Press Briefing by National Economic Advisor Gene Sperling, U.S. Trade Representative Charlene Barshefsky

The Briefing Room

5:50 P.M. EDT

MR. SIEWERT: We're going to have a short readout on the status of the negotiations on China's accession to the WTO. Giving the briefing will be National Economic Council Director Gene Sperling, and US Trade Representative, Ambassador Charlene Barshefsky. And answering questions will be Deputy National Economic Advisor Lael Brainard and Assistant Trade Representative Bob Cassidy.

MR. SPERLING: We are pleased by the significant progress made in our economic relationship with China in a broad array of areas from civil aviation to software protection to the SPS -- issues -- PCK wheat, citrus and meat, as well as CDMA wireless technology.

We're particularly pleased by the significant progress that was made towards reaching a tough-minded, commercially viable WTO agreement with China. Thanks to the excellent work of our Ambassador Charlene Barshefsky, and the extensive personal involvement of Premier Zhu, significant movement and concessions were made in a wide array of areas, beyond what could have been expected and concerning many issues that had been unresolved for many years.

Although we did not reach the finish line, as the joint statement states, agreement has been reached on market access for agriculture and goods, as well as a wide array of service areas. There also was progress on key protocol issues, such as trading rights, forced technology transfer and offsets, subsidy and other issues that Charlene will go into in greater detail.

Clearly, there were issues in market access and banking, including consumer auto financing, securities, audio-visual and textiles that are not resolved. Under protocol, such areas -- important areas in our country concerning anti-dumping, surge safeguards and means to ensure implementation.

Last night, the President met for over two and a half hours with Premier Zhu in the Yellow Oval Room in the residence, from 9:00 p.m. or so to nearly midnight. At that meeting, both leaders felt that while too many issues remained to be resolved by this trip, that the strong progress and agreements that had been made meant that the best way to proceed was to sign the SPS agreement and to have a joint statement that locked in the agreements and progress that had been made in the significant market access areas, to list very clearly what some of the remaining differences were, and to commit to redouble our efforts to resolve the remaining differences in the near future so that we can have a commercially viable agreement that could lead to WTO accession for China in this year.

As we approach this, we clearly were in search of agreement on all the issues we had. On one hand, we did not want to in any way lower the bar on any critical issues in order to reach agreement, just to reach agreement by this visit. On the other hand, we did not want to lose any of the significant progress and commitments that Charlene Barshefsky and Premier Zhu had worked out.

This agreement very well -- today, this joint statement today shows that we were able to come out in a very positive place, because on one hand we kept open the issues that we still felt we needed to get more progress on, and at the same time were able to lock in the very significant agreements that had been made.

With that, I wanted to also express from the economic team the tremendous work that Charlene's entire team has done, most especially Bob Cassidy; also Peter Scher in agriculture issues; and Richard Fisher, Bob Novak and others. But Charlene has thrown herself into this, as she does with everything. And with that, I will give you our Ambassador.

AMBASSADOR BARSHEFSKY: Thanks, Gene. Let me just start also by paying a very special tribute to my lead negotiator, Bob Cassidy, who heads our China shop, the Assistant USTR for China, who has basically lived in Beijing for about two years now, I think; and the rest of his team -- Christina Lund, Catherine Field, Laura Lane, Teresa Howes, of course, Ambassador Peter Scher, Ambassador Richard Fisher, and many other people in many other agencies, including Secretary Glickman at USDA.

Let me just start for a minute just by talking a little bit about what a WTO accession entails, so that you know exactly where the market access commitments that we have now embodied will fit. WTO accession requires two very large pieces, and they are interlocking. One piece is market access -- goods, services and agriculture across the board. That piece is negotiated by China with each one of its major trading partners individually. And each trading partner receives the best treatment any of those trading partners receives on that particular issue.

So for the duration of a WTO accession negotiation, the market access issues remain open on the up side, but a floor is established based on your particular market access agreement.

The second big piece is rules, and the rules are not ancillary to market access, the rules are what makes the market access agreement work. For example, if you have an agreement on tariffs, but no rules on how customs is to administer its tariff regime, you have no net gain in market access. So without the rules, of which there are hundreds, literally, the market access again, which might look good on paper, aren't actually achievable in practice.

