THE WHITE HOUSE
Office of the Press Secretary
Status of Negotiations on China's Accession to the World Trade Organization MARKET ACCESS AND PROTOCOL COMMITMENTS
PROCESS OF CHINA'S WTO ACCESSION
China's WTO accession represents an opportunity to address a broad range of unfair trade practices, trade barriers, discriminatory regulatory processes, lack of transparency, and other policies which limit American participation in the Chinese market or unfairly affect American trade. The broad set of commitments China has made today, and the substantial negotiations which remain to be held, will advance American interests in a fundamental way, and complement broader policies intended to move China toward internationally accepted standards of conduct.
China's accession process includes bilateral negotiations including market access (with the United States and other trade partners); bilateral negotiations toward a "Protocol" (i.e., rules) addressing U.S. concerns on issues including dumping, safeguards, and others; and multilateral negotiations on those and the remaining Protocol issues. WTO accession is thus a complex and multi-faceted process. This fact sheet covers the market access; a second (attached) covers the Protocol commitments.
Broadly speaking, the market access commitments China has made will bring China at or above existing WTO standards on issues and sectors of major concern to the U.S.. They address each layer of Chinese trade barriers to American exports. For example, at present, an American good faces not only high tariffs and at times quotas, but a web of other barriers which, if unaddressed, could make tariff reductions meaningless. These include application of unscientific sanitary and phytosanitary standards in agriculture, non-tariff barriers to industrial goods, restrictions on distribution and trading rights, and discrimination against imports and foreign-invested companies.
In each case, the U.S. has achieved commitments that address the principal barriers to American products; are highly specific and fully enforceable; are phased-in over a relatively short period of time, with increased market access in every area as of day one of China's ultimate accession; do not offer China special treatment; and meet or exceed commitments made by many present WTO members. The commitments include:
Significant market access benefits effective immediately on China's accession. Full market access for U.S. firms to distribute their products throughout China. Tariff reductions immediately upon accession, with further phase-ins over reasonable periods of time to levels below those of most U.S. trade partners. Bindings for all tariffs -- i.e., China will be unable to raise tariffs again after accession. Elimination of quantitative restrictions. Resolution of outstanding problems with sanitary and phytosanitary standards for key agricultural products, effective immediately. Participation in the three major multilateral agreements negotiated since the Uruguay Round: the Information Technology Agreement; the Agreement on Basic Telecommunications; and the Financial Services Agreement. Commitments to more open service sectors which cover the broad range of sectors, including distribution, value-added telecommunications, insurance, computer and business services, environmental services, franchising and direct sales, legal and accounting, sound recordings, and entertainment software. China's specific commitments in the three strategic areas of
agriculture, industrial goods, and services are discussed below.
I. AGRICULTURE MARKET ACCESS
The agricultural market access commitments include measures to address the following problems: trading rights, distribution, high tariffs; quotas; application of unscientific SPS standards; the reliance on state trading companies; and export subsidies.
Taken as a whole, these commitments move China toward a system based almost entirely on tariffs, with extremely low tariff rates (1-3%) in most bulk commodities. More specifically, it reduces tariffs to levels below those of most American trade partners, with the greatest reductions in the areas of top priority to U.S. producers; binds tariff concessions; eliminates quantitative restrictions on imports; requires use of science-based SPS standards; reduces the role of state trading enterprises for key commodities; and eliminates export subsidies.
China will reduce tariffs immediately on accession, and when fully phased in will result in tariff levels comparable with or better than those of many of our other major trading partners (including developed country trading partners).
Average Rates -- Overall, China will reduce its overall average tariff for agricultural products to 17%. The tariff reduction will be greater for U.S. priority products. In these sectors the average tariff will drop to 14.5%. Phase-in Periods -- All tariff cuts will be implemented by 2004, the date when all other WTO members will have implemented their Uruguay Round tariff cuts. All agricultural tariffs will be bound (cannot be increased).
Specific examples include:
Soybeans -- a 3% tariff will be bound on accession.
Meats -- Tariff reductions include:
Present 2004 Beef 45% 12% Pork 20% 12% Poultry 20% 10%
Fruits -- Tariffs reductions include:
Present 2004 Citrus 40% 12% Grapes 40% 13% Apples 30% 10% Almonds 30% 10%
Wine -- Tariffs on wine will be reduced by 70%, from 65% to 20%.
