United States and China Sign Trade Deal

Date November 15, 1999

After tenacious negotiations, the United States and the People’s Republic of China signed a key trade agreement as an important step toward permanently normalizing their rapidly growing trade relations and toward supporting China’s entry into the World Trade Organization, enabling that nation to become a full member of the global market community.

Also known as Agreement on Market Access Between the People’s Republic of China and the United States of America; United States-China WTO Agreement

Locale Beijing, China

Key Figures

• Charlene Barshefsky (b. 1951), trade representative for the United States, 1997-2001
• Zhu Rongji (Chu Jung-chi; b. 1928), premier of the People’s Republic of China, 1998-2003
• Jiang Zemin (Chiang Tse-min; b. 1926), president of the People’s Republic of China, 1993-2003
• Bill Clinton (b. 1946), president of the United States, 1993-2001

Summary of Event

During the Cold War, the Communist People’s Republic of China (PRC) left the 1948 General Agreement on Tariffs and Trade (GATT), intended as a framework for international trade in the free world. In 1951, the United States revoked the most favored nation (MFN) status for Communist countries. The Jackson-Vanik amendment to the U.S. Trade Act of 1974 denied MFN status to countries with disregard for human rights but allowed the U.S. president to waive these restrictions for one year at a time. Under this rule, since 1980 mainland China had been granted MFN status but was subject to an often acrimonious U.S. review every year.

With mainland China’s economic liberalization, trade with the United States began again. In 1985, there was an even trade balance of U.S. exports and imports with China each worth a modest $3.9 million. Launching economic reforms at home, in 1986 the PRC applied to rejoin GATT. However, events like the 1989 Tiananmen Square massacre of dissidents in Beijing and Chinese economic protectionism kept the PRC from being invited to join the World Trade Organization (WTO), the successor body of GATT, in April, 1995.

The relative opening of mainland China’s markets and its vigorous push to export to America nevertheless saw a substantial increase of bilateral trade in the 1990’s. Symbolic of this, in August, 1996, in a joint venture agreement with Chinese partners, Wal-Mart opened its first store in the Shenzhen Special Economic Zone close to Hong Kong in China’s Guangdong Province. U.S. exports to the PRC were $12 million against imports of $51.5 million, creating a trade deficit of $39.5 million. In subsequent years, both trade and the trade deficit grew further.

When Zhu Rongji became premier of the PRC in 1998, he made economic reform a key priority. Zhu also intensified China’s drive to join the WTO. He actively sought to negotiate a trade agreement with the United States. Seeking to modernize China’s economy, Zhu faced the risks such a step would bring for inefficient state-owned enterprises in the PRC. He believed the gains from a market economy outweighed the social drawbacks during the transition period. In the United States, opposition to granting China permanent normal trade relations (PNTR) was based on concerns about the PRC’s human rights record, its conflict with the U.S. ally of Taiwan (Republic of China), opposition by organized labor fearing that cheap imports would destroy American jobs, and anger at China’s protective import barriers.

Nevertheless, when Premier Zhu visited Washington in April, 1999, he was fully prepared to negotiate a trade agreement. However, U.S. president Bill Clinton told a stunned Zhu at their White House meeting on April 7 that he thought the time was too short to work out a deal while Zhu was in the United States and that the two sides should negotiate further later on. With Clinton giving in to his protectionist advisers who wanted a better deal safeguarding against Chinese imports, the Clinton administration published a list of present Chinese concessions as a sign of progress for the United States. Deeply offended and mindful of the history of so-called unequal treaties with the West in the nineteenth century, Beijing reacted angrily. Zhu lost influence at home and negotiations stalled.

The accidental May 7 U.S. bombing of the PRC embassy in Belgrade, Yugoslavia, during the Kosovo conflict further soured U.S.-PRC relations. While Clinton sought a trade deal with Beijing, the Chinese leadership spoiled negotiations with greatly increased demands.

It was not until Clinton made two telephone calls to PRC president Jiang Zemin on October 16 and November 6 that Jiang signaled readiness to negotiate an agreement. The U.S. negotiation team headed by U.S. trade representative Charlene Barshefsky flew to Beijing. For two days, November 11-12, Barshefsky’s team dealt with the intransigent team of PRC foreign trade minister Shi Guangsheng. On November 13, Barshefsky asked to meet directly with Premier Zhu Rongji, or the American delegation would fly home. On November 14, Barshefsky and Zhu met; it seemed progress was finally made. However, as soon as Zhu left negotiations, Shi took over and renewed his hostile attitude. On Sunday, the U.S. representatives were ready to depart twice before negotiations came to life again.