Both of these enormous pieces -- the market access, which first is negotiated bilaterally with every country, and then there's a multilateral process where everyone goes up -- and the rules, which is negotiated in part bilaterally, as you'll see in a minute, and multilaterally -- all of that has to be done before any country is considered to be a full candidate for accession. All of it has to be done. And we have been particularly insistent that every bit of it is done, every bit, before China can be considered a candidate for full WTO accession.

Now, that's the backdrop of what has to be accomplished. What we have achieved, as the joint statement by the President and the Premier says, is that we have reached agreement on market access for agricultural and industrial goods, as well as a wide range of services sectors; that certain matters remain to be resolved in banking, including consumer finance for autos, as Gene said, securities and audio-visual services.

As to protocol issues, we, the United States, have pursued five or six very critical protocol issues that are unique to China -- unique to China. This is quite apart from hundreds of protocol issues yet to be negotiated, or which are only partly negotiated in Geneva.

And with respect to these special protocol issues, the President and the Premier note in their joint statement that agreement has been reached on a variety of these important rules to be applicable in the WTO concerning, for example, trading rights, technology transfer, offsets, state enterprise practices, subsidies, anti-dumping. But even in these critical protocol issues, where we have agreed language, we do not -- in several -- yet have agreement on their duration, nor do we have full agreement yet on the mode of implementation of China's full range of commitments. Nor do we have full agreement yet on the way in which our bilateral textiles agreement must be incorporated into the WTO.

So what we have done, as Gene has said, we have captured and memorialized -- in agreement language -- what has been achieved. And you'll note from the joint statement, there are to be three attachments. One of them, on market access, is the actual legal schedule of commitments -- very specific, point by point, sector by sector, year by year, phase-in by phase-in. There is nothing left to the imagination. That, minus the issues still to be resolved.

And on protocol, the specific language will be available also, tomorrow. But again, there are unresolved issues there, particularly on the question of duration in connection with some of these special protocol issues, with respect to China. All of that is now locked in place, as I said, in agreement language, and agreed by the parties.

Now, the process from here on out will involve a number of months of absolutely intense negotiation. Number one, to finish market access issues bilaterally. Number two, to work with each of our major trading partners -- which are also negotiating market access with China -- to ensure that none of our rights are prejudiced in any respect. This is a very complicated process. Number three, resolving the outstanding special China protocol issues. Number four, resolving the full range of rules issues yet to be resolved in Geneva. This is months more of negotiation. The goal remains, as the President and the Premier's statement, that China be in a position to enter the WTO by the end of this year.

But I've said many times, and I will say again: ultimately, whether China enters is up to China. Our standards are high. Our expectations are high. The agreement we have reached thus far, I think without question, demonstrates that , and I'll take you through some of the highlights. The rules issues remain equally critical. So we have quite a ways to go, but we are very, very pleased, extremely so, by what we have now accomplished in agreement form in the areas that I will outline. And let me then just move very quickly to the market access commitments that have been achieved thus far, and just mention four features, broadly.

First of all, what has been achieved thus far is quite comprehensive. Not fully yet, but quite comprehensive. It covers all of agriculture, industrial goods and services. Market access covers unfair trade practices, including quotas, other non-tariff measures, the application of nonscientific agricultural standards, discriminatory regulatory processes, export subsidies and other barriers to trade. It covers the tariffs and other barriers China applies at the border. It eliminates the limits China places on trading rights and distribution within their market. It eliminates unjustified agricultural barriers and it addresses the limits on the rights of service providers to set up businesses in China.

Second, the market access commitments grant no special favors. For example, it requires China to reduce its trade barriers to levels comparable to those of major trade partners, including many industrial countries. There are no special or developing country deals in this agreement -- none. For example, China's industrial tariffs will fall to an overall average of 9.5 percent and in the U.S. priority areas, which are thousands of products, an average of 7.1 percent. This is substantially below the rates of virtually every developing country and are quite comparable to rates in major industrialized trade partners, like Australia and New Zealand.

