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2015 Report to Congress On China’s WTO Compliance

This is the fourteenth annual report to Congress on compliance by China with commitments made in connection with its accession to the World Trade Organization. 

December 1, 2015
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EXECUTIVE SUMMARY
(Download the full report)
 
OVERVIEW
 
Fourteen years ago, on December 11, 2001, China acceded to the World Trade Organization. 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. The data confirm a dramatic expansion in trade and investment among China and its many trading partners, including the United States, since China joined the WTO:
 
  • U.S. exports of goods to China totaled $124 billion in 2014, representing an increase of 545 percent since 2001 and positioning China as the United States’ largest goods export market outside of North America.
  • U.S. services exports reached $43 billion in 2014, representing an increase of 733 percent since 2001. Services supplied through majority U.S.-invested companies in China also have been increasing  dramatically,  totaling  an  additional $43 billion  in  2013, the latest year  for which data is available.
 
As in past years, despite these positive results, the overall picture currently presented by China’s WTO membership remains complex.
 
Many of the problems that arise in the U.S.-China trade and investment relationship can be traced to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in China’s economy, which continue to generate significant trade distortions that inevitably give rise to trade frictions. At the same time, the United States notes that China’s current leadership has highlighted the need for and has begun to pursue further economic reform in China. If pursued appropriately, this reform effort offers the potential for addressing these problems and for helping to realize the tremendous potential of the U.S.-China trade and investment relationship.
 
Indeed, the United States views economic reform in China as a win-win for the United States and China. If China is going to deal successfully with its increasing economic challenges at home, it must allow greater scope for market forces to operate, which requires altering the role of the state in planning the economy. It likewise must reform state-owned enterprises, eliminate preferences for domestic national champions and remove market access barriers currently confronting foreign goods and services. Economic reform in China is also 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 sustainable Chinese economic growth will lead to increased U.S. exports and a more balanced U.S.- China trade and investment relationship and also will help drive global economic growth.
 
In 2015, as in past years, when trade frictions arose, the United States pursued 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. Since China’s accession to the WTO, the United States has brought 17 WTO cases  against China, more  than twice  as many WTO cases as any other WTO member has brought against China. In doing so, the United States has placed a strong emphasis on the need for China to adhere to WTO rules, holding China fully accountable as a mature participant in, and a major beneficiary of, the WTO’s global trading system.
 
China’s first 14 years as a WTO member are described below,  followed by  a review of key developments in 2015. Then, USTR describes its conclusions regarding China’s WTO compliance efforts to date, which are subsequently summarized in Table 1 (beginning on page 23).
 
CHINA’S FIRST 14 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 economic reform goals of China’s leaders at the time, which built on the economic reforms that China had begun under Deng Xiaoping in 1978. The Chinese leaders who negotiated the terms of China’s WTO accession correctly 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 had initiated a dramatic and rapid reform of state-owned enterprises in the mid-1990s.
 
Following China’s accession to the WTO, the Chinese government took many steps to implement China’s numerous commitments. These steps unquestionably deepened China’s integration into the WTO’s rules-based international trading system, while also strengthening China’s ongoing economic reforms.
 
New leaders took over in China in 2003, two years after China’s WTO accession. While the Chinese government continued to take steps to implement China’s outstanding WTO commitments, it generally did not pursue economic reforms as aggressively as before. Instead, the  Chinese  government increasingly emphasized the state’s role in the economy, diverging from the path of economic reform that had driven China’s accession to the WTO. With the state leading China’s economic development, the Chinese government 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, generated serious trade frictions with China’s many trade partners, including the United States.
 
In particular, 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 forces and a lesser reliance on Chinese government economic planners and state-owned enterprises. Instead, the new leaders set out to bolster the state sector by seeking to improve the operational efficiency of state-owned enterprises and by orchestrating mergers and consolidations in order to make these enterprises stronger. These actions soon led to institutionalized preferences for state-owned enterprises and the creation of national champions in many sectors.
 
By 2006, when China had taken steps to implement the last of its key WTO commitments, China’s policy shift became more evident. It was at this time that USTR began reporting on Chinese government policies and practices that demonstrated a stronger embrace of state capitalism, a trend that continued into 2012, the last full year under the Chinese leaders who had taken over in 2003. USTR also reported that some of these policies and practices suggested that China had not yet fully embraced key WTO principles, such as market access, non- discrimination and transparency. Exacerbating this situation was China’s incomplete adoption of  the rule of law, including through government officials’ abuse of administrative processes.
 
For example, as we reported in 2012, confidential accounts from foreign enterprises indicate that Chinese government officials, acting without fear of legal challenge, at times require foreign enterprises to transfer technology as a condition for securing 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 legitimately exercised their rights under WTO trade remedy rules. As three WTO cases won by the United States confirm, China’s regulatory authorities appear to pursue these investigations even when necessary legal and factual support for the duties is absent.  In addition,
U.S. industry and industries from other WTO Member countries have asserted that China’s competition policy enforcement authorities not only are targeting foreign companies, but also at times use Anti-monopoly Law investigations as a tool to protect and promote domestic national champions and domestic industries.
 
By 2013, when China’s next leadership  transition was complete, some positive signs of a renewed commitment to economic reform in China began to emerge. The new Chinese leaders’ focus on economic reform soon led to a Decision reached in November 2013 at the  Third Plenum  of  the  18th Central Committee of the Chinese Communist Party. The Third Plenum Decision endorsed a number of far-reaching economic reform pronouncements, calling for the market to play a “decisive” role in allocating resources, reducing Chinese government intervention in the economy, accelerating China’s opening up to foreign goods and services, reforming China’s state-owned enterprises and improving transparency and the rule of law to allow fair competition in China’s market. Although these important pronouncements continue to face resistance from entrenched interests and have yet to be fully translated into actions that would significantly change China’s trade regime,  they would provide tremendous benefits not only to China but also to its trading partners if realized.
 
Another notable development took place in July 2013, when China announced that it was prepared to negotiate a high-standard Bilateral Investment Treaty (BIT) with the United States. Since then, the BIT negotiations have proceeded with China’s full engagement, although to date China has decided not to  pursue  a  material  reduction  of  its  investment
restrictions in anticipation of the successful conclusion of those negotiations.
 
Despite China’s re-focusing on economic reform, a wide range of Chinese policies and practices continued to generate significant concerns among U.S. stakeholders in 2015. Major areas of specific concern continued to include: serious  problems with intellectual property rights enforcement in China, including in the area of trade secrets; the Chinese government’s wide-ranging use of industrial policies favoring state-owned enterprises and domestic national champions in many sectors; troubling agricultural policies that block U.S. market access; numerous continuing restrictions on services market access; and inadequate  transparency. China’s slow movement toward accession to the WTO Government Procurement Agreement (GPA) also hinders development of the U.S.-China trade relationship.
 
Going forward, as reported in prior years, the United States looks to China 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. Taking these steps 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. China’s new leaders seem to have embraced many elements of this approach, and the United States will continue to work with China going forward to help make it a reality.
 
2015 DEVELOPMENTS
 
In 2015, the United States worked hard to increase the benefits that U.S. businesses, workers, farmers, ranchers,  service  providers  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 as appropriate in areas where dialogue had not resolved U.S. concerns.
 
On the bilateral front, the United States and China pursued numerous formal and informal meetings and dialogues throughout the past year, culminating in three high-level meetings. In June 2015, the United States and China met in Washington and held their seventh U.S.-China Strategic and Economic Dialogue (S&ED) meeting. Constructive  dialogue also took place in connection with President Xi’s state visit to Washington in September 2015. In addition, the United States and China held the 26th meeting of the U.S.-China Joint Commission on Commerce and Trade (JCCT) in November 2015. The United States used all of these avenues to engage China’s leadership on trade and investment matters and to seek resolutions to a number of pressing issues.
 
The two sides were able to make significant progress on the following key trade issues through their bilateral engagement in 2015:
 
  • China committed that generally applicable measures to enhance information and communications technology (ICT) cybersecurity in commercial sectors should be consistent with WTO agreements, be narrowly tailored, take into account international norms, be non- discriminatory, and not impose nationality- based conditions or restrictions, on the purchase, sale or use of ICT products by commercial enterprises unnecessarily.
  • China committed to ensure that ICT-related regulations in the banking sector are non- discriminatory and do not impose nationality- based conditions or restrictions on the purchase, sale or use of ICT products, services or technologies by commercial enterprises. China further committed that Chinese banks are free to purchase ICT products regardless of the country of origin.
  • China agreed to notify the WTO of concerning draft ICT-related regulations in the insurance sector for review by WTO members.
  • China confirmed that the policies published by the Chinese government on the development of strategic emerging industries, including industry development promotion guidelines and associated national and sub-national industry development investment funds, are applicable to, and made available, on an equal basis to foreign-invested enterprises. China further committed to enhance  transparency  by soliciting public comments on drafts of binding policy measures in this area.
  • China committed to further improve its agricultural biotechnology approval processes and reaffirmed the importance of implementing timely, transparent, predictable and science- based approval processes for products of agricultural biotechnology, which are based on international standards. 
  • China announced and clarified its ongoing and intended efforts to revise China’s trade secrets system and provide more effective aspects of its civil judicial system to deter and respond to the misappropriation of trade secrets. 
  • China agreed to participate in a government- industry dialogue to enhance the systems available to address challenges relating to online counterfeiting and to increase information sharing and cooperation on cross-border enforcement.
  • China committed to a transparent and expeditious process for developing Geographical Indication-related measures that will help keep this significant market open to U.S. agricultural and other products. 
  • China committed to ensure that any Chinese enterprise licensed to distribute films in China can distribute imported flat-fee films on their own and without having to contract with or otherwise partner with China Film Group or any other state-owned enterprise. China further committed that the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), China Film Group or any other state- owned enterprise would not directly or indirectly influence the negotiation, terms, amount of compensation or  execution of any distribution contract between a licensed Chinese distributor and a U.S. flat-fee film producer.
  • China committed to enhance the participation of foreign financial services firms and investors, including banks, securities companies, private fund management institutions, credit rating agencies, brokers and traders, in China’s capital markets through a variety of specified means, such as expansions in the scope of permitted business activities, the lifting of restrictions on currently permitted business activities and increased foreign equity participation.
  • China made a series of commitments relating to the Anti-monopoly Law, including a commitment that China’s anti-monopoly enforcement agencies will conduct enforcement according to the Anti-monopoly Law and will be free from intervention by other  agencies and that commercial secrets obtained in the process of anti-monopoly enforcement will be protected under the law and generally shall not be disclosed to other agencies. China also recognized the importance of maintaining coherent rules relating to intellectual property rights in the Anti-monopoly Law context, including by taking into account the pro- competitive effects of intellectual property licensing.
  • China made a series of commitments relating to its national security reviews of foreign investments, including, among other things, to limit the scope of these reviews solely to issues that constitute national security concerns, not to generalize the scope of these reviews to include other broader public interest or economic issues, and to apply the same rules and standards to each investment reviewed, regardless of country of origin.
  • The United States and China reaffirmed as a top economic priority the negotiation of a high standard BIT that reflects a shared commitment to the objectives of non-discrimination, fairness and transparency, that effectively facilitates and enables market access and market operation, and that represents on each side an open and liberalized investment regime. During the state visit of President Xi in September 2015, the two sides also committed to intensify their discussions and to work expeditiously to conclude the negotiation of a mutually beneficial treaty that meets these high standards.
  • China took steps to address problematic government subsidization involving local content requirements in the manufacture of intelligent manufacturing equipment.
  • China committed to investigate carefully the WTO consistency of export-contingent subsidies provided to producers of  so-called “International Well Known Brands” as well as the WTO consistency of subsidies provided to agricultural producers that purchase Chinese- made farm machinery or equipment.
  • China agreed to hold discussions  with  the United States in 2016 regarding capacity, production and trade in the steel sector and to provide updates on its progress in implementing its  July  2014  S&ED  commitment  to  establish mechanisms that strictly prevent the expansion of crude steelmaking capacity and that are designed to achieve major progress in addressing excess production capacity in the steel sector within five years.
  • China also agreed to intensify discussions with the United States regarding excess capacity in the aluminum sector.
  • China committed that it would increase the transparency of its semiconductor industry development plans and that its National Semiconductor Investment Fund would be managed by professional fund companies in a manner consistent with market-based concepts and free from government intervention into normal operational activities.
  • China committed that licensing  commitments for patents in voluntary standards will be made voluntarily and without  government involvement in negotiations over those commitments, except as otherwise provided by legally binding measures.
  • China agreed to closer cooperation with the United States as China’s regulatory authorities develop their regulatory and enforcement frameworks for the oversight of manufacturers of bulk chemicals that can be used as active pharmaceutical ingredients (APIs) and further agreed to publish revisions to the Drug Administration Law in draft form for public comment and to take into account the opinions of the United States and other stakeholders.
  • Building on prior JCCT commitments, China announced steps to further improve the registration and approval processes for pharmaceuticals and medical devices.
  • China agreed that imported medical devices will be treated the same as domestically produced medical devices.
 
While progress was made on some meaningful issues, as described above, many issues of concern remain. The United States will continue to engage China on important issues in the areas of intellectual property rights enforcement, secure and controllable ICT policies, technology localization, indigenous innovation, investment restrictions, export restraints, government subsidization, excess capacity, state-owned enterprises, strategic emerging industries, administrative licensing, government procurement, taxation, standards development, market access for U.S. beef and poultry, biotechnology product approvals, agricultural support, pharmaceuticals and medical devices, cosmetics, financial services, Internet- related services, film distribution, legal services, telecommunications services, express delivery services, competition policy and transparency, among others.
 
On the enforcement side, the United States continued to pursue a robust agenda in 2015. The United States brought two new WTO cases against China, while continuing to prosecute six other WTO cases against China.
 
One of the new cases challenges numerous Chinese central government and sub-central government export subsidies provided to manufacturers and producers across seven industries located in designated clusters of enterprises called “Demonstration Bases.” This case follows a case, launched in 2012, challenging similar 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 discriminatory Chinese government measures exempting sales of certain aircraft produced in China, including general aviation aircraft,  business jets, agricultural aircraft and regional jets, from the value-added tax (VAT) while imposing that same tax on sales of imported aircraft.  Compounding this problem, it appears that the Chinese government never  published these measures as required by China’s WTO commitments.
 
Over the past year, the United States also continued to work to ensure that China fully complied with the WTO’s rulings in a case in which the United States had challenged antidumping and countervailing duties that China had imposed on imports of U.S. grain-oriented electrical steel (GOES), a product used by the power generating industry. In that case, the United States had pursued WTO litigation because of serious concerns that China’s Ministry of Commerce (MOFCOM) had imposed the duties in question without regard for applicable legal requirements or the facts. In October 2012, the United States prevailed before the WTO’s Appellate Body. Nevertheless, MOFCOM proceeded to issue a redetermination that maintained the duties in place. Because this redetermination appeared to be inconsistent with the WTO’s rulings, the United States launched  a challenge  to it in a proceeding under Article 21.5 of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). This compliance challenge was the first one that any WTO member had initiated to challenge a claim by China that it had complied with adverse WTO findings. In July 2015, the WTO panel hearing the case found that MOFCOM’s redetermination did not comply with the WTO’s rulings.
 
Meanwhile, in August 2014, the United States secured a victory in a WTO case challenging highly trade-distortive 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. China agreed to comply  with  the WTO’s rulings in this case by May 2015, and it subsequently announced that it had eliminated the export quotas and export duties at issue by that deadline.
 
Other active WTO cases against China involve challenges to export subsidies being provided to automobile and automobile parts enterprises in China, antidumping and countervailing duties that China had imposed on imports of U.S. chicken broiler products, restrictions that China had put in place to create and maintain a domestic national champion as the exclusive supplier of electronic payment services, i.e., the services needed to process most credit and debit card transactions in China, and importation and distribution restrictions applied to theatrical films. The status of each of these cases is detailed below in the Enforcement section (beginning on page 34).
 
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. In 2016, the United States will continue to pursue vigorous and expanded bilateral engagement to resolve the serious issues that remain in these areas. The United States also will continue to hold China accountable for adherence to WTO rules when dialogue does not resolve U.S. concerns, including through the use of the dispute settlement mechanism at the WTO.
 
Intellectual Property Rights
 
Overview
 
Since its accession to  the WTO,  China  has undertaken a wide-ranging revision of its 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, inadequacies in China’s IPR protection and enforcement regime continue to present serious barriers to U.S. exports and investment. China was again placed  on  the Priority Watch List in USTR’s 2015 Special 301 report. In addition, in 2015, USTR announced the results of its 2014 Out-of-Cycle Review of Notorious Markets, which identifies online and physical markets that exemplify key challenges in the global struggle against piracy and counterfeiting. Several Chinese markets were among those named as notorious markets.
 
Trade Secrets
 
The protection and enforcement of trade secrets in China is a serious problem that has attained a higher profile in recent years. Thefts of trade secrets that benefit Chinese companies have occurred  both within China and outside of China. Offenders  in many cases continue to operate with impunity. Most troubling are reports that actors affiliated with the Chinese government and the Chinese military have infiltrated the computer systems of U.S. companies, stealing terabytes of data, including the companies’ intellectual  property (IP), for  the purpose of providing commercial advantages to Chinese enterprises. In order to help address these challenges, the United States has won commitments from China not to condone this type of state- sponsored misappropriation of trade secrets and has urged China to update and amend its trade secrets- related laws and regulations, particularly the Anti- unfair Competition Law, and to consider issuing judicial guidance to strengthen its trade secrets regime.  The United States also has urged China to
 
take actions to address this problem across the range of state-sponsored actors and to promote public awareness of this issue. At the November 2015 JCCT meeting, China announced that it is in the process of amending this law and intends to issue model or guiding court cases and  clarify rules on preliminary injunctions, evidence preservation orders and damages.
 
Pharmaceutical  Patents and Market Access
 
The United States continues to engage China on a range of patent and technology transfer concerns relating to pharmaceuticals. At the December 2013 JCCT meeting, China committed to permit supplemental data supporting pharmaceutical patent applications. However, it appears that China has only implemented that commitment in part. In addition, many other concerns remain, including the need to provide effective protection against unfair commercial use of  undisclosed test or other data generated to obtain marketing approval for pharmaceutical products,  and to  provide effective enforcement against infringement of pharmaceutical patents. Additionally, a backlogged drug regulatory approval system presents market access and patient access concerns. At the December 2014 JCCT meeting, China committed to significantly reduce time-to-market for innovative pharmaceutical products through streamlined processes and additional funding and personnel.
 
A serious and emerging concern that arose in 2015 emanates from China’s recently unveiled proposals in the pharmaceuticals sector that seek to promote government-directed indigenous innovation and technology transfer  through the provision of regulatory preferences. For example, a State Council measure issued in final form without having been made available for public comment calls for expedited regulatory approval to be granted to innovative new drugs where the applicant’s manufacturing capacity has been shifted to China. The United States is pressing China to reconsider this approach.
 
The United States is also engaging China’s regulatory authorities as they consider amendments to pharmaceutical registration regulations. The United States is working to ensure that these amendments promote the early notification and resolution of patent disputes.
 
