Human Rights and International Trade Policy
For California's exporters, who comprise one of the few truly healthy sectors of the state's otherwise ailing economy, the past week has been one of conflicting and confusing messages from Washington. On Wednesday, the Clinton administration announced a sweeping liberalization of controls restricting exports of computers, telecommunications equipment and other high-technology products. Intended as a means of preventing the former Soviet Union and other communist adversaries from acquiring the choicest fruits of American science and industry, the controls were an artifact of the Cold War. That was good news for a state which alone accounts for as much as 40 percent of the nation's high-tech exports. The disconcerting news came earlier in the week when, during his address to the UN General Assembly on Monday, President Clinton reiterated his threat to use trade sanctions to defend human rights around the world.
Reflecting, as it does, some of the noblest aspirations of the on-going American experiment in democracy, the new commitment to the universal observance of human rights has been widely applauded here at home. Even so, the moral crusade has more than its share of agnostics who point out that there ia a price tag on even goodness and virtue. "We've seen far too many cases where well-intentioned actions have gone terribly askew, hurting us more than those we're trying to influence," observes Los Angeles trade attorney John Liebman. He and others in California's international business community object not to the administration's admirable goal but to the use of trade sanctions as a means of implementing a more aggressive human rights policy. According to Southern California exporter Charles Nevil, a former member of the California State World Trade Commission, "Washington sometimes ignores the harm unilateral trade sanctions do to US companies and the people who work for them."
These costs are not small. In a study released this month by the Institute for International Economics, a respected research group in Washington, D.C. which is funded by private foundations and corporations, Syracuse University economist J. David Richardson found that US export controls cost as much as $40 billion in lost export sales last year. In a telephone interview last Tuesday, Richardson acknowledged that, since the Golden State normally accounts for 30-35 percent of US exports of the high-tech products most commonly subject to export controls, California alone absorbed $12-$14 billion in foregone export sales during a year in which the state's total exports amounted to $69 billion. Richardson hastened to add that, because his study specifically excluded arms sales, actual losses were a good deal higher.
Greg Garcia, international trade manager for the American Electronics Association, agrees that California shoulders "a far disproportionate burden for export controls." He characterized as "generally ineffective" current US efforts to prevent sophisticated telecommunications equipment, computers, electronic instruments, high-tech chemicals and other so-called dual-use products from winding up in the hands of potential foes who might find military applications for them. Where he quibbles with Richardson, however, is over California's share of the nation's high-tech export trade. AEA figures that the state's 6,000 high-tech companies (and their 500,000 employees) produce 40% of the country's high-tech exports. But even if the lower Richardson figures are used, the loss of $12 billion in export sales translates into 240,000 jobs that were denied a state seemingly trapped in an unrelenting recession.
So while the Clinton administration plans to ease up on many of the high-tech export controls left over from the Cold War era, it clearly intends to pursue a new campaign to use trade policy in its efforts to improve human rights practices around the world. This leaves people like Stanley Epstein, owner of the American Export Trading Company in Burbank and a past president of the Export Managers Association of California, asking: "How much of what the right hand gives us will the left hand take back?"
Economists have long questioned the efficacy of using trade sanctions to put pressure on certain countries. For example, a study last year by the US General Accounting Office agrees with Liebman's assessment. The GAO found that economic sanctions are seldom effective. For one thing, when the US is alone in imposing sanctions, the targeted country usually has no trouble finding alternative sources of goods and services in Asia or Europe. Another shortcoming is that economic sanctions like trade embargoes rarely have any direct impact on those in power. No one expects Saddam Hussein to lose sleep thinking about shortages of food and medicine are affecting the Iraqi people. But if the GAO is right, then trade sanctions are more useful as balm for the national conscience than as tools of diplomacy. And, if that's the case, then what about the costs these sanctions entail -- costs that can be measured both in lost jobs lost as well as lost profits. Nevertheless, in what some have termed the "Goldilocks Syndrome," whenever diplomatic pressure seems inadequate and military power too drastic, trade sanctions become, almost by default, the preferred instrument of policy.
The problem for California is that, as the AEA told staffers for the state's congressional delegation at a Capitol Hill briefing a week ago Friday, America's premier exporting state pays a disproportionate share of the cost whenever normal commerce is interdicted for foreign policy or national security reasons. With 12 percent of the US population, California accounts for nearly 16 percent of all US merchandise exports and, by most estimates, an even higher share of its exports of services. No other state comes even close to matching California's export trade. Yet it is not just California's status as the nation's leading exporting state or as its principal source of high-tech exports that makes it especially vulnerable to any new trade sanctions inspired by human rights concerns. Nearly 48 percent of California's exports currently are shipped to the Far East, the region of the world where the clash of cultural values over the human rights issue is most apt to have the most damaging commercial as well as diplomatic fall-out.
