USTR - USTR Releases Details on U.S.-China Consensus on China's WTO Accession
Office of the United States Trade Representative

 

USTR Releases Details on U.S.-China Consensus on China's WTO Accession
Contact: Richard Mills (202) 395-3230 06/14/2001


WASHINGTON - The Office of the United States Trade Representative today issued the following information regarding the recent U.S.-China consensus on China's accession to the World Trade Organization (WTO).

China and the United States reached agreement on major outstanding issues concerning China's accession to the WTO during June 4-8 bilateral talks in Shanghai, China. U.S. negotiators, led by United States Trade Representative Robert B. Zoellick, and Chinese negotiators, led by Minister of Foreign Trade and Economic Cooperation Shi Guangsheng, capped fifteen years of negotiations on areas including domestic support for agriculture, services and trading rights.

The agreements reached last week are a victory for American farmers and ranchers, Americans with export-related jobs, and American businesses with operations in China. This propels China further along the path of economic reform, the rule of law and toward a commercially viable WTO agreement. Ambassador Zoellick said at the completion of the talks, "This understanding is a win-win result for China and the U.S. It should help us and the other members of the WTO to try to complete China's accession this year."

The U.S. and China had signed a bilateral agreement in November 1999 that contained China's commitments to provide greater market access for U.S. goods and services. China has completed its negotiations on similar bilateral agreements with all members requesting market access agreements except for Mexico. Discussions are not yet complete on China's Protocol and "Working Party Report," multilateral documents on applying WTO rules to China that explain in detail how China will implement its commitments under the WTO.

The negotiations in Shanghai this past week, held concurrent with a meeting of Asia-Pacific Economic Cooperation (APEC) Ministers Responsible for Trade (MRT), involved two sets of issues: 1) those remaining elements of the Working Party Report of greatest concern to the United States, namely agricultural domestic subsidies and trading rights (the right to import and export); and 2) clarification and strengthening of China's bilateral commitments in the areas of retail distribution services and insurance services.

Several important steps remain ahead in China's WTO accession process. The consensus we reached will be considered at the next China Working Party meeting in Geneva beginning on June 28. Issues of concern to other WTO members also will need to be resolved in the Working Party. WTO members, including the United States, will then review and approve these documents. The WTO's General Council must then adopt China's accession package, after which China will have to complete its domestic ratification procedures. China will become a WTO member 30 days after filing its notice of acceptance with the WTO.


AGRICULTURE

In Shanghai, the United States and China agreed to a solution on domestic support, the last major outstanding issue on agriculture. This agreement is fully in line with the spirit and objective of the WTO Agreement on Agriculture, moving China towards a fair and market-oriented trading system, in part by limiting China's trade distorting domestic support.

1. Aggregate Measurement of Support (AMS): China has bound its AMS at zero.

* The WTO Agreement on Agriculture requires members to cap and reduce trade-distorting government support, both overall and for each specific product. The sum of support provided under these two categories is technically called a member's "Aggregate Measurement of Support," or AMS. The specific AMS level differs from member to member.

* In calculating their AMS, members are permitted to exempt support that falls below a certain minimum amount, i.e., "de minimis" exemption. For developing members, this exemption is 10% and for developed members it is 5% of the value of agricultural production.

* Because China's current level of support falls well below those minimum amounts (using the 1996-1998 base period it equals less than 2 percent of production), its AMS will be set at zero.

2. Article 6.4: China agreed to a de minimis exemption of 8.5%.

* Under a provision of the Agreement on Agriculture (Article 6.4), countries are permitted to exempt from calculation of their AMS any support that falls below a certain minimum or the "de minimis" level mentioned above.

* We sought a lower exemption for China because China is one of the world's largest agricultural producers (China's average annual agricultural production totals about $250 billion), and is a highly competitive producer of a number of agricultural products.

* In Shanghai, China agreed to a de minimis exemption of 8.5%, which means that China's subsidies will be capped at this amount, both for general support and for each specific product.

3. Article 6.2: China agreed to forego recourse to this separate exemption.

* Article 6.2 of the Agreement on Agriculture permits developing countries an unlimited exemption for support for programs intended to encourage agricultural and rural development for resource-poor farmers, in particular investment subsidies programs, input subsidies programs, and programs for diversification from narcotic crops.

