Import and export of goods

Reduction of import tariffs, and abolition of 'non- tariff ' barriers and disciplines for agricultural subsidies

The core objective of the WTO in the area of trade in goods is to replace all 'non-tariff ' barriers such as quantitative import or export limits with customs duties that are 'bound' at a maximum level the country cannot exceed. Tariffs are transparent and easily identifiable whereas non-tariff barriers tend, by definition, to be more covert means of market protection. Through periodic negotiations these maximum levels are then reduced. The only exception is textiles where quantitative restrictions (quotas) can remain in place until 1 January 2005.

The Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary Measures aim to prevent technical product and testing rules being abused to frustrate imports. The Hormones dispute between the EU and the US is the best-known example of this but there are also examples involving China. In early 2002, for instance, the EU banned the import of certain Chinese meat and seafood items said to be tainted with a banned antibiotic. In March 2002 the Chinese authorities reacted by prohibiting the sale of 177 items of perfume and cosmetics from Europe said to contain substances causing 'mad cow' disease.

The Agreement on Agriculture obliges WTO members to reduce agriculture subsidies (both domestic support and export subsidies). China has agreed to abolish all export subsidies and to keep other trade distorting internal support under 8.5 per cent of the total value of agricultural production (this threshold applies both to general support and to each specific product). This cap on agricultural subsidies appears to raise considerable concern in China due to the lack of competitiveness of its agricultural sector. It has been suggested, however, that the WTO may also contribute to solving that competitiveness problem which appears to be related to a poor distribution and warehousing infrastructure rather than to the farm gate price (the price received by the farmers). This makes bulk commodities shipped from North or South America to processing plants on the Chinese coast cheaper at plant gate level than products grown in China. A liberalization of the distribution system, one of China's WTO obligations, could attract the necessary investment and foreign know-how to modernize the distribution system and, ultimately, improve the competitiveness of Chinese farm products at factory level.

Trade defence instruments such as antidumping

Finally, a number of agreements regulate and restrict the use of trade defence instruments such as anti-dumping, anti-subsidy and safeguard measures. All these instruments involve the temporary introduction of restrictions on imports in specific circumstances:

• anti-dumping duties are applied when a country 'dumps' products on export markets at cheaper prices than the 'normal price' charged on the home market;

• anti-subsidy measures are applied when a product is sold on export markets below a normal market price due to subsidies received by the producer in his home country;

• safeguard measures are emergency measure aimed to prevent 'serious injury ' to domestic industry caused by increasing imports.

Such trade defence measures are of course, prima facie , a breach of normal market WTO access commitments and are highly regulated . Regulation of safeguard measures is particularly strict because, unlike anti-dumping and anti-subsidy measures, safeguard measures restrict imports that are not inherently 'unfair'. As a result the use of safeguard measures is relatively rare compared to the use of anti-subsidy and, in particular, anti-dumping measures.

China is one of the main targets of anti-dumping measures around the world and whilst it remained outside the WTO, it had no means of defending itself against such anti-dumping measures. That is clearly different following WTO accession . Indeed, China has already launched its first WTO challenge against the safeguard measures imposed by the US in March 2002 against imports of steel from, among others, China.

A major issue for China with regard to the application of anti-dumping rules is the extent to which it is treated as a 'non-market' economy. The latter allows other WTO members much more discretion when imposing anti-dumping duties than they have with regard to a market economy country (a status that almost all WTO members have). As long as China is treated as a 'non-market' economy a WTO member introducing anti-dumping duties can use data from another country, such as the US for instance, to calculate the 'fair' price. As costs in the US are normally much higher than those in China this can make it very easy to find 'dumping' when the Chinese export price is compared to a 'normal' American price. The terms of China's accession allow the application of this 'non- market' economy methodology for a period of 15 years. It is possible, however, for individual companies to escape from that disadvantaged status if they can prove that their company operates in a sector where 'market economy conditions prevail'. China's Protocol of Accession also provides for two specific safeguard clauses. A first one, which will be available for twelve years, allows WTO members to take safeguard measures only with respect to imports from China (safeguard measures are normally against all imports irrespective of their origin). A second one, which will be available for eight years , makes it easier than under the standard procedure to impose safeguard measures restricting imports of textiles.