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2012 Report to Congress On China’s WTO Compliance
This is the eleventh annual report to Congress on compliance by China with commitments made in connection with its accession to the World Trade Organization.
December 3, 2012
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EXECUTIVE SUMMARY
(Download the full report)
OVERVIEW
China acceded to the World Trade Organization more than a decade ago on December 11, 2001. The terms of its accession called for China to implement numerous specific commitments over time, with all key commitments phased in by December 11, 2006. Looking back, it is easy to see how dramatically trade and investment have expanded among China and its many trading partners, including the United States, since China joined the WTO. The impressive growth in U.S.-China trade has provided substantial opportunities for U.S. businesses, workers, farmers, ranchers and service suppliers, as well as a wealth of affordable goods for U.S. consumers. Despite these remarkable results, the overall picture currently presented by China’s WTO membership remains complex.
For much of the past decade, the Chinese government has been re-emphasizing the state’s role in the economy, diverging from the path of economic reform that drove China’s accession to the WTO. With the state leading China’s economic development, the Chinese government has pursued new and more expansive industrial policies, often designed to limit market access for imported goods, foreign manufacturers and foreign service suppliers, while offering substantial government guidance, resources and regulatory support to Chinese industries, particularly ones dominated by state- owned enterprises. This heavy state role in the economy, reinforced by unchecked discretionary actions of Chinese government regulators, has generated serious trade frictions with China’s many trade partners, including the United States.
When trade frictions have arisen, the United States has preferred to pursue dialogue with China to resolve them. However, when dialogue with China has not led to the resolution of key trade issues, the United States has not hesitated to invoke the WTO’s dispute settlement mechanism. In fact, the United States has used this mechanism against China more than any other WTO member. In doing so, the United States has placed a strong emphasis on the need for China to adhere to WTO rules and has been holding China fully accountable as a mature participant in, and a major beneficiary of, the WTO’s global trading system.
The United States recognizes the tremendous upside promised by the U.S.-China trade relationship for both the United States and China, and it therefore has continued to urge China to reinvigorate the economic reform that drove its accession to the WTO. If China is going to deal successfully with its economic challenges at home, it must at a minimum reduce the role of the state in planning the economy, reform state-owned enterprises and eliminate preferences for national champions. Addressing these challenges is also critical to the success of China’s enterprises in expanding abroad. At the same time, these reforms are strongly in the United States’ interest, not only because the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises in China’s economy are principal drivers of trade frictions, but also because a healthier and more balanced Chinese economy will lead to increased U.S.-China trade. Although it is too early to tell, there were some positive signs in 2012 that China may be focused on re-energizing its economic reforms.
CHINA’S FIRST 11 YEARS AS WTO MEMBER
The commitments to which China’s leaders agreed when China joined the WTO in 2001 were sweeping in nature and required the Chinese government to make changes to hundreds of laws, regulations and other measures affecting trade and investment. These changes largely coincided with the leadership’s economic reform goals, which built on the economic reforms that China had begun under Deng Xiaoping in 1978. The Chinese leaders who negotiated China’s WTO accession negotiations believed that China’s economy needed to rely more on market signals and less on Chinese government economic planners and state-owned enterprises.
Indeed, these leaders oversaw a dramatic and rapid reform of state-owned enterprises from the mid- 1990s through 2002.
Following China’s accession to the WTO, the Chinese government took many impressive steps to implement China’s numerous commitments. The Chinese government made legal changes that reduced tariffs, eliminated non-tariff barriers that had denied national treatment and market access for goods and services imported from other WTO members, improved intellectual property protections and promoted regulatory transparency. These steps unquestionably deepened China’s integration into the WTO’s rules-based international trading system, while also strengthening China’s ongoing economic reforms.
