USTR - Background Information on China's Accession to the World Trade Organization
                 
The Office of the United States Trade Representative

Background Information on China's Accession to the World Trade Organization
12/11/2001


World Trade Organization (WTO) members formally approved an agreement on the terms of accession for the People's Republic of China (China) on November 10, 2001 at the WTO Ministerial Conference in Doha, Qatar. One day later, China signed the agreement and deposited its instrument of ratification with the Director-General of the WTO. China became the 143rd member of the WTO on December 11, 2001.

Background

In July of 1986, China applied for admission to the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT). The GATT formed a Working Party in March of 1987, composed of all interested GATT contracting parties, to examine China's application and negotiate terms for China's accession. For the next eight years, negotiations were conducted under the auspices of the GATT Working Party. Following the formation of the WTO on January 1, 1995, a successor WTO Working Party, composed of all interested WTO members, took over the negotiations.

Like all WTO accession negotiations, the negotiations with China had three basic aspects. First, China provided information to the Working Party regarding its trade regime. China also updated this information periodically during the 15 years of negotiations to reflect changes in its trade regime. Second, each interested WTO member negotiated bilaterally with China regarding market access concessions and commitments in the goods and services areas, including, for example, the tariffs that will apply on industrial and agricultural goods and the commitments that China is making to open up its market to foreign services suppliers. The most trade liberalizing of the concessions and commitments obtained through these bilateral negotiations were consolidated into China's Goods and Services Schedules and will apply to all WTO members. Third, overlapping in time with these bilateral negotiations, China engaged in multilateral negotiations with Working Party members on the rules that will govern trade with China. The rules commitments made by China in this area are set forth in its Protocol of Accession and an accompanying Report of the Working Party.

China's Protocol of Accession, accompanying Working Party Report and Goods and Services Schedules are available on the WTO's website (www.wto.org).

Overview

With its accession to the WTO, China will be implementing significant changes to its trade regime, at all levels of government. Although it has been gradually transitioning toward a market economy from what had been a strict command economy two decades ago, China is now taking on the far-reaching obligations of membership in the WTO, a rules-based system that requires its members to operate with openness and transparency and stresses the central role of markets and private enterprise.

In order to accede to the WTO, China has committed to undertake important systemic reforms, which should facilitate business dealings. China has also committed to take concrete steps to remove trade barriers and open its markets to foreign companies and their exports from the first day of accession in virtually every product sector and for a wide range of services. Supporting these steps, China has also committed to eliminate or significantly reduce restrictions on the rights of foreign companies to import and export goods and to distribute goods within China, and it has further committed to rectify numerous trade-distortive industrial and agricultural policies.

The openness, accountability and changes required by China's commitments should strengthen and accelerate the achievement of China's economic reform goals. China's ministries and agencies will transition out of their old role of directing and controlling how and with whom Chinese enterprises do business. Increasingly, they will need to focus on the implementation and enforcement of laws, regulations and other measures that will help to promote the smooth functioning of markets. Meanwhile, State-owned enterprises will face greater accountability for their business decisions, and together with other Chinese enterprises they will face the full forces of global competition for the first time.

Substantive Highlights

The commitments contained in China's accession agreement are numerous and wide-ranging, and they are enforceable:

» China has committed to undertake systemic reforms that will promote transparency, predictability and fairness in business dealings;

» China will assume the obligations of more than 20 existing multilateral WTO agreements, with only minimal transition periods where necessary;

» China has made numerous trade-liberalizing commitments that take into account the special characteristics of China's economy and will help to improve market access across sectors;

» China will make substantial tariff reductions on industrial and agricultural goods of importance to U.S. businesses and farmers;

» China has made far-reaching services commitments that should substantially increase market access for U.S. services suppliers;

» With regard to the enforcement of China's commitments, the accession agreement creates a special multilateral mechanism for reviewing China's compliance on an annual basis, and it confirms that dispute settlement is a tool that is available to WTO members; and

» China has consented to the creation of special safeguard mechanisms to protect businesses, farmers and workers of existing WTO members.

Systemic Reforms.

China has committed to broad reforms in the areas of transparency, notice and comment, uniform application of laws and judicial review. Each of these reforms will strengthen the rule of law in China and help to address practices that have made it difficult for U.S. and other foreign companies to do business in China.

