World Trade Organization: Status of China's Trade Commitments to the
United States and Other Members (Letter Report, 05/16/2000,
GAO/NSIAD-00-142).

GAO followed up on its previous report on the status of China's World
Trade Organization (WTO) membership negotiations, focusing on the: (1)
results of the November 1999 bilateral Agreement on Market Access
between China and the United States; and (2) status of China's ongoing
multilateral negotiations in the WTO.

GAO noted that: (1) in a November 1999 bilateral agreement with China,
U.S. and Chinese negotiators reached agreement on commitments in four
areas of market access issues that would: (a) reduce China's tariffs;
(b) remove its nontariff barriers such as quotas; (c) reduce its limits
on trade in services; and (d) remove its barriers on trade in
agricultural products; (2) the results of these ongoing bilateral
negotiations, together with those China has completed with other
members, would improve upon the commitments China made to the United
States in these four areas to some degree; (3) negotiations with WTO's
working party have covered issues in seven broad areas of interest to
working party members regarding how China will adhere to the obligations
and responsibilities created by the WTO agreements; (4) according to
GAO's analysis, China has already reached general agreement or has only
minor differences to resolve with members of the working party on
commitments in four of these areas; (5) the commitments in these areas
would: (a) expand foreigners' trading rights, increase transparency in
administering its trade regime, and reform other aspects of China's
trade framework; (b) better protect intellectual property rights; (c)
place disciplines on how China applies health and safety standards and
regulatory measures to imported products; and (d) determine what
compliance and monitoring mechanisms will be applied to China beyond
those to which other WTO members are subject; (6) China agreed to
certain compliance and monitoring mechanisms in its November 1999
bilateral agreement with the United States, and U.S. Trade
Representative officials are confident that these commitments will be
incorporated in China's accession protocol and working party report
without substantive change; (7) working party and Chinese negotiators
still have differences to resolve in the other three areas of
negotiation: (a) China's trade-distorting industrial policies, primarily
its use of subsidies to firms; (b) China's ability to use trade-related
restrictions to protect its foreign currency reserves; and (c) other
issues, most notably China's closed government procurement market; (8)
in the November 1999 bilateral agreement, China also made a number of
commitments regarding its state-owned and state-invested enterprises
that relate to concerns over subsidies and procurement; and (9) U.S.
Trade Representative officials are confident that these draft
commitments will be incorporated into China's accession protocol and
working party report without substantive change.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-00-142
     TITLE:  World Trade Organization: Status of China's Trade
	     Commitments to the United States and Other Members
      DATE:  05/16/2000
   SUBJECT:  International organizations
	     International economic relations
	     Foreign trade policies
	     Foreign governments
	     Foreign trade agreements
	     International trade
IDENTIFIER:  China
	     European Union

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GAO/NSIAD-00-142

Appendix I: China's World Trade Organization Commitments

16

Appendix II: GAO Contact and Staff Acknowledgments

47

48

Table 1: Status of 11 Areas Under Negotiations, as of May 2000 9

Table 2: Results of U.S.-China Tariff Negotiations 17

Table 3: China's Applied and Agreed Tariff Rates by Sector 20

Table 4: Results of WTO Negotiations on China's Nontariff Measures,
as of May 2000 21

Table 5: Results of U.S. China Negotiations on Goods Subject to
Phaseout of China's Nontariff Measures 22

Table 6: China's Service Sector Commitments in November 1999 U.S.-China
Bilateral Agreement 25

Table 7: Status of Negotiations on Agriculture, as of May 2000 28

Table 8: Results of November 1999 U.S.-China Negotiations on Administration
of China's Tariff-rate Quota System 30

Table 9: Products Covered by Tariff-rate Quota Provisions in the
November 1999 U.S. China Agreement 31

Table 10: Results of WTO Working Party Negotiations on China's
Trade Policy Framework 34

Table 11: Status of WTO Working Party Negotiations on Standards
and Regulatory Measures 37

Table 12: Status of WTO Negotiations on Compliance and Protection
in Mechanisms 39

Table 13: Status of WTO Negotiations on China's Trade-distorting
Industrial Policies 41

Figure 1: China's Applied Tariff Rates, 1992-1999, and Agreed Rate
Under the November 1999 U.S.-China Bilateral Agreement 18

Figure 2: Percentage of Potential U.S. Exports to China by Year in
Which Final Tariff Rate Is Achieved, 2000-2008 19

Figure 3: Value of China's Nontariff Restrictions on U.S. Exports and
Their Phaseout, 2000-2005, Under the November 1999
U.S.-China Bilateral Agreement 23

Figure 4: Share of 1998 U.S. Agricultural Exports That Would Be
Covered by Tariff-rate Quotas 31

Figure 5: November 1999 Agreed Annual Schedule for China's
Tariff-rate Quota Imports Through State Funding
Enterprises 32

Figure 6: November 1999 Agreed Annual Schedule for China's
Tariff-rate Quota Imports Through Private Enterprises 32

TRQ Tariff-rate quota

WTO World Trade Organization

National Security and
International Affairs Division

B-285309

May 16, 2000

The Honorable William V. Roth, Jr.
Chairman
The Honorable Daniel Patrick Moynihan
Ranking Minority Member
Committee on Finance
United States Senate

The Honorable Bill Archer
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives

In November 1999, the United States and China concluded a bilateral trade
agreement on issues related to China's joining the World Trade Organization.
As a result, the administration has asked Congress to pass legislation that
would allow the President to grant China permanent normal trade relations
status, which would eliminate a potential conflict between U.S. law and U.S.
obligations if China becomes a member of the World Trade Organization.1
However, China must complete further negotiations in the World Trade
Organization before all the terms and conditions for its membership are
known and are secure.

China's World Trade Organization membership negotiations take place on two
tracks--bilateral and multilateral negotiations. The bilateral negotiations,
including those between China and the United States, are designed to obtain
China's commitment to remove specific market access barriers and open
China's domestic market to more foreign goods and services. The focus of the
multilateral negotiations--between China and a working party of 44 members,
including the United States and other interested countries--is to ensure
that China will conform its trade regime to all the rules, practices, and
obligations required by World Trade Organization agreements. The results of
all these negotiations are finalized in an accession protocol and working
party report that outline the terms of China's membership.

Because of your continued interest in these issues, we are providing an
update on our past work on the status of China's membership negotiations,
including portions of our past analysis that were recently declassified by
the U.S. Trade Representative. We report on (1) the results of the November
1999 bilateral Agreement on Market Access between China and the United
States and (2) the status of China's ongoing multilateral negotiations in
the World Trade Organization.

China has made substantial progress in completing its negotiations to join
the World Trade Organization, which cover a range of topics in 11 broad
areas. The President announced a bilateral agreement with China in November
1999 that covers four broad areas of market access issues and some other
topics. In these four areas, U.S. and Chinese negotiators reached agreement
on commitments that would (1) reduce China's tariffs, (2) remove its
nontariff barriers such as quotas, (3) reduce its limits on trade in
services, and (4) remove its barriers on trade in agricultural products.2
China must conclude similar bilateral negotiations with some other World
Trade Organization members, notably the European Union. However, the results
of these ongoing bilateral negotiations, together with those China has
completed with other members, would improve upon the commitments China made
to the United States in these four areas to some degree, since under the
World Trade Organization agreements, China's best market access commitments
made to any country will be applied to all World Trade Organization members.

China must also complete ongoing multilateral negotiations with members of
the World Trade Organization working party. These negotiations have covered
issues in seven broad areas of interest to working party members regarding
how China will adhere to the obligations and responsibilities created by the
World Trade Organization agreements. According to our analysis of the
negotiating record, China has already reached general agreement or has only
minor differences to resolve with members of the working party on
commitments in four of these areas. The commitments in these areas would (1)
expand foreigners' trading rights, increase transparency (openness) in
administering its trade regime, and reform other aspects of China's trade
framework; (2) better protect intellectual property rights; (3) place
disciplines on how China applies health and safety standards and regulatory
measures to imported products; and
(4) determine what compliance and monitoring mechanisms will be applied to
China beyond those to which other World Trade Organization members are
subject. China agreed to certain compliance and monitoring mechanisms in its
November 1999 bilateral agreement with the United States, and U.S. Trade
Representative officials are confident that these commitments will be
incorporated in China's accession protocol and working party report without
substantive change. Working party and Chinese negotiators still have
differences to resolve in the other three areas of negotiation: (1) China's
trade-distorting industrial policies, primarily its use of subsidies
(financial assistance) to firms; (2) China's ability to use trade-related
restrictions to protect its foreign currency reserves; and
(3) other issues, most notably opening China's closed government procurement
market. In the November 1999 bilateral agreement, China also made a number
of commitments regarding its state-owned and
state-invested enterprises that relate to concerns over subsidies and
procurement, among other issues. U.S. Trade Representative officials are
confident that these draft commitments will be incorporated into China's
accession protocol and working party report without substantive change.

The World Trade Organization (WTO) was established on January 1, 1995, as a
result of the Uruguay Round of international trade negotiations. The WTO
provides the institutional framework for the multilateral trading system. It
administers rules for international trade, provides a mechanism for settling
disputes, and offers a forum for conducting trade negotiations, as set forth
in the WTO agreements.3 It currently has 136 members, and another 30 have
applied for membership.

China is the world's largest economy that is not subject to the WTO trade
liberalizing requirements. Since 1986, China has been in negotiations to
join, or "accede to," the World Trade Organization and its predecessor, the
General Agreement on Tariffs and Trade. The United States has taken a
leading role in these negotiations, which have been occurring on two
tracks--bilateral and multilateral negotiations--over these 14 years. The
process for joining, or "acceding to" the WTO consists of four phases:
(1) "fact-finding," (2) negotiation, (3) WTO decision, and
(4) implementation. China is currently in the second phase of this process
and is negotiating with a working party comprised of all interested WTO
members, including the United States, to join the WTO.4 These negotiations
should conclude with the acceptance of two documents: (1) the protocol,
which contains the terms of accession and commitments affirming China's
adherence to WTO guidelines and principles5 and (2) the working party
report, which provides a narrative on the results of the negotiations and
specific commitments made by the applicant regarding how it will meet WTO
requirements. Commitments detailed in either the protocol or the working
party report carry the same legal weight for the applicant, according to WTO
and U.S. Trade Representative officials.

A fundamental principle in the WTO agreements is that members, including the
United States, must grant each other unconditional
most-favored-nation status, meaning that they must grant each other trade
privileges as favorable as they give to any other WTO member.6 China
currently does not have permanent normal trade relations status in the
United States because title IV of the Trade Act of 19747 requires the
President to deny it to certain designated countries. However, China has
been granted normal trade relations status since 1979 on an annual basis. As
China moves closer to becoming a member of the WTO, Congress is considering
whether to grant China permanent normal trade relations status.

Concerns about Chinese actions regarding human rights, proliferation of
weapons of mass destruction, espionage, and Taiwan, among others, have
heightened the debate over whether to grant China permanent normal trade
relations status as part of China's WTO membership. In response, the
administration has stated its belief that bringing China into the WTO will
advance critical economic and national security goals by opening a growing
market to American workers, farmers, and businesses and encouraging domestic
reform, human rights, the rule of law, and international cooperation. This
report focuses only on certain trade issues in U.S.-China relations
pertaining to China's joining the WTO.

Completed

The United States and China reached agreement in the bilateral track of the
negotiations in November 1999 with the signing of the U.S.-China Market
Access Agreement. China has been negotiating on a bilateral basis with each
interested WTO member on its specific market access commitments under the
WTO agreements. China's market access commitments cover 4 of the 11 areas
that are under negotiation: China's tariffs; nontariff barriers (such as
quotas and licensing requirements); and its agriculture and services
sectors. The United States and China have agreed on the extent to which
China will

ï¿½ reduce or bind tariffs on its approximately 6,500 industrial and
agricultural products to reach a final average of 10.2 percent (from
16.9 percent) by 2008;

ï¿½ eliminate nontariff barriers, which will end quotas, licensing, and
similar requirements on 361 products (which represent about 10 percent of
1997 U.S. exports to China) by 2005;

ï¿½ provide varying degrees of access to 9 of its 12 services
sectors--including all those identified as U.S. priorities--with certain
limitations liberalized or phased out from 1 to 6 years after accession; and

ï¿½ reduce tariffs on agricultural imports to 16.8 percent, from 21.4 percent,
by 2004. It also agreed to improve access for some bulk commodities like
wheat, corn, rice, and cotton with a new, state-administered system that
applies different tariffs based on quotas of these commodities.

In addition, China had already agreed in the multilateral negotiations to
not provide export subsidies for agricultural products. China must still
resolve minor differences with members of the WTO working party regarding
its use of agricultural subsidies, which is a topic known as "domestic
support." Table 1 summarizes the status of these bilateral negotiations and
the multilateral negotiations discussed later. Further details on the
results of the negotiations appear in appendix I.

                                                     Status of
                                                                 Status of WTO
                   Area        Negotiating topics   U.S.-China   multilateral
                                                     bilateral
                                                   negotiations  negotiations
                                                                 Bilateral
 Market                        Tariff rates and                  negotiations
 access      Tariffs           phase-ins of        Concluded     with some WTO
 commitments                   reductions                        members
                                                                 remaina
                                                                 Bilateral
                               Quotas, licenses,                 negotiations
             Nontariff         and tendering       Concluded     with some WTO
             restrictions
                               practices                         members
                                                                 remaina
                               Business,
                               communication,
                               construction,
                               distribution,
                               education,                        Bilateral
                                                                 negotiations
             Services          environmental,      Concluded     with some WTO
                               financial , health
                               & social services,                members
                               tourism & travel ,                remaina
                               recreation & sport,
                               transport , and
                               other
                                                                 Bilateral
                                                                 negotiations
             Agriculture       Tariffs,            Concluded     with some WTO
                               tariff-rate quotas
                                                                 members
                                                                 remaina
                                                   Not subject   Minor
                               Export subsidies,   to bilateral  differences
                               domestic support
                                                   negotiation   remain
                               (1) China's trade
                               regime: uniform
                               administration,
                               special economic
                               areas,
                               transparency, and   Not subject
             Trade framework   judicial review;    to bilateral  Agreementb
                               (2)                 negotiation
                               nondiscrimination;
                               (3) special trade
                               arrangements; and
                               (4) the right to
                               trade

             Intellectual      Patents,            Not subject
             property rights   trademarks, &       to bilateral  Agreementb
                               copyrights          negotiation
                               Technical
                               standards, import
                               and export
             Standards and     licensing                         Minor
             regulatory        requirements,       Concludedc    differences
 Protocol andmeasures          sanitary and                      remain
 working                       phytosanitary
 party                         measures, customs
 report                        valuation
 commitments
                               Product-specific
                               safeguard, textile
                               safeguard,
             Compliance and    methodology for                   Minor
             monitoring        assessing practices Concluded     differences
             mechanisms        of nonmarket                      remain
                               economies, general
                               safeguard, and
                               transitional review
                               mechanism
                               Subsidies, state
             Trade-distorting  trading,
             industrial        trade-related       Concluded     Differences
             policies          investment and                    remain
                               other measures, and
                               price controls
             Foreign currency  Balance of payments
             reserves-related  measures and        Not subject   Differences
             restraints on     foreign exchange    to bilateral  remain
             trade             controls            negotiation
                               Government
             Other             procurement, civil  Concluded     Differences
                               aircraft, taxes &                 remain
                               charges

Note: Topics in Italics were, at least in part, addressed in the November
1999 U.S.-China Agreement on Market Access.

aResults of China's bilateral negotiations with all WTO members on this
issue are consolidated and are subject to verification. In some cases, WTO
members and China must also agree on text to appear in China's protocol or
working party report.

bAgreement in this area is subject to China and the WTO working party
members reaching agreement on the final text of the protocol and working
party report, which may include drafting or revising language describing
China's commitments regarding individual topics.

cThe April 1999 U.S.-China Agreement on Agricultural Cooperation addressed a
number of WTO related sanitary and phytosanitary (health and food safety)
measures; a few remaining issues are being addressed outside of the WTO
negotiations.

Source: GAO analysis of negotiating record.

Although negotiations in these four broad areas are conducted bilaterally,
any agreement reached between two countries will apply to all WTO members,
as the most-favored-nation principle requires. Because China's final
commitments will reflect the best made to any WTO member, the final
commitments will probably improve on those made to the United States in
November 1999 to some degree. China must still conclude bilateral
negotiations with seven other WTO members, most notably the European Union.
Once all these bilateral negotiations are completed, all of China's
commitments must be consolidated and verified by the WTO working party.

In the multilateral negotiations, China has been negotiating specific terms
with a working party of WTO members, including the United States, on how it
will adhere to the obligations and responsibilities of WTO membership. For
example, whether or not China will be able to take advantage of longer
phase-in or phase-out periods sometimes afforded developing countries to
implement its obligations under certain WTO agreements will be specified.
These multilateral negotiations are conducted with the understanding that
"nothing is definitively agreed until everything is agreed." Even in those
areas where China and WTO members have reached general agreement, the
protocol text must still be revised and finalized. Moreover, the draft
working party report still requires extensive amounts of text to be drafted
to capture China's commitments on implementation and to document the history
of the negotiations.8

There has been much progress in the multilateral track, based on our review
of the negotiating record. The WTO working party on China's accession, which
had not met since July 1998, met in March 2000 and restarted the
multilateral negotiations. Working party members reviewed the status of the
negotiations, and China provided updated information on its foreign trade
regime and a related listing of Chinese laws and regulations. The United
States and China reached bilateral agreement on certain "multilateral"
subjects in November 1999, which should help speed future progress in
concluding the multinational negotiations. Nevertheless, WTO working party
members must still reach agreement among themselves and with China on a
number of issues before the accession process can move forward. Although
much of the draft protocol and working party report have generally been
agreed upon, they have not been revised since May 1997, in part because the
negotiators had focused on the bilateral negotiations. Furthermore, there
are a number of areas where China must still provide WTO members information
on its trade practices.

China and WTO working party members, including the United States, have
generally reached agreement on issues in two broad areas. China has made
commitments to

ï¿½ change its trade framework to (1) ensure uniform and transparent
administration of its trade regime subject to judicial review;
(2) guarantee foreign enterprises the right to trade (import and export)
after a 3-year phase-in period;9 and (3) change some of the practices of its
special economic areas, which are geographic zones within China created
partly to attract foreign capital and foster economic development and

ï¿½ expand intellectual property rights by implementing the WTO agreement on
Trade-related Intellectual Property Rights upon accession, which covers
patents, trademarks, and copyrights, among other things.

Chinese negotiators have reached agreement with WTO members on most issues
involving standards and regulatory practices and compliance and monitoring
mechanisms. However, there are still some outstanding issues in both areas.

With respect to standards and regulatory practices, the Chinese have made
commitments about how the Chinese will apply health and safety measures,10
license imports and exports, generally value imports (for customs purposes)
under WTO rules, and make these practices transparent (open). Nevertheless,
agreement needs to be reached concerning how China will bring its
administration of standards into compliance with WTO requirements. Standards
are the technical and product criteria for inspecting, certifying,
registering, and giving laboratory accreditation to goods or services.

Although not yet agreed to by the WTO working party, U.S. and Chinese
negotiators reached agreement on most monitoring and compliance provisions.
Importantly, China agreed to a 12-year, product-specific safeguard that
would allow WTO members to take action against import surges of Chinese
products that are causing "market disruption." Similarly, China agreed to
provide WTO members safeguard protection against surges in Chinese textile
imports until December 31, 2008, 4 years beyond what is permitted under WTO
rules. The United States and China also reached agreement about provisions
for mitigating the unfair trade practices of dumping (selling below market
value) and subsidizing exports. China agreed to allow WTO members to use
alternatives to China's domestic prices and costs for calculating
antidumping margins for 15 years from China's accession. China also agreed
to a similar provision for identifying Chinese subsidies and calculating a
countervailing duty, but this provision does not expire. U.S. Trade
Representative officials told us they are confident that other WTO members
will accept these bilateral commitments with no substantive changes.

The working party has not yet reached agreement with China on another
proposed monitoring and compliance provision that would allow WTO members to
review China's implementation of its WTO commitments and assess its overall
progress in making economic and trade reforms. This transitional review
mechanism issue remains open and will be dealt with further in the working
party. Also, in return for other commitments, notably the strong,
product-specific safeguard, the United States dropped its objective to have
China agree to a "general safeguard" that would have allowed WTO members
broader discretion to suspend some or all WTO benefits to China.

Chinese and working party negotiators still must resolve differences in 3 of
the 11 areas under negotiation--trade-distorting industrial policies,
primarily subsidies; restraints on trade related to foreign currency
reserves; and "other" issues, most notably government procurement. While
negotiators have made progress on some individual issues, differences remain
over other issues. U.S. negotiators have noted that these areas, which are
generally subject to multilateral negotiations, have not been discussed with
the Chinese in recent years in the working party. However, the November 1999
U.S.-China bilateral agreement included some draft language that seemed to
narrow the differences on some topics.

The first area where there are differences to resolve is China's
trade-distorting industrial policies. Specifically, while China has agreed
to eliminate certain subsidies (financial assistance) prohibited by the WTO
agreements, Chinese and working party negotiators must agree on which WTO
trade remedies WTO members will be able to use against other types of
Chinese subsidies, if they are shown to adversely impact a member.
Similarly, while China has made commitments restraining its use of
trade-related restrictions on foreign investment, and price controls, and to
abide by existing WTO rules regarding government-sanctioned enterprises
(state trading), it must, for example, reach agreement with working party
members over the final lists of affected products. Notwithstanding these
differences, in November 1999, U.S. and Chinese negotiators reached
bilateral agreement on defining what constitutes subsidies for China's
state-owned enterprises, on what products will be imported by China's state
trading enterprises, and a Chinese commitment that various activities of
state-owned and state-invested enterprises will based solely on commercial
considerations (without government influence.) They also agreed on when
China will discontinue WTO-prohibited practices that impose trade-related
conditions on foreign investments and similar practices, including
technology transfer requirements.

The second area is China's potential use of foreign currency
reserves-related restraints on trade. WTO working party members have been
concerned about China potentially using WTO provisions on balance of payment
and foreign exchange controls to inappropriately restrict trade. Under the
WTO agreements, members are allowed to temporarily restrict imports or
access to foreign currency under certain adverse macroeconomic conditions in
order to increase foreign currency reserves. China has made changes in its
currency exchange regime since the working party last had substantive
discussions in this area several years ago, and WTO negotiators must decide
on what provisions, if any, are necessary.

The third area where negotiators have differences to resolve is a group of
miscellaneous topics that could have a significant trade impact. For
example, WTO members have asked China to agree to begin negotiations on the
trade-liberalizing obligations of the Agreement on Government Procurement
and the Agreement on Trade in Civil Aircraft, both of which are optional for
WTO members. China has not made offers to join either agreement. However, in
its November 1999 bilateral agreement with the United States, China agreed
that purchases by state-owned or
state-invested enterprises would be based on commercial considerations and
would not be considered government procurement, which is otherwise exempt
from WTO obligations.11

We obtained oral comments on a draft of this report from various officials
at the Office of the U.S. Trade Representative, which included the views of
the General Counsel. The Office provided us technical and clarifying
comments on our draft report, which we incorporated as appropriate. While
they generally agreed with the contents of our report, U.S. Trade
Representative officials had concerns about our grouping issues under
negotiation and had different opinions than GAO about the importance of
unresolved areas and on the relative value of particular commitments. We did
not attempt to weigh the importance of the issues under negotiation, and we
believe that our analysis presents Congress with an objective framework for
understanding the many issues being negotiated, as well as their status.

This report is based on our past and ongoing work on China trade issues;12
our review of WTO and executive branch documents; U.S. law; related
literature; economic literature; and our discussions with U.S. government,
WTO, and foreign government officials. More specifically, to assist Congress
in its oversight and upcoming debate on U.S.-China trade policy, we updated
our past work on the status of the WTO accession negotiations and the
results of the negotiations. We reported some of this information in a March
17, 2000, report. We extracted certain sections of our
September 30, 1999, report (including all our summary tables and graphs)
that were subsequently declassified by U.S. Trade Representative officials
and updated them to reflect new developments in the negotiations based on
the November 1999 agreement, other executive branch documents, and meetings
with U.S. government officials. Our methods of analysis are described in
more detail in our 1999 report.

We conducted our work from November 1999 through May 2000 in accordance with
generally accepted government auditing standards.

We are sending copies of this report to the Honorable Charlene Barshefsky,
the U.S. Trade Representative; the Honorable William M. Daley, Secretary of
Commerce; the Honorable Dan Glickman, Secretary of Agriculture; the
Honorable Lawrence F. Summers, Secretary of the Treasury; and interested
congressional committees. Copies will be made available to others on
request.

For future contacts regarding this report, please call me at (202) 512-4128.
Other GAO contacts and staff acknowledgments are listed in appendix II.

Susan S. Westin, Associate Director
International Relations and Trade Issues

China's World Trade Organization Commitments

China has made substantial progress toward completing its negotiations to
join the World Trade Organization (WTO). In this appendix, we describe
China's commitments as of May 2000 and describe the issues under negotiation
in each of the areas, as appropriate. To group the major issues, we
developed an analytical framework that encompasses both the bilateral and
multilateral negotiations. Specifically, we grouped the many market access
issues in the bilateral negotiations into four broad areas: (1) tariffs; (2)
nontariff restrictions; (3) access to services markets; and
(4) agricultural trade practices, although some topics in the latter area
are negotiated on a multilateral basis. We grouped the many issues under
consideration in the multilateral negotiations into seven broad areas:
(1) China's trade framework, (2) intellectual property rights protection,
(3) standards and regulatory measures, (4) compliance and protection
measures, (5) trade-distorting industrial policies, (6) foreign
reserves-related restraints on trade, and (7) other miscellaneous issues.

Although the United States and China reached agreement in
November 1999 on China's tariff commitments,13 China must still conclude
bilateral negotiations with some other countries before its WTO tariff
commitments can be finalized. The high levels of tariffs that China imposes
on its imports--these tariffs can be as high as a prohibitive rate of
100 percent on some goods--have been a concern to negotiators. Since these
tariffs have the effect of restricting the amount of goods that China
imports, negotiators asked China to "bind"14 all its tariffs at a certain
level. According to their particular commercial interests, each working
party member, including the United States, also requested particular rates
on some of the 6,450 products (industrial and agricultural goods) that China
trades.

In November 1999, the United States and China reached bilateral agreement on
China's bound tariff rates15 (see table 2). China's average tariff would
fall from its 1999 rate of 16.9 percent to 10.2 percent (see fig. 1). On
industrial products, the overall average would be 9.4 percent, and on
agricultural products, 16.8 percent. For agricultural products the United
States considers priorities, the average rate would be 14.7 percent. These
reductions would be phased in over time (see fig. 2). China's actual, or
"applied," tariffs have decreased during the negotiations in the past
several years. China's average applied tariff decreased from 42.8 percent in
1992 to 16.9 percent in 1998. Figure 1 illustrates the decline in China's
applied tariff rates from 1992 to 1998 and the final, agreed-upon tariff
average. Nevertheless, China would need to reduce its tariffs further in all
sectors to match the final rates agreed upon with the United States in
November 1999 (see table 3).

                      China's        U.S.-China agreed  Difference between
                      applied tariff tariff rate        1999 applied rate
                      rates (1999)   (November 1999)    and agreed rate
 All products         16.9%          10.2%              6.7%
 Industrial products
 overall              16.3           9.4                6.9
 Industrial products
 with a particular    16.6           8.2                8.4
 request
 Agriculture overall  21.4           16.8               4.6
 Agriculture
 prioritiesa          30.8           14.7               16.1

aThe U.S. request on agriculture products focused on high-priority items out
of the 900-plus items on China's tariff schedule.

Source: GAO analysis.

Source: GAO analysis.

Note: Potential exports are a GAO proxy representing the U.S.' export
potential to China as a WTO member, and were used in order to account for
the trade-distorting effects of existing tariff barriers.

aIn November 1999, the United States and China agreed to phase-in tariff
cuts for some autos and auto parts by 2006 (rather than 2005) with larger
reductions in the tariff rates for these products in earlier years. However,
these changes are not included in our analysis and some percentage of
potential U.S. exports to China will have the final tariff rate phased in by
2006 rather than 2005.

Source: GAO analysis.

                            U.S.-China   Difference
                  China's     agreed      between     U.S. 1998    Tariff
                                          China's                   rate
    Sector        applied      rates      applied    exports to   phase-in
                rates, 1999  November                   China
                (percent)      1999      rates and   (millions)    period
                            (percent)      agreed                 (years)
                                           rates
 Autos,
 vehicles, and  28.2        12.1        16.1        $3,746       2.5a
 auto parts
 Textiles and
 apparel        25.3        12.1        13.2        173          4.1
 Prepared
 foods,
 beverages,     29.4        22.4        7.0         87           1.7
 spirits, and
 tobacco
 Wood, paper,
 and leather    13.6        7.6         6.0         770          2.0
 products
 High-tech
 apparatus      14.6        8.8         5.8         4,892        1.7
 Miscellaneous
 manufactured   20.1        14.3        5.8         100          1.6
 goods
 Animal and
 plant products 19.5        14.1        5.4         218          2.0
 Chemicals,
 plastics, and  10.5        6.9         3.6         2,198        1.5
 minerals
 Low-tech
 manufactured
 goods and base 10.1        7.2         2.9         423          0.9
 metals
 Nonmetallic
 minerals and   17.1        14.2        2.9         116          0.8
 jewelry

aIn November, the United States and China agreed to phase in tariff cuts for
some autos and auto parts by 2006 (rather than 2005) with larger reductions
in the tariff rates for these products in earlier years. However, these
changes are not included in our analysis and the tariff rate phase-in period
will be somewhat longer.

Source: GAO analysis.

U.S. and Chinese negotiators reached bilateral agreement in November 1999 on
eliminating China's nontariff measures that restrict trade in industrial
goods (see table 4). However, bilateral negotiations with some other WTO
members remain before China's commitments in this area can be finalized.
China's commitments with the United States would eliminate or phase out
these restrictions, which affect a variety of product categories, within 5
years (see fig. 3). These commitments are subject to verification and
rectification (minor corrections.) In 1998, these restrictions applied to
over 8 percent of U.S. exports to China (see table 5). WTO members have
voiced concern regarding China's nontariff restrictions on imports,
including (1) quantitative limits China imposes on imports (quotas),
(2) Chinese requirements that companies obtain governmental approval and
submit documentation before importing (licenses), and
(3) requirements that private citizens obtain government approval before
making major purchases (tendering). China provides little transparency
regarding the quantity or value of products that are subject to these
measures, according to the U.S. Trade Representative. Article XI of the 1994
General Agreement on Tariffs and Trade generally prohibits quantitative
restrictions on trade.

                                                In the November 1999
 Negotiating topic  In the WTO multilateral     U.S.-China bilateral
                    negotiations, China
                                                negotiations, China
                                                Agreed to eliminate or
 Existing nontariff Must conclude bilateral     phase out quotas, licenses,
 measures           negotiations with some      and tendering restrictions
                    other WTO members
                                                on 282 products,
                                                Agreed that the longest
                                                phase-out period would last
                                                5 years
                                                Agreed that the size of
                                                quotas to be phased out
                                                would grow during this
                                                period from a negotiated
                                                base ratea for each product
                                                according to a negotiated
                                                growth rate

 New nontariff      Has agreed to not implement Not subject to bilateral
 measures           new nontariff measures      negotiation
                    during the negotiations
                    Has agreed to not implement
                    new nontariff measures      Not subject to bilateral
                    following accession         negotiation
                    Agreed that any import or
 Implementation     export restrictions will be Not subject to bilateral
                    implemented only by         negotiation
                    national authorities

a"Base rate" refers to the amount imported during a certain "base year" that
will serve as the "base" for calculating the import levels allowed under
quota in later years, based on the growth rate.

Source: GAO analysis.

                Number of
                 products        Average
                subject to      phaseout
                nontariff        period
              restrictions      (years)

                                                         Value of   Percent
                                                                    of U.S.
  GAO product                                 Longest  U.S. exports exports
   category    L&Q T  Total   L&Q T  Total   phaseout   to China,     to
                                             (years)       1998
                                                       (millions)a  China,
                                                                     1998
 Chemicals,
 plastics, and43   0  43      2.4 N/A2.4     4         $878        6.5%
 minerals
 Textiles and
 apparel      26   0  26      1.0 N/A1.0     N/A       11          0.1
 High-tech
 manufactured 52   75 127     1.8 2.01.9     4         216         1.6
 goods
 Autos,
 vehicles, and71   9  80      4.0 2.73.8     5         23          0.2
 auto parts
 Miscellaneous
 manufactured 6    0  6       3.0 N/A3.0     3         0.004       0
 goods
 Total        198  84 282     2.7 2.02.5     5         $1,128      8.4

Legend
L&Q = licenses and quotas
T = tendering
N/A = not applicable

Note 1: Numbers may not add up precisely because of rounding.

Note 2: No products have both licenses and quotas and tendering restrictions
placed on them. All quotas are accompanied by a license.

aThe export value is only for those items with a nontariff measure.

Source: GAO analysis.

Note: Based on actual U.S. exports to China in 1998.

Source: GAO analysis.

The United States and China reached agreement on China's service sector
commitments in November 1999, although China must still conclude bilateral
negotiations with some other countries before finalizing its WTO services
commitments. Trade in services is fundamentally different than trade in
goods, in that services are not physical items that are shipped across a
border. Some services covered by the 12 general sectors16 are supplied
across borders, such as an overseas telephone call, or by people who cross
borders either to obtain or deliver a service, such as a patient or doctor
traveling for medical treatment. However, other services are supplied
through establishing a commercial presence in the country, often through
foreign investment, such as a bank selling financial services.

In November 1999, the United States and China reached agreement on China's
commitments to open its services sector.17 China agreed to open 9 of its 12
service sectors--including all those that were identified as U.S.
priorities--to foreign service providers, though with some specified
limitations (see table 6). Individual WTO members' commitments vary widely
in scope and depth and usually do not include all 12 service sectors. As the
world's largest exporter of services, with 1997 exports valued at about $230
billion by the WTO, the United States seeks access to China's growing
services market. Only 2 percent of U.S. services exports currently go to
China.

from Previous Page

                              Commitments upon
  12 WTO service sectors  accession on foreigners'   Final commitments on
   and key subsectorsa        access that are         foreigners' access
                           eliminated or reduced,
                           and phaseout periods
 1. Business

                                                   Open, with limitations
                                                   on scope of business,
 Professional:                                     legal forms of
                          Quantitativeb and        establishment,
 legal                    geographic location      professional
                          limits eliminated after  requirements, otherc
                          1 year
                                                   Otherwise, open upon
                                                   accession, with
                                                   professional
 auditing, accounting,    Limits on legal form of  requirementsc
 taxation, etc.           establishment and share
                          of foreign equity
                          investment (taxation
                          only) are eliminated     Open upon accession,
 architectural,           after 6 years            with limitations on
 engineering, etc.                                 cross-border supply,
                          None                     legal forms of
                                                   establishment,
                                                   professional
                                                   requirementsc
                                                   Otherwise, open upon
                          Some (maintenance and    accession, with
                          repair only) legal forms professional
                          of establishment, share  requirements, scope of
                                                   business limitations;d
 Computer & related       of foreign equity        some limitations on
                          investment limits
                          liberalized after 1 year legal forms of
                          and eliminated after 3   establishment and
                          years                    cross-border supply of
                                                   software implementation
                                                   services
                          Limits on legal forms of
                          establishment and share
 Rental & leasing         of foreign equity        Open, with some scope of
                          investment liberalized   business limitationsd
                          after 1 year and
                          eliminated after 3 years
                          Legal forms of
                          establishment, share of  subsectors open, with
                          foreign equity           cross-border supply,
 Other business servicese investment limits in     legal forms of
                          about of the subsectors  establishment, or other
                          liberalized in 1 or 2    limitations in about the
                          years and eliminated in  opened subsectors
                          3, 4, or 6 years
 2. Communication
                          Legal forms of
                          establishment and share
                          of foreign equity
 Courier                  investment limits        Open
                          liberalized after 1 year
                          and eliminated after 4
                          years
                          Generally no new access
                          for 3 years,f then
                          initial cross-border     Open, with limitations
                          supply and share of      on cross-border supply,
 Basic                    foreign equity           legal forms of
 telecommunications       investment limits        establishment, share of
                          liberalized after 3 and  foreign equity
                          5 years; geographic      investment (49%), and
                          location limits          scope of businessc, d
                          liberalized after 5 and
                          eliminated after 6 years
                          Limits on cross-border
                          supply and share of
                          foreign equity           Open, with limitations
                                                   on cross-border supply,
 Value-added              investment liberalized   legal forms of
 telecommunications       after 1 and 2 years;     establishment, and share
                          those on geographic
                          location liberalized     of foreign equity
                          after 1 year and         investment (50%)
                          eliminated after 2 years
                                                   Open upon accession,
                                                   with limitations on
                                                   legal forms of
 Audio-visual             None                     establishment, and some
                                                   share of foreign equity
                                                   investment (49%), scope
                                                   of business,d and
                                                   quantitative limits
                                                   Open upon accession,
                                                   with limitations on
 3. Construction          None                     scope of business, legal
                                                   forms of establishment,
                                                   and other limitations
 4. Distribution
                          No market access for
                          distribution of imported
                          goods until after 1
                          year, then initial
                          limits on legal forms of
                                                   Open, with limitations
 Wholesale trade &        establishment and share  on cross-border supply
 commission agents        of foreign equity        and some other
                          investment, liberalized
                          after 2 and eliminated   limitationsc
                          after 3 years; some
                          other product
                          limitations eliminated
                          in 3 or 5 years
                          Some limits on legal
                          forms of establishment,
                          share of foreign equity  Open, with limitations
                          investment, geographic   on cross-border supply,
                          location, and            and some legal forms of
                                                   establishment, share of
 Retailing                quantitative limits      foreign equity
                          liberalized after 2 and
                          eliminated after         investment (49% in large
                          3 years; some other      stores & chains), scope
                          limitations eliminated   of business, and other
                          after 1, 3, or           limitations
                          5 years
                          No market access for
 Franchising & other      distribution of imported Open
                          goods until after 3
                          years
                                                   Open upon accession,
                                                   with limitations on
                                                   cross-border supply,
 5. Education             None                     scope of business, legal
                                                   forms of establishment,
                                                   professional
                                                   requirement, and other
                                                   limitations
                                                   Open upon accession,
                                                   with limitations on
 6. Environmental         None                     cross-border supply,
                                                   scope of business, and
                                                   legal form of
                                                   establishment
 7. Financial
                          Limits on share of
                          foreign equity
                          investment liberalized   Open, with some
                          after 1 and 2 years;     cross-border supply,
                          geographic location      scope of business, legal
 Insurance                liberalized after        forms of establishment,
                          2 and eliminated after 3 share of foreign equity
                          years; scope of business investment (50% in life
                          limitations liberalized  insurance), and other
                          after 4 and some         limitations
                          eliminated after
                          5 years
                          Limits on geographic
                          location liberalized
                          each year; some scope of
                          business liberalized     Open, with cross-border
 Banking                  after 2 years; these and supply, scope of
                          quantitative and some    business, and other
                          other limitations        limitationsc
                          eliminated after
                          5 years

                          Some limits on legal     Open, with cross-border
                          forms of establishment,  supply, scope of
                                                   business, legal forms of
 Securities               share of foreign equity  establishment, foreign
                          investment, scope of
                          business liberalized     equity investment (33,
                          after 3 years            49%), and other
                                                   limitations

 Advisory and other                                Open upon accession,
 financial services       None                     with limitations on
                                                   cross-border supply
 8. Health & Social
 (other than medical and  None                     No commitments
 dental)
 9. Recreation, cultural
 & sport                  None                     No commitments
                          Legal forms of
                          establishment, share of
                          foreign equity
                          investment, geographic
 10. Tourism & travel     location area, some      Open, with limitations
 related                  scope of business, and   on scope of businessd
                          other limitations        and other limitationsc
                          liberalized or
                          eliminated after 3 or 5
                          years
                                                   Seven of nine subsectors
                          Some legal forms of      open, with various
                          establishment, share of  limitations on
                                                   cross-border supply,
 11. Transport            foreign equity           legal forms of
                          investment, liberalized
                          and/or eliminated after  establishment, scope of
                          1, 3, 4, or 6 years      business,d quantitative
                                                   and/or other
                                                   limitationsc
 12. Other                None                     No commitments

aFor purposes of analysis, these commitments are organized according to the
standard WTO listing of services and not by the organization in the text of
the November 1999 agreement.

bQuantitative limits include restrictions on the number of service providers
and/or times a service can be provided.

cAlso, fees and charges for some services are subject to state pricing under
protocol provisions on price controls.

dScope of business is limited by the specific exclusion of one or more
services from China's proposed commitments.

eIncludes advertising; management consulting; technical testing and
analysis; scientific and technical consulting; maintenance & repair of
equipment; photographic; packaging; convention; and translation and
interpretation services.

fPaging and mobile services commitments begin earlier and are phased in
faster than other basic telecommunication commitments.

Source: GAO analysis.

China's market has remained essentially closed to foreign service providers,
according to U.S. Trade Representative reports. Foreign service providers
are often only allowed to operate under selective "experimental" licenses
and are restricted to conducting business in specific geographic areas and
to a specific scope of operations. Similarly, investment restrictions limit
how foreigners may establish a commercial presence; for example, they may be
forced into a joint venture with Chinese partners and not be allowed to
establish a wholly owned subsidiary. Moreover, China treats foreign service
suppliers differently than domestic firms; that is, it denies them national
treatment. China's policies favor domestic firms over foreign firms and
impose significant administrative restrictions on foreign firms but not
domestic firms.

Multilateral rules covering trade in services have only existed since
January 1995, when the WTO General Agreement on Trade in Services went into
force. While there is a framework of rules that WTO members follow, these
rules apply only where a country makes a specific commitment to grant access
to foreign services, and exemptions are allowed. Individual WTO members each
have specific commitments in individual service sectors and have granted
market access subject to specified limitations, such as those on the number
or scope of business that is permitted. Thus, there is no general
requirement that WTO members open their services market to foreigners and
grant them national treatment.

The United States and China reached agreement on many agricultural issues in
November 1999. However, China has yet to conclude bilateral market access
negotiations with some WTO members on agricultural tariffs and related
topics. In addition, minor differences remain on protocol and working party
report commitments on agriculture topics under multilateral negotiation.
While China made commitments to the WTO working party to eliminate export
subsidies, there are outstanding issues to resolve concerning China's
domestic support to its farmers. (See table 7 for the status of the
agriculture negotiations.)

 Agriculture      In the WTO multilateral      In the November 1999
 issue            negotiations, China          U.S.-China Bilateral
                                               negotiations, China

                  Must conclude bilateral      Agreed to reduce tariffs on
 Tariffs          negotiations with some       all agricultural items to
                  other WTO members            16.8 percent and on priority
                                               items to 14.7 percent
 Tariff-rate                                   Agreed to provide managed
 quota system     Must conclude bilateral      market access for specific
 for bulk         negotiations with some       products (see table 8 for
 commodities      other WTO members            details)
                  Will cap and reduce the
                  amount of its domestic
                  support under the WTO
 Domestic         agriculture agreement.       Not subject to bilateral
 subsidies        However, negotiations        negotiation
                  continue on what is counted
                  as a subsidy and on the
                  level of reduction
                  Has agreed to zero export
 Export subsidies subsidies on all             Not subject to bilateral
                  agricultural products        negotiation

Source: GAO analysis.

In November 1999, U.S. and Chinese negotiators reached agreement on tariff
reductions for agricultural products, including substantial tariff
reductions on items the United States deems as "high-priority," and foreign
access opportunities for other key agricultural commodities negotiated as
part of a "tariff-rate quota" (TRQ) system, which is explained later. China
committed to reduce its overall agricultural tariffs to an average of
16.8 percent (see table 2), which is a 4.6 percent decrease. For 62 of the
942 products, China will meet these tariff commitments upon its accession to
the WTO; for the remainder, it will phase in its final agreed rate to meet
the agreed level by 2004.

U.S. and Chinese negotiators also reached agreement on specific rules for
how China would administer a TRQ system to provide controlled market access
for several sensitive bulk agricultural commodities, including wheat, corn,
rice, and cotton, among others (see tables 8 and 9). These changes are
intended to improve predictability, expand private competition, reduce state
intervention, and increase the transparency of the system. China's TRQ
system, like those currently used by the United States and other WTO members
on some products, would allow imports 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. Exporters from different foreign countries would each compete
for a share of the quota (see fig. 4). While much of this trade would go
through Chinese state trading enterprises, which are discussed later, some
private trading in these commodities would be allowed with provisions to
help ensure that import quota amounts are used (see figs. 5 and 6 and table
9). China's quota commitments for wheat, corn, rice, and cotton appear
generous in that U.S. 1998 exports of these commodities to China represent
between less than
1 percent to 10 percent of China's initial quota commitments. They also
represent between 6 and 27 percent of China's reported total imports in
1998. China's initial soybean oil commitment is approximately equal to U.S.
Department of Agriculture estimates of China's total soybean oil imports
from all countries in 1998.

 Negotiating issues                China agreeda to
 Improve predictability            Set an annual quota allocation

 Increase private competition      Reserve a portion of all quotas for
                                   private traders
                                   Reallocate and make available for import
                                   through any entity the state-traded
                                   quota portion not imported by certain
                                   dateb
                                   Reallocate unused quota quantities;
                                   however, end-users cannot transfer
                                   import quota allocation so that
                                   allocation will eventually go to users
                                   with the strongest import interest
                                   Allow items under quota to be imported
                                   on a first-come, first-served basis or
                                   by request of applicants and their
                                   historical import performance,
                                   production capacity, or other relevant
                                   commercial criteria
 Reduce state intervention between
 buyers and sellers                Allocate quotas directly to end-users

                                   Allow access to China's distribution
                                   system
                                   Allow end-users allocated state-traded
                                   share of quotas to import directly or
                                   through other entities after certain
                                   date
                                   Respond to inquiries on what entities
 Increase transparency             received the quota allocations (there is
                                   no reporting to WTO of entities
                                   receiving quota allocations)

aAgreement on this topic is subject to China and the WTO working party
members reaching agreement on the final text of the protocol and working
party report, which may include drafting or revising language describing
China's commitments regarding individual topics.

bQuotas represent import opportunities and are not minimum purchase
requirements guaranteeing that the amounts will be completely used
(imported).

Source: GAO analysis.

                           Tariff Rate Quota provisions in November 1999 agreement
              U.S.
            exports
            to China  Initial    Final                             End of    Percent of
                       quota     quota    In-quota Out-of-quota  transition     quota
  Product   in 1998,  quantity quantity    tariff     tariff    period that reserved for
           value and
             metric   (million (million  (percent)  (percent)    begins in     private
           tons (MT)    MT)      MT)                               2000       traders
           exported

 Wheat     $46                                     80, reduced
 (five     million.  7.3       9.6       Range:    to           2004        10 - with no
 products) 315,839                       1-10      65                       growth
           MT
                                                   80 for most
 Corn      $44                                     lines,
 (five     million.  4.5       7.2       Range:    reduced to   2004        25 growing
 products) 366,553                       1-10      an average               to 40
           MT
                                                   of 51

                                                   80 for most              50 for short-
 Rice                                              lines,                   &
 (six      $288,844. 2.7a      5.3       1 and 9   reduced to   2004        medium-grain
 products) 493 MT                                  an average               rice; 10
                                                   of 43                    for other
                                                                            rice
 Soybean   $312
 oil       million.                                85, reduced              50 growing
 (two      521,835   1.7       3.3       9         to 9         2006        to 100
 products) MT
 Cotton    $118
 (two      million.  0.7       0.9       1         76, reduced  2004        67
 products) 77,014 MT                               to 40

aThere are subquota allocations for the overall quota on rice (50 percent
for short or medium grain;
50 percent for long grain).

Source: GAO analysis.

Source: GAO analysis.

Note: The United States and China did not reach final agreement that the
State Planning Commission is the administering authority; this issue will be
decided in the multilateral negotiations.

Source: GAO analysis.

Note: The United States and China did not reach final agreement that the
State Planning Commission is the administering authority; this issue will be
decided in the multilateral negotiations.

Source: GAO analysis.

According to U.S. negotiators and WTO officials, the substance of
commitments covering China's trade framework are agreed.18 To become a WTO
member, China will need to make significant changes in how it administers
its foreign and domestic trade. China currently retains elements of a
restricted system that discriminates against foreign firms despite its
continuing transition to an open market economy. This framework covers a
number of issues that would apply broadly to how China manages its trade
regime.

More specifically, China's commitments in this area cover (1) transparency,
(2) right to trade, (3) nondiscrimination, (4) uniform administration of
China's trade practices, (5) special economic areas, (6) special trading
arrangements, and (7) judicial review issues (see table 10). U.S. and
private industry representatives have considered both the degree of
transparency in China's trade regime, and the extent to which China provides
both foreign and Chinese individuals and business firms the "right to
trade," defined as the right to import and export goods and services, as two
of the major issues in the negotiations. They have also been concerned about
China's discriminating against foreign individuals and entities, applying
its trade laws and other measures differently throughout China, providing
preferential treatment to specially designated economic areas, and China's
lacking independent adjudicating bodies to handle trade-related complaints.

                                  Commitments agreed to in WTO protocol and
     Trade framework issue                  working party report
                                            ensure that…
                                 China publishes trade measures in
                                 officially designated journal and allows
 Transparency                    public comment before implementation, but
                                 a minimum time period between publishing
                                 and implementing trade measures is still
                                 under negotiation
                                 China provides translations of trade
                                 measures into one or more official WTO
                                 languages before measures are implemented,
                                 to maximum extent possible
                                 China establishes central government
                                 inquiry point for providing official
                                 answers about trade measures

                                 China responds to most inquiries in 30
                                 days and exceptional inquiries in 45 days
                                 China permits, and not does not claim as
                                 confidential, publication of initial quota
                                 levels and quota growth rates before
                                 quotas are implemented for a given product
                                 China grants right to import and export
                                 goodsa to all enterprises in China, to be
                                 phased in within 3 years of accession.
 Right to trade                  Generally includes national treatment for
                                 distribution of goods. Subject to
                                 exceptions for some goods of state trading
                                 enterprises. How rights are to be phased
                                 in is still under negotiation.
                                 All foreign individuals and enterprises
                                 are provided trading rights no less
                                 favorable than Chinese enterprises
                                 Chinese enterprises can trade in all
                                 goodsb by a certain date, but no right to
                                 import and export given to Chinese
                                 individuals
                                 National treatment commitment applies both
                                 to granting and regulation of trading
                                 rights
                                 China treats imported goods no less
                                 favorably than domestically produced goods
                                 for foreign individuals and enterprises,
 Non-discrimination              including foreign-funded enterprises,
                                 regarding procurement of goods and
                                 services necessary for production and
                                 prices and availability of goods and
                                 services supplied by public entities.a
                                 Additional protocol language that certain
                                 exceptions to nondiscrimination do not
                                 undercut commitments is still being
                                 considered by the working party
                                 Trade measures are applied uniformly
 Uniform administration of trade throughout China, including at subnational
 measures                        level, that is, provincial and local
                                 levels

                                 Types of trade measures are broadly
                                 defined

                                 China clearly defines territorial coverage
                                 of its commitments

                                 Trade measures, including at subnational
                                 level, are consistent with WTO rules
                                 Mechanism is established for receiving
                                 complaints regarding nonuniform
                                 application
                                 China treats goods and services of
                                 separate customs territories, such as Hong
                                 Kong and Macau, like those of other WTO
                                 members and does not grant preferential
                                 treatment to imports from China Taipei
                                 Goods and services entering rest of China
 Special economic areas          from special economic areas receive same
                                 treatment as other imports
                                 China clarifies whether commitments to
                                 special economic areas would also extend
                                 to its open coastal cities and special
                                 economic and technological development
                                 zones
                                 China notifies WTO within 60 days and in
                                 an official WTO language--english, french,
                                 or spanish--of any changes in trade
                                 measures pertaining to special economic
                                 areas
                                 No specific commitment, but China must
 Special trading arrangementsc   eliminate or conform all of China's
                                 special trade arrangements with WTO
                                 requirements
                                 China establishes independent tribunals to
                                 review broad array of administrative
 Judicial review                 actions regarding implementation of
                                 China's trade regime, including those
                                 involving balance of payments and some
                                 services
                                 China revises patent and trademark laws
                                 and regulations to be consistent with WTO
                                 commitments upon accession
                                 China provides a right of appeal in trade
                                 disputes to a judicial body if first
                                 appeal is to administrative agency

aAgreement in this area is subject to China and the WTO working party
members reaching agreement on the final text of the protocol and working
party report, which may include drafting or revising language describing
China's commitments regarding individual topics.

bConsistent with usual WTO practice, trading rights and national treatment
for services have been negotiated with China on a sector-by-sector basis.

cMost such arrangements relate to border trade, for example, local trade at
the China-Russia border, and barter trade.

Source: GAO analysis.

China has agreed to implement the WTO's Agreement on Trade-Related
Intellectual Property Rights upon accession, and thus negotiations have
generally been concluded in this area. China's intellectual property rights
laws are now approaching WTO norms, according to the U.S. Trade
Representative. This agreement defines both the scope and enforcement
procedures of intellectual property rights in various areas. These areas
include copyrights, trademarks, patents, geographic indications (where
particular characteristics of a good are related to its geographical
origin), industrial designs, layout designs of integrated circuits
(semiconductor chips), protection of undisclosed information (trade
secrets), and control of anticompetitive practices in contracts. The
agreement also provides recourse to the WTO's dispute settlement mechanism,
which allows members to challenge the adherence of another member to the
agreement. To implement the WTO agreement, China will need to make
additional changes in its laws, some in the areas of copyrights and
trademarks. According to U.S. Trade Representative officials, such changes
would provide further protections to U.S. producers beyond those gained in
existing bilateral agreements.

The adequate protection of intellectual property rights in China has
consistently been a principal area of concern for the United States. Since
1986, the United States has engaged China in discussions over intellectual
property rights protection and has signed bilateral agreements on such
rights in 1992, 1995, and 1996. These bilateral agreements have prompted
China to make improvements in its laws governing intellectual property
rights protections. Despite these improvements in both laws and enforcement,
in 1999 the U.S. Trade Representative expressed concern that Chinese
penalties did not act as a deterrent and noted problems related to trademark
counterfeiting.

WTO working party members and China have made progress in negotiating issues
involving China's use of standards and regulatory measures to unfairly
regulate trade, but some minor differences remain. Standards and regulatory
measures include rules governing how (1) imports and exports are licensed,
(2) standards and technical regulations are established,19
(3) health and safety protection measures are set (sanitary and
phytosanitary measures),20 and (4) base values for applying customs duties
are set (customs valuation).21 (See table 11.) Agreement has generally been
reached on most issues in this area, with additional work needed to
determine how China will implement its commitments on standards and
technical regulations. Also, China must still provide working party members
information regarding its standards and health and safety measures, as
agreed.

                    Provisions in WTO
     Issue        agreements that apply  Specific provisions    Status of
                     to all members          for China        negotiations
 Import and      Procedures used for
 export          licensing, including    Implement upon      Agreementb
 licensinga      automatic and           accession
                 nonautomatic licensing, Increase
                 intended to be          transparency and
                 transparent and not     fairness of China's
                 restrict trade unduly;  licensing,

                                         including
                 Developing countries    additional
                 permitted extra time to notification
                 phase in some rules     requirements

 Standards and   Measures to be          Increase
 technical       transparent,            transparency of     Still under
 regulationsc    nondiscriminatory, and  existing and future negotiation
                 based on international  measures
                 standards where they    Ensure national
                 exist;                  treatment by
                 Developing countries    regulators
                 allowed time to phase   Reform certain
                 in some commitments     inspection

                                         procedures and
                                         practices

                 Measures to be based on
                 scientific principles
                 and, where possible,
 Health and      international
 safety          standards;              Implement upon      Agreementb
 measuresd                               accession
                 Members to accept other
                 members' measures as
                 equivalent if
                 demonstrated to be so;

                 Members to assess the   Apply international
                 risks to human, animal, standards where
                 and plant life and      they exist
                 health in setting
                 measures;

                 Measures to be based on
                 regional conditions;
                                         Eliminate existing
                 Developing countries    unfair barriers
                 allowed time to phase
                 in some rules

 Customs         Intend that members use Implement upon
 valuatione      a fair, uniform, and    accession           Agreementb
                 neutral system for
                 valuing goods for       Amend laws to be
                 customs purposes based  consistent with
                 on commercial           agreement
                 practices;

                 Set guidelines to       Eliminate
                 determine the value of  WTO-prohibited
                 imports for charging    practices, such as
                 appropriate customs     basing customs
                 duties;                 values on set
                                         minimum prices
                 Developing countries
                 generally allowed 5
                 years to implement      Resolve specific
                 agreement; that is, by  valuation issues on
                 the year 2000           certain products

aUnder the Agreement on Import Licensing Procedures.

bAgreement in this area is subject to China and the WTO working party
members reaching agreement on the final text of the protocol and working
party report, which may include drafting or revising language describing
China's commitments regarding individual topics.

cUnder the Agreement on Technical Barriers to Trade.

dUnder the Agreement on the Application of Sanitary and Phytosanitary
Measures.

eUnder the Agreement on the Implementation of article VII of the General
Agreement on Tariffs and Trade.

Source: GAO analysis.

In the past, China has used a variety of standards and regulatory measures
to limit imports into China, according to U.S. and private sector officials.
China maintains separate regulatory agencies--one for imports and one for
domestic products--that apply technical inspection standards.22 The U.S.
Trade Representative has also noted that major problems have existed with
how China sets standards. For example, China's standards (1) are not
transparent, (2) can differ for imports and domestic products, and (3) can
differ from international standards for no apparent reason. U.S. and other
foreign traders often have difficulty learning which of China's product
standards apply to their goods. As a WTO member, China would make certain
commitments not to use product standards or regulatory measures to unfairly
limit imports.

As a result of the November 1999 U.S.-Chinese agreement, significant
progress has been made regarding compliance and protection mechanisms that
would help WTO members monitor and respond to China's implementation of its
WTO commitments. China agreed to a 12-year, product-specific safeguard;
safeguard protection against surges in Chinese textile imports until
December 31, 2008; and provisions for mitigating the unfair trade practices
of dumping (selling below market value) and subsidizing exports.
Nevertheless, assuming the terms of the November bilateral agreement are
generally accepted by the other working party members, some minor
differences remain to be resolved. Negotiations will continue over the issue
of creating a mechanism to monitor China's actions during the transition
period in which it implements its WTO commitments (see table 12).

                                                Provisions in November 1999
 Compliance mechanism       Status of WTO           U.S.-China bilateral
                      multilateral negotiations
                                                        agreementa
                      Must finalize a provision
                      to allow WTO members to   China agreed to a
                      avail themselves of a     product-specific safeguard
                      safeguard process that    based on an easier "market
 Product-specific     would help regulate       disruption" rather than
 safeguard            import levels of specific "serious injury" standard
                      products and guard        for a duration of
                      against disruption of     12 years following China's
                      industries from surges of accession
                      Chinese imports
                      Must finalize a provision
                      to allow WTO members to
                      avail themselves of a     China agreed to a textile
                      safeguard that would help safeguard that would extend
                      regulate import levels of to 2009 (4 years beyond
 Textile safeguard    textiles and apparel and  what is otherwise permitted
                      guard against disruption  under WTO rules) provided
                      of industries from surges that the WTO member has a
                      of Chinese textile        bilateral textile agreement
                      imports that is still     with China
                      under negotiation
                                                China agreed to allow WTO
                      Must finalize a provision members to use alternative
                      to allow WTO members to   nonmarket economy
                      avail themselves of       methodologies for a
                      alternative methodologies duration of 15 years from
 Alternative          for determining Chinese   accession for antidumping
 methodologies        prices and subsidies in   cases (provided that the
                      antidumping and           WTO member has market
                      countervailing duty cases economy criteria in its
                      that is still under       laws at the time of China's
                      negotiation               accession) and permanently
                                                for countervailing duty
                                                cases
                      China very strongly
                      resists this proposed
                      provision, which would
 General safeguard    allow WTO members to      Not addressed in bilateral
                      suspend WTO benefits to   agreement
                      China if China is not
                      implementing WTO
                      commitments
                      Negotiations continue
                      about establishing a
                      special review body to
 Transitional review  assess China's compliance Not addressed in bilateral
 mechanism            with terms of accession,  agreement
                      especially with regard to
                      scope of review and
                      duration

aThe working party must agree to these proposed bilateral commitments and
incorporate them in the protocol and/or working party report together with
any modifications.

Source: GAO analysis.

China has to make many reforms to comply with WTO rules, which are designed
for market-based economies. However, working party members, including the
United States, recognize the evolving nature of China's economy and that
China will need some time to phase in some commitments. At the same time,
WTO members want to protect their interests during this transitional period.
As a result, the working party has considered including special transitional
mechanisms in China's accession package to help monitor China's
implementation of its commitments and safeguard their interests should China
fail to live up to them. Special review provisions and safeguards were
included in the accession protocols of some Eastern European countries to
the General Agreement on Tariffs and Trade, including those of Poland,
Hungary, and Romania. WTO rules already allow members to use safeguards when
subjected to or threatened

by serious injury from imports of a particular product (or directly
competitive products);23 however, these safeguard measures cannot target
specific countries--instead, they must be applied to products irrespective
of their source.

Similarly, the United States and other WTO members currently limit imports
of textiles and clothing through quotas under a WTO agreement. Imports from
China are also limited on a bilateral basis. In 1997, China exported $6
billion in textile and apparel products to the United States, making it the
largest exporter of such products in value terms.

Although a mechanism exists in the WTO to periodically review the trade
policies of each WTO member, negotiators think the present "Trade Policy
Review Mechanism"--which was designed as a broad review of members' trade
regimes--is insufficient to oversee China's progress in implementing its
accession commitments. Thus there have been proposals for creating a
"transitional review mechanism" to better allow WTO members to monitor
relevant changes in China.

There are differences remaining between members of the WTO working party and
China over China's pursuit of policies that promote and direct economic
development in certain sectors while regulating others for social and
political reasons. Negotiations in this area have included China's use of
(1) subsidies, (2) state trading enterprises, (3) price controls, and
(4) trade-related investment measures and other industrial policies.
Negotiations between China and the WTO working party will continue, taking
into account the bilateral progress made under the November 1999
U.S.−China agreement. In that agreement, China committed to implement
the WTO agreement on trade-related investment measures upon accession and
agreed to some provisions on investment requirements, subsidies, and state
trading enterprises (see table 13).

                                                    Provisions in November
         Issue         Status of WTO multilateral 1999 U.S.-China bilateral
                              negotiations
                                                         agreementa
                       China has agreed to
                       eliminate "prohibited"
 Subsidies             subsidies, but             Not subject of bilateral
                       negotiatiions continue     agreement
                       over when some will be
                       eliminated
                                                  China's assistance to
                                                  state-owned enterprises
                                                  will normally be
                                                  considered "specific" and
                                                  therefore potentially
                       Negotiations continue over subject to countervailing
                       what remedies WTO members  duty actions under the
                       will be able to use        WTO subsidy agreement.
                       against China's            WTO members maintain the
                       "actionable" subsidies     right to use alternative
                                                  benchmarks for
                                                  identifying and measuring
                                                  subsidies in
                                                  countervailing duty
                                                  investigations
                       China will fully notify
                       the WTO of all subsidies
                       as defined by the WTO
                       agreements, but most       Not subject of bilateral
                       recent submission is not   agreement
                       considered to be
                       comprehensive
                       China will abide by
 State trading         existing WTO rules         Not subject of bilateral
 enterprises           governing the practices of agreement
                       state trading enterprises
                       Negotiations continue over China will remove soybean
                       the list of Chinese        oil from state trading by
                       products that will be      2006 and permit private
                       subject to state trading   trade in some additional
                       and when some products     oils. Chemical fertilizer
                       will be removed from the   will be subject to state
                       list                       trading.b
                       Negotiations continue over
                       proposed commitments that
                       Chinese state trading      Not subject of bilateral
                       enterprises will refrain   agreement
                       from certain export
                       practices

                       Negotiations continue over China's state-owned and
                       commitments that Chinese   state-invested
                       state trading enterprises  enterprises will make
                       will refrain from certain  purchases and sales based
                       import practices           on commercial
                                                  considerations

                       China has agreed to        China agreed to implement
                       implement the WTO          the agreement on
                       Agreement on Trade-related accession and will not
                       Investment Measures upon   enforce contracts
 Trade-related         accession, which would     imposing such
 investment measures   eliminate laws,            requirements. Also, China
 and other industrial  regulations, and policies  agrees that imports or
 policies              requiring trade and        investment will not be
                       foreign exchange           conditioned on local
                       balancing, local content,  content, offsets,
                       and export performance     technology transfers, or
                       requirements               other peformance
                                                  requirements.
                       China has agreed to
                       generally allow prices to
                       be determined by market
 Price controls        forces, with negotiated    Not subject of bilateral
                       exceptions listed, and to  agreement
                       end certain discriminatory
                       price practices
                       China has tentativley
                       agreed to not extend price
                       controls beyond those
                       listed, except "in         Not subject of bilateral
                       exceptional                agreement
                       circumstances," and to
                       make "best efforts" to
                       remove these controls
                       Negotiations continue on
                       the list of products and
                       services for which China   Not subject of bilateral
                       will be allowed to         agreement
                       maintain price controls

aThe working party must agree to these proposed commitments and incorporate
them in the protocol and/or working party report together with any
modifications.

bIn May 2000, China agreed to provide controlled access for chemical
fertilizer imports through a
tariff-rate quota, according to U.S. Trade Representative officials. China's
commitment would allow some foreigners to privately import fertilizer
themselves, but would otherwise require any foreigners who distribute or
sell foreign fertilizer in China to purchase it from a Chinese state trading
company. Fertilizer was the fourth largest U.S. export to China in 1998,
accounting for $1 billion, or 8 percent, of U.S. exports to China.

Source: GAO analysis.

Specifically, while China has agreed to eliminate certain subsidies
prohibited by the WTO agreements, Chinese and working party negotiators must
agree on which WTO trade remedies members can use against other types of
Chinese subsidies, if they are shown to adversely impact a member. The
negotiations on subsidies involve (1) how WTO members will be able to apply
the WTO Agreement on Subsidies and Countervailing Measures24 to Chinese
subsidies and (2) listing specific subsidy programs. The WTO agreement on
subsidies categorizes subsidy programs into three groups: (1) "prohibited"
subsidies, which are used to promote exports or replace imports (import
substitution); (2) "actionable" subsidies, which are not used directly for
export promotion or import replacement but which, if they are shown to
adversely impact another member, may be forced to be modified or removed;
and (3) "nonactionable" subsidies for research and development,
disadvantaged regions, and adaptation of facilities to meet new
environmental standards. The WTO subsidies agreement allows some countries
phaseout periods for prohibited subsidies25 and narrows the recourse to
remedies members may take against some countries' actionable subsidies.26
Working party members also seek more information from China on its use of
subsidies, both at the central and the local level.

Similarly, China has made commitments to abide by existing WTO rules
governing government-sanctioned enterprises (state trading) and regarding
its use of trade-related investment measures27 and price controls.
Nevertheless, it must reach agreement with working party members over the
final lists of products subject to price controls and state trading,28 as
well as any other commitments regarding state trading enterprises' import or
export practices. Notwithstanding these differences, in November 1999, U.S.
and Chinese negotiators reached bilateral agreement on defining what
constitutes subsidies for China's state-owned enterprises, on what products
will be imported by China's state trading enterprises, and that various
activities of state-owned and state-invested enterprises will, like state
trading enterprises, be based solely on commercial considerations (without
government influence.) They also agreed on when China will discontinue
WTO-prohibited practices that impose trade-related conditions on foreign
investments, as well as some other practices, including technology transfer
requirements.

Reserves-related Constraints on Trade

The WTO working party and China have differences to resolve over China's
potential use of WTO provisions intended to assist countries during a
serious decline in their foreign currency reserves. China had foreign
currency reserves in 1999 in excess of $150 billion, which are the second
largest in the world. Nevertheless, WTO members are concerned that China
might someday use the provisions on balance of payments measures and foreign
exchange controls to regulate its imports and provide protection for
specific domestic industries. The WTO agreements contain provisions that
allow countries to temporarily impose restrictions on imports or access to
foreign currency when faced with a deterioration of their holdings of
foreign currency reserves. These provisions are intended to allow a country
facing a serious decline in its monetary reserves to reduce the demand for
foreign currency and to allow reserves to accumulate.29 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," directly limit the
supply of foreign currency but also indirectly restrict imports since
purchasers are not able to acquire foreign currency to purchase goods.

Differences remain on a few miscellaneous topics. For example, WTO members
have asked China to consider WTO-related commitments in the areas of
government procurement and civil aircraft. These topics are both covered by
WTO "plurilateral" agreements, which WTO members can join if they volunteer
to do so.30 Some related progress was made on procurement issues as part of
the November 1999 U.S.-China bilateral agreement. Negotiators have only
minor differences over the third miscellaneous topic regarding the use of
certain taxes and charges.

WTO members would like access to China's government procurement market,
which is potentially the largest in the world. China's WTO obligations
granting market access and equal treatment generally do not apply to goods
and services procured by government agencies (for government purposes).31
China has not offered to join the Agreement on Government Procurement, which
has disciplines to make government purchasing decisions more transparent,
fair, and open to foreign suppliers. China has only recently published its
laws regarding its government procurement practices; seldom uses transparent
and competitive bidding procedures in its procurement; and is subject to
widespread official corruption, according to U.S. government reports.
However, in the November 1999 agreement, U.S. and Chinese negotiators agreed
that purchases by Chinese state-owned and state-invested enterprises would
not be considered to be government procurement under the WTO agreements and
therefore would not be exempt from WTO rules and obligations. Furthermore,
as previously mentioned, the Chinese agreed to require that all state-owned
enterprises and state-invested enterprises make purchases (and sales) based
on specified commercial considerations and not based on the influence of the
government.

WTO members have asked China to consider making commitments under the
plurilateral Agreement on Trade in Civil Aircraft, which seeks to provide a
comprehensive basis for free and fair trade in the aircraft sector. China is
a major producer and purchaser of aircraft; in fact, aircraft represent the
number one U.S. export to China. The agreement includes tariff-cutting
provisions, pricing guidelines, and disciplines on the use of technology
transfer requirements and other offsets on foreign aircraft suppliers and on
using subsidies to support domestic producers. China has not offered to join
this agreement. Nevertheless, China made commitments in the November 1999
agreement with the United States reducing tariffs and eliminating quotas on
related products. Furthermore, China's general commitments broadening
trading rights, limiting subsidies, and eliminating government local content
and export performance requirements, as well as technology transfer and
offset conditions on foreign investment (all of which will be subject to
dispute settlement,) will help address concerns in this area.

Chinese and WTO working party negotiators have only minor differences to
negotiate concerning a third miscellaneous topic--the taxes and charges that
China imposes on imported and exported goods in addition to tariffs. China
and working party members are in agreement on most commitments regulating
China's use of taxes and other charges on trade, but they still have to
conclude negotiations on the list of products subject to export duties. The
WTO rules prohibit discriminating against certain products with taxes and
charges based on their national origin. China has made commitments to
conform its laws and to apply internal taxes and customs fees and charges
applied by national and subnational authorities to the WTO requirements.
China's commitments also include a prohibition against using export duties
unless they are in conformity with WTO rules, which require them to be
applied on a nondiscriminatory basis, or if they are notified in an annex.
China's most recent proposal made in February 1997 has a list of 35 products
primarily composed of metals and ores.

GAO Contact and Staff Acknowledgments

Elizabeth Sirois, (202) 512-8989

In addition to the name above, Adam R. Cowles, Richard Seldin, Tim Wedding,
Jane Li, and Rona Mendelsohn made key contributions to this report.

Related GAO Products

World Trade Organization: China's Membership Status and Normal Trade
Relations Issues (GAO/NSIAD-00-94 , Mar. 17, 2000).

World Trade Organization: Status of China's Membership Negotiations
(GAO/C-NSIAD-99-9 , Sept. 30, 1999).32

China Trade: WTO Membership and Most-Favored-Nation Status
(GAO/T-NSIAD-98-209 , June 17, 1998).

Agricultural Exports: U.S. Needs a More Integrated Approach to Address
Sanitary/Phytosanitary Issues (GAO/NSIAD-98-32 , Dec. 11, 1997).

International Trade: Challenges and Opportunities for U.S. Businesses in
China (GAO/T-NSIAD-96-214 , July 29, 1996).

U.S.-China Trade: Implementation of the 1992 Prison Labor Memorandum of
Understanding (GAO/GGD-95-106 , Apr. 3, 1995).

U.S.-China Trade: Implementation of Agreements on Market Access and
Intellectual Property (GAO/GGD-95-61 , Jan. 25, 1995).

International Trade: U.S. Government Policy Issues Affecting U.S. Business
Activities in China (GAO/GGD-94-94 , May 4, 1994).

(711524)

Table 1: Status of 11 Areas Under Negotiations, as of May 2000 9

Table 2: Results of U.S.-China Tariff Negotiations 17

Table 3: China's Applied and Agreed Tariff Rates by Sector 20

Table 4: Results of WTO Negotiations on China's Nontariff Measures,
as of May 2000 21

Table 5: Results of U.S. China Negotiations on Goods Subject to
Phaseout of China's Nontariff Measures 22

Table 6: China's Service Sector Commitments in November 1999 U.S.-China
Bilateral Agreement 25

Table 7: Status of Negotiations on Agriculture, as of May 2000 28

Table 8: Results of November 1999 U.S.-China Negotiations on Administration
of China's Tariff-rate Quota System 30

Table 9: Products Covered by Tariff-rate Quota Provisions in the
November 1999 U.S. China Agreement 31

Table 10: Results of WTO Working Party Negotiations on China's
Trade Policy Framework 34

Table 11: Status of WTO Working Party Negotiations on Standards
and Regulatory Measures 37

Table 12: Status of WTO Negotiations on Compliance and Protection
in Mechanisms 39

Table 13: Status of WTO Negotiations on China's Trade-distorting
Industrial Policies 41

Figure 1: China's Applied Tariff Rates, 1992-1999, and Agreed Rate
Under the November 1999 U.S.-China Bilateral Agreement 18

Figure 2: Percentage of Potential U.S. Exports to China by Year in
Which Final Tariff Rate Is Achieved, 2000-2008 19

Figure 3: Value of China's Nontariff Restrictions on U.S. Exports and
Their Phaseout, 2000-2005, Under the November 1999
U.S.-China Bilateral Agreement 23

Figure 4: Share of 1998 U.S. Agricultural Exports That Would Be
Covered by Tariff-rate Quotas 31

Figure 5: November 1999 Agreed Annual Schedule for China's
Tariff-rate Quota Imports Through State Funding
Enterprises 32

Figure 6: November 1999 Agreed Annual Schedule for China's
Tariff-rate Quota Imports Through Private Enterprises 32
  

1. Under the Trade Act of 1974, China has only been granted normal trade
relations status annually through a presidential waiver. Once China becomes
a member of the World Trade Organization, organization members would have to
provide this status on an unconditional basis to China. See World Trade
Organization: China's Membership Status and Normal Trade Relations Issues
(GAO/NSIAD-00-94 , Mar. 17, 2000) for more information on this and related
issues.

2. China must also complete negotiations with the World Trade Organization
working party over minor differences on some additional topics in the
agriculture area that are negotiated on a multilateral basis, such as
financial support given farmers.

3. The WTO agreements refer to a number of international trade agreements,
including the WTO's predecessor, the General Agreement on Tariffs and Trade,
which are enumerated in the 1994 Marrakesh Agreement Establishing the World
Trade Organization.

4. For a more detailed explanation of the WTO accession process, see China
Trade: WTO Membership and Most-Favored-Nation Status (GAO/T-NSIAD-98-209 ,
June 17, 1998).

5. China's specific market access commitments, most notably those to reduce
tariffs on industrial and agricultural products, to phase out nontariff
restrictions, and to phase in access to foreign service providers, are
detailed in consolidated schedules (tables) that are annexed to the
protocol.

6. In July 1998, the term "normal trade relations" replaced the term "most
favored nation" in U.S. law; however, the term most favored nation continues
to be used in the WTO agreements and other trade agreements.

7. 19 U.S.C. sections 2431 through 2439.

8. U.S. Trade Representative officials have noted that China's working party
report could end up being over 100 pages long, while the current draft is
about 11 pages.

9. Negotiations will continue over how China will phase in these trading
rights.

10. In April 1999, the United States and China concluded a separate but
related bilateral Agreement on U.S.-China Agricultural Cooperation, which
addressed some health and food safety issues. The agricultural cooperation
agreement eliminated Chinese bans on importing certain U.S. agricultural
commodities, including wheat and other grains, meat, and citrus, which the
Chinese contended were a health risk. U.S. negotiators told the Chinese this
agreement was important to demonstrate their willingness to abide by WTO
requirements for sanitary and phytosanitary measures.

11. Chinese negotiators have agreed to commitments on another miscellaneous
topic-- regarding China's ability to apply taxes and charges (other than
tariffs) on trade. However, China and working party members still have minor
differences to negotiate over what exports will be subject to duties.

12. See a list of some related GAO products at the end of this report.

13. A tariff is like a tax, in that China (or any other country) collects a
fee based on a given percentage value of an imported product or a specific
rate per unit of the product.

14. In international trade, the concept of "binding" is defined as a legal
obligation not to raise tariffs on particular products above the rate
specified in the country's "schedule of concessions." Bound tariffs provide
greater commercial certainty by creating a ceiling on tariffs that a country
can apply.

15. These rates are subject to verification and correction and may improve
if other countries achieve larger concessions in their bilateral
negotiations.

16. The WTO categorizes services into 12 general service sectors: (1)
business;
(2) communication; (3) construction; (4) distribution; (5) education; (6)
environmental;
(7) financial; (8) health and social (other than medical, dental, and
similar professional services); (9) tourism and travel; (10) recreation,
cultural, and sporting; (11) transport; and (12) other services.

17. These commitments are subject to verification and correction and may
improve if other countries achieve larger concessions in their bilateral
negotiations.

18. China's commitments in these areas are subject to China and the WTO
working party members reaching agreement on the final text of the protocol
and working party report, which may include drafting or revising language
describing China's commitments regarding individual topics.

19. Product standards may be voluntary, such as standards regulating the
size of lead to put in a mechanical pencil or the meaning of a particular
environmental symbol on a product's label; or they can be mandatory, such as
nutritional labeling requirements for food or safety specification
requirements. Such standards may also include specifications for the
terminology, symbols, packaging, marking, or labeling of a product, process,
or production method.

20. Sanitary and phytosanitary measures are designed to protect a country's
human, animal, or plant life or health. The relevant WTO agreement allows
members to maintain such measures but requires that they be based on
scientific principles.

21. The WTO agreements also cover how a product's origin is determined
(rules of origin) and how shipments should be inspected prior to export
(preshipment inspection).

22. Under WTO rules, technical regulations refer to mandatory product
standards, which define product characteristics and their related processes
and production methods, including applicable administrative provisions.

23. Under the WTO Agreement on Safeguards, "serious injury" means a
significant overall impairment in the position of a domestic industry;
"threat of serious injury" means a serious injury that is clearly imminent.

24. Under the WTO subsidies agreement, subsidies include direct transfers of
funds, forgone government revenue (for example, taxes), government-provided
goods (free of charge), any indirect provision of these benefits, or any
form of income or price support.

25. Developing countries are granted 8 years from January 1, 1995, to
eliminate export performance subsidies and 5 years to eliminate import
substitution policies.

26. Specifically, the agreement requires a higher level of proof to take an
action against a developing country's subsides and limits the ability of
members to challenge developing country subsidies that cause injury in a
third country market.

27. These measures are government actions that constrain foreign investment
and alter trade by designating foreign firms' export targets or by limiting
their access to imports for production. Particular measures are prohibited
by the WTO Agreement on Trade-related Investment Measures.

28. China proposed to maintain import state trading for 8 product categories
and export state trading for 18 product categories (both to be listed in an
annex to the protocol). China proposed import state trading for wheat, corn,
rice, vegetable oils, sugar, cotton, tobacco, chemical fertilizer, and crude
and processed oil. China proposed export state trading for tea, maize,
soybeans, coal, silk and unbleached silk, crude and refined oil, several
kinds of cotton products, and a variety of tungsten and antimony products.
In addition, China has agreed to eliminate "designated trading," which
limits the right to trade in six products--rubber, timber, plywood, wool,
acrylic, and steel--to about 60-100 specific "designated" companies.
Restrictions on all products except steel will be eliminated after 3 years,
at which point all companies would have the right to trade in these
products. Restrictions on the right to trade steel products will be
eliminated in 5 years.

29. The 1994 General Agreement on Tariffs and Trade recognizes the
International Monetary Fund as the institution entrusted with determining
what constitutes a "serious decline in the contracting party's monetary
reserves, a very low level of its monetary reserves or a reasonable rate of
increase in its monetary reserves," for purposes of executing foreign
currency reserves-related policies.

30. Currently, 12 WTO members, including the 15 members of the European
Union, have undertaken obligations under the Agreement on Government
Procurement and 25 under the Agreement on Trade in Civil Aircraft.

31. See articles II, XVI, and XVII of the General Agreement on Services, and
article III of the 1994 General Agreement on Tariffs and Trade.

32. This report had a national security classification of CONFIDENTIAL and
is not available to the general public but is available to Members of
Congress and some U.S. government officials.
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