Report to Congressional Committees

United States General Accounting Office

GAO

October 2002 WORLD TRADE

ORGANIZATION

Analysis of China’s

Commitments to

Other Members

GAO-03-4
Why GAO Did This Study

China’s entry into the World

Trade Organization (WTO) on

December 11, 2001, represented a

major step in the reform efforts

of the U.S.’s fourth largest

trading partner. When

implemented, these reforms will

liberalize and modernize China’s

economy and trading activities,

including its industrial, services,

and agricultural sectors.

However, understanding the

implications of China’s accession

depends on a thorough analysis

of the complex terms of China’s

membership in the WTO. In this

initial study, one of several GAO

will conduct for the Congress on

China-WTO issues, GAO

systematically analyzed (1) the

scope and types of China’s WTO

commitments; and (2) the

interrelationships among

commitments set forth in China’s

accession agreement.

U.S. Trade Representative and

other agency officials provided

technical and editorial comments

on this report, which GAO

incorporated as appropriate.

October 2002

WORLD TRADE ORGANIZATION

Analysis of China’s Commitments to Other

Members

The full report, including GAO's objectives, scope, methodology, and analysis is available at www.gao.gov/cgi-bin/getrpt?GAO-03-4. For additional

information about the report, contact Susan Westin (202) 512-4128.

Highlights of GAO-03-4, a report to the Chairman and Ranking Minority Member, Committee on

Finance, U.S. Senate, and Chairman and Ranking Minority Member, Committee on Ways and

Means, U.S. House of Representatives

United States General Accounting Office

What GAO Found

China’s WTO accession commitments are comprehensive and set forth

the ways in which China will conform to the WTO’s trade liberalizing

rules. The commitments span eight broad areas and require both general

pledges and specific actions from China, ranging from adherence to

nondiscriminatory principles to reforming designated laws and trade

practices (see figure below). GAO identified nearly 700 individual

commitments on how China is expected to reform its trade regime, as

well as commitments that liberalize market access for over 7,000 goods

and nine broad services sectors in industries important to the United

States, such as automobiles and information technology.

The potential for China’s WTO accession agreement to open China’s

market to foreign goods and services cannot be assessed by only

examining individual commitments. GAO found that the

interrelationships among some individual commitments could strengthen

the general business environment in China by fostering a more

transparent, consistent, and market-oriented trade regime for U.S.

business. Other interrelated commitments, however, could delay or limit

the access given to U.S. businesses, because some commitments are to

be phased in over 10 years or will provide only partial access for

particular foreign products or services. Overall, the breadth and

complexity of China’s commitments underscore the challenges for China

in fulfilling its obligations and for other WTO members in monitoring and

enforcing China’s compliance.

G A O

Accountability Integrity Reliability

Highlights
Page i GAO-03-4 China's WTO Commitments

Letter 1

Results in Brief 2

Background 3

Various Types of Commitments Cover Administration of Trade

Regime and Market Access 6

Interrelationships among Commitments Can Affect Foreign

Business Opportunities 31

Concluding Observations 35

Agency Comments and Our Evaluation 36

Appendix I Objectives, Scope and Methodology 38

Appendix II Areas of China’s Trade Regime That China’s WTO

Accession Agreement Covers 41

Appendix III Data Sources and Methodology for Analysis of

China’s WTO Goods Commitments 43

Appendix IV Summary and Analysis of China’s WTO

Commitments 46

Trade Framework 46

Import Regulation 50

Export Regulation 59

Trading Rights and Industrial Policies 61

Agriculture 70

Services 77

Intellectual Property Rights 83

Safeguards and Other Trade Remedies 87

Appendix V GAO Contacts and Staff Acknowledgments 94

GAO Contacts 94

Acknowledgments 94

Contents
Page ii GAO-03-4 China's WTO Commitments

Tables

Table 1: Eight General Areas and Number of China’s Trade Regime

Commitments in Each Area 7

Table 2: Commitment Types in China’s Protocol and Working Party

Report 9

Table 3: Type and Number of Trade Regime Commitments, by Area 12

Table 4: Products for Which China’s Bound Tariff Rates Will Be 35

Percent or Higher in 2010 19

Table 5: Types of Trade-Distorting Measures Addressed by China’s

WTO Accession Agreement 21

Table 6: Number of WTO Services Sectors where China Made

Commitments 25

Table 7: Eight Types of Limitations in China’s WTO Services

Schedule 26

Table 8: Types of Limitations That China Will Maintain in Specific

Services Sectors 28

Table 9: Selected Products and Services Sectors Subject to Multiple

Restrictions and Trade-Distorting Measures 34

Table 10: Areas and Topics Covered by China’s WTO Accession

Agreement 41

Table 11: Concordance between GAO Categories and Harmonized

Schedule Section Headings 45

Table 12: Examples of China’s WTO Commitments Relating to

China’s Trade Framework 47

Table 13: Examples of China’s WTO Commitments Relating to

China’s Import Regulation 50

Table 14: China’s Industrial TRQ Commitment Phasein Schedule 56

Table 15: Timetable for Selected Chinese WTO Commitments

Relating to Import Regulation 58

Table 16: Examples of China’s WTO Commitments Relating to

China’s Export Regulation 59

Table 17: Examples of China’s WTO Commitments Relating to

China’s Trading Rights and Industrial Policies 62

Table 18: Timetable for Selected Chinese WTO Commitments

Relating to Trading Rights and Industrial Policies 70

Table 19: Examples of China’s WTO Commitments Relating to

Agriculture 71

Table 20: China’s TRQ Terms for Agriculture Products 73

Table 21: Examples of China’s WTO Commitments Relating to

Services 78

Table 22: Examples of China’s WTO Commitments Relating to

Intellectual Property Rights 84
Page iii GAO-03-4 China's WTO Commitments

Table 23: Examples of China’s WTO Commitments Relating to

Safeguards and Other Trade Remedies 88

Table 24: Timetable for Selected Chinese WTO Commitments

Relating to Safeguards and Other Trade Remedies 93

Figures

Figure 1: Average Chinese Tariff Rates by Industry Category, 2001

and 2010 16

Figure 2: Share of U.S. Exports to China Facing Certain Tariff

Ranges, 2001 and 2010 17

Figure 3: Summary of Key Phasein Dates for China’s WTO

Commitments, 2001–2016 30

Figure 4: China’s Average Tariffs for Agriculture, Nonagriculture,

and All Products, 2001–2010 53

Figure 5: Schedule for China’s Quota Administration 54

Figure 6: Percentage Share of TRQs Reserved for Importation

through Chinese State Trading Enterprises, 2001–2005 74

Figure 7: Timeline for China’s Tariff-Rate Quota Administration 75

Abbreviations

HS Harmonized system (of traded products nomenclature)

IMF International Monetary Fund

IPR Intellectual property rights

SEZ Special economic zone

SOE State-owned enterprise

SPS Sanitary and phytosanitary

TRIMS Trade-Related Investment Measures

TRIPS Trade-Related Aspects of Intellectual Property Rights

TRQ Tariff-rate quota

WTO World Trade Organization
Page 1 GAO-03-4 China's WTO Commitments

October 3, 2002

The Honorable Max Baucus

Chairman

The Honorable Charles E. Grassley

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable William M. Thomas

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

Committee on Ways and Means

House of Representatives

China’s accession to the World Trade Organization on December 11, 2001,

signified that the world’s seventh largest economy1

 and the U.S.’s fourth

largest trading partner would be subject to the multilateral organization’s

trade liberalizing requirements. An understanding of the terms of China’s

accession is essential to judging whether China is adhering to the

principles of a rules-based global trading system and giving foreign goods

and services greater access to its market. China’s accession agreement is a

set of legal documents totaling more than 800 pages that sets forth China’s

commitments—or legally binding pledges—to other World Trade

Organization members and describes how China will adhere to the

organization’s underlying agreements, principles, rules, and specific

procedures. Additionally, the agreement includes schedules for how and

when China will grant market access to foreign goods and services, along

with several other annexes. China will have to undertake numerous

actions over the next 10 years to fulfill its World Trade Organization

commitments, ranging from reducing or eliminating tariffs to improving

the transparency of trade-related rules and regulations.

You asked us to undertake a long-term body of work relating to China’s

membership in the World Trade Organization. In this initial phase, we

conducted a detailed analysis of China’s accession agreement. Specifically,

we examined (1) the scope and types of China’s World Trade Organization

 1

China’s gross domestic product stood at $1.1 trillion in 2000, according to the World Bank.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-03-4 China's WTO Commitments

commitments; and (2) the interrelationships among commitments

described in China’s accession agreement, which can affect foreign

business opportunities.

In order to perform our review, we systematically analyzed individual

commitments in the agreement. First, we created a database to analyze the

text of the agreement containing China’s commitments relating to its trade

regime. For purposes of our analysis, we divided China’s trade regime into

eight general areas—trade framework, import regulation, export

regulation, trading rights and industrial policies, agriculture, services,

intellectual property rights, and safeguards and other trade remedies (see

app. II). Second, we analyzed China’s market access schedules, which

contain specific commitments on goods and services. We discussed our

work with knowledgeable U.S. government, World Trade Organization,

and other officials and reviewed other analyses of the agreement (see

apps. I–III for a detailed description of our scope and methodology).

China’s World Trade Organization accession agreement is broad in scope

and covers eight areas, ranging from agriculture to intellectual property

rights. We identified nearly 700 individual commitments on how China’s

trade regime will adhere to the organization’s agreements, principles, and

rules. Other commitments grant market access to other members’ goods

and services. There are seven types of trade regime commitments in the

accession agreement, and the types vary widely. Some commitments

require a specific action from China, such as reporting information about

China’s import-licensing requirements to the World Trade Organization.

Other commitments are less specific in nature, such as those that confirm

China’s general obligations to adhere to World Trade Organization

principles of nondiscrimination in the treatment of foreign and domestic

enterprises. In addition to these trade regime commitments, we analyzed

China’s market access commitments, which cover specific goods and

services. The scope of China’s accession agreement provides U.S.

businesses the opportunity for significantly greater market access to a

broad range of goods and services in sectors that are of key importance to

U.S. businesses. First, China has committed to reducing or eliminating

tariffs, quotas, price controls, and other barriers on more than 7,000

agricultural and industrial products. However, China’s tariffs will remain

relatively high—20 percent or higher—on a small percentage of goods, and

China will maintain other trade-distorting measures on about 300

products. Second, China has committed to allowing greater market access

in nine broad service areas—including insurance, banking, distribution,

telecommunications, and professional services. Although some limitations

Results in Brief
Page 3 GAO-03-4 China's WTO Commitments

will remain, China’s commitments reduce or eliminate many restrictions

on services, such as those that limit foreign providers’ access to

designated cities or restrict the scope and type of service that can be

provided. Finally, some of China’s trade regime and market access

commitments are phased in over several years.

The potential for China’s accession agreement to liberalize its markets

cannot be assessed by examining only individual commitments. Our

analysis suggests that the interrelationships among trade regime and

market access commitments in different areas of the accession agreement

will affect foreign business opportunities in China’s market. Some

commitments, such as those that bind China to administer trade laws and

regulations in a uniform and transparent manner, apply generally to other

areas, which could improve the overall legal and business environment for

foreign companies, as well as the rule of law in China.2

 However, other

interrelationships created by individual commitments could delay or limit

opportunities in China’s market. Some commitments overlap and will be

phased in over different time periods, and these interrelationships can

affect individual companies and the specific products and services they

seek to provide. For example, although China is obligated to reduce tariffs

on thousands of products, other trade-distorting measures, including tariffrate quotas3

 and price controls on specific products, will remain in place

after tariffs have been reduced.

China’s bid to join the World Trade Organization (WTO) began in 1986,

when China applied for membership to the WTO’s predecessor, the

General Agreement on Tariffs and Trade. The WTO took over China’s

accession negotiations following the formation of the WTO on January 1,

1995, and China became the 143rd member of the organization on

December 11, 2001. China’s 15 year accession process has been the longest

of any WTO member to date. The United States and other WTO members

have stated that China’s membership in the WTO provides increased

 2

Definitions of the rule of law are numerous and varied. For the purposes of this report, we

generally use the term to describe a society in which law is generally stable and

transparent; is consistently and independently applied; and imposes meaningful restraints

on government officials and entities and other members of a ruling elite.

3

A tariff-rate quota is a trade barrier that allows imports of specified products to enter at a

low tariff rate up to an agreed quota level, with any additional imports to be taxed at a

higher tariff rate. Other WTO members, including the United States, have tariff-rate quotas

on certain products. China’s tariff-rate quotas are further explained later.

Background
Page 4 GAO-03-4 China's WTO Commitments

opportunities for foreign businesses seeking access to China’s vast market.

Additionally, more than three-quarters of the businesses responding to a

recent GAO survey and structured interviews expected that China’s WTO

commitments would eventually have a positive impact on their business

operations.4

Trade between the United States and China is economically important for

both countries. In 2001, U.S. exports of goods to China totaled $18 billion,

making China the 9th largest market for U.S. exports, according to the U.S.

Department of Commerce. Imports of goods from China to the United

States in 2001 totaled $102 billion, making China the 4th largest supplier of

imports to the U.S. economy. China has become a major supplier to the

U.S. market of a variety of low-cost U.S. consumer goods, such as toys and

games, shoes, and consumer electronics, as well as computers. China has

been a major buyer of U.S. aircraft, computers, and machinery. Since 1983,

the United States has had a trade deficit with China, as U.S. imports from

China have far exceeded exports. As for the cross-border services trade,

the United States supplied China with about $4.6 billion in services in

2000, while China supplied about $2.8 billion to the United States. In

addition, the United States is a major supplier of investment in China. By

2000, U.S. foreign direct investment in China had reached nearly $10

billion, second only to Hong Kong.

Like all WTO applicants, China conducted negotiations to join the WTO on

two tracks—bilateral and multilateral.5

 China negotiated bilaterally with

other interested WTO members regarding market access commitments for

goods and services.6

 These market access negotiations resulted in various

commitments from China to these members, including tariff reductions on

agricultural products and industrial goods, phaseouts of nontariff

restrictions such as licensing and quotas, and phaseins of WTO members’

access to several service sectors. The most trade-liberalizing of these

commitments were consolidated and incorporated into comprehensive

market access schedules (tables) for goods and services. China’s

 4

See U.S. General Accounting Office, World Trade Organization: Selected U.S. Business

Views about China’s Membership, GAO-02-1056 (Washington, D.C.: Sept. 23, 2002).

5

For a more detailed explanation of the WTO accession process, see U.S. General

Accounting Office, China Trade: WTO Membership and Most-Favored-Nation Status,

GAO/T-NSIAD-98-209 (Washington, D.C.: June 17, 1998).

6

China completed its bilateral negotiations with the United States in November 1999 with

the signing of the U.S.-China Market Access Agreement.
Page 5 GAO-03-4 China's WTO Commitments

commitments in these areas apply equally to all WTO members through

application of the WTO’s fundamental most-favored-nation principle,

which extends to all WTO members the best trade privileges granted to

any other member. Concurrent with its bilateral negotiations with the

United States and other members, China negotiated multilaterally with a

WTO working party consisting of the United States, the European Union,

and other interested members. These multilateral negotiations focused on

the specific rules and terms concerning how China’s trade regime would

adhere to the obligations and responsibilities of WTO membership.

The results of the negotiations are described and documented in China’s

final accession agreement, the Protocol on the Accession of the People’s

Republic of China, which includes the accompanying Report of the

Working Party on the Accession of China, the consolidated market access

schedules for goods and services, along with other annexes.7

 The protocol

contains the terms of China’s accession and describes how China’s trade

regime will conform to WTO agreements, rules, and principles. Many other

commitments are set forth in the working party report, which is

incorporated by reference in the protocol. According to the WTO,

commitments set forth in the protocol and working party report have the

same status and carry the same legal effect under WTO rules.

Last, it is important to note that, in addition to the commitments set forth

in the accession agreement, WTO membership confers other rights and

obligations on China. For example, membership obligates China to adhere

to more than 20 existing multilateral WTO agreements that cover various

areas of international trade. China, like all other WTO members, must

adhere to the WTO’s three main agreements governing key areas of

international trade: (1) the General Agreement on Tariffs and Trade, (2)

the General Agreement on Trade in Services, and (3) the Agreement on

Trade-Related Aspects of Intellectual Property Rights. Other specialized

multilateral WTO agreements that apply to China include the Agreement

on Trade-Related Investment Measures, the Agreement on Agriculture, the

Agreement on Technical Barriers to Trade, and the Agreement on

Subsidies and Countervailing Measures. Numerous sections of China’s

protocol and working party report refer to or reiterate specific provisions

of a number of these underlying WTO agreements. Membership also gives

 7

In addition to the annexes containing the market access schedules, seven other annexes

are included in China’s accession agreement. See table 5 for a description of the topics

covered in the annexes.
Page 6 GAO-03-4 China's WTO Commitments

China various rights under WTO rules. For example, the Understanding on

the Rules and Procedures Governing the Settlement of Disputes gives

access to a formal mechanism for resolving disputes over WTO traderelated issues.8

China’s WTO commitments span eight areas and are broad in scope.They

range from China’s pledges for how it will reform its trade regime in

accordance with the WTO’s principles and rules to specific market access

commitments for goods and services. A number of these trade regime and

market access commitments are phased in over several years. We

identified 685 commitments in China’s protocol and working party report

that cover China’s trade regime. Additionally, we found that these trade

regime commitments were of seven types, ranging from specific to general

in terms of what China must do. The accession agreement also includes

market access commitments for goods, including commitments to

eliminate or reduce tariffs on more than 7,000 agricultural and industrial

products, as well as to eliminate other trade barriers on about 600 of these

products. Further, China made commitments to allow greater market

access in 9 of 12 general services sectors, including sectors that are

important to U.S. businesses such as banking, insurance, and

telecommunications. However, some limitations, including those that

require joint ventures with Chinese partners in some sectors or restrict the

amount of foreign investment, will continue.

The 685 trade regime commitments that we identified in all eight areas of

the protocol and working party report address a broad range of issues.9

Table 1 lists the eight areas and the number of commitments that we

identified in each area. See appendix IV for a detailed description and

analysis of China’s commitments in each of these areas.

 8

For additional information on the WTO’s dispute settlement mechanism, see U.S. General

Accounting Office, World Trade Organization: Issues in Dispute Settlement, GAO/NSIAD-00-

210 (Washington D.C.: Aug. 9, 2000).

9

These 685 trade regime commitments exclude market access commitments discussed later

but include commitments identified in other annexes. Additionally, these 685 commitments

do not include 20 general commitments that describe, among other things, the relationship

between the protocol and the working party report and other multilateral WTO agreements.

See appendix I for a description of our methodology for identifying commitments.

Various Types of

Commitments Cover

Administration of

Trade Regime and

Market Access

Nearly 700 Commitments

Exist, Covering China’s

Trade Regime
Page 7 GAO-03-4 China's WTO Commitments

Table 1: Eight General Areas and Number of China’s Trade Regime Commitments in Each Area

Area

Number of

commitments Description of area

Trade framework 82 Includes uniform application of trade measures, transparency, judicial review,

nondiscrimination, and revisions to related laws and regulations.

Import regulation 227 Includes border measures affecting imports, such as customs duties, other

taxes, and charges; nontariff measures, such as quantitative restrictions

(quotas); regulatory measures, such as standards for determining the value

of imports (customs valuation); and technical barriers to trade, such as

packaging, marketing, or labeling requirements.

Export regulation 9 Includes border measures affecting exports, including licensing

requirements, export duties, and other taxes and charges.

Trading rights and industrial

policies

117 Includes China’s restrictions on the right to import or export products (trading

rights), limitations on trading to certain entities (state trading), and industrial

policies such as price controls, subsidies, regulations on state-owned

enterprises, investment requirements, and restrictions affecting foreign

exchange.

Agriculture 101 Includes border measures and other policies that affect the agricultural sector

such as customs duties, tariff-rate quotas, export subsidies, domestic

support, and measures restricting imports for health and environmental

reasons (sanitary and phytosanitary measures).

Services 45 Includes regulations and restrictions affecting trade in services and

operations of foreign services suppliers in China, including commitments on

nondiscrimination and market access for particular service sectors.

Intellectual property rights 34 Includes laws and regulations providing for the protection and enforcement of

intellectual property rights such as copyrights, trademarks, and patents.

Safeguards and trade remedies 70 Includes additional protection of products faced with market disruption

caused by surges in imports from China, the ability to use alternate

methodology in antidumping and countervailing duty cases, and review of

China’s trade practices through a special WTO review mechanism.

Total 685

Note 1: These 685 trade regime commitments exclude market access commitments discussed later

but include commitments identified in other annexes. Additionally, these 685 commitments do not

include 20 general commitments that describe, among other things, the relationship between the

protocol and the working party report and other multilateral WTO agreements. See appendix I for a

description of our methodology for analyzing commitments.

Note 2: See appendix IV for a further description of these eight areas.

Source: GAO analysis of China’s WTO accession agreement.

Although the number of commitments in any one of the areas listed should

not be considered as the measure of an area’s overall importance within

the accession agreement, the number of commitments can be an indicator

of the scope and complexity of an area. For example, about one-third of

the commitments we identified were in the area of import regulation—a

broad area that includes commitments regarding how China will assess

tariffs, taxes, and other charges on foreign goods, and commitments on

reducing or eliminating other barriers to China’s market.
Page 8 GAO-03-4 China's WTO Commitments

The types of commitments that China made regarding the administration

of its trade regime vary widely. Some commitments require a specific

action from China, such as reporting particular information to the WTO,

while others are more general in nature, such as those affirming China’s

adherence to WTO principles. We identified seven types of commitments

included in the protocol and working party report.10 (See table 2.)

 10We also identified commitments that did not fit into any of these seven commitment

types, and we classified these commitment types as “other.”

Types of Commitments Vary

Widely and Require Both

Specific and General Actions

from China
Page 9 GAO-03-4 China's WTO Commitments

Table 2: Commitment Types in China’s Protocol and Working Party Report

Commitment type

Commitments of this type require China

to: Example of commitment type

Definitional Use a certain type of term or meaning in its

commitments and regulations. These

commitments can also be an elaboration or

clarification of an existing practice, law, or

process.

Services: In the insurance sector, China committed to

defining a “master policy” as a policy that provides blanket

coverage for the same legal person’s property and liabilities

located in different places.

Reporting Report some type of information to the WTO. Agriculture: China committed to notifying the WTO about all

sanitary and phytosanitary regulations and measures within

30 days after accession.

