World Trade Organization: Analysis of China's Commitments to	 
Other Members (03-OCT-02, GAO-03-4).				 
                                                                 
China's entry into the World Trade Organization (WTO) on December
11, 2001, represented a major step in the reform efforts of the  
U.S.'s fourth largest trading partner. When implemented, these	 
reforms will liberalize and modernize China's economy and trading
activities, including its industrial, services, and agricultural 
sectors. However, understanding the implications of China's	 
accession depends on a thorough analysis of the complex terms of 
China's membership in the WTO. In this initial study, one of	 
several GAO will conduct for the Congress on China-WTO issues,	 
GAO systematically analyzed (1) the scope and types of China's	 
WTO commitments; and (2) the interrelationships among commitments
set forth in China's accession agreement. U.S. Trade		 
Representative and other agency officials provided technical and 
editorial comments on this report, which GAO incorporated as	 
appropriate.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-4						        
    ACCNO:   A05220						        
  TITLE:     World Trade Organization: Analysis of China's Commitments
to Other Members						 
     DATE:   10/03/2002 
  SUBJECT:   Foreign trade agreements				 
	     International economic relations			 
	     International organizations			 
	     International trade				 
	     China						 

                                                                 
World Trade Organization: Analysis of China's Commitments to	 
Other Members (03-OCT-02, GAO-03-4).				 
                                                                 
China's entry into the World Trade Organization (WTO) on December
11, 2001, represented a major step in the reform efforts of the  
U.S.'s fourth largest trading partner. When implemented, these	 
reforms will liberalize and modernize China's economy and trading
activities, including its industrial, services, and agricultural 
sectors. However, understanding the implications of China's	 
accession depends on a thorough analysis of the complex terms of 
China's membership in the WTO. In this initial study, one of	 
several GAO will conduct for the Congress on China-WTO issues,	 
GAO systematically analyzed (1) the scope and types of China's	 
WTO commitments; and (2) the interrelationships among commitments
set forth in China's accession agreement. U.S. Trade		 
Representative and other agency officials provided technical and 
editorial comments on this report, which GAO incorporated as	 
appropriate.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-4						        
    ACCNO:   A05220						        
  TITLE:     World Trade Organization: Analysis of China's Commitments
to Other Members						 
     DATE:   10/03/2002 
  SUBJECT:   International economic relations			 
	     International organizations			 
	     International trade				 
	     Foreign trade agreements				 
	     China						 

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GAO-03-4

Report to Congressional Committees

United States General Accounting Office

GAO

October 2002 WORLD TRADE ORGANIZATION

Analysis of China*s Commitments to Other Members

GAO- 03- 4

Why GAO Did This Study

China*s entry into the World Trade Organization (WTO) on December 11,
2001, represented a major step in the reform efforts of the U. S. *s
fourth largest trading partner. When implemented, these reforms will
liberalize and modernize China*s economy and trading activities, including
its industrial, services, and agricultural sectors. However, understanding
the implications of China*s accession depends on a thorough analysis of
the complex terms of China*s membership in the WTO. In this initial study,
one of several GAO will conduct for the Congress on China- WTO issues, GAO
systematically analyzed (1) the scope and types of China*s WTO
commitments; and (2) the interrelationships among commitments set forth in
China*s accession agreement.

U. S. Trade Representative and other agency officials provided technical
and editorial comments on this report, which GAO incorporated as
appropriate.

October 2002 WORLD TRADE ORGANIZATION Analysis of China*s Commitments to
Other Members

The full report, including GAO's objectives, scope, methodology, and
analysis is available at www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 4. For
additional information about the report, contact Susan Westin (202) 512-
4128.

Highlights of GAO- 03- 4, a report to the Chairman and Ranking Minority
Member, Committee on Finance, U. S. Senate, and Chairman and Ranking
Minority Member, Committee on Ways and Means, U. S. House of
Representatives United States General Accounting Office

What GAO Found

China*s WTO accession commitments are comprehensive and set forth the ways
in which China will conform to the WTO*s trade liberalizing rules. The
commitments span eight broad areas and require both general pledges and
specific actions from China, ranging from adherence to nondiscriminatory
principles to reforming designated laws and trade practices (see figure
below). GAO identified nearly 700 individual commitments on how China is
expected to reform its trade regime, as well as commitments that
liberalize market access for over 7,000 goods and nine broad services
sectors in industries important to the United States, such as automobiles
and information technology.

The potential for China*s WTO accession agreement to open China*s market
to foreign goods and services cannot be assessed by only examining
individual commitments. GAO found that the interrelationships among some
individual commitments could strengthen the general business environment
in China by fostering a more transparent, consistent, and market- oriented
trade regime for U. S. business. Other interrelated commitments, however,
could delay or limit the access given to U. S. businesses, because some
commitments are to be phased in over 10 years or will provide only partial
access for particular foreign products or services. Overall, the breadth
and complexity of China*s commitments underscore the challenges for China
in fulfilling its obligations and for other WTO members in monitoring and
enforcing China*s compliance. G A O Accountability Integrity Reliability

Highlights

Page i GAO- 03- 4 China's WTO Commitments Letter 1

Results in Brief 2 Background 3 Various Types of Commitments Cover
Administration of Trade

Regime and Market Access 6 Interrelationships among Commitments Can Affect
Foreign

Business Opportunities 31 Concluding Observations 35 Agency Comments and
Our Evaluation 36

Appendix I Objectives, Scope and Methodology 38

Appendix II Areas of China*s Trade Regime That China*s WTO Accession
Agreement Covers 41

Appendix III Data Sources and Methodology for Analysis of China*s WTO
Goods Commitments 43

Appendix IV Summary and Analysis of China*s WTO Commitments 46

Trade Framework 46 Import Regulation 50 Export Regulation 59 Trading
Rights and Industrial Policies 61 Agriculture 70 Services 77 Intellectual
Property Rights 83 Safeguards and Other Trade Remedies 87

Appendix V GAO Contacts and Staff Acknowledgments 94 GAO Contacts 94
Acknowledgments 94 Contents

Page ii GAO- 03- 4 China's WTO Commitments Tables

Table 1: Eight General Areas and Number of China*s Trade Regime
Commitments in Each Area 7 Table 2: Commitment Types in China*s Protocol
and Working Party

Report 9 Table 3: Type and Number of Trade Regime Commitments, by Area 12
Table 4: Products for Which China*s Bound Tariff Rates Will Be 35

Percent or Higher in 2010 19 Table 5: Types of Trade- Distorting Measures
Addressed by China*s

WTO Accession Agreement 21 Table 6: Number of WTO Services Sectors where
China Made

Commitments 25 Table 7: Eight Types of Limitations in China*s WTO Services

Schedule 26 Table 8: Types of Limitations That China Will Maintain in
Specific

Services Sectors 28 Table 9: Selected Products and Services Sectors
Subject to Multiple

Restrictions and Trade- Distorting Measures 34 Table 10: Areas and Topics
Covered by China*s WTO Accession

Agreement 41 Table 11: Concordance between GAO Categories and Harmonized

Schedule Section Headings 45 Table 12: Examples of China*s WTO Commitments
Relating to

China*s Trade Framework 47 Table 13: Examples of China*s WTO Commitments
Relating to

China*s Import Regulation 50 Table 14: China*s Industrial TRQ Commitment
Phasein Schedule 56 Table 15: Timetable for Selected Chinese WTO
Commitments

Relating to Import Regulation 58 Table 16: Examples of China*s WTO
Commitments Relating to

China*s Export Regulation 59 Table 17: Examples of China*s WTO Commitments
Relating to

China*s Trading Rights and Industrial Policies 62 Table 18: Timetable for
Selected Chinese WTO Commitments

Relating to Trading Rights and Industrial Policies 70 Table 19: Examples
of China*s WTO Commitments Relating to

Agriculture 71 Table 20: China*s TRQ Terms for Agriculture Products 73
Table 21: Examples of China*s WTO Commitments Relating to

Services 78 Table 22: Examples of China*s WTO Commitments Relating to

Intellectual Property Rights 84

Page iii GAO- 03- 4 China's WTO Commitments

Table 23: Examples of China*s WTO Commitments Relating to Safeguards and
Other Trade Remedies 88 Table 24: Timetable for Selected Chinese WTO
Commitments

Relating to Safeguards and Other Trade Remedies 93

Figures

Figure 1: Average Chinese Tariff Rates by Industry Category, 2001 and 2010
16 Figure 2: Share of U. S. Exports to China Facing Certain Tariff

Ranges, 2001 and 2010 17 Figure 3: Summary of Key Phasein Dates for
China*s WTO

Commitments, 2001* 2016 30 Figure 4: China*s Average Tariffs for
Agriculture, Nonagriculture,

and All Products, 2001* 2010 53 Figure 5: Schedule for China*s Quota
Administration 54 Figure 6: Percentage Share of TRQs Reserved for
Importation

through Chinese State Trading Enterprises, 2001* 2005 74 Figure 7:
Timeline for China*s Tariff- Rate Quota Administration 75

Abbreviations

HS Harmonized system (of traded products nomenclature) IMF International
Monetary Fund IPR Intellectual property rights SEZ Special economic zone
SOE State- owned enterprise SPS Sanitary and phytosanitary TRIMS Trade-
Related Investment Measures TRIPS Trade- Related Aspects of Intellectual
Property Rights TRQ Tariff- rate quota WTO World Trade Organization

Page 1 GAO- 03- 4 China's WTO Commitments

October 3, 2002 The Honorable Max Baucus Chairman The Honorable Charles E.
Grassley Ranking Minority Member Committee on Finance United States Senate

The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
Ranking Minority Member Committee on Ways and Means House of
Representatives

China*s accession to the World Trade Organization on December 11, 2001,
signified that the world*s seventh largest economy 1 and the U. S. *s
fourth largest trading partner would be subject to the multilateral
organization*s trade liberalizing requirements. An understanding of the
terms of China*s accession is essential to judging whether China is
adhering to the principles of a rules- based global trading system and
giving foreign goods and services greater access to its market. China*s
accession agreement is a set of legal documents totaling more than 800
pages that sets forth China*s commitments* or legally binding pledges* to
other World Trade Organization members and describes how China will adhere
to the organization*s underlying agreements, principles, rules, and
specific procedures. Additionally, the agreement includes schedules for
how and when China will grant market access to foreign goods and services,
along with several other annexes. China will have to undertake numerous
actions over the next 10 years to fulfill its World Trade Organization
commitments, ranging from reducing or eliminating tariffs to improving the
transparency of trade- related rules and regulations.

You asked us to undertake a long- term body of work relating to China*s
membership in the World Trade Organization. In this initial phase, we
conducted a detailed analysis of China*s accession agreement.
Specifically, we examined (1) the scope and types of China*s World Trade
Organization

1 China*s gross domestic product stood at $1. 1 trillion in 2000,
according to the World Bank.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 4 China's WTO Commitments

commitments; and (2) the interrelationships among commitments described in
China*s accession agreement, which can affect foreign business
opportunities.

In order to perform our review, we systematically analyzed individual
commitments in the agreement. First, we created a database to analyze the
text of the agreement containing China*s commitments relating to its trade
regime. For purposes of our analysis, we divided China*s trade regime into
eight general areas* trade framework, import regulation, export
regulation, trading rights and industrial policies, agriculture, services,
intellectual property rights, and safeguards and other trade remedies (see
app. II). Second, we analyzed China*s market access schedules, which
contain specific commitments on goods and services. We discussed our work
with knowledgeable U. S. government, World Trade Organization, and other
officials and reviewed other analyses of the agreement (see apps. I* III
for a detailed description of our scope and methodology).

China*s World Trade Organization accession agreement is broad in scope and
covers eight areas, ranging from agriculture to intellectual property
rights. We identified nearly 700 individual commitments on how China*s
trade regime will adhere to the organization*s agreements, principles, and
rules. Other commitments grant market access to other members* goods and
services. There are seven types of trade regime commitments in the
accession agreement, and the types vary widely. Some commitments require a
specific action from China, such as reporting information about China*s
import- licensing requirements to the World Trade Organization. Other
commitments are less specific in nature, such as those that confirm
China*s general obligations to adhere to World Trade Organization
principles of nondiscrimination in the treatment of foreign and domestic
enterprises. In addition to these trade regime commitments, we analyzed
China*s market access commitments, which cover specific goods and
services. The scope of China*s accession agreement provides U. S.
businesses the opportunity for significantly greater market access to a
broad range of goods and services in sectors that are of key importance to
U. S. businesses. First, China has committed to reducing or eliminating
tariffs, quotas, price controls, and other barriers on more than 7,000
agricultural and industrial products. However, China*s tariffs will remain
relatively high* 20 percent or higher* on a small percentage of goods, and
China will maintain other trade- distorting measures on about 300
products. Second, China has committed to allowing greater market access in
nine broad service areas* including insurance, banking, distribution,
telecommunications, and professional services. Although some limitations
Results in Brief

Page 3 GAO- 03- 4 China's WTO Commitments

will remain, China*s commitments reduce or eliminate many restrictions on
services, such as those that limit foreign providers* access to designated
cities or restrict the scope and type of service that can be provided.
Finally, some of China*s trade regime and market access commitments are
phased in over several years.

The potential for China*s accession agreement to liberalize its markets
cannot be assessed by examining only individual commitments. Our analysis
suggests that the interrelationships among trade regime and market access
commitments in different areas of the accession agreement will affect
foreign business opportunities in China*s market. Some commitments, such
as those that bind China to administer trade laws and regulations in a
uniform and transparent manner, apply generally to other areas, which
could improve the overall legal and business environment for foreign
companies, as well as the rule of law in China. 2 However, other
interrelationships created by individual commitments could delay or limit
opportunities in China*s market. Some commitments overlap and will be
phased in over different time periods, and these interrelationships can
affect individual companies and the specific products and services they
seek to provide. For example, although China is obligated to reduce
tariffs on thousands of products, other trade- distorting measures,
including tariffrate quotas 3 and price controls on specific products,
will remain in place after tariffs have been reduced.

China*s bid to join the World Trade Organization (WTO) began in 1986, when
China applied for membership to the WTO*s predecessor, the General
Agreement on Tariffs and Trade. The WTO took over China*s accession
negotiations following the formation of the WTO on January 1, 1995, and
China became the 143rd member of the organization on December 11, 2001.
China*s 15 year accession process has been the longest of any WTO member
to date. The United States and other WTO members have stated that China*s
membership in the WTO provides increased

2 Definitions of the rule of law are numerous and varied. For the purposes
of this report, we generally use the term to describe a society in which
law is generally stable and transparent; is consistently and independently
applied; and imposes meaningful restraints on government officials and
entities and other members of a ruling elite.

3 A tariff- rate quota is a trade barrier that allows imports of specified
products to enter at a low tariff rate up to an agreed quota level, with
any additional imports to be taxed at a higher tariff rate. Other WTO
members, including the United States, have tariff- rate quotas on certain
products. China*s tariff- rate quotas are further explained later.
Background

Page 4 GAO- 03- 4 China's WTO Commitments

opportunities for foreign businesses seeking access to China*s vast
market. Additionally, more than three- quarters of the businesses
responding to a recent GAO survey and structured interviews expected that
China*s WTO commitments would eventually have a positive impact on their
business operations. 4

Trade between the United States and China is economically important for
both countries. In 2001, U. S. exports of goods to China totaled $18
billion, making China the 9th largest market for U. S. exports, according
to the U. S. Department of Commerce. Imports of goods from China to the
United States in 2001 totaled $102 billion, making China the 4th largest
supplier of imports to the U. S. economy. China has become a major
supplier to the U. S. market of a variety of low- cost U. S. consumer
goods, such as toys and games, shoes, and consumer electronics, as well as
computers. China has been a major buyer of U. S. aircraft, computers, and
machinery. Since 1983, the United States has had a trade deficit with
China, as U. S. imports from China have far exceeded exports. As for the
cross- border services trade, the United States supplied China with about
$4.6 billion in services in 2000, while China supplied about $2.8 billion
to the United States. In addition, the United States is a major supplier
of investment in China. By 2000, U. S. foreign direct investment in China
had reached nearly $10 billion, second only to Hong Kong.

Like all WTO applicants, China conducted negotiations to join the WTO on
two tracks* bilateral and multilateral. 5 China negotiated bilaterally
with other interested WTO members regarding market access commitments for
goods and services. 6 These market access negotiations resulted in various
commitments from China to these members, including tariff reductions on
agricultural products and industrial goods, phaseouts of nontariff
restrictions such as licensing and quotas, and phaseins of WTO members*
access to several service sectors. The most trade- liberalizing of these
commitments were consolidated and incorporated into comprehensive market
access schedules (tables) for goods and services. China*s

4 See U. S. General Accounting Office, World Trade Organization: Selected
U. S. Business Views about China*s Membership, GAO- 02- 1056 (Washington,
D. C.: Sept. 23, 2002). 5 For a more detailed explanation of the WTO
accession process, see U. S. General Accounting Office, China Trade: WTO
Membership and Most- Favored- Nation Status,

GAO/ T- NSIAD- 98- 209 (Washington, D. C.: June 17, 1998). 6 China
completed its bilateral negotiations with the United States in November
1999 with the signing of the U. S.- China Market Access Agreement.

Page 5 GAO- 03- 4 China's WTO Commitments

commitments in these areas apply equally to all WTO members through
application of the WTO*s fundamental most- favored- nation principle,
which extends to all WTO members the best trade privileges granted to any
other member. Concurrent with its bilateral negotiations with the United
States and other members, China negotiated multilaterally with a WTO
working party consisting of the United States, the European Union, and
other interested members. These multilateral negotiations focused on the
specific rules and terms concerning how China*s trade regime would adhere
to the obligations and responsibilities of WTO membership.

The results of the negotiations are described and documented in China*s
final accession agreement, the Protocol on the Accession of the People*s
Republic of China, which includes the accompanying Report of the Working
Party on the Accession of China, the consolidated market access schedules
for goods and services, along with other annexes. 7 The protocol contains
the terms of China*s accession and describes how China*s trade regime will
conform to WTO agreements, rules, and principles. Many other commitments
are set forth in the working party report, which is incorporated by
reference in the protocol. According to the WTO, commitments set forth in
the protocol and working party report have the same status and carry the
same legal effect under WTO rules.

Last, it is important to note that, in addition to the commitments set
forth in the accession agreement, WTO membership confers other rights and
obligations on China. For example, membership obligates China to adhere to
more than 20 existing multilateral WTO agreements that cover various areas
of international trade. China, like all other WTO members, must adhere to
the WTO*s three main agreements governing key areas of international
trade: (1) the General Agreement on Tariffs and Trade, (2) the General
Agreement on Trade in Services, and (3) the Agreement on Trade- Related
Aspects of Intellectual Property Rights. Other specialized multilateral
WTO agreements that apply to China include the Agreement on Trade- Related
Investment Measures, the Agreement on Agriculture, the Agreement on
Technical Barriers to Trade, and the Agreement on Subsidies and
Countervailing Measures. Numerous sections of China*s protocol and working
party report refer to or reiterate specific provisions of a number of
these underlying WTO agreements. Membership also gives

7 In addition to the annexes containing the market access schedules, seven
other annexes are included in China*s accession agreement. See table 5 for
a description of the topics covered in the annexes.

Page 6 GAO- 03- 4 China's WTO Commitments

China various rights under WTO rules. For example, the Understanding on
the Rules and Procedures Governing the Settlement of Disputes gives access
to a formal mechanism for resolving disputes over WTO traderelated issues.
8

China*s WTO commitments span eight areas and are broad in scope. They
range from China*s pledges for how it will reform its trade regime in
accordance with the WTO*s principles and rules to specific market access
commitments for goods and services. A number of these trade regime and
market access commitments are phased in over several years. We identified
685 commitments in China*s protocol and working party report that cover
China*s trade regime. Additionally, we found that these trade regime
commitments were of seven types, ranging from specific to general in terms
of what China must do. The accession agreement also includes market access
commitments for goods, including commitments to eliminate or reduce
tariffs on more than 7,000 agricultural and industrial products, as well
as to eliminate other trade barriers on about 600 of these products.
Further, China made commitments to allow greater market access in 9 of 12
general services sectors, including sectors that are important to U. S.
businesses such as banking, insurance, and telecommunications. However,
some limitations, including those that require joint ventures with Chinese
partners in some sectors or restrict the amount of foreign investment,
will continue.

The 685 trade regime commitments that we identified in all eight areas of
the protocol and working party report address a broad range of issues. 9
Table 1 lists the eight areas and the number of commitments that we
identified in each area. See appendix IV for a detailed description and
analysis of China*s commitments in each of these areas.

8 For additional information on the WTO*s dispute settlement mechanism,
see U. S. General Accounting Office, World Trade Organization: Issues in
Dispute Settlement, GAO/ NSIAD- 00210 (Washington D. C.: Aug. 9, 2000).

9 These 685 trade regime commitments exclude market access commitments
discussed later but include commitments identified in other annexes.
Additionally, these 685 commitments do not include 20 general commitments
that describe, among other things, the relationship between the protocol
and the working party report and other multilateral WTO agreements. See
appendix I for a description of our methodology for identifying
commitments. Various Types of

Commitments Cover Administration of Trade Regime and Market Access

Nearly 700 Commitments Exist, Covering China*s Trade Regime

Page 7 GAO- 03- 4 China's WTO Commitments

Table 1: Eight General Areas and Number of China*s Trade Regime
Commitments in Each Area Area Number of

commitments Description of area

Trade framework 82 Includes uniform application of trade measures,
transparency, judicial review, nondiscrimination, and revisions to related
laws and regulations. Import regulation 227 Includes border measures
affecting imports, such as customs duties, other

taxes, and charges; nontariff measures, such as quantitative restrictions
(quotas); regulatory measures, such as standards for determining the value
of imports (customs valuation); and technical barriers to trade, such as
packaging, marketing, or labeling requirements. Export regulation 9
Includes border measures affecting exports, including licensing

requirements, export duties, and other taxes and charges. Trading rights
and industrial policies 117 Includes China*s restrictions on the right to
import or export products (trading

rights), limitations on trading to certain entities (state trading), and
industrial policies such as price controls, subsidies, regulations on
state- owned enterprises, investment requirements, and restrictions
affecting foreign exchange. Agriculture 101 Includes border measures and
other policies that affect the agricultural sector

such as customs duties, tariff- rate quotas, export subsidies, domestic
support, and measures restricting imports for health and environmental
reasons (sanitary and phytosanitary measures). Services 45 Includes
regulations and restrictions affecting trade in services and

operations of foreign services suppliers in China, including commitments
on nondiscrimination and market access for particular service sectors.
Intellectual property rights 34 Includes laws and regulations providing
for the protection and enforcement of

intellectual property rights such as copyrights, trademarks, and patents.
Safeguards and trade remedies 70 Includes additional protection of
products faced with market disruption

caused by surges in imports from China, the ability to use alternate
methodology in antidumping and countervailing duty cases, and review of
China*s trade practices through a special WTO review mechanism.

