CHINA AND THE GATT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001200290001-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 29
• Document Creation Date: December 22, 2016
• Document Release Date: August 19, 2010
• Sequence Number: 1
• Publication Date: July 24, 1984
• Content Type: MEMO

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Central Intelligence Agency
MEMORANDUM FOR: Douglas Newkirk
Assistant U.S. Trade Representative
Office of the U.S. Trade Representative
erector of Global Issues
SUBJECT: China and the GATT
Attached is a copy of the study you requested on possible
Chinese membership in the GATT and Chinese reactions to possible
accession terms. If you or members of your staff have questions
concerning the report, please call
Attachment:
Possible Chinese Membership in GATT:
Accession Terms and Implications 25X1
GI M 84-10127, July 1984 25X1
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I I
SUBJECT: Possible Chinese Membershipt in GATT: Accession
Terms and Implication
OGI/ECD/T:
Distribution:
Original - Douglas Newkirk, USTR
1 - SA/DDCI
1 - Executive Director
1 - DDI
1 - DDI/PES
1 - NIO/ECON
1 - CPAS/ISS
1 - D/OGI, DD/OGI
1 - OEA/Ch/FOR
1 - OEA/Ch/Dev
1 - Ch/OEA/NA/J
1 - Ch/EURA/EI/EI
1 - SOVA/SE/T
1 - Ch/ECD
3 - Ch/ECD/T
1 - OGI/PG/Ch
8 - OGI/EXS/PG
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Central intelligence Agency
DIRECTORATE OF INTELLIGENCE
24 July 1984
Possible Chinese Membership in GATT: Accession
Terms and Implication
Summary
During the past year China has shown considerable interest
in obtaining observer status in the GATT and eventually applying
for membership. We believe these developments are likely. Since
the GATT is not designed to regulate the trade of nonmarket
economies (NMEs), GATT members have demanded special arrangements
from NMEs that have joined in the past. They will probably do so
with China as well. Even so China is unlikely to encounter much
opposition to a membership request from GATT members. While
China would only accept accession terms that conform to its trade
plans, we believe that agreements to control surges in Chinese
exports, to provide trade and economic data, or to sign GATT
nontariff barrier codes are possible. If permitted to join GATT,
China seems likely to follow the low-profile behavior that has
typified its membership in most other international
organizations.
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This memorandum was prepared by
the Internation
Trade Branch, Office of Global Issues, and
Asian Analysis. The information contained herein is updated to
12 July 1984. Comments may be directed to Chief, International
China Division, Office of East
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GUNFI1JLNTIAL
page
Background
1
Key Membership Issues
2
Observer and Membership Status
3
Accession Negotiations
4
Tariffs
5
Import Commitments
7
Market Disruption
8
Supply of Trade-related
Economic Data
9
Trade-liberalizing Economic
Adjustments
10
NTB Codes
11
Hong Kong
11
GATT Member Reactions
12
Chinese Behavior in GATT
13
The Soviets and GATT
14
Implications for the GATT
15
Annex 1: China: Use of Tariffs
Annex 2: Update to China: Use of Tariffs
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CONFiDENTIAL
Possible Chinese Membership in GATT: Accession
Terms and Implications
BACKGROUND
During the past year China has displayed renewed interest in
observer status and eventual membership in the GATT. China initially
considered GATT membership in 1981, but decided to first investigate
the Multifiber Arrangement (MFA) under the GATT, which it joined in
January. In February, at Chinese request, two high-ranking GATT
Secretariat officials conducted a special six-day seminar on the GATT
in Beijing. According to Chinese press reports, the seminar was
sponsored by the Ministry of Foreign Economic Relations and Trade
(MOFERT) and was attended by 60 Chinese officials. Shortly after the
seminar, one of the Secretariat participants privately mentioned to US
officials that the GATT Secretariat had received the impression that
the Chinese had decided to pursue GATT membership.
Since April there have been cautious Chinese soundings of
officials from the Secretariat and from various delegations to the
GATT about the possibility of obtaining observer status -- referred to
as "participation" by the Chinese. In June, Chinese Geneva delegates
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indicated to US officials that observer status would lead to a Chinese
decision on seeking GATT membership.
