Text: Congressional Research Service on China/WTO
(Feb. 14 report on China/WTO and expansion of U.S. exports)The Congressional Research Service of the Library of Congress released February 14 a memorandum entitled "China's Accession to the World Trade Organization: Possible Areas for Expansion of U.S. Exports."
This memorandum was generated in response to a Congressional request for an analysis of possible effects on U.S. exports from China's accession to the World Trade Organization (WTO). The analysis is based on China's commitments on market access that it made in a bilateral trade agreement with the United States on November 15, 1999.
The authors of the report were Charles Hanrahan, Senior Specialist in Agricultural Policy, Resources, Science, and Industry Division, and Wayne M. Morrison, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade Division of the Congressional Research Service.
Following is the text of the memorandum:
(begin text)
February 14, 2000
MemorandumFROM: Charles Hanrahan
Senior Specialist in Agricultural Policy
Resources, Science, and Industry DivisionWayne M. Morrison
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade DivisionSUBJECT: China's Accession to the World Trade Organization:
Possible Areas for Expansion of U.S. ExportsThis memorandum responds to your request for an analysis of possible effects on U.S. exports from China's accession to the World Trade Organization (WTO). The analysis is based on China's commitments on market access that it made in a bilateral trade agreement with the United States on November 15, 1999. It updates information we provided to you in a memorandum dated May 24,1999, which analyzed possible effects on U.S.-China trade from market access commitments that China reportedly made in April 1999 during Premier Zhu Rongji's visit to the United States.(1) Most of the commitments China reportedly made in April 1999 appear to have been included in the November 1999 agreement (with some minor changes, such as phase-in periods for certain tariff reductions and the level of foreign ownership allowed in China's telecommunications industry).(2) The November agreement included a number of additional items that reportedly were left unresolved in April, such as U.S. safeguard and antidumping provisions, market access in China for banking, securities, and audio-visual services, and investment in certain industries. Many of China's trade offers on market access would appear to provide across the board benefits for all U.S. exporters, while other offers would lower barriers to specific products and services.
If and when fully implemented, China's WTO commitments could result in substantial new opportunities for U.S. exports to, and investment in, China. China is one of the world's fastest growing economies, and rapid economic growth is likely to continue in the near future, provided that economic reforms are continued. China's goal of modernizing its infrastructure and upgrading its industries is predicted to generate substantial demand for foreign goods and services. Chinese officials predict that such needs will generate $1.5 trillion in increased imports from 1999-2005.(3) According to a U.S. Department of Commerce report: "China's unmet infrastructural needs are staggering. Foreign capital, expertise, and equipment will have to be brought in if China is to build all the ports, roads, bridges, airports, power plants, telecommunications networks and rail lines that it needs."(4) Finally, economic growth has substantially improved the purchasing power of Chinese citizens, especially those living in urban areas along the east coast of China. It is projected that by the year 2005, China will have more than 230 million middle-income consumers (i.e., those earning $1,000 or more annually), and that the value of retail sales will exceed $900 billion.(5) If achieved, this would likely make China the world's largest market for consumer goods and services and a major market for luxury goods.
It is important to note a number of factors which make it difficult to fully assess the significance for U.S. exporters of the U.S.-China WTO agreement:
-- The complete U.S.-China WTO agreement has not been released. The White House and U.S. Trade Representative (USTR) have released only summaries of the types of barriers China has offered to reduce or remove, thus making it difficult to identify all the sectors which could benefit from such commitments. For example, these document constantly refer to China's market access for "U.S. priority sectors," and then list a few examples.
-- China has not completed its WTO negotiations. The November 1999 U.S.-China WTO trade agreement represents only one aspect of China's negotiations to get into the WTO. China must conclude trade agreements with each of the 40 WTO member countries that have requested negotiations. China has completed agreements with many of its major trading partners, including Japan and Canada (although the details of these agreements have not been made available), but is still negotiating with about a dozen major trading partners, including the European Union and India. These other negotiations may yield additional market access opportunities for U.S. firms after agreements have been completed and implemented.(6) In addition, China must complete negotiations with the WTO Working Party, which deals with the conditions China must adopt to bring its trade regime in line with WTO rules. Only after China completes all of its bilateral negotiations, and the WTO Working Party completes its report and draws up a draft protocol of accession would it be possible to fully examine the extent of China's WTO concessions and commitments. Thus, it is difficult, based on current information, to determine which U.S. industries, and to what extent, would benefit the most from China's eventual WTO accession.(7)
-- Chinese compliance with its WTO commitments is uncertain. It is difficult to predict to what extent China will implement its WTO commitments. Past U.S. agreements with China on market access, prison labor exports, textile quotas, and protection of intellectual property rights produced mixed results in terms of compliance. In addition, China might lower some barriers, but then erect new ones. Some analysts argue that, should reforms result in widespread disruptions and layoffs in China, the Chinese government, in order to maintain political stability, might delay the implementation of reforms. However, China's failure to fully implement its commitments might be dealt with in the WTO dispute resolution process.
-- It is difficult to predict future Chinese economic performance or policies. The rate of economic growth is an important factor in determining demand for foreign imports. Some analysts have speculated that reforms resulting from China's WTO accession could slow economic growth in the short-term, as Chinese firms begin to be affected by greater foreign competition and the banking system and money-losing state-owned enterprises are reformed. A slowing economy would likely reduce overall Chinese demand for imports, thus possibly, offsetting some of the effects of increased demand for foreign imports resulting from lower trade barriers.(8) In the long term, however, trade reforms would likely produce greater efficiency in the Chinese economy, hence producing faster economic growth and higher demand for imports of goods and services. Standard and Poor's DRI, an international economic forecasting firm predicts that economic reforms will slow China's economy in 2000-2001, but then will accelerate growth thereafter.(9)
-- Many of China's commitments, if fully implemented, would provide across the board benefits to U.S. exporters. China's agreement to provide U.S. firms full trade and distribution rights, remove investment restrictions, and improve transparency of its trade laws and regulations would greatly enhance the ability of all U.S. firms to do business in China. Hence, it is difficult to distinguish which U.S. industries would benefit the most from China's entry into the WTO.
The remainder of this memorandum provides an overview of current U.S.-China economic trade relations, describes current Chinese trade and investment barriers, examines the market access commitments the Chinese government made in November 1999, and attempts to assess what impact those commitments, if implemented, would have on various U.S. export industries. As you requested, we focus on the assessments of U.S. exporters about their prospects for increased exports to China that might result from the U.S.-China bilateral WTO agreement. We have not attempted to estimate the overall effects of China's accession to the WTO, but we do describe various studies that provide such estimates.
Overview of Current U.S.-China Commercial Relations
U.S.-China merchandise trade has risen rapidly over the past several years.(10) Total trade (exports plus imports) between the two nations increased from $4.8 billion in 1980 to an estimated $95.0 billion in 1990 -- making China the 4th largest U.S. trading partner (see Table 1).(11) Over the past 11 years, the U.S. trade deficit with China has grown significantly, due largely to a surge in U.S. imports of Chinese goods relative to U.S. exports to China. Between 1989 and 1999, U.S. exports to China increased by 126%, while U.S. imports from China surged by 583%. In 1989, the United States had a $6.2 billion trade deficit with China; in 11 years it surged to an estimated $68.8 billion , making China the second largest deficit trading partner of the United States, behind Japan.