Software Piracy
 
Due to the serious obstacles in China to the effective protection and enforcement of IPR in all forms, sales of legitimate IP-intensive goods and services, including software and audiovisual products, remain disproportionately low compared to similar markets with stronger IPR protection and enforcement. The United States  continues  to work with China on a series of JCCT and S&ED commitments to foster a better IP environment that will facilitate increased sales of legitimate IP-intensive goods and services. For example, sales of legitimate software to the Chinese government by U.S. companies have seen only a modest increase, while losses to U.S. software companies from the use of pirated software by Chinese state-owned enterprises and other enterprises remain very high. The United States continues to call on China to fulfill its existing commitments with  regard to software legalization and to urge all levels of the Chinese government, state-owned enterprises and state-owned banks to take necessary steps to ensure the use of legitimate software.
 
Online Piracy
 
Online piracy in China is widespread and continues on a large scale, affecting industries distributing legitimate music, motion pictures, books and journals, software and video games. Increased enforcement activities have yet to slow online sales of pirated goods. At the December 2014 JCCT meeting, China committed to strengthen enforcement against copyright piracy activities in the online environment and to deter the occurrence of copyright piracy through criminal, civil and administrative remedies and penalties.   Separately,
 
new rules on the review of foreign television content present a serious concern for the continued viability of licensed foreign television content, as they are disrupting legitimate commerce while inadvertently creating conditions that allow for pirated content to displace legitimate content online.
 
Counterfeit Goods
 
Although rights holders report increased enforcement efforts by Chinese government authorities, counterfeiting in China, affecting a wide range of goods, remains widespread. One area of particular U.S. concern involves  medications. Despite sustained engagement by the United States, China still needs to improve its regulation of the manufacture of active pharmaceutical ingredients to prevent their use in counterfeit and substandard medications. At the July 2014 S&ED meeting, China agreed to develop and seriously consider amendments to the Drug Administration Law that will require regulatory control of the manufacturers of bulk chemicals that can be used as active pharmaceutical ingredients. At the June 2015 S&ED meeting, China further agreed to publish revisions to the Drug Administration Law in draft form for public comment and to take into account the opinions of the United States and other relevant stakeholders. The United States will continue to work with China to ensure that China fulfill its commitments in this important area.
 
Industrial Policies
 
Overview
 
China continued to pursue industrial policies in 2015 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.
 
Secure and Controllable ICT Policies
 
In 2015, global concerns heightened over a series of Chinese measures that  would impose severe restrictions on a wide range of U.S. and other foreign ICT products and services with an apparent long- term goal of replacing foreign ICT products and services. Concerns centered on requirements that ICT equipment and other ICT products and services in critical sectors be “secure and controllable.”
 
Some of these policies would apply to wide segments of the  Chinese market. For example, in June 2015, China passed a National Security  Law with a stated purpose of safeguarding China’s security, but it included sweeping provisions addressing economic and industrial  policy.  China also drafted laws relating to counterterrorism and cybersecurity this year which, if finalized in their current form, would also impose far-reaching and onerous trade restrictions on imported ICT products and services in China. Additionally, in September 2015, the State Council published a big data development plan, which for the first time set a time table for adopting “secure and  controllable” products and services in critical departments by 2020.
 
Other policies would apply to specific sectors of China’s economy. A high profile example in 2015 is a measure drafted by the China Banking Regulatory Commission (CBRC) that called for 75 percent of ICT products used in the banking system to be “secure and controllable” by 2019 and that imposed a series of criteria that would shut out foreign ICT providers from China’s banking sector. Other specific sectors currently pursuing “secure and controllable” policies include the insurance sector and the e-commerce sector.
 
This year, the United States, in concert with other governments and stakeholders around the world, raised serious concerns at the highest levels of government within China. President Obama and President Xi Jinping discussed this issue during the state visit of President Xi in September and agreed on a set of principles for trade in information technologies. The issue was also raised in connection with the June S&ED meeting and the November JCCT meeting, with China making a series of additional important commitments with regard to technology policy.
 
Indigenous Innovation
 
In 2015, 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 previously secured a series of critical commitments from China 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 2011. Since then, the principal challenge has been to address a range of discriminatory indigenous innovation preferences proliferating outside of the government procurement context.
 
Using the U.S.-China Innovation Dialogue, the United States was able to persuade China to take an important step in this  direction at the  May 2012 S&ED meeting, where China committed to treat IPR owned or developed in other countries the same as IPR 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. Throughout 2013 and 2014, China reviewed specific U.S. concerns, and the United States and China intensified their discussions. At the December 2014 JCCT meeting, China clarified and underscored that it will treat IPR owned or developed in other countries the same as domestically owned or developed IPR, and it further agreed that enterprises are free to base technology transfer decisions on business and market considerations, and are free  to independently negotiate and decide whether and under what circumstances to assign or license intellectual property rights to  affiliated  or unaffiliated enterprises.
 
In 2015, China’s measures on “secure and controllable” ICT policy (discussed above) included provisions that would create discriminatory indigenous innovation preferences. In addition, China’s recent steps to reform its drug review and approval system raised new concerns related to indigenous innovation and technology transfer. For example, in 2015, China’s State Council issued a measure that calls for expedited review and approval to be granted to “innovative new  drugs with manufacturing capacity shifted to China.”
 
Technology Transfer
 
While some longstanding concerns regarding technology transfer remain unaddressed, and new ones have emerged, such as tying government preferences to the localization of technology in China and granting regulatory review and approval preferences to innovative drug manufacturers that shift their production to China, some progress has been made in select areas. For example, China committed at the December 2013 JCCT meeting not to finalize or implement a selection catalogue and rules governing official use vehicles. The catalogue and rules would have interfered with independent decision making on technology transfer and would have effectively excluded vehicles produced by foreign and foreign-invested enterprises from important government procurement opportunities.
 
Export Restraints
 
China continues to deploy a combination of export restraints, including export quotas, export licensing, minimum export prices, export duties and other restrictions, on a number of raw material inputs where 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 pressure on foreign downstream producers to move their operations, technologies and jobs to China. In 2013, China removed its export quotas and duties on several raw material inputs of key interest to the U.S. steel, aluminum and chemicals industries after the United States won a dispute settlement case against China at the WTO. In 2014, as discussed above, the United States won a second WTO case, where the claims focused on China’s export restraints on rare earths, tungsten and molybdenum, which are key inputs for a multitude of U.S.-made products, including  hybrid automobile batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum, and chemicals. China agreed to comply with the WTO’s rulings in this second case by May 2015, and it subsequently announced that it had eliminated the export quotas and export duties at issue by that deadline.
 
