In a post-Sept. 11 world, where it is uncertain how much China will help the U.S. in its war on terrorism, the two countries are nonetheless embarking on a new relationship in the theater of global trade.

President Bush announced Thursday that he has officially granted Beijing permanent normal trade status, calling it "the final step in normalizing U.S.-China trade relations." The deal goes into effect on Jan. 1, 2002.

The new status ends the annual reviews of China's trade privileges and puts into effect an agreement in which China has promised to lower tariffs on U.S. goods and open its service sector to American companies.

Thursday's proclamation not only gives China permanent trade status as a byproduct of its entering into the World Trade Organization, but also revokes a 1974 law that withholds normal trade relations with any communist state that restricts emigration.

Permanent trade status for China was agreed upon in Congress last year on the condition that China officially become a member of the WTO, a deal that was finalized in December after the U.S. made its accession dependent on U.S.-China trade rules of 1999.

The congressional debate nonetheless was a tough negotiation that pitted old allies against one another and created strange political bedfellows in the mix.

President Clinton and pro-trade Democrats joined their counterparts among the GOP ranks, while unions fought side-by-side with Republicans who thought the pact would encourage China's poor human rights record and hurt American jobs.

While trade relations normalize, all is not well between the two states, who are currently at odds over several captured Chinese separatists who were fighting alongside the Taliban in Afghanistan. Beijing considers them terrorists and wants them turned over to be dealt with under Chinese law. U.S. officials say they do not necessarily deem the captured soldiers terrorists and have so far refused, choosing to deal with them as U.S. detainees.

The issue casts a slight shadow on the diplomatic relationship between the two countries which has been fragile and unclear since the Sept. 11 attacks, though the Chinese have offered support to the US. by way of cracking down on their own pockets of Muslim separatists.

The Associated Press contributed to this report.