Table 1. U.S. Merchandise Trade with China: 1989-1999 ($ Billions) Year U.S. Exports U.S. Imports U.S. Trade Balance 1989 5.8 12.0 -6.2 1990 4.8 15.2 -10.4 1991 6.3 19.0 -12.7 1992 7.5 25.7 -18.2 1993 8.8 31.5 -22.8 1994 9.3 38.8 -29.5 1995 11.7 45.6 -33.8 1996 12.0 51.5 -39.5 1997 12.8 62.6 -49.7 1998 14.3 71.2 -56.9 1999 (est.) 13.1 81.9 -68.8 Source: U.S. Department of Commerce. Data for 1999 are estimates based on actual data for January-November 1999.U.S. Merchandise Exports to China
U.S. merchandise exports to China in 1999 were estimated at $13.1 billion, accounting for 1.91% of total U.S. exports to the world, and making China the 12th largest market for U.S. exports.(12) The top five U.S. exports to China in 1999 were (1) transport equipment (mainly aircraft and parts), (2) electrical machinery, (3) fertilizers, (4) office machines (e.g., computers), and (5) general industrial machinery and equipment. Together, these five commodities accounted for nearly half of total U.S. exports to China in 1999. U.S. exports to China are estimated to have fallen by 8.4% in 1999 (over the previous year), due in part to a sharp drop in U.S. exports of aircraft to China (see Table 2).
Table 2. Top 5 U.S. Exports to China: 1995-1999 ($Millions) SITC Commodity 1995 1996 1997 1998 1999 1995/ 1998/ Groupings 1999% 1999% Change Change Total All 11,748 11,978 12,805 14,258 13,132 11.8% -7.9% Commodities Transport 1,189 1,725 2,129 3,605 2,509 111.0 -30.4 equipment (mainly aircraft and parts) Electrical 429 583 741 1,014 1,376 220.7 35.7 machinery, apparatus and appliances, and parts Fertilizers 1,204 891 1,050 1,064 908 -24.6 -14.7 Office machines 315 266 344 879 808 156.5 -8.1 and automatic data processing machines General industrial 717 775 767 674 683 -4.7 1.3 machinery & equipment and parts Total Top 5 3,854 4,240 5,931 7,236 6,284 63.1 -13.2 Commodities sorted by top 5 exports in 1999, based on annualized data for January-November 1999. Source: U.S. Department of Commerce.U.S. Investment in China
The United States is the third largest overall investor in China, after Hong Kong and Japan. Utilized U.S. foreign direct investment in China rose from $456 million in 1990 to $3.9 billion in 1998.(13) The cumulative value of U.S. FDI in China (1979-1998) was $21.2 billion, or 7.9% of total utilized FDI in China. U.S. FDI in China in 1998 totaled $3.9 billion, or 11.9% of total FDI in 1998.(14) Major U.S. corporate investors in China include Motorola, Atlantic Richfield, Coca Cola, Amoco, Ford Motor, United Technologies, Pepsi Cola, Lucent Technologies, General Electric, and General Motors.
Chinese Trade and Investment Barriers
For many U.S. firms, China remains a difficult market to penetrate, largely due to Chinese government policies, which attempt to protect and promote domestic industries. Chinese trade policies generally attempt to encourage imports of products which are deemed beneficial to China's economic development and growth (and which are generally not produced in China), such as high technology, as well as machinery and raw materials used in the manufacture of products for export. In many cases, preferential trade policies are used to encourage these priority imports. Goods and services not considered to be high priority, or which compete directly with domestic Chinese firms, often face an extensive array of tariff and non-tariff barriers. Such policies make it difficult to export products directly to China. As a result, many U.S. firms have established production facilities in China to gain access to the China market. However, foreign-invested firms in China face a wide variety of barriers as well. U.S. government officials maintain that China's restrictive trade and investment policies are a leading cause of the surging U.S.-China trade imbalance. Major Chinese barriers of concern include:
-- High tariffs. The average Chinese tariff rate is currently 17% (down from an average rate of 42% in 1996), but tariffs on selected items, such as autos and various agricultural products, can rise to 100% or more. In addition, most imports are subject to a 17% value-added tax, which is not always evenly applied between Chinese and foreign firms.
-- Pervasive non-tariff barriers are arbitrarily used to control the level of certain imports into China, including quotas, import licenses, registration and certification requirements, and restrictive technical and sanitary standards (especially with respect to agricultural products).(15)
-- Non-transparent trade-rules and regulations. China's trade laws and regulations are often secretly formulated, unpublished, unevenly enforced, and may vary across provinces, making it difficult for exporters to determine what rules and regulations apply to their products. In addition, foreign firms find it difficult to gain access to government trade rule-making agencies to appeal new trade rules and regulations.
-- Trading rights. China restricts the number and types of entities in China that are allowed to import products into China, which limits the ability of both Chinese and foreign firms in China to obtain imported products. Foreign companies are generally not permitted to directly import and export to and from China. In addition, trading rights for many agricultural products are given exclusively to Chinese state trading companies, which are directed to import only if there is a domestic shortfall of certain products.
-- Distribution rights. Most foreign companies are prohibited from selling their products (other than those they produce in China) directly to Chinese consumers.
-- Restrictions on services. The USTR has stated that China maintains one of the most restrictive trade regimes on services in the world. Foreign firms are generally barred from providing services in China, although in recent years a select few service providers have been allowed to operate in certain cities in China on an experimental basis, but many of their activities are restricted as well.
-- Investment restrictions. Chinese officials pressure foreign investors to agree to contract provisions which stipulate technology transfers, exporting a certain share of production, and commitments on local content. Other problems faced by foreign firms in China include the denial of national treatment (i.e., foreign firms are treated less favorably than domestic firms), foreign exchange controls, distribution and marketing restrictions, and the lack of rule of law.
-- Failure to protect intellectual property rights (IPR). IPR piracy in China is estimated to have cost U.S. firms $2.6 billion in lost sales in 1998. While China has enacted new IPR laws and has beefed up enforcement (in response to trade agreements made with the United States), piracy remains a serious problem, especially illegal reproduction of software, retail piracy, and trademark counterfeiting. In addition, high tariffs, quotas, and other barriers continue to hamper U.S. exports of IPR-related products.
Progress in U.S.-China WTO Negotiations: Premier Zhu's April 1999 Visit
China's accession to the WTO was a major topic of discussion during Chinese Premier Zhu Rongji's meeting with President Clinton on April 8, 1999. The two sides reported that significant progress on China's WTO accession was made, although a final agreement could not be reached during Zhu's visit. The USTR issued a document listing concessions that China had reportedly made in key areas involving trade in agriculture, services, and industrial goods, as well as commitments on foreign investment, trading rights, and distribution rights.(16) U.S. trade officials and most major U.S. business organizations expressed strong satisfaction with China's trade offers, which, according to a USTR press release, would "bring China into the WTO at above existing WTO standards on issues and sectors of major concern to the U.S."(17) The USTR noted that several issues had remained unresolved which prevented a final agreement from being reached, namely market access in China for banking, securities, and audio visual services, and provisions governing U.S. rules for antidumping, import surges, and textile quotas.
