Trade Remedies and The U.S.-China Bilateral WTO Accession Agreement

Order Code RS20570

Updated August 4, 2003

CRS Report for Congress

Received through the CRS Web

Trade Remedies and The U.S.-China Bilateral

WTO Accession Agreement

namer ed acted

Specialist in International Trade and Finance

Foreign Affairs, Defense, and Trade Division

Summary

The November 1999 U.S.-China bilateral agreement on China’s accession to the

World Trade Organization (WTO) addresses a range of U.S. foreign trade and

investment concerns related to China’s entry into the WTO. In particular, U.S. importsensitive industries are wary of the impact from increased imports that might result

from China’s WTO membership. The bilateral agreement allows the United States to

continue to use, at least temporarily, special trade remedy procedures against surges of

imports and against dumped and subsidized imports from China that it has used since

the two countries reestablished trade relations in 1980. These procedures are more

favorable to import-sensitive industries than those normally used in trade with other

established WTO members. They are viewed by some observers as a policy tool to

cushion the potentially adverse impact of increased China trade on U.S. industries.

Codification of the safeguard provision was included in H.R. 4444, the legislation that

granted China PNTR (P.L. 106-268), and that was signed into law on October 10, 2000.

This report examines the trade remedy provisions of the U.S.-China bilateral agreement

in relation to the relevant U.S. trade laws and to WTO agreements and principles. It will

also examine the potential impact of these provisions on U.S.-China trade and their

legislative implications. For more information see CRS Issue Brief IB91121, U.S.China Trade Issues. This report will be updated as events warrant.

After long, drawn out negotiations, the United States and China in November 1999

reached an agreement on conditions for China’s entry into the World Trade Organization

(WTO).1 The U.S.-China Bilateral Agreement on WTO Accession (hereafter referred to

as the Bilateral Agreement) was part of the series of bilateral and multilateral negotiations

1

This report greatly benefitted from the review and comments of (name/ re dacted), Legislative

Attorney, American Law Division and (name /r edacted), Specialist in International Trade and

Finance, Foreign Affairs, Defense, and Trade Division.

Congressional Research Service ˜ The Library of Congress

CRS-2

that any country or customs territory must go through with WTO-member trading partners

in applying to join the WTO.2

The Bilateral Agreement addresses U.S. concerns about China’s treatment of U.S.

exports of agricultural and manufactured goods and of U.S. services in China’s domestic

market and about U.S. investments in China.3 In addition, and perhaps most critically for

import-sensitive industries, the agreement allows the United States to employ special

measures to remedy the adverse price effects on U.S. industries of some imports from

China.4 The House passed on May 24, 2000, and the Senate passed on September 19,

2000, H.R. 4444 that authorized the President to grant China permanent normal trade

relations (PNTR) status. H.R. 4444 was signed into law on October 10, 2000 (P.L. 106268). (See Legislation section.)

U.S. Trade Remedies and Nonmarket Economies

Trade remedies are government measures authorized in law and sanctioned by

multilateral agreement, i.e., the WTO, to minimize the adverse impact of some imports

on domestic industries.5 Safeguard measures allow domestic industries to adjust to the

adverse impact of surges in import competition. Antidumping duties remedy the adverse

price effects of imports determined to be sold at less than fair value. Countervailing

duties remedy the adverse price effects of imports that are determined to have benefitted

from government subsidies.

Safeguard Measures. U.S. safeguard measures are authorized under sections

201-204 of the Trade Act of 1974 (often simply called section 201, or escape clause

relief). They must also conform to Article XIX of the General Agreement on Tariffs and

Trade (GATT1994) and the WTO Safeguards Agreement. U.S. law provides that an

industry can receive relief, in the form of temporary higher duties, quotas, or other import

restrictions, if the U.S. International Trade Commission (ITC) makes two determinations:

(1) that imports of a like product as produced by the industry seeking relief have surged

at such a rate as to cause “serious injury” or threat thereof to the U.S. industry and (2) that

their level of causation is “substantial.” If both determinations are affirmative, then the

ITC makes a recommendation for relief which the President may accept, amend, or reject.

