U.S.-China Trade
Opportunities to Improve U.S. Government Efforts to Ensure China's Compliance with World Trade Organization Commitments Gao ID: GAO-05-53 October 6, 2004China's 2001 accession to the World Trade Organization (WTO) required China to reform its economy and trade practices. As part of ongoing work, GAO reviewed how the U.S. Trade Representative (USTR) and the Departments of Commerce, Agriculture, and State pursued China's WTO compliance in 2003. Specifically, this report (1) discusses the scope and disposition of China's compliance problems, (2) reviews the U.S. government's bilateral and multilateral approaches for resolving these problems, (3) assesses the key agencies' strategies and plans for ensuring compliance, and (4) assesses how the agencies have adapted their staff resources to conduct compliance activities.
China has successfully implemented many of its numerous WTO commitments, but USTR reported that over 100 separate compliance problems arose in 2002 and 2003. These problems ranged from specific, relatively simple issues to broader, more systemic concerns. Most problems continued from 2002 to 2003, an indication that China was able to address the more easily resolvable problems, while the more complex issues persisted. Furthermore, new problems emerged, with many arising from phased-in commitments that China was due to implement in 2003. The U.S. government continued to pursue resolution of compliance problems in 2004, and the agencies noted the successful resolution of several major issues of economic importance to U.S. companies. The key U.S. agencies have done much to ensure China's compliance, but GAO found three areas in which these key agencies could take steps to improve their efforts: First, U.S. efforts to address compliance problems emphasized high-level bilateral engagement with China in 2003, with increased senior-level delegations to China and elevated participation in formal consultative mechanisms. U.S. multilateral engagement with China in 2003 reflected more emphasis on working through regular WTO committee business, because the WTO's annual review of China's implementation, the Transitional Review Mechanism (TRM), has ongoing limitations. Nevertheless, the TRM has benefits and these could be enhanced by increased member participation and earlier U.S. submissions, which would maximize the potential for full and informed responses from China. Second, although interagency and intra-agency coordination on policy and high level compliance strategies was generally effective, GAO found various performance management limitations that make it difficult to clearly measure and assess the outcome of the key agencies' China-WTO compliance efforts. GAO found that the specific units within the agencies that are most directly involved with these efforts could improve how the agencies measure and report the results of their activities. Furthermore, developing clearer linkages between unit-level results and agency goals that are established in accordance with the Government Performance and Results Act of 1993 could enhance the effectiveness of these units' activities. Third, turnover and lack of training limited the effectiveness of increased staff resources for China-WTO compliance activities. New staff members were called upon to take up complex monitoring and enforcement activities while relying primarily on on-the-job training, which was complicated by high and often predictable staff turnover. Attention to human capital management is particularly important, given the long-term challenges associated with ensuring China's compliance.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-53, U.S.-China Trade: Opportunities to Improve U.S. Government Efforts to Ensure China's Compliance with World Trade Organization Commitments
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Report to Congressional Committees:
October 2004:
U.S.-CHINA TRADE:
Opportunities to Improve U.S. Government Efforts to Ensure China's
Compliance with World Trade Organization Commitments:
GAO-05-53:
GAO Highlights:
Highlights of GAO-05-53, a report to the Senate Committee on Finance
and the House Committee on Ways and Means:
Why GAO Did This Study:
China‘s 2001 accession to the World Trade Organization (WTO) required
China to reform its economy and trade practices. As part of ongoing
work, GAO reviewed how the U.S. Trade Representative (USTR) and the
Departments of Commerce, Agriculture, and State pursued China‘s WTO
compliance in 2003. Specifically, this report (1) discusses the scope
and disposition of China‘s compliance problems, (2) reviews the U.S.
government‘s bilateral and multilateral approaches for resolving these
problems, (3) assesses the key agencies‘ strategies and plans for
ensuring compliance, and (4) assesses how the agencies have adapted
their staff resources to conduct compliance activities.
What GAO Found:
China has successfully implemented many of its numerous WTO
commitments, but USTR reported that over 100 separate compliance
problems arose in 2002 and 2003. These problems ranged from specific,
relatively simple issues to broader, more systemic concerns. Most
problems continued from 2002 to 2003, an indication that China was
able to address the more easily resolvable problems, while the more
complex issues persisted. Furthermore, new problems emerged, with many
arising from phased-in commitments that China was due to implement in
2003. The U.S. government continued to pursue resolution of compliance
problems in 2004, and the agencies noted the successful resolution of
several major issues of economic importance to U.S. companies. The key
U.S. agencies have done much to ensure China‘s compliance, but GAO
found three areas in which these key agencies could take steps to
improve their efforts:
First, U.S. efforts to address compliance problems emphasized high-
level bilateral engagement with China in 2003, with increased senior-
level delegations to China and elevated participation in formal
consultative mechanisms. U.S. multilateral engagement with China in
2003 reflected more emphasis on working through regular WTO committee
business, because the WTO‘s annual review of China‘s implementation,
the Transitional Review Mechanism (TRM), has ongoing limitations.
Nevertheless, the TRM has benefits and these could be enhanced by
increased member participation and earlier U.S. submissions, which
would maximize the potential for full and informed responses from
China.
Second, although interagency and intra-agency coordination on policy
and high level compliance strategies was generally effective, GAO
found various performance management limitations that make it difficult
to clearly measure and assess the outcome of the key agencies‘ China-
WTO compliance efforts. GAO found that the specific units within the
agencies that are most directly involved with these efforts could
improve how the agencies measure and report the results of their
activities. Furthermore, developing clearer linkages between unit-
level results and agency goals that are established in accordance with
the Government Performance and Results Act of 1993 could enhance the
effectiveness of these units‘ activities.
Third, turnover and lack of training limited the effectiveness of
increased staff resources for China-WTO compliance activities. New
staff members were called upon to take up complex monitoring and
enforcement activities while relying primarily on on-the-job training,
which was complicated by high and often predictable staff turnover.
Attention to human capital management is particularly important, given
the long-term challenges associated with ensuring China‘s compliance.
What GAO Recommends:
GAO recommends that the four key agencies undertake a range of actions
to improve timeliness and participation in the WTO‘s annual review of
China‘s compliance, performance management assessments and unit-level
planning, and staff training. The agencies said they would consider
our recommendations, but they expressed various concerns, including
that the report did not sufficiently reflect their achievements in
2004, and about whether their performance could be better assessed in
a more quantifiable manner. We made changes throughout this report to
update information and to clarify our findings as appropriate.
www.gao.gov/cgi-bin/getrpt?GAO-05-53.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Loren Yager at (202)
512-4128 or YagerL@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
China Successfully Implemented Many Commitments, but Concerns Remain:
U.S. Government Emphasized Primarily Bilateral Engagement to Resolve
Compliance Issues in 2003, While Effectiveness of Annual Multilateral
Review Continued To Be Limited:
Key Agencies' China Units Could Improve Their Performance Management
Activities:
Key Agencies Added Staff Resources, but Turnover and Lack of Training
Limited Overall Effectiveness:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Description of Areas of China's Trade Regime Covered by
China's WTO Commitments:
Appendix III: Summary of WTO Member Participation in China's
Transitional Review Mechanism, 2002 and 2003:
Appendix IV: Comments from the United States Trade Representative:
GAO Comments:
Appendix V: Comments from the Department of Commerce:
GAO Comments:
Appendix VI: Comments from the Department of State:
GAO Comments:
Appendix VII: Comments from the Department of Agriculture:
GAO Comments:
Appendix VIII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Related GAO Products:
Tables:
Table 1: Main China-WTO Compliance Units in the Four Key U.S. Agencies:
Table 2: Examples of China's Successful Implementation of Its WTO
Commitments, 2002-2003:
Table 3: Examples and Number of Compliance Problems in Each Area of
China's Trade Regime, as of December 2003:
Table 4: Key Areas of Progress from the April 2004 JCCT:
Table 5: Key Agencies' GPRA Goals Related to China-WTO Compliance:
Table 6: Key Agencies' GPRA Performance Measures and Results for Fiscal
Year 2003:
Table 7: Summary of Commerce Market Access and Compliance Cases for
China Initiated and Concluded, Fiscal Years 2001-2003:
Table 8: Agency Staffing Estimates for Main Units Involved with China-
WTO Compliance Efforts, Fiscal Years 2000-2003:
Table 9: Description of GAO Categories for Disposition of China-WTO
Compliance Issues and Examples of Disposition:
Table 10: Description of China's WTO Commitment Areas:
Table 11: WTO Member Participation in China's Transitional Review
Mechanism, 2002:
Table 12: WTO Member Participation in China's Transitional Review
Mechanism, 2003:
Abbreviations:
FAS: Foreign Agricultural Service:
FTE: full-time equivalent:
GPRA: Government Performance and Results Act of 1993:
IPR: Intellectual property rights:
JCCT: Joint Commission on Commerce and Trade:
OJT: on-the-job training:
OMB: Office of Management and Budget:
SARS: Severe Acute Respiratory Syndrome:
TRM: Transitional Review Mechanism:
USDA: U.S. Department of Agriculture:
USTR: U.S. Trade Representative:
WTO: World Trade Organization:
Letter October 6, 2004:
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 2001 accession to the World Trade Organization (WTO) raised
expectations with Congress and the private sector about the prospects
for China to reform its markets and allow greater access to foreign
goods and services. Indeed, U.S. trade with China has increased
significantly between 2000 and 2003, including a 75-percent increase in
U.S. goods exported to China over that time period. Despite this
increase, growth in imports from China have outpaced growth in exports
to China; and the U.S. trade deficit with China reached $124 billion in
2003, according to U.S. trade data. This growing deficit, together with
ongoing concern over China's adherence to WTO rules, has sharpened the
focus on the U.S. government's efforts to ensure that U.S. firms secure
the benefits of China's membership in the global trading system.
As part of your request that we undertake a long-term body of work
related to China's membership in the WTO, we reviewed how the U.S.
Trade Representative (USTR) and the Departments of Commerce, State, and
Agriculture (USDA) were positioned to monitor and enforce China's
compliance with its WTO commitments in 2003.[Footnote 1] Specifically,
in this report we (1) examine the scope and disposition of China-WTO
compliance problems the U.S. government is working to resolve; (2)
review the U.S. government's bilateral and multilateral approaches for
resolving compliance problems; (3) assess the agencies' strategies,
plans, and measures for ensuring China's compliance; and (4) assess how
the U.S. government has adapted its staff resources to conduct
compliance activities.
To examine the scope and disposition of compliance problems, we
analyzed the 2002 and 2003 versions of USTR's Report to Congress on
China's WTO Compliance and verified the information included in the
reports against problems raised by the private sector.[Footnote 2] To
assess U.S. bilateral and multilateral monitoring and enforcement
efforts, we reviewed agency and WTO documents and interviewed agency
officials both in Washington, D.C., and Beijing, as well as WTO
Secretariat and other member government officials. To assess agency
strategies, plans, resources, and other activities related to China's
compliance, we reviewed planning documents, budget and staffing data,
and information on training from the four key agencies. We supplemented
our review of this information by conducting individual interviews with
over 50 staff and unit managers at the four key agencies that had China
compliance as a main portion of their work portfolio. (See app. I for
details on our scope and methodology.) We performed our work from June
2003 to July 2004 in accordance with generally accepted government
auditing standards.
Results in Brief:
China has successfully implemented many of its numerous WTO
commitments, including rewriting hundreds of trade-related laws and
regulations and making required tariff reductions. However, USTR's
reports to Congress identified over 100 individual compliance problems
concerning China's implementation of its WTO commitments, according to
our analysis. These problems spanned all commitment areas and ranged
from very specific, relatively simple problems, such as late issuance
of particular regulations, to broader concerns over transparency in
China's rule-making process, which are more difficult to implement and
assess. Most compliance problems identified in 2002 persisted into
2003. U.S. officials noted that this continuation was an indicator that
China was able to address many of the more easily resolvable problems
during 2002, but that the remaining issues had proven to be more
difficult to address. Additionally, new problems emerged in 2003, with
many of them arising from phased-in commitments that China was due to
implement in 2003. The U.S. government has continued to pursue
resolution of outstanding compliance problems in 2004 and has noted
resolution of several problems that are of significant potential
economic importance to U.S. exporters, including, for example, some in
the area of trading rights within China. USTR is required to report on
China's WTO compliance again in December 2004.
U.S. government approaches for resolving compliance problems with China
included both bilateral and multilateral engagement. U.S. trade
officials placed greater emphasis on high-level bilateral engagement
with China in 2003, compared with 2002. For example, U.S. cabinet and
subcabinet level trade delegations to China increased from 13 in 2002
to 23 in 2003. We found that formal and informal U.S. government
coordination on these efforts was generally effective. The United
States continued to engage China multilaterally as well, and this
included U.S. participation in the WTO's second annual review of
China's compliance, referred to as the Transitional Review Mechanism
(TRM). Although there were some benefits from the review, other WTO
members' participation in this review declined from 2002 to 2003, U.S.
submissions in 2003 gave China less time to prepare answers to
implementation questions, and procedural and other limitations
continued to hamper the review's effectiveness.
U.S. monitoring and enforcement of China's compliance with its WTO
commitments requires a systematic effort based on extensive planning
and attention to results. Although high-level policy coordination
within and among the agencies and political engagement with China was
generally effective, we found that various performance management
shortcomings at each of the four key agencies (USTR, Commerce, State,
and USDA) responsible for China-WTO compliance efforts make it
difficult to assess the extent to which these agencies believe they are
achieving their planned results, as called for under the Government
Performance and Results Act of 1993 (GPRA). For example, despite having
specific quantitative performance indicators (number of trade problems
resolved and number pending) for its China-WTO compliance activities,
USTR does not attempt to set measurable targets or use them to assess
annual performance; instead, USTR states that it is difficult to
accurately predict whether China will implement its commitments in any
one year and provides narrative descriptions of the status of various
problems. Furthermore, the specific units within the four agencies that
were tasked with monitoring and enforcing China's compliance could
improve how they plan, prioritize, and measure the results of their
unit's activities in a way that could be clearly linked to the
agencies' higher-level overall goals and enable them to more clearly
assess their units' performance.
In 2003, the four key agencies (USTR, Commerce, State, and USDA)
continued to add staff resources to meet the demands of monitoring
China's compliance with its WTO commitments; however, turnover and lack
of training was problematic. Estimated full-time equivalent (FTE) staff
in the main units that were involved in these activities increased from
about 25 to 58 from fiscal year 2000 to 2003. Overall, staff resources
increased more at the agencies' headquarters than overseas in China.
Notwithstanding these increases, we identified a number of factors that
may have limited the effectiveness of the U.S. government's China
compliance efforts. For example, despite high and often predictable
staff turnover in many of the units we examined, the agencies' China
units lacked specific training related to carrying out trade compliance
duties or did not provide ample opportunity for staff to take relevant
training. Instead, most units relied almost exclusively on on-the-job
training (OJT) for new staff. Consequently, some staff with relatively
short rotations in China compliance-focused offices said they spent a
significant portion of their total tenure educating themselves about
the complex China trade issues for which they were responsible.
We recommend that the four key agencies undertake a range of actions to
enhance the U.S. government's China compliance efforts, including
taking steps to ensure more timely and wider participation in the
annual review of China's commitments within the WTO, improving
performance management activities to enhance planning and assessment of
China compliance efforts, and taking steps to mitigate the effects of
staff turnover by providing increased staff training opportunities. In
responding to our draft report, the agencies said they would consider
our recommendations, but they expressed various concerns. These
included concerns that the report did not sufficiently reflect their
achievements to date in 2004 and about whether their performance could
be better assessed in a more quantifiable manner. We agreed to address
many of their concerns and made changes throughout this report to
update information and to clarify our findings as appropriate.
Background:
China's December 2001 accession to the WTO resulted in commitments to
open and liberalize its economy and offer a more predictable
environment for trade and foreign investment in accordance with WTO
rules. U.S. investment and trade with China has grown significantly
over the past 10 years, and trade between China and the United States
exceeded $180 billion in 2003, based on U.S. trade data. Consequently,
China was the United States' third largest trading partner in 2003.
U.S. goods exported to China increased by 29 percent to $28.4 billion
in 2003 from $22.1 billion in 2002. U.S. imports from China are also
rising and reached a level of $152.4 billion in 2003. According to 2003
U.S. trade data, the U.S. trade deficit with China ($124 billion) is
larger than that of any other U.S. trading partner.
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] USTR has primary responsibility for monitoring
and enforcing trade agreements. Among other things, USTR is required by
law to identify any foreign policies and practices that constitute
significant barriers to U.S. goods and services, including those that
are covered by international agreements to which the United States is a
party.[Footnote 4] At least 16 other agencies are involved in these
monitoring and enforcement activities, but USTR and the Departments of
Commerce, State, and USDA have the primary responsibilities regarding
trade agreement monitoring and enforcement.
Each of these four key agencies we reviewed has within its
organizational structure a main unit that focuses on China or the
greater Asian region. These main units have primary responsibility for
coordinating the agencies' China-WTO compliance activities, although
numerous other units within the agencies are also involved. The main
units routinely draw on assistance from experts in these other units to
obtain information and expertise as needed. Additionally, the key
agencies have units in China or at the WTO, and staff in those overseas
units are also involved in the agencies' compliance activities. Table 1
lists the main units with China-WTO responsibilities, as well as
examples of other offices with which the units coordinate on an intra-
agency basis.
Table 1: Main China-WTO Compliance Units in the Four Key U.S. Agencies:
Agency: USTR;
Main headquarters units: Office of North Asian Affairs[A];
Main overseas units: U.S. Mission to the WTO;
Examples of other units involved: General Counsel; Monitoring and
Enforcement; Services, Investment, and Intellectual Property; WTO and
Multilateral Affairs; and other industry and issue-specific units.
