Trade Remedies and the U.S.-China Bilateral WTO Accession Agreement

CRS Report for Congress
Received through the CRS W eb
Trade Remedies and The U.S.-China Bilateral
WTO Accession Agreement
Specialist i n International T r ade and Finance
Foreign Affairs, Defense, and T r ade Division
The November 1999 U.S . -China bilateral agreement o n C hina’s accession to the
W o rld Trade Organiz ation (W T O ) a d d resses a range o f U.S. foreign trade and
investment concerns related t o C hina’s entry i nto t he W TO. In particular, U.S. import-
sensitive i ndustries are wary of the impact from i ncr eased imports that might result
from C hina’s WTO m em bership. The bilateral agreem ent allows the United S tates t o
cont i nue t o use, at l east t em porari l y, s peci al t rade rem edy p rocedures agai nst s urges o f
imports and against dumped and subsidiz ed imports from C hina that it has u sed s ince
the t wo countri es rees tablished t rade relati ons i n 1980. These procedures are m ore
favorable to import-s e nsitive i ndustries t han t hose normally used in trade with other
es tablished W TO members. They are viewed by s ome observers as a policy t ool to
cushion t he potentially adverse impact of incr eased China t rade on U.S. industries.
Codification o f t he safegu ard p rovision was i ncluded i n H.R. 4444, the l egislation t hat
granted C hina PNTR (P.L. 106-268), and that was s igned i nto l aw on October 10, 2000.
This report ex amines the t rade remedy provisions of the U.S.-China b ilateral agreement
in relation t o t he relevant U.S. trade l aws and to WTO agreem ents and principles. It will
a l s o e x a m i n e t he potential impact of these p rovisions on U.S.-China trade and thei r
legi slative implications. For more information s ee CRS Issue Brief IB91121, U.S.-
China T rade Issues . This report will be updated as events warrant.
After l ong, d rawn out nego tiations, t he United S tates and China i n November 1999
reached an agreement o n conditions for C hina’s entry i nto t he W o rld Trade Organiz ation
(W TO). 1 The U .S .-C h i n a Bi l at eral A greem ent o n W TO Accessi on (hereaft er referred t o
as the Bilateral Agreem ent) was part of t he series of bilateral and multilateral negotiations

1 This report greatly benefitted from t he revi ew and comments of J eanne J . Gr immett, Legi slative
Attorney, American Law Division and Wayne M . M orrison, Specialist i n International T rade and
Finance, Foreign Affairs, Defense, and T rade Divi sion.
Congressional Research Service ˜ The Library of Congress

that any country or customs t erritory must go th rough with W TO-member trading p artners
in applyi ng to join the W TO.2
The Bilateral Agreement addresses U.S. concerns about China’s t reatment of U.S.
ex ports of agricultural and manufactured goods and o f U.S. s ervices in China’s domestic
market and about U.S. investments i n C hina.3 In addition, and perhaps most critically for
import-sensitive i ndustries, the agreement allows the Unit e d S tates t o employ s pecial
measures to remedy the adv e r s e p rice effects o n U.S. i ndustries o f s ome imports from
China.4 The House passed o n M ay 24, 2000, and the Senate passed on September 19,
2000, H.R. 4444 that authori z e d the P resident to grant C hina permanent normal t rade
relations (PNTR) status. H.R. 4444 was s igned i nto l aw on October 10, 2000 (P.L. 106-

268). (See Legislation s ection.)

