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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:



GAO Highlights:



United States General Accounting Office: 



October 2002:



WORLD TRADE ORGANIZATION:



Analysis of China’s Commitments to Other Members:



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:



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.



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.



Figure: 



[See PDF for image]



[End of figure]



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. 



Contents:



Letter:



Results in Brief:



Background:



Various Types of Commitments Cover Administration of Trade Regime and 

Market Access:



Interrelationships among Commitments Can Affect Foreign Business 

Opportunities:



Concluding Observations:



Agency Comments and Our Evaluation:



Appendix I: Objectives, Scope and Methodology:



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

Agreement Covers:



Appendix III: Data Sources and Methodology for Analysis of 

China’s WTO Goods Commitments:



Appendix IV: Summary and Analysis of China’s WTO 

Commitments:



Trade Framework:



Import Regulation:



Export Regulation:



Trading Rights and Industrial Policies:



Agriculture:



Services:



Intellectual Property Rights:



Safeguards and Other Trade Remedies:



Appendix V: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Acknowledgments:



Tables:



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

Commitments in Each Area:



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



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



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

Percent or Higher in 2010:



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

Accession Agreement:



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



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



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

Services Sectors:



Table 9: Selected Products and Services Sectors Subject to Multiple 

Restrictions and Trade-Distorting Measures:



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



Table 11: Concordance between GAO Categories and Harmonized Schedule 

Section Headings:



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

Framework:



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

Import Regulation:



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



Table 15: Timetable for Selected Chinese WTO Commitments Relating to 

Import Regulation:



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

Export Regulation:



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

Trading Rights and Industrial Policies:



Table 18: Timetable for Selected Chinese WTO Commitments Relating to 

Trading Rights and Industrial Policies:



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



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



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



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

Property Rights:



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

and Other Trade Remedies:



Table 24: Timetable for Selected Chinese WTO Commitments Relating to 

Safeguards and Other Trade Remedies:



Figures:



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

2010:



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

2001 and 2010:



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

2001-2016:



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

All Products, 2001-2010:



Figure 5: Schedule for China’s Quota Administration:



Figure 6: Percentage Share of TRQs Reserved for Importation through 

Chinese State Trading Enterprises, 2001-2005:



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



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:



Letter: 



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 economy[Footnote 1] 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 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).



Results in Brief:



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 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.[Footnote 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 tariff-rate 

quotas[Footnote 3] and price controls on specific products, will remain 

in place after tariffs have been reduced.



Background:



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 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.[Footnote 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.[Footnote 5] China negotiated 

bilaterally with other interested WTO members regarding market access 

commitments for goods and services.[Footnote 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 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.[Footnote 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 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 trade-related issues.[Footnote 8]



Various Types of Commitments Cover Administration of Trade Regime and 

Market Access:



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.



Nearly 700 Commitments Exist, Covering China’s Trade Regime:



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.[Footnote 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.



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

Commitments in Each Area:



Area: Trade framework; Number of commitments: 82; [Empty]; Description 

of area: Includes uniform application of trade measures, transparency, 

judicial review, nondiscrimination, and revisions to related laws and 

regulations..



Area: Import regulation; Number of commitments: 227; [Empty]; 

Description of area: 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..



Area: Export regulation; Number of commitments: 9; [Empty]; Description 

of area: Includes border measures affecting exports, including 

licensing requirements, export duties, and other taxes and charges..



Area: Trading rights and industrial policies; Number of commitments: 

117; [Empty]; Description of area: 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..



Area: Agriculture; Number of commitments: 101; [Empty]; Description of 

area: 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)..



Area: Services; Number of commitments: 45; [Empty]; Description of 

area: 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..



Area: Intellectual property rights; Number of commitments: 34; [Empty]; 

Description of area: Includes laws and regulations providing for the 

protection and enforcement of intellectual property rights such as 

copyrights, trademarks, and patents..



Area: Safeguards and trade remedies; Number of commitments: 70; 

[Empty]; Description of area: 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..



Area: Total; Number of commitments: 685; [Empty]; Description of area: 

[Empty].



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.



[End of table]



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.



Types of Commitments Vary Widely and Require Both Specific and General 

Actions from China:



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.[Footnote 

10] (See table 2.):



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



Commitment type: Definitional; Commitments of this type require China 

to:: 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.; Example of 

commitment type: 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..



Commitment type: Reporting; Commitments of this type require China to:: 

Report some type of information to the WTO.; Example of commitment 

type: Agriculture: China committed to notifying the WTO about all 

sanitary and phytosanitary regulations and measures within 30 days 

after accession..



Commitment type: Transparency; Commitments of this type require China 

to:: 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.; Example of 

commitment type: 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..



Commitment type: Laws and regulations; Commitments of this type require 

China to:: Create, modify, or repeal an existing law or regulation in 

order to comply with a WTO requirement.; Example of commitment type: 

Intellectual property rights: China committed to amending its trademark 

law in compliance with the TRIPS agreement..



Commitment type: Guidance; Commitments of this type require China to:: 

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.; Example of commitment 

type: 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..



Commitment type: Adhere to WTO; Commitments of this type require China 

to:: 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.; Example of 

commitment type: 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..



Commitment type: Nondiscrimination; Commitments of this type require 

China to:: Confirm or reiterate adherence to WTO principles of national 

treatment and most favored nation[A]; Example of commitment type: 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.



[End of table]



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.[Footnote 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 

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.



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



[See PDF for image]



[End of table]



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.



China Made Market Access Commitments for Goods to Reduce or Eliminate 

Important Tariffs and Other Trade-Distorting Measures:



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.[Footnote 

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.



Tariff Reductions Affect Wide Range of Products, but Some Final Rates 

Are Still Relatively High:



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.[Footnote 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.[Footnote 14] Therefore, the average tariff rate that 

China applies in the future may be even lower.



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.[Footnote 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.[Footnote 16] U.S. 

exports of information technology products accounted for nearly one-

fourth 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.



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

2010:



[See PDF for image]



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.



[End of figure]



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.



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

2001 and 2010:



[See PDF for image]



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.



[End of figure]



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 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.[Footnote 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).[Footnote 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).



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

Percent or Higher in 2010:



Product description:[A]: Wheat (subject to TRQs); Tariffs 2001: 74%; 

Tariffs 2010: 65%; [Empty]; U.S. Exports to China, 2001: $21,736.



