Details of the USA - China WTO Trade Deal aka China Trade Relations Act (Pub. L. 106-286):

Agriculture

The USA - China trade deal signed in 1999 provides increased access for US exports across a broad range of commodities and elimination of barriers.

Commitments include: Significant cuts in tariffs that were to be completed by January 2004.

Overall average for agricultural products will be 17 per cent and for US priority products 14.5 percent.

Establishment of a tariff-rate quota (TRQ) system for imports of bulk commodities, e.g., wheat, corn, cotton, barley, and rice, that provides a share of the TRQ for private traders.

Specific rules on how the TRQ will operate and increased transparency in the process will help ensure that imports occur.

Significant and growing quota quantities subject to tariffs that average 1-3 per cent.

The right to import and distribute products without going through state-trading enterprise or middleman.

China has also agreed to the elimination of Sanitary and Phytosanitary (SPS) barriers that are not based on scientific evidence and no export subsidies on agricultural products.

Impact (back to top)

China's commitments will eliminate broad systemic barriers to USA exports, such as limits on who can import goods and distribute them in China as well as barriers such as quotas and licences that restrict imports of USA products.

Tariffs (back to top)

Tariffs cut to an average of 9.4 per cent overall and 7.1 per cent on USA priority products.

China will participate in the Information Technology Agreement (ITA) eliminating all tariffs on products such as computers, telecommunications equipment, semiconductors, computer equipment and other high technology products.

In the auto sector, China will cut tariffs from the current 100 per cent or 80 per cent level to 25 per cent by 2007, with the largest cuts in the first years after accession. Auto parts tariffs will be cut to an average of 10 per cent by 2007.

Significant cuts will also be made in the wood and paper sectors, going from present levels of 12-18 per cent on wood and 15-25 per cent on paper down to levels generally between 5 and 7.5 per cent.

China will also be implementing the vast majority of the chemical harmonisation initiative. Under that initiative, tariffs will be at 0, 5.5 and 6.5 per cent for products in each category.

Quota Elimination (back to top)

WTO rules bar quotas and other quantitative restrictions. China has agreed to eliminate these restrictions with phase-ins limited to five years.

China will eliminate existing quotas upon accession for the top USA priorities (e.g., optic fibre cable).

It will phase out remaining quotas, generally by 2003, but no later than 2006.

Quotas will grow from current trade level at a 15 per cent annual rate in order to ensure that market access increases progressively and reduces the effect of quantitative restrictions.

Auto quotas will be phased out by 2006. In the interim, the base level quota will be USA$6 billion (HK$46.8 billion) (the level prior to China's industrial auto policy) and this will grow by 15 per cent annually until elimination.

Trade Rights/Right to Import (back to top)

Trading rights and distribution are the major priority of the manufacturing sector.

At present, China severely restricts trading rights (the right to import and export) and distribution (wholesaling, retailing, maintenance and repair, transportation, etc.).

Under the agreement, China will provide, for the first time, trading rights and distribution rights to USA firms.

Trading rights will progressively be phased in over three years.

Distribution rights will be provided even for China's most restricted distribution sectors such as wholesale, transportation, maintenance and repair. China will provide for trading rights and distribution.

On trading rights, the USA-China deal ensures that both foreign-owned importers located in China and foreign companies exporting into China will be permitted trading rights.

Concerning foreign-owned enterprises, China will phase in trading rights over a three-year period. Trading rights will be subsequently granted to minority foreign-owned joint ventures, to majority foreign-invested and to wholly foreign-owned enterprises.

In order to enhance the trading rights of foreign enterprises without a presence in China -- those already enjoying national treatment -- the USA obtained new commitments that limit the range of requirements that China can impose as a condition on obtaining trading rights.

Services (back to top)

China has made commitments in all major service categories with reasonable transitions to eliminate most foreign equity restrictions (especially in sectors where the USA has a strong commercial interest), agreeing to accede to the Basic Telecommunications and Financial Services Agreements, and "grandfathering" of current market access for USA service providers.

China will grandfather all existing current market access and activities in all services sectors. This will protect existing American distribution services, financial services, professional and other service providers in China, including those operating under contractual or shareholder agreements or a licence, from restrictions as Chinese commitments phase in.

Distribution (back to top)

In China today, foreign firms have no right to distribute products other than those they make in China, or to own or manage distribution networks, wholesaling outlets or warehouses.

China also now frequently issues business licences which limit the ability of American firms to conduct marketing, after-sales service, maintenance and repair and customer support.

