China and Its WTO Obligations

October 2, 2001

The World Trade Organization's "Working Party on China" concluded 15 years of negotiations last month and agreed to forward some 900 pages of legal text for formal acceptance by the 142 WTO member governments by the upcoming ministerial meeting in Qatar next month. Thirty days after China notifies its acceptance of the agreement, China legally becomes a member.

John Skorburg, senior economist and international trade specialist for the American Farm Bureau Federation, has provided an outline of China's WTO obligations once that country becomes a member.

China has agreed to undertake a series of important commitments to open and liberalize its regime in order to better integrate in the world economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules, including agriculture, according to Skorburg.

The commitments by China are binding by year, regardless of the point at which they actually join the WTO. In other words, if China joins in November 2001, their commitments for 2001 become effective immediately and in January 2002, their 2002 commitments become effective immediately as well.

Chinese Premier Zhu Rongji and then-U.S. Trade Representative Charlene Barshefsky signed a bilateral "Agreement on Market Access between the People's Republic of China and The United States of America" on Nov.15, 1999. The WTO Working Party on China's accession to the WTO has used these figures for bilateral trade between the U.S. and China.

Skorburg explains that the U.S.-China accord uses 1998 as the base rate tariff and binds them at lower levels, in most cases by no later than 2004. For example, frozen lobsters from the United States have a 1998 base rate tariff of 30%. This rate will decline to 15% by 2004 and be bound (fixed) at that level through 2008.

This same process is used for all other items in the 250 pages of the agreement. Apples have a base rate tariff of 30% which will decline to 10% by 2004. Cherries are similar. Oranges have a base rate of 40% which will decline to 12% by 2004. Grapefruit is similar. Fresh cheese has a base rate of 50% which will decline to 12% by 2004. Grated cheese is similar. Bovine meat has a base rate of 45% which will decline to 25% by 2004.

All tariff reductions will be made in equal annual reductions: the lobster example would see the following tariffs by year based on WTO accession; 2001 (24%), 2002 (21%), 2003 (18%), 2004-2008 (15%). Apples would decline as follows: 2001 (22%), 2002 (18%), 2003 (14%), 2004 (10%). Oranges and grapefruit would be lowered at an even faster rate, beginning at 40% (2000) and ending at 12% (2004).

Tariff rate quotas (TRQ) are expanded for wheat, corn, rice, soybean oil and cotton. State trading will control some of the quotas. Each of these (except soybean oil) has an "in-quota" tariff of only 1%. The implementation period is through 2004. (Note: soybean oil has an "in-quota" tariff of 9%). The tariff rate quotas are listed in the agreement for these commodities – beginning with an initial quota quantity in 2000 (and in-quota tariff) and ending with a final quantity in 2004 (and in-quota tariff).

Wheat has an initial quota quantity of 7.3 million metric tons with an in-quota tariff of 1%. This expands to a final quota of 9.636 million metric tons by 2004. Ninety percent of this quota will be moved through the government of China's state trading enterprise (STE). The rest will be moved through private sources.

Corn has an initial quota quantity of 4.5 million metric tons with an in-quota tariff of 1%. This expands to a final quota of 7.2 million metric tons by 2004. Sixty to seventy-five percent of this quota will be moved through China's STE.

Rice has an initial quota quantity of 2.66 million metric tons with an in-quota tariff of 1%. This expands to a final quota of 5.320 million metric tons by 2004. Fifty percent of this quota will be moved through China's STE.

Cotton has an initial quota quantity of 743 thousand metric tons with an in-quota tariff of 1%. This expands to a final quota of 894 thousand metric tons by 2004. One-third of this quota will be moved through China's STE.

Soybean oil increases from 1.718 million metric tons to 3.261 million metric tons (by 2006) at a 9% in-quota tariff. The China STE will be phased down to a 10% share by 2006 as well. The out-of-quota tariff will eventually decline to 9%.

Current tariffs for raw soybeans (3%) and soybean meal (5%) will be bound. There will be no import quota for either commodity or China STE movement.

Virtually all agricultural products are included in these schedules and are lower (or equal) when compared to current levels. All however are bound and cannot arbitrarily go up in the future. While some tariffs fall quickly, others will go down more slowly or stay level. For example, duck meat will stay at a fixed tariff rate of 20%. Live pigs will have a rate of 20%, too. Carrots and turnips will have a fixed tariff rate of 13% from 2000 into the future. So will cucumbers, asparagus, frozen potatoes, peas, onions and mushrooms.

Safeguards for the U.S. against import surges are included: The final section of the accord includes protocol language on product specific safeguards for the U.S. In short, the US appears to have a legal alternative built into the agreement due to "too many imports" coming into the U.S. from China.

Skorburg's entire article, including tables, is available on the AFBF web site: www.fb.com.