Bombing adds pressure to WTO China deal

Bombing adds pressure to WTO China deal

By Andrew Browne

BEIJING (Reuters): The bombing of the Chinese embassy in Belgrade has dimmed hopes for a quick deal this month with the United States on Beijing's entry to the World Trade Organization (WTO), analysts said.

However, the attack may have added to pressure for an agreement by a deadline at the end of this year by dramatically raising the cost of failure for both sides.

The bombing highlighted deep tensions and mutual suspicions that bedevil China-U.S. ties.

If Beijing's cherished goal of WTO membership is thwarted, the relationship could plunge deeper into trouble, with unpredictable consequences for domestic Chinese politics and security in Asia.

The immediate casualties would be Premier Zhu Rongji's economic reforms, and business deals worth billions of dollars for foreign companies.

"The high stakes will likely put pressure on the two sides to reach a deal as soon as possible," said Andy Xie, Hong Kong-based economist with Morgan Stanley Dean Witter, in his latest research report.

Without a deal, he said "the bilateral relationship will probably drift from bad to worse".

Chinese and U.S. trade negotiators are working to a tight deadline to wrap up their talks.

China's annual Most Favored Nation (MFN) trading status expires early in June. A deal by then would enable the White House to push for a single Congressional vote giving China permanent MFN status as required under WTO rules.

Otherwise, Congress would have to vote once to renew Beijing's MFN status, and again on permanent MFN -- giving anti-China forces in Congress two chances to shoot down an agreement.

Further delay beyond the end of this year would be disastrous.

A new round of WTO talks will raise the bar to Beijing's entry even higher, and American politics will be absorbed by the 2000 presidential elections.

Assistant U.S. Trade Representative Robert Cassidy was originally scheduled to resume talks in Beijing this week but is still waiting for a green light from China. Time is now running out to reach a deal this month.

But China insists it still wants membership.

"China's efforts to join WTO are a necessary part of the reform and opening up program and the position of China has not changed," said government spokesman Zhu Bangzao.

However, he added that the bombing "will undoubtedly affect the atmosphere of the WTO negotiations".

Even before the bomb attack, atmospherics were a problem, soured by U.S. allegations of Chinese nuclear spying, American pressure on China over human rights and what China sees as U.S. efforts to shelter Taiwan under a regional missile defense umbrella.

Now both sides must transcend China's fury and bitterness over the attack, which Beijing insists was deliberate and which killed three journalists.

Under the circumstances, further significant trade concessions from the Chinese appear unlikely. Indeed, China insists that some concessions Washington is trumpeting were never on the table in the first place.

It is not clear whether China is now backtracking, or whether there is genuine confusion about what is on offer.

Premier Zhu stands most to lose from WTO failure. Already, he is under fire for giving away too much during his trip to the United States last month, when he narrowly failed to clinch a deal with President Bill Clinton.

In the current anti-U.S. climate Zhu could be vulnerable. President Jiang Zemin, too, is open to criticism as the architect of better ties with Washington.

Zhu needs WTO entry to kick start industrial reform. The threat of foreign competition may be his best chance to shake up state-owned factories and banks.

Time is not on Zhu's side: The economy is slowing and is being supported mainly by massive state spending, which cannot last beyond another year or two.

In addition, China desperately needs the foreign investment that WTO membership would bring. Overseas investment is sagging, and with it China's exports.

Some analysts argue that the Belgrade attack may have strengthened China's negotiating hand by lowering Washington's expectations.

Central bank governor Dai Xianglong said last week that China had already made "considerable concessions" and he warned against pushing Beijing too far.