As the section on industrial goods noted, this is a severe baffler to goods exports as well as to service exports.

China's commitments address all these issues. They reflect a comprehensive commitment on distribution--including wholesaling, sales away from a fixed location, retailing, maintenance and repair, and transportation.

Thus, Americans will be able to distribute imported products as well as those made in China, offering significant opportunity to expand USA exports of goods.

As noted above, China will phase out all restrictions on distribution services for most products within three years. Chinese commitments in services auxiliary to distribution include rental and leasing, air courier, freight forwarding, storage and warehousing, advertising, technical testing and analysis, and packaging services.

All restrictions will be phased out in three to four years, at which time USA service suppliers will be able to establish 100 per cent wholly owned subsidiaries.

On the question of retail distribution, the US obtained a more favourable definition of "chain store" than that which currently exists under Chinese law.

Under the new agreement, USA companies will now be permitted to establish up to thirty 100 percent foreign owned multi- brand multi-good retail stores, whereas wholly owned single-brand operations such as automobile dealers and industrial suppliers will face even fewer restrictions.

Telecommunications (back to top)

China now severely restricts sales of telecommunications services and bars foreign investment.

China's commitments mark its first agreement to open its telecommunications sector, both to the scope of services and to direct investment in telecommunications businesses. Through these commitments, China will become a member of the Basic Telecommunications Agreement.

Specific commitments include:
Regulatory principles: China has agreed to implement the pro-competitive regulatory principles embodied in the Basic Telecommunications Agreement (including cost-based pricing, interconnection rights and independent regulatory authority), and agreed to technology-neutral scheduling, which means foreign suppliers can use any technology they choose to provide telecommunications services.

Scope of services: China will phase out all geographic restrictions for paging and value-added services in two years, mobile/cellular in five years and domestic wireline services in six years. China's key telecommunications services corridor in Beijing, Shanghai and Guangzhou, which represents approximately 75 per cent of all domestic traffic, will open immediately on accession in all telecommunications services.

Investment: Under present circumstances, China allows no foreign investment in telecommunications services. With this agreement, China will allow 49 per cent foreign investment in all services, and will allow 50 per cent foreign ownership for value added in two years and paging services in three years.

Insurance Market (back to top)

For insurance, China now restricts foreign companies to operating in Shanghai and Guangzhou.

Under the agreement:
Geographic limitations: China will permit foreign property and casualty firms to insure large-scale risks nationwide immediately upon accession, and will eliminate all geographic limitation for future licences over five years, allowing access to the key cities of priority US interest in two to three years.

Scope: China will expand the scope of activities for foreign insurers to include group, health and pension lines of insurance, which represent about 85 per cent of total premiums, phased in over five years.

Prudential criteria: China agrees to award licences solely on the basis of prudential criteria, with no economic needs test or quantitative limits on the number of licences issued.

Investment: China agreed to allow 50 per cent ownership, remove onerous joint venture requirements on foreign life insurers and phase out internal branching restrictions. Life insurers may now choose their own joint venture partners. For non-life, China will allow branching or 51 per cent ownership on accession and form wholly owned subsidiaries in two years. Reinsurance is completely open upon accession (100 per cent, no restrictions).

Under present Chinese law, the ability of foreign insurers to write "large scale commercial risk" policies worth less than USA$120,000 is restricted. However, China and the US renegotiated this provision which will now allow foreign-owned insurers to offer policies worth more than USA$50,000 within three years. In addition, China also agreed to a five-year phase-out of a requirement stipulating that 20 percent of all non-life, health and personal accident policies be reinsured by state-owned China Reinsurance Company.

Banking (back to top)

Currently foreign banks are not permitted to do local currency business with Chinese clients (a few can engage in local currency business with their foreign clients).

China imposes severe geographic restrictions on the establishment of foreign banks.

China has committed to full market access in five years for USA banks. Foreign banks will be able to conduct local currency business with Chinese enterprises starting two years after accession.

Foreign banks will be able to conduct local currency business with Chinese individuals from five years after accession. Foreign banks will have the same rights (national treatment) as Chinese banks within designated geographic areas.

Both geographic and customer restrictions will be removed in five years. Non-bank financial companies can offer auto financing upon accession.

Securities (back to top)

China will permit minority foreign-owned joint ventures to engage in fund management on the same terms as Chinese firms.

As the scope of business expands for Chinese firms, foreign joint venture securities companies will enjoy the same expansion in scope of business. Minority joint ventures will be allowed to underwrite domestic securities issues and underwrite and trade in foreign currency denominated securities (debt and equity).