Transparency Improve the openness of China’s trade

regime by, for example, publishing

information, designating an enquiry point, or

providing clarifying information on rules, laws,

or processes.

Trade framework: China committed to making available to

WTO members, upon request, regulations and other

measures pertaining to or affecting trade in goods, services,

TRIPS, or the control of foreign exchange before such

measures are implemented or enforced.

Laws and regulations Create, modify, or repeal an existing law or

regulation in order to comply with a WTO

requirement.

Intellectual property rights: China committed to amending its

trademark law in compliance with the TRIPS agreement.

Guidance Implement a commitment by following a

specific procedure. These commitments can

also describe the process China will follow,

the responsible authorities (for example,

ministry or level of government), and the

principles that describe the procedure.

Import regulation: China committed to accepting that the

approving organization for a quota application will issue an

import license within 3 working days, and within 10 days in

exceptional cases.

Adhere to WTO Confirm or reiterate adherence to a separate

WTO commitment or agreement such as the

General Agreement on Services or the

agreement on Trade-Related Aspects of

Intellectual Property Rights.

Trading rights and industrial policies: China committed to

eliminating subsidies provided in connection with special

economic zones and other special economic areas that were

inconsistent with the WTO Agreement on Subsidies and

Countervailing Measures.

Nondiscrimination Confirm or reiterate adherence to WTO

principles of national treatment and most

favored nationa

Trade framework: China committed to treating foreign

individuals and enterprises no less favorably than their

domestic counterparts with regard to the procurement of

inputs and goods necessary for production.

a

National treatment is the principle under which foreign products and services are treated no less

favorably than domestic products or services. The most-favored-nation principle extends to all WTO

members the best trade privileges granted to any other member.

Source: GAO analysis of China’s WTO accession agreement.
Page 10 GAO-03-4 China's WTO Commitments

The definitional, reporting, transparency, laws and regulations, and some

guidance commitments we identified mainly require specific actions from

China. For example, annex 1A of China’s accession agreement lists 62

commitments relating to economic and trade policy information that

China is to provide to various WTO committees as part of the WTO’s

transitional review mechanism for China.11 Additionally, some guidance

commitments require specific actions. We found that about 40 percent of

the 685 commitments are guidance commitments, and that most of the

commitments of this type are in the areas of agriculture and import

regulation. More specifically, about half of the guidance commitments in

both of these areas describe the specific procedures that China will follow

to administer its agricultural and industrial tariff-rate quotas. Sections of

the working party report describe members’ concerns about how China

will administer its tariff-rate quota regime, and the large number of

commitments in this area illustrate how members negotiated specific

guidance concerning the way in which the tariff-rate quota system should

operate.

We identified other commitments that are more general in nature,

including 123 commitments that confirm or reiterate China’s adherence to

WTO agreements. For example, more than half of the commitments in the

area of intellectual property rights are of this type. Specifically, several

paragraphs in the working party report outline member concerns

regarding China’s enforcement of intellectual property rights, and most of

the commitments related to enforcement confirm how China will comply

with various articles of the Agreement on Trade-Related Aspects of

Intellectual Property. Lastly, other general commitments that we identified

require China to adhere to the WTO’s nondiscrimination principles of

most-favored-nation and national treatment. These types of commitments

are most common in the areas relating to China’s trade framework and

import regulation. For example, within the area of import regulation, we

identified 18 commitments that obligate China to abide by the national

treatment principle by ensuring that technical standards and regulations

apply equally to both imported and domestic goods.

Last, we identified 108 commitments that did not fit into any of the seven

commitment types and classified these commitments as “other.” We

 11Beginning 1 year after China’s accession, the information is to be provided annually for 8

years, with a final review in the 10th year following China’s accession, or at an earlier date

decided by the WTO’s General Council. See appendix IV for additional information on the

transitional review mechanism.
Page 11 GAO-03-4 China's WTO Commitments

identified commitments of this type throughout the agreement, but many

are in the area of the agreement relating to safeguards and trade remedies.

For example, 34 commitments describe how other WTO members can

apply safeguard measures to China, and they set forth the details of the

transitional review mechanism. (See app. IV for additional details on

safeguards and trade remedies.) Table 3 shows the number and type of

commitments we identified in each area of China’s trade regime.
Page 12 GAO-03-4 China's WTO Commitments

Table 3: Type and Number of Trade Regime Commitments, by Area

Area

Number of commitments

in area Definitional Reporting

Trade framework 82 4 10

Import regulation 227 16 37

Export regulation 9 0 3

Trading rights and industrial

policies 117 6 22

Agriculture 101 9 11

Services 45 9 6

Intellectual property rights 34 9 2

Safeguards and trade

remedies 70 3 8

Total 685 56 99
Page 13 GAO-03-4 China's WTO Commitments

Commitment type

Transparency

Laws and

regulations Guidance Adhere to WTO Nondiscrimination Othera

19 19 31 12 24 8

31 14 111 38 24 20

1 1 2 3 01

7 1 31 22 10 23

13 3 64 12 5 4

5 3 23 3 2 5

1 15 9 21 2 1

0 1 10 12 0 46

77 57 281 123 67 108

Note 1: The commitment types are not mutually exclusive. For example, a commitment in the trade

framework area could be classified as both a “guidance” and a “transparency” commitment.

Consequently, the totals of the commitment types do not add to 685.

Note 2: These 685 commitments exclude market access commitments discussed later but include

commitments identified in other annexes. Additionally, these 685 commitments do not include 20

general commitments that describe, among other things, the relationship between the protocol and

the working party report and other multilateral WTO agreements. See appendix I for a description of

our methodology for identifying commitments.

a

We identified commitments that did not fit into any of these seven commitment types and categorized

these commitment types as “other.”

Source: GAO analysis of China’s WTO accession agreement.

We also identified a number of commitments that exceed usual WTO

requirements. A number of these commitments are in the trade framework

area. For example, unlike other WTO members, China committed to

providing a public comment period prior to implementing certain trade

measures. Furthermore, China committed to establishing a mechanism by

which individuals can bring questions about inconsistent application of

laws within China’s trade regime. Certain commitments in the area of

safeguards and trade remedies also exceed what WTO rules usually

require. For example, China’s commitments allow WTO members to use

standards for applying product-specific and textile safeguards against

Chinese imports that are easier than the standards set forth in the WTO

Agreement on Safeguards and the Agreement on Textiles and Clothing.

Furthermore, commitments relating to the transitional review mechanism

establish an additional review process that is more comprehensive than

the WTO’s trade policy review mechanism for other WTO members.
Page 14 GAO-03-4 China's WTO Commitments

As part of its WTO accession agreement, China committed to reducing or

eliminating a variety of market access barriers to foreign products.

Although China reduced its overall average tariff over the past decade,

certain sensitive products such as agricultural commodities and

automobiles continued to face high tariffs, as well as other trade-distorting

measures. In its agreement, China made specific commitments on the tariff

rates for more than 7,000 products covering all imports, as well as

commitments on other trade-distorting practices, such as state trading and

quotas, affecting more than 900 products.12 Reduction or removal of these

barriers and practices will eliminate significant barriers to access in

China’s market for foreign exporters. However, relatively high tariffs or

other trade-distorting measures will remain on some products.

Through its WTO commitments, China agreed to reduce tariffs on

numerous products including many sensitive items, as well as to eliminate

duties altogether on other products, such as information technology

goods. However, a few products will still face high tariff barriers. Although

many of China’s tariffs fell upon accession to the WTO, about half of

China’s 7,000 tariffs will continue to be reduced over a phasein period. By

2010, the end of this phasein period, China’s overall average tariff is

scheduled to be less than 10 percent.13 However, most of these tariff

reductions will actually be completed by 2005. China had already begun

reducing tariff rates in the early 1990s, when the average tariff rate was

above 40 percent. By 1999, the year that China’s WTO negotiations on

tariffs ended, China had reduced the average tariff applied to imports to

about 17 percent. Upon joining the WTO in 2001, China agreed to an

average tariff of about 14 percent. In addition, China agreed to “bind” all

tariff rates at the levels agreed upon in its accession agreement. That

means that China may not charge a tariff rate higher than the amount it

agreed to, except under special circumstances.14 Therefore, the average

tariff rate that China applies in the future may be even lower.

 12State trading involves providing certain state-run entities the rights to import or export

products. Quotas are quantitative restrictions on imports or exports that limit the amount

of a product that can be traded.

13Relative to other WTO members, China has an average tariff rate that is lower than those

of many developing countries but higher than those of developed economies, such as the

United States and the European Union.

14China could charge higher duties than its bound tariff rates in cases where China is

applying safeguards or antidumping or countervailing duties, or in other special

circumstances.

China Made Market Access

Commitments for Goods to

Reduce or Eliminate

Important Tariffs and

Other Trade-Distorting

Measures

Tariff Reductions Affect Wide

Range of Products, but Some

Final Rates Are Still Relatively

High
Page 15 GAO-03-4 China's WTO Commitments

For some products and sectors of importance to the United States, China

committed to large tariff reductions. For example, tariffs on certain types

of automobiles and alcohols are to fall more than 35 percentage points by

2006 and 2005, respectively.15 On agricultural products, the average tariff is

scheduled to fall to about 15 percent in 2010, while for nonagricultural

products, the average tariff is scheduled to fall to about 9 percent in 2010.

The U.S. Trade Representative reported that tariffs on products of

particular importance to the United States would fall to 7 percent on

average for industrial products and 14 percent on average for agricultural

goods. Tariffs on about 300 information technology products, such as

computers and semiconductors, are to be eliminated by 2005.16 U.S.

exports of information technology products accounted for nearly onefourth of U.S. exports to China in 2001. Reductions in tariff rates will vary

across industry categories. Figure 1 shows China’s average tariff rates by

industry for 2001 and 2010.

 15China committed upon accession to tariff rates of 61.7 percent on certain types of

automobiles, falling to 25 percent by July 1, 2006; of 46.7 percent on certain types of

alcohols (including whiskies, gin, and vodka) upon accession, falling to 10 percent by 2005;

and of 42 percent on beer upon accession, falling to zero by 2004.

16Twelve products (out of 317) identified as information technology products in China’s

schedule will have tariffs reduced to between 2 and 12 percent by 2005, but not eliminated.

The average tariff rate for all information technology products is scheduled to fall from 6.5

to 0.3 percent.
Page 16 GAO-03-4 China's WTO Commitments

Figure 1: Average Chinese Tariff Rates by Industry Category, 2001 and 2010

Note: Categories are based on aggregated groupings of the international harmonized system (HS)

nomenclature, a World Customs Organization classification system for traded products (see app. III

for more information).

Source: GAO analysis of China’s WTO accession agreement.

In terms of U.S. exports to China, the share of products that potentially

face low tariffs is scheduled to rise. Figure 2 shows that upon accession in

2001, China charged no tariff on products accounting for 6 percent of U.S.

exports to China. At the end of the phasein period in 2010, the share of

U.S. exports facing no tariffs will rise to 30 percent (based on actual U.S.

exports in 2001). By 2010, products accounting for nearly 70 percent of

U.S. exports will face tariff rates of 5 percent or less. Products facing no

tariffs include information technology products and a variety of other

imports, such as certain types of live poultry, seeds, salt, metal ores

(nickel, copper, zinc), newspapers, maps, precious metals, and production

machinery.
Page 17 GAO-03-4 China's WTO Commitments

Figure 2: Share of U.S. Exports to China Facing Certain Tariff Ranges, 2001 and 2010

Note: Percentages may not equal 100 percent because of rounding. Shares are based on actual U.S.

exports to China in 2001. As tariffs fall, exports of those products facing larger tariff reductions may

increase as a share of total U.S. exports to China, affecting the calculated shares. Conversely,

products subject to higher tariff rates may be disproportionately smaller because of the higher

barriers.

Source: GAO analysis of China’s WTO accession agreement and U.S. trade data from the

Department of Commerce.

Figure 2 shows that products subject to tariffs of 20 percent or greater in

2010 account for only about 1 percent of total U.S. exports to China (based

on 2001 data). However, these products could potentially account for a

larger share of U.S. exports. Since the shares in figure 2 are based on
Page 18 GAO-03-4 China's WTO Commitments

actual U.S. exports to China, higher tariff rates may have

disproportionately reduced exports of certain products, lowering their

current share of total exports. In contrast, we found that the products that

will be subject to final tariff rates of 20 percent or greater accounted for

about 8 percent of current U.S. exports to all countries, rather than just 1

percent of U.S. exports to China. This difference may be caused in part by

higher trade barriers on these products in China relative to other

countries.17 Therefore, although current exports of these products to China

may be relatively small, they potentially could be important exports if

remaining barriers were removed.

Several types of products will remain subject to high Chinese tariff rates

following the phasein period for tariffs, which lasts until 2010. Table 4 lists

products subject to tariff rates of 35 percent or more. The highest duties

(50 to 65 percent) are on agricultural products subject to tariff-rate quotas

(discussed below).18 Also, a wide variety of other products will face high

tariff rates, such as certain types of manufactured tobacco (65 percent),

photographic film and paper (35 to 47 percent), jewelry (35 percent), and

gas water heaters (35 percent).

 17U.S. exports to all countries are also affected by trade barriers in other countries, but

these may be lower overall on particular products than barriers in China. Also, many

factors besides trade barriers may affect whether a country imports certain products,

including domestic demand and competition from other suppliers. Figure 2 is intended only

to provide an indication of the relative importance to U.S. exports of Chinese tariff rates,

and of how they change over time.

18These are the “out-of-quota” tariff rates. Tariff-rate quotas charge two different tariff rates.

A low rate is applied to a certain “in-quota” amount of the product. The remaining “out-ofquota” amount faces a higher tariff rate.
Page 19 GAO-03-4 China's WTO Commitments

Table 4: Products for Which China’s Bound Tariff Rates Will Be 35 Percent or Higher in 2010

Product description:a

certain types of

Tariffs 2001

(percent)

Tariffs 2010

(percent)

U.S. Exports to China, 2001

(in thousands)

Wheat (subject to TRQs) 74% 65% $21,736

Corn (subject to TRQs) 74 65 1,225

Rice (subject to TRQs) 74 65 184

Barley 65 65 0

Vermouth 65 65 70

Manufactured tobacco and substitutes 65 65 23

Cane or beet sugar (subject to TRQs) 55 to 71.6 50 354

NPK chemical fertilizer (covered by TRQ) 50 50 n.a.

Diammonium chemical fertilizer (covered by TRQ) 50 50 n.a.

Urea (covered by TRQ) 50 50 n.a.

Photographic film 55.7 47 94

Motorcycles 52.3 to 53.8 45 24

Corn and rice flours (subject to TRQs) 64 40 345

Cotton (subject to TRQs) 61.6 40 42,981

Fermented beverages (cider, perry, mead) 60.5 40 18

Photographic film 53.3 40 667

Motorcycles 51.7 40 0

Ethyl alcohol 40 40 507

Wool (subject to TRQs) 38 38 2,238b

Beverage bases and flavored waters 44 to 50 35 10,550b

Photographic paper 45 35 71b

Jewelry and imitation jewelry 36.7 to 42.5 35 2,126

Gas water heaters 35 35 4,773

Electric heaters, hair dryers, toasters, coffee makers 35 35 732

Television cameras and video cameras 35 35 467b

Legend

n.a.: not available. Product-level information on U.S. exports of fertilizer is not available because of

business confidentiality issues. U.S. exports to China of all types of fertilizer, including the three types

listed in this table, account for about 2 percent of U.S. exports to China.

TRQ: tariff-rate quota

a

Product descriptions above are not official descriptions but shorter descriptions used only for

illustrative purposes. Certain products may be covered by multiple tariff lines, which are based on

different characteristics of individual products. For example, in the table above, motorcycles and

photographic film are covered by multiple tariff lines and appear multiple times.

b

U.S. export values for these products are approximations. U.S. export data and the Chinese tariff

schedule cannot be precisely matched in all cases. (See app. III.)

Source: GAO analysis of China’s WTO accession agreement and U.S. trade data from the

Department of Commerce.
Page 20 GAO-03-4 China's WTO Commitments

China agreed to eliminate some trade-distorting measures that currently

limit imports of nearly 600 products, including certain types of

automobiles, transport equipment, and high-tech apparatus. Nontariff

barriers, such as quotas and licensing, may restrict market access, and

China has committed to removing these practices by 2005. However,

China’s accession agreement allows it to retain other measures on more

than 300 products. For example, certain types of grains, fertilizers, and

other products will still be subject to tariff-rate quotas and state trading for

imports.19 Table 5 lists certain trade-distorting measures that China’s

accession agreement addresses, and whether they will be eliminated.20 U.S.

exports of products subject to these measures accounted for

approximately 10 to 19 percent of total U.S. exports to China in 2001. After

removing practices that China has agreed to eliminate, products subject to

remaining measures accounted for about 6 to 7 percent of U.S. exports to

China in 2001.21

 19However, China committed to eliminate state trading monopolies on certain products by

allocating an increasing share of the quotas to private traders.

20In addition to these specific practices, other characteristics of China’s domestic economy,

such as the large share of state-owned enterprises, may affect foreign goods’ opportunities

in China. However, calculating or isolating the effect of these characteristics is difficult.

21These percentages are based on U.S. exports of affected products to China in 2001. We

present a range of values, because U.S. and Chinese trade statistics and tariff schedules

cannot be precisely matched (see app. II). These percentages may understate the potential

size of future U.S. exports of these products, which may grow as a share of total U.S.

exports to China when barriers are removed.

Other Trade-Distorting

Measures to Be Eliminated, but

Certain Practices Will Remain
Page 21 GAO-03-4 China's WTO Commitments

Table 5: Types of Trade-Distorting Measures Addressed by China’s WTO Accession Agreement

Type of tradedistorting measure

Products affected by measure:

certain types of

Approximate share of U.S.

exports to China (2001) of

products subject to the

measurea

 (percent) Phaseout schedule

Designated trading Natural rubber, timber, plywood, wool,

acrylic, and steel

1% Removed by 2004

Export duties Fish products, base metals (lead, zinc,

aluminum, tungsten, etc.), mineral products

Not applicable (should affect

Chinese exports of products)b

Not removed

Export subsidies None (China committed to eliminating all

export subsidies upon accession)

Not applicable (should affect

Chinese exports of products)

Eliminated upon accession

Government guidance

pricing

Grains (wheat, corn, rice, and soybeans),

vegetable oils (soybean, rape, colza, and

mustard), processed oil, fertilizer (urea),

silkworm cocoons, and cotton

6–7 Not removed

Licensing Automobiles, motorcycles, parts, and a

variety of other products

1 Removed by 2005

Price controls Tobacco, edible salt, natural gas,

pharmaceuticals

Less than 1 Not removed

Quotas Automobiles, motorcycles, parts, and a

variety of other products

1 Removed by 2005

State trading

(imports)

Grains (wheat, corn, and rice), vegetable oils

(soybean, palm, rape, colza, and mustard

oils), sugar, tobacco, crude oil, processed oil,

chemical fertilizers, and cotton

About 1 Not removed

State trading (exports) Tea, rice, corn, soybeans, tungsten ore,

ammonium paratungstates, tungstate

products, coal, crude oil, processed oil, silk,

cotton, woven fabrics, antimony products,

and silver

Not applicable (should affect

Chinese exports of products)b

Not removed

Tariff-rate quotas Wheat, corn, rice, soybean oil, palm oil, rapeseed oil, sugar, wool, cotton, fertilizer, wool

tops

Less than 1 Quota amount and private

trading share increase

over some period, but

tariff-rate quota removed

only on vegetable oils

Tendering Transport equipment and high-tech

apparatus

1–6 Removed by 2004

a

These percentages are based on our analysis of U.S. exports to China in 2001 of products subject to

these measures. Total U.S. exports to China in 2001 were about $18 billion. We present a range of

values because U.S. and Chinese trade statistics and tariff schedules cannot be precisely matched

(see app. II). These percentages may understate the potential size of future U.S. exports of these

products, which may grow as a share of total U.S. exports to China when barriers are removed. Also,

product-level information on U.S. exports of the three types of fertilizer affected by tariff-rate quotas

and state trading are not available because of business confidentiality issues and are therefore not

included in these figures. U.S. exports to China of all types of fertilizer, including types not covered by

tariff-rate quotas, account for about 2 percent of U.S. exports to China.

b

Export policies, such as duties and state trading, can distort trade by providing cheaper inputs for

domestic production (by limiting exports) or by affecting the price of the product in international

markets.

Source: GAO analysis of China’s WTO accession agreement and U.S. trade statistics from the

Department of Commerce.
Page 22 GAO-03-4 China's WTO Commitments

Of the 11 types of trade-distorting measures addressed by China’s

accession agreement, 8 affect imports into China and 3 affect China’s

exports. China has agreed to remove some of these practices after a

phaseout period, while others will remain in place. First, half the import

measures, including nontariff restrictions such as licensing, quotas,

tendering, and designated trading, are to be eliminated by 2005. Second,

the other half of the import measures will remain (tariff-rate quotas,

government guidance pricing, price controls, and state trading). Finally,

for exports, export subsidies are to be eliminated upon accession, while

export duties and state trading will remain.

First, over a 4 year phaseout period, China will completely eliminate

certain nontariff restrictions, including licensing restrictions, quotas, and

tendering practices on imports. Licensing, which requires that companies

obtain government approval and submit documentation before importing,

and quotas, which are quantitative restrictions on imports, have been used

widely by China in the past to restrict trade. Tendering is a requirement

that private citizens or enterprises obtain government approval before

making major purchases. In total, products affected by these practices

accounted for about 1 to 7 percent of U.S. exports to China (between

about $0.2 billion and $1.1 billion) in 2001. Although these amounts are a

relatively small portion of total U.S. exports, these three nontariff barriers

(licensing, quotas, and tendering) affect important U.S. exports such as

automobiles, motorcycles, parts, and other transport equipment, as well as

high-tech apparatus. Also, by 2004, China should eliminate designated

trading on products that accounted for about 1 percent of U.S. exports to

China ($173 million) in 2001. (See table 5.) Designated trading is a practice

that provides the right to import certain products to certain entities

designated by the government.

Second, certain trade-distorting measures will remain on some imports.

Like some other WTO members, China will maintain tariff-rate quotas on

several important agricultural products, including certain types of wheat,

corn, rice, soybean oil, palm oil, rape-seed oil, sugar, wool, and cotton.