Product description:[A]: Corn (subject to TRQs); Tariffs 2001: 74; 

Tariffs 2010: 65; [Empty]; U.S. Exports to China, 2001: 1,225.



Product description:[A]: Rice (subject to TRQs); Tariffs 2001: 74; 

Tariffs 2010: 65; [Empty]; U.S. Exports to China, 2001: 184.



Product description:[A]: Barley; Tariffs 2001: 65; Tariffs 2010: 65; 

[Empty]; U.S. Exports to China, 2001: 0.



Product description:[A]: Vermouth; Tariffs 2001: 65; Tariffs 2010: 65; 

[Empty]; U.S. Exports to China, 2001: 70.



Product description:[A]: Manufactured tobacco and substitutes; Tariffs 

2001: 65; Tariffs 2010: 65; [Empty]; U.S. Exports to China, 2001: 23.



Product description:[A]: Cane or beet sugar (subject to TRQs); Tariffs 

2001: 55 to 71.6; Tariffs 2010: 50; [Empty]; U.S. Exports to China, 

2001: 354.



Product description:[A]: NPK chemical fertilizer (covered by TRQ); 

Tariffs 2001: 50; Tariffs 2010: 50; [Empty]; U.S. Exports to China, 

2001: n.a..



Product description:[A]: Diammonium chemical fertilizer (covered by 

TRQ); Tariffs 2001: 50; Tariffs 2010: 50; [Empty]; U.S. Exports to 

China, 2001: n.a..



Product description:[A]: Urea (covered by TRQ); Tariffs 2001: 50; 

Tariffs 2010: 50; [Empty]; U.S. Exports to China, 2001: n.a..



Product description:[A]: Photographic film; Tariffs 2001: 55.7; Tariffs 

2010: 47; [Empty]; U.S. Exports to China, 2001: 94.



Product description:[A]: Motorcycles; Tariffs 2001: 52.3 to 53.8; 

Tariffs 2010: 45; [Empty]; U.S. Exports to China, 2001: 24.



Product description:[A]: Corn and rice flours (subject to TRQs); 

Tariffs 2001: 64; Tariffs 2010: 40; [Empty]; U.S. Exports to China, 

2001: 345.



Product description:[A]: Cotton (subject to TRQs); Tariffs 2001: 61.6; 

Tariffs 2010: 40; [Empty]; U.S. Exports to China, 2001: 42,981.



Product description:[A]: Fermented beverages (cider, perry, mead); 

Tariffs 2001: 60.5; Tariffs 2010: 40; [Empty]; U.S. Exports to China, 

2001: 18.



Product description:[A]: Photographic film; Tariffs 2001: 53.3; Tariffs 

2010: 40; [Empty]; U.S. Exports to China, 2001: 667.



Product description:[A]: Motorcycles; Tariffs 2001: 51.7; Tariffs 2010: 

40; [Empty]; U.S. Exports to China, 2001: 0.



Product description:[A]: Ethyl alcohol; Tariffs 2001: 40; Tariffs 2010: 

40; [Empty]; U.S. Exports to China, 2001: 507.



Product description:[A]: Wool (subject to TRQs); Tariffs 2001: 38; 

Tariffs 2010: 38; [Empty]; U.S. Exports to China, 2001: 2,238[B].



Product description:[A]: Beverage bases and flavored waters; Tariffs 

2001: 44 to 50; Tariffs 2010: 35; [Empty]; U.S. Exports to China, 2001: 

10,550[B].



Product description:[A]: Photographic paper; Tariffs 2001: 45; Tariffs 

2010: 35; [Empty]; U.S. Exports to China, 2001: 71[B].



Product description:[A]: Jewelry and imitation jewelry; Tariffs 2001: 

36.7 to 42.5; Tariffs 2010: 35; [Empty]; U.S. Exports to China, 2001: 

2,126.



Product description:[A]: Gas water heaters; Tariffs 2001: 35; Tariffs 

2010: 35; [Empty]; U.S. Exports to China, 2001: 4,773.



Product description:[A]: Electric heaters, hair dryers, toasters, 

coffee makers; Tariffs 2001: 35; Tariffs 2010: 35; [Empty]; U.S. 

Exports to China, 2001: 732.



Product description:[A]: Television cameras and video cameras; Tariffs 

2001: 35; Tariffs 2010: 35; [Empty]; U.S. Exports to China, 2001: 

467[B].



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.



[End of table]



Other Trade-Distorting Measures to Be Eliminated, but Certain Practices 

Will Remain:



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.[Footnote 19] Table 5 lists certain trade-

distorting measures that China’s accession agreement addresses, and 

whether they will be eliminated.[Footnote 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.[Footnote 21]



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

Accession Agreement:



Type of trade-distorting measure: Designated trading; Products affected 

by measure:: Natural rubber, timber, plywood, wool, acrylic, and steel; 

Approximate share of U.S. exports to China (2001) of products subject 

to the measure[A] (percent): 1%; Phaseout schedule: Removed by 2004.



Type of trade-distorting measure: Export duties; Products affected by 

measure:: Fish products, base metals (lead, zinc, aluminum, tungsten, 

etc.), mineral products; Approximate share of U.S. exports to China 

(2001) of products subject to the measure[A] (percent): Not applicable 

(should affect Chinese exports of products)[B]; Phaseout schedule: Not 

removed.



Type of trade-distorting measure: Export subsidies; Products affected 

by measure:: None (China committed to eliminating all export subsidies 

upon accession); Approximate share of U.S. exports to China (2001) of 

products subject to the measure[A] (percent): Not applicable (should 

affect Chinese exports of products); Phaseout schedule: Eliminated upon 

accession.



Type of trade-distorting measure: Government guidance pricing; Products 

affected by measure:: Grains (wheat, corn, rice, and soybeans), 

vegetable oils (soybean, rape, colza, and mustard), processed oil, 

fertilizer (urea), silkworm cocoons, and cotton; Approximate share of 

U.S. exports to China (2001) of products subject to the measure[A] 

(percent): 6-7; Phaseout schedule: Not removed.



Type of trade-distorting measure: Licensing; Products affected by 

measure:: Automobiles, motorcycles, parts, and a variety of other 

products; Approximate share of U.S. exports to China (2001) of products 

subject to the measure[A] (percent): 1; Phaseout schedule: Removed by 

2005.



Type of trade-distorting measure: Price controls; Products affected by 

measure:: Tobacco, edible salt, natural gas, pharmaceuticals; 

Approximate share of U.S. exports to China (2001) of products subject 

to the measure[A] (percent): Less than 1; Phaseout schedule: Not 

removed.



