U.S.-China Trade
Observations on Ensuring China's Compliance with World Trade Organization Commitments Gao ID: GAO-05-295T February 4, 2005U.S. government efforts to ensure China's compliance with its World Trade Organization (WTO) commitments require a sustained and multifaceted approach. To provide Congress with an update on these issues, GAO (1) discussed the key findings, conclusions, and recommendations from our recently issued work on China-WTO issues and (2) updated the Commission on a number of ongoing GAO reviews on China trade and economic issues. The observations are based on a series of reports initiated at the bipartisan request of various congressional committees. That work has included an analysis of China's commitments, surveys and interviews with private sector representatives, and the results of two annual assessments of the U.S. government's compliance efforts. Additionally, our work on China- WTO issues included fieldwork in Washington, D.C., China, and at the WTO headquarters in Geneva, Switzerland.
The complexity, breadth, and ongoing nature of many of the problems with China's WTO compliance demonstrate the need for a cohesive and sustained effort from the key U.S. agencies to effectively monitor and enforce China's implementation of its commitments. The U.S. Trade Representative (USTR), and the Departments of Commerce, State, and Agriculture (USDA) have coordinated on policy issues and increased staff resources to enhance their capacity to carry out these efforts. However, there are three areas in which we noted that these key agencies should take steps to improve their efforts and maximize the effectiveness of the resources allocated to the task of securing the benefits of China's membership in the WTO. First, although U.S. government efforts to ensure China's compliance emphasize high-level bilateral engagement, we recommended that USTR take steps to maximize the potential benefits of the WTO's annual multilateral review of China's compliance, referred to as the Transitional Review Mechanism (TRM). Second, to more effectively plan and measure results, we recommended that each of the key agencies improve performance management of their China-WTO compliance efforts. Third, we recommended that, in an environment of high and regular staff turnover, the key agencies should direct additional management attention to ensuring that staff have an opportunity to acquire training relevant to their China-WTO compliance responsibilities.
GAO-05-295T, U.S.-China Trade: Observations on Ensuring China's Compliance with World Trade Organization Commitments
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Testimony:
Before the U.S.-China Economic and Security Review Commission:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:00 a.m. EST:
Friday, February 4, 2005:
U.S.-China Trade:
Observations on Ensuring China's Compliance with World Trade
Organization Commitments:
Statement of Loren Yager, Director, International Affairs and Trade:
GAO-05-295T:
Mr. Chairman and Members of the Commission:
I am pleased to be here today to discuss issues related to China's
compliance with its World Trade Organization (WTO) commitments. This
hearing takes place not only at a time of increasing trade between the
United States and China, but also amidst a period of ongoing concern
about the U.S. trade deficit with China and about China's adherence to
its WTO commitments. As we have noted in our previous work, U.S.
government efforts to ensure China's compliance with these complex and
far-reaching commitments require a sustained and multifaceted approach.
To that end, we have recently put forth a number of recommendations to
the key executive branch agencies regarding ways to improve the U.S.
government's monitoring and enforcement activities.
To provide you with an update on these issues, I will (1) discuss the
key findings, conclusions, and recommendations from our recently issued
work on China-WTO issues[Footnote 1] and (2) update the Commission on a
number of ongoing GAO reviews on China trade and economic issues. My
observations are based on a series of reports initiated at the
bipartisan request of various congressional committees. That work has
included an analysis of China's commitments, surveys and interviews
with private sector representatives, and the results of two annual
assessments of the U.S. government's compliance efforts.[Footnote 2]
Additionally, our work on China-WTO issues included fieldwork in
Washington, D.C., China, and at the WTO headquarters in Geneva,
Switzerland. Before I turn to the specifics on these issues, I will
provide a brief summary.
Summary:
The complexity, breadth, and ongoing nature of many of the problems
with China's WTO compliance demonstrate the need for a cohesive and
sustained effort from the key U.S. agencies to effectively monitor and
enforce China's implementation of its commitments. The U.S. Trade
Representative (USTR), and the Departments of Commerce, State, and
Agriculture (USDA) have coordinated on policy issues and increased
staff resources to enhance their capacity to carry out these efforts.
However, there are three areas in which we noted that these key
agencies should take steps to improve their efforts and maximize the
effectiveness of the resources allocated to the task of securing the
benefits of China's membership in the WTO. First, although U.S.
government efforts to ensure China's compliance emphasize high-level
bilateral engagement, we recommended that USTR take steps to maximize
the potential benefits of the WTO's annual multilateral review of
China's compliance, referred to as the Transitional Review Mechanism
(TRM). Second, to more effectively plan and measure results, we
recommended that each of the key agencies improve performance
management of their China-WTO compliance efforts. Third, we recommended
that, in an environment of high and regular staff turnover, the key
agencies should direct additional management attention to ensuring that
staff have an opportunity to acquire training relevant to their China-
WTO compliance responsibilities.