Tariff-rate quotas allow a certain amount of a product (the “in-quota”

amount) to enter the market at a low tariff rate (generally less than 10

percent). Any additional amount of imports (the “out-of-quota” amount)

faces a prohibitively high Chinese tariff rate (generally 40 percent or

greater, though lower in some cases). China has agreed to increase the

quota amounts over time for these products and to eliminate the quotas

altogether for vegetable oils in 2005. It has also agreed to allow private

traders to share in the quota allocations and to increase the private share

over time for some products, reducing the share allocated to state trading
Page 23 GAO-03-4 China's WTO Commitments

enterprises. Agricultural products covered by China’s tariff-rate quotas

accounted for about 4 percent of total U.S. agricultural exports to China in

2001.22 China will also maintain tariff-rate quotas on some nonagricultural

products—fertilizers and wool tops. Generally, WTO obligations do not

allow tariff-rate quotas on nonagricultural products.

Besides tariff-rate quotas, other measures affecting imports will also

remain. For instance, state trading, a practice that provides the right to

import certain products primarily to state-run entities, will not be

eliminated. U.S. exports of products affected by state trading accounted

for about 1 percent of total U.S. exports to China (about $100 million to

$200 million; see table 5) in 2001. In addition, China will also maintain

price controls and government guidance pricing on certain domestically

sensitive products. These measures, which require prices to be fixed or to

fluctuate within a certain range, will affect certain types of tobacco, edible

salt, natural gas, pharmaceuticals, grains, vegetable oils, processed oil,

fertilizer (urea), silkworm cocoons, and cotton. China has gradually

liberalized prices, and it claims that only about 5 percent of products are

subject to price controls, in order to ensure adequate domestic supply and

to keep prices within an affordable range. These products accounted for

about 6 to 7 percent of U.S. exports to China in 2001.

Finally, besides these measures that affect the access of imports to China’s

market, the accession agreement also restricts certain practices affecting

China’s exports. These practices may distort trade by promoting exports

to third-country markets in which they compete with other WTO members’

goods, or by restricting exports in order to provide more inexpensive

inputs to domestic production. China committed as part of its accession

agreement to eliminate export subsidies for both agricultural and

nonagricultural products. Under the WTO Agreement on Subsidies and

Countervailing Measures, subsidies that require the recipient producer

either to meet certain export targets or to use certain domestic products

rather than imports are prohibited, and China agreed to abide by this

obligation upon accession.23 For agricultural products, WTO members are

 22However, this share is significantly lower than a peak in 1998, when the same products

accounted for 39 percent of U.S. agricultural exports to China. Since that time, the value of

U.S. agricultural exports to China has risen somewhat (from $1.3 billion to $1.9 billion), but

the share of products subject to tariff-rate quotas has fallen significantly.

23Domestic subsidies (those not tied directly to trade) are permitted under WTO provisions;

however, if they are shown to have trade-distorting effects, WTO members can request

their removal or in some cases impose countervailing duties on Chinese exports that

benefit from the subsidy (see app. IV).
Page 24 GAO-03-4 China's WTO Commitments

able to maintain export subsidies under certain conditions, but China

agreed to eliminate their use, as well. This is a potentially important

commitment for U.S. farmers who compete in third-country markets with

Chinese exports of corn, rice, and cotton. Although committed to

eliminate export subsidies, China will maintain state-trading practices on

134 export products and will apply an export duty between 20 and 50

percent on 84 products. Export policies, such as these, can distort trade by

providing cheaper inputs for domestic production (by limiting exports) or

by affecting the price of the product in international markets.

China’s services commitments are broad in scope and provide increased

access across a number of industries, with some specified limitations.

China’s market access commitments for services are described primarily

in the services schedule included in an annex to the accession agreement.24

The WTO classifies services into 12 general sectors and 154 subsectors.

China made commitments to open 9 of the 12 general sectors and 88 of the

154 subsectors—including several sectors important to U.S. trade such as

insurance, banking, distribution, telecommunications, and professional

services. For example, prior to accession, foreign insurers’ access to

China’s market had been restricted through selective licensing processes,

and foreign insurers were allowed to provide only certain services in a

limited number of cities. China’s WTO commitments relax or remove many

of these restrictions, over a 5 year phasein period. Similarly, foreign

telecommunications service providers were restricted from China’s

market. Within 6 years following accession, foreign providers will be

allowed to offer a broad array of telecommunications services with no

geographic restrictions, but only through joint ventures with Chinese

partners. (Table 6 shows the number of sectors where China made

commitments. Additional information about China’s services

commitments is included in app. IV.)

 24As noted in table 1, the working party report also describes 45 services-related

commitments. These commitments include, for example, general guidance concerning

licensing procedures and specific commitments relating to the insurance sector.

Market Access

Commitments for Services

Cover Multiple Sectors,

but Some Limitations

Continue
Page 25 GAO-03-4 China's WTO Commitments

Table 6: Number of WTO Services Sectors where China Made Commitments

General WTO services sector

Number of subsectors

included in WTO

general sector

Number of subsectors

included in China’s

commitments

Business 46 26

Communication 24 17

Construction 5 5

Distribution 5 5

Education 5 5

Environmental 4 4

Financial 17 13

Health-related and social 4 0

Tourism and travel-related 4 2

Recreation, cultural, and sporting 5 0

Transport 35 11

Other Number of subsectors

not specified

No commitments in this

sector

Total 154 88

Note: For purposes of analysis, the information in this table is ordered according to the organization

of services commitments listed in China’s services schedule.

Source: GAO analysis of China’s WTO accession agreement.

Although China made market access commitments in 88 services

subsectors, access to most of these subsectors will remain subject to

limitations. The WTO’s General Agreement on Trade in Services provides

the rules for services trade among members. Under these rules, members

may decide which sectors to include in their services schedule and may

specify what limitations on access and national treatment will be applied.

There is no WTO requirement to grant access to all services sectors, and,

in fact, no member allows unrestricted access to all sectors and

subsectors.

Like other WTO members, China has a services schedule that describes

commitments in specified services sectors and lists the types of limitations

on access and national treatment within those sectors. Some of the

limitations are horizontal—that is, the limitations apply generally to all

services sectors in the schedule unless otherwise specified. Horizontal

limitations include, for example, restrictions on the establishment of

branches, on the profit-making activities of representative offices, and on

the length of time permitted for the use of land in China. However, most

limitations listed in China’s services schedule describe the limitations on

the specified services sectors that China committed to open. For example,

access to several services sectors is opened only in designated cities or
Page 26 GAO-03-4 China's WTO Commitments

geographic regions, and only for a specific scope and type of operation.

Other limitations require foreign service providers to partner with a

Chinese entity in order to gain access, or to limit the participation of

foreign capital in an investment. And other limitations include exceptions

to national treatment by requiring that foreign service providers meet

specific professional qualifications, or subject foreign providers to

licensing procedures that differ from those required of domestic suppliers.

In many sectors, some of the limitations are phased out over a specified

time period. Table 7 lists the eight types of limitations we identified in

China’s services schedule.25

Table 7: Eight Types of Limitations in China’s WTO Services Schedule

Limitation type Description Example of limitation type

Cross-border Limitation on providing a service across national borders.

In some cases, services may be provided only by

establishing a commercial presence in China.

Wholesale distribution services are not permitted to

be provided across borders.

Form Limitation on the legal form of establishment, such as

those requiring that services be provided through a joint

venture with a Chinese partner.

Foreign providers of software implementation

services may establish in China only in the form of

a joint venture.

Equity Limitation on the amount or share of foreign equity in a

service operation.

Within 2 years following accession, foreign

investment in certain types of telecommunications

services shall be no more than 50 percent.

Geographic Limitation on the specific geographic locations in which

service providers are allowed to operate.

Certain foreign banking services are restricted to

designated cities. These restrictions are phased out

over time.

Nationality Limitation on national treatment based on the residency

or nationality of a service provider.

Legal service representatives shall be resident in

China for no less than 6 months each year.

Number Limitation on the number of foreign service providers or

quantity of output or operations.

Number of foreign-invested medical and dental

service operations subject to quantitative limits

based on China’s needs.

Scope Limitation on the scope of business that may restrict

certain types of services within a sector or restrict the

type of client to whom services may be provided.

Commitments on courier services exclude services

specifically reserved for Chinese postal authorities

by law.

Qualifications Limitation on national treatment through qualifications,

standards, or licensing requirements.

Licensing requirements for foreign insurance

providers require more than 30 years’

establishment experience in a WTO member

country.

Note: We also identified limitations that did not fit into any of these eight limitation types, and we

categorized these limitation types as “other.”

Source: GAO analysis of China’s WTO accession agreement.

 25We identified limitations that did not fit into these eight limitation types, and categorized

these limitation types as “other.”
Page 27 GAO-03-4 China's WTO Commitments

Of the eight limitation types, we found that the most common types of

limitations that will remain on China’s services sectors are those on the

legal form of establishment (45 percent) and scope of business (35

percent). (Table 8 lists the types of limitations that China will maintain on

service providers in specific sectors following the phaseout periods.) For

example, foreign businesses seeking to provide most types of professional

services (subsectors within the business services sector) will still be

required to operate through joint ventures or other types of partnerships

with a Chinese entity. Similarly, certain limitations on the scope of

business allowed in the insurance subsector (included within the financial

services sector) will remain, and they preclude foreign insurers from

providing certain types of vehicle insurance. Although China initially

places geographic limitations on several types of services, most

geographic limitations will be phased out, and, as a result, limitations of

that type will be the least prevalent in China’s services sectors. For

example, geographic limitations on foreign providers of basic

telecommunications services are to be phased out 6 years after accession,

and foreign banks will be allowed to conduct local currency business

without geographic restrictions within 5 years of accession.
Page 28 GAO-03-4 China's WTO Commitments

Table 8: Types of Limitations That China Will Maintain in Specific Services Sectors

Percentage of covered subsectors subject to specified limitation

General WTO

services sector

Number of

subsectors

covered by

China’s

services

schedule

Crossborder Form Equity

Geographic Nationality Number Scope Qualifications Other

Business 26 4% 54% 0% 0% 8% 4% 23% 42% 15%

Communication 17 47 59 53 0 0 6 18 0 12

Construction 5 0 0 0 0 0 0 100 0 0

Distribution 5 60 20 0 0 0 0 60 0 0

Education 5 100 100 0 0 0 0 0 100 100

Environmental 4 100 100 0 0 0 0 100 0 0

Financial 13 15 15 15 0 0 0 46 7 0

Health-related

and social 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Tourism and

travel-related 2 0 0 0 0 0 0 50 0 0

Recreation,

cultural, and

sporting 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Transport 11 27 36 27 0 0 0 27 0 27

Other 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Total 88 30% 45% 16% 1% 2% 2% 35% 30% 16%

Legend

n.a.: not applicable

Cross-border: limitation on providing a service across borders

Form: limitation on the form of establishment

Equity: limitation on the amount or share of foreign equity in a service operation

Geographic: limitation on the specific geographic locations in which service providers are allowed to

operate

Nationality: limitation on national treatment based on the residency or nationality of a services

provider

Number: limitation on the number of foreign services providers or quantity of output or operations

Scope: limitation on the scope of business

Qualifications: limitation on national treatment based on qualifications, standards, or licensing

requirements

Other: other types of limitations that do not fit any of the eight aforementioned limitation types

Note: Limitations within the sectors are not mutually exclusive. Consequently, totals do not add to 100

percent.

Source: GAO analysis of China’s WTO accession agreement.
Page 29 GAO-03-4 China's WTO Commitments

Phasein periods for China’s commitments vary across the eight broad

areas of the agreement. In two areas, export regulation and intellectual

property rights, all commitments were due to be implemented upon

China’s accession to the WTO. In the other areas, the longest phasein

periods are for trade regime commitments relating to safeguard and trade

remedy provisions. For example, commitments allowing WTO members to

use alternative methodologies when applying antidumping provisions to

Chinese imports last for 15 years (until 2016). The phasein periods for

other commitments that relate to China’s administration of its trade

regime are phased in by 2010. Additionally, China’s market access

commitments to reduce tariffs are scheduled to be fully phased in by 2010,

but tariff reductions on most products and the elimination of other tradedistorting measures are to be completed by 2005. Lastly, most market

access commitments for services are phased in by 2007. (See app. IV for

further discussion of China’s commitments in each of these areas.) Figure

3 summarizes key phasein dates for China’s WTO commitments.

Some of China’s

Commitments Are Phased

in Over Time
Page 30 GAO-03-4 China's WTO Commitments

Figure 3: Summary of Key Phasein Dates for China’s WTO Commitments, 2001–2016

Legend

NTM: nontariff measure

TBT: technical barriers to trade

TRQ: tariff-rate quota

TRM: transitional review mechanism

Note 1: No commitments in the areas of export regulation and IPR have phasein periods.
Page 31 GAO-03-4 China's WTO Commitments

Note 2: Commitments to liberalize agricultural TRQs and various services sectors are scheduled to

be phased in by the dates shown, but other restrictions on these sectors that China did not commit to

removing may remain in place.

Source: GAO analysis of China’s WTO accession agreement.

The potential for China’s WTO accession agreement to open China’s

market to foreign goods and services cannot be assessed by examining

only individual commitments. China’s commitments in various areas are

interrelated and together affect what and how business is done in China.

For example, China’s commitments may allow a particular foreign product

to be exported to China, but extended time frames for implementing

commitments on trading rights may require that the product be sold to a

Chinese business or a state trading enterprise before it can enter the

country. Other particular commitments determine what tariff must be

paid, whether a license must be obtained, whether a quota applies, and

whether the product must pass inspections related to food safety or

product standards. Once the product is in China, still other commitments

then determine whether foreigners have the ability to distribute the

product within China or to provide other product-related services, perhaps

requiring that these be supplied through a partnership with a Chinese firm.

Finally, other commitments seek to improve foreigners’ ability to protect

patents, copyrights, and trademarks associated with selling a product in

China. After reviewing China’s WTO commitments, we found that some of

these interrelationships work together to strengthen the general business

climate but that others may result in some delays or limitations on

foreigners’ ability to do business competitively in China with regard to

certain products or services.

China made numerous commitments that relate to conforming the overall

structure of its trade regime to WTO rules, and the interrelationship of

these commitments could contribute to an improved environment for U.S.

and other foreign businesses. The clearest examples of these are related to

improving China’s rule of law. Specifically, these structural, or trade

framework, commitments include principles of transparency;

nondiscrimination; judicial review; and the consistent application of laws,

regulations, and other measures. Each of these is closely interrelated with

several other sections of the accession agreement.26 For example, although

the protocol lists several general commitments requiring China to improve

 26See appendix IV for a description of these trade framework commitments.

Interrelationships

among Commitments

Can Affect Foreign

Business

Opportunities

Interrelationships among

Some Commitments Could

Strengthen China’s Overall

Business Environment
Page 32 GAO-03-4 China's WTO Commitments

the overall transparency of its trade regime, specific commitments on

transparency are described throughout the agreement to address WTO

members’ concerns. Sections of China’s accession agreement relating to

agricultural tariff-rate quotas, export and import regulation, state trading,

and services all include transparency commitments intended to improve

the openness of administrative rules and procedures relating to China’s

business environment. Commitments requiring consistent application of

legal measures throughout China, nondiscriminatory treatment between

foreign and Chinese enterprises, and more independent judicial review of

trade disputes could also improve the rule of law and the overall legal

environment for foreign businesses in China.

Similarly, the combined effect of several other types of commitments

could lead to improvements in the overall business environment.

Specifically, China’s commitments to reduce subsidies, reform stateowned enterprises, and decrease the role of state trading can, if fully

implemented, contribute to the development of a more market-oriented

environment in China.

While most of the 685 commitments we identified were to take effect upon

China’s accession to the WTO, a number of interrelated commitments are

phased in over time; in some cases, barriers to entering China’s market

will remain following the phasein of all commitments. These

interrelationships can delay or limit foreign business opportunities in

China’s market. For example, commitments in the areas of trading rights

(that is, a company’s right to import products into and export products

from China) and tariff-rate quotas are interrelated in this way. Trading

rights for most products are phased in over a 3-year period, and this can

temporarily delay a foreign company’s ability to benefit from China’s

commitments on tariff-rate quotas. Under the tariff-rate quota system, a

specified quantity of imports is allowed in at a low tariff rate. China

committed to reserving a portion of this low tariff quota for importation

through nonstate trading enterprises (this includes private foreign

companies). However, the number of private companies that can directly

Interrelationships among

Some Commitments Could

Delay or Limit Foreign

Business Opportunities
Page 33 GAO-03-4 China's WTO Commitments

import the low-tariff quantity is limited in the short run, because the

necessary trading rights are not fully phased in until 2004.27

There are also important short-term limitations on foreign companies

arising from the interrelationship between trading rights and China’s

commitments on distribution services. China’s commitments on trading

rights and its services commitments allowing foreign enterprises to set up

distribution systems in China will not be fully phased in until 2004. Thus,

China’s commitments to remove most restrictions on wholesale, retail,

franchising, and other forms of distribution are similar to the 3 year

phaseout of the restrictions on trading rights. As a result, the opportunity

for foreign enterprises to integrate import, export, and distribution

systems for most products will not be fully realized until 2004.28

Interrelated commitments pertaining to specific market access barriers to

goods, such as tariffs and nontariff measures, can also delay or limit

opportunities for U.S. businesses to export to China. For example, China

has agreed to remove barriers in the automobile and parts sector, which

has traditionally been highly protected in China, through a phaseout

period lasting until July 2006. Tariffs, which ranged between 80 and 100

percent before accession on certain types of automobiles and auto

products, are scheduled to fall to 25 percent by July 2006. Complementing

these market access commitments are China’s commitments covering

technical barriers to trade and trade-related investment measures that are

intended to create a more open business environment for automobile

producers. Despite the improved access to the sector, some restrictions

will remain. Automobiles will still be subject to quota and licensing

restrictions through 2005. Automobile companies are also affected by

restrictions on the types of services they can provide their customers. For

example, restrictions limiting the amount of foreign equity in commission

agents’ and wholesale distribution of most products, including automotive

products, will not be phased out until 2004. Similarly, equity restrictions

 27China’s trading rights commitments state that joint venture enterprises with a minority

share of foreign investment are allowed full trading rights beginning 1 year after accession,

and majority-share foreign-invested joint ventures are granted full trading rights 2 years

after accession. See appendix IV for a further discussion of China’s trading rights

commitments.

28Certain products are excluded from China’s commitments on trading rights and are

reserved for importation and exportation by state trading enterprises. These products are

listed in annex 2A of China’s accession agreement and include certain grains, vegetable

oils, fertilizer (urea), crude oil, and other products.
Page 34 GAO-03-4 China's WTO Commitments

on foreign retail chain stores with more than 30 outlets that are engaged in

the distribution of motor vehicles will not be removed until 2006. Besides

automobiles, several other products are also subject to multiple tradedistorting measures. Table 9 lists certain products and services that are

affected by multiple measures and the phaseouts of these measures.

Table 9: Selected Products and Services Sectors Subject to Multiple Restrictions and Trade-Distorting Measures

Products and services sectors Restrictions and trade-distorting measures, with the phaseout schedule

Automobiles and parts • Wide range of rates, but tariffs on certain automobiles falling from over 50 percent

(2001) to 25 percent (2006); lower on parts

• Quotas and licenses (removed by 2005)

• Restrictions on distribution (gradual removal of restrictions by 2006; most removed by

2004)

• Restrictions on third-party auto liability insurance and driver and operator liability for

buses and other commercial vehicles (not removed)

Chemical fertilizers • Tariff-rate quota (increased quotas through 2006, but not removed)

• In-quota tariff rate of 4 percent; out-of-quota rates of 50 percent

• State trading (imports; not removed)

• Government guidance pricing on urea (not removed)

• Foreign distribution excluded (removed by 2006)

Corn, cotton, rice • In-quota tariff rates between 1 and 10 percent; out-of-quota rates between 10 and 65

percent

• Tariff-rate quota (increased quotas through 2004, but not removed)

• State trading (both imports and exports; not removed)

• Government guidance pricing (not removed)

Legal services • Restrictions on the scope of business, form of establishment, and national treatment–

nationality/residency and qualifications requirements (not removed)

• Government guidance pricing (not removed)

Life insurance services • Restrictions on scope of business, form of establishment, participation of foreign

capital, cross-border trade, and national treatment–licensing requirements (not

removed)

Natural rubber • 20 percent tariff rate

• Quotas and licenses (removed by 2004)

• Designated trading (removed by 2004)

Processed oils

(gasoline, kerosene, diesel)

• Tariffs between 6 and 9 percent upon accession

• Quotas and licenses (removed by 2004)

• State trading (both imports and exports; not removed)

• Government guidance pricing (not removed)

• Foreign distribution excluded (removed in 2004 for retailing services and 2006 for

wholesale and commission agents’ services)

Sugar • Tariff-rate quota (increased quotas through 2004, but not removed)

• In-quota tariff rate falling from 20 percent to 15 percent by 2004; out-of-quota rate of 50

percent

• State trading (imports)

Telecommunications services

(value added)

• Restrictions on form of establishment, participation of foreign capital, and cross-border

trade (not removed)

• Government pricing (not removed)

Tobacco • Final tariff rates range from 65 to 10 percent on a variety of tobacco products. Most

tariff reductions phased in by 2004

• State trading (imports; not removed)

• Price controls (not removed)

• Foreign distribution excluded (not removed)
Page 35 GAO-03-4 China's WTO Commitments

Products and services sectors Restrictions and trade-distorting measures, with the phaseout schedule

Vegetable oils

(soy bean, palm, rape seed)

• Tariff-rate quota (increased quotas until removed in 2006)

• In-quota tariff rate of 9 percent; out-of-quota rate of 63.3 percent, falling to 9 percent in

2006

• State trading (imports; not removed)

• Government guidance pricing on soy bean and rapeseed oil (not removed)

Wheat • Tariff-rate quota (increased quotas through 2004, but not removed)

• In-quota tariff rates between 1 and 10 percent; final out-of-quota rates of 65 percent

• State trading (imports; not removed)

• Government guidance pricing on certain wheat products (not removed)

Wool and wool tops • Tariff-rate quota (increased quotas through 2004, but not removed)

• In-quota tariff rates of 1 percent (wool) and 3 percent (wool tops) ; out-of-quota rates of

38 percent

• Designated trading (removed by 2004)

Source: GAO analysis of China’s WTO accession agreement.