Agency: Commerce;
Main headquarters units: Market Access and Compliance, Office of China
Economic Area; Import Administration, Trade Remedy Compliance Staff;
Main overseas units: China Trade Facilitation Office;
Examples of other units involved: Import Administration (trade remedy
investigations), Trade Development, U.S. and Foreign Commercial
Service, the Trade Compliance Center, and the Office of General
Counsel.
Agency: State;
Main headquarters units: East Asia and Pacific, Office of Chinese and
Mongolian Affairs;
Main overseas units: Beijing Embassy, Economic Section, WTO Group;
Examples of other units involved: Bureau of Economic and Business
Affairs, industry and issue-specific units, and China consulates.
Agency: USDA;
Main headquarters units: Foreign Agricultural Service, Asia and
Americas Division;
Main overseas units: Beijing Embassy, Agricultural Section;
Examples of other units involved: Multilateral Trade Negotiations
Division, China Agricultural Trade Offices, and other commodity and
issue-specific units.
Source: GAO.
[A] In April 2004, USTR established a separate and expanded Office of
China Affairs to focus solely on overseeing trade policy with China,
Taiwan, Hong Kong, Macau, and Mongolia. The Establishment of the Office
of China Affairs focuses responsibility for China-specific trade policy
under an Assistant U.S. Trade Representative.
[End of table]
China Successfully Implemented Many Commitments, but Concerns Remain:
In its 2002 and 2003 reports to Congress on China's WTO compliance,
USTR reported that China had successfully implemented many of its
numerous WTO commitments, including rewriting hundreds of trade-related
laws and regulations and making required tariff reductions.
Nevertheless, USTR's reports identified over 100 individual compliance
problems concerning China's implementation of its WTO commitments,
according to our analysis. These problems spanned all commitment areas
and ranged from very specific, relatively simple problems--such as late
issuance of particular regulations--to broader concerns over
transparency in China's rule-making process, which are more difficult
to implement and assess. Most compliance problems identified in 2002
persisted into 2003. U.S. officials noted this continuation was an
indicator that China was able to address the more easily resolvable
problems during 2002 but that the remaining issues had proven to be
more difficult for China to address. USTR reported that China had mixed
success in resolving compliance problems in 2002 and 2003.
Additionally, new problems emerged in 2003, with many of them arising
from phased-in commitments that China was due to implement in 2003. In
2004, USTR and the other key agencies continued to pursue resolution of
problems and noted many positive developments in resolving a number of
these outstanding compliance issues.
China Showed Progress in Implementing WTO Commitments:
USTR noted several areas in which China has successfully implemented
its commitments since joining the WTO in December 2001. China's WTO
commitments, which are described in over 800 pages of legal text, are
broad in scope and range from general pledges for how China will reform
its trade regime to specific market access commitments for goods and
services.[Footnote 5] In 2002, USTR reported that China reviewed more
than 2,500 trade-related laws and regulations for WTO consistency,
repealed or amended nearly half of these, and issued many new laws and
regulations. China also restructured government ministries with a role
in overseeing trade, embarked on an extensive educational campaign on
the benefits of WTO membership, and made required tariff reductions.
USTR reported that, in 2003, China also took steps to correct
systematic problems in its tariff-rate quota regime for bulk
agricultural commodities, reduced capitalization requirements in
certain financial sectors, and opened up the motor vehicle financing
sector (see table 2). During this period of reform in China, U.S.
exports to China rose 48 percent between China's WTO accession in 2001
and 2003.[Footnote 6]
Table 2: Examples of China's Successful Implementation of Its WTO
Commitments, 2002-2003:
Year: 2002;
Examples of successful implementation:
* Reduced tariffs on hundreds of goods;
* Removed several nontariff trade barriers;
* Restructured government ministries with roles in overseeing trade in
goods and services;
* Repealed and revised hundreds of trade laws and regulations for WTO
consistency.
Year: 2003;
Examples of successful implementation:
* Took steps to correct systematic problems in the administration of
its tariff rate quota system for bulk agricultural commodities;
* Opened motor vehicle financing sector;
* Reduced capitalization requirements in the insurance sector;
* Resolved outstanding concerns related to WTO committee of
participants on the Expansion of Trade in Information Technology
Products;
* Lifted certain geographic restrictions in the insurance sector ahead
of schedule.
Sources: GAO summary of USTR and WTO information.
[End of table]
Implementation Problems Range Widely and Many Persist from Year to
Year:
Although China made progress in realizing many of its WTO commitments,
USTR reported over 100 compliance problems in 2002 and 2003, according
to our analysis. These problems spanned all areas in which China had
made commitments, and many problems identified in 2002 persisted
through 2003.
USTR Reports Are Fair Representation of Compliance Problems:
We found USTR's annual reports to Congress to be the most complete
official U.S. source of information with which to analyze China's WTO
compliance in 2002 and 2003. In conjunction with China's 2001 accession
to the WTO, USTR was mandated to identify compliance with commitments
and annually report these findings to Congress.[Footnote 7] These
annual reports incorporate a broad range of input from key federal
agencies and the business community. We systematically cross-checked
the reports with industry testimony, industry association reports, and
other U.S. government documents and found the reports to be fair and
complete representations of industry concerns. Further, USTR officials
stated that these reports represented the most complete public summary
of China-WTO compliance problems that the U.S. government is monitoring
and the actions taken to resolve the issues. As a result, we relied
extensively on the narrative descriptions of compliance problems set
forth in the USTR reports to analyze the number, type, and disposition
of the problems that the U.S. government was working to resolve.
More Than 100 Compliance Problems across Several Areas of China's Trade
Regime:
Our analysis of USTR's 2002 and 2003 reports to Congress identified 106
individual compliance problems. China's compliance problems can be the
result of several factors, from political resistance to lack of
technical capacity to problems of resources and coordination among
Chinese ministries. These compliance problems fell within all nine
broad areas of China's trade regime and varied from import regulation
to export regulation (see table 3 and app. II for descriptions of these
nine areas). China's WTO commitments are broad and complex, and
compliance problems also ranged in scope from specific issues to more
general concerns. For example, some commitments require a specific
action from China, such as reporting information about China's import-
licensing requirements to the WTO. Other commitments are less specific
in nature, such as those that confirm China's general obligation to
adhere to WTO principles of nondiscrimination in the treatment of
foreign and domestic enterprises. Accordingly, compliance problems
identified as of 2003 also ranged from specific, relatively simple
issues, such as the late issuance of regulations, to broader and more
crosscutting concerns, such as concerns about judicial independence,
which are more difficult to implement and assess.
Table 3: Examples and Number of Compliance Problems in Each Area of
China's Trade Regime, as of December 2003:
Trade regime area: Import regulation;
Examples of compliance problem:
* Chinese customs officials inappropriately added royalty and software
fees to dutiable value;
* Fertilizer tariff rate quota regulations issued late;
* Certain key provisions omitted in countervailing duty regulations;
Number of compliance problems: 24.
Trade regime area: Services;
Examples of compliance problem:
* Banking regulations imposed prudential rules that exceeded
international norms;
* Regulations for foreign insurers imposed trade restricting branching
requirements;
* Regulations for legal services overly restricted scope of business;
Number of compliance problems: 22.
Trade regime area: Internal policies affecting trade;
Examples of compliance problem:
* Application of value-added tax rebate for domestic producers of
semiconductors violated WTO national treatment principle;
* Comment periods for technical barriers to trade regulations were
unacceptably brief;
* Inconsistent application and duplication in certification
requirements;
Number of compliance problems: 16.
Trade regime area: Agriculture;
Examples of compliance problem:
* Tariff rate quotas for bulk agricultural commodities were issued
late;
* Application of standards for raw poultry and meat were not based on
scientific evidence;
* Selective enforcement of inspection-related requirements;
Number of compliance problems: 18.
Trade regime area: Intellectual property rights;
Examples of compliance problem:
* Intent to sell was difficult to prove in administrative enforcement;
* Criminal liability thresholds were high and rarely met;
* Chinese laws were unclear as to whether a case warrants civil or
criminal enforcement;
Number of compliance problems: 13.
Trade regime area: Trading rights and distribution;
Examples of compliance problem:
* Foreign-invested enterprises' trading rights were limited by various
requirements;
* Retailing services commitments related to joint ventures that do not
manufacture their own goods in China were subject to onerous threshold
requirements;
Number of compliance problems: 6.
Trade regime area: Investment;
Examples of compliance problem:
* Revised investment laws and regulations failed to eliminate
technology transfer;
* Chinese officials inappropriately considered local content when
approving an investment or recommending a loan approval;
Number of compliance problems: 3.
Trade regime area: Legal framework;
Examples of compliance problem:
* Concern over the independence of the judicial system;
* China had a poor record of providing opportunity for public comment
before regulations are implemented;
Number of compliance problems: 3.
Trade regime area: Export regulation;
Examples of compliance problem:
* Restrictions and fees on exports of some raw materials and
intermediate products;
Number of compliance problems: 1.
Trade regime area: Total;
Number of compliance problems: 106.
Source: GAO analysis of USTR's 2002 and 2003 Report to Congress on
China's WTO Compliance.
[End of table]
It is important to note that not all problems equally affect U.S.
exports to China and that some problems are more easily resolved than
others. For example, weak intellectual property right enforcement,
which may entail industry losses of nearly $2 billion according to some
industry estimates, could impact more trade than the late issuance of
regulations. Thus, while USTR's reports identify priority areas, the
economic importance of many individual problems cannot be easily
quantified and cannot be reported, nor did we attempt to calculate the
importance or otherwise prioritize or rank the problems in our
analysis. In addition, our analysis of business views on China's
implementation shows that the business community expected intellectual
property rights commitments to be the most difficult to put into
practice, whereas they expected tariff reductions to be relatively
easier to implement.[Footnote 8]
Most Problems Continued from 2002 to 2003, and Many Others Emerged:
We found that about two thirds of the USTR-identified compliance
problems persisted from 2002 through 2003. U.S. officials noted that
this continuation might have been attributed to the fact that China
resolved the more easily implemented commitments during the first year,
and the remaining "holdover" issues proved to be more difficult to
address. Other U.S. officials and industry representatives cited both
Severe Acute Respiratory Syndrome (SARS) and major political and
bureaucratic transitions in China as contributing to the apparent
slowdown in implementation. However, USTR stated that these factors did
not excuse the apparent deceleration in China's implementation in 2003.
In addition to the problems that persisted from 2002, about a quarter
of all compliance problems were new in 2003, with many of these
problems arising from phased-in commitments that China was due to
implement in 2003.
China has had mixed success in resolving compliance problems. Based on
our assessment of USTR's 2002 and 2003 reports, we found that China had
resolved or made some progress on just under half of the individual
problems described by U.S. officials. We also found that China's
progress in resolving compliance problems also varied widely by area.
For example, among the key areas that USTR identified as priorities,
China resolved or made progress on well over half of the various
problems in agriculture and services, while progress on intellectual
property rights was limited to less than a quarter of the individual
problems reported as of December 2003.[Footnote 9]
United States Continues to Pursue Resolution of Compliance Problems in
2004 and Noted Several Positive Developments:
Since USTR's December 2003 report, the U.S. government has continued to
pursue resolution of China's WTO compliance problems. Notably, the
United States and China reached agreements in several key areas through
the Joint Commission on Commerce and Trade (JCCT). As discussed in more
detail later, the JCCT is a high-level government-to-government
consultative forum for China and the United States to discuss key trade
issues. The April 2004 JCCT meeting resulted in the formation of
working groups, several memoranda of understanding and letters of
intent, and several more specific agreements to improve China's
implementation. For example, China agreed to take steps to strengthen
intellectual property rights enforcement and agreed to indefinitely
suspend implementation of discriminatory computer standards and
services rules, according to USTR officials. China also announced the
publication of rules granting foreign companies trading rights in China
ahead of schedule. (See table 4.) In July 2004, USTR announced that the
United States and China reached an agreement to resolve a dispute over
China's discriminatory value-added tax refund policy for
semiconductors. This agreement followed the United States' March 2004
filing of the first WTO case by any member against China. USTR's next
report on China's compliance is due in December 2004.
Table 4: Key Areas of Progress from the April 2004 JCCT:
Area: Agriculture;
China commitments:
* Establish a consultative mechanism to facilitate an ongoing dialogue
and strengthen technical cooperation and exchange between both
countries in the field of food safety and animal and plant health;
* Issue final safety certificates for U.S. biotech soybeans;
* Announce biotech approvals for seven U.S. canola and four U.S. corn
events and review the remaining two U.S. corn events in May;
* Make it easier to export select American products subject to tariff
rate quotas to China by providing the names of its domestic quota
holders to U.S. exporters upon request.
Area: Trading rights and distribution;
China commitments:
* Implement its WTO trading rights obligations by July 1, 2004--6
months ahead of schedule;
* Provide distribution rights to U.S. companies in China on schedule
by the end of 2004.
Area: Intellectual property rights (IPR);
China commitments:
* Significantly reduce IPR infringement levels;
* Increase penalties for IPR violations by taking various specific
actions by the end of 2004;
* Crack down on violators through nationwide enforcement actions and
increased customs enforcement;
* Improve protection of electronic data by ratifying and implementing
international IPR agreements as soon as possible and extend the ban on
the use of pirated software to include local governments;
* Launch national education campaign;
* Establish an IPR working group under the JCCT.
Area: Standards;
China commitments:
* Suspend indefinitely its proposed implementation of a mandatory
wireless encryption standard and revise its standard, taking into
account comments received from Chinese and foreign firms;
* Participate in international standards bodies on wireless encryption
for computer networks;
* Support technology neutrality with respect to the adoption of the so-
called "3G" telecommunications technology;
* Refrain from negotiating royalty payment terms with "3G" IPR holders;
* Allow telecommunications service providers in China to make their
own choices as to which standard to adopt.
Area: Market access issues;
China commitments:
* Facilitate an exchange of scientific, technical, and regulatory
information to help ensure the quality, safety, and proper labeling of
consumer products;
* Establish a framework that will expand trade show recruitment for
U.S. companies to participate in Chinese trade shows and increase their
export sales to China;
* Foster activities that will lead to increased contacts between small
and medium-sized businesses in both countries, thereby promoting more
interaction and increased U.S. exports;
* Allow U.S. carriers to open full branches and to operate without
restrictions.
Source: USTR.
[End of table]
U.S. Government Emphasized Primarily Bilateral Engagement to Resolve
Compliance Issues in 2003, While Effectiveness of Annual Multilateral
Review Continued To Be Limited:
Compared with 2002, U.S. actions in 2003 to resolve compliance problems
reflected a strategy that emphasized high-level bilateral engagement
with China. For example, the United States sent more cabinet and
subcabinet level delegations to China in 2003 and elevated existing and
initiated new trade dialogues with China. We found that formal and
informal interagency coordination on these bilateral efforts was
generally effective. Multilaterally, the U.S. continued to engage China
in the WTO at regular council and committee meetings throughout the
year. At the same time, the U.S. actively participated in the WTO's
second annual review of China's implementation, referred to as the
Transitional Review Mechanism (TRM). However, despite U.S. officials'
hopes to the contrary, overall WTO member participation in the review
declined, and the review's potential was impaired by less timely U.S.
submission of questions. Furthermore, procedural and other types of
problems that arose during the 2002 review continued to limit the
effectiveness of the 2003 TRM. Nevertheless, both WTO and other WTO
member trade officials indicated that the TRM process had gone more
smoothly in 2003 than in 2002 and that future TRM's would probably not
vary in form from that used in 2003. In general, U.S. officials noted
that, despite some benefits, the TRM was a less effective tool for
resolving compliance issues compared with bilateral engagement.
United States Increased Bilateral Engagement with China in 2003 on WTO
Issues:
U.S. government efforts to resolve WTO compliance issues with China in
2003 reflected an emphasis on high-level bilateral engagement. Several
U.S. officials noted that bilateral engagement--particularly at the
highest levels of government--had proven to be the most effective means
of resolving WTO compliance issues with China. As one U.S. official
stated, "change in China starts at the top, so that's where we focused
much of our bilateral compliance activity in 2003." Accordingly, the
United States undertook a range of efforts reflecting this emphasis in
2003, including sending more cabinet and subcabinet level delegations
to China, utilizing bilateral consultative mechanisms, and continuing
to coordinate policy through the interagency process.
U.S. Senior-Level Delegations to China Increased in 2003:
Compared with 2002, the U.S. government sent more cabinet and
subcabinet delegations from the key economic and trade agencies in 2003
to engage their Chinese counterparts on trade issues. For example,
senior-level delegations to China from the various agencies increased
from 13 in 2002 to 23 in 2003, according to information provided by
U.S. embassy officials. U.S. officials also said that an increased
number of high-level delegations from China, including a visit from
China's Premier, also came to the United States in 2003 and that trade
issues were routinely a part of those visit agendas.[Footnote 10]
Finally, embassy officials noted that, because the SARS outbreak
interrupted travel to China for several months in 2003, most of the
delegations' visits were concentrated within an 8-month period.
U.S. Used Bilateral Trade Mechanisms to Engage China:
The U.S. government utilized two formal consultative mechanisms to
address trade issues with China, both of which further demonstrated an
emphasis on high-level, bilateral engagement. First, the United States
agreed to China's request to elevate and transform the JCCT, a forum
for dialogue on bilateral trade issues and a mechanism to promote
commercial relations, to include three cabinet-level U.S. officials for
2004.[Footnote 11] Consequently, in 2004, the Secretary of Commerce and
the U.S. Trade Representative headed the JCCT meetings for the United
States, while a vice premier headed China's delegation. The U.S.
