World Trade Organization
First-Year U.S. Efforts to Monitor China's Compliance Gao ID: GAO-03-461 March 31, 2003China's December 2001 membership in the World Trade Organization created substantial opportunities for U.S. companies seeking to expand into China's vast market, and for significant reforms within China at all levels of government. However, the benefits of China's membership in the World Trade Organization are contingent on China's successful implementation of its commitments. In recognizing this fact, Congress has provided increased resources to executive branch agencies to enhance the government's ability to effectively monitor and enforce China's compliance. In this study, one of several that GAO will conduct for Congress on China-World Trade Organization issues, GAO was asked to (1) examine key agencies' organizational changes and the interagency process used to carry out compliance responsibilities and (2) review how the agencies have addressed compliance issues that arose during the first year of China's membership, by using two specific examples; the examples illustrate the type of compliance issues U.S. officials face but are not representative of China's compliance record overall. The U.S. Trade Representative and other agency officials provided technical and editorial comments mainly on our characterization of issues relating to tariff-rate quotas and the multilateral review of China's trade policies. We clarified these issues and made other changes as appropriate.
In order to better monitor China's compliance with its World Trade Organization commitments, the U.S. Trade Representative and the departments of Agriculture, Commerce, and State have (1) reorganized or established intra-agency teams to coordinate their oversight of China's compliance; (2) increased staff from about 28 to 53 in key units in Washington, D.C., and China from fiscal year 2000 to 2002; and (3) reflected these changes in their agencies' recent performance and strategic plans. In addition, the U.S. Trade Representative is leading a new interagency working group on China's compliance to identify, analyze, and resolve problems. This group, which utilizes private sector input, was very active in monitoring and responding to issues during the first year of China's membership, although it took some time for agencies to work out their respective roles and responsibilities in the interagency group. U.S. agencies' experiences in two areas during the first year of China's World Trade Organization membership illustrate the challenges ahead in addressing compliance issues. First, problems regarding China's commitments to grant market access to certain bulk agricultural commodities through the use of tariff-rate quotas show the extensive effort required to identify difficulties, gather and analyze information, and begin to resolve complex and technical issues with China. Second, disagreement among World Trade Organization members over how to conduct a comprehensive annual review of China's trade policies within the World Trade Organization led to a limited first-year review that did not meet U.S. expectations, and illustrated the challenges of gaining consensus in this multilateral forum to improve future oversight. Problems in both of these areas are unresolved, and U.S. officials continue to pursue their resolution with China in 2003.
GAO-03-461, World Trade Organization: First-Year U.S. Efforts to Monitor China's Compliance
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Report to Congressional Committees:
March 2003:
World Trade Organization:
First-Year U.S. Efforts to Monitor China‘s Compliance:
GAO-03-461:
GAO Highlights:
Highlights of GAO-03-461, a report to the Chairman and the Ranking
Minority
Member, Senate Committee on Finance, and to the Chairman and the
Ranking
Minority Member, House Committee on Ways and Means
Why GAO Did This Study:
China‘s December 2001 membership in the World Trade Organization
created
substantial opportunities for U.S. companies seeking to expand into
China‘s
vast market, and for significant reforms within China at all levels of
government. However, the benefits of China‘s membership in the World
Trade
Organization are contingent on China‘s successful implementation of its
commitments. In recognizing this fact, Congress has provided increased
resources to executive branch agencies to enhance the government‘s
ability
to effectively monitor and enforce China‘s compliance. In this study,
one
of several that GAO will conduct for Congress on China-World Trade
Organization issues, GAO was asked to (1) examine key agencies‘
organizational changes and the interagency process used to carry out
compliance responsibilities and (2) review how the agencies have
addressed
compliance issues that arose during the first year of China‘s
membership,
by using two specific examples; the examples illustrate the type of
compliance issues U.S. officials face but are not representative of
China‘s compliance record overall. The U.S. Trade Representative and
other
agency officials provided technical and editorial comments mainly on
our
characterization of issues relating to tariff-rate quotas and the
multilateral review of China‘s trade policies. We clarified these
issues
and made other changes as appropriate.
What GAO Found:
In order to better monitor China‘s compliance with its World Trade
Organization commitments, the U.S. Trade Representative and the
departments of Agriculture, Commerce, and State have
* reorganized or established intra-agency teams to coordinate their
oversight of China‘s compliance;
* increased staff from about 28 to 53 in key units in Washington, D.C.,
and China from fiscal year 2000 to 2002; and
* reflected these changes in their agencies‘ recent performance and
strategic plans.
In addition, the U.S. Trade Representative is leading a new interagency
working group on China‘s compliance to identify, analyze, and resolve
problems. This group, which utilizes private sector input, was very
active
in monitoring and responding to issues during the first year of China‘s
membership, although it took some time for agencies to work out their
respective roles and responsibilities in the interagency group. U.S.
agencies‘ experiences in two areas during the first year of China‘s
World
Trade Organization membership illustrate the challenges ahead in
addressing compliance issues. First, problems regarding China‘s
commitments
to grant market access to certain bulk agricultural commodities through
the use of tariff-rate quotas show the extensive effort required to
identify difficulties, gather and analyze information, and begin to
resolve complex and technical issues with China. Second, disagreement
among World Trade Organization members over how to conduct a
comprehensive
annual review of China‘s trade policies within the World Trade
Organization led to a limited first-year review that did not meet U.S.
expectations, and illustrated the challenges of gaining consensus in
this
multilateral forum to improve future oversight. Problems in both of
these
areas are unresolved, and U.S. officials continue to pursue their
resolution with China in 2003.
www.gao.gov/cgi-bin/getrpt?GAO-03-461. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Susan Westin at (202) 512-4128 or westins@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
Key Agencies Have Increased Focus on China WTO Compliance and
Coordinate Efforts through an Interagency Process:
U.S. Experience in Two Areas Illustrates Challenges Ahead:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Tables:
Table 1: Agency Staffing Estimates for Key Offices Involved in China
WTO
Compliance Efforts, Fiscal Years 2000-2002:
Table 2: U.S. Company Likelihood of Contacting Groups Regarding
Difficulties Related to China‘s Implementation of Its WTO Commitments:
Table 3: Time line of Key U.S. Government TRQ-Related Activities and
Events, 2001-2003:
Table 4: Time line of Key TRM-related Activities and Events, 2002:
Abbreviations:
FAS: Foreign Agricultural Service:
FCS: Foreign Commercial Service:
MOFTEC: Ministry of Foreign Trade and Economic Cooperation :
SPDC: State Development and Planning Commission:
USDA: U.S. Department of Agriculture:
USTR: U.S. Trade Representative:
TRIPS: Trade-related Aspects of Intellectual Property Rights :
TRM: Transitional Review Mechanism:
TRQ: Tariff-rate Quota:
WTO: World Trade Organization:
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Letter March 31, 2003:
The Honorable Charles E. Grassley
Chairman
The Honorable Max Baucus
Ranking Minority Member
Committee on Finance
United States Senate:
The Honorable William M. Thomas
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives:
China‘s accession to the World Trade Organization in December 2001
signified that the U.S.‘s fourth largest trading partner would be
subject to the multilateral organization‘s requirements to liberalize
its trade. By joining the World Trade Organization, China committed to
adhere to the principles of a rules-based global trading system and
give foreign goods and services greater access to its markets. U.S.
officials have recognized that the benefits of these comprehensive
commitments are contingent on China‘s fulfilling its obligations.
Recognizing that monitoring and enforcement of the commitments
specified in China‘s accession agreement would be of great importance,
Congress enacted legislation to ensure such oversight.[Footnote 1]
As part of your request for us to undertake a long-term body of work
related to China‘s membership in the World Trade Organization, we
reviewed how the U.S. Trade Representative, the Department of Commerce,
the Department of Agriculture, and the Department of State are
positioned to monitor and enforce China‘s compliance with its
commitments. Specifically, in this report we (1) describe the changes
to each agency‘s organization, resources, and plans in light of China‘s
accession, and to the interagency process used to fulfill these
responsibilities; and (2) review how these agencies have addressed
certain compliance issues that have arisen during the first year of
China‘s World Trade Organization membership.
In order to perform our review, we studied the agencies‘ budget and
staffing information, performance and strategic planning documents, and
other official documentation and reports relating to the agencies‘
efforts to monitor and enforce China‘s compliance with its commitments.
We supplemented this information by reviewing World Trade Organization
documents and by interviewing knowledgeable U.S., foreign government,
and World Trade Organization officials and private sector
representatives. To analyze how the United States has addressed
compliance issues, we examined two areas of China‘s commitments. First,
we chose to examine activities related to China‘s regulating imports of
certain bulk agricultural commodities (such as corn and cotton) because
the area was economically important to U.S. exporters, China made
extensive commitments to change its practices, and significant
monitoring and enforcement activity occurred in the first year of
China‘s World Trade Organization membership. Second, we chose to
examine activities that related to implementing a comprehensive annual
review of China‘s trade policies within the World Trade Organization,
because the area concerned issues that were important to U.S.
officials, including Congress, and conducting the review is an
important aspect of World Trade Organization members‘ ability to
monitor and enforce Chinese compliance. These two areas are not
representative of China‘s compliance record overall but do illustrate
the kinds of compliance issues that U.S. officials try to
resolve.[Footnote 2] (See app. I for details on our scope and
methodology.):
Results in Brief:
China‘s accession to the World Trade Organization led to increased
monitoring and enforcement responsibilities for the U.S. government. In
response to these increased responsibilities, the U.S. Trade
Representative and the departments of Commerce, Agriculture, and State
have undertaken various efforts to enhance their ability to monitor
China‘s compliance with its World Trade Organization commitments. For
example, the agencies have reorganized or established intra-agency
teams to improve the coordination of their monitoring and enforcement
efforts. Additionally, the
agencies have added staff in Washington, D.C., and overseas in China to
carry out these efforts. For example, estimated full-time equivalent
staff in key units that are involved in China monitoring and
enforcement activities across the four agencies increased from about 28
to 53 from fiscal year 2000 to 2002, with the largest increases at the
Department of Commerce. The agencies‘ recent strategic and planning
documents also reflect an emphasis on China trade compliance efforts.
On a broader level, the U.S. Trade Representative has established an
interagency group to coordinate U.S. government compliance activities.
