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Weapons of Mass Destruction (WMD)

USIS Washington File

20 March 2000

Text: GAO Report on China WTO Bid, Normal Trade Relations Status

(General Accounting Office stresses need for PNTR for China) (1690)
The U.S. General Accounting Office issued a report March 17 concluding
that if Congress did not grant permanent Normal Trade Relations (PNTR)
status to China, "this situation could potentially put U.S. business
interests at a considerable competitive disadvantage" when competing
with other World Trade Organization (WTO) members for China's markets.
The report states that U.S. trade relations with China could continue
to be based on older bilateral agreements, such as a 1979 U.S.-China
trade agreement, should China become a member of the WTO without
receiving PNTR. These agreements would obligate China to extend some
benefits to the United States that it would give to other WTO members,
including tariff rates as low as those given any other country's
products.
The report adds, however, that the obligations in these bilateral
agreements would not give the United States many other benefits, such
as the general right to provide services and to engage in importing
and exporting goods in China.
"The commitments provided by these bilateral agreements would be
substantially less than those anticipated to be provided by China in
the accession agreement," the report says, "and in the underlying WTO
agreements once China becomes a WTO member."
Furthermore, the report says, WTO obligations regarding intellectual
property rights are stronger than those provided by the U.S.-China
agreements covering patents, trademarks, and copyrights.
In addition, the report points out that "none of the bilateral
agreements provide for binding multilateral dispute settlement, as do
the WTO agreements."
"While the United States would continue to benefit from some Chinese
commitments through existing bilateral agreements," the report
concludes, "those benefits are substantially less than all those
expected from China's WTO membership."
For the full text of the report in PDF format (Adobe Acrobat), see:
http://usinfo.state.gov/regional/ea/uschina/ns00094.pdf
Following are excerpts from the report:
(begin excerpts)
United States General Accounting Office 
Report to Congressional Committees 
March 2000 
WORLD TRADE ORGANIZATION 
China's Membership Status and Normal 
Trade Relations Issues 
GAO/NSIAD-00-94B-284686 
China's WTO Membership
A fundamental principle in the WTO agreements is that members,
including the United States, must grant each other most-favored-nation
status, meaning that they must grant each other trade privileges as
favorable as they give to any other WTO member./1 China currently does
not have permanent normal trade relations status because title IV of
the Trade Act of 19742 requires the President to deny it to certain
designated countries, including China. However, China has been granted
normal trade relations status since 1980 on an annual basis. As China
moves closer to becoming a member of the World Trade Organization,
Congress will need to consider whether to grant China permanent normal
trading status. Because of your continued interest in these issues, we
are providing an update on our past work on (1) the status of the
negotiations for China to join the World Trade Organization, (2) the
results of the negotiations as compared to U.S. objectives for these
negotiations, and (3) trade and legal considerations about granting
China permanent normal trade relations status.
Results in Brief
Although the United States and China have reached agreement on many
issues, the negotiations with China about its membership in the World
Trade Organization are not complete. While the President announced a
bilateral agreement covering market access issues with China in
November 1999, some U.S. negotiating objectives have yet to be
achieved, and many of those tentatively achieved must still be
finalized in a WTO agreement that outlines the terms of China's
membership. China must also conclude similar bilateral negotiations
with some other WTO members, notably the European Union. In addition,
China must finish the multilateral negotiations with WTO members.
Then, all participants must complete several important tasks,
including verifying the text of the agreement, before the approval and
implementation phases of the accession process can begin. It could
take several months after all these negotiations conclude before China
can become a WTO member.
1/ In June 1999, the term "normal trade relations" replaced the term
"most-favored-nation" in U.S. law; however, the term
most-favored-nation continues to be used in the WTO agreements and
other trade agreements.
2/ 19 U.S.C. sections 2431 through 2439. 
China's WTO Membership
Based on our review of the negotiating record as of November 1999,
U.S. and Chinese negotiators have reached tentative agreement or have
only minor differences in eight broad areas where the United States is
seeking to change China's trade practices. However, the negotiators
still have major differences to resolve in some other areas. The eight
areas of agreement and/or minor differences are tariffs, nontariff
barriers, services, trade framework, intellectual property rights,
standards and regulatory practices, agriculture, and monitoring and
compliance mechanisms. The actions that China has committed to take in
these areas are generally consistent with what U.S. negotiators
originally sought. Most of these commitments will be phased in from 1
to 6 years, after China becomes a member of the World Trade
Organization. The result of the agreed-upon actions would be a Chinese
