Order Code RS20139
Updated February 20, 2003
CRS Report for Congress
Received through the CRS Web
China and the World Trade Organization
Wayne M. Morrison
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
China has sought over the past several years to become a member of the World
Trade Organization (WTO), the international agency that administers multilateral trade
rules. China’s WTO membership (as well as that of Taiwan’s) was formally approved
at the WTO Ministerial Conference in Doha, Qatar in November 2001. On December
11, 2001, China officially became a WTO member. WTO membership will require
China to significantly liberalize its trade and investment regimes, which could produce
significant new commercial opportunities for U.S. businesses. A main concern for
Congress is to ensure that China fully complies with its WTO commitments. This report
will be updated as events warrant.
After 15 years of bilateral and multilateral negotiations, China formally entered the
WTO on December 11, 2001. The negotiations on China’s accession to the WTO
focused on many Chinese practices that distort flows of trade to and from China, such as
high tariffs and non-tariff barriers, restrictions on foreign investment, lack of national
treatment for foreign firms, inadequate protection of intellectual property rights (IPR), and
trade-distorting government subsidies. Membership in the WTO will require China to
change many laws, institutions, and policies to bring them into conformity with
international trade rules.
China’s Interest in WTO Membership
China made its accession to the WTO a major priority for a number of reasons. First,
it would represent international recognition of China’s growing economic power. Second,
it would enable China to play a major role in the development of new international rules
on trade in the WTO. Third, it would give China access to the dispute resolution process
in the WTO, reducing the threat of unilaterally imposed restrictions on Chinese exports.
Fourth, it would make it easier for reformers in China to push for liberalization policies
if they could argue that such steps are necessary to fulfill China’s international
obligations. Finally, Chinese leaders hoped WTO membership would induce the United
States to grant China permanent normal trade relations (PNTR), or most-favored-nation
(MFN), status, thus ending the annual trade status renewal process and subsequent
congressional debate over U.S.-China relations.
Congressional Research Service ˜ The Library of Congress

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The Role and Interest of the United States
China has been one of the world’s fastest growing economies over the past several
years (real GDP growth averaged 9.3% annually from 1979 to 2002), and many trade
analysts argue that China could become a potentially large market for a wide variety of
U.S. goods and services. A World Bank report estimates that China’s share of world trade
could triple from 3.0% in 1992 to 9.8% by the year 2020, making China the world’s
second-largest trading nation after the United States.1 The growing importance of China
in the world economy was an important factor in the heightened interest among WTO
members in bringing China into the WTO and thereby subjecting its trade regime to
multilateral trade rules.
U.S. trade officials insisted that China’s entry into the WTO had to be based on
“commercially meaningful terms” that would require China to significantly reduce trade
and investment barriers within a relatively short period of time. Many U.S. trade analysts
viewed China’s WTO accession process as an opportunity for gaining substantially
greater access to China’s market and to help reduce the large and increasing U.S.-China
trade imbalance. Other U.S. proponents of China’s WTO membership contended that it
would advance the cause of human rights in China by enhancing the rule of law there for
business activities, diminishing the central government’s control over the economy and
promoting the expansion of the private sector in China.
China Joins the WTO
China completed all of its WTO bilateral agreements on September 13, 2001 (it
concluded an agreement with the United States on November 15, 1999) and completed
negotiations with the WTO Working Party handling its accession bid on September 17,
2001. China’s WTO membership was formally approved by the WTO on November 10,
2001, and on the following day, China informed the WTO that it had ratified the WTO
agreements. As a result, China officially joined the WTO on December 11, 2001.
Under the WTO accession agreement, China agreed to:
! Bind all tariffs. The average tariff for industrial goods will fall to 8.9%
and to 15% for agriculture. Most tariff cuts will be made by 2004; all
cuts will occur by 2010.
! Limit subsidies for agricultural production to 8.5% of the value of farm
output and will not maintain export subsidies on agricultural exports.
! Within three years of accession, grant full trade and distribution rights to
foreign enterprises (with some exceptions, such as for certain agricultural
products, minerals, and fuels).
! Provide non-discriminatory treatment to all WTO members. Foreign
firms in China will be treated no less favorably than Chinese firms for
trade purposes. Duel pricing practices will be eliminated as well as
1 The World Bank, China 2020: China Engaged, 1997, p. 31.