The interagency group, which utilizes the private sector to support its
efforts, was very active in monitoring and responding to issues during
the first year of China‘s membership, although it took some time for
agencies to work out their respective roles and responsibilities in the
interagency group.
Monitoring and enforcement of China‘s compliance with World Trade
Organization requirements is a complex and challenging task, as shown
by the U.S.‘s experience in two areas during 2002: examining China‘s
regulation of imports of bulk agricultural commodities and
participating in an annual multilateral review of China‘s trade
practices. In the first area we reviewed, China‘s commitments related
to its importing bulk agricultural commodities, implementation problems
that arose in 2002 included concerns about Chinese authorities missing
deadlines for issuing tariff-rate quotas on commodities; disagreement
over whether China‘s interpretation of its commitments met World Trade
Organization requirements; and questions about whether new Chinese
administrative practices are in keeping with China‘s obligations. The
United States has undertaken both bilateral and multilateral activities
to settle these complex issues, which have yet to be resolved. The
large number of U.S. government activities in this area, which included
at least monthly engagement with China, illustrates the extensive
effort agencies must undertake to identify problems, gather and analyze
information, and respond to some issues. In the second area we
reviewed, the U.S. experience implementing a comprehensive annual
review of China‘s trade practices within the World Trade Organization
shows the challenge of achieving multilateral support and consensus on
an issue. Disagreement among World Trade Organization members over
implementing commitments creating this ’transitional review mechanism“
limited the World Trade Organization‘s multilateral oversight of
China‘s compliance in 2002. The first review of China‘s trade practices
did not meet the initial expectations of U.S. officials with regard to
the thoroughness of the review. They also expressed disappointment over
the results of the review, which failed to produce a final report or
recommendations to improve future implementation because there was no
consensus to do so among WTO members, including China. However, U.S.
officials cited benefits from participating in the World Trade
Organization review process, such as demonstrating to China the United
States‘ commitment to thoroughly reviewing China‘s World Trade
Organization implementation, and solidifying interagency coordination
for the years ahead. U.S. officials also said they will work with China
and other World Trade Organization members to establish more workable
procedures for future reviews, and that they were hopeful that the
process will be improved over the next 9 years that the review is
scheduled to be conducted.
Background:
China became the 143RD member of the World Trade Organization (WTO) on
December 11, 2001, after almost 15 years of negotiations. These
negotiations resulted in China‘s commitments to open and liberalize its
economy and offer a more predictable environment for trade and foreign
investment in accordance with WTO rules. The United States and other
WTO members have stated that China‘s membership in the WTO provides
increased opportunities for foreign companies seeking access to China‘s
vast market. China is already a major destination of U.S. investment
overseas, and total trade between China and the United States was an
estimated $145 billion in 2002, based on U.S. trade data.
The U.S. government‘s efforts to ensure China‘s compliance with its WTO
commitments are part of an overall U.S. structure to monitor and
enforce foreign governments‘ compliance with existing trade
agreements.[Footnote 3] At least 17 federal agencies, led by the Office
of the U.S. Trade Representative (USTR), are involved in these overall
monitoring and enforcement activities. USTR and the departments of
Agriculture (USDA), Commerce, and State have relatively broad roles and
primary responsibilities with respect to trade agreement monitoring and
enforcement. Other agencies, such as the departments of the Treasury
and Labor, play more specialized roles. Federal monitoring and
enforcement efforts are coordinated through an interagency mechanism
comprised of several management-and staff-level committees and
subcommittees. The congressional structure for funding and overseeing
federal monitoring and enforcement activities is also complex, because
it involves multiple committees of jurisdiction. Congressional agencies
and commissions also support Congress‘s oversight on China-WTO trade
issues. In addition to the executive branch and congressional
structures, multiple private sector advisory committees exist to
provide federal agencies with policy and technical advice on trade
matters, including trade agreement monitoring and enforcement.
Key Agencies Have Increased Focus on China WTO Compliance and
Coordinate Efforts through an Interagency Process:
In response to the increased responsibilities arising from China‘s
accession to the WTO, USTR, Commerce, USDA, and State have undertaken
various efforts to increase their ability to monitor China‘s compliance
with its WTO commitments. On an intra-agency level, each of the four
agencies have reorganized or established teams to better coordinate the
activities among the various agency units involved in China WTO
compliance. Additionally, the agencies have devoted additional staff
resources in Washington, D.C., and China to enhance their monitoring
and enforcement efforts. The agencies‘ recent performance and strategic
planning documents also reflect this increased emphasis on monitoring
and enforcement. In addition to the efforts of the individual agencies,
USTR established a staff-level interagency working group focused on
China WTO compliance to identify, analyze, and resolve problems.
Businesses and industry associations support the U.S. government‘s
efforts by providing information on Chinese trade practices, alerting
the government to market access problems, and providing input on policy
issues.
Agencies Have Made Organizational Changes to Facilitate China WTO
Compliance Efforts:
To enhance coordination on China WTO compliance issues, USTR has
reorganized by merging two offices, while Commerce, State, and USDA
have established intra-agency teams. Each of the agencies we reviewed
includes within their organizational structures an office that focuses
exclusively on China or the greater Asian region. These offices have
the primary responsibility for coordinating the agencies‘ China WTO
compliance efforts, but other units in the agencies are routinely
involved. Coordination with these units generally includes obtaining
input from and sharing information with specialists in other offices on
China trade issues, communicating with agency staff in the field
overseas, participating in the interagency process of reviewing China‘s
WTO compliance, and coordinating with other governments and private
sector representatives.
USTR:
USTR‘s recent reorganization responds to the new responsibilities
arising from China‘s membership in the WTO. USTR created an Office of
North Asian Affairs in June 2002 by merging the Office of China and the
Office of Japan; the office has primary responsibility for coordinating
the agency‘s efforts on China WTO trade issues.[Footnote 4] According
to USTR, the reorganization reflected a shift in the agency‘s
activities resulting from China‘s accession to the WTO and enables the
agency to make the best possible use of its resources to maintain a
high level of attention to trading partners in the region.
The Office of General Counsel and other sector-and function-specific
offices within USTR continue to support the Office of North Asian
Affairs on China trade issues by providing subject matter or other
specialized expertise.[Footnote 5] Additionally, USTR‘s Monitoring and
Enforcement Unit within the Office of General Counsel would have
primary responsibility for representing the United States if a China-
related dispute settlement case were brought before the WTO. Moreover,
the USTR office in Geneva, Switzerland, represents U.S. interests in
proceedings at the WTO.
Department of Commerce:
Commerce created an intra-agency China Compliance Team in May 2001 (in
anticipation of China‘s accession to the WTO) to facilitate the
agency‘s compliance efforts, which are related to industrial goods and
services. Staff from six[Footnote 6] Commerce units comprise the team,
which is chaired by the Executive Director of Commerce‘s Market Access
and Compliance division.[Footnote 7] The team meets twice weekly to
share information among the various offices and coordinate the agency‘s
position and actions on China‘s implementation of its WTO commitments.
USDA:
Shortly after China‘s accession to the WTO in December 2001, USDA
recognized the need to gather expertise from across the agency to aid
in effectively monitoring China‘s WTO compliance regarding agriculture.
As a result, USDA created two intra-agency task forces-a USDA-wide task
force and a working-level task force within USDA‘s Foreign Agricultural
Service (FAS). Six USDA agencies participate in the USDA-wide China
Task Force, which was created in February 2002 and meets quarterly. The
FAS-wide China Task Force, which was first convened in March 2002,
meets monthly to develop strategies for resolving China compliance
issues.[Footnote 8] FAS officials said that both task forces are an
effective means of sharing information and ensuring that the technical
expertise of all relevant units are taken into consideration when
responding to a compliance issue.[Footnote 9]
Department of State:
Following China‘s accession to the WTO, State officers at the U.S.
embassy in Beijing took the lead in coordinating the U.S. government‘s
compliance efforts in China. To that end, the embassy established a WTO
Implementation Coordination Committee, which meets monthly and is
chaired by the embassy‘s economic minister. The committee coordinates
the embassy‘s WTO monitoring, compliance, technical assistance, and
outreach efforts. State officers from relevant sections, as well as
overseas officers from Commerce, USDA, and Customs, comprise the
committee. According to State, the committee plays an important role in
gathering, summarizing, and communicating information from China to
U.S. government agencies in Washington, D.C.[Footnote 10]
At State headquarters, the Office of Chinese and Mongolian Affairs
serves as the main communications link between U.S. agencies in
Washington, D.C., and the U.S. embassy and consulates general in China.
The office is therefore responsible for coordinating instructions and
other diplomatic dispatches to the posts on China WTO compliance
issues. This office coordinates with offices in State‘s Bureau of
Economic and Business Affairs to obtain sector-specific and other
technical expertise on China trade issues.
Agencies Have Allocated Additional Resources to China Monitoring and
Enforcement Efforts:
USTR, Commerce, USDA, and State have requested and received additional
resources to carry out the additional responsibilities arising from
China‘s accession to the WTO. For example, full-time equivalent staff
in key units that are involved in China monitoring and enforcement
activities across the four agencies increased from about 28 to 53 from
fiscal year 2000 to 2002, based on agency officials‘ estimates (see
table 1). Congress‘s October 2000 legislation authorizing the President
to grant permanent normal trade relations status to China contained
specific provisions authorizing the appropriation of additional
resources for monitoring and enforcement efforts at agencies‘
headquarters and on the ground in China.[Footnote 11] Although no
appropriation has been made under that October 2000 legislation, the
President‘s fiscal year 2001 budget requested $22 million for the four
agencies to fund a Trade Compliance Initiative that emphasized the need
for resources to monitor WTO compliance. Subsequently, Congress
appropriated funds for the agencies‘ overall monitoring and enforcement
efforts, a portion of which the agencies used to enhance China
compliance efforts.
Table 1: Agency Staffing Estimates for Key Offices Involved in China
WTO Compliance Efforts, Fiscal Years 2000-2002:
Agency: USTR; 2000: 3; 2001: 3; 2002: 5.
Agency: Commerce; Market Access and Compliance[A]; Import
Administration[B]; 2000: ; 7; 1.7; 2001: ; 19; 3.3; 2002: ; 22; 6.7.
Agency: USDA; Asia and the Americas Division [C]; FAS China field
offices (excluding Hong Kong); 2000: ; 2.5; 5; 2001: ; 2.5; 5; 2002: ;
2.5; 8.