Transparency.

» China will translate all laws, regulations or other measures, at all levels of government, relating to trade in goods or services into one or more of the WTO languages (English, French and Spanish), including the hundreds of laws, regulations and other measures that it will have to modify or adopt to become WTO-compliant.

» China will designate official journals, which will regularly publish these laws, regulations and other measures and provide additional relevant information, such as the identity of the responsible government authorities and the effective date for a particular measure.

» China will also establish enquiry points where any WTO member or foreign company or individual can request more information about these laws, regulations and other measures. These enquiry points will normally provide responses to inquiries within 30 days.

Notice and Comment.

» Before implementing or enforcing a law, regulation or other measure relating to trade in goods or services, China has committed to publish it in an official journal and to provide a reasonable period for comment to the appropriate government authorities, except in extraordinary circumstances.

Uniform Application of Laws.

» China is committed, at all levels of government, to apply, implement and administer all of its laws, regulations and other measures relating to trade in goods and services in a uniform and impartial manner throughout China, including in special economic areas.

» China will also establish an internal review mechanism to investigate and address cases of non-uniform application of laws based on information provided by companies or individuals.

Judicial Review.

» China is committed to establish tribunals for the review of all administrative actions relating to the implementation of laws, regulations, judicial decisions and administrative rulings of general application involving matters such as requirements, restrictions or prohibitions on imported goods or exported goods or affecting their sale, distribution, transportation or other use and the regulation, control, supply or promotion of a service, among other matters. These tribunals must be impartial and independent of the government authorities entrusted with the administrative enforcement in question, and their review procedures must include the right of appeal.

» China has also agreed to enforce only those laws, regulations and other measures relating to trade in goods and services that have been published in an official journal.

Adherence to Existing Multilateral WTO Agreements.

China's agreement includes China's commitment to assume the obligations of more than 20 existing multilateral WTO agreements, covering all areas of trade, such as:

General Agreement on Tariffs and Trade.

China will be taking on the obligations of the GATT, the WTO agreement that lays down core principles, such as non-discrimination and national treatment, that constrain and guide national trade policies.

Agriculture.

In addition to taking on the obligations of the WTO agreement relating to agriculture, China made several additional commitments in its accession agreement that will help to rectify numerous agricultural policies upon accession or after limited transition periods. For example:

» China has committed not to provide export subsidies.

» China has also committed to a cap for trade- and production-distorting domestic subsidies that is lower than the cap permitted developing countries and that includes the same elements that developed countries use in determining whether the cap has been reached.

» China lifted long-standing bans on the importation of agricultural goods such as corn, wheat, citrus products and meat (during the course of the U.S.-China bilateral negotiations as a sign of good faith).

» China must implement tariff-rate quotas that provide significant market access for bulk goods of special importance to American farmers such as grains, soy oil and cotton upon accession.

» China has agreed to eliminate import monopolies maintained by State trading enterprises on agricultural goods such as wheat, rice and corn and to permit non-State trading enterprises to import them.

Sanitary and Phytosanitary Measures.

As a result of taking on the obligations of the WTO agreement relating to sanitary and phytosanitary measures, China is committed to apply science-based sanitary and phytosanitary standards to all agricultural goods, including grains, meats and fruits.

Technical Barriers to Trade.

As a result of taking on the obligations of the WTO agreement relating to technical barriers to trade and additional commitments set forth in China's accession agreement, China must ensure that its conformity assessment bodies operate with transparency, apply the same technical regulations, standards and conformity assessment procedures to both imported and domestic goods and use the same fees, processing periods and complaint procedures for both imported and domestic goods. In addition, China must ensure that all of its conformity assessment bodies are authorized to handle both imported and domestic goods within one year of accession. China will also accept the Code of Good Practice (set forth in an annex to the WTO agreement relating to technical barriers to trade) within four months after accession, and it will speed up its process of reviewing existing technical regulations, standards and conformity assessment procedures and harmonizing them with international norms.

Trade-related Investment Measures (TRIMs).

