GAO

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-00-94

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Contents

Letter 3

Related GAO Products 21

Figures Figure 1: Steps Remaining in China’s WTO Accession Process 11

Abbreviations

WTO World Trade Organization

GATT General Agreement on Tariffs and Trade

USTR U.S. Trade Representative
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-284686 Letr

March 17, 2000

The Honorable William V. Roth, Jr. 

Chairman

The Honorable Daniel Patrick Moynihan 

Ranking Minority Member 

Committee on Finance

United States Senate 

The Honorable Bill Archer

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

Committee on Ways and Means

House of Representatives

China is the world’s largest economy that is not subject to the World Trade 

Organization’s (WTO) trade liberalizing requirements. Since 1986, China 

has been in negotiations to join, or “accede to,” the World Trade 

Organization and its predecessor, the General Agreement on Tariffs and 

Trade. The United States has taken a leading role in these negotiations, 

which have been taking place on two tracks—bilateral and multilateral 

negotiations—over these 14 years. The bilateral negotiations are designed 

to secure China’s commitment to remove specific market access barriers 

and open China’s domestic market to more foreign goods and services. The 

focus of the multilateral negotiations is to ensure that China will adopt all 

the rules, practices, and obligations required by WTO agreements to 

improve its general trade regime.
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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 July 1998, 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.
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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 

3

Nonapplication may be rescinded later.
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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.

Background The WTO was established on January 1, 1995, as a result of the Uruguay 

Round of international trade negotiations. The WTO provides the 

institutional framework for the multilateral trading system. It administers 

rules for international trade, provides a mechanism for settling disputes, 

and offers a forum for conducting trade negotiations, as set forth in the 

WTO agreements.4

 It currently has 135 members, and another 31 have 

applied for membership. The process for joining, or “acceding to,” the WTO 

consists of four phases: (1) “fact-finding,”5

 (2) negotiation, (3) WTO 

decision, and (4) implementation. China is currently in the second phase of 

this process and is negotiating with a working party comprised of all 

interested WTO members, including the United States,6

 to join the WTO.7

4

The WTO agreements refer to a number of international trade agreements, including the 

WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT), that are 

enumerated in the 1994 Marrakesh Agreement Establishing the World Trade Organization. 

5

The first two phases often overlap, as parties request more information from the applicant 

before proceeding with the negotiations.

6

There are 43 other members of the WTO working party for China’s accession.

7

For a more detailed explanation of the WTO accession process, see China Trade: WTO 

Membership and Most-Favored-Nation Status (GAO/T-NSIAD-98-209, June 17, 1998).
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As previously mentioned, China currently does not have permanent normal 

trade relations status because title IV of the Trade Act of 1974 requires the 

President to deny it to products from certain designated countries, 

including China.8

 Section 402 of the act, better known as the 

“Jackson-Vanik amendment,” has permitted 1-year waivers when the 

President determines that China substantially complies with certain 

freedom of emigration objectives.9

 China first received a waiver in 1979, 

and U.S. presidents have renewed the waiver annually from 1980, to most 

recently, June 3, 1999. The framework for current U.S. trade relations with 

China is based upon the 1979 Agreement on Trade Relations, which 

established reciprocal most-favored-nation status between the two 

countries in some areas. Since 1979, the United States has attempted to 

increase market access and reduce trade barriers and other trade-distorting 

policies and practices by entering into a number of other bilateral trade 

agreements with China, as well as by supporting China’s membership in the 

WTO.

Trade negotiations between the United States and China have been affected 

by overall U.S.-China relations, including the May 1999 accidental bombing 

by the North Atlantic Treaty Organization of the Chinese embassy in 

Belgrade, Yugoslavia. Furthermore, U.S. concerns about Chinese actions 

regarding human rights, proliferation of weapons of mass destruction, 

espionage, and Taiwan, among others, have heightened the debate over 

whether to grant China permanent normal trade relations status as part of 

China’s WTO membership. In response, the administration has stated its 

belief that bringing China into the WTO will advance critical economic and 

national security goals by opening a growing market to American workers, 

farmers, and businesses and encourage domestic reform, human rights, the 

rule of law, and international cooperation. This report focuses only on 

certain trade and legal issues in U.S.-China relations pertaining to China 

joining the WTO.

