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This report is divided into two parts. Part 1 provides the Administration’s assessment of China’s WTO membership, the unique and very serious challenges that China’s trade policies and practices pose for the multilateral trading system and the effectiveness of the strategies that have been pursued to address the China problem. Part 2 examines China’s trade regime in detail and catalogues the United States’ persistent efforts to resolve the many concerns that have arisen.
In Part 1, the report begins with an analysis of China’s record of compliance with WTO rules, which is poor. The report then describes China’s continued embrace of a state-led, mercantilist approach to the economy and trade, despite WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO. The report next identifies the substantial costs borne by WTO members as a result of China’s problematic trade regime. Part 1 concludes with a discussion of the bilateral and multilateral efforts pursued by the Administration and other WTO members to address the unique challenges presented by China’s WTO membership. This discussion also highlights the need for new and more effective strategies – including taking actions outside the WTO where necessary – to address the problems presented by China’s non-market economic system.
Part 2 of this report is a detailed analysis of China’s trade regime from a WTO perspective. It identifies and explains numerous policies and practices pursued by China that disadvantage or harm U.S. companies and workers, often severely. Despite persistent efforts by the United States to address these issues, many of them reflect longstanding U.S. concerns, dating back a decade or more. As we catalogued in last year’s report, a consistent pattern exists where the United States has raised a particular concern, China has specifically promised to address that concern – and China’s promise has not been fulfilled.
A small sampling of bilateral and multilateral commitments unfulfilled by China includes the following examples:
- Despite repeated commitments to refrain from forcible technology transfer from U.S. companies, China continues to do so through market access restrictions, the abuse of administrative processes, licensing regulations, asset purchases, and cyber and physical theft.
- China committed to open the electronic payment services market in 2006. This commitment was confirmed in a 2012 ruling by the WTO’s dispute settlement body resulting from a U.S. legal challenge. Today, the reality remains that no foreign electronic payment services companies conduct business in China’s domestic market.
- China’s use of export and import substitution subsidies has been ubiquitous throughout the past two decades in sectors as diverse as automobiles, textiles, advanced materials, medical products and agriculture, despite explicit prohibitions in the WTO Agreement.
- China has repeatedly committed to review applications of agricultural biotechnology products in a timely, ongoing and science-based manner. However, the Chinese regulatory authorities continue to review applications slowly and without scientific rationale, while Chinese companies continue to build up their own capabilities in the area of agricultural biotechnology.
- China has repeatedly deployed illegal export restraints, such as export quotas, export licensing, minimum export prices, export duties and other restrictions, on scores of raw material inputs, as determined in multiple WTO cases brought by the United States and other WTO members. China has used these illegal export restraints to provide substantial cost advantages to a wide range of downstream producers in China at the expense of foreign producers, while creating pressure on foreign producers to move their operations, technologies and jobs to China.
Any review of China’s trade regime also shows that China’s regulatory system is so opaque that it is often difficult for U.S. companies – or even the U.S. government – to fully understand China’s legal requirements in a particular area of the economy. This problem is exacerbated by China’s extremely poor record of adhering to its transparency obligations as a WTO member. These shortcomings create their own trade barriers and undermine the competiveness of China’s trading partners.
To address the unique and very serious challenges presented by China’s trade regime, the Administration is pursuing the following approach:
The United States will defend U.S. companies and workers from China’s unfair trading practices and will seek to restore balance to the trade relationship between the United States and China. As part of these efforts, the United States will take all appropriate actions to ensure that the costs of China’s non-market economic system are borne by China, not by the United States. The United States also will continue to encourage China to make fundamental structural changes to its approach to the economy and trade consistent with the open, market-oriented approach pursued by other WTO members, which is rooted in the principles of non-discrimination, market access, reciprocity, fairness and transparency. As China should recognize, thesechanges will do more than simply ease the growing trade tensions with its trading partners. These changes will also benefit China, by placing its economy on a more sustainable path, and will contribute to the growth of the U.S. economy and the global economy.
At its core, this approach is based on the following assessment: (1) WTO membership comes with expectations that an acceding member not only will strictly adhere to WTO rules, but also will support and pursue open, market-oriented policies; (2) China has failed to comply with these expectations; (3) in recent years, China has moved further away from open, market-oriented policies and has more fully embraced a state-led, mercantilist approach to the economy and trade; and (4) China’s market-distorting policies and practices harm and disadvantage its fellow WTO members, even as China reaps enormous benefits from its WTO membership.
The United States’ approach to China is more aggressive than in the past. Out of necessity, the United States is now using all available tools – including domestic trade remedies, bilateral negotiations, WTO litigation and strategic engagement with like-minded trading partners – to respond to the unique and very serious challenges presented by China. But the goal for the United States remains the same. The United States seeks a trade relationship with China that is fair, reciprocal and balanced.