Tariff-Rate Quota Administration

• China, like many WTO-Members, including the United States, will use a tariff-rate quota (TRQ) system and state trading for certain sensitive commodities. Under the agreement, China will permit imports of 743 thousand metric tons of cotton at a duty of 1% (1998 imports equaled 200 thousand metric tons). This volume will grow to 894 thousand metric tons by 2004. Imports above these levels will face a higher duty of 76%, which will be reduced to 40% by the year 2004. China made specific commitments to administer these TRQs so as to maximize the potential that they will be filled. Specifically, if TRQs are not utilized they will be redistributed to other end users who have an interest in importing. Moreover, 33% of the TRQ will be reserved for importation through state trading enterprises (such as Chinatex) and 67% will be reserved for non-state trading entities. Finally, if a TRQ share that was reserved to be imported by a state trader is not contracted for by October for any given year, it will be reallocated to non-state trading entities.

• In summary, China has committed to establish a TRQ on the following terms:

Trading Rights and Distribution

• Currently, U.S. companies' ability to do business in China is strictly limited because the right to engage in trade (importing and exporting) is restricted to a small number of companies that receive specific authorization or who import goods to be used in production. This limits U.S. exports. China has agreed that any entity will be able to import most products, including cotton, into any part of China. This commitment is phased in over the three-year period with all entities being permitted to import and export at the end of the period. Under the cotton TRQ, China has reserved a percentage of trade in cotton for importation through state trading enterprises, but China will also permit other enterprises to import under the TRQ.

• China -- which generally prohibits companies from distributing imported products or providing related distribution services -- will permit foreign enterprises to engage in the full range of distribution services. These rights will be phased in over a three-year period for almost all products, including cotton. (See separate papers on distribution services and related services.)

Export Subsidies

• China will eliminate export subsidies for agricultural products when it joins the WTO, benefiting U.S. agricultural products competing in third-country markets.

Domestic Support

• China committed to cap and reduce trade-distorting domestic subsidies; specific levels will be determined through multilateral negotiations.

Sanitary and Phytosanitary Measures

• China committed to fully abide by the terms of the WTO Agreement on Sanitary and Phytosanitary Measures, which requires that all animal, plant, and human health import requirements be based on sound science.

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