Secretary of Agriculture also participated in the newly elevated JCCT.
Moreover, U.S. officials noted that the JCCT was transformed from a
trade promotion dialogue into a mechanism to resolve trade disputes.
Second, the United States initiated the U.S.-China Trade Dialogue as a
means for U.S. trade and economic agencies to address trade issues with
various Chinese officials at the subcabinet level. The United States
created the Trade Dialogue at the end of 2002, with meetings scheduled
to take place quarterly. However, due in part to the SARS outbreak,
only two such dialogues took place in 2003.
Interagency Coordination on Policy Issues Was Generally Effective:
We found that both formal and informal, day-to-day coordination within
and among the key units on policy issues was generally effective.
Formal interagency coordination was accomplished through three main
structures: (1) the Trade Policy Review Group, (2) the Trade Policy
Staff Committee, and (3) the Trade Policy Staff Committee's
Subcommittee on China-WTO Compliance.[Footnote 12] Additionally,
several officials noted that the National Security Council played a
greater role in coordinating interagency policy on China compliance
issues in 2003 than 2002. Officials said that this greater role was to
ensure a more unified U.S. position with regard to economic relations
with China, beyond the Trade Policy Review Group.[Footnote 13]
Our interviews with over 50 staff and managers in the main China units
of the four agencies indicated that interagency coordination was
generally effective at the working level and on specific issues. With
respect to informal contact, managers and staff at both headquarters
and overseas offices said that day-to-day coordination and information
sharing among the agencies on China compliance greatly enhanced their
ability to respond to compliance problems. Yet some staff believed that
interagency coordination could be improved. For example, they suggested
that coordination could be enhanced through better communication from
the Washington, D.C., units to the China units about interagency
meetings and China-related activities at the WTO. Also, within China,
some staff noted that interagency meetings had been suspended in 2003
because of SARS and that they had not been resumed by the end of the
year, so their coordination efforts were hindered. Some China-based
staff at State and Commerce complained that lack of communication had
led to misunderstanding about the respective units' roles and
responsibilities and that this had caused some confusion about engaging
the Chinese in a few cases. Embassy officials told us that the
interagency meetings had been resumed in 2004, but the schedule was
driven primarily by the need to coordinate on upcoming events and that
the meetings had not yet resumed on a consistent schedule.
Multilateral Engagement with China Shifts Away from Annual Transitional
Review Mechanism, Which Remains Limited:
During China's membership negotiations, the United States successfully
pushed for an annual review of China's implementation to take place
within the WTO's General Council and 16 subsidiary bodies.[Footnote 14]
This effort was based on concerns about China's ability to implement
its WTO commitments and the fact that China was allowed to join before
making all of its trade-related laws and regulations WTO-consistent.
Compared with the 2002 review, the 2003 TRM was less contentious but
reflected less WTO member participation and less timely U.S. submission
of questions. Despite the TRM's continued limitations and although
procedures for the TRM are unlikely to change for future reviews, U.S.
officials cited benefits from using this multilateral forum as part of
their overall approach for monitoring and enforcing China's compliance.
U.S. officials said they put more emphasis on engaging China outside of
the TRM in regular WTO meetings in 2003. Additional multilateral
monitoring may occur when China is expected to undergo a separate WTO
review of its trade policies, possibly in early 2006.
2003 TRM Process Was Similar to 2002, with Less Debate Regarding
Procedural Issues:
U.S., WTO Secretariat, and other WTO member government officials noted
that there was less debate about how to conduct the TRM in 2003 than
2002. As we reported previously, the initial TRM did not result in the
thorough and detailed review of China's compliance that U.S. officials
had envisioned.[Footnote 15] Chinese officials told us that while they
will abide by their TRM commitments, they view the TRM as a
discriminatory mechanism that was imposed on China during their WTO
membership negotiations. With this as the prevailing sentiment from
China, the 2002 review was marked by contention between China and some
of the other WTO members regarding the form, timing, and specific
procedures for the TRM. The United States and some other members were
disappointed that China refused to provide written answers to members'
written questions in advance of TRM meetings. Additionally, some
members were disappointed that the review did not result in any
conclusions or recommendations regarding China's implementation.
Following the conclusion of the first TRM, U.S. and European Union
officials stated that they would seek improvements for subsequent
reviews. However, in 2003 officials concluded that there would have
been little use in reopening the previous year's debates about the
procedures for the TRM given the lack of specificity in China's WTO
commitments regarding procedural aspects of the review. U.S. officials
and some other members noted that, because any changes would require
consensus from all members, China would most likely have blocked any
attempt to clarify the TRM procedures regarding written responses and
furthermore would not likely approve a WTO report with recommendations
regarding China's implementation. Thus, in 2003 there were no formal
proposals from WTO members for changing the TRM, although there were
informal discussions among some committee chairpersons regarding
overall procedures. Because there was less debate regarding procedures,
U.S., WTO, and foreign officials told us that the 2003 TRM went more
smoothly, compared with the previous year. However, as in 2002, China
did not respond in writing to member questions during the 2003 review,
nor did the TRM result in a WTO report with conclusions or
recommendations. U.S., WTO, and other foreign officials told us that
they expected future TRM reviews to operate similar to the 2003 review,
with no substantive changes in procedures or outputs. USTR officials
told us they expect fewer issues to be taken up in future TRM reviews,
after China revises and issues various laws and regulations as its
remaining commitments are phased in.
WTO Member Participation in the TRM Decreased in 2003:
Although the United States continued to take a leading role in the TRM,
participation by other WTO member governments decreased between the
2002 and 2003 reviews despite U.S. officials' hopes for members'
increased involvement. For example, the number of WTO members that
submitted written questions to China in advance of the TRM meetings
declined from 11 in 2002 to 7 in 2003. Similarly, the number of WTO
members that asked questions or made statements during the TRM meetings
decreased from 23 to 11 over the same time period. WTO Secretariat and
member government officials that we interviewed cited several possible
reasons for the decreased participation in the 2003 TRM. Some
developing country WTO members stated that they viewed the TRM as
mainly a political tool for developed country WTO members to put
pressure on China and that the TRM was of little use to them, in terms
of raising and resolving trade issues with China. Additionally, other
WTO member governments were less active in the 2003 TRM because those
governments elected to focus on engaging China bilaterally on trade
issues.
U.S. and China TRM Submissions Were Less Timely in 2003:
Compared with 2002, we found that the United States' submission of
questions to China was less timely in 2003. USTR officials told us that
part of their overall strategy for the 2003 TRM was an internal
deadline to submit questions to China 4 to 6 weeks in advance of the
TRM meetings to ensure that China had enough time to prepare responses.
On average, the U.S. submitted questions to China 34 days in advance of
the committee meetings in 2002. However, in 2003, the United States
submitted questions only 9 days[Footnote 16] in advance of the
meetings, on average.[Footnote 17] In a few of the committee meetings
in 2003, the Chinese representative stated that he was unable to
prepare and provide answers to questions that were received just prior
to the meetings.
The timeliness of China's submissions to the various committees also
affected TRM proceedings. China's accession agreement describes various
types of information that China is required to submit to the WTO
subsidiary bodies in advance of the TRM, but the agreement does not set
forth specific timelines for the submissions.[Footnote 18] In 2003,
China's submissions predated the TRM meetings by an average of 6 days,
compared with an average of 16 days in 2002. During the meetings, some
members commented that they were unable to prepare a complete set of
questions since they had not had sufficient time to review China's
submissions. (See app. III for more details on the 2002 and 2003
TRMs.)
U.S. Officials Cited Benefits of the TRM Despite the Review's
Limitations:
U.S. officials acknowledged the continuing limitations of the TRM in
2003, but cited three major benefits of the review: (1) the TRM
increased China's transparency on trade issues, (2) the TRM resulted in
a useful exchange of information and fostered better coordination among
key Chinese ministries, and most importantly, (3) the TRM provided the
United States with a formal multilateral forum for raising compliance
problems. First, U.S. officials stated that the TRM was an effective
way to urge China to disclose information about its implementation in a
formal, public multilateral forum. Officials said it was important to
demonstrate to China that the United States and other concerned members
would be actively seeking information about China's implementation on
an annual basis. Second, several U.S., WTO Secretariat, and other
member government officials said that China sent more experts from the
relevant ministries to attend the TRM in 2003, and many officials
stated that this had resulted in a more effective exchange of
information during the reviews. Further, U.S. and foreign officials,
including China's ambassador to the WTO, indicated that the TRM process
was effective in helping China's main trade ministry, the Ministry of
Commerce, gain cooperation and coordination from other Chinese
ministries that might not have understood the problems or might have
been reluctant to cooperate otherwise. Third, U.S. officials said that
the TRM provided the United States with an opportunity to highlight
specific areas of concern about China's implementation and obtain an
official, public position from China on key issues. U.S. officials
further noted that, although the TRM was never intended to supplant the
dispute settlement process, the TRM could help lay the groundwork for
any potential areas where the United States would initiate a WTO
dispute settlement case with China.
Multilateral Engagement in Regular WTO Meetings Takes on More
Importance:
U.S. officials also said that part of the U.S. multilateral strategy
for resolving compliance problems with China in 2003 was to raise
issues with China during other WTO committee meetings outside of the
TRM. Regular WTO business takes place in the subsidiary bodies
mentioned above, which formally meet anywhere from one to four, or
more, times a year, and the United States is a very active participant.
Established WTO practice holds that members are to respond in writing
to each other's questions that are submitted through the normal (i.e.,
not TRM) WTO committee structure. Additionally, U.S., WTO, and other
foreign officials noted that China is generally cooperative during
regular, non-TRM WTO meetings. The degree to which members (including
the United States and China) review and question each other's laws,
regulations, and trade practices varies by committee. WTO Secretariat
officials told us that, compared to what they had observed in some of
the TRM meetings, similar or even more technical information was
routinely exchanged between members in a few of the committees--like
the Committee on Antidumping Practices--whereas such exchanges were
relatively rare in other committees, like the Committee on Trade-
Related Investment Measures.
WTO Has an Additional Review Mechanism:
U.S. and other officials also pointed out that the WTO's Trade Policy
Review Mechanism would provide an additional opportunity for a
meaningful review of China's trade policies. The Trade Policy Review
Mechanism, which is unrelated to the TRM, provides for a broad review
of all WTO members' trade policies and practices, trade policy-making
institutions, and macroeconomic conditions. Each member undergoes these
reviews on a scheduled basis, and the frequency of an individual
member's review depends on its share of world trade.[Footnote 19] Based
on its total volume of trade, China is expected to undergo the review
every 2 years, although the exact timing of China's initial review has
yet to be determined, according to WTO Secretariat officials. While the
Trade Policy Review is not a review of members' implementation of WTO
commitments, the review does provide an opportunity for members' to
submit questions to and receive written responses from the
reviewee.[Footnote 20] The reviews also result in a summary report that
describes the findings of the review.
Key Agencies' China Units Could Improve Their Performance Management
Activities:
Although the key agencies' formal plans address trade monitoring and
enforcement activities, it is difficult to assess the effectiveness of
the agencies' China-WTO compliance efforts based on their performance
management reports. Planning and measuring results are important
components to ensuring that government resources are used effectively
to achieve the agencies' goals. Good planning and management links
overall agency goals to individual unit activities and priorities.
USTR, Commerce, State, and USDA's plans reflect China-WTO compliance
efforts, albeit to varying degrees and in different ways. However, in
most cases, we found weaknesses in these key agencies' performance
management efforts; and these weaknesses prevented the agencies from
providing a clear or accurate assessment of their performance in this
regard. Moreover, the specific units within the agencies that are most
directly involved with China compliance activities lacked specific
strategies for ensuring that they supported their agency's goals, and
they did not measure their unit's results.
Establishing Goals and Measuring Results are Important:
The Government Performance and Results Act of 1993 (GPRA) requires
federal agencies to engage in a results-oriented strategic planning
process.[Footnote 21] GPRA requires agencies to set multiyear strategic
goals in their strategic plans and corresponding annual goals in their
performance plans, measure performance toward the achievement of those
goals, and report on their progress in their annual performance
reports. These reports are intended to provide important information to
agency managers, policymakers, and the public on what each agency
accomplished with the resources it was given.
Moreover, GPRA calls for agencies to develop performance goals that are
objective, quantifiable, and measurable and directs agencies to
establish performance measures that adequately indicate progress toward
achieving those goals. Thus, GPRA requires agencies to report on
program performance for the previous fiscal year, based on their
established goals and measures. Agencies are to compare performance
with the established goals, summarize findings of program evaluations,
and revise or describe the actions needed to address any unmet goals.
Agencies have flexibility in establishing goals and in using
performance measures, as long as they reflect the major activities
carried out as part of their particular missions. Furthermore, with
Office of Management and Budget (OMB) concurrence, agencies can express
their performance goals for particular programs in an alternative form
when they are not able to define goals in an objective and quantifiable
form, as long as it allows for actual performance to be compared to the
goal. Our previous work has noted that a lack of clear measurable goals
makes it difficult for program managers and staff to link their day-to-
day efforts to achieving the agency's intended mission.[Footnote 22]
Lastly, good planning and performance measurement at both the overall
agency and unit levels enhances program oversight and is a critical
component to effective and informed decision making.
Key Agencies' Goals Vary in How They Address China-WTO Compliance
Efforts:
Consistent with GPRA's requirements, the four key agencies set long-
term and annual goals that address China compliance efforts in their
most recent strategic and performance plans; however, the degree of
specificity can and does vary in these goals. USTR and State (China-
mission level) plans include China-specific goals related to their WTO
compliance efforts, whereas USDA and Commerce include their China-WTO
compliance efforts within broader goals of monitoring and enforcing WTO
agreements and ensuring market access for U.S. companies.
More specifically, USTR's most recent strategic plan, which spans
fiscal years 2000 to 2005, includes a general goal related to
monitoring and enforcing trade agreements, while the 2004 performance
plan includes a specific annual performance goal for USTR to monitor
and review China's implementation of WTO commitments to ensure
compliance. State's agencywide strategic planning documents describe
broad goals for creating open markets and supporting U.S. businesses,
while the 2004 Mission Performance Plan[Footnote 23] for the overseas
posts in China is linked to these broad goals and sets forth a related
performance goal specific to China. Although the most recent Commerce
and USDA planning documents do not include specific goals relating to
China's WTO compliance, the plans do include more general strategic and
performance goals for ensuring fair trade and enforcing existing trade
agreements, which according to agency officials, broadly reflect their
China-related activities. Agencies' strategic and performance goals
related to China-WTO compliance are summarized in table 5.
Table 5: Key Agencies' GPRA Goals Related to China-WTO Compliance:
Agency: USTR;
Relevant strategic goals: Monitor, enforce and, where necessary, modify
trade and investment agreements to ensure that the intended benefits
are achieved;
Relevant annual performance goals: Monitor and review China's
implementation of WTO commitments to ensure compliance.
Agency: Commerce;
Relevant strategic goals: Provide the information and the framework to
enable the economy to operate efficiently and equitably;
Relevant annual performance goals: Ensure fair competition in
international trade.
Agency: State;
Relevant strategic goals: Economic prosperity and security: Strengthen
world economic growth, development, and stability, while expanding
opportunities for U.S. businesses and ensuring economic security for
the nation;
Relevant annual performance goals: Increased trade and investment
achieved through market-opening international agreements and further
integration of developing countries into the trading system; China
Mission relevant performance goal: Further integrate China, the world's
largest transitioning economy, into the world economic system.
Agency: USDA;
Relevant strategic goals: Enhance economic opportunities for
agricultural producers;
Relevant annual performance goals: Expand international marketing
opportunities.
Source: GAO summary based on USTR, Commerce, State, and USDA strategic
and performance planning documents.
[End of table]
Difficult to Assess the Performance of Agencies' China-WTO Compliance
Efforts:
We found that it was not possible to clearly determine the outcome of
the key agencies' China-WTO compliance efforts based on the agencies'
performance reports. Agencies should, at a minimum, have objective
measurable (preferably quantifiable under GPRA) measures that allow for
accurate and measurable evaluation of key agency programs, which we
believe could include those covering China trade compliance. Based on
GPRA's provisions, we found problems in USTR, State, and Commerce's
assessment of program performance relevant to China-WTO compliance
activities. For USDA, we found it was difficult to determine the
effectiveness of the agency's efforts with regard to China-WTO
compliance because that agency chose goals and measures that were not
specific to China or monitoring and enforcement, but agency officials
did demonstrate how their China activities contributed to their
performance measurement. Table 6 summarizes the key agencies' relevant
performance measures and the results they have reported.
Table 6: Key Agencies' GPRA Performance Measures and Results for Fiscal
Year 2003:
Agency: USTR;
Relevant performance measures: The number of negotiations and trade
problems resolved and the number pending (with China), as indicated in
the President's Annual Report on the Trade Agreements Program[A];
Reported results: The 2003 President's report discusses results on
China WTO compliance as follows:
"—as China continued to pursue the implementation of its WTO
commitments in 2003, China's second year of WTO membership, a number of
positive developments occurred. China began to take steps to correct
systemic problems in its administration of—"
"Despite these gains, 2003 also proved to be a year in which China's
WTO implementation efforts lost a significant amount of momentum. In a
number of different sectors, including some key sectors of economic
importance—".
Agency: Commerce;
Relevant performance measures:
* Number of market access and compliance cases initiated;
* Number of market access and compliance cases concluded;
* Dollar value of trade barriers addressed[B];
Reported results: Although there are no China-specific measures,
Commerce's (International Trade Administration) 2003 performance
assessment reports that targets for the first general compliance
measure were not met, and that targets were met for the second and
third measures for ensuring fair competition in international trade.
