), TRW, and United Technologies. The four companies led an unusual grassroots effort, sometimes called the "China Normalization Initiative," that was organized on a state-by-state basis in California, Illinois, Michigan, Texas and other key states. Boeing was clearly the quarterback in this effort, having organized many of its 20,000 suppliers across the country into mini-lobbyists for China's MFN status. Each state had a "captain," a business activist from a major firm. In Michigan, General Motors and AlliedSignal, Inc., were co-captains, while in Illinois the captain was Peoria-based Caterpillar.
Cal Cohen, coordinator of the umbrella group Business Coalition for U.S.-China Trade, called the Boeing-led effort "sort of the grassroots for the business coalition." And, wearing his hat as head of the Emergency Committee for American Trade, Cohen coordinated meetings with members of Congress for the several dozen high-powered CEOs (or their representatives) who comprise the committee, often in Washington but sometimes back in the members' districts.
Meanwhile, perhaps taking Sasser's advice to heart, the U.S.-China Business Council organized a series of events it called "China on the Hill." One state at a time, the council would bring company officials in a group to Washington to meet with an entire state delegation in the House; often, according to Rich Brecher of the council, for a particular state as many as half the members of Congress, rather than mere staffers, would attend. "The biggest argument we had on our side was the export argument," says Brecher, repeating the familiar refrain. "Any action that would undermine MFN would endanger exports and jobs." The council also paid particular attention to the scores of House freshmen, whose views on trade with China were generally up for grabs; in the end, 55 of 74 GOP freshmen voted for MFN.
Realizing that the longer the delay in voting on the issue, the more chance that the opponents of MFN had to organize their own grassroots sentiment against China, the business groups worked with Speaker Newt Gingrich and the Republican leadership in the House to accelerate the timetable for a vote. Driving them was the awareness that China, with its loose-cannon proclivities, might also stumble into some new controversy that would fuel anti-Beijing sentiment in Washington. In early June, opponents of MFN were operating on the assumption that the vote would come in mid- to late July; in fact, it occurred on June 27 with less than one day's notice. Says Jock Nash, the Milliken counsel, "We didn't have the time, the money or the resources. There is no way on God's earth that you can mount a grassroots effort to bring popular pressure on Washington that will overcome the pressure being put on them by the Fortune 500."
In Michigan, the Big Three automakers capped their lobbying of the delegation with a campaign fundraiser held just a couple of weeks before the vote, and such key Democratic House members as John Conyers, Dale Kildee, James Barcia, and Sander Levin joined most of the Michigan delegation in voting for MFN. In California, defense and aerospace firms pushed hard and won the votes of Representatives Julian Dixon, Howard Berman, and George Brown. In Illinois, it was Caterpillar; in the Northwest, Boeing and Nike; in the New York suburbs, IBM; and in the grain states, Cargill and Continental. New York's staunchly liberal representative Charles Rangel, a Harlem Democrat and friend of labor, abandoned the AFL-CIO on the MFN vote; as the ranking Democrat on Ways and Means, Rangel was busily cultivating friends on Wall Street and raising campaign cash for fellow Democrats. "On trade issues, Rangel is very much a free trader," says the Chamber's Workman, satisfied.
MAKING IT NORMAL
The 1996 MFN vote may be the last. Early in 1997, legislation is expected to be introduced in both the House and Senate that would guarantee permanent MFN status for China. Strongly supported by the business community, this effort would eliminate the annual clashes over China trade; critics fear that it will wipe out any chance that Congress will have to address issues concerning China at all. Yet both sides agree that Congress is tired of being involved in a nasty and unproductive MFN battle each year and might look forward to eliminating the issue once and for all. A parallel campaign would soften the impact of MFN by changing its name to something innocuous, perhaps "normal trade relations." That would make it more difficult for opponents of MFN to tar supporters with the notion that they are calling China "most favored."
Before this can happen, however, the Clinton administration and Congress must deal with the thorny issue of China's entry into the World Trade Organization (WTO). So far, two years of talks between China and the United States have gone nowhere, with Washington claiming that Beijing is refusing to make even the barest concessions in order to join WTO and abide by its rules. In public, the business community is backing the administration's view that China must make important concessions, but AFL-CIO officials are skeptical. "When push comes to shove, industry will cave on all the important issues," said one. Brecher of the U.S-China Business Council hints in this direction when he says, "I don't expect we're gonna get every 't' crossed and 'i' dotted. We've got to focus on a few priorities. If we try to hold China to an absolute agreement, we'll get nothing." Likewise, referring to China's insistence on entering WTO as a "developing country," which would soften some of the standards it would have to meet, the Chamber of Commerce's Workman says, "We think that China is in many ways a developing country."
Business is divided on exactly what should be the bottom line on China's WTO entry, and groups like the U.S.-China Business Council are surveying their members to see what they think. But if the MFN battle is emblematic, it doesn't really matter which view industry decides to adopt: They'll have the attention of both Congress and the President anyway
Statement of Ambassador Michael Kantor
Prepared for Delivery U.S.-China Business Council, January 31, 1996
Public Citizen Global Trade Watch
U.S. International Trade Statistics from the Census Bureau
International Trade Instruments, Treaties, Conventions, Laws, and Rules