Dairy -- Tariff reductions in dairy include:
Present 2004 Cheese 50% 12% Ice Cream 45% 19%
B. TARIFF RATE QUOTA SYSTEM FOR BULK COMMODITIES
China's commitments follow WTO standards in eliminating all quantitative restrictions. In particularly sensitive sectors, China will adopt tariff-rate quotas (i.e. a system in which imports up to the quota level are charged a minimal tariff -- usually 1-3% -- and imports above that level a high tariff). This system provides a very strong incentive for state enterprises to purchase bulk commodities at world market rates.
The total levels of these TRQs are substantially above present import levels on accession, and provide for future growth. In all cases, we sought to maximize likelihood that the full quota would be used and ensure opportunity for private traders to participate, both by allocating an initial share of the quota to private traders and providing for reallocation of quota from state enterprises to private traders if state enterprises do not buy the full TRQ amount.
Results in U.S. priority sectors are as follows:
Soybean Oil -- TRQ eliminated by 2006. The TRQ will start at 1.7 million metric tons, rising to 3.3 million tons by 2005. Private sector trade will begin at 50% and rise to 90%. Wheat -- Quota on accession is 7.3 million metric tons, rising to 9.3 million metric tons. (Compares to present Chinese import level of less than 2 million metric tons.) Private sector will initially receive 10% of this quota, with reallocation of any unused state enterprise portion available later in the calendar year. Corn -- Quota on accession is 4.5 million metric tons, rising to 7.2 million metric tons. (Compares to present import level of 250,000 metric tons.) Private sector will initially receive 25% of this TRQ, rising to 40% by 2004, with reallocation of any unused state enterprise portion available later in the calendar year. Rice -- Quota on accession is 2.6 million metric tons, rising to 5.3 million metric tons. Half of this will cover short and medium grain rice, where the U.S. is most competitive. 50% of this TRQ will go to the private sector. (Compares to present import level of 250,000 metric tons.) Cotton -- Quota on accession is 743,000 metric tons, rising to 894,000 tons by 2004. (Compares to present import levels of 200,000 metric tons.) Private sector will have 67% of this TRQ. Barley -- No TRQ, and reduction of tariffs to 9%. Other products in which TRQs will be applied are products in which
the U.S. has little or no trade interest. These include wool, sugar, palm oil and rapeseed oil.
B. SANITARY AND PHYTOSANITARY (SPS) RESTRICTIONS:
China agrees that sanitary and phytosanitary disputes should be settled scientifically.
BILATERAL AGREEMENTS ON WHEAT, CITRUS AND MEAT
China has also agreed to lift immediately, with the signature of three bilateral agreements, (concluded in parallel with the market access agreement but effective immediately on signature) unjustified SPS bans on wheat, citrus fruits and meat. These bilateral agreements resolve longstanding disputes between the U.S. and China and can lead to rapid export growth. Furthermore, they provide a strong indication that China is willing to implement the obligations of the WTO SPS agreement.
Meat -- China will open its market to U.S. pork, beef and poultry by agreeing to accept USDA certification for meat safety for U.S. exports. Citrus -- China will open its market to U.S. oranges, grapefruit and other citrus fruits, eliminating a current ban and establishing a science-based phytosanitary system. Industry estimates that trade will reach $1.2 billion in a year, an increase of $700 million over current imports through informal channels. Wheat -- China will eliminate restrictions on imports of wheat from the Pacific Northwest imposed because of unjustified concerns about TCK smut.
D. EXPORT SUBSIDIES
China has committed not to provide any export subsidies for agricultural products. This is particularly important for corn, cotton and rice. It also provides a strong foundation for the next WTO Round, in which total elimination of agricultural export subsidies worldwide is a major U.S. goal, already articulated by the Vice President.
II. MARKET ACCESS FOR INDUSTRIAL PRODUCTS
With respect to market access for industrial goods, China has agreed to allow freedom for U.S. firms to import, export and distribute their goods within China; significant tariff reductions to bring tariff levels to levels comparable with major trading partners and below those of most developing countries; binding of all tariff concessions; and phase-out of all quantitative restrictions on imports.