Total 685

Note 1: These 685 trade regime commitments exclude market access
commitments discussed later but include commitments identified in other
annexes. Additionally, these 685 commitments do not include 20 general
commitments that describe, among other things, the relationship between
the protocol and the working party report and other multilateral WTO
agreements. See appendix I for a description of our methodology for
analyzing commitments.

Note 2: See appendix IV for a further description of these eight areas.
Source: GAO analysis of China*s WTO accession agreement.

Although the number of commitments in any one of the areas listed should
not be considered as the measure of an area*s overall importance within
the accession agreement, the number of commitments can be an indicator of
the scope and complexity of an area. For example, about one- third of the
commitments we identified were in the area of import regulation* a broad
area that includes commitments regarding how China will assess tariffs,
taxes, and other charges on foreign goods, and commitments on reducing or
eliminating other barriers to China*s market.

Page 8 GAO- 03- 4 China's WTO Commitments

The types of commitments that China made regarding the administration of
its trade regime vary widely. Some commitments require a specific action
from China, such as reporting particular information to the WTO, while
others are more general in nature, such as those affirming China*s
adherence to WTO principles. We identified seven types of commitments
included in the protocol and working party report. 10 (See table 2.)

10 We also identified commitments that did not fit into any of these seven
commitment types, and we classified these commitment types as *other.*

Types of Commitments Vary Widely and Require Both Specific and General
Actions from China

Page 9 GAO- 03- 4 China's WTO Commitments

Table 2: Commitment Types in China*s Protocol and Working Party Report
Commitment type Commitments of this type require China

to: Example of commitment type

Definitional Use a certain type of term or meaning in its commitments and
regulations. These commitments can also be an elaboration or clarification
of an existing practice, law, or process.

Services: In the insurance sector, China committed to defining a *master
policy* as a policy that provides blanket coverage for the same legal
person*s property and liabilities located in different places.

Reporting Report some type of information to the WTO. Agriculture: China
committed to notifying the WTO about all sanitary and phytosanitary
regulations and measures within 30 days after accession. Transparency
Improve the openness of China*s trade

regime by, for example, publishing information, designating an enquiry
point, or providing clarifying information on rules, laws, or processes.

Trade framework: China committed to making available to WTO members, upon
request, regulations and other measures pertaining to or affecting trade
in goods, services, TRIPS, or the control of foreign exchange before such
measures are implemented or enforced. Laws and regulations Create, modify,
or repeal an existing law or

regulation in order to comply with a WTO requirement.

Intellectual property rights: China committed to amending its trademark
law in compliance with the TRIPS agreement.

Guidance Implement a commitment by following a specific procedure. These
commitments can also describe the process China will follow, the
responsible authorities (for example, ministry or level of government),
and the principles that describe the procedure.

Import regulation: China committed to accepting that the approving
organization for a quota application will issue an import license within 3
working days, and within 10 days in exceptional cases.

Adhere to WTO Confirm or reiterate adherence to a separate WTO commitment
or agreement such as the General Agreement on Services or the agreement on
Trade- Related Aspects of Intellectual Property Rights.

Trading rights and industrial policies: China committed to eliminating
subsidies provided in connection with special economic zones and other
special economic areas that were inconsistent with the WTO Agreement on
Subsidies and Countervailing Measures. Nondiscrimination Confirm or
reiterate adherence to WTO

principles of national treatment and most favored nation a

Trade framework: China committed to treating foreign individuals and
enterprises no less favorably than their domestic counterparts with regard
to the procurement of inputs and goods necessary for production. a
National treatment is the principle under which foreign products and
services are treated no less

favorably than domestic products or services. The most- favored- nation
principle extends to all WTO members the best trade privileges granted to
any other member.

Source: GAO analysis of China*s WTO accession agreement.

Page 10 GAO- 03- 4 China's WTO Commitments

The definitional, reporting, transparency, laws and regulations, and some
guidance commitments we identified mainly require specific actions from
China. For example, annex 1A of China*s accession agreement lists 62
commitments relating to economic and trade policy information that China
is to provide to various WTO committees as part of the WTO*s transitional
review mechanism for China. 11 Additionally, some guidance commitments
require specific actions. We found that about 40 percent of the 685
commitments are guidance commitments, and that most of the commitments of
this type are in the areas of agriculture and import regulation. More
specifically, about half of the guidance commitments in both of these
areas describe the specific procedures that China will follow to
administer its agricultural and industrial tariff- rate quotas. Sections
of the working party report describe members* concerns about how China
will administer its tariff- rate quota regime, and the large number of
commitments in this area illustrate how members negotiated specific
guidance concerning the way in which the tariff- rate quota system should
operate.

We identified other commitments that are more general in nature, including
123 commitments that confirm or reiterate China*s adherence to WTO
agreements. For example, more than half of the commitments in the area of
intellectual property rights are of this type. Specifically, several
paragraphs in the working party report outline member concerns regarding
China*s enforcement of intellectual property rights, and most of the
commitments related to enforcement confirm how China will comply with
various articles of the Agreement on Trade- Related Aspects of
Intellectual Property. Lastly, other general commitments that we
identified require China to adhere to the WTO*s nondiscrimination
principles of most- favored- nation and national treatment. These types of
commitments are most common in the areas relating to China*s trade
framework and import regulation. For example, within the area of import
regulation, we identified 18 commitments that obligate China to abide by
the national treatment principle by ensuring that technical standards and
regulations apply equally to both imported and domestic goods.

Last, we identified 108 commitments that did not fit into any of the seven
commitment types and classified these commitments as *other.* We

11 Beginning 1 year after China*s accession, the information is to be
provided annually for 8 years, with a final review in the 10th year
following China*s accession, or at an earlier date decided by the WTO*s
General Council. See appendix IV for additional information on the
transitional review mechanism.

Page 11 GAO- 03- 4 China's WTO Commitments

identified commitments of this type throughout the agreement, but many are
in the area of the agreement relating to safeguards and trade remedies.
For example, 34 commitments describe how other WTO members can apply
safeguard measures to China, and they set forth the details of the
transitional review mechanism. (See app. IV for additional details on
safeguards and trade remedies.) Table 3 shows the number and type of
commitments we identified in each area of China*s trade regime.

Page 12 GAO- 03- 4 China's WTO Commitments

Table 3: Type and Number of Trade Regime Commitments, by Area Area Number
of commitments

in area Definitional Reporting

Trade framework 82 4 10 Import regulation 227 16 37 Export regulation 9 0
3 Trading rights and industrial policies 117 6 22 Agriculture 101 9 11
Services 45 9 6 Intellectual property rights 34 9 2 Safeguards and trade
remedies 70 3 8

Total 685 56 99

Page 13 GAO- 03- 4 China's WTO Commitments

Commitment type Transparency Laws and

regulations Guidance Adhere to WTO Nondiscrimination Other a

19 19 31 12 24 8 31 14 111 38 24 20 1 123 01

7 1 31 22 10 23 13 3 64 12 5 4 5 3233 25 1 15921 21

0 1 10 12 0 46

77 57 281 123 67 108

Note 1: The commitment types are not mutually exclusive. For example, a
commitment in the trade framework area could be classified as both a
*guidance* and a *transparency* commitment. Consequently, the totals of
the commitment types do not add to 685.

Note 2: These 685 commitments exclude market access commitments discussed
later but include commitments identified in other annexes. Additionally,
these 685 commitments do not include 20 general commitments that describe,
among other things, the relationship between the protocol and the working
party report and other multilateral WTO agreements. See appendix I for a
description of our methodology for identifying commitments. a We
identified commitments that did not fit into any of these seven commitment
types and categorized

these commitment types as *other.*

Source: GAO analysis of China*s WTO accession agreement.

We also identified a number of commitments that exceed usual WTO
requirements. A number of these commitments are in the trade framework
area. For example, unlike other WTO members, China committed to providing
a public comment period prior to implementing certain trade measures.
Furthermore, China committed to establishing a mechanism by which
individuals can bring questions about inconsistent application of laws
within China*s trade regime. Certain commitments in the area of safeguards
and trade remedies also exceed what WTO rules usually require. For
example, China*s commitments allow WTO members to use standards for
applying product- specific and textile safeguards against Chinese imports
that are easier than the standards set forth in the WTO Agreement on
Safeguards and the Agreement on Textiles and Clothing. Furthermore,
commitments relating to the transitional review mechanism establish an
additional review process that is more comprehensive than the WTO*s trade
policy review mechanism for other WTO members.

Page 14 GAO- 03- 4 China's WTO Commitments

As part of its WTO accession agreement, China committed to reducing or
eliminating a variety of market access barriers to foreign products.
Although China reduced its overall average tariff over the past decade,
certain sensitive products such as agricultural commodities and
automobiles continued to face high tariffs, as well as other trade-
distorting measures. In its agreement, China made specific commitments on
the tariff rates for more than 7,000 products covering all imports, as
well as commitments on other trade- distorting practices, such as state
trading and quotas, affecting more than 900 products. 12 Reduction or
removal of these barriers and practices will eliminate significant
barriers to access in China*s market for foreign exporters. However,
relatively high tariffs or other trade- distorting measures will remain on
some products.

Through its WTO commitments, China agreed to reduce tariffs on numerous
products including many sensitive items, as well as to eliminate duties
altogether on other products, such as information technology goods.
However, a few products will still face high tariff barriers. Although
many of China*s tariffs fell upon accession to the WTO, about half of
China*s 7,000 tariffs will continue to be reduced over a phasein period.
By 2010, the end of this phasein period, China*s overall average tariff is
scheduled to be less than 10 percent. 13 However, most of these tariff
reductions will actually be completed by 2005. China had already begun
reducing tariff rates in the early 1990s, when the average tariff rate was
above 40 percent. By 1999, the year that China*s WTO negotiations on
tariffs ended, China had reduced the average tariff applied to imports to
about 17 percent. Upon joining the WTO in 2001, China agreed to an average
tariff of about 14 percent. In addition, China agreed to *bind* all tariff
rates at the levels agreed upon in its accession agreement. That means
that China may not charge a tariff rate higher than the amount it agreed
to, except under special circumstances. 14 Therefore, the average tariff
rate that China applies in the future may be even lower.

12 State trading involves providing certain state- run entities the rights
to import or export products. Quotas are quantitative restrictions on
imports or exports that limit the amount of a product that can be traded.

13 Relative to other WTO members, China has an average tariff rate that is
lower than those of many developing countries but higher than those of
developed economies, such as the United States and the European Union.

14 China could charge higher duties than its bound tariff rates in cases
where China is applying safeguards or antidumping or countervailing
duties, or in other special circumstances. China Made Market Access

Commitments for Goods to Reduce or Eliminate Important Tariffs and Other
Trade- Distorting Measures

Tariff Reductions Affect Wide Range of Products, but Some Final Rates Are
Still Relatively High

Page 15 GAO- 03- 4 China's WTO Commitments

For some products and sectors of importance to the United States, China
committed to large tariff reductions. For example, tariffs on certain
types of automobiles and alcohols are to fall more than 35 percentage
points by 2006 and 2005, respectively. 15 On agricultural products, the
average tariff is scheduled to fall to about 15 percent in 2010, while for
nonagricultural products, the average tariff is scheduled to fall to about
9 percent in 2010. The U. S. Trade Representative reported that tariffs on
products of particular importance to the United States would fall to 7
percent on average for industrial products and 14 percent on average for
agricultural goods. Tariffs on about 300 information technology products,
such as computers and semiconductors, are to be eliminated by 2005. 16 U.
S. exports of information technology products accounted for nearly
onefourth of U. S. exports to China in 2001. Reductions in tariff rates
will vary across industry categories. Figure 1 shows China*s average
tariff rates by industry for 2001 and 2010.

15 China committed upon accession to tariff rates of 61.7 percent on
certain types of automobiles, falling to 25 percent by July 1, 2006; of
46.7 percent on certain types of alcohols (including whiskies, gin, and
vodka) upon accession, falling to 10 percent by 2005; and of 42 percent on
beer upon accession, falling to zero by 2004.

16 Twelve products (out of 317) identified as information technology
products in China*s schedule will have tariffs reduced to between 2 and 12
percent by 2005, but not eliminated. The average tariff rate for all
information technology products is scheduled to fall from 6.5 to 0.3
percent.

Page 16 GAO- 03- 4 China's WTO Commitments

Figure 1: Average Chinese Tariff Rates by Industry Category, 2001 and 2010

Note: Categories are based on aggregated groupings of the international
harmonized system (HS) nomenclature, a World Customs Organization
classification system for traded products (see app. III for more
information).

Source: GAO analysis of China*s WTO accession agreement.

In terms of U. S. exports to China, the share of products that potentially
face low tariffs is scheduled to rise. Figure 2 shows that upon accession
in 2001, China charged no tariff on products accounting for 6 percent of
U. S. exports to China. At the end of the phasein period in 2010, the
share of U. S. exports facing no tariffs will rise to 30 percent (based on
actual U. S. exports in 2001). By 2010, products accounting for nearly 70
percent of U. S. exports will face tariff rates of 5 percent or less.
Products facing no tariffs include information technology products and a
variety of other imports, such as certain types of live poultry, seeds,
salt, metal ores (nickel, copper, zinc), newspapers, maps, precious
metals, and production machinery.

Page 17 GAO- 03- 4 China's WTO Commitments

Figure 2: Share of U. S. Exports to China Facing Certain Tariff Ranges,
2001 and 2010

Note: Percentages may not equal 100 percent because of rounding. Shares
are based on actual U. S. exports to China in 2001. As tariffs fall,
exports of those products facing larger tariff reductions may increase as
a share of total U. S. exports to China, affecting the calculated shares.
Conversely, products subject to higher tariff rates may be
disproportionately smaller because of the higher barriers.

Source: GAO analysis of China*s WTO accession agreement and U. S. trade
data from the Department of Commerce.

Figure 2 shows that products subject to tariffs of 20 percent or greater
in 2010 account for only about 1 percent of total U. S. exports to China
(based on 2001 data). However, these products could potentially account
for a larger share of U. S. exports. Since the shares in figure 2 are
based on

Page 18 GAO- 03- 4 China's WTO Commitments

actual U. S. exports to China, higher tariff rates may have
disproportionately reduced exports of certain products, lowering their
current share of total exports. In contrast, we found that the products
that will be subject to final tariff rates of 20 percent or greater
accounted for about 8 percent of current U. S. exports to all countries,
rather than just 1 percent of U. S. exports to China. This difference may
be caused in part by higher trade barriers on these products in China
relative to other countries. 17 Therefore, although current exports of
these products to China may be relatively small, they potentially could be
important exports if remaining barriers were removed.

Several types of products will remain subject to high Chinese tariff rates
following the phasein period for tariffs, which lasts until 2010. Table 4
lists products subject to tariff rates of 35 percent or more. The highest
duties (50 to 65 percent) are on agricultural products subject to tariff-
rate quotas (discussed below). 18 Also, a wide variety of other products
will face high tariff rates, such as certain types of manufactured tobacco
(65 percent), photographic film and paper (35 to 47 percent), jewelry (35
percent), and gas water heaters (35 percent).

17 U. S. exports to all countries are also affected by trade barriers in
other countries, but these may be lower overall on particular products
than barriers in China. Also, many factors besides trade barriers may
affect whether a country imports certain products, including domestic
demand and competition from other suppliers. Figure 2 is intended only to
provide an indication of the relative importance to U. S. exports of
Chinese tariff rates, and of how they change over time.

18 These are the *out- of- quota* tariff rates. Tariff- rate quotas charge
two different tariff rates. A low rate is applied to a certain *in- quota*
amount of the product. The remaining *out- ofquota* amount faces a higher
tariff rate.

Page 19 GAO- 03- 4 China's WTO Commitments

Table 4: Products for Which China*s Bound Tariff Rates Will Be 35 Percent
or Higher in 2010 Product description: a certain types of

Tariffs 2001 (percent)

Tariffs 2010 (percent)

U. S. Exports to China, 2001 (in thousands)

Wheat (subject to TRQs) 74% 65% $21,736 Corn (subject to TRQs) 74 65 1,
225 Rice (subject to TRQs) 74 65 184 Barley 65 65 0 Vermouth 65 65 70
Manufactured tobacco and substitutes 65 65 23 Cane or beet sugar (subject
to TRQs) 55 to 71.6 50 354 NPK chemical fertilizer (covered by TRQ) 50 50
n. a. Diammonium chemical fertilizer (covered by TRQ) 50 50 n. a. Urea
(covered by TRQ) 50 50 n. a. Photographic film 55.7 47 94 Motorcycles 52.3
to 53. 8 45 24 Corn and rice flours (subject to TRQs) 64 40 345 Cotton
(subject to TRQs) 61.6 40 42,981 Fermented beverages (cider, perry, mead)
60.5 40 18 Photographic film 53.3 40 667 Motorcycles 51.7 40 0 Ethyl
alcohol 40 40 507 Wool (subject to TRQs) 38 38 2, 238 b Beverage bases and
flavored waters 44 to 50 35 10,550 b Photographic paper 45 35 71 b Jewelry
and imitation jewelry 36.7 to 42. 5 35 2,126 Gas water heaters 35 35 4,
773 Electric heaters, hair dryers, toasters, coffee makers 35 35 732
Television cameras and video cameras 35 35 467 b

Legend n. a.: not available. Product- level information on U. S. exports
of fertilizer is not available because of business confidentiality issues.
U. S. exports to China of all types of fertilizer, including the three
types listed in this table, account for about 2 percent of U. S. exports
to China.

TRQ: tariff- rate quota a Product descriptions above are not official
descriptions but shorter descriptions used only for

illustrative purposes. Certain products may be covered by multiple tariff
lines, which are based on different characteristics of individual
products. For example, in the table above, motorcycles and photographic
film are covered by multiple tariff lines and appear multiple times. b U.
S. export values for these products are approximations. U. S. export data
and the Chinese tariff

schedule cannot be precisely matched in all cases. (See app. III.) Source:
GAO analysis of China*s WTO accession agreement and U. S. trade data from
the Department of Commerce.

Page 20 GAO- 03- 4 China's WTO Commitments

China agreed to eliminate some trade- distorting measures that currently
limit imports of nearly 600 products, including certain types of
automobiles, transport equipment, and high- tech apparatus. Nontariff
barriers, such as quotas and licensing, may restrict market access, and
China has committed to removing these practices by 2005. However, China*s
accession agreement allows it to retain other measures on more than 300
products. For example, certain types of grains, fertilizers, and other
products will still be subject to tariff- rate quotas and state trading
for imports. 19 Table 5 lists certain trade- distorting measures that
China*s accession agreement addresses, and whether they will be
eliminated. 20 U. S. exports of products subject to these measures
accounted for approximately 10 to 19 percent of total U. S. exports to
China in 2001. After removing practices that China has agreed to
eliminate, products subject to remaining measures accounted for about 6 to
7 percent of U. S. exports to China in 2001. 21

19 However, China committed to eliminate state trading monopolies on
certain products by allocating an increasing share of the quotas to
private traders. 20 In addition to these specific practices, other
characteristics of China*s domestic economy, such as the large share of
state- owned enterprises, may affect foreign goods* opportunities in
China. However, calculating or isolating the effect of these
characteristics is difficult.

21 These percentages are based on U. S. exports of affected products to
China in 2001. We present a range of values, because U. S. and Chinese
trade statistics and tariff schedules cannot be precisely matched (see
app. II). These percentages may understate the potential size of future U.
S. exports of these products, which may grow as a share of total U. S.
exports to China when barriers are removed. Other Trade- Distorting

Measures to Be Eliminated, but Certain Practices Will Remain

Page 21 GAO- 03- 4 China's WTO Commitments

Table 5: Types of Trade- Distorting Measures Addressed by China*s WTO
Accession Agreement Type of tradedistorting measure

Products affected by measure: certain types of

Approximate share of U. S. exports to China (2001) of products subject to
the measure a (percent) Phaseout schedule

Designated trading Natural rubber, timber, plywood, wool, acrylic, and
steel 1% Removed by 2004 Export duties Fish products, base metals (lead,
zinc,

aluminum, tungsten, etc.), mineral products Not applicable (should affect
Chinese exports of products) b Not removed Export subsidies None (China
committed to eliminating all

export subsidies upon accession) Not applicable (should affect Chinese
exports of products) Eliminated upon accession Government guidance pricing
Grains (wheat, corn, rice, and soybeans),

vegetable oils (soybean, rape, colza, and mustard), processed oil,
fertilizer (urea), silkworm cocoons, and cotton

6*7 Not removed Licensing Automobiles, motorcycles, parts, and a

variety of other products 1 Removed by 2005 Price controls Tobacco, edible
salt, natural gas,

pharmaceuticals Less than 1 Not removed Quotas Automobiles, motorcycles,
parts, and a

variety of other products 1 Removed by 2005 State trading (imports)

Grains (wheat, corn, and rice), vegetable oils (soybean, palm, rape,
colza, and mustard oils), sugar, tobacco, crude oil, processed oil,
chemical fertilizers, and cotton

About 1 Not removed State trading (exports) Tea, rice, corn, soybeans,
tungsten ore,

ammonium paratungstates, tungstate products, coal, crude oil, processed
oil, silk, cotton, woven fabrics, antimony products, and silver

Not applicable (should affect Chinese exports of products) b Not removed

Tariff- rate quotas Wheat, corn, rice, soybean oil, palm oil, rape seed
oil, sugar, wool, cotton, fertilizer, wool tops

Less than 1 Quota amount and private trading share increase over some
period, but tariff- rate quota removed only on vegetable oils Tendering
Transport equipment and high- tech

apparatus 1* 6 Removed by 2004 a These percentages are based on our
analysis of U. S. exports to China in 2001 of products subject to

these measures. Total U. S. exports to China in 2001 were about $18
billion. We present a range of values because U. S. and Chinese trade
statistics and tariff schedules cannot be precisely matched (see app. II).
These percentages may understate the potential size of future U. S.
exports of these products, which may grow as a share of total U. S.
exports to China when barriers are removed. Also, product- level
information on U. S. exports of the three types of fertilizer affected by
tariff- rate quotas and state trading are not available because of
business confidentiality issues and are therefore not included in these
figures. U. S. exports to China of all types of fertilizer, including
types not covered by tariff- rate quotas, account for about 2 percent of
U. S. exports to China. b Export policies, such as duties and state
trading, can distort trade by providing cheaper inputs for

domestic production (by limiting exports) or by affecting the price of the
product in international markets.

Source: GAO analysis of China*s WTO accession agreement and U. S. trade
statistics from the Department of Commerce.