Third, the market access commitments that have thus far been made will be fully enforceable. All of the commitments are absolutely specific, measurable. The are enforceable not just through our own trade laws, but WTO dispute settlement and other special mechanisms, including some of the protocol issues that I will address, and fourth, I think the results you will see will be very rapid.

On accession in every area without exception, China would open its markets -- begin to open its markets from day one. The phase-in of further broad concessions in these areas is with very few exceptions limited to a maximum of five years, and almost in all cases -- in many cases, the total transition time ranges from one to three years. This is very, very fast relative to the accessions we have been doing in this administration, let alone relative to earlier accessions.

Just a few quick-hit facts, and then you can ask questions. In agriculture, as you know, China will completely eliminate its bans on U.S. agricultural products. China's agricultural tariffs will decline to about 14.5 percent; the global average is near 40 percent. All tariff cuts will occur within a maximum four-year time frame. And every tariff cut is bound, which means China cannot raise the tariffs. That's very important; no developing countries have totally bound tariffs, China will.

China will, in addition, liberalize significantly its purchase of bulk agricultural commodities. These are the big ticket items -- wheat, corn, cotton, soybeans, so on and so forth. We have set up a tariff quota, a tariff rate quota system under which tariffs on very, very huge volumes of agricultural products will be between one and three percent, meaning China will buy essentially at world market prices. This opens tremendous, tremendous opportunities for us.

And on export subsidies, China will no longer provide any export subsidies. This is very significant for things like cotton and rice, but also because that means China can join us in any launch of the new round if they're a member in a prohibition globally on export subsidies. This is vital, particularly in regards to the European Union.

On industrial goods, China will grant essentially full trading rights and distribution, the right to import and export directly without Chinese middlemen and to market through distribution wholesale, retail -- you know, after-sale service, repair, maintenance, transport, the entire range. There is no distribution-related service that is excluded. Most of these barriers will be gone within three years.

On tariff cuts, China will cut their tariffs on U.S.- priority items, which is thousands of items, to an average of 7.1 percent, as I said. Two-thirds of all the cuts will occur within two years, within the first two years. The rest no longer than five. China will also do the information technology agreement, that's zero for zero tariffs. They will do it rapidly enough so they are on par with the other countries to it, meaning most of the phaseouts China will do will occur by 2003.

Autos, wood, paper, chemicals -- there's massive tariff reductions, and I won't go through them. And on non-tariff barriers, China will eliminate all quotas and all quantitative measures. In priority U.S. areas, it will be immediate upon accession in everything else we care about within two years, and other things we don't care about within five years.

And last, on services, banking and securities remain under discussion, though even there we've made quite significant progress on the banking side. But consumer financing for auto purchases is important because we've put together I think a very strong auto vehicle package. And consumer financing for auto purchases needs to be resolved favorably. I think it will be, but we're not quite there yet.

With respect to securities, China has offered a grandfather of existing rights. I think that the Treasury Department wants to have further discussion with China on the issue of securities, which is, as you know, a very complicated area, particularly in China.

Let me just do one service sector as an example of the specificity, and you can read your fact sheets for the rest. Let me take insurance. Immediately on accession, insurance companies can offer large-scale risk insurance throughout China. Also immediately, China will grant insurance licenses only on prudential factors. Within three years, China will phase out all restrictions on internal branching, and it will remove restrictions on majority control and on joint ventures. Within four years, foreign companies can offer group insurance, which is 75 percent of all insurance sold in China, and within five years, health and pension lines of insurance.

This is an absolutely all-inclusive agreement. I use it as an example because it goes year by year, commitment by commitment, phase-in by phase-in -- very highly particularized.

Telecom -- the other sectors are quite similar. Let me just say on telecom, I'm very pleased that for the first time China will allow direct investment in all telecom facilities, and foreign ownership with respect to value-added services and paging.

Last, let me just touch on protocol issues. Some are completed, but some need more work, particularly on the question of duration. First, specific protocol language on a product-specific safeguard, so that if there are surges of imports from China, they can be addressed in a China-specific manner. Second, agreement on continued U.S. use of its non-market economy dumping laws -- these are special rules that will apply in dumping cases.