Following the accidental NATO bombing of the Chinese embassy in Belgrade on May 7, 1999, China suspended its WTO talks with the United States. These talks were officially resumed on September 11, 1999, during a meeting between President Clinton and Chinese President Jiang Zemin in New Zealand.
The November 1999 U.S.-China WTO Agreement
On November 15, 1999, U.S. and Chinese officials announced that they had reached a bilateral agreement relating to China's bid to join the WTO. The agreement would commit China to reduce tariffs and remove non-tariff barriers (some on accession and others over specified phase-in periods).(18) While the final text of the U.S.-China WTO agreement has not been made public, summaries of the agreement have been released.(19) They indicate that China has pledged to make the following reforms:
-- Provide full trading and distribution rights (including the ability to provide services auxiliary to distribution) for U.S. firms in China.
-- Cut tariffs from an overall average of 22.1% to 17.0%. Average tariffs on agricultural commodities would fall from 40% to 17% by the year 2004 (tariffs on agricultural "priority products" would fall from 31.5% to 14.5% by 2004). Overall industrial tariffs would fall from an average of 24.6% to 9.4% by 2005 (the average tariff on industrial "priority products" would fall to 7.1% by 2003). Tariffs on information technology products (e.g., computers, semiconductors, and telecommunications equipment) would be reduced from an average level of 13.3% to zero by the year 2005.
-- Establish a tariff-rate quota system for imports of agricultural bulk commodities (such as wheat, corn, cotton, barley, and rice), i.e., imports up to a specified quota level would be assessed a low tariff (1-3%), while imports above a certain level would be assessed a much higher tariff rate. In addition, private trade in agricultural products will be permitted for the first time.
-- Phase out quotas and other quantitative restrictions (some upon accession, many within two years, and most within five years). Quota levels for many products would expand by 15% each year until the elimination of the quota.
-- Eliminate unscientifically based sanitary and phytosanitary restrictions on agricultural products, and end export subsidies, and reduce domestic subsidies, for agricultural products.
-- Open service sectors (many of which are currently closed to foreign firms), including distribution, value-added telecommunications, insurance, banking, securities, and professional services. China will expand (over various transitional periods) the scope of allowed services and gradually remove geographical restrictions on foreign service providers. The amount of permitted foreign ownership in service industries will vary (and in some cases expand over time) from sector to sector.
-- Reduce restrictions on auto trade. Tariffs on autos will fall from 80-100% to 25% (tariffs on auto parts reduced to an average rate of 10%) by 2006. Auto quotas will be eliminated by 2005. U.S. financial firms will be allowed to provide financing for the purchase of cars in China.
-- Remove various restrictions on foreign investors in China, including technology transfer, local content, and export performance requirements.
-- Participation in three major multilateral agreements -- the Information Technology Agreement, the Agreement on Basic Telecommunications, and the Financial Services Agreement -- recently concluded in the WTO.
-- Opening service sectors, including distribution, value-added telecommunications, insurance, computer and business services, securities, environmental services, franchising and direct sales, legal and accounting, sound recordings, and entertainment software.
-- Ensure that purchases and sales of China's state-owned firms are based solely on commercial considerations and allow U.S. firms to compete for sales and purchases on a non-discriminatory basis.
-- Expand from 10 to 20 the number of foreign films allowed to be shown in China each year.
-- Accept the use by the United States of certain safeguard, countervailing, and antidumping provisions (over transitionary periods) to respond to possible surges in U.S. imports from China of various products, such as textiles, that might cause or threaten to cause market disruptions in the United States.(20)
China's commitments on agriculture would essentially replace a large share of its non-tariff barriers on agricultural products with bound tariffs and reduce such tariffs over time. China's commitments on industrial goods would cut tariffs and remove several non-tariff barriers, and allow U.S. firms to import, export, and distribute their goods within China without restrictions. China's commitments on services would substantially expand the ability of U.S. banks, insurance companies, and telecommunications service providers to operate in China. In addition, China's commitments on investment would (within various phase-in periods) expand the scope of permitted foreign investment in China for various services. Possible effects of the U.S.-China WTO agreement on various sectors are addressed in more detail below.
Agriculture
U.S. agricultural exports to China were $1.0 billion in fiscal year 1999, making it the United States' eighth largest market for farm products. (An additional $1.3 billion of U.S. agricultural products were shipped to Hong Kong in 1999.) The prospect of future growth in demand for agricultural products makes China's accession to the WTO an important issue for the U.S. agricultural sector. That is why most agricultural interest groups strongly support China's entry into the WTO, if in the process China agrees to open further its market for U.S. agricultural products. Secretary of Agriculture Glickman estimated that China's accession to the WTO, plus a U.S. grant of permanent normal trading relations (NTR) status, would increase U.S. agricultural exports by $2 billion annually.(21) Recently, a group of 320 agricultural groups and industry organizations pledged their support to working with Congress and the Administration to secure timely approval of permanent NTR for China without conditions or delay. The American Farm Bureau Federation was among groups signing this January 26, 2000 letter.(22) All indications are that for agriculture, the accord reached on November 15 concerning China's accession to the WTO is identical to that agreed upon in April of 1999.
China's offers on market access for agriculture spelled out in USTR's report on China's market access and protocol commitments address several key issues that have impeded entry of U.S. agricultural products into China's potentially vast market: high tariffs, restrictive quotas, seemingly arbitrary sanitary and phytosanitary standards, export subsidies, monopoly status and lack of transparency in the operations of state trading enterprises, and China's unwillingness to accord foreign firms trading and distribution rights. The response of U.S. agricultural interests to the April 1999 announcement of the U.S.-China agricultural market access agreement was highly positive. According to the Agriculture Trade Coalition, a grouping of 57 U.S. farm and commodity organizations: "This agreement is critically important to the entire U.S. agricultural sector. The tariff and non-tariff concessions that U.S. negotiators reached with China, represent a true market opening for U.S. agriculture exports and will have a significant effect on U.S. farm income at a time when farm receipts are declining rapidly."(23)
China's protocol commitments on market access would come into force upon its accession to the WTO. China has committed to reduce its overall average tariff for agricultural products from 40% to 17%. The USTR reports that the tariff reduction will be greater for several "U.S. priority products," such as soybeans, meats, fruits and nuts, wine and dairy products. For these products, the average tariff will drop to 14.5%. All agricultural tariffs would be bound (i.e., maintained at the agreed level) and all tariff cuts implemented by 2004, the end of the phase-in period for all other WTO members to implement their Uruguay Round tariff cuts (see table 3).
Table 3. Specific Examples of Tariff Reductions in China's WTO Agriculture Market Access Offer Product Current level(%) 2004(%) Soybeans (not available) 3 Beef 45 12 Pork 20 12 Poultry 20 10 Citrus 40 12 Grapes 40 13 Apples 30 10 Almonds 30 10 Wine 65 20 Cheese 50 12 Ice Cream 45 19 Source: USTR
In addition, China has agreed to establish a tariff rate quota (TRQ) system for bulk commodity imports (see table 4). Under a TRQ, imports up to the quota level are charged a low tariff (in the range of 1-3%) while imports above the quota level are charged a higher, usually prohibitive, tariff. According to USTR, these TRQs will provide a strong incentive for state trading enterprises (STEs) to purchase bulk commodities at world market prices. Moreover, the total levels of the TRQs are above present import levels and provide for future growth. Private traders will be allocated an initial share of the quota and unused portions of the quotas will be reallocated from the STEs if they do not purchase the full TRQ amounts. In addition, China will apply TRQs to products in which, according to USTR, the United States has little or no trade interest. These include wool, sugar, palm oil, and rapeseed oil.