Agency: State; Office of Chinese and Mongolian Affairs[D]; Beijing
embassy economic section[E]; 2000: ; 2.25; 6; 2001: ; 2.25; 6; 2002: ;
3.25; 5.5.
Agency: Total; 2000: 27.5; 2001: 41.1; 2002: 53.
Sources: USTR, Commerce, USDA, and State estimates for fiscal years
2000-2002.
Note: Totals do not add due to rounding.
[A] Figures for Market Access and Compliance include actual full-time
staff in the Office of China Economic Area, the Trade Compliance
Center, and members of a Rapid Response trade compliance team who focus
on China. The figure for 2002 does not include two overseas compliance
officers that were approved in 2001, but were not placed until the end
of fiscal year 2002 and early fiscal year 2003.
[B] With the exception of officers posted overseas in China, Import
Administration officers do not have country-specific work portfolios.
Therefore, these figures are based on Import Administration‘s estimates
of actual full-time equivalent staff working on China compliance
issues. These figures do not include staff who conduct antidumping
proceedings involving imports from China.
[C] Figures for the Asia and the Americas Division are based on FAS
estimates of actual full-time equivalent staff working on China
compliance issues.
[D] Figures for the Office of Chinese and Mongolian affairs are based
on State‘s estimates of actual full-time equivalent staff in the unit‘s
economic section, which is the section that is most involved in China
WTO compliance issues.
[E] Figures for the Beijing embassy economic section are based on
State‘s estimates of actual full-time equivalent staff working on China
compliance issues.
[End of table]
Commerce had the largest overall increase in staff devoted to China WTO
compliance. Specifically, staffing levels in Commerce‘s Market Access
and Compliance division increased from 7 to 22 between fiscal years
2000 and 2002. Additionally, Commerce‘s Import Administration, which
takes the lead on monitoring China‘s commitments concerning subsidies
and unfair trade practices, also significantly increased staff
dedicated to China compliance activities over the same time
period.[Footnote 12] Commerce has also increased the number of staff
involved in agency‘s compliance efforts on the ground in China by
creating a Trade Facilitation Office within the Beijing
embassy.[Footnote 13] In fiscal year 2001, Commerce established
positions in this office for two Market Access and Compliance officers
and two Import Administration officers. However, the positions were not
filled until the end of fiscal year 2002 and early fiscal year 2003 due
to training and delays in obtaining security clearances for the staff.
According to Commerce, the office works with industry representatives
to identify and address market access and WTO compliance concerns. USDA
has also increased the number of overseas staff involved in the
agency‘s China WTO compliance activities. Specifically, FAS added a
senior policy agricultural attaché to the embassy in Beijing and added
two officers at the Agricultural Trade Offices in Beijing and Shanghai
in fiscal year 2002.[Footnote 14] Attachés at the embassy are most
directly involved in implementing the agency‘s efforts to oversee
China‘s WTO compliance with its agriculture commitments. FAS officials
said that other overseas officers play a critical role in tracking
China‘s compliance through their contacts with Chinese officials and
traders in China. For example, officers in the Agricultural Trade
Offices track agriculture-related laws and regulations issued by the
Chinese government and communicate this information to headquarters
staff.
Agency Performance and Strategic Planning Documents Reflect Emphasis on
China WTO Compliance Issues:
In addition to making organizational changes and devoting additional
resources to China WTO compliance efforts, the key agencies have also
identified monitoring and enforcement as a priority in the agencies‘
recent planning documents.[Footnote 15] For example, USTR specifically
added China WTO monitoring and enforcement as a key agency performance
goal in the agency‘s fiscal year 2003 performance plan and most recent
strategic plan. Additionally, State‘s 2003 Mission Performance Plan for
the overseas posts in China added specific goals, actions, and
strategies related to the posts‘ roles in monitoring and assisting in
the enforcement of China‘s WTO commitments.[Footnote 16] And although
the most recent Commerce and USDA planning documents do not include
specific goals relating to China WTO compliance, the plans do include
more general goals relating to the monitoring and enforcement of
existing WTO agreements. Both of these agencies‘ plans also set forth
broad strategies for ensuring market access for U.S. companies.
New Interagency Group Coordinates Compliance Activities and Utilizes
Private Sector to Support Efforts:
U.S. government agencies coordinate their monitoring and enforcement
activities through a formal interagency process and structure that is
intended to ensure that the development of trade policy reflects a
range of agency perspectives.[Footnote 17] Within this overall
structure, a newly established multiagency, staff-level group focuses
on China‘s compliance with its WTO commitments. The agencies also seek
input from businesses and industry groups for support on compliance
activities.
Interagency Group Focuses on China WTO Compliance:
In 2001, USTR created an interagency group whose mandate is devoted
exclusively to monitoring China and the extent to which it is complying
with its WTO commitments.[Footnote 18] USTR‘s Office of North Asian
Affairs is responsible for chairing this new Trade Policy Staff
Committee, Subcommittee on China WTO Compliance. Almost 40 officials,
representing 14 departments and executive offices, participate in the
China compliance subcommittee. This subcommittee is part of a structure
of regionally, functionally, and industry-oriented subcommittees and
task forces that are chaired by USTR staff and comprised of staff from
a wide range of federal agencies. USTR assigns responsibilities for
issue analysis to members of the appropriate staff subcommittee.
Sometimes China-related trade issues are coordinated in other groups or
at a higher level in the interagency structure process. For example,
the intellectual property subcommittee took responsibility for some
China WTO issues and coordinated its activities with the China WTO
Compliance Subcommittee, according to USTR officials.
USTR‘s China WTO Compliance Subcommittee adopted an action plan with
eight components at its inaugural meeting on December 4, 2001. The
action plan had eight components. Under the plan, the subcommittee is
to conduct:
* comprehensive monitoring activities on a coordinated interagency
basis, with input from private sector groups;
* regular dialogue with other WTO members;
* outreach to the private sector about the business environment it
should expect in China;
* outreach to Chinese officials about their WTO commitments and
compliance and its benefits;
* technical assistance and capacity building activities for China;
* active participation in the WTO Transitional Review Mechanism
process;
* facilitation of congressional oversight, by providing an annual
report to Congress; and:
* efforts to seek enforcement of U.S. rights through bilateral and
multilateral means, including recourse to WTO dispute settlement
procedures, as appropriate.
The China WTO Compliance Subcommittee was very active in its first
year, and it met 11 times in 2002. In these meetings, officials
evaluated and prioritized the monitoring activities undertaken,
reviewed the steps that China has taken to implement its commitments,
and decided on appropriate responses. Agency officials noted that much
of the work and communication they do on China monitoring takes place
informally outside of these formal meetings. Also, the subcommittee
held a public hearing on September 18, 2002, and USTR issued its first
annual report to Congress on China‘s WTO Compliance on December 11,
2002, as required by law.[Footnote 19]
Still, it took some time for the subcommittee to get up to full speed.
For example, it took time for the various participants to work out
roles and responsibilities, according to some agency officials. USTR
officials sought to delineate tasks related to carrying out their
monitoring action plan in China, Washington, D.C., and Geneva,
including expectations for information gathering, reporting, and
setting initial priorities. Furthermore, agency officials told us that
obtaining timely and accurate translations of Chinese laws and
regulations was sometimes a problem, which affected the agencies‘
efforts to review the information. Also, agency officials undertook
several activities at the beginning of the year to educate themselves
on China‘s WTO obligations. This was important, because monitoring
these obligations entailed new or expanded responsibilities for
officials in the field and many of the Washington-based officials were
relatively new to their current jobs. For example, many of the USTR
officials who had actively participated in the U.S. negotiations with
China establishing those obligations changed jobs and/or left the
government soon after China became a WTO member in 2001. Nevertheless,
monitoring activities took place throughout the entire year.
Informal Private Sector Participation Is Important to Monitoring:
The private sector plays an important role in monitoring and
enforcement activities. However, with regard to China, this role is
generally carried out through informal contacts rather than through a
formal system involving trade advisory committees from the private
sector. These private sector committees complement the U.S.
government‘s interagency committee system.
USTR officials said the U.S. officials involved in China compliance
monitoring obtain information from an informal, ad hoc network of
business associations and individual companies to get information about
Chinese trade practices and policies, to be alerted to market access
problems and potential WTO violations, and to help weigh policy
options. Business-government contacts take place both in China and in
Washington, D.C. According to USTR officials, most of their business
contacts are with individual companies. Business groups, including the
U.S.-China Business Council, the U.S. Chamber of Commerce, the National
Association of Manufacturers, and the American Chamber of Commerce in
China, among others, also provide input and comment on policies
relevant to the members of their organizations.
USTR officials said that USTR, Commerce, and USDA officials keep the
various formal trade advisory committees informed of their China
compliance-related activities and they sometimes receive input from
these groups about the issues that concern them.[Footnote 20] However,
these committees are not the primary source of private sector
involvement in China-related monitoring and enforcement. There is no
active private sector advisory committee on China or any geographic
area.[Footnote 21]
A number of U.S. business and industry association representatives we
interviewed generally thought they had established a good working
relationship with executive branch officials on China trade issues. In
our 2002 survey of U.S. companies with a presence in China, we asked
business representatives whom they would be likely to contact if faced
with difficulties related to China‘s implementation of its WTO
commitments. Business representatives reported that they were most
likely to contact the U.S. embassy or consulate in China, their U.S.
trade associations, China‘s Ministry of Foreign Trade and Economic
Cooperation, and USTR. They were less likely to contact other U.S.
agencies in Washington, D.C. (See table 2.):
Table 2: U.S. Company Likelihood of Contacting Groups Regarding
Difficulties Related to China‘s Implementation of Its WTO Commitments:
Contact groups: (Rank-ordered responses expressed as percents): U.S.
embassy or consulate in China; Very or somewhat likely: 59%; Likely as
unlikely: 10%; Very or somewhat unlikely: 21%; Don‘t know: 9%; Number
of responses: 181.
Contact groups: (Rank-ordered responses expressed as percents): U.S.
trade associations representing your company‘s interests; Very or
somewhat likely: 55; Likely as unlikely: 13; Very or somewhat unlikely:
22; Don‘t know: 10; Number of responses: 183.
