China PNTR and WTO Accession
White House Summary of the Deal, November 15,
1999
I. AGREEMENT HIGHLIGHTS
The U.S.-China WTO agreement covers all agricultural
products, all industrial goods, and all service areas.
Industrial Tariffs
China's industrial
tariffs will fall from an overall average of 24.6% in
1997 to an overall average of 9.4% by 2005.
On U.S. priority industrial products, tariffs will
fall to 7.1% with the majority of tariff cuts fully
implemented by 2003. Tariffs will fall on a range of
products including: wood, paper, chemicals, capital and
medical equipment.
In information technology, tariffs on products such
as computers, semiconductors, and all internet-related
equipment, will fall from an average of 13.3% to 0% by
2005.
Agriculture
On U.S. priority agriculture
products, tariffs will be reduced from an overall
average of 31.5% to 14.5% by January 2004, at the
latest.
China will expand access for of bulk agriculture
commodities, on products including corn, cotton, wheat,
rice, barely, soybean oil.
China will eliminate export subsidies -- this is
especially critical for U.S. cotton and rice producers.
China will for the first time ever permit private
trade (trade between private parties) in agriculture.
Services
On industrial goods, China will
for the first time permit the right to import and export
without middle-men -- so-called trading rights -- as
well as full rights of distribution including wholesale
and retail and aftersale service, repair, maintenance,
and transport.
The telecommunications, insurance, banking,
securities, audio visual, and professional service
sectors, to name a few, will all have expanded market
access under the agreement.
II. RESOLUTION OF KEY UNRESOLVED ISSUES
- Import Surge Mechanism. China has agreed to
a special safeguard mechanism that will remain in
place for 12 years following accession and that can be
used to address rapid increases in imports from China
that cause or threaten market
disruption.
- Anti-Dumping. The agreement ensures that
the United States can continue to apply our current
non-market economy methodology in antidumping cases
involving imports from China for 15 years. China can,
of course, request review under U.S. law of specific
sectors or the economy as a whole to determine if it
is market oriented and no longer subject to the
special methodology.
- Motion Pictures. A previously unresolved
issue had been the degree to which China restricted
imports of films. Prior to the agreement, China
permitted a maximum of 10 foreign films. Under the
agreement, China will quadruple imports to 40 films in
the first year, and 50 by the third year of which 20
will be on a revenue-sharing basis.
- Internet Access. Because of the enormous
projected growth in internet access in China over the
coming decade, a key priority of the U.S. was to
ensure that China's telecom service commitment clearly
included all aspects of internet service. The
agreement ensures that Internet services will be
liberalized at the same rate as other key
telecommunications services.
- Satellites. China has clarified that it
will permit provision of telecommunications services
via satellite.
- Auto Financing. China has now made
commitments for non-bank foreign financial
institutions to be able to provide auto financing upon
China's accession. This in combination with
commitments regarding importation, distribution, sale,
financing, and maintenance and repair of automobiles
will help open up this key sector for U.S.
industry.
- Accelerated Auto Tariff Reduction. As part
of the efforts to find "win-win" solutions to
sensitive areas, China agreed to accelerated tariff
reduction in exchange for a slightly longer phase-in
period. This provides earlier market access with auto
tariffs still being reduced from the current 100-80
percent to 25 percent by July 1, 2006.
- Telecommunications. While the United States
agreed to China's request to limit foreign equity
participation in value-added and paging services to 50
percent, China agreed to both accelerate significantly
the percentage of equity participation in the first
two years and eliminate geographic restrictions on an
accelerated basis. China had indicated it would allow
35% foreign ownership for value-added and paging
services two years after accession and 51% four years
after accession. China will now allow 49% foreign
ownership in the first year of accession and 0%
foreign ownership in the second year.
- Life Insurance. While the United States
agreed to China's request to limit foreign equity
participation in life insurance to 50%, China agreed
to significantly accelerate the elimination of
geographic restrictions the percentage of equity
participation in the first few
years.
AGRICULTURE
The Agreement provides increased access for U.S.
exports across a broad range of commodities and
elimination of barriers. Commitments include:
- Significant cuts in tariffs that will be completed
by January 2004. Overall average for agricultural
products will be 17 percent and for U.S. priority
products 14.5 percent.
- Establishment of a tariff-rate quota system for
imports of bulk commodities, e.g., wheat, corn,
cotton, barley, 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.
- The right to import and distribute products
without going through state-trading enterprise or
middle-man.
- China has also agreed to the elimination of SPS
barriers that are not based on scientific evidence and
no export subsidies on agricultural products.
INDUSTRIAL PRODUCTS
China's commitments will 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 quotas and licenses that restrict
imports of U.S. products.
TARIFFS
- Tariffs cut 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) eliminating all tariffs on
products such as computers, telecommunications
equipment, semiconductors, computer equipment and
other high technology products.
- In the auto sector, China will cut tariffs from
the current 100% or 80% level to 25% by 2006, with the
largest cuts in the first years after
accession.
- Auto parts tariffs will be cut to an average of
10% by 2006.
- Significant cuts will also be made in the wood and
paper sectors, going 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 implementing 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 quantitative
restrictions. 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
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.
RIGHT TO IMPORT AND DISTRIBUTE
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.). Under the
Agreement, China will provide, for the first time,
trading rights and distribution rights to U.S. firms.
Trading rights will be progressively phased in over
three years. Distribution rights will be provided even
for China's most restricted distribution sectors such as
wholesale, transportation, maintenance and repair. China
will provide for trading rights and distribution.
