SUMMARY OF U.S.-CHINA BILATERAL WTO AGREEMENT

SUMMARY OF U.S.-CHINA BILATERAL¹ WTO AGREEMENT
February 2, 2000

AGRICULTURE

The Agreement would eliminate barriers and increase access for U.S. exports across a broad range of commodities. Commitments include:

Significant cuts in tariffs² that will be completed by January 2004. Overall average for agricultural products will be 17.5 percent and for U.S. priority products 14 percent (down from 31 percent).

Establishment of a tariff-rate quota⁴ system for imports of bulk commodities, e.g., wheat, corn, cotton, barley⁵, and rice, that provides a share of the TRQ for private traders. Specific rules on how the TRQ will operate and increased transparency in the process will help ensure that imports occur. Significant and growing quota quantities subject to tariffs that average between 1-3 percent.

Immediate⁶ elimination⁷ of the tariff-rate quota system for barley, peanut oil, sunflower-seed oil, cottonseed oil, and a phase-out for soybean oil.

The right to import and distribute products without going through a state-trading enterprise or middleman.

Elimination of export subsidies⁸ on agricultural products.

China has also agreed to the elimination of SPS barriers that are not based on scientific evidence.

INDUSTRIAL PRODUCTS

China would lower tariffs and eliminate broad systemic barriers to U.S. exports, such as limits on who can import goods and distribute them in China, as well as barriers such as quotas⁹ and licenses¹¹ on U.S. products.

TARIFFS

Tariffs cut from an average of 24.6 percent to an average of 9.4 percent overall and 7.1 percent on U.S. priority products.

China will participate in the Information Technology Agreement (ITA) and eliminate all tariffs on products such as computers, telecommunications equipment, semiconductors¹², computer equipment, and other high-technology products.

In the auto¹³ sector¹⁴, China will cut tariffs from the current 80-100% level to 25% by mid-2006, with the largest cuts in the first years after accession.

Auto parts tariffs will be cut to an average of 10% by mid-2006.

In the wood and paper sectors¹⁵, tariffs will drop from present levels of 12?18% on wood and 15-25% on paper down to levels generally between 5% and 7.5%.

China will also be implementing¹⁷ the vast majority of the chemical harmonization initiative. Under that initiative, tariffs will be at 0, 5.5 and 6.5 percent for products in each category.

ELIMINATION OF QUOTAS AND LICENSES

WTO rules bar quotas and other quantitative¹⁸ restrictions¹⁹. China has agreed to eliminate these restrictions with phase-ins limited to five years.

Quotas: China will eliminate existing quotas upon accession for the top U.S. priorities (e.g. optic fiber²⁰ cable). It will phase out remaining quotas, generally by 2002, but no later than 2005.

Quotas will grow from current trade levels at a 15% annual rate in order to ensure that market access increases progressively.

Auto quotas will be phased out by 2005. In the interim²¹, the base-level quota will be $6 billion (the level prior to China's auto industrial policy), and this will grow by 15% annually²² until elimination.

RIGHT TO IMPORT AND DISTRIBUTE

Trading rights and distribution are among the top concerns for U.S. manufacturers and agricultural exporters. At present, China severely²³ restricts trading rights (the right to import and export) and the ability to own and operate distribution networks. Under the Agreement, trading rights and distribution services will be progressively phased in over three years. China will also open up sectors related to distribution services, such as repair and maintenance, warehousing, trucking and air courier services.

SERVICES

China has made commitments to phase out most restrictions in a broad range of services sectors, including distribution, banking²⁴, insurance, telecommunications, professional services such as accountancy and legal consulting, business and computer related services, motion pictures and video and sound recording²⁵ services. China will also participate in the Basic Telecommunications and Financial Services Agreements.

GRANDFATHERING

China will grandfather the existing level of market access already in effect at the time of China's accession for U.S. services companies currently operating in China. This will protect existing American businesses operating under contractual or shareholder²⁶ agreements or a license¹⁰ from new restrictions as China phases in their commitments.

DISTRIBUTION AND RELATED SERVICES

China generally prohibits foreign firms from distributing products other than those they make in China, or from controlling their own distribution networks. Under the Agreement, China has agreed to liberalize wholesaling²⁷ and retailing²⁸ services for most products, including imported goods, throughout China in three years. In addition, China has agreed to open up the logistical chain of related services such as maintenance and repair, storage and warehousing , packaging, advertising²⁹, trucking and air express services, marketing³⁰, and customer support in three to four years.

TELECOMMUNICATIONS

China now prohibits foreign investment in telecommunications services. For the first time, China has agreed to permit direct investment in telecommunications businesses. China will also participate in the Basic Telecommunications Agreement. Specific commitments include:

Regulatory Principles ?- China has agreed to implement¹⁶ the pro³?competitive regulatory principles embodied³¹ in the Basic Telecommunications Agreement (including interconnection rights and independent regulatory authority) and will allow foreign suppliers to use any technology they choose to provide telecommunications services.