Contact groups: (Rank-ordered responses expressed as percents): China‘s
Ministry of Foreign Trade and Economic Cooperation; Very or somewhat
likely: 43; Likely as unlikely: 14; Very or somewhat unlikely: 30;
Don‘t know: 13; Number of responses: 183.
Contact groups: (Rank-ordered responses expressed as percents): U.S.
Trade Representative; Very or somewhat likely: 42; Likely as unlikely:
21; Very or somewhat unlikely: 25; Don‘t know: 12; Number of responses:
178.
Contact groups: (Rank-ordered responses expressed as percents): Other
Chinese government agencies or officials; Very or somewhat likely: 40;
Likely as unlikely: 12; Very or somewhat unlikely: 21; Don‘t know: 28;
Number of responses: 165.
Contact groups: (Rank-ordered responses expressed as percents): Chinese
consultants; Very or somewhat likely: 39; Likely as unlikely: 16; Very
or somewhat unlikely: 34; Don‘t know: 12; Number of responses: 178.
Contact groups: (Rank-ordered responses expressed as percents): WTO
Center in Shanghai; Very or somewhat likely: 38; Likely as unlikely:
17; Very or somewhat unlikely: 28; Don‘t know: 17; Number of responses:
177.
Contact groups: (Rank-ordered responses expressed as percents): U.S.
Department of Commerce; Very or somewhat likely: 36; Likely as
unlikely: 21; Very or somewhat unlikely: 30; Don‘t know: 13; Number of
response: 179.
Contact groups: (Rank-ordered responses expressed as percents): U.S.
Department of State; Very or somewhat likely: 23; Likely as unlikely:
21; Very or somewhat unlikely: 40; Don‘t know: 16; Number of responses:
178.
Contact groups: (Rank-ordered responses expressed as percents):
Other[A]; Very or somewhat likely: 22; Likely as unlikely: 0; Very or
somewhat unlikely: 26; Don‘t know: 52; Number of responses: 23.
Contact groups: (Rank-ordered responses expressed as percents): U.S.
Congress; Very or somewhat likely: 21; Likely as unlikely: 21; Very or
somewhat unlikely: 46; Don‘t know: 13; Number of responses: 175.
Contact groups: (Rank-ordered responses expressed as percents): U.S.
Department of Agriculture; Very or somewhat likely: 8; Likely as
unlikely: 13; Very or somewhat unlikely: 64; Don‘t know: 15; Number of
response: 172.
Source: GAO.
Notes: GAO Survey of U.S. Companies on China-WTO issues, question 22
(reprinted in U.S. General Accounting Office, World Trade Organization:
Selected U.S. Company Views About China‘s Membership, GAO-02-1056
[Washington, D.C.: Sept. 23, 2002], p. 46).
Percentages are based on the number of respondents answering each
question item.
[A] Other responses included, among others, China‘s Ministry of
Finance, U.S. Treasury, and the U.S.-China Business Council.
[End of table]
Companies reported mixed views regarding concerns that reporting
compliance problems with WTO commitments to the U.S. government might
result in retaliatory action by Chinese government entities against
their companies. Specifically, almost half of the 48 companies that we
interviewed said they were concerned about retaliatory action, and at
least one had experienced such actions at first hand. A number of
company representatives explained that they prefer to work under the
cover of industry associations, resolve problems behind the scenes,
and/or resolve problems directly in order to preserve business
relationships in China. Other company representatives who did not fear
retaliation noted that they had a history of raising issues with either
the U.S. or the Chinese government.
U.S. Experience in Two Areas Illustrates Challenges Ahead:
U.S. agencies‘ experiences in addressing compliance issues that arose
in two areas during the first year of China‘s WTO membership illustrate
the challenges ahead. First, problems regarding China‘s commitments to
grant market access to certain bulk agricultural commodities through
the use of tariff-rate quotas (TRQ) show the extensive effort that is
needed to identify and begin to resolve what are sometimes complex and
technical issues. Second, disagreement over implementing commitments
creating a comprehensive review-referred to as a transitional review
mechanism (TRM)-within the WTO to monitor China‘s compliance shows the
importance of having common expectations and gaining early consensus on
the meaning of the terms agreed upon in a multilateral forum. In both
of these areas, we describe the relevant WTO commitments that China
made, the issues that arose in 2002 regarding implementation of these
commitments, and the ways in which U.S. agencies sought to resolve
these issues. The problems in both of these areas are unresolved, and
these areas illustrate the types of challenges that U.S. officials may
face in the second year of China‘s membership. China‘s actions
regarding the interpretation and implementation of these commitments
provide insight into how China might act as a WTO member in the future
with regard to contentious issues. U.S. officials plan to pursue
resolution of the TRQ and TRM issues with China in 2003.
Agricultural TRQs Demonstrate Monitoring Challenges:
China‘s implementation of its agricultural TRQ commitments was an area
of contention in the first year of China‘s WTO membership. Under
China‘s TRQ commitments, a specific quantity of certain agricultural
bulk commodities is to be allowed in at a low duty, while imports above
that quota amount face higher tariffs. The commodities covered by TRQs
are sensitive to China, and the trading of these commodities has been
under government control.[Footnote 22] At the same time, these
commodities are important for U.S. exporters because of the great
market potential in China. According to USDA estimates, the increased
access to China‘s market under the WTO will expand annual U.S. farm
incomes by $800 million from 2002 to 2009. Notwithstanding the
potential of China‘s market for agricultural goods, USTR highlighted
agriculture as one of the three general areas (in addition to systemic
transparency concerns) that generated significant problems in 2002 and
warranted continued U.S. scrutiny. More specifically, USTR noted that
the administration of China‘s TRQ system was the ’most troublesome“
area within agriculture. The issues surrounding China‘s implementation
of its TRQ commitments are ongoing, and the problems have yet to be
resolved. Meanwhile, the United States has attempted to resolve these
problems through both bilateral and multilateral efforts.
China‘s Agricultural TRQ Commitments Are Detailed, Varied, and
Numerous:
China‘s commitments relating to agricultural TRQs are detailed, varied,
and numerous. Some commitments provide specific procedural guidance for
administering China‘s TRQ system, while others address the general
principles of how the system should operate. China‘s administration of
its TRQ system, which includes decisions about how much of the total
quota amount for each product is allocated and to whom, affects whether
exporters can take full advantage of the market potential in China. The
large number and type of TRQ commitments reflect the concerns that some
WTO members held about the way in which China‘s TRQ system would
operate following its accession. For example, among the 58 WTO
commitments that we identified as relating to TRQs, we found 40 to be
guidance related. These types of commitments provide specific
procedures for how China should administer its TRQ system. However,
some commitments are less specific, such as those that address the
general principles that China should abide by. China has committed to:
* increase its tariff-rate quota volumes over a 3 to 4 year
implementation period;
* reserve a portion of the TRQs for importation through trading
enterprises not run by the government;
* administer TRQs on a transparent, predictable, uniform, fair, and
nondiscriminatory basis;
* follow specific time lines to publish quotas, accept applications,
and allocate TRQs;
* establish government enquiry points and publish information on its
quota allocation in an official journal; and:
* designate a single, central authority to make the decisions regarding
all allocations and reallocations to end-users.
TRQ Implementation Issues Ranged Widely:
Besides a cross-cutting U.S. concern over transparency, a wide range of
issues relating to China‘s TRQ administration caused concern in the
first year of China‘s membership.[Footnote 23] Examples of the issues
include the following: (1) China‘s quota allocations to end-users
missed the deadlines specified in the commitments; (2) the United
States and China presented different opinions on what constitutes a
’commercially viable“ shipping quantity; and (3) the United States and
China disagreed on whether China‘s reserving a portion of the TRQ for
reexporting violated China‘s WTO commitments.
First, China missed the deadline specified in the accession agreement
for issuing the quotas. China‘s designated authority for agricultural
TRQ administration, SDPC, was late to issue both draft and final
regulations on TRQ quota allocation. Not only was SDPC late to begin
the TRQ quota application process, but also its subsequent allocation
of TRQs did not begin until late April 2002, approximately 4 months
after the date specified in China‘s WTO commitments. U.S. officials
were unsure of the precise effect of this delay on market access.
However, they agreed that the delay probably reduced the benefit of the
quota allocations in 2002, since U.S. exporters missed the spring
marketing season. Chinese officials whom we interviewed outlined
several reasons for the delay: (1) China received many more
applications for TRQs than expected, thus placing a heavy burden on
China‘s limited resources; (2) the switch of TRQ allocation authority
from the provinces to a single central authority was a drastic
adjustment for SDPC; and (3) China became a WTO member late in the year
and therefore did not have enough time to prepare to issue TRQs by
January 1. Problems with the timeliness of TRQ allocations for certain
of the commodities have surfaced in 2003 as well. According to USTR and
USDA officials, although China announced the 2003 TRQ amounts on time,
the actual quota allocations to end-users had yet to be verified as of
early March 2003.
Second, the United States and China presented different opinions on
what constitutes commercially viable quantities. China‘s WTO
commitments require that quotas be allocated in commercially viable
shipping quantities. The United States believed that SDPC allocated a
portion of its 2002 TRQs for some commodities in smaller than
commercially viable quantities--that is, the amount of the quota was
too small to justify the cost of shipping the product from the United
States to China. China maintained that the allocations were in fact
made in commercially viable quantities. However, China noted in the WTO
Committee on Agriculture transitional review meeting in September 2002
that China was open to considering suggestions and further discussing
this issue with the United States and other interested WTO members.
Third, the United States considered China‘s practice of reserving a
portion of the quotas for ’processing trade“ to be inconsistent with
WTO obligations. China reserved a certain portion of the TRQ for each
agricultural commodity for companies that process the imported
commodities for reexport. End-users that received such quota
allocations (after applying to another ministry) were required to
reexport the processed product, and selling of the processed product in
the Chinese domestic market was prohibited. In its first-year
compliance report, USTR argued that this practice limited the market
share held by foreign imports in China‘s domestic markets. At the same
time, they contended that this practice distorted trade by creating
greater competition for WTO members‘ processed goods in export markets
outside of China. The United States further argued against the practice
of reserving a portion of the TRQ for processing trade by referring to
other commitments China had made as well as to general WTO
principles.[Footnote 24] China responded that the processing trade has
been in existence for 2 decades and that many enterprises in China,
including joint ventures, engage in this business. China argued that
those business interests should be accommodated. Furthermore, reserving
a portion of the TRQs for those enterprises was based on objective
demand and consumer preferences, and thus the practice was within the
framework of TRQ commitments.
