Bridges Weekly Trade News Digest • Volume 5 • Number 23 • 19th June 2001

Details Released on China-US WTO Accession

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On 12 June, the US and China agreed to the terms of China’s WTO accession. The deal, expected to be ratified by China’s People’s Congress later this week, resolves the long-standing trade impasse between the two countries in the areas of agriculture, insurance and trading rights, thereby refocusing China’s bid to join the WTO (see BRIDGES Weekly, 29 May 2001). While some particulars of the deal were released this past week by the US, full details of the agreement will be forthcoming pending Chinese ratification.

Agriculture

On agriculture, the main impediment to China’s WTO accession has for several months been disagreement with the US over its access to the Uruguay Round Agreement on Agriculture (AoA). Article 6 of the AoA stipulates in part the amount of trade-distorting subsidies that countries are permitted to use in support of domestic agriculture. The US-China impasse was however resolved last week when Beijing and Washington reached a compromise deal on domestic subsidy use in China.

Under the deal, China will be permitted a “de minimis” level of domestic support — an exemption from further reduction commitments — no greater than 8.5 percent of the total value of China’s domestic agriculture production. Under Article 6 of the AoA, developing countries are permitted a de minimis of 10 percent, while developed countries receive a 5 percent de minimis (see BRIDGES Weekly, 29 May 2001).
China also agreed to bind its Aggregate Measure of Support (AMS) at zero, which means the only domestic agriculture subsidies China will be entitled to are those specified by its de minimis commitment. AMS is the total value of a country’s domestic agriculture subsidies subject to reduction commitments under the Uruguay Round. Currently, 30 WTO Members have taken AMS reduction commitments.

Agreeing to set its AMS at zero also means that China will not be permitted access to AoA Article 6.2, which grants developing countries unlimited exemption for support programmes to low-income and resource- poor farmers. Instead, China will have to subject these subsidies to its 8.5 de minimis cap. Furthermore, China has committed to forego all export subsidies for agriculture.

According to trade sources, China will not claim any developing country provisions under the AoA. However, Beijing continues to argue that it will not accede to the WTO as a developed country, rejecting definitions that imply that China is not a developing country. The agriculture compromise does not clarify how China should be dealt with in a new agriculture agreement, particularly if such an agreement specifies special and differential treatment for developing countries.

Insurance

Under present Chinese law, the ability of foreign insurers to write “large scale commercial risk” policies worth less than $US 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 $US 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.

Distribution

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, US 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 restrictions.

Trading rights

On trading rights, the US-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 US obtained new commitments that limit the range of requirements that China can impose as a condition on obtaining trading rights.

The WTO Working Party on the accession of China is currently scheduled to meet on 4 July. China’s major trading partners — including Mexico, the US and the EC — are expected to use the meeting to settle their remaining differences and to urge the conclusion of substantive talks for China’s accession to the WTO.

“USTR Details US-China Consensus on China’s WTO accession,” OFFICE OF USTR, 14 June 2001; “More Details on US-China WTO Deal,” WASHINGTON TRADE DAILY, 13 June 2001; “US, China Settle Outstanding Problems for WTO Accession,” INSIDE US TRADE, 15 June 2001.