Table 4. China's Tariff Rate Quota Offers for Priority U.S. Bulk Commodities Commodity TRQ Comments Soybean Oil 1.7 million metric tons Private sector trade will be (mmt) rising to 3.3 mmt by allocated 50% of the TRQ 2005. rising to 90% by 2006. Wheat 7.3 mmt rising to 9.3 mmt. China's current wheat import level is less than 2 mmt; private sector will receive 10% of the allocation with subsequent reallocation of unused state enterprise portions later in a calendar year. Corn 4.5 mmt rising to 7.2 mmt. Current corn import level is 250,000 metric tons. Private sector allocated 25% of the TRQ, rising to 40% by 2004 with, reallocation of unused STE quotas later in the calendar year. Rice 2.6 mmt rising to 5.3 mmt. 50% allocated to the private sector. Half of the TRQ will be for short and medium grain rice, in which the United States is competitive. Current import level is 250,000 metric tons (mt). Cotton 743,000 mt rising to Present import level is 894,000 mt by 2004. 200,000 mt. Private sector allocated 67% of this TRQ. Barley No TRQ Barley tariffs will be reduced to 9% Source: USTRAs in the case of industrial or manufactured products, China has agreed to eliminate restrictions on trading rights over a three-year phase-in period. At the end of that transition period, all foreign and domestic enterprises will have trading rights. In addition, U.S. firms would be accorded broad rights which should enable them to market food and agricultural products directly to Chinese customers rather than through intermediary Chinese companies.
China also made a commitment not to provide export subsidies for agricultural products. According to USTR, this will be particularly important for corn, cotton, and rice. China's abandonment of export subsidies, according to USTR, reinforces a major U.S. goal for the next WTO Round of multilateral negotiations, which is the total elimination of agricultural export subsidies worldwide.
U.S.-China Bilateral Agreements on Wheat, Citrus, and Meat.
In the course of the accession negotiations, China and the United States reached an agreement on the application of sanitary and phytosanitary (SPS) restrictions on wheat, meat, and citrus imports. These agreements which were negotiated in parallel with the agricultural market access agreements that would be part of China's protocol of accession to the WTO, but, in contrast to the protocol, they were to have become effective immediately on signature. The agreements were signed on April 14, 1999, and resolve several longstanding agricultural trade disputes between the United States and China.
China agreed that SPS disputes should be settled scientifically. Acceptance of this principle is interpreted as a strong indication of China's willingness, upon accession, to implement the obligations of the WTO SPS Agreement which requires adherence to science and risk assessment in justifying SPS measures. The specifics of the agreements are:
-- China will eliminate phytosanitary restrictions on wheat imports from the Pacific Northwest;
-- China will open its market to U.S. pork, beef, and poultry imports by agreeing to accept USDA certification of the safety of U.S. meat products; and
-- China will eliminate its comprehensive ban on imports of U.S. oranges, grapefruit, and other citrus fruit.
Accession negotiations ceased after the U.S. refusal to sign the April 15 protocol agreement and the United States' inadvertent bombing of the Chinese embassy in Belgrade, Serbia. At the same time, China stopped implementation of the bilateral phytosanitary-sanitary agreement. However, earlier this month, China completed an inspection visit of U.S. citrus pest control measures, in which it found the measures adequate. China is now reportedly waiting on U.S. documents concerning shipping and inspection of citrus that will allow it to make a decision on whether to accept U.S. citrus exports. USDA reports that China could begin allowing shipments of citrus as early as the end of February 2000.
Grains.
China's agreement to eliminate restrictions on wheat with TCK smut, one of the bilateral SPS agreements, should, once it has come into effect, open the way for imports of Pacific Northwest wheat (PNW) which have been barred for almost twenty years. U.S. plant scientists have consistently maintained that TCK poses no human health threat and that it does not alter the baking quality of wheat. In the bilateral agreement, China has effectively accepted the U.S. scientific position and agreed to establish a tolerance level for TCK which will permit entry of PNW.
China's TRQs for wheat, corn, and rice, are substantially above current import levels and provide for future growth. Upon accession, China's wheat TRQ would be 7.3 million metric tons and would rise to 9.3 million metric tons. China presently imports around 2 million metric tons of wheat annually. Changes in the way STEs operate should also benefit wheat and other grain imports. The private sector will initially receive 10% of the quota. Any unused STE portion will be available later in the calendar year for the private trade.
China's TRQ for rice will begin at 2.6 million metric tons upon accession, rising to 5.3 million metric tons. Half of the TRQ will be for short and medium grain rice, in which the United States is most competitive, according to USTR. The private sector will receive 50% of the rice TRQ. Currently China imports around 250,000 metric tons of rice.
For corn, the quota on accession will be 4.5 million metric tons, rising to 7.2 million metric tons. China currently imports around 250,000 metric tons. The private sector will initially receive 25% of the corn TRQ, increasing to 40% by 2004. As in the case of wheat, the private sector will have access to the unused STE portions of the quota later in the calendar year.
Barley will not have a TRQ, and thus there will be no quota restrictions on barley. The tariff will be reduced to 9% upon accession.
Wheat producers greeted the bilateral phytosanitary agreement on TCK and the prospective TRQ for wheat enthusiastically. Some market analysts were cautious about the eventual effect, however, of the TCK agreement on PNW exports. They noted that although the SPS agreement could pave the way for a shifting of U.S. exports to China from U.S. Gulf ports to the Pacific Northwest, the present price differences, with soft red winter wheat (SRW) trading at a $14 per ton discount to PNW, favor China's importing SRW.(24) In the near term, China's demand for grain from the United States will fluctuate with annual production and current policies that promote self-sufficiency in grain production.(25) Underlying factors, however, favor growth in demand for grains over the next few years. These include limited land for: local production, increasing population, improved incomes, and changing consumer preferences.(26) These same factors will tend to favor wheat and corn consumption over rice.(27)
Oilseeds.
China's offer on oilseeds includes a 3% tariff on soybeans which will be bound upon accession and a TRQ for soybean oil, which will start at 1.7 million metric tons, and rise to 3.3 million metric tons by 2005. Current soybean oil imports are 1.7 million metric tons. The private sector allocation will start at 50% of the trade upon accession and rise to 90%. There are no restrictions on imports of soybean meal.
China is the world's second largest market for animal feed, which largely explains the absence of restrictions on imports of soybean meal.(28) Soybean meal imports are expected to increase for the same reasons as wheat and corn imports, especially rising incomes and changing consumer tastes which favor consumption of meat and poultry. Imports of soybean oil from the United States also should be higher once China opens its TRQ.(29)
Cotton.
China's offer on cotton involves establishing a TRQ of 743,000 metric tons upon accession, rising to 894,000 metric tons by 2004. Current cotton imports are 360,000 metric tons annually. The United States has about a 55% share of China's cotton imports or 200,000 metric tons.(30) If the United States maintained its current market share with the opening of the TRQ, its exports of cotton to China would more than double to 408,000 metric tons by 2004.
Meat and Poultry.