Third, agreement on investment issues in China. China must eliminate requirements that companies export what they make in China, or use Chinese parts or other products when they manufacture there. Our companies also will no longer have to agree to offsets to invest in China, or such other requirements.

Fourth, specific protocol language committing China to end all requirements for technology transfer for U.S. companies to invest in China. This is a very unique feature. Fifth, the protocol addresses issues of special concern due to the nature of the Chinese economy. State trading companies and state-invested enterprises must operate solely on commercial terms, and these companies' purchases will not be considered to be government procurement -- so they must be governed by the full rules of trade negotiated, not by any special rules or altered regime.

The question of duration on a few of the trade remedies remains open. Many protocol issues remain open, but that's basically where we are. I think you all have a detailed fact sheet. The protocol language and additional materials will be available tomorrow, either from the White House or from USTR.

Q: It sounds like they do a lot of giving. What are they going to get from this?

AMBASSADOR BARSHEFSKY: Well, first of all, I think we have said for six years that the only basis on which China will enter the WTO is on strict commercial terms. No special deal; no sweetheart deal; and no political deal. And without question, what we have achieved thus far is, I think, a remarkably strong commercial package by any conceivable measure.

And that's the way it has to be. And that's the way it has to continue to be if China is going to enter this year. This is absolutely critical. There is no compromising on that position.

I think what China has gained, in large part, is something that Premier Zhu spoke of in his press conference with the President, and that is, he is anxious for very substantial reform of the Chinese economy, and to move it much more toward the direction of market economics. And his view is that WTO accession helps to accelerate that process in China.

I think also, the Chinese are concerned that foreign enterprises are losing confidence in the Chinese market, because the rules are opaque and arbitrary. And this again, I think, helps solidify China as a country in which businesses should want to do business.

Q: Premier Zhu said in his response to one of the questions that he felt that politics had played a part in the administration's thinking on this. Imagine a stack of bibles in front of you that you're going to put your hand on, figuratively speaking. Are you going to tell us that no one in the administration at any kind of senior level whatsoever felt that the disagreement was good enough, ought to be taken as fully adequate for proceeding toward the subsequent stages of China's accession?

AMBASSADOR BARSHEFSKY: Well, I think all of us in the administration do believe that what we have here is quite substantial and extraordinary. And that's why this is all memorialized now in specific agreement language, and why we're announcing it and why there's a joint statement. But many of us -- and I put myself in this camp -- feel that the kind of methodical approach we've taken for six years was not going to be altered because of the visit. The audiovisual commitments are not sufficient. That is simply a fact.

Auto financing is a critical issue, as well as certain banking reform phase-ins. That's a fact. The securities issues are something that Treasury and China I think will spend most of the year working on. The view is, we have agreement, as the President and Zhu have said, on everything that -- you know, I've outlined, embodied in agreement language. That's an agreement.

But every step has to be done the right way. This is a massive accession. There never has been anything like it and there never will be, simply based on sheer size, importance, and the complexity of the trade barriers involved. I feel very strongly, and I feel very responsible as the USTR that every detail we can nail down, every t, every I, has got to be done the right way.

So I feel what we've done here is to lock in a very, very strong set of agreements on protocol and on market access, but to make clear that there are issues that yet have to be resolved to satisfy us fully -- fully now, on market access, and then the other protocol issues in Geneva we just didn't even address right now.

Q: How about the stack of bibles?

AMBASSADOR BARSHEFSKY: Gene?

MR. SPERLING: The first thing I would say and I think that Charlene's is saying is that what you saw today is completely transparent. It doesn't leave a kind of vague statement. It tells you exactly what it is we thought was good enough to agree to, and it tells you exactly what it is we thought had not reached the bar yet. So you can judge for yourself -- and I think one of the things that we decided to do was to try to lock in the progress we had, but to be open about where we hadn't reached agreement yet.