China’s accession to the WTO represents a major step in China’s recent

reform efforts, which have been occurring since the late 1970s. The United

States and other WTO members seek benefits from China’s continued

integration into the world trading system, guided by the rights and

obligations of WTO membership. China’s accession agreement is the most

comprehensive of any acceding WTO member to date. It includes some

commitments that exceed the underlying obligations of all WTO members,

especially with regard to the protective safeguards and trade remedies that

WTO members can apply to Chinese exports that injure their home

markets.

Our analysis of China’s accession agreement describes the broad scope of

China’s WTO commitments across eight areas, as well as the many types

of commitments China made, which range from specific, discrete actions

to general pledges. Our analysis also describes the complexity of the

agreement and the ways in which the interrelationship between some

individual commitments could strengthen the general business

environment in China by fostering a more transparent, consistent, and

market-oriented trade regime for U.S. business. On the other hand, some

related commitments could delay or limit the access given to U.S.

businesses because the commitments are to be phased in over time or they

provide only partial access for particular foreign products or services. The

benefits from China’s WTO membership are contingent upon China’s

successful implementation of its many commitments as they come into

practice during the next 10 years. The breadth and complexity of China’s

commitments indicate the challenges facing China in fulfilling its WTO

obligations, and other WTO members in monitoring and enforcing China’s

compliance.

Concluding

Observations
Page 36 GAO-03-4 China's WTO Commitments

We requested comments on a draft of this report from the U.S. Trade

Representative and the Secretaries of Commerce, Agriculture, and State,

or from his or her designee. On September 17, 2002, the Deputy Assistant

U.S. Trade Representative for China provided us with oral comments on

the draft. These comments included the views of officials from the

Departments of State and Agriculture, which were transmitted to USTR in

its capacity as chair of the interagency Trade Policy Staff Committee,

Subcommittee on China WTO Compliance. The Department of Commerce

did not provide comments.

USTR officials complimented the scope and depth of our analysis, but

declined to comment on some of the details of our analysis—particularly

relating to the number and type of commitments. Nevertheless, they

provided technical and editorial comments about our characterization of

particular Chinese commitments and provisions in the WTO agreements.

For example, USTR officials thought that our presentation of

commitments subject to phasein periods was overly focused on the end

points for the phasein of all obligations. Officials noted that in a number of

instances, these end points related only to limited exceptions or items of

marginal trade interest to the United States, and that most of the benefits

from China’s commitments should accrue early in the periods. We added

more information to various sections of our report to make that point

clearer. Furthermore, they believed that we characterized some Chinese

commitments as market access limitations rather than as opportunities for

trade, and this undervalued those commitments (for example, in the area

of tariff-rate quotas). We modified certain sections based on their

comments, but, in general, we believe that our discussion of the

commitments is accurate and balanced and properly acknowledges both

the potential benefits and the limitations. USTR officials also provided a

number of technical comments and corrections on other topics, which we

incorporated as appropriate.

We are sending copies of this report to the U.S. Trade Representative and

interested congressional committees. Copies of this report will also be

made available to other interested parties on request. In addition, the

report will be made available at no charge on the GAO Web site at

http://www.gao.gov.

Agency Comments

and Our Evaluation
Page 37 GAO-03-4 China's WTO Commitments

If you or your staff have any questions about this report, please contact me

at (202) 512-4128. Other GAO contacts and staff acknowledgments are

listed in appendix V.

Susan S. Westin

Managing Director,

International Affairs and Trade
Appendix I: Objectives, Scope and

Methodology

Page 38 GAO-03-4 China's WTO Commitments

As part of a long-term body of work that the Chairman and the Ranking

Minority Member of the Senate Committee on Finance, as well as the

Chairman and the Ranking Minority Member of the House Committee on

Ways and Means, requested, we examined (1) the scope and types of

China’s World Trade Organization (WTO) commitments; and (2) the

interrelationships of commitments described in China’s accession

agreement, which can affect foreign business opportunities. To conduct

our analysis, we completed a detailed review of China’s accession

agreement—documents totaling more than 800 pages that describe the

terms of China’s WTO membership. The agreement includes the Protocol

on the Accession of the People’s Republic of China and the accompanying

Report of the Working Party on the Accession of China. These documents

provide China’s particular commitments to the WTO and describe how

China will adhere to WTO agreements, principles, and rules. Additionally,

the agreement includes schedules for how and when China will grant

market access to foreign goods and services, and seven other annexes.

In order to examine the scope and type, as well as the interrelationships

among, China’s WTO commitments described in China’s accession

agreement, we created a database for the protocol and working party

report (83 pages of legal text), systematically analyzed individual

commitments, and classified them by the type of commitment made. The

accession agreement contains commitments made by China, background

or contextual information, and concerns expressed by working party

members about the operations of China’s trade regime.29 The working

party report is divided into numbered paragraphs that provide a narrative

on the results of the negotiations. Of the 343 paragraphs in the working

party report, 144 contain China’s specific commitments to WTO members.

A few paragraphs also describe pledges of WTO members to China about

certain actions that the members will take with respect to China’s

commitments. The remaining paragraphs describe China’s explanation of

existing trade practices or other statements of fact, while other paragraphs

list specific working party concerns. As a legal matter, the protocol

includes China’s commitments in the working party report. Thus the

commitments set forth in the protocol and the working party report have

the same status and carry the same legal effect under WTO rules.

 29We grouped the subjects of the accession agreement into eight broad areas and 47

subcategories. Appendix II lists these categories.

Appendix I: Objectives, Scope and

Methodology
Appendix I: Objectives, Scope and

Methodology

Page 39 GAO-03-4 China's WTO Commitments

We identified more than 600 individual commitments in the protocol and

working party report. This figure does not include the market access

commitments, such as tariffs, made on specific products and sectors in the

goods and services schedules, as well as product-specific commitments in

the additional annexes, although we included text notes from these

documents in the database.30 We defined “commitments” as legally binding

pledges that China has provided to the WTO and its members. For the

most part, these commitments are set forth in separate paragraphs in the

protocol, working party report, and text notes. Nevertheless, many of

these paragraphs include multiple pledges. The working party report

describes each of the commitment paragraphs as providing for a

“commitment” or “commitments,” though the report does not specifically

indicate the number of commitments when they are plural. Thus,

separating out the commitments in the accession agreement can be done

in different ways. For example, some analyses of the agreement might

count the number of paragraphs as the number of commitments. We

chose, however, when appropriate, to break down each paragraph into

multiple commitments, and thus our total number of commitments is

considerably larger than the number of paragraphs in the protocol,

working party report, and text notes.

After identifying individual commitments, we classified them by their

characteristics. We identified seven different types of commitments (for

example, commitments that require transparency or nondiscrimination)

and then for each commitment assessed whether it fit the type. We

developed these types, defined in table 2, in order to characterize the

content of China’s commitments across the agreement. We also identified

some commitments that did not fit any of these seven types and

categorized these commitments as “other.” We discussed this methodology

with other U.S. government agencies, including the Office of the U.S.

Trade Representative and the Departments of Agriculture, Commerce, and

State. Each commitment could be characterized by more than one type.

Also, our different types are not an exhaustive list of the types of

commitments that were made—one of our categories is for commitments

that did not match any of the other types. We also identified whether

particular commitments specified phasein or phaseout periods or made

 30The annexes and parts of the market access schedule for goods included text notes that

were similar to those in the protocol and the working party report. These were included in

the database analysis of commitments in the protocol and the working party report. We

analyzed the remainder of the annexes and market access schedules separately on a

product-level basis.
Appendix I: Objectives, Scope and

Methodology

Page 40 GAO-03-4 China's WTO Commitments

references to specific WTO agreements, and whether WTO working party

members raised particular concerns about the areas that the commitments

addressed.

We analyzed the market access schedules and annexes and combined

them with relevant U.S. and Chinese trade data. China’s market access

schedule for goods lists specific tariff bindings and phasein periods for

more than 7,000 products. Several other annexes include product-specific

information on China’s trade policies, such as state trading and licensing.

Appendix III provides a detailed description of our data sources and

methodology. We also analyzed individually China’s market access

schedule for services. We examined the number of sectors (such as

financial services or tourism) included in China’s market access schedule,

as well as the types of limitations, as defined by the WTO, that China made

for each sector.

In addition, we interviewed knowledgeable U.S. government officials from

the Office of the U.S. Trade Representative and the Departments of

Agriculture, Commerce, State, and the Treasury. We also met with WTO

officials in Geneva, Switzerland, and high-level Chinese officials in Geneva

and in Beijing, China. We also reviewed other analyses of China’s

accession agreement from a variety of sources, including the U.S.

government, international organizations, and private-sector organizations.

We performed our work from November 2001 through September 2002 in

accordance with generally accepted government auditing standards.
Appendix II: Areas of China’s Trade Regime

That China’s WTO Accession Agreement

Covers

Page 41 GAO-03-4 China's WTO Commitments

For purposes of our analysis, we categorized the commitments related to

China’s trade regime that China’s WTO accession agreement covers into

eight broad areas and 47 subcategory topics. Generally, our topics

correspond to those that the WTO uses in China’s accession agreement,

while our broad areas are somewhat similar to the section headings in the

agreement. Table 10 lists these broad areas and topics.

Table 10: Areas and Topics Covered by China’s WTO Accession Agreement

GAO area GAO topic

1. Trade framework 1. Nondiscrimination

2. Transparency

3. Uniform administration

4. Judicial review

5. Special economic areas

6. Special trade arrangements

2. Import regulation 7. Tariffs, taxes, and charges

8. Nontariff measures (licenses, quotas, tendering)

9. Industrial tariff-rate quotas

10. Regulatory border measures (rules of origin, customs valuation,

preshipment inspection)

11. Technical barriers to trade

3. Export regulation 12. Export licensing

13. Export duties

4. Trading rights and industrial policies 14. Right to trade

15. State trading

16. Price controls

17. Subsidies (including export subsidies)

18. State-owned and state-invested enterprises

19. Investment policies

20. Foreign exchange controls

21. Balance of payments

23. Civil aircraft trade

24. Government procurement

5. Agriculture 25. Tariffs

26. Tariff-rate quotas

27. Subsidies

28. Sanitary and phytosanitary measures

Appendix II: Areas of China’s Trade Regime

That China’s WTO Accession Agreement

Covers
Appendix II: Areas of China’s Trade Regime

That China’s WTO Accession Agreement

Covers

Page 42 GAO-03-4 China's WTO Commitments

GAO area GAO topic

6. Servicesa 29. Horizontal commitments

30. Business services

31. Communication services

32. Construction services

33. Distribution services

34. Education services

35. Environmental services

36. Financial services

37. Tourism and travel-related

38. Transport services

39. Other services commitments

7. Intellectual property rights (IPR) 40. General

41 Copyrights, trademarks, patents, and other IPR

42. Enforcement

8. Safeguards & trade remedies 43. Product-specific safeguard

44. Textile safeguard

45. Price comparability in determining Chinese dumping

46. Price comparability in determining Chinese subsidies

47. Transitional review mechanism

a

Topics 29–38 listed in the services area reflect the topics covered by China’s WTO services

schedule. Services commitments from other sections of China’s accession agreement are discussed

under topic 39 (“other services commitments”). See appendix IV for a further discussion of China’s

services commitments.

Source: GAO analysis of China’s WTO accession agreement.
Appendix III: Data Sources and Methodology

for Analysis of China’s WTO Goods

Commitments

Page 43 GAO-03-4 China's WTO Commitments

China’s market access schedule for goods lists specific tariff bindings and

phasein periods for more than 7,000 products. China’s eight-digit

classification of these products is based on the international harmonized

system (HS) nomenclature for imports and exports published by the World

Customs Organization. In addition, China’s goods schedule and annexes

list products that are subject to other types of trade measures, such as

tariff-rate quotas and state trading practices. We combined the goods

schedule and all annexes into one database in order to analyze what types

of measures and practices each product is scheduled to face. We added

U.S. and Chinese government trade statistics to this database to provide

context for describing China’s commitments. U.S. trade statistics are from

the U.S. Department of Commerce’s Bureau of the Census (goods) and the

Bureau of Economic Analysis (services). Chinese trade statistics (goods)

were acquired from the Global Trade Information Service, which produces

the World Trade Atlas. Data are official Chinese Customs statistics.

We provide the amount of U.S. trade with China in products that are

subject to various trade measures discussed in China’s accession

agreement. Since existing Chinese trade barriers have affected U.S. trade,

current bilateral trade data (2001) may not represent future trade patterns

after barriers are removed. Therefore, data presented in this report on the

amount or share of trade affected by various measures should be

considered only as rough indicators of future trade patterns. In addition,

we also present U.S. world trade data in places as another indicator of the

importance of the sectors that these commitments potentially affect.

Bilateral trade data that the U.S. and Chinese governments publish differ

significantly for some sectors. Overall, China reports larger U.S. exports to

China and smaller Chinese exports to the United States than does the

United States. One factor affecting this discrepancy is that a large share of

China’s trade passes through Hong Kong. China treats a large share of

these exports as exports to Hong Kong for statistical purposes, while many

countries that import Chinese products through Hong Kong generally

attribute their origin to China. We mainly report U.S. statistics but

supplement these with Chinese statistics when appropriate.

U.S. and Chinese trade statistics are not comparable at a detailed product

level. The harmonized system nomenclature used to record trade data

(both U.S. and Chinese statistics) is comparable only between countries at

the six-digit level. However, China’s tariff schedule and other annexes are

reported at an eight-digit (more disaggregated) level. Therefore, U.S. trade

data cannot be precisely matched to the Chinese tariff and other trade

measure schedules. To overcome this challenge, we have produced ranges

Appendix III: Data Sources and Methodology

for Analysis of China’s WTO Goods

Commitments
Appendix III: Data Sources and Methodology

for Analysis of China’s WTO Goods

Commitments

Page 44 GAO-03-4 China's WTO Commitments

of values of U.S. trade (exports or imports) at the eight-digit level that are

affected by Chinese tariffs and other trade measures. In cases where not

all eight-digit products in a given six-digit grouping are affected by a

particular trade measure, we produce a range of trade affected by the

measure. The low end assumes that all U.S. trade occurred with products

not affected by the measure. The high end assumes that all U.S. trade

occurred with products that were affected by the measure. In cases where

all 8-digit products (in a six-digit group) are affected by a trade measure,

we know that all trade is in products that are affected and no range is

needed.

To facilitate a broad analysis of China’s commitments, we grouped imports

and exports into higher-level categories of goods based on the HS product

codes and our discussions with tariff experts. We took the 22 section

headings of the harmonized system and grouped them into 11 broader

categories. Table 11 shows these groupings in detail.
Appendix III: Data Sources and Methodology

for Analysis of China’s WTO Goods

Commitments

Page 45 GAO-03-4 China's WTO Commitments

Table 11: Concordance between GAO Categories and Harmonized Schedule Section Headings

GAO categories HS section headings

1. Animal and plant products 1- Live animals; animal products

2- Vegetable products

3- Animal or vegetable fats and oils; edible fats; waxes

2. Prepared foods, beverages, spirits, and

tobacco

4- Prepared foodstuffs; beverages; spirits; vinegar; tobacco

3. Chemicals, plastics, and minerals 5- Mineral products

6- Products of chemical or allied industries

7- Plastics and articles thereof; rubber

4. Wood and paper products 9- Wood and articles of wood

10- Pulp of wood, paper, and paperboard

5. Textiles, apparel, leather, and footwear 8- Leather, travel goods, handbags

11- Textiles and textile articles (apparel)

12- Footwear, headgear, umbrellas

6. Glassware, precious metals and stones,

jewelry

13- Articles of stone, plaster, ceramics, glass, and glassware

14- Pearls, precious or semiprecious stones, precious metals, jewelry, coin

7. Base metals and articles of base metals 15- Base metals and articles of base metals (except tools and implements)

8. Machinery, electronics, and high-tech

apparatus

15- Base metals and articles of base metals (tools and implements)

16- Machinery and mechanical appliances, electrical equipment, sound recorders,

televisions

18- Optical, photographic, cinematographic, measuring, and other apparatus (except

clocks and watches, musical instruments)

9. Autos and other vehicles and parts 17- Vehicles, aircraft, vessels, and associated transport equipment

10. Miscellaneous manufacturing 18- Optical, photographic, cinematographic, measuring, and other apparatus (clocks

and watches, musical instruments)

19- Arms and ammunition

20- Miscellaneous manufactured articles

21- Works of art, collectors’ pieces, antiques

11. Special provision products 22-Special classification provisions

Source: GAO and the international harmonized system nomenclature (World Customs Organization).

Also, in the discussion of China’s trade framework in appendix IV, we

refer to U.S. exports of chemicals, pharmaceuticals, and spirits. We

defined these product groups based on harmonized schedule categories.

For chemicals, these are HS categories 28 (inorganic chemicals; organic or

inorganic compounds of precious metals, of rare earth metals, of

radioactive elements, or of isotopes); and 29 (organic chemicals). For

pharmaceuticals, this is HS category 30 (pharmaceutical products). For

spirits, these are HS categories 2203 (beer made from malt) through 2208

(ethyl alcohol, spirits, liqueurs, and other spirituous beverages).
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 46 GAO-03-4 China's WTO Commitments

During China’s negotiations to accede to the World Trade Organization,

WTO members sought and achieved a variety of commitments from China

that addressed a range of member concerns. Many of these commitments

relate to the transitional status of China’s economy as it becomes more

market oriented and less state controlled. Among other things, the

commitments address how China manages its trade regime; what level of

market access China provides for goods, agriculture, and services; how

China uses import and export regulations to monitor and influence its

trade with other countries; how China applies and enforces intellectual

property rights protection; and how the state intervenes in the economy

with respect to foreign investment, firms’ rights to trade, and state-owned

enterprise operations. In addition, China agreed to certain safeguards and

trade remedies, including a special oversight review mechanism, to

provide protection to WTO members to deal with trade-related problems

that might arise as China implements its WTO obligations. We grouped

China’s WTO commitments into eight areas—trade framework, import

regulation, export regulation, trading rights and industrial policies,

agriculture, services, intellectual property rights, and safeguards and other

trade remedies. In the following sections we discuss China’s commitments

in each of the eight areas, as well as the phasein schedule of selected

commitments.

China’s trade framework commitments cover a number of topics that deal

broadly with how China manages its trade regime.31 Prior to China’s

accession to the WTO, U.S. businesses and government officials

complained that China’s trade regime discriminated against foreign

enterprises and individuals, lacked transparency, and did not consistently

apply its trade laws and other measures throughout China. U.S.

government officials and businesses were also concerned that China’s

court system lacked the expertise and independence necessary to help

establish a stable business and trade climate in China. The lack of an

independent judiciary has caused U.S. businesses to rely more on

arbitration proceedings than on China’s courts to resolve commercial

disputes. The topics that China’s trade framework commitments cover

include nondiscrimination, transparency, uniform administration of

China’s trade regime, and judicial review. Several of these topics also

include commitments requiring China to revise its laws, regulations, and

 31We refer to “topics” as the subcategories under our eight broad categories. Overall, there

are 47 topics in the eight categories (see app. II).

Appendix IV: Summary and Analysis of

China’s WTO Commitments

Trade Framework
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 47 GAO-03-4 China's WTO Commitments

other legal measures for conformity with WTO rules. Other topics include

application of China’s WTO commitments to its special economic areas

and to China’s special trade arrangements, such as barter trade.32 Some of

the important commitments in this area are shown in table 12.

Table 12: Examples of China’s WTO Commitments Relating to China’s Trade Framework

Topic China committed to

Nondiscrimination • Treating foreign individuals and enterprises, including foreign-funded enterprises, no less

favorably than other enterprises and individuals regarding (1) procurement of goods and services

necessary for production and (2) prices and availability of goods and services supplied by public

entities.

• Repealing and ceasing to apply, upon accession, all existing laws, regulations, and other

measures inconsistent with WTO rules on national treatment.

Transparency • Publishing trade measures, and a list of all organizations responsible for authorizing, approving, or

regulating services activities, in an officially designated journal.

• Allowing a reasonable period of time after publication of trade measures for public comment

before measures are implemented.

• Enforcing only trade measures that are published and readily available to other WTO members.

• Making available trade measures in one or more official WTO languages, not later than 90 days

after they are implemented or enforced.

• Establishing one or more enquiry points where individuals, enterprises, or WTO members can

obtain information on trade measures.

• Ensuring that replies from enquiry points to WTO members represent authoritative view of

Chinese government, and that replies to individuals and enterprises are accurate and reliable.

Uniform administration • Applying China’s WTO commitments uniformly throughout China, including in its special economic

areas.

• Applying China’s trade measures uniformly at central and subnational levels, and ensure that local

measures are consistent with WTO rules.

• Establishing a mechanism for receiving complaints regarding nonuniform

• application of China’s trade regime.

• Requiring Chinese authorities to act promptly to address cases of nonuniform application.

Judicial review • Establishing or designate tribunals to review a broad array of administrative actions relating to

trade.

• Ensuring that tribunals are impartial and independent of administrative agencies entrusted with

enforcement of trade-related actions.

• Providing opportunity for appeal to judicial body where initial right of appeal of trade-related action

is to an administrative agency.

Special economic areas • Applying to imported products introduced into other parts of China from its special economic areas

all taxes, charges, and measures that are normally applied to imports.

• Ensuring that preferential arrangements provided to foreign-invested enterprises located within

China’s special economic areas are provided on nondiscriminatory basis.

Special trade arrangements • Eliminating or bringing into conformity with WTO rules all special trade arrangements, including

barter trade arrangements, with third countries and separate customs territories.

Source: GAO analysis of China’s WTO accession agreement.

 32These special economic areas include China’s special economic zones, open coastal

cities, border trade regions and minority autonomous areas, and economic and technical

development zones.
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 48 GAO-03-4 China's WTO Commitments

China’s trade framework commitments are substantial and require China

to continue to make changes to the way in which its trade regime

functions. Many of these commitments can be viewed as furthering

China’s overall rule of law development, which has been occurring since

the late 1970s. About half of China’s trade framework commitments are of

the nondiscrimination and transparency type, and nearly all those

pertaining to nondiscrimination involve China’s providing national

treatment to foreign enterprises and individuals.33 Also, the topic of

nondiscrimination has the largest number of commitments of any topic in

the agreement that requires China to revise its laws—covering the creation

and modification of some laws and the repeal of others.34 One important

commitment in this topic is that, by accession, China would repeal and

cease to apply all legal measures that are inconsistent with WTO rules on

national treatment. Aside from these nondiscrimination and transparency

commitments, a number of others in the topic of uniform application of

laws call for revising legal measures to ensure their consistency with WTO

rules. Thus, China has committed to applying its WTO commitments

throughout its territory, to conform local legal measures to its WTO

obligations, and to ensure consistency of national and subnational legal

measures. One important related commitment states that China will honor

its WTO obligations even if administrative regulations, departmental rules,

and other measures are not in place to implement them. Finally, China

made many nondiscrimination and transparency commitments in other

areas of its accession agreement, such as import regulation, agriculture,

and trading rights and industrial policies.