U. S. Tr ade Remedi e s a nd Nonmar ket Economi e s
Trade rem edi es are go v e r n m e n t m easures aut hori z ed i n l aw and sanct i oned b y
multilateral agreem ent, i.e., t he WTO, to minimize t he adverse impact of some imports
on domestic industries.5 Safeguard measures allow domestic industries t o adjust t o t he
adverse impact of surges in import competition. Antidumping duties remedy t he adverse
price effect s o f i m p o r t s determined to be sold at less than fair value. Countervailing
duties rem edy t he adverse price effect s of imports that are det ermined to have benefitted
from government subsidies.
Safe guard Measures. U.S. safegu ard m e a s u r e s are authoriz ed under s ections
2 01-204 of the Trade Act o f 1974 (often simply called s ection 201, or escape c l a u s e
rel i ef). They m u st al so conform t o A rt i cl e XIX o f t he General A greem ent o n T ari ffs and
Trade (GATT1994) and t he W T O S afeguards Agreement. U.S. l a w p r o vides t hat an
industry can receive relief, in the form o f t em porary h igher duties, quotas, o r o ther import
restrictions, i f t he U.S. International Trade Commission (ITC) m akes two det erminations:
(1) t hat imports of a like p roduct as p roduced by the i ndustry s eeking relief h ave s urged
at such a rate as t o cause “serious injury” o r t hreat thereof t o t he U.S. industry and (2) t hat
thei r l evel of causation i s “substantial.” If both det erminations are affirmative, then the
IT C m akes a recom m endat i o n for rel i ef w hi ch t h e P resi dent m ay accept , am end, or rej ect .
Section 201 is applied i n cases where t he ex porting country is a m arket economy.
However, U . S . l a w also authorizes simila r relief against imports from nonmarket
economies. Secti o n 406 of the Trade Act of 1974, as amended, was enacted at a time

2 The t ext of t he Bilateral Agr eement is availabl e on a special website maintained by the White
Hous e : [ h t t p : / / www.c h i n a pnt r . go v] .
3 Fo r mo r e i nforma tion on U.S.-China t rade, s ee CRS Issue Brief IB91121, U.S.-China
4 In acco r d a n c e wi t h the WT O’s principle of mos t-favored nation ( MFN) treatment, the
concessions ma de by China i n t he Bilateral Agr eement t echnically apply t o t rade with all W T O
members. This report, however, will focus on its impact on U.S. trade with China and relevant
5 U.S. law provi des f or other t rade reme dies as well. For more i nforma tion s ee CRS Report
RL30461, Trade Remedy Law Reform i n t he 107 th Congress .

when the United S tates was opening up trade r elations with Communist countries. It was
enacted in response t o i ndustry concerns that imports from C ommunist countries would
fl ood U.S . m arket s b ecause t h ei r p ri ces were not m arket -det erm i n ed. S ect i o n 406
provides for relief i n t he form of higher tariffs or quantitative res trictions on imports from
“a Communist country” t hat t he ITC d etermin es have caused “market disruption.” Under
the s tatute, m arket disruption i s s ai d t o have occurred when t he ITC det ermines that (1)
the imports into the United S tates have rapidly increased absolutely or relative t o domestic
production at s uch a rate as to have caused “material” i njury t o t he U.S. industry and (2)
t h ei r l evel of causat i o n i s “si gn i fi cant . ” If bot h d et erm i n at i ons are affi rm at i v e, t h en t h e
IT C recom m ends rel i ef t o t he P resi d ent who m ay accept and i m p l em ent t h e
recommendation o r oppose t he recommendation and deny relief.
Although s imilar, section 201 and s ection 406 differ i n s everal important respects.
Fi rst, the i njury t hreshold for relief under s ection 201, “serious injury,” is high er than that
of section 406, “material i njury. ” “Serious injury” i s d efined, under s ection 201, as one
that is a s ignificant, overall impairmen t t o t he position of t he domestic industry.
“Material i njury”is not defined under s ection 406, but the l egislative history of the s tatute
indicates that Congress intended i t t o b e a l ower threshold t han “serious injury.” 6
Second, the causation t hreshold under s ection 406, “significant,” i s l ower than that
under s ection 201, “substantial.” Under s ection 406, “significant cause” i s a cause which
“co ntributes significantly to the m at erial i njury of t he domestic injury but need not be
equal to or greater t han any other c a u s e ” (italics added). On t he other h and, under
section 201, a “substantial cause” is one that is important and not less than any other
cause” (italics added).
Third, under t he S afegu ards Agreemen t o f t he W T O, (and in accordance with the
W TO m ost-favored-nation (MFN) princi p l e ) , s ection 201 safegu ards relief m ust b e
imposed against all imports of the p roduct i n question from all foreign s uppliers, t hat i s
a WTO member cannot t arget relief against a particular country. S ection 406, on the
other h and, discriminates against C ommuni st countries and allows U.S. industries t o s eek
relief against imports from a single country. S ection 406 (unlike s ec t i o n 201) does not
provide statutory p rocedures for congressional override of a p residential d ecision not to
act or to take action different than t h at recommended by t he ITC. In sum, the l ower
injury and causation t hresholds of section 406 and its provision for s pecific-country
targeting are intended t o i ncreas e t he chances that temporary import relief m eas ures will
be implemented than would b e t he case under s ection 201.
Antidumping and Counterva iling D uty Remedies. U.S. antidumping
remedies are authoriz ed under s ections 731-739 of the T ariff Act of 1930, as amended.
T h e y must also conform t o Article VI of GATT (1994) and t he W TO Antidump i n g
Agreement. Under U.S. l aw antidumping reli e f is granted i f (1) the Department of
Commerce (DOC) det ermines that imports subject to an antidumping investigation have
been sold in the United S tates at l es s t han fai r val ue and (2) the ITC determines that a U.S.