Export Subsidies
 
China has continued to provide a range of injurious subsidies to its domestic industries, some of which 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 cases at the WTO, including a new one launched in 2015. The United States and other WTO members also have continued to press China to notify its subsidies to the WTO in accordance with its WTO obligations. Since joining the WTO 14 years ago, China has not yet submitted to the WTO a complete notification of subsidies maintained by the central government, and it has not yet notified any of its sub-central government subsidies.
 
Excess Capacity
 
Chinese government actions and financial support in manufacturing industries like steel and aluminum have contributed to massive excess capacity in China, with the resulting over-production distorting global markets and hurting U.S. producers and workers in both the United States and third country markets such as Canada and Mexico. While China recognizes the severe excess capacity problem in the steel and aluminum industries, among others, and has taken steps to try to address this problem, there have been mixed results.
 
From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth. Currently, China’s capacity alone exceeds the combined steelmaking capacity of the European Union (EU), Japan, the  United States, and Russia. China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued to grow exponentially and is estimated to have exceeded 1.4 billion metric tons (MT) in 2014, despite weakening demand domestically and abroad. While China’s steel production is slowing and China may produce approximately 2 to 3 percent less steel in 2015 than in 2014, steel demand in China is projected to decrease 5 percent this year. As a result, China’s steel exports grew to be the largest in the world, at 93 million MT in 2014, a 50-percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015, there is rising concern  that China’s steel exports are still growing and may have increased 25 percent in the first ten months of 2015, as compared to the same period in 2014.
 
Similarly, monthly production of aluminum in China doubled between January 2011 and July 2015 and continues to grow. Large new facilities are being built with government support, including through energy subsidies. China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices, harming U.S. plants and workers.
 
Excess capacity in China – whether in the steel industry or other industries like aluminum – hurts U.S. industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable. Domestic industries in many of China’s trading partners have continued to respond to the effects of the trade-distortive effects of China’s excess capacity by petitioning their governments to impose trade remedies such as antidumping and countervailing duties.
 
Value-added Tax Rebates and Related Policies
 
As in prior years, in 2015, 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 reinforces 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 products made by the steel, aluminum and soda ash industries. These practices, together with other policies, such as excessive government subsidization, also have contributed to severe excess capacity in these same industries. A positive development took place at the July 2014 S&ED meeting, when China agreed to improve its value- added tax rebate  system, including  by actively studying international best practices, and to deepen communication with the United States on  this matter, including regarding its impact on trade. To date, however, China has not made any movement toward the adoption of international best practices.
 
Strategic Emerging Industries
 
In 2010, China’s State Council issued a decision on accelerating the cultivation and development of “strategic emerging industries” (SEIs) that called upon China to develop and implement policies designed to promote rapid growth in government- selected industry sectors viewed as economically and strategically important for transforming China’s industrial base into one that is more internationally competitive in cutting-edge technologies. China subsequently identified seven sectors for  focus under the SEI initiative, including energy-saving and environmental protection, new generation information technology, biotechnology, high-end equipment manufacturing, new energy, new materials and new-energy vehicles.
 
To date, import substitution policies have been included in some SEI development plans at the sub- central government level. For example, a development plan for the light-emitting diode (LED) industry issued by the Shenzhen municipal government included a call to support research and development in products and technologies that have the ability to substitute for imports. Shenzhen rescinded the plan in 2013 following U.S. Government intervention with China’s central government authorities.
 
Similarly, some central and sub-central government measures use local content requirements as a condition for enterprises in SEI sectors to receive financial support or other preferences. For example, in the high-end equipment manufacturing sector, China has maintained an annual program that conditioned the receipt of a subsidy on an enterprise’s use of at least 60 percent Chinese-made components when manufacturing intelligent manufacturing equipment. Citing  WTO  concerns, the United States began pressing China in 2014 to repeal or modify these measures. In 2015, China reported that it had decided not to renew this subsidy program.
 
In addition, an array of Chinese policies designed to assist Chinese automobile enterprises in developing electric vehicle technologies and in  building domestic brands that can succeed in global markets continued to pose challenges in 2015. As previously reported, these policies have generated serious concerns about discrimination based on the country of origin of intellectual property, forced technology transfer, research and development requirements, investment restrictions and discriminatory treatment of foreign brands and imported vehicles. Although significant progress has been made in addressing some of these policies, more work remains to be done.
 
Import Ban on Remanufactured Products
 
China prohibits the importation of remanufactured products, which it typically classifies as used goods. China also maintains restrictions that prevent remanufacturing process inputs (known as cores) from being imported into China’s customs territory, except special economic zones. These import prohibitions and restrictions undermine the development of industries in many sectors in China, including mining, agriculture, healthcare, transportation and communications, among others, because companies in these industries are unable to purchase high-quality, lower-cost remanufactured products produced outside of China.
 
Standards and Technology
 
In the standards area, two principal types of problems harm U.S. companies. First, 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. Second, China has continued to pursue unique national standards in a number of high technology areas where international standards already exist, such as 3G and 4G telecommunications standards, Wi-Fi standards and information security standards. To date, bilateral  engagement  has yielded minimal progress in resolving these matters.
 
Government Procurement
 
The United States continues to press China to take concrete steps toward fulfilling its commitment to accede to the GPA and to open up its vast government procurement market to the United States and other GPA parties. To date, however, the United States, the EU, and other GPA parties have viewed China’s offers of  coverage as highly disappointing in scope and coverage. China submitted its fifth revised offer in December 2014. This offer showed progress in a number of areas, including thresholds, entity coverage and services coverage. Nonetheless, it fell short of U.S. expectations and remains far from acceptable to the United States and other GPA parties as significant deficiencies remain in a number of critical areas, including thresholds, entity coverage, services coverage and exclusions.
 
China’s current government procurement regime is governed by two important laws. The Government Procurement Law, which is administered by the Ministry of Finance, governs purchasing activities conducted with fiscal funds by state organs and other organizations at all levels of government in China. The Tendering and Bidding Law falls under the jurisdiction of the National Development and Reform Commission and imposes uniform tendering and bidding procedures for certain classes of procurement projects in China, notably construction and works projects, without regard for the type of entity that conducts the procurement. Both laws cover important procurements that GPA parties would consider to be government procurement eligible for coverage under the GPA. The United States will continue to work  with the Chinese government to ensure that China’s future GPA offers include coverage  of government procurement regardless of which law it falls under, including procurement conducted by both  government entities and other entities, such as state-owned enterprises.
 