China’s rule of law–related commitments, particularly in the areas of

transparency, uniform application of laws, and judicial review, affect not

only China’s implementation of its trade regime but also its overall legal

system. Consequently, it may be some time before WTO members can

accurately assess how well China is implementing those commitments.

Some of these commitments also exceed the requirements set forth in the

WTO agreements and rules. For example, WTO rules generally do not

require, as does China’s accession agreement, that its members (1) provide

a public comment period before a trade measure can be implemented; (2)

 33National treatment requires China to provide foreign enterprises and individuals

treatment that is at least equal to that provided to domestic enterprises.

34With regard to law revision generally, about a tenth of the nearly 700 commitments that

we identified in China’s WTO accession package specifically obligate China to enact,

repeal, or modify trade-related laws and regulations.

Nondiscrimination,

Transparency, Uniform

Administration, and

Judicial Review
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 49 GAO-03-4 China's WTO Commitments

establish enquiry points for transparency purposes, which must respond

authoritatively to transparency-related questions that WTO members raise;

or (3) establish a mechanism by which individuals can bring questions

about inconsistent application of a WTO member’s trade regime.

Because of WTO member concerns about products from China’s special

economic areas being treated differently from other products imported

into China, and because of the lack of available information about these

topics, China made about a dozen commitments that apply to these areas.

For example, China committed to applying to imported products

introduced into other parts of China from its special economic areas all

taxes, charges, and measures that normally apply to imports. China also

pledged to provide the WTO information describing how special trade,

tariff, and tax regulations were limited to the designated special economic

areas, including information on their enforcement.

One of the main reasons for the rapid economic development in these

special economic areas, such as the Shenzhen special economic zone, has

been the preferential benefits provided to foreign businesses, including tax

benefits and the use of foreign capital. Although the commitments that

apply to these economic areas require China to fully observe WTO

provisions on nondiscrimination, they still allow China to continue to

provide preferential arrangements to U.S. and other foreign businesses.

Thus, consistent with China’s overall national treatment commitments,

China cannot treat foreign businesses less favorably than Chinese

enterprises in these areas, but China can give them better treatment. In

addition, China committed to bringing all special trade arrangements with

other countries and separate customs territories, including barter

arrangements, into conformity with WTO rules.

With several relatively minor exceptions, China’s trade framework

commitments became applicable on December 11, 2001, the date of

China’s accession to the WTO. However, one exception relates to a 1 year

phasein period for amending or repealing legislation dealing with aspects

of national treatment relating to pharmaceuticals, spirits, and chemicals.35

 35In 2001, U.S. exports to China totaled about $494 million in chemicals, $50 million in

pharmaceuticals, and $4 million in spirits. This amounted to 3 percent of total U.S. exports

to China for that year.

Special Economic Areas

and Trade Arrangements

Key Dates
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 50 GAO-03-4 China's WTO Commitments

During China’s WTO accession negotiations, WTO members sought to limit

China’s future use of a variety of import mechanisms that could be

employed to control market access and potentially reduce the prospective

gains to WTO members resulting from China’s WTO concessions. We

found that China made more commitments in the import regulation area

than in any of the other eight areas of its agreement. They make up about

one-third of those we identified. China has used high import duties

(tariffs),36 restrictive quotas, and burdensome technical standards and

inspection procedures to restrict trade. To join the WTO, China made

commitments to reduce its use of these barriers and to follow WTO basic

principles so that these barriers are not used as a discriminatory or

burdensome hindrance to trade. In addition, China agreed to implement

the WTO agreements covering regulatory border measures (such as rules

of origin and customs valuation) upon accession and to ensure that its

laws, regulations, and other measures conform to WTO rules. Examples of

commitments that China agreed to concerning import regulation are listed

in table 13.

Table 13: Examples of China’s WTO Commitments Relating to China’s Import Regulation

Topic China committed to

Tariffs, taxes, and charges • Binding (not to raise tariffs beyond a certain level) all tariff lines and bind at zero other

duties and charges.

• Eliminating tariffs and other duties and charges on information technology products.

• Conforming customs fees and charges to WTO rules, such as limiting duties to the

approximate cost of services rendered.

• Providing nondiscriminatory treatment to imports with respect to tariffs, charges, and

border tax adjustments.

Nontariff measures

(licensing, quotas, tendering)a

• Gradually eliminating licensing, quota, and tendering requirements for certain products.

• Refraining from instituting new, nontariff measures beyond those listed in China’s

scheduled commitments.

• Ensuring that China’s quota and licensing system conforms to WTO rules, including that

they be administered in a transparent, nondiscriminatory manner.

• Ensuring that entities holding quota allocations also receive necessary import licenses.

• Abiding by specific time frames for allocating quotas and a minimum validity period for

issued licenses.

• Publishing key information on licensing and quota allocation rules and procedures,

including lists of products subject to licensing and tendering requirements or other trade

restrictions, criteria for obtaining licenses or quotas, and amount of quota available.

• Reallocating unused quota by a specific date to encourage full quota utilization.

Industrial tariff-rate quotas

(TRQ)b

• Establishing annual TRQs for certain fertilizer and wool top products and gradually

increase quota levels during a phasein period. (See table 15.)c

• Abiding by specific time frames for allocating initial quota and reallocating unused quota

 36A tariff is a tax collected at the border based on a given percentage value of an imported

product or a specific rate per unit of the product.

Import Regulation
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 51 GAO-03-4 China's WTO Commitments

Topic China committed to

to encourage full TRQ utilization. (See fig. 5.)

• Publishing information on amount of quota allocations available and respond to inquiries

within 10 days to increase transparency about what entities received quota allocations.

• Reserving a portion of all TRQs for private traders, and allocate quotas directly to endusers to increase private competition and reduce state intervention.

• Allocating at least 10 percent of TRQ to new quota-holders in the first year.

Regulatory border measures

(rules of origin, customs valuation,

preshipment inspection)d

• Ensuring that laws and regulations conform to the WTO agreements for rules of origin,

customs valuation, and preshipment inspection upon accession.

• Refraining from using minimum or reference prices, such as an artificial market price, for

customs valuation purposes.

• Adopting two WTO decisions that affect how certain products are treated for customs

valuation purposes within 2 years of accession.

• Ensuring upon accession that fees charged for preshipment inspection are

commensurate with the services provided and do not provide indirect protection to

domestic products or serve as a tax for fiscal purposes.

Technical barriers to tradee • Bringing all technical regulations, standards, and conformity assessment procedures into

conformity with WTO rules, including the nondiscriminatory application of and opportunity

to comment on proposed rules.

• Ensuring that imported products are not subject to multiple or duplicative conformity

assessment requirements.

• Unifying China’s conformity assessment procedures and inspection certificate marks for

both imported and domestic products, and shorten the time frames for obtaining the

unified certification mark.

• Increasing the use of international standards and recommendations as the basis of

technical regulations, standards, and conformity assessment rules.

• Publishing information on adopted and proposed technical regulations, standards, and

conformity assessment procedures, including criteria used and regulatory bodies having

responsibilities for administering such rules.

• Adopting the WTO Code of Good Practice within 4 months of accession (includes

provisions for nondiscriminatory treatment, the avoidance of using standards as barriers

to trade, the use of international standards in standards setting, and measures to

increase transparency).

a

Licensing is a requirement that companies obtain government approval and submit documentation

before importing. Quotas are quantitative limits on the amount of a certain product that can be

imported. Tendering is a requirement that enterprises or private individuals obtain government

approval before making major purchases.

b

Tariff-rate quotas are special mechanisms that allow imports to enter at a low tariff up to an agreed

quota level, with any additional imports at a higher tariff level. China also made commitments

concerning tariff-rate quotas for certain agricultural products. These commitments are discussed in

the agriculture section.

c

A wool top is a semiprocessed product of wool before it goes into fabric.

d

Rules of origin are the standards that a country uses to classify a country of origin for customs

purposes. Customs valuation refers to the standards that a country uses to determine the value of

imports for customs purposes. Preshipment inspection is a requirement by some countries that

imports undergo an inspection in the exporting country to confirm that the merchandise matches what

the exporter declares.

e

Technical barriers to trade include packaging, marketing, and labeling requirements, as well as

procedures for sampling, testing, verifying, and certifying conformity or compliance with these rules

through a “conformity assessment” process. Technical barriers to trade can restrict trade if used in a

discriminatory manner.

Source: GAO analysis of China’s WTO accession agreement.
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 52 GAO-03-4 China's WTO Commitments

As discussed previously, China’s commitments for tariffs, taxes, and other

charges include its agreement to bind its tariffs, reduce them gradually,

and eliminate all tariffs and any other charges on information technology

products.37 For example, China agreed to bind all of its tariff lines upon

accession (more than 7,000 products), reduce its tariff rates by 2010 to an

overall average of less than 10 percent, bind at zero any other duties and

charges, and eliminate tariffs on information technology products—

commitments that not all WTO members have made. China also agreed to

implement these commitments in a nondiscriminatory manner. Figure 4

shows how China’s average tariffs for agriculture, nonagriculture, and all

products are anticipated to fall between 2001 and 2010. Most tariff

reductions are to be completed by 2005, when the average tariff on

agriculture products is to be about 15 percent and the average tariff on

nonagriculture products is to be about 9 percent. (The section below on

agriculture discusses agricultural tariffs in more detail). Only a few

products, such as fresh strawberries, have a tariff phasein schedule lasting

until 2010.

 37To “bind” a tariff line means that a country commits to not raising its tariff rate above a

certain agreed-upon rate, known as the bound rate. However, a country may charge less

than its bound rate.

Tariffs, Taxes, and Charges
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 53 GAO-03-4 China's WTO Commitments

Figure 4: China’s Average Tariffs for Agriculture, Nonagriculture, and All Products, 2001–2010

Source: GAO analysis of China’s accession agreement.

With respect to nontariff measures, China agreed to gradually eliminate

licensing, quota, and tendering requirements on all products by 2005 and

to generally refrain from introducing new requirements. These measures

affect more than 400 products, including automobiles and parts, other

transport vehicles, chemical fertilizers, and high-tech apparatus. In 2001,

the United States exported approximately $0.2 billion to $1.1 billion to

China of products that are subject to these measures (between about 1 and

7 percent of total exports to China). Since trade-distorting measures (such

as quotas and licenses) often reduce imports of the affected sectors, using

historical trade data for these sectors could understate the potential

importance of these barriers. Therefore, we also used U.S. export data to

all countries to measure the potential importance of these trade barriers.38

 38We assumed that other U.S. export markets were less distorted by these trade barriers.

However, other market barriers may also distort U.S. world exports. (See app. III for more

discussion of our trade data methodology.)

Nontariff Measures
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 54 GAO-03-4 China's WTO Commitments

Using these data, we found that about 5 to 9 percent of total U.S. world

exports were in goods subject to Chinese licenses, quotas, and tendering.

In addition, China’s commitments provide guidance, including specific

details on how China should manage its licensing and quota systems and

what information should be published in China or reported to the WTO.

For example, China committed to ensuring that entities receiving quota

allocations will also receive necessary import licenses, and that quota

allocation amounts will be published in advance of the time when

importers must apply for these allocations. Moreover, China committed to

generally issuing import licenses that are valid for at least 6 months, and to

allocating quotas to applicants no later than 60 days after the quota

application period closes (see fig. 5 for more information on China’s

annual schedule for quota administration). The licensing example goes

beyond normal WTO rules that require members to issue licenses for a

“reasonable” duration. However, the accession agreement appears to

provide China with additional time to notify the WTO when it changes its

licensing requirements—China has 75 days to notify the WTO after it

publishes such changes, while WTO import licensing rules give members

60 days to do so.

Figure 5: Schedule for China’s Quota Administration

Source: GAO analysis of China’s WTO accession agreement.
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 55 GAO-03-4 China's WTO Commitments

Generally, WTO members do not use TRQs for nonagricultural products.

However, under its agreement China will maintain TRQs for some fertilizer

and wool top products but will provide an increasing level of quota access

(see table 14).39 U.S. Trade Representative officials said that the fertilizer

quotas will continue to grow indefinitely until such time as a new growth

rate for the average of the three fertilizer products is negotiated. Its

agreement also contains substantial, specific guidance for how China will

implement this TRQ system—we found that more than three-quarters of its

commitments concerning industrial TRQs are guidance-related. As with its

commitments on maintaining agricultural TRQs for key commodities

(discussed later), China agreed to be subject to some detailed and specific

procedures for its TRQ administration system. Key features of this TRQ

administration system include provisions to reserve a portion of all quota

amounts for private traders and new quota-holders, to allocate quotas

directly to end-users, and to reallocate unused quotas. Collectively, these

provisions are intended to increase competition and reduce state

intervention between buyers and sellers. Additionally, China committed to

following the same specific guidance set forth for the administration of its

agricultural TRQs, with respect to the information that should be

published about available quota amounts and time frames for making

decisions in administering its quota system (see discussion of agricultural

TRQ and fig. 7).

 39According to U.S. trade statistics, the United States exported about $415 million in

fertilizers to China in 2001, accounting for about 20 percent of U.S. world exports of

fertilizers. However, because of business confidentiality, the U.S. Department of Commerce

does not report detailed information on the amounts of specific types of fertilizers

(including diammonium, urea, and nitrogen phosphorus potash [or NPK]) that are

exported. Chinese trade statistics, which differ from U.S. statistics (see app. III), report

receiving U.S. exports of diammonium of about $526 million, nitrogen phosphorus potash

of $500,000, and no exports of urea in 2001. The U.S. Department of Commerce reported

exports of wool tops to China of about $2 million in 2001.

Industrial Tariff-Rate

Quotas (TRQ)
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 56 GAO-03-4 China's WTO Commitments

Table 14: China’s Industrial TRQ Commitment Phasein Schedule

Product

Initial quota

quantity

(million MT)

Final quota

quantity

(million MT)

Year

reaching

final quota

quantity

In-quota

tariff

(percent)

Out-of-quota

bound tariff

(percent)

Other specific terms and

conditions

Diammonium

phosphate

(phosphate

fertilizer— one

product)

5.4 6.9 2006 4% 50% • Initial state trading enterprise

(STE)a

 portion is 90 percent,

reducing by 5 percentage

points per year until reaching

51 percent in year 9 (2009).

• Tariff-quota level will

increase 5 percent annually

until 2006.

• After 2006 growth rate will be

linked to NPK growth rate.

Urea

(nitrogen fertilizer—

one product)

1.3 3.3 2006 4 50 • STE portion is 90 percent.

• Tariff-quota level increases

as follows:

Year 2: 1.3 mmt

Year 3: 1.8 mmt

Year 4: 2.3 mmt

Year 5: 2.8 mmt

• After 2006, growth rate will

be linked to NPK growth

rate.

NPK (nitrogen

phosphorus potash

fertilizer —one

product)

2.7 n.a. indefinite 4 50 • Initial STE portion is 90

percent, reducing in equal

steps to 51 percent over 8

years (2009).

• Tariff-quota level will

increase 5 percent annually.

Wool topsb

(three products)

0.06875 0.08 2004 3 38 • Allocate access to WTO

members, taking into

account their bilateral

historical trade flows.

Legend

MT: metric ton

MMT: million metric tons

n.a.: not applicable

a

State trading enterprises are state entities that have received special rights to import and export. A

discussion of the practices of these enterprises can be found in the trading rights and industrial

policies section of this appendix.

b

A wool top is a semiprocessed product of wool before it goes into a fabric.

Source: GAO analysis of China’s WTO accession agreement.
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 57 GAO-03-4 China's WTO Commitments

China’s commitments regarding regulatory border measures cover its use

of standards to classify the country of origin (rules of origin) of imports

and to determine the value of goods for customs purposes (customs

valuation). The commitments also cover requirements for imports to

undergo inspection prior to shipment from exporting countries, to confirm

certain export information (preshipment inspection). A majority of China’s

commitments under this topic affirm its intention to implement WTO

agreements covering these measures upon accession and ensure that its

laws, regulations, and other measures conform to WTO rules. In addition,

China made specific commitments to refrain from using minimum or

reference prices in valuing goods for customs purposes; to adopt two WTO

decisions concerning customs valuation; and to ensure that fees charged

for preshipment inspection are commensurate with services provided, and

are not used as a protective measure for domestic products or as a tax for

fiscal purposes.

China’s working party report includes considerable discussion regarding

China’s practices under the topic of technical barriers to trade. Our

analysis of China’s overall commitments shows that China undertook

more commitments under this topic than in any other topic in the

agreement. More than 40 percent of China’s commitments in this area

affirm its intention to implement WTO rules upon accession and to provide

nondiscriminatory treatment to imports in the application of technical

rules and assessment procedures. China’s commitments also provide

guidance regarding the procedures followed and the operation of

conformity assessment bodies. The bodies implement procedures for

sampling, testing, verifying, and certifying conformity or compliance with

technical standards. In addition, about a quarter of China’s commitments

under this topic involve nondiscriminatory treatment, particularly

addressing four sectors—automobiles and parts, boilers and pressure

vessels, chemicals, and electrical equipment—in response to WTO

member concerns. Finally, about 30 percent of China’s technical barriers

to trade commitments (or 19 out of 66 commitments) require it to provide

specific information to the WTO on its practices; we found that China has

more notification requirements in this topic than in any other subcategory

of the agreement. Some notifications go beyond what is generally required

of WTO members. For example, while all members are encouraged to

adopt international recommendations and standards in establishing

technical rules and conformity assessment procedures, China is also

required to notify the WTO and to update the progress it is making under

its unique transitional review mechanism.

Regulatory Border

Measures

Technical Barriers to Trade
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 58 GAO-03-4 China's WTO Commitments

Most of China’s commitments concerning import regulations are

scheduled to be implemented within 5 years. Some commitments, such as

binding all tariff lines, reducing tariffs on certain products, and providing

nondiscriminatory treatment to imports with respect to certain regulatory

measures, are applicable upon accession. Although all tariff lines are

bound at certain rates upon accession, bound rates on about half of

China’s tariff schedule (over 3,000 products) will decrease further because

of reductions scheduled between 2002 and 2010. China’s commitments

concerning technical barriers to trade are to be fully implemented by June

2003. China committed to eliminating its licensing and quota requirements

for specific products by 2005. (See table 15 for implementation dates for

certain import regulation commitments.)

Table 15: Timetable for Selected Chinese WTO Commitments Relating to Import Regulation

Date Commitment

April 2002 Technical barriers to trade: Notify acceptance of the WTO’s Code of Good Practice, contained in

annex 3 of the WTO Agreement on Technical Barriers to Trade.

December 2002 Technical barriers to trade: Ensure that all conformity assessment bodies can undertake

assessments for both imported and domestic products.

June 2003 Technical barriers to trade: Assign respective responsibilities to conformity assessment bodies solely

on the basis of scope of work and type of product, without giving consideration to product origin.

December 2003 Customs valuation: Within 2 years adopt two WTO customs valuation decisions concerning the

treatment of interest charges and the valuation of carrier media-bearing software for data-processing

equipment.

January 2005 Nontariff barriers: Complete the elimination of all licensing and quotas for products listed in China’s

schedule of commitments.

January 2010 Tariffs, taxes, and charges: Tariff reductions are completed.

Source: GAO analysis of China’s WTO accession agreement.

Key Dates
Appendix IV: Summary and Analysis of

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Some WTO members have expressed concern that China’s export

regulations violated WTO rules by placing restrictions on exports of

certain agricultural products, resource products, and chemicals. They

were also concerned about China’s restrictions on exports of silk and a

number of raw materials or intermediate products that could be subject to

further processing, such as tungsten, ore concentrates, rare earth, and

other metals.40 WTO rules allow restrictions on exports only in limited

cases, such as critical shortages of foods and in other exceptional

circumstances. In response, China committed to modifying its export

regulations and restraining its use of export duties. Table 16 shows

examples of the types of commitments that China made in the area of

export regulation.

Table 16: Examples of China’s WTO Commitments Relating to China’s Export Regulation

Topic China committed to

Export licensing • Abiding by WTO rules on nonautomatic export licensing and export restrictions, and to removing

or modifying any laws that conflict with WTO rules.

• Updating and publishing a list of all entities responsible for authorization of exports within 1

month of any changes.

Export duties • Eliminating all taxes and charges applied to exports, except for the 84 products listed in China’s

accession agreement, or except when applied according to WTO principles.

• Refraining from increasing the rates of duty beyond what is listed in the accession agreement,

and refraining from raising presently applied rates without consulting WTO members, and only

under exceptional circumstances.

• Providing foreign individuals, enterprises, and foreign-invested enterprises with treatment no less

favorable than that given to domestic individuals and enterprises, with respect to border tax

adjustments.

Source: GAO analysis of China’s WTO accession agreement.

During its accession negotiations, China told WTO members that it

requires export licenses on certain agricultural products, resource

products, and chemicals. The number of products subject to export

licensing requirements has fallen since 1992, when these requirements

covered approximately 50 percent of China’s exports. China told WTO

members that it still maintained export licensing requirements on 58

categories of products and 73 specific items with an export value of $18.5

 40Countries use restrictive export regulations, such as licensing and duties, to achieve

several purposes. Sometimes they are employed to control trade with recipient countries,

to restrict proliferation of sensitive material or devices (high-speed computers or

weapons), or to preserve domestic supplies of some raw materials that might otherwise be

sold to foreign markets. In addition, if a country is a primary producer of a product, it may

be able to obtain a higher price on international markets by limiting exports or to gain

additional fiscal revenue by taxing exports.

Export Regulation

Export Licensing
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billion (9.5 percent of its total exports). China committed to bringing its

export licensing regime, including its Foreign Trade Law, into conformity

with WTO rules that prohibit using licensing to restrict exports, except

under exceptional circumstances.41

China also committed to eliminating all taxes and charges on exports

unless they are in conformity with WTO principles or specified in its

accession agreement. The agreement lists 84 products (affecting products

accounting for less than 1 percent of its total exports in 2001) that are

subject to export duties of between 20 and 50 percent. China committed to

binding its export duties on these products at these rates. Most of the

products are base metals and related products, such as aluminum, copper,

and zinc, as well as bars, plates, and wires made from them. China also

agreed to refrain from increasing the present rate of duty on these

products, except under exceptional circumstances, and to consult with

affected WTO members in these cases.