United States Used Multiple Sources and Bilateral and Multilateral
Means to Address TRQ Issues:
The U.S. experience in addressing TRQ issues in 2002 shows that
monitoring China‘s compliance can entail significant effort. U.S.
government agencies gathered information from the private sector, U.S.
embassy personnel, and the Chinese government to identify potential
problems concerning China‘s compliance with its TRQ commitments. First,
U.S. agencies used an informal network of business associations and
individual companies to obtain information about Chinese trade
practices and policies and to be alerted to market access problems and
potential WTO violations. Industry groups used formal and informal
channels to voice their concerns over TRQ implementation and provided
input for USTR‘s comments to the Chinese government on TRQ regulations.
Several agricultural groups and companies also submitted written
comments for USTR‘s report on China‘s WTO compliance in September 2002.
Agricultural groups we interviewed noted that they also relied on
informal means to communicate with USTR and USDA. Second, agency
officials working in the U.S. embassy in Beijing were another prominent
source of information. For example, the U.S. embassy translated various
TRQ regulations from Chinese to English. The third source of
information was the Chinese government. SDPC circulated the interim
regulation on TRQs and the allocation guidance for public comment
before issuing them in final form. USTR, USDA, and other agencies in
the interagency process analyzed this information and determined how to
respond. Therefore, USTR was able to provide detailed written feedback
to the Chinese and anticipate potential problems. For example, the U.S.
concern over reserving a portion of the quotas for the processing trade
was expressed in the U.S. comments on the draft regulations early in
the process of responding to China‘s TRQ administration.
In responding to the TRQ compliance problems, the U.S. government used
both bilateral and multilateral mechanisms. The bilateral activities
included sending a ’demarche,“ or formal message, and letters to
Chinese officials. Additionally, TRQs were discussed during USTR, USDA,
State, and Commerce officials‘ visits to China throughout the year.
However, early bilateral meetings with the Chinese did not enable the
United States to obtain the information it was seeking. So, after an
interagency decision, the United States invoked a Chinese commitment
for more formal bilateral consultations at the WTO. As a result of
those consultations, the United States was able to get additional
information about China‘s TRQ administration. Generally, the United
States tried to engage other WTO members to help resolve problems with
China if there was multilateral interest. Additionally, five WTO
members submitted questions to China relating to TRQs in the context of
the transitional review mechanism at the WTO in September. The time
line in table 3 illustrates the considerable number and type of
activities that U.S. officials undertook at the bilateral and WTO
multilateral level from late 2001 to early 2003 to address TRQ issues.
Table 3: Time line of Key U.S. Government TRQ-Related Activities and
Events, 2001-2003:
Date: November 2001; Bilateral activities and events: U.S. provides
written comments to China on draft TRQ regulations.; WTO multilateral
activities and events: [Empty].
Date: December; Bilateral activities and events: USTR Chief
Agricultural Negotiator meets with SDPC to discuss timeliness and other
concerns related to TRQs.; WTO multilateral activities and events: USTR
raises TRQ concerns with Chinese representative on the margins of the
WTO General Council meeting.
Date: January 2002; Bilateral activities and events: Demarche notes
China‘s failure to publish regulations and application criteria, as
well as allocate quotas by Jan. 1, 2002.; WTO multilateral activities
and events: [Empty].
Date: February; Bilateral activities and events: U.S. provides written
comments to China on final TRQ regulations; U.S. delegation raises
agriculture-related concerns, including TRQs, during Bush-Jiang summit
in Beijing; Demarche encourages China to allocate TRQs and publish
relevant information as soon as possible.; WTO multilateral activities
and events: [Empty].
Date: March; Bilateral activities and events: USTR official meets with
MOFTEC officials about TRQ concerns.; WTO multilateral activities and
events: U.S. delegation attends special session of the Committee on
Agriculture and raises China TRQ issue.
Date: April; Bilateral activities and events: USTR Ambassador raises
TRQ issues during visit to China. Subsequently, raises TRQ issues again
in follow-up letter to MOFTEC Minister; Commerce Undersecretary
meets with Chinese officials and is told that the national government
has forwarded information on TRQs to the provinces; Commerce
Secretary raises TRQ issues during visit to China; USTR officials
meet with Chinese officials and are reassured of the allocation of
TRQs; Demarche encourages the Chinese to make TRQ allocations;
U.S. embassy requests a list of recipients for TRQ allocations from
SDPC and MOFTEC.; WTO multilateral activities and events: [Empty].
Date: May; Bilateral activities and events: Demarche requests
information about the TRQ allocations and expresses concern over lack
of response from China on earlier requests; USTR Ambassador raises
TRQ issues with MOFTEC Minister at Asia Pacific Economic Cooperation
Ministerial.; WTO multilateral activities and events: U.S. addresses
TRQ issues at the meeting of the Committee on Import Licensing. China
responds that it has not anticipated difficulty and promises to
allocate on time next year.
Date: June; Bilateral activities and events: Demarche requests that
Chinese officials take responsibility for TRQ allocation; SDPC
official meets with USTR official to discuss the status of China‘s TRQ
allocations.; WTO multilateral activities and events: U.S. raises TRQ
issues at WTO Market Access Committee meeting; U.S. raises TRQ
issues at WTO Agriculture Committee meeting.
Date: July; Bilateral activities and events: USTR official meets with
Chinese officials to discuss TRQ allocations; Commerce official
meets with MOFTEC officials to discuss TRQ concerns.; WTO multilateral
activities and events: USTR formally requests bilateral consultation
with China in Geneva concerning TRQ administration of agricultural
goods for August 12, 2002.
Date: August; Bilateral activities and events: Letter from USDA to
Chinese official notes the need to address the TRQ problem; USDA
Secretary discusses TRQ issues during visit to China.; WTO multilateral
activities and events: [Empty].
Date: September; Bilateral activities and events: An interagency team
lead by USTR has discussions with senior Chinese officials in Beijing
in a lead-up to the Crawford, Texas Presidential Summit.; WTO
multilateral activities and events: USTR holds formal consultations
(under the TRQ headnote) in Geneva with a delegation from China.
; Committee on Agriculture holds its 32[ND] meeting on September 26.
China responds to questions and comments regarding TRQs by the United
States, Canada, the European Community, Japan, and Thailand in advance
of the review.; U.S. raises TRQ issues at WTO Market Access Committee
transitional review meeting; U.S. raises TRQ issues at WTO Import
Licensing Committee transitional review meeting.
Date: October; Bilateral activities and events: FAS letter to SDPC
delineates various concerns regarding TRQ implementation.; WTO
multilateral activities and events: [Empty].
Date: November; Bilateral activities and events: [Empty]; WTO
multilateral activities and events: U.S. delegation asks China about
the TRQ license application process and the requirement that China has
set aside a portion of the TRQ for entities that further process and/or
reexport product imported under the TRQ at the WTO Committee on
Agriculture meeting in Geneva.
Date: December; Bilateral activities and events: USTR sends letter to
MOFTEC concerning China‘s TRQ administration of bulk agricultural
products.; WTO multilateral activities and events: [Empty].
Date: January 2003; Bilateral activities and events: [Empty]; WTO
multilateral activities and events: USTR meets with Chinese delegation
to the WTO in Geneva to lay the groundwork for USTR Ambassador‘s trip
to China and to discuss TRQ implementation issues.
Date: February 2003; Bilateral activities and events: USTR Ambassador
meets with Chinese Premier-elect and MOFTEC Minister and discusses
TRQs; Deputy USTR raises TRQ concerns during new trade dialog in
Beijing.; WTO multilateral activities and events: [Empty].
Source: USTR, USDA, Commerce, and State.
Note: MOFTEC = Ministry of Foreign Trade and Economic Cooperation.
[End of table]
TRQ Issues Are Still Ongoing, as Private Sector Concerns Continue:
U.S. officials continue to pursue many of the TRQ-related issues with
China to gain greater market access for U.S. exports of the affected
products. In a December 2002 letter, the National Cotton Council urged
the U.S. government to initiate dispute settlement consultations in the
WTO with respect to China‘s implementation of its TRQ for imported
cotton fiber, and, if necessary, request the establishment of a dispute
settlement panel to resolve the issue. It is important to note that
implementation problems are not universal across all commodities. For
example, getting a list of TRQ quota holders and a commercially viable
shipping quantity have been concerns for U.S. cotton exporters but not
for U.S. exporters of edible oil, according to industry representatives
we interviewed. Furthermore, the various U.S. agricultural groups‘
level of concern over China‘s TRQ implementation varies because the
commercial considerations vary for each commodity. China‘s
administration of its TRQ system is only one among many factors that
affect U.S. exports to China. Chinese domestic demand and supply, as
well as the size of the domestic Chinese stock of these commodities are
important determinants of trade flows. Also, international competition
with other exporting countries as well as exchange rates affect U.S.
exports to China. As a result of all these factors together, in 2002,
the level of agricultural exports that filled the various Chinese quota
amounts for the TRQ commodities ranged from zero to 67
percent.[Footnote 25]
The Transitional Review Mechanism Did Not Meet U.S. Expectations:
Because China‘s economy is in a transitional stage from a nonmarket to
a market economy, and because China‘s commitments required China to
make extensive changes to its trade regime, WTO members, and
particularly the United States,[Footnote 26] pushed for China‘s
accession package to include commitments creating a transitional review
mechanism. This mechanism is intended to be a means for WTO members to
annually review China‘s implementation of its WTO commitments and the
development of China‘s trade with other WTO members until all of
China‘s commitments are phased in.[Footnote 27] These TRM commitments
are important, because they establish a multilateral monitoring
mechanism that allows WTO members to better understand China‘s trade
practices and to communicate their expectations to China.
Just as the establishment of a transitional review mechanism was one of
the more challenging issues to negotiate with China, implementing the
process during the first year (2002) also proved to be challenging. WTO
members did not reach consensus on how the review should proceed
because of the lack of specificity in some of the commitments, leaving
the process open to debate. The United States, China, and other WTO
members had different expectations about what the review should entail
and produce. They disagreed on the form and timing of the information
to be exchanged and on the thoroughness of the review. U.S. activities
to resolve these differences on a multilateral basis through the WTO
did not yield a consensus and were unsuccessful. As a result, with few
exceptions, there was not a complete and thorough review of China‘s
compliance issues, nor any summary conclusions about the first year of
China‘s implementation by the WTO. Thus, the TRM process fell short of
the meaningful review hoped for by U.S. and other country officials.