We believe a membership application is likely, possibly within the
next year. In pursuing GATT membership, we believe Beijing is
interested in contributing to an open international trading system,
but only insofar as it will give China greater access to Western
markets. Perhaps the primary reason for China's present interest in
GATT membership is that membership would fulfill one of three
conditions required by US law to make China eligible for developing
country tariff preferences (GSP).
KEY MEMBERSHIP ISSUES
The chief concern raised by possible Chinese GATT membership is
that GATT rules may be unable to cope with a large nonmarket economy
(NME). The GATT has never had such a state as a member. Yugoslavia,
Hungary and Romania are active participants, while Poland is less
active. Czechoslovakia and Cuba -- charter members by virtue of
commitments made by non-communist governments -- participate little.
These small NNE members are not major international traders, nor,
because of their size, do they have the potential to be.
Many GATT members, while they would probably not oppose Chinese
membership, are wary of China's often-mentioned potential to greatly
expand exports. China's size supports this concern. For example,
China's total exports and imports are similar to South Korea's, but
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its GNP is at least four times that of South Korea, suggesting a
potential that could be diverted to export production. Concerns over
China's size and how the GATT can deal with China provide a backdrop
to all of the more concrete procedural and substantive issues
surrounding possible membership.
The possibility of Chinese observer status, and later membership,
raises three key questions about how Chinese membership might come
about:
o Under what conditions might observer status be granted?
o What political formula for membership -- to enter as a new
member or assume the original China seat in GATT -- can
all sides accept?
o What subjects would be covered in accession negotiations?
Observer and Membership Issues
Current Chinese tactics suggest that China will seek special
treatment rather than straight-forward observer status. Indeed, China
has already indicated it will request to "participate in" or "attend"
Council meetings instead of asking for conventional observer status.
This attempt by China to establish a category for itself is probably
an outgrowth of China's position, asserted for several years, that it
should be allowed to claim the old "China seat" in GATT, vacated by
the nationalist government in 1950. Beijing joined most UN
organizations in the 1970's to wrest the "China seat" from Taiwan, but
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since Taiwan is not a GATT member, we believe Beijing's purpose in
trying to assume the "China seat" in GATT is to take another
opportunity to demonstrate legitimacy as the sole government of China.
(Taiwan resumed its affiliation with GATT in 1965 as an observer, but
was removed in 1971 when the PRC became a UN member.)
Accession Negotiations
The nature of observer status and the political formula for
membership are important legal and political questions, but the final
terms of accession are probably more important to major GATT members
and to the institution over the long run. Indeed, gaining membership
without also negotiating trade concessions with other GATT members
would be virtually impossible, since GATT is a contractual arrangement
based on a network of concessions and pledges -- not like most UN
organizations in which membership is exclusively a political question
and is granted to most states. A number of issues are likely to be
particularly important in possible unprecedented negotiations for
accession to the GATT of a large, nonmarket economy such as China.
Tariffs
Since the GATT presumes the use of tariffs to regulate trade among
its members, when a country with a market economy seeks to join the
GATT, accession negotiations focus on tariff concessions. However,
the GATT is poorly designed to integrate nonmarket economies into the
world trading system. Central planning of prices, imports, and
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UUNt 1ll1Nl'1AL
foreign exchange allocation makes tariffs maintained by NMEs
meaningless as regulators of international trade. This also makes
tariff negotiations between market and centrally-planned economies
pointless -- a tariff reduction by an NME need not lead to an import
increase, denying the market economy the gain it seeks from exchanging
concessions, such as in accession negotiations.
China's policy since the late 1970's of progressively
decentralizing international trade decision-making has included
increased resort to tariffs, so that now tariffs affect 40 percent of
Chinese trade conducted by independent economic organizations. This
transitional tariff regime greatly complicates the decision of how
best to negotiate Chinese accession to the GATT, but may offer China's
major trading partners possibilities for productive negotiations on
*See Annexes 1 and 2 for a fuller discussion of China's tariff system.
Annex 1 was produced in 1979, but we believe its data and judgments
remain valid. It is updated by Annex 2.
tariffs. Of course, GATT members may also seek concessions other than
tariffs, or might seek a combination of tariff and other concessions.
