Table 6 shows that with the exception of Albania United States commercial relations with the PRC are the least developed among the socialist states. The table also shows that Yugoslavia and Poland, the countries considered to have the most normalized relations with us, have most-favored-nation tariff treatment and have no financial claims outstanding, issues discussed earlier with respect to the PRC. These two key commercial issues loom large in the path of commercial relations with the PRC. Although the mechanism for extending MFN to China has now been established with passage of the Trade Act of 1974, it is burdened with difficult requirements and would likely require considerable time to negotiate. Thus, at this time it is not possible to predict with assurance the order and timing with which these issues might be resolved by Washington and Peking.

Meanwhile it does seem possible that further progress will be made in the area of business relations. The continuing work of the National Council, the visit to the United States by the PRC textile study group, the expected visit of the CCPIT later in 1975, and the increasing number of Americans traveling to China on business are all factors pointing in this direction.

Growth in Trade

Sino-American trade in 1975 will be down from the high point of 1974. This decline, from $933.8 million to an estimated $400 million is attributable to Chinese cancellation of contracts for agricultural products and to their failure to date to contract for new shipments of American wheat, cotton, corn, or soybeans. When the Chinese will be back in this market buying depends heavily on their own harvests, on the state of their grain reserves, on the foreign exchange situation, and on agricultural conditions and prices in Canada, Australia, and other nations currently supplying these commodities to China. The quality of some U.S. agricultural products shipped to the PRC has not been good, a problem which must be overcome if full Chinese confidence in the American product is to be restored. Because of the variable nature of agricultural purchases and their magnitude in United States-China trade, they will continue to dictate overall U.S. export performance during the next few years.

While the nonagricultural raw material and semifinished product category of American exports to the PRC fell off in 1974, much of this decline can be traced to U.S. short supply controls over iron and steel scrap. Now that controls over scrap have been terminated, shipments of scrap to China may well resume, particularly in view of the continued tight iron ore and coking coal supply situation in the PRC. Pulp, paper, chemicals, and synthetic resins all made noteworthy jumps in 1974 and prospects appear good for continued exports of significance. While the export of U.S. aluminum and platinum, probably for catalyst, was down in 1974, these products could again attain importance if the American price is competitive. Generally, the longer range outlook for growth of U.S. exports of selected nonagricultural raw materials and semifinished products to the PRC is good.

Evidence that the Chinese will come to the United States for machinery and advanced technological products is seen in shipments of jet transports, ammonia plants, telecommunications facilities, very

large off-highway trucks, geophysical equipment, gear cutters and grinders, instrumentation, and in several technology transfers in the petrochemical sector as mentioned earlier. The potential for U.S. exports in this area, however, has hardly been touched. Especially disappointing to date have been the limited sales of petroleum exploration, drilling, and production equipment given the obvious priority accorded this sector by China. If China is going to boost oil production and exports, at least over the next several years as appears to be the case, Western suppliers, particularly the United States, should be expected to play a larger role.

The Chinese have purchased numerous petroleum refining and petrochemical plants from foreign sources and, again, with the exception of the Kellogg contracts for ammonia plants, the American potential has not been reached. The same comment would apply in other industrial sectors such as ore and coal beneficiating equipment, power and industrial gas turbines, nuclear and supercritical electric power stations, food processing and canning machinery, textile knitting equipment, certain large construction equipment, numerical control machine tools, transfer machinery, process control instrumentation, air traffic control systems, semiconductors, and digital computers although in some of these areas U.S. validated export licenses might be required and would not be granted if product specifications or end-use indicate strategic application. Prospects for additional sales of commercial jet aircraft and helicopters appear possible as does technology relating to the production of a wide range of machinery components. Regardless of the type of transaction, the Chinese can be expected to veto any form of direct foreign participation in their economy. For this reason, there appears to be no possibility of entering into any type of joint venture arrangement for the foreseeable future. Coproduction schemes also appear unlikely for the same reason. Consulting arrangements do not appear promising. For example, the PRC's electric power system would probably benefit substantially from a management and consultative study, but this is not in the cards. Technical assistance agreements are possible and, of course, the provision of turnkey plants with on-site supervision during construction and start-up and the sale of technology have already occurred.

There is hope that in the 1975-76 period the Chinese will be receptive to more visits by American trade missions, probably of the type organized on the basis of a specific industry, such as machine tools. The first such mission from China, a small textile trade group visited the United States in February and March 1975. The San Francisco Chamber of Commerce mission visited China in May and the Electronic Industries Association group is scheduled for July. The exchange of trade exhibits seems unlikely until the assets and claims issues are resolved and, in any event, the leadtimes required for these exhibits are such that it would be nearly 1977 at the earliest before a show could be mounted.

