NTR Fact Sheet

(May 1999)

u What is NTR? Normal Trade Relations (NTR, formerly known as Most Favored Nation tariff status) refers to the standard or "general" tariff treatment the United States extends to other countries in return for reciprocal tariff treatment for US exports. NTR is neither a special privilege nor a reward, nor the most favored tariff treatment the United States provides.

The United States provides special tariff treatment, more favorable than NTR, to over 31 countries and territories (and as many as 151 countries and territories should the Generalized System of Preferences (GSP) program be renewed) under special tariff programs, including the North American Free Trade Agreement (NAFTA), Agreement on Trade in Civil Aircraft, Automotive Products Trade Act, Caribbean Basin Economic Recovery Act, United States-Israel Free Trade Area, and Andean Trade Preferences Act. Under these programs, designated products may be imported at reduced or duty-free rates. China is not eligible for any of these programs.

u Who has NTR? Over 160 countries have NTR tariff status with the United States, including Iran, Iraq, and Libya (although the US has imposed other trade sanctions on these countries). NTR has been extended to China on a reciprocal basis every year since 1980.

u Who does not have NTR? Under the Jackson-Vanik amendment to the Trade Act of 1974, a measure originally directed against the former Soviet Union, NTR may not be granted to any "non-market economy" determined by the President to restrict free emigration, unless the President waives the restrictions by determining that the country permits free and unrestricted emigration or if he believes NTR would promote free emigration. The US currently does not grant NTR to Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam.

In recent years, the annual debate on China’s NTR status has provided a forum for members of Congress to register their concerns on a broad range of bilateral issues extending far beyond the narrow criteria described in the Jackson-Vanik amendment. Threatening to remove China’s NTR status, however, has not proven effective in addressing or resolving any of these issues.

u What would withdrawing NTR mean? NTR is the cornerstone of US-China commercial relations. Withdrawing NTR from China would effectively suspend the commercial relationship with our fourth-largest trading partner, and one of our fastest-growing export markets. US duties on goods imported from China would rise to the rates established in the 1930s under the highly protectionist Smoot-Hawley Tariff Law. The average tariff rate for Chinese-made products would leap from 5% to roughly 50% (tariff rates for certain items would soar to more than 100%). Prices of top US imports from China such as footwear, toys, and apparel would likely reach prohibitively high levels for American consumers. US importers and retailers would be forced to source the same products from other, more expensive manufacturers abroad.

Because the United States and China extend NTR status on a reciprocal basis, China would likely retaliate by withdrawing NTR treatment for US exports, blocking access to one of the fastest-growing US export

markets and putting over $46 billion in committed US investment at risk. In 1998, US merchandise exports to China totaled over $14 billion (up 10.9%), and another $5.3 billion worth of US goods sold to Hong Kong were re-exported to China. These exports support roughly 200,000 high-skill/high-wage American jobs. Leading US exports to China include aircraft, power-generating equipment, telecommunications equipment, computers, fertilizers, medical equipment, and organic chemicals.

u PNTR and the WTO: Granting Permanent NTR (PNTR) to China is critical to enabling the United States to enjoy the benefits from China’s accession to the World Trade Organization (WTO). Under the 1994 Marrakesh Agreement Establishing the WTO, members must extend reciprocally and without conditions to other WTO members nondiscriminatory tariff treatment (known in US law as NTR) for their products. The Trade Act of 1974, however, only permits the United States to grant NTR tariff status on a 12-month basis to non-market economies such as China, and then only as a waiver of ineligibility. For the United States to enjoy WTO benefits with respect to China after the PRC formally accedes to the organization, Congress must either amend or repeal Title IV of the Trade Act of 1974 (known as the Jackson-Vanik amendment) to grant China PNTR tariff status. Should Congress fail to do so, China could elect at the time of its accession not to apply the multilateral WTO agreements to the United States by invoking Article 13 of the WTO Agreement. Such an outcome would only deny the United States improved market access to China that WTO accession would bring; it would prevent neither China’s accession to the WTO nor other WTO signatories from enjoying improved market access to China.

u The mechanics of NTR extension/withdrawal:

(1) Presidential Decision on NTR: China’s NTR status expires on July 3 each year. By law, the President must inform Congress no less than 30 calendar days before that date of his intention to extend his waiver authority under the Jackson-Vanik amendment for an additional 12 months.

(2) Congressional "Joint Resolution of Disapproval": Either House of Congress may introduce a joint resolution of disapproval to overturn the President’s decision to extend his authority to waive China’s NTR ineligibility under the Jackson-Vanik amendment, but both Houses must pass the disapproval resolution, normally via a straight "up or down" vote. The joint resolution to deny NTR is privileged and must be considered under statutory procedures limiting debate, amendment, and the amount of time that the resolution may be considered in committee. To overturn the President’s decision, Congress must pass a resolution of disapproval within 60 calendar days of July 3 (i.e. not later than September 3). (Extension of the President’s NTR waiver authority requires no Congressional action.)

(3) Presidential Veto and Congressional Override Vote: If both Houses pass a joint resolution of disapproval, the President has 10 calendar days (excluding Sundays) to veto the measure. Upon the President’s veto, the bill would return to Congress. Congress then has an additional 15 days (excluding weekends and periods when either House has adjourned for more than 3 days or sine die) to consider a veto override, which requires a two-thirds majority vote.

(4) Revocation of NTR: If Congress passes a joint resolution of disapproval and subsequently also overrides any Presidential veto, NTR trade status for China would lapse commencing 60 calendar days after the disapproval resolution is enacted into law. Apart from the joint resolution of disapproval, Congress may at any time pass free-standing legislation withdrawing NTR or conditioning its future extension. The House Ways & Means Committee and the Senate Finance Committee constitute the key congressional committees responsible for considering NTR-related legislation and resolutions.

Founded in 1973, the US-China Business Council is the principal organization of American corporations engaged in trade and investment with the PRC. Its membership encompasses approximately 260 US-incorporated businesses. The Council is headquartered in Washington, DC, with offices in Beijing, Shanghai, and Hong Kong.