China offers U.S. companies an expanding export market for high value-added goods, such as aircraft and computers. In turn, China typically provides U.S. importers with inexpensive, lower technology goods that often displace other Asian exports to the United States.

As bilateral trade expands, the annual review process of whether or not to grant China Normal Trade Relations (NTR), formerly called Most Favored Nation (MFN) trade status, has made planning difficult for U.S. companies. And whether or not China is admitted into the World Trade Organization (WTO) could significantly impact your business.

The Impact of Normal Trade Relations

On July 27, Congress, again, voted to extend NTR to China. When a country has this status, its products enter the United States at a normal duty rate. Without NTR, goods are assessed duty rates exceeding 50%, making them noncompetitive here.

Under the U.S.’ Jackson-Vanik amendment to the Trade Act of 1974, a measure originally directed against the former Soviet Union, NTR may not be granted to any non-market economy determined by the President to restrict free emigration. Today, the U.S. does not grant NTR to Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam.

The Annual NTR Debate

The denial of NTR for China would result in the U.S. imposing such high tariffs on Chinese goods that trade likely would be severed. In retaliation, China would probably curtail imports of U.S. goods.

Trade analysts believe this would not curb the U.S. trade deficit. Instead, the import gap quickly would be filled by other Asian suppliers. Additionally, denying China NTR could lead to deteriorated U.S.-Chinese relations, fostering an environment of alienation and suspicion. Any future U.S.-Chinese cooperation on sensitive issues, such as human rights, environmental and intellectual property protection, nuclear proliferation, China’s currency stability, and India-Pakistan tensions, would be unlikely.

What China’s WTO Membership May Mean

If China is admitted to the WTO, it will receive permanent NTR status from the U.S. Consequently, the annual review process will cease. But the real benefits of China’s WTO membership include greatly improved access to Chinese markets for U.S. and other WTO member goods, services and investment. Plus, China must also adhere to WTO rules.

China Will Reduce Trade Barriers

With regard to industrial products, if accepted into the WTO, China agrees to allow U.S. firms to import, export and distribute their goods within its borders. China also agrees to significantly reduce tariff levels to rates comparable with major trading partners and to below those of most developing countries, to bind all tariff concessions, and to phase-out all quantitative restrictions on imports.

According to the U.S. Trade Representative, China will reduce average industrial product tariffs from 24.6% in 1997 to 9.44%, and further down to 7.1% on what the U.S. considers “priority” products. Importantly, Chinese duties will gradually decline from 100% to 0% on autos, and from 13.3% to 0% on semiconductors, computers, telecommunications equipment, and other information technology.

China’s agricultural imports will be subject to new measures that address trading rights, distribution, high tariffs, quotas, the application of unscientific standards, reliance on state trading companies, and export subsidies.

China will reduce its average agricultural product tariff to 17%, and down to 14.5% for “priority” products. Thus, duties will drop from 45% to 12% on beef, and from 40% to 12% on citrus goods.

China is among the most closed markets to service imports. For WTO membership, China has agreed to improve access to certain service sectors, including telecommunications and financial services.

U.S. Exports to China Continue to Rise

In 1990, U.S. exports to the People’s Republic of China and Hong Kong were $11.6 billion. Last year, U.S. exports to China, which included Hong Kong, exceeded $27 billion. This represented an increase of 134%.

This emerging powerhouse of almost 1.3 billion consumers is one of the world’s largest economies, and represents one of the United States’ fastest growing export markets. As China’s economy continues to expand, U.S. exporters will benefit — and to an even greater extent if China is admitted to the WTO.

Be Informed and Prepared

U.S.-China policy is delicate. Therefore, as events unwind, your access to China’s market may improve, remain the same, or possibly decrease should unforeseen events occur. Consequently, it’s essential to have a flexible plan that allows you to seize opportunities and mitigate risks.

This article appeared in October 1999. (BA)
Share

John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, and the latest economic trends. He's also founder of both the ManzellaReport.com and Manzella Trade Communications, Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




More Articles | Speaker Programs | Speaker Demo | Videos | Latest Book


Talkback

  • No comments found

Leave your comments

0

Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!