Investment Restrictions
 
China seeks to protect many domestic industries through a restrictive investment regime, which adversely affects foreign investors in services sectors, agriculture, extractive industries and manufacturing sectors. In line with its own plans for domestic reform, including as expressed through the Third Plenum Decision, China continues to consider improvements to its foreign investment regime, including through the use of a “negative list” to govern access.   However, many aspects of China’s current investment regime, including lack of substantial liberalization, maintenance of a case-by- case administrative approval  system and the potential for a new and overly broad national security review, continue to cause foreign investors great concern. In addition, foreign enterprises report that Chinese government officials may condition investment approval on a requirement that a foreign enterprise transfer technology, conduct research and development in China, satisfy performance requirements relating to exportation or the use of local content or make valuable, deal- specific commercial concessions. The United States has repeatedly raised concerns with China about its restrictive investment regime. To date, this sustained bilateral engagement has not led to a significant relaxation of China’s investment restrictions, nor has it appeared to curtail ad hoc actions by Chinese government officials.
 
Meanwhile, the United States and China have committed at high levels to seek to conclude a high standard BIT. Building on China’s commitment at the July 2013 S&ED meeting to negotiate a BIT that will provide national treatment at all phases of investment, including market access (i.e., the “pre- establishment” phase of investment), and will employ a negative list approach in identifying exceptions (meaning that all investments are permitted except for those explicitly excluded), the United States and China exchanged initial negative list offers in June 2015. Subsequently, as agreed at the June 2015 S&ED meeting, the two sides exchanged revised, improved negative list offers in September 2015. During the state visit of President Xi later that month, the United States and China reaffirmed, as a top economic priority, the negotiation of a high standard BIT that represents on each side an open and liberalized investment regime. Based on the progress made in the negotiations and both sides’ improved negative list offers, the two sides also committed to intensify their negotiations and to work expeditiously to conclude the negotiation of a mutually beneficial, high-standard treaty.
  
Trade Remedies
 
China’s regulatory authorities in some instances 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 against China, 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 disputes. The decisions reached by the WTO in those three disputes – the most recent of which was issued in July 2015 – confirm that China failed to abide by WTO disciplines when imposing the duties at issue.
 
Services
 
Overview
 
The prospects for U.S. service suppliers in China are promising, given the size of China’s market and the Chinese leadership’s stated intention to promote the growth of China’s services sectors. The United States continues to enjoy a substantial surplus in trade in services with China, as the United States’ cross-border  supply  of services  into  China totaled $43 billion in 2014. In addition, services supplied through majority U.S.-invested companies in China totaled $43 billion in 2013, the latest year for which data are available.  This success has been  largely attributable to the market openings phased in  by China pursuant to its WTO commitments, as well as the U.S. Government’s comprehensive engagement with China’s various regulatory authorities, including in the  pursuit of  sector openings  that go beyond China’s WTO commitments.
 
Nevertheless, in 2015, 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 and expansion,  overly  burdensome licensing and operating requirements, and other means to  frustrate efforts  of U.S. suppliers of banking, insurance, telecommunications, Internet- related, audiovisual, express delivery, legal and other services to achieve their full market potential in China. Some sectors, including electronic payment services and theatrical film distribution, have been the subject of WTO dispute settlement. While China declared an intent to further liberalize a number of services sectors in its Third Plenum  Decision, few concrete steps have been taken.
 
Electronic Payment Services
 
China continued to place unwarranted restrictions on foreign companies, including the major U.S. credit card and processing companies, which supply electronic payment services to banks and other businesses that issue or accept credit and debit cards. The United States prevailed in a WTO case challenging those restrictions, and China agreed to comply with the WTO’s rulings by July 2013, but China has not yet taken needed steps to authorize access by foreign suppliers to this market. The United States is actively pressing China to comply with the WTO’s rulings and also is considering appropriate next steps at the WTO.
 
Theatrical Film Distribution
 
In February 2012, the United States and China reached an alternative solution with  regard  to certain rulings relating to the importation and distribution of theatrical films in a WTO case that the United States had won. The two sides signed a memorandum of understanding (MOU) 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. Significantly more U.S. films have been imported and distributed in China since the signing of the MOU, and the revenue received by U.S. film producers has increased significantly. However, China has  not yet fully implemented its MOU commitments, including with regard to critical commitments to open up film distribution opportunities for imported films. As a result, the United States has been pressing China for full implementation of the MOU, particularly with regard to films that are distributed in China on a flat-fee basis rather than a revenue-sharing basis. At the June 2015  S&ED meeting, China committed to ensure that any Chinese enterprise licensed to distribute films in China can distribute imported flat- fee films on their own and without having to contract with or otherwise partner with China Film Group or any other state-owned enterprise. China further committed that SAPPRFT, China Film Group or any other state-owned enterprise would not directly or indirectly influence the  negotiation, terms, amount of compensation or execution of any distribution contract between a licensed Chinese distributor and a U.S. flat-fee film producer.
 
Banking Services
 
China has exercised significant caution in opening up the banking sector to foreign competition. In particular, China has imposed working capital requirements and other requirements that have made it more difficult for foreign banks to establish and expand their market presence in China. Many of these requirements, moreover, have not applied equally to foreign and domestic banks.  For example, China has limited the sale of equity stakes in existing state-owned banks to a single foreign investor to 20 percent, while the total equity share of all foreign investors is limited to 25 percent. Another problematic area involves the ability of U.S. and other foreign banks to participate in the domestic currency business in China. This is a market segment that foreign banks are most eager to pursue in China, particularly with regard  to  Chinese individuals. Under existing governing  regulations, only foreign-funded banks that have had a representative office in China for two years and that have total assets exceeding $10 billion can apply to incorporate in China. After incorporating, moreover, these banks  only become eligible to offer full domestic currency services to Chinese individuals if they can demonstrate that they have operated in China for three years and have had two consecutive years of profits. The regulations also restrict the scope of activities that can be conducted by foreign banks seeking to operate in China through branches instead of through subsidiaries.
 