China would open its markets to U.S. pork, beef, and poultry by agreeing to accept USDA certification for safety of exported meat. (Implementation of this sanitary accord on U.S. meat and poultry was held up after U.S.-China WTO negotiations broke down in May 1999. Now that an agreement has been reached on protocol issues, U.S. meat exporters are hopeful that China will move to implement the bilateral sanitary accord.) In addition, in its WTO market access commitments, China has agreed upon accession to substantial reductions in tariffs for meat and poultry. The full tariff reductions would be in effect by 2004. Tariffs on beef will be reduced from 45% to 12%; on pork, from 20% to 12%; and on poultry from 20% to 10%. In addition to changes in China's veterinary measures and significant tariff reductions, U.S. exporters would have access to China's retail and food service markets. Meat producers are enthusiastic about the protocol agreements. According to John McNutt, President of the National Pork Producers Council, "The U.S.-China trade agreement ... is a grand slam home run, giving U.S. pork producers access to the largest pork consuming market in the world."(31) George Swan, President of the National Cattlemen's Beef Association, stated "China is a very important market for U.S. beef with significant growth potential.... Marketing U.S. beef to the Chinese population of 1.2 billion could move China to become one of the top three markets (after Japan and Mexico) for U.S. beef within five years(32)
The greatest potential seems to be for U.S. exports of variety meats. Beef stomach and pork tongue, ears, hearts, stomach, kidneys, liver, intestines, feet and tails are in high demand.(33) China's policy of self sufficiency in beef production has tended to favor importation of coarse grains and feeds like soybean meal over beef imports, but veterinary changes, significant tariff reductions, and access to China's distribution system could alter demand patterns.
China is a net exporter of poultry meat but imports also have been growing. China exports live birds mainly to Hong Kong and de-boned chicken pieces to Japan. Imports consist primarily of frozen parts such as feet, wings, wing tips, legs, and gizzards. The rapid rise of the fast food industry in China, both domestic and foreign-owned chains, bodes well for continued strong demand for imported poultry meat.(34)
Fruits.
China's market access offers for fruits call for substantial tariff reductions by 2004. Tariffs on citrus will drop from 40% to 12%; on grapes, from 40% to 13%; on apples, from 30% to 10%; and on almonds, from 30% to 10%. In addition, under the bilateral agreement on citrus, which takes effect immediately, China agrees to 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 are that exports will reach $1.2 billion in one year, an increase of $700 million over current imports, including imports through Hong Kong.
Dairy Products.
China's offer on dairy products includes substantial tariff reductions on several categories of dairy product. All the tariffs will be cut over five years in equal increments. Upon accession, tariffs on cheese, currently at 50% will be reduced to 12%. Tariffs on ice cream will drop from 45% to 19%. Tariffs on lactose, yogurt and food preparations with dairy products, currently at 35%, 45%, and 25%, respectively, will be cut to 10%. The U.S. Dairy Export Council (USDEC) notes that in 1998 U.S. exports of dairy products to China reached a record-high of $31 million, up 17% from the previous year. USDEC estimates that China's market access agreement for dairy will lead to U.S. dairy exports of $135 million annually.(35)
Industrial Products
China's offers on market access would provide across-the-board benefits for most U.S. exporters of industrial or manufactured products. The granting of trading rights, for example, would enable U.S. firms to import their products directly into China without having to use a Chinese trading company.(36) In addition, U.S. firms are supposed to be given broad distribution rights (such as wholesaling retailing, maintenance and repair, transportation, etc.) which would enable them to sell their products directly to Chinese consumers without having to use a Chinese middleman.(37) Also, U.S. firms would be allowed to provide services auxiliary to distribution. U.S.-invested manufacturing firms in China would have fewer restrictions placed on them, such as local content, export requirements, and technology transfer stipulations. The removal of such restrictions is expected to boost the level and extent of U.S. investment in China. Finally, China would make its state-owned firms purchase and sell products on a market basis and provide U.S. firms the opportunity to compete for sales and purchases on nondiscriminatory terms and conditions. The binding and reduction of tariffs and removal of quotas and other non-tariff barriers would also benefit a variety of U.S. manufacturing firms.(38) Major tariff and non-tariff cuts on specific products that have been identified by the Clinton Administration include:
-- Wood and paper. Current tariffs on wood (12-18%) and paper (15-25%) would fall to 5.0-7.5% respectively.(39)
-- Chemicals. China agreed it would reduce tariffs on 70% of its chemicals. Of these, tariffs would be reduced from a high of 35% to 0-6.5%.(40)
-- Distilled spirits. Tariffs would fall from 61% to 10%.
-- Fertilizers and optic cable. Quotas would be eliminated for "U.S. top priorities," such as some fertilizers and optic fiber cable.
-- Capital and medical equipment. Tariffs would be reduced (amounts not specified).(41)
Some of China's commitments would affect a wide variety products within certain industrial sectors. For example:
-- High Technology Products. China would participate in the Information Technology Agreement (ITA), an agreement by 39 nations reached in March 1997 to eliminate tariffs on certain information technology products, such as semiconductors, computers and software, and telecommunications equipment by 2000.(42) China's average tariff on these products is currently 13.3%. China would eliminate most its tariffs by 2003 and all by 2005. The American Electronics Association (AEA) describes China as "the worlds fastest growing high-tech market," and notes that it is "at or near the top among major countries in computer growth per capita, cellular phone growth per capita, telephone mainlines growth, and growth of internet hosts." The AEA projects China's markets for telecommunications, computer, and semiconductors, will rise by 20-40% annually over the next fifteen years.(43) China's participation in the ITA and elimination of other barriers is expected to expand U.S. participation in China's information technology market.
-- Autos. China would reduce current tariffs of 80-100% on autos to 25% by 2006, while tariffs on auto parts would be cut to 10%, with the largest cuts taking place during the first two years of WTO accession. In addition, China would phase out auto quotas by the year 2005.(44) U.S. auto trade with China would benefit from changes in China's investment restrictions, and provisions providing distribution and trading rights, and rights to engage in various services (such as marking and after-sales services). Finally, U.S. firms would be allowed to provide auto financing in China. These commitments on auto trade appear to represent a significant change from past Chinese policies. In 1994, the Chinese government announced an "Auto Industry Policy," stating the government's goal of making China's auto industry a key industry in China's economic development. The government policy directed that autos and auto parts should be purchased from Chinese producers and that all automotive and component manufacturers in China should strive for complete localization of production.(45) The policy required producers to include a minimum amount of local materials and value added work in their final products. Foreign joint venture vehicle assemblers are required to begin with 40% local content, achieve 60% by the second year of production, and 80% the following year.(46) China's WTO commitments on autos would likely require it to dismantle several aspects of its auto industrial policy, which could result in increased Chinese imports of U.S. autos and parts and greater U.S. investment in China's auto industry.(47)
Table 5 lists various U.S. exports to China from 1995-1999 of selected non-agricultural products which are expected to benefit from China's reductions in quotas and tariffs, based on products described in various White House/USTR releases.(48) This table illustrates the extent of U.S. sales to China of such products under China's current trade regime; a reduction in Chinese trade barriers could result in significant new export opportunities for U.S. firms (depending on the extent current trade barriers restrict U.S. exports).