On the basis of diplomatic reports of unofficial Chinese comments,
we expect that in accession talks China intends to argue -- at least
initially -- that its tariffs are sufficient regulators of trade for
it to enter as Yugoslavia in 1966 and Hungary in 1973 did, primarily
on the basis of tariff concessions. Although there is one report of
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Chinese officials candidly acknowledging to GATT officials that
China's status as a state trading country must be taken into account
if China seeks GATT membership, other reports of comments by Chinese
officials presuppose bargaining over tariffs. In fact, the US Geneva
Mission reports that it has learned from East European sources that
China has been discussing with Yugoslavia and Hungary how those
countries adapted to GATT rules by shifting their trading systems to
greater dependence on tariffs.
Beijing is, however, certainly aware that there are other avenues
that negotiations might take. In July a Chinese Geneva delegate was
very curious about what areas, in the US view, accession negotiations
might cover. Although we believe that limiting accession negotiations
to tariffs does not represent China's bottom line, it is unclear how
readily the Chinese may retreat from this initial position.
Import Commitments
Another subject of accession negotiations may be import
commitments. When Poland and Romania joined the GATT, in 1967 and
1971, respectively, GATT members rejected negotiation of tariff
concessions, the customary way of negotiating the entry of a new GATT
contracting party, in favor of commitments by Poland and Romania to
increase their imports from GATT members. Several import commitment
formulas are possible. A commitment could be based on:
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o A fixed annual percentage increase in imports from GATT
members (the Polish formula). This formula has failed to
integrate Poland into the GATT trading system. After
easily surpassing its target until the mid-1970's, economic
difficulties prevented Poland from continuing to satisfy
the commitment.
o A figure equal to the increase in imports projected in a
country's five-year-plan (Romanian formula). This formula
has worked better than the Polish formula, but this is
partially because Romanian economic performance has not
been as poor as that of Poland. However, the Romanian
formula may not be applicable to China, since an increasing
percentage of Chinese imports is being freed from central
control.
o GNP growth, industrial production, or export performance.
These formulas have, of course, not been tried in
accession negotiations with NMEs, but offer the advantage
of being tied to economic performance. Commitments based
on these indicators could be limited to imports in
specific sectors.
Although we believe the Chinese might agree to an annual
percentage increase in imports from other GATT members, they would
only do so if such an increase was consistent with their foreign trade
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plan. Therefore, it is unlikely that China would concede anything by
accepting an import commitment.
In the case of China, a commitment to raise the percentage of
imports from GATT members would serve little purpose. China's trade
with GATT members is already very high -- about 94 percent of China's
trade in 1983. This is far greater than that of other NMEs at the
time they sought membership. In the year before joining, only about
33 percent of Poland's trade was with GATT members. The comparable
figure for Romania was around 40 percent, and was 36 pecent for
Hungary.
Market Disruption
The Hungarian, Polish, and Romanian accession protocols also
contain market disruption mechanisms that provide import protection to
other GATT members beyond that available under the escape mechanism in
Article XIX of the GATT. They provide for consultations to limit
exports or adjust price if imports of a product cause or threaten
serious injury to domestic producers. If agreement is not reached,
the matter is referred to the GATT. If GATT recommendations are not
followed, the importing party is allowed to restrict imports of the
product in question, and the other country is allowed to withdraw
equivalent concessions.
Based on its experience with bilateral textile agreements, we
believe China is likely to be wary of market disruption commitments.
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The Chinese, like many textile exporters, are so displeased with the
US textile market disruption criteria announced in December 1983 that
they refuse to acknowledge their validity. Consequently, if the
Chinese must negotiate a market disruption commitment, they are likely
to demand that explicit and detailed definitions of all methodologies,
terminologies, and actions be agreed upon and written into the
agreement.
Supply of Trade-related Economic Data
As a condition of membership, GATT members might require China to
provide a continuous flow of international trade and related economic
information. The Chinese have been willing to provide large amounts
of financial data and information to the IMF as a condition of
membership in that organization. In turn, the IMF has used that
information to encourage China to liberalize its foreign exchange
regime.
Such information might include, but need not be limited to:
o The share of total trade conducted by "enterprises of
independent account."
o The amount of tariff revenue obtained from individual
commodities, using SITC or BTN commodity classifications.
o The level of direct government subsidies to individual
industries.
o The level of subsidies to enterprises engaging in foreign
trade.