U.S. government officials agreed that the TRM process would have worked
better if there had been greater consensus from WTO members on their
expectations regarding China‘s actions. However, U.S. officials cited
benefits from participating in the TRM process, such as demonstrating
to China the United States‘ commitment to thoroughly reviewing China‘s
WTO implementation, and solidifying interagency coordination for the
years ahead. U.S. officials said they are hopeful that they can work
with China and other WTO members to achieve more workable procedures
for future reviews.
Commitments Create TRM, but Procedural Details Not Specified:
The transitional review mechanism, which is unique to China, is defined
through about 75 commitments in China‘s accession agreement.[Footnote
28] The commitments address two matters: (1) the scope and process for
the WTO review and (2) the exchange of information. First, these TRM
commitments lay out the scope of review and some procedures for China
and WTO members to follow. About a dozen commitments require annual
reviews by all 16 WTO subsidiary bodies and then by the WTO General
Council, making use of the results of those of the subsidiary
bodies.[Footnote 29] The reviews are to occur annually for 8 years,
with a final review in year 10.[Footnote 30] The General Council
reviews are not limited to an examination of China‘s implementation of
its WTO commitments but are to include broader issues dealing with (1)
the development of China‘s trade with WTO members and other trading
partners and (2) recent developments and cross-sectoral issues
regarding China‘s trade regime. Second, in regard to the exchange of
information, China‘s accession agreement sets forth a broad range of
information that China must provide annually to the 16 WTO subsidiary
bodies for their reviews. We identified 62 commitments requiring China
to provide economic data and information on its (1) economic policies,
(2) framework for making and enforcing policies, (3) policies affecting
trade in goods and services, and (4) trade-related intellectual
property regime.
USTR officials believed additional rules were needed to ensure timely
responses from China. While China‘s accession agreement establishes a
general framework for TRM procedures, several other aspects of the
review are not specified. Therefore, these aspects have to be
coordinated between the members of the various WTO subsidiary bodies
and the General Council, which includes China. For example, China‘s
commitments require China to submit information and documentation
relating to the General Council‘s review no later than 30 days prior to
the review date. However, there is no similar specific requirement for
when China needs to provide information to the subsidiary bodies for
their reviews, which need to be done before those of the General
Council. Similarly, China is to respond to specific questions from
members in connection with the review conducted by both the subsidiary
bodies and the General Council. However, while the agreement indicates
that members should submit questions and China should respond to those
questions in advance of the reviews, the agreement does not establish
how the process should work with any more particularity. For example,
the agreement does not set forth agreed timelines for the process, nor
whether questions raised in advance by WTO members should be answered
in writing or provided orally.
No Consensus on Expectations for TRM:
U.S. officials expected a detailed multilateral review of China‘s WTO
implementation each year of the TRM, but this expectation differed from
that of China. Under U.S. expectations, China‘s TRM would follow a set
of mutually agreed to procedures, and China would provide the usual
information required of all WTO members as well as additional
information related to its accession agreement. Furthermore, U.S.
officials expected that China would respond to their questions before
the relevant WTO committee meetings and in writing. They also expected
opportunities for follow-up questions and answers either in writing or
in subsequent meetings. With all this information in hand, members then
could thoroughly analyze the answers and take them into account as part
of their review to come to conclusions about China‘s implementation. In
addition, U.S. officials initially were seeking to have the WTO General
Council synthesize the results of the reports of the various subsidiary
bodies, come to some summary conclusions, and issue a final report with
recommendations.
Chinese officials seemed to expect a more limited review and took a
more narrow view of the TRM commitments. In fact, Chinese officials
told us that while they would abide by these commitments, they
considered the review mechanism discriminatory in nature, since it only
applied to China, and that it had been ’imposed on them.“ They would
not accept any additional procedures concerning the form, nature, and
timing of the information they were to submit or the review itself.
Chinese officials told us that such procedures were not in the
commitments and appeared to them as an attempt to renegotiate and add
to the terms of their accession. They took the position that any
information that was specifically called for in their commitments
(outside of regular WTO notification requirements) could be submitted
orally and that it need not be submitted before individual committee
meetings where the ’review“ was to take place. Chinese officials
believed the review should come at the last meeting of the year in each
subsidiary body, just before the last General Council meeting in 2002,
and should be limited to that one meeting.
The expectations of other WTO members varied. Some members sympathized
with China and believed that other WTO members were pushing the TRM too
hard, especially since this was the first year of China‘s membership.
Other members were less sympathetic and expected the review to help
resolve problems and to exert pressure on China to fully implement its
commitments. Similarly, there was no agreement among WTO members
concerning the interpretation and implementation of the TRM
commitments. For example, some members agreed with China and did not
think that these commitments required China to answer questions in
writing and did not expect China to do so. Other members shared the
U.S. expectation that Chinese commitments to provide information to
other members in advance implicitly required China to provide answers
in writing. Additionally, other members‘ expectations about the nature
of the final product of the review also varied or were uncertain.
U.S. Activities Related to TRM Implementation:
Planning and preparations for the first WTO review of China‘s
implementation of its commitments got off to a slow start after China
became a WTO member. Through the first half of 2002, U.S. officials,
other WTO members, and WTO Secretariat officials searched for consensus
about how the review should proceed. Moreover, there was a lack of an
early plan of action from the United States, other WTO members, and the
WTO Secretariat[Footnote 31] concerning scheduling meetings and other
procedural issues. Chinese officials refused to agree to have any
discussion of TRM-related procedures placed on the agenda for (early)
subsidiary body meetings. At that time, officials from other member
countries expressed concern that the lack of an agreed strategy on TRM
procedures might affect the quality of the reviews.
It was not until April 2002 that the U.S. interagency China WTO
Compliance Subcommittee agreed to a paper for the WTO setting forth
U.S. views as to the appropriate timing and procedures for the TRM. The
United States proposed that China submit the information called for in
its accession agreement and that members‘ questions and China‘s answers
begin to be exchanged in writing at agreed time periods in advance of
each subsidiary body meeting so that further exchanges could take place
at the meetings themselves. Furthermore, the United States proposed
that the required WTO reports present a focused juxtaposition of
members‘ concerns and Chinese responses. U.S. officials said they were
open to other procedures that accomplished their objectives.
However, Chinese officials rejected the U.S. proposal and any deadlines
and requests for written answers to members‘ questions. USTR held
formal and informal discussions in Geneva to resolve the various
logistical matters and procedures necessary to implement the TRM
properly, such as the dates of meetings and the deadlines for China to
submit relevant information and to respond to other WTO members‘
questions. USTR said that these discussions had not gone as quickly as
it would have liked, in part because the Chinese delegation was still
trying to become familiar with WTO practices and procedures. Around
midyear, it was accepted that the TRM would begin with WTO subsidiary
body meetings in September, according to USTR officials.
Thus, with regard to the TRM, U.S. activities in the first half of 2002
were focused on procedural issues. With no consensus on the TRM, each
subsidiary body made ad hoc decisions about how the TRM would proceed,
according to USTR officials.
Nevertheless, beginning in March the U.S. and other WTO member
officials began raising individual substantive implementation issues
with Chinese officials on numerous occasions during various WTO
meetings. Typically these issues involved time-sensitive matters, for
which it did not make sense to wait for the annual TRM in the fall,
according to USTR officials.
Then in the second half of 2002, U.S. activities focused on raising
substantive issues in the TRM context. In July, USTR began preparations
for U.S. participation in the TRM, establishing deadlines for the U.S.
agencies comprising the China WTO Compliance Subcommittee to provide
input for questions to ask China in advance of the WTO subsidiary body
reviews. USTR also solicited the views of the private sector through
the:
chairs of the various formal trade advisory committees. The United
States and other WTO members submitted questions in writing to the
Chinese in advance and tried to press them for further information
during various committee meetings. Table 4 presents a chronology of key
events related to the TRM in 2002.
Table 4: Time line of Key TRM-related Activities and Events, 2002:
Month: January; Event: [Empty].
Month: February; Event: [Empty].
Month: March; Event: U.S. interagency China WTO Compliance Subcommittee
discusses TRM.
Month: April; Event: China WTO Compliance Subcommittee approves U.S.
proposal on TRM timing and procedures; China blocks TRM from being
placed on some committee agendas. China rejects U.S. proposal.
Month: May; Event: USTR holds bilateral consultations with Chinese and
other WTO members on TRM procedures.
Month: June; Event: USTR holds bilateral consultations with Chinese and
other WTO members on TRM procedures.
Month: July; Event: USTR requests input on TRM from Interagency Trade
Advisory Committees and Private Sector Trade Advisors on behalf of the
China WTO Compliance Subcommittee.
Month: August; Event: United States begins submitting written questions
to China for TRM issues in advance of subsidiary body meetings.
Month: September; Event: Review by Council on TRIPS, and committees on
Agriculture, Antidumping, Import Licensing, and Market Access.
Month: October; Event: Review by Council on Services, and committees on
Technical Barriers to Trade, Safeguards, Trade-Related Investment
Measures, and Financial Services.
Month: November; Event: Review by Council on Goods and committees on
Balance-of-Payments, Sanitary and Phytosanitary Measures, Subsidies,
Customs Valuation, and Rules of Origin.
Month: December; Event: Review by General Council.
Source: USTR and WTO documents.
Note: TRIPS = Trade-Related Aspects of Intellectual Property Rights.
[End of table]
WTO Review Was Limited and Results Were Disappointing:
The depth of the TRM reviews conducted in almost all the reviewing WTO
councils and committees was limited. Overall, the Chinese did an
adequate job of submitting their standard written WTO notifications and
other information called for in China‘s accession agreement, according
to USTR officials. However, in several committee meetings, U.S.
officials expressed their disappointment that China missed deadlines,
provided incomplete information, and failed to meet some reporting
requirements. While the United States and other WTO members sought
answers to their questions in writing well before WTO meetings, Chinese
officials submitted answers to some questions in writing just before or
during meetings and submitted written versions of their oral answers to
other members‘ questions after some other meetings. While appreciating
the answers they received, some WTO members expressed concern in many
meetings that all of their questions had not been fully answered. In
response, Chinese officials offered to give information to individual
members bilaterally and orally after the meetings but outside of the
context of the TRM. Although China‘s WTO ’notifications“ containing the
usual information required of all WTO members were useful, U.S.
officials did not obtain the type of additional information they had
hoped for. A USTR official said that the method of operation that the
WTO eventually adopted for the first year was an interim solution that
needs to be improved upon.
