China-U.S. Trade Agreements: Compliance Issues

On November 15, 1999, the United States and China completed a bilateral agreement on China's accession to the World Trade Organization (WTO). China agreed to substantially liberalize its markets for U.S. agriculture, manufactured goods, and services. In addition China has completed bilateral trade agreements with 35 other WTO members (an agreement with Mexico is still pending) and is close to completing negotiations with the WTO Working Party handling its WTO application. Once China completes all of its bilateral and multilateral agreements, it will likely join the WTO soon after, and the terms of those agreements will apply equally to all WTO members. China's accession to the WTO would subject China's trade regime to multilateral trade rules, such as most- favored-nation (MFN), or nondiscriminatory, trade status, national treatment for foreign firms, transparency of trade rules, and the use of tariffs, rather than non-tariff barriers, to protect domestic firms (when necessary). The terms of China's WTO membership would be subject to monitoring and review by WTO members, who, in case of Chinese non-compliance with WTO obligations, would be able to bring a complaint before a WTO trade dispute resolution panel for settlement. Congressional concerns over China's full compliance with its WTO commitments became a factor in the congressional debate over H.R. 4444 , a bill that would permanent normal trade relations (PNTR) treatment to China upon its accession to the WTO. Some congressional opponents of PNTR legislation charged that China could not be trusted to implement the WTO agreements, based on the contention that China had failed to fully comply with the terms of past trade agreements made with the United States. Other analysts contended that, while China's compliance with trade agreements had been less than perfect, it did make important strides in fulfilling its trade obligations with the United States. They further contended that the WTO's dispute resolution mechanism would provide a more effective means for the United States to deal with trade disputes than relying on unilateral measures. In order to ensure China's full compliance with its WTO commitments, many Members of Congress called for the establishment of special mechanisms that would closely monitor China's compliance with its WTO commitments. Such measures were included in the final version of H.R. 4444 , which passed both Houses and became law on October 10, 2000. This report addresses five major trade issues and related trade agreements between the United States and China: (1) the 1979 trade agreement providing mutual most-favored-nation (MFN) treatment, (2) the 1992 memorandum of understanding (MOU) on market access, (3) the 1992 and 1995 MOUs on intellectual property rights (IPR), (4) the 1997 MOU on textile quotas and market access, and (5) the 1992 MOU on prison labor exports. It provides an overview of the agreements and summarizes various government and private sector assessments of China's compliance with the agreements. It also discusses issues arising from concerns over how to ensure China's compliance with its trade commitments relating to its accession to the WTO (if and when it enters the WTO), including legislative proposals.