Some areas of particular interest to the U.S. include Chinese participation in a number of existing international zero-tariff agreements (including the Information Technology Agreement) as well as individual sectors including, but not limited, to autos, wood and wood products, chemicals, fishery products and others. As in agriculture, most results in industrial goods compare favorably to those of other major trading partners, particularly those in developing countries.
Trading rights and distribution are the major priority of the manufacturing sector. At present, China severely restricts trading rights (the right to import and export) and distribution (wholesaling, retailing, maintenance and repair, transportation, etc.) As in agriculture, such restrictions give China a layer of protection against imports which if unaddressed would make tariff concessions of little value.
The U.S. thus has sought and won agreement for elimination of these restrictions. China will provide, for the first time, full trading rights and distribution rights to U.S. firms. These will be progressively phased in over three years. Even for its most sensitive and protected industries, such as chemical fertilizers, crude oil and processed petroleum, China will provide for trading rights and distribution. Distribution services are discussed in more detail in the following section on services trade.
B. OVERALL INDUSTRIAL TARIFF REDUCTIONS
China also agreed to provide significant tariff reductions which would be bound.
Rates -- China will reduce average tariffs from the 24.6% average in 1997 to 9.44%. The average tariff for our priority products will be even lower, reaching 7.1%. This is a 56% cut from applied rates in 1998 and a 71% cut since the beginning of market access negotiations in 1994.
All Tariffs Bound -- China will bind its entire tariff schedule, meaning it will accept a legal commitment not to raise tariffs in the future above the bound level. Very few countries have done this; many retain rights to raise tariffs significantly above the rates they now apply.
Phase-in -- Two thirds of tariff cuts will be implemented by 2003. The balance will be phased in by 2005, with a limited number of exceptions.
C. TARIFF REDUCTIONS IN US PRIORITY AREAS
As noted above, China's tariff cuts are larger in U.S. priority areas. Some provisions in areas of special interest to the U.S. include:
High Technology -- China will implement the Information Technology Agreement (ITA). This will reduce tariffs from present levels averaging 13.3% to zero for semiconductors, computers, computer equipment, telecommunications equipment and other information technology products. Most of these tariff eliminations will be phased in by 2003 with some exceptions until 2005. All other ITA participants will have implemented tariff cuts by 2005. Autos: In the auto sector, China will reduce tariffs from the current 80-100% levels to 25% in 2005, with the cuts phased in equally each year. Auto parts tariffs will fall to an average of 10%. *** Note -- in this sector, tariff restrictions are augmented by quotas under China's industrial policy for autos. These quotas will be progressively eliminated, with the point of departure China's level of imports before creation of the auto industrial policy. See below under "Quotas and Non-Tariff Measures". In addition, auto retail rights will be provided for the first time (see services section.) APEC Sectors -- China has agreed to implementing the early voluntary sectoral liberalization initiative of APEC now under consideration in the WTO, when the WTO accepts these sectors for implementation. This would eliminate tariffs on forest products (wood and paper), environmental goods and services, energy and energy equipment, chemical harmonization, fish, toys, gems and jewelry, and medical equipment and scientific instruments. Wood & Paper: China will reduce tariffs from present levels of 12-18% for wood and 15-25% for paper generally to levels between 5% and 7.5%. This is a sector in which tariff concessions, along with distribution and trading rights, can expand sales rapidly. Chemicals: China has committed to the lion's share of chemical harmonization -- reducing its tariffs to the levels of other WTO members -- for 70% of chemicals, generally at 5.5% and 6.5%. (At present China's tariffs range up to 35%.) A key reduction is in soda ash, to 5.5%. Tariffs on cosmetics, pharmaceuticals, film, and certain plastics will also be cut substantially below current levels. Fish -- China will reduce tariffs from over 20% to 10% on products of importance to the United States. Distilled spirits -- China will reduce tariffs from 61% to 10%.
D. QUOTAS AND OTHER NON-TARIFF MEASURES
WTO rules bar quotas and other quantitative restrictions. China has agreed to eliminate these restrictions immediately on accession for top U.S. priorities and with phase-ins limited to five years for others.