Page 22 GAO- 03- 4 China's WTO Commitments

Of the 11 types of trade- distorting measures addressed by China*s
accession agreement, 8 affect imports into China and 3 affect China*s
exports. China has agreed to remove some of these practices after a
phaseout period, while others will remain in place. First, half the import
measures, including nontariff restrictions such as licensing, quotas,
tendering, and designated trading, are to be eliminated by 2005. Second,
the other half of the import measures will remain (tariff- rate quotas,
government guidance pricing, price controls, and state trading). Finally,
for exports, export subsidies are to be eliminated upon accession, while
export duties and state trading will remain.

First, over a 4 year phaseout period, China will completely eliminate
certain nontariff restrictions, including licensing restrictions, quotas,
and tendering practices on imports. Licensing, which requires that
companies obtain government approval and submit documentation before
importing, and quotas, which are quantitative restrictions on imports,
have been used widely by China in the past to restrict trade. Tendering is
a requirement that private citizens or enterprises obtain government
approval before making major purchases. In total, products affected by
these practices accounted for about 1 to 7 percent of U. S. exports to
China (between about $0.2 billion and $1.1 billion) in 2001. Although
these amounts are a relatively small portion of total U. S. exports, these
three nontariff barriers (licensing, quotas, and tendering) affect
important U. S. exports such as automobiles, motorcycles, parts, and other
transport equipment, as well as high- tech apparatus. Also, by 2004, China
should eliminate designated trading on products that accounted for about 1
percent of U. S. exports to China ($ 173 million) in 2001. (See table 5.)
Designated trading is a practice that provides the right to import certain
products to certain entities designated by the government.

Second, certain trade- distorting measures will remain on some imports.
Like some other WTO members, China will maintain tariff- rate quotas on
several important agricultural products, including certain types of wheat,
corn, rice, soybean oil, palm oil, rape- seed oil, sugar, wool, and
cotton. Tariff- rate quotas allow a certain amount of a product (the *in-
quota* amount) to enter the market at a low tariff rate (generally less
than 10 percent). Any additional amount of imports (the *out- of- quota*
amount) faces a prohibitively high Chinese tariff rate (generally 40
percent or greater, though lower in some cases). China has agreed to
increase the quota amounts over time for these products and to eliminate
the quotas altogether for vegetable oils in 2005. It has also agreed to
allow private traders to share in the quota allocations and to increase
the private share over time for some products, reducing the share
allocated to state trading

Page 23 GAO- 03- 4 China's WTO Commitments

enterprises. Agricultural products covered by China*s tariff- rate quotas
accounted for about 4 percent of total U. S. agricultural exports to China
in 2001. 22 China will also maintain tariff- rate quotas on some
nonagricultural products* fertilizers and wool tops. Generally, WTO
obligations do not allow tariff- rate quotas on nonagricultural products.

Besides tariff- rate quotas, other measures affecting imports will also
remain. For instance, state trading, a practice that provides the right to
import certain products primarily to state- run entities, will not be
eliminated. U. S. exports of products affected by state trading accounted
for about 1 percent of total U. S. exports to China (about $100 million to
$200 million; see table 5) in 2001. In addition, China will also maintain
price controls and government guidance pricing on certain domestically
sensitive products. These measures, which require prices to be fixed or to
fluctuate within a certain range, will affect certain types of tobacco,
edible salt, natural gas, pharmaceuticals, grains, vegetable oils,
processed oil, fertilizer (urea), silkworm cocoons, and cotton. China has
gradually liberalized prices, and it claims that only about 5 percent of
products are subject to price controls, in order to ensure adequate
domestic supply and to keep prices within an affordable range. These
products accounted for about 6 to 7 percent of U. S. exports to China in
2001.

Finally, besides these measures that affect the access of imports to
China*s market, the accession agreement also restricts certain practices
affecting China*s exports. These practices may distort trade by promoting
exports to third- country markets in which they compete with other WTO
members* goods, or by restricting exports in order to provide more
inexpensive inputs to domestic production. China committed as part of its
accession agreement to eliminate export subsidies for both agricultural
and nonagricultural products. Under the WTO Agreement on Subsidies and
Countervailing Measures, subsidies that require the recipient producer
either to meet certain export targets or to use certain domestic products
rather than imports are prohibited, and China agreed to abide by this
obligation upon accession. 23 For agricultural products, WTO members are

22 However, this share is significantly lower than a peak in 1998, when
the same products accounted for 39 percent of U. S. agricultural exports
to China. Since that time, the value of U. S. agricultural exports to
China has risen somewhat (from $1. 3 billion to $1. 9 billion), but the
share of products subject to tariff- rate quotas has fallen significantly.

23 Domestic subsidies (those not tied directly to trade) are permitted
under WTO provisions; however, if they are shown to have trade- distorting
effects, WTO members can request their removal or in some cases impose
countervailing duties on Chinese exports that benefit from the subsidy
(see app. IV).

Page 24 GAO- 03- 4 China's WTO Commitments

able to maintain export subsidies under certain conditions, but China
agreed to eliminate their use, as well. This is a potentially important
commitment for U. S. farmers who compete in third- country markets with
Chinese exports of corn, rice, and cotton. Although committed to eliminate
export subsidies, China will maintain state- trading practices on 134
export products and will apply an export duty between 20 and 50 percent on
84 products. Export policies, such as these, can distort trade by
providing cheaper inputs for domestic production (by limiting exports) or
by affecting the price of the product in international markets.

China*s services commitments are broad in scope and provide increased
access across a number of industries, with some specified limitations.
China*s market access commitments for services are described primarily in
the services schedule included in an annex to the accession agreement. 24
The WTO classifies services into 12 general sectors and 154 subsectors.
China made commitments to open 9 of the 12 general sectors and 88 of the
154 subsectors* including several sectors important to U. S. trade such as
insurance, banking, distribution, telecommunications, and professional
services. For example, prior to accession, foreign insurers* access to
China*s market had been restricted through selective licensing processes,
and foreign insurers were allowed to provide only certain services in a
limited number of cities. China*s WTO commitments relax or remove many of
these restrictions, over a 5 year phasein period. Similarly, foreign
telecommunications service providers were restricted from China*s market.
Within 6 years following accession, foreign providers will be allowed to
offer a broad array of telecommunications services with no geographic
restrictions, but only through joint ventures with Chinese partners.
(Table 6 shows the number of sectors where China made commitments.
Additional information about China*s services commitments is included in
app. IV.)

24 As noted in table 1, the working party report also describes 45
services- related commitments. These commitments include, for example,
general guidance concerning licensing procedures and specific commitments
relating to the insurance sector. Market Access

Commitments for Services Cover Multiple Sectors, but Some Limitations
Continue

Page 25 GAO- 03- 4 China's WTO Commitments

Table 6: Number of WTO Services Sectors where China Made Commitments
General WTO services sector

Number of subsectors included in WTO

general sector Number of subsectors

included in China*s commitments

Business 46 26 Communication 24 17 Construction 5 5 Distribution 5 5
Education 5 5 Environmental 4 4 Financial 17 13 Health- related and social
4 0 Tourism and travel- related 4 2 Recreation, cultural, and sporting 5 0
Transport 35 11 Other Number of subsectors

not specified No commitments in this sector

Total 154 88

Note: For purposes of analysis, the information in this table is ordered
according to the organization of services commitments listed in China*s
services schedule.

Source: GAO analysis of China*s WTO accession agreement.

Although China made market access commitments in 88 services subsectors,
access to most of these subsectors will remain subject to limitations. The
WTO*s General Agreement on Trade in Services provides the rules for
services trade among members. Under these rules, members may decide which
sectors to include in their services schedule and may specify what
limitations on access and national treatment will be applied. There is no
WTO requirement to grant access to all services sectors, and, in fact, no
member allows unrestricted access to all sectors and subsectors.

Like other WTO members, China has a services schedule that describes
commitments in specified services sectors and lists the types of
limitations on access and national treatment within those sectors. Some of
the limitations are horizontal* that is, the limitations apply generally
to all services sectors in the schedule unless otherwise specified.
Horizontal limitations include, for example, restrictions on the
establishment of branches, on the profit- making activities of
representative offices, and on the length of time permitted for the use of
land in China. However, most limitations listed in China*s services
schedule describe the limitations on the specified services sectors that
China committed to open. For example, access to several services sectors
is opened only in designated cities or

Page 26 GAO- 03- 4 China's WTO Commitments

geographic regions, and only for a specific scope and type of operation.
Other limitations require foreign service providers to partner with a
Chinese entity in order to gain access, or to limit the participation of
foreign capital in an investment. And other limitations include exceptions
to national treatment by requiring that foreign service providers meet
specific professional qualifications, or subject foreign providers to
licensing procedures that differ from those required of domestic
suppliers. In many sectors, some of the limitations are phased out over a
specified time period. Table 7 lists the eight types of limitations we
identified in China*s services schedule. 25

Table 7: Eight Types of Limitations in China*s WTO Services Schedule
Limitation type Description Example of limitation type

Cross- border Limitation on providing a service across national borders.
In some cases, services may be provided only by establishing a commercial
presence in China.

Wholesale distribution services are not permitted to be provided across
borders.

Form Limitation on the legal form of establishment, such as those
requiring that services be provided through a joint venture with a Chinese
partner.

Foreign providers of software implementation services may establish in
China only in the form of a joint venture. Equity Limitation on the amount
or share of foreign equity in a

service operation. Within 2 years following accession, foreign investment
in certain types of telecommunications services shall be no more than 50
percent. Geographic Limitation on the specific geographic locations in
which

service providers are allowed to operate. Certain foreign banking services
are restricted to designated cities. These restrictions are phased out
over time. Nationality Limitation on national treatment based on the
residency

or nationality of a service provider. Legal service representatives shall
be resident in China for no less than 6 months each year. Number
Limitation on the number of foreign service providers or

quantity of output or operations. Number of foreign- invested medical and
dental service operations subject to quantitative limits based on China*s
needs. Scope Limitation on the scope of business that may restrict

certain types of services within a sector or restrict the type of client
to whom services may be provided.

Commitments on courier services exclude services specifically reserved for
Chinese postal authorities by law. Qualifications Limitation on national
treatment through qualifications,

standards, or licensing requirements. Licensing requirements for foreign
insurance providers require more than 30 years* establishment experience
in a WTO member country.

Note: We also identified limitations that did not fit into any of these
eight limitation types, and we categorized these limitation types as
*other.*

Source: GAO analysis of China*s WTO accession agreement.

25 We identified limitations that did not fit into these eight limitation
types, and categorized these limitation types as *other.*

Page 27 GAO- 03- 4 China's WTO Commitments

Of the eight limitation types, we found that the most common types of
limitations that will remain on China*s services sectors are those on the
legal form of establishment (45 percent) and scope of business (35
percent). (Table 8 lists the types of limitations that China will maintain
on service providers in specific sectors following the phaseout periods.)
For example, foreign businesses seeking to provide most types of
professional services (subsectors within the business services sector)
will still be required to operate through joint ventures or other types of
partnerships with a Chinese entity. Similarly, certain limitations on the
scope of business allowed in the insurance subsector (included within the
financial services sector) will remain, and they preclude foreign insurers
from providing certain types of vehicle insurance. Although China
initially places geographic limitations on several types of services, most
geographic limitations will be phased out, and, as a result, limitations
of that type will be the least prevalent in China*s services sectors. For
example, geographic limitations on foreign providers of basic
telecommunications services are to be phased out 6 years after accession,
and foreign banks will be allowed to conduct local currency business
without geographic restrictions within 5 years of accession.

Page 28 GAO- 03- 4 China's WTO Commitments

Table 8: Types of Limitations That China Will Maintain in Specific
Services Sectors Percentage of covered subsectors subject to specified
limitation

General WTO services sector

Number of subsectors covered by

China*s services schedule Crossborder Form Equity Geographic Nationality
Number Scope Qualifications Other

Business 26 4% 54% 0% 0% 8% 4% 23% 42% 15% Communication 17 47 59 53 0 0 6
18 0 12 Construction 5 0 0 0 0 0 0 100 0 0 Distribution 5 60 20 0 0 0 0 60
0 0 Education 5 100 100 0 0 0 0 0 100 100 Environmental 4 100 100 0 0 0 0
100 0 0 Financial 13 15 15 15 0 0 0 46 7 0 Health- related and social 0 n.
a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. Tourism and travel-
related 2 00 00 0050 00 Recreation, cultural, and sporting 0 n. a. n. a.
n. a. n. a. n. a. n. a. n. a. n. a. n. a.

Transport 11 27 36 27 0 0 0 27 0 27 Other 0 n. a. n. a. n. a. n. a. n. a.
n. a. n. a. n. a. n. a.

Total 88 30% 45% 16% 1% 2% 2% 35% 30% 16%

Legend n. a.: not applicable Cross- border: limitation on providing a
service across borders Form: limitation on the form of establishment
Equity: limitation on the amount or share of foreign equity in a service
operation Geographic: limitation on the specific geographic locations in
which service providers are allowed to operate

Nationality: limitation on national treatment based on the residency or
nationality of a services provider

Number: limitation on the number of foreign services providers or quantity
of output or operations Scope: limitation on the scope of business
Qualifications: limitation on national treatment based on qualifications,
standards, or licensing requirements

Other: other types of limitations that do not fit any of the eight
aforementioned limitation types Note: Limitations within the sectors are
not mutually exclusive. Consequently, totals do not add to 100 percent.

Source: GAO analysis of China*s WTO accession agreement.

Page 29 GAO- 03- 4 China's WTO Commitments

Phasein periods for China*s commitments vary across the eight broad areas
of the agreement. In two areas, export regulation and intellectual
property rights, all commitments were due to be implemented upon China*s
accession to the WTO. In the other areas, the longest phasein periods are
for trade regime commitments relating to safeguard and trade remedy
provisions. For example, commitments allowing WTO members to use
alternative methodologies when applying antidumping provisions to Chinese
imports last for 15 years (until 2016). The phasein periods for other
commitments that relate to China*s administration of its trade regime are
phased in by 2010. Additionally, China*s market access commitments to
reduce tariffs are scheduled to be fully phased in by 2010, but tariff
reductions on most products and the elimination of other tradedistorting
measures are to be completed by 2005. Lastly, most market access
commitments for services are phased in by 2007. (See app. IV for further
discussion of China*s commitments in each of these areas.) Figure 3
summarizes key phasein dates for China*s WTO commitments. Some of China*s

Commitments Are Phased in Over Time

Page 30 GAO- 03- 4 China's WTO Commitments

Figure 3: Summary of Key Phasein Dates for China*s WTO Commitments, 2001*
2016

Legend NTM: nontariff measure TBT: technical barriers to trade TRQ:
tariff- rate quota TRM: transitional review mechanism Note 1: No
commitments in the areas of export regulation and IPR have phasein
periods.

Page 31 GAO- 03- 4 China's WTO Commitments

Note 2: Commitments to liberalize agricultural TRQs and various services
sectors are scheduled to be phased in by the dates shown, but other
restrictions on these sectors that China did not commit to removing may
remain in place.

Source: GAO analysis of China*s WTO accession agreement.

The potential for China*s WTO accession agreement to open China*s market
to foreign goods and services cannot be assessed by examining only
individual commitments. China*s commitments in various areas are
interrelated and together affect what and how business is done in China.
For example, China*s commitments may allow a particular foreign product to
be exported to China, but extended time frames for implementing
commitments on trading rights may require that the product be sold to a
Chinese business or a state trading enterprise before it can enter the
country. Other particular commitments determine what tariff must be paid,
whether a license must be obtained, whether a quota applies, and whether
the product must pass inspections related to food safety or product
standards. Once the product is in China, still other commitments then
determine whether foreigners have the ability to distribute the product
within China or to provide other product- related services, perhaps
requiring that these be supplied through a partnership with a Chinese
firm. Finally, other commitments seek to improve foreigners* ability to
protect patents, copyrights, and trademarks associated with selling a
product in China. After reviewing China*s WTO commitments, we found that
some of these interrelationships work together to strengthen the general
business climate but that others may result in some delays or limitations
on foreigners* ability to do business competitively in China with regard
to certain products or services.

China made numerous commitments that relate to conforming the overall
structure of its trade regime to WTO rules, and the interrelationship of
these commitments could contribute to an improved environment for U. S.
and other foreign businesses. The clearest examples of these are related
to improving China*s rule of law. Specifically, these structural, or trade
framework, commitments include principles of transparency;
nondiscrimination; judicial review; and the consistent application of
laws, regulations, and other measures. Each of these is closely
interrelated with several other sections of the accession agreement. 26
For example, although the protocol lists several general commitments
requiring China to improve

26 See appendix IV for a description of these trade framework commitments.
Interrelationships

among Commitments Can Affect Foreign Business Opportunities

Interrelationships among Some Commitments Could Strengthen China*s Overall
Business Environment

Page 32 GAO- 03- 4 China's WTO Commitments

the overall transparency of its trade regime, specific commitments on
transparency are described throughout the agreement to address WTO
members* concerns. Sections of China*s accession agreement relating to
agricultural tariff- rate quotas, export and import regulation, state
trading, and services all include transparency commitments intended to
improve the openness of administrative rules and procedures relating to
China*s business environment. Commitments requiring consistent application
of legal measures throughout China, nondiscriminatory treatment between
foreign and Chinese enterprises, and more independent judicial review of
trade disputes could also improve the rule of law and the overall legal
environment for foreign businesses in China.

Similarly, the combined effect of several other types of commitments could
lead to improvements in the overall business environment. Specifically,
China*s commitments to reduce subsidies, reform stateowned enterprises,
and decrease the role of state trading can, if fully implemented,
contribute to the development of a more market- oriented environment in
China.

While most of the 685 commitments we identified were to take effect upon
China*s accession to the WTO, a number of interrelated commitments are
phased in over time; in some cases, barriers to entering China*s market
will remain following the phasein of all commitments. These
interrelationships can delay or limit foreign business opportunities in
China*s market. For example, commitments in the areas of trading rights
(that is, a company*s right to import products into and export products
from China) and tariff- rate quotas are interrelated in this way. Trading
rights for most products are phased in over a 3- year period, and this can
temporarily delay a foreign company*s ability to benefit from China*s
commitments on tariff- rate quotas. Under the tariff- rate quota system, a
specified quantity of imports is allowed in at a low tariff rate. China
committed to reserving a portion of this low tariff quota for importation
through nonstate trading enterprises (this includes private foreign
companies). However, the number of private companies that can directly
Interrelationships among

Some Commitments Could Delay or Limit Foreign Business Opportunities

Page 33 GAO- 03- 4 China's WTO Commitments

import the low- tariff quantity is limited in the short run, because the
necessary trading rights are not fully phased in until 2004. 27

There are also important short- term limitations on foreign companies
arising from the interrelationship between trading rights and China*s
commitments on distribution services. China*s commitments on trading
rights and its services commitments allowing foreign enterprises to set up
distribution systems in China will not be fully phased in until 2004.
Thus, China*s commitments to remove most restrictions on wholesale,
retail, franchising, and other forms of distribution are similar to the 3
year phaseout of the restrictions on trading rights. As a result, the
opportunity for foreign enterprises to integrate import, export, and
distribution systems for most products will not be fully realized until
2004. 28

Interrelated commitments pertaining to specific market access barriers to
goods, such as tariffs and nontariff measures, can also delay or limit
opportunities for U. S. businesses to export to China. For example, China
has agreed to remove barriers in the automobile and parts sector, which
has traditionally been highly protected in China, through a phaseout
period lasting until July 2006. Tariffs, which ranged between 80 and 100
percent before accession on certain types of automobiles and auto
products, are scheduled to fall to 25 percent by July 2006. Complementing
these market access commitments are China*s commitments covering technical
barriers to trade and trade- related investment measures that are intended
to create a more open business environment for automobile producers.
Despite the improved access to the sector, some restrictions will remain.
Automobiles will still be subject to quota and licensing restrictions
through 2005. Automobile companies are also affected by restrictions on
the types of services they can provide their customers. For example,
restrictions limiting the amount of foreign equity in commission agents*
and wholesale distribution of most products, including automotive
products, will not be phased out until 2004. Similarly, equity
restrictions

27 China*s trading rights commitments state that joint venture enterprises
with a minority share of foreign investment are allowed full trading
rights beginning 1 year after accession, and majority- share foreign-
invested joint ventures are granted full trading rights 2 years after
accession. See appendix IV for a further discussion of China*s trading
rights commitments.

28 Certain products are excluded from China*s commitments on trading
rights and are reserved for importation and exportation by state trading
enterprises. These products are listed in annex 2A of China*s accession
agreement and include certain grains, vegetable oils, fertilizer (urea),
crude oil, and other products.

Page 34 GAO- 03- 4 China's WTO Commitments

on foreign retail chain stores with more than 30 outlets that are engaged
in the distribution of motor vehicles will not be removed until 2006.
Besides automobiles, several other products are also subject to multiple
tradedistorting measures. Table 9 lists certain products and services that
are affected by multiple measures and the phaseouts of these measures.

Table 9: Selected Products and Services Sectors Subject to Multiple
Restrictions and Trade- Distorting Measures Products and services sectors
Restrictions and trade- distorting measures, with the phaseout schedule

Automobiles and parts  Wide range of rates, but tariffs on certain
automobiles falling from over 50 percent (2001) to 25 percent (2006);
lower on parts

 Quotas and licenses (removed by 2005)

 Restrictions on distribution (gradual removal of restrictions by 2006;
most removed by 2004)

 Restrictions on third- party auto liability insurance and driver and
operator liability for buses and other commercial vehicles (not removed)
Chemical fertilizers  Tariff- rate quota (increased quotas through 2006,
but not removed)

 In- quota tariff rate of 4 percent; out- of- quota rates of 50 percent

 State trading (imports; not removed)

 Government guidance pricing on urea (not removed)

 Foreign distribution excluded (removed by 2006) Corn, cotton, rice  In-
quota tariff rates between 1 and 10 percent; out- of- quota rates between
10 and 65

percent

 Tariff- rate quota (increased quotas through 2004, but not removed)

 State trading (both imports and exports; not removed)

 Government guidance pricing (not removed) Legal services  Restrictions
on the scope of business, form of establishment, and national treatment*

nationality/ residency and qualifications requirements (not removed)

 Government guidance pricing (not removed) Life insurance services 
Restrictions on scope of business, form of establishment, participation of
foreign

capital, cross- border trade, and national treatment* licensing
requirements (not removed) Natural rubber  20 percent tariff rate

 Quotas and licenses (removed by 2004)

 Designated trading (removed by 2004) Processed oils (gasoline, kerosene,
diesel)

 Tariffs between 6 and 9 percent upon accession

 Quotas and licenses (removed by 2004)

 State trading (both imports and exports; not removed)

 Government guidance pricing (not removed)

 Foreign distribution excluded (removed in 2004 for retailing services
and 2006 for wholesale and commission agents* services) Sugar  Tariff-
rate quota (increased quotas through 2004, but not removed)

 In- quota tariff rate falling from 20 percent to 15 percent by 2004;
out- of- quota rate of 50 percent

 State trading (imports) Telecommunications services (value added)

 Restrictions on form of establishment, participation of foreign capital,
and cross- border trade (not removed)

 Government pricing (not removed) Tobacco  Final tariff rates range from
65 to 10 percent on a variety of tobacco products. Most

tariff reductions phased in by 2004

 State trading (imports; not removed)

 Price controls (not removed)

 Foreign distribution excluded (not removed)

Page 35 GAO- 03- 4 China's WTO Commitments

Products and services sectors Restrictions and trade- distorting measures,
with the phaseout schedule

Vegetable oils (soy bean, palm, rape seed)

 Tariff- rate quota (increased quotas until removed in 2006)

 In- quota tariff rate of 9 percent; out- of- quota rate of 63.3 percent,
falling to 9 percent in 2006

 State trading (imports; not removed)

 Government guidance pricing on soy bean and rapeseed oil (not removed)
Wheat  Tariff- rate quota (increased quotas through 2004, but not
removed)

 In- quota tariff rates between 1 and 10 percent; final out- of- quota
rates of 65 percent

 State trading (imports; not removed)

 Government guidance pricing on certain wheat products (not removed) Wool
and wool tops  Tariff- rate quota (increased quotas through 2004, but not
removed)

 In- quota tariff rates of 1 percent (wool) and 3 percent (wool tops) ;
out- of- quota rates of 38 percent

 Designated trading (removed by 2004) Source: GAO analysis of China*s WTO
accession agreement.

