The U.S.-China World Trade Organization accession agreements include abolishment of the direct-selling ban in China within three years, according to the Market Access Commitments of the Government of China on Goods, Services and Agriculture treaty between the two countries. The April 10 agreement is subject to approval from Congress and the President.

The U.S./China trade deal "reflects a comprehensive commitment on distribution, including wholesaling, direct sales, retailing, maintenance and repair and transportation," the market access document states.

The Chinese government has agreed to "phase out all restrictions on distribution services within three years." At that time, "Americans will be able to distribute imported products as well as those made in China, offering significant opportunity to expand U.S. exports of goods," the document states.

In the interim, China has agreed to develop direct-selling regulations based on the World Federation of Direct Selling Association's World Codes of Conduct, in consultation with the U.S. and the Direct Selling Association.

In January 1997, the Chinese government established stricter direct-selling guidelines in response to several pyramid schemes. A full ban was approved April 21, 1998 ("The Rose Sheet" June 15, 1998, p. 4). Fraudulent, "multi-level" pyramid schemes ultimately resulted in sales representatives losing large amounts of money.

In an act to protect consumer rights and promote fair competition, China eliminated all "face-to-face" marketing, including door-to-door selling. As a result, legitimate direct sellers that do not employ pyramid schemes, such as Avon, Amway and Mary Kay Cosmetics, were forced to stop business.

Following negotiations with the Chinese government, Avon began operating as a wholesaler/retailer and converted its approximately 75 distribution centers into retail outlets in June 1998. Amway and Mary Kay also resumed operations after converting to a retail sales format ("The Rose Sheet" Sept. 14, 1998, In Brief).

Before the WTO accession agreement can become final, United States Trade Representative Charlene Barshefsky will need to persuade President Clinton and Congress to accept the terms of the deal. While Clinton appears to be in full support of the agreement, and is dedicated to China's WTO accession by the end of the year, a few issues contained in the agreement have yet to be resolved. Sticking points include textiles, audio and visual, financial services and banking.

In a joint U.S.-China statement April 13, President Clinton and Chinese Premier Zhu Rongji announced an agreement to "move intensively on negotiations toward resolution of the remaining issues." The heads of state will meet in Beijing by the end of April to continue discussions.

Since Avon became the first direct seller to enter the Chinese market in 1990, the industry began approaching $1 bil. in U.S. retail sales in 1997 and employing more than 2 mil. Chinese sales representatives. Following the ban, direct-selling losses totaled approximately $200 mil., according to the Direct Selling Association.

Amway sales in China plummeted 53% to $99.7 mil. in 1998 as a result of the ban, compared to sales of $212.4 mil. in 1997. The number of Chinese sales reps also dropped, from 125,000 in 1997 to 92,000 in 1998. By allowing direct sellers to resume operations, Amway said it will regain its credibility as a legitimate business in China.

Predictably, Avon's sales also took a hit as a result of the ban. The company's business in China was "accelerating rapidly" before the ban halted Avon's revenue flow in the country. While sales have picked up under its wholesaler/retailer license, the company noted revenues are not at the same level as they were prior to the ban.

The DSA has come out in support of the agreement; the trade group has been working closely with the USTR as well as its direct-sales members in lobbying against the ban.

Amway and Avon also said they were pleased with the accession agreement. "While it is too early to say what the impact will be on our business," Amway said the deal "should establish a framework for the healthy development of the industry in China and enhance Amway China's ability to promote our business."

Direct Sales Ban In China Could Be Lifted By 2003 Under WTO Accession Deal

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