Market Access Report: Chemicals

China has introduced tariff reductions on over two-thirds of all products covered under the Uruguay Round's Chemical Harmonization Agreement, which was designed to promote free trade in chemical goods by way of reductions and elimination of tariffs and non-tariff measures. By January 2005, the average tariff on chemicals will be reduced to 6.9% from the 14.7% levied prior to China's WTO membership.

Most chemical import quotas were eliminated or phased out over 2002, although some fertilizer quotas continue in place and certain fertilizer and chemical products remain subject to import licensing, such as poisonous chemicals. China is still particularly protective of its fertilizer industry and reportedly did not allocate its 2002 fertilizer quotas promptly, thereby disrupting chemical sales to China. Moreover, allocation of quotas to non-State-owned traders were small, translating into only minor commercial benefits for foreign exporters. Foreign applicants further complained that quota application procedures were insufficiently transparent and even suggested that State-owned traders were allocated quotas reserved specifically for non-State-owned trading companies.

Discrimination and National Treatment

Pursuant to the Chemical Import Provisions, imported and domestically produced chemicals are subject to different registration formalities. Foreign chemical products must be registered with Chinese authorities prior to their initial entry into the mainland. However, with the exception of foreign chemical imports by domestic chemical manufacturers or exports of certain toxic chemical products, Chinese domestic chemical manufacturers are generally not subject to such regulatory obligations.

Pursuant to the non-discriminatory principles set forth in Article III of the GATT 1994, which forbids treating imported products less favourably than similar domestically produced products, China agreed to grant national treatment to imported products. Although China allowed itself a one-year transition period to comply in respect of certain imported categories of goods, including chemicals, the Chemical Import Provisions have still not yet been amended to conform to national treatment principles.

Trade Secrets and Test Data

Approval to market agricultural chemicals that use new chemicals requires disclosure of test data to authorities, which could include divulging valuable commercial secrets. Article 39.3 of the TRIPS Agreement requires WTO members to take protective measures to safeguard such proprietary information from both disclosure and unfair commercial use, unless failure to disclose would harm the public, or unless steps are otherwise taken to protect such data from unfair commercial use. It remains unclear what steps China has taken or will take to protect sensitive information provided to government authorities.

China is subject to the Agreement on Technical Barriers to Trade that distinguishes protectionist measures from legitimate technical regulations and standards. In April 2001, the State Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) was established, ostensibly to eliminate the disparate treatment of imported versus domestically produced products. Nevertheless, China has developed several unique regulatory requirements that may hinder market access. For example, when a foreign company imports products using multiple formulations that contain identical chemical contents, an individual registration must be lodged for each chemical product, a cumbersome and sometimes prohibitively costly exercise.

Transparency

Upon its accession to the WTO, China promised to improve its regulatory transparency by publishing adopted and proposed standards, regulations, and procedures. It also put in place procedures and timeframes for public commentary on proposed standards, and where practical, to implement international standards. At the beginning of 2002, AQSIQ estimated that about 44% of China's approximately 20,000 national standards were based on international standards, and is pushing to have 70% of such standards meet international criteria by 2005.

Despite ambitious aspirations, China has fallen short in providing the public ample access and opportunity to review and comment on new or amended laws and regulations before they are enacted. Only a limited amount of proposed legislation has availed itself to meaningful public commentary, and even then, the timeframes generally were impracticably short.

By Mitch Dudek and Anthony Hotung

Jones Day, Shanghai