Section 201 is applied in cases where the exporting country is a market economy.

However, U.S. law also authorizes similar relief against imports from nonmarket

economies. Section 406 of the Trade Act of 1974, as amended, was enacted at a time

2

The text of the Bilateral Agreement is available on a special website maintained by the White

House: [http://www.chinapntr.gov].

3

For more information on U.S.-China trade, see CRS Issue Brief IB91121, U.S.-China

Trade Issues.

4

In accordance with the WTO’s principle of most-favored nation (MFN) treatment, the

concessions made by China in the Bilateral Agreement technically apply to trade with all WTO

members. This report, however, will focus on its impact on U.S. trade with China and relevant

U.S. trade laws.

5

U.S. law provides for other trade remedies as well. For more information see CRS Report

RL30461, Trade Remedy Law Reform in the 107th Congress.

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when the United States was opening up trade relations with Communist countries. It was

enacted in response to industry concerns that imports from Communist countries would

flood U.S. markets because their prices were not market-determined. Section 406

provides for relief in the form of higher tariffs or quantitative restrictions on imports from

“a Communist country” that the ITC determines have caused “market disruption.” Under

the statute, market disruption is said to have occurred when the ITC determines that (1)

the imports into the United States have rapidly increased absolutely or relative to domestic

production at such a rate as to have caused “material” injury to the U.S. industry and (2)

their level of causation is “significant.” If both determinations are affirmative, then the

ITC recommends relief to the President who may accept and implement the

recommendation or oppose the recommendation and deny relief.

Although similar, section 201 and section 406 differ in several important respects.

First, the injury threshold for relief under section 201, “serious injury,” is higher than that

of section 406, “material injury.” “Serious injury” is defined, under section 201, as one

that is a significant, overall impairment to the position of the domestic industry.

“Material injury”is not defined under section 406, but the legislative history of the statute

indicates that Congress intended it to be a lower threshold than “serious injury.”6

Second, the causation threshold under section 406, “significant,” is lower than that

under section 201, “substantial.” Under section 406, “significant cause” is a cause which

“contributes significantly to the material injury of the domestic injury but need not be

equal to or greater than any other cause” (italics added). On the other hand, under

section 201, a “substantial cause” is one that is important and not less than any other

cause” (italics added).

Third, under the Safeguards Agreement of the WTO, (and in accordance with the

WTO most-favored-nation (MFN) principle), section 201 safeguards relief must be

imposed against all imports of the product in question from all foreign suppliers, that is

a WTO member cannot target relief against a particular country. Section 406, on the

other hand, discriminates against Communist countries and allows U.S. industries to seek

relief against imports from a single country. Section 406 (unlike section 201) does not

provide statutory procedures for congressional override of a presidential decision not to

act or to take action different than that recommended by the ITC. In sum, the lower

injury and causation thresholds of section 406 and its provision for specific-country

targeting are intended to increase the chances that temporary import relief measures will

be implemented than would be the case under section 201.

Antidumping and Countervailing Duty Remedies. U.S. antidumping

remedies are authorized under sections 731-739 of the Tariff Act of 1930, as amended.

They must also conform to Article VI of GATT (1994) and the WTO Antidumping

Agreement. Under U.S. law antidumping relief is granted if (1) the Department of

Commerce (DOC) determines that imports subject to an antidumping investigation have

been sold in the United States at less than fair value and (2) the ITC determines that a U.S.

6

See U.S. Congress. Senate. Trade Reform Act of 1974. Report of the Committee on Finance

of the United States Senate together with Additional Views on H.R. 10710. 93d Congress. 2d

Session. S.Rept. 93-1298. p. 212.