In 2003, when new leaders took over in China, the Chinese government continued to take steps to implement the WTO commitments that China had agreed to phase in over time, furthering China’s economic reforms. However, beyond these steps, China’s new leaders for the most part did not continue down the path pursued by their predecessors. Beginning with the creation of the State-owned Assets Supervision and Administration Commission (SASAC) in 2003, China’s new leaders de-emphasized their predecessors’ move toward a greater reliance on market signals and instead set out to bolster the state sector by attempting to improve the operational efficiency of state-owned enterprises and by orchestrating mergers and consolidations in order to create stronger state- owned enterprises. These actions soon led to institutionalized preferences for state-owned enterprises and the creation of national champions in many sectors.
In 2006, once China had taken steps to implement the last of its key WTO commitments, China’s policy shift became more evident. USTR noted China’s stronger embrace of state capitalism. USTR also reported that some Chinese government policies and practices raised increasing concerns that China had not yet fully embraced the key WTO principles of market access, non-discrimination and transparency.
China’s incomplete adoption of the rule of law has exacerbated this situation. For example, confidential accounts from foreign enterprises indicate that Chinese government officials, acting without fear of legal challenge, at times require foreign enterprises to transfer technology if they want to secure investments approvals, even though Chinese law does not – and cannot under China’s WTO commitments – require technology transfer. Similarly, in the trade remedies context, China’s regulatory authorities at times seem to pursue antidumping and countervailing duty investigations and impose duties for the purpose of striking back at trading partners that have exercised their WTO rights in a way that displeases China. China’s regulatory authorities appear to pursue these investigations even when necessary legal and factual support for the duties is absent.
In 2012, a wide range of Chinese policies and practices continued to generate significant concerns among U.S. stakeholders. Major issues included China’s export restraints, government subsidization, inappropriate use of trade remedy laws, indigenous innovation policies, technology transfer initiatives, serious problems with intellectual property rights enforcement, including in the area of trade secrets, and China’s slow movement toward accession to the WTO Government Procurement Agreement (GPA). In addition, market access barriers and discrimination against foreign enterprises could still be found in numerous sectors of China’s economy.
Despite these ongoing challenges, trade between the United States and China has continued to expand rapidly. Since 2001, U.S. exports of goods to China have increased by approximately 442 percent, rising from a 2001 total of $19 billion to $104 billion in 2011, and positioning China as the United States’ largest goods export market outside of North America. China is also a substantial market for U.S. services. The cross-border supply of private commercial services totaled $27 billion in 2011, representing an increase of 393 percent since 2001. Services supplied through majority U.S.-invested companies in China totaled $29 billion in 2010, the latest year for which data are available. U.S.-China trade in goods and services continued to grow at a healthy pace in 2012.
There are some positive signs suggesting recognition among China’s next leaders that further economic reforms are in China’s interest. For example, a major Chinese government think tank, the Development Research Center of China’s State Council, was permitted to work with the World Bank and publish, in February 2012, a joint research report, entitled China 2030: Building a Modern, Harmonious and Creative High-Income Society, which recognizes that China’s growth model will need to be changed to meet new challenges. The report lays out the case for a new development strategy for China, focused on rebalancing the role of government and the market, reforming state-owned enterprises and strengthening the private sector, among other changes, in order to reach the goal of a high income country by 2030. Vice President Xi offered another positive signal in this direction with his December 2012 decision to make Shenzhen the site of his first official visit after taking over as General Secretary of the Chinese Communist Party. Symbolically, Vice President Xi seemed to be retracing the steps of Deng Xiaoping, who famously traveled to Shenzhen in 1992 to reaffirm China’s commitment to economic reforms.
Looking ahead, essential work for China includes the need to reduce market access barriers, uniformly follow the fundamental principles of non- discrimination and transparency, significantly reduce the level of government intervention in the economy, fully institutionalize market mechanisms, require state-owned enterprises to compete with other enterprises on fair and non-discriminatory terms, and fully embrace the rule of law. Completing this work is critical to realizing the tremendous potential presented by China’s WTO membership, including the breadth and depth of trade and investment – and prosperity – possible in a thriving, balanced global trading system.
