Inside US Trade | December 7, 2001
The Bush Administration late last month told China that it has several problems with a draft regulation that China proposes to use as a guideline for allocating tariff-rate quotas for farm products, according to informed sources. In addition, U.S. officials have told U.S. industry representatives that they believe China is already violating its World Trade Organization obligations with respect to farm trade, since China failed to publish in October the criteria for allocating TRQs for agricultural products.
One source said that USTR "considers China to be in violation" of that commitment, which was made by China's chief trade negotiator Long Yongtu in a Sept. 17 letter to the chairman of the WTO working party on accession.
The U.S. complaints indicate that China is already facing problems implementing its WTO commitments, even though it is still one week away from formally joining the trade body. As part of its WTO commitments, China agreed to set liberal quotas on a range of farm imports, and to allocate them in a transparent manner among end-users in China.
U.S. industry sources said the Office of the U.S. Trade Representative sought comments last month on China's draft TRQ regulation from various farm interests, and combined these industry comments into a single document that points out to Chinese authorities areas where the U.S. believes China's draft regulation is inconsistent with commitments in the working party report on China's WTO accession. Sources said China's request for comment on its draft TRQ allocation plans in some ways amounted to the first time China has distributed a rule so widely for public comment.
In its Nov. 20 comments to China, USTR criticized three major areas of China's draft regulation, which China would use to allocate farm TRQs to end users in China. First, USTR said China's proposal would divide each negotiated TRQ into two sections, with some of the quota allocated to "end-users" and some allocated to the "processing trade," sources said.
But the U.S. said TRQs negotiated as part of China's WTO accession need to be available to all applicants for quota in China, and that allocating a part of each TRQ to different end users based on how the farm products are used could result in a failure to fill the quotas, sources said.
Industry sources added that U.S. companies are unclear how China would define "end-users" as opposed to the "processing trade," and that China's proposed regulation could result in a situation in which exports to China become difficult because the sub-quota for a certain kind of end user has been filled.
The second major U.S. criticism deals with how end users in China would have to apply for the ability to use a quota to import products. Under China's draft regulation, an end user would have to apply for and receive "notice" from officials administering the TRQ in question, the U.S. critique pointed out.
Then, the end user would have to apply for and obtain an agricultural tariff quota certificate, which involves submitting detailed information on the proposed import, including a signed contract with an exporter. The U.S. paper said these requirements are "burdensome," and are therefore not consistent with China's commitment to make the TRQ application process as simple as possible.
Specifically, the U.S. said China agreed in the working party on its accession, as well as the headnote to schedule I-B of China's scheduled goods commitments, to create a process free of excessive demands on end users.
For example, paragraph 112 of China's working party report states that WTO members "requested that China enter a commitment to administer TRQs in a simple, transparent, timely, predictable, uniform, non-discriminatory, and non-trade restrictive manner, and in a way that would not cause trade distortions. Those members asked that China ensure that its TRQ arrangements be no more administratively burdensome than absolutely necessary."
Finally, the U.S. submission said many aspects of China's draft TRQ regulation are vague, and do not spell out the criteria used to allocate quota to end users, outline how quota will be allocated to new importers, or outline the specific role of "authorized agencies," sources said.
In the interest of ensuring conformity with China's WTO commitments, the U.S. suggested that China try to incorporate language from the working party report into the regulation where possible, sources added.
Another key issue that worries some U.S. exporters is the extent to which Chinese sub-national authorities would play a role in allocating quotas. Industry sources said that China's draft regulations allow provincial officials to make decisions in this area, despite a commitment from China during the accession process to leave TRQ allocation decisions at the national level.
Specifically, paragraph 119 of the working party report notes that China confirmed that "the role of sub-national bodies would be limited to purely administrative operations," meaning that these bodies would essentially take direction on TRQ allocation from national-level officials.
"After the central authority decided on allocations of quota to end-users, the sub-national bodies would issue TRQ certificates accordingly," the working party report said. "The representative of China also confirmed that China would administer a consistent national allocation (and reallocation) policy for TRQs, that it would not establish a separate process of allocation to sub-national authorities and that decisions regarding all allocations and reallocations to end-users would be made by a single, central authority."
In its critique, the U.S. said China's draft regulation implies that local officials would have some decision-making authority in the area of allocating quotas to end users in China. The U.S. pointed to language in the draft regulation that says local authorities are required to forward "eligible" quota applications to central authorities in China, which seems to convey the idea that local authorities would be in a position to decide which applications are eligible.
The U.S. stressed in its note that China needs to adopt language in paragraph 119 of the working party report, which was negotiated in an effort to avoid letting sub-national authorities have any say on the issue of quota allocation.
Paragraph 119 limits the role of local authorities to "purely administrative operations, such as receiving applications from end-users and forwarding them to the central authority; receiving queries and transmitting these to the central authority; reporting on allocation and reallocation decisions made by the central authority and providing information regarding such allocations and reallocations upon request; checking the information in the applications to verify that it met the published criteria; notifying applicants of any deficiencies in their applications; and providing applicants with an opportunity to cure deficiencies in their applications."Inside US Trade:
