China Working Group Recommendations to

USTR on China's Accession to WTO

March 17, 1997

Mr. Frederick L. Montgomery

Chairman, Trade Policy Staff Committee

Office of the United States Trade Representative

600 17th Street, N.W.

Washington, D.C. 20508

Dear Mr. Montgomery:

The U.S. Council for International Business is pleased to submit the recommendations of its China Working Group in response to your request for public comments on negotiations regarding China's accession to the World Trade Organization (WTO).

The U.S. Council is the American affiliate of the International Chamber of Commerce (ICC), the Business and Industry Advisory Committee (BIAC) to the OECD, and the International Organization of Employers (IOE). As such, it officially represents U.S. business positions both in the main intergovernmental bodies and with foreign business communities and their governments. The U.S. Council formulates its positions in over forty committees and other working bodies composed of experts drawn from its membership of 300 multinational corporations, service companies, law firms and business associations.

China's WTO accession negotiations offer an important opportunity for the U.S. Government to effectively address various barriers to trade with that country. We support China's accession to the WTO under a commercially acceptable protocol that commits China to comply with established WTO disciplines and includes specific market-opening measures.

To assist you in addressing market access issues in particular, we sent out a questionnaire asking our working group members to prioritize specific market access issues of concern to U.S. businesses operating in China. The results are summarized below.

·         Transparency and Uniformity of Laws

The majority of respondents cited a lack of transparency and uniformity of laws as the most serious obstacle faced by American companies operating in China. Companies  mentioned ongoing problems with undisclosed rules and regulations, laws that are vague and subject to varying interpretations, and inconsistent application and enforcement of laws at different levels of government and between different entities.

GATT Article X calls for trade regulations to be published promptly and administered in a uniform, impartial and reasonable manner. The U.S. Government should press China to publish in advance and circulate laws, directives and regulations governing foreign trade and investments. Further, many existing laws require clarification and additional details on procedural guidelines, requirements, and consequences. There should be a uniformity of laws and their implementation at all levels.

This complaint applied across numerous sectors, including consumer products, manufacturing, natural resources, services companies, etc.

·         Tariffs and Non-Tariff Measures

Companies cited tariffs and non-tariff measures together as the second most pressing set of issues. While China announced at the APEC Summit in November, 1996 that it would lower tariffs by 30 percent on 4,000 items, duties on many products remain over 50%, particularly raw materials, chemicals, and some finished goods. The U.S. Government should press China to substantially reduce its overall tariff rate (which currently stands at 23%) to a level comparable to the commitments of WTO members.

Many companies also indicated that import licensing restrictions and quotas on hundreds of imported products inhibit their competitiveness in China. The U.S. Government should insist that China adhere to GATT Article XI, which prohibits such practices.

·          Services

China continues to maintain barriers to foreign service providers in areas such as financial services, telecommunications, publishing and tourism. The U.S. Government should press China to provide non-discriminatory market access and to liberalize existing limitations so as to bring its practices into conformity with the obligations in the General Agreement on Trade in Services (GATS) and its annex on telecommunications services.

Moreover, now that the WTO negotiations on basic telecommunications have concluded successfully, it is especially important that basic telecommunications be addressed as part of the process of China's accession to the WTO. Chinese commitments on basic telecommunications must be meaningful and commensurate with the stature and importance that China has assumed in the world economy, including full adoption of the regulatory principles.

·         Intellectual Property Protection

On paper, China has made significant progress toward bringing its intellectual property regime up to international standards, particularly since the 1992 and 1995 agreements signed with the U.S on this subject. However, piracy of U.S. software, books, magazines, videos and sound recordings remains a serious problem. And some companies argued that the IP laws in place are not enforced objectively. As one respondent put it, the "rule of men" still takes precedence over the rule of law. The U.S. Government should continue to press China to vigorously enforce its IP laws under the terms of the two bilateral agreements and the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPs).

·         Investment Policies

Some companies noted that they are generally prohibited from retail marketing, that investment approvals by the Chinese Government are set at extremely low levels, and that foreign firms are generally forced to joint venture with local firms. China's requirements of foreign investors to enter into commitments regarding technology transfer, import substitution, exchange rate balancing and export performance are overly restrictive and in violation of GATT Article III and the WTO Agreement on Trade-Related Investment Measures (TRIMs). Automotive companies complained about China's lengthy transition period for phasing out barriers to investment in the auto sector. China must take on the TRIMs obligations within the time frame proscribed in the WTO.

·         Other Issues

Members raised several other issues, including the following:

Trading Rights

Some companies cited concerns with the Chinese policy of limiting the import of goods into China to authorized trading companies.

Dispute Resolution

Problems mentioned in this area include difficulty enforcing contracts in court; difficulty enforcing judgements/decrees from Chinese courts; the fact that foreign arbitral decrees are often ignored by Chinese courts; and that arbitration awards made in one region of China are not enforced in other regions.

Customs

Some companies complained that the Chinese customs authorities do not apply their regulations uniformly. Chinese customs practices need to be modernized to incorporate the key procedures set out in the ICC International Customs Guidelines, which include implementation of the WTO agreement on valuation, rules of origin and preshipment inspection.

Access for Agricultural Products

Some companies suggested that, before joining the WTO, China must remove GATT-illegal barriers to foreign agricultural products. The Chinese Government's phyto-sanitary measures, for example, operate as disguised trade restrictions.

I hope that this information is useful to your discussions with the Chinese government. We stand ready to meet with you to discuss these concerns in more detail, if necessary.

Sincerely,

Abraham Katz