Type of trade-distorting measure: Quotas; Products affected by 

measure:: Automobiles, motorcycles, parts, and a variety of other 

products; Approximate share of U.S. exports to China (2001) of products 

subject to the measure[A] (percent): 1; Phaseout schedule: Removed by 

2005.



Type of trade-distorting measure: State trading; (imports); Products 

affected by measure:: Grains (wheat, corn, and rice), vegetable oils 

(soybean, palm, rape, colza, and mustard oils), sugar, tobacco, crude 

oil, processed oil, chemical fertilizers, and cotton; Approximate share 

of U.S. exports to China (2001) of products subject to the measure[A] 

(percent): About 1; Phaseout schedule: Not removed.



Type of trade-distorting measure: State trading (exports); Products 

affected by measure:: Tea, rice, corn, soybeans, tungsten ore, ammonium 

paratungstates, tungstate products, coal, crude oil, processed oil, 

silk, cotton, woven fabrics, antimony products, and silver; Approximate 

share of U.S. exports to China (2001) of products subject to the 

measure[A] (percent): Not applicable (should affect Chinese exports of 

products)[B]; Phaseout schedule: Not removed.



Type of trade-distorting measure: Tariff-rate quotas; Products affected 

by measure:: Wheat, corn, rice, soybean oil, palm oil, rape-seed oil, 

sugar, wool, cotton, fertilizer, wool tops; Approximate share of U.S. 

exports to China (2001) of products subject to the measure[A] 

(percent): Less than 1; Phaseout schedule: Quota amount and private 

trading share increase over some period, but tariff-rate quota removed 

only on vegetable oils.



Type of trade-distorting measure: Tendering; Products affected by 

measure:: Transport equipment and high-tech apparatus; Approximate 

share of U.S. exports to China (2001) of products subject to the 

measure[A] (percent): 1-6; Phaseout schedule: 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.



[End of table]



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 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.[Footnote 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.[Footnote 23] For 

agricultural products, WTO members are 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.



Market Access Commitments for Services Cover Multiple Sectors, but Some 

Limitations Continue:



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.[Footnote 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.):



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



General WTO services sector: Business; Number of subsectors included in 

WTO general sector: 46; Number of subsectors included in China’s 

commitments: 26.



General WTO services sector: Communication; Number of subsectors 

included in WTO general sector: 24; Number of subsectors included in 

China’s commitments: 17.



General WTO services sector: Construction; Number of subsectors 

included in WTO general sector: 5; Number of subsectors included in 

China’s commitments: 5.



General WTO services sector: Distribution; Number of subsectors 

included in WTO general sector: 5; Number of subsectors included in 

China’s commitments: 5.



General WTO services sector: Education; Number of subsectors included 

in WTO general sector: 5; Number of subsectors included in China’s 

commitments: 5.



General WTO services sector: Environmental; Number of subsectors 

included in WTO general sector: 4; Number of subsectors included in 

China’s commitments: 4.



General WTO services sector: Financial; Number of subsectors included 

in WTO general sector: 17; Number of subsectors included in China’s 

commitments: 13.



General WTO services sector: Health-related and social; Number of 

subsectors included in WTO general sector: 4; Number of subsectors 

included in China’s commitments: 0.



General WTO services sector: Tourism and travel-related; Number of 

subsectors included in WTO general sector: 4; Number of subsectors 

included in China’s commitments: 2.



General WTO services sector: Recreation, cultural, and sporting; Number 

of subsectors included in WTO general sector: 5; Number of subsectors 

included in China’s commitments: 0.



General WTO services sector: Transport; Number of subsectors included 

in WTO general sector: 35; Number of subsectors included in China’s 

commitments: 11.



General WTO services sector: Other; Number of subsectors included in 

WTO general sector: Number of subsectors not specified; Number of 

subsectors included in China’s commitments: No commitments in this 

sector.



General WTO services sector: Total; Number of subsectors included in 

WTO general sector: 154; Number of subsectors included in China’s 

commitments: 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.



[End of table]



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 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.[Footnote 25]



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



Limitation type: Cross-border; Description: Limitation on providing a 

service across national borders. In some cases, services may be 

provided only by establishing a commercial presence in China.; Example 

of limitation type: Wholesale distribution services are not permitted 

to be provided across borders..



Limitation type: Form; Description: Limitation on the legal form of 

establishment, such as those requiring that services be provided 

through a joint venture with a Chinese partner.; Example of limitation 

type: Foreign providers of software implementation services may 

establish in China only in the form of a joint venture..



Limitation type: Equity; Description: Limitation on the amount or share 

of foreign equity in a service operation.; Example of limitation type: 

Within 2 years following accession, foreign investment in certain types 

of telecommunications services shall be no more than 50 percent..



Limitation type: Geographic; Description: Limitation on the specific 

geographic locations in which service providers are allowed to 

operate.; Example of limitation type: Certain foreign banking services 

are restricted to designated cities. These restrictions are phased out 

over time..



Limitation type: Nationality; Description: Limitation on national 

treatment based on the residency or nationality of a service provider.; 

Example of limitation type: Legal service representatives shall be 

resident in China for no less than 6 months each year..



Limitation type: Number; Description: Limitation on the number of 

foreign service providers or quantity of output or operations.; Example 

of limitation type: Number of foreign-invested medical and dental 

service operations subject to quantitative limits based on China’s 

needs..



Limitation type: Scope; Description: 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.; Example 

of limitation type: Commitments on courier services exclude services 

specifically reserved for Chinese postal authorities by law..



Limitation type: Qualifications; Description: Limitation on national 

treatment through qualifications, standards, or licensing 

requirements.; Example of limitation type: 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.



[End of table]



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.



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

Services Sectors:



General WTO services sector: Business; Number of subsectors covered by 

China’s services schedule: 26; Percentage of covered subsectors subject 

to specified limitation: Cross-border: 4%; Percentage of covered 

subsectors subject to specified limitation: Form: 54%; Percentage of 

covered subsectors subject to specified limitation: Equity: 0%; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: 0%; Percentage of covered subsectors subject to specified 

limitation: Nationality: 8%; Percentage of covered subsectors subject 

to specified limitation: Number: 4%; Percentage of covered subsectors 

subject to specified limitation: Scope: 23%; Percentage of covered 

subsectors subject to specified limitation: Qualifications: 42%; 

Percentage of covered subsectors subject to specified limitation: 

Other: 15%.