SERVICES
China has made commitments in all major service
categories with reasonable transitions to eliminate most
foreign equity restrictions (especially in sectors where
the U.S. has a strong commercial interest), agreeing to
accede to the Basic Telecommunications and Financial
Services Agreements, and "grandfathering" of current
market access for U.S. service providers.
GRANDFATHERING
China will grandfather all existing current market
access and activities in all services sectors. 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.
DISTRIBUTION
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 service exports.
China's commitments address all these issues. They
reflect a comprehensive commitment on distribution -
including wholesaling, sales away from a fixed location,
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 for most products within three
years.
SERVICES AUXILIARY TO DISTRIBUTION
Chinese commitments in services auxiliary to
distribution include rental and leasing, air courier,
freight forwarding, storage and warehousing,
advertising, technical testing and analysis, and
packaging services. All restrictions will be phased-out
in 3 to 4 years, at which time U.S. service suppliers
will be able to establish 100% wholly-owned
subsidiaries.
TELECOMMUNICATIONS
China now severely restricts sales of
telecommunications services and bars foreign investment.
China's commitments mark its first agreement 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 has agreed 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 restrictions for paging in 3 years, value
added, and closed user groups in 3 years,
mobile/cellular in 5 years and domestic wireline
services in 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 50%
foreign ownership for value added in two years and
paging services in 3 years.
INSURANCE
For insurance, China now restricts foreign companies
to operating in Shanghai and Guangzhou. Under the
agreement:
- Geographic Limitations: China will permit foreign
property and casualty firms to insure large-scale
risks nationwide immediately upon accession, and will
eliminate all geographic limitation for future
licenses over 5 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 5
years.
- 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.
- Investment: China agreed to allow 50 percent
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 51%
ownership on accession and form wholly owned
subsidiaries in 2 years.
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
SECURITIES
China will permit minority foreign owned joint
ventures to engage in fund management on the same terms
as Chinese firms. As the scope of business expands for
Chinese firms, foreign joint venture securities
companies will enjoy the same expansion in scope of
business. Minority joint ventures will be allowed to
underwrite domestic securities issues and underwrite and
trade in foreign currency denominated securities (debt
and equity).
PROFESSIONAL SERVICES
In the professional services, China currently tightly
restricts operation of foreign law firms and accounting
firms. In the Agreement, China has provided a broad
range of commitments, including on legal, accountancy,
taxation, management consultancy, architecture,
engineering, urban planning, medical and dental,
computer-related services. China 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 and follow
transparent procedures.
AUDIOVISUAL
China's commitments cover the right to distribute
video and sound recordings and cinema ownership and
operation. For video and sound recordings, China will
allow 49% foreign participation in joint ventures
engaged in the distribution of these products. China has
also agreed to import 40 films after accession growing
to 50 films in three years, of which 20 films will be
revenue sharing.
TRAVEL AND TOURISM
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.
PROTOCOL 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 offsets as well as practices
of state-owned and state-invested enterprises. These
rules are of special importance to U.S. workers and
business.
China had agreed to implement the TRIMs Agreement
upon accession, 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,
offsets, transfer of technology, or requirements to
conduct research and development in China.
ANTIDUMPING AND SUBSIDIES METHODOLOGY
The agreed protocol provisions ensures 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. 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.
This provision will remain in force for 15 years after
China's accession to the WTO.
PRODUCT SPECIFIC SAFEGUARD
The agreed provisions for the protocol package also
ensure that American domestic firms will have strong
protection against rapid increases 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 Safeguards 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. Moreover, the United States will be able to
apply restraints unilaterally based on standards that
are lower than those in the WTO Safeguards Agreement.
This provision will remain in force for 12 years after
China accedes 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, 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.
TEXTILES
China's protocol package will include a provision
drawn 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 be in effect after the WTO
Agreement on Textiles and Clothing expires and will
remain in effect until December 31, 2008.
For more information contact Christine Keck,
Director, Asia-Pacific Programs, in TIA's International
Affairs department at (202) 383-1482, or ckeck@tia.eia.org.
Permanent Normal Trade Relations (PNTR)
In order for the U.S. to enjoy all the benefits of
the negotiated package, the U.S. Congress must grant
China Permanent Normal Trade Relations (PNTR) status.
[Normal Trade Relations (NTR) used to be known as Most
Favored Nation (MFN) status.] This will require a very
large lobbying effort on Capital Hill on behalf of U.S.
industry. Currently, TIA is mobilizing with industry to
make these great efforts, and expects to see positive
outcome when the vote eventually takes place, likely
mid-2000 sometime.
In addition to the work that TIA will do in this
regard, it is imperative that members of Congress hear
from their constituents around the country. Based on the
events in Seattle at the beginning of December 1999,
there are many organizations that will be pushing hard
against Congress' support of the package and the WTO in
general. For example, the labor movement – high from its
proclaimed victory in Seattle – has already vowed to use
its powerful grass roots network to derail support in
both the House and the Senate for PNTR status for China.
For this reason, TIA has developed a draft letter
for your company to use in writing to Congress in this
regard. NOTE: this letter has been removed because
the dealine has passed. Please contact us if you wish to
see a copy. To help you in locating the name and address
of your Congressional representatives, please visit http://www.senate.gov/
or http://www.house.gov/;
both of these sites allow you to locate the name of your
representatives by entering your state and ZIP code.
Thank you for your support!