Certainly, on any major issue we've ever had in this administration where you have more than three people around the table, there are often slight differences on tactics or on certain issues or issues of emphasis, and we had discussions internally that went on. And we did recognize that one of the issues, one of the tensions was that in some ways, it might be good to press hard, as hard as we could for the trip, which we did, but that we didn't want to do that at the expense of lowering our standards just for the trip.

We also recognized, though, that there was some danger that in not getting any agreement by the trip, you could lose some of the progress that you had made, you could let some of that slip. So the reason why I think our administration is so particularly unified and happy with where we are right now is that we were able to come up with something where we were able to memorialize or lock in all of the progress, and yet, state very explicitly where we still thought there was further to go and to redouble our commitment to going forward. I can assure you that when we did send the NEC-NSC memo to the President, which listed every single person's views, there was not a single person who did not believe we should go forward with a commercially viable China deal -- not one single -- on a stack of bibles.

Q: Charlene, do you think that this agreement is strong enough to change some attitudes in Congress, and are you planning to go forward with a request to grant permanent MFN upon accession, or are you going to wait until the deal is completed?

AMBASSADOR BARSHEFSKY: I think in answer to the first question, I think the deal is a very strong one, and I think that members of Congress will obviously have to judge whether they're comfortable with it, whether their constituents' concerns have been adequately addressed, and I'm sure we'll hear from many, many people.

But as you will see from the summary and from the actual documents themselves, which are voluminous and remarkably detailed, we believe this agreement will withstand the most critical scrutiny imaginable, and we've done it in such a way because we believe it will have to withstand extraordinary scrutiny and potentially some skepticism.

With respect to permanent MFN, we're still in the middle of a negotiation. And it is, I think, at this juncture premature. We obviously will consult with Congress, the President will consult with Congress as well; but right now, we don't have an accession package; we're certainly months away, I mean many months, four, five, six months away from an accession package. And so I think that this question of timing on permanent MFN will have to be looked at pretty carefully.

Q: Given that the administration -- your office is very careful not to release any text or any documents before a final deal is signed and the whole thing is sewn down, is there a strategy here to release this much detail of this document in order to get the business community to start lobbying in advance to soften up the --

AMBASSADOR BARSHEFSKY: No, this is about the same level of detail as we released in the Taiwan Agreement. We released a very detailed fact sheet, very specific numbers on agriculture, goods, the market access. We were very, very specific -- specific about phase-outs and so on. No, no, no. But we've done the same -- we just did the Latvian accession. If you look back, we released very substantial detail. Taiwan's detail was released a year ago; they're not in the WTO yet, their protocol isn't even finished.

So we release it as we do it. The level of detail here in part reflects how much there was to do. I mean, China, which was the furthest behind of all the countries in the WTO, the furthest behind -- exponentially so -- with the longest way to go, acceding to levels at a Uruguay Round-plus level. The level of detail required to accomplish that is enormous, and that's one reason for the length.

We haven't had, for example, trading rights problems with other countries. The basic right to import or export. There are many, many practices in China we've never had to deal with before. And that's one reason you see the level of detail here. China's economy, as you know, is highly protected. We've been saying this for a number of years, the trade figures show it, particularly on the export side from the U.S. So there is much to address.

But we have consistently -- look back at the Taiwan press releases from a year ago, you'll see the same level of detail.

Q: That's when you reach the agreement.

AMBASSADOR BARSHEFSKY: Yes, well, here, we're close. That's what we're saying, we're close. I don't see any gap right now that's not bridgeable. But we're not quite there yet.

Q: Two questions, actually. If you were to look at the agreement now as it is without any further conditions and imagine China at the end of the five-year phase-out, how would China, as a country to do business with, compare with other nations the U.S. does business with? Would it be similar to Japan, would it be better than Japan? And the second question is, it's true you memorialized all this stuff and you have their commitments.

But in China, as you know better than me, a lot depends on individual personalities and the reformers pushing things. Why not have agreed that you had a deal and you had details left to do? Why take the risk of undermining Zhu when he goes home?