Generally, however, U.S. officials told us they were disappointed with
the results of the first TRM. The subsidiary bodies held their reviews
in September through November 2002 and did not conduct any assessment
per se. The reports to the General Council were factual and limited to
descriptions of the discussion in the meetings where the review was
held; these descriptions presented the issues that WTO members raised
and China‘s responses in the meetings without providing any summary,
analysis, or conclusions. The General Council held its review in
December; however, it did not issue a report and it did not make any
recommendations.
Other WTO members recognized that the 2002 TRM process had problems as
well. Several WTO members expressed frustration in some WTO subsidiary
body meetings about the TRM and said they were not satisfied with the
review that had taken place. During the General Council review, several
WTO members, including the United States, expressed hope that the TRM
process could be improved in 2003. Acknowledging the problems in the
2002 review overall, the Chairman of the General Council said that next
year‘s TRM would benefit from having time built into the process
throughout the year to conduct the next review.
U.S. Officials Noted Some Benefits of TRM:
While U.S. officials recognized that there were many problems in the
WTO‘s review of China‘s compliance under the TRM process in 2002, they
said that the effort was valuable nevertheless. First, the process
enabled them to have a constant engagement with China on a wide variety
of issues--in a multilateral setting. As a result, the United States
was able to demonstrate to China its commitment to reviewing China‘s
WTO implementation. Second, as part of the process there was a greater
flow of information--between WTO members and China, and also within
national bureaucracies. Third, the process further institutionalized
China‘s commitment to reform.
Furthermore, U.S. officials told us that the U.S. government‘s
monitoring efforts benefited at the interagency level from the
experience gained in participating in the TRM process. For example,
some officials noted that the TRM resulted in improved U.S. government
attention to China WTO compliance issues. The process also forced
better coordination and cooperation among agencies as they worked
together to submit questions and analysis to Geneva in advance of the
WTO committee meetings.
Implications for the 2003 Review:
The first year of China‘s TRM did not result in the thorough and
detailed multilateral review of China‘s compliance that U.S. officials
envisioned. If the experience in the 2002 TRM does not result in
improvements, however, the situation could set an unfortunate precedent
for future WTO reviews of China. While the review was beneficial, it
was undercut by the U.S. and other WTO members‘ inability to get
complete and timely information from China and by disagreement over
whether the WTO should come to any conclusions or make any
recommendations about China‘s implementation of its WTO commitments. It
is important to acknowledge two mitigating factors. First, this was the
first year of operations for the TRM and the China WTO Compliance
Subcommittee that coordinates U.S. participation. Second, any changes
in the WTO review process would have required the consensus of all
members, including the Chinese. The incentives for China to do so are
unclear. Nevertheless, without any change, continued problems and
frustrations can be expected as a result of the 2003 review.
However, USTR officials told us they would continue to press for
procedures that will provide for the orderly give and take of
information. For example, they said they could build on the relatively
successful 2002 review in the Council on Trade-Related Aspects of
Intellectual Property Rights, which reviewed implementation of China‘s
legislation in this area. USTR officials told us they plan to consult
with other WTO members about how to improve the TRM through more
regular procedures. They hope that more countries will actively
participate in the next review, since only a handful of countries
submitted questions in advance of subsidiary body meetings in 2002.
USTR officials told us that they have begun to develop a strategy to
make the process better for the future, and they raised the issue with
Chinese officials in February 2003. They are optimistic that China will
be more open to multilateral review of its compliance now that it has
the experience of being a WTO member for more than 1 year.
Agency Comments and Our Evaluation:
We requested comments on a draft of this report from the U.S. Trade
Representative and the secretaries of Agriculture, Commerce, and State
or his or her designee. On March 18, 2003, the Deputy Assistant U.S.
Trade Representative for China provided us with written technical
comments on the draft. These comments included the views of officials
from the departments of Commerce and State, which were transmitted to
USTR in its capacity as chair of the interagency Trade Policy Staff
Committee, Subcommittee on China WTO Compliance. Department of
Agriculture officials provided written comments directly to us on March
17, 2003.
Many of the agency officials‘ comments focused on our in-depth look at
TRQ and TRM issues. USTR officials provided us new information about
additional key efforts they had made to resolve the TRQ problem ’in
order to give a proper sense of what is involved in pressing sensitive
issues like TRQs,“ and we incorporated this information in the draft
report where appropriate. We also revised the draft based on technical
comments regarding our descriptions of first-year TRQ compliance issues
and the status of China‘s TRQ allocations in 2003. In response to their
comments on our draft TRM section, we clarified our observation that it
was planning and preparations for the TRM that got off to a slow start,
not the WTO TRM process itself, which was expected to begin in the
fall, according to USTR officials. Furthermore, we clarified our
description of the United States and other members raising questions
about China‘s WTO implementation to make it apparent that these efforts
began earlier in the year and were independent of the transitional
review for China. We made similar clarifications to this section about
the consensus needed to proceed in the WTO and the benefits of the
first TRM, among other things. We also modified our observations about
the U.S. government‘s preparations for the 2003 TRM after USTR
officials provided some additional information about their plans and
activities to date.
Agency officials also made specific technical and editorial comments
about other sections of the draft, which we accepted when appropriate.
For example, we made changes to the draft regarding our discussion of
agency resources based on State‘s estimates of full-time equivalent
staff in the Beijing embassy‘s economic section working on China
compliance issues. In some cases we declined to accept the agencies‘
alternative characterizations. For example, the agencies disagreed with
our observation that it took some time for interagency roles and
responsibilities to be worked out. They commented that this was a
relatively short period of time and that such a situation might be
expected with a new endeavor of this type. While we present the
agencies‘ comment here, we nevertheless believe that it is important to
make it clear that there were some initial difficulties associated with
interagency coordination on China WTO compliance during 2002.
:
We are sending copies of this report to the U.S. Trade Representative,
the secretaries of Agriculture, Commerce, and State, and interested
congressional committees. Copies of this report will also be made
available to other interested parties on request. In addition, the
report will be made available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me on (202) 512-4128. Other GAO contacts and staff
acknowledgments are listed in appendix II.
Susan S. Westin
Managing Director, International Affairs and Trade:
Signed by Susan S. Westin:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
As part of a long-term body of work that the Chairman and the Ranking
Minority Member of the Senate Committee on Finance, as well as the
Chairman and the Ranking Minority Member of the House Committee on Ways
and Means, requested, we examined how the U.S. Trade Representative
(USTR) and the departments of Commerce, Agriculture (USDA), and State
are positioned to monitor and enforce China‘s compliance with its World
Trade Organization (WTO) commitments. Specifically, in this report, we
(1) describe the changes to each agency‘s plans, organization, and
resources in light of China‘s accession to the WTO, and to the
interagency process used to fulfill these responsibilities; and (2)
review how these agencies have addressed certain compliance issues that
have arisen during the first year of China‘s WTO membership.
To describe the changes to the agencies‘ organization, resources, and
plans, and to the interagency process used to monitor and enforce
China‘s compliance, we reviewed a variety of official documents and
interviewed knowledgeable agency officials. First, we reviewed each
agency‘s most recent performance and strategic plans to determine how
China WTO monitoring and enforcement is incorporated into the agencies‘
planning processes. Second, to determine how each agency is organized
to carry out China WTO compliance efforts, we reviewed official
statements and other agency documents, including information that
describes the structure and function of intra-agency China WTO
compliance teams. We supplemented this information by interviewing
knowledgeable agency officials. Third, we asked each agency to provide
us with the actual number of full-time equivalent staff in key units
involved in China WTO compliance efforts for fiscal years 2000 to 2002.
If detailed staffing data were not available, we asked the agency to
estimate the number of actual full-time equivalent staff involved in
the agency‘s China WTO compliance activities. We did not verify the
accuracy of the agencies‘ estimates. Last, we reviewed documents
detailing the interagency process for monitoring China‘s WTO
compliance, including minutes, agendas, hearing submissions, and
hearing transcripts from the Trade Policy Staff Committee, Subcommittee
on China WTO Compliance.
To describe the role of the private sector, we interviewed several
business associations, including the U.S.-China Business Council, the
U.S. Chamber of Commerce, the National Association of Manufacturers,
and the American Chamber of Commerce in China (Beijing and Shanghai).
To determine where U.S. companies with a presence in China go for
assistance with their compliance problems, we surveyed 551 selected
chief executive officers or presidents of U.S. companies with a
presence in China. We also conducted structured interviews with
representatives of 48 U.S. firms in Beijing, Guangzhou, Shanghai, and
Shenzhen, China.[Footnote 32]
To review how these agencies have addressed compliance issues that have
arisen in the first year of China‘s WTO membership, we examined two
areas of China‘s commitments where there was significant monitoring and
enforcement activity. First, we chose to examine activities related to
China‘s regulating imports of certain bulk agricultural commodities
through a tariff-rate quota (TRQ) system because (1) the area was
economically important to U.S. exporters, (2) China made numerous WTO
commitments to change its practices in this area, and (3) there was
significant compliance activity on the part of the U.S. government in
the first year of China‘s WTO membership related to this issue.
Additionally, USTR noted that agriculture, and specifically China‘s
regulation of these bulk commodities, was an area of concern for the
first year of China‘s implementation of its WTO commitments. Second, we
chose to examine activities that related to implementing an annual
review--referred to as a transitional review mechanism (TRM)--of
China‘s trade policies within the WTO, because the mechanism is an
important aspect of WTO members‘ ability to monitor China‘s compliance
with its commitments. Additionally, although the United States and some
WTO members had problems with China‘s compliance with its TRM
commitments, USTR did not discuss the issue in its first report to
Congress on China‘s WTO compliance. Last, the area concerned issues
that were important to Congress and other U.S. officials. For example,
legislation authorizing the President to grant China permanent normal
trade relations with the United States emphasized the importance of
creating a multilateral review of China‘s commitments within the WTO by
making the establishment of the review an explicit U.S. negotiating
objective.[Footnote 33] Our descriptions of China‘s commitments in
these areas are based on our past work.[Footnote 34]
It is important to note that these two areas are not representative of
China‘s compliance record overall but do illustrate the kinds of
compliance issues that U.S. officials try to resolve. Similarly, our
observations about the U.S. government‘s experience in monitoring and
enforcing commitments in these two areas cannot be generalized to other
parts of the agreement. USTR‘s first report to Congress on China‘s WTO
compliance described other examples of issues faced in the first year
of China‘s membership.[Footnote 35] The report noted that overall in
2002 China made significant progress in implementing its commitments,
both in undertaking many of the required systemic changes and in
implementing specific commitments. At the same time, the report noted
serious concerns in some areas where implementation had not yet
occurred or was inadequate.