Table 5. U.S. Exports to China of Selected Non-Agricultural Products: 1995-1999 ($millions) 1995 1996 1997 1998 1999 1995/ 1999% Change Wood Products 30 34 51 46 57 90.0% Paper and Allied Products 281 401 377 454 501 78.3 Distilled Spirits 46 273 202 321 209 354.3 Chemicals and Allied 2,170 1,825 1,984 1,960 1,996 -8.0 Products 1/ Photographic Film2/ 4 3 5 13 17 325.0 Pharmaceuticals2/ 31 36 30 45 42 35.5 Soda Ash2/ 6 6 14 6 3 -50.0 Misc. Plastic Products2/ 56 82 74 84 94 67.9 Cosmetics2/ 7 12 15 7 8 14.3 Optic Fiber Cable 31 38 74 25 12 -61.3 Fertilizers 3/ 1,204 891 1,054 1,064 908 -24.6 Automotive Vehicles, 167 180 393 188 286 71.3 Parts, and Engines Computers, Peripherals, 403 459 582 1,366 1,551 284.9 and Semiconductors Telecommunications 887 817 793 859 592 -33.3 Equipment Scientific, Hospital, and 184 221 228 236 292 58.7 Medical Equipment 1/The November 1999 White House/USTR press releases state that China will implement "the vast majority of WTO Chemical Harmonization Initiative." 2/These products were identified in the April 8, 1999 USTR press release as examples of chemical products which would benefit from Chinese tariff reductions. 3/The April 1999 USTR press release stated that quotas would be immediately eliminated for "the top U.S. priorities" (e.g. optical cable and some fertilizers), and that most remaining quotas would be phased out by 2002, but no later than 2005. The November 1999 press releases states that quotas would be immediately eliminated for "the top U.S. priorities" (e.g. optical cable ), and that most remaining quotas would be phased on by 2002, but no later than 2005. The November 1999 releases do not specifically mention quotas on fertilizers. Source: U.S. Department of Commerce and CRS.Services
The General Agreement on Trade in Services (GATS), which covers all members of the WTO, provides a legal framework for addressing barriers to trade and investment in services. It includes specific commitments by WTO member countries to reduce such barriers. China, like other countries seeking to accede to the WTO, is required to negotiate with its trade partners on market access issues in the service sector.
China has a highly restrictive trade regime in services. In the 1998 report on "Foreign Trade Barriers," the USTR stated that "China's market for services today remains essentially closed."(49) The 1999 Foreign Trade Barriers report noted that "restrictive investment laws, lack of transparency in administrative procedures and arbitrary application of regulations and laws severely limit U.S. service exports and investment in China, especially in the financial services, telecommunications, audiovisual, distribution, professional services and travel and tourism sectors."(50) In most sectors, foreign companies are only allowed to operate under selective "experimental" licenses, which severely limit the types of services they can provide. Chinese regulations set limits on the forms of establishment for entry into the market and restrict the geographic scope of a company's operations. Foreign providers are often handicapped by lack of transparency and discretionary application of Chinese laws and regulations. Chinese regulations on services are intended to keep foreign firms from competing directly with Chinese service providers, especially state-run firms. U.S. firms in China are generally allowed to sell only those products they make in China. In most cases, U.S. firms arc not allowed to set up distribution centers to sell their products or to provide after sales services; this forces U.S. firms to contract these services to Chinese firms(51).
Because the ability to successfully export products overseas is often linked to the ability of firms to market, distribute and provide after-sales services, and because U.S. service providers are considered highly competitive in international markets, U.S. negotiators have sought to secure commitments from the Chinese government to significantly open its markets to imports and foreign investment in the service sector. U.S. negotiators have attempted to ensure that China would abide by basic principles of the GATS, such as most-favored-nation treatment and national treatment, and provide a "schedule of commitments," listing specific measures to open its services market to foreign providers.
The April 8, 1999 White House documents described the Chinese commitments on services as "comparable to those of most WTO members," but noted that the negotiators had further work to do. In a press conference following the conclusion of the November 1999 U.S.-China WTO agreement, USTR Charlene Barshefsky stated: "With respect to services, we've covered the full range of services: banking, securities, telecom, as I said, distribution, the professions, tourism, travel, transport and so on and so forth. This is just an extremely comprehensive and a very, very strong agreement."(52) According to various press releases and fact sheets released since the November agreement was reached, China will take the following steps:
-- Trading Rights, Distribution, and Services Related to Distribution. China would phase out most restrictions on trading rights and distribution services within three years of WTO accession. U.S. firms would be allowed to import and export freely, own or manage distribution networks (such as wholesaling outlets and warehouses), and to engage in a wide range of activities, including wholesaling, retailing, maintenance and repair, transportation, etc. China would also remove restrictions on services auxiliary to distribution (such as on rental and leasing, air courier, freight forwarding, storage and warehousing, advertising, technical testing and analysis, and packaging services), within three to four years, at which time U.S. firms would be allowed to establish 100% wholly-owned subsidiaries.(53)
-- Telecommunications. China has agreed to participate in the WTO's Basic Telecommunications Agreement.(54) This would require China to establish a pro-competitive regulatory environment for foreign telecommunications firms to compete in and to allow foreign suppliers to use any technology they choose to provide telecommunications services. China also agreed to phase out all geographical restrictions for paging and value-added services (in two years), mobile voice and data services (in five years), and domestic and international services (within six years). Finally, China would gradually expand the amount of foreign investment allowed in telecommunications services: 50% foreign equity share for value-added and paging services (in two years), 49% equity share for mobile voice and data services (in five years) and for domestic and international services (in six years).
-- Insurance. China would award licenses solely on the basis of prudential criteria, permit foreign property and casualty firms to insure large-scale risks nationwide upon accession, eliminate all geographic limitations for future licenses over three years, and expand the scope of activities for foreign insurers to include group, health, and pension lines of insurance within five years. Foreign property and casualty firms would be able to insure large-scale commercial risks nationwide immediately upon accession. It would allow majority ownership of insurance companies in China. China would permit 50% ownership for life insurance, and would allow foreign firms to choose their own partners. Non-life insurance investors would be allowed 51% equity on accession and 100% ownership in two years.
-- Banking. China would provide full access for U.S. banks within five years of accession. Within two years, foreign banks would be allowed to conduct local currency business with Chinese enterprises, and in five years they could conduct such business with Chinese individuals. Banks operating in designated geographical areas (during the first five years after accession) would be afforded national treatment. Non-bank entities would, upon China's accession, be allowed to offer auto financing.
-- Securities. China would permit minority foreign-owned joint ventures to engage in fund management on the same terms as Chinese firms, expanding to 49% equity within three years. Foreign firms would be allowed 33% ownership in joint ventures that underwrite domestic equity issues and underwrite and trade in international equity and all corporate and government debt issues.
-- Professional services. China would allow many foreign professionals new opportunities to work in China, including those engaged in law, accounting, management consulting, tax consulting, architecture, engineering, urban planning, medical and dental services, and computer and related services. It would allow foreign majority control for most firms, except those practicing Chinese law.
-- Audiovisual. China would allow 49% foreign participation in firms distributing video and sound recordings, allow majority ownership in cinemas, and somewhat liberalize imports of motion pictures.
-- Travel and Tourism. China would allow majority ownership of hotels upon accession and unrestricted access to the Chinese market for hotel operators in three years. It would allow foreign travel operators full access to the market for travel agency services.
