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USTR Highlights Outstanding Concerns in Annual Report on Mainland China’s WTO Compliance

The United States is taking a more aggressive approach to ensure that mainland China, not the United States, bears the costs of its non-market economic system, according to a report from the Office of the U.S. Trade Representative. At the same time, the United States will encourage mainland China to make fundamental structural changes to its approach to the economy and trade.

USTR’s annual report on mainland China’s compliance with its World Trade Organisation accession commitments concludes that in recent years mainland China has moved further away from open, market-oriented policies and instead has more fully embraced a state-led, mercantilist approach to the economy and trade. Unfulfilled bi-lateral and multi-lateral commitments in this area include refraining from forcible technology transfer from U.S. companies; opening the electronic payment services market; and reviewing applications of agricultural biotechnology products in a timely, on-going and science-based manner. Mainland China has also continued to use export and import substitution subsidies in sectors such as automobiles, textiles, advanced materials, medical products and agriculture despite explicit prohibitions in WTO rules, and it has repeatedly deployed illegal export restraints (quotas, licencing, duties, etc.) on raw material inputs to provide cost advantages to downstream producers in the mainland at the expense of foreign producers.

Moreover, mainland China’s trade regime is ostensibly so opaque that it is difficult for U.S. companies and even the U.S. government to fully understand mainland Chinese requirements in a particular area of the economy. USTR believes this problem is exacerbated by Beijing’s “extremely poor record” of adhering to its transparency obligations as a WTO member.

However, the report states, current WTO rules and mechanisms are limited in their ability to address these challenges and recent proposals for WTO reform “seem only marginally focused on the China problem” because they do not directly address the serious threat that mainland China and its state-led mercantilist trade regime poses for individual WTO members and the broader multi-lateral trading system. As a result, strategies for “fixing the unique and very serious problems posed by China and its trade regime” must initially include “actions not currently set out in the WTO agreements.”

The report anticipates that such strategies will continue to be required until the United States and other WTO members “are able to successfully persuade China to make the needed fundamental changes to its trade regime.” The United States will seek to do so by utilising all available tools, the report states, including domestic trade remedies (e.g., the Section 301 additional tariffs), bi-lateral negotiations, WTO litigation and strategic engagement with like-minded trading partners.

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