Since the late 1970s, China has introduced a variety of market reforms to liberalize its centrally planned economy. Today, China is much more developed, open, and market oriented, such that now almost all sectors of its economy have elements of both free markets and state planning. However, China still lacks considerable transparency in its trade regime and intervenes in its economy in ways that can distort trade. For example, China restricts its imports by applying high tariffs to specific sectors, using import quotas, requiring import licenses, imposing other import barriers, and promoting and supporting its exports. In combination with macroeconomic forces, these trade practices have fostered a Chinese balance of trade surplus with the world and a rapid buildup in foreign reserves. In addition to these factors, the U.S. trade deficit with China has recently grown because U.S. demand for goods from China has grown more rapidly than Chinese demand for U.S. goods. Over the past 4 years this bilateral U.S. trade deficit has risen from $30 billion to $50 billion. Top U.S. exports to China tend to consist of high-technology goods, such as aircraft, while the top U.S. imports from China include many low-technology products such as toys and apparel. U.S. imports from China also include products such as electrical machinery. The United States has negotiated with China to open its markets through numerous bilateral trade agreements, including a 1979 agreement that approved reciprocal MFN status between the two countries (for more information on U.S.-China bilateral trade agreements, see app. I). Since 1986, China has been negotiating to join the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT). China will have to make significant changes to its economy to be able to meet WTO commitments (for a brief discussion of China’s economy, see app. II). Existing WTO members and countries that agree to join the WTO must abide by a set of rules and obligations that promote trade and increase transparency and fairness in the world trading system. Nondiscrimination toward other WTO members is a fundamental principle in the WTO agreements and is embodied in the granting of MFN status and providing national treatment. Generally WTO members are obligated under the MFN principle to grant each other trade privileges as favorable as they give to any other foreign country. National treatment requires that they treat other member’s products no less favorably than they treat their own, once foreign goods have crossed their borders. China, like other WTO members, will also have to commit to reduce tariffs for industrial and agricultural products and to follow rules designed to limit the use of trade-distorting nontariff barriers (such as subsidies and import licensing requirements). Additional WTO rules cover financial and other services, trade-related investment measures, market access, and trade-related intellectual property rights. WTO members have access to dispute settlement procedures designed to help them more quickly address other members’ trade practices that appear to violate WTO rules. China has sought to join the WTO as a developing country, which would allow it to benefit from longer transition periods given these countries to implement WTO obligations. However, the United States and other countries have maintained that China should be treated as a developed country because of its size and status as a major world exporter. While there is debate about the true size and growth rate of China’s economy, there is no doubt that it is very large and has grown rapidly. The Organization for Economic Cooperation and Development (OECD) estimates that China’s gross domestic product (GDP) was the second largest in the world in 1997. Despite its size, however, China’s economy still is considered “developing” by World Bank estimates. According to U.S. and foreign government officials, negotiations on transition periods and other special treatment for China will be considered on a case-by-case basis since China does not fit neatly into either of these categories of development. Overall, a major objective of the administration has been to negotiate a WTO accession agreement that is “commercially meaningful to U.S. business.” China is currently negotiating with WTO members, including the United States, to join, that is, to “accede” to, the WTO. After joining, China will be bound by the commitments it makes both in the accession negotiations and in the underlying WTO agreements. A successful accession requires the applicant to make the necessary concessions to meet the commercial and trade requirements of the WTO agreements. Thus, the outcome of this process is, to some degree, already determined by the existing agreements, in contrast to traditional trade negotiations; the primary issue for debate is agreeing to what measures a country like China needs to take to assure WTO members that it can meet the requirements. Also, the applicant must negotiate the levels at which it will bind its tariffs with WTO members. Any special provisions granted to the applicant are counterbalanced by greater obligations that the applicant must fulfill. For instance, although members might allow the applicant time to phase in tariff reductions, the applicant might be required to meet additional reporting and transparency commitments during the phase-in process. The accession process begins when the applicant submits a letter of application to the WTO Director-General. China began this process in 1986 when it applied to the GATT, and renewed its application in 1995 upon the creation of the WTO. This process, diagrammed in figure 1, is comprised of four phases: (1) fact-finding, (2) negotiation, (3) WTO decision, and (4) implementation. China is currently in the negotiation phase of the accession process. Fact-finding: As figure 1 illustrates, in the first phase of fact-finding the WTO working party, assisted by the Secretariat, collects and synthesizes information on the applicant’s trade regime. The applicant submits a detailed outline of its trade policies and practices and answers questions until the working party has sufficient information to begin negotiations. Negotiation: Figure 1 shows that the second phase of the process follows a two-track approach, involving both bilateral and multilateral negotiations. On a bilateral basis, each working party member negotiates with the applicant on its specific commitments on goods and services under the WTO agreements. The applicant submits an overall market access offer as the starting point for the negotiations, detailing how the country will lower barriers to trade. Although these negotiations are conducted bilaterally, any agreement reached between two countries will apply to all WTO members, as the principle of MFN requires. In the multilateral negotiations, the working party and the applicant negotiate terms for how the applicant will adhere to WTO’s principles and technical guidelines, so that the applicant will meet the normal obligations and responsibilities of membership. For example, a country might be asked where and when it would publish new laws, in order to comply with a WTO transparency requirement. The negotiation phase results in four documents, which detail the results of the negotiations and make up the applicant’s final accession package: (1) The Consolidated Schedules: These detail the applicant’s specific market access commitments under various WTO agreements, primarily covering individual tariff lines for goods and services. They are annexed to the protocol as an integral part of the agreement. (2) The Protocol: This is usually a brief document containing the terms of accession and affirming the applicant’s adherence to WTO guidelines and principles. (3) The Working Party Report: This provides a narrative on the results of the negotiations. Frequently, the report includes specific commitments made by the applicant regarding how it will meet WTO requirements. Commitments detailed in either the report or the protocol carry the same legal weight for the applicant, according to WTO and USTR officials. (4) The Draft Decision: Written by the working party, this document affirms the working party’s consensus decision on the applicant’s bid for accession. After the working party members conclude all the negotiations and reach consensus on language detailing the terms and conditions for the applicant’s membership, they will forward the package to the General Council. WTO Decision: The third phase in figure 1 is the formal decision process, in which the General Council (comprised of all WTO members) approves (or rejects) the terms and conditions of the applicant’s package. Traditionally, the General Council reaches decisions by consensus. However, if consensus cannot be reached, the draft decision can be approved by a two-thirds majority. Any country that decides to forgo normal WTO obligations and benefits (“non-application”), including MFN, must notify the Council before the Council approves the accession package. Implementation: Finally, the last phase in figure 1 is implementation of the applicant’s WTO commitments. The applicant’s WTO obligations enter into force 30 days after the General Council’s approval and the applicant subsequently files its acceptance of membership. The accession package is part of the applicant’s WTO agreement, and the acceding country is equally bound by the provisions of the WTO agreements and the commitments in the accession package. In some cases, the applicant’s parliament or other legislative body must pass legislation to allow for accession before the applicant submits its acceptance. Applicants must also make the necessary internal adjustments as required by the accession package before the 30-day period begins. The General Council approves the draft decision, and then the applicant becomes a member. The most recent countries to join—Ecuador, Mongolia, Bulgaria, and Panama—were required to eliminate or begin to phase out most trade practices incompatible with WTO rules immediately upon accession.