8

Most communist countries, which had nonmarket economies, were originally covered by 

this provision. Currently, Albania, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, 

Moldova, Russia, Ukraine, Uzbekistan, and Vietnam also wish to join the World Trade 

Organization and receive temporary normal trade relations status from the United States.

9

The country cannot deny its citizens the right or opportunity to emigrate; impose more than 

a nominal tax on emigration or on documents required for emigration; or impose more than 

a nominal tax, fee, or any other charge on any citizen because of his or her desire to 

emigrate to any country.
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WTO Negotiations Not 

Over; Some Procedural 

Steps Remain 

The United States has sought Chinese membership in the WTO through an 

accession agreement that would address problems impeding U.S. firms 

from gaining access to the Chinese market and putting them at a 

disadvantage when competing in world markets against Chinese goods. 

The WTO negotiations to achieve U.S. objectives are on two separate 

tracks−bilateral and multilateral. Both negotiating tracks are critical to U.S. 

objectives. 

U.S.-China Bilateral 

Negotiations Are Completed

China has been negotiating on a bilateral basis with each interested WTO 

member on its specific market access commitments under the WTO 

agreements. The United States and China reached tentative agreement on 

the bilateral track of the negotiations in November 1999 with the signing of 

the U.S.-China Market Access Agreement. China’s market access 

commitments cover China’s tariffs; nontariff barriers, such as quotas and 

licensing requirements; and its agriculture and services sectors. Although 

these negotiations are conducted bilaterally, any agreement reached 

between the two countries will apply to all WTO members, as the mostfavored-nation principle requires. Because China’s final commitments will 

reflect the best made to any country, the final commitments will probably 

improve on those made to the United States in November 1999 to some 

degree. China must still conclude bilateral negotiations with a number of 

other WTO members, most notably the European Union. Once all these 

bilateral negotiations are completed, all of China’s commitments must be 

consolidated and verified; this is no small task. It usually takes 

approximately 3 months, according to U.S. Trade Representative (USTR) 

officials, but they note that the process can be accelerated.

Multilateral Negotiations 

Have Not Been Completed

In the multilateral negotiations, China has been negotiating specific terms 

with a working party of WTO members, including the United States, for 

how it will adhere to the obligations and responsibilities of WTO 

membership. For example, China has made various commitments to make 

its trade practices more transparent; these commitments both meet and, in 

some respects, exceed WTO requirements. Whether or not China will be 

able to take advantage of longer phase-in or phase-out periods afforded 

developing countries to implement its obligations under certain WTO 

agreements will also be specified. These negotiations should conclude with 

the acceptance of two documents: (1) the protocol, which contains the 

terms of accession and commitments affirming China’s adherence to WTO 

guidelines and principles and (2) the working party report, which provides 
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a narrative on the results of the negotiations and specific commitments 

made by the applicant regarding how it will meet WTO requirements. 

Commitments detailed in either the protocol or the working party report 

carry the same legal weight for the applicant, according to WTO and U.S. 

officials.

There has been much progress in the multilateral track, and there is 

tentative agreement in many, but not all, areas, based on our review of the 

negotiating record. The United States and China reached bilateral 

agreement on a few additional “multilateral” subjects in November 1999, 

most notably on how members will be able to protect themselves from 

problems related to the growth or pattern of Chinese imports. 

Nevertheless, WTO working party members, who have not met since July 

1998, must still reach agreement among themselves and with China on the 

final text of both the protocol and the working party report before the 

accession process can move on. Although much of the draft protocol has 

tentatively been agreed upon, neither it nor the working party report has 

been revised since May 1997, in part because the negotiators have focused 

on the bilateral track since late 1997. There are a number of subject areas 

where the parties have yet to reach agreement, and even in those areas 

where they have reached tentative agreement, the protocol text must still 

be revised and finalized. Moreover, the draft working party report still 

requires much more text to be drafted to capture China’s commitments on 

implementation and to document the history of the negotiations. USTR 

officials have noted that China’s working party report could end up being 

over 100 pages long, while the current draft is about 10 pages.