6 See U.S. Congress. Senate. Trade Reform Act of 1974. Report of t he Committee on Finance
of the United States Senate t ogether with Additional V iews on H.R. 10710. 93d Congress. 2d
Session. S.Rept. 93-1298. p. 212.

industry, producing a like or competitive product as t he dumped i m port, has b een
“materially injured” “by reason of” t he dumped imports.
In determining what i s t he “fair v alue” o f a good, the U.S. antidumping law requires
that the DOC use, when possible, the p rice of the good or a like good in the ex porter’s
home m arket. Bu t b e c ause t he prices of a good in a nonmarket economy are
adm i n i s t rat i v el y s et and not det erm i n ed by m arket forces, t hey m ay not represent t he “fai r
value” of goods produced in a nonmarket econom y. The s tatute provides t hat i n t he case
of nonmarket economy, such as China, the DOC construct t he “fair v alue” o f t he good
by determining what t he cost s o f p roduction (including profit) are i n a market economy
of comparable development l evel to the nonmarket economy and use t hat as a prox y for
the “fair value.”
U.S. countervailing duty relief i s authorized under s ections 701-709 of the Tariff Act
of 1930, as amended, and m ust conf orm t o Article VI of GATT 1994 and t he W TO
Agreement o n S u b s idies and Countervailing M easures (SCM). Under t he SCM
Agreement, countervailable s ubsidies m ust b e “specific,” as d efined in the agreement and
cause “material i njury” to the relevant domestic industry. Under U.S. l aw an industry m ay
obtai n relief after (1) t he U.S. Department of Commerce has determined that the imported
good under i nvestigation h as benefitted from a countervailable s ubsidy and, in most cases,
(2) t he IT C h as det erm i n ed t h at t h e i m port s are causi ng or t h reat eni n g t o cause “m at eri al
injury” t o a U . S . industry producing a lik e o r competitive p roduct as t he imported
The U. S. -Chi na Bi l a ter a l Agr eement
The U.S. t rade remedies against imports from C hina are one of the m ost critical sets
of provisions of the U.S.-China Bilateral Agreem ent o n W TO Accessi on. By and l arge,
the Bilateral Agr eem en t allows the United S tates t o apply, for a certain period of time,
the s ame t rade remedy measures in its trade with China t hat i t applied s ince 1980, when
the United S tates and China first re-established t rade relatio n s . The trade rem edy
provi si ons of t h e Bi l at eral Agreem ent were i ncorporat ed i n t o C h i n a’s t erm s of accessi on
to the W TO and apply, on an most-favored-nation b asis, t o C hina’s trade with not only
t h e U ni t ed S t at es o f w i t h each W T O m em ber.
Regarding safeguard measures, with some ex ceptions, t he Bilateral Agreem ent
allows the United S tates t o continue to apply t he more liberal section 406 criteria for relief
against imports from C hina. However, un like s ection 406, the Bilateral Agreement
allows China t o seek equivalent compensation from t he United S tates for th e act i o n s
agai nst i t s i m port s , i f t he U.S . m easures have been i n effect for at l east t wo years, i n t h e
case o f i m port s t h at have i n creased relative to domestic production, or three years, in the
case o f i m port s t h at have i n creased absolutely. This p rovision reflects, in part, t he W TO

