WTO may help local firms trade with China

A recent World Trade Organization agreement between the United States and China could create opportunities for Boulder County companies if the U.S. Senate approves the Permanent Normal Trade Relations (PNTR) agreement with China.

The House granted PNTR to China in May by a vote of 237-197. The Senate is expected to vote this fall.

Establishing a trade relationship with China, however, is not solely dependent on Senate approval. China can enter the WTO without PNTR passage. Membership requires a two-thirds approval by the WTO’s 135 members.

A date has not been set for the WTO vote. If China is accepted, its agreements with each country will be part of a final accord. Each WTO member is required to grant trading rights to other members. For the United States to benefit from its agreement with China, it needs to grant China PNTR.

Under the U.S.-China agreement, tariffs on information technology products such as computers and semiconductors will drop from an average of 13.3 percent to almost no cost by 2005. In the telecommunications sector, China will allow 49 percent foreign investment in all services and 50 percent foreign ownership for value-added services in two years and paging services in three years.

According to the Colorado Office of Economic Development and International Trade, total 1999 Colorado exports to China via Hong Kong were approximately $421 million. Manufactured goods topped the list at $393 million.

Louisville-based Storage Technology Corp. exports tape libraries and tape drives to China. Tariffs are approximately 10 percent. StorageTek’s customers include the Chinese government, financial institutions and telecommunication companies.

“As everything becomes digitized, it increases the storage demand. And as China’s economy grows, use of information technology equipment escalates. Passage of PNTR ensures access to that opportunity,´ said Christine Owens, manager for corporate communications including government relations at StorageTek.

StorageTek had 1999 revenues of $2.3 billion. International trade represents 40 percent of the company’s total sales. Trade with China makes up less than 5 percent.

StorageTek established business relationships in China two years ago. A Chinese manufacturer in Guong Dong assembles recording heads for StorageTek’s 9840 tape drives. These components are shipped to Louisville for final assembly. A Beijing office staffed with five StorageTek representatives works with Chinese distributors.

“PNTR is not just about shipping product. There are other relationships going on. In a global marketplace, the U.S. cannot impose isolation on China. That is isolating ourselves,” Owens said.

Sixty-five percent of Niwot-based Veris Inc.’s international business is in China.

Founded in 1989, Veris manufacturers industrial flow measurement products. Customers in China include oil refineries and water and power plants. The firm declined to disclose 1999 revenues. It has 22 employees.

In 1996, Veris connected with Skyland, a Chinese engineering firm that has 10 offices across the country. Skyland handles sales, arranges transportation and handles customs clearance and distribution of Veris products throughout China.

Under the current system, trading can be tough in China. To speed up the customs process, Veris exports its products to Hong Kong where there is less bureaucracy and then ships to China. The process adds to delivery time but maintains the trade relationship.

“We miss out on a lot of business now. With our type of product the customer needs something fast,´ said John Good, sales manager at Veris.

And even though trading is allowed, sales are limited. “The Chinese government keeps a close eye on imports above a certain dollar amount,´ said James Song, international sales manager at Veris. By imposing heavy taxes, increasing

documentation requirements and even dictating which companies Chinese businesses can buy from, Song said the Chinese government makes it difficult for U.S. companies to increase their market share.

In the U.S.-China WTO agreement, China will provide import, export and distribution rights to U.S. companies. Trading rights will be phased in over three years.

“As more of Veris’ products are imported into China, more jobs are created on both sides,” Song said. In the United States that means more engineering and manufacturing jobs; in China, it means more sales and service jobs.

Unions and environmental groups oppose PNTR for China. “We feel that people in favor of the PNTR are not trying to help China but are trying to take advantage of the low wage and environmental issues. Companies over there do not have to worry about pollution,´ said Herman Romero, president of the Boulder County Labor Council, an

organization that includes 13 local unions and the Colorado Construction, Building and Trades Council. Romero works as a customer systems engineer with Lucent Technologies in Boulder. He is a member of the Communication Workers of America union.

“Our major issue is jobs. I wonder how long it will be before businesses stop manufacturing in Boulder County and go over to China if PNTR passes,´ said Robert Greene, president of the Colorado AFL-CIO.

Allen Barber, president of Denver-Hainan Corp., does not believe Boulder County high-tech firms will move their operations to China. “China is just coming out of an agricultural economy. A lot of what Boulder County firms do requires a highly skilled labor force. China has a problem there,” Barber said.

Denver-Hainan advises U.S. companies expanding to China and Chinese businesses exploring U.S. markets. As far as China’s environmental record goes, Barber said China has increased environmental spending by 400 percent in its last two, five-year plans, has passed environmental rules and is shutting down companies that pollute.

Barber also believes normal trade relations will help China clean up its tarnished human rights record. “Exchanges of Chinese and U.S. citizens could affect human rights because these issues will come up in discussions between business groups, but it will be a slow change,” he said.