Commentary

Time to Repeal the Jackson-Vanik Amendment

This article appeared in the Journal of Commerce on July 14, 1999. It also appeared in the South China Morning Post; and the Australian Financial Review.
The annual debate over China’s trade status, necessitated by the Jackson-Vanik amendment to the Trade Act of 1974, should be ended in favor of establishing permanent “normal trade relations” with China. Congress should repeal the Jackson-Vanik amendment as a relic of the Cold War.

The amendment was designed to deny most-favored-nation trade status to communist countries, notably the Soviet Union, in order to encourage more open emigration.

In fact, Jackson-Vanik was not an important factor in the collapse of the Soviet Union and is unsuitable for China.

To deny people the right to trade because their government denies them the right to emigrate is a lose-lose policy for promoting human rights. President Clinton’s decision in 1994 to de-link trade and human rights and the decision of Congress in 1998 to substitute the term normal trade relations, NTR, for most-favored-nation status were steps in the right direction.

Now Congress must act to reduce uncertainty in U.S.-China economic relations by ending the annual recertification spectacle and making NTR unconditional and permanent. Both Hong Kong and Taiwan support such a move and would benefit from it.

The United States is the only major country that does not afford the People’s Republic of China permanent normal trade relations.

Under Jackson-Vanik, any “non-market economy” that restricts free emigration, as determined by the president, cannot be granted NTR tariff treatment (in other words, cannot be given the same low tariff rates available to more than 160 countries that have normal trade relations with the United States). However, even if emigration is not totally free, the president may recommend NTR, assuming it would lead to freer emigration policies.

Clearly, Jackson-Vanik is an anachronism. China is no longer a non-market economy — most prices are now determined by market forces, not by government planners — and, from a practical standpoint, no one believes that the United States is going to allow millions of Chinese into the country. Requiring Beijing to have an open emigration policy is nonsensical as a condition for NTR.

Why does Congress persist in maintaining an outdated trade law? That’s easy: The annual debate over U.S.-China trade relations gives politicians on both sides of the aisle the chance to criticize Beijing’s violation of human rights and to re-examine overall U.S.-Sino relations. Those are worthy goals, but could be achieved without denying China permanent NTR.

Too often the recertification process has been used to bash China — and threaten a trade war — without seeing the substantial progress that has been made since that nation began opening to the outside world in 1979. The freer flow of goods and ideas, greater labor mobility, expansion of non-state enterprises, and enhanced opportunities for domestic and foreign travel have increased freedom and prosperity in the Middle Kingdom.

Denying China NTR would raise tariffs to prohibitive levels and bring U.S.-China trade to a standstill. Even the threat of doing so damages trade relations and strengthens the position of hard-liners.

When future trade relations are uncertain, investors will demand higher returns. The reduction in overall investment will slow China’s growth and harm the very people in the non-state sector who have been the driving force in moving the PRC toward a market system.

Australia and the European Union recognize China as a market economy; the United States should do the same. More than 90% of retail prices and more than 80% of agricultural and raw-material prices are market-determined. Recent estimates, reported in the latest China Economic Quarterly, suggest that the private sector now accounts for 53% of China’s economy.

By repealing Jackson-Vanik, Congress could give a jump-start to U.S.-China trade and send a clear signal that America is ready to accept the major concessions Premier Zhu Rongji offered during his April visit to the White House.

James A. Dorn is a China specialist at the Cato Institute and editor of China in the New Millennium: Market Reforms and Social Development.