U.S. Dept. of State - IIP: The United States and China

Text: GAO Report on China WTO Bid, Normal Trade Relations Status
(General Accounting Office stresses need for PNTR for China)
The U.S. General Accounting Office issued a report March 17 concluding that if Congress did not grant permanent Normal Trade Relations (PNTR) status to China, "this situation could potentially put U.S. business interests at a considerable competitive disadvantage" when competing with other World Trade Organization (WTO) members for China's markets.
The report states that U.S. trade relations with China could continue to be based on older bilateral agreements, such as a 1979 U.S.-China trade agreement, should China become a member of the WTO without receiving PNTR. These agreements would obligate China to extend some benefits to the United States that it would give to other WTO members, including tariff rates as low as those given any other country's products.
The report adds, however, that the obligations in these bilateral agreements would not give the United States many other benefits, such as the general right to provide services and to engage in importing and exporting goods in China.
"The commitments provided by these bilateral agreements would be substantially less than those anticipated to be provided by China in the accession agreement," the report says, "and in the underlying WTO agreements once China becomes a WTO member."
Furthermore, the report says, WTO obligations regarding intellectual property rights are stronger than those provided by the U.S.-China agreements covering patents, trademarks, and copyrights.
In addition, the report points out that "none of the bilateral agreements provide for binding multilateral dispute settlement, as do the WTO agreements."
"While the United States would continue to benefit from some Chinese commitments through existing bilateral agreements," the report concludes, "those benefits are substantially less than all those expected from China's WTO membership."
For the full text of the report in PDF format (Adobe Acrobat), see:
http://usinfo.state.gov/regional/ea/uschina/ns00094.pdf
Following are excerpts from the report:
(begin excerpts)

United States General Accounting Office
Report to Congressional Committees
March 2000
WORLD TRADE ORGANIZATION
China's Membership Status and Normal
Trade Relations Issues
GAO/NSIAD-00-94B-284686