More generally, China’s commitments in the area of export regulation

covering both licensing and duties primarily require it to follow existing

WTO rules and to notify the WTO of its laws and regulations. Of the nine

commitments that we identified in this area, three confirm that China will

abide by existing WTO provisions and one requires China specifically to

modify its Foreign Trade Law so that it conforms to WTO provisions.

These commitments are intended to bring China’s export regime into

conformity with WTO obligations upon accession, and to limit export

duties to products and levels specified in the agreement. China also agreed

to notify the WTO annually of the value of export duties or taxes (by

product), and to notify any restrictions on exports through nonautomatic

licensing requirements or other means. All of the commitments in this area

were to be implemented upon accession, without phasein periods.

 41Exports may also be affected by state trading practices and subsidies. State trading can

restrict exports by providing exclusive rights to export for certain enterprises. Export

subsidies can be used to promote greater exports by providing financial support to

producers linked to their exports. China’s commitments in these areas are discussed later,

under trading rights and industrial policies. However, only four tungsten and antimony

products are subject to both export duties and state trading.

Export Duties
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Despite gradual reforms during the past 2 decades, the Chinese economy

still is subject to active government involvement in certain sectors and

retains other characteristics of a centrally planned economy. For example,

the government still controls trading activities and prices in certain

sectors, and state-owned enterprises still account for a significant share in

the economy, although their importance has declined.42 In addition, central

and local governments continue to provide various incentives and

measures to direct investment to selected industries and also to influence

business decisions on trade. The WTO accession agreement committed

China to phasing out the general limitations on companies’ rights to

trade—that is, to import or export—within 3 years of accession, although

China will reserve the right of state trading for certain products. Similarly,

China agreed to allow market forces to determine most prices except for

product or service prices specifically listed in the accession agreement.

China’s WTO commitments also require increased transparency and

nondiscrimination from China’s state-owned enterprises and state trading

practices. These commitments also limit the conditions that China can

impose on foreign investors, restrict the use of certain subsidies, and

eliminate subsidies for exports. China also committed to abiding by the

International Monetary Fund’s (IMF) disciplines on balance of payments

and foreign exchange-related measures.43 Examples of China’s

commitments in these areas are listed in table 17.

 42State-owned enterprises accounted for 24 percent of Chinese industrial output in 2000,

according to the Chinese Statistical Yearbook, having declined from 80 percent in the

late1970s.

43The WTO agreements contain provisions that allow members to impose temporary

restrictions on imports or access to foreign currency when faced with a deterioration of

their foreign reserve holdings. Restrictions on imports, known as “balance of payments

measures,” reduce domestic demand for foreign currency needed to purchase imports.

Restrictions on access to foreign currency, known as “foreign exchange controls,” limit the

supply of foreign currency and also indirectly restrict imports. The related disciplines on

applying these measures are included in article VIII of the Articles of Agreement of the

International Monetary Fund. For example, countries are not to impose these restrictions

to protect specific sectors.

Trading Rights and

Industrial Policies
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Table 17: Examples of China’s WTO Commitments Relating to China’s Trading Rights and Industrial Policies

Topic China committed to

Right to trade

(right to import and export granted to

enterprises or individuals)

• Progressively granting trading rights to all enterprises in China and eliminating the

current system of examination and approval over 3 years.

• Eliminating, upon accession, any criteria requiring export and prior experience for

enterprises to obtain or maintain trading rights.

• Providing nondiscriminatory trading rights to all foreign individuals and enterprises.

• Providing nondiscriminatory treatment on imported and exported goods, with respect to

their distribution, internal sale, purchase, transportation, and use.

State trading

(products subject to state importing or

exporting, or traded only by governmentdesignated companies)

• Reducing over 3 years the list of goods to be traded only by companies designated by

the central government. This affects six commodities (natural rubber, timber, plywood,

wool, acrylic, and some steel products).

• Ensuring transparency of state trading enterprises in import-purchasing procedures in

compliance with WTO rules, and refraining from influencing these purchases. This

affects imports of grains, vegetable oil, sugar, tobacco, crude and processed oil,

chemical fertilizers, and cotton.

• Abolishing state trading and granting trading rights to all individuals and enterprises for

silk no later than January 2005.

• Refraining from excessive domestic price markups on the imports of state trading

enterprises beyond those allowed under WTO rules.

• Preserving the rights of nonstate trading enterprises in importing and providing

nondiscriminatory treatment.

• Ensuring exporters’ access to supplies of raw materials in the textiles sector at

conditions no less favorable than those for domestic users.

Price controls • Allowing prices of all goods and services to be determined by market forces, except for

10 commodity groups and some utilities and other essential services that will continue

to be subject either to government pricing or guidance pricing.a

• Ensuring that remaining price controls are consistent with WTO rules, and reporting

any exceptions to the WTO.

• Eliminating multi-tier pricing practices for goods and servicesb

• Publishing in an official journal the list of goods and services subject to state pricing

and the changes; also the price-setting mechanisms and policies.

Subsidies

(including export subsidies)

• Ceasing all subsidies for exports by all levels of government upon accession.

• Eliminating upon accession all subsidies to enterprises requiring either the use of

domestic goods or exports.

• Eliminating (by 2000) 3 of the 24 subsidy programs notified to the WTO. Two of these 3

are subsidies for the automotive sector, and the other is the central government’s

subsidies to money-losing state-owned enterprises (SOE)c

• Subjecting subsidies granted to SOEs to WTO disciplines, if the SOEs are the

predominant recipients.

• Agreeing not to invoke certain WTO provisions that make challenging subsidies of

developing countries harder for WTO members.

State-owned and state-invested

enterprises

• Refraining from influencing SOEs’ purchase and sale decisions, and allowing them to

be made based solely on commercial considerations.

• Allowing foreign enterprises to compete in sales or purchases on nondiscriminatory

terms.

• Refraining from treating some SOEs’ purchases as government procurements that

would be exempted from WTO disciplines.

Investment policies • Conforming investment guidelines and their implementation to WTO rules.

• Complying fully with the WTO’s Agreement on Trade-Related Investment Measures

upon accession, and eliminating policies requiring trade and foreign exchange

balancing, local content, and export performance.

• Ensuring that investment approval is not conditioned on whether competing domestic

suppliers of such products exist or performance requirements of any kind, including the
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Topic China committed to

transfer of technology and the conducting of research and development in China.

• Amending industrial policies for the automotive sector to ensure gradual liberalization

on types or models of vehicles permitted for production over 2 years and investment

levels approvable by provincial governments over 4 years, and removing the 50

percent foreign equity share limit on automotive engine plants upon accession.

Foreign exchange controls • Implementing its obligations with respect to foreign exchange matters in accordance

with WTO disciplines concerning the IMF.

• Not resorting to any laws, regulations, or other measures that would restrict the

availability of foreign exchange for current international transactions, unless otherwise

provided for in IMF rules.

Balance of payments • Complying fully with the WTO provisions regarding balance of payments provisions.

• Giving preference to price-based measures, and transforming non–price-based

measures into price-based ones as soon as possible if China uses such measures.

• Ensuring that measures taken during a serious decline in foreign exchange reserves

not exceed what is necessary, and applying these measures only to control the general

import level.

Civil aircraft trade • Refraining from imposing offsetsd

 or other forms of industrial compensation when

purchasing civil aircraft, including specified types or volumes of business opportunities.

Government procurement • Becoming an observer to the WTO’s Government Procurement Agreement upon

accession.

• Ensuring that all government entities (including the subnational level) conduct

procurement in a transparent manner, and providing all foreign suppliers with equal

opportunity to participate.

a

Products subject to state pricing include tobacco, edible salt, natural gas, and pharmaceuticals;

products subject to government guidance pricing include grain (wheat, maize, rice, soybeans),

vegetable oil, processed oil, fertilizer, silkworm cocoons, and cotton. Public utilities and services

sectors subject to government pricing include gas, tap water, electricity, heating power, water

supplied by irrigation works, postal and telecommunication services charges, entrance fees for tour

sites, and educational services charges. Services sectors subject to government guidance pricing

include most transport services charges; professional services charges; charges for commission

agents’ services; charges for settlement, clearing, and transmission services of banks; selling price

and renting fee of residential apartments; and health-related services.

b

In the late 1970s, the Chinese government purchased preset amounts of agricultural products from

farmers at fixed prices while allowing farmers to sell extra production at free market prices. This multitier pricing was later extended to nonagricultural products. However, by the early 1990s, the

government eliminated most fixed prices and allowed market forces to determine most prices.

c

China reported that its subsidy programs include direct subsidies given by central and local

governments to money-losing state-owned enterprises; the priority in obtaining loans and foreign

currencies, based on export performance; preferential tariff rates, based on the local content of

automotive production; preferential policies for the special economic zones and other special areas;

preferential policies for foreign-invested enterprises; loans from the state policy banks; subsidies for

poverty alleviation; funds for technology renovation and research and development; infrastructure

construction funds for agricultural water conservation and flood protection; tax and tariff refunds for

export products; tariff reduction and exemption for enterprises; provision of low-price inputs for

special industrial sectors; subsidies to certain enterprises in the forestry industry; and preferential

income tax treatment for enterprises satisfying any of the specified criteria, including using high

technology, transferring technology, utilizing waste, investing in poverty-stricken regions, or providing

job opportunities for the unemployed.

d

Offsets refer to the terms of transactions imposed on sellers that can include paying for imports with

some locally produced goods or contracting for parts production to make the imported goods. It can

be viewed as a form of barter, counter-purchase, and buy-back.

Source: GAO analysis of China’s WTO accession agreement.
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More than 100 commitments in China’s accession agreement deal with the

area of trading rights and industrial policies. About a fifth of these

commitments require adherence to existing WTO rules or principles. A

similar number involve reporting information to the WTO on China’s

policies, practices, and economic conditions related to state-controlled

sectors. Many of these reporting requirements are specified in conjunction

with China’s annual transitional review mechanism. (The transitional

review mechanism is discussed later, under the Safeguards and Other

Trade Remedies section.) Additionally, about a quarter of the

commitments provide guidance on how China will implement policy

changes in this area, especially with regard to trading rights and state

trading issues.

China has gradually liberalized its trading regime since 1978. State control

of foreign trade was one of the most important features of the Chinese

economy prior to reform. Prior to 1978, China conducted its foreign trade

through 12 state trading companies, each one with a monopoly to trade

certain goods and to conduct trade in accordance with the central plan.

These companies also controlled the distribution of traded goods within

China. (Distribution rights are considered a separate services area in

China’s WTO accession agreement.) During the past 2 decades, China has

granted trading rights to more domestic companies and reduced the

number of commodities subject to state control.44 As China opened its

economy to foreign investment, China also granted foreign-invested

enterprises the right to import goods needed for their production. Foreigninvested firms, however, could not import other goods or distribute any

goods in China; they were allowed to export only goods that they made.45

The extent to which China provides foreign businesses and individuals

with trading rights was one of the major issues in China’s WTO accession

negotiations. China pledged to liberalize the availability and scope of

trading rights for all enterprises in China over a 3 year period. Those

foreign-invested enterprises holding minority foreign shares will be

 44China extended trading rights to greater numbers of state and collective enterprises in the

1980s, and also to manufacturing firms and Sino-foreign joint ventures in the 1990s,

including some private Chinese enterprises. In 1980, about 90 percent of traded goods were

subject to state trading control; the percentage declined to 40 percent in 1994, and 11

percent in 1998.

45However, foreign firms could contract with companies having trading rights to conduct

their international trading transactions.

Right to Trade and State

Trading
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granted full trading rights 1 year after accession; those holding majority

foreign shares will receive those rights 2 years after accession; and all

enterprises in China and all foreign enterprises and individuals will obtain

full trading rights 3 years after accession. In addition, foreign-invested

enterprises will not be required to establish in a particular form (such as

registering as enterprises in China) to engage in importing or exporting.

Although China allowed foreign-invested enterprises to obtain limited

trading rights based on the enterprises’ approved scope of business prior

to WTO accession, even wholly Chinese-invested enterprises were

required to apply for trading rights. The Chinese government approved

these applications using certain criteria, including a minimum registeredcapital requirement. Upon accession, China pledged to eliminate export

performance, trade and foreign exchange balancing,46 and prior-experience

requirements as criteria for obtaining or maintaining the right to import

and export. However, China will maintain a minimum registered-capital

requirement for Chinese enterprises to be qualified for trading rights.

China committed to reducing this requirement to RMB 5 million (about

$604,000) in the first year, RMB 3 million (about $362,000) in the second

year, and RMB 1 million (about $121,000) in the third year.47

Although China committed to liberalizing general trading rights for all

enterprises, certain commodities will continue to be traded primarily by

state trading companies. State trading will continue to cover imports for 8

commodity groups and exports for 21 groups. The import groups are

grains, vegetable oil, sugar, tobacco, crude oil, processed oil, chemical

fertilizers, and cotton. The export groups consist of some agricultural

commodities (such as tea, rice, corn, and soybeans) and raw materials

(such as tungsten, coal, crude and processed oil, silk, cotton, and yarn).

Additionally, 6 commodity groups (natural rubber, timber, plywood, wool,

acrylic, and certain steel products) can be traded only by those companies

designated with trading rights. The central government made these

decisions based on criteria including minimum registered capital.48 China

 46Trade balancing requirements limit an enterprise’s imports to an amount equal to or less

than the value of local products that it exports. Foreign exchange balancing requirements

limit an enterprise’s access to foreign exchange to the amount it exports or the amount of

foreign exchange attributable to the enterprise.

47The basic unit of currency in China is the yuan, or RMB. China has maintained a very

stable exchange rate between the RMB and the U.S. dollar. The recent trading band (in July

2002) was around 8.276 to 8.28 RMB to the dollar.

48Designated trading companies do not usually have monopoly power in trading.
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committed to phasing out the designated trading system in 3 years and to

increasing the numbers of designated entities during the phaseout period.

China also committed to phasing out state trading on silk by January 1,

2005. In addition, China committed to more transparent and disciplined

state trading operations, and it agreed to refrain from imposing excessive

domestic price markups on imports beyond what is allowed under WTO

rules.

To examine the extent of these remaining restrictions on state trading, we

analyzed U.S. and Chinese trade data. Our analyses of 2001 U.S. export

data showed that products subject to Chinese state trading control

accounted for about 0.4 to 1.3 percent of U.S. exports to China, with about

1 percent on goods under designated trading control. However, Chinese

trade data showed that about 3 percent of exports from the United States

to China appeared to be subject to state trading control, and about 0.9

percent were subject to designated trading control in 2001. Using Chinese

government data on imports from all countries, we calculated that 7.1

percent were in goods subject to state trading, and 5.8 percent were

subject to designated trading in 2001. Because trade-distorting measures

(such as state trading control) often reduce imports in the affected

sectors, using historical trade data for these sectors would understate the

potential importance of these barriers. Therefore, we also used U.S. export

data to all countries to measure the potential importance of these trade

barriers.49 Using these data, we found that about 2.5 to 3.5 percent of total

U.S. exports were in goods subject to Chinese state trading, and about 1.3

percent were in goods subject to designated trading in 2001.

Price controls in China primarily take two forms—direct state or

government pricing and government guidance pricing.50 Government

guidance pricing is a more flexible form, generally allowing a 5 to 15

percent range of prices. China has gradually liberalized price controls in

the past 2 decades. Nevertheless, most imported goods that are to remain

subject to state trading control will also remain subject to price controls

or government guidance on prices. These include tobacco, grains (wheat,

 49We assumed that other U.S. export markets were less distorted by these trade barriers.

50Chinese officials described prices that are not subject to these two forms of controls as

“market-regulated prices.” Enterprises are free to set these prices in accordance with

supply and demand to the extent permitted by generally applicable laws, regulations, and

policies concerning prices.

Price Controls
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corn, rice, and soybeans), vegetable oil, processed oil, fertilizer, and

cotton. In addition to these goods, under the accession agreement China

can also control prices on

• edible salt

• some pharmaceutical products

• public utilities (such as gas, water, electricity, and heating power)

• other services that China has designated as essential to citizen living (such

as postal, telecommunication, health, education, and some transport

services)

• some inputs essential for the production of China’s major exports (like

silkworm cocoons and cotton)

• some professional services (such as fees for commission agents;

settlements; bank clearing and transmission; and apartment rental fees).

Nevertheless, China also committed to not extending price controls on

other goods not specifically identified in the accession agreement and to

reducing or eliminating the existing controls. In addition, China committed

to more transparent and disciplined management of these controls, and to

refraining from using price controls to protect domestic sectors or to limit

market access for foreign goods.

According to a Chinese official, 94.7 percent of retail prices in China were

set by market forces in recent years. Our analysis of U.S. export data

showed that about 0.2 to 0.3 percent of U.S. exports to China were in

goods subject to Chinese direct domestic price controls in 2001, and about

6.2 to 6.6 percent of U.S. exports to China in the same year were in goods

subject to Chinese government guidance pricing. Chinese government data

showed similar percentages in both cases. Using data of U.S. exports to all

countries, about 0.9 to 2 percent of U.S. exports were in goods subject to

Chinese domestic price controls, and about 2.6 to 3.6 percent were in

goods subject to guidance pricing in that year. Chinese government data

showed that 0.5 percent of Chinese imports from all countries were

subject to Chinese domestic price controls and 2.6 percent were subject to

government guidance pricing in that year.

China agreed, upon accession, to terminate all subsidies on exports, as

well as the subsidies conditioned upon either the use of domestic goods or

export performance. China listed 24 subsidy programs in the accession

agreement and agreed to eliminate 3 programs upon accession. The 24

programs include direct subsidies given by central and local governments

to money-losing state-owned enterprises and many other types of indirect

Subsidies
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subsidy programs. Indirect subsidies include loan priorities, preferential

tariffs, tax breaks given to firms encouraged by the government because of

their locations, export performance (amount of exports), and use of local

resources for the products that they make. 51

Among the three programs that China agreed to eliminate, two were

related to subsidies to the automobile sector, and the other was the central

government’s program to give budgetary subsidies to money-losing stateowned enterprises. China also committed to treating other subsidies given

to state-owned enterprises as subsidies to private enterprises and

subjecting them to WTO disciplines. Furthermore, China agreed not to

invoke certain articles in the Agreement on Subsidies and Countervailing

Measures that make determination of “actionable” subsidies52 more

difficult to establish against developing countries. Given China’s present

level of economic development and reform, some WTO members were

concerned about the potential for China to maintain or raise industrial

subsidies, especially to state-owned enterprises. Some members also

raised concerns that China’s reporting on subsidies in the WTO

negotiations was incomplete. In response, China agreed to work toward

full notification and acknowledged that subsidies are sometimes difficult

to identify.

State-owned enterprises once dominated the Chinese economy, and they

still control about a quarter of Chinese industrial output. Upon accession

to the WTO, China committed to refraining from influencing state-owned

enterprises’ decisions on purchases and sales, and to allowing these

decisions to be based solely on commercial considerations. China also

committed to refraining from treating these purchases as government

procurement, which are exempted from some WTO disciplines.

 51The government encourages the development of products that use high technology,

conduct research and development, preserve forestry, reduce environmental waste, or

provide job opportunities for the unemployed.

52“Actionable” subsidies are a category of subsidies described in the WTO Agreement on

Subsidies and Countervailing Measures. Subsidies are considered actionable, and therefore

illegal, if they cause injury to the domestic industry of another member, negate other

commitments made under the General Agreement on Tariffs and Trade, or cause serious

prejudice to the interest of another member. The subsidies must be withdrawn or the

adverse effects removed.

State-Owned and StateInvested Enterprises
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China’s incentive policies to guide investment to selected industries

generally are not affected by the WTO accession agreement. Nevertheless,

China committed to eliminating certain trade-distorting requirements on

investment, such as those on trade and foreign exchange balancing, local

content, and export performance. China also committed to not imposing

conditions on technology transfer in approving investment projects.

Additional investment rules on the automotive sector will be gradually

liberalized over 2 to 4 years, such as the types (and models) of vehicles

permitted for production, the investment levels approvable by provincial

governments, and restrictions on the percentage of foreign equity

investment in automotive engine plants.

China’s trading rights and other industrial policy commitments also cover

a variety of other issues. China agreed to adhere to WTO rules governing

measures related to foreign exchange and balance of payments. China had

formally accepted in 1996 the obligations imposed by the IMF on current

account convertibility,53 and the accession agreement sets forth China’s

commitments regarding conformity with to the IMF rules. In addition,

China also made limited commitments on civil aircraft trade and

government procurement, although China has not acceded to these

agreements.

With the exception of commitments in the areas of trading rights and

investments policies in the automotive sector, most commitments in this

area were to be implemented when China joined the WTO. (See table 18.)

 53The IMF Articles of Agreement require members to avoid imposing restrictions on

payments related to current account international transactions and transfers. That is

generally described as “current account convertibility.” The current account transactions

include imports and exports of goods and services and investment income but exclude

long-term capital flows.

Investment Policies

Foreign Exchange

Controls, Balance of

Payments, Civil Aircraft

Trade, and Government

Procurement

Key Dates
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Table 18: Timetable for Selected Chinese WTO Commitments Relating to Trading Rights and Industrial Policies

End date Commitment

December 11, 2004 • Right to trade: progressively liberalize trading rights in 3 years for all enterprises in China,

except for those goods listed in the accession agreement.

• Grant minority foreign-owned joint ventures full rights to trade 1 year after accession; majority

foreign-owned joint ventures 2 years after; and wholly owned enterprises 3 years after.

• Reduce the minimum registered-capital requirement for Chinese-invested enterprises to obtain

trading rights to RMB 5 million for the first year after accession; to RMB 3 million for the

second year; and to RMB 1 million in the third yeara

• Reduce over 3 years the list of goods to be traded only by companies designated by the

central government. This affects six commodities (natural rubber, timber, plywood, wool,

acrylic, and some steel products).

January 1, 2005 • Abolish exclusive state trading rights for silk, and grant trading rights to all individuals and

enterprises.

December 11, 2005 • Automotive investment rules: revise certain rules in 2 or 4 years. (Liberalize types or models of

vehicles permitted for production over 2 years. Raise the investment level approvable by

provincial government over 4 years.)

a

The basic unit of currency in China is the yuan, or RMB. China has maintained a very stable

exchange rate between the RMB and the U.S. dollar. The recent trading band (in July 2002) was

around 8.276 to 8.28 RMB to the dollar.