General WTO services sector: Communication; Number of subsectors 

covered by China’s services schedule: 17; Percentage of covered 

subsectors subject to specified limitation: Cross-border: 47; 

Percentage of covered subsectors subject to specified limitation: Form: 

59; Percentage of covered subsectors subject to specified limitation: 

Equity: 53; Percentage of covered subsectors subject to specified 

limitation: Geo-graphic: 0; Percentage of covered subsectors subject to 

specified limitation: Nationality: 0; Percentage of covered subsectors 

subject to specified limitation: Number: 6; Percentage of covered 

subsectors subject to specified limitation: Scope: 18; Percentage of 

covered subsectors subject to specified limitation: Qualifications: 0; 

Percentage of covered subsectors subject to specified limitation: 

Other: 12.



General WTO services sector: Construction; Number of subsectors covered 

by China’s services schedule: 5; Percentage of covered subsectors 

subject to specified limitation: Cross-border: 0; Percentage of covered 

subsectors subject to specified limitation: Form: 0; Percentage of 

covered subsectors subject to specified limitation: Equity: 0; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: 0; Percentage of covered subsectors subject to specified 

limitation: Nationality: 0; Percentage of covered subsectors subject to 

specified limitation: Number: 0; Percentage of covered subsectors 

subject to specified limitation: Scope: 100; Percentage of covered 

subsectors subject to specified limitation: Qualifications: 0; 

Percentage of covered subsectors subject to specified limitation: 

Other: 0.



General WTO services sector: Distribution; Number of subsectors covered 

by China’s services schedule: 5; Percentage of covered subsectors 

subject to specified limitation: Cross-border: 60; Percentage of 

covered subsectors subject to specified limitation: Form: 20; 

Percentage of covered subsectors subject to specified limitation: 

Equity: 0; Percentage of covered subsectors subject to specified 

limitation: Geo-graphic: 0; Percentage of covered subsectors subject to 

specified limitation: Nationality: 0; Percentage of covered subsectors 

subject to specified limitation: Number: 0; Percentage of covered 

subsectors subject to specified limitation: Scope: 60; Percentage of 

covered subsectors subject to specified limitation: Qualifications: 0; 

Percentage of covered subsectors subject to specified limitation: 

Other: 0.



General WTO services sector: Education; Number of subsectors covered by 

China’s services schedule: 5; Percentage of covered subsectors subject 

to specified limitation: Cross-border: 100; Percentage of covered 

subsectors subject to specified limitation: Form: 100; Percentage of 

covered subsectors subject to specified limitation: Equity: 0; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: 0; Percentage of covered subsectors subject to specified 

limitation: Nationality: 0; Percentage of covered subsectors subject to 

specified limitation: Number: 0; Percentage of covered subsectors 

subject to specified limitation: Scope: 0; Percentage of covered 

subsectors subject to specified limitation: Qualifications: 100; 

Percentage of covered subsectors subject to specified limitation: 

Other: 100.



General WTO services sector: Environmental; Number of subsectors 

covered by China’s services schedule: 4; Percentage of covered 

subsectors subject to specified limitation: Cross-border: 100; 

Percentage of covered subsectors subject to specified limitation: Form: 

100; Percentage of covered subsectors subject to specified limitation: 

Equity: 0; Percentage of covered subsectors subject to specified 

limitation: Geo-graphic: 0; Percentage of covered subsectors subject to 

specified limitation: Nationality: 0; Percentage of covered subsectors 

subject to specified limitation: Number: 0; Percentage of covered 

subsectors subject to specified limitation: Scope: 100; Percentage of 

covered subsectors subject to specified limitation: Qualifications: 0; 

Percentage of covered subsectors subject to specified limitation: 

Other: 0.



General WTO services sector: Financial; Number of subsectors covered by 

China’s services schedule: 13; Percentage of covered subsectors subject 

to specified limitation: Cross-border: 15; Percentage of covered 

subsectors subject to specified limitation: Form: 15; Percentage of 

covered subsectors subject to specified limitation: Equity: 15; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: 0; Percentage of covered subsectors subject to specified 

limitation: Nationality: 0; Percentage of covered subsectors subject to 

specified limitation: Number: 0; Percentage of covered subsectors 

subject to specified limitation: Scope: 46; Percentage of covered 

subsectors subject to specified limitation: Qualifications: 7; 

Percentage of covered subsectors subject to specified limitation: 

Other: 0.



General WTO services sector: Health-related and social; Number of 

subsectors covered by China’s services schedule: ; 0; Percentage of 

covered subsectors subject to specified limitation: Cross-border: ; 

n.a.; Percentage of covered subsectors subject to specified limitation: 

Form: ; n.a.; Percentage of covered subsectors subject to specified 

limitation: Equity: ; n.a.; Percentage of covered subsectors subject to 

specified limitation: Geo-graphic: ; n.a.; Percentage of covered 

subsectors subject to specified limitation: Nationality: ; n.a.; 

Percentage of covered subsectors subject to specified limitation: 

Number: ; n.a.; Percentage of covered subsectors subject to specified 

limitation: Scope: ; n.a.; Percentage of covered subsectors subject to 

specified limitation: Qualifications: ; n.a.; Percentage of covered 

subsectors subject to specified limitation: Other: ; n.a..



General WTO services sector: Tourism and travel-related; Number of 

subsectors covered by China’s services schedule: ; 2; Percentage of 

covered subsectors subject to specified limitation: Cross-border: ; 0; 

Percentage of covered subsectors subject to specified limitation: Form: 

; 0; Percentage of covered subsectors subject to specified limitation: 

Equity: ; 0; Percentage of covered subsectors subject to specified 

limitation: Geo-graphic: ; 0; Percentage of covered subsectors subject 

to specified limitation: Nationality: ; 0; Percentage of covered 

subsectors subject to specified limitation: Number: ; 0; Percentage of 

covered subsectors subject to specified limitation: Scope: ; 50; 

Percentage of covered subsectors subject to specified limitation: 

Qualifications: ; 0; Percentage of covered subsectors subject to 

specified limitation: Other: ; 0.