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differences in the treatment of goods produced in China for the domestic
market as oppose to those goods produced for export. Price controls will
not be used to provide protection to Chinese firms.
! Implement the Trade-Related Aspects of Intellectual Property Rights
(TRIPs) Agreement upon accession.
! Accept a 12-year safeguard mechanism, available to other WTO
members in cases where a surge in Chinese exports cause or threaten to
cause market disruption to domestic producers.
! Fully open the banking system to foreign financial institutions within five
years. Joint ventures in insurance and telecommunication will be
permitted (with various degrees of foreign ownership allowed).
The Role of Congress
Congress did not play a direct role in the WTO accession process. That is, current
U.S. law did not require congressional approval of the November 1999 U.S.-China WTO
trade agreement, nor was it needed for the United States to support China’s admission to
the WTO. However, in order to ensure that the WTO agreements would apply between
the United States and China, Congress passed H.R. 4444 (P.L. 106-286), granting the
President authority to extend permanent normal trade relations (PNTR) status to China
upon its accession to the WTO.2 The bill also established a special Congressional-
Executive commission to monitor and report on various aspects of China’s policies on
human rights (including labor practices and religious freedom) and ordered the U.S. Trade
Representative (USTR) to annually issue a report assessing China’s compliance with its
WTO trade obligations. On December 27, 2001, President Bush issued a proclamation
granting PNTR status to China effective January 1, 2002.
WTO Implementation Issues
It has now been over a year since China joined the WTO. On December 11, 2002,
the USTR released its first annual China WTO compliance report. Although stating that
China had made significant overall progress in meeting its WTO obligations, the report
raised serious concerns over China’s compliance with its commitments on agriculture,
services, IPR protection, and transparency of trade laws and regulations. China’s
compliance with its WTO obligations has often been hampered by resistance to reforms
by central and local government officials seeking to protect or promote industries under
their jurisdictions, government corruption, and lack of resources devoted by the central
government to ensure that WTO reforms are carried out in a uniform and consistent
manner (especially in regards to IPR enforcement). Although Chinese government
officials have promised to implement WTO related reforms, they have raised concerns
2 Prior U.S. law required China’s NTR status to be renewed on an annual basis (which it was
from 1980 to 2001); a measure many analysts considered inconsistent with WTO rules if applied
to a WTO member. Without a change in law, the United States would have been forced to invoke
Article XIII in the WTO, the non-application clause, towards China.

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that such reforms could cause major employment disruptions in certain sensitive sectors,
especially agriculture, that could result in social instability.
U.S. officials have raised a number of implementation issues with Chinese officials
over the past year:
! Soybeans. China is a major soybean importer. The United States
exports about $1 billion in soybeans to China annually, making it the top
foreign purchaser of U.S. soybeans. In June 2001, China announced it
would implement new rules on bio-engineered foods, effective in 2002.
However, China did not provide details of these rules, which led to a
disruption in U.S. soybean exports to China from January-March 2002.
President Bush raised the issue with Chinese President Jiang Zemin in
October 2001 and in March 2002, which led China to agree to the interim
use of U.S. and foreign safety certificates until China implements its new
biotechnology regulations. On October 18, 2002, China issued
regulations applying this policy through September 2003. U.S. officials
stated that the regulation “should remove the threat of an interruption of
U.S. soybean sales to China.” However, U.S. exporters have complained
that the regulations require each GMO shipment have an interim biotech
safety certificate and a Chinese government import license. Additionally,
in January 2003, the Chinese government indicated that it might delay
permanent approval of various GMO crops and might require another
round of food safety studies, a move that led the U.S. to issue an official
protest. Some analysts charge that China may be attempting to use such
regulations to limit biotech imports in order to protect its domestic
producers as well as its own biotech industries. U.S. officials have
warned that they make take this issue to the WTO for resolution.
! Tariff-rate quotas. In November 2001, the Chinese government
developed new rules on tariff- rate-quotas on certain agricultural
products that the U.S. charged were discriminatory and violated WTO
rules because they created two categories of import quota licenses: one
for domestic consumption and one for “processing” trade. The U.S.
further charged that China has failed to provide adequate information on
the administration of its tariff-rate quotas (TRQs) for farm commodities.
In July 2002, the U.S. Department of Agriculture (USDA) reported that
China’s TRQ licenses had authorized relatively small levels of imports,
making their use impractical. For example, under the WTO accession
agreement, China’s TRQ for cotton in 2002 was 818,500 tons. In June
2002, China announced that the TRQ would be distributed as follows:
500,000 tons for processing trade, 270,000 tons for state-owned mills,
and 48,500 tons for private mills. U.S. firms charge that this allocation
policy violates WTO rules on national treatment. In other instances,
China announced TRQs for various agriculture and manufactured
products several months after their required implementation date. In
December 2002, USTR Robert Zoellick sent a letter to China’s Ministry
of Foreign Trade and Economic Cooperation (MOFTEC) expressing U.S.
concern over China’s administration of TRQs. In January 2003, Zoellick