In addition to taking on the obligations of the WTO agreement relating to investment measures, China has agreed to eliminate export performance, local content and foreign exchange balancing requirements from its laws, regulations and other measures, and China also will not enforce the terms of any contracts imposing these requirements. China has also agreed that it will no longer condition importation or investment approvals on these requirements or on requirements such as technology transfer and offsets. China has further agreed that it will only impose, apply or enforce laws, regulations or other measures relating to the transfer of technology that are not inconsistent with the TRIMs Agreement (or the TRIPS Agreement).

Trade-related Intellectual Property Rights (TRIPS).

With its acceptance of the WTO agreement relating to intellectual property rights, China will have the obligation to adhere to internationally accepted norms to protect and enforce the intellectual property rights of U.S. and other foreign companies and individuals in China. China is in the process of modifying the full range of intellectual property laws and regulations, including those relating to patents, trademarks, trade secrets, integrated circuits and copyrights. In addition, China is committed to strengthen the enforcement of these laws and regulations by its courts and the responsible administrative agencies.

Subsidies.

In addition to taking on the obligations of the WTO agreement relating to industrial subsidies, China made several additional commitments in its accession agreement that will help to address trade-distortive industrial policies directed at providing financial and other assistance to State-owned enterprises in China.

» China has committed to eliminate all export subsidies benefitting industrial goods upon accession.

» When seeking to enforce subsidies disciplines against Chinese enterprises, either in individual WTO members' countervailing duty proceedings or in WTO enforcement proceedings, WTO members can identify and measure Chinese government subsidies using alternative methods in order to account for the special characteristics of China's economy. For example, when determining whether preferential government benefits in the form of, for example, equity infusions or loans have been provided to a Chinese enterprise, WTO members can use foreign or other market-based criteria rather than Chinese government benchmarks.

» Special rules also govern the actionability of subsidies provided to State-owned enterprises, both in individual WTO member's countervailing duty proceedings and in WTO enforcement proceedings.

Import Licensing.

As a result of taking on the obligations of the WTO agreement relating to import licensing, China has committed to implement an import licensing system that does not act as a trade barrier and that complies with the principles of national treatment and non-discrimination. In its accession agreement, China further committed not to condition the issuance of import licenses on performance requirements of any kind, such as local content, export performance, offsets, technology transfer or research and development, or on whether competing domestic suppliers exist.

Rules of Origin.

In addition to taking on the obligations of the WTO agreement relating to rules of origin, China specifically agreed to adopt the internationally harmonized non-preferential rules of origin once they were completed. China also confirmed that it would use rules of origin equally for all purposes and that it would not use rules of origin as an instrument to pursue trade objectives either directly or indirectly. In addition, by the date of its accession to the WTO, China must establish a mechanism to provide, upon request, an assessment of the origin of an import or export.

Customs Valuation.

China will implement its obligations under the WTO agreement relating to customs valuation upon accession, without any transition period. In addition, China's accession agreement reinforces China's obligation not to use minimum or reference prices as a means for determining customs value, and it calls on China to implement the World Customs Organization Decisions on Valuation of Carrier Media Bearing Software for Data Processing Equipment and Treatment of Interest Charges in Customs Value of Imported Goods within two years after accession.

Preshipment Inspection.

China must comply with its obligations under the WTO agreement relating to preshipment inspection and ensure that any private preshipment inspection companies comply with WTO rules, particularly with regard to valuation and fees.

China-Specific Trade-Liberalizing Commitments.

China's agreement also includes numerous China-specific trade-liberalizing commitments. The most significant of these commitments are as follows:

Trading Rights.

Prior to its accession, China restricted the number of companies with trading rights, i.e, the right to import and export goods, and the products that a particular company can import or export. China will phase in trading rights for all Chinese-invested enterprises and all foreign-invested enterprises and individuals over a three-year period. Upon accession, Chinese enterprises will have full trading rights, subject to certain minimum registered capital requirements, which will be phased down during the three-year transition period. Joint ventures with minority foreign ownership will be granted full trading rights within one year after accession, and joint ventures with majority foreign ownership will be granted full trading rights within two years after accession. All enterprises in China and all foreign enterprises and individuals will be granted full trading rights within three years after accession.

Distribution of Goods within China.

