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 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
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.
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
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.
Trading rights and distribution are the major priority of the manufacturing
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
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
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
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
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.
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.
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
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).
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
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.
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.
Commitments in China's WTO Protocol and Working Party Report establish
rights and obligations enforceable through WTO dispute settlement
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
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
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
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.
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
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.
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
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.
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
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.