With PNTR Approved, U.S. Capital Markets Take Center Stage Thompson Legislation Focuses on Proliferators’ Access

(Washington, D.C.): As the Clinton Administration celebrates its foreign policy victory over
human rights-, religious freedom- and national security-minded opponents of Permanent Normal
Trade Relations (PNTR) with China, yesterday’s Financial Times signaled that the
Administration and its allies’ efforts to insulate Beijing from future penalties for its proliferation
and other odious activities may prove far from complete.

The attached article makes clear that a new “foreign policy
tool” is emerging — one that might
fill the growing vacuum that would arise if the House vote approving PNTR has the effect of
eviscerating the use of U.S. trade sanctions for such purposes. Specifically, the FT
reports a
rising interest in the United States Senate, among other places, in putting at risk, or
denying
outright, access to the U.S. capital markets for proliferators and other wrong-doers.

The prime-movers behind this initiative at the moment are Senators Fred
Thompson (R-TN)
and Robert Torricelli (D-NJ), the chairman and a senior Democrat
respectively on the Senate’s
Governmental Affairs Committee. They have announced their intention to offer an amendment
to the PNTR legislation. As the FT put it, “the Thompson[-Torricelli] amendment
reflects a
growing body of opinion that the U.S. should leverage the supremacy of its [capital] markets to
help achieve its policy goals.”

The Thompson-Torricelli legislation underscores the burgeoning recognition that, at the
dawn
of the 21^st century, the bulk of the world’s available development capital resides in
the U.S.
markets. Accordingly, any contraction of access to the U.S. markets with respect to foreign
governments and/or entities — due to weapons proliferation or other national security and human
rights abuses — could well prove extremely costly for the perpetrator. This is primarily because
the private markets have become the preferred and, in some cases, the required
source of funding
for both foreign governments and larger enterprises. The dominance of the U.S. markets is
sufficient to ensure that efforts to “work around” restricted U.S. market access would probably
fail to yield desired funding levels at acceptable costs over time.

The Thompson-Torricelli initiative has momentum, thanks to the recent debilitating
experience
of one major Chinese enterprise as it sought last month to tap the resources of the U.S. capital
markets. As the Financial Times put it:

The proponents [of capital markets leverage] have been emboldened by the
successful
opposition to a planned initial share offering by PetroChina, the main operating
subsidiary of China’s biggest oil company. After an ad hoc coalition of left-leaning
protest groups and conservative national security types united against it, PetroChina
was forced to scale back its offering from $10 billion to $2.9 billion.” (Emphasis
added.)

The Bottom Line

Among the decided advantages of the ground-breaking financial sanctions being proposed by
Senators Thompson and Torricelli is the fact that — in contrast to trade sanctions — they do not
implicate or disrupt U.S. exports, jobs or people-to-people contacts in most cases. In light of the
declining willingness of policy-makers to exercise the latter instruments for these reasons, the
tools provided for by the Thompson-Torricelli “China Non-Proliferation Act” amendment
deserves expedited and positive consideration by the Congress.