On the morning of November 15, exhausted and exasperated with Chinese opposition and hard bargaining, Barshefsky’s team left their Beijing hotel, their bags loaded on the flight that would take them to Washington without a deal. On the way to the airport, Barshefsky stopped at the PRC trade ministry for a final call. Astonished, she was greeted by Premier Zhu, and an agreement was finally reached. Shortly before signing the deal at 3:50 p.m., Shi attempted one more round of renegotiations but was cut short by Barshefsky with the remark that such talks would be too complicated to deal with at that time. After informing President Clinton on the telephone of the successful negotiations, the U.S. team drove to meet President Jiang for celebrations.

Significance

The November, 1999, bilateral agreement on market access between the People’s Republic of China and the United States significantly reduced trade barriers between the two nations. Over the next five years, China agreed to lower its agricultural tariffs and import restrictions, as well as its tariffs on industrial products. In particular, tariffs on high-technology goods were eliminated, and auto tariffs were to be lowered from their 80-100 percent level in 1999 to 25 percent by 2004. In a significant gain, the PRC would grant U.S. corporations the right to set up their own distribution and sales networks and to arrange for financing for their products. Foreign market access to professional services in mainland China was made easier.

Regarding one of the issues most fought over, the PRC allowed only 50 percent, not 51 percent, foreign ownership in domestic Internet services and only 49 percent foreign ownership in other telecommunications business. China committed itself to safeguard intellectual property and increased access for foreign entertainment media. In turn, the United States agreed to support the PRC’s route to the WTO and phase out U.S. restrictions on Chinese textiles. The United States won the concession to fight the PRC’s dumping of goods for fifteen more years and Chinese import surges for twelve more years.

On March 8, 2000, in compliance with the terms of the trade agreement and fulfilling the mission for which the deal was struck, President Clinton sent a bill to Congress requesting that the PRC be granted permanent normal trade relations status. The issue was fiercely debated in the United States, with conservatives favoring Taiwan and with human rights activists and organized labor opposed to the bill. The Clinton administration, presidential candidate George W. Bush, free trade proponents, and leading economists vigorously supported this step.

On May 24, 2000, the House of Representatives passed the bill with 237 in favor, 197 opposed, and 1 abstention. On September 19, the Senate passed the bill with 83 for and 15 against. Clinton signed the bill into law on October 10, 2000, bestowing PNTR status on mainland China and ending the annual waiver procedure. After further negotiations, the PRC joined the WTO on December 11, 2001, marking mainland China’s full entry into the global trading community.

Even though trade between the PRC and the United States would not remain without further friction, the destruction of the trade barriers with the United States hammered out in the November 15, 1999, trade agreement boosted Chinese-American trade. Significantly, the trade deficit surged as China’s imports to the United States vastly surpassed U.S. imports to China, but U.S. investment in the PRC rose as well. The agreement gained markets for the United States and further improved U.S.-PRC relations.

Bibliography

Cooper, Helene, et al. “To Brink and Back: In Historic Pact, U.S. Opens Way for China to Finally Join WTO.” The Wall Street Journal, November 16, 1999, p. A1. Detailed description of the event and the issues leading to it. Showcases roles played by politicians and trade negotiators. Excellent immediate, in-depth account of event.

Faison, Seth. “Reformers’ Comeback: New Power Against Opponents of Open Markets.” The New York Times, November 16, 1999, p. A17. Analyzes the impact of the event on the Chinese economy, society, and politics. Views the event as a triumph for reformers around PRC premier Zhu.

Iritani, Evelyn, and Mark Magnier. “China Trade Pact to Widen Access for U.S. Firms.” Los Angeles Times, November 16, 1999, p. 1. Examines the benefits of the agreement for the United States, including the movie industry and agriculture, as well as those for the PRC, primarily smoothening accession to the WTO.

Lardy, Nicholas R. Permanent Normal Trade Relations for China. Policy brief 58. Washington, D.C.: Brookings Institution, 2000. Persuasively argues the point for Congress to pass the bill introduced as a result of the trade agreement. Summarizes key aspects of the trade deal. Gives background information and describes advantages for U.S. trade and foreign policy.