2012 DEVELOPMENTS
In 2012, the United States worked hard to increase the benefits that U.S. businesses, workers, farmers, ranchers, service suppliers and consumers derive from trade and economic ties with China. Throughout the past year, the United States focused on outcome-oriented dialogue at all levels of engagement with China, while also taking concrete steps to enforce U.S. rights at the WTO when dialogue did not resolve U.S. concerns.
On the bilateral front, the United States and China pursued numerous formal and informal meetings and dialogues over the last year, including working groups and high-level meetings under the auspices of the U.S.-China Strategic and Economic Dialogue (S&ED) and the U.S.-China Joint Commission on Commerce and Trade (JCCT). The United States and China held their fourth S&ED meeting in May 2012 and the 23rd meeting of the JCCT in December 2012. Constructive dialogue also took place during Vice President Xi’s visit to the United States in February 2012. The United States used all of these avenues to engage China’s leadership on trade and economic matters and to seek resolutions to a number of pressing trade issues.
The two sides were able to make significant progress on the following key trade issues through their bilateral engagement in 2012:
- China committed to extend its efforts to promote the use of legal software by Chinese enterprises, in addition to more regular audits of software on computers used by the Chinese government. China also confirmed that it requires state-owned enterprises and state- owned banks under the supervision of the central government to purchase and use legal software.
- China committed to further simplify and enhance the transparency of its investment approval system.
- China committed that technology transfer would be decided by businesses independently and would not be used by the Chinese government as a pre-condition for market access. China also confirmed that it would correct any measures that were inconsistent with this commitment in a timely manner.
- China committed to treat IPR owned or developed in other countries the same as IPR owned or developed in China.
- China committed to prioritize trade secrets in its IPR protection policies and to increase enforcement against trade secret misappropriation.
- China agreed to take steps to address certain regulatory obstacles that had been impeding
- U.S. exports.
- China agreed to open the mandatory third-party liability auto insurance market to foreign- invested insurance companies.
- China committed to provide non-discriminatory treatment to all enterprises, regardless of whether state-owned or privately owned, in terms of credit, taxation and regulatory policies.
- China agreed to participate in negotiations for new rules on official export financing with the United States and other major exporters.
While progress was made on some meaningful issues, as described above, many issues remain outstanding, and the United States was frank in expressing its view that the two sides need to redouble their efforts going forward. The United States will therefore continue to pursue discussions in areas including investment, innovation, intellectual property rights, industrial policies, state-owned enterprises, administrative licensing, government procurement, taxation, agriculture, standards development, conformity assessment procedures, express delivery services, financial services, telecommunications services, legal services, pharmaceuticals and medical devices, among others.
On the enforcement side, the United States pursued a robust agenda over the past year. The United States brought three important new WTO cases against China, while continuing to prosecute five other cases.
One of the new cases challenges numerous subsidies provided by the central government and various sub- central governments in China to automobile and automobile-parts enterprises located in regions in China known as “export bases.” The second new case challenges antidumping and countervailing duties that China imposed on imports of U.S. automobiles. The third new case challenges export quotas, export duties and other restraints maintained by China on the export of rare earths, tungsten and molybdenum, which are key inputs in a multitude of U.S. manufacturing sectors and U.S.- made products, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum and chemicals.
Among the cases launched in prior years that were active in 2012 was a challenge to China’s creation of a national champion as the exclusive supplier of the electronic payment services needed to process most credit and debit card transactions in China, barring U.S. suppliers from the market. The United States won this case in 2012. The United States also continued to pursue challenges to antidumping and countervailing duties that China imposed on imports of two U.S. products, grain-oriented electrical steel (GOES) used by the power generating industry and chicken broiler products. The United States won the GOES case in 2012, while the chicken broiler products case is still being litigated. The United States secured yet another win in 2012 in a case involving a broad challenge to China’s restraints on the export of several raw materials of key importance to U.S. steel, aluminum and chemicals industries. Finally, in one other WTO case, which the United States had won, the United States and China entered into an agreement providing significant benefits to the U.S. film industry in compensation for China’s inability to comply with the WTO’s rulings regarding China’s importation and distribution restrictions in a timely manner.
PRIORITY ISSUES
At present, China’s trade policies and practices in several specific areas cause particular concern for the United States and U.S. stakeholders, including in relation to China’s approach to the obligations of WTO membership. The key concerns in each of these areas are summarized below, and a detailed summary of China’s WTO compliance efforts is set forth in Table 1.
Intellectual Property Rights
Since its accession to the WTO, China has put in place a framework of laws and regulations aimed at protecting the intellectual property rights (IPR) of domestic and foreign right holders, as required by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). However, some critical changes to China’s legal framework are still needed in a few areas, such as further improvement of China’s measures for copyright protection on the Internet following China’s accession to the World Intellectual Property Organization (WIPO) Internet treaties, and correction of continuing deficiencies in China’s criminal IPR enforcement measures.
Meanwhile, effective enforcement of China’s IPR laws and regulations remains a significant challenge. Despite repeated anti-piracy campaigns in China and an increasing number of civil IPR cases in Chinese courts, counterfeiting and piracy remain at unacceptably high levels and continue to cause serious harm to U.S. businesses across many sectors of the economy. Indeed, in a study released in May 2011, the U.S. International Trade Commission estimated that U.S. businesses suffered a total of $48 billion in lost sales, royalties and license fees due to IPR infringement in China in 2009 – a figure that is more than two-thirds the value of the $69 billion in U.S. goods exported to China in the same year.
In 2012, the United States continued to seek ways to work with China to improve China’s IPR enforcement regime, as USTR’s annual Special 301 report again placed China on the Priority Watch List and USTR’s Out-of-Cycle Review of Notorious Markets, which identifies Internet and physical markets that exemplify key challenges in the global struggle against piracy and counterfeiting, again featured Chinese markets prominently. Given China’s increasing stake in effective IPR enforcement, as evidenced by its efforts to develop innovative industries and technologies, a variety of U.S. agencies held bilateral discussions with their Chinese counterparts in 2012. Real progress was made, but much more work remains to be done.
At the May 2012 S&ED meeting and the December 2012 JCCT meeting, the United States sought to build on China’s past commitments to eliminate the use of unauthorized software at all levels of government and to discourage the use of unauthorized software by enterprises, including major state-owned and state-invested enterprises. China committed to intensify its use of software audits and inspections within the government and to expand its software legalization efforts in the enterprise sector. China also confirmed that it requires state-owned enterprises and state-owned banks under the supervision of the central government to purchase and use legal software.
In 2012, the United States pressed China in the area of trade secrets, which has become a high profile problem recently. At the May 2012 S&ED meeting, China agreed to prioritize trade secrets in its IPR protection policies and to increase enforcement against trade secret misappropriation.
The United States secured further progress on Internet intermediary liability through the 2012 JCCT process. Building on a prior JCCT commitment to develop a Judicial Interpretation making clear that those who facilitate online infringement will be jointly liable for such infringement, China announced at the December 2012 JCCT meeting that its Supreme People’s Court will publish a Judicial Interpretation on Internet Intermediary Liability before the end of 2012.
In 2013, the United States will continue to work closely with U.S. industry and to devote considerable staff and resources, both in Washington and in Beijing, to address the many challenges in the IPR area. The United States will also seek to intensify its bilateral engagement with China in an effort to achieve significant reductions in IPR infringement levels in China. At the same time, as has been demonstrated, when bilateral discussions prove unable to resolve key issues, the United States will remain prepared to take other types of action on these issues, including WTO dispute settlement where appropriate, given the importance of an effective, TRIPS Agreement-compliant system for IPR enforcement.