The outlook for Chinese exports to the United States over the next several years is one of continued growth. The rate of this growth will depend on the state of the U.S. economy, on Chinese perception of this market and willingness to adapt to its demands, and on the availability in China of commodities in the requisite quantity and quality sought by Americans. Fish and shellfish showed good growth in 1974 as did tea, spices, vegetables, and other food preparations. These should

continue at sustained levels. Tin, tungsten, and antimony among the metals will continue to register imports of significance. Gum rosin and essential oils grew rapidly in 1974 and should continue. Textiles, clothing, bristles, feathers, and down will maintain a strong showing. Americans continue to enjoy Chinese artworks and antiques, but fireworks, a perennial leader, have declined, in part owing to problems meeting new U.S. safety standards. Petroleum exports to the United States do not appear to be a factor although U.S.-owned oil companies may buy Chinese oil for distribution in East Asia. American importers will continue to attend the Fairs in Canton in substantial numbers.

The Chinese trade deficit with the United States will be sharply reduced in 1975, running perhaps $100 million. The deficit is likely to continue, its future magnitude being governed primarily by the size of Chinese agricultural purchases in the United States.

Perspective

The issues and problems confronting the Sino-American relationship have been enumerated and the possibility for growth in trade evaluated. The prospects are positive and not at all bleak, but it seems worth reminding ourselves that of the principal nations of the world probably none is closer to economic self-sufficiency than China. At the same time, Chinese ideology coupled with the planning of a centrally controlled economy and a deliberate government policy of being highly self-reliant injects a political element into commercial relationships to a degree seen few places elsewhere in the world.

The centralized management of foreign trade insures its subordination to political needs where necessary while still providing a mechanism for viable trade under the quite different conditions of commerce prevailing in market and centrally planned economies. The resultant trading system, unique to the PRC although with some similarities to those in Eastern Europe and the Soviet Union, has enabled the Chinese to consistently retain the initiative in the commercial relationship.

Americans should be quick to realize that China is not a market for 50 million automobiles or refrigerators, but a highly selective one dependent on the dictates of Peking's planning. To the extent the PRC chooses to emphasize rapid, rational economic growth in the years ahead, the market for some American products, particularly those of a more advanced technological nature, appears good. To be successful, and there are successful American businessmen in the China trade, one requires large amounts of patience and a fine appreciation of Chinese decisionmaking and commercial practice.

APPENDIXES

THE SHANGHAI COMMUNIQUE

SHANGHAI, February 27, 1972. Following is the text of the communique issued today at the conclusion of the meetings between President Nixon and Premier Chou En-lai:

"President Richard Nixon of the United States of America visited the People's Republic of China at the invitation of Premier Chou En-lai of the People's Republic of China from February 21 to February 28, 1972. Accompanying the President were Mrs. Nixon, U.S. Secretary of State William Rogers, Assistant to the President Dr. Henry Kissinger, and other American officials.

"President Nixon met with Chairman Mao Tse-tung of the Communist Party of China on February 21. The two leaders had a serious and frank exchange of views on Sino-United States relations and world affairs.

"During the visit, extensive, earnest, and frank discussions were held between President Nixon and Premier Chou En-lai on the normalization of relations between the United States and the People's Republic of China, as well as on other matters of interest to both sides. In addition, Secretary of State William Rogers and Foreign Minister Chi Peng-fei held talks in the same spirit.

"President Nixon and his party visited Peking and viewed cultural, industrial, and agricultural sites, and they also toured Hangchow and Shanghai where, continuing discussions with Chinese leaders, they viewed similar places of interest.

"The leaders of the People's Republic of China and the United States of America found it beneficial to have this opportunity, after so many years without contact, to present candidly to one another their views on a variety of issues. They reviewed the international situation in which important changes and great upheavals are taking place and expounded their respective positions and attitudes."

The United States side stated:

"Peace in Asia and peace in the world requires efforts both to reduce immediate tensions and to eliminate the basic causes of conflict. The United States will work for a just and secure peace: just, because it fulfills the aspirations of peoples and nations for freedom and progress; secure, because it removes the danger of foreign aggression. The United States supports individual freedom and social progress for all the peoples of the world, free of outside pressure or intervention.

"The United States believes that the effort to reduce tensions is served by improving communications between countries that have different ideologies so as to lessen the risks of confrontation through accident, miscalculation, or misunderstanding. Countries should treat each other with mutual respect and be willing to compete peacefully, letting performance be the ultimate judge. No country should claim infallibility and each country should be prepared to reexamine its own attitudes for the common good.

"The United States stressed that the peoples of Indochina should be allowed to determine their destiny without outside intervention; its constant primary objective has been a negotiated solution; the eight-point proposal put forward by the Republic of Vietnam and the United States on January 27, 1972, represents the basis for the attainment of that objective; in the absence of a negotiated settlement the United States envisages the ultimate withdrawal of all U.S. forces from the region consistent with the aim of self-determination for each country of Indochina.