After the White House released a summary of Chinese commitments on November 15, 1999, several services industry associations issued statements praising the agreement. Officials from the U.S. insurance and telecommunications industries -- two service industries that have had very limited opportunities to sell in China -- have given some of the most enthusiastic endorsements of the Chinese commitments. Carroll Campbell, President of the American Council on Life Insurance commented:
"This agreement represents significant liberalization by the Chinese that will increase economic freedom of choice for their consumers. At the same time, it gives U.S. insurers the opportunity to grow into a new and largely untapped market. The insurance industry views China as one of the most promising emerging markets. While China has one of the highest rates of individual savings in Asia, the Chinese are underinsured. They spend less on all insurance than 28 of the U.S. states. In fact, China spends less on life insurance than its smaller and poorer neighbor, India."(55)
Matthew Flanigan, President of the Telecommunications Industry Association, provided a similarly optimistic appraisal:
The benefits of China's eventual accession to the WTO will be reaped by China as well as foreign investors. A thriving telecommunications sector is key for any country desiring to create a more competitive telecommunications environment in China, bringing lower prices and a wider selection of telecommunications products to the Chinese marketplace. With sales of telecom infrastructure equipment in China rising rapidly over the past decade, fair and transparent access to China's marketplace is a welcome sign for U.S. industry. China represents a huge potential market for U.S. telecommunications equipment suppliers, with purchases in China of telecom infrastructure amounting to more than $21 billion. This figure is up from only $1.2 billion in 1990.(56)
Marc Lackritz, President of the Securities Industry Association, also praised the agreement:
SIA strongly supports the agreement reached between the United States and China to allow China's entry into the World Trade Organization. The securities industry has long supported China's admission to the WTO and the opening of Chinese markets to U.S. companies. The commitments for securities firms -- which include provisions for minority ownership in local securities and asset management firms -- represent a first step upon which to pursue additional liberalization of China's capital markets in the upcoming WTO Round.(57)
Broad Effects of China's Trade Liberalization and WTO Membership
The implementation over time of both broad and specific reductions in trade barriers would likely lead to faster economic growth (due to efficiency gains in the economy) and to increases in foreign imports (reduction in barriers will lower the prices and/or exclusion of many imports). China's reported trade commitments, if implemented, would likely substantially expand the level of trade decisions that are determined by market factors, not government regulations.
Goldman Sachs states: "The single most important change arising from China's accession to the WTO is that it will become a far more open economy -- in some aspects more open than many of the WTO's existing members."(58) Goldman Sachs estimates that WTO membership (based on the commitments it reportedly made in April 1999) would significantly boost China's economic growth, foreign investment, and trade. Trade liberalization and greater openness are expected to boost productivity, expanding GDP growth by an additional 0.5% per year. China's total trade (exports plus imports) and foreign direct investment flows would nearly double by 2005.(59) Tariff cuts are estimated to generate $65 billion in additional imports by 2005, elimination of non-tariff barriers are projected to raise imports $20-$30 billion, while increased foreign investment would generate another $20 billion in new imports (equipment, raw materials, etc.).(60) Assuming that the United States can maintain its current share of China's import market (12.1%), China's trade liberalization might increase its imports from the United States by 2005 as follows: $7.9 billion from tariff cuts, $2.4-$3.6 billion from reductions in non-tariff barriers, and $2.4 billion from increased U.S. investment in China.
In September 1999, the U.S. International Trade Commission (USITC) released a study which estimated the affects on U.S.-China trade, based on the tariff commitments China had reportedly made in April 1999. The USITC estimated that these tariff cuts would result in a 10% increase in U.S. exports to China; the U.S. sectors most positively affected would include agriculture (especially cotton, beverages and tobacco, and vegetable oils), paper and pulp, chemicals, rubber, plastics, transport equipment, and machinery and equipment.(61)
In June 1999, an Institute for International Economics (IIE) released a study which estimated the effects on U.S.-China trade in goods and services, based on the tariff and non-tariff commitments China had made in April 1999. The IIE estimated that such reforms would immediately increase U.S. exports of goods and services to China by $3.1 billion, an estimate the IIE described as "conservative."(62)
(1)A final WTO agreement was not reached during Premier Zhu's visit, but the Clinton Administration announced that significant progress had been made and it released a document entitled: "Market Access and Protocol Commitments" outlining the concessions China reportedly had made.
(2)For an overview of these changes and additions, see: USTR Barshefsky's Press Remarks Following Negotiations with China on the WTO, November 15,1999, available at the USTR's Web site (www.ustr.gov).
(3)China daily, November 30,1999.
(4)U.S. Department of Commerce, China: Country Commercial Guide, FY 1999, August 1, 1998, p.4.
(5)Ibid., p.21
(6)Most provisions of each of the bilateral WTO agreements (such as tariff and non-tariff barrier reductions) would apply equally to all WTO members (once China acceded to the WTO) on a most-favored-nation (MFN) basis. Thus, U.S. exporters and investors would also potentially benefit from all of the trade concessions China has made or will make in its agreements with other trading partners just as exporters and investors in other WTO countries will benefit from the concessions China made to the United States in the November 1999 WTO agreement). Even if China in a bilateral WTO trade agreement with the European Union, for example, pledged to lower tariffs for a particular product below the level it had agreed to with the United States in its WTO bilateral agreement, the lower tariff rates would apply to U.S. products (and those of all other WTO members) after China's WTO accession.
(7)Also worth noting is that China's accession to the WTO is expected to lead to Taiwan's accession. Taiwan has completed bilateral trade negotiations with all interested WTO members, except Hong Kong. Taiwan concluded a bilateral agreement with the United States in February 1998, which commits it to reducing a wide variety of tariff and non-tariff barriers on agriculture, industrial products, and services upon its accession. However, China has insisted that Taiwan should enter the WTO only after China does, and many current WTO members have supported this view. Should China be admitted to the WTO, Taiwan's accession would likely occur shortly afterwards (assuming that China would not, for political reasons, seek to block that accession). Taiwan's WTO accession would result in additional benefits for U.S. exporters.
(8)China might respond to an economic slowdown by devaluing its currency, which, in the short run, would increase the price of imports in China, while lowering prices for Chinese exports in international markets. Such a move would be expected to negatively affect U.S. exports to China.
(9)It predicts China's real GDP will drop from 7.1 in 1999 to 6.5% in 2000, to 6.3% in 2001. It will then rise to 7.3% in 2002, 7.8% in 2003, and to 8.6% in 2004. See Standard & Poor's DRI, Country Outlook, First Quarter 2000, p. 92.
(10)U.S.-China trade in services has risen steadily over the past few years as well. U.S. exports of services to China rose from $1.6 billion in 1992 to $3.9 billion in 1998, while service imports from China rose from $1.1 billion to $2.3 billion; the United States had a $1.6 billion surplus in its services trade with China in 1998.
(11)Final 1999 data are not yet available; estimates for the full year are made using actual data for January-November 1999.
(12)Some analysts contend that U.S. exports to China may be higher than are reflected in official U.S. trade data, which generally do not reflect U.S. exports that are shipped to Hong Kong but are later re-exported to China. One study estimated that if these re-exports were counted, U.S. exports in 1998 would have totaled $19.2 billion (or an additional $4.8 billion over the official figure). See Asian/Pacific Research Center, New Estimates of the United States-China Bilateral Trade Balances, April 1999, p. 12-13.