Prior to its accession, China generally did not permit foreign companies to distribute products through wholesale and retail systems in China or to provide related distribution services, such as repair and maintenance services. These prohibitions will be phased out over three years, subject to limited exceptions. Generally, upon accession, foreign-invested enterprises will have the right to distribute and provide related services for goods made in China. Within two years after accession, foreign-invested enterprises will have the right to distribute goods, whether made in China or imported, and provide related services. Within three years, foreign-invested enterprises and wholly foreign-owned enterprises will have the right to distribute and provide related services for almost all types of goods, whether made in China or imported.

Non-tariff Measures (NTMs).

China is committed to the phase-out of trade-distortive NTMs such as quotas and licenses covering hundreds of products. Most of these NTMs must be eliminated upon accession, while the remainder of them must be eliminated within three years after accession.

State Trading Enterprises.

In addition to eliminating import monopolies maintained by State trading enterprises in China on many industrial goods upon accession, China has agreed to provide full information on the pricing mechanisms of State trading enterprises and to ensure that their import purchasing procedures are transparent and fully in compliance with WTO rules. China has also agreed that State trading enterprises will limit the mark-up on goods that they import in order to avoid trade distortions.

State-owned Enterprises.

Among the many provisions in China's accession agreement directly or indirectly addressing State-owned (and State-invested) enterprises, China has agreed that laws, regulations and other measures relating to the purchase and commercial sale and production of goods or supply of services for commercial sale by State-owned (and State- invested) enterprises or for use in non-governmental purposes will be subject to WTO rules. China has also agreed that State-owned enterprises must make purchases and sales based solely on commercial considerations, such as price, quality, marketability and availability, and that the government will not influence the commercial decisions of State-owned enterprises.

Price Controls.

In an annex to its accession agreement, China provided detailed information on the limited number of products and services subject to price control or government guidance pricing and the procedures for establishing prices. China has also agreed that it will not use price controls to restrict the level of imports of goods or services.

Special Economic Areas.

China is committed to non-discrimination in the treatment of enterprises within its special economic areas.

Tariff Reductions.

When China's Goods Schedule goes into effect at the time of China's accession, greatly increased market access will be realized by U.S. and other foreign companies through cuts in China's tariffs on industrial and agricultural goods. Although these reductions generally take place over a period of five years, in almost all instances most of the reductions will take place upon accession.

Industrial Goods.

Tariffs on industrial goods of greatest importance to U.S. businesses will be reduced from a base average of 25 percent (in 1997) to 7 percent. More specific highlights include:

» China has agreed to participate in the Information Technology Agreement, which requires the elimination of tariffs on computers, semiconductors and other information technology products. China's elimination of these tariffs will be completed by January 1, 2005.

» China will be implementing the required tariff reductions on more than two-thirds of the 1,100-plus products covered by the WTO's Chemical Tariff Harmonization Agreement.

» Tariffs on autos will be reduced from 80-100 percent to 25 percent (by July 1, 2006), and tariffs on auto parts will be reduced from a base average of 23 percent to 9.5 percent (by January 1, 2006).

» Tariffs in the wood and paper sectors will be reduced from a 1997 average of 18 percent on wood and 15-25 percent on paper to 5 percent and 7.5 percent, respectively.

Agricultural Goods.

Tariffs on agricultural goods of greatest importance to U.S. farmers will be reduced from a 1997 average of 31 percent to 14 percent.

Services Commitments.

As set forth in China's Services Schedule, China has committed to the substantial opening of a broad range of services sectors through the elimination of many existing limitations on market access, at all levels of government, particularly in sectors of importance to the United States, such as banking, insurance, telecommunications and professional services. Notably, these commitments represent only the minimum level of market access that China will be expected to make available once it becomes a WTO member. Nothing in China's Services Schedule precludes the Chinese government from applying more liberal measures that would allow foreign companies to provide services with even fewer limitations on market access.

Banking.

Prior to its accession, China limited foreign banks to foreign currency business in selected cities. Although China also permitted, on an experimental basis, foreign banks to conduct local currency business, the experiment was limited to foreign customers in two cities. China has now committed to providing the following market access in its accession agreement:

» New licenses must be granted to foreign banks based solely on prudential criteria, with no quantitative limits on the number of licenses or restrictions such as an economic-needs test.

