Order Code RS20139
Updated August 6, 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
After many years of difficult negotiations, China, on December 11, 2001, become
a member of the World Trade Organization (WTO), the international agency that
administers multilateral trade rules. Under the terms of its WTO membership, China
agreed 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. According
to U.S. government officials and many business representatives, China’s WTO
compliance record has been mixed. 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 requires China to change
many laws, institutions, and policies to bring them into conformity with WTO rules.1
China made WTO accession 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.
1 For additional information on China’s WTO accession and other topics in U.S.-China trade
relations, see CRS Issue Brief 91121, China-U.S. Trade Issues, updated regularly.
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.2 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
2 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.3 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
China’s implementation of its WTO commitments has been closely followed by U.S.
officials and various business groups. On December 11, 2002, the USTR released its
first annual China WTO compliance report.4 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. On June 18, 2003, the U.S.-
China Business Council (USCBC) issued its mid-year 2003 report on China’s WTO
implementation.5 The report stated that, while China has promptly implemented its WTO
3 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.
4 USTR, 2002 Report to Congress on China’s WTO Compliance, December 11, 2002.
5 The U.S.-China Business Council, China’s WTO Implementation: A Mid-Year Assessment, June
(continued...)

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tariff-reduction commitments, it has failed to fulfill it obligations in a number of areas,
including the removal of agricultural and industrial quotas and tariff-rate quotas,
unreasonable standards for genetically modified organisms applied to agricultural trade,
high capital requirements for establishment of services businesses, discriminatory tax
policies on imports, failure to issue promised regulations for auto finance operations,
insufficient regulatory transparency, and lack of protection for U.S. intellectual property
rights. The USCBC noted “growing concerns” among U.S. firms over China’s ability to
deliver on key commitments on time and in full.
Some analysts argue that China’s compliance with its WTO obligations is being
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 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; the USTR’s
office stated that the regulation “should remove the threat of an
interruption of U.S. soybean sales to China.”6 In July 2003 China further
extended the policy through April 2004. 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
5 (...continued)
2003.
6 USTR Press Release, October 18, 2003.

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the WTO for resolution. Despite these problems, U.S. soybean exports
to China have increased significantly in 2003, rising by nearly 209%
from January-May 2003 over the same period in 2002.7
! 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.8
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
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.
! 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, and local content
requirements. Another major concern is China’s high capital
requirements for non-banks offering auto financing, which, U.S. firms
charge, negatively affect small firms.
! 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
7 In fact, U.S. soybean exports to China over the first five months of 2003 ($1.1 billion) are
already higher than U.S. soybean exports to China for the entire year in 2002 ($0.9 billion).
8 For example, under the WTO accession agreement, China’s TRQ for cotton in 2002 was
818,500 tons. In June 2002, China announced that 500,000 tons of the TRQ would be allocated
for processing trade, 270,000 tons for state-owned mills, and 48,500 tons for private mills.

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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.
Implications for U.S.-China Commercial Relations
China’s WTO accession is expected to provide a major boost to China’s economy,
especially in its ability to attract foreign investment. In 2002, China became the world’s
largest recipient of foreign direct investment. China has become the United States’ third
largest source of imports. During the first five months of 2003, U.S. imports from China
rose by 28% over the same period in 2002, higher than those of any other major U.S.
import supplier.9 Representatives from several manufacturing sectors and labor unions
have complained over the competitive challenge posed by low-cost Chinese goods. Some
businesses (particularly the U.S. textile sector) are advocating for the imposition of
special safeguard provisions to restrict the amount of Chinese exports to the United
States.10 Other groups have argued that China manipulates its currency by pegging it the
U.S. dollar, making Chinese exports cheaper and imports more expensive, than would
occur if China’s currency (the yuan) was fully convertible. Such groups want the Bush
Administration to pressure China to appreciate the yuan or make it fully convertible.
Congress will likely continue to press the Bush Administration to ensure China’s
compliance with its WTO commitments.11
Some Members have called on the
Administration to file dispute resolution cases against China in the WTO if it fails to
resolve outstanding disputes with the United States over its compliance with WTO rules.
9 At the same time, U.S. exports to China are rising faster than those to any other major trading
partner. During the first five months of 2003, they rose by nearly 32%. However, since U.S.
imports from China are already much larger than U.S. exports to China, the U.S. trade deficit
with China (which totaled $103 billion in 2002) is currently projected to rise to about $130
billion in 2003.
10 The United States maintains quotas on textile imports from China, but WTO rules require the
quotas to be phased out by 2005. As a result, U.S. textile imports from China are expected to rise
sharply.
11 In July 2003, the House of Representatives passed legislation (H.R. 2799) that would
appropriate $3 million to establish a new Office of China Compliance (within the USTR’s office)
to focus on compliance issues of concern to small-and-medium sized businesses.

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