To review TRQ issues, we analyzed WTO correspondence, U.S. government
demarches and letters to Chinese officials, and questions from WTO
members to China in the context of the TRM. In addition, we interviewed
officials at the National Cotton Council of America, National Oilseed
Processors Association, and U.S. Wheat Associates, and reviewed trade
data related to these commodities.
To review issues related to the WTO‘s TRM for China, we analyzed World
Trade Organization and U.S. agency documents, including summaries of
questions submitted to the WTO‘s General Council and subsidiary
committees, and interviewed knowledgeable U.S. government, foreign
government, and World Trade Organization officials.
We performed our work from November 2002 through February 2003 in
accordance with generally accepted government auditing standards. This
work builds on prior GAO analyses initiated in July 2001.
[End of section]
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Loren Yager (202) 512-5351
Adam Cowles (202) 512-9637
Matthew E. Helm (202) 512-7959:
Acknowledgments:
In addition to those named above, Ming Chen, Shakira Edwards, Nima
Patel-Edwards, Jane-yu Li, Rona Mendelsohn, Michelle Sager, and Richard
Seldin made key contributions to this report.
(320164):
FOOTNOTES
[1] Pub. L. 106-286, 114 Stat. 901 (Oct. 10, 2000).
[2] The U.S. Trade Representative‘s first report to Congress on China‘s
World Trade Organization compliance noted that overall in 2002 China
made significant progress in implementing its commitments, both in
undertaking many of the required systemic changes and in implementing
specific commitments. At the same time, the report noted serious
concerns in some areas where implementation had not yet occurred or was
inadequate. See U.S. Trade Representative, 2002 Report to Congress on
China‘s WTO Compliance (Washington, D.C.: Office of the U.S. Trade
Representative, Dec. 11, 2002).
[3] For more information on the overall roles and responsibilities of
U.S. government agencies in monitoring and enforcing trade agreements,
see U.S. General Accounting Office, International Trade: Strategy
Needed to Better Monitor and Enforce Trade Agreements, GAO/NSIAD-00-76
(Washington, D.C.: Mar. 14, 2000).
[4] An Assistant U.S. Trade Representative heads the office, which has
overall responsibility for overseeing trade policy toward China, Japan,
Hong Kong, South Korea, Mongolia, and Taiwan.
[5] In some cases, these offices take the lead on certain China trade
issues. For example, USTR‘s Office of Services, Investment, and
Intellectual Property has the lead role on China-related intellectual
property issues, such as monitoring China‘s compliance with WTO rules
on enforcing patent and trademark protection. However, the office
coordinates with the Office of North Asian Affairs to ensure
information sharing between the two units.
[6] Besides Market Access and Compliance, the other offices that
comprise the China Compliance Team are Import Administration, Trade
Development, U.S. and Foreign Commercial Service (FCS), the Trade
Information Center, and the Office of General Counsel.
[7] Within Market Access and Compliance, two offices, the Office of
China Economic Area and the Trade Compliance Center, are directly
involved in coordinating the agency‘s China compliance activities on
most issues.
[8] Within FAS, the Asia and the Americas Division and the Multilateral
Trade Negotiations Division have direct responsibility for coordinating
the agency‘s China WTO compliance efforts. These two divisions
coordinate with other FAS units to obtain input and expertise on
specific agricultural commodities and other technical issues. For
example, staff in FAS commodity-specific units analyze and provide
input on China‘s regulations relating to biotechnology and sanitary
measures.
[9] Both task forces may convene more frequently if the need arises.
[10] The embassy has also established a working group specifically
focused on monitoring China‘s intellectual property legislation and
enforcement.
[11] Pub. L. 106-286, § 413, 114 Stat. 901.
[12] Import Administration‘s responsibilities include enforcing U.S.
law relating to antidumping measures and countervailing duties.
Antidumping measures include a duty or fee imposed to neutralize the
injurious effect of unfair pricing practices known as ’dumping.“
Dumping refers to the sale of a commodity in a foreign market at a
lower price than its normal market value. A countervailing duty is a
special duty that an importing country imposes to offset the economic
effect of a subsidy and to prevent injury to a domestic industry caused
by a subsidized import.
[13] U.S. and Foreign Commercial Service (FCS) officers in five
locations throughout China (Beijing, Chengdu, Guangzhou, Shanghai, and
Shenyang) also support Commerce‘s in-country compliance and monitoring
efforts by maintaining contact with U.S. companies in China and
gathering information about potential compliance problems.
[14] A third Agricultural Trade Office is located in Guangzhou.
[15] The Government Performance and Results Act of 1993, Pub. L. 103-
62, requires federal agencies to engage in a results-oriented strategic
planning process. In general, the plans include descriptions of agency
goals and objectives, and measures for assessing the agency‘s
performance in meeting those goals.
[16] Mission Performance Plans are annual embassy plans describing
performance goals and objectives.
[17] Congress created an interagency structure in the Trade Expansion
Act of 1962, codified at 19 U.S.C. §1872, which has been amended
several times. This structure, called the Trade Policy Committee, led
by USTR, has two subordinate bodies--the Trade Policy Review Group (a
management-level committee) and the Trade Policy Staff Committee (a
senior staff-level committee subordinate to the management-level
committee). These subordinate committees include all the agencies that
are members of the Trade Policy Committee, as well as a wide range of
other agencies.
[18] This subcommittee replaced an existing China subcommittee, which
had a more general mandate and was not as active.
[19] Pub. L. 106-286, § 421, 114 Stat. 903.
[20] Congress created the private sector advisory committee system to
ensure that U.S. trade policy and negotiation objectives reflect U.S.
commercial and economic interests. (See sec. 135 of the Trade Act of
1974, as amended, codified at 19 U.S.C. § 2155.) Generally, these
advisory committees provide information and advice both prior to the
United States entering into trade agreement negotiations and on other
matters relating to U.S. trade policy. See U.S. General Accounting
Office, International Trade: Advisory Committee System Should Be
Updated to Better Serve U.S. Policy Needs, GAO-02-876 (Washington,
D.C.: Sept. 24, 2002).
[21] Instead, the advisory committees that the agencies keep informed
have an industry-specific or sector focus, such as on agricultural
commodities or on functional cross-sectoral issues, such as
intellectual property rights.
[22] These agricultural bulk commodities include wheat, corn, rice,
cotton, soybean oil, palm oil, rapeseed oil, sugar, and wool, covering
37 tariff lines in China‘s WTO accession schedule.
[23] USTR pointed out that China‘s designated TRQ administrative
authority, the State Development and Planning Commission (SDPC),
offered limited transparency, because the authority refused to provide
specific details on the amounts and the recipients of the TRQ
allocations.
[24] Among others, some of the arguments the U.S. made against China‘s
practice are the following: (1) The practice lacks transparency; (2)
The practice appears to be inconsistent with China‘s obligation to have
a single, central authority (SDPC) to administer TRQs; (3) The practice
appears to be inconsistent with the obligation to allocate the entire
TRQ to end-users by January 1 of each year; and (4) The practice
improperly attaches restrictions to the use of some imported products.
[25] The percentage of China‘s TRQs that were actually filled (that is,
fill rate) in 2002 for certain key commodities including corn was 0.1
percent; cotton, 21.6 percent; soybean oil, 34.6 percent; sugar, 67.1
percent; and wheat 7.5 percent. The simple average of the TRQ fill rate
for all countries reported by WTO was 50 percent in 1999.
[26] A provision in the legislation authorizing the President to grant
permanent normal trade relations to China stated that ’[i]t shall be
the objective of the United States to obtain. . .an annual review
within the WTO of the compliance by the People‘s Republic of China with
its terms of accession to the WTO“ (Pub.L. 106-286, § 401, 114 Stat.
900).
[27] The TRM is additional to the WTO‘s trade policy review mechanism,
which provides for a broad review of the trade regimes of all WTO
members on a scheduled basis. However, WTO members viewed the trade
policy review mechanism as insufficient to oversee China‘s
implementation of its commitments and pursued the TRM.
[28] For more details regarding how we analyzed the commitments, see
U.S. General Accounting Office, World Trade Organization: Analysis of
China‘s Commitments to Other Members, GAO-03-4 (Washington, D.C.: Oct.
3, 2002).
[29] The General Council is composed of all WTO members and has general
authority to supervise the various agreements under the jurisdiction of
the WTO. The subsidiary bodies are described as councils or committees
and generally are organized according to the various trade subjects
covered by the WTO agreements--for example, the Council for Trade in
Goods, the Council for Trade in Services, and the Committees on
Agriculture and Technical Barriers to Trade.
[30] The agreement does not specifically say when the reviews will end.
Although the review process is scheduled to conclude with a final
review in the 10TH year after China‘s accession, the General Council
could decide to terminate it at any time after the 8TH year.
[31] The WTO Secretariat‘s main duties are to supply technical support
for the various councils and committees and the ministerial
conferences, to provide technical assistance for developing countries,
to analyze world trade, and to explain WTO affairs to the public and
the media.
[32] See U.S. General Accounting Office, World Trade Organization:
Selected Company Views About China‘s Membership, GAO-02-1056
(Washington, D.C.: Sept. 23, 2002) for additional detail regarding our
survey and structured interviews.
[33] Pub. L. 106-286, § 401, 114 Stat. 900.
[34] See U.S. General Accounting Office, World Trade Organization:
Analysis of China‘s Commitments to Other Members, GAO-03-4 (Washington,
D.C.: Oct. 3, 2002).
[35] See U.S. Trade Representative, 2002 Report to Congress on China‘s
WTO Compliance (Washington, D.C.: Office of the U.S. Trade
Representative, Dec. 11, 2002).
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