China*s accession to the WTO represents a major step in China*s recent
reform efforts, which have been occurring since the late 1970s. The United
States and other WTO members seek benefits from China*s continued
integration into the world trading system, guided by the rights and
obligations of WTO membership. China*s accession agreement is the most
comprehensive of any acceding WTO member to date. It includes some
commitments that exceed the underlying obligations of all WTO members,
especially with regard to the protective safeguards and trade remedies
that WTO members can apply to Chinese exports that injure their home
markets.

Our analysis of China*s accession agreement describes the broad scope of
China*s WTO commitments across eight areas, as well as the many types of
commitments China made, which range from specific, discrete actions to
general pledges. Our analysis also describes the complexity of the
agreement and the ways in which the interrelationship between some
individual commitments could strengthen the general business environment
in China by fostering a more transparent, consistent, and market- oriented
trade regime for U. S. business. On the other hand, some related
commitments could delay or limit the access given to U. S. businesses
because the commitments are to be phased in over time or they provide only
partial access for particular foreign products or services. The benefits
from China*s WTO membership are contingent upon China*s successful
implementation of its many commitments as they come into practice during
the next 10 years. The breadth and complexity of China*s commitments
indicate the challenges facing China in fulfilling its WTO obligations,
and other WTO members in monitoring and enforcing China*s compliance.
Concluding

Observations

Page 36 GAO- 03- 4 China's WTO Commitments

We requested comments on a draft of this report from the U. S. Trade
Representative and the Secretaries of Commerce, Agriculture, and State, or
from his or her designee. On September 17, 2002, the Deputy Assistant U.
S. Trade Representative for China provided us with oral comments on the
draft. These comments included the views of officials from the Departments
of State and Agriculture, which were transmitted to USTR in its capacity
as chair of the interagency Trade Policy Staff Committee, Subcommittee on
China WTO Compliance. The Department of Commerce did not provide comments.

USTR officials complimented the scope and depth of our analysis, but
declined to comment on some of the details of our analysis* particularly
relating to the number and type of commitments. Nevertheless, they
provided technical and editorial comments about our characterization of
particular Chinese commitments and provisions in the WTO agreements. For
example, USTR officials thought that our presentation of commitments
subject to phasein periods was overly focused on the end points for the
phasein of all obligations. Officials noted that in a number of instances,
these end points related only to limited exceptions or items of marginal
trade interest to the United States, and that most of the benefits from
China*s commitments should accrue early in the periods. We added more
information to various sections of our report to make that point clearer.
Furthermore, they believed that we characterized some Chinese commitments
as market access limitations rather than as opportunities for trade, and
this undervalued those commitments (for example, in the area of tariff-
rate quotas). We modified certain sections based on their comments, but,
in general, we believe that our discussion of the commitments is accurate
and balanced and properly acknowledges both the potential benefits and the
limitations. USTR officials also provided a number of technical comments
and corrections on other topics, which we incorporated as appropriate.

We are sending copies of this report to the U. S. Trade Representative and
interested congressional committees. Copies of this report will also be
made available to other interested parties on request. In addition, the
report will be made available at no charge on the GAO Web site at http://
www. gao. gov. Agency Comments

and Our Evaluation

Page 37 GAO- 03- 4 China's WTO Commitments

If you or your staff have any questions about this report, please contact
me at (202) 512- 4128. Other GAO contacts and staff acknowledgments are
listed in appendix V.

Susan S. Westin Managing Director, International Affairs and Trade

Appendix I: Objectives, Scope and Methodology

Page 38 GAO- 03- 4 China's WTO Commitments

As part of a long- term body of work that the Chairman and the Ranking
Minority Member of the Senate Committee on Finance, as well as the
Chairman and the Ranking Minority Member of the House Committee on Ways
and Means, requested, we examined (1) the scope and types of China*s World
Trade Organization (WTO) commitments; and (2) the interrelationships of
commitments described in China*s accession agreement, which can affect
foreign business opportunities. To conduct our analysis, we completed a
detailed review of China*s accession agreement* documents totaling more
than 800 pages that describe the terms of China*s WTO membership. The
agreement includes the Protocol on the Accession of the People*s Republic
of China and the accompanying

Report of the Working Party on the Accession of China. These documents
provide China*s particular commitments to the WTO and describe how China
will adhere to WTO agreements, principles, and rules. Additionally, the
agreement includes schedules for how and when China will grant market
access to foreign goods and services, and seven other annexes.

In order to examine the scope and type, as well as the interrelationships
among, China*s WTO commitments described in China*s accession agreement,
we created a database for the protocol and working party report (83 pages
of legal text), systematically analyzed individual commitments, and
classified them by the type of commitment made. The accession agreement
contains commitments made by China, background or contextual information,
and concerns expressed by working party members about the operations of
China*s trade regime. 29 The working party report is divided into numbered
paragraphs that provide a narrative on the results of the negotiations. Of
the 343 paragraphs in the working party report, 144 contain China*s
specific commitments to WTO members. A few paragraphs also describe
pledges of WTO members to China about certain actions that the members
will take with respect to China*s commitments. The remaining paragraphs
describe China*s explanation of existing trade practices or other
statements of fact, while other paragraphs list specific working party
concerns. As a legal matter, the protocol includes China*s commitments in
the working party report. Thus the commitments set forth in the protocol
and the working party report have the same status and carry the same legal
effect under WTO rules.

29 We grouped the subjects of the accession agreement into eight broad
areas and 47 subcategories. Appendix II lists these categories. Appendix
I: Objectives, Scope and

Methodology

Appendix I: Objectives, Scope and Methodology

Page 39 GAO- 03- 4 China's WTO Commitments

We identified more than 600 individual commitments in the protocol and
working party report. This figure does not include the market access
commitments, such as tariffs, made on specific products and sectors in the
goods and services schedules, as well as product- specific commitments in
the additional annexes, although we included text notes from these
documents in the database. 30 We defined *commitments* as legally binding
pledges that China has provided to the WTO and its members. For the most
part, these commitments are set forth in separate paragraphs in the
protocol, working party report, and text notes. Nevertheless, many of
these paragraphs include multiple pledges. The working party report
describes each of the commitment paragraphs as providing for a

*commitment* or *commitments,* though the report does not specifically
indicate the number of commitments when they are plural. Thus, separating
out the commitments in the accession agreement can be done in different
ways. For example, some analyses of the agreement might count the number
of paragraphs as the number of commitments. We chose, however, when
appropriate, to break down each paragraph into multiple commitments, and
thus our total number of commitments is considerably larger than the
number of paragraphs in the protocol, working party report, and text
notes.

After identifying individual commitments, we classified them by their
characteristics. We identified seven different types of commitments (for
example, commitments that require transparency or nondiscrimination) and
then for each commitment assessed whether it fit the type. We developed
these types, defined in table 2, in order to characterize the content of
China*s commitments across the agreement. We also identified some
commitments that did not fit any of these seven types and categorized
these commitments as *other.* We discussed this methodology with other U.
S. government agencies, including the Office of the U. S. Trade
Representative and the Departments of Agriculture, Commerce, and State.
Each commitment could be characterized by more than one type. Also, our
different types are not an exhaustive list of the types of commitments
that were made* one of our categories is for commitments that did not
match any of the other types. We also identified whether particular
commitments specified phasein or phaseout periods or made

30 The annexes and parts of the market access schedule for goods included
text notes that were similar to those in the protocol and the working
party report. These were included in the database analysis of commitments
in the protocol and the working party report. We analyzed the remainder of
the annexes and market access schedules separately on a product- level
basis.

Appendix I: Objectives, Scope and Methodology

Page 40 GAO- 03- 4 China's WTO Commitments

references to specific WTO agreements, and whether WTO working party
members raised particular concerns about the areas that the commitments
addressed.

We analyzed the market access schedules and annexes and combined them with
relevant U. S. and Chinese trade data. China*s market access schedule for
goods lists specific tariff bindings and phasein periods for more than
7,000 products. Several other annexes include product- specific
information on China*s trade policies, such as state trading and
licensing. Appendix III provides a detailed description of our data
sources and methodology. We also analyzed individually China*s market
access schedule for services. We examined the number of sectors (such as
financial services or tourism) included in China*s market access schedule,
as well as the types of limitations, as defined by the WTO, that China
made for each sector.

In addition, we interviewed knowledgeable U. S. government officials from
the Office of the U. S. Trade Representative and the Departments of
Agriculture, Commerce, State, and the Treasury. We also met with WTO
officials in Geneva, Switzerland, and high- level Chinese officials in
Geneva and in Beijing, China. We also reviewed other analyses of China*s
accession agreement from a variety of sources, including the U. S.
government, international organizations, and private- sector
organizations.

We performed our work from November 2001 through September 2002 in
accordance with generally accepted government auditing standards.

Appendix II: Areas of China*s Trade Regime That China*s WTO Accession
Agreement Covers

Page 41 GAO- 03- 4 China's WTO Commitments

For purposes of our analysis, we categorized the commitments related to
China*s trade regime that China*s WTO accession agreement covers into
eight broad areas and 47 subcategory topics. Generally, our topics
correspond to those that the WTO uses in China*s accession agreement,
while our broad areas are somewhat similar to the section headings in the
agreement. Table 10 lists these broad areas and topics.

Table 10: Areas and Topics Covered by China*s WTO Accession Agreement GAO
area GAO topic

1. Trade framework 1. Nondiscrimination 2. Transparency 3. Uniform
administration 4. Judicial review 5. Special economic areas 6. Special
trade arrangements 2. Import regulation 7. Tariffs, taxes, and charges

8. Nontariff measures (licenses, quotas, tendering) 9. Industrial tariff-
rate quotas 10. Regulatory border measures (rules of origin, customs
valuation,

preshipment inspection) 11. Technical barriers to trade 3. Export
regulation 12. Export licensing

13. Export duties 4. Trading rights and industrial policies 14. Right to
trade

15. State trading 16. Price controls 17. Subsidies (including export
subsidies) 18. State- owned and state- invested enterprises 19. Investment
policies 20. Foreign exchange controls 21. Balance of payments 23. Civil
aircraft trade 24. Government procurement 5. Agriculture 25. Tariffs

26. Tariff- rate quotas 27. Subsidies 28. Sanitary and phytosanitary
measures

Appendix II: Areas of China*s Trade Regime That China*s WTO Accession
Agreement Covers

Appendix II: Areas of China*s Trade Regime That China*s WTO Accession
Agreement Covers

Page 42 GAO- 03- 4 China's WTO Commitments

GAO area GAO topic

6. Services a 29. Horizontal commitments 30. Business services 31.
Communication services 32. Construction services 33. Distribution services
34. Education services 35. Environmental services 36. Financial services
37. Tourism and travel- related 38. Transport services 39. Other services
commitments 7. Intellectual property rights (IPR) 40. General

41 Copyrights, trademarks, patents, and other IPR 42. Enforcement 8.
Safeguards & trade remedies 43. Product- specific safeguard

44. Textile safeguard 45. Price comparability in determining Chinese
dumping 46. Price comparability in determining Chinese subsidies 47.
Transitional review mechanism a Topics 29* 38 listed in the services area
reflect the topics covered by China*s WTO services schedule. Services
commitments from other sections of China*s accession agreement are
discussed under topic 39 (* other services commitments*). See appendix IV
for a further discussion of China*s services commitments.

Source: GAO analysis of China*s WTO accession agreement.

Appendix III: Data Sources and Methodology for Analysis of China*s WTO
Goods Commitments

Page 43 GAO- 03- 4 China's WTO Commitments

China*s market access schedule for goods lists specific tariff bindings
and phasein periods for more than 7,000 products. China*s eight- digit
classification of these products is based on the international harmonized
system (HS) nomenclature for imports and exports published by the World
Customs Organization. In addition, China*s goods schedule and annexes list
products that are subject to other types of trade measures, such as
tariff- rate quotas and state trading practices. We combined the goods
schedule and all annexes into one database in order to analyze what types
of measures and practices each product is scheduled to face. We added U.
S. and Chinese government trade statistics to this database to provide
context for describing China*s commitments. U. S. trade statistics are
from the U. S. Department of Commerce*s Bureau of the Census (goods) and
the Bureau of Economic Analysis (services). Chinese trade statistics
(goods) were acquired from the Global Trade Information Service, which
produces the World Trade Atlas. Data are official Chinese Customs
statistics.

We provide the amount of U. S. trade with China in products that are
subject to various trade measures discussed in China*s accession
agreement. Since existing Chinese trade barriers have affected U. S.
trade, current bilateral trade data (2001) may not represent future trade
patterns after barriers are removed. Therefore, data presented in this
report on the amount or share of trade affected by various measures should
be considered only as rough indicators of future trade patterns. In
addition, we also present U. S. world trade data in places as another
indicator of the importance of the sectors that these commitments
potentially affect.

Bilateral trade data that the U. S. and Chinese governments publish differ
significantly for some sectors. Overall, China reports larger U. S.
exports to China and smaller Chinese exports to the United States than
does the United States. One factor affecting this discrepancy is that a
large share of China*s trade passes through Hong Kong. China treats a
large share of these exports as exports to Hong Kong for statistical
purposes, while many countries that import Chinese products through Hong
Kong generally attribute their origin to China. We mainly report U. S.
statistics but supplement these with Chinese statistics when appropriate.

U. S. and Chinese trade statistics are not comparable at a detailed
product level. The harmonized system nomenclature used to record trade
data (both U. S. and Chinese statistics) is comparable only between
countries at the six- digit level. However, China*s tariff schedule and
other annexes are reported at an eight- digit (more disaggregated) level.
Therefore, U. S. trade data cannot be precisely matched to the Chinese
tariff and other trade measure schedules. To overcome this challenge, we
have produced ranges Appendix III: Data Sources and Methodology

for Analysis of China*s WTO Goods Commitments

Appendix III: Data Sources and Methodology for Analysis of China*s WTO
Goods Commitments

Page 44 GAO- 03- 4 China's WTO Commitments

of values of U. S. trade (exports or imports) at the eight- digit level
that are affected by Chinese tariffs and other trade measures. In cases
where not all eight- digit products in a given six- digit grouping are
affected by a particular trade measure, we produce a range of trade
affected by the measure. The low end assumes that all U. S. trade occurred
with products not affected by the measure. The high end assumes that all
U. S. trade occurred with products that were affected by the measure. In
cases where all 8- digit products (in a six- digit group) are affected by
a trade measure, we know that all trade is in products that are affected
and no range is needed.

To facilitate a broad analysis of China*s commitments, we grouped imports
and exports into higher- level categories of goods based on the HS product
codes and our discussions with tariff experts. We took the 22 section
headings of the harmonized system and grouped them into 11 broader
categories. Table 11 shows these groupings in detail.

Appendix III: Data Sources and Methodology for Analysis of China*s WTO
Goods Commitments

Page 45 GAO- 03- 4 China's WTO Commitments

Table 11: Concordance between GAO Categories and Harmonized Schedule
Section Headings GAO categories HS section headings

1. Animal and plant products 1- Live animals; animal products 2- Vegetable
products 3- Animal or vegetable fats and oils; edible fats; waxes 2.
Prepared foods, beverages, spirits, and tobacco 4- Prepared foodstuffs;
beverages; spirits; vinegar; tobacco 3. Chemicals, plastics, and minerals
5- Mineral products

6- Products of chemical or allied industries 7- Plastics and articles
thereof; rubber 4. Wood and paper products 9- Wood and articles of wood

10- Pulp of wood, paper, and paperboard 5. Textiles, apparel, leather, and
footwear 8- Leather, travel goods, handbags

11- Textiles and textile articles (apparel) 12- Footwear, headgear,
umbrellas 6. Glassware, precious metals and stones, jewelry 13- Articles
of stone, plaster, ceramics, glass, and glassware

14- Pearls, precious or semiprecious stones, precious metals, jewelry,
coin 7. Base metals and articles of base metals 15- Base metals and
articles of base metals (except tools and implements) 8. Machinery,
electronics, and high- tech apparatus 15- Base metals and articles of base
metals (tools and implements)

16- Machinery and mechanical appliances, electrical equipment, sound
recorders, televisions 18- Optical, photographic, cinematographic,
measuring, and other apparatus (except clocks and watches, musical
instruments) 9. Autos and other vehicles and parts 17- Vehicles, aircraft,
vessels, and associated transport equipment 10. Miscellaneous
manufacturing 18- Optical, photographic, cinematographic, measuring, and
other apparatus (clocks

and watches, musical instruments) 19- Arms and ammunition 20-
Miscellaneous manufactured articles 21- Works of art, collectors* pieces,
antiques 11. Special provision products 22- Special classification
provisions

Source: GAO and the international harmonized system nomenclature (World
Customs Organization).

Also, in the discussion of China*s trade framework in appendix IV, we
refer to U. S. exports of chemicals, pharmaceuticals, and spirits. We
defined these product groups based on harmonized schedule categories. For
chemicals, these are HS categories 28 (inorganic chemicals; organic or
inorganic compounds of precious metals, of rare earth metals, of
radioactive elements, or of isotopes); and 29 (organic chemicals). For
pharmaceuticals, this is HS category 30 (pharmaceutical products). For
spirits, these are HS categories 2203 (beer made from malt) through 2208
(ethyl alcohol, spirits, liqueurs, and other spirituous beverages).

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 46 GAO- 03- 4 China's WTO Commitments

During China*s negotiations to accede to the World Trade Organization, WTO
members sought and achieved a variety of commitments from China that
addressed a range of member concerns. Many of these commitments relate to
the transitional status of China*s economy as it becomes more market
oriented and less state controlled. Among other things, the commitments
address how China manages its trade regime; what level of market access
China provides for goods, agriculture, and services; how China uses import
and export regulations to monitor and influence its trade with other
countries; how China applies and enforces intellectual property rights
protection; and how the state intervenes in the economy with respect to
foreign investment, firms* rights to trade, and state- owned enterprise
operations. In addition, China agreed to certain safeguards and trade
remedies, including a special oversight review mechanism, to provide
protection to WTO members to deal with trade- related problems that might
arise as China implements its WTO obligations. We grouped China*s WTO
commitments into eight areas* trade framework, import regulation, export
regulation, trading rights and industrial policies, agriculture, services,
intellectual property rights, and safeguards and other trade remedies. In
the following sections we discuss China*s commitments in each of the eight
areas, as well as the phasein schedule of selected commitments.

China*s trade framework commitments cover a number of topics that deal
broadly with how China manages its trade regime. 31 Prior to China*s
accession to the WTO, U. S. businesses and government officials complained
that China*s trade regime discriminated against foreign enterprises and
individuals, lacked transparency, and did not consistently apply its trade
laws and other measures throughout China. U. S. government officials and
businesses were also concerned that China*s court system lacked the
expertise and independence necessary to help establish a stable business
and trade climate in China. The lack of an independent judiciary has
caused U. S. businesses to rely more on arbitration proceedings than on
China*s courts to resolve commercial disputes. The topics that China*s
trade framework commitments cover include nondiscrimination, transparency,
uniform administration of China*s trade regime, and judicial review.
Several of these topics also include commitments requiring China to revise
its laws, regulations, and

31 We refer to *topics* as the subcategories under our eight broad
categories. Overall, there are 47 topics in the eight categories (see app.
II). Appendix IV: Summary and Analysis of

China*s WTO Commitments Trade Framework

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 47 GAO- 03- 4 China's WTO Commitments

other legal measures for conformity with WTO rules. Other topics include
application of China*s WTO commitments to its special economic areas and
to China*s special trade arrangements, such as barter trade. 32 Some of
the important commitments in this area are shown in table 12.

Table 12: Examples of China*s WTO Commitments Relating to China*s Trade
Framework Topic China committed to

Nondiscrimination  Treating foreign individuals and enterprises,
including foreign- funded enterprises, no less favorably than other
enterprises and individuals regarding (1) procurement of goods and
services necessary for production and (2) prices and availability of goods
and services supplied by public entities.

 Repealing and ceasing to apply, upon accession, all existing laws,
regulations, and other measures inconsistent with WTO rules on national
treatment. Transparency  Publishing trade measures, and a list of all
organizations responsible for authorizing, approving, or

regulating services activities, in an officially designated journal.

 Allowing a reasonable period of time after publication of trade measures
for public comment before measures are implemented.

 Enforcing only trade measures that are published and readily available
to other WTO members.

 Making available trade measures in one or more official WTO languages,
not later than 90 days after they are implemented or enforced.

 Establishing one or more enquiry points where individuals, enterprises,
or WTO members can obtain information on trade measures.

 Ensuring that replies from enquiry points to WTO members represent
authoritative view of Chinese government, and that replies to individuals
and enterprises are accurate and reliable. Uniform administration 
Applying China*s WTO commitments uniformly throughout China, including in
its special economic

areas.

 Applying China*s trade measures uniformly at central and subnational
levels, and ensure that local measures are consistent with WTO rules.

 Establishing a mechanism for receiving complaints regarding nonuniform

 application of China*s trade regime.

 Requiring Chinese authorities to act promptly to address cases of
nonuniform application. Judicial review  Establishing or designate
tribunals to review a broad array of administrative actions relating to

trade.

 Ensuring that tribunals are impartial and independent of administrative
agencies entrusted with enforcement of trade- related actions.

 Providing opportunity for appeal to judicial body where initial right of
appeal of trade- related action is to an administrative agency. Special
economic areas  Applying to imported products introduced into other parts
of China from its special economic areas

all taxes, charges, and measures that are normally applied to imports.