Procedural Steps Remain 

After the Negotiations 

Conclude

China’s accession moves to the third decision-making phase after the 

documents detailing all the commitments made in the negotiations are 

finalized and the working party reaches consensus to forward China’s 

complete application package, which includes a draft decision. The WTO 

General Council (comprised of all WTO members) will then approve (or 

reject) the terms and conditions of China’s package.10 Traditionally, the 

General Council reaches decisions by consensus; however, if consensus 

cannot be reached, a two-thirds majority can approve membership. As we 

10The General Council has the authority to carry out the responsibilities of the Ministerial 

Conference−the highest body in the WTO−including approving membership. The General 

Council meets several times a year and is tentatively scheduled to meet in February, May, 

July, October, and December in the year 2000.
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discuss later, any country that decides not to provide (or cannot provide) 

WTO benefits to China must notify the Council before the Council approves 

China’s membership.

Finally, in the last phase, China begins the process of implementing its 

commitments and becomes a WTO member. China’s WTO obligations enter 

into force, and it becomes a member after the General Council’s approval 

and 30 days after China subsequently files its acceptance. China may also 

have to take some action domestically to ratify its accession package 

before submitting its notice of acceptance. China must also make the 

necessary changes to its trade practices as required by the accession 

package and the WTO agreements upon accepting membership. For 

example, China is expected to eliminate or begin to phase out most trade 

practices incompatible with WTO rules immediately upon accession. 

Figure 1 shows the remaining procedural steps in China’s accession.
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Figure 1: Steps Remaining in China’s WTO Accession Process

Source: GAO.
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U.S. Negotiating 

Objectives Generally 

Achieved in Eight 

Broad Areas, but 

Others Remain Under 

Negotiation

We found that China has tentatively committed to take most of the specific 

actions originally considered necessary to achieve U.S. objectives in eight 

broad areas, based on our review of the negotiating record, which covered 

both bilateral and multilateral tracks. U.S. and other WTO negotiators 

proposed specific actions that China should commit to take, including how 

and when it would implement particular WTO obligations and make related 

reforms. U.S. negotiators also requested reductions in or elimination of 

specific Chinese trade barriers that restricted U.S. exports. Of these eight 

areas, tentative agreement has been reached on five, and minor differences 

remain on three. Nevertheless, there are major differences to resolve in the 

other areas still under negotiation.

Tentative Agreement in Five 

Areas

The United States and China have tentatively agreed on the extent to which 

China will

• reduce or bind tariffs on its approximately 6,500 industrial and 

agricultural products to reach a final average of 10.2 percent (from 

16.9 percent) by 2008;

• eliminate nontariff restrictions, which will end quotas, licensing, and 

similar requirements on 361 products (which represent about 10 percent 

of 1997 U.S. exports to China) by 2005; and

• provide varying degrees of access to 9 of its 12 services sectors, 

including all those that were identified as U.S. priorities, with certain 

limitations liberalized or phased out from 1 to 6 years after accession.

WTO working party members, including the United States, and China have 

agreed on the extent to which China will

• change its trade framework to (1) ensure uniform and transparent 

administration of its trade regime subject to judicial review, 

(2) guarantee foreign enterprises the right to trade (import and export) 

after a 3-year phase-in period,11 and (3) change some of the practices of 

its special economic areas, which are geographic zones within China 

11Negotiations will continue over China’s granting trading rights for fertilizer, according to 

USTR officials. China has indicated that it would preclude foreigners from importing 

fertilizer themselves and require any foreigners who distribute or sell foreign fertilizer in 

China to purchase it from a state trading company. Fertilizer was the fourth largest U.S. 

export to China in 1998, accounting for $1 billion, or 8 percent of U.S. exports to China.
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created partly to attract foreign capital and foster economic 

development and

• expand intellectual property rights, which include patents, trademarks, 

and copyrights.

Minor Differences Remain 

in Three Areas

U.S. and Chinese negotiators have reached agreement on most issues 

involving standards and regulatory practices, agriculture, and compliance 

and monitoring mechanisms. China’s commitments generally fulfill those 

originally sought by U.S. negotiators to achieve U.S. objectives in these 

three areas. However, there are still some outstanding differences in each 

of the three areas as to how China will implement particular WTO 

commitments. U.S. negotiators generally anticipate being able to reach 

agreement on these issues.

