On December 13, the Office of the US Trade Representative (USTR) posted to its website its 2005 report on China’s compliance with its WTO accession commitments. The report says that while China has made important progress in implementing specific commitments and in adhering to the ongoing obligations of a WTO member, there are still serious problems in some important areas, especially in the enforcement of intellectual property rights (IPR).
The report adds that many of the shortfalls in China’s WTO compliance efforts seem to stem from China’s incomplete transition from being a state-planned economy. Many US companies described achievement of the full market access and predictability and transparency in trade envisioned by China’s WTO accession agreement as “essential” and see Chinese government efforts to manage trade as the root cause of many of the problems they face. As one trade association expressed it, “we hope that China, under the auspices of its WTO obligations, continues its progress towards removing the state from the Chinese economy…[W]e believe the Chinese government must recognize that the market, left to its own devices, is the most effective vehicle for Chinese economic growth.” Another trade association emphasized that “without concrete, sustained, and visible progress, China’s political challenge in the United States will become more serious.”
USTR Rob Portman indicated recently that this report is different from the top-to-bottom review of US-China trade relations that he promised at his confirmation hearing before the Senate Finance Committee in April. That report is expected by the end of the year.
According to the report, the areas of particular concern to the US are as follows.
Intellectual Property Rights. China has done a relatively good job of overhauling its legal regime on intellectual property rights (IPR), but has been much less successful in enforcing its laws and regulations and ensuring effective IPR enforcement. Most members of US industry reported no significant reduction in IPR infringement levels in 2005, and counterfeiting and piracy in China remain at epidemic levels.
The United States took several aggressive steps in 2005 in an effort to obtain meaningful progress on this issue. First, it conducted an out-of-cycle review under the Special 301 provisions of US trade law, which involved a systematic evaluation of China’s entire IPR enforcement regime, supported by submissions from US manufacturers and businesses to document IPR infringement to the extent possible. At the conclusion of this review in April 2005, the Administration elevated China to the Special 301 Priority Watch List and set forth a comprehensive strategy for addressing China’s ineffective IPR enforcement regime, which included the possible use of WTO mechanisms.
Because lack of transparency on IPR infringement levels and enforcement activities in China has hampered the United States’ ability to assess the effectiveness of China’s efforts to improve IPR enforcement, it also submitted a request to China under Article 63.3 of the TRIPS Agreement in October. This request, made in conjunction with similar requests by Japan and Switzerland, seeks detailed information from China on its IPR enforcement efforts over the last four years. China’s response to these requests, anticipated in early 2006, will help the United States further evaluate whether China is taking all necessary steps to address the rampant IPR infringement found throughout China.
Agriculture. China’s WTO implementation in the agricultural sector is beset by uncertainty. As in past years, capricious practices by Chinese customs and quarantine officials can delay or halt shipments of agricultural products into China, while sanitary and phytosanitary standards with questionable scientific bases and a generally opaque regulatory regime frequently bedevil traders in agricultural commodities.
Agricultural trade with China remains among the least transparent and predictable of the world’s major markets. In 2006, the United States will continue to pursue vigorous bilateral engagement with China in order to obtain progress on its outstanding concerns, particularly with regard to China’s continuing ban on the importation of US beef products.
Distribution Services. China was scheduled to phase in two key WTO commitments by December 11, 2004 – the full liberalization of trading rights, or the right to import and export, and distribution services, including wholesaling services, commission agents’ services, retail services, franchising services, and related services. However, delay and confusion have characterized China’s efforts to implement its distribution services commitments, substantially hindering the ability of US and other foreign companies to begin engaging freely in the distribution of goods in China. It took several months and repeated US engagement for China to address many of the problems that arose in this critical area, and some problems still remain. In addition, China only issued regulations implementing its commitment to open its market for sales away from a fixed location (or direct sales) in September 2005, and these regulations contain several problematic provisions that the United States has urged China to reconsider.
Services. Overall, the United States continued to enjoy a substantial surplus in trade in services with China in 2005, and the market for US service providers in China remains promising. However, in some sectors the expectations of the United States and other WTO members when agreeing to China’s commitments to increase market access and remove restrictions have not been fully realized. Chinese regulatory authorities continue to frustrate efforts by US providers of insurance, telecommunications, construction and engineering, and other services to achieve their full market potential in China through the use of an opaque regulatory process, overly burdensome licensing and operating requirements, and other means. China has followed through on a commitment to resume a dialogue on insurance issues and is also moving forward with a promised dialogue on telecommunications issues.
Industrial Policies. Since acceding to the WTO, China has increasingly resorted to policies that limit market access by non-Chinese origin goods and/or bring substantial government resources to support increased exports. The objective of these policies seems to be to support the development of Chinese industries that are higher up the economic value chain than the industries that make up China’s current labor-intensive base, or simply to protect less-competitive domestic industries. Some of these policies appear to conflict with China’s WTO commitments in the areas of market access, national treatment, and technology transfer.
Transparency. While China’s transparency commitments in many ways require a profound historical shift, China has made important strides to improve transparency across a wide range of national and provincial authorities. China’s Ministry of Commerce (MOFCOM) remains most notable for its impressive moves toward adopting WTO transparency norms. However, many other ministries and agencies continue to resist the changes called for by China’s WTO obligations. As a result, many of China’s regulatory regimes continue to suffer from systemic opacity, frustrating efforts of foreign and domestic businesses to achieve the potential benefits of China’s WTO accession.
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