Given the strong congressional interest in China's role in the world
economy, we have both issued and ongoing work related to various
aspects of the U.S.-China economic and trade relationship. For example,
GAO recently completed reports on U.S. efforts to protect intellectual
property overseas, offshoring, and textile transshipment.
Additionally, our ongoing work on the U.S. application of trade
remedies against China and our review and analysis of how the
Department of the Treasury makes its currency manipulation
determinations may be of specific interest to the commission as it
carries out its mandate.
Background:
China became the 143rd member of the WTO on December 11, 2001, after
almost 15 years of negotiations. These negotiations resulted in China's
commitments to open and liberalize its economy and offer a more
predictable environment for trade and foreign investment in accordance
with WTO rules. The United States and other WTO members have stated
that China's membership in the WTO provides increased opportunities for
foreign companies seeking access to China's vast market. The United
States is one of the largest sources of foreign investment in China,
and total merchandise trade between China and the United States was
projected to exceed $234 billion in 2004, according to U.S. trade data.
However, the United States still maintains a $158 billion trade deficit
with China: imports from China were estimated to total more than $196
billion, while exports were estimated to be about $38 billion in 2004.
The U.S. government's efforts to ensure China's compliance with its WTO
commitments are part of an overall U.S. structure to monitor and
enforce foreign governments' compliance with existing trade
agreements.[Footnote 3] At least 17 federal agencies, led by USTR, are
involved in these overall monitoring and enforcement activities. USTR,
USDA, and the Departments of Commerce and State have relatively broad
roles and primary responsibilities regarding trade agreement monitoring
and enforcement. Other agencies, such as the Departments of the
Treasury and Labor, play more specialized roles. Federal monitoring and
enforcement efforts are coordinated through an interagency mechanism
comprising several management-and staff-level committees and
subcommittees. The congressional structure for funding and overseeing
federal monitoring and enforcement activities is similarly complex,
because it involves multiple committees of jurisdiction. Congressional
agencies, including GAO, and independent commissions such as the U.S.-
China Economic and Security Review Commission also support Congress's
oversight on China-WTO trade issues. In addition to the executive
branch and congressional structures, multiple private sector advisory
committees exist to provide federal agencies with policy and technical
advice on trade matters, including trade agreement monitoring and
enforcement.
Recommendations to Improve the U.S. Government's Efforts to Ensure
China's Compliance with its WTO Commitments:
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 China's problems complying with its obligations
demonstrates the need for the U.S. government to have a well-
coordinated, sustained effort to ensure China's compliance. To that
end, we have recommended that the key agencies involved in this effort
take steps to maximize the potential of the WTO's annual review of
China's compliance, improve performance management, and ensure that
staff have adequate opportunity to acquire the training necessary to
carry out their responsibilities.
Problems with China's WTO Compliance Are Broad in Scope, Complex, and
Ongoing:
China's WTO obligations span eight broad areas and include hundreds of
individual commitments on how China's trade regime is to adhere to the
WTO's agreements, principles, and rules and allow greater market access
for foreign goods and services. Some of these commitments are
relatively simple and require specific actions from China, such as
reporting information to the WTO or lowering tariffs. Other
commitments, however, are significantly more complex and relate to
systemic changes in China's trade regime. For example, some commitments
require China to adhere to WTO principles of nondiscrimination in the
treatment of foreign and domestic enterprises. China has successfully
implemented many of its WTO commitments, but a significant number of
problems arose in the first years of China's membership. Problems
implementing these obligations spanned all areas in which China had
made commitments. Importantly, many of these compliance problems have
persisted from year to year, and many concerns relate to China's
inability thus far to make some of the systemic changes that its WTO
commitments require. For example, USTR's most recent report on China's
WTO compliance cites continuing problems with lack of transparency and
protection of intellectual property.
U.S. Government Should Take Steps to Maximize the Potential of WTO
Annual Review of China's Compliance:
We also found that, while the U.S. monitoring and enforcement
activities 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 and that
participation has declined. 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, the TRM can continue to provide an
important avenue to pursue U.S. trade interests, even with a continued
U.S. emphasis on bilateral and other multilateral engagement outside of
the TRM.
To improve multilateral engagement with China on WTO compliance issues,
we recommended that USTR take steps to maximize the potential benefits
of the 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.
Key Agencies Need to Improve Performance Management of China Compliance
Efforts:
We found weaknesses in the key agencies' ability to assess the
effectiveness of their China-WTO compliance efforts and determined that
agencies would benefit from increased emphasis on planning and
performance management. The Government Performance and Results Act and
our substantial body of work on planning emphasize 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 quantify and measure
results annually.
We recommended that USTR and the Secretaries of Commerce, State, and
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 its
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 the 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.
Key Agencies Should Take Steps to Improve Training Opportunities:
We found that the key agencies have opportunities to better manage
their human capital involved in 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 formal training is not available to help
them with their day-to-day activities, and when staffing gaps prevent
them from learning from their more-experienced predecessors. Increased
management attention to providing an adequate mix of on-the-job
training and formal training can help ensure that new employees have
the necessary tools for doing their jobs well.