Agency: State;
Relevant performance measures:
State overall measures:
* Status of negotiations on open markets for services, trade, and
investment;
* Number of market opening transportation agreements in place;
* Number of countries allowing commercial use of agricultural
biotechnology and global acreage of biotech crops under cultivation;
* Number of new accessions to the WTO;
* International Telecommunication Union recommendations adopted;
China Mission Performance Plan indicators:
* Encourage WTO compliance;
* Support U.S. exports;
Reported results: State overall results: Although there are no China
or compliance-specific measures, State's fiscal year 2003 performance
report indicates that, overall, the agency determined it was "on
target" or "significantly above target" for meeting the various goals
related to creating open and dynamic world markets;
China Mission performance results: State does not report results at
the mission level.
Agency: USDA;
Relevant performance measures:
* Estimated (value) annual trade opportunities preserved through WTO
trade negotiations and notification process;
* Estimated gross trade value of markets expanded/retained by market
access activities other than WTO notification process;
* Average tariff rate on agriculture imports worldwide;
* Increase the number of new or modified export protocols that
facilitate access to foreign markets;
* Increase the number of international animal and plant health
standards adopted;
Reported results: USDA's fiscal year 2003 report indicates that the
agency met or exceeded all of the targets established for the goals
relating to its monitoring and enforcement efforts, and includes China-
related examples.
Source: GAO summary based on USTR, Commerce, State, and USDA planning
documents.
[A] USTR prefaces these measures with "It is difficult to predict with
accuracy whether or not implementation/negotiation will be completed in
any one year."
[B] This measure was discontinued in fiscal year 2004.
[End of table]
USTR Does Not Establish Specific Performance Management Targets:
USTR reported its 2003 results in the President's Annual Report on the
Trade Agreements Program, but not in a measurable way that compares the
agency's performance against a predetermined annual target or
objective. USTR's performance plan identifies a quantifiable,
measurable indicator of performance specific to China's compliance,
namely, the number of trade problems resolved and the number pending.
These measures, if used, would have allowed for numerical evaluation of
USTR's China compliance activitiesif a target outcome was chosen.
However, the aforementioned report only provides a narrative
description of the status of China's compliance problems and the U.S.
responses; and as such, the report does not address USTR's performance
measure and thus does not allow for a clear measurable assessment of
whether USTR is achieving its intended China compliance goal. We
believe sound performance management requires an agency to specifically
address its performance measures when it reports results.
Furthermore, USTR's performance measures should have been accompanied
by targets that would have allowed the agency to clearly report
results. For example, USTR could set a target to resolve some
percentage of high priority compliance problems, or more generally, to
eliminate some particular outstanding problems. Instead, USTR's FY 2004
Performance Plan and FY 2002 Annual Performance Report states, "It is
difficult to predict with accuracy whether or not implementation/
negotiation will be completed in any one year."[Footnote 24]
Furthermore, despite setting forth quantifiable measures in its
performance plan, USTR officials said that they did not believe it was
appropriate to quantify their performance results because of the many
intangible factors that affect the interpretation of results,
especially the various weights of different problems in terms of trade
importance. As noted earlier, while quantitative measures are preferred
under GPRA, GPRA provides agencies the flexibility, when appropriate,
to use alternative (that is, nonquantifiable) measures--such as
descriptive statements--as long as they allow for an accurate and
independent determination of whether the agency is meeting its intended
goal. Nevertheless, since USTR did establish quantitative measures,
sound performance management would have dictated that it establish
targets and report the results related to those measures.
Commerce's Performance Measurement May Need Improvement:
Commerce has established reasonably objective, quantifiable measures
for its China-WTO compliance related efforts, but there are potential
weaknesses in the reliability of the data used to judge results, as
noted by the Commerce Inspector General.[Footnote 25] Commerce's three
related measures are the numbers of market access and compliance cases
(1) initiated, (2) concluded, and (3) dollar value of trade addressed.
The measures apply generally to all market access and compliance cases,
but they also include information specific to China. Commerce uses a
centrally maintained database to track market access and compliance
cases it is working to resolve. Commerce has taken several important
steps to improve the quality of the database, including providing
training to staff on how to use the database, creating a users' manual,
and overseeing the timeliness and completeness of staff entries.
However, some staff we interviewed noted that the quality of
information in the Trade Compliance Center database is dependent on how
thorough staff members are in entering information. Staff said that
certain types of crosscutting issues or company-specific problems are
still not always entered into the database. Others noted that
information in the database on some issues is often incomplete, which
raises new concerns about the reliability of the data. Commerce
collects information on China market access and compliance cases, and
agency officials provided us data that demonstrated the extent to which
China-related cases contribute to the agency's overall performance
measures. (See table 7 for the China-specific results.)
Table 7: Summary of Commerce Market Access and Compliance Cases for
China Initiated and Concluded, Fiscal Years 2001-2003:
Cases initiated and concluded: Compliance cases initiated;
2001: 7;
2002: 22;
2003: 12;
Total: 41.
Cases initiated and concluded: Market access cases initiated;
2001: 18;
2002: 14;
2003: 2;
Total: 34.
Cases initiated and concluded: Total cases initiated;
2001: 25;
2002: 36;
2003: 14;
Total: 75.
Cases initiated and concluded: Compliance cases concluded;
2001: 4;
2002: 16;
2003: 12;
Total: 32.
Cases initiated and concluded: Market access cases concluded;
2001: 13;
2002: 8;
2003: 9;
Total: 30.
Cases initiated and concluded: Total cases concluded;
2001: 17;
2002: 24;
2003: 21;
Total: 62.
Source: Commerce.
[End of table]
State Does Not Measure China-Specific Results:
We reviewed State's 2004 Mission Performance Plan for China because,
unlike the overall agencywide plan, it explicitly addressed China-WTO
compliance activities. Although the plan sets forth broad baseline
indicators and targets, the mission plan does not indicate progress
toward achieving the mission's goals in this regard. The mission plan
includes two relevant strategies to accomplish its performance goal
relating to integrating China into the world economic system: one
specifically related to monitoring China's WTO compliance and another
related to promoting U.S. economic interests. Furthermore, although the
mission plan provides a useful discussion of the tactics proposed to
achieve each of these strategies, we found the mission's two annual
performance indicators do not allow for quantifiable, measurable
results.
In its agencywide plan, State uses performance indicators for trade-
related goals that do not specifically target either China or
monitoring and enforcement-related activities. These worldwide
indicators focus on concluding various types of negotiations, the
acceptance of biotechnology in the agricultural sector, and the
adoption of favorable international telecommunication practices.
State's report does not include how these measures apply to specific
countries.
USDA's Measures Are Not Specific to China and Are Subject to Other
Factors:
USDA's plan includes several relevant quantifiable measures, as well as
a useful discussion of the means and strategies that the agency employs
to increase international marketing opportunities for U.S. agricultural
exporters. Furthermore, in several instances USDA reports its efforts
in China are part of its strategy for achieving its goals. Because the
agency chose goals and measures that were neither specific to China nor
to monitoring and compliance, it is not possible to determine the
effectiveness of the agency's efforts with China-WTO compliance from
its performance reports. However, agency officials were able to
demonstrate that their China activities contributed to their
performance measurement.
Nevertheless, we found that several of the measures USDA uses to assess
performance against the broad goal of expanding international marketing
opportunities can be significantly impacted by external factors that
affect trade in general. USDA's fiscal year 2004 plan includes a brief
list of the factors that may impact the agency's progress toward
achieving the goals, but the discussion of those factors does not
present the agency's strategies for mitigating those potential effects.
As a result, it is difficult to determine the extent to which
performance results are attributable to agency efforts or to external
factors. USDA officials said that they understood their measures were
problematic and said the agency was in the process of developing more
effective measures, including country-specific performance measures.
More Attention to Performance Management Could Improve Unit-Level
Activities:
Agency officials told us about the substantial high-level effort they
make to establish and follow an aggressive strategy to ensure China's
continued implementation of its WTO commitments. Furthermore, officials
engage in significant interagency planning and regularly adjust
priorities at the most senior levels in order to achieve results.
However, these strategies and priorities are not reflected in agencies'
performance management activities that help guide lower level unit
activities. Although GPRA requirements do not apply specifically to the
planning activities of individual units, unit-level planning and
performance reporting is essential to an agency's oversight of its key
programs. Such performance management activities help managers focus
their efforts and resources on long-term priorities in the face of
ongoing short-term exigencies.
Furthermore, we found that the lower level units most directly involved
with China-WTO compliance activities do not establish longer term
annual unit-level objectives or priorities for their unit's activities.
Managers in all four key agencies said they did not set specific
measurable performance goals or objectives for their units in support
of agency overall performance management goals, nor did they set their
own priorities and align resources to those priorities in any unit-
level plan. Instead, managers indicated that their units' priorities
were adjusted frequently to respond to compliance problems as they
arose depending on the level and number of companies complaining about
a compliance problem, the amount of trade affected by a problem, the
scope and magnitude of a problem, and which issues the Administration
or Congress were focused on at the time, among other considerations.
Units undertook various activities as needed to support these changing
priorities. Many managers and staff believed that there was very little
their units could do to predict which areas of China's implementation
would falter and that the units needed to remain flexible in order to
respond to any compliance problems that might arise or to take
advantage of any opportunity to solve a compliance problem. They
believed this despite the fact that many of the compliance problems
that have arisen to date have persisted since China's accession.
This approach was reflected in our interviews with staff. Most staff
said prioritization of their unit's activities was informal and ad hoc;
no staff reported a formal prioritization scheme for addressing
compliance issues. Furthermore, many staff and some managers were
unable to articulate longer-term performance plans for their unit's
efforts. Of staff familiar with relevant performance goals, managers
and staff at the four key agencies also said that they believe that
their agencies' existing performance measures do not fully capture
their unit's activities. For example, Commerce staff noted that much of
the work they do regarding trade capacity building programs with the
Chinese government and outreach to the private sector is not included
in the database used to measure their performance in monitoring and
enforcement, although those efforts can have a positive effect on
China's compliance.
Because the units' activities are not clearly tied to agency
performance management efforts, China unit managers are not able to
assess the results of their unit's activities and use this information
to guide future work. Managers could not comment on whether they had
achieved predetermined objectives for any one year or specifically how
their unit contributed to their agencies' overall performance goals.
Key Agencies Added Staff Resources, but Turnover and Lack of Training
Limited Overall Effectiveness:
In 2003, the key agencies continued to add resources to meet the
demands of monitoring China's compliance with its WTO commitments,
especially in headquarters units. However, we found that high rates of
planned and unplanned staff turnover in the main China units presented
challenges to the agencies' compliance efforts. Despite anticipated
staff turnover in the units we examined, staff in those units lacked
the opportunity to receive specific training related to carrying out
their assigned responsibilities. Instead, the units generally relied on
on-the-job training (OJT) for new staff. Consequently, staff with
relatively short rotations in units focused on China's WTO compliance
spent a significant portion of their total tenure in the office getting
up to speed on complex China trade issues.
Agencies Have Increased Staff Levels in Main Units; Proportionally More
Increases at Headquarters Units:
In response to the increased responsibilities arising from China's WTO
membership, USTR, Commerce, State, and USDA increased staff resources
at both headquarters offices and in China. The estimated number of FTE
staff in the units most directly involved with China-WTO compliance
efforts across the four key agencies increased from about 25 to 58
between fiscal years 2000 and 2003. Staff in the main China-related
headquarters units in Washington, D.C, increased at a rate of about 3
to 1 over China-based units over the same period, and over 70 percent
of the staff resources were located within the agencies' headquarters
units by 2003. Commerce added the largest number of staff, as estimated
FTE staff increased from about 9 to 35 between fiscal years 2000 and
2003. (See table 8.)
Table 8: Agency Staffing Estimates for Main Units Involved with China-
WTO Compliance Efforts, Fiscal Years 2000-2003:
Agency: Headquarters units: USTR: Office of North Asian Affairs[A];
2000: 3;
2001: 3;
2002: 5;
2003: 5.
Agency: Headquarters units: Commerce: Market Access and Compliance[B];
2000: 7;
2001: 19;
2002: 22;
2003: 22.
Agency: Headquarters units: Commerce: Import Administration, Trade
Remedy Compliance Staff[C];
2000: 1.7;
2001: 3.3;
2002: 6.7;
2003: 9.
Agency: Headquarters units: State: East Asia and Pacific, Office of
Chinese and Mongolian Affairs[D];
2000: 2.25;
2001: 2.25;
2002: 3.25;
2003: 3.25.
Agency: Headquarters units: USDA: Foreign Agricultural Service, Asia
and the Americas Division[E];
2000: 2.5;
2001: 2.5;
2002: 2.5;
2003: 2.5.
Agency: Headquarters units: Subtotal for headquarters units;
2000: 16;
2001: 30;
2002: 40;
2003: 42.
Agency: Overseas units in China: Commerce: Trade Facilitation
Office[F];
2000: 0;
2001: 0;
2002: 0;
2003: 4.
Agency: Overseas units in China: State: Beijing Embassy, Economic
Section, WTO Group[G];
2000: 6;
2001: 6;
2002: 5.5;
2003: 7.25.
Agency: Overseas units in China: USDA: Foreign Agricultural Service,
Beijing Embassy Agricultural Section[H];
2000: 3;
2001: 3;
2002: 4;
2003: 5.
Agency: Overseas units in China: Subtotal for overseas units;
2000: 9;
2001: 9;
2002: 10;
2003: 16.
Total all units;
2000: 25;
2001: 39;
2002: 50;
2003: 58.
Sources: USTR, Commerce, State, and USDA estimates.
Note: Figures do not total precisely due to rounding.
[A] Figures include actual FTE staff working on China compliance, and
figures for 2003 include two staff temporarily detailed to USTR from
State and the International Trade Commission. In April 2004, USTR
established a separate and expanded Office of China Affairs to focus
solely on overseeing trade policy with China, Taiwan, Hong Kong, Macau,
and Mongolia.
[B] Figures include actual FTE staff in the Office of China Economic
Area (18 staff), the Trade Compliance Center (2 staff), and members of
a Rapid Response trade compliance team (2 staff) who focus on China
issues.
[C] Figures based on Import Administration estimates of FTE staff
working on China compliance and do not include estimates of staff who
conduct antidumping proceedings involving imports from China.
[D] Figures based on State estimates of FTE staff working on China
compliance issues. Although other units at State do not focus
specifically on China, State's Bureau of Economic and Business Affairs
provides sector and other technical advice on China trade issues. The
Bureau estimated that the equivalent of 1.4 full-time staff were
devoted to working on China trade issues in fiscal year 2003.
[E] Figures are based on USDA estimates of FTE staff working on China
compliance issues.
[F] Figures include two actual FTE staff from Market Access and
Compliance and two from Import Administration, Trade Remedy Compliance
Staff. Staffing for the office was approved during fiscal year 2001,
but the officers were not placed until late fiscal year 2002 and early
fiscal year 2003. Figures do not include Commerce's U.S. and Foreign
Commercial Service staff who are located in five cities throughout
China and who also play a role in supporting the U.S. government's
compliance efforts.
[G] Figures based on State estimates of FTE staff working on China
compliance in the Beijing Embassy's Economic Section. Figures do not
include staff from other embassy sections or consular staff who also
play a role in supporting the U.S. government's compliance efforts.
[H] Figures include actual FTE staff, including policy attachés,
agricultural specialists, and a senior-level Minister-Counselor. The
figures do not include staff in USDA's Agricultural Trade Offices
located in three cities throughout China who also play a role
supporting the U.S. government's compliance efforts--there were six
actual full-time staff in these offices in fiscal year 2003.
[End of table]
The 2004 Appropriations Act for Commerce, Justice, and State[Footnote
26] intended additional staff increases and funds necessary for the
U.S. government's China compliance efforts.[Footnote 27] Specifically,
the Congress called for Commerce to reorganize and dedicate more
resources to China compliance efforts by, among other things,
establishing an enforcement office within the Market Access and
Compliance division to provide legal and investigative assistance to
companies seeking to enforce their rights under existing trade
agreements and reorganizing the Import Administration to include an
office that deals specifically with antidumping cases involving China
and other nonmarket economy countries. The Congress also called for
USTR to dedicate more resources to China trade issues by adding three
positions in the agency's main China trade unit and six other positions
in other offices that have a role in monitoring and enforcing China's
trade commitments. Notably, these intended changes would continue the
trend of increasing staff at the headquarters instead of the agencies'
field units.
Although the key agencies (excluding USTR) have many staff located in
China, a relatively small proportion of those staff have a direct role
in the U.S. government's China-WTO compliance activities. Officials in
various overseas units assist the agencies' China-WTO compliance
efforts, but this assistance is not a primary component of their
responsibilities. For example, Commerce had 23 officers located in
China in fiscal year 2003, but only four officers had explicit China-
WTO compliance responsibilities; the other officers were Commercial
Officers, and their primary duties involved trade promotion. Similarly,
only about a quarter of the 26 Foreign Service officers and staff
within the Beijing embassy's economic section focused primarily on
China-WTO compliance in 2003. About the same proportion of USDA's
Foreign Agriculture Service (FAS) officers in China had an explicit
role in China-WTO compliance issues, while the other officers were
primarily focused on promoting and facilitating U.S. agricultural
exports.
Staff Turnover in Main Units Reduced Agencies' Ability to Ensure
China's Compliance:
Relatively high rates of planned and unplanned staff turnover in
several of the main China units with primary responsibility for
monitoring and enforcing China's WTO commitments presented challenges
for the agencies' China compliance efforts. Managers and staff in the
units we reviewed cited several negative effects of turnover on their
units' compliance efforts.