With respect to standards and regulatory practices, the Chinese have made 

offers, which the United States has accepted, about how the Chinese will 

apply health and safety measures, license imports and exports, generally 

value imports (for customs purposes) under WTO rules, and how they will 

make these practices transparent (open). In April 1999, the United States 

and China concluded a separate but related bilateral Agreement on 

U.S.-China Agricultural Cooperation, which addressed some health and 

food safety issues.12 Nevertheless, differences need to be negotiated 

concerning how China will apply standards to imports and concerning 

Chinese restrictions on imports of plums, some varieties of apples, and 

tobacco.

With regard to agricultural issues, U.S. and Chinese negotiators have also 

reached tentative agreement on many commitments. China agreed to 

reduce tariffs on agricultural products to 16.8 percent, from 21.4 percent, 

by 2004. It also agreed to improve access for some bulk commodities like 

wheat, corn, rice, and cotton with a new, state-administered system that 

applies different tariffs based on quotas of these commodities. In addition, 

China agreed to prohibit export subsidies. Negotiators must still reach 

agreement on some other agricultural issues before U.S. objectives are 

fulfilled.

12The agricultural cooperation agreement eliminated Chinese bans on importing certain U.S. 

agricultural commodities, including wheat and other grains, meat, and citrus, which the 

Chinese contended were a health risk. U.S. negotiators told the Chinese this agreement was 

important to demonstrate their willingness to abide by WTO requirements for sanitary and 

phytosanitary measures.
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U.S. and Chinese negotiators also have agreed on most monitoring and 

compliance provisions. Importantly, China agreed to a 12-year, productspecific safeguard that would allow WTO members to take action against 

import surges of Chinese products that are causing “market disruption.” 

Similarly, China agreed to provide WTO members safeguard protection 

against surges in Chinese textile imports until December 31, 2008, 4 years 

beyond what is permitted under WTO rules. On the other hand, China did 

not agree to a recent U.S. objective to allow U.S. quotas for Chinese textiles 

to extend to 2010, which would have been 5 years beyond when quotas will 

be eliminated for all other WTO members. The United States and China 

reached agreement about provisions for mitigating the unfair trade 

practices of dumping (selling below market value) and subsidizing exports. 

China agreed to allow WTO members to use alternatives to China’s 

domestic prices and costs for calculating antidumping margins for 15 years 

from China’s accession. They also agreed to a similar provision for 

identifying Chinese subsidies and calculating a countervailing duty, but this 

provision does not expire.

In the bilateral negotiations ending in November 1999, the United States 

and China did not discuss another proposed monitoring and compliance 

provision that would allow WTO members to review China’s 

implementation of its WTO commitments and assess its overall progress in 

making economic and trade reforms. This transitional review mechanism 

issue remains open and will be dealt with further in the working party. Also, 

in return for other commitments, notably the strong, product-specific 

safeguard, the United States dropped its objective to have China agree to a 

“general safeguard” that would have allowed WTO members broader 

discretion to suspend some or all WTO benefits to China. This objective 

had little support among other WTO members, and China was strongly 

opposed to such a safeguard.

Major Differences Remain 

in Some Areas 

U.S. and Chinese negotiators still have major differences to resolve in other 

areas under multilateral negotiation. These areas include significant issues, 

and addressing them is important for meeting the original U.S. negotiating 

objectives and responding to important concerns about China’s practices. 

While negotiators have made progress, fundamental differences remain 

over a number of issues in these areas. Many of these issues have not been 

discussed with the Chinese in recent years, according to U.S. negotiators. 

The details of remaining U.S. objectives and what issues are still to be 

negotiated are deemed national security information and have been 

classified by the Office of the U.S. Trade Representative. Nonetheless, the 
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U.S. Trade Representative has publicly stated that the participants must 

still negotiate “commitments on a range of WTO rules including subsidies, 

technical standards, a mechanism to review implementation, and many 

other issues.”

Trade and Legal 

Considerations for 

Granting China 

Permanent Normal 

Trade Relations Status

China’s prospective WTO membership raises a critical issue about how the 

United States will handle China’s normal trade relations status under U.S. 

law. Resolution of this issue requires considering (1) options regarding the 

timing for granting China permanent normal trade relations status; 

(2) different approaches for granting this status, (3) the potential use of a 

WTO provision allowing the United States and China to not apply WTO 

benefits and obligations to each other if China joins the WTO, and (4) the 

implications for the United States if this provision is invoked.

