China and the WTO: Compliance and Monitoring, 2004

Randall G. Schriver, Deputy Assistant Secretary, Bureau of East Asian and Pacific Affairs
Testimony Before the U.S.-China Economic and Security Commission
Washington, DC
February 5, 2004

Mr. Chairman, thank you. I appreciate the opportunity to testify before the Commission today. I am pleased to be here today with Commerce Assistant Secretary James Jochum, Deputy Assistant USTR Charles Freeman and Foreign Agricultural Services Deputy Administrator Patricia Sheikh, who will be able to comment knowledgeably and in depth on China’s compliance with its WTO obligations. For my part, I welcome the opportunity to discuss how China’s WTO efforts fit into our overall efforts to develop our relationship with China.

Overall China Policy

President Bush, Secretary Powell, and this Administration overall have worked hard to forge a dynamic, forward-looking relationship with China, one that is guided by a determination to build on our common interests, while addressing our differences in a straightforward manner. We have a wide-ranging dialogue on issues where we share compatible views on matters critical to U.S. national security, including the situation on the Korean peninsula and the global war against terrorism. At the same time, we have not shied away from candidly addressing those areas where we disagree -- human rights, nonproliferation, Taiwan, and market access. As China’s role in global affairs increases, we are working to find ways in which together we can promote peace, security and prosperity in the world.

The quality of our dialogue has improved as the number of our direct face-to-face senior-level meetings has increased. The President has met with China's President, Jiang Zemin or Hu Jintao, an unprecedented five times since taking office, most recently at the October 2003 APEC meetings in Bangkok. He also hosted Premier Wen Jiabao in early December at the White House. Our expanding economic relationship has been very high on the agenda at each of these meetings.

WTO and Economic Reform

As we continue to broaden and deepen our framework of economic and trade ties, we need to pay special attention to China’s implementation of its World Trade Organization commitments. Getting China to implement fully and on time its WTO commitments is the cornerstone on which we build our bilateral economic policy. China’s WTO membership and fulfillment of its WTO accession commitments are closely linked to key economic policy goals that include:

• Promoting China's continued economic reform, modernization and opening.

• Ensuring China becomes a responsible member of the rules-based global economic system.

• Encouraging China's contribution to economic growth in the region and the world through market-oriented reform and development.

Market reforms and economic engagement have unleashed individual initiative and entrepreneurship and even led the Chinese communist party in recent years to revise its constitution to do the unthinkable --admit private entrepreneurs into membership. This March, the National People’s Congress is expected to revise the State Constitution to enhance legal protection for private property rights. These changes -- which started long before China became a WTO member -- have increased opportunities for Chinese to engage in business and commercial activity outside what was once the sole purview of the state. China, of course, still has a long way to go before it develops into a transparent, open, rules-based, market economy, but it has made a start.

A start, I believe, that is accelerating in the aftermath of China's entry into the WTO. Accelerating as well are export and investment opportunities for U.S. companies. This translates into more jobs for American workers and farmers. This also means more and better choices of low cost, high quality products for American consumers.

WTO Implementation

Let me assure you we have candid conversations with China on WTO implementation. We want to ensure that the U.S. economy gets the full benefits of China's WTO membership.

First, we endorse USTR's report on China’s compliance record that was submitted to Congress in December. The State Department, especially through our posts in China, made an important contribution to the preparation of the report. This contribution includes following closely changes in Chinese laws and regulations, meeting frequently with diplomatic counterparts and business people throughout the country to hear their views about WTO implementation, and analyzing the reality behind the surface of Chinese pronouncements.

China has made some progress in meeting its WTO commitments. However, as USTR clearly pointed out, we have serious concerns about China's WTO compliance in certain areas -- including agriculture, intellectual property rights, the services sector, and on the cross-cutting issue of transparency. We are determined to do all within our power to ensure that China does more to implement its WTO accession commitments, and to implement them on time.

Second, the combination of China’s strong economic growth -- over 9% in 2003 -- and increased market access tied to WTO implementation and U.S. trade pressure has produced some positive results in key trade areas. U.S exports to China are reaching new heights, increasing around 25% through November 2003 to $25 billion, after having grown 15% in 2002. China is our fastest growing export market. U.S. agricultural exports to China -- especially soybeans and cotton -- have seen tremendous growth, more than doubling in value to $4.5 billion through November 2003. At the same time, we enjoy a growing trade surplus in services as U.S. investment banks, insurers and accounting firms continue to make inroads into the China market. Better market access was one of the key U.S. goals of getting China into the WTO and we are making headway, not enough to be sure, but the direction for some of our goods and services is right.

Third, there is a strong and well-coordinated interagency effort on China WTO Compliance. The State Department is working closely with USTR, the Commerce and Agriculture Departments, and through our Embassy with the Chinese government, to address our concerns about China's WTO implementation. When China’s good intentions on WTO commitments do not translate into positive results, we stand ready to use multilateral means, including WTO dispute settlement, to enforce those commitments.

Expanded Dialogue

I would note that the Administration has made a determined effort over the last year to establish more effective channels for influencing China’s economic policies -- including those related to WTO membership.