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o The level of domestic prices, costs, and wages.
o Information on domestic market opportunities.
The above data would also be valuable to GATT members in
prosecuting antidumping or countervailing duty cases against China.
In the past China has only been grudgingly cooperative in such
investigations.
Trade-liberalizing Economic Adjustments
China's major trading partners might also try to seek commitments
that would strengthen China's current effort to decentralize its
economy, and which would also better integrate China into the
international trading system. China could be encouraged or required
to adjust internal prices to international levels, reduce the level of
taxes and subsidies, or reduce the share of trade conducted by the
Foreign Trade Corporations under MOFERT. Chinese agreement to such
measures would clearly depend on how they mesh with existing trade and
economic plans as well as the perceived benefits to China. Some
officials in Beijing, however, may be sympathetic with such
requirements, as they could be used to overcome internal opposition to
economic liberalization. Nevertheless, we anticipate the Chinese
would not readily accept these commitments. Indeed, at least
publicly, they might object that the commitments would interfere in
internal affairs.
NTB Codes
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China could also be asked to sign at least some of the 1979 Tokyo
Round nontariff barrier (NTB) codes -- particularly the technical
codes, on licensing, customs procedures, or standards. Acceptance of
some of these codes would move China beyond the original GATT articles
and up to the level of obligations that most industrial country and
some developing country members have assumed. Among NMEs, Hungary has
accepted the standards and customs codes, and Hungary, Romania and
Czechoslovakia have accepted the licensing code. Hungary, Romania and
Poland have also accepted the antidumping code.
Assuming the Chinese bureaucracy would be up to the task of
enforcing conformity with these codes, the Chinese would probably view
participation in the technical codes favorably, to the extent the
codes could improve the marketability of Chinese goods overseas.
Hong Kong
Diplomatic reports indicate that there have been discussions in
the GATT Secretariat about asking China, apparently during the course
of accession negotiations, to grant Hong Kong autonomy in the conduct
of foreign trade and allow it to become a full GATT member. In the
course of talks over the future of Hong Kong, China has publicly
pledged to continue the capitalist system in Hong Kong for 50 years
beyond 1997. However, if China is a GATT member and still a nonmarket
economy in 1997, a free market Hong Kong would want to assume diffent
GATT obligations than China.
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We believe that China wants Hong Kong to remain a free market
economy. If the issue could be viewed alone, China would probably not
object to guaranteeing Hong Kong's current free trade regime, from
which China benefits. However, many aspects of China's policy on Hong
Kong are unformulated and may remain so even after accession talks
begin. We believe, therefore, that Beijing would not wish to
complicate Hong Kong talks and GATT accession negotiations by
involving one with the other.
GATT MEMBER REACTIONS
We believe even token opposition to Chinese membership in GATT is
unlikely. In our judgment, concern on the part of GATT members about
the effects Chinese membership might have on the organization is
outweighed by an interest in avoiding political conflict with China or
loss of economic opportunities in China that might result from
opposition to Chinese membership. US officials report that all
participants at an informal June meeting of GATT delegates from the
United States, the EC, Japan, Canada, Australia, New Zealand, Sweden
and Switzerland were concerned that Chinese membership could lead to
fundamental change in GATT, but none opposed membership. Australia,
Sweden and Switzerland even indicated that they would encourage China
to seek membership.
Most developing countries can be expected to welcome Chinese
membership in expectation that China will support LDC positions in the
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organization. LDCs with which China has no diplomatic relations, such
as South Korea or Indonesia, are unlikely to oppose Beijing's entry
into GATT to avoid appearing intent on disrupting Third World unity.
South Korea clearly has a long range goal of significantly increasing
trade with China, so would probably not oppose entry. India --
sometimes a rival of China in other international organizations --
would probably want China to be bound by the GATT because it has been
trying to persuade Beijing to grant India MFN status.