7 In CV D cases the i nj ury t est a nd, therefore, IT C participation, is required only i f t he country
against which the U.S. i ndustry i s bringing a petition i s a member of the WT O (which includes
most trading partners), i s a nonmember country but has a ccepted equivalent obligations, or a
country, with which t he United States has an agre ement which entitles t hat country to
unconditional M FN treatment. Otherwise, only a final determi nation by t h e D O C of the
existence of a subsidy i s r equired f or the assessment of t he countervailing duty.

Safegu ards Agreement requirement that W TO m embers have the oppo r t u n i t y to obtain
com p ensat i on, i f safegu ard act i o n i s t aken agai nst t hei r ex port s by anot her W TO m em b er
and i f t hat act i o n h as been i n pl ace for at l east t hree years (whet her t he i m port s i n creased
relativel y or absolutel y). In addition, the Bilateral Agreem ent allo w s t h e U n ited S tates
to take safeguard action against i n creas ed imports from C hina that may have been
di vert ed from a third country as a result o f t hat country’s safegu ard action against China .
The agreem ent also requires t hat t he United S tates consult with China t o t ry to resolve
the i ssue before i nitiating s afeguards action and t o n otify t he WTO C ommittee on
S a f e gu ards of m easures t aken agai n st C h i n a. The s afeguards p rovision of the Bilateral
Agreem ent expires on December 11, 2013,12 years after C hina enters the W TO, at which
time section 201 meas ures would be used.
Regarding antidumping measures, the Bilateral Agreem ent provides t hat t he United
States can continue to use t he constructed fair v alue method unless t he Chinese p roducer
can clearly show that market conditions prevail i n t he production o f t he ex ported good.
In such a case, the United S tates will use prices and costs prevailing i n C hina. The WTO
Committee on Antidumping actions must be notified o f antidumping actions taken under
the bilateral agreem ent.
Regarding counterva iling duty measures, t he Bilateral Agreement p rovides t hat
subsidies t o C hines e state-owned enterprises wi l l be consi d ered speci fi c (and t herefore
countervailable) if state-owned enterprises ar e t he predominant recipients of the s ubsidies
or if they receive disprop o r t i o n ately large amounts of t he subsidies. In determining t he
level of s ubsidies, the Bilateral Agreem ent requires that, where possible, the United S tates
use m ethodologies t hat i t applies against the imports of other, market-economy, W TO
members. But t he Bilateral Agreem ent recognizes that , given the s truct u re of China’s
economy, it may not always be possible and allows the United S tates t o u se alternative
methodologies t hat are based o n t hird-country surrogate market-determined data, rather
t h an C h i n ese d at a.
As with the s afeguards p rovisions, t he Bilateral Agreement’s p r ovisions on
antidumping and countervailing duties woul d s eem to favor the U.S. i ndustry m ore t han
i n t h e c ase o f t he methodologies applied t o imports from o ther W TO m embers making
it easier for the U.S. i ndustries t o obtain relief. The p rovisions will be applicable for 15
y e a r s a f t e r C hina’s entry into the WT O (until December 11, 2016) or when China i s
deemed a m arket economy b y t he national l aws o f t he importing country, whichever
comes first, at which time the s tandard anti dumping and countervailing duty criteria will
In addition t o t he provisions on safegu ard, antidu m p i n g , and countervailing duty
meas ures , t he Bilateral Agreem ent contai ns provisions pertai ning to trade i n t ex tiles and
wearing apparel. According t o t he Agreem ent, U.S. quotas o n imports of these items
from C hina will continue but will be gradually phased out until J anuary 1, 2005, at which
time they will ex pire. But the agreem ent also provides t hat t he United S tates will be able
to apply a special product-specific s afeguards m easure against imports of tex tiles and
weari n g apparel from C hi na t h at are d et erm i n ed t o have caused m arket d i s rupt i o n i n t he
United S tates. This speci al safeguards provision differs from t he more general s afeguards
provision in the Bilateral Agreem ent, discussed earlier, in that China would not have the
ri gh t t o ret al i at e o r seek rem edi es for U .S . action. The p rovision would ex p ire o n