 Ensuring that preferential arrangements provided to foreign- invested
enterprises located within China*s special economic areas are provided on
nondiscriminatory basis. Special trade arrangements  Eliminating or
bringing into conformity with WTO rules all special trade arrangements,
including

barter trade arrangements, with third countries and separate customs
territories. Source: GAO analysis of China*s WTO accession agreement.

32 These special economic areas include China*s special economic zones,
open coastal cities, border trade regions and minority autonomous areas,
and economic and technical development zones.

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 48 GAO- 03- 4 China's WTO Commitments

China*s trade framework commitments are substantial and require China to
continue to make changes to the way in which its trade regime functions.
Many of these commitments can be viewed as furthering China*s overall rule
of law development, which has been occurring since the late 1970s. About
half of China*s trade framework commitments are of the nondiscrimination
and transparency type, and nearly all those pertaining to
nondiscrimination involve China*s providing national treatment to foreign
enterprises and individuals. 33 Also, the topic of nondiscrimination has
the largest number of commitments of any topic in the agreement that
requires China to revise its laws* covering the creation and modification
of some laws and the repeal of others. 34 One important commitment in this
topic is that, by accession, China would repeal and cease to apply all
legal measures that are inconsistent with WTO rules on national treatment.
Aside from these nondiscrimination and transparency commitments, a number
of others in the topic of uniform application of laws call for revising
legal measures to ensure their consistency with WTO rules. Thus, China has
committed to applying its WTO commitments throughout its territory, to
conform local legal measures to its WTO obligations, and to ensure
consistency of national and subnational legal measures. One important
related commitment states that China will honor its WTO obligations even
if administrative regulations, departmental rules, and other measures are
not in place to implement them. Finally, China made many nondiscrimination
and transparency commitments in other areas of its accession agreement,
such as import regulation, agriculture, and trading rights and industrial
policies.

China*s rule of law* related commitments, particularly in the areas of
transparency, uniform application of laws, and judicial review, affect not
only China*s implementation of its trade regime but also its overall legal
system. Consequently, it may be some time before WTO members can
accurately assess how well China is implementing those commitments. Some
of these commitments also exceed the requirements set forth in the WTO
agreements and rules. For example, WTO rules generally do not require, as
does China*s accession agreement, that its members (1) provide a public
comment period before a trade measure can be implemented; (2)

33 National treatment requires China to provide foreign enterprises and
individuals treatment that is at least equal to that provided to domestic
enterprises. 34 With regard to law revision generally, about a tenth of
the nearly 700 commitments that we identified in China*s WTO accession
package specifically obligate China to enact, repeal, or modify trade-
related laws and regulations. Nondiscrimination,

Transparency, Uniform Administration, and Judicial Review

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 49 GAO- 03- 4 China's WTO Commitments

establish enquiry points for transparency purposes, which must respond
authoritatively to transparency- related questions that WTO members raise;
or (3) establish a mechanism by which individuals can bring questions
about inconsistent application of a WTO member*s trade regime.

Because of WTO member concerns about products from China*s special
economic areas being treated differently from other products imported into
China, and because of the lack of available information about these
topics, China made about a dozen commitments that apply to these areas.
For example, China committed to applying to imported products introduced
into other parts of China from its special economic areas all taxes,
charges, and measures that normally apply to imports. China also pledged
to provide the WTO information describing how special trade, tariff, and
tax regulations were limited to the designated special economic areas,
including information on their enforcement.

One of the main reasons for the rapid economic development in these
special economic areas, such as the Shenzhen special economic zone, has
been the preferential benefits provided to foreign businesses, including
tax benefits and the use of foreign capital. Although the commitments that
apply to these economic areas require China to fully observe WTO
provisions on nondiscrimination, they still allow China to continue to
provide preferential arrangements to U. S. and other foreign businesses.
Thus, consistent with China*s overall national treatment commitments,
China cannot treat foreign businesses less favorably than Chinese
enterprises in these areas, but China can give them better treatment. In
addition, China committed to bringing all special trade arrangements with
other countries and separate customs territories, including barter
arrangements, into conformity with WTO rules.

With several relatively minor exceptions, China*s trade framework
commitments became applicable on December 11, 2001, the date of China*s
accession to the WTO. However, one exception relates to a 1 year phasein
period for amending or repealing legislation dealing with aspects of
national treatment relating to pharmaceuticals, spirits, and chemicals. 35

35 In 2001, U. S. exports to China totaled about $494 million in
chemicals, $50 million in pharmaceuticals, and $4 million in spirits. This
amounted to 3 percent of total U. S. exports to China for that year.
Special Economic Areas

and Trade Arrangements Key Dates

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 50 GAO- 03- 4 China's WTO Commitments

During China*s WTO accession negotiations, WTO members sought to limit
China*s future use of a variety of import mechanisms that could be
employed to control market access and potentially reduce the prospective
gains to WTO members resulting from China*s WTO concessions. We found that
China made more commitments in the import regulation area than in any of
the other eight areas of its agreement. They make up about one- third of
those we identified. China has used high import duties (tariffs), 36
restrictive quotas, and burdensome technical standards and inspection
procedures to restrict trade. To join the WTO, China made commitments to
reduce its use of these barriers and to follow WTO basic principles so
that these barriers are not used as a discriminatory or burdensome
hindrance to trade. In addition, China agreed to implement the WTO
agreements covering regulatory border measures (such as rules of origin
and customs valuation) upon accession and to ensure that its laws,
regulations, and other measures conform to WTO rules. Examples of
commitments that China agreed to concerning import regulation are listed
in table 13.

Table 13: Examples of China*s WTO Commitments Relating to China*s Import
Regulation Topic China committed to

Tariffs, taxes, and charges  Binding (not to raise tariffs beyond a
certain level) all tariff lines and bind at zero other duties and charges.

 Eliminating tariffs and other duties and charges on information
technology products.

 Conforming customs fees and charges to WTO rules, such as limiting
duties to the approximate cost of services rendered.

 Providing nondiscriminatory treatment to imports with respect to
tariffs, charges, and border tax adjustments. Nontariff measures
(licensing, quotas, tendering) a

 Gradually eliminating licensing, quota, and tendering requirements for
certain products.

 Refraining from instituting new, nontariff measures beyond those listed
in China*s scheduled commitments.

 Ensuring that China*s quota and licensing system conforms to WTO rules,
including that they be administered in a transparent, nondiscriminatory
manner.

 Ensuring that entities holding quota allocations also receive necessary
import licenses.

 Abiding by specific time frames for allocating quotas and a minimum
validity period for issued licenses.

 Publishing key information on licensing and quota allocation rules and
procedures, including lists of products subject to licensing and tendering
requirements or other trade restrictions, criteria for obtaining licenses
or quotas, and amount of quota available.

 Reallocating unused quota by a specific date to encourage full quota
utilization. Industrial tariff- rate quotas (TRQ) b

 Establishing annual TRQs for certain fertilizer and wool top products
and gradually increase quota levels during a phasein period. (See table
15.) c

 Abiding by specific time frames for allocating initial quota and
reallocating unused quota

36 A tariff is a tax collected at the border based on a given percentage
value of an imported product or a specific rate per unit of the product.
Import Regulation

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 51 GAO- 03- 4 China's WTO Commitments

Topic China committed to

to encourage full TRQ utilization. (See fig. 5.)

 Publishing information on amount of quota allocations available and
respond to inquiries within 10 days to increase transparency about what
entities received quota allocations.

 Reserving a portion of all TRQs for private traders, and allocate quotas
directly to endusers to increase private competition and reduce state
intervention.

 Allocating at least 10 percent of TRQ to new quota- holders in the first
year. Regulatory border measures (rules of origin, customs valuation,
preshipment inspection) d

 Ensuring that laws and regulations conform to the WTO agreements for
rules of origin, customs valuation, and preshipment inspection upon
accession.

 Refraining from using minimum or reference prices, such as an artificial
market price, for customs valuation purposes.

 Adopting two WTO decisions that affect how certain products are treated
for customs valuation purposes within 2 years of accession.

 Ensuring upon accession that fees charged for preshipment inspection are
commensurate with the services provided and do not provide indirect
protection to domestic products or serve as a tax for fiscal purposes.
Technical barriers to trade e  Bringing all technical regulations,
standards, and conformity assessment procedures into

conformity with WTO rules, including the nondiscriminatory application of
and opportunity to comment on proposed rules.

 Ensuring that imported products are not subject to multiple or
duplicative conformity assessment requirements.

 Unifying China*s conformity assessment procedures and inspection
certificate marks for both imported and domestic products, and shorten the
time frames for obtaining the unified certification mark.

 Increasing the use of international standards and recommendations as the
basis of technical regulations, standards, and conformity assessment
rules.

 Publishing information on adopted and proposed technical regulations,
standards, and conformity assessment procedures, including criteria used
and regulatory bodies having responsibilities for administering such
rules.

 Adopting the WTO Code of Good Practice within 4 months of accession
(includes provisions for nondiscriminatory treatment, the avoidance of
using standards as barriers to trade, the use of international standards
in standards setting, and measures to increase transparency). a Licensing
is a requirement that companies obtain government approval and submit
documentation

before importing. Quotas are quantitative limits on the amount of a
certain product that can be imported. Tendering is a requirement that
enterprises or private individuals obtain government approval before
making major purchases. b Tariff- rate quotas are special mechanisms that
allow imports to enter at a low tariff up to an agreed

quota level, with any additional imports at a higher tariff level. China
also made commitments concerning tariff- rate quotas for certain
agricultural products. These commitments are discussed in the agriculture
section. c A wool top is a semiprocessed product of wool before it goes
into fabric.

d Rules of origin are the standards that a country uses to classify a
country of origin for customs purposes. Customs valuation refers to the
standards that a country uses to determine the value of imports for
customs purposes. Preshipment inspection is a requirement by some
countries that imports undergo an inspection in the exporting country to
confirm that the merchandise matches what the exporter declares. e
Technical barriers to trade include packaging, marketing, and labeling
requirements, as well as

procedures for sampling, testing, verifying, and certifying conformity or
compliance with these rules through a *conformity assessment* process.
Technical barriers to trade can restrict trade if used in a discriminatory
manner.

Source: GAO analysis of China*s WTO accession agreement.

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 52 GAO- 03- 4 China's WTO Commitments

As discussed previously, China*s commitments for tariffs, taxes, and other
charges include its agreement to bind its tariffs, reduce them gradually,
and eliminate all tariffs and any other charges on information technology
products. 37 For example, China agreed to bind all of its tariff lines
upon accession (more than 7, 000 products), reduce its tariff rates by
2010 to an overall average of less than 10 percent, bind at zero any other
duties and charges, and eliminate tariffs on information technology
products* commitments that not all WTO members have made. China also
agreed to implement these commitments in a nondiscriminatory manner.
Figure 4 shows how China*s average tariffs for agriculture,
nonagriculture, and all products are anticipated to fall between 2001 and
2010. Most tariff reductions are to be completed by 2005, when the average
tariff on agriculture products is to be about 15 percent and the average
tariff on nonagriculture products is to be about 9 percent. (The section
below on agriculture discusses agricultural tariffs in more detail). Only
a few products, such as fresh strawberries, have a tariff phasein schedule
lasting until 2010.

37 To *bind* a tariff line means that a country commits to not raising its
tariff rate above a certain agreed- upon rate, known as the bound rate.
However, a country may charge less than its bound rate. Tariffs, Taxes,
and Charges

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 53 GAO- 03- 4 China's WTO Commitments

Figure 4: China*s Average Tariffs for Agriculture, Nonagriculture, and All
Products, 2001* 2010

Source: GAO analysis of China*s accession agreement.

With respect to nontariff measures, China agreed to gradually eliminate
licensing, quota, and tendering requirements on all products by 2005 and
to generally refrain from introducing new requirements. These measures
affect more than 400 products, including automobiles and parts, other
transport vehicles, chemical fertilizers, and high- tech apparatus. In
2001, the United States exported approximately $0.2 billion to $1.1
billion to China of products that are subject to these measures (between
about 1 and 7 percent of total exports to China). Since trade- distorting
measures (such as quotas and licenses) often reduce imports of the
affected sectors, using historical trade data for these sectors could
understate the potential importance of these barriers. Therefore, we also
used U. S. export data to all countries to measure the potential
importance of these trade barriers. 38

38 We assumed that other U. S. export markets were less distorted by these
trade barriers. However, other market barriers may also distort U. S.
world exports. (See app. III for more discussion of our trade data
methodology.) Nontariff Measures

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 54 GAO- 03- 4 China's WTO Commitments

Using these data, we found that about 5 to 9 percent of total U. S. world
exports were in goods subject to Chinese licenses, quotas, and tendering.

In addition, China*s commitments provide guidance, including specific
details on how China should manage its licensing and quota systems and
what information should be published in China or reported to the WTO. For
example, China committed to ensuring that entities receiving quota
allocations will also receive necessary import licenses, and that quota
allocation amounts will be published in advance of the time when importers
must apply for these allocations. Moreover, China committed to generally
issuing import licenses that are valid for at least 6 months, and to
allocating quotas to applicants no later than 60 days after the quota
application period closes (see fig. 5 for more information on China*s
annual schedule for quota administration). The licensing example goes
beyond normal WTO rules that require members to issue licenses for a

*reasonable* duration. However, the accession agreement appears to provide
China with additional time to notify the WTO when it changes its licensing
requirements* China has 75 days to notify the WTO after it publishes such
changes, while WTO import licensing rules give members 60 days to do so.

Figure 5: Schedule for China*s Quota Administration

Source: GAO analysis of China*s WTO accession agreement.

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 55 GAO- 03- 4 China's WTO Commitments

Generally, WTO members do not use TRQs for nonagricultural products.
However, under its agreement China will maintain TRQs for some fertilizer
and wool top products but will provide an increasing level of quota access
(see table 14). 39 U. S. Trade Representative officials said that the
fertilizer quotas will continue to grow indefinitely until such time as a
new growth rate for the average of the three fertilizer products is
negotiated. Its agreement also contains substantial, specific guidance for
how China will implement this TRQ system* we found that more than three-
quarters of its commitments concerning industrial TRQs are guidance-
related. As with its commitments on maintaining agricultural TRQs for key
commodities (discussed later), China agreed to be subject to some detailed
and specific procedures for its TRQ administration system. Key features of
this TRQ administration system include provisions to reserve a portion of
all quota amounts for private traders and new quota- holders, to allocate
quotas directly to end- users, and to reallocate unused quotas.
Collectively, these provisions are intended to increase competition and
reduce state intervention between buyers and sellers. Additionally, China
committed to following the same specific guidance set forth for the
administration of its agricultural TRQs, with respect to the information
that should be published about available quota amounts and time frames for
making decisions in administering its quota system (see discussion of
agricultural TRQ and fig. 7).

39 According to U. S. trade statistics, the United States exported about
$415 million in fertilizers to China in 2001, accounting for about 20
percent of U. S. world exports of fertilizers. However, because of
business confidentiality, the U. S. Department of Commerce does not report
detailed information on the amounts of specific types of fertilizers
(including diammonium, urea, and nitrogen phosphorus potash [or NPK]) that
are exported. Chinese trade statistics, which differ from U. S. statistics
(see app. III), report receiving U. S. exports of diammonium of about $526
million, nitrogen phosphorus potash of $500, 000, and no exports of urea
in 2001. The U. S. Department of Commerce reported exports of wool tops to
China of about $2 million in 2001. Industrial Tariff- Rate

Quotas (TRQ)

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 56 GAO- 03- 4 China's WTO Commitments

Table 14: China*s Industrial TRQ Commitment Phasein Schedule Product

Initial quota quantity (million MT)

Final quota quantity (million MT)

Year reaching final quota

quantity In- quota

tariff (percent)

Out- of- quota bound tariff

(percent) Other specific terms and conditions

Diammonium phosphate (phosphate fertilizer* one product)

5.4 6. 9 2006 4% 50%  Initial state trading enterprise (STE) a portion is
90 percent, reducing by 5 percentage points per year until reaching 51
percent in year 9 (2009).

 Tariff- quota level will increase 5 percent annually until 2006.

 After 2006 growth rate will be linked to NPK growth rate. Urea (nitrogen
fertilizer* one product)

1.3 3. 3 2006 4 50  STE portion is 90 percent.

 Tariff- quota level increases as follows:

Year 2: 1.3 mmt Year 3: 1.8 mmt Year 4: 2.3 mmt Year 5: 2.8 mmt

 After 2006, growth rate will be linked to NPK growth rate. NPK (nitrogen
phosphorus potash fertilizer *one

product) 2.7 n. a. indefinite 4 50  Initial STE portion is 90

percent, reducing in equal steps to 51 percent over 8 years (2009).

 Tariff- quota level will increase 5 percent annually. Wool tops b (three
products)

0.06875 0.08 2004 3 38  Allocate access to WTO members, taking into
account their bilateral historical trade flows.

Legend MT: metric ton MMT: million metric tons n. a.: not applicable a
State trading enterprises are state entities that have received special
rights to import and export. A

discussion of the practices of these enterprises can be found in the
trading rights and industrial policies section of this appendix. b A wool
top is a semiprocessed product of wool before it goes into a fabric.

Source: GAO analysis of China*s WTO accession agreement.

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 57 GAO- 03- 4 China's WTO Commitments

China*s commitments regarding regulatory border measures cover its use of
standards to classify the country of origin (rules of origin) of imports
and to determine the value of goods for customs purposes (customs
valuation). The commitments also cover requirements for imports to undergo
inspection prior to shipment from exporting countries, to confirm certain
export information (preshipment inspection). A majority of China*s
commitments under this topic affirm its intention to implement WTO
agreements covering these measures upon accession and ensure that its
laws, regulations, and other measures conform to WTO rules. In addition,
China made specific commitments to refrain from using minimum or reference
prices in valuing goods for customs purposes; to adopt two WTO decisions
concerning customs valuation; and to ensure that fees charged for
preshipment inspection are commensurate with services provided, and are
not used as a protective measure for domestic products or as a tax for
fiscal purposes.

China*s working party report includes considerable discussion regarding
China*s practices under the topic of technical barriers to trade. Our
analysis of China*s overall commitments shows that China undertook more
commitments under this topic than in any other topic in the agreement.
More than 40 percent of China*s commitments in this area affirm its
intention to implement WTO rules upon accession and to provide
nondiscriminatory treatment to imports in the application of technical
rules and assessment procedures. China*s commitments also provide guidance
regarding the procedures followed and the operation of conformity
assessment bodies. The bodies implement procedures for sampling, testing,
verifying, and certifying conformity or compliance with technical
standards. In addition, about a quarter of China*s commitments under this
topic involve nondiscriminatory treatment, particularly addressing four
sectors* automobiles and parts, boilers and pressure vessels, chemicals,
and electrical equipment* in response to WTO member concerns. Finally,
about 30 percent of China*s technical barriers to trade commitments (or 19
out of 66 commitments) require it to provide specific information to the
WTO on its practices; we found that China has more notification
requirements in this topic than in any other subcategory of the agreement.
Some notifications go beyond what is generally required of WTO members.
For example, while all members are encouraged to adopt international
recommendations and standards in establishing technical rules and
conformity assessment procedures, China is also required to notify the WTO
and to update the progress it is making under its unique transitional
review mechanism. Regulatory Border

Measures Technical Barriers to Trade

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 58 GAO- 03- 4 China's WTO Commitments

Most of China*s commitments concerning import regulations are scheduled to
be implemented within 5 years. Some commitments, such as binding all
tariff lines, reducing tariffs on certain products, and providing
nondiscriminatory treatment to imports with respect to certain regulatory
measures, are applicable upon accession. Although all tariff lines are
bound at certain rates upon accession, bound rates on about half of
China*s tariff schedule (over 3,000 products) will decrease further
because of reductions scheduled between 2002 and 2010. China*s commitments
concerning technical barriers to trade are to be fully implemented by June
2003. China committed to eliminating its licensing and quota requirements
for specific products by 2005. (See table 15 for implementation dates for
certain import regulation commitments.)

Table 15: Timetable for Selected Chinese WTO Commitments Relating to
Import Regulation Date Commitment

April 2002 Technical barriers to trade: Notify acceptance of the WTO*s
Code of Good Practice, contained in annex 3 of the WTO Agreement on
Technical Barriers to Trade. December 2002 Technical barriers to trade:
Ensure that all conformity assessment bodies can undertake

assessments for both imported and domestic products. June 2003 Technical
barriers to trade: Assign respective responsibilities to conformity
assessment bodies solely

on the basis of scope of work and type of product, without giving
consideration to product origin. December 2003 Customs valuation: Within 2
years adopt two WTO customs valuation decisions concerning the

treatment of interest charges and the valuation of carrier media- bearing
software for data- processing equipment. January 2005 Nontariff barriers:
Complete the elimination of all licensing and quotas for products listed
in China*s

schedule of commitments. January 2010 Tariffs, taxes, and charges: Tariff
reductions are completed.

Source: GAO analysis of China*s WTO accession agreement.

Key Dates

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Some WTO members have expressed concern that China*s export regulations
violated WTO rules by placing restrictions on exports of certain
agricultural products, resource products, and chemicals. They were also
concerned about China*s restrictions on exports of silk and a number of
raw materials or intermediate products that could be subject to further
processing, such as tungsten, ore concentrates, rare earth, and other
metals. 40 WTO rules allow restrictions on exports only in limited cases,
such as critical shortages of foods and in other exceptional
circumstances. In response, China committed to modifying its export
regulations and restraining its use of export duties. Table 16 shows
examples of the types of commitments that China made in the area of export
regulation.

Table 16: Examples of China*s WTO Commitments Relating to China*s Export
Regulation Topic China committed to

Export licensing  Abiding by WTO rules on nonautomatic export licensing
and export restrictions, and to removing or modifying any laws that
conflict with WTO rules.

 Updating and publishing a list of all entities responsible for
authorization of exports within 1 month of any changes. Export duties 
Eliminating all taxes and charges applied to exports, except for the 84
products listed in China*s

accession agreement, or except when applied according to WTO principles.

 Refraining from increasing the rates of duty beyond what is listed in
the accession agreement, and refraining from raising presently applied
rates without consulting WTO members, and only under exceptional
circumstances.

 Providing foreign individuals, enterprises, and foreign- invested
enterprises with treatment no less favorable than that given to domestic
individuals and enterprises, with respect to border tax adjustments.

Source: GAO analysis of China*s WTO accession agreement.