CHINESE BEHAVIOR IN GATT
We believe that China's generally low-profile behavior in other
international organizations provides a good indication of what Chinese
conduct in GATT might be. China rarely takes the initiative at the UN
or in other international forums on important issues, and tends to
follow the Third World consensus. As a result, the Chinese have a
reputation for passivity. Chinese diplomats are also often hampered
at the UN and other international gatherings because they are given
little discretionary authority. They rely heavily on instructions
from Beijing and are not always well informed on Chinese policy.
China's role in the Multifiber Arrangement is typical. The
Chinese representatives, who claim little familiarity with the
intricacies of textile trade pacts, have, again, kept low profiles.
Although we expect China to take an increasingly active role in the
MFA as its delegates become more familiar with the organization, it
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will probably not take on a leadership role, leaving that to more
vocal developing countries.
THE SOVIETS AND GATT
One potential fallout of Chinese GATT membership might be to
stimulate Soviet interest, if only out of a desire to match the
Chinese. In approaches that were rebuffed -- most recently this April
-- Soviet officials have informally indicated to US and other GATT
delegations that they are interested in GATT observer status and
perhaps membership in some of the NTB codes.
Still, a Soviet attempt at full GATT membership is unlikely any
time soon. Since the Soviets would enter as an industrial country,
they would probably be required to offer huge concessions to bring
them to the level of concessions of the other developed countries in
the GATT. However, at some point, the Soviets might try to use
Chinese accession as a precedent. Such a precedent would be of
significantly less value to the Soviets if a Chinese accession
protocol were to incorporate provisions that are incompatible with the
USSR's centrally-planned economic system, and if China has achieved
substantial economic decentralization at the time of accession.
If China assumes the old "China seat," its entry would also be of
less value to the Soviets as a precedent, because any Soviet accession
would have to be under Article XXXIII -- as a new member -- which
China would not have used. Diplomatic reports indicate that even now
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-- before China's mode of entry has been clarified -- GATT delegates
from most industrialized countries believe the Chinese case is unique
due to previous Chinese GATT membership, and is not a valid precedent
for the Soviets.
IMPLICATIONS FOR THE GATT
While it is unlikely that Beijing's delegates will be disruptive
or even outspoken in GATT, we believe the presence in the GATT of a
large NME to which GATT rules can not easily be applied could harm the
organization by undermining general respect for and observance of the
GATT. This could, of course, be counteracted by a Chinese move toward
a more market-responsive international trade system.
Rapid growth of Chinese exports could prompt frequent resort to
either market disruption provisions of an accession protocol or
Article XIX. This could cause dissension in the organization, but
could also have the opposite effect of validating the GATT if the
disputants believe the mechanisms have worked well.
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Annex 1 to GI M 84-10127
China: Use of Tariffs
For several years following the Communist victory over the
Nationalists in October 1949, China's foreign trade was conducted
both by private firms and a state corporation. Customs
collection, of course, fell immediately into the hands of the
state, but not until 1951 was a new tariff system promulgated.
In 1955 China nationalized all private trading firms, and since
then foreign trade has been a state monopoly. Although the
raison d'etre for tariffs would seem to have disappeared when the
state monopolized trade, this system of the pre-Communist period
is still on the books. There is persuasive evidence, moreover,
that even today China adds a tariff charge to the cost of an
import to determine the domestic user's price.
China's two-tiered tariff rates, first promulgated in 1951,
were revised ten years later. In a book entitled, China's
Foreign Trade and Its management, published in December 1978 at
the conclusion of an UNCTAD conference in China, Chang Chao, an
official of the Chinese customs administration, described the
tariff system as follows:
In the customs tariff, duty rates on imports are classified
into general tariff rates and minimum tariff rates. General
tariff rates are levied on imports from countries which have
ER M 79-10136
16 February 1979
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not concluded reciprocal commercial treaties or trade
agreements with China, while minimum tariff rates are levied
on imports from countries which have concluded such treaties
or agreements with China ... The duty to be paid for an
import is according to its c.i.f. value, which means its
wholesale market value at the place of purchase, plus foreign
export duties and all charges incurred before discharge at
There are several reasons why Beijing may believe it is
compelled to maintain a two-tier tariff system. In the article
cited above Chang stated:
China carries out a protective tariff policy, which is an
additional means to the state policy for controlling foreign
trade.... It plays a positive role in protecting the
domestic production, opposing imperialist trade
discrimination, striving for favorable tariff reciprocity,
helping improve the management of our foreign trade
enterprises, and accu"ating capital for the socialist
Protection of infant industries may well have been China's
rationale for tariffs, at least before trade became a state
monopoly. An examination of the tariff structure shows that
rates are virtually prohibitive on the products of China's
domestic industries--products China normally exports. (See Table
1.) (There are some exceptions to this rule, perhaps reflecting
double thinking on Beijing's part. Thus, pigs, tungsten ore, and
manganese ore are allowed in duty free. Beijing probably felt
that China's comparative advantage was so great that these items
would never be imported.)
On the other hand, on goods China must import the tariffs
are relatively low and, in some cases, non-existent. (See Table
2.) Since the real cost of producing most of these items
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domestically may well be greater than the cost of importing them,
the tariffs might not have an exclusionary effect on imports at
all. Moreover, the spread between the "minimum tariff" and the
"ordinary tariff" is minor -- almost consistently 2.5 percent.
This suggests, even more emphatically, that the Chinese are not
willing to let the tariff system affect either the decision to
import, or the choice of supplier.
We do not know if the duties are in fact uniformly imposed,
and, if so, on which categories of transactions. While we tend
to think of a command economy as a monolithic organization, with
all decisions made at the top, this can only be true with regard
to decisions on imports of major importance. Many of the "nuts
and bolts" decisions must be made at lower levels. One of the
purposes of maintaining a tariff schedule may be to discourage
local entities from using their own funds to purchase foreign
rather than domestically produced goods, without actually banning
such purchases.
in the past
exporting firms were permitted to retain 5 percent of their
foreign currency earnings for their own import needs. In 1978,
in order to provide increased incentives to export, this share
was raised to 15 percent.)
It seems reasonable to assume that Chinese authorities
exercise considerable flexibility in administering the tariffs.
Capital good imports, especially significant purchases with
centrally allocated foreign exchange funding, may be exempted
altogether from duties. Rule One of the Customs Regulations
appears to give the State Council the authority to waive
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tariffs. For imports purchased pursuant to a state plan,
assessment of a duty on a large state-controlled production unit
strikes us as essentially a bookkeeping transaction, but one
which could complicate the planning process. Since the bulk of
PRC goods are urgently needed in high priority sectors of the
economy, the imposition of a tariff "tax" would tend to impair
the efficiency of carrying out the plan.
In a market economy, a differentiated tariff system has an
important influence on the direction of trade, and whole
categories of imported goods from non-MFN countries can be
excluded if the duties are set high enough. Beijing may believe
that the two column system provides a modicum of encouragement
for other countries to enter into trade agreements with PRC, and
of course, provides an ostensible bargaining chip in a trade
negotiating situation. However, we note that political factors
seem to operate to a greater or lesser degree in most PRC foreign
trade transaction decisions, and these political considerations
are subject to frequent modification and redefinition. A tariff
mechanism would seem to be a rather clumsy tool to reconcile with
desired political ends, especially when more direct means are
available. Rigid application of a two-column system would have a
number of disadvantages; e.g., it might inhibit trade with
certain LDCs which did not have a bilateral trade agreement with
the PRC, but with which Beijing wanted to encourage trade for
political reasons.
We do not believe that PRC tariffs, even if they are applied
at a discriminatory rate to goods from the US, have had a
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significant exclusionary effect on US sales to China.
Conversely, we do not believe that conferral of the lower
"minimum tariff" status would in itself lead to significant trade
expansion. The record shows no perceptible improvement in the
competitive posture of countries to which China has granted "MFN
satus." (See Table 3.) Rather, China's import priorities
together with the price competitiveness of foreign firms would
appear to be the major factors in Beijing's choice of suppliers.
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China: Representative Sample of Import
Tariffs on Goods Normally Exported
Chinese
Tariff
Number
minimum
Nomenclature
ordinary
Tariff
Tariff
010
Soybeans
500
70%
016
Madarin Oranges
80
100
036
Mushrooms
120
180
049
Eggs, fresh
80
120
059
Peanut Oil
80
120
087
Tea
100
150
121a
Shrimp
80
120
202
Lacquer, crude
80
120
263
Bambooware
80
120
273
Pigs
Free
Free
296
Bristles
80
120
299
Feathers and Down
80
120
348
Tungsten Ore
Free
Free
349
Manganese Ore
Free
Free
383
Window Glass
100
150
391
Chinaware
100
150
406
Linseed Oil
60
80
420
Camphor Oil
80
120
544
Cotton Yarn, Gray
40
60
549
Cotton Sheeting, Gray
60
80
581
Clothing, Cotton
80
120
C1'1
Raw Silk
100
150
750
Antimony, crude
50
70
906b
Pencils
60
80
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China: Representative Sample of Tariffs
on Goods Normally Imported
Chinese
Tariff
Number
Minimum
Nomenclature
Ordinary
Tariff
Tariff
001
Wheat
17
1/2%
20%
212
Rubber, Crude, Crepe
12
1/4
15
347
Iron Ore
Free
Free
506
Ammonium Sulfate
7
1/2
10
508
Fertilizer
5
7
1/2
509
DDT
5
7
1/2
640
Chemical Wood Pulp
12
1/2
15
677a
Platinum Ingots
Free
Free
684a
Boiler Plants, Iron
7
1/2
10
698
Galvanized Iron Pipes
15
17
1/2
705b
Steel Angles and Shapes
10
12
1/2
706a
Spring Steel Wire
12
1/2
15
708
Copper Ingots and Slabs
5
7
1/2
729
Aluminum Ingots and Slabs
10
12
1/2
752
Nickel
7
1/2
10
781
Steam Boilers
7
1/2
10
786
Agricultural Machinery
7
1/2
12
1/2
794
Oil Well Drilling Machines
7
1/2
10
810
Dredgers
7
1/2
10
821
Lathes
10
12
856b
Nautical and Aeronautical
Free
Free
866a
Instruments
Microscopes
5
7 1/2
880
Aircraft
5
7 1/2
882
Ships
Free
Free
889
Locomotives
5
7 1/2
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China: Import Shares of Selected Trading Partners
Granted "Minimum Tariffs"*
(Percent)
Country and Date
"Minimum Tariff"
Years Prior
Years Following
Granted
to Granting
Granting
3rd 2nd 1st
1st 2nd 3rd
Japan
5 Jan 1974
45 41 34
42 45
44
West Germany
5 Jul 1973
12 11 11
9 11
16
Canada
13 Oct 1973
10 16 17
9 7
5
United States
1 Feb 1980
4 12 17
28 28
27
* Calculated as a share of China's Imports from all OECD
countries. If calculated as a share of China's imports
from all non-Communist countries, the percentages are only
slightly smaller, but the trends are almost identical.
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CONFIDENTIAL
Annex 2 to GI M 84-10127
Update to "China: Use of Tariffs"
Two developments since 1979, the date of Annex 1, should be
commented on.
First, tariffs probably are more widely applied now than in 1979.
In 1979, virtually all foreign trade decisions were made by Foreign
Trade Corporations (FTCs) under the then-Ministry of Foreign Trade.
As a result of the progressive decentralization of trade since then,
FTCs now are responsible for only about 40 percent of all trade
transactions, 20 percent are made by other ministries under the State
Council (such as the Ministries of Petroleum, Coal, and Machine
Building Industries), and the remaining 40 percent by enterprises of
independent account. Because the last are largely responsible for
their own profits and losses, we believe that tariffs on their trade
have a real bearing on costs, and would affect purchasing and sales
decisions.
Second, under China's present leadership, greater consideration is
being given to the use of "economic levers" -- rather than direct
1
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CONFIDENTIAL
administrative fiat -- as a means of implementing economic policy. By
"economic levers" the Chinese mean monetary and fiscal policy tools
such as those employed by market economies, including the use of
tariffs. Pending a major realignment of prices, the Chinese have
begun to experiment with tariffs as an interim measure for shielding
domestic prices from international competition. For example, they
recently imposed tariffs on about 30 export commodities -- in order to
prevent local producers from exporting goods, such as many staple
agricultural commodities, coal and oil, that are underpriced
domestically. With the loosening of direct controls on trade, China's
fascination with tariffs has increased. In the future it will become
more and more difficult to wean China away from their use.
2
CONFIDENTIAL
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