Insurance Services
 
China’s regulation of the insurance sector has resulted in market access barriers for foreign insurers, whose share of China’s market remains very low. In the life insurance sector, China only permits foreign companies to participate in Chinese- foreign joint ventures, with foreign equity capped at
50 percent. The market share of these joint ventures is less than 4 percent. For the health and pension insurance sectors, China also caps foreign equity at 50 percent. While China allows wholly foreign-owned subsidiaries in the non-life insurance (i.e., property and casualty) sector, the market share of foreign-invested companies in this sector is only 1 percent. China’s market for political risk insurance is completely closed to foreign participation. China has recently modified its treatment of insurance brokerage in the latest version of its Foreign Investment Catalogue, but it is not clear that any liberalization is actually taking place on the ground. Meanwhile, some U.S. insurance companies established in China continue to encounter difficulties in getting the Chinese regulatory authorities to issue timely approvals of their requests to open up new internal branches to expand their operations.
 
Telecommunications Services
 
Restrictions maintained by China on value-added telecommunications services have created serious barriers to market entry for foreign suppliers seeking to provide value-added services. In addition, China’s restrictions on basic telecommunications services, such as informal bans on new entry, a requirement that foreign suppliers can only enter into joint ventures with state-owned enterprises, and exceedingly high capital requirements, have blocked foreign suppliers from accessing China’s basic services market. In May 2013, China  introduced rules establishing a pilot program for the resale of mobile services, which can increase competitive opportunities in China’s heavily concentrated market. The United States is very concerned that foreign firms continue to be excluded from the pilot program, while China has issued licenses to more than a dozen Chinese suppliers.
 
Internet-related Services
 
China’s Internet regulatory regime is restrictive and non-transparent, affecting a broad range of commercial services activities conducted via the Internet. In addition, China’s treatment of foreign companies seeking to participate in the development of cloud computing,  including computer data and storage services provided over the Internet, raises concerns. For example, China has imposed value-added telecommunications licensing requirements on this sector, including a 50 percent equity cap on investments by foreign companies, even though the services at issue are not telecommunications services.
 
Audio-visual Services
 
China’s restrictions in the area of theater services have wholly discouraged  investment by foreign suppliers, and China’s restrictions on services associated with television and radio greatly limit participation by foreign suppliers.
 
Express Delivery Services
 
The United States continues to raise concerns with China regarding implementation of the 2009 Postal Law and related regulations. China has blocked foreign companies’ access to the document segment of China’s domestic express delivery market, and it does not have  a strong track record of  providing non-discriminatory treatment in awarding foreign companies business permits for access to the package segment of China’s domestic express delivery market, where it also applies overly burdensome regulatory approaches.
 
Legal Services
 
China has issued measures intended to implement the legal services commitments that it made upon joining the WTO.  However, these measures restrict the types of legal services that can be provided and impose lengthy delays for the establishment of new offices.
 
Agriculture
 
Overview
 
China is the largest agricultural export market for the United States, with more than $24 billion in U.S. agricultural exports in 2014. Much of this success resulted from intensive engagement by the United States with 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 uneven enforcement of regulations and selective intervention in the market by China’s regulatory authorities. As in past years, seemingly capricious practices by Chinese customs and quarantine agencies delay or halt shipments of agricultural products into China. Sanitary and phytosanitary (SPS) measures with questionable scientific bases and a generally opaque regulatory regime frequently create difficulties and uncertainty for traders in agricultural commodities, who require as much certainty and transparency as possible. Market access promised through the  tariff-rate quota (TRQ) system set up pursuant to China’s WTO accession agreement has yet to be fully realized. At the same time, China has been steadily increasing domestic support for key commodities, and reports commissioned by certain U.S. farm groups have concluded that China may be exceeding its WTO limits.
 
Beef, Poultry and Pork
 
In 2015, beef, poultry and pork products were affected by questionable SPS measures implemented by China’s regulatory authorities. For example, China continued to block the importation of  U.S. beef and beef products, more than eight years after these products had been declared safe to trade under international scientific guidelines established by the World Organization for Animal Health (known by its historical acronym OIE), and despite the further fact that in 2013 the United States received the lowest risk status from the OIE, i.e., negligible risk. China also continued to impose  an unwarranted and unscientific Avian Influenza-related import suspension on U.S. poultry due to an outbreak of high-pathogenic Avian Influenza (AI). Specifically, China has been unwilling to follow OIE guidelines and accept poultry from regions in  the United States unaffected by this disease. Additionally, China continued to maintain overly restrictive pathogen  and residue requirements for raw meat and poultry. Consequently, anticipated growth in U.S. exports of these products was again not realized.
 
Biotechnology Approvals
 
In 2014, delays in China’s approvals of agricultural products derived from biotechnology worsened, creating increased uncertainty among traders, resulting in trade disruptions, particularly for U.S. exports of corn and dried distillers’ grains with solubles (DDGS), and delaying the adoption of new seed varieties in the United States. In  early December 2014, shortly before the JCCT meeting, China announced that it would be issuing import approvals for three outstanding biotechnology products of significant importance to U.S. farmers, including two soybean events and one corn event. In addition, while China still needs to improve its regulatory process and begin  reviewing biotechnology products in a transparent  and predictable manner, China did agree at the December 2014 JCCT meeting to hold an annual, multi-ministry dialogue with the United States at the Vice Minister level to discuss science-based agricultural innovation and the increased use of innovative technologies in agriculture.  In September 2015, using this new dialogue, the United States discussed science-based agricultural innovation with China, including the benefits of increased use of innovative technologies in agriculture. At the same time, however, delays in China’s approvals of agricultural  products  derived  from  biotechnology continued throughout 2015. The United States will continue to pursue dialogue with China in this important area in 2016.
 
Agricultural Support
 
Over the past several years, China has been significantly increasing domestic subsidies and other support measures for its agricultural sector. China has established a direct payment program, instituted minimum support prices for basic commodities and sharply increased input subsidies. China has implemented a cotton reserve system, based on minimum purchase prices, and cotton target price programs. China also has begun  several  new support schemes for hogs and pork, along with a purchasing reserve system for  pork.  China submitted its most recent notification concerning domestic support measures to the WTO in May 2015, but it only provided information up to 2010. The United States remains concerned that the methodologies used by China to calculate support levels, particularly with regard to its price support policies and direct payments, result in underestimates. Certain U.S. farm groups have commissioned reports to calculate support levels for certain commodities, including corn, wheat and soybeans, and these reports have concluded that China may be substantially exceeding its WTO- agreed domestic support spending limits.
 
Transparency
 
Overview
 
One of the core principles reflected throughout China’s WTO accession agreement is transparency. China’s WTO transparency commitments in many ways required a profound historical shift in Chinese policies. Although China has made  strides  to improve transparency following its accession to the WTO, there remains a lot more for China to do in this area.
 