General WTO services sector: Recreation, cultural, and sporting; Number 

of subsectors covered by China’s services schedule: ; ; 0; Percentage 

of covered subsectors subject to specified limitation: Cross-border: ; 

; n.a.; Percentage of covered subsectors subject to specified 

limitation: Form: ; ; n.a.; Percentage of covered subsectors subject to 

specified limitation: Equity: ; ; n.a.; Percentage of covered 

subsectors subject to specified limitation: Geo-graphic: ; ; n.a.; 

Percentage of covered subsectors subject to specified limitation: 

Nationality: ; ; n.a.; Percentage of covered subsectors subject to 

specified limitation: Number: ; ; n.a.; Percentage of covered 

subsectors subject to specified limitation: Scope: ; ; n.a.; Percentage 

of covered subsectors subject to specified limitation: Qualifications: 

; ; n.a.; Percentage of covered subsectors subject to specified 

limitation: Other: ; ; n.a..



General WTO services sector: Transport; Number of subsectors covered by 

China’s services schedule: 11; Percentage of covered subsectors subject 

to specified limitation: Cross-border: 27; Percentage of covered 

subsectors subject to specified limitation: Form: 36; Percentage of 

covered subsectors subject to specified limitation: Equity: 27; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: 0; Percentage of covered subsectors subject to specified 

limitation: Nationality: 0; Percentage of covered subsectors subject to 

specified limitation: Number: 0; Percentage of covered subsectors 

subject to specified limitation: Scope: 27; Percentage of covered 

subsectors subject to specified limitation: Qualifications: 0; 

Percentage of covered subsectors subject to specified limitation: 

Other: 27.



General WTO services sector: Other; Number of subsectors covered by 

China’s services schedule: 0; Percentage of covered subsectors subject 

to specified limitation: Cross-border: n.a.; Percentage of covered 

subsectors subject to specified limitation: Form: n.a.; Percentage of 

covered subsectors subject to specified limitation: Equity: n.a.; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: n.a.; Percentage of covered subsectors subject to specified 

limitation: Nationality: n.a.; Percentage of covered subsectors subject 

to specified limitation: Number: n.a.; Percentage of covered subsectors 

subject to specified limitation: Scope: n.a.; Percentage of covered 

subsectors subject to specified limitation: Qualifications: n.a.; 

Percentage of covered subsectors subject to specified limitation: 

Other: n.a..



General WTO services sector: Total; Number of subsectors covered by 

China’s services schedule: 88; Percentage of covered subsectors subject 

to specified limitation: Cross-border: 30%; Percentage of covered 

subsectors subject to specified limitation: Form: 45%; Percentage of 

covered subsectors subject to specified limitation: Equity: 16%; 

Percentage of covered subsectors subject to specified limitation: Geo-

graphic: 1%; Percentage of covered subsectors subject to specified 

limitation: Nationality: 2%; Percentage of covered subsectors subject 

to specified limitation: Number: 2%; Percentage of covered subsectors 

subject to specified limitation: Scope: 35%; Percentage of covered 

subsectors subject to specified limitation: Qualifications: 30%; 

Percentage of covered subsectors subject to specified limitation: 

Other: 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. :



[End of table]



Some of China’s Commitments Are Phased in Over Time:



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 trade-distorting 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.



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

2001-2016:



[See PDF for image]



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.



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.



[End of figure]



Interrelationships among Commitments Can Affect Foreign Business 

Opportunities:



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.



Interrelationships among Some Commitments Could Strengthen China’s 

Overall Business Environment:



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.[Footnote 26] For example, although the protocol lists 

several general commitments requiring China to improve 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 state-

owned enterprises, and decrease the role of state trading can, if fully 

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

environment in China.



Interrelationships among Some Commitments Could Delay or Limit Foreign 

Business Opportunities:



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 import the low-tariff quantity is limited 

in the short run, because the necessary trading rights are not fully 

phased in until 2004.[Footnote 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.[Footnote 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 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 trade-

distorting 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: Automobiles and parts; Restrictions and 

trade-distorting measures, with the phaseout schedule: * 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).



Products and services sectors: Chemical fertilizers; Restrictions and 

trade-distorting measures, with the phaseout schedule: * 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).



Products and services sectors: Corn, cotton, rice; Restrictions and 

trade-distorting measures, with the phaseout schedule: * 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).



Products and services sectors: Legal services; Restrictions and trade-

distorting measures, with the phaseout schedule: * Restrictions on the 

scope of business, form of establishment, and national treatment-

nationality/residency and qualifications requirements (not removed); * 

Government guidance pricing (not removed).



Products and services sectors: Life insurance services; Restrictions 

and trade-distorting measures, with the phaseout schedule: * 

Restrictions on scope of business, form of establishment, participation 

of foreign capital, cross-border trade, and national treatment-

licensing requirements (not removed).



Products and services sectors: Natural rubber; Restrictions and trade-

distorting measures, with the phaseout schedule: * 20 percent tariff 

rate; * Quotas and licenses (removed by 2004); * Designated trading 

(removed by 2004).



Products and services sectors: Processed oils 

(gasoline, kerosene, diesel); Restrictions and trade-distorting 

measures, with the phaseout schedule: * 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).



Products and services sectors: Sugar; Restrictions and trade-distorting 

measures, with the phaseout schedule: * 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).



Products and services sectors: Telecommunications services 

(value added); Restrictions and trade-distorting measures, with the 

phaseout schedule: * Restrictions on form of establishment, 

participation of foreign capital, and cross-border trade (not removed); 

* Government pricing (not removed).



Products and services sectors: Tobacco; Restrictions and trade-

distorting measures, with the phaseout schedule: * 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).



Products and services sectors: Vegetable oils 

(soy bean, palm, rape seed); Restrictions and trade-distorting 

measures, with the phaseout schedule: * 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).



Products and services sectors: Wheat; Restrictions and trade-distorting 

measures, with the phaseout schedule: * 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).



Products and services sectors: Wool and wool tops; Restrictions and 

trade-distorting measures, with the phaseout schedule: * 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.



[End of table]



Concluding Observations:



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.



Agency Comments and Our Evaluation:



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.



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:



Signed by Susan S. Westin:



[End of section]



Appendix I: Objectives, Scope and Methodology:



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.[Footnote 

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.



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.[Footnote 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 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.



[End of section]



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

Agreement Covers:



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:



[See PDF for image]



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



[End of table]



[End of section]



Appendix III Data Sources and Methodology for Analysis of China’s WTO 

Goods 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 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.



Table 11: Concordance between GAO Categories and Harmonized Schedule 

Section Headings:



GAO categories: 1. Animal and plant products; HS section headings: 1-

Live animals; animal products; 2-Vegetable products; 3-Animal or 

vegetable fats and oils; edible fats; waxes.