» Immediately upon accession, U.S. and other foreign banks will be able to conduct foreign currency business with Chinese enterprises and individuals throughout China.

» The ability of U.S. and other foreign banks to conduct domestic currency business with Chinese enterprises and individuals will be phased in. Within two years after accession, foreign banks will be able to conduct domestic currency business with Chinese enterprises, subject to certain geographic restrictions. Within five years after accession, foreign banks will also be able to conduct domestic currency business with Chinese individuals, and all geographic restrictions will be lifted.

» Foreign banks will be permitted to provide financial leasing services at the same time that Chinese banks are permitted to do so.

» Some restrictions apply to the form in which foreign banks may establish in China during the first five years after accession, but thereafter these restrictions are eliminated.

Insurance.

Prior to its accession, China allowed selected foreign insurers to operate in China on a limited basis in two cities. Three U.S. insurers had licenses to operate, and more than 20 additional U.S. insurers were waiting for approval of their licenses by China's regulatory authorities.

» As with all other services sectors, the existing conditions of ownership, operation and scope of activities in the insurance services sector will not be made more restrictive than they are on the date of China's accession to the WTO.

» After accession, China is committed to award new licenses to qualified foreign insurers based solely on prudential criteria, with no quantitative limits on the number of licenses or restrictions such as an economic-needs test.

» Foreign life insurers will be permitted to hold 50 percent equity share in a joint venture upon accession.

» Foreign property, casualty and other non-life insurers will be permitted to establish as a branch or as a joint venture with 51 percent foreign equity share upon accession and as a wholly owned subsidiary two years after accession.

» For foreign insurers handling large scale commercial risks, marine, aviation and transport insurance and reinsurance, 50 percent foreign equity share in a joint venture will be permitted upon accession. The limit on foreign equity share in a joint venture for these insurers will increase to 51 percent three years after accession, and wholly foreign-owned subsidiaries will be permitted five years after accession.

» Existing geographic restrictions on all types of insurance operations will be progressively eliminated during the first three years after accession.

» Foreign insurers will be permitted to expand the scope of their activities to include group, health and pension lines of insurance within five years after accession.

Telecommunications.

Prior to China's accession, foreign companies were prohibited from providing telecommunications services in China. After China's accession, foreign services suppliers will be permitted to provide a broad range of services:

» For domestic and international wired services, foreign services suppliers will be permitted to establish joint ventures with 25 percent foreign equity share within three years after accession, subject to certain geographic restrictions. The permitted foreign equity share will increase to 35 percent within five years after accession and 49 percent within six years after accession. All geographic restrictions will be eliminated within six years after accession.

» In the area of mobile voice and data services, foreign services suppliers will be permitted to establish joint ventures with 25 percent foreign equity share upon accession, subject to certain geographic restrictions. The permitted foreign equity share will increase to 35 percent within one year after accession and 49 percent within three years after accession. All geographic restrictions will be eliminated within five years after accession.

» In the area of value-added services, such as electronic mail, voice mail and on-line information and database retrieval, and in the area of paging services, foreign services suppliers will be permitted to establish joint ventures with 30 percent foreign equity share upon accession, subject to certain geographic restrictions. The permitted foreign equity share will increase to 49 percent within one year after accession and 50 percent within two years after accession. All geographic restrictions will be eliminated within two years after accession.

» Even though not explicitly scheduled by China, Internet services are subsumed under the area of value-added services following the scheduling convention of most WTO members, including the United States.

» Importantly, China has also accepted key principles from the WTO Agreement on Basic Telecommunications Services. As a result, China will have to separate the regulatory and operating functions of its Ministry of Information Industry (which has been both the telecommunications regulatory agency in China and the operator of the China Telecom monopoly). China will also have to adopt pro-competitive regulatory principles, such as cost-based pricing and the right of interconnection, which are necessary for foreign-invested joint ventures to compete with China Telecom.

Professional Services.

Prior to its accession, China greatly restricted the ability of foreign suppliers to provide professional services in China. China's accession agreement lifts many of these restrictions.