* Developed countries are not eligible for this separate exemption.

* Though China currently provides about $156 million worth of these kinds of subsidies, it could increase such support dramatically in the future. China has both the historical experience and infrastructure to provide such support, since these were the kind of programs China often used under central planning.

* In Shanghai, China agreed to include subsidies provided for programs described in Article 6.2 in the calculation of its AMS. These subsidies will therefore be subject to the 8.5% cap.

4. Export Subsidies: China reaffirmed its 1997 multilateral commitment to forego all export subsidies for agriculture.

5. Grains, meat and citrus. China is improving its implementation of our bilateral agreement on grains, meat and citrus. For example, China has established an e-mail hotline that exporters can turn to when they encounter problems at Chinese ports.


SERVICES

We clarified certain U.S.-China 1999 bilateral market access commitments in distribution and insurance services that will enlarge the access envisioned under current Chinese regulations. These clarifications will provide a basis for certification to the U.S. Congress that these elements of the final accession package are equivalent to our bilateral 1999 agreement, a prerequisite if the U.S. is to provide Permanent Normal Trade Relations to China under U.S. law.

1. Insurance

* In 1999 China agreed to allow foreign insurers to write "large scale commercial risk" policies but did not define the term. In 2000, China's regulators issued guidance that effectively prohibited all but a very few transactions. We negotiated a definition that will allow more business to take place.

* In 1999 China committed to eliminate a compulsory 20% cession to the state-invested China Reinsurance Company, but subsequent negotiations with others and a new Chinese regulation called into question that commitment. We negotiated a specific timetable to phase-out the 20 percent cession to zero, five years after accession.

* In 1999 China exempted "statutory" or compulsory insurance from national treatment but subsequent negotiations with others called into question that commitment. We negotiated a definition that narrowed the exemption only to third party liability insurance for drivers and operators for buses and other commercial vehicles.

* In 2000, China included text in the draft WTO Working Party report that would significantly undercut many of China's insurance commitments. We negotiated the elimination of this text, and inserted a commitment that China would progressively liberalize insurance services.

2. Distribution

* In 1999 China agreed to liberalize wholesale, retail, franchising, and direct sale services generally over a three-year period. One exception was a minority equity limitation that applied to department stores over 20,000 square meters and to "chain stores," an undefined term, with more than thirty stores.

* In 2000, China's regulators defined "chain stores" to include any retail operation over 2 or more stores, calling into question the breadth of China's retail commitment.

* In Shanghai, we clarified China's commitment on chain stores in a way that restricts the kinds of stores that will have equity limitations. Only those stores that sell different types of goods and brands from multiple suppliers will be restricted and only for stores above thirty. This effectively reinstates China's commitments on all other types of retail establishment and protects, inter alia the right of automobile dealers and distributors of processed petroleum products to have more than thirty wholly-owned stores.


TRADING RIGHTS

We reached multilateral agreement on trading rights (the right to import and export goods) in 1996, but had not yet clarified in the Working Party Report how the commitment would be implemented.

In Shanghai we were able to ensure the right to trade for both foreign-invested companies located in China and to foreign companies that export goods to China without forming a company in China.

Foreign-Invested Enterprises

* China will phase-in trading rights over a three-year period, starting with minority foreign-invested joint ventures qualifying for trading rights one year after accession, majority foreign-invested qualifying after two years and wholly foreign-owned enterprises qualifying three years after China's accession. The timing is coordinated with the phase-in on distribution, so that three years after accession, a wholly-foreign owned enterprise can import and distribute almost all products.

* After the January Working Party meeting, the remaining issue concerning trading rights for foreign-invested enterprises was the schedule for phasing-in these rights and whether a company would need to be able to distribute goods before it could import them. Both issues were resolved favorably.

Foreign Enterprises Without a Presence In China

* In 1996, China agreed to provide national treatment to foreign enterprises and individuals, including those not invested or registered in China, with respect to the right to trade.

* The agreed text limits the types of requirements that China can impose as a condition on obtaining trading rights and provides that trading rights will be granted in a non-discriminatory and non-discretionary way.

 
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