China will gradually phase out all geographic³² restrictions for paging and value-added services in two years, mobile voice and data services in five years, and domestic and international services in six years.

China will permit 50 percent foreign equity³³ share for value-added and paging services two years after accession, 49 percent foreign equity share for mobile voice and data services five years after accession, and for domestic and international services six years after accession.

INSURANCE

Currently, only two U.S. insurers have access to China's market. Under the agreement:

China agreed to award licenses solely³⁴ on the basis of prudential criteria³⁵, with no economic-needs test or quantitative limits on the number of licenses issued.

China will progressively eliminate all geographic limitations within 3 years. Internal branching will be permitted consistent with the elimination of these restrictions.

China will expand the scope of activities for foreign insurers to include group, health and pension lines of insurance, phased in over 5 years. Foreign property and casualty firms will be able to insure large-scale commercial risks nationwide immediately upon accession.

China agreed to allow 50 percent ownership for life insurance. Life insurers may also choose their own joint³⁶ venture partners. For non-life, China will allow branching or 51 percent ownership on accession and wholly owned subsidiaries in 2 years. Reinsurance is completely open upon accession (100 percent, no restrictions).

BANKING

Currently foreign banks are not permitted to do local currency business with Chinese clients (a few can engage in local currency business with their foreign clients). China imposes severe geographic restrictions on the establishment of foreign banks.

China has committed to full market access in five years for U.S. banks.

Foreign banks will be able to conduct local currency business with Chinese enterprises starting 2 years after accession.

Foreign banks will be able to conduct local currency business with Chinese individuals from 5 years after accession.

Foreign banks will have the same rights (national treatment) as Chinese banks within designated geographic areas.

Both geographic and customer restrictions will be removed in five years.

Non-bank financial companies can offer auto financing upon accession.

SECURITIES

China will permit minority foreign-owned joint ventures to engage in fund management on the same terms as Chinese firms. By three years after accession, foreign ownership of these joint ventures will be allowed to rise to 49 percent. As the scope of business expands for Chinese firms, foreign joint venture securities companies will enjoy the same expansion in scope of business. In addition, 33 percent foreign?owned joint ventures will be allowed to underwrite domestic equity issues and underwrite and trade in international equity and all corporate³⁷ and government debt issues.

PROFESSIONAL SERVICES

China has made strong commitments regarding professional services, including the areas of law, accounting³⁸, management consulting, tax consulting, architecture, engineering, urban planning, medical and dental services, and computer and related services. China's commitments will lead to greater market access opportunities and increased certainty for American companies doing business in China.

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MOTION PICTURES, VIDEOS, SOUND RECORDINGS³⁹

China will allow the 20 films to be imported on a revenue-sharing basis in each of the 3 years after accession. U.S. firms can form joint ventures to distribute videos, software entertainment, and sound recordings and to own and operate cinemas.

PROTOCOL⁴⁰ PROVISIONS

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 offsets⁴¹, as well as practices of state?owned and state?invested enterprises. These rules are of special importance to U.S. workers and business.

China has agreed to implement the TRIMs Agreement upon accession, eliminate and cease enforcing trade and foreign exchange balancing requirements, as well as local content requirements, refuse to enforce contracts imposing⁴² these requirements, and only impose or enforce laws or other provisions relating to the transfer of technology or other know-how⁴³, 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. China has 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, offsets, transfer of technology, or requirements to conduct research and development in China.

ANTIDUMPING AND SUBSIDIES METHODOLOGY

The agreed protocol provisions ensure that American firms and workers will have strong protection against unfair trade practices including dumping and subsidies. 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. This provision will remain in force for 15 years after China's accession to the WTO. 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 subsidy⁴⁴ benefit that may exist.

PRODUCT-SPECIFIC SAFEGUARD

The agreed provisions for the protocol package also ensure that American domestic firms and workers will have strong protection against rapid increases of imports.

To do this, the Product-Specific Safeguard provision sets up a special mechanism⁴⁵ to address increased imports that cause or threaten to cause market disruption to a U.S. industry. This mechanism, which is in addition to other WTO Safeguards provisions, differs from traditional safeguard measures. It permits United States to address imports solely from China, rather than from the whole world, that are a significant cause of material injury through measures such as import restrictions. Moreover, the United States will be able to apply restraints unilaterally based on legal standards that differ from those in the WTO Safeguards Agreement. This could permit action in more cases. The Product-Specific Safeguard will remain in force for 12 years after China accedes⁴⁶ to the WTO.

STATE-OWNED AND STATE-INVESTED ENTERPRISES

The Protocol addresses important issues related to the Chinese government's involvement in the economy. 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, and that it will 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 do not constitute "government procurement⁴⁷" 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.

TEXTILES

China's protocol package will include a provision drawn⁴⁸ from our 1997 bilateral textiles agreement, which permits U.S. companies and workers to respond to increased imports of textile and apparel products. This textile safeguard will remain in the effect until December 31, 2008, which is four years after the WTO agreement on Textile and Clothing expires.