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China: Trade Aspects of Most Favored Nation (MFN) Treatment

Fact sheet released by the Bureau of Public Affairs, U.S. Department of State, June 17, 1997.

MFN tariff status is normal trading status. MFN is a misnomer. It is not a privileged status accorded only to close friends. It is the ordinary tariff treatment that we extend to virtually all nations. MFN has been supported by every President (both Republican and Democrat) who has confronted the issue.

MFN revocation would harm Hong Kong. Hong Kong's economic strength is one of its chief assets in ensuring its autonomy and viability. Hong Kong handles over 50 percent of US-China trade, making it highly dependent on continued normal trade relations between the United States and China. Hong Kong authorities estimate that MFN revocation would slash its trade by $20 to $30 billion with a resulting loss of 60,000-85,000 jobs. Hong Kong leaders, including Democratic Party leader Martin Lee, British Governor Patten and Anson Chan have spoken out strongly in favor of renewal of MFN. Every major political party in Hong Kong favors renewal.

MFN revocation would increase the price U.S. consumers pay for basic goods and cost U.S. jobs. MFN revocation would increase tariffs on imports from China from a trade-weighted average of about 6 percent to an estimated 44 percent. This could provoke retaliation against U.S. exports and open the door to the China market for our foreign competitors.

• MFN revocation, even accounting for changes in trade flows, will require U.S. consumers to pay upwards of half a billion dollars more each year for goods such as shoes, clothing and small appliances subject to increased tariffs. In addition, the cost of goods manufactured in the United States with Chinese components could increase, reducing the competitiveness of the finished goods.
• U.S. exports to China have almost quadrupled over the past decade. Those exports support an estimated l70,000 jobs in the United States that, on average, pay l3 to l6 percent more than non-export related jobs. We need to increase market access and ensure a level playing field for U.S. goods and services, not provoke retaliation.

MFN revocation would derail multilateral and bilateral trade negotiations to increase our access to China's market and China's observance of international trade rules. Revocation is too blunt a tool.

• China's accession to the World Trade Organization must be based on a commercially meaningful agreement that will improve market access for U.S. goods and services. We are making progress in those negotiations and insisting that China agree to comply with international trade rules on transparency, national treatment, availability of judicial review and other areas as well as to eliminate major trade barriers that face US firms, including high tariffs, quotas and bans on providing services. Revoking MFN would likely stop any progress in WTO negotiations.
• MFN revocation would jeopardize gains achieved in bilateral negotiations on intellectual property rights (IPR) enforcement and market access for textiles and apparel as well as ongoing progress in other areas, such as the most recent agreement on grapes in the agriculture sector. The Administration will continue to use targeted trade law provisions to protect U.S. trade interests.

The best way to address our trade problems is to use our trade laws, and the threat of targeted sanctions where necessary, to eliminate Chinese barriers and to help U.S. exporters compete in the Chinese market- not revoke MFN. The Clinton Administration secured strong actions from China protecting American intellectual property after threatening sanctions on $2 billion of Chinese imports. China's elimination of over 1,000 quotas and licensing requirements on imports of key high tech U.S. products has contributed to a rise of nearly 200 percent in U.S. exports of telecommunications equipment to China since 1992.

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