GAO categories: 2. Prepared foods, beverages, spirits, and tobacco; HS 

section headings: 4-Prepared foodstuffs; beverages; spirits; vinegar; 

tobacco.



GAO categories: 3. Chemicals, plastics, and minerals; HS section 

headings: 5-Mineral products; 6-Products of chemical or allied 

industries; 7-Plastics and articles thereof; rubber.



GAO categories: 4. Wood and paper products; HS section headings: 9-Wood 

and articles of wood; 10-Pulp of wood, paper, and paperboard.



GAO categories: 5. Textiles, apparel, leather, and footwear; HS section 

headings: 8-Leather, travel goods, handbags; 11-Textiles and textile 

articles (apparel); 12-Footwear, headgear, umbrellas.



GAO categories: 6. Glassware, precious metals and stones, jewelry; HS 

section headings: 13-Articles of stone, plaster, ceramics, glass, and 

glassware; 14-Pearls, precious or semiprecious stones, precious metals, 

jewelry, coin.



GAO categories: 7. Base metals and articles of base metals; HS section 

headings: 15-Base metals and articles of base metals (except tools and 

implements).



GAO categories: 8. Machinery, electronics, and high-tech apparatus; HS 

section headings: 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).



GAO categories: 9. Autos and other vehicles and parts; HS section 

headings: 17-Vehicles, aircraft, vessels, and associated transport 

equipment.



GAO categories: 10. Miscellaneous manufacturing; HS section headings: 

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.



GAO categories: 11. Special provision products; HS section headings: 

22-Special classification provisions.



Source: GAO and the international harmonized system nomenclature (World 

Customs Organization).



[End of table]



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).



[End of section]



Appendix IV: Summary and Analysis of 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.



Trade Framework:



China’s trade framework commitments cover a number of topics that deal 

broadly with how China manages its trade regime.[Footnote 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 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.[Footnote 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: Nondiscrimination; China committed to: * 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..



Topic: Transparency; China committed to: * 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..



Topic: Uniform administration; China committed to: * 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..



Topic: Judicial review; China committed to: * 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..



Topic: Special economic areas; China committed to: * 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..



Topic: Special trade arrangements; China committed to: * 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.



[End of table]



Nondiscrimination, Transparency, Uniform Administration, and Judicial 

Review:



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.[Footnote 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.[Footnote 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) 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.



Special Economic Areas and Trade Arrangements:



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.



Key Dates:



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.[Footnote 35]



Import Regulation:



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),[Footnote 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: Tariffs, taxes, and charges; China committed to: * 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..



Topic: Nontariff measures 

(licensing, quotas, tendering)[A]; China committed to: * 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..



Topic: Industrial tariff-rate quotas 

(TRQ)[B]; China committed to: * 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 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 end-users to increase private 

competition and reduce state intervention.; * Allocating at least 10 

percent of TRQ to new quota-holders in the first year..



Topic: Regulatory border measures; (rules of origin, customs valuation, 

preshipment inspection)[D]; China committed to: * 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..



Topic: Technical barriers to trade[E]; China committed to: * 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.



[End of table]



Tariffs, Taxes, and Charges:



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.[Footnote 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.



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

All Products, 2001-2010:



[See PDF for image]



Source: GAO analysis of China’s accession agreement.



[End of figure]



Nontariff Measures:



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.[Footnote 38] 

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:



[See PDF for image]



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



[End of figure]



Industrial Tariff-Rate Quotas (TRQ):



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).[Footnote 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).



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



Product: Diammonium; phosphate; (phosphate fertilizer--one product); 

Initial quota quantity (million MT): 5.4; Final quota quantity: 6.9; 

Year reaching final quota quantity: 2006; In-quota tariff: 4%; Out-of-

quota bound tariff (percent): 50%; Other specific terms and conditions: 

* 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..



Product: Urea; (nitrogen fertilizer--one product); Initial quota 

quantity (million MT): 1.3; Final quota quantity: 3.3; Year reaching 

final quota quantity: 2006; In-quota tariff: 4; Out-of-quota bound 

tariff (percent): 50; Other specific terms and conditions: * 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..



Product: NPK (nitrogen phosphorus potash fertilizer --one product); 

Initial quota quantity (million MT): 2.7; Final quota quantity: n.a.; 

Year reaching final quota quantity: indefinite; In-quota tariff: 4; 

Out-of-quota bound tariff (percent): 50; Other specific terms and 

conditions: * 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..



Product: Wool tops[B]; (three products); Initial quota quantity 

(million MT): 0.06875; Final quota quantity: 0.08; Year reaching final 

quota quantity: 2004; In-quota tariff: 3; Out-of-quota bound tariff 

(percent): 38; Other specific terms and conditions: * 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.



[End of table]



Regulatory Border Measures:



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.



Technical Barriers to Trade:



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.



Key Dates:



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: April 2002; Commitment: 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..



Date: December 2002; Commitment: Technical barriers to trade: Ensure 

that all conformity assessment bodies can undertake assessments for 

both imported and domestic products..



Date: June 2003; Commitment: 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..



Date: December 2003; Commitment: 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..



Date: January 2005; Commitment: Nontariff barriers: Complete the 

elimination of all licensing and quotas for products listed in China’s 

schedule of commitments..



Date: January 2010; Commitment: Tariffs, taxes, and charges: Tariff 

reductions are completed..



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



[End of table]



Export Regulation:



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.[Footnote 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: Export licensing; China committed to: * 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..



Topic: Export duties; China committed to: * 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.



[End of table]



Export Licensing:



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 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.[Footnote 41]



Export Duties:



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.



Trading Rights and Industrial Policies:



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.[Footnote 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.[Footnote 43] Examples of China’s commitments in these areas 

are listed in table 17.



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

Trading Rights and Industrial Policies:



Topic: Right to trade; (right to import and export granted to 

enterprises or individuals); China committed to: * 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..



Topic: State trading; (products subject to state importing or 

exporting, or traded only by government-designated companies); China 

committed to: * 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..



Topic: Price controls; China committed to: * 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 services[B]; * 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..



Topic: Subsidies 

(including export subsidies); China committed to: * 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..



Topic: State-owned and state-invested enterprises; China committed to: 

* 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..



Topic: Investment policies; China committed to: * 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 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..



Topic: Foreign exchange controls; China committed to: * 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..



