Statement of the Ad Hoc Committee of Domestic Nitrogen Producers

Introduction

The Ad Hoc Committee of Domestic Nitrogen Producers ("the AD Hoc Committee") is an informal coalition of a number of major U.S. nitrogen fertilizer producers. The members of the Ad Hoc Committee include CF Industries, Inc.; Mississippi Chemical Corporation; Terra Industries, Inc.; PCS Nitrogen, Inc.; and Coastal Chem, Inc. The Ad Hoc Committee has worked diligently over the past several years with U.S. trade negotiators and the Congress to ensure that China provides meaningful market access for foreign fertilizer producers. The Ad Hoc Committee is following carefully the final phase of negotiations on China’s accession to the WTO currently taking place in Geneva in the WTO Working Party on China’s Accession.

The Ad Hoc Committee seeks the support of the Committee on Ways and Means and the Trade Subcommittee in helping to ensure that the final text of China’s market access schedule for goods as well as the final texts of the Working Party report, its annexes, and the Chinese protocol of accession maintain and provide for full and timely implementation of China’s bilateral commitments to the United States on fertilizer. The Ad Hoc Committee also seeks the support of the Committee on Ways and Means and the Trade Subcommittee in obtaining a further commitment from China that U.S. fertilizer exports to China will receive treatment no less favorable than that apparently committed to fertilizer producers from the European Union for the time period between now and the date of entry into force of the WTO for China.

The issue of Chinese market access commitments on fertilizer was the last market access issue resolved bilaterally between the United States and China. The Chinese had withdrawn their earlier concessions on fertilizer at the last moment when the original U.S.-China Agreement On Market Access of November 15, 1999, was signed. However, at the insistence of Ambassador Barshefsky, China committed to reexamine her position and to resolve the problem. Based on this commitment, subsequent negotiations between China and the United States led to the signing of a separate bilateral agreement on fertilizer on April 28, 2000 ("Additional Provisions on Market Access for Certain Chemical Fertilizers"). Under this agreement, the Chinese committed to establish tariff rate quotas (TRQs) for urea and diammonium phosphate (DAP) that would provide meaningful access to the Chinese market for these key fertilizer products.

Work on Incorporating China’s Fertilizer Commitments into the Final Terms of China’s Accession to the WTO and Outstanding Issues

Since the conclusion of these bilateral agreements, U.S. negotiators have worked hard in Geneva to ensure that the final text of China’s market access schedule for goods as well as the final texts of the Working Party report, its annexes, and the Chinese protocol of accession maintain and provide for full and timely implementation of China’s bilateral commitments to the United States on fertilizer. At the most recent meeting of the WTO Working Party on China’s Accession in Geneva on June 27-July 4, most of the outstanding issues in the various texts as they relate to fertilizer were apparently resolved although the U.S. fertilizer industry must still review the final texts. (The U.S. fertilizer industry sent a delegation to Geneva to advise USTR during the latest round of talks.)

Nonetheless, there are still several open questions that must be resolved relating to possible domestic price controls on urea and the administering agency in China for fertilizer TRQs. In addition, the Europeans recently negotiated preferential access to the Chinese market for its fertilizer exports for the period of time between now and the date of accession for the Chinese. Unless the Chinese are willing to extend these interim fertilizer concessions to third countries, U.S. fertilizer interests will be sorely disadvantaged. A number of Senators sent a letter to Ambassador Yang Jiechi on June 29 expressing their concern about this matter and asking for equal treatment for the U.S. fertilizer industry.

Objectives of the Ad Hoc Committee on Fertilizer and China

In working with USTR officials and the Congress on this matter in recent months, the Ad Hoc Committee has indicated that it has the following objectives on fertilizer for the close-out phase of negotiations on China’s accession to the WTO:

• The bilateral fertilizer agreement ("Additional Provisions on Market Access for Certain Chemical Fertilizers") that was signed in Beijing on April 28, 2000 must stay intact. The U.S. fertilizer industry, including the Ad Hoc Committee, worked very hard to achieve agreement with the Chinese on market access for fertilizers. The agreement consists of commitments on tariff rate quotas (TRQs) for DAP and urea and how those TRQs will be administered. This agreement must not be altered, unless it were to increase the quantities for DAP and urea that would receive the lower tariff rate of 4 percent, as opposed to the out-of-quota tariff rate of 50 percent.
• China should fulfill her obligations under the bilateral fertilizer agreement on a timely basis: The TRQ provisions for fertilizer were carefully thought through with the aim that implementation of these TRQs would coincide with the fertilizer business cycle. Therefore, it is critically important for the Chinese to adhere to the schedule set forth in the bilateral agreement. This includes application procedures, official journal publication dates, allocation procedures, and reallocation procedures. It is essential to insure that these procedures are in place well before the official entry of China into the World Trade Organization.
• Prior to entry into force of the WTO for China, the Chinese should provide equitable market access for fertilizer that is roughly comparable to the formal commitments made by the Chinese under the bilateral fertilizer agreement, and in any event, access no less favorable than that given to third countries, such as the EU. When the bilateral fertilizer agreement was reached, it was the expectation of the U.S. side that China would enter the WTO by January 1, 2001; and that the market access provisions for fertilizer would begin to apply as of that date. Unfortunately, there have been unforeseen delays in Chinese entry into the WTO, although it is hoped that this can occur in the early part of 2002. In the interests of equity and the fact that the U.S. is entitled under the MFN provisions of the U.S.-China Trade Agreement of 1978 to access comparable to that apparently committed by China to the EU for NPK in advance of China’s formal entry into the WTO, the Ad Hoc Committee believes that China should provide access for DAP and urea from now until WTO entry that is roughly comparable to the commitments they made under the bilateral fertilizer agreement. It was clearly the expectation of the U.S. side when it negotiated the bilateral agreement that such access would have been provided by now. Any delay by China in providing this access will do grave harm to the U.S. industry.
• China should not impose domestic price controls on the sale of urea in China. The Ad Hoc Committee has been advised informally, and is seeking to confirm, that China intends to reserve the right to impose price controls on the sale within China of at least a portion of Chinese production of urea. The Ad Hoc Committee firmly opposes the imposition by China of any price controls on the sale of urea in China, as this will only distort the market for urea in China and could seriously undermine the value of the market access concessions for urea made by China in the bilateral fertilizer agreement.
• MOFTEC is the proper Chinese agency to implement and administer the fertilizer TRQ. MOFTEC is the appropriate Chinese agency to perform this function since it is regularly engaged in international trade matters and is knowledgeable of the workings of the fertilizer industry.

The Ad Hoc Committee appreciates the opportunity to provide these written comments for the record in conjunction with the hearing of the Trade Subcommittee of July 10, 2001, regarding China’s accession to the WTO. The Ad Hoc Committee appreciates the support of the Trade Subcommittee in working with U.S. negotiators and Chinese officials to attain the objectives of the Ad Hoc Committee as set forth in this submission. Attainment of these objectives is crucial for the long-term economic health of U.S. nitrogen fertilizer producers.