Law & Accounting Services (back to top)

In the professional services, China currently tightly restricts operation of foreign law firms and accounting firms.

In the agreement, China has provided a broad range of commitments, including on legal, accountancy, taxation, management consultancy, architecture, engineering, urban planning, medical and dental, computer-related services.

China will permit foreign majority control except for practising Chinese law (an exception common to many WTO members).

For accountancy, China has agreed to eliminate a mandatory localisation requirement and will now allow unrestricted access to its market to professionals licensed and follow transparent procedures.

Entertainment (back to top)

China's commitments cover the right to distribute video and sound recordings and cinema ownership and operation.

For video and sound recordings, China will allow 49 per cent foreign participation in joint ventures engaged in the distribution of these products.

China has also agreed to import 40 films after accession growing to 50 films in three years, of which 20 films will be revenue sharing.

Tourism (back to top)

China will allow unrestricted access to the Chinese market for hotel operators with the ability to set up 100 per cent foreign-owned hotels in three years, with majority ownership allowed upon accession.

Agreement Protocol (back to top)

Commitments in China's WTO Protocol and Working Party Report establish rights and obligations enforceable through WTO dispute settlement procedures.

China and the USA have agreed on key provisions relating to anti-dumping and subsidies, protection against import surges, technology transfer requirements and offsets as well as practices of state-owned and state-invested enterprises.

These rules are of special importance to USA workers and business.

China has agreed to implement the TRIMs Agreement upon accession, eliminate and cease enforcing trade and foreign exchange balancing requirements, eliminate and cease enforcing local content requirements, refuse to enforce contracts imposing these requirements; and only impose or enforce laws or other provisions relating to the transfer of technology or other know-how if they are in accordance with the WTO agreements on protection of intellectual property rights and trade-related investment measures.

These provisions will also help protect American firms against forced technology transfers, as China has also agreed that, upon accession, it will not condition investment approvals, import licences, or any other import approval process on performance requirements of any kind, including: local content requirements, offsets, transfer of technology, or requirements to conduct research and development in China.

Dumping (back to top)

The agreed protocol provisions ensure that American firms and workers will have strong protection against unfair trade practices including dumping and subsidies.

The USA and China have agreed that they will be able to maintain the current anti-dumping methodology (treating China as a non-market economy) in future anti-dumping cases without risk of legal challenge.

This provision will remain in force for 15 years after China's accession to the WTO. Moreover, when USA countervailing duty law is applied to China the special characteristics of China's economy into will be taken into account when identifying and measuring any subsidy benefit that may exist.

Protection of U.S.A. Manufacturers (back to top)

The agreed provisions for the protocol package also ensure that American domestic firms and workers will have strong protection against rapid increases of imports.

To do this, the Product-Specific Safeguard provision sets up a special mechanism to address increased imports that cause or threaten to cause market disruption to a USA industry.

China is a major exporting country that enjoys open access to USA markets.

This mechanism, which is in addition to other WTO Safeguards provisions, differs from traditional safeguard measures. It permits the United States to address imports solely from China, rather than from the whole world, that are a significant cause of material injury through measures such as import restrictions.

Moreover, the United States will be able to apply restraints unilaterally based on legal standards that are lower than those in the WTO Safeguards Agreement. This provision will remain in force for 12 years after China accedes to the WTO.

State-Owned Enterprises (SOEs) (back to top)

The protocol addresses important issues related to the Chinese government's involvement in the economy.

China has agreed it will ensure that state-owned and state-invested enterprises will make purchases and sales based solely on commercial considerations, such as price, quality availability and marketability, provide US firms with the opportunity to compete for sales and purchases on nondiscriminatory terms and conditions.

China has also agreed that it will not influence these commercial decisions (either directly or indirectly) except in a WTO-consistent manner.

With respect to applying WTO rules to state-owned and state-invested enterprises, the U.S. trade deal clarified in several ways that these firms are subject to WTO disciplines.

Purchases of goods or services by these state-owned and state-invested enterprises do not constitute "government procurement" and thus are subject to WTO rules.

Textiles (back to top)

China's protocol package will include a provision drawn from the 1997 bilateral textiles agreement with USA, which permits USA companies and workers to respond to increased imports of textile and apparel products.

This textile safeguard will remain in the effect until 31 December 2008, which is after the WTO agreement on Textile and Clothing expires

Based on details released by USA government and Sinomania! research.

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