Topic: Balance of payments; China committed to: * 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..



Topic: Civil aircraft trade; China committed to: * Refraining from 

imposing offsets[D] or other forms of industrial compensation when 

purchasing civil aircraft, including specified types or volumes of 

business opportunities..



Topic: Government procurement; China committed to: * 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 multi-tier 

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. :



[End of table]



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.



Right to Trade and State Trading:



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.[Footnote 44] As China opened its economy to foreign 

investment, China also granted foreign-invested enterprises the right 

to import goods needed for their production. Foreign-invested firms, 

however, could not import other goods or distribute any goods in China; 

they were allowed to export only goods that they made.[Footnote 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 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 

registered-capital requirement. Upon accession, China pledged to 

eliminate export performance, trade and foreign exchange 

balancing,[Footnote 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.[Footnote 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.[Footnote 48] China 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.[Footnote 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:



Price controls in China primarily take two forms--direct state or 

government pricing and government guidance pricing.[Footnote 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, 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.



Subsidies:



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 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. [Footnote 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 state-owned 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” 

subsidies[Footnote 52] 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 and State-Invested Enterprises:



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.



Investment Policies:



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.



Foreign Exchange Controls, Balance of Payments, Civil Aircraft Trade, 

and Government Procurement:



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,[Footnote 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.



Key Dates:



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.):



Table 18: Timetable for Selected Chinese WTO Commitments Relating to 

Trading Rights and Industrial Policies:



End date: December 11, 2004; Commitment: * 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 year[A]; * 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)..



End date: January 1, 2005; Commitment: * Abolish exclusive state 

trading rights for silk, and grant trading rights to all individuals 

and enterprises..



End date: December 11, 2005; Commitment: * 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.



[End of table]



Agriculture:



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 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: Agriculture tariffs; China committed to: * Binding its tariff 

rates upon accession.; * Reducing its tariff rates through 2010..



Topic: Tariff-rate quotas; China committed to: * 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..



Topic: Subsidies; China committed to: * 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..



Topic: SPS measures; China committed to: * 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.



[End of table]



Agriculture Tariffs:



Like all countries that have recently acceded to the WTO,[Footnote 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 65 percent, which 

is on some grains (wheat, some rice, and some corn)[Footnote 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.



Tariff-Rate Quotas:



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, in-quota tariffs, and out-of-quota tariffs.



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



Agricultural product: Wheat; (6 products); Initial quota quantity 

(million MT ): 7.884; Final quota quantity: 9.636; Date reaching final 

quota quantity: 2004; In-quota tariff: 1 - 10 % (depending on product); 

Out-of-quota bound tariff: 74% (accession);; 65 (final); Schedule for 

increasing TRQ quantity (million MT): 2002: 8.468; 2003: 9.052; 2004: 

9.636.



Agricultural product: Corn; (5 products); Initial quota quantity 

(million MT ): 5.175; Final quota quantity: 7.2; Date reaching final 

quota quantity: 2004; In-quota tariff: 1 - 10 (depending on product); 

Out-of-quota bound tariff: 64 (accession);; 51(final); Schedule for 

increasing TRQ quantity (million MT): 2002: 5.85; 2003: 6.525; 2004: 

7.2.



Agricultural product: Rice--short and medium grain 

(7 products); Initial quota quantity (million MT ): 1.6625; Final quota 

quantity: 2.66; Date reaching final quota quantity: 2004; In-quota 

tariff: 1 - 9 (depending on product); Out-of-quota bound tariff: 57 

(accession);; 46(final); Schedule for increasing TRQ quantity (million 

MT): 2002: 1.995; 2003: 2.3275; 2004: 2.66.



Agricultural product: Rice--long grain (7 products); Initial quota 

quantity (million MT ): 1.6625; Final quota quantity: 2.66; Date 

reaching final quota quantity: 2004; In-quota tariff: 1 - 9 (depending 

on product); Out-of-quota bound tariff: 57 (accession);; 46(final); 

Schedule for increasing TRQ quantity (million MT): 2002: 1.995; 2003: 

2.3275; 2004: 2.66.



Agricultural product: Soybean oil 

(2 products); Initial quota quantity (million MT ): 2.118; Final quota 

quantity: 3.5871; Date reaching final quota quantity: 2005; In-quota 

tariff: 9; Out-of-quota bound tariff: 63.3 (accession);; 9 (final by 

2006); Schedule for increasing TRQ quantity (million MT): 2002: 2.518; 

2003: 2.818; 2004: 3.118; 2005: 3.5871.



Agricultural product: Palm oil; (2 products); Initial quota quantity 

(million MT ): 2.1; Final quota quantity: 3.168; Date reaching final 

quota quantity: 2005; In-quota tariff: 9; Out-of-quota bound tariff: 

63.3 (accession);; 9(final by 2006); Schedule for increasing TRQ 

quantity (million MT): 2002: 2.4; 2003: 2.6; 2004: 2.7; 2005: 3.168.



Agricultural product: Rapeseed oil 

(3 products); Initial quota quantity (million MT ): 0.7392; Final quota 

quantity: 1.243; Date reaching final quota quantity: 2005; In-quota 

tariff: 9; Out-of-quota bound tariff: 63.3 (accession);; 9 (final by 

2006); Schedule for increasing TRQ quantity (million MT): 2002: 0.8789; 

2003: 1.0186; 2004: 1.1266; 2005: 1.243.



Agricultural product: Sugar 

(6 products); Initial quota quantity (million MT ): 1.68; Final quota 

quantity: 1.945; Date reaching final quota quantity: 2004; In-quota 

tariff: 20 (initial); 

15 (final); Out-of-quota bound tariff: 68.8 (accession);; 50 (final); 

Schedule for increasing TRQ quantity (million MT): 2002: 1.764; 2003: 

1.852; 2004: 1.945.



Agricultural product: Wool 

(6 products); Initial quota quantity (million MT ): 0.25325; Final 

quota quantity: 0.287; Date reaching final quota quantity: 2004; In-

quota tariff: 1; Out-of-quota bound tariff: 38 (accession);; 38 

(final); Schedule for increasing TRQ quantity (million MT): 2002: 

0.2645; 2003: 0.27575; 2004: 0.287.



Agricultural product: Cotton 

(2 products); Initial quota quantity (million MT ): 0.78075; Final 

quota quantity: 0.894; Date reaching final quota quantity: 2004; In-

quota tariff: 1; Out-of-quota bound tariff: 61.6 accession);; 40 

(final); Schedule for increasing TRQ quantity (million MT): 2002: 

0.8185; 2003: 0.85625; 2004: 0.894.