We recommended 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 time
lines for existing and new staff to receive training.
Other GAO Work on China-Related Trade and Economic Issues:
Given China's increasingly important role in the global economy, we
have both issued[Footnote 4] and ongoing[Footnote 5] work relating to
several aspects of the U.S.-China trade and economic relationship. The
following list provides a brief description of selected studies
relevant to the U.S.-China Economic and Security Review Commission's
focus:
* Intellectual property rights (issued): We recently issued a report
examining U.S. efforts to protect intellectual property overseas. The
report included a country case study on China, which described the
state of intellectual property protection in China and the U.S.
government's actions to address problems there.
* Textile transshipment (issued): We reviewed the U.S. Customs and
Border Protection's system for identifying and preventing illegal
textile transshipments. We made several recommendations on ways to
improve the U.S. government's monitoring and enforcement efforts.
* Offshoring (issued; ongoing): In this report, we found that current
government data provide limited insight into the offshoring of
services. We are continuing work on this complex issue to examine
various aspects of U.S. trade policy and experience in the offshoring
of manufacturing and services.
* Import relief mechanisms (ongoing): We expect that this ongoing work
will result in a series of reports on relief mechanisms available to
U.S. producers who are adversely affected by unfair or surging imports
and the manner in which these remedies have been applied to China.
These reports will cover the China-specific textile safeguard,
methodologies for applying countervailing and antidumping duties, and
product-specific safeguard measures authorized under section 421 of the
Trade Act of 1974, as amended.
* Currency exchange rates (ongoing): As part of an ongoing review, we
expect to issue a report examining how the Department of the Treasury
makes its currency manipulation determinations (particularly for China
and Japan) and the extent to which Treasury met its Trade Act of 1988
reporting requirements.
* Continued Dumping and Subsidy Offset Act (ongoing): As part of an
ongoing review, we expect to issue a report on how U.S. agencies have
implemented the act (also referred to as the Byrd Amendment) and the
effects of the act on U.S. companies.
Mr. Chairman and Members of this Commission, this concludes my prepared
statement. I would be happy to answer any questions that you may have
on my testimony.
Contacts and Acknowledgments:
For further information regarding this testimony, please contact Adam
Cowles at (202) 512-9637. Matthew Helm and Richard Seldin also made key
contributions to this testimony.
[End of section]
Related GAO Products:
U.S.-China Trade: Summary of 2003 World Trade Organization Transitional
Review Mechanism for China. GAO-05-209R. Washington, D.C.: January 25,
2005.
U.S.-China Trade: Opportunities to Improve U.S. Government Efforts to
Ensure China's Compliance with World Trade Organization Commitments.
GAO-05-53. Washington, D.C.: October 6, 2004.
International Trade: Current Government Data Provide Limited Insight
into Offshoring of Services. GAO-04-932. Washington, D.C.: September
22, 2004.
Intellectual Property: U.S. Efforts Have Contributed to Strengthened
Laws Overseas, but Challenges Remain. GAO-04-912. Washington, D.C.:
September 8, 2004.
World Trade Organization: U.S. Companies' Views on China's
Implementation of Its Commitments. GAO-04-508. Washington, D.C.: March
24, 2004.
International Trade: U.S. Customs and Border Protection Faces
Challenges in Addressing Illegal Textile Transshipment. GAO-04-345.
Washington, D.C.: January 23, 2004.
World Trade Organization: Ensuring China's Compliance Requires a
Sustained and Multifaceted Approach. GAO-04-172T. Washington, D.C.:
October 30, 2003.
GAO's Electronic Database of China's World Trade Organization
Commitments. GAO-03-797R. Washington, D.C.: June 13, 2003.
World Trade Organization: First-Year U.S. Efforts to Monitor China's
Compliance.GAO-03-461. Washington, D.C.: March 31, 2003.
World Trade Organization: Analysis of China's Commitments to Other
Members. GAO-03-4. Washington, D.C.: October 3, 2002.
World Trade Organization: Selected U.S. Company Views about China's
Membership. GAO-02-1056. Washington, D.C.: September 23, 2002.
World Trade Organization: Observations on China's Rule of Law Reforms.
GAO-02-812T. Washington, D.C.: June 6, 2002.
FOOTNOTES
[1] See GAO, U.S.-China Trade: Opportunities to Improve U.S. government
Efforts to Ensure China's Compliance with World Trade Organization
Commitments, GAO-05-53 (Washington, D.C.: Oct. 6, 2004).
[2] See Related GAO Products.
[3] For more information on the overall roles and responsibilities of
U.S. government agencies in monitoring and enforcing trade agreements,
see U.S. General Accounting Office, International Trade: Strategy
Needed to Better Monitor and Enforce Trade Agreements, GAO/NSIAD-00-76
(Washington, D.C.: Mar. 14, 2000).
[4] Please see Related GAO Products for additional information on
previously issued GAO products.
[5] Our agreement with congressional requesters requires that we limit
discussion of ongoing work to descriptions of key questions,
methodology, and reporting timelines.