During its accession negotiations, China told WTO members that it requires
export licenses on certain agricultural products, resource products, and
chemicals. The number of products subject to export licensing requirements
has fallen since 1992, when these requirements covered approximately 50
percent of China*s exports. China told WTO members that it still
maintained export licensing requirements on 58 categories of products and
73 specific items with an export value of $18.5

40 Countries use restrictive export regulations, such as licensing and
duties, to achieve several purposes. Sometimes they are employed to
control trade with recipient countries, to restrict proliferation of
sensitive material or devices (high- speed computers or weapons), or to
preserve domestic supplies of some raw materials that might otherwise be
sold to foreign markets. In addition, if a country is a primary producer
of a product, it may be able to obtain a higher price on international
markets by limiting exports or to gain additional fiscal revenue by taxing
exports. Export Regulation

Export Licensing

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billion (9.5 percent of its total exports). China committed to bringing
its export licensing regime, including its Foreign Trade Law, into
conformity with WTO rules that prohibit using licensing to restrict
exports, except under exceptional circumstances. 41

China also committed to eliminating all taxes and charges on exports
unless they are in conformity with WTO principles or specified in its
accession agreement. The agreement lists 84 products (affecting products
accounting for less than 1 percent of its total exports in 2001) that are
subject to export duties of between 20 and 50 percent. China committed to
binding its export duties on these products at these rates. Most of the
products are base metals and related products, such as aluminum, copper,
and zinc, as well as bars, plates, and wires made from them. China also
agreed to refrain from increasing the present rate of duty on these
products, except under exceptional circumstances, and to consult with
affected WTO members in these cases.

More generally, China*s commitments in the area of export regulation
covering both licensing and duties primarily require it to follow existing
WTO rules and to notify the WTO of its laws and regulations. Of the nine
commitments that we identified in this area, three confirm that China will
abide by existing WTO provisions and one requires China specifically to
modify its Foreign Trade Law so that it conforms to WTO provisions. These
commitments are intended to bring China*s export regime into conformity
with WTO obligations upon accession, and to limit export duties to
products and levels specified in the agreement. China also agreed to
notify the WTO annually of the value of export duties or taxes (by
product), and to notify any restrictions on exports through nonautomatic
licensing requirements or other means. All of the commitments in this area
were to be implemented upon accession, without phasein periods.

41 Exports may also be affected by state trading practices and subsidies.
State trading can restrict exports by providing exclusive rights to export
for certain enterprises. Export subsidies can be used to promote greater
exports by providing financial support to producers linked to their
exports. China*s commitments in these areas are discussed later, under
trading rights and industrial policies. However, only four tungsten and
antimony products are subject to both export duties and state trading.
Export Duties

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Despite gradual reforms during the past 2 decades, the Chinese economy
still is subject to active government involvement in certain sectors and
retains other characteristics of a centrally planned economy. For example,
the government still controls trading activities and prices in certain
sectors, and state- owned enterprises still account for a significant
share in the economy, although their importance has declined. 42 In
addition, central and local governments continue to provide various
incentives and measures to direct investment to selected industries and
also to influence business decisions on trade. The WTO accession agreement
committed China to phasing out the general limitations on companies*
rights to trade* that is, to import or export* within 3 years of
accession, although China will reserve the right of state trading for
certain products. Similarly, China agreed to allow market forces to
determine most prices except for product or service prices specifically
listed in the accession agreement. China*s WTO commitments also require
increased transparency and nondiscrimination from China*s state- owned
enterprises and state trading practices. These commitments also limit the
conditions that China can impose on foreign investors, restrict the use of
certain subsidies, and eliminate subsidies for exports. China also
committed to abiding by the International Monetary Fund*s (IMF)
disciplines on balance of payments and foreign exchange- related measures.
43 Examples of China*s commitments in these areas are listed in table 17.

42 State- owned enterprises accounted for 24 percent of Chinese industrial
output in 2000, according to the Chinese Statistical Yearbook, having
declined from 80 percent in the late1970s.

43 The WTO agreements contain provisions that allow members to impose
temporary restrictions on imports or access to foreign currency when faced
with a deterioration of their foreign reserve holdings. Restrictions on
imports, known as *balance of payments measures,* reduce domestic demand
for foreign currency needed to purchase imports. Restrictions on access to
foreign currency, known as *foreign exchange controls,* limit the supply
of foreign currency and also indirectly restrict imports. The related
disciplines on applying these measures are included in article VIII of the
Articles of Agreement of the International Monetary Fund. For example,
countries are not to impose these restrictions to protect specific
sectors. Trading Rights and

Industrial Policies

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Table 17: Examples of China*s WTO Commitments Relating to China*s Trading
Rights and Industrial Policies Topic China committed to

Right to trade (right to import and export granted to enterprises or
individuals)

 Progressively granting trading rights to all enterprises in China and
eliminating the current system of examination and approval over 3 years.

 Eliminating, upon accession, any criteria requiring export and prior
experience for enterprises to obtain or maintain trading rights.

 Providing nondiscriminatory trading rights to all foreign individuals
and enterprises.

 Providing nondiscriminatory treatment on imported and exported goods,
with respect to their distribution, internal sale, purchase,
transportation, and use. State trading (products subject to state
importing or exporting, or traded only by governmentdesignated companies)

 Reducing over 3 years the list of goods to be traded only by companies
designated by the central government. This affects six commodities
(natural rubber, timber, plywood, wool, acrylic, and some steel products).

 Ensuring transparency of state trading enterprises in import- purchasing
procedures in compliance with WTO rules, and refraining from influencing
these purchases. This affects imports of grains, vegetable oil, sugar,
tobacco, crude and processed oil, chemical fertilizers, and cotton.

 Abolishing state trading and granting trading rights to all individuals
and enterprises for silk no later than January 2005.

 Refraining from excessive domestic price markups on the imports of state
trading enterprises beyond those allowed under WTO rules.

 Preserving the rights of nonstate trading enterprises in importing and
providing nondiscriminatory treatment.

 Ensuring exporters* access to supplies of raw materials in the textiles
sector at conditions no less favorable than those for domestic users.
Price controls  Allowing prices of all goods and services to be
determined by market forces, except for

10 commodity groups and some utilities and other essential services that
will continue to be subject either to government pricing or guidance
pricing. a

 Ensuring that remaining price controls are consistent with WTO rules,
and reporting any exceptions to the WTO.

 Eliminating multi- tier pricing practices for goods and services b

 Publishing in an official journal the list of goods and services subject
to state pricing and the changes; also the price- setting mechanisms and
policies. Subsidies (including export subsidies)

 Ceasing all subsidies for exports by all levels of government upon
accession.

 Eliminating upon accession all subsidies to enterprises requiring either
the use of domestic goods or exports.

 Eliminating (by 2000) 3 of the 24 subsidy programs notified to the WTO.
Two of these 3 are subsidies for the automotive sector, and the other is
the central government*s subsidies to money- losing state- owned
enterprises (SOE) c

 Subjecting subsidies granted to SOEs to WTO disciplines, if the SOEs are
the predominant recipients.

 Agreeing not to invoke certain WTO provisions that make challenging
subsidies of developing countries harder for WTO members. State- owned and
state- invested enterprises

 Refraining from influencing SOEs* purchase and sale decisions, and
allowing them to be made based solely on commercial considerations.

 Allowing foreign enterprises to compete in sales or purchases on
nondiscriminatory terms.

 Refraining from treating some SOEs* purchases as government procurements
that would be exempted from WTO disciplines. Investment policies 
Conforming investment guidelines and their implementation to WTO rules.

 Complying fully with the WTO*s Agreement on Trade- Related Investment
Measures upon accession, and eliminating policies requiring trade and
foreign exchange balancing, local content, and export performance.

 Ensuring that investment approval is not conditioned on whether
competing domestic suppliers of such products exist or performance
requirements of any kind, including the

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Topic China committed to

transfer of technology and the conducting of research and development in
China.

 Amending industrial policies for the automotive sector to ensure gradual
liberalization on types or models of vehicles permitted for production
over 2 years and investment levels approvable by provincial governments
over 4 years, and removing the 50 percent foreign equity share limit on
automotive engine plants upon accession. Foreign exchange controls 
Implementing its obligations with respect to foreign exchange matters in
accordance

with WTO disciplines concerning the IMF.

 Not resorting to any laws, regulations, or other measures that would
restrict the availability of foreign exchange for current international
transactions, unless otherwise provided for in IMF rules. Balance of
payments  Complying fully with the WTO provisions regarding balance of
payments provisions.

 Giving preference to price- based measures, and transforming non* price-
based measures into price- based ones as soon as possible if China uses
such measures.

 Ensuring that measures taken during a serious decline in foreign
exchange reserves not exceed what is necessary, and applying these
measures only to control the general import level.

Civil aircraft trade  Refraining from imposing offsets d or other forms
of industrial compensation when purchasing civil aircraft, including
specified types or volumes of business opportunities.

Government procurement  Becoming an observer to the WTO*s Government
Procurement Agreement upon accession.

 Ensuring that all government entities (including the subnational level)
conduct procurement in a transparent manner, and providing all foreign
suppliers with equal opportunity to participate. a Products subject to
state pricing include tobacco, edible salt, natural gas, and
pharmaceuticals;

products subject to government guidance pricing include grain (wheat,
maize, rice, soybeans), vegetable oil, processed oil, fertilizer, silkworm
cocoons, and cotton. Public utilities and services sectors subject to
government pricing include gas, tap water, electricity, heating power,
water supplied by irrigation works, postal and telecommunication services
charges, entrance fees for tour sites, and educational services charges.
Services sectors subject to government guidance pricing include most
transport services charges; professional services charges; charges for
commission agents* services; charges for settlement, clearing, and
transmission services of banks; selling price and renting fee of
residential apartments; and health- related services. b In the late 1970s,
the Chinese government purchased preset amounts of agricultural products
from farmers at fixed prices while allowing farmers to sell extra
production at free market prices. This multitier pricing was later
extended to nonagricultural products. However, by the early 1990s, the
government eliminated most fixed prices and allowed market forces to
determine most prices. c China reported that its subsidy programs include
direct subsidies given by central and local

governments to money- losing state- owned enterprises; the priority in
obtaining loans and foreign currencies, based on export performance;
preferential tariff rates, based on the local content of automotive
production; preferential policies for the special economic zones and other
special areas; preferential policies for foreign- invested enterprises;
loans from the state policy banks; subsidies for poverty alleviation;
funds for technology renovation and research and development;
infrastructure construction funds for agricultural water conservation and
flood protection; tax and tariff refunds for export products; tariff
reduction and exemption for enterprises; provision of low- price inputs
for special industrial sectors; subsidies to certain enterprises in the
forestry industry; and preferential income tax treatment for enterprises
satisfying any of the specified criteria, including using high technology,
transferring technology, utilizing waste, investing in poverty- stricken
regions, or providing job opportunities for the unemployed. d Offsets
refer to the terms of transactions imposed on sellers that can include
paying for imports with

some locally produced goods or contracting for parts production to make
the imported goods. It can be viewed as a form of barter, counter-
purchase, and buy- back.

Source: GAO analysis of China*s WTO accession agreement.

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More than 100 commitments in China*s accession agreement deal with the
area of trading rights and industrial policies. About a fifth of these
commitments require adherence to existing WTO rules or principles. A
similar number involve reporting information to the WTO on China*s
policies, practices, and economic conditions related to state- controlled
sectors. Many of these reporting requirements are specified in conjunction
with China*s annual transitional review mechanism. (The transitional
review mechanism is discussed later, under the Safeguards and Other Trade
Remedies section.) Additionally, about a quarter of the commitments
provide guidance on how China will implement policy changes in this area,
especially with regard to trading rights and state trading issues.

China has gradually liberalized its trading regime since 1978. State
control of foreign trade was one of the most important features of the
Chinese economy prior to reform. Prior to 1978, China conducted its
foreign trade through 12 state trading companies, each one with a monopoly
to trade certain goods and to conduct trade in accordance with the central
plan. These companies also controlled the distribution of traded goods
within China. (Distribution rights are considered a separate services area
in China*s WTO accession agreement.) During the past 2 decades, China has
granted trading rights to more domestic companies and reduced the number
of commodities subject to state control. 44 As China opened its economy to
foreign investment, China also granted foreign- invested enterprises the
right to import goods needed for their production. Foreigninvested firms,
however, could not import other goods or distribute any goods in China;
they were allowed to export only goods that they made. 45

The extent to which China provides foreign businesses and individuals with
trading rights was one of the major issues in China*s WTO accession
negotiations. China pledged to liberalize the availability and scope of
trading rights for all enterprises in China over a 3 year period. Those
foreign- invested enterprises holding minority foreign shares will be

44 China extended trading rights to greater numbers of state and
collective enterprises in the 1980s, and also to manufacturing firms and
Sino- foreign joint ventures in the 1990s, including some private Chinese
enterprises. In 1980, about 90 percent of traded goods were subject to
state trading control; the percentage declined to 40 percent in 1994, and
11 percent in 1998.

45 However, foreign firms could contract with companies having trading
rights to conduct their international trading transactions. Right to Trade
and State

Trading

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granted full trading rights 1 year after accession; those holding majority
foreign shares will receive those rights 2 years after accession; and all
enterprises in China and all foreign enterprises and individuals will
obtain full trading rights 3 years after accession. In addition, foreign-
invested enterprises will not be required to establish in a particular
form (such as registering as enterprises in China) to engage in importing
or exporting.

Although China allowed foreign- invested enterprises to obtain limited
trading rights based on the enterprises* approved scope of business prior
to WTO accession, even wholly Chinese- invested enterprises were required
to apply for trading rights. The Chinese government approved these
applications using certain criteria, including a minimum registeredcapital
requirement. Upon accession, China pledged to eliminate export
performance, trade and foreign exchange balancing, 46 and prior-
experience requirements as criteria for obtaining or maintaining the right
to import and export. However, China will maintain a minimum registered-
capital requirement for Chinese enterprises to be qualified for trading
rights. China committed to reducing this requirement to RMB 5 million
(about $604,000) in the first year, RMB 3 million (about $362,000) in the
second year, and RMB 1 million (about $121,000) in the third year. 47

Although China committed to liberalizing general trading rights for all
enterprises, certain commodities will continue to be traded primarily by
state trading companies. State trading will continue to cover imports for
8 commodity groups and exports for 21 groups. The import groups are
grains, vegetable oil, sugar, tobacco, crude oil, processed oil, chemical
fertilizers, and cotton. The export groups consist of some agricultural
commodities (such as tea, rice, corn, and soybeans) and raw materials
(such as tungsten, coal, crude and processed oil, silk, cotton, and yarn).
Additionally, 6 commodity groups (natural rubber, timber, plywood, wool,
acrylic, and certain steel products) can be traded only by those companies
designated with trading rights. The central government made these
decisions based on criteria including minimum registered capital. 48 China

46 Trade balancing requirements limit an enterprise*s imports to an amount
equal to or less than the value of local products that it exports. Foreign
exchange balancing requirements limit an enterprise*s access to foreign
exchange to the amount it exports or the amount of foreign exchange
attributable to the enterprise.

47 The basic unit of currency in China is the yuan, or RMB. China has
maintained a very stable exchange rate between the RMB and the U. S.
dollar. The recent trading band (in July 2002) was around 8. 276 to 8. 28
RMB to the dollar.

48 Designated trading companies do not usually have monopoly power in
trading.

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committed to phasing out the designated trading system in 3 years and to
increasing the numbers of designated entities during the phaseout period.
China also committed to phasing out state trading on silk by January 1,
2005. In addition, China committed to more transparent and disciplined
state trading operations, and it agreed to refrain from imposing excessive
domestic price markups on imports beyond what is allowed under WTO rules.

To examine the extent of these remaining restrictions on state trading, we
analyzed U. S. and Chinese trade data. Our analyses of 2001 U. S. export
data showed that products subject to Chinese state trading control
accounted for about 0.4 to 1.3 percent of U. S. exports to China, with
about 1 percent on goods under designated trading control. However,
Chinese trade data showed that about 3 percent of exports from the United
States to China appeared to be subject to state trading control, and about
0.9 percent were subject to designated trading control in 2001. Using
Chinese government data on imports from all countries, we calculated that
7.1 percent were in goods subject to state trading, and 5. 8 percent were
subject to designated trading in 2001. Because trade- distorting measures
(such as state trading control) often reduce imports in the affected
sectors, using historical trade data for these sectors would understate
the potential importance of these barriers. Therefore, we also used U. S.
export data to all countries to measure the potential importance of these
trade barriers. 49 Using these data, we found that about 2.5 to 3.5
percent of total U. S. exports were in goods subject to Chinese state
trading, and about 1.3 percent were in goods subject to designated trading
in 2001.

Price controls in China primarily take two forms* direct state or
government pricing and government guidance pricing. 50 Government guidance
pricing is a more flexible form, generally allowing a 5 to 15 percent
range of prices. China has gradually liberalized price controls in the
past 2 decades. Nevertheless, most imported goods that are to remain
subject to state trading control will also remain subject to price
controls or government guidance on prices. These include tobacco, grains
(wheat,

49 We assumed that other U. S. export markets were less distorted by these
trade barriers. 50 Chinese officials described prices that are not subject
to these two forms of controls as

*market- regulated prices.* Enterprises are free to set these prices in
accordance with supply and demand to the extent permitted by generally
applicable laws, regulations, and policies concerning prices. Price
Controls

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corn, rice, and soybeans), vegetable oil, processed oil, fertilizer, and
cotton. In addition to these goods, under the accession agreement China
can also control prices on

 edible salt

 some pharmaceutical products

 public utilities (such as gas, water, electricity, and heating power)

 other services that China has designated as essential to citizen living
(such as postal, telecommunication, health, education, and some transport
services)

 some inputs essential for the production of China*s major exports (like
silkworm cocoons and cotton)

 some professional services (such as fees for commission agents;
settlements; bank clearing and transmission; and apartment rental fees).

Nevertheless, China also committed to not extending price controls on
other goods not specifically identified in the accession agreement and to
reducing or eliminating the existing controls. In addition, China
committed to more transparent and disciplined management of these
controls, and to refraining from using price controls to protect domestic
sectors or to limit market access for foreign goods.

According to a Chinese official, 94.7 percent of retail prices in China
were set by market forces in recent years. Our analysis of U. S. export
data showed that about 0.2 to 0. 3 percent of U. S. exports to China were
in goods subject to Chinese direct domestic price controls in 2001, and
about 6.2 to 6.6 percent of U. S. exports to China in the same year were
in goods subject to Chinese government guidance pricing. Chinese
government data showed similar percentages in both cases. Using data of U.
S. exports to all countries, about 0.9 to 2 percent of U. S. exports were
in goods subject to Chinese domestic price controls, and about 2.6 to 3.6
percent were in goods subject to guidance pricing in that year. Chinese
government data showed that 0.5 percent of Chinese imports from all
countries were subject to Chinese domestic price controls and 2.6 percent
were subject to government guidance pricing in that year.

China agreed, upon accession, to terminate all subsidies on exports, as
well as the subsidies conditioned upon either the use of domestic goods or
export performance. China listed 24 subsidy programs in the accession
agreement and agreed to eliminate 3 programs upon accession. The 24
programs include direct subsidies given by central and local governments
to money- losing state- owned enterprises and many other types of indirect
Subsidies

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subsidy programs. Indirect subsidies include loan priorities, preferential
tariffs, tax breaks given to firms encouraged by the government because of
their locations, export performance (amount of exports), and use of local
resources for the products that they make. 51

Among the three programs that China agreed to eliminate, two were related
to subsidies to the automobile sector, and the other was the central
government*s program to give budgetary subsidies to money- losing
stateowned enterprises. China also committed to treating other subsidies
given to state- owned enterprises as subsidies to private enterprises and
subjecting them to WTO disciplines. Furthermore, China agreed not to
invoke certain articles in the Agreement on Subsidies and Countervailing
Measures that make determination of *actionable* subsidies 52 more
difficult to establish against developing countries. Given China*s present
level of economic development and reform, some WTO members were concerned
about the potential for China to maintain or raise industrial subsidies,
especially to state- owned enterprises. Some members also raised concerns
that China*s reporting on subsidies in the WTO negotiations was
incomplete. In response, China agreed to work toward full notification and
acknowledged that subsidies are sometimes difficult to identify.

State- owned enterprises once dominated the Chinese economy, and they
still control about a quarter of Chinese industrial output. Upon accession
to the WTO, China committed to refraining from influencing state- owned
enterprises* decisions on purchases and sales, and to allowing these
decisions to be based solely on commercial considerations. China also
committed to refraining from treating these purchases as government
procurement, which are exempted from some WTO disciplines.

51 The government encourages the development of products that use high
technology, conduct research and development, preserve forestry, reduce
environmental waste, or provide job opportunities for the unemployed.

52 *Actionable* subsidies are a category of subsidies described in the WTO
Agreement on Subsidies and Countervailing Measures. Subsidies are
considered actionable, and therefore illegal, if they cause injury to the
domestic industry of another member, negate other commitments made under
the General Agreement on Tariffs and Trade, or cause serious prejudice to
the interest of another member. The subsidies must be withdrawn or the
adverse effects removed. State- Owned and StateInvested

Enterprises

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China*s incentive policies to guide investment to selected industries
generally are not affected by the WTO accession agreement. Nevertheless,
China committed to eliminating certain trade- distorting requirements on
investment, such as those on trade and foreign exchange balancing, local
content, and export performance. China also committed to not imposing
conditions on technology transfer in approving investment projects.
Additional investment rules on the automotive sector will be gradually
liberalized over 2 to 4 years, such as the types (and models) of vehicles
permitted for production, the investment levels approvable by provincial
governments, and restrictions on the percentage of foreign equity
investment in automotive engine plants.

China*s trading rights and other industrial policy commitments also cover
a variety of other issues. China agreed to adhere to WTO rules governing
measures related to foreign exchange and balance of payments. China had
formally accepted in 1996 the obligations imposed by the IMF on current
account convertibility, 53 and the accession agreement sets forth China*s
commitments regarding conformity with to the IMF rules. In addition, China
also made limited commitments on civil aircraft trade and government
procurement, although China has not acceded to these agreements.

With the exception of commitments in the areas of trading rights and
investments policies in the automotive sector, most commitments in this
area were to be implemented when China joined the WTO. (See table 18.)

53 The IMF Articles of Agreement require members to avoid imposing
restrictions on payments related to current account international
transactions and transfers. That is generally described as *current
account convertibility.* The current account transactions include imports
and exports of goods and services and investment income but exclude long-
term capital flows. Investment Policies

Foreign Exchange Controls, Balance of Payments, Civil Aircraft Trade, and
Government Procurement

Key Dates

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Table 18: Timetable for Selected Chinese WTO Commitments Relating to
Trading Rights and Industrial Policies End date Commitment

December 11, 2004  Right to trade: progressively liberalize trading
rights in 3 years for all enterprises in China, except for those goods
listed in the accession agreement.

 Grant minority foreign- owned joint ventures full rights to trade 1 year
after accession; majority foreign- owned joint ventures 2 years after; and
wholly owned enterprises 3 years after.