Options for When to Grant 

China Permanent Normal 

Trade Relations

A key decision that Congress will consider before China becomes a WTO 

member is whether to enact legislation that provides China permanent 

normal trade relations by removing China from coverage under title IV of 

the Trade Act of 1974. For both legal and policy reasons, the administration 

plans to ask Congress to enact such legislation. The administration believes 

that continuing to review China’s normal trade relations status annually 

would conflict with U.S. obligations as a WTO member to provide 

unconditional most-favored-nation status to other WTO members.13 To 

resolve the conflict in the past, Congress passed legislation that provided 

for removing countries from title IV’s coverage and granting them 

permanent normal trade relations because of their joining the WTO (or its 

predecessor, the GATT). The administration also believes that providing 

China with permanent normal trade relations will help ensure that the 

United States receives full WTO trade benefits from China.

13At least one commentator believes that the current annual process is not inconsistent with 

the WTO requirement to provide most-favored-nation status to other WTO members so long 

as the United States continues to provide the grant every year and eliminates the condition 

that the President make annual emigration findings with regard to China. Although it is true 

that there have been no WTO rulings on this issue, one problem with this position is that 

even with the emigration condition eliminated, China would still be treated differently from 

other WTO members.
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Congress has at least three options for deciding when to grant China 

permanent normal trade relations:

• now, but the negotiations are not completed and terms and conditions 

are not finalized;

• after the negotiations are completed and all the terms and conditions 

are known, but before China becomes a WTO member; or

• some time after China is a WTO member.

Two Approaches for 

Providing Permanent 

Normal Trade Relations

If and when Congress decides to enact permanent normal trade relations 

legislation for China, it could do so in one of two ways, based on previous 

congressional action. First, Congress could pass legislation directly 

granting permanent normal trade relations to China. Congress provided 

permanent normal trade relations directly to Estonia, Latvia, and Lithuania 

in 1991, though this was before any of them became WTO (GATT) 

members. Several congressional bills have set forth a slightly different 

variation of this approach for China. These bills provide that on the date 

China becomes a WTO member, title IV of the Trade Act of 1974 shall no 

longer apply, and China’s products would receive normal trade relations 

status.14

Under the second approach, Congress could authorize the President to 

make the permanent normal trade relations determination. Congress has 

used this approach more often. For example, the President was authorized 

to make this determination in 1996 for Bulgaria, which was not yet a WTO 

member, and, most recently, for Mongolia in 1999, which was. In addition, 

Congress could impose conditions on the President as part of granting this 

authority−for example, Congress could require that the President make a 

positive finding that certain concerns about particular Chinese trade 

practices have been addressed before he grants permanent normal trade 

relations.

Use of the WTO 

Nonapplication Clause

If the United States has not given China permanent normal trade relations 

prior to China’s becoming a WTO member, the administration plans to 

invoke the “nonapplication clause” of article XIII of the agreement 

establishing the WTO. This clause permits either a WTO member or an 

14S. 1303 and H.R. 1712 in the 105th Congress and H.R. 577 in the current 106th Congress.
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incoming member to refuse to apply WTO commitments to one another and 

does not require any reason for this action. Nonapplication covers all WTO 

provisions and cannot be selective. In the past, the United States has 

always invoked nonapplication when it had not given countries permanent 

normal trade relations prior to these countries joining the WTO (or the 

GATT). There are a number of important characteristics of the WTO 

nonapplication clause that also apply to China. The United States, or other 

WTO members, 

• must notify the WTO of its intent to invoke nonapplication before the 

terms and conditions for China’s membership are approved by the 

General Council;

• may invoke nonapplication and still vote to have China admitted to the 

WTO; the United States did this for Mongolia’s accession in 1997; 

• can have nonapplication invoked against it by China, which China may 

do for the United States if it does not receive permanent normal trade 

relations; and

• may later rescind nonapplication, resulting in both parties applying all 

WTO rights and obligations to each other; the United States did this for 

Romania and Hungary and most recently for Mongolia.

