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

The Office of the U.S. Trade Representative issued in January its latest report to Congress on mainland China’s compliance with its World Trade Organisation obligations, including both multi-lateral commitments and any bi-lateral commitments made specifically to the United States.  The report finds that since mainland China joined the WTO in December 2001 there has been a dramatic expansion in trade and investment among the mainland and its trading partners, including the United States. In 2015 U.S. exports of goods to mainland China totalled US$116 billion, up 505 percent since 2001, while U.S. services exports to the mainland reached US$48 billion, an increase of 802 percent. Services supplied through majority U.S.-invested companies in mainland China also have been increasing dramatically, totalling an additional US$43 billion in 2013, the latest year for which data is available.

Nevertheless, a wide range of mainland Chinese policies and practices continued to generate significant concerns among U.S. stakeholders in 2016, many of which can arguably be traced to the mainland Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in mainland China’s economy. USTR notes that while mainland China’s current leadership has highlighted the need to pursue further economic reform, not much progress is evident to date. U.S. authorities still believe that if pursued appropriately a concerted reform effort offers the potential for addressing the problems brought on by a state-led economy and helping to realise the tremendous potential of the U.S.-China trade and investment relationship.

In 2016, as in past years, when trade frictions arose Washington pursued bi-lateral dialogue with Beijing to resolve them. However, when dialogue has not led to the resolution of key trade issues the United States has not hesitated to invoke the WTO’s dispute settlement mechanism. Since mainland China’s accession to the WTO the United States has brought approximately 21 WTO cases against the mainland, more than twice as many cases as any other WTO member. Launched on 12 January, the most recent case involves allegations that Beijing provides illegal subsidies to certain producers of primary aluminium. According to USTR, mainland China ostensibly provides such subsidies through artificially cheap loans from banks as well as artificially low-priced inputs for aluminium production, such as coal, electricity and alumina. The United States argues that these subsidies have led to a chronic state of overcapacity that has in turn resulted in price-related and other harmful effects on a global basis.

USTR indicates that major areas of concern in the bi-lateral relationship continue to include serious problems with intellectual property rights enforcement in the mainland, including in the area of trade secrets; the mainland Chinese government’s prolific use of industrial policies favouring SOEs and domestic national champions, including “secure and controllable” information and communications technology policies, export restraints, subsidies, unique national standards and investment restrictions, among other policies; troubling agricultural policies that block U.S. market access; numerous continuing restrictions on services market access; and inadequate transparency. Additionally, Beijing’s slow movement toward accession to the WTO Government Procurement Agreement further hinders the development of the bi-lateral trade relationship.  

Looking ahead, the United States would like mainland China to reduce market access barriers, uniformly follow the fundamental principles of non-discrimination and transparency, significantly reduce the level of government intervention in the economy, fully institutionalise market mechanisms, require SOEs to compete with other enterprises on fair and non-discriminatory terms and fully embrace the rule of law. Specific issues that the United States is likely to pay attention to in the coming months include the following.

  • reports that actors affiliated with the mainland Chinese government and the mainland Chinese military have infiltrated the computer systems of U.S. companies and stolen terabytes of data for the purpose of providing commercial advantages to mainland Chinese enterprises
  • the continuing registration of trademarks in bad faith
  • ineffective enforcement against infringement of pharmaceutical patents, a backlogged drug regulatory approval system, and insufficient regulation of the manufacture of active pharmaceutical ingredients
  • measures with an apparent long-term goal of replacing foreign ICT products and services
  • export restraints, including export quotas, export licencing, minimum export prices, export duties and other restrictions on a number of raw material inputs where mainland China holds the leverage of being among the world’s leading producers
  • substantial subsidies provided to mainland Chinese industries, some of which appear to be prohibited under WTO rules
  • massive excess capacity in manufacturing industries like steel and aluminium
  • policies designed to assist mainland Chinese automobile enterprises in developing electric vehicle technologies and building domestic brands that can succeed in global markets
  • a ban on imports of remanufactured products and restrictions that prevent imports of remanufacturing process inputs
  • a restrictive investment regime that includes lack of substantial liberalisation, a case-by-case administrative approval system, and the potential for a new and overly broad national security review
  • retaliatory antidumping and countervailing duties that lack legal and factual support
  • discriminatory regulatory processes, informal bans on entry and expansion, overly burdensome licencing and operating requirements, and other means that frustrate the efforts of U.S. suppliers of services
  • unwarranted restrictions on foreign companies that supply electronic payment services to banks and other businesses that issue or accept credit and debit cards
  • overly burdensome regulatory approaches to awarding foreign companies business permits for access to the package segment of mainland China’s domestic express delivery market
  • uneven enforcement of regulations and selective intervention in agricultural markets by mainland Chinese authorities
  • incomplete publication of trade-related laws, regulations and other measures in a single official journal

President-elect Trump is expected to intensify the United States’ already robust focus on trade enforcement, including with respect to mainland China, and that prospect is backed by several recent developments. In addition to repeatedly pledging a renewed effort on trade enforcement, Trump’s transition team has indicated that a new National Trade Council will be created to “advise the President on innovative strategies in trade negotiations, coordinate with other agencies to assess U.S. manufacturing capabilities and the defense industrial base, and help match unemployed American workers with new opportunities in the skilled manufacturing sector.” The NTC will also lead the Buy America, Hire America programme and work with the National Security Council, the National Economic Council, and the Domestic Policy Council to think “strategically about the health of America's defense industrial base and the role of trade and manufacturing in national security.”

Trump’s choice to lead the NTC is Peter Navarro, an economics professor at the University of California Irvine who co-authored an economic blueprint for Trump along with Wilbur Ross, the billionaire businessman tapped to lead the U.S. Department of Commerce. A news release from the transition team said that in this role Navarro “will develop trade policies that shrink our trade deficit, expand our growth, and help stop the exodus of jobs from our shores.”

Meanwhile, Robert Lighthizer has been tapped to serve as U.S. trade representative. A statement from Trump’s transition team said that in this role Lighthizer, a long-time trade attorney who served as deputy USTR under President Ronald Reagan, will work to “develop and implement policies that shrink our trade deficit, expand economic growth, strengthen our manufacturing base and help stop the exodus of