China will have to make significant changes to its economy to be able to meet WTO commitments (for a brief discussion of China’s economy, see app. Existing WTO members and countries that agree to join the WTO must abide by a set of rules and obligations that promote trade and increase transparency and fairness in the world trading system. China is currently in the negotiation phase of the accession process. Legal Framework Affecting China’s WTO Accession

At this point, my statement will discuss (1) USTR’s requirement to consult with Congress before a U.S. vote on China’s WTO membership, (2) presidential determinations on China’s state trading enterprises, (3) provisions in U.S. law affecting China’s MFN status, (4) the potential use of WTO’s non-application provision if China joins the WTO, and (5) implications for the United States if non-application is invoked. The administration believes that temporary, that is, conditional MFN under Jackson-Vanik conflicts with the WTO obligation to provide unconditional MFN to WTO members. Non-application Clause

If China becomes a WTO member and Congress has not passed legislation removing China from title IV’s coverage, the administration plans to invoke the “non-application clause” of article XIII of the WTO agreement. The “non-application clause” permits either a WTO member or an incoming member to refuse to apply WTO commitments to each other. An important consequence of the United States invoking WTO non-application is that if China becomes a member, it does not have to grant the United States all the trade commitments it makes to other WTO members, both in the negotiated accession package or in the underlying WTO agreements. The agreement established reciprocal Most-Favored-Nation (MFN) status between the two countries and committed both parties to protect intellectual property. The most recent data from the Organization for Economic Cooperation and Development (OECD) suggest that China is the second-largest economy worldwide.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the relationship between China's most-favored nation (MFN) status and World Trade Organization (WTO) membership, focusing on the: (1) WTO accession process; and (2) legal framework affecting China's MFN status, its implications for WTO membership, and the role Congress plays in the process.

What GAO Found

GAO noted that: (1) China has the largest economy worldwide that is not covered by the WTO; (2) the WTO seeks to promote open and fair international trade through increased transparency, rules, and commitments to reduce barriers on foreign goods and services, and provide a binding system for resolving disputes; (3) China would like to join the WTO and is currently in the negotiation phase, which is the second of the four-stage process for becoming a member; (4) joining the WTO will require China to make substantial changes to its economy; (5) although Congress does not vote on China's WTO membership, the United States Trade Representative is required to consult with Congress before a WTO vote is taken; (6) the Administration plans to ask Congress to enact legislation to resolve a potential conflict between the conditional MFN afforded China under U.S. legislation and the unconditional MFN provided by the WTO agreements; (7) if China becomes a member and Congress has not enacted this legislation, the Administration intends to invoke a WTO provision that would permit the United States not to apply the WTO Agreements to China; (8) an important consequence of taking this exception is that China and the United States would not be obligated to provide each other all the WTO trade commitments that they would give to other WTO member states; and (9) in such a situation, U.S. business may not be able to benefit fully from the commitments China will make to open its markets to other WTO members.