Quotas: China will eliminate existing quotas upon accession for the top U.S. priorities (e.g. some fertilizers and optic fiber cable). It will phase-out remaining quotas, generally by 2002, but no later than 2005. Quotas will grow from current trade level at a 15% annual rate in order to ensure that market access increases progressively, and reduces the effect of quantitative restrictions. Auto quotas will be phased out by 2005, in the interim, the base level quota will be $6 billion (the level prior to China's industrial auto policy), and this will grow by 15% annually until elimination.
China today is among the markets most closed to services exports anywhere in the world. Our goals in services thus included negotiation of commitments in a broad array of services sectors; ensuring Chinese accession to the two major existing multilateral services agreements on Basic Telecommunications and Financial Services; and creating a base from which to negotiate future improvements for access to the Chinese services market in the next WTO Round.
China's commitments on services, while we have some further work to do, are comparable to those of most WTO members. They include commitments in all major service categories (with further talks planned on banking, securities and audiovisual), reasonable transitions to eliminate most foreign equity restrictions (especially in sectors where the U.S. has a strong commercial interest), agreed to accede to the Basic Telecommunications and Financial Services Agreements, and full ?grandfathering? of current market access for U.S. service providers. Specific commitments are as follows:
China will grandfather all existing current market access and activities in all services sectors. Many companies enjoy benefits given by provincial and central authorities. All these will be protected, even if China's commitments in its services schedule provide for approval by Central Government authority. This will protect existing American distribution services, financial services, professional and other service providers in China, including those operating under contractual or shareholder agreements or a license, from restrictions as Chinese commitments phase in.
In China today, foreign firms have no right to distribute products other than those they make in China, or to own or manage distribution networks, wholesaling outlets or warehouses. China also now frequently issues businesses licenses which limit the ability of American firms to conduct marketing, after-sales service, maintenance and repair and customer support. As the section on industrial goods noted, this is a severe barrier to goods exports as well as to services exports.
China's commitments address all these issues. They reflect a comprehensive commitment on distribution, including wholesaling, direct sales, retailing, maintenance and repair, and transportation. Thus Americans will be able to distribute imported products as well as those made in China, offering significant opportunity to expand U.S. exports of goods. As noted above, China will phase out all restrictions on distribution services within three years. Even in its most sensitive and protected sectors, China has agreed to provide distribution rights in five years for chemical fertilizer, crude oil, and processed petroleum products.
Services Auxiliary to Distribution
Chinese commitments in services auxiliary to distribution include express delivery services, rental and leasing, air courier, freight forwarding, storage and warehousing, advertising, technical testing and analysis, and packing services. All restrictions will be phased-out in 3 to 4 years, at which time U.S. service suppliers will be able to set up 100% wholly-owned subsidiaries.
China now severely restricts sales of telecommunications services and bars foreign investment. China's commitments mark its first agreement ever to open its telecommunications sector, both to the scope of services and to direct investment in telecommunications businesses. Through these commitments, China will become a member of the Basic Telecommunications Agreement. Specific commitments include:
Regulatory Principles -- China now allows its telecommunications bureaucracies very wide discretion to apply arbitrary and discriminatory standards. China will now agree to implement the pro-competitive regulatory principles embodied in the Basic Telecommunications Agreement (including cost-based pricing, interconnection rights and independent regulatory authority), and agreed to technology-neutral scheduling, which means foreign suppliers can use any technology they choose to provide telecommunications services. Scope of Services -- China will phase out all geographic
paging, value added, and closed user groups: 4 years mobile/cellular: 5 years domestic wireline services: 6 years. China's key telecommunications services corridor in Beijing, Shanghai and Guangzhou, which represents approximately 75% of all domestic traffic, will open immediately on accession in all telecommunications services. Investment -- Under present circumstances, China allows no foreign investment in telecommunications services. With this agreement, China will allow 49% foreign investment in all services, and will allow 51% foreign ownership for value added and paging services in 4 years.