December 31, 2008. After t hat d ate and until December 11, 2013 , t h e non-tex tile
safegu ards provision would apply.
On October 10, 2000, President C linton s igned i nto l aw H.R. 4444 (P.L. 106-286),
the C hina-U.S. R elations Act o f 2000 (the Act). The law authoriz ed the P resident to grant
China P NTR upon the i ssuance of a p roclamat ion and only after he has certified t o
C ongress t h at t h e t erm s of C h i n a’s accessi on t o t h e W TO were at l east equi val ent t o t h e
provis i o n s o f the Bilateral Agreement. On November 10, 2001, President Bush s o
certified, and o n December 27, 2001, he issued the p roclamation granting C hina P NTR,
effective J anuary 1, 2002.
The A ct al so codi fi ed i n t o U.S . l aw t he speci al safegu ards m easure o f t he Bi l at eral
Agreement as s ections 421-423 o f t h e T rade Act o f 1974. These s ections are m odeled
after section 4 0 6 b ut contai n some important additions. For ex ample, they include
Pres idential discretion i n granting relief i n t he form of a “ S t an d a rd for P residential
Action”– t he President i s t o grant r e l i e f i f t he International Trade Commission so
recommends unless h e d etermines that doing so would not be in the U.S. n a t ional
economic i n t erest or “in ex t raordinary cases” would h arm t he national s ecurity of the
United S tates. They also gi ve the U.S. Trade Representative (USTR) responsibility to
make recommendations to the P resident regarding relief i f t he ITC m akes an affirmative
determination and after t he USTR solicits public comments.
The U.S.-China Bilateral Agreem ent on W TO Accession was d esigned t o s mooth
the t ransition of C hina’s entry i nto t he WTO for the United S tates. The t rade rem e dy
provisions attempt t o alleviate apprehensions that some U.S. import-sensitive i ndustries
might have regarding i ncreas ed competition from imports from C hina. Yet , i t i s unlikel y
that U.S.-China trade patterns will change much after C hina’s entry i nto t he WTO,
cert ai n l y i n t h e n ear-t erm . C h i n ese i m port s have recei ved m ost -favored-nat i o n (MFN),
now normal-trade-relations (NTR ) s tatus, since 1980 and, therefore, U.S. tariff rates o n
Chinese imports will not immediately change. Therefore, U.S. domestic industry u se of
trade rem edies are unlikel y t o alter greatly in the near term.8
However, trade remedies not only s erve t h e e c o nomic role of smoothing the
transition t o l i b er alized trade for import s ensitive i ndustries, they also serve a political
role–as t ools t o m ake t rade liberalization m ore politically pal atable t o t hose s ect ors
adversel y affect ed by i t .

8 For current information and analys is of U.S.-China trade s ince China’s accession to the WT O,
see CRS Issue Brief IB91121, U.S.-China Trade Issues.