Clinton scrambles to solve Chinese puzzle

WITH the deadline just 17 days away, the Clinton administration is desperately scrambling for a formula to avoid the imposition of punitive, almost certainly self-defeating, trade sanctions on China while staving off embarrassing accusations it has folded on yet another foreign policy challenge.

Over the past week, a string of comments from senior officials has made clear that whatever happens, Peking will not be entirely stripped of its Most Favoured Nation trading status (MFN) on 3 June, the date by which President Bill Clinton must decide whether to grant another extension.

Anthony Lake, Mr Clinton's national security adviser, professed himself 'not pessimistic' an accommodation could be reached. Even George Mitchell, the Senate Majority leader and most influential Congressional 'hawk' on China policy, now talks only of conditioning MFN 'with some sanctions', to punish Peking for failing to make the 'overall, significant' progress on human rights demanded by Mr Clinton when he approved a one-year extension in June 1993. Even that was a climbdown from his 1992 campaign rhetoric, implying he would scrap MFN the moment he entered the White House.

In the meantime, the stakes have risen enormously. China's stance on human rights has remained essentially defiant, leavened with the odd sop to Western public opinion. But in making his judgement this time, President Clinton must weigh both the economic boom which has hugely increased China's value as a trading partner, and Peking's pivotal role in the growing crisis over North Korea's nuclear programme.

The only economic advantage of terminating MFN is that by raising tariffs on imported goods by between twofold and tenfold, it would probably eliminate China's dollars 12bn (pounds 8bn) trade surplus with the US, second only to that of Japan. But the price paid would be colossal.

A study released last week by the non-partisan Congressional Budget Office puts the hidden cost to US consumers at dollars 10bn a year. Worse still, a vengeful Peking would be less than human if it did not retaliate by banning US companies from competing for massive infrastructure and import contracts - valued at up to dollars 400bn over the next five years. Not surprisingly, business is lobbying all-out for extension, no strings attached. In California alone, 35,000 jobs would be lost if MFN is rescinded, state industrialists say.

An equally compelling and even more immediate reason to keep the status quo is the Korean crisis. If Washington is to seek UN sanctions to force Pyongyang to open up its nuclear programme for inspection - as seems increasingly likely - it must persuade China, North Korea's one ally on the Security Council, not to use its veto.

Instead, the search is on for a compromise, between complete withdrawal of MFN and business-as-usual. Suggestions abound, from punishing state-run Chinese companies only, to targeting specific industries under the recently reinstated 'Super 301' provision, or even a presidential directive imposing a code of conduct for US companies in China. But businessmen say these and other variants would be either unworkable or as certain to provoke reprisals as full-scale removal of MFN.

Their solution is that pressed this weekend with a fair dose of malice by the Senate Republican leader, Bob Dole. The President, Mr Dole advised, should simply declare it was wrong to link trade expansion to progress on human rights: 'Pursue the two goals, but separately.' In private the harassed US officials searching for a face-saving exit from the controversy wish policy had been that way all along.