Publication of Trade-related Laws, Regulations and Other Measures
 
In its WTO accession agreement, China committed to adopt a single official journal for the publication of all trade-related laws, regulations and other measures, and China adopted a single official journal, to be administered by MOFCOM, in 2006. To date, it appears that some but not all central- government entities publish trade-related measures in this journal, and 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 administrative regulations and departmental rules are more commonly (but still not regularly) 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 in fact all binding legal measures. In addition, China does not normally publish in the journal certain types of trade-related measures, such as subsidy measures, nor does it normally publish sub-central government trade-related measures in the journal.
 
Notice-and-comment Procedures
 
In its WTO accession agreement, China 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. Subsequently, the NPC began regularly publishing draft laws for public comment, and China’s State Council often (but not regularly) published draft administrative regulations for public comment. In addition, many of China’s ministries were not consistent in publishing draft departmental rules for public comment. At the May 2011 S&ED meeting, China committed to issue a measure implementing 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, the SCLAO issued two measures that appear to address this requirement. Since then, despite continuing U.S. engagement, little noticeable improvement in the publication of departmental rules for public comment appears to have taken place, even though China confirmed that those two SCLAO measures are binding on central government ministries.
 
Translations
 
In its WTO accession agreement, China committed to make available translations of all of its trade-related laws, regulations and other measures at all levels of government in one or more of the WTO languages, i.e., English, French and Spanish. Prior to  2014, China had only compiled translations of trade- related laws and administrative regulations (into English), but not other types of measures, and China was years behind in publishing these translations. At the July 2014 S&ED meeting, China committed that it would extend its translation efforts to include not only trade-related laws and administrative regulations but also trade-related departmental rules. Subsequently, in March 2015, China issued a measure requiring trade-related departmental rules to be translated into English. This measure also provides that the translation of a departmental rule normally must be published before implementation. The United States is pressing China to ensure that it similarly publishes translations of trade-related laws and administrative regulations before implementation, as required by China’s WTO accession agreement.
 
Legal Framework
 
Overview
 
In addition to the area of transparency, several other areas of China’s legal framework can adversely affect the ability of the United States and U.S. exporters and investors to access or invest in China’s market. Key areas include administrative licensing, competition policy, the  treatment of  non- governmental organizations (NGOs), commercial dispute resolution, labor laws and laws governing land use. Corruption among Chinese government officials, enabled in part by China’s incomplete adoption of the rule of law, is also a key concern.
 
Administrative Licensing
 
Despite numerous changes made by the Chinese government since the issuance of the Third Plenum Decision in November 2013, U.S.  companies continue to encounter significant problems with a variety of administrative licensing processes  in China, including processes to secure product approvals, investment approvals, business expansion approvals, business license renewals and even approvals for routine business activities. While U.S. companies are encouraged by the overall reduction in license approval requirements and the focus on decentralizing licensing approval processes, U.S. companies report that these efforts have only had a marginal impact on their licensing  experiences  so far.
 
Competition Policy
 
Chinese regulatory authorities’ implementation of China’s Anti-monopoly Law poses multiple challenges. One key concern relates to how the Anti-monopoly Law will be applied to state-owned enterprises, given that a provision in the Anti- monopoly Law protects the lawful operations of state-owned enterprises and government monopolies in industries deemed nationally important. To date, China has enforced the Anti- monopoly Law against state-owned enterprises, and it has stated that this law applies to state-owned enterprises, but U.S. industry continues to express concerns that enforcement against state-owned enterprises will be more limited.
 
Another concern relates to the procedural fairness of Anti-monopoly Law investigations. U.S. industry has expressed concern about insufficient predictability, fairness and transparency in the investigative processes of the National Development and Reform Commission (NDRC), including NDRC pressure to “cooperate” in the face of unspecified allegations or face steep fines and limitations imposed by NDRC on the ability of foreign companies to bring counsel to meetings. Through the S&ED and JCCT processes in 2014, the United States was able to secure commitments from China designed to help address most of these matters, although some concerns remain.
 
In 2015, the United States secured additional commitments from China relating to Anti-monopoly Law enforcement proceedings. These commitments address the protection of confidential business information, the independence of Anti-monopoly Law decision making, the jurisdiction of courts reviewing administrative Anti-monopoly Law decisions and Anti-monopoly Law agencies processes for reconsidering decisions. China also recognized the importance of maintaining coherent rules relating to intellectual property rights in the Anti- monopoly Law context, including by taking into account the pro-competitive effects of intellectual property licensing.
 
NEXT STEPS
 
In 2016, as in  prior years, the Administration  will continue to vigorously pursue increased benefits for U.S. businesses, workers, farmers, ranchers and service providers 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 enforcement mechanisms, where appropriate.
 
On the bilateral front, the United States will continue to pursue robust engagement with China at all levels of government focused on producing practical and meaningful outcomes. The United States will also take full advantage of multilateral venues such as the WTO to engage China. Key goals of this engagement 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 may arise in the U.S.-China trade relationship are effectively resolved.
 
At the same time, as the United States has repeatedly demonstrated, when dialogue is not successful in resolving 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.
 
As part of this upcoming engagement, the United States will continue to focus on China’s implementation of the Third Plenum Decision, whose goals include reducing Chinese government intervention  in  the  economy,  accelerating  China’s opening up to foreign goods and services, reforming China’s state-owned enterprises and improving transparency and the rule of law to allow fair competition in China’s market. The United States will continue to urge China to speedily implement these promising reforms, which have many similarities with the U.S. trade agenda with China.
 
In addition, the United States looks forward to intensified negotiations with China in order to reach agreement on a BIT that embraces the principles of openness, non-discrimination and transparency, provides pre-establishment national treatment and employs a negative list approach in identifying exceptions. A high-standard BIT between two of the world’s largest economies would not only provide significant benefits to U.S. and Chinese investors but also would have broad significance for the  global economy.
 
Going forward, the Administration will continue to consult closely with the Congress and U.S. stakeholders in order to ensure that the actions being pursued by the  United States address  their concerns. The Administration remains dedicated to maximizing U.S. stakeholders’ opportunities to compete in China and the global marketplace.
 
 
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Events

August 20, 2020 - 4:00pm

The USC U.S.-China Institute presents a webinar with Han Li to examine how Chinese are rediscovering the rural China and idealizing rural life in the social media age. She'll also look at the social and political forces driving this trend.

August 16, 2020 - 6:00pm

Companies and HR professionals across China will be recruiting and networking with international talent.