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.
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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.

Agency Comments and 

Our Evaluation

We obtained oral comments on a draft of this report from the Associate 

General Counsel at the Office of the U.S. Trade Representative. The Office 

generally agreed with the contents of our report. U.S. Trade Representative 

officials noted that some of the statistics that appear in our report, such as 

average tariff rates, differ from the statistics issued by the executive 

branch. Although we used the same underlying data as the executive 

branch, our statistics are slightly different in some cases because we 

categorized the data differently or because of other methodological 

differences. U.S. Trade Representative officials made several other 

technical comments on the report, which we incorporated as appropriate.

15A 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.
B-284686

Page 19 GAO/NSIAD-00-94 China’s WTO Membership

Scope and 

Methodology

This report is based on our past and ongoing work on China;16 our review of 

WTO and executive branch documents; U.S. law; related literature; 

economic literature; and our discussions with U.S. government, WTO, and 

foreign government officials. More specifically, to assist Congress in its 

oversight and upcoming debate on U.S.-China trade policy, we updated our 

past work on (1) the status of the WTO accession negotiations, (2) the 

results of the negotiations when compared to U.S. objectives, and (3) the 

kind of considerations that may affect whether and when to grant China 

permanent normal trade relations status because of WTO membership. To 

report the current status of the negotiations, we elaborated on work we did 

in 1998 that described the WTO accession process in general by describing 

what particular tasks and steps need to be completed in approving China’s 

accession. To report on the results of the negotiations when compared to 

U.S. objectives, we extracted those sections of our September 30, 1999, 

report that were subsequently declassified by USTR and updated them to 

reflect new developments in the negotiations based on the November 1999 

agreement, other executive branch documents, and meetings with U.S. 

government officials. Our methods of analysis are described in more detail 

in our 1999 report. To report on issues related to granting China permanent 

normal trade relations, we updated work we did in 1998 by reviewing 

subsequent legislation granting this status to other countries, reviewing the 

terms of the 1979 U.S.-China trade agreement and other bilateral 

agreements, and conducting discussions with U.S. government and 

academic experts.

We conducted our work from November 1999 through February 2000 in 

accordance with generally accepted government auditing standards.

We are sending copies of this report to the Honorable Charlene Barshefsky, 

the U.S. Trade Representative; the Honorable William M. Daley, Secretary 

of Commerce; the Honorable Dan Glickman, Secretary of Agriculture; the 

Honorable Lawrence F. Summers, Secretary of the Treasury; and interested 

congressional Committees. Copies will be made available to others on 

request.

16See the attached list of some related GAO products.
B-284686

Page 20 GAO/NSIAD-00-94 China’s WTO Membership

For future contacts regarding this report, please call me at (202) 512-4128. 

Individuals making key contributions to this report were Adam Cowles, 

Richard Seldin, Elizabeth Sirois, and Timothy Wedding.

Susan S. Westin, Associate Director

International Relations and Trade Issues
Page 21 GAO/NSIAD-00-94 China’s WTO Membership

Related GAO Products

World Trade Organization: Status of China's Membership Negotiations

(GAO/C-NSIAD-99-9, Sept. 30, 1999).1

China Trade: WTO Membership and Most-Favored-Nation Status

(GAO/T-NSIAD-98-209, June 17, 1998).

Agricultural Exports: U.S. Needs a More Integrated Approach to Address 

Sanitary/Phytosanitary Issues (GAO/NSIAD-98-32, Dec. 11, 1997).

International Trade: Challenges and Opportunities for U.S. Businesses in 

China (GAO/T-NSIAD-96-214, July 29, 1996).

U.S.-China Trade: Implementation of the 1992 Prison Labor Memorandum 

of Understanding (GAO/GGD-95-106, Apr. 3, 1995).

U.S.-China Trade: Implementation of Agreements on Market Access and 

Intellectual Property (GAO/GGD-95-61, Jan. 25, 1995).

International Trade: U.S. Government Policy Issues Affecting U.S. Business 

Activities in China (GAO/GGD-94-94, May 4, 1994).

1

This report has a national security classification of CONFIDENTIAL and is not available to 

the general public but is available to Members of Congress and some U.S. government 

officials.

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