 Reduce the minimum registered- capital requirement for Chinese- invested
enterprises to obtain trading rights to RMB 5 million for the first year
after accession; to RMB 3 million for the second year; and to RMB 1
million in the third year a

 Reduce over 3 years the list of goods to be traded only by companies
designated by the central government. This affects six commodities
(natural rubber, timber, plywood, wool, acrylic, and some steel products).
January 1, 2005  Abolish exclusive state trading rights for silk, and
grant trading rights to all individuals and

enterprises. December 11, 2005  Automotive investment rules: revise
certain rules in 2 or 4 years. (Liberalize types or models of

vehicles permitted for production over 2 years. Raise the investment level
approvable by provincial government over 4 years.)

a The basic unit of currency in China is the yuan, or RMB. China has
maintained a very stable exchange rate between the RMB and the U. S.
dollar. The recent trading band (in July 2002) was around 8.276 to 8. 28
RMB to the dollar.

Source: GAO analysis of China*s WTO accession agreement.

Agriculture was a sensitive area in China*s WTO accession negotiation.
China has traditionally pursued self- reliance in food production and
raised many barriers to its agricultural market, such as high tariff rates
and state trading. U. S. agricultural exports to China were about $2
billion in 2001, accounting for more than 10 percent of total U. S.
exports to China, according to official U. S. statistics.

China*s WTO commitments relating to agriculture cover four topics.
Specifically, China committed to imposing lower tariffs on agricultural
products; to administering a tariff- rate quota system to allowing
controlled access for imports of some bulk agricultural commodities in a
transparent, consistent manner and based on commercial considerations; to
capping agricultural domestic subsidies and abolishing export subsidies;
and to fully abiding by the WTO rules governing sanitary and phytosanitary
(SPS) measures on imports, which place disciplines on how countries apply
health and safety standards. Other commitments relate to domestic support
subsidies and state trading in bulk agricultural commodities. About half
of the agricultural commitments we identified are guidance commitments
that describe specific procedures China should follow to administer its
agricultural tariff- rate quotas. The number and type of commitments in
this area reflect the concerns held by some WTO Agriculture

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members about the way in which China*s TRQ system would operate following
accession. Table 19 lists some examples of the commitments in each topic.

Table 19: Examples of China*s WTO Commitments Relating to Agriculture
Topic China committed to

Agriculture tariffs  Binding its tariff rates upon accession.

 Reducing its tariff rates through 2010. Tariff- rate quotas  Applying
tariff- rate quotas to wheat, corn, rice, soybean oil, palm oil, rapeseed
oil, sugar, wool, and

cotton.

 Reserving a portion of TRQs for importation through non* state- trading
enterprises, and progressively increasing the portion for edible oils and
corn.

 Administering TRQs on a transparent, predictable, uniform, fair, and
nondiscriminatory basis using clearly specified time frames,
administrative procedures, and requirements.

 Designating a single, central authority to make the decisions regarding
all allocations and reallocations to end- users. Subsidies  Eliminating
export subsidies on agricultural products.

 Including investment input subsidies (such as fertilizer) in the WTO
calculation of domestic support.

 Limiting the level of allowable domestic support for specific products
to 8.5% of the product production value, and limiting the aggregate level
of support to 8.5% of the total agricultural output value. SPS measures 
Complying with the WTO Agreement on Sanitary and Phytosanitary Measures,
and ensuring that all

of China*s laws, regulations, decrees, requirements, and procedures
relating to SPS measures conform to WTO SPS rules upon accession.

 Notifying the WTO of laws, regulations, and other measures relating to
China*s SPS, including products and relevant international standards,
guidelines, and recommendations.

Source: GAO analysis of China*s WTO accession agreement.

Like all countries that have recently acceded to the WTO, 54 China bound
tariffs for all agricultural products. Moreover, China will gradually
reduce agricultural tariffs by 2010. There are 977 agricultural tariff
items in China*s WTO accession schedule. Fifteen percent of the
agricultural products (148 products) have a final bound tariff at or below
5 percent. These products include soybeans, some grains (oatmeal and
buckwheat), and some spices (cardamom and cloves). About 50 percent of the
agricultural products (490 products) have a final bound tariff of between
6 and 15 percent. These products include dairy products (yogurt, butter,
and cheese) and fruits (grapes, apples, and citrus fruits). Thirty- five
percent of agricultural products (339 products) have tariffs above 15
percent. These products include rice, cotton, and wool. The maximum final
bound tariff is

54 Recently acceded countries in the order of accession are Ecuador,
Mongolia, Bulgaria, Panama, the Kyrgyz Republic, Latvia, Estonia, Jordan,
Georgia, Albania, Oman, Croatia, Lithuania, Moldova, and Taiwan (Chinese
Taipei). Agriculture Tariffs

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65 percent, which is on some grains (wheat, some rice, and some corn) 55
and some tobacco products. Agricultural products will still have, on
average, higher tariffs than nonagricultural products. The average tariff
on agricultural products was 19 percent upon accession and will be 15
percent by 2010, while the average tariff on nonagricultural goods was 13
percent upon accession and will be 9 percent by 2010. However, according
to U. S. Department of Agriculture estimates, the terms of China*s WTO
accession could make China one of the most open countries in the world in
terms of agricultural trade. The world*s average tariff for food and
agricultural products is 62 percent.

China, like other WTO members, including the United States, will use a
tariff- rate quota system to control market access for certain sensitive
commodities. Under the system, a specific quantity of imports will be
allowed in at a low duty, while imports above that quota amount will face
higher tariffs. These commodities are wheat, corn, rice, cotton, soybean
oil, palm oil, rapeseed oil, sugar, and wool, covering 37 tariff lines in
China*s accession schedule. U. S. exports in 2001 of products affected by
TRQs accounted for about 4 percent of total U. S. agricultural exports to
China, according to official U. S. statistics. China has committed upon
accession to eliminating TRQs on a number of products and to subjecting
these only to tariffs, including barley, soybeans, rapeseed, peanut oil,
sunflower seed oil, corn oil, and cottonseed oil. In 2006, China will
eliminate TRQs on soybean oil, palm oil, and rapeseed oil.

China has committed to increasing its tariff- rate quota volumes over a 3*
4 year implementation period. However, while the in- quota volume is
generous as compared with the historic levels of Chinese imports, it still
remains a small fraction of Chinese domestic demand for certain products.
For example, the final quota on wheat is about 10 million metric tons.
Chinese statistics reported that China imported less than 1 million metric
tons of wheat in total in 2001. The U. S. Department of Agriculture
reported Chinese wheat consumption was 114 million metric tons in 2000.
With that level of consumption, the maximum amount of wheat that could be
imported under the low tariff rate would be about 9 percent of Chinese
wheat consumption. Table 20 lists the initial and final quota volumes,
inquota tariffs, and out- of- quota tariffs.

55 This is the out- of- quota tariff rate affecting imports of products
above a certain quantity. China*s in- quota tariff rates on these products
are generally between 1 and 10 percent (see table 20). Tariff- Rate Quotas

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Table 20: China*s TRQ Terms for Agriculture Products

Legend MT: metric ton Note: TRQs on soybean oil, palm oil, and rapeseed
oil will be eliminated on January 1, 2006. Source: GAO analysis of China*s
WTO accession agreement.

Agricultural product

Initial quota quantity (million MT )

Final quota quantity (million MT)

Date reaching final quota

quantity In- quota tariff

(percent) Out- of- quota

bound tariff (percent)

Schedule for increasing TRQ quantity (million MT)

Wheat (6 products)

7.884 9.636 2004 1 * 10 % (depending on product)

74% (accession); 65 (final)

2002: 8.468 2003: 9.052 2004: 9.636 Corn (5 products)

5.175 7.2 2004 1 * 10 (depending on product) 64 (accession);

51( final) 2002: 5.85

2003: 6.525 2004: 7.2 Rice* short and medium grain (7 products)

1.6625 2. 66 2004 1 * 9 (depending on product) 57 (accession);

46( final) 2002: 1.995

2003: 2.3275 2004: 2.66 Rice* long grain (7 products) 1.6625 2. 66 2004 1
* 9 (depending

on product) 57 (accession); 46( final)

2002: 1.995 2003: 2.3275 2004: 2.66 Soybean oil (2 products) 2.118 3.5871
2005 9 63.3 (accession);

9 (final by 2006) 2002: 2.518

2003: 2.818 2004: 3.118 2005: 3.5871 Palm oil (2 products)

2.1 3. 168 2005 9 63.3 (accession); 9( final by 2006)

2002: 2.4 2003: 2.6 2004: 2.7 2005: 3.168 Rapeseed oil (3 products) 0.7392
1. 243 2005 9 63.3 (accession);

9 (final by 2006) 2002: 0.8789

2003: 1.0186 2004: 1.1266 2005: 1.243 Sugar (6 products) 1.68 1.945 2004
20 (initial);

15 (final) 68.8 (accession); 50 (final)

2002: 1.764 2003: 1.852 2004: 1.945 Wool (6 products) 0.25325 0.287 2004 1
38 (accession);

38 (final) 2002: 0.2645

2003: 0.27575 2004: 0.287 Cotton (2 products) 0.78075 0.894 2004 1 61.6
accession);

40 (final) 2002: 0.8185

2003: 0.85625 2004: 0.894

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In addition to increasing the size of the TRQ, China has also committed to
reserving a portion of the TRQs for importation through non- state trading
enterprises. Accordingly, private traders will be able to trade
commodities that have traditionally been under the state trading monopoly.
Figure 6 shows the TRQ portion reserved for importation through state
trading enterprises over time. This portion will remain constant for
wheat, sugar, rice, and cotton, but will gradually diminish for corn and
edible oils. Nevertheless, state trading will remain an important trade
barrier on several of these products. More than half of the in- quota TRQ
volumes are reserved for importation through state trading on wheat,
sugar, and corn.

Figure 6: Percentage Share of TRQs Reserved for Importation through
Chinese State Trading Enterprises, 2001* 2005

Source: GAO analysis of China*s WTO accession agreement.

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During the accession negotiations, WTO members were concerned about
China*s administration of the TRQ system. Among the 58 commitments that we
identified as relating to TRQs, we found 40 to be guidance, providing
clear, specific procedures for the TRQ administration. These commitments
cover (1) specific annual timelines that China must follow to publish
quotas, accept applications, and allocate quotas; (2) deadlines for firms
to return unused quotas without penalty; and (3) specific dates after
which the share for importation through state trading enterprises becomes
available to any enterprise with trading rights. China committed to
administering its TRQ system according to the annual timeline illustrated
in figure 7.

WTO members were also concerned with the transparency of the TRQ
administration. To address these concerns, China committed to setting up
enquiry points and publishing information on its quota allocation in an
official journal.

Figure 7: Timeline for China*s Tariff- Rate Quota Administration

Note: The Chinese agency that administers the TRQ for agricultural
products is the State Development and Planning Commission; for
fertilizers, it is the State Economic and Trade Commission.

Source: GAO analysis of China*s WTO accession agreement.

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China*s commitments also cover the use of export and domestic subsidies in
agriculture. Specifically, China committed to not using export subsidies.
The U. S. Department of Agriculture considers China*s commitment to be
particularly useful with regard to addressing potential U. S. exports of
corn and cotton. The department believes that subsidized Chinese exports
have displaced U. S. exports of these commodities from third- country
markets in the past. Second, with respect to domestic support, the WTO
requires a reduction in subsidies and sets a level for domestic support
exempted from the total level of support allowable* called the de minimis
level* that the WTO regards as having minimal effect on trade. Under WTO
rules, this de minimis domestic support level is set at 5 percent 56 for
developed countries and 10 percent for developing countries. China*s de
minimis

level commitment falls between these levels, at 8.5 percent. In addition,
unlike developing countries, China has to include input (such as
fertilizer) subsidies in the calculation of its domestic subsidy level.
The U. S. Department of Agriculture estimates that if the 8.5 percent
annual threshold were reached, domestic support could potentially be as
high as $14 billion, based on China*s current crop output value. China*s
current level of support is less than 2 percent, based on a 1996* 1998
base period.

China committed to fully abiding by the terms of the WTO Agreement on
Sanitary and Phytosanitary Measures. In U. S.- China bilateral
negotiations, China and the United States agreed on the terms for the
removal of restrictions on importation of U. S. grain, citrus, and meat.
Among other things, WTO rules governing SPS measures require that members
base SPS measures on scientific principles and not apply SPS measures in a
manner that constitutes a disguised restriction on trade. Out of China*s
five commitments in SPS, three committed China to fully adhering to the
WTO SPS rules, and three required China to refrain from using SPS as a
form of trade barrier. 57 China committed to ensuring that all of its
laws, regulations, decrees, requirements, and procedures relating to SPS
measures would conform to WTO rules upon accession. China also agreed to
notifying the WTO of its laws, regulations, and other measures relating

56 There are product- specific and non* product- specific de minimis
domestic support subsidy levels. The product- specific de minimis level is
a percentage of the value of production of individual products; the non*
product- specific de minimis level is a percentage of the value of total
agricultural production.

57 The commitment types are not mutually exclusive. A commitment could be
classified as both *adhere to WTO* and *refrain.*

Subsidies Sanitary and Phytosanitary Measures

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to SPS, including products and relevant international standards,
guidelines, and recommendations.

China*s services market has historically been heavily regulated, and
foreign service providers* access to the market has been significantly
restricted. Although U. S. services exports to the world totaled $278.6
billion in year 2000, only $4.6 billion (or 2 percent) of total U. S.
services exports went to China in the same year. China has made numerous
commitments to increase access to its services markets by opening 9
general services sectors and 88 subsectors, subject to certain
limitations. 58 These commitments, if fully implemented, could provide
significant business opportunities in sectors important to U. S.
companies, including providers of professional, telecommunications,
distribution, and insurance services.

The WTO*s General Agreement on Trade in Services requires that members
maintain a schedule of market access commitments for services. Consistent
with this requirement, China*s market access commitments are described
primarily in the services schedule in an annex to China*s WTO accession
agreement. The schedule describes both horizontal* that is, applying
broadly to all services sectors in which China made commitments* and
sector- specific commitments. Additionally, the schedule specifies
limitations on market access and national treatment within these services
sectors. Table 21 gives examples of commitments and limitations described
in China*s services schedule and lists the time frames for implementing
these commitments. We discuss commitments in selected sectors in the
sections following the table.

58 The WTO classifies services into 12 general sectors and 154 subsectors.
See table 6 for additional details on the number of sectors and subsectors
in which China made commitments. Services

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Table 21: Examples of China*s WTO Commitments Relating to Services General
WTO services sector Description of commitment and key limitation Time
frame

Horizontal (all services sectors)

 Minimum foreign investment in equity joint ventures shall be no less
than 25 percent of the registered capital of the joint venture.

 Conditions of ownership, operation, and scope of activities for existing
foreign service suppliers will not be made more restrictive than they
exist as of the date of China*s accession.

 Upon accession

 Upon accession Business Legal services

 May establish representative offices without geographic or quantitative
restrictions.

 Foreign representative offices are restricted in the scope of services
they may provide in areas relating to Chinese law.

Accounting, auditing, and bookkeeping services

 Certified Public Accountants licensed by Chinese authorities may
incorporate or establish partnerships.

Taxation services

 Foreign firms may establish wholly owned subsidiaries.

Medical and dental services

 Foreign suppliers permitted to establish joint ventures, subject to
quantitative restrictions.

 Within 1 year of accession

 Upon accession

 Upon accession

 Within 6 years of accession

 Upon accession Communication Courier services

 Foreign suppliers may establish wholly owned subsidiaries.

Value- added telecommunications services

 Foreign suppliers permitted to establish joint ventures with no more
than 50 percent equity; no geographic limitations.

Domestic and international telecommunications services

 Foreign suppliers permitted to establish joint ventures with no more
than 49 percent equity; no geographic limitations.

 Within 4 years of accession

 Within 2 years of accession

 Within 6 years of accession Construction  Foreign providers permitted
to establish wholly owned foreign

enterprises; scope of business limited to certain types of projects.

 Within 3 years of accession Distribution Wholesale and commission
agents* services

 Foreign distributors of most products permitted to establish wholly
owned enterprises with no geographic limitations. a

Retailing services

 Foreign retailers of most products may establish wholly owned foreign
enterprises with no geographic limitations; equity limits on chain stores
based on number of products and types of products sold.

Franchising services

 Foreign franchising permitted.

 Within 3 years of accession

 Within 3 years of accession

 Within 3 years of accession Education  Foreign providers permitted to
establish majority- owned joint venture

schools.

 Upon accession Environmental  Foreign suppliers permitted to establish
majority- owned joint

ventures.

 Upon accession

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General WTO services sector Description of commitment and key limitation
Time frame

Financial Life insurance services

 Foreign life insurers permitted to establish joint ventures with 50
percent equity, with no geographic limitations; subject to licensing
requirements.

 Within 3 years of accession

Nonlife insurance services

 Foreign nonlife insurers permitted to establish wholly owned
subsidiaries, with no geographic limitations; subject to licensing
requirements.

 Within 3 years of accession

Banking services

 Foreign providers of foreign currency services permitted without
geographic and client limitations.

 Upon accession

 Foreign providers of local (Chinese) currency services permitted without
geographic and client limitations.

 Within 5 years of accession

 Foreign providers of banking services subject to licensing and
qualification requirements.

 Upon accession

Securities

 Foreign providers may establish fund management joint ventures with no
more than 49 percent equity.

 Within 3 years of accession Tourism and travel- related Hotel and
restaurant services

 Foreign providers may establish wholly owned subsidiaries.

 Within 4 years of accession

Travel agency and tour operator services

 Foreign suppliers permitted to establish wholly owned subsidiaries, with
no geographic limitations; subject to limitations on scope of business.

 Within 6 years of accession

Transport Maritime transport services

 Foreign suppliers permitted to establish joint ventures with no more
than 49 percent of the registered capital of the joint venture; fleet must
operate under China*s flag.

 Upon accession

Air transport services

 Foreign providers permitted to establish joint venture aircraft repair
and maintenance enterprises; Chinese partner must hold controlling share
or be in dominant position in the joint venture; establishment of joint
ventures subject to licensing limitations.

 Upon accession

Road transport services

 Foreign providers permitted to establish wholly owned subsidiaries. 
Within 3 years of accession a Foreign distributors of chemical fertilizers
and processed and crude oil are permitted to establish

wholly owned enterprises within 5 years of accession. Wholesale
distribution of salt and tobacco is prohibited.

Source: GAO analysis of China*s WTO accession agreement.

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China has made commitments to open eight professional services subsectors,
including legal, accounting, taxation, and medical and dental services. 59
As more foreign firms enter China*s market, demand for these types of
services is likely to increase. U. S. exports of business, professional,
and technical services to the world totaled $28 billion in 2000, but only
about 2 percent ($ 678 million) of this total went to China.
Notwithstanding China*s broad- ranging commitments to open several
professional services subsectors, foreign providers* access will remain
subject to certain limitations. For example, foreign law firms will
generally continue to be restricted from directly providing legal services
involving Chinese law. Additionally, restrictions on the form of
establishment for foreign medical and dental services providers will
require foreign providers to establish joint venture hospitals or clinics
with Chinese partners in order to enter China*s market.

Prior to its accession to the WTO, China prohibited foreign companies from
providing any type of telecommunications services in China, and the market
had been controlled by a government- run telecommunications monopoly.
Although foreign providers will remain subject to significant limitations,
China has made important commitments allowing foreign firms to provide a
broad array of telecommunications services, including both basic and
value- added services. 60 Foreign providers must establish joint ventures
with Chinese partners in order to enter the telecommunications market, and
China places limits on the share of foreign equity in the joint ventures.
The WTO has noted that these types of limitations are common among WTO
members that have made telecommunications commitments. These limitations
on the participation of foreign equity in the joint ventures in China
allow an increasing share of foreign equity over a 1* 6 year period
following China*s accession to the WTO, but prohibitions on foreign
majority ownership will remain. Additionally, although there are
limitations on where foreign providers may establish businesses in China,
these geographic limitations are to be completely phased out over a 2* 6
year period following accession.

59 China also made commitments relating to four other types of
professional services: architectural, engineering, integrated engineering,
and urban planning services. 60 Basic telecommunications services comprise
a public telecommunications network infrastructure and include domestic
and international wired services and mobile voice and data services.
Value- added services are provided through the public network
infrastructure and include services such as E- mail and on- line
information. The U. S. Trade Representative notes that Internet services
are subsumed under value- added telecommunications services. Business:
Professional

Services Communications: Telecommunications

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China*s services schedule also indicates that China is committed to
adhering to the WTO Agreement on Basic Telecommunications and its binding
set of principles, as described in the reference paper annexed to China*s
services schedule. Adherence to the principles in the reference paper
requires China to, among other things, ensure that regulators are
independent from suppliers, prevent anticompetitive practices, and ensure
that rights of interconnection are provided on a nondiscriminatory basis.
61

Prior to China*s WTO accession, foreign firms were generally prohibited
from distributing their products in China. These restrictions encompassed
wholesale and retail distribution, as well as services related to
distribution, such as after- sale maintenance and repair. As a result of
these restrictions, foreign firms were unable to fully integrate
production and distribution networks. For example, a foreign company
established in China might have been able to import products from its
factories located outside of China, but the company did not have the right
to distribute that product within China using its own distribution
networks. China*s distribution services commitments remove many
restrictions on foreign firms* ability to distribute products in China.
Although wholesale distribution services are initially subject to form-
of- establishment and foreign equity limitations, China*s commitments will
allow wholly owned foreign firms to engage in the wholesale distribution
of most products with no geographic limitations within 3 years after
China*s accession. Foreign retailers are also subject to certain
limitations. Initially, foreign retailers* access is limited to
establishing minority joint ventures in designated zones and cities. China
also initially limits the number of retailing enterprises that can be
established in its cities. Within 3 years after China*s accession, these
limitations will be lifted for most foreign retail enterprises. 62 Last,
China will initially maintain some limitations on the scope of products
that can be distributed in China by foreign enterprises. These are to be
phased out over 5 years. Prohibitions on wholesale distribution of tobacco
and salt will remain, however, as will restrictions on the retailing of
tobacco.

61 Interconnection rights relate to the connection and sharing of
different telecommunications networks to allow users of one supplier to
communicate with users of another supplier.

62 China will maintain equity limits on chain stores based on the number
of stores and products sold. Distribution

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China*s market had been closed to foreign insurers since the early 1950s.
In 1992, China reopened the market on a limited basis by granting a
license to a single foreign company (the American International Group),
and by mid- 2001, 17 foreign insurance companies had received licenses to
operate on a limited basis in three designated cities in China. 63 China*s
services commitments reduce or eliminate many restrictions on foreign
insurers. Geographic restrictions on foreign nonlife insurers will be
removed within 3 years of China*s accession. Furthermore, all restrictions
on the form of establishment and equity participation will be phased out
within 2 years of accession. Although geographic restrictions on foreign
life insurers will also be removed within 3 years following accession,
China will maintain limitations that require foreign life insurers to
establish joint ventures with no more than 50 percent equity ownership in
order to enter China*s market.