Industrial Policies
China continued to pursue industrial policies in 2012 that seek to limit market access for imported goods, foreign manufacturers and foreign service suppliers, while offering substantial government guidance, resources and regulatory support to Chinese industries. The principal beneficiaries of these policies are state-owned enterprises, as well as other favored domestic companies attempting to move up the economic value chain.
In 2012, policies aimed at promoting “indigenous innovation” continued to represent an important component of China’s industrialization efforts. Through intensive, high-level bilateral engagement, the United States had secured a series of critical commitments from China in 2011 that generated major progress in de-linking indigenous innovation policies at all levels of the Chinese government from government procurement preferences, culminating in the issuance of a State Council measure mandating that provincial and local governments eliminate any remaining linkages by December 1, 2011. The principal challenge in 2012 was to begin addressing a range of discriminatory indigenous innovation preferences proliferating outside of the government procurement context. China took an important step in this direction by committing at the May 2012 S&ED meeting to treat intellectual property owned or developed in other countries the same as intellectual property owned or developed in China. The United States also used the 2012 JCCT process to press China to revise or eliminate specific measures that appeared to be inconsistent with this commitment. China is reviewing specific U.S. concerns, and the United States and China agreed to intensify their discussions in 2013.
On other fronts, China continued to deploy export quotas, export license restrictions, minimum export prices, export duties and other export restraints on a number of raw material inputs in which it holds the leverage of being among the world’s leading producers. Through these export restraints, it appears that China is able to provide substantial economic advantages to a wide range of downstream producers in China at the expense of foreign downstream producers, while creating incentives for foreign downstream producers to move their operations, technologies and jobs to China. The U.S. responded, as noted above, by filing two WTO cases. The first one, begun in 2009, challenged the export restraints that China maintains on nine raw material inputs of key interest to the U.S. steel, aluminum and chemicals industries. The United States won that case in January 2012. Shortly thereafter, in March 2012, the United States launched a case challenging China’s export restraints on rare earths, tungsten and molybdenum, which are key inputs for a multitude of U.S.-made products, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum and chemicals.
China has continued to provide a range of injurious subsidies to its domestic industries, and some of these subsides appear to be prohibited under WTO rules. The United States has addressed these subsidies both through countervailing duty proceedings conducted by the Commerce Department and through dispute settlement proceedings at the WTO. In September 2012, the United States launched a new case challenging numerous types of support provided by the central government and various sub-central governments in China to automobile and automobile-parts enterprises located in regions in China known as “export bases.” The United States and other WTO members have also continued to press China about its obligation to notify its subsidies to the WTO. Since joining the WTO eleven years ago, China has yet to submit a complete notification of subsidies maintained by central, provincial and local governments.
As in prior years, in 2012, the Chinese government attempted to manage the export of many primary, intermediate and downstream products by raising or lowering the value-added tax rebate available upon export. China sometimes reinforced its objectives by imposing or retracting export duties. These practices have caused tremendous disruption, uncertainty and unfairness in the global markets for some products, particularly downstream products where China is a leading world producer or exporter, such as steel, aluminum and soda ash. Domestic industries from many of China’s trading partners have continued to respond to the effects of these and other trade-distortive practices by petitioning their governments to impose trade remedies such as antidumping and countervailing duties. At the December 2012 JCCT meeting, China agreed to hold serious discussions with the United States, beginning in the first half of 2013, in order to work toward a mutual understanding of China’s VAT system and the concepts on which a trade-neutral VAT system is based.
In the standards area, Chinese government officials in some instances have reportedly pressured foreign companies seeking to participate in the standards- setting process to license their technology or intellectual property on unfavorable terms. In addition, China has continued to pursue unique national standards in a number of areas of high technology where international standards already exist. To date, bilateral engagement has yielded minimal progress in resolving these matters.