Source: GAO analysis of China’s WTO accession agreement.

Agriculture was a sensitive area in China’s WTO accession negotiation.

China has traditionally pursued self-reliance in food production and raised

many barriers to its agricultural market, such as high tariff rates and state

trading. U.S. agricultural exports to China were about $2 billion in 2001,

accounting for more than 10 percent of total U.S. exports to China,

according to official U.S. statistics.

China’s WTO commitments relating to agriculture cover four topics.

Specifically, China committed to imposing lower tariffs on agricultural

products; to administering a tariff-rate quota system to allowing controlled

access for imports of some bulk agricultural commodities in a transparent,

consistent manner and based on commercial considerations; to capping

agricultural domestic subsidies and abolishing export subsidies; and to

fully abiding by the WTO rules governing sanitary and phytosanitary (SPS)

measures on imports, which place disciplines on how countries apply

health and safety standards. Other commitments relate to domestic

support subsidies and state trading in bulk agricultural commodities.

About half of the agricultural commitments we identified are guidance

commitments that describe specific procedures China should follow to

administer its agricultural tariff-rate quotas. The number and type of

commitments in this area reflect the concerns held by some WTO

Agriculture
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members about the way in which China’s TRQ system would operate

following accession. Table 19 lists some examples of the commitments in

each topic.

Table 19: Examples of China’s WTO Commitments Relating to Agriculture

Topic China committed to

Agriculture tariffs • Binding its tariff rates upon accession.

• Reducing its tariff rates through 2010.

Tariff-rate quotas • Applying tariff-rate quotas to wheat, corn, rice, soybean oil, palm oil, rapeseed oil, sugar, wool, and

cotton.

• Reserving a portion of TRQs for importation through non–state-trading enterprises, and

progressively increasing the portion for edible oils and corn.

• Administering TRQs on a transparent, predictable, uniform, fair, and nondiscriminatory basis using

clearly specified time frames, administrative procedures, and requirements.

• Designating a single, central authority to make the decisions regarding all allocations and

reallocations to end-users.

Subsidies • Eliminating export subsidies on agricultural products.

• Including investment input subsidies (such as fertilizer) in the WTO calculation of domestic support.

• Limiting the level of allowable domestic support for specific products to 8.5% of the product

production value, and limiting the aggregate level of support to 8.5% of the total agricultural output

value.

SPS measures • Complying with the WTO Agreement on Sanitary and Phytosanitary Measures, and ensuring that all

of China’s laws, regulations, decrees, requirements, and procedures relating to SPS measures

conform to WTO SPS rules upon accession.

• Notifying the WTO of laws, regulations, and other measures relating to China’s SPS, including

products and relevant international standards, guidelines, and recommendations.

Source: GAO analysis of China’s WTO accession agreement.

Like all countries that have recently acceded to the WTO,54 China bound

tariffs for all agricultural products. Moreover, China will gradually reduce

agricultural tariffs by 2010. There are 977 agricultural tariff items in

China’s WTO accession schedule. Fifteen percent of the agricultural

products (148 products) have a final bound tariff at or below 5 percent.

These products include soybeans, some grains (oatmeal and buckwheat),

and some spices (cardamom and cloves). About 50 percent of the

agricultural products (490 products) have a final bound tariff of between 6

and 15 percent. These products include dairy products (yogurt, butter, and

cheese) and fruits (grapes, apples, and citrus fruits). Thirty-five percent of

agricultural products (339 products) have tariffs above 15 percent. These

products include rice, cotton, and wool. The maximum final bound tariff is

 54Recently acceded countries in the order of accession are Ecuador, Mongolia, Bulgaria,

Panama, the Kyrgyz Republic, Latvia, Estonia, Jordan, Georgia, Albania, Oman, Croatia,

Lithuania, Moldova, and Taiwan (Chinese Taipei).

Agriculture Tariffs
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65 percent, which is on some grains (wheat, some rice, and some corn)55

and some tobacco products. Agricultural products will still have, on

average, higher tariffs than nonagricultural products. The average tariff on

agricultural products was 19 percent upon accession and will be 15

percent by 2010, while the average tariff on nonagricultural goods was 13

percent upon accession and will be 9 percent by 2010. However, according

to U.S. Department of Agriculture estimates, the terms of China’s WTO

accession could make China one of the most open countries in the world

in terms of agricultural trade. The world’s average tariff for food and

agricultural products is 62 percent.

China, like other WTO members, including the United States, will use a

tariff-rate quota system to control market access for certain sensitive

commodities. Under the system, a specific quantity of imports will be

allowed in at a low duty, while imports above that quota amount will face

higher tariffs. These commodities are wheat, corn, rice, cotton, soybean

oil, palm oil, rapeseed oil, sugar, and wool, covering 37 tariff lines in

China’s accession schedule. U.S. exports in 2001 of products affected by

TRQs accounted for about 4 percent of total U.S. agricultural exports to

China, according to official U.S. statistics. China has committed upon

accession to eliminating TRQs on a number of products and to subjecting

these only to tariffs, including barley, soybeans, rapeseed, peanut oil,

sunflower seed oil, corn oil, and cottonseed oil. In 2006, China will

eliminate TRQs on soybean oil, palm oil, and rapeseed oil.

China has committed to increasing its tariff-rate quota volumes over a 3–4

year implementation period. However, while the in-quota volume is

generous as compared with the historic levels of Chinese imports, it still

remains a small fraction of Chinese domestic demand for certain products.

For example, the final quota on wheat is about 10 million metric tons.

Chinese statistics reported that China imported less than 1 million metric

tons of wheat in total in 2001. The U.S. Department of Agriculture reported

Chinese wheat consumption was 114 million metric tons in 2000. With that

level of consumption, the maximum amount of wheat that could be

imported under the low tariff rate would be about 9 percent of Chinese

wheat consumption. Table 20 lists the initial and final quota volumes, inquota tariffs, and out-of-quota tariffs.

 55This is the out-of-quota tariff rate affecting imports of products above a certain quantity.

China’s in-quota tariff rates on these products are generally between 1 and 10 percent (see

table 20).

Tariff-Rate Quotas
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Table 20: China’s TRQ Terms for Agriculture Products

Legend

MT: metric ton

Note: TRQs on soybean oil, palm oil, and rapeseed oil will be eliminated on January 1, 2006.

Source: GAO analysis of China’s WTO accession agreement.

Agricultural

product

Initial quota

quantity

(million MT )

Final quota

quantity

(million MT)

Date reaching

final quota

quantity

In-quota tariff

(percent)

Out-of-quota

bound tariff

(percent)

Schedule for

increasing TRQ

quantity (million

MT)

Wheat

(6 products)

7.884 9.636 2004 1 – 10 %

(depending on

product)

74% (accession);

65 (final)

2002: 8.468

2003: 9.052

2004: 9.636

Corn

(5 products)

5.175 7.2 2004 1 – 10 (depending

on product)

64 (accession);

51(final)

2002: 5.85

2003: 6.525

2004: 7.2

Rice—short and

medium grain

(7 products)

1.6625 2.66 2004 1 – 9 (depending

on product)

57 (accession);

46(final)

2002: 1.995

2003: 2.3275

2004: 2.66

Rice—long grain

(7 products)

1.6625 2.66 2004 1 – 9 (depending

on product)

57 (accession);

46(final)

2002: 1.995

2003: 2.3275

2004: 2.66

Soybean oil

(2 products)

2.118 3.5871 2005 9 63.3 (accession);

9 (final by 2006)

2002: 2.518

2003: 2.818

2004: 3.118

2005: 3.5871

Palm oil

(2 products)

2.1 3.168 2005 9 63.3 (accession);

9(final by 2006)

2002: 2.4

2003: 2.6

2004: 2.7

2005: 3.168

Rapeseed oil

(3 products)

0.7392 1.243 2005 9 63.3 (accession);

9 (final by 2006)

2002: 0.8789

2003: 1.0186

2004: 1.1266

2005: 1.243

Sugar

(6 products)

1.68 1.945 2004 20 (initial);

15 (final)

68.8 (accession);

50 (final)

2002: 1.764

2003: 1.852

2004: 1.945

Wool

(6 products)

0.25325 0.287 2004 1 38 (accession);

38 (final)

2002: 0.2645

2003: 0.27575

2004: 0.287

Cotton

(2 products)

0.78075 0.894 2004 1 61.6 accession);

40 (final)

2002: 0.8185

2003: 0.85625

2004: 0.894
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In addition to increasing the size of the TRQ, China has also committed to

reserving a portion of the TRQs for importation through non-state trading

enterprises. Accordingly, private traders will be able to trade commodities

that have traditionally been under the state trading monopoly. Figure 6

shows the TRQ portion reserved for importation through state trading

enterprises over time. This portion will remain constant for wheat, sugar,

rice, and cotton, but will gradually diminish for corn and edible oils.

Nevertheless, state trading will remain an important trade barrier on

several of these products. More than half of the in-quota TRQ volumes are

reserved for importation through state trading on wheat, sugar, and corn.

Figure 6: Percentage Share of TRQs Reserved for Importation through Chinese

State Trading Enterprises, 2001–2005

Source: GAO analysis of China’s WTO accession agreement.
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During the accession negotiations, WTO members were concerned about

China’s administration of the TRQ system. Among the 58 commitments

that we identified as relating to TRQs, we found 40 to be guidance,

providing clear, specific procedures for the TRQ administration. These

commitments cover (1) specific annual timelines that China must follow to

publish quotas, accept applications, and allocate quotas; (2) deadlines for

firms to return unused quotas without penalty; and (3) specific dates after

which the share for importation through state trading enterprises becomes

available to any enterprise with trading rights. China committed to

administering its TRQ system according to the annual timeline illustrated

in figure 7.

WTO members were also concerned with the transparency of the TRQ

administration. To address these concerns, China committed to setting up

enquiry points and publishing information on its quota allocation in an

official journal.

Figure 7: Timeline for China’s Tariff-Rate Quota Administration

Note: The Chinese agency that administers the TRQ for agricultural products is the State

Development and Planning Commission; for fertilizers, it is the State Economic and Trade

Commission.

Source: GAO analysis of China’s WTO accession agreement.
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China’s commitments also cover the use of export and domestic subsidies

in agriculture. Specifically, China committed to not using export subsidies.

The U.S. Department of Agriculture considers China’s commitment to be

particularly useful with regard to addressing potential U.S. exports of corn

and cotton. The department believes that subsidized Chinese exports have

displaced U.S. exports of these commodities from third-country markets in

the past. Second, with respect to domestic support, the WTO requires a

reduction in subsidies and sets a level for domestic support exempted

from the total level of support allowable—called the de minimis level—

that the WTO regards as having minimal effect on trade. Under WTO rules,

this de minimis domestic support level is set at 5 percent56 for developed

countries and 10 percent for developing countries. China’s de minimis

level commitment falls between these levels, at 8.5 percent. In addition,

unlike developing countries, China has to include input (such as fertilizer)

subsidies in the calculation of its domestic subsidy level. The U.S.

Department of Agriculture estimates that if the 8.5 percent annual

threshold were reached, domestic support could potentially be as high as

$14 billion, based on China’s current crop output value. China’s current

level of support is less than 2 percent, based on a 1996–1998 base period.

China committed to fully abiding by the terms of the WTO Agreement on

Sanitary and Phytosanitary Measures. In U.S.-China bilateral negotiations,

China and the United States agreed on the terms for the removal of

restrictions on importation of U.S. grain, citrus, and meat. Among other

things, WTO rules governing SPS measures require that members base SPS

measures on scientific principles and not apply SPS measures in a manner

that constitutes a disguised restriction on trade. Out of China’s five

commitments in SPS, three committed China to fully adhering to the WTO

SPS rules, and three required China to refrain from using SPS as a form of

trade barrier.57 China committed to ensuring that all of its laws,

regulations, decrees, requirements, and procedures relating to SPS

measures would conform to WTO rules upon accession. China also agreed

to notifying the WTO of its laws, regulations, and other measures relating

 56There are product-specific and non–product-specific de minimis domestic support

subsidy levels. The product-specific de minimis level is a percentage of the value of

production of individual products; the non–product-specific de minimis level is a

percentage of the value of total agricultural production.

57The commitment types are not mutually exclusive. A commitment could be classified as

both “adhere to WTO” and “refrain.”

Subsidies

Sanitary and Phytosanitary

Measures
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to SPS, including products and relevant international standards,

guidelines, and recommendations.

China’s services market has historically been heavily regulated, and

foreign service providers’ access to the market has been significantly

restricted. Although U.S. services exports to the world totaled $278.6

billion in year 2000, only $4.6 billion (or 2 percent) of total U.S. services

exports went to China in the same year. China has made numerous

commitments to increase access to its services markets by opening 9

general services sectors and 88 subsectors, subject to certain limitations.58

These commitments, if fully implemented, could provide significant

business opportunities in sectors important to U.S. companies, including

providers of professional, telecommunications, distribution, and insurance

services.

The WTO’s General Agreement on Trade in Services requires that

members maintain a schedule of market access commitments for services.

Consistent with this requirement, China’s market access commitments are

described primarily in the services schedule in an annex to China’s WTO

accession agreement. The schedule describes both horizontal—that is,

applying broadly to all services sectors in which China made

commitments—and sector-specific commitments. Additionally, the

schedule specifies limitations on market access and national treatment

within these services sectors. Table 21 gives examples of commitments

and limitations described in China’s services schedule and lists the time

frames for implementing these commitments. We discuss commitments in

selected sectors in the sections following the table.

 58The WTO classifies services into 12 general sectors and 154 subsectors. See table 6 for

additional details on the number of sectors and subsectors in which China made

commitments.

Services
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Table 21: Examples of China’s WTO Commitments Relating to Services

General WTO services

sector Description of commitment and key limitation Time frame

Horizontal

(all services sectors)

• Minimum foreign investment in equity joint ventures shall be no less

than 25 percent of the registered capital of the joint venture.

• Conditions of ownership, operation, and scope of activities for

existing foreign service suppliers will not be made more restrictive

than they exist as of the date of China’s accession.

• Upon accession

• Upon accession

Business Legal services

• May establish representative offices without geographic or

quantitative restrictions.

• Foreign representative offices are restricted in the scope of services

they may provide in areas relating to Chinese law.

Accounting, auditing, and bookkeeping services

• Certified Public Accountants licensed by Chinese authorities may

incorporate or establish partnerships.

Taxation services

• Foreign firms may establish wholly owned subsidiaries.

Medical and dental services

• Foreign suppliers permitted to establish joint ventures, subject to

quantitative restrictions.

• Within 1 year of

accession

• Upon accession

• Upon accession

• Within 6 years of

accession

• Upon accession

Communication Courier services

• Foreign suppliers may establish wholly owned subsidiaries.

Value-added telecommunications services

• Foreign suppliers permitted to establish joint ventures with no more

than 50 percent equity; no geographic limitations.

Domestic and international telecommunications services

• Foreign suppliers permitted to establish joint ventures with no more

than 49 percent equity; no geographic limitations.

• Within 4 years of

accession

• Within 2 years of

accession

• Within 6 years of

accession

Construction • Foreign providers permitted to establish wholly owned foreign

enterprises; scope of business limited to certain types of projects.

• Within 3 years of

accession

Distribution Wholesale and commission agents’ services

• Foreign distributors of most products permitted to establish wholly

owned enterprises with no geographic limitations.a

Retailing services

• Foreign retailers of most products may establish wholly owned

foreign enterprises with no geographic limitations; equity limits on

chain stores based on number of products and types of products

sold.

Franchising services

• Foreign franchising permitted.

• Within 3 years of

accession

• Within 3 years of

accession

• Within 3 years of

accession

Education • Foreign providers permitted to establish majority- owned joint venture

schools.

• Upon accession

Environmental • Foreign suppliers permitted to establish majority-owned joint

ventures.

• Upon accession
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General WTO services

sector Description of commitment and key limitation Time frame

Financial Life insurance services

• Foreign life insurers permitted to establish joint ventures with 50

percent equity, with no geographic limitations; subject to licensing

requirements.

• Within 3 years of

accession

Nonlife insurance services

• Foreign nonlife insurers permitted to establish wholly owned

subsidiaries, with no geographic limitations; subject to licensing

requirements.

• Within 3 years of

accession

Banking services

• Foreign providers of foreign currency services permitted without

geographic and client limitations.

• Upon accession

• Foreign providers of local (Chinese) currency services permitted

without geographic and client limitations.

• Within 5 years of

accession

• Foreign providers of banking services subject to licensing and

qualification requirements.

• Upon accession

Securities

• Foreign providers may establish fund management joint ventures

with no more than 49 percent equity.

• Within 3 years of

accession

Tourism and travel-related Hotel and restaurant services

• Foreign providers may establish wholly owned

subsidiaries.

• Within 4 years of

accession

Travel agency and tour operator services

• Foreign suppliers permitted to establish wholly owned subsidiaries,

with no geographic limitations; subject to limitations on scope of

business.

• Within 6 years of

accession

Transport Maritime transport services

• Foreign suppliers permitted to establish joint ventures with no more

than 49 percent of the registered capital of the joint venture; fleet

must operate under China’s flag.

• Upon accession

Air transport services

• Foreign providers permitted to establish joint venture aircraft repair

and maintenance enterprises; Chinese partner must hold controlling

share or be in dominant position in the joint venture; establishment of

joint ventures subject to licensing limitations.

• Upon accession

Road transport services

• Foreign providers permitted to establish wholly owned subsidiaries. • Within 3 years of

accession

a

Foreign distributors of chemical fertilizers and processed and crude oil are permitted to establish

wholly owned enterprises within 5 years of accession. Wholesale distribution of salt and tobacco is

prohibited.

Source: GAO analysis of China’s WTO accession agreement.
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China has made commitments to open eight professional services

subsectors, including legal, accounting, taxation, and medical and dental

services.59 As more foreign firms enter China’s market, demand for these

types of services is likely to increase. U.S. exports of business,

professional, and technical services to the world totaled $28 billion in

2000, but only about 2 percent ($678 million) of this total went to China.

Notwithstanding China’s broad-ranging commitments to open several

professional services subsectors, foreign providers’ access will remain

subject to certain limitations. For example, foreign law firms will generally

continue to be restricted from directly providing legal services involving

Chinese law. Additionally, restrictions on the form of establishment for

foreign medical and dental services providers will require foreign

providers to establish joint venture hospitals or clinics with Chinese

partners in order to enter China’s market.

Prior to its accession to the WTO, China prohibited foreign companies

from providing any type of telecommunications services in China, and the

market had been controlled by a government-run telecommunications

monopoly. Although foreign providers will remain subject to significant

limitations, China has made important commitments allowing foreign

firms to provide a broad array of telecommunications services, including

both basic and value-added services.60 Foreign providers must establish

joint ventures with Chinese partners in order to enter the

telecommunications market, and China places limits on the share of

foreign equity in the joint ventures. The WTO has noted that these types of

limitations are common among WTO members that have made

telecommunications commitments. These limitations on the participation

of foreign equity in the joint ventures in China allow an increasing share of

foreign equity over a 1–6 year period following China’s accession to the

WTO, but prohibitions on foreign majority ownership will remain.

Additionally, although there are limitations on where foreign providers

may establish businesses in China, these geographic limitations are to be

completely phased out over a 2–6 year period following accession.

 59China also made commitments relating to four other types of professional services:

architectural, engineering, integrated engineering, and urban planning services.

60Basic telecommunications services comprise a public telecommunications network

infrastructure and include domestic and international wired services and mobile voice and

data services. Value-added services are provided through the public network infrastructure

and include services such as E-mail and on-line information. The U.S. Trade Representative

notes that Internet services are subsumed under value-added telecommunications services.

Business: Professional

Services

Communications:

Telecommunications
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China’s services schedule also indicates that China is committed to

adhering to the WTO Agreement on Basic Telecommunications and its

binding set of principles, as described in the reference paper annexed to

China’s services schedule. Adherence to the principles in the reference

paper requires China to, among other things, ensure that regulators are

independent from suppliers, prevent anticompetitive practices, and ensure

that rights of interconnection are provided on a nondiscriminatory basis.61

Prior to China’s WTO accession, foreign firms were generally prohibited

from distributing their products in China. These restrictions encompassed

wholesale and retail distribution, as well as services related to

distribution, such as after-sale maintenance and repair. As a result of these

restrictions, foreign firms were unable to fully integrate production and

distribution networks. For example, a foreign company established in

China might have been able to import products from its factories located

outside of China, but the company did not have the right to distribute that

product within China using its own distribution networks. China’s

distribution services commitments remove many restrictions on foreign

firms’ ability to distribute products in China. Although wholesale

distribution services are initially subject to form-of-establishment and

foreign equity limitations, China’s commitments will allow wholly owned

foreign firms to engage in the wholesale distribution of most products with

no geographic limitations within 3 years after China’s accession. Foreign

retailers are also subject to certain limitations. Initially, foreign retailers’

access is limited to establishing minority joint ventures in designated

zones and cities. China also initially limits the number of retailing

enterprises that can be established in its cities. Within 3 years after China’s

accession, these limitations will be lifted for most foreign retail

enterprises.62 Last, China will initially maintain some limitations on the

scope of products that can be distributed in China by foreign enterprises.

These are to be phased out over 5 years. Prohibitions on wholesale

distribution of tobacco and salt will remain, however, as will restrictions

on the retailing of tobacco.

 61Interconnection rights relate to the connection and sharing of different

telecommunications networks to allow users of one supplier to communicate with users of

another supplier.

62China will maintain equity limits on chain stores based on the number of stores and

products sold.

Distribution
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China’s market had been closed to foreign insurers since the early 1950s.

In 1992, China reopened the market on a limited basis by granting a license

to a single foreign company (the American International Group), and by

mid-2001, 17 foreign insurance companies had received licenses to operate

on a limited basis in three designated cities in China.63 China’s services

commitments reduce or eliminate many restrictions on foreign insurers.

Geographic restrictions on foreign nonlife insurers will be removed within

3 years of China’s accession. Furthermore, all restrictions on the form of

establishment and equity participation will be phased out within 2 years of

accession. Although geographic restrictions on foreign life insurers will

also be removed within 3 years following accession, China will maintain

limitations that require foreign life insurers to establish joint ventures with

no more than 50 percent equity ownership in order to enter China’s

market.