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industry, producing a like or competitive product as the dumped import, has been

“materially injured” “by reason of” the dumped imports.

In determining what is the “fair value” of a good, the U.S. antidumping law requires

that the DOC use, when possible, the price of the good or a like good in the exporter’s

home market. But because the prices of a good in a nonmarket economy are

administratively set and not determined by market forces, they may not represent the “fair

value” of goods produced in a nonmarket economy. The statute provides that in the case

of nonmarket economy, such as China, the DOC construct the “fair value” of the good

by determining what the costs of production (including profit) are in a market economy

of comparable development level to the nonmarket economy and use that as a proxy for

the “fair value.”

U.S. countervailing duty relief is authorized under sections 701-709 of the Tariff Act

of 1930, as amended, and must conform to Article VI of GATT 1994 and the WTO

Agreement on Subsidies and Countervailing Measures (SCM). Under the SCM

Agreement, countervailable subsidies must be “specific,” as defined in the agreement and

cause “material injury” to the relevant domestic industry. Under U.S. law an industry may

obtain relief after (1) the U.S. Department of Commerce has determined that the imported

good under investigation has benefitted from a countervailable subsidy and, in most cases,

(2) the ITC has determined that the imports are causing or threatening to cause “material

injury” to a U.S. industry producing a like or competitive product as the imported

product.7

The U.S.-China Bilateral Agreement

The U.S. trade remedies against imports from China are one of the most critical sets

of provisions of the U.S.-China Bilateral Agreement on WTO Accession. By and large,

the Bilateral Agreement allows the United States to apply, for a certain period of time,

the same trade remedy measures in its trade with China that it applied since 1980, when

the United States and China first re-established trade relations. The trade remedy

provisions of the Bilateral Agreement were incorporated into China’s terms of accession

to the WTO and apply, on an most-favored-nation basis, to China’s trade with not only

the United States of with each WTO member.

Regarding safeguard measures, with some exceptions, the Bilateral Agreement

allows the United States to continue to apply the more liberal section 406 criteria for relief

against imports from China. However, unlike section 406, the Bilateral Agreement

allows China to seek equivalent compensation from the United States for the actions

against its imports, if the U.S. measures have been in effect for at least two years, in the

case of imports that have increased relative to domestic production, or three years, in the

case of imports that have increased absolutely. This provision reflects, in part, the WTO

7

In CVD cases the injury test and, therefore, ITC participation, is required only if the country

against which the U.S. industry is bringing a petition is a member of the WTO (which includes

most trading partners), is a nonmember country but has accepted equivalent obligations, or a

country, with which the United States has an agreement which entitles that country to

unconditional MFN treatment. Otherwise, only a final determination by the DOC of the

existence of a subsidy is required for the assessment of the countervailing duty.

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Safeguards Agreement requirement that WTO members have the opportunity to obtain

compensation, if safeguard action is taken against their exports by another WTO member

and if that action has been in place for at least three years (whether the imports increased

relatively or absolutely). In addition, the Bilateral Agreement allows the United States

to take safeguard action against increased imports from China that may have been

diverted from a third country as a result of that country’s safeguard action against China.

The agreement also requires that the United States consult with China to try to resolve

the issue before initiating safeguards action and to notify the WTO Committee on

Safeguards of measures taken against China. The safeguards provision of the Bilateral

Agreement expires on December 11, 2013,12 years after China enters the WTO, at which

time section 201 measures would be used.

Regarding antidumping measures, the Bilateral Agreement provides that the United

States can continue to use the constructed fair value method unless the Chinese producer

can clearly show that market conditions prevail in the production of the exported good.

In such a case, the United States will use prices and costs prevailing in China. The WTO

Committee on Antidumping actions must be notified of antidumping actions taken under

the bilateral agreement.