Yet while California stands to bear a lopsided share of the economic burden associated with the Clinton administration's more aggressive human rights posture, this state's political leadership has been slow to react. Consider what occurred this past summer when California's struggling aerospace industry lost as many as 1,200 potential jobs because the US State Department rejected a proposal involving the sale of four F-5E fighter aircraft by the Royal Jordanian Air Force to the Indonesian Air Force. The Jordanians intended to use the proceeds from the sale to hire Eidetics International, a Torrance company which repairs and refits older generation fighter aircraft, to upgrade the RJAF's remaining fleet of F-5Es. For its part, the IAF needed to replace four of its original fleet of 16 F-5Es which were no longer serviceable. Again, Eidetics was to have been retained to upgrade the Indonesian planes with new avionics and radio equipment.
US law requires that transfers of such weapons to third parties must receive an American okay, and the Jordanians and Indonesians filed the necessary paperwork with the bureaucrats in Foggy Bottom last winter. But an objection was raised by Senate Foreign Relations Committee Chairman Claiborne Pell (D-Rhode Island). In a June 2 letter to the Secretary of State. Pell charged that Indonesia's human rights record had been "abysmal" and warned that approval of the F-5E sale would "undermine...the [Clinton] Administration's laudatory commitment to human rights." Christopher, who left Washington just days later to attend a UN Human Rights Conference in Vienna, evidently concurred. US approval of the proposed arms transfer was formally denied, and Eidetics lost a major contract.
The failure to obtain approval of the transaction says a lot about the Clinton administration's commitment to human rights. It also says a great deal about the reluctance of California's political establishment to come to the aid of a California aerospace company, particularly when the issue of human rights is involved. Eidetics had assumed that state officials would go to bat to help win about 1,000 high-tech jobs for California's battered aerospace industry. That's not what happened according to company spokesman R.W. Graham, who complained that virtually the entire congressional delegation "took a walk" while efforts to enlist the help of state government officials in Sacramento from Governor Wilson on down likewise fell on unsympathetic ears.
But paying the dues for human rights stands is really nothing new to Californians, even if they don't know anything about it. Sometimes the costs are self-inflicted. In 1986, California implemented a "least favored nation" policy of sorts when it restricted investment of state pension fund money in companies doing business in South Africa. Whether this move helped advance the anti-apartheid cause is open to debate. What is indisputable, though, is that such gestures are not cheap. A 1991 report prepared for the Public Employees Retirement System (PERS) revealed that implementation of the South Africa Disinvestment Act of 1986 cost PERS an estimated $590.2 million. The figure included the commission cost incurred to sell the stocks of companies doing business in South Africa, the market impact associated with those sales, as well as an estimate of the "opportunity cost" caused by this restriction against any future purchases of stocks of companies doing business in South Africa. Also in 1991, the State Teachers Retirement System (STRS) received a similar study that showed that the fund had been earning 1.63 percent less on its tens of billions of dollars in domestic stock investments because of the divestment measure.
Now that even Nelson Mandela is calling for the lifting of economic sanctions against South Africa, China has emerged as the principal scourge of human rights activists. The list of US human rights grievances against China goes will beyond the June 1989 Tiananmen Square massacre and the subsequent crack-down on pro-democracy activists. As The New York Times has been reporting, China continues to employ prison inmates (in effective, slave labor) to produce goods for export to the United States. And, in what amounts to reverse ethnic-cleansing, Chinese authorities have been settling large numbers of Chinese immigrants in Tibet in a deliberate effort to dilute Tibetan culture, thus making any restitution of political independence all the more problematic.
For most of the post-World War II era, Americans upset with Chinese behavior have sought to deny the Middle Kingdom its place in the community of nations. First it was American conservatives who fought ardently to quarantine "Red" China. Now, ironically, the cause of isolating China has been taken up by liberals who, like feisty San Francisco Congresswoman Nancy Pelosi, want to punish China for human rights abuses by denying it Most Favored Nation trading status.
Pelosi's campaign gained some major support in early May, when Levi Strauss & Co. announced it would stop making clothing items in China. The reason cited: "pervasive violations of human rights" by Chinese authorities. (Even so, the company admitted that it will continue to buy denim from Chinese factories.) But the San Francisco apparel company is the rare exception as a number of other major California businesses have been moving to strengthen their commercial ties with China.
Bank of America, which established a branch in Shanghai in 1991, opened a new branch in Guangzhou last month. Varian Associates, the Palo Alto-based electronics firm, revealed in early July that it had signed an agreement with the China National Electronics Import and Export Corporation to help develop China's semi-conductor industry. Meanwhile, Sunnyvale's Apple Computer and Palo Alto's Hewlett-Packard have been aggressively pursuing China's burgeoning market for computer equipment and software programs. Oddly enough, their major competitor for the China market is not a Japanese or Korean company but rather an Orange County firm, AST Research, which alone captured more than 25 percent of China's PC market last year. Likewise, Circon, a Santa Barbara manufacturer of specialized surgical tools, which made its first sale to China this past February, expects its business to increase as the Chinese market becomes more sophisticated and affluent. Even CALPERS seemed to be taking a keen interest in investing the pension funds of California's public employees in China's economic growth when one of its top officials showed up at an Shanghai investment seminar recently.