Planned and Unplanned Rates of Turnover Were High in Some Main Units:
Turnover across all executive branch agencies averaged 5.8 percent in
fiscal year 2003, but turnover in several of the agencies' main China
units was significantly higher. For example, between fiscal years 2000
and 2003, the average annual turnover rate in the Office of China
Economic Area at Commerce was about 25 percent, and the rate was about
32 percent in USTR's 3 to 5 person China office, over the same period.
Additionally, according to State data, six of the eight staff (75
percent) in the section that oversees the embassy's China compliance
efforts turned over in 2002 alone. Lastly, although turnover has not
been an issue in USDA's Asia and the Americas Division, staff noted
that because of the small size of the office, staff departures could
create a substantial loss of institutional memory.
In some instances, turnover in the units is part of a planned staffing
process. For example, a core principle of State's staffing model is to
create generalists who can serve in any overseas mission. Consistent
with this objective, most entry-and mid-level Foreign Service officers
are rotational and change posts every 2 to 4 years. USDA's FAS officers
are subject to minimum 3-year rotations. Additionally, in 2003, two of
the five staff in USTR's China office were temporary detailees from
other agencies, and these staff typically rotate back to their home
agency after 1 year. In other cases, staff turnover resulted from
unplanned staff separations, such as when staff left to take positions
in another agency or in the private sector.[Footnote 28] Lastly, we
previously reported that the core officials that actively participated
in China's WTO accession negotiations had changed jobs or left the
government by 2002.
Officials Cited Negative Effects of Turnover:
Managers and several staff in the key headquarters and field units said
that turnover had generally negative effects on the units' activities.
First, several officials said that turnover in the units meant that new
staff sometimes did not have sufficient time to develop expertise on
complex China trade issues before they rotated to another position or
left the agency. Consequently, staff with relatively short rotations (1
to 3 years) in China compliance-focused units spent a significant
portion of their tenure learning the issues rather than focusing on
actively resolving compliance problems. Second, other officials noted
that this problem is compounded because outgoing and incoming staff
sometimes only overlap for a brief period, if at all. For example, all
officers and staff in two units at State that were involved in China-
WTO issues were scheduled to rotate at the same time in 2004, so there
would likely be little or no overlap with their successors. Lack of
overlap between transitioning staff requires incoming staff to learn
their assigned portfolio of issues without the benefit of guidance from
their predecessors. Third, one embassy official pointed out that staff
turnover makes it difficult for officers to effectively establish and
cultivate contacts with their counterparts in the Chinese government.
Staff Lacked Training Opportunities on Relevant Skills; Agencies Relied
Heavily on On-the-Job Training:
The main China units at the four key agencies lacked specific training
relevant to executing China-WTO compliance responsibilities, or, to the
extent that the agencies' offered specific training, staff generally
lacked sufficient opportunities to receive it. Additionally, as noted
in our previous reports, some agencies' efforts continued to be
hampered by shortfalls in Chinese language training. We found that
agencies relied almost exclusively on OJT to give new staff the skills
necessary to do their jobs.
Limited Training Opportunities for Staff in the Agencies' Main China
Units:
About half of the staff and managers we interviewed in the main
headquarters and field units indicated that formal training
opportunities for staff were limited or that additional training would
enhance their units' effectiveness. Our model of strategic human
capital management emphasizes the importance of structured training as
a means to develop and retain staff and describes the important
linkages between training and effectively attaining an agency's
strategic and performance goals. However, none of the units we reviewed
offered or required staff to take part in formal training curricula
related to carrying out the mission of the unit. In some cases, the
agencies' offered trade-related training courses, but staff in each of
those offices said that their opportunities to take those courses were
limited by time and workload constraints. For example, State's Foreign
Service Institute offers several courses on trade issues, including
trade agreement implementation, the WTO dispute settlement process,
trade law, and trade and environment issues. While officers in the
China embassy's WTO Group and Commerce's Trade Facilitation Office took
part in the course on trade agreement implementation, the officers we
interviewed noted that they had taken few, if any, other courses.
Furthermore, USTR officials told us that USTR only hires experienced
personnel, who do not need training.
A factor that illustrates the importance of training is that many
vacancies in the main China units are filled by junior and mid-level
staff who would benefit from more training. For example, in Commerce's
Office of China Economic area, 11 of the 17 new staff hired between
fiscal years 2001 and 2003 were at the GS-9 level or below. Similarly,
mid-and junior-level officers (FS-03 and lower) filled five of the
eight positions at the WTO unit at Embassy Beijing in fiscal year 2003.
Embassy officials, including the Deputy Chief of Mission, noted the
need for greater expertise and experience among officers at the post to
deal with complex China trade issues. Even staff that had experience
working in China or working on trade issues who were hired or rotated
into China-trade units indicated that they would benefit from training
on issues other than China-WTO compliance, such as training on writing
cables and briefing papers.
Shortfalls in Language Training Continued:
We previously reported on the shortfalls of foreign language skills,
including gaps in Mandarin Chinese at State's overseas posts and within
Commerce's Foreign Commercial Service.[Footnote 29] Despite State's
recent improvement in addressing this shortfall, many staff we
interviewed noted that Chinese language training opportunities were
limited, even for State Foreign Service officers.[Footnote 30] At the
same time, managers and staff in the key units said that, while Chinese
language is not essential for all positions, it is difficult to
effectively engage their Chinese counterparts on complex trade issues
without having sufficient language skills. Embassy staff said that due
to the heavy visitor schedule and workload, they found it difficult to
consistently take advantage of the language instruction available at
the post. Furthermore, they noted that 1-year rotational officers who
have not had adequate language training filled many positions in the
embassy's WTO Group.
Main Units Relied on On-the-Job Training:
All of the units we reviewed relied almost exclusively on OJT to
acquaint staff with how to carry out their China-WTO compliance
responsibilities. Without formal guidance regarding their
responsibilities, many staff said they generally relied on colleagues
and supervisors for further direction. Although OJT is essential to
developing expertise on complex China-WTO trade issues, it cannot
ensure that new staff have all the information they need to perform
their duties. Our previous work notes that effective utilization of
human capital is best achieved through a comprehensive mix of both
formal and OJT. Additionally, we identified other problems with the
agencies' reliance on OJT. For example, we found that inconsistencies
in how the main units track and share information on China compliance
can limit the effectiveness of OJT. Not only is tracking information an
important aspect of the overall monitoring and enforcement process, but
it can also help mitigate the effects of turnover and is an important
OJT tool for acquainting new staff with their assigned portfolio of
responsibilities. Staff across the four key agencies said that there
was little or no internal guidance about the types of information that
should be collected and how the information should be compiled and
shared. Finally, as one high-level embassy official noted, relying on
OJT can significantly add to the workload of more senior staff, who
must be diverted from their own portfolios in order to provide informal
guidance to new staff.
Conclusions:
Ensuring China's compliance with its WTO commitments is a continuing
priority for the U.S. government. The complexity, breadth, and ongoing
nature of many of the problems that have arisen to date demonstrate the
need for a cohesive and sustained effort from the key U.S. agencies to
monitor and enforce China's implementation of WTO policies. The key
agencies have done much to enhance their capacity to carry out these
efforts by coordinating on policy issues and increasing staff
resources. However, there are three areas in which USTR, Commerce,
State, and USDA should take steps to improve these efforts and maximize
the effectiveness of the resources allocated to the task of securing
the benefits of China's membership in the WTO.
First, while U.S. monitoring and enforcement activities in 2003
reflected increased high-level bilateral engagement by executive branch
officials, some multilateral efforts did not achieve their full
potential. Specifically, the WTO's annual TRM was intended to be a
thorough review of China's implementation, but many U.S., WTO, and
foreign officials agree that the mechanism has limitations.
Nevertheless, the TRM and the benefits it provides could be enhanced by
increased member participation and more timely U.S. preparation, which
would improve the chances for full and informed responses from Chinese
officials and maximize the potential exchange of information. Thus,
even with a continued U.S. emphasis on bilateral and other multilateral
engagement, the TRM can continue to provide an important avenue to
pursue U.S. trade interests.
Second, the U.S. government's China-WTO compliance efforts would
benefit from increased emphasis on planning and performance management
within each of the key agencies. While we acknowledge that unit
managers need to be flexible when reacting to compliance problems,
setting clear unit priorities and measurable goals that support overall
agency objectives need not reduce their flexibility. To the contrary,
GPRA and our substantial body work on planning emphasizes the
importance and usefulness of developing unit and program-level plans
and measures that are connected to an agency's overall mission. We
acknowledge the challenges of developing measurable goals, given the
extent to which external factors can influence agencies' trade
compliance efforts; however, we believe that it is possible to better
measure results annually.
Third, we found that these agencies have opportunities to better manage
their human capital involved in the U.S. government's China-compliance
activities. Specifically, in an environment of high and regular staff
turnover, new staff are called upon to take up monitoring and
enforcement activities that involve complex, long-term issues. New
staffs' effectiveness and efficiency is reduced when no formal training
is available to help them with their day-to-day activities, and when
staffing gaps mean they cannot learn from their more experienced
predecessors. Increased management attention to providing an adequate
mix of OJT and formal training can help ensure that new employees have
the necessary tools for doing their jobs well.
Recommendations for Executive Action:
To improve multilateral engagement with China on WTO compliance issues,
we recommend that the U.S. Trade Representative (USTR) take steps to
maximize the potential benefits of the Transitional Review Mechanism
(TRM). These steps could include establishing and meeting internal
deadlines to submit written questions to the Chinese delegation 4 to 6
weeks or more before each TRM and coordinating with other WTO members
to increase participation in the review.
Additionally, we recommend that the USTR and the Secretaries of
Commerce, State, and Agriculture (USDA) take steps to improve
performance management pertinent to the agencies' China-WTO compliance
efforts. Specifically, USTR should set annual measurable predetermined
targets related to its China compliance performance measures and assess
the results in its annual performance reports. The Secretary of
Commerce should take further steps to improve the accuracy of the data
used to measure results for the agency's trade compliance-related
goals. The Secretary of State should require the China mission to
assess results in meeting their goals and report this information as
part of the annual mission performance plan. The Secretary of USDA
should further examine the external factors that may affect agency's
progress toward achieving its trade-related goals and present the
agency's strategies for mitigating those potential effects.
Furthermore, the head of each agency should direct their main China
compliance units to set forth unit plans that are clearly linked to
agency performance goals and measures, establish unit priorities for
their activities, and annually assess unit results to better manage
their resources.
Further, we recommend that USTR and the Secretaries of Commerce, State,
and USDA undertake actions to mitigate the effects of both anticipated
and unplanned staff turnover within the agencies' main China-WTO
compliance units by identifying China compliance-related training needs
and taking steps to ensure that staff have adequate opportunity to
acquire the necessary training. These actions could include determining
which of the agencies' existing courses would be appropriate for staff,
determining what types of external training are available, developing
training courses on relevant issues, and establishing a plan and
timelines for existing and new staff to receive training.
Agency Comments and Our Evaluation:
We provided draft copies of this report to the Office of the U.S. Trade
Representative, and the Departments of Commerce, State, and
Agriculture, and we received written comments from all four agencies
(the agencies' comments and our specific responses are reproduced in
appendixes IV through VII). USTR and Commerce also provided technical
comments, which we incorporated as appropriate.
In general, the agencies noted they would consider our recommendations,
but they raised various concerns and provided additional information
for our consideration. USTR, Commerce, and State expressed similar
concerns about our analysis of the scope and disposition of the
compliance problems presented in USTR's 2002 and 2003 reports on
China's WTO compliance. The agencies emphasized the importance of
developments in resolving compliance problems that occurred in 2004 and
believed that our characterization of the disposition of compliance
problems was potentially misleading. We generally agreed with these
comments and updated the report to provide more equal treatment of 2004
developments and modified the presentation of our analysis of the
disposition of China's compliance problems. Our responses to the
agencies' specific concerns on these issues are presented in appendixes
IV through VI.
USTR, Commerce, and USDA also made specific comments that our report
did not adequately reflect extensive high-level strategic coordination
efforts among the key agencies, and they provided additional
information regarding these efforts. We modified the report to include
further discussion of high-level strategic planning efforts and
clarified that our assessment and recommendations focus on the
agencies' performance management efforts. The agencies expressed
related concerns about the challenges associated with quantitatively
measuring performance of their monitoring and enforcement efforts.
State and USDA indicated that efforts are under way in those agencies
to improve aspects of their performance planning and measurement, while
USTR responded that their performance measurements were adequate and
complied with GPRA and OMB guidance. We maintain that our assessments
of the agencies' performance management are accurate, especially in
light of OMB guidance (set forth in OMB Circular No. A-11), and that
moreover our recommendations, if implemented, would aid in better
management of the U.S. government's efforts to ensure China's
compliance.
USTR commented that our discussion of the TRM overlooked the U.S.
government's efforts to engage China outside of the TRM through the
regular WTO committee structure, and disagreed with our conclusion that
greater lead time for U.S. TRM submissions to China would increase the
potential for fuller oral responses from China. We amplified our
discussion of U.S. multilateral efforts in the WTO, but we continue to
believe that USTR should take steps to maximize the potential of the
TRM, which would include providing greater lead time in submitting TRM
questions to China.
Commerce, State, and USDA indicated that training is a priority and
that training opportunities exist for staff in the agencies China
units. Furthermore, State believed our criticisms concerning training
were overstated and did not take into account various structural
constraints faced by that department. USTR said that USTR staff did not
require training since the agency only hires experienced staff. We
acknowledge that training opportunities, including OJT, do exist in the
agencies and that many staff have extensive backgrounds on China trade
issues. Nevertheless, we continue to believe that a more cohesive
approach to training can help alleviate the effects of turnover and
maximize staff effectiveness. Lastly, some of the agencies provided
additional information regarding various activities and other
contextual information associated with ensuring China's compliance. To
the extent that this information was within the scope of our review, we
have modified the report as appropriate.
We are sending copies of this report to the U.S. Trade Representative,
the Secretaries of Commerce, State, and Agriculture, and interested
congressional committees. We will make copies available to other
interested parties upon request. In addition this report will be
available at our Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
call me at (202) 512-4128. Other GAO contacts and staff acknowledgments
are listed in appendix VIII.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[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, State, and Agriculture (USDA)
are positioned to monitor and enforce China's compliance with its World
Trade Organization (WTO) commitments. Specifically, in this report, we
(1) examined the scope and disposition of China-WTO compliance problems
that the U.S. government is working to resolve; (2) reviewed the U.S.
government's bilateral and multilateral approaches for resolving
compliance problems; (3) assessed the agencies' strategies, plans, and
measures for ensuring China's compliance; and (4) assessed how the U.S.
government has adapted its staff resources to monitor and resolve China
compliance problems.
To examine the scope and disposition of compliance problems, we
reviewed the USTR's Report to Congress on China's WTO Compliance from
2002 and 2003. These annual reports, mandated in conjunction with
China's 2001 accession to the WTO, incorporate a broad range of input
from key federal agencies as well as the business community. We
systematically cross-checked the reports with testimony and reports
submitted to the Trade Policy Staff Committee, Subcommittee on China-
WTO Compliance as part of its 2002 and 2003 hearings on China-WTO
compliance and other relevant reports. Other reports included those
issued by the U.S.-China Business Council and the U.S. Chamber of
Commerce, which represent a broad cross-section of U.S. industries and
companies doing business in China. We found the USTR reports to be a
generally fair and complete representation of U.S. industry concerns.
After verifying the content of USTR's reports to the extent possible,
we quantified the number of compliance problems in each area of China's
WTO commitment based on the report's narrative descriptions of China's
compliance problems.
To analyze the disposition of the compliance problems, we again relied
extensively on the narrative descriptions provided in the reports to
make a determination and assigned three broad categories to describe
the disposition of the problems: No progress noted, some progress
noted, and resolved. The determination that there was "no progress
noted" on a particular problem was based on the fact that the report
did not indicate that China took any action to resolve the issue after
a range of enforcement strategies carried out by USTR and the other key
agencies. If the reports indicated that China had undertaken actions to
resolve a compliance problem, we coded this as "some progress noted."
The assessment of "some progress noted" included a range of steps that
China took to address U.S. concerns, from delaying the implementation
of problematic measures to exempting certain industries from WTO-
inconsistent restrictions. We coded problems as "resolved" only if the
report language clearly indicated that the compliance problem was
resolved and the U.S. government was no longer pursuing a resolution of
that particular problem. Although we note in the report that the U.S.
government has indicated positive developments in resolving some of the
problems in 2004, our analysis focused only on the issues raised in the
2002 and 2003 reports. Several of our staff reviewed these analyses to
ensure consistency and consensus. See table 9 for our assessment
criteria and examples.
Table 9: Description of GAO Categories for Disposition of China-WTO
Compliance Issues and Examples of Disposition:
Disposition category: No progress noted;
Description of disposition category: USTR reported that China had made
no progress in resolving a compliance problem, or did not otherwise
note progress on a problem;
Example of disposition of problem: The U.S. asserted that China
discriminated against foreign companies by using different tax bases to
compute consumption taxes for domestic and imported products. The U.S.
raised this issue bilaterally and within the Transitional Review
Mechanism in both 2002 and 2003. China had not revised these
regulations as of the end of 2003.
Disposition category: Some progress noted;
Description of disposition category: USTR reported that China had
undertaken some action to resolve a compliance issue, however the
problem was not yet fully resolved;
Example of disposition of problem: The U.S. asserted that China
restricted foreign insurance companies through excessive capitalization
requirements. The U.S. raised issues in bilaterally and at the WTO,
and established a technical working group. China issued draft rules
that demonstrated some progress with regard to capitalization
requirements and transparency.
