*EPF403 12/12/2002
Excerpt: USTR Reports to Congress on China's WTO Compliance
(Executive Summary from 2002 report) (1740)

China has made "significant progress" in fulfilling its obligations as a new member of the World Trade Organization (WTO), "although much is left to do," according to a report by the United States Trade Representative (USTR) to the Congress.

In its 2002 Report to Congress on China's WTO Compliance, released December 11, the USTR said that Beijing has concentrated its efforts on improving its framework of laws and regulations governing trade in goods and services, at both the central government level and that of local authorities.

The executive summary of the report said the Chinese government "embarked on an extensive campaign to teach central and local government officials and state-owned enterprise managers about both the requirements and the benefits of WTO membership, with the goal of facilitating China's WTO compliance."

The report said that compliance problems often stem from "a lack of effective or uniform application of China's WTO commitments at local and provincial levels."

On the specific issue of transparency, the USTR found Beijing's "overall effort to be plagued by uncertainty and a lack of uniformity." The United States, it added, "is committed to seeking improvements in China's efforts in this area."

The report cited three other WTO-commitment areas where the USTR found "significant problems" that "warrant continued U.S. scrutiny -- agriculture, intellectual property rights and services."

The area of agricultural imports, the report said, "proved to be especially contentious between the United States and China."

Despite compliance problems in China's first year as a member of the WTO, the report said, most U.S. private sector representatives said they remain "enthusiastic" about the actual benefits to American industry resulting from China's WTO membership, and potential benefits to be realized as China progresses in meeting its WTO obligations.

In the executive summary of the report, the USTR said the United States, along with fellow WTO members, would use "all means at its disposal to ensure that China achieves full implementation" of that nation's obligations as a member of the WTO.

The full text of the USTR report can be found on line at: http://www.ustr.gov/regions/china-hk-mongolia-taiwan/2002-12-11-China_WTO_compliance_report.PDF

Following is the text of the executive summary of the USTR report:

(begin excerpt)

EXECUTIVE SUMMARY

For much of the past two decades, China had been gradually transitioning toward a market economy from what in the late 1970's was a strict command economy. In acceding to the WTO, China was required by the United States and other WTO members to agree to accelerate this process of market reform in order to comply with WTO requirements. Accordingly, China's WTO accession agreement embodies a set of extensive and far-reaching commitments on the part of China to change its trade regime, at all levels of government. Given the breadth and complexity of these commitments, assessing China's WTO compliance efforts is not a simple task.

Overall, during the first year of its WTO membership, China made significant progress in implementing its WTO commitments, although much is left to do. Progress was made both in making many of the required systemic changes and in implementing specific commitments. At the same time, serious concerns arose in some areas, where implementation had not yet occurred or was inadequate. As expected, the principal focus of China's first year of WTO membership was on its framework of laws and regulations governing trade in goods and services, at both the central and local levels.

China's trade ministry, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), reports that the central government has reviewed more than 2,500 trade-related laws and regulations for WTO consistency. By mid-2002, it had reportedly repealed 830 of these laws and regulations and amended 325 more. It had also reportedly drafted and adopted 118 new laws and regulations. Similar reviews are taking place at the local level, although the local governments are generally not as far along in their review process, in part because of the need to give effect to changes made by the central government. At the same time, some localities, particularly those in China's eastern provinces, are much further along in their review process than others. Beginning early in 2002, China also devoted considerable resources to the restructuring of the various government ministries and agencies with a role in overseeing trade in goods and services.

Some of these changes were mandated by China's accession agreement, while others were undertaken by China to facilitate its compliance with WTO rules. Another significant focus for China during the past year involved education and training. China embarked on an extensive campaign to teach central and local government officials and state-owned enterprise managers about both the requirements and the benefits of WTO membership, with the goal of facilitating China's WTO compliance. The United States and other WTO members, along with many private sector groups, contributed substantial technical assistance and capacity building resources to this effort.

As a general matter, China took positive steps to implement many of its specific WTO commitments during the past year. It made required tariff reductions, notably for information technology products, chemicals, autos and auto parts, wood and paper products, and many agricultural goods, including beef, dairy products and citrus, among others. When discrepancies between committed and implemented rates were reported, China usually made necessary adjustments. China also began the process of removing numerous non-tariff trade barriers that had affected a range of industries, from chemicals to scientific equipment, and it continued to improve its standards regime. For the most part, these steps were managed without serious incident, and market access for U.S. products in the affected sectors has generally improved. In addition, although not without problems, China took the necessary legal steps to allow for increased market access for foreign service suppliers in a variety of sectors, including financial services, telecommunications, audio-visual services, tourism and travel-related services, constructions and engineering services, educational services and environmental services.