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was quoted in the press as saying that the TRQ issue was “one of the
areas we’re most frustrated with” in terms of China’s WTO compliance.
! Export subsidies and discriminatory taxes. U.S. officials charge that
China has subsidized grain exports (mainly corn) and cotton, and uses its
tax system to promote exports and discourage imports, contrary to its
WTO commitments. For example, China continues to give rebates on
value-added taxes (VAT) for certain exports, especially high tech. In
some instances, China imposes higher VAT rates on certain imported
products (such as fertilizers and various agricultural products) than it
does for similar products produced domestically.
! Tariffs. China has been given relatively high marks for its tariff
reductions. However, U.S. officials have charged that China has failed
to fully comply with its commitment to eliminate tariffs for all products
covered under the WTO’s Information Technology Agreement (ITA).
Instead, China has extended zero tariffs only to producers in China that
import ITA products in the manufacture of items for export.
! Autos. Some U.S. businesses claim that China has failed to fully
implement its commitments on autos (especially in regards to quota
allocations, trading rights for foreign firms, local content requirements,
and auto financing).
! Services. U.S. firms have complained that Chinese regulations on
services are confusing and often discriminatory. China maintains high
capital requirements, restrictions on branching, and prudential
requirements (e.g., already operating in China for a certain number of
years, profit requirements, etc.). In order for firms to enter the market.
In addition, many U.S. firms have complained that they have not been
afforded the extent of market access promised under China’s WTO
accord, especially in regards to geographic market access and the amount
of foreign ownership allowed for insurance and telecommunications
companies in China.
! Health and safety requirements. U.S. officials charge that China
continues to use a variety of health and safety regulations to effectively
bar foreign imports, especially food products (such as wheat, poultry and
meats, and citrus). Many of these issues where supposed to have been
resolved under a 1999 agreement with China.
! IPR. While China has enacted a variety of new IPR laws, enforcement
of those laws remains relatively weak.

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Implications for U.S.-China Commercial Relations
China’s accession to the WTO, and the U.S. extension of PNTR status to China, will
likely have important ramifications for U.S.-China economic relations. First, Congress
will no longer vote annually on China’s trade status, which could help bring greater
stability and predictability to the trade relationship. Second, the United States (as well as
China) will be able to use the WTO dispute resolution process to resolve trade disputes,
rather than relying on unilateral threats of trade sanctions. Third, subjecting China’s trade
regime to multilateral rules means that the United States will no longer have to “go it
alone” in trying to get China to open its markets; other WTO members would have an
equally strong stake in ensuring China’s compliance with its WTO commitments. Finally,
China’s accession to the WTO will likely improve the business climate in China, leading
to greater trade and investment opportunities for U.S. firms. A sizable increase in U.S.
exports to China would help reduce tensions over trade issues.
However, many analysts have raised concern over the ability and willingness of the
Chinese government to fully implement its WTO commitments. Corruption and local
protectionism are rampant in China, and gaining the cooperation of local officials and
government bureaucrats that oversee various affected industries to implement WTO-
consistent rules could prove difficult in the short run. Additionally, economic reforms
required under WTO commitments could lead to significant short-term employment
disruptions in China, especially among farmers and employees of inefficient state-owned
enterprises. Some analysts warn that such disruptions might erode the government’s
determination to fully implement its WTO commitments, especially if it fears social
stability is threatened.
U.S. firms that export to, or invest in, China are deeply interested in ensuring that
China complies with its WTO commitments to remove discriminatory trade and
investment restrictions and practices. Their concerns focus largely on development and
implementation of China’s plans to bring its trade regime in compliance with WTO rules.
U.S. firms want to make sure that reforms are made as soon as possible and are enforced
uniformly at the central, regional, and local government levels. They also want to be able
to review proposed rules, laws, and standards and to have access to Chinese lawmakers
and regulators in order to submit proposed changes (within a reasonable time period)
before they go into effect. They want to ensure that texts of all new laws, regulations, and
standards are made publically available, and that all such changes are written in a manner
that is clear, consistent, and imposes no unreasonable burdens to U.S. firms. And finally,
they want to ensure that the spirit of China’s WTO accession agreement is achieved, so
that the removal of trade and investment barriers specified under the WTO agreement
actually leads to new trade and investment opportunities and is not undermined by the
issuance of new restrictive rules, standards, or policies that in effect replace one barrier
with another.
Congress will likely press the Bush Administration to ensure China’s trade
compliance with its WTO commitments. If U.S. exports fail to increase significantly,
and the USTR’s report finds serious deficiencies with China’s compliance, Congress may
press the Administration to file numerous dispute resolution cases against China in the
WTO.

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