Annual Report on China WTO Compliance Shows Mixed Results

By Susan Krause
Washington File Staff Writer

Washington - Four years after it signed an accession agreement with the World Trade Organization (WTO), China is continuing to make progress in meeting its membership commitments, but serious problems remain in significant areas such as intellectual property rights enforcement, according to a report from the Office of the United States Trade Representative (USTR).

USTR released its 2005 Report to Congress on China's WTO Compliance on December 12, as mandated under Section 421 of the U.S.-China Relations Act of 2000 (Public Law 106-286). 

The report - the fourth of its kind since China acceded to the WTO in December 2001 - examines nine categories of WTO commitments undertaken by China.  It analyzes the trade concerns of interested parties in the United States that, according to the U.S. government, deserve attention "within the WTO context."   

With most of China's major commitments scheduled for completion by December 2004, the report says, 2005 offered the first opportunity to assess China's performance "as a WTO member with its full range of commitments in place." 

Implementation is still incomplete, the report says. 

"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)."

USTR suggests that many of these problems reflect China's "incomplete transition" from state-run central planning to a market-based economy.  

"China has not yet fully embraced the key WTO principles of market access, non-discrimination and national treatment, nor has China fully institutionalized market mechanisms and made its trade regime predictable and transparent," the report says, adding that China continues to employ industrial policies that "promote or protect favored sectors and industries."   

The U.S. government had expected that a high-level bilateral initiative launched in December 2003, the Joint Commission on Commerce and Trade (JCCT), would hasten China's progress in meeting its WTO commitments and facilitate the resolution of stubborn disputes.  The initiative showed promise in April 2004, when senior officials from the two countries were able to resolve several potential disputes over compliance issues.  (See related article.)

But according to the report, "[I]n 2005, old problems like ineffective IPR enforcement persisted and new problems in areas like distribution services began to emerge." 

A July meeting of the JCCT, chaired by USTR Rob Portman and Commerce Secretary Carlos Gutierrez on the U.S. side and Vice Premier Wu Yi on the Chinese side, resulted in some progress but did not produce the dramatic results seen in the previous year.  (See related article.)

In written comments and testimony at a public hearing in September, the USTR report said, representatives of U.S. business criticized Chinese government efforts to manage trade and restrict market access.

The USTR report cited intellectual property rights, trading rights and distribution services, industrial policies, services, and agriculture as “areas of particular concern” to the United States and U.S. industry most in need of improved WTO compliance efforts.


Despite the Chinese government's efforts to implement legal reforms in accordance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), enforcement remains a serious problem, according to USTR.  Most U.S. businesses saw no reduction in infringements of intellectual property rights in 2005, the report said, and counterfeiting and piracy remain at "epidemic levels." 

The Bush administration has responded with measures authorized under the "Special 301" provisions of U.S. trade law, which require USTR to identify countries that deny adequate protection for intellectual property rights.  The U.S. government also submitted a request in October for information on China's enforcement efforts under Article 63.3 of the WTO TRIPS Agreement. (See related article.)  


Although China met its WTO commitment to liberalize trading rights - the right to import and export - ahead of schedule, the actual implementation has suffered from "delay and confusion," the report says.  Despite repeated U.S. efforts to engage China on the issue, response has been slow and problems remain. 

According to the USTR report, "China only issued the regulations implementing its commitment to open its market for sales away from a fixed location, also known as 'direct selling,' in September 2005, and these regulations contain several problematic provisions that the United States has asked China to reconsider."

Using local content regulations, royalty payments, unique national standards for high-technology products and restrictive government procurement rules, USTR says China increasingly has tried to limit market access through protective industrial policies.

"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," the report says.

At the July JCCT meeting, the United States and China were able to resolve some U.S. concerns about draft regulations regarding government software procurement.  But disputes remain in areas such as the auto parts and steel industries.

The United States has maintained a surplus in trade in services with China.  But U.S. service providers in sectors such as insurance, telecommunications, and construction and engineering continue to face limitations on market access caused by "an opaque regulatory process, overly burdensome licensing and operating requirements, and other means," the report says. 

U.S. exports of agricultural commodities have increased sharply, and China is now the fourth largest agricultural export market for the United States, according to USTR.  But U.S. exporters face a Chinese market "beset by uncertainty" because of "capricious" and "opaque" regulatory practices by customs and quarantine officials and sanitary and phytosanitary standards with "questionable scientific bases." 

The report (PDF, 101 pages) is available on the USTR Web site.

For additional information on U.S. policy, The United States and China.