Disposition category: Resolved;
Description of disposition category: USTR reported that China had
successfully undertaken steps to resolve a compliance issue and that
the issue was no longer a concern for the U.S. or the affected
industry;
Example of disposition of problem: The problem of subdividing tariff-
rate quotas for bulk agricultural commodities persisted between 2002
and 2003. After several bilateral engagements culminating in high-level
meetings in Beijing, China changed its regulations to eliminate
separate allocations for general trade and processing trade.
Source: GAO analysis of USTR's 2002 and 2003 Report to Congress on
China's WTO Compliance.
[End of table]
To assess U.S. bilateral and multilateral engagement strategies, we
reviewed agency and WTO documents and interviewed agency officials both
in Washington, D.C., and Beijing, China, as well as WTO Secretariat and
other member governments in Geneva, Switzerland, and Brussels, Belgium.
To assess overall U.S. government strategy, we interviewed USTR
officials in Geneva and Washington D.C., and reviewed official
testimony. Our review of the Transitional Review Mechanism (TRM) is
based on analysis of official WTO documents, which include minutes and
questions or comments submitted by member countries, as well as
interviews with U.S. officials and with member countries officials in
Geneva.
To assess USTR, Commerce, State, and USDA strategies and plans, we
examined planning documents such as annual performance reports, budget
documents, and annual reviews. 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 process.
Our evaluation of agency planning efforts was informed by our previous
studies on the Government Performance and Results Act of 1993 (GPRA).
We enhanced our review of this information by interviewing agency
officials regarding agency wide and unit-level planning and evaluation
efforts. To gather staff and management perspectives on planning and
performance measures, we conducted standardized interviews within all
four agencies.
To assess agency resources and other activities related to China's
compliance, we reviewed the four key agencies' planning documents,
budget and staffing data, and information on training. Our evaluation
was informed by past GAO studies on human capital management issues. We
asked each agency to provide us with the actual number of FTE staff and
staff attrition rates in key units involved in China-WTO compliance
efforts for fiscal years 2002 and 2003. In some cases, agencies were
unable to provide us with actual staffing numbers because some staff
did not work on China issues full-time. In those instances, we asked
agency officials to estimate FTE staff working solely on China
compliance. To ensure that the data were reliable to the extent
possible and necessary for our review, we discussed criteria for making
estimates with the agencies to ensure that the estimates were
consistent between agencies. We compared agency information on staffing
with information we received for previous reviews and discussed changes
in staffing levels with cognizant agency officials. We determined that
the staffing information was sufficiently reliable for our review. We
asked each agency to supply us with training documents or manuals and
minutes or records from coordinating meetings. We supplemented our
review of this information by conducting individual interviews with
over 50 staff and unit managers from the four key agencies that had
China compliance as a main portion of their work portfolio. These were
standardized interviews conducted individually, with the exception of
USTR, which required a group interview. We were able to interview over
two-thirds of U.S. government staff in the main units at the four key
agencies who work primarily on China-WTO compliance.
We conducted our work in Washington, D.C., Beijing, China, Geneva,
Switzerland, and Brussels, Belgium. We performed our work from July
2003 to June 2004 in accordance with generally accepted government
auditing standards.
[End of section]
Appendix II: Description of Areas of China's Trade Regime Covered by
China's WTO Commitments:
USTR's 2002 and 2003 Report to Congress on China's WTO Compliance
identified compliance problems within nine broad areas related to
China's trade regime where China had made commitments to other WTO
members. Our previous work used similar categories to analyze China's
commitments.[Footnote 31] Table 10 describes the commitment categories
used in USTR's reports.
Table 10: Description of China's WTO Commitment Areas:
Commitment area: Import regulation;
Description of commitment area: Border measures affecting imports,
such as customs duties, other taxes, and charges; nontariff measures,
such as quotas; regulatory measures, and technical barriers to trade,
such as packaging, marketing, or labeling requirements.
Commitment area: Services;
Description of commitment area: Regulations and restrictions affecting
trade in services and operations of foreign services suppliers in
China, including commitments on nondiscrimination and market access
for particular service sectors.
Commitment area: Internal policies affecting trade;
Description of commitment area: Internal policies affecting
nondiscrimination (equal treatment of imported and domestic goods),
taxation, subsidies, price controls, standards and regulations, state-
owned, state-invested and state-trading enterprises and government
procurement.
Commitment area: Agriculture;
Description of commitment area: Measures and policies that affect the
agricultural sector, such as customs duties, tariff-rate quotas, export
subsidies, domestic support and measures restricting imports for health
and environmental reasons (sanitary and phytosanitary measures).
Commitment area: Intellectual property rights;
Description of commitment area: Includes laws and regulations, as well
as their enforcement, providing for the protection and enforcement of
intellectual property rights, such as copyrights, trademarks, and
patents.
Commitment area: Trading rights and distribution;
Description of commitment area: China's restrictions on the right to
import or export products (trading rights) and its treatment of
wholesaling services, commission agents' services and direct retailing
services (distribution rights).
Commitment area: Investment;
Description of commitment area: Prohibitions on investment measures
that violate nondiscrimination and quantitative restrictions on
imports.
Commitment area: Legal framework;
Description of commitment area: Legal reforms in the areas of
transparency, uniform application of laws and judicial review.
Commitment area: Export regulation;
Description of commitment area: Border measures affecting exports,
including licensing requirements, export duties, and other taxes and
charges.
Source: GAO.
[End of table]
[End of section]
Appendix III: Summary of WTO Member Participation in China's
Transitional Review Mechanism, 2002 and 2003:
China's commitments to the WTO provide for an annual review, referred
to as the Transitional Review Mechanism (TRM), of China's
implementation to take place within the WTO's General Council and 16
subsidiary bodies.[Footnote 32] Under the TRM, WTO members can submit
written questions to China in advance of the meetings, and address
China directly during the meetings. Additionally, China's accession
agreement describes various types of information that China is required
to submit to the WTO subsidiary bodies in advance of the TRM. Tables
12 and 13 list the dates of the meetings where the TRM took place in
2002 and 2003 and summarize specific information regarding WTO members'
participation in the meetings for each year.
Table 11: WTO Member Participation in China's Transitional Review
Mechanism, 2002:
WTO committee or council: Committee on Agriculture;
Date of TRM meeting: 09/26/2002;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 29;
Other members that submitted questions: EU, Japan, Canada, Thailand;
Number of members that participated during TRM: 7.
WTO committee or council: Committee on Import Licensing;
Date of TRM meeting: 09/24/2002;
Number of days China's submissions preceded TRM: 5;
Number of days U.S. questions to China preceded TRM: 28;
Other members that submitted questions: EU, Japan, Chinese Taipei;
Number of members that participated during TRM: 4.
WTO committee or council: Committee on Rules of Origin;
Date of TRM meeting: 11/15/2002;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: Chinese Taipei;
Number of members that participated during TRM: 7.
WTO committee or council: Committee on Trade-Related Investment
Measures;
Date of TRM meeting: 10/14/2002;
Number of days China's submissions preceded TRM: 4;
Number of days U.S. questions to China preceded TRM: 12;
Other members that submitted questions: EU, Japan, Chinese Taipei;
Number of members that participated during TRM: 8.
WTO committee or council: Committee on Customs Valuation;
Date of TRM meeting: 11/04/2002;
Number of days China's submissions preceded TRM: 7;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: EU, Chinese Taipei;
Number of members that participated during TRM: 3.
WTO committee or council: Committee on Market Access;
Date of TRM meeting: 09/23/2002;
Number of days China's submissions preceded TRM: 5;
Number of days U.S. questions to China preceded TRM: 26;
Other members that submitted questions: EU, Japan, Canada, France;
Number of members that participated during TRM: 13.
WTO committee or council: Committee on Safeguards;
Date of TRM meeting: 10/28/2002;
Number of days China's submissions preceded TRM: 60;
Number of days U.S. questions to China preceded TRM: 45;
Other members that submitted questions: EU, Japan, Chinese Taipei;
Number of members that participated during TRM: 5.
WTO committee or council: Committee on Antidumping Practices;
Date of TRM meeting: 10/24/2002;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: EU, Japan, Chinese Taipei,
Canada, South Korea;
Number of members that participated during TRM: 6.
WTO committee or council: Committee on Subsidies and Countervailing
Measures;
Date of TRM meeting: 10/31/2002;
Number of days China's submissions preceded TRM: 2;
Number of days U.S. questions to China preceded TRM: 14;
Other members that submitted questions: EU, Japan, Mexico;
Number of members that participated during TRM: 5.
WTO committee or council: Committee on Sanitary and Phytosanitary
Measures;
Date of TRM meeting: 11/07/2002;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 9;
Other members that submitted questions: EU, Chinese Taipei;
Number of members that participated during TRM: 7.
WTO committee or council: Committee on Technical Barriers to Trade;
Date of TRM meeting: 10/17/2002;
Number of days China's submissions preceded TRM: 1;
Number of days U.S. questions to China preceded TRM: 13;
Other members that submitted questions: EU, Japan, Chinese Taipei;
Number of members that participated during TRM: 7.
WTO committee or council: Committee on Balance of Payment Restrictions;
Date of TRM meeting: 11/18/2002;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 68;
Other members that submitted questions: EU;
Number of members that participated during TRM: 3.
WTO committee or council: Council on Trade-Related Aspects of
Intellectual Property Rights;
Date of TRM meeting: 09/17/2002;
Number of days China's submissions preceded TRM: 61;
Number of days U.S. questions to China preceded TRM: 67;
Other members that submitted questions: EU, Japan, Canada, Australia,
Switzerland;
Number of members that participated during TRM: 9.
WTO committee or council: Council for Trade in Goods;
Date of TRM meeting: 11/22/2002;
Number of days China's submissions preceded TRM: 4;
Number of days U.S. questions to China preceded TRM: 88;
Other members that submitted questions: EU, Japan;
Number of members that participated during TRM: 4.
WTO committee or council: Committee on Financial Services;
Date of TRM meeting: 10/21/2002;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 20;
Other members that submitted questions: Canada, EU, Japan, Chinese
Taipei;
Number of members that participated during TRM: 9.
WTO committee or council: Council for Trade in Services;
Date of TRM meeting: 10/25/2002;
Number of days China's submissions preceded TRM: 3;
Number of days U.S. questions to China preceded TRM: 24;
Other members that submitted questions: Australia, EU, Japan, Chinese
Taipei;
Number of members that participated during TRM: 9.
WTO committee or council: General Council;
Date of TRM meeting: 12/10/ 2002;
Number of days China's submissions preceded TRM: 21;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: [Empty];
Number of members that participated during TRM: 16.
Source: GAO analysis of WTO documents.
Notes: EU = European Union.
N/A = not applicable.
Chinese Taipei = Separate Customs Territory of Taiwan, Penghu, Kinmen
and Matsu.
[End of table]
Table 12: WTO Member Participation in China's Transitional Review
Mechanism, 2003:
WTO Committee or Council: Committee on Agriculture;
Date of TRM meeting: 09/25/2003;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 13;
Other members that submitted questions: Chinese Taipei;
Number of members that participated during TRM: 3.
WTO Committee or Council: Committee on Import Licensing;
Date of TRM meeting: 10/02/2003;
Number of days China's submissions preceded TRM: 9;
Number of days U.S. questions to China preceded TRM: 2;
Other members that submitted questions: EU, Japan, Chinese Taipei;
Number of members that participated during TRM: 4.
WTO Committee or Council: Committee on Rules of Origin;
Date of TRM meeting: 10/03/2003;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: none;
Number of members that participated during TRM: 1.
WTO Committee or Council: Committee on Trade-Related Investment
Measures;
Date of TRM meeting: 10/03/2003;
Number of days China's submissions preceded TRM: 2;
Number of days U.S. questions to China preceded TRM: 10;
Other members that submitted questions: EU;
Number of members that participated during TRM: 9.
WTO Committee or Council: Committee on Customs Valuation;
Date of TRM meeting: 10/06/2003;
Number of days China's submissions preceded TRM: 14;
Number of days U.S. questions to China preceded TRM: 3;
Other members that submitted questions: Chinese Taipei;
Number of members that participated during TRM: 3.
WTO Committee or Council: Committee on Market Access;
Date of TRM meeting: 10/20/2003;
Number of days China's submissions preceded TRM: 5;
Number of days U.S. questions to China preceded TRM: 10;
Other members that submitted questions: EU, Japan;
Number of members that participated during TRM: 3.
WTO Committee or Council: Committee on Safeguards;
Date of TRM meeting: 10/20/2003;
Number of days China's submissions preceded TRM: 3;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: Japan;
Number of members that participated during TRM: 3.
WTO Committee or Council: Committee on Antidumping Practices;
Date of TRM meeting: 10/23/2003;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 1;
Other members that submitted questions: Japan;
Number of members that participated during TRM: 2.
WTO Committee or Council: Committee on Subsidies and Countervailing
Measures;
Date of TRM meeting: 10/28/2003;
Number of days China's submissions preceded TRM: 4;
Number of days U.S. questions to China preceded TRM: 1;
Other members that submitted questions: EU, Mexico;
Number of members that participated during TRM: 4.
WTO Committee or Council: Committee on Sanitary and Phytosanitary
Measures;
Date of TRM meeting: 10/29/2003;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 26;
Other members that submitted questions: EU, Chinese Taipei;
Number of members that participated during TRM: 3.
WTO Committee or Council: Committee on Technical Barriers to Trade;
Date of TRM meeting: 11/7/2003;
Number of days China's submissions preceded TRM: 1;
Number of days U.S. questions to China preceded TRM: 17;
Other members that submitted questions: EU, Japan;
Number of members that participated during TRM: 3.
WTO Committee or Council: Committee on Balance of Payment Restrictions;
Date of TRM meeting: 11/13/2003;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: N/A;
Other members that submitted questions: Chinese Taipei;
Number of members that participated during TRM: 1.
WTO Committee or Council: Council on Trade-Related Aspects of
Intellectual Property Rights;
Date of TRM meeting: 11/18/2003;
Number of days China's submissions preceded TRM: 1;
Number of days U.S. questions to China preceded TRM: 8;
Other members that submitted questions: EU, Japan, Chinese Taipei;
Number of members that participated during TRM: 6.
WTO Committee or Council: Council for Trade in Goods;
Date of TRM meeting: 11/26/2003;
Number of days China's submissions preceded TRM: 5;
Number of days U.S. questions to China preceded TRM: 9;
Other members that submitted questions: EU, Japan;
Number of members that participated during TRM: 4.
WTO Committee or Council: Committee on Financial Services;
Date of TRM meeting: 12/01/2003;
Number of days China's submissions preceded TRM: N/A;
Number of days U.S. questions to China preceded TRM: 7;
Other members that submitted questions: Canada, EU, Japan, Chinese
Taipei;
Number of members that participated during TRM: 7.
WTO Committee or Council: Council for Trade in Services;
Date of TRM meeting: 12/05/2003;
Number of days China's submissions preceded TRM: 8;
Number of days U.S. questions to China preceded TRM: 11;
Other members that submitted questions: Australia, EU, Japan, Chinese
Taipei;
Number of members that participated during TRM: 5.
WTO Committee or Council: General Council;
Date of TRM meeting: 12/15/ 2003;
Number of days China's submissions preceded TRM: 10;
Number of days U.S. questions to China preceded TRM: N/A;
Number of members that participated during TRM: 6.
Source: GAO analysis of WTO documents.
Notes: EU = European Union.
N/A = not applicable.
Chinese Taipei = Separate Customs Territory of Taiwan, Penghu, Kinmen
and Matsu.
[End of table]
[End of section]
Appendix IV: Comments from the United States Trade Representative:
EXECUTIVE OFFICE OF THE PRESIDENT:
DEPUTY UNITED STATES TRADE REPRESENTATIVE:
WASHINGTON, D.C. 20508:
SEP 21 2004:
Mr. Loren Yager:
Director:
International Affairs and Trade Issues:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Yager:
I am writing to convey the comments of the Office of the United States
Trade Representative (USTR) on the draft report of the Government
Accountability Office (GAO), Opportunities to Improve U.S. Government
Efforts to Ensure China's Compliance with World Trade Organization
Commitments (Report). Ensuring China's compliance with its World Trade
Organization (WTO) commitments is a key priority for the
Administration, and we appreciate the GAO's advice which is offered to
ensure that we are doing the best possible job at that critical task.
The Report contains some useful recommendations that we will consider
carefully.
As your Report notes, in 2004 the Administration resolved or made
important progress on a number of key trade issues with China. Indeed,
just last week, the American Chamber of Commerce in China released its
annual report and noted the substantial progress we have made over the
past year on China WTO compliance issues. In the last 12 months, U.S.
exports to China grew to $33 billion, more than double the level in
2001, making China one of the fastest growing export markets in US
history. Maintaining this momentum will require sustained attention by
the U.S. Government.
USTR would like to highlight four issues of concern with the Report. It
(1) focuses on events only through December 11, 2003 and is therefore
outdated; (2) focuses on U.S. activities in connection with China's
Transitional Review Mechanism without a full discussion of the
multilateral engagement process at the WTO; (3) claims an inability to
measure U.S. Government efforts, while seemingly ignoring the reams of
reporting and testimony released annually by the agencies in question;
and (4) does not adequately reflect the extensive interagency process
at the most senior levels of the U.S. Government devoted to strategic
planning and management of U.S.-China trade relations, particularly as
that process influenced events in 2004.
Time Period. The draft Report assesses the disposition of compliance
issues only through 2003 and treats as unresolved issues on which the
United States in fact achieved substantial progress in 2004. Some of
the 2004 results - in particular, the progress made during the April
meetings of the Joint Commission on Commerce and Trade (JCCT) - are
noted in the Report, but they are not reflected in the GAO's analysis
of the disposition of compliance concerns.