Regarding countervailing duty measures, the Bilateral Agreement provides that

subsidies to Chinese state-owned enterprises will be considered specific (and therefore

countervailable) if state-owned enterprises are the predominant recipients of the subsidies

or if they receive disproportionately large amounts of the subsidies. In determining the

level of subsidies, the Bilateral Agreement requires that, where possible, the United States

use methodologies that it applies against the imports of other, market-economy, WTO

members. But the Bilateral Agreement recognizes that, given the structure of China’s

economy, it may not always be possible and allows the United States to use alternative

methodologies that are based on third-country surrogate market-determined data, rather

than Chinese data.

As with the safeguards provisions, the Bilateral Agreement’s provisions on

antidumping and countervailing duties would seem to favor the U.S. industry more than

in the case of the methodologies applied to imports from other WTO members making

it easier for the U.S. industries to obtain relief. The provisions will be applicable for 15

years after China’s entry into the WTO (until December 11, 2016) or when China is

deemed a market economy by the national laws of the importing country, whichever

comes first, at which time the standard antidumping and countervailing duty criteria will

apply.

In addition to the provisions on safeguard, antidumping, and countervailing duty

measures, the Bilateral Agreement contains provisions pertaining to trade in textiles and

wearing apparel. According to the Agreement, U.S. quotas on imports of these items

from China will continue but will be gradually phased out until January 1, 2005, at which

time they will expire. But the agreement also provides that the United States will be able

to apply a special product-specific safeguards measure against imports of textiles and

wearing apparel from China that are determined to have caused market disruption in the

United States. This special safeguards provision differs from the more general safeguards

provision in the Bilateral Agreement, discussed earlier, in that China would not have the

right to retaliate or seek remedies for U.S. action. The provision would expire on

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December 31, 2008. After that date and until December 11, 2013, the non-textile

safeguards provision would apply.

Legislation

On October 10, 2000, President Clinton signed into law H.R. 4444 (P.L. 106-286),

the China-U.S. Relations Act of 2000 (the Act). The law authorized the President to grant

China PNTR upon the issuance of a proclamation and only after he has certified to

Congress that the terms of China’s accession to the WTO were at least equivalent to the

provisions of the Bilateral Agreement. On November 10, 2001, President Bush so

certified, and on December 27, 2001, he issued the proclamation granting China PNTR,

effective January 1, 2002.

The Act also codified into U.S. law the special safeguards measure of the Bilateral

Agreement as sections 421-423 of the Trade Act of 1974. These sections are modeled

after section 406 but contain some important additions. For example, they include

Presidential discretion in granting relief in the form of a “Standard for Presidential

Action”– the President is to grant relief if the International Trade Commission so

recommends unless he determines that doing so would not be in the U.S. national

economic interest or “in extraordinary cases” would harm the national security of the

United States. They also give the U.S. Trade Representative (USTR) responsibility to

make recommendations to the President regarding relief if the ITC makes an affirmative

determination and after the USTR solicits public comments.

Conclusions

The U.S.-China Bilateral Agreement on WTO Accession was designed to smooth

the transition of China’s entry into the WTO for the United States. The trade remedy

provisions attempt to alleviate apprehensions that some U.S. import-sensitive industries

might have regarding increased competition from imports from China. Yet, it is unlikely

that U.S.-China trade patterns will change much after China’s entry into the WTO,

certainly in the near-term. Chinese imports have received most-favored-nation (MFN),

now normal-trade-relations (NTR) status, since 1980 and, therefore, U.S. tariff rates on

Chinese imports will not immediately change. Therefore, U.S. domestic industry use of

trade remedies are unlikely to alter greatly in the near term.8

However, trade remedies not only serve the economic role of smoothing the

transition to liberalized trade for import sensitive industries, they also serve a political

role–as tools to make trade liberalization more politically palatable to those sectors

adversely affected by it.

8

For current information and analysis of U.S.-China trade since China’s accession to the WTO,

see CRS Issue Brief IB91121, U.S.-China Trade Issues.

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