market more open to foreign goods, services, and investment; enhanced
protection against import surges of Chinese products; and a Chinese
commitment to comply with many WTO requirements. However, U.S. and
Chinese negotiators still have major differences to resolve in some
other areas, a number of which are significant in terms of the
concerns they cover. The details of remaining U.S. objectives and
issues to be negotiated are deemed national security information and
have been classified by the Office of the U.S. Trade Representative.
China's prospective WTO membership will raise a critical issue about
how the United States should handle China's normal trade relations
status under U.S. law. For both legal and policy reasons, the
administration plans to ask Congress to agree to grant China permanent
normal trade relations before China joins the World Trade
Organization. If Congress does not do this, the administration plans
to invoke a WTO provision, called the "nonapplication clause," which
would permit the United States and China, as an incoming member, to
not apply WTO trade liberalizing commitments and obligations to each
other. The administration believes this is necessary to avoid a
conflict between current U.S. law, which requires annual approval of
China's normal trade relations status, and the U.S. obligation as a
WTO member to provide unconditional most-favored-nation status to
other members. Should the United States invoke the nonapplication
clause, U.S. trade relations with China would continue to be based on
a 1979 U.S.-China trade agreement and other bilateral agreements./3
These agreements obligate China to provide a number of benefits to
U.S. products. The consequence of this situation is that China would
be obligated to extend some benefits to the United States that it
would give to other WTO members, including tariff rates as low as
those given any other country's products. However, the obligations in
these bilateral agreements would not give the United States many other
benefits, such as the general right to provide services and to engage
in importing and exporting goods in China.
3/ Nonapplication may be rescinded later....
Implications of Nonapplication for the United States
If China joins the WTO and either China or the United States invokes
the nonapplication clause, China would still be obligated to provide
some trade benefits to the United States. Under nonapplication, trade
relations between the two countries would continue under the 1979
U.S.-China bilateral trade agreement and other bilateral agreements.
For example, under the 1979 agreement, China is obligated to provide
the United States most-favored-nation treatment, that is, the best
treatment given any other country, for products, including
agricultural products, with regard to tariffs, customs duties, rights
to have goods distributed and sold in China, and some aspects of
issuing import and export licenses. Therefore, as a result of its
bilateral most-favored-nation commitment, in the areas mentioned,
China would be obligated to give any benefits given other WTO members
to the United States as well. The 1979 agreement also calls for some
participation of both countries' financial institutions in banking
services related to international trade and financial relations.
Furthermore, under the 1992 U.S.-China Market Access Agreement, China
made a number of commitments regarding transparency, uniform
application of laws, judicial review, import restrictions, and
sanitary and phytosanitary standards. Under other bilateral
agreements, China has made important intellectual property and some
agricultural commitments. Nevertheless, the commitments provided by
these bilateral agreements would be substantially less than those
anticipated to be provided by China in the accession agreement and in
the underlying WTO agreements once China becomes a WTO member. For
example, the 1979 agreement does not cover services, with limited
exceptions. The agreement also does not provide the United States the
general right to engage in importing and exporting within China and
does not provide explicit "national treatment" for U.S. goods./15
Moreover, according to USTR, WTO obligations regarding intellectual
property rights are stronger than those provided by the U.S.-China
agreements covering patents, trademarks, and copyrights. Furthermore,
none of the bilateral agreements provide for binding multilateral
dispute settlement, as do the WTO agreements. Thus, in the event of
nonapplication, the United States would continue to enforce trade
violations under U.S. law. Thus, an important consequence of either
side's invoking the WTO nonapplication clause is that China, if it
becomes a WTO member, will not have to grant the United States all the
trade benefits it will give to other WTO members. Because U.S.
businesses compete with business from other WTO members for China's
markets, this situation could potentially put U.S. business interests
at a considerable competitive disadvantage. While the United States
would continue to benefit from some Chinese commitments through
existing bilateral agreements, as pointed out, those benefits are
substantially less than all those expected from China's WTO
membership.
15/ A fundamental principle in the WTO agreements is "national
treatment." National treatment requires that WTO members treat other
members' products and service providers no less favorably than they
treat their own, once foreign goods have crossed their borders....
(end excerpts)
(Distributed by the Office of International Information Programs, U.S.
Department of State - www.usinfo.state.gov)



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