While the efforts of China's leadership to implement China's WTO commitments should be recognized, the Administration also found a number of causes for serious concern during China's first year of WTO membership. One area of cross-cutting concern involved transparency. In particular, China implemented its commitment to greater transparency in the adoption and operation of new laws and regulations unevenly at best. While some ministries and agencies did take steps to improve opportunities for public comment on draft laws and regulations, and to provide appropriate WTO enquiry points, the Administration found China's overall effort to be plagued by uncertainty and a lack of uniformity. The Administration is committed to seeking improvements in China's efforts in this area.

Apart from this systemic concern, three other areas generated significant problems and warrant continued U.S. scrutiny - agriculture, intellectual property rights and services. The area of agriculture proved to be especially contentious between the United States and China.

While concerns over market access for U.S. agriculture products are not unique to China, particularly serious problems were encountered on many fronts, including China's regulation of agricultural goods made with biotechnology, the administration of China's tariff-rate quota (TRQ) system for bulk agricultural commodities, the application of sanitary and phytosanitary measures and inspection requirements. The United States and China were able to make progress toward resolving some of these problems, particularly with regard to biotechnology. Other problems remain unresolved, however, with the most troublesome being China's inadequate implementation of its TRQ commitments.

In the area of intellectual property rights (IPR), China did make significant improvements to its framework of laws and regulations. However, the lack of effective IPR enforcement remained a major challenge. If significant improvements are to be achieved on this front, China will have to devote considerable resources and political will to this problem, and there will continue to be a need for sustained efforts from the United States and other WTO members.

Meanwhile, concerns arose in many services sectors due to transparency problems and China's use of prudential requirements that exceeded international norms. In addition, Chinese regulators imposed particularly problematic restrictions in the insurance sector, where transparency issues, excessive capitalization requirements and restrictions on branching combined to present unique difficulties, and in the express delivery sector, where existing rights were placed in jeopardy. Nevertheless, progress was made in 2002 toward resolving the concerns associated with these two sectors.

China's compliance problems are occasionally generated by a lack of coordination among relevant ministries in the Chinese government. Another source of compliance problems has been a lack of effective or uniform application of China's WTO commitments at local and provincial levels.

China is taking steps to address both of these concerns, through more effective inter-ministerial mechanisms at the national level, and through a more concerted effort to reinforce the importance of WTO-consistency with sub-national authorities. In other cases, however, compliance problems involve entrenched domestic Chinese interests that may be seeking to minimize their exposure to foreign competition, circumstances that, as one private sector representative submitted, require "particular vigilance by the U.S. government and the American private sector."

When confronted with compliance problems in 2002, the Administration used all available and appropriate means to obtain China's full compliance, including intervention at the highest levels of government. The Administration worked closely with the affected U.S. industries on compliance concerns, and utilized bilateral channels through multiple agencies, at all levels, to press these concerns. The Administration also initiated a regular dialogue on compliance issues between USTR and China's lead trade agency, MOFTEC, with the goal of bringing all involved Chinese ministries and agencies together when the resolution of particular problems warrants it.

Where possible, the Administration also multilateralized its enforcement efforts, by working with like-minded WTO members on an ad hoc basis, whenever particular issues have had an adverse impact beyond the United States.

Despite the compliance problems that arose over the course of the past year, most private sector representatives remain enthusiastic about the actual and potential benefits for U.S. industry from China's WTO membership. As one witness at the September 18, 2002 hearing testified: [W]e all recognize that this is a process that will take time, and patience. The institutional, legal, and regulatory changes demanded of the Chinese are extraordinary, reaching in most corners of their economy, and complicated further by a highly decentralized administrative structure covering a vast, diverse country.

At the same time, the private sector wants to see China comply fully with its WTO commitments, as does the Administration. As one representative made clear, "we all believe that full implementation of the letter and spirit of [China's] WTO commitments is essential." The United States, working with fellow WTO members, will use all means at its disposal to ensure that China achieves full implementation.

(end excerpt)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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