In addition to the commitments and limitations described in China*s
services schedule, we identified 45 services- related commitments set
forth in other sections of China*s accession documents. Over half (29) of
these commitments relate to licensing conditions and procedures for
services providers operating in China, and respond to WTO member concerns
that licensing not act as a barrier to foreign companies seeking to enter
China*s services market. As such, the commitments supplement and clarify
information provided in China*s services schedule. For example, we
identified 23 guidance commitments that describe, among other things, the
fees, responsible authorities, and application procedures that apply
broadly to obtaining a license to provide services in China. Other
commitments relate to specific sectors and provide additional details that
are essential to interpret the commitments and limitations described in
China*s services schedule. For example, several commitments define certain
insurance terms used in China*s services schedule and describe
requirements and conditions related to the issuance of certain types of
insurance policies.

63 The cities were Shanghai, Guangzhou, and Shenzhen. Financial: Insurance

Other Services Commitments

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China*s protection of intellectual property rights (IPR) has improved in
recent years but remains an ongoing concern for the U. S. government and
the business community. IPR are defined as ownership rights over a
creation for a certain period of time, which include the protection of
copyrights, trademarks, trade secrets, and patents. Estimates of business
losses resulting from IPR violations are significant. For example, the
Business Software Association estimated revenue losses resulting from
retail software piracy in China to be about $1.7 billion dollars in 2001.
Despite China*s progress in promulgating and revising regulations and
initiating measures to protect IPR, the U. S. Trade Representative notes
that enforcement remains inadequate and infringement continues.
Specifically, the agency*s annual Special 301 report on global IPR
protection notes that China has taken actions to protect IPR such as
amending its copyright, patent, and trademark laws and issuing judicial
interpretations on IPR issues. However, areas of concern include
completing the issuance and modification of regulations necessary for
compliance with international IPR agreements and encouraging more
instances of criminal prosecution to deter infringement.

China*s WTO IPR commitments relate mainly to how China will implement the
various provisions of the WTO*s Agreement on the Trade- Related Aspects of
Intellectual Property Rights (TRIPS). TRIPS defines both the scope and
enforcement procedures of intellectual property rights in various areas.
These areas include copyrights, trademarks, patents, geographical
indications (where particular characteristics of a good are related to its
geographical origin, like bourbon), industrial designs, integrated
circuits (semiconductor chips), trade secrets, and control of
anticompetitive practices in contracts. Examples of China*s IPR
commitments are described in table 22. Intellectual Property

Rights

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Table 22: Examples of China*s WTO Commitments Relating to Intellectual
Property Rights Topic China committed to

General  Amending patent, copyright, and trademark laws and relevant
implementing rules upon accession, to comply with TRIPS.

 Modifying relevant laws, regulations, and other measures to ensure
national and mostfavored- nation treatment to foreign IPR holders, to
comply with TRIPS.

 Providing legal treatment to foreigners in accordance with any agreement
or international treaty to which both countries are party.

 Reporting to WTO Council for Trade- Related Aspects of Intellectual
Property Rights on amendments to copyright, trademark, and patent laws and
implementation of TRIPS, as part of China*s review under the transitional
review mechanism. Copyrights, trademarks, patents, and other IPR

 Amending copyright regime, including regulations for the implementation
of the copyright law and provisions on the Implementation of the
International Copyright Treaty, to ensure consistency with TRIPS.

 Amending trademark laws to meet TRIPS requirements. Modifications would
be made to aspects of registration, content, symbols, well- known
trademarks, priority rights, rights confirmation system, judicial review,
crackdown on infringements, and infringement damages.

 Amending the Implementing Rules of Patent Law, to ensure that the
provisions would be implemented in compliance with TRIPS provisions that
describe certain terms under which a WTO member may deny a patent (Article
27. 2).

 Introducing and enacting laws and regulations to comply with TRIPS, to
ensure protection of undisclosed information submitted to Chinese
authorities in support of applications for marketing approval for certain
pharmaceutical and agricultural chemicals (Article 39.3). Enforcement 
Implementing judicial rules of civil procedure in accordance with TRIPS
provisions

relating to fair and equitable civil judicial procedures and evidence
(Articles 42 and 43).

 Amending relevant implementing rules to ensure compliance with Articles
45 and 46 of TRIPS provisions, relating to damages and compensation for
IPR infringement.

 Continuing to enhance enforcement efforts, including the use of more
effective administrative sanctions.

 Granting relevant agencies the authority to confiscate equipment and
other evidence used in infringing activities.

 Referring appropriate cases, including those involving repeat offenders
and willful piracy and counterfeiting, to the relevant authorities, for
prosecution under criminal law.

 Recommending that the judicial authority lower the monetary thresholds
required for criminal prosecution of IPR violators.

Source: GAO analysis of China*s WTO accession agreement.

All governments acceding to the WTO are required to comply with TRIPS.
Notwithstanding this general obligation, the section of China*s accession
agreement relating to IPR describes, clarifies, and reiterates how China
will conform its IPR regime to WTO standards. There are 55 paragraphs in
the working party report that relate to trade- related aspects of China*s
IPR regime, but only 17 of these paragraphs contain commitments. Within

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Page 85 GAO- 03- 4 China's WTO Commitments

these 17 paragraphs, we identified 32 commitments. 64 About half of
China*s IPR commitments relate specifically to enforcement (discussed
later). Additionally, we found that most commitments affirm China*s
obligation to comply with specific articles of TRIPS, and that many of
these same commitments also describe how China will modify existing or
create new laws and regulations to adhere to TRIPS. The 38 paragraphs that
do not contain commitments describe, among other things, China*s existing
IPR laws and regulations, responsible authorities for administering IPR in
China, and member concerns and comments about various aspects of China*s
IPR regime. All of China*s IPR commitments are effective upon accession.

At the broadest level, China*s general IPR commitments obligate China to
bring all laws, regulations, and implementing rules into compliance with
the TRIPS agreement upon accession. China*s commitments in this area also
relate broadly to how IPR laws and regulations are enforced in China. For
example, where an infringement of IPR is found in China, the aggrieved
party can initiate a lawsuit in a court. In this regard, China noted that
since 1992, special IPR branches of the Chinese people*s courts have been
set up in major cities, such as Beijing and Shanghai. Other general IPR
commitments confirm that China will modify laws, regulations, and other
measures to ensure nondiscriminatory treatment of foreign IPR holders, as
required by the TRIPS agreement. 65 Lastly, one paragraph in this section
describes China*s membership or participation in 12 international
agreements, treaties, and conventions and includes a general commitment
that China will treat foreigners in accordance with any agreement between
the foreign country and China.

64 We also identified two commitments in annex 1A of the agreement that
require China to report IPR- related information to the WTO in the context
of the trade review mechanism. 65 Articles 3 and 4 of TRIPS relate to
national and most- favored- nation treatment. Specifically, Article 3
requires that each member shall accord to the nationals of other members
treatment no less favorable than it accords to its own nationals with
regard to the protection of intellectual property, subject to some
exceptions. Article 4 provides that any advantage, favor, privilege, or
immunity granted by a member to the nationals of any other country shall
be accorded immediately and unconditionally to the nationals of all other
members. General

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 86 GAO- 03- 4 China's WTO Commitments

Many of the paragraphs relating to copyrights, patents, trademarks, and
other IPR provide narrative on China*s existing laws and regulations and
contain some details concerning how these laws and regulations are to be
administered. Other paragraphs describe some WTO members* concerns about
the consistency or adequacy of China*s existing IPR regime in relation to
TRIPS. In some cases, China acknowledges differences or inconsistencies
between existing laws and TRIPS. For example, China noted that certain
aspects of existing copyright, patent, and trademark laws fell short of
what was required by TRIPS, and made commitments to modify the relevant
laws and regulations to fully meet TRIPS requirements.

Some WTO members noted several concerns about the enforcement of IPR in
China, and the majority of China*s IPR commitments are intended to address
these concerns. For example, members raised concerns about filing civil
judicial actions relating to IPR violations in China, and they noted that
the way in which damages resulting from IPR violations were calculated
often resulted in inadequate compensation. In response, China committed to
fully implementing TRIPS provisions relating to civil judicial procedures
and evidence (Articles 42 and 43), as well as those relating to damages
and compensation (Articles 45 and 46). Members were also concerned about
the use of administrative and criminal procedures to address IPR
infringement. In particular, members noted that administrative sanctions
(that is, penalties imposed by administrative bodies on IPR violators)
were inadequate, and that monetary thresholds for initiating a criminal
action against an IPR violator were too high and were seldom met. China
made commitments to address each of these areas by clarifying the use of
administrative sanctions and recommending that the monetary thresholds
required to initiate criminal action be lowered. Copyrights, Patents,

Trademarks, and Other IPR

Enforcement

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 87 GAO- 03- 4 China's WTO Commitments

Since China*s economy is in a transitional stage, becoming more
marketoriented but still retaining characteristics of a nonmarket economy,
WTO members, and particularly the United States, lobbied for the inclusion
of safeguards and other trade remedy commitments in China*s accession
package to augment those already set forth in the WTO agreements. These
commitments provide other WTO members both with extra protection from
surges in imports from China and with additional WTO monitoring of China*s
implementation of its WTO commitments. The additional safeguards include a
product- specific safeguard, which covers Chinese products generally, and
a special textile safeguard, which applies to textiles and apparel. The
special textile safeguard was particularly important for the U. S. textile
and apparel sector, an import- sensitive sector to which China is the
second largest supplier. The other trade remedies allow WTO members to use
alternate methodologies for calculating prices and subsidies in
antidumping and countervailing duty cases against China. 66 Finally, the
trade remedies include a transitional review mechanism to review China*s
implementation of its WTO commitments and the development of China*s trade
with other WTO members. This mechanism is additional to the WTO*s trade
policy review mechanism. Although the trade policy review mechanism
provides for a broad review of the trade regimes of all WTO members, WTO
members viewed it as insufficient to oversee China*s implementation of its
commitments. A number of the particular commitments in the safeguards and
other trade remedies area are described in table 23.

66 Antidumping measures include a duty or fee imposed to neutralize the
injurious effect of unfair pricing practices known as *dumping.* Dumping
refers to the sale of a commodity in a foreign market at a price lower
than its fair market value. A countervailing duty is a special duty that
an importing country imposes to offset the economic effect of an
actionable subsidy and to prevent injury to a domestic industry caused by
a subsidized import. Safeguards and Other

Trade Remedies

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 88 GAO- 03- 4 China's WTO Commitments

Table 23: Examples of China*s WTO Commitments Relating to Safeguards and
Other Trade Remedies Topic China committed to

Product- specific safeguard  Allowing WTO members to withdraw concessions
or limit imports when Chinese products are imported to WTO members and
cause or threaten to cause market disruption.

 Allowing WTO members to withdraw concessions or limit imports only for
such time as is necessary to prevent or remedy market disruption.

 Allowing China to suspend application of substantially equivalent
concessions when a WTO member adopts a measure in response to (1) a
relative increase in Chinese imports, and when the measure remains in
effect for more than 2 years, or (2) an absolute increase in imports, when
the measure remains in effect more than 3 years.

 Allowing WTO members to withdraw concessions or otherwise limit Chinese
imports if the application of the product- specific safeguard by another
WTO member against China threatens to cause significant diversions of
trade into the market of the other importing WTO member.

 Terminating the product- specific safeguard on December 11, 2013, 12
years after China*s accession to the WTO.

 Requiring WTO members to follow various procedural requirements when
invoking the product- specific safeguard against China.

 Requiring WTO members to apply objective criteria in assessing whether
actions taken against China to prevent or remedy market disruption cause
or threaten to cause significant diversion of trade. Textile safeguard 
Allowing WTO members to invoke the textile safeguard against China when
imports of

Chinese textiles or apparel products cause market disruption that
threatens to impede the orderly development of trade.

 Holding shipment of textiles and apparel to certain levels, upon request
for consultations to ease market disruption.

 Permitting WTO members to use the textile safeguard until December 31,
2008, 4 years after expiration of the WTO Agreement on Textiles and
Clothing.

 Allowing WTO members to apply safeguard measures under the textile
safeguard only for 1 year, without reapplication, unless otherwise agreed.

 Prohibiting the textile safeguard and product- specific safeguard from
being applied to the same product at the same time. Price comparability in
determining Chinese dumping

 Allowing importing WTO members to use a methodology not based on strict
comparison with Chinese domestic prices or costs in determining price
comparability for antidumping, when producers under investigation cannot
clearly show that market economy conditions prevail in industry involved.

 Requiring importing WTO members to use Chinese prices or costs in
determining price comparability for antidumping, when producers show
market economy conditions prevail.

 Allowing use of alternate methodology for antidumping actions for 15
years after China*s accession. a

 Requiring WTO members to follow certain procedures when using alternate
methodology in antidumping cases.

 Revising its antidumping regulations and procedures prior to WTO
accession, to fully implement antidumping agreement. Price comparability
in determining Chinese subsidies

 Allowing WTO members to use methodologies for identifying Chinese
subsidies that are not based on prevailing terms and conditions in China.

 Allowing use of alternate methodologies for determining subsidies
without including a termination date.

 Revising its countervailing duty regulations and procedures prior to
accession, to fully implement China*s obligations under the WTO Agreement
on Subsidies and Countervailing Measures.

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 89 GAO- 03- 4 China's WTO Commitments

Topic China committed to

Product- specific safeguard  Allowing WTO members to withdraw concessions
or limit imports when Chinese products are imported to WTO members and
cause or threaten to cause market disruption.

 Allowing WTO members to withdraw concessions or limit imports only for
such time as is necessary to prevent or remedy market disruption.

 Allowing China to suspend application of substantially equivalent
concessions when a WTO member adopts a measure in response to (1) a
relative increase in Chinese imports, and when the measure remains in
effect for more than 2 years, or (2) an absolute increase in imports, when
the measure remains in effect more than 3 years.

 Allowing WTO members to withdraw concessions or otherwise limit Chinese
imports if the application of the product- specific safeguard by another
WTO member against China threatens to cause significant diversions of
trade into the market of the other importing WTO member.

 Terminating the product- specific safeguard on December 11, 2013, 12
years after China*s accession to the WTO.

 Requiring WTO members to follow various procedural requirements when
invoking the product- specific safeguard against China.

 Requiring WTO members to apply objective criteria in assessing whether
actions taken against China to prevent or remedy market disruption cause
or threaten to cause significant diversion of trade. Transitional review
mechanism  Authorizing relevant WTO subsidiary bodies and General
Council, within 1 year after

China*s WTO accession, and annually for 8 years, to review China*s
implementation of its WTO commitments.

 Providing relevant information to each subsidiary body in conjunction
with WTO subsidiary body review.

 Allowing final review in the tenth year after China*s accession or at an
earlier date decided by General Council. a The 15 year period can be
shortened for particular members if China can show, under the national

law of the importing WTO member, that it is a market economy or that
market economy conditions prevail in a particular industry or sector.

Source: GAO analysis of China*s WTO accession agreement.

China has made a substantial number of commitments in the safeguards and
other trade remedies area, particularly with respect to the
productspecific safeguard, the use of an alternate methodology for
comparing prices in antidumping cases, the textile safeguard, and the
transitional review mechanism. We classified several of the commitments in
this area as *other,* since they did not correspond to any of the other
seven types of commitments we identified (see table 3). Among other
things, these commitments describe how product- specific safeguard
measures will be applied and set forth the details of the transitional
review mechanism. For both the product- specific safeguard and the use of
an alternate methodology in antidumping cases, WTO members also provided
pledges to China about the procedures they will use when implementing this
safeguard and trade remedy. These procedures primarily relate to due
process and transparency protections that WTO members agreed to follow
when invoking either against China. Finally, as part of the WTO*s
transitional review mechanism, annex 1A of the protocol lists 62

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 90 GAO- 03- 4 China's WTO Commitments

commitments relating to economic and trade policy information that China
is to provide to various WTO committees. We assigned these commitments to
other areas covered in this appendix, based on the information that is
required to be provided.

China*s commitments in the product- specific and textiles safeguards topic
exceed the general obligations in the WTO agreements and rules. 67
Although the WTO Safeguards and the Textiles and Clothing agreements do
have safeguards that can be used to deal with surges in imports, they are
not as strong as those included in China*s accession agreement. Thus, both
the WTO agreement on Safeguards and that on Textiles and Clothing
establish a *serious injury* or *serious damage* text for determining
whether a safeguard can be applied, whereas China*s product- specific and
textile safeguards provide for an injury threshold referred to as *market

disruption,* which is easier to establish. Further, although the WTO
Safeguards agreement allows members to use safeguards when they are
subjected to or threatened by injury from imports of a particular product,
these safeguards cannot target specific countries and must be applied to
the product irrespective of its source. To the contrary, both the
productspecific and the textile safeguards in China*s accession agreement
can and generally are intended to target products from China. Finally,
although China*s product- specific and textile safeguards cannot be
applied to the same product at the same time, either can be used to deal
with surges in textiles and apparel. This is important, because while the
textile safeguard cannot be used after December 31, 2008, the product-
specific safeguard can be applied to surges in textile and apparel imports
for nearly 5 more years, until December 11, 2013.

China*s commitments to permit the use of an alternate methodology in
dumping and subsidies cases were provided to deal with WTO members*
concerns, including those of the United States, that Chinese domestic
prices, production, or other economic data would not accurately reflect
dumping margins or subsidy benefits. 68 The use of these alternate

67 Special safeguards and review provisions were included in the protocols
of accession of Poland, Romania, and Hungary to the General Agreement on
Tariffs and Trade. 68 Article VI of the General Agreement on Tariffs and
Trade generally describes a dumping margin as the calculated difference
between the normal value of a product and the price at which it is being
sold in the importing market. Product- Specific and

Textiles Safeguards Price Comparability in Determining Chinese Dumping and
Subsidies

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 91 GAO- 03- 4 China's WTO Commitments

methodologies or benchmarks essentially will allow for comparisons of
prices and subsidy benefits in countries other than China. Nevertheless,
there are some limitations on the use of these methodologies in dumping
cases. First, should China establish, under the national law of an
importing WTO member, that it is a market economy or that market
conditions prevail in the industry or sector subject to a dumping
investigation, the alternate methodology cannot be used. Second, members*
ability to use this alternative methodology terminates in 15 years.

Although the authority for using the alternate methodology for calculating
subsidies does not terminate, this alternative may not have much practical
effect for the United States because, at least presently, the United
States does not apply U. S. subsidy/ countervailing duty law to nonmarket
economies, including China. In this regard, U. S. courts have held that
subsidies cannot fairly be identified or quantified in countries with
nonmarket economies because the economies are controlled by the state. 69

China*s commitments regarding the establishment of a transitional review
mechanism to monitor implementation of its WTO commitments appeared to be
one of the more difficult issues to negotiate with China. The commitments
require annual reviews, first by all 16 WTO subsidiary bodies and later by
the WTO General Council, making use of the results of those of the
subsidiary bodies. 70 Annex 1A of the protocol sets forth a broad range of
information that China must provide to the 16 WTO subsidiary bodies for
their reviews. 71 Furthermore, annex 1A indicates that China is to respond
to specific questions from both the subsidiary bodies and the General
Council in connection with their reviews. Annex 1B provides that the
General Council reviews are not limited to a review of China*s
implementation of its WTO commitments but are to include issues dealing
with (1) the development of China*s trade with WTO members and other

69 See Georgetown Steel Corp. v. United States, 801 F. 2d 1308, 1316 (Fed.
Cir. 1986). 70 The subsidiary bodies are described as councils or
committees and are generally organized according to the various trade
subjects covered by the WTO agreements: for example, the Council for Trade
in Goods, the Council for Trade in Services, and the Committees on
Agriculture and Technical Barriers to Trade.

71 This includes economic data and information on China*s (1) economic
policies, (2) framework for making and enforcing policies, (3) policies
affecting trade in goods and services, and (4) trade- related intellectual
property regime. Transitional Review

Mechanism

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 92 GAO- 03- 4 China's WTO Commitments

trading partners and (2) recent developments and cross- sectoral issues
regarding China*s trade regime.

The annual reviews of the WTO subsidiary bodies and General Council will
require coordination between the various WTO subsidiary bodies, the
General Council, and China. For example, the WTO subsidiary bodies will
have to work out with China when information should be provided to them
for their reviews. Although annex 1B requires China to submit information
and documentation relating to the General Council*s review no later than
30 days prior to its review date, there is no similar specific requirement
for when information should be provided to the subsidiary bodies for their
reviews. Finally, the commitments relating to the transitional review
mechanism do not specifically indicate when the reviews will end. Although
the review process is scheduled to conclude with a final review in the
tenth year after China*s accession, the General Council could decide to
terminate it at any time after the eighth year.

Although the additional safeguards and trade remedies to which China
committed were applicable upon China*s accession to the WTO on December
11, 2001, most of them phase out over time, and some represent the longest
phaseouts in China*s accession agreement. Thus, as noted in table 24, the
product- specific and textile safeguards terminate, respectively, 12 and
approximately 7 years after China*s accession; the ability to utilize an
alternate methodology in antidumping cases terminates no later than 15
years after accession; and the transitional review mechanism, at most, 10
years after accession. Although not a strict phasein, the first review
under the transitional review mechanism is to be done within 1 year after
China*s accession. Key Dates

Appendix IV: Summary and Analysis of China*s WTO Commitments

Page 93 GAO- 03- 4 China's WTO Commitments

Table 24: Timetable for Selected Chinese WTO Commitments Relating to
Safeguards and Other Trade Remedies Date Commitment

December 11, 2002 Requires review of China*s implementation of its WTO
commitments by WTO subsidiary bodies and General Council, under
transitional review mechanism, within 1 year of China*s accession to the
WTO.

December 31, 2008 Phases out textile safeguard a little more than 7 years
after China*s accession and 4 years after termination of the WTO Agreement
on Textiles and Clothing on January 1, 2005. December 11, 2011 Requires
annual reviews of China*s implementation of its WTO commitments for 8
years, under

transitional review mechanism, with a final review in the 10th year or at
an earlier date decided by the General Council. December 11, 2013 Phases
out product- specific safeguard 12 years after China*s accession. December
11, 2016 Phases out use of alternate methodology for antidumping cases 15
years after China*s accession.

Source: GAO analysis of China*s WTO accession agreement.

Appendix V: GAO Contacts and Staff Acknowledgments

Page 94 GAO- 03- 4 China's WTO Commitments

Adam Cowles (202) 512- 9637 Matthew E. Helm (202) 512- 7959

In addition to those named above, Carolyn Black- Bagdoyan, Ming Chen,
Martin deAlteriis, Simin Ho, Jane- yu Li, Rona Mendelsohn, Suen- Yi Meng,
Michelle Sager, Richard Seldin, and Timothy Wedding made key contributions
to this report. Appendix V: GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

(320088)

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