Over the past year we have initiated, or begun planning for, a series of high-level meetings to take a closer look at our economic relationship. Ambassador Zoellick and Secretary Evans will co-chair an expanded Joint Commission on Commerce and Trade meeting during Vice Premier Wu Yi’s visit this April. We are looking to this forum to make progress on lingering trade problems, especially those related to WTO implementation. Treasury Secretary Snow also has invited Chinese Vice Premier Huang Ju for an intensive dialogue on financial issues and we are hopeful that visit will take place in the first half of the year. And finally, during a visit to Beijing last November, State Department Under Secretary for Economic, Business and Agricultural Affairs Alan Larson initiated a dialogue on economic reform issues with the National Development and Reform Commission, China’s powerful planning body.

State's Role

As I noted earlier, the State Department, both in Washington and at our posts in China, plays a critical role in the U.S. government's efforts to monitor and enforce China's implementation of its WTO commitments. In addition to working closely with other USG agencies to address specific trade concerns, State brings to the table a perspective on how China’s WTO policies affect overall U.S. foreign and economic policy and U.S.-China bilateral relations. WTO implementation cannot be considered in the abstract, but as I said earlier, it must be seen as part of an overall strategy of integrating China into the global community as a constructive force for stability and prosperity.

I do not think it possible to overstate the contribution of our China posts to overall USG efforts to improve China's WTO compliance. Some specific examples of their contributions include:

• To develop a strategy to improve China's weak protection of intellectual property rights and to press China on our concerns, Ambassador Sandy Randt hosted two, all-day roundtables with over 100 industry participants as well as USG and Chinese officials. At the November 2003 roundtable, Vice Premier Wu Yi, who now heads China's effort to strengthen IPR protection, was the keynote luncheon speaker. The U.S. Embassy in China followed up on this event by compiling an IPR White Paper highlighting key industry concerns and recommendations for presentation to the Vice Premier.

• To keep Washington agencies informed, the U.S. Embassy staff in Beijing monitors Chinese language news sources as well as PRC government and academic websites for WTO-related laws, regulations and developments. Key information is disseminated informally in the near daily "WTO Notes" report and in more detailed cables.

• Our staff, both in the U.S. Embassy and at the four U.S. Consulates General, travel throughout China to observe and report on WTO compliance and WTO-related developments in local and provincial areas. They also use such opportunities to engage local officials and academics on WTO issues.

• Our China posts, especially the U.S. Embassy in Beijing, also provide substantive and logistical support for a multitude of U.S. Government visitors to China for WTO-related meetings and negotiations. These visits are crucial for making progress on our concerns but the frequency can stretch the staff to the limit. In one 3-week period last October, Ambassador Zoellick, Commerce Secretary Evans, high-level NSC/USTR officials, and several other important USG delegations all visited Beijing separately.

I would also note that the U.S. Consulate General in Hong Kong is an excellent source of information on China’s WTO efforts. Our staff there tap into the resources of one of the world’s largest American Chambers of Commerce and talk with Hong Kong business people who are savvy about Chinese compliance efforts.

While we are convinced that our China posts are doing excellent and important work, we also believe that their performance could be enhanced with additional resources. State's Economic section in Beijing has only six full-time equivalent officers and staff to handle the full range of WTO issues. Our Consulates each have at least one officer handling WTO issues but normally these officers are also responsible for other economic issues. Similarly, in Washington we currently have three officers on our "China Desk" handling U.S.-China economic relations, including WTO issues. Officers in our Economic Bureau, who have functional responsibilities for a wide range of countries, including China, round out State's China economic team, but we remain a streamlined operation.

More resources, both here and in China, are needed. We have done our best to do more with less, but we are stretched thin. In the future, as our trade and economic relationship with China continues to grow, additional staff and resources will be essential. Monitoring China's compliance with its WTO commitments is really only the start of our efforts. We need to engage China in a full-time dialogue about the new Doha Round covering both the new commitments they are prepared to make and the support they may be able to provide the U.S. on a variety of IPR, services and agriculture issues.

Other issues do not relate directly to the WTO, but are just as important to U.S. economic interests. For example, China recently announced rules that will give a preference to domestic software in government procurement. China is not yet a member of the WTO Government Procurement Agreement, so the WTO grounds available to challenge China's new rules are limited. Nevertheless, the policy is misguided, may make other Chinese companies less competitive, and will likely harm the prospects for U.S. software firms in China. We are taking a variety of actions to convince China to modify the new rules.

Conclusion

To conclude, I would like to emphasize again that making U.S.-China economic relations benefit both the United States and China is a top priority for the State Department. Getting China to implement fully and on time its WTO commitments is the cornerstone of achieving this objective. As with other issues in our relationship, we are committed to addressing WTO concerns in a candid but cooperative manner to ensure that U.S. workers, farmers and consumers get the full benefits of China's WTO membership. China has clearly made progress in implementing its WTO commitments but we are not satisfied. Working with USTR, Commerce, Agriculture and other USG agencies, the State Department will continue to urge China to enter more fully into the kind of rules-based, transparent economic system that promotes the prosperity of all. Thank you.

Original source: http://www.state.gov/p/eap/rls/rm/2004/28957.htm