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.



[End of table]



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:



[See PDF for image]



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



[End of figure]



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:



[See PDF for image]



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.



[End of figure]



Subsidies:



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 percent[Footnote 56] 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.



Sanitary and Phytosanitary Measures:



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.[Footnote 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 to SPS, including products and 

relevant international standards, guidelines, and recommendations.



Services:



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.[Footnote 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.



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



[See PDF for image]



[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.



[End of table]



Business: Professional Services:



China has made commitments to open eight professional services 

subsectors, including legal, accounting, taxation, and medical and 

dental services.[Footnote 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.



Communications: Telecommunications:



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.[Footnote 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.



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.[Footnote 61]



Distribution:



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.[Footnote 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.



Financial: Insurance:



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.[Footnote 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.



Other Services Commitments:



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.



Intellectual Property Rights:



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.



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

Property Rights:



Topic: General; China committed to: * 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 most-favored-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..



Topic: Copyrights, trademarks, patents, and other IPR; China committed 

to: * 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)..



Topic: Enforcement; China committed to: * 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.



[End of table]



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 these 17 paragraphs, we 

identified 32 commitments.[Footnote 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.



General:



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.[Footnote 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.



Copyrights, Patents, Trademarks, and Other IPR:



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.



Enforcement:



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.



Safeguards and Other Trade Remedies:



Since China’s economy is in a transitional stage, becoming more market-

oriented 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.[Footnote 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.



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

and Other Trade Remedies:



Topic: Product-specific safeguard; China committed to: * 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..



Topic: Textile safeguard; China committed to: * 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..



Topic: Price comparability in determining Chinese dumping; China 

committed to: * 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..



Topic: Price comparability in determining Chinese subsidies; China 

committed to: * 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..



Topic: Transitional review mechanism; China committed to: * 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.



[End of table]



China has made a substantial number of commitments in the safeguards 

and other trade remedies area, particularly with respect to the 

product-specific 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 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.



Product-Specific and Textiles Safeguards:



China’s commitments in the product-specific and textiles safeguards 

topic exceed the general obligations in the WTO agreements and 

rules.[Footnote 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 product-specific 

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.



Price Comparability in Determining Chinese Dumping and Subsidies:



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.[Footnote 68] The use of these 

alternate 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.[Footnote 69]



Transitional Review Mechanism:



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.[Footnote 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.[Footnote 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 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.



Key Dates:



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.



Table 24: Timetable for Selected Chinese WTO Commitments Relating to 

Safeguards and Other Trade Remedies:



Date: December 11, 2002; Commitment: 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..



Date: December 31, 2008; Commitment: 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..



Date: December 11, 2011; Commitment: 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..



Date: December 11, 2013; Commitment: Phases out product-specific 

safeguard 12 years after China’s accession..



Date: December 11, 2016; Commitment: Phases out use of alternate 

methodology for antidumping cases 15 years after China’s accession..



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



[End of table]



[End of section]



Appendix V: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Adam Cowles (202) 512-9637

Matthew E. Helm (202) 512-7959:



Acknowledgments:



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.



FOOTNOTES



[1] China’s gross domestic product stood at $1.1 trillion in 2000, 

according to the World Bank. 



[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.



[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.



[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.



[8] For additional information on the WTO’s dispute settlement 

mechanism, see U.S. General Accounting Office, World Trade 

Organization: Issues in Dispute Settlement, 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.



[10] We also identified commitments that did not fit into any of these 

seven commitment types, and we classified these commitment types as 

“other.” 



[11] Beginning 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. 



[12] State 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.



[13] Relative 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.



[14] China 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. 



[15] China 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.



[16] Twelve 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.



[17] U.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.



[18] These 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-of-quota” amount 

faces a higher tariff rate. 



[19] However, China committed to eliminate state trading monopolies on 

certain products by allocating an increasing share of the quotas to 

private traders.



[20] In 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.



[21] These 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. 



[22] However, 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.



[23] Domestic 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). 



[24] As 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.



[25] We identified limitations that did not fit into these eight 

limitation types, and categorized these limitation types as “other.”



[26] See appendix IV for a description of these trade framework 

commitments.



[27] China’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.



[28] Certain 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.



[29] We grouped the subjects of the accession agreement into eight 

broad areas and 47 subcategories. Appendix II lists these categories.



[30] The 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.



[31] We refer to “topics” as the subcategories under our eight broad 

categories. Overall, there are 47 topics in the eight categories (see 

app. II).



[32] These 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.



[33] National treatment requires China to provide foreign enterprises 

and individuals treatment that is at least equal to that provided to 

domestic enterprises.



[34] With 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.



[35] In 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.



[36] A 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. 



[37] To “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.



[38] We 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.)



[39] According 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.



[40] Countries 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. 



[41] Exports 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.



[42] State-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. 



[43] The 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. 



[44] China 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. 



[45] However, foreign firms could contract with companies having 

trading rights to conduct their international trading transactions.



[46] Trade 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. 



[47] 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. 



[48] Designated trading companies do not usually have monopoly power in 

trading. 



[49] We assumed that other U.S. export markets were less distorted by 

these trade barriers. 



[50] Chinese 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. 



[51] The 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.



[53] The 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. 



[54] Recently 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). 



[55] This 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).



[56] There 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.



[57] The commitment types are not mutually exclusive. A commitment 

could be classified as both “adhere to WTO” and “refrain.” 



[58] The 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.



[59] China also made commitments relating to four other types of 

professional services: architectural, engineering, integrated 

engineering, and urban planning services. 



[60] Basic 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.



[61] Interconnection rights relate to the connection and sharing of 

different telecommunications networks to allow users of one supplier to 

communicate with users of another supplier.



[62] China will maintain equity limits on chain stores based on the 

number of stores and products sold.



[63] The cities were Shanghai, Guangzhou, and Shenzhen.



[64] We 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.



[65] Articles 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.



[66] Antidumping 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.



[67] Special safeguards and review provisions were included in the 

protocols of accession of Poland, Romania, and Hungary to the General 

Agreement on Tariffs and Trade.



[68] Article 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. 



[69] See Georgetown Steel Corp. v. United States, 801 F.2d 1308, 1316 

(Fed. Cir. 1986).



[70] The 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. 



[71] This 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.



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