(13)Chinese data on FDI for January-June 1999 show U.S. FDI at about $2 billion.
(14)U.S. Department of Commerce, China: Country Commercial Guide, FY 2000, 1999, p. 86-86.
(15)According to the U.S. Department of Commerce, China maintains quotas on 42 categories of commodities, including watches, automobiles, grains, edible oils, cotton, motorcycles, machinery, electronic items, and carbonated beverages. Import licenses are required for such items as rubber products, cotton, passenger vehicles, and hauling trucks.
(16)Chinese officials criticized the release of this document and disputed its accuracy.
(17)USTR Press Release, Market Access and Protocol Commitments, April 8, 1999.
(18)The November 1999 agreement addressed the issues that were left unresolved or unclarified in April (noted above). It appears that, for the most part (with a few exceptions), the commitments on market access China reportedly made in April (as described by the USTR press release) were included in the November agreement. Some of these exceptions including the following: The United States agreed to let China extend its phase-down period for reducing its tariffs on autos (from 80-100% to 25%) to 2006 rather than 2005 (April commitment) in return for China's agreement to cut its tariffs more rapidly in the earlier years of the phase-in period. In addition, the United States agreed to China's request to limit foreign equity participation in value-added and paging services to 50% (the April commitments would have allowed 51% ownership). In return China agreed to both accelerate the percentage of equity participation in the first two years and eliminate geographic restrictions on an accelerated basis. The United States agreed to China's request to limit foreign participation in life insurance to 50% (the April commitments reportedly allowed 51% equity). In return, China agreed to accelerate the elimination of geographic restrictions on the percentage of equity participation in the first few years of WTO accession.
(19)See November 15, 1999 USTR press release, available at www.ustr.gov. A more extended summary of the agreement can be found at the U.S.-China Business Council web site at www.uschina.org/public/991115a.html. On February 10, the Clinton Administration released additional details (mainly dealing with agriculture) of the U.S.-China WTO agreement; this can be found on the Inside U.S. Trade internet site at www.insidetrade.com (registration required).
(20)China agreed it would not challenge U.S. use of these provisions in the WTO's dispute resolution mechanism.
(21)Secretary of Agriculture Glickman, as reported in SCI Policy Report, February 11, 2000.
(22)Inside U.S. Trade, February 11, 2000, p. 18.
(23)Agriculture Trade Coalition on behalf of 57 U.S. Farm Organizations in Business Coalition for U.S.-China Trade: Highlights of American Agriculture, Business, Congressional and Administration Support for WTO Negotiations, April 28, 1999.
(24)"U.S.-China Ag Agreement May Not Expand Wheat Exports," SCI Policy Report, April 13, 1999, p. 2.
(25)"Food Grains: Wheat and Rice," and "Feed Grains" in U.S. Department of Agriculture, Economic Research Service, China: Situation and Outlook Series, July 1998, pp. 9-12.
(26)U.S. Department of Commerce, Best Prospects for Agricultural Goods and Services @http://www.stat-usa.gov/ccg.nsf/45...cd8d48525673def7a.
(27)Ibid.
(28)"Oilseeds," in U.S. Dept. of Agriculture, China: Situation and Outlook, July 1998, pp. 14-15.
(29)Ibid.
(30)U.S. Department of Commerce, op.cit.
(31)Business Coalition for U.S.-China Trade
(32)Ibid.
(33)Ibid.
(34)Ibid.
(35)U.S. Dairy Export Council, "China Agrees to Cut Dairy Tariffs to join WTO," press release, April 9, 1999.
(36)Currently, U.S. firms are not afforded trading rights in China, although a few experimental joint ventures have been established.
(37)Currently, U.S. firms can only directly market those products which are made in China.
(38)The April 1999 USTR press release stated that China had agreed to bind all of its tariffs (i.e., it will not raise any of its tariffs in the future). According the USTR, "very few countries (in the WTO) have done this."
(39)The American Forest and Paper Association (AF&PA) estimates China's market for forest products at $63 billion. See AF&PA press release, April 8, 1999, p. 1.
(40)China agreed to participate in the WTO's chemical harmonization initiative. The USTR's April press release also identified soda ash, cosmetics, pharmaceuticals, film, and certain plastics as products benefiting from reduced tariffs, although fact sheets released by the Clinton Administration on the November 15 U.S.-China WTO agreement have not specifically listed these items.
(41)No listing of items that would fall under the category of "capital equipment" has yet been released.
(42)For additional information on this agreement, see CRS Report 98-376E: The Information Technology Agreement (ITA): Background on a Proposal to Expand the Scope of Multilateral Trade Agreement, by Glennon J. Harrison, April 17, 1998.
(43)AEA News Alert, April 8, 1999 (available on internet site at www.aenet.org).
(44)Quotas levels would begin at $6 billion and increased by 15% until eliminated.
(45)The Chinese government has issued similar policies towards imports of telecommunications equipment, pharmaceuticals, and power generating equipment.
(46)U.S. Commerce Department, Market Research Report, China -- Automotive Industry, Report ISA97091, 1997.
(47)Removing investment restrictions enables firms to make more efficient business decisions. As a result, some U.S. auto firms might decide to export their products directly to China, while others might chose to boost their investment in China.
(48)Because a detailed listing of China's market access commitments, based on Harmonized Tariff System (HTS) codes and descriptions, has not been released, it is not possible to develop a complete and accurate listing of China's April 1999 commitments on market access.
(49)United States Trade Representative, 1998 National Trade Estimate Report on Foreign Trade Barriers, p.54.
(50)United States Trade Representative, 1999 National Trade Estimate Report on Foreign Trade Barriers, pp. 62-64.
(51)According to the U.S. embassy in Beijing, Chinese service barriers cost U.S. firms $3 to $5 billion in lost sales annually.
(52)Transcript: USTR Barshefsky's Remarks after China WTO Negotiations, November 15, 1999 (available at usinfo.state.gov).
(53)Prior to the full phase-in of distribution rights, China will maintain restrictions based on equity, geographic areas, and on the number of service suppliers allowed to operate.
(54)That agreement has been signed by 70 WTO members; it establishes rules on market access, national treatment, and pro-competitive regulatory principles.
(55)American Council of Life Insurance, News Release, "ACLI Hails Historic Deal to Open China's Markets," November 17, 1999.
(56)Telecommunications Industry Association, News Release, "TIA Praises U.S.-China Agreement On China's Accession to WTO," November 15, 1999.
(57)Securities Industry Association, "SIA Applauds U.S.-China WTO Agreement," December 10, 1999.
(58)Goldman Sachs, Global Economics, by Fred Hu, Paper No. 14, April 26, 1999, p. 1.
(59)Ibid, p. 3.
(60)Goldman Sachs also projects that China's WTO membership would substantially boost its exports.
(61)U.S. International Trade Commission. Assessment of the Economic Effects on the United States of China's Accession to the WTO, Publication 3229, September 1999, p. xx.
(62)Institute for International Economics. China and the World Organization: An Economic Balance Sheet, by Daniel H. Rosen, June 1999, p. 2. The IIE estimate is based on the static effects of trade liberalization (i.e., it doesn't estimate additional demand for imports which could result from the effects of efficiency gains in the Chinese economy and greater foreign investment that would likely occur after trade reforms were implemented) on 25 highly protected sectors in China.
(end text)
(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)
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