AMBASSADOR BARSHEFSKY: As to the fact, the question that's exactly what we did, which is why the joint statement between Zhu and President Clinton says explicitly that there is agreement on market access in agriculture and industrial goods and on the wide array of services sectors, but with discussions continuing on. We've not left open this agreement; we've indicated where discussions were continuing, and the joint statement makes very clear -- the language couldn't be clearer -- that we have reached agreement on the remainder with respect to market access. Similarly the language is very, very clear on protocol.

And Zhu was very, very comfortable with this formulation. That is to say, he is comfortable with the formulation, which we always use, which is nothing's agreed until everything's agreed. But you have to know where your baseline is, and we now know -- almost entirely across the board, on the market access issues, but for the ones that are still under discussion -- where our baseline is, and the baseline is very, very high.

So we've done exactly what you've suggested. He was very, very comfortable. The joint statement took -- what? -- a half an hour to negotiate, which has to be a record. It was what they had envisioned, because it spells out that agreement has been reached in the areas in which agreement genuinely has been reached.

I think that your first question is a difficult one, in the sense that it's hard to make predictions of the kind you're suggesting. But let me just give you one example, and maybe five years from now we'll see that it might be right.

If you look at most of the trade disputes that we've had with Japan: semiconductors, autos, auto parts, flat glass. All of these issues are distribution issues. Every one of them. The problem has been distribution. When we set up the auto agreement in Japan, what did we actually do? We set up an alternative channel of distribution for auto parts, because we couldn't get in the garages controlled by the Japanese auto companies. So we just went around and set up a different distribution channel. Flat glass, the problem is you have a cartel which also controls the distribution channel, and no means to open an alternative distribution channel.

One of the reasons we have spent months and -- I mean, Bob knows this better than me -- and months and months on distribution -- and one of the reasons that audio-visual is still outstanding -- is that distribution is critical, critical. Without it, what you export doesn't actually penetrate the market to any significant degree. Without it, what you produce in China has to go through middlemen siphoning off your profit. Without it, the market access you thought you'd gained from tariff reductions disappears, in a flash.

Now on audio-visual, we're not entirely satisfied with the distribution arrangement thus far. So I would say, five years from now -- five years from now, or three years from now, in terms of distribution in China, if that distribution opens up, the difference will be quite remarkable. And I think we'll avoid some of the problems that have plagued us persistently in industrial sectors in Japan, where we never had this range of rights.

Q: How concerned are you that you have too many very divisive trade issues, now, that you're pushing for on the Hill? I mean, you have the steel import question, there's this, there's fast-track -- supposedly -- CBI, African free trade bill. Are some of these going to have to get lopped off this year? These are all divisive issues.

AMBASSADOR BARSHEFSKY: I think, from our point of view, we want to pursue -- as you know -- as aggressive a trade agenda as possible. And all of the issues that you've mentioned are important without question. And certainly without question, we cannot look at China and deem it anything other than remarkably important as well.

So all I'll say is that we are going to pursue the full range of issues. On China in particular, we will consult closely with Congress, that's going to take a lot of time. But we feel pretty comfortable where we are right now.

Q: On the agricultural issues -- on the agricultural issues, am I to understand that that deal was not cut for them to be lifted immediately until last night in the residence with the President? When was the decision that that was actually -- the ban, for example, on --

AMBASSADOR BARSHEFSKY: The bans will be removed this year on Pacific Northwest wheat, citrus, and all the meat products -- beef, poultry, pork. And we're very pleased about that, because we now have an established set of rules which will absolutely allow entry for all those products. Citrus and pork have typically been smuggled into China. Massive citrus goes into Hong Kong, but Hong Kongers can't each eat 50 oranges a day. It's going somewhere else, and it's going into China through smuggling.

And I think one of the persuasive arguments that we had with the Chinese to lift these bans is that when you allow smuggling -- when you have a trade regime so restrictive that a black market appears, you will have (a) increased corruption -- and this is a principal issue for Zhu -- and (b) you lose all the tax revenue because no one is paying duties on any of it that's coming in. It's all coming in under the table.

If you lower your tariffs, you agree to rules on the administration of your customs regime, and you drop your bans, you find not only that you have more goods at lower prices for Chinese consumers, you have more money in your internal revenue collection than you had before.

Thank you.

END 6:31 P.M. EDT