Any assessment of the disposition of compliance concerns or U.S.
government efforts should not end at the period ten months before the
Report's publication. As noted in the Report, China faced an
unprecedented, infectious health crisis in 2003, limiting the ability
of U.S. negotiators to interact with Chinese officials and manage trade
concerns for a significant portion of that year. Since the end of 2003,
USTR has established a new Office of China Affairs, doubled the size of
its China-focused staff, and resolved or made progress on a number of
the thorniest problems in the U.S.-China trade relationship, including:
* Successfully resolving a WTO dispute regarding China's tax refund
policy for semiconductors, a growing market currently worth $2 billion
to American manufacturers and workers.
Problem-solving through months of detailed work with Chinese officials
in a host of ministries, culminating in an April 2004 JCCT meeting with
Chinese Vice Premier Wu Yi, at which the United States and China
resolved or made progress on a number of key trade disputes over
matters including wireless Internet standards; Third-Generation (3G)
mobile phone standards; intellectual property; trading rights;
distribution services; express delivery; agricultural biotechnology;
tariff-rate quotas for agricultural commodities including wheat and
cotton; and financial services, including insurance.
* Exercising its rights to impose safeguards against Chinese imports to
protect U.S. textile workers making products such as robes,
undergarments, and knit fabric.
Indeed, in its annual report on China WTO compliance issues, the
American Chamber of Commerce in China concludes:
"With the exception of intellectual property rights, we believe China
is substantially in compliance with its WTO deadlines and specific
obligations. While some commitments remain problematic and there
continue to be many areas where the market access opportunities
anticipated still have not been realized, China has taken noteworthy
steps this year to comply with its basic commitments in the areas of
trading rights, insurance, auto finance, and agriculture, among others.
Some of this progress resulted from bilateral dialogue between the
United States and Chinese governments, in particular at the April 2004
Joint Commission on Commerce and Trade, for which we commend both
governments for their constructive efforts and encourage more of the
same in the future."
Like the Chamber, we have serious concerns regarding intellectual
property protection in China, and ensuring China's effective
enforcement of intellectual property rights is one of this
Administration's top priorities. At the April JCCT meeting, China
presented a detailed action plan to significantly reduce the piracy and
counterfeiting of American products and innovations. We are working to
ensure that China follows through on its action plan, and will conduct
a special review in early 2005 under the "Special 301" provisions of
the Trade Act of 1974 to measure progress.
Transitional Review Mechanism. The Report focuses heavily on the
Transitional Review Mechanism (TRM) that was established under the
terms of China's accession to the WTO and treats the TRM and bilateral
engagement as the two main tools available to the United States to
address compliance problems with China. The TRM is an important tool,
but it is one of many. The Administration pursues issues with China
through, inter alia, interventions by the U.S. Embassy in Beijing,
letters and phone calls directly to China's officials, demarches
presented to China's government, visits to China by USTR and other
agency officials, regular trade dialogue meetings at the working and
senior-level, recourse to U.S. trade laws, and technical assistance
programs. We also pursue China compliance issues through meetings of
WTO councils and committees (whether identified as TRM meetings or
not), side meetings with China and other Members at the WTO,
consultations under the WTO framework, dispute settlement at the WTO
(including the threat thereof), informal coordination with other WTO
Members, and use of other multilateral fora. The context of the TRM is
not fully presented in the Report.
The Report identifies two shortcomings in the 2003 TRM. The first
problem identified is that the United States provided its questions to
China with a shorter lead time prior to WTO committee and council
meetings in 2003 than 2002. We see no basis for the conclusion that a
greater lead time in TRM questions would change the effectiveness of
U.S. government efforts to ensure China's compliance with WTO
commitments. In addition, the GAO should clarify that the need for long
lead times that existed in 2002, when we were seeking written answers
in advance of meetings, was less pressing in 2003, when it had become
clear that China would not provide advance written responses.
The second shortcoming identified in the Report is the decreased number
of Members that submitted TRM questions in 2003 as compared to 2002.
USTR agrees that participation by more WTO Members would be desirable.
Indeed, the United States has urged other Members to participate and
has taken a leading role in the TRM every year. However, third-party
participation is not within U.S. Government control and the GAO made no
finding that the lack of participation was due to any action or
inaction on the part of the U.S. Government. Therefore, the focus on
this issue, in a report intended to assess U.S. agencies' efforts, is
misplaced.
Alleged Inability to Determine Outcome ofAgencies Efforts. The GAO
found that it was difficult to assess the outcome of agencies' China-
WTO compliance efforts because of various performance management
limitations and urges USTR to establish a quantifiable measure of its
compliance activities. The Report's conclusion is surprising, given
that USTR reports exhaustively on compliance problems each year and
steps taken to address those problems (in 2003, USTR's report to
Congress on China WTO compliance totaled more than 60 single-spaced
pages). In addition, USTR and other agency officials testify regularly
before the Congress to report on our China-WTO compliance efforts.
As for the lack of quantitative measure or assessment, the GAO itself
states elsewhere in the report that agencies have flexibility in
establishing goals under the Government Performance and Results Act of
2003 (GPRA) and in using performance measures, as long as they reflect
the major activities carried out as part of their particular missions.
USTR has proposed, adopted upon approval from the Office of Management
and Budget (OMB), and reported upon its alternative form of measurement
regarding its performance goal with respect to China's compliance with
its WTO obligations (as well as with respect to other USTR performance
goals). USTR's use of this form of measurement is in full conformance
with the GPRA and OMB requirements.
Planning and Prioritizing. In assessing agencies' performance
management systems, the GAO should recognize that USTR and other
agencies, including at the most senior levels, engage in significant
planning activity with respect to China WTO compliance issues and have
established priorities for their compliance activities. The
Administration sets forth its priorities with respect to China WTO
compliance in regular Congressional testimony as well as annually, in
USTR's report to Congress on China's WTO compliance. In addition, the
President sets forth his overall trade agenda on an annual basis. USTR
and other agencies also periodically assess how to prioritize trade
issues as part of our structured dialogue with China and in the lead-up
to meetings between senior officials. In late 2003 and 2004, for
example, the U.S. Government engaged in an extensive interagency
planning and prioritization process involving Cabinet and sub-Cabinet
officials, as well as other senior officials from all relevant
agencies, that resulted in significant advancement of U.S. interests in
securing improved compliance by China with its WTO obligations. The
GAO should recognize these planning and prioritization activities.
We welcome the GAO's suggestions on how we can more effectively address
WTO compliance concerns with China and look forward to continuing to
work with the GAO on this study.
Sincerely,
Signed by:
Josette Sheeran Shiner:
The following are GAO's comments on USTR's letter dated September 21,
2004.
GAO Comments:
1. We updated our draft report to include additional information on
developments in 2004, including the resolution of the dispute over
China's discriminatory value-added tax refund policy for
semiconductors. Since our analysis of the 2002 and 2003 USTR reports
cannot be updated in the absence of the forthcoming 2004 USTR report in
December, we modified our presentation about the disposition of China's
compliance problems to provide a more balanced treatment of those
issues. However, we still demonstrate the scope of compliance problems,
how China's compliance problems can persist for 2 years or more, and
the extent to which China's progress in resolving these issues has been
mixed.
2. We amplified our discussion of other multilateral engagement through
regular WTO committees in order to put the TRM in better context.
Nevertheless, after reviewing the minutes of the various TRM meetings,
we continue to believe that earlier U.S. submission of questions to
China in advance of the TRM meetings could increase the chances for
more thorough oral responses from the Chinese delegation. We also
continue to believe that U.S. efforts to increase other WTO members'
participation in the TRM could improve its effectiveness, despite its
ongoing limitations and support the other key agencies' outreach
efforts in this regard.
3. While USTR submits long narrative reports to Congress on China's WTO
compliance and the steps the U.S. government takes to address problems,
these reports are not a substitute for a bottom-line performance
management assessment of the degree to which the agency has achieved
pre-determined measurable annual objectives. We noted that USTR has
described numerical indicators in its performance plan, yet has not set
targets or measured the agency's performance against these indicators.
Although we agree that USTR has some flexibility under GPRA to
establish performance measures that are not strictly quantitative, the
agency specifically sets forth numerical measures in its performance
plan. Accordingly, USTR should have specifically addressed these
measures in its results report. Additionally, while USTR states that
its approach was approved by OMB and was in compliance with GPRA, the
OMB guidance requires all agencies to report a comparison of actual
performance with projected, target levels of performance; without
establishing targets, we believe USTR is not able to make this required
comparison. We revised our draft report to clarify and further
emphasize our assessment.
4. We added some discussion to better recognize these senior-level
policy coordination initiatives and also clarified that our findings
about planning and prioritizing was in the context of performance
management. Also, we refined our observations about how the China units
in the key agencies would benefit from improved performance management
that institutionalized high-level priorities and planning to better
guide unit-level China compliance activities, which support these
initiatives.
[End of section]
Appendix V: Comments from the Department of Commerce:
UNITED STATES DEPARTMENT OF COMMERCE:
The Under Secretary for International Trade:
Washington, D.C. 20230:
SEP 21 2004:
Mr. Loren Yager:
Director:
International Affairs and Trade Issues:
U. S. General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Dear Loren:
Thank you for sending your draft report, Opportunities to Improve U.S.
Government Efforts to Ensure China's Compliance with World Trade
Organization Commitments, for our review. As you know, I have
tremendous respect for the work the General Accounting Office (GAO) has
done on Chinese accession to the World Trade Organization (WTO) and
related compliance issues in the past. Prior GAO reports proved
instrumental in Congress' understanding of the process of accession,
the merits of the agreement eventually negotiated, and the requirements
that accord imposed on China.
I appreciate the recommendations this new report offers the Department
of Commerce and other agencies. I would nonetheless want to provide
some important further context for the report. This information touches
on the significant progress made by the Administration on China's WTO
compliance in the course of 2004 and on the underlying strategy we have
pursued to achieve this.
First, it is worth reiterating the basic strategy the Administration
has pursued. To ensure China's continued implementation of its WTO
obligations, in the late summer of 2003, the Administration at the
highest levels developed a comprehensive strategy to ensure progress on
China's compliance. That strategy included monthly visits by Cabinet or
immediate-sub Cabinet officials to China to engage with China's
leaders. Further, it involved development of a roadmap setting specific
goals for progress, achieving Chinese government agreement to pursue
those goals, and structuring senior-level meetings to establish
milestones to push this process forward. In particular, meetings prior
to the December, 2003, visit by Premier Wen Jiabao set the stage for
agreement to elevate the level of the JCCT and to pursue a set of
concrete outcomes for that meeting. Between December and the April
JCCT, we held numerous meetings and teleconferences with our Chinese
counterparts to push forward our mutually agreed agenda of issues.
These efforts paid off. At the JCCT meeting in April 2004, we resolved
several significant issues and laid the foundation for important
progress on others. Issues resolved included implementation of China's
commitments on trading rights and distribution services, potentially
worth billions of dollars of increased market access to U.S. companies,
and the WAPI encryption issue. We also achieved significant commitments
on IPR, and we are now seeing the Chinese government follow through on
these. Further, we achieved Chinese concurrence to open a dialogue on
the key structural issues (such as subsidies) that can distort U.S.-
China trade and create an un-level playing field for U.S. companies.
While not technically a WTO implementation issue, I would note our
breakthrough agreement at the JCCT on an arrangement for end-use
visits on high technology items. In addition, I believe the successful
JCCT paved the way for the subsequent resolution of the integrated
circuit VAT issue, which was resolved bilaterally without the need for
lengthy litigation at the WTO.
Second, to reinforce the Administration's strategy, the Department of
Commerce has undertaken a number of new steps that will continue to pay
dividends in the future. These include establishment of the compliance
investigations office, increased staffmg and recruitment of top
language-qualified China experts to manage our China compliance
efforts, the creation of a China Office in our Import Administration to
focus and deepen our expertise on unfair trade cases from China, and
for the first time using technology to enable compliance officers in
China and the United States to work collaboratively on compliance cases
in the Market Access and Compliance Bureau on a real time basis. In
addition, the Department of Commerce has undertaken extensive "capacity
building" efforts as part of a carefully thought out, strategic effort
to ensure China's compliance with WTO commitments and avoid future
obstacles to U.S. exports to China. These efforts, though difficult to
quantify, have produced results that help us identify and address key
problems in China's WTO implementation.
Consistent with the effort to expand the Commerce Department staff
dedicated to compliance, we have also provided a continuous cycle of
training opportunities to enhance their skills. We have made strenuous
efforts to increase our staffing on the China compliance issue to
reflect its growing importance to the United States, and we have added
management to this staff to enhance the development of the China office
and engage the staff in more training opportunities. In fact, reflected
in budget requests for the International Trade Administration from the
outset of this Administration, you will see that our personnel and
their training has been our top priority.
In closing, I hope that the above affords a fuller treatment of our
strategic approach to the issue of China's WTO implementation and the
significant progress - much of it in 2004 - that we have achieved as a
result. While there are many ways to measure progress on such a complex
issue, one key indicator is the attitude of the U.S. business
community. In this connection, I would draw your attention to the
American Chamber of Commerce in China's annual report issued last week,
which notes the progress made in 2004 on China compliance issues
thanks, in part, to U.S.-China bilateral dialogue.
The U.S. government is working hard to ensure that China complies with
its WTO commitments, and there is much work to be done in the future on
this issue. But there should also be a clear recognition of the
successes already achieved, thanks in part to hard work by the U.S.
government and increased resources for these efforts from Congress.
Again, I thank you for your recommendations and for this opportunity to
comment on the draft GAO report.
Sincerely,
Grant D. Aldonas:
The following are GAO's comments on Commerce's letter dated September
21, 2004.
GAO Comments:
1. We updated our draft report to better reflect high-level policy
coordination on China compliance efforts and to clarify our focus on
unit-level performance management activities. We also included
additional information on developments in 2004, including the
resolution of the dispute over China's discriminatory value-added tax
refund policy for semiconductors.
2. We did not assess the organizational changes that Commerce has
recently implemented to enhance its monitoring and enforcement
activities, but noted that these changes were under way. Nevertheless,
these changes create an opportunity for the International Trade
Administration to improve performance management and human capital
management along the lines we recommend in order to maximize the
effectiveness of these China compliance-related offices and the staff
they have hired or reassigned.
[End of section]
Appendix VI: Comments from the Department of State:
United States Department of State:
Assistant Secretary and Chief Financial Officer:
Washington, D.C. 20520:
Ms. Jacqueline Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:
SEP 2 2004:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report,
"U.S. - CHINA TRADE: Opportunities to Improve U.S. Government Efforts
to Ensure China's Compliance with World Trade Organization
Commitments," GAO Job Code 320194.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
David Bonine, Foreign Affairs Officer, Bureau of East Asia and Pacific
Affairs, at (202) 647-6782.
Sincerely,
Signed by:
Christopher B. Burnham:
cc: GAO - Adam Cowles:
EAP - James Kelly:
EB - E. Anthony Wayne:
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report: U.S. - CHINA TRADE:
Opportunities to Improve U.S. Government Efforts to Ensure China's
Compliance with World Trade Organization Commitments (GAO-04-936, GAO
Code 320194):
The State Department is concerned with the underlying notion of the GAO
report that one can meaningfully and accurately quantify United States
Government (USG) progress in ensuring China's compliance with World
Trade Organization (WTO) commitments. The chart in Figure 1 classifies
issues as resolved, made progress, or no progress. This system of
organization places equal weight on an issue that affects $1,000 worth
of trade and an issue worth $1 billion-an inappropriate notion if the
USG is to prioritize its efforts. A more accurate measure of USG
effectiveness would provide a trade volume/market value on the issues
resolved, moved forward, and unresolved. Our key priorities in 2002-
2003 were: soybeans, insurance, agricultural Tariff Rate Quotas (TRQs)
and postal law. We believe these to be priority issues because of the
dollar value and urgency involved. We basically resolved these issues,
and U.S. exports of goods and services in these areas grew (or in the
case of insurance, will grow) sharply. It is also noteworthy that no
export growth figures are presented in the report, which is ultimately
the bottom line of trade concerns. Even then, export growth figures may
not always correctly convey the importance of a success, for example, a
change in law, regulation, or practice that bolsters Intellectual
Property Rights (IPR) protection.
There is also a fine line between "made progress" and "no progress."
What may appear to be no progress from an individual company's
perspective may in fact be progress in moving an issue up the decision-
making hierarchy toward eventual resolution. Many of these are not
clear-cut issues that lend themselves to a clear, timely, and
quantifiable solution (e.g., "concern over the independence of the
judicial system"). Additionally, it appears that many complaints raised
by U.S. companies are treated as examples of "noncompliance," but these
may or may not be legitimate, impartial instances of noncompliance.
Report Conclusions:
Bilateral vs. Multilateral Approaches to Achieving Results:
The report concludes the USG found bilateral approaches to be more
effective than multilateral ones, citing USG emphasis on progress made
at the Joint Commission on Commerce and Trade (JCCT), versus lesser
success and emphasis placed on the TRM mechanism at the WTO. While
State agrees that the USG continues to rely on regular high-level
bilateral contact to make progress on key issues, the multilateral
forum remains an important component of overall strategy. USG
preparation in the Transitional Review Mechanism (TRM) this year is
more thorough and timely than in 2003. Moreover, the USG successfully
used the WTO Dispute Settlement mechanism for the first time in the
semiconductor VAT case, a case that attracted the formal support of
Japan, the EU, Mexico and Chinese Taipei. We continue to work closely
with the EU and other partners around the world to coordinate common
positions on issues of mutual concern regarding China's compliance with
its WTO commitments.