Still, Pelosi won a partial victory when, on May 28, Clinton signed an executive order extending China's MFN status for another year but also stipulating that there would be no further extensions unless the Chinese government meets certain standards set out by the administration. Since no one seriously expects the Chinese to kow-tow to Washington's specific dictates, the May reprieve leaves neither side with much room for maneuver and thus only sets the stage for a real showdown late next spring when critics of Chinese human rights practices will hold Clinton's feet to the fire.
So what would be the consequences if Clinton suspends China's MFN status next year? Surely, we can live without China. But there would be a definite impact, To begin with, US consumers would see significantly higher prices on apparel, shoes and toys now imported from Chinese factories. On some apparel items, the tariff would rise to 55% from the current level of about 15%. Since China accounts for between 15 and 20 percent of all US imports of consumer goods, especially clothing, footwear, toys and sporting equipment, the impact on the prices and availability of generally low-cost goods would be quite apparent, especially to less affluent American consumers.
For its part, China is expected to retaliate by cutting back on the some of the $7.5 billion in products it currently buys from us each year and reviewing a number of huge contracts to supply China with goods and services would also be placed at risk. Among the agreements which would probably be affected is the memorandum of understanding AT&T signed last February with China's State Planning Commission which gives the US firm the leading role in building a new telecommunications system for China. Similarly endangered would be Westinghouse's $400 million contract to modernize power plants throughout China. Both contracts involve dozens of California firms as subcontractors.
The impact on California would be significant in other ways as well. In recent years, the Golden State has accounted for from 20-25 percent of all US exports to China and to Hong Kong, the British crown colony which is due to revert to Chinese control in 1997. In 1992 the value of California's exports to China amounted to nearly $1.5 billion, while the state's exports to Hong Kong totalled another $2.3 billion. As a consolidated market, China and Hong Kong rank on a par with Germany as a market for California goods, and exports to China and Hong Kong provided some 75,000 jobs for Californians. Most importantly, much of what China now buys from America are advanced technology products such as computer equipment, scientific instruments, aircraft and telecommunications equipment, much of which are produced here in California. Even when the export comes from another state, it likely has some California pedigree mixed in. For example, Boeing, which has already sold 25 commercial aircraft to China this year, relies on 1,400 California suppliers and subcontractors.
China, of course, is not the only Asian country which resents being scolded by Washington. Government officials in Singapore, Malaysia and Indonesia have also been combative in the face of recent US pressure. By keeping up the pressure, the US could -- as Douglas Paal, a former National Security Council staff member now running the National Bureau of Asia Research, recently warned -- could find itself diplomatically isolated in a region of the world that is becoming increasingly vital to US interests (not to mention California's).
That is hardly an outcome the Clinton administration desires. As is indicated by its herculean efforts to convene an unprecedented summit of Pacific Rim nations in Seattle next month under the auspices of the Asia Pacific Economic Council, the White House wants to forge a new policy toward Asia that reflects new economic as well as diplomatic and military balances in the region. But it is also clear that the administrations' commitment to human rights transcends practical policy considerations. Indeed, to a great extent, the Clinton administration's heightened concern with human rights unmistakably echoes the unabashedly moral positions taken in world affairs by former presidents like Woodrow Wilson and, more lately, Jimmy Carter. By the same token, it consciously disdains the almost fatalistic pragmatism espoused by policymakers like Henry Kissinger. Equally important, though, is that the cause of human rights helps fill a conceptual void that the end of the Cold War had left at the heart of US foreign policy.
For the better part of half a century, the unifying theme of American diplomacy had been the contest against communism in general and the Soviet Union in particular. Every other element of policy was evaluated on the basis of how it might either promote or undermine that all-encompassing national imperative. But the dismantling of the Soviet Union and its Eastern European empire not only removed this cornerstone of our national security policy. It also suggested a new cause upon which to construct a coherent foreign policy for the New World Order: the cause of promoting the very values -- liberal democracy and free market economics -- which emerged triumphant from the Cold War's ideological battles. In that sense, championing of the cause of human rights throughout the world represents both a moral beacon and an intellectual gyroscope for US foreign policy.
Still, the very real economic consequences of a more spirited defense of universal human rights, particularly the disproportionate burden that California would assume, cannot be ignored. What, then, should the US do? One positive step is already being taken. The administration is earnestly supporting the establishment of a UN High Commissioner on Human Rights. As frustrating and aggravating as collective action under United Nations' auspices has often proved in the past, multilateral action is nearly always preferable to our current proclivity for unilateral sanctions.
At the same time, though, the administration should acknowledge that, whereas the sending of food and medical supplies are humanitarian actions paid for collectively, trade sanctions -- especially unilateral ones -- are public policies which entail substantial costs to real companies, their workers and the communities in which they live. Both existing federal trade law and the proposed North American Free Trade Accord provide for economic adjustment assistance to those harmed under certain circumstances by foreign competition. Perhaps it is time to consider similar indemnity for those US companies and workers who, alone among us, are singled out to shoulder the burden of a noble national cause. At a time when further Pentagon spending cuts and military base closings challenge California's defense conversion efforts, Washington should avoid saddling us with new handicaps without just and adequate compensation.