» In the area of legal services, prior to its accession, China had maintained a prohibition against foreign law firms practicing Chinese law, along with restrictions on formal affiliation with Chinese law firms. China's accession agreement provides that, upon China's accession, foreign law firms will be able to open up one profit-making representative office, which must be located in one of several designated cities in China, and they will be able to advise clients on foreign legal matters in China and to provide information on the Chinese legal environment. They will also be able to maintain long-term "entrustment" relationships with Chinese law firms and be able to instruct lawyers in the Chinese law firm as agreed between the two law firms. All quantitative and geographic restrictions will be phased out within one year of China's accession, which means that foreign law firms will be able to open more than one office anywhere in China.

» Foreign accounting firms will be permitted to affiliate with Chinese firms for the first time upon accession. Foreign accounting firms seeking to establish in China are limited to Certified Public Accountants licensed by China's regulatory authorities (for which national treatment will be accorded).

» Foreign architectural and engineering firms will be permitted to establish joint ventures with foreign majority equity share upon accession, and wholly foreign-owned enterprises will be permitted within five years after accession.

Enforceability.

Two mechanisms are available at the WTO to help ensure that China implements its WTO commitments:

Transitional Review Mechanism.

China's accession agreement creates a multilateral review mechanism at the WTO of unprecedented scope and authority. This "Transitional Review Mechanism" operates annually for 8 years after China's accession, with a final review in year 10. It requires China to provide detailed information on its implementation efforts and gives all WTO members the opportunity to raise questions, in a multilateral setting, about how China is complying with its commitments before 14 subsidiary WTO bodies, which report to the WTO's General Council. The General Council then conducts an overall review each year and may issue recommendations.

Dispute Settlement Proceedings.

Normal WTO dispute settlement procedures will be available to enforce all of the rights of the United States and other WTO members under the WTO agreements, including with regard to the commitments in China's accession agreement.

Safeguard Mechanisms.

Even though the terms of China's accession agreement are directed at the opening of China's market to WTO members' industries, China's accession agreement also includes several safeguard mechanisms designed to prevent injury that U.S. or other WTO members' industries and workers might experience based on unfair trade practices or import surges.

Anti-dumping laws.

For 15 years after China's accession to the WTO, the United States and certain other WTO members will continue to have the ability to utilize a special non-market economy methodology for measuring dumping in anti-dumping cases against Chinese companies

China-specific Safeguard.

China's accession agreement includes a unique, China-specific safeguard provision allowing a WTO member to restrain increasing Chinese imports that disrupt its market. This mechanism will be available for 12 years after accession.

Textiles Safeguard.

The accession agreement also includes a special textiles safeguard, which will be available for 7 years after accession (until December 31, 2008). This safeguard covers all products subject to the WTO Agreement on Textiles and Clothing as of January 1, 1995.

Other Mechanisms.

The United States (and other WTO members) will continue to have the rights under WTO rules to maintain, for example, its export control policies and to prevent the import of Chinese goods made with prison labor.

Sectoral Fact Sheets

Information with regard to the effects of China's accession agreement on specific sectors is available from the Department of Commerce at http://www.mac.doc.gov/china.

U.S. Monitoring and Enforcement Efforts

Given the importance of China's accession and the breadth and complexity of the commitments being undertaken by China, the U.S. government will devote considerable attention and resources to monitoring and enforcement efforts. Congress has already appropriated funds to add personnel to several U.S. Trade Representative (USTR) offices and to the Departments of Commerce, State and Agriculture, both in Washington and in China.

In order to ensure that China complies with its commitments, the U.S. government will be active on several fronts. In China, State Department economic officers, Foreign Commercial Service officers, Multilateral Agreements Compliance officers from the Commerce Department and Foreign Agricultural Service officers will gather information and work with U.S. companies to address their concerns on a day-to-day basis. In Washington, an inter-agency team of experts led by USTR, drawing on the assistance of the U.S. government personnel in China as well as trade associations, chambers of commerce, industry and agriculture groups and individual companies, will closely monitor China's compliance and will address systemic problems and potential WTO violations as they arise. In Geneva, USTR and other concerned agencies will also be active participants in the WTO's annual Transitional Review Mechanism set up to evaluate how China is implementing its commitments.

Where the U.S. government finds compliance problems, it will act quickly to resolve them through all available mechanisms. It will use bilateral means, including U.S. trade laws, the WTO's multilateral Transitional Review Mechanism and WTO dispute settlement proceedings, as necessary.