In addition to the commitments and limitations described in China’s

services schedule, we identified 45 services-related commitments set forth

in other sections of China’s accession documents. Over half (29) of these

commitments relate to licensing conditions and procedures for services

providers operating in China, and respond to WTO member concerns that

licensing not act as a barrier to foreign companies seeking to enter China’s

services market. As such, the commitments supplement and clarify

information provided in China’s services schedule. For example, we

identified 23 guidance commitments that describe, among other things, the

fees, responsible authorities, and application procedures that apply

broadly to obtaining a license to provide services in China. Other

commitments relate to specific sectors and provide additional details that

are essential to interpret the commitments and limitations described in

China’s services schedule. For example, several commitments define

certain insurance terms used in China’s services schedule and describe

requirements and conditions related to the issuance of certain types of

insurance policies.

 63The cities were Shanghai, Guangzhou, and Shenzhen.

Financial: Insurance

Other Services

Commitments
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China’s protection of intellectual property rights (IPR) has improved in

recent years but remains an ongoing concern for the U.S. government and

the business community. IPR are defined as ownership rights over a

creation for a certain period of time, which include the protection of

copyrights, trademarks, trade secrets, and patents. Estimates of business

losses resulting from IPR violations are significant. For example, the

Business Software Association estimated revenue losses resulting from

retail software piracy in China to be about $1.7 billion dollars in 2001.

Despite China’s progress in promulgating and revising regulations and

initiating measures to protect IPR, the U.S. Trade Representative notes

that enforcement remains inadequate and infringement continues.

Specifically, the agency’s annual Special 301 report on global IPR

protection notes that China has taken actions to protect IPR such as

amending its copyright, patent, and trademark laws and issuing judicial

interpretations on IPR issues. However, areas of concern include

completing the issuance and modification of regulations necessary for

compliance with international IPR agreements and encouraging more

instances of criminal prosecution to deter infringement.

China’s WTO IPR commitments relate mainly to how China will implement

the various provisions of the WTO’s Agreement on the Trade-Related

Aspects of Intellectual Property Rights (TRIPS). TRIPS defines both the

scope and enforcement procedures of intellectual property rights in

various areas. These areas include copyrights, trademarks, patents,

geographical indications (where particular characteristics of a good are

related to its geographical origin, like bourbon), industrial designs,

integrated circuits (semiconductor chips), trade secrets, and control of

anticompetitive practices in contracts. Examples of China’s IPR

commitments are described in table 22.

Intellectual Property

Rights
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Table 22: Examples of China’s WTO Commitments Relating to Intellectual Property Rights

Topic China committed to

General • Amending patent, copyright, and trademark laws and relevant implementing rules upon

accession, to comply with TRIPS.

• Modifying relevant laws, regulations, and other measures to ensure national and mostfavored-nation treatment to foreign IPR holders, to comply with TRIPS.

• Providing legal treatment to foreigners in accordance with any agreement or

international treaty to which both countries are party.

• Reporting to WTO Council for Trade-Related Aspects of Intellectual Property Rights on

amendments to copyright, trademark, and patent laws and implementation of TRIPS,

as part of China’s review under the transitional review mechanism.

Copyrights, trademarks, patents, and

other IPR

• Amending copyright regime, including regulations for the implementation of the

copyright law and provisions on the Implementation of the International Copyright

Treaty, to ensure consistency with TRIPS.

• Amending trademark laws to meet TRIPS requirements. Modifications would be made

to aspects of registration, content, symbols, well-known trademarks, priority rights,

rights confirmation system, judicial review, crackdown on infringements, and

infringement damages.

• Amending the Implementing Rules of Patent Law, to ensure that the provisions would

be implemented in compliance with TRIPS provisions that describe certain terms under

which a WTO member may deny a patent (Article 27.2).

• Introducing and enacting laws and regulations to comply with TRIPS, to ensure

protection of undisclosed information submitted to Chinese authorities in support of

applications for marketing approval for certain pharmaceutical and agricultural

chemicals (Article 39.3).

Enforcement • Implementing judicial rules of civil procedure in accordance with TRIPS provisions

relating to fair and equitable civil judicial procedures and evidence (Articles 42 and 43).

• Amending relevant implementing rules to ensure compliance with Articles 45 and 46 of

TRIPS provisions, relating to damages and compensation for IPR infringement.

• Continuing to enhance enforcement efforts, including the use of more effective

administrative sanctions.

• Granting relevant agencies the authority to confiscate equipment and other evidence

used in infringing activities.

• Referring appropriate cases, including those involving repeat offenders and willful

piracy and counterfeiting, to the relevant authorities, for prosecution under criminal law.

• Recommending that the judicial authority lower the monetary thresholds required for

criminal prosecution of IPR violators.

Source: GAO analysis of China’s WTO accession agreement.

All governments acceding to the WTO are required to comply with TRIPS.

Notwithstanding this general obligation, the section of China’s accession

agreement relating to IPR describes, clarifies, and reiterates how China

will conform its IPR regime to WTO standards. There are 55 paragraphs in

the working party report that relate to trade-related aspects of China’s IPR

regime, but only 17 of these paragraphs contain commitments. Within
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these 17 paragraphs, we identified 32 commitments.64 About half of China’s

IPR commitments relate specifically to enforcement (discussed later).

Additionally, we found that most commitments affirm China’s obligation to

comply with specific articles of TRIPS, and that many of these same

commitments also describe how China will modify existing or create new

laws and regulations to adhere to TRIPS. The 38 paragraphs that do not

contain commitments describe, among other things, China’s existing IPR

laws and regulations, responsible authorities for administering IPR in

China, and member concerns and comments about various aspects of

China’s IPR regime. All of China’s IPR commitments are effective upon

accession.

At the broadest level, China’s general IPR commitments obligate China to

bring all laws, regulations, and implementing rules into compliance with

the TRIPS agreement upon accession. China’s commitments in this area

also relate broadly to how IPR laws and regulations are enforced in China.

For example, where an infringement of IPR is found in China, the

aggrieved party can initiate a lawsuit in a court. In this regard, China noted

that since 1992, special IPR branches of the Chinese people’s courts have

been set up in major cities, such as Beijing and Shanghai. Other general

IPR commitments confirm that China will modify laws, regulations, and

other measures to ensure nondiscriminatory treatment of foreign IPR

holders, as required by the TRIPS agreement.65 Lastly, one paragraph in

this section describes China’s membership or participation in 12

international agreements, treaties, and conventions and includes a general

commitment that China will treat foreigners in accordance with any

agreement between the foreign country and China.

 64We also identified two commitments in annex 1A of the agreement that require China to

report IPR-related information to the WTO in the context of the trade review mechanism.

65Articles 3 and 4 of TRIPS relate to national and most-favored-nation treatment.

Specifically, Article 3 requires that each member shall accord to the nationals of other

members treatment no less favorable than it accords to its own nationals with regard to the

protection of intellectual property, subject to some exceptions. Article 4 provides that any

advantage, favor, privilege, or immunity granted by a member to the nationals of any other

country shall be accorded immediately and unconditionally to the nationals of all other

members.

General
Appendix IV: Summary and Analysis of

China’s WTO Commitments

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Many of the paragraphs relating to copyrights, patents, trademarks, and

other IPR provide narrative on China’s existing laws and regulations and

contain some details concerning how these laws and regulations are to be

administered. Other paragraphs describe some WTO members’ concerns

about the consistency or adequacy of China’s existing IPR regime in

relation to TRIPS. In some cases, China acknowledges differences or

inconsistencies between existing laws and TRIPS. For example, China

noted that certain aspects of existing copyright, patent, and trademark

laws fell short of what was required by TRIPS, and made commitments to

modify the relevant laws and regulations to fully meet TRIPS

requirements.

Some WTO members noted several concerns about the enforcement of

IPR in China, and the majority of China’s IPR commitments are intended

to address these concerns. For example, members raised concerns about

filing civil judicial actions relating to IPR violations in China, and they

noted that the way in which damages resulting from IPR violations were

calculated often resulted in inadequate compensation. In response, China

committed to fully implementing TRIPS provisions relating to civil judicial

procedures and evidence (Articles 42 and 43), as well as those relating to

damages and compensation (Articles 45 and 46). Members were also

concerned about the use of administrative and criminal procedures to

address IPR infringement. In particular, members noted that

administrative sanctions (that is, penalties imposed by administrative

bodies on IPR violators) were inadequate, and that monetary thresholds

for initiating a criminal action against an IPR violator were too high and

were seldom met. China made commitments to address each of these

areas by clarifying the use of administrative sanctions and recommending

that the monetary thresholds required to initiate criminal action be

lowered.

Copyrights, Patents,

Trademarks, and Other

IPR

Enforcement
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China’s WTO Commitments

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Since China’s economy is in a transitional stage, becoming more marketoriented but still retaining characteristics of a nonmarket economy, WTO

members, and particularly the United States, lobbied for the inclusion of

safeguards and other trade remedy commitments in China’s accession

package to augment those already set forth in the WTO agreements. These

commitments provide other WTO members both with extra protection

from surges in imports from China and with additional WTO monitoring of

China’s implementation of its WTO commitments. The additional

safeguards include a product-specific safeguard, which covers Chinese

products generally, and a special textile safeguard, which applies to

textiles and apparel. The special textile safeguard was particularly

important for the U.S. textile and apparel sector, an import-sensitive

sector to which China is the second largest supplier. The other trade

remedies allow WTO members to use alternate methodologies for

calculating prices and subsidies in antidumping and countervailing duty

cases against China.66 Finally, the trade remedies include a transitional

review mechanism to review China’s implementation of its WTO

commitments and the development of China’s trade with other WTO

members. This mechanism is additional to the WTO’s trade policy review

mechanism. Although the trade policy review mechanism provides for a

broad review of the trade regimes of all WTO members, WTO members

viewed it as insufficient to oversee China’s implementation of its

commitments. A number of the particular commitments in the safeguards

and other trade remedies area are described in table 23.

 66Antidumping measures include a duty or fee imposed to neutralize the injurious effect of

unfair pricing practices known as “dumping.” Dumping refers to the sale of a commodity in

a foreign market at a price lower than its fair market value. A countervailing duty is a

special duty that an importing country imposes to offset the economic effect of an

actionable subsidy and to prevent injury to a domestic industry caused by a subsidized

import.

Safeguards and Other

Trade Remedies
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China’s WTO Commitments

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Table 23: Examples of China’s WTO Commitments Relating to Safeguards and Other Trade Remedies

Topic China committed to

Product-specific safeguard • Allowing WTO members to withdraw concessions or limit imports when Chinese

products are imported to WTO members and cause or threaten to cause market

disruption.

• Allowing WTO members to withdraw concessions or limit imports only for such time as

is necessary to prevent or remedy market disruption.

• Allowing China to suspend application of substantially equivalent concessions when a

WTO member adopts a measure in response to (1) a relative increase in Chinese

imports, and when the measure remains in effect for more than 2 years, or (2) an

absolute increase in imports, when the measure remains in effect more than 3 years.

• Allowing WTO members to withdraw concessions or otherwise limit Chinese imports if

the application of the product-specific safeguard by another WTO member against

China threatens to cause significant diversions of trade into the market of the other

importing WTO member.

• Terminating the product-specific safeguard on December 11, 2013, 12 years after

China’s accession to the WTO.

• Requiring WTO members to follow various procedural requirements when invoking the

product-specific safeguard against China.

• Requiring WTO members to apply objective criteria in assessing whether actions taken

against China to prevent or remedy market disruption cause or threaten to cause

significant diversion of trade.

Textile safeguard • Allowing WTO members to invoke the textile safeguard against China when imports of

Chinese textiles or apparel products cause market disruption that threatens to impede

the orderly development of trade.

• Holding shipment of textiles and apparel to certain levels, upon request for

consultations to ease market disruption.

• Permitting WTO members to use the textile safeguard until December 31, 2008, 4

years after expiration of the WTO Agreement on Textiles and Clothing.

• Allowing WTO members to apply safeguard measures under the textile safeguard only

for 1 year, without reapplication, unless otherwise agreed.

• Prohibiting the textile safeguard and product-specific safeguard from being applied to

the same product at the same time.

Price comparability in determining

Chinese dumping

• Allowing importing WTO members to use a methodology not based on strict

comparison with Chinese domestic prices or costs in determining price comparability

for antidumping, when producers under investigation cannot clearly show that market

economy conditions prevail in industry involved.

• Requiring importing WTO members to use Chinese prices or costs in determining price

comparability for antidumping, when producers show market economy conditions

prevail.

• Allowing use of alternate methodology for antidumping actions for 15 years after

China’s accession.a

• Requiring WTO members to follow certain procedures when using alternate

methodology in antidumping cases.

• Revising its antidumping regulations and procedures prior to WTO accession, to fully

implement antidumping agreement.

Price comparability in determining

Chinese subsidies

• Allowing WTO members to use methodologies for identifying Chinese subsidies that

are not based on prevailing terms and conditions in China.

• Allowing use of alternate methodologies for determining subsidies without including a

termination date.

• Revising its countervailing duty regulations and procedures prior to accession, to fully

implement China’s obligations under the WTO Agreement on Subsidies and

Countervailing Measures.
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 89 GAO-03-4 China's WTO Commitments

Topic China committed to

Product-specific safeguard • Allowing WTO members to withdraw concessions or limit imports when Chinese

products are imported to WTO members and cause or threaten to cause market

disruption.

• Allowing WTO members to withdraw concessions or limit imports only for such time as

is necessary to prevent or remedy market disruption.

• Allowing China to suspend application of substantially equivalent concessions when a

WTO member adopts a measure in response to (1) a relative increase in Chinese

imports, and when the measure remains in effect for more than 2 years, or (2) an

absolute increase in imports, when the measure remains in effect more than 3 years.

• Allowing WTO members to withdraw concessions or otherwise limit Chinese imports if

the application of the product-specific safeguard by another WTO member against

China threatens to cause significant diversions of trade into the market of the other

importing WTO member.

• Terminating the product-specific safeguard on December 11, 2013, 12 years after

China’s accession to the WTO.

• Requiring WTO members to follow various procedural requirements when invoking the

product-specific safeguard against China.

• Requiring WTO members to apply objective criteria in assessing whether actions taken

against China to prevent or remedy market disruption cause or threaten to cause

significant diversion of trade.

Transitional review mechanism • Authorizing relevant WTO subsidiary bodies and General Council, within 1 year after

China’s WTO accession, and annually for 8 years, to review China’s implementation of

its WTO commitments.

• Providing relevant information to each subsidiary body in conjunction with WTO

subsidiary body review.

• Allowing final review in the tenth year after China’s accession or at an earlier date

decided by General Council.

a

The 15 year period can be shortened for particular members if China can show, under the national

law of the importing WTO member, that it is a market economy or that market economy conditions

prevail in a particular industry or sector.

Source: GAO analysis of China’s WTO accession agreement.

China has made a substantial number of commitments in the safeguards

and other trade remedies area, particularly with respect to the productspecific safeguard, the use of an alternate methodology for comparing

prices in antidumping cases, the textile safeguard, and the transitional

review mechanism. We classified several of the commitments in this area

as “other,” since they did not correspond to any of the other seven types of

commitments we identified (see table 3). Among other things, these

commitments describe how product-specific safeguard measures will be

applied and set forth the details of the transitional review mechanism. For

both the product-specific safeguard and the use of an alternate

methodology in antidumping cases, WTO members also provided pledges

to China about the procedures they will use when implementing this

safeguard and trade remedy. These procedures primarily relate to due

process and transparency protections that WTO members agreed to follow

when invoking either against China. Finally, as part of the WTO’s

transitional review mechanism, annex 1A of the protocol lists 62
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 90 GAO-03-4 China's WTO Commitments

commitments relating to economic and trade policy information that

China is to provide to various WTO committees. We assigned these

commitments to other areas covered in this appendix, based on the

information that is required to be provided.

China’s commitments in the product-specific and textiles safeguards topic

exceed the general obligations in the WTO agreements and rules.67

Although the WTO Safeguards and the Textiles and Clothing agreements

do have safeguards that can be used to deal with surges in imports, they

are not as strong as those included in China’s accession agreement. Thus,

both the WTO agreement on Safeguards and that on Textiles and Clothing

establish a “serious injury” or “serious damage” text for determining

whether a safeguard can be applied, whereas China’s product-specific and

textile safeguards provide for an injury threshold referred to as “market

disruption,” which is easier to establish. Further, although the WTO

Safeguards agreement allows members to use safeguards when they are

subjected to or threatened by injury from imports of a particular product,

these safeguards cannot target specific countries and must be applied to

the product irrespective of its source. To the contrary, both the productspecific and the textile safeguards in China’s accession agreement can and

generally are intended to target products from China. Finally, although

China’s product-specific and textile safeguards cannot be applied to the

same product at the same time, either can be used to deal with surges in

textiles and apparel. This is important, because while the textile safeguard

cannot be used after December 31, 2008, the product-specific safeguard

can be applied to surges in textile and apparel imports for nearly 5 more

years, until December 11, 2013.

China’s commitments to permit the use of an alternate methodology in

dumping and subsidies cases were provided to deal with WTO members’

concerns, including those of the United States, that Chinese domestic

prices, production, or other economic data would not accurately reflect

dumping margins or subsidy benefits.68 The use of these alternate

 67Special safeguards and review provisions were included in the protocols of accession of

Poland, Romania, and Hungary to the General Agreement on Tariffs and Trade.

68Article VI of the General Agreement on Tariffs and Trade generally describes a dumping

margin as the calculated difference between the normal value of a product and the price at

which it is being sold in the importing market.

Product-Specific and

Textiles Safeguards

Price Comparability in

Determining Chinese

Dumping and Subsidies
Appendix IV: Summary and Analysis of

China’s WTO Commitments

Page 91 GAO-03-4 China's WTO Commitments

methodologies or benchmarks essentially will allow for comparisons of

prices and subsidy benefits in countries other than China. Nevertheless,

there are some limitations on the use of these methodologies in dumping

cases. First, should China establish, under the national law of an importing

WTO member, that it is a market economy or that market conditions

prevail in the industry or sector subject to a dumping investigation, the

alternate methodology cannot be used. Second, members’ ability to use

this alternative methodology terminates in 15 years.

Although the authority for using the alternate methodology for calculating

subsidies does not terminate, this alternative may not have much practical

effect for the United States because, at least presently, the United States

does not apply U.S. subsidy/countervailing duty law to nonmarket

economies, including China. In this regard, U.S. courts have held that

subsidies cannot fairly be identified or quantified in countries with

nonmarket economies because the economies are controlled by the state.69

China’s commitments regarding the establishment of a transitional review

mechanism to monitor implementation of its WTO commitments appeared

to be one of the more difficult issues to negotiate with China. The

commitments require annual reviews, first by all 16 WTO subsidiary bodies

and later by the WTO General Council, making use of the results of those

of the subsidiary bodies.70 Annex 1A of the protocol sets forth a broad

range of information that China must provide to the 16 WTO subsidiary

bodies for their reviews.71 Furthermore, annex 1A indicates that China is to

respond to specific questions from both the subsidiary bodies and the

General Council in connection with their reviews. Annex 1B provides that

the General Council reviews are not limited to a review of China’s

implementation of its WTO commitments but are to include issues dealing

with (1) the development of China’s trade with WTO members and other

 69See Georgetown Steel Corp. v. United States, 801 F.2d 1308, 1316 (Fed. Cir. 1986).

70The subsidiary bodies are described as councils or committees and are generally

organized according to the various trade subjects covered by the WTO agreements: for

example, the Council for Trade in Goods, the Council for Trade in Services, and the

Committees on Agriculture and Technical Barriers to Trade.

71This includes economic data and information on China’s (1) economic policies, (2)

framework for making and enforcing policies, (3) policies affecting trade in goods and

services, and (4) trade-related intellectual property regime.

Transitional Review

Mechanism
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trading partners and (2) recent developments and cross-sectoral issues

regarding China’s trade regime.

The annual reviews of the WTO subsidiary bodies and General Council will

require coordination between the various WTO subsidiary bodies, the

General Council, and China. For example, the WTO subsidiary bodies will

have to work out with China when information should be provided to

them for their reviews. Although annex 1B requires China to submit

information and documentation relating to the General Council’s review

no later than 30 days prior to its review date, there is no similar specific

requirement for when information should be provided to the subsidiary

bodies for their reviews. Finally, the commitments relating to the

transitional review mechanism do not specifically indicate when the

reviews will end. Although the review process is scheduled to conclude

with a final review in the tenth year after China’s accession, the General

Council could decide to terminate it at any time after the eighth year.

Although the additional safeguards and trade remedies to which China

committed were applicable upon China’s accession to the WTO on

December 11, 2001, most of them phase out over time, and some represent

the longest phaseouts in China’s accession agreement. Thus, as noted in

table 24, the product-specific and textile safeguards terminate,

respectively, 12 and approximately 7 years after China’s accession; the

ability to utilize an alternate methodology in antidumping cases terminates

no later than 15 years after accession; and the transitional review

mechanism, at most, 10 years after accession. Although not a strict

phasein, the first review under the transitional review mechanism is to be

done within 1 year after China’s accession.

Key Dates
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China’s WTO Commitments

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Table 24: Timetable for Selected Chinese WTO Commitments Relating to Safeguards and Other Trade Remedies

Date Commitment

December 11, 2002 Requires review of China’s implementation of its WTO commitments by WTO subsidiary bodies

and General Council, under transitional review mechanism, within 1 year of China’s accession to

the WTO.

December 31, 2008 Phases out textile safeguard a little more than 7 years after China’s accession and 4 years after

termination of the WTO Agreement on Textiles and Clothing on January 1, 2005.

December 11, 2011 Requires annual reviews of China’s implementation of its WTO commitments for 8 years, under

transitional review mechanism, with a final review in the 10th year or at an earlier date decided by

the General Council.

December 11, 2013 Phases out product-specific safeguard 12 years after China’s accession.

December 11, 2016 Phases out use of alternate methodology for antidumping cases 15 years after China’s accession.

Source: GAO analysis of China’s WTO accession agreement.
Appendix V: GAO Contacts and Staff

Acknowledgments

Page 94 GAO-03-4 China's WTO Commitments

Adam Cowles (202) 512-9637

Matthew E. Helm (202) 512-7959

In addition to those named above, Carolyn Black-Bagdoyan, Ming Chen,

Martin deAlteriis, Simin Ho, Jane-yu Li, Rona Mendelsohn, Suen-Yi Meng,

Michelle Sager, Richard Seldin, and Timothy Wedding made key

contributions to this report.

Appendix V: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments

(320088)
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