House Approves China Trade Act, Paving the Way for WTO Entry

Senate is expected to approve the deal.
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The U.S.

House of Representatives

passed legislation Wednesday afternoon granting China normalized trading status, paving the way for the world's most populous country to enter the

World Trade Organization

and widening access for U.S. and foreign companies.

The measure eliminates Congress' annual renewal of normal trade relations, formerly known as most favored nation status, for the country, thus granting China the same low trade restrictions the U.S. offers most countries. The

Clinton

administration agreed to extend permanent normal trade relations (PNTR) as part of a deal reached with China last November.

As part of the deal, China agreed to major market-opening measures across a broad range of sectors: Tariffs will be reduced on goods ranging from automobiles to agricultural products. Foreigners will be able to invest in Chinese Internet and mobile-phone companies; for the first time, foreign banks will be able to operate anywhere in China and will be allowed to conduct transactions with Chinese companies and individuals in Chinese currency; and foreign insurance companies will gain access to a market of more than 1 billion Chinese.

Although both supporters and opponents had predicted a close vote, and despite a strong lobbying effort against the measure by unions and other opponents, the bill passed by a surprisingly large margin of 237 to 197. The measure now moves to the

Senate

, where most analysts predict it will pass easily.

Although shares of a number of U.S.-listed Chinese companies rose following the conclusion of the deal last November, many have been lackluster over the last couple of months, despite growing anticipation the measure would pass.

Passage of the bill, which occurred after the close of New York trading, boosted shares of many in after-hours trading. Chinese Internet portal

Sina

(SINA) - Get Report

rose 4 1/8, or 9%, to 49 11/16, while fellow Internet play

chinadotcom

(CHINA)

rose 4 7/8, or 18.1%, to 31 7/8. Mobile-phone company

China Telecom

(CHL) - Get Report

, which stands to face competition from European competitors like

Nokia

(NOK) - Get Report

and

Ericsson

(ERICY)

, as well as American cell-phone maker

Motorola

(MOT)

, was unchanged in after-hours trading at 128 1/8.

Supporters of the bill have argued the measure was essential to building the rule of law in China, supporting reformers in the government and opening China's markets to U.S. exports. Opponents countered that PNTR would reward an oppressive, authoritarian regime, eliminate a powerful tool for promoting human rights and cost U.S. jobs.

The House debated the measure for more than five hours today, with emotional, heartfelt arguments on both sides of the issue. Rep. Charles Rangel, D-N.Y., a supporter of PNTR, movingly described his own military service in the Korean War fighting the Chinese army in arguing PNTR was an important step in building stronger relations with the country. Rep. Charles Norwood, R-Ga., however, argued that the measure rewards profits over human rights. "Liberty still shines brighter than gold," he said, receiving a rousing ovation from the chamber.

With China's recent completion of its negotiations with the

European Union

on entry to the WTO, China should soon be able to join the trading body. However, even the most ardent supporters of PNTR don't believe China's entry into the WTO will resolve all trade conflicts now, or that China's economic reforms will proceed smoothly.

Indeed, some China observers noted an unsettling subtext to the China PNTR debate that does not bode well for the future. The bill was denominated as H.R. 4444; four is considered an extremely unlucky number because in some Chinese dialects it is a homonym for the word for death.