"The United States will maintain its close ties with and support for the Republic of Korea. The United States will support efforts of the Republic of Korea to seek a relaxation of tension and increase communications in the Korean Peninsula. The United States places the highest value on its friendly relations with Japan; it will continue to develop the existing close bonds. Consistent with the United Nations Security Council Resolution of December 21, 1971, the United States favors the continuation of the cease-fire between India and Pakistan and the withdrawal of all military forces to within their own territories and to their own sides of the cease-fire line in Jammu and Kashmir; the United States supports the right of the peoples of South Asia to shape their own future in peace, free of military threat, and without having the area become the subject of big-power rivalry."

The Chinese side stated:

"Whenever there is oppression, there is resistance. Countries want independence, nations want liberation, and the people want revolution-this has become the irresistible trend of history. All nations, big or small, should be equal; big nations should not bully the small and strong nations should not bully the weak. China will never be a superpower and it opposes hegemony and power politics of any kind.

"The Chinese side stated that it firmly supports the struggles of all oppressed people and nations for freedom and liberation and that the people of all countries have the right to choose their social systems according to their own wishes and the right to safeguard the independence, sovereignty, and territorial integrity of their own countries and oppose foreign aggression, interference, control, and subversion. All foreign troops should be withdrawn to their own countries.

"The Chinese side expressed its firm support to the peoples of Vietnam, Laos, and Cambodia in their efforts for the attainment of their goals and its firm support to the seven-point proposal of the Provisional Revolutionary Government of the Republic of South Vietnam and the elaboration of February this year on the two key problems in the proposal, and to the Joint Declaration of the Summit Conference of the Indochinese Peoples.

"It firmly supports the eight-point program for the peaceful unification of Korea put forward by the Government of the Democratic People's Republic of Korea on April 12, 1971, and the stand for the abolition of the 'U.N. Commission for the Unification and Rehabilitation of Korea.' It firmly opposes the revival and outward expansion of Japanese militarism and firmly supports the Japanese people's desire to build an independent, democratic, peaceful, and neutral Japan. It firmly maintains that India and Pakistan should, in accordance with the United Nations resolutions on the India-Pakistan question, immediately withdraw all their forces to their respective territories and to their own sides of the cease-fire in Jammu and Kashmir and firmly supports the Pakistan Government and people in their struggle to preserve their independence and sovereignty and the people of Jammu and Kashmir in their struggle for the right of selfdetermination.

"There are essential differences between China and the United States in their social systems and foreign policies. However, the two sides agreed that countries, regardless of their social systems, should conduct their relations on the principles of respect for the sovereignty and territorial integrity of all states, nonaggression against other states, noninterference in the internal affairs of other states, equality, and mutual benefit, and peaceful coexistence. International disputes should be settled on this basis, without resorting to the use or threat of force. The United States and the People's Republic of China are prepared to apply these principles to their mutual relations."

With these principles of international relations in mind the two sides stated that:

"Progress toward the normalization of relations between China and the United States is in the interests of all countries.

"Both wish to reduce the danger of international military conflict.

"Neither should seek hegemony in the Asia-Pacific region and each is opposed to the efforts by any other country or group of countries to etablish such hegemony; and

"Neither is prepared to negotiate on behalf of any third party or to enter into agreements or understandings with the other directed at other states.

"Both sides are of the view that it would be against the interests of the peoples of the world for any major country to collude with another against other countries, or for major countries to divide up the world into spheres of interest. "The sides reviewed the long-standing serious disputes between China and the United States."

The Chinese side reaffirmed its position: "The Taiwan question is the crucial question obstructing the normalization of relations between China and the United States; the Government of the People's Republic of China is the sole legal government of China; Taiwan is a province of China which has long been returned to the motherland; the liberation of Taiwan is China's internal affair in which no other country has the right to interfere; and all U.S. forces and military installations must be withdrawn from Taiwan. The Chinese government firmly opposes any activities which aim at the creation of ‘one China, one Taiwan,' 'oneChina, two governments,' 'two China' and 'Independent Taiwan' or advocate that 'the status of Taiwan remains to be determined.'"

The U.S. side declared: “The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The U.S. Government does not challenge that position. It reaffirms its interest in a peaceful settlement of the Taiwan question by the Chinese themselves. With this prospect in mind, it affirms the ultimate objective of the withdrawal of all U.S. forces and military installations on Taiwan as the tension in the area diminishes."

The two sides agreed that it is desirable to broaden the understanding between the two peoples. To this end, they discussed specific areas in such fields as science, technology, culture, sports, and journalism, in which people-to-people contacts and exchanges would be mutually beneficial. Each side undertakes to facilitate the further development of such contacts and exchanges.