Other countries have also found enhanced bilateral contact to be an
effective tool with China in WTO compliance. Notably, the EU has an
annual high-level Trade Dialogue with China in which they discuss
contentious issues and attempt to head off more drastic action. In this
regard, it is important to note the additional time and effort required
to multilaterally coordinate complex and sometimes differing interests
into effective action.
The Reactive Nature of USG Strategy to Ensure China's Compliance with
WTO Commitments:
State agrees, as the report states, that there are "significant
challenges [to] developing measurable goals, given the extent to which
external factors can influence agencies' trade compliance efforts." In
addition to external factors, there are several other difficulties in
developing such goals (see related comments in paragraph 1). Many
issues become important, prompt USG policy formulation, and are
resolved within a calendar year, complicating attempts to proactively
set priorities and goals. Timely and reliable data on which to base
such goals are not always available, and mission and bureau planning
documents are usually drafted 2 years in advance. Finally, many
compliance issues do not easily lend themselves to meaningful
quantification.
Despite these difficulties, State will work towards refining our annual
planning process to more rigorously identify and prioritize
existing/persistent problems with China's WTO compliance and develop
overall strategies to address those deficiencies. Similarly,
State will work to develop measurable performance goals for evaluating
our work in ensuring China's WTO compliance where it would be
meaningful and appropriate to do so.
Turnover and Training:
The Secretary has stressed the importance of in-service training and
professional development, and great improvements have been made over
the last several years. Nonetheless, State believes that criticism
concerning the level of training officers receive before working on
China WTO compliance is overstated, and does not take account of
pressing structural constraints. The topic is not well suited to
classroom study because the complex and detailed issues change
frequently: an issue that was a priority concern and demanded
significant attention in one year may be resolved or insignificant the
next. That said, the Department has long recognized the need to have a
cadre of officers with adequate economic and language skills, but this
is a long-term goal. Mandarin is a difficult language requiring serious
commitment and many years to master, meaning staffing levels cannot
increased quickly. More important, the State Department faces severe
shortages of mid-level officers, largely the result of low hiring
levels in the nineties, now exacerbated by staffing demands in Iraq and
Afghanistan. The problems of turnover and training are tied to this
staffing shortage. Attempting to create greater overlap between
incoming and outgoing officers or extend the length of service for
officers assigned to China WTO compliance are not feasible options.
The following are GAO's comments on State's letter dated September 2,
2004.
GAO Comments:
1. We believe that measurable indicators provide policymakers with
meaningful summary information, however the figure in our draft report
was outdated and we removed it. As we indicate in our report,
priorities can be established according to a number of factors,
including trade volume/market value. We agree that such information
might provide a more accurate measure of results. Our report points out
that, while USTR's annual China compliance reports identify "priority"
areas, the economic importance of many individual problems cannot be
easily quantified (as noted in State's letter) and was not reported. As
a result we did not attempt to calculate the importance or otherwise
prioritize or rank the problems in our analysis. With regard to our
discussion of the disposition of problems in 2002 and 2003, we explain
our methodology for categorizing what USTR has reported to Congress in
detail in appendix I.
2. We added information about other multilateral activities to put the
TRM in better context. We agree that the TRM remains an important
component of China compliance activities and appreciate that continued
efforts to coordinate compliance issues multilaterally, as we
recommend, are sometimes difficult and are not always effective.
3. We appreciate State's performance management challenges and welcome
the intention to refine its annual planning process and to develop
measurable performance goals for its China-WTO compliance activities.
We reiterate that assessing and reporting annual results at the mission
(or bureau) level can help ensure that unit-level activities reflect
agency priorities.
4. Previous GAO reports have discussed human capital management
challenges at State more thoroughly. In this report, we discuss some
particular issues as they relate to China compliance efforts, including
planned and unplanned turnover of staff and how the press of daily
business makes staff development difficult. We believe that mitigating
the effects of turnover through greater attention to training, either
in or outside of the classroom, can nevertheless help while solutions
to longer-term human capital challenges are being pursued.
[End of section]
Appendix VII: Comments from the Department of Agriculture:
USDA:
United States Department of Agriculture:
Farm and Foreign Agricultural Services:
Foreign Agricultural Service:
1400 Independence Ave, SW:
Room 5071-S Stop 1001:
Washington, DC 20250-1001:
SEP 8 2004:
Mr. Loren Yager:
Director, International Affairs and Trade Issues:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Yager:
Thank you for providing the U.S. Department of Agriculture (USDA) with
your draft report entitled "U.S.-CHINA TRADE: Opportunities to Improve
U.S. Government Efforts to Ensure China's Compliance with World Trade
Organization Commitments." Your report identifies three areas in which
U.S. government (USG) agencies could improve their efforts and maximize
the effectiveness of resources dedicated to ensuring China's compliance
with its WTO commitments. We would like to offer the following comments
for your consideration.
Multilateral efforts have not achieved their full potential. Your
report states that the World Trade Organization (WTO) annual Trade
Review Mechanism (TRM), which is intended to be a thorough review of
China's implementation, could be improved through increased member
participation and "more timely U.S. preparation." As part of its
overall monitoring responsibilities, USDA is an integral part of the
interagency effort to prepare for WTO committee meetings of the TRM.
For the Foreign Agricultural Service (FAS), this effort includes
soliciting comments from industry groups, commodity experts, and
marketing analysts in the Department, as well as FAS' offices in China.
Through the Trade Policy Staff Committee (TPSC), the U.S. Trade
Representative (USTR) invites and coordinates input from other USG
trade-related agencies. Trade-agency submissions are provided to the
WTO Secretariat and China before the TRM discussions. Coordination with
other WTO members in advance and during the TRM discussions on issues
of shared concern is an important outreach function consistent with
multiplying U.S. efforts towards addressing concerns identified in the
TRM. The WTO Committee on Agriculture is scheduled to take up the
review on September 23, and elements of the submissions may be
discussed before the Committee on Import Licensing scheduled for
September 30. Active participation by Argentina and Brazil is being
invited concerning China's licensing of import inspections.
Agencies involved in USG's China-WTO compliance efforts need to
increase emphasis on planning and performance management. Your report
acknowledges the challenges of developing measurable goals given the
extent to which "external factors" can influence agencies' trade
compliance efforts, but at the same time, emphasizes the importance and
usefulness of developing program-level plans and measures that are
connected to agencies' overall missions.
FAS concurs that planning and measuring results are important
components to ensuring that government resources are used effectively
to achieve agencies' goals. FAS' Strategic Plan identifies expanding
international market opportunities, which includes expanded foreign
market access, as a strategic goal. Among actionable strategies, FAS
pursues trade liberalization through multilateral trade negotiation
(MTN), monitors and enforces compliance with trade agreements to ensure
fair access, encourages the use of sound science, and coordinates trade
policy initiatives through partner organizations such as the various
USTR Trade Policy committees. Consistent with the Government
Performance Results Act, FAS is implementing country-specific
performance measures. FAS' China Task Force monitors China's compliance
with the Sanitary and Phytosanitary (SPS) Agreement. All USDA agencies
participate in this quarterly meeting.
The FAS Budget and Performance Integration Plan for FY 2004-2005 has as
its primary objective expanding foreign market access for U.S.
agricultural exporters. One of the actionable strategies to achieve
this is coordination of trade policy initiatives through partner
organizations such as the TPSC, in which FAS continues to play an
important role.
Opportunities to maximize human resource potential. Your report
recommends that greater emphasis be placed on training and retention of
China monitoring staff, due to the potential loss of institutional
memory related to staff departures or rotation away from the Asia &
Americas Division's (AAD) China Desk in FAS' International Trade Policy
(ITP) Program area. As conveyed to GAO officials during the exit
interview, a number of other FAS program areas (International
Cooperation and Development and Commodity and Marketing Programs) and
USDA agencies (the Agricultural Research Service, the Animal and Plant
Health Inspection Service (APHIS), the Food Safety and Inspection
Service (FSIS), and the Economic Research Service) devote staff
resources to dealing with China issues. FAS trade policy analysts in
AAD, as well as the Food Safety and Technical Services Division
(FSTSD), effectively coordinate across the agency and with their
counterparts in APHIS and FSIS on monitoring issues associated with the
MTN agricultural agreement. FSTSD devotes considerable resources to
monitoring SPS notifications, sharing China's notifications with all
USG regulatory agencies for comment, and coordinating actions in the
WTO SPS Committee.
Training is an important element for ongoing professional staff
development, and staff participates in monitoring-specific training
opportunities. An Asia program, which included FAS' Beijing staff, was
conducted in December 2003 in Bangkok, Thailand. Also FAS' China staff
participates in policy-related training and consultations annually
during the Washington-based Global Attache Conference. Although area-
specific knowledge is important and may be part of an analyst's
training program, agency-mandated individual development planning
tends to focus on broader trade-policy skills.
In closing, I again want to thank you for allowing us to comment on
this draft report. Please let us know if you would like to discuss our
comments further.
Sincerely,
Signed by:
A. Ellen Terpstra:
Administrator:
The following are GAO's comments on USDA's letter dated September 8,
2004.
GAO Comments:
1. Our report summarizes the various components of USDA and the other
key agencies' strategic and performance plans. We did not review the
forthcoming country-specific performance measures to which USDA refers;
we concur that the development and implementation of effective measures
that allow for more meaningful assessments of results would be a
positive step in improving USDA's performance management.
2. Our report acknowledges that many units within USDA play an
important role in the U.S. government's China-WTO compliance efforts,
and our earlier work on China-WTO compliance issues provides an
overview of the various intra-agency structures. We did not review
staff turnover in each of the units USDA listed, but we continue to
assert that relatively high planned and unplanned turnover in the units
we reviewed underscores the need for greater attention to staff
training. Lastly, we acknowledge that USDA has existing training
programs and makes opportunities available to its staff, but we
maintain that the agencies should undertake a more systematic approach
to ensure that staff further develop necessary job skills.
[End of section]
Appendix VIII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Adam Cowles (202) 512-9637 Matthew E. Helm (202) 512-7959:
Acknowledgments:
In addition to those named above, Jennifer Costello, Jane-yu Li, Jamie
McDonald, Valérie Nowak, Richard Seldin, and Kimberly Siegal made key
contributions to this report.
[End of section]
Related GAO Products:
World Trade Organization: U.S. Companies' Views on China's
Implementation of Its Commitments.
[Hyperlink, http://www.gao.gov/ cgi-bin/getrpt?GAO-04-508]
Washington, D.C.: March 24, 2004.
World Trade Organization: Ensuring China's Compliance Requires a
Sustained and Multifaceted Approach.
[Hyperlink, http://www.gao.gov/ cgi-bin/getrpt?GAO-04-172T]
Washington, D.C.: October 30, 2003.
GAO's Electronic Database of China's World Trade Organization
Commitments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-797R]
Washington, D.C.: June 13, 2003.
World Trade Organization: First-Year U.S. Efforts to Monitor China's
Compliance.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03- 461]
Washington, D.C.: March 31, 2003.
World Trade Organization: Analysis of China's Commitments to Other
Members.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-4]
Washington, D.C.: October 3, 2002.
World Trade Organization: Selected U.S. Company Views about China's
Membership.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02- 1056]
Washington, D.C.: September 23, 2002.
World Trade Organization: Observations on China's Rule of Law Reforms.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-812T]
Washington, D.C.: June 6, 2002.
(320194):
FOOTNOTES
[1] See related GAO products, p. 70.
[2] See USTR, 2002 Report to Congress on China's WTO Compliance
(Washington, D.C.: Dec. 11, 2002) and USTR, 2003 Report to Congress on
China's WTO Compliance (Washington, D.C.: Dec. 11, 2003).
[3] The WTO was established in 1995, and exists to facilitate the
implementation, administration, and operation of multiple agreements
that govern trade among its member governments. The WTO's dispute
settlement system also provides a forum for members to resolve
complaints regarding another members' noncompliance with WTO
commitments.
[4] See 19 U.S.C. § 2241(a)(1)(A)(i) and (a)(2)(c).
[5] For additional information on China's commitments see GAO, World
Trade Organization: Analysis of China's Commitments to Other Members,
GAO-03-4 (Washington, D.C.: Oct. 3, 2002).
[6] USTR notes that compliance does not always correspond to market
access and that rising exports to China should not necessarily be taken
as an indication of progress on WTO implementation.
[7] Mandated by legislation authorizing Permanent Normal Trade
Relations for China (Pub. L. 106-286, § 421, 114 Stat. 903).
[8] GAO, World Trade Organization: Selected U.S. Companies' Views about
China's Membership, GAO-02-1056 (Washington, D.C.: Sept. 23, 2002).
[9] USTR also identified transparency, an issue that crosscut several
categories, and trading rights and distribution as key areas of concern
in 2002 and 2003. Additionally, USTR identified China's value-added tax
policies as a key issue in 2003.
[10] Additionally, President Bush and China's President Hu Jintao
discussed U.S.-China trade issues at the Asia-Pacific Economic
Cooperation summit in Bangkok in October 2003. U.S.-China trade issues
were also part of the dialogue during China Premier Wen Jiabao's visit
to the United States in December 2003 and during Vice Premier Wu Yi's
visit to Washington in April 2004.
[11] The JCCT includes working groups covering trade and investment
issues, business development and industrial cooperation, commercial
law, intellectual property rights, structural issues and market economy
status, textiles, and statistics, as well as a side dialogue on export
controls.
[12] 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). Numerous subcommittees under the Trade Policy Staff
Committee have also been established to facilitate interagency
coordination on a variety of trade issues.
[13] Officials from the National Security Council declined to meet with
us to discuss their role.
[14] The General Council is composed of all WTO members and has
authority to adopt interpretations of the various WTO agreements. The
subsidiary bodies are described as councils or committees and are
generally organized according to the various trade subjects covered by
the WTO agreements.
[15] For further details on our analysis of the 2002 TRM see GAO, World
Trade Organization: First-Year U.S. Government Efforts to Monitor
China's Compliance, GAO-03-461 (Washington, D.C.: Mar. 9, 2003).
[16] Our analysis is based on our review of the documents submitted
through the WTO Secretariat in advance of the TRM meetings. USTR
officials noted that, generally, they circulated questions to the
Chinese delegation to the WTO a few days earlier than the actual dates
reflected on the WTO documents, but still fell short of their 4 to 6
week objective.
[17] In 2003, the European Union and Japan submitted questions to China
about 30 and 36 days, respectively, in advance of the various TRM
meetings.
[18] China's accession agreement states that China is to submit the
information annually, but provides no other guidance on the timing of
China's submissions for the TRM.
[19] Under the Trade Policy Review Mechanism, the four WTO members with
the largest shares of world trade are reviewed each 2 years, the next
16 are reviewed each 4 years, and others are reviewed each 6 years. A
longer period may be fixed for least-developed country members.
[20] The United States underwent a Trade Policy Review in 2003 and
received over 500 questions from other members--all of which the United
States was required to respond to in writing.
[21] Pub. L.103-62, 107 Stat. 285.
[22] See GAO, Results-Oriented Government: GPRA Has Established a Solid
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.:
Mar. 10, 2004).
[23] Mission Performance Plans are annual embassy plans describing
performance goals, objectives, and resources needed to execute those
goals and objectives. The strategies and objectives set forth in the
plans are linked to State's overall planning process.
[24] USTR's report includes similar statements for annual performance
indicators for other goals or as part of their performance verification
statements. USTR officials said that this reflected administration
policy, with regard to results management for trade negotiations and
monitoring and enforcement activities.
[25] Department of Commerce, Office of Inspections and Program
Evaluations, International Trade Administration: Trade Compliance
Efforts Need Improved Coordination, Final Inspection Report No. IPE-
14282 (Washington, D.C.: March 2002).
[26] Pub. L. 108-199, 118 Stat. 46, 64.
[27] The accompanying House Report (H.R. Rep. 108-221, at 63-73)
provides details on the committee's directions to the agencies
regarding changes and increases to agencies' China trade-related
offices.
[28] Our previous work describes high turnover rates in the U.S.
government's trade agencies, particularly at USTR and Commerce. We
noted that staff cited long hours, the intensity of work, and more
lucrative offers in the private sector as reasons for turnover. For
more information, see GAO, Human Capital: Major Human Capital
Challenges at SEC and Key Trade Agencies, GAO-02-662T (Washington,
D.C.: Apr. 23, 2002).
[29] See GAO, Foreign Languages: Human Capital Approach Needed to
Correct Staffing and Proficiency Shortfalls, GAO-02-375 (Washington,
D.C.: Jan. 31, 2002); GAO, State Department: Staffing Shortfalls and
Ineffective Assignment System Compromise Diplomatic Readiness at
Hardship Posts, GAO-02-626 (Washington, D.C.: June 18, 2002); GAO,
State Department: Targets for Hiring, Filling Vacancies Overseas Being
Met, but Gaps Remain in Hard-to-Learn Languages, GAO-04-139
(Washington, D.C.: Nov. 19, 2003).
[30] Following several of our reports on language shortfalls, State
took several steps to address the problems. For example, State
incorporated a measurable human capital goal in its 2004 performance
plan related to language skills and is also attempting to more
accurately measure posts' language needs through improved surveys of
language-training graduates and post leadership.
[31] GAO, World Trade Organization: Analysis of China's Commitments to
Other Members, GAO-03-4 (Washington, D.C.: Oct. 3, 2002).
[32] The General Council is composed of all WTO members and has
authority to adopt interpretations of the various WTO agreements. The
subsidiary bodies are described as councils or committees and are
generally organized according to the various trade subjects covered by
the WTO agreements.
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