China's WTO Membership
A fundamental principle in the WTO agreements is that members, including the United States, must grant each other most-favored-nation status, meaning that they must grant each other trade privileges as favorable as they give to any other WTO member./1 China currently does not have permanent normal trade relations status because title IV of the Trade Act of 19742 requires the President to deny it to certain designated countries, including China. However, China has been granted normal trade relations status since 1980 on an annual basis. As China moves closer to becoming a member of the World Trade Organization, Congress will need to consider whether to grant China permanent normal trading status. Because of your continued interest in these issues, we are providing an update on our past work on (1) the status of the negotiations for China to join the World Trade Organization, (2) the results of the negotiations as compared to U.S. objectives for these negotiations, and (3) trade and legal considerations about granting China permanent normal trade relations status.
Results in Brief
Although the United States and China have reached agreement on many issues, the negotiations with China about its membership in the World Trade Organization are not complete. While the President announced a bilateral agreement covering market access issues with China in November 1999, some U.S. negotiating objectives have yet to be achieved, and many of those tentatively achieved must still be finalized in a WTO agreement that outlines the terms of China's membership. China must also conclude similar bilateral negotiations with some other WTO members, notably the European Union. In addition, China must finish the multilateral negotiations with WTO members. Then, all participants must complete several important tasks, including verifying the text of the agreement, before the approval and implementation phases of the accession process can begin. It could take several months after all these negotiations conclude before China can become a WTO member.
1/ In June 1999, the term "normal trade relations" replaced the term "most-favored-nation" in U.S. law; however, the term most-favored-nation continues to be used in the WTO agreements and other trade agreements. 2/ 19 U.S.C. sections 2431 through 2439.
China's WTO Membership
Based on our review of the negotiating record as of November 1999, U.S. and Chinese negotiators have reached tentative agreement or have only minor differences in eight broad areas where the United States is seeking to change China's trade practices. However, the negotiators still have major differences to resolve in some other areas. The eight areas of agreement and/or minor differences are tariffs, nontariff barriers, services, trade framework, intellectual property rights, standards and regulatory practices, agriculture, and monitoring and compliance mechanisms. The actions that China has committed to take in these areas are generally consistent with what U.S. negotiators originally sought. Most of these commitments will be phased in from 1 to 6 years, after China becomes a member of the World Trade Organization. The result of the agreed-upon actions would be a Chinese market more open to foreign goods, services, and investment; enhanced protection against import surges of Chinese products; and a Chinese commitment to comply with many WTO requirements. However, U.S. and Chinese negotiators still have major differences to resolve in some other areas, a number of which are significant in terms of the concerns they cover. The details of remaining U.S. objectives and issues to be negotiated are deemed national security information and have been classified by the Office of the U.S. Trade Representative. China's prospective WTO membership will raise a critical issue about how the United States should handle China's normal trade relations status under U.S. law. For both legal and policy reasons, the administration plans to ask Congress to agree to grant China permanent normal trade relations before China joins the World Trade Organization. If Congress does not do this, the administration plans to invoke a WTO provision, called the "nonapplication clause," which would permit the United States and China, as an incoming member, to not apply WTO trade liberalizing commitments and obligations to each other. The administration believes this is necessary to avoid a conflict between current U.S. law, which requires annual approval of China's normal trade relations status, and the U.S. obligation as a WTO member to provide unconditional most-favored-nation status to other members. Should the United States invoke the nonapplication clause, U.S. trade relations with China would continue to be based on a 1979 U.S.-China trade agreement and other bilateral agreements./3 These agreements obligate China to provide a number of benefits to U.S. products. The consequence of this situation is that China would be obligated to extend some benefits to the United States that it would give to other WTO members, including tariff rates as low as those given any other country's products. However, the obligations in these bilateral agreements would not give the United States many other benefits, such as the general right to provide services and to engage in importing and exporting goods in China.
3/ Nonapplication may be rescinded later....
Implications of Nonapplication for the United States
If China joins the WTO and either China or the United States invokes the nonapplication clause, China would still be obligated to provide some trade benefits to the United States. Under nonapplication, trade relations between the two countries would continue under the 1979 U.S.-China bilateral trade agreement and other bilateral agreements. For example, under the 1979 agreement, China is obligated to provide the United States most-favored-nation treatment, that is, the best treatment given any other country, for products, including agricultural products, with regard to tariffs, customs duties, rights to have goods distributed and sold in China, and some aspects of issuing import and export licenses. Therefore, as a result of its bilateral most-favored-nation commitment, in the areas mentioned, China would be obligated to give any benefits given other WTO members to the United States as well. The 1979 agreement also calls for some participation of both countries' financial institutions in banking services related to international trade and financial relations. Furthermore, under the 1992 U.S.-China Market Access Agreement, China made a number of commitments regarding transparency, uniform application of laws, judicial review, import restrictions, and sanitary and phytosanitary standards. Under other bilateral agreements, China has made important intellectual property and some agricultural commitments. Nevertheless, the commitments provided by these bilateral agreements would be substantially less than those anticipated to be provided by China in the accession agreement and in the underlying WTO agreements once China becomes a WTO member. For example, the 1979 agreement does not cover services, with limited exceptions. The agreement also does not provide the United States the general right to engage in importing and exporting within China and does not provide explicit "national treatment" for U.S. goods./15 Moreover, according to USTR, WTO obligations regarding intellectual property rights are stronger than those provided by the U.S.-China agreements covering patents, trademarks, and copyrights. Furthermore, none of the bilateral agreements provide for binding multilateral dispute settlement, as do the WTO agreements. Thus, in the event of nonapplication, the United States would continue to enforce trade violations under U.S. law. Thus, an important consequence of either side's invoking the WTO nonapplication clause is that China, if it becomes a WTO member, will not have to grant the United States all the trade benefits it will give to other WTO members. Because U.S. businesses compete with business from other WTO members for China's markets, this situation could potentially put U.S. business interests at a considerable competitive disadvantage. While the United States would continue to benefit from some Chinese commitments through existing bilateral agreements, as pointed out, those benefits are substantially less than all those expected from China's WTO membership.
15/ A fundamental principle in the WTO agreements is "national treatment." National treatment requires that WTO members treat other members' products and service providers no less favorably than they treat their own, once foreign goods have crossed their borders....
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(Distributed by the Office of International Information Programs, U.S. Department of State - www.usinfo.state.gov)

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