In the area of government procurement, the United States continues to press China to take concrete steps toward fulfilling its commitment to accede to the WTO’s Government Procurement Agreement and to open up its vast government procurement market to the United States and other GPA parties. China has submitted two revised offers of coverage within the past two years, following up on commitments that it made through the JCCT and S&ED processes and the January 2011 visit of President Hu to Washington, but they have demonstrated only incremental progress. The United States, the EU and other GPA parties characterized the more recent of these two offers, submitted in November 2012, as highly disappointing in scope and coverage. The United States will continue to work with China and other interested GPA parties in an effort to ensure that China’s accession to the GPA takes place expeditiously and on robust terms that are comparable to the coverage of the United States and other GPA parties. At the December 2012 JCCT meeting, China acknowledged the need to engage the United States more seriously on core issues relating to the scope of projects that qualify as government procurement and the extent to which state-owned enterprises in China engage in government procurement activities.
China has also sought to protect many domestic industries through a restrictive investment regime. In addition to restrictions imposed via China’s foreign investment catalogue, China can readily impose additional constraints on investment through its foreign investment approval processes, where Chinese government officials can use vaguely defined powers on an ad hoc basis to delay or restrict market entry. In addition, according to confidential reports from foreign enterprises, Chinese government officials may use informal means to require a foreign enterprise to conduct research and development in China, transfer technology, satisfy performance requirements relating to exportation or the use of local content, or make valuable, deal-specific commercial concessions if it wants its investment approved. To date, sustained bilateral engagement by the United States has not led to significant relaxation of China’s investment restrictions, nor has it appeared to curtail ad hoc actions by Chinese government officials.
An array of Chinese policies designed to assist Chinese automobile enterprises in developing cutting-edge electric vehicle technologies and in building domestic brands that can succeed in global markets continued to pose challenges in 2012, despite significant progress made in addressing these policies in 2011. As previously reported, these policies generated serious concerns about intellectual property discrimination, forced technology transfer, research and development requirements, investment restrictions and discriminatory treatment of foreign brands and imported vehicles. The United States was able to secure China’s commitment at the November 2011 JCCT meeting to eliminate many of these concerns. However, more work remains, as China issued additional problematic policy measures in 2012.
As noted above, China’s regulatory authorities seem to be pursuing antidumping and countervailing duty investigations and imposing duties for the purpose of striking back at trading partners that have exercised their WTO rights in a way that displeases China. Apparently emboldened by the absence of any real domestic legal check on their regulatory activities, China’s regulatory authorities take these actions even when necessary legal and factual support for the duties is absent. The U.S. response has been the filing and prosecution of three WTO cases. The one case decided to date – which involves antidumping and countervailing duties on imports of GOES from the United States – confirms
that China failed to abide by WTO disciplines when imposing those duties.
In 2013, the United States will continue to pursue vigorous and expanded bilateral engagement to resolve the serious concerns that remain over many of China’s industrial policy measures. The United States will also continue to seek the elimination of China’s export restraints on raw material inputs through the cases that it has brought at the WTO.
Trading Rights and Distribution Services
In most sectors, China has implemented its critically important commitments to fully liberalize trading rights (the right to import and the right to export) and distribution services (wholesale, retail, direct selling and franchising services), enabling many U.S. companies to import and export goods directly without using middlemen and to establish their own distribution networks in China. Over the years, some significant restrictions persisted, but, by 2012, many of the United States’ outstanding concerns were being addressed.
As previously reported, the United States mounted a successful challenge at the WTO to China’s restrictions on the importation and distribution of copyright-intensive products such as books, newspapers, journals, theatrical films, DVDs and music, in contravention of its trading rights and distribution services commitments. China subsequently agreed that it would remove these restrictions by March 2011. China took positive steps by issuing several revised measures, and repealing other measures, relating to its restrictions on books, newspapers, journals, DVDs and music. As China acknowledged, however, it did not issue any measures addressing theatrical films. Instead, China proposed bilateral discussions with the United States in order to seek an alternative solution. In February 2012, the two sides reached an agreement providing for substantial increases in the number of foreign films imported and distributed in China each year, along with substantial additional revenue for foreign film producers.
