On April 28, the United States and China concluded an agreement on fertilizer that will be incorporated into China's multilateral obligations once it accedes to the WTO. The agreement establishes a tariff-rate quota system for fertilizer products of interest to the U.S. similar to the system we negotiated for agricultural products. It will introduce private trading for these products as well as specific mechanisms to ensure quota allocation and utilization, thus addressing concerns that state trading will thwart real market access.

Tariff-Rate Quotas:

• China will establish a tariff-rate quota (TRQ) system for urea and diammonium phosphate (DAP) that will permit a specific quantity of each of these two products to be imported at a low in-quota duty of 4 percent. These quotas will grow substantially over the six-year implementation period. Import volumes above those the specified quantity will not be limited, but will face a duty of 50 percent. A specific portion of each TRQ will be reserved for importation through non-state trading entities (private trade), and the rest will be imported by state-trading entities.

• Currently, U.S. companies' ability to export fertilizer to China is strictly limited because only two state-trading companies can import fertilizer and those imports are subject to quotas which are established on an arbitrary and non-transparent basis. China has placed a virtual ban on the importation of urea since mid-1997. From the date of China's accession to the WTO, any company possessing a general trading right will be able to import the portion of the fertilizer TRQ's that is reserved for private trade. While the number of companies with general trading rights is currently limited, China has agreed to progressively increase the number of companies with the right to import over a three-year period with all foreign individuals and companies and all Chinese companies being able to import products three years from the date of accession. This means that after three years, any company will be able to import the portion of the TRQ reserved for private trade into any part of China.

• China made specific commitments to administer these TRQs so as to maximize the potential that they will be filled. Specifically, if quota initially allocated for importation by state-trading entities is not utilized by September 1 of each year, quota-holders will be able to bring it in through any importer with trading rights, or import it directly if they possess general trading rights. Furthermore, if a quota-holder has not contracted for importation his quota allocation by October 1, that quota will be reallocated to new end users for importation through any entity, including private traders. Under the agreement, the TRQ amounts and the portion initially designated for importation through state-trading companies are as follows:

November Agreement Provisions:

Tariffs/Quotas:

• China will reduce its tariffs on fertilizer products from a current average of 6% to an average of 4% upon accession.

• Quotas will be eliminated on urea and DAP immediately upon China's accession to the WTO and quotas on other fertilizers will be eliminated by 2001 or 2002.

Distribution Services:

• China generally prohibits companies from distributing imported products or providing related distribution services such as warehousing services. China will permit foreign enterprises to engage in the full range of distribution services for chemical fertilizers five years from the date of accession.

Other Commitments:

• To alleviate the uncertainty associated with China's inconsistent application of its tariffs and refunds, and waivers of its 17% VAT tax, China has agreed to apply its tariffs uniformly and to provide the same treatment to domestic and foreign products with respect to its VAT and other taxes.

• China has agreed not to apply or enforce export performance, local content, technology transfer, foreign exchange balancing, and similar requirements as a condition on importation or investment approval.

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