In insurance, China now restricts foreign companies to Shanghai and Guangzhou. Only two U.S. firms are permitted to participate even in these markets. Thus we sought to eliminate geographic and numerical limitations -- that is, to ensure that foreign insurance companies can operate in each part of China and without artificial limitations on their activities or number of companies -- and end restrictions on foreign investment. The results include:
Prudential Criteria -- China agrees to award licenses solely on the basis of prudential criteria, with no economic needs test or quantitative limits on the number of licenses issued. Geographic Limitations -- China will permit foreign property and casualty firms to insure large-scale risks nationwide immediately upon accession, and will eliminate all geographic limitations for future licenses over five years, allowing access to the key cities of priority U.S. interest in two to three years. Scope -- China will expand the scope of activities for foreign insurers to include group, health and pension lines of insurance, which represent about 85% of total premiums, phased in over five years. New Licenses -- China has recently issued four licenses, including two to American companies. Investment -- China agreed to allow majority ownership, remove onerous joint venture requirements on foreign life insurers, and phase out internal branching restrictions. Life insurers may now choose their own joint venture partners (as opposed to the present policy, under which partners are chosen for insurers by Chinese authorities), will allow 50% ownership on accession, and will phase in the right to 51% share in a joint venture in one year. For non-life and reinsurance, China will allow 51% ownership on accession and form wholly owned subsidiaries in 2 years.
In the banking sector, China imposes severe geographic restrictions -- for example, only nine foreign banks can conduct business in local currency, and these only in the Shanghai Pudong area. Our negotiations sought full rights for foreign banks to handle both local and foreign currency business transactions (the latter obviously a major factor in opening markets to U.S. goods exports as well as services); the rights to serve Chinese as well as foreign customers; and liberalize investment. This sector remains under discussion.
This sector remains under discussion.
G. PROFESSIONAL SERVICES
In the professional services, China currently tightly restricts operation of foreign law firms and accounting firms. With respect to these areas, we sought commitments in all significant areas, including both the right to offer services and the right to invest, and binding commitments on the already liberal policies respecting architecture and engineering.
China offers broad coverage for legal, accountancy, taxation, management consultancy, architecture, engineering, urban planning, medical and dental, computer-related services. It will permit foreign majority control except for practicing Chinese law (an exception common to many WTO members.) For accountancy, China has agreed to eliminate a mandatory localization requirement and will now allow unrestricted access to its market to professionals licensed as CPAs in China. China has agreed to apply national treatment in issuing CPA licenses and follow transparent procedures.
Presently, China severely restricts distribution of sound recordings, videos, movies, books and magazines, and does not allow foreign ownership, construction or operation of cinemas. While this area remains under discussion, China's commitments cover the right to distribute video and sound recordings; and cinema ownership and operation. They include:
Video and Sound Recordings -- China will allow 49% foreign participation for the distribution of video and sound recordings. Cinemas -- China will allow majority ownership in 3 years for construction, renovation, ownership and operation of cinemas.
I. TRAVEL AND TOURISM
Finally, China until now has imposed a number of restrictions on travel and other tourist-related services. Notably, foreign firms are limited to 11 areas in China, and cannot establish full-service travel agencies. Our goal here was a set of commitments comparable to or better than the relatively high level of commitments made by WTO members. Results include:
Hotels -- China will allow unrestricted access to the Chinese market for hotel operators with the ability to set up 100% foreign owned hotels in 3 years, with majority ownership allowed upon accession. Travel Services -- Foreign travel operators can provide the full range of travel agency services. For travel agency services, China will allow access to government resorts as well as Beijing, Shanghai, Guangzhou, and Xian.
IV. PROTOCOL AND WORKING PARTY REPORT COMMITMENTS
Commitments in China's WTO Protocol and Working Party Report establish rights and obligations enforceable through WTO dispute settlement procedures. We have agreed on key provisions relating to antidumping and subsidies, protection against import surges, technology transfer requirements and offsets as well as practices of state-owned and state-invested enterprises. While we must still address the duration of some of these provisions and resolve other issues, agreement on the substance of these rules is of special importance to U.S. workers and business. We will also continue work on textile issues and a mechanism to ensure full implementation of commitments.
China will be presenting agreed provisions to the WTO Working Party for incorporation into the accession Protocol and Working Party Report. We will also be addressing the many other rules-related issues, such as specific provisions on China's standards, customs valuation, and national treatment in this multilateral process.
During the negotiations, China has agreed that it will, upon accession, make the following commitments:
INVESTMENT AND TECHNOLOGY TRANSFER
First, it will take a set of specific measures to ensure fair treatment for businesses operating in China. This will include eliminating policies to block foreign firms doing business in China from importing inputs for production (i.e., auto firms operating in China would be able to import American-made parts). Measures here include:
comply with the TRIMs Agreement upon accession, without any developing country transition period; eliminate and cease enforcing trade and foreign exchange balancing requirements; eliminate and cease enforcing local content requirements; refuse to enforce contracts imposing these requirements; and only impose or enforce laws or other provisions relating to the transfer of technology or other know-how, if they are in accordance with the WTO agreements on protection of intellectual property rights and trade-related investment measures. These provisions will also help protect American firms against
forced technology transfers, as China has also agreed that, upon accession, it will not condition investment approvals, import licenses, or any other import approval process on performance requirements of any kind, including:
local content requirements,
transfer of technology, or
requirements to conduct research and development in China.
These are significant commitments that go a long way in addressing concerns about the terms and conditions of investment in China, and the government's role in what should be commercial decisions.
B. ANTIDUMPING AND SUBSIDIES METHODOLOGY
Second, the Protocol ensures guarantees that American firms and workers will have strong protection against unfair trade practices including dumping and subsidies.
Here, the U.S. and China have agreed that we will be able to maintain our current antidumping methodology (treating China as a non-market economy) in future anti-dumping cases. Moreover, when we apply our countervailing duty law to China we will be able to take the special characteristics of China's economy into account when we identify and measure any subsidy benefit that may exist. While the duration of this provision remains under discussion, reaching agreement on the substance provides necessary assurance to U.S. industries that they can have effective protection against unfairly traded imports.
These provisions recognize both the ongoing reform program in China and that special difficulties may exist in making necessary determinations under the antidumping and countervailing duty laws.
C. PRODUCT SPECIFIC SAFEGUARD
Third, the Protocol ensures that American domestic firms will have strong protection against unpredicted surges of imports.
To do this, the Product-Specific Safeguard provision sets up a special mechanism to address increased imports that cause or threaten to cause market disruption to a U.S. industry. China is a major exporting country that enjoys open access to U.S. markets. This mechanism, which is in addition to other WTO Safeguard provisions, differs from traditional safeguards in that it permits
-China to address imports that are a significant cause of material injury through measures such as voluntary restraints. - the United States to apply restraints unilaterally based on standards that are lower than those in the WTO Safeguards Agreement. While the duration of this provision is still under discussion,
this safeguard provides an effective and expeditious means to address injurious import surges.
D. STATE-OWNED AND STATE-INVESTED ENTERPRISES
Fourth, the Protocol will allow us to address China's unusually high degree of state involvement in the economy.
State-owned and state-invested enterprises have a greater role in China's economy than in any other major economy. As part of its WTO accession, China needs to ensure that these enterprises act on a commercial basis. Moreover, we need to ensure that we can apply WTO rules to these enterprises in a meaningful fashion.
China has agreed that it will ensure that state-owned and state-invested enterprises will:
-make purchases and sales based solely on commercial considerations, such as price, quality, availability and marketability; -provide U.S. firms with the opportunity to compete for sales and purchases on non-discriminatory terms and conditions. China has also agreed that it will not influence these commercial
decisions (either directly or indirectly) except in a WTO consistent manner.
With respect to applying WTO rules to state-owned and state-invested enterprises, we have clarified in several ways that these firms are subject to WTO disciplines.
-Purchases of goods or services by these state-owned and state-invested enterprises are not government procurement and thus are subject to WTO rules. -We have clarified the status of state-owned and state-invested enterprises under the WTO Agreement on Subsidies and Countervailing Measures. This will help ensure that we can effectively apply our trade law to these enterprises when it is appropriate to do so.
These provisions will ensure that American workers and companies can take full advantage of both U.S. law and WTO rules in their dealings with China. While much remains to be done, bilaterally and multilaterally, on reaching agreement on all of the Protocol issues, China's commitments on these important Protocol and Working Party provisions are an important step in the WTO accession process.