One other outstanding concern in the area of distribution services involves direct selling services. Even though China has become a major market for U.S. direct sellers, China continues to subject foreign direct sellers to unwarranted restrictions on their business operations, such as overly burdensome service center requirements. Going forward, the United States will continue to press China to reconsider these problematic restrictions.
Agriculture
In 2012, U.S. agricultural products continued to experience strong sales to China. China became the United States’ largest agricultural export market in 2010, when U.S. exports to China exceeded $17 billion, more than eight times the level in 2002. In 2011, U.S. exports to China increased by 8 percent, and continued to increase in 2012. Much of this success was enabled by the United States’ persistent engagement of China’s regulatory authorities.
Notwithstanding this success, China remains among the least transparent and predictable of the world’s major markets for agricultural products, largely because of selective intervention in the market by China’s regulatory authorities. As in past years, seemingly capricious practices by Chinese customs and quarantine agencies can delay or halt shipments of agricultural products into China. In addition, both SPS measures with what seem to be questionable scientific bases and a generally opaque regulatory regime frequently bedevil traders in agricultural commodities, who require as much predictability and transparency as possible in order to preserve margins and reduce the already substantial risks involved in agricultural trade.
In 2012, the principal targets of worrisome practices by China’s regulatory authorities were poultry, pork and beef products. As a consequence, anticipated growth in U.S. exports of these products was not realized. In particular, China continued to block the importation of U.S. beef and beef products, more than five years after these products had been declared safe to trade under international scientific guidelines. China also continued to maintain some unwarranted state-level Avian Influenza import bans on poultry. Additionally, China continued to maintain overly restrictive pathogen and residue standards for raw meat and poultry.
In 2013, the United States will continue to urge China to lift the restrictions on imports of U.S. beef and U.S. poultry products. The United States will also continue to pursue vigorous bilateral engagement with China and take other actions, as appropriate, to achieve progress on its outstanding concerns.
Services
The United States continued to enjoy a substantial surplus in trade in services with China in 2012, and the market for U.S. service suppliers in China remains promising. This success has been largely attributable to the market openings phased in by China pursuant to its WTO commitments, as well as the United States’ comprehensive engagement of China’s various regulatory authorities.
Nevertheless, in 2012, numerous challenges persisted in a range of services sectors. As in past years, Chinese regulators continued to use discriminatory regulatory processes, informal bans on entry, overly burdensome licensing and operating requirements and other means to frustrate efforts of U.S. suppliers of banking, insurance, express delivery, telecommunications, legal and other services to achieve success reflecting their full market potential in China. China also continued to place unwarranted restrictions on foreign companies, like the major U.S. credit card companies, which supply electronic payment services to banks and other companies that issue or accept credit and debit cards. However, as discussed above, the United States recently prevailed in a WTO case challenging those restrictions, and China has indicated that it will comply with the WTO’s rulings by July 2013.
In 2013, the United States will continue to engage China on outstanding services issues and will closely monitor developments in an effort to ensure that China fully adheres to its WTO commitments.
Transparency
One of the core principles of the WTO Agreement reflected throughout China’s WTO accession agreement is transparency. Transparency permits markets to function effectively and reduces opportunities for officials to engage in trade- distorting practices behind closed doors. China’s transparency commitments in many ways required a profound historical shift in Chinese policies, and China has made important strides to improve transparency across a wide range of national and provincial authorities following its accession to the WTO. However, it appears that China still has more work to do if it is to fully implement some of its commitments.
As previously reported, China committed to adopt a single official journal for the publication of all trade- related laws, regulations and other measures, and China finally adopted a single official journal, to be administered by the Ministry of Commerce (MOFCOM), in 2006. To date, it appears that most but not all government entities publish trade-related measures in this journal. Nevertheless, these government entities tend to take a narrow view of the types of trade-related measures that need to be published in the official journal. As a result, while trade-related regulations and departmental rules are often published in the journal, it is less common for other measures such as opinions, circulars, orders, directives and notices to be published, even though they are all binding legal measures.
China also committed to provide a reasonable period for public comment before implementing new trade-related laws, regulations and other measures. China has taken several steps related to this commitment. In 2008, the National People’s Congress (NPC) instituted notice-and-comment procedures for draft laws, and shortly thereafter China indicated that it would also publish proposed trade- and economic- related administrative regulations and departmental rules for public comment. These steps signaled increasing recognition by many Chinese government officials that improved transparency and greater input from stakeholders and the public contribute to better regulatory practices and improved policymaking. Since 2008, the NPC has been regularly publishing draft laws for public comment, and China’s State Council has been regularly publishing draft regulations for public comment. However, many of China’s ministries have not been consistent in publishing draft departmental rules for public comment.
At the May 2011 S&ED meeting, China committed that it would issue a measure in 2011 to implement the requirement to publish all proposed trade- and economic-related administrative regulations and departmental rules on the website of the State Council’s Legislative Affairs Office (SCLAO) for a public comment period of not less than 30 days. In April 2012, shortly before the May 2012 S&ED meeting, the SCLAO issued two measures imposing this requirement.
Meanwhile, after eleven years of WTO membership, China still has not implemented its commitment to make available translations of all of its trade-related laws, regulations and other measures in one or more of the WTO languages (English, French and Spanish). This commitment is very important to the United States and China’s other trading partners, but China has not yet even established an infrastructure to undertake the agreed-upon translations of its trade- related measures.
The United States will continue to monitor China’s progress closely and push China to undertake further steps necessary to improve transparency.
THE YEAR AHEAD
In 2013, as in prior years, the Administration will continue to energetically pursue increased benefits for U.S. businesses, workers, farmers, ranchers and service suppliers from our trade and economic ties with China. The Administration will use all available tools to achieve these objectives, including the pursuit of productive, outcome-oriented dialogue in both bilateral and multilateral settings, as well as the vigorous use of the WTO dispute settlement mechanism, where appropriate.
On the bilateral front, the United States will continue to pursue a robust set of formal and informal meetings and dialogues with China at all levels of government. The United States will also take full advantage of multilateral venues such as the WTO to engage China. Key goals will include ensuring that the benefits of China’s WTO commitments are fully realized by the United States and other WTO members, and that trade frictions that arise in the U.S.-China trade relationship are appropriately resolved. In addition, the United States will continue to urge China to reduce Chinese government intervention in the economy and to reform its state- owned enterprises.
At the same time, as the United States has repeatedly demonstrated, when dialogue is not successful in resolving WTO-related concerns, the United States will not hesitate to invoke the dispute settlement mechanism at the WTO where appropriate. Similarly, the United States will continue to rigorously enforce U.S. trade remedy laws, in accordance with WTO rules, when U.S. interests are being harmed by unfairly traded or surging imports from China.
Going forward, the Administration will continue to consult closely with the Congress and with U.S. stakeholders in order to ensure that the actions being pursued by the United States advance their interests. The Administration remains dedicated to maximizing U.S. stakeholders’ opportunities to compete in China and the global marketplace.
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 2012 Report to Congress.pdf | 1.34 MB |
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Events
Wednesday, November 20, 2024 - 3:00pm
Hosted by USC Annenberg Office of International Affairs, enjoy food, drink and conversation with fellow international students.
Thursday, November 7, 2024 - 4:00pm
Join us for an in-person conversation on Thursday, November 7th at 4pm with author David M. Lampton as he discusses his new book, Living U.S.-China Relations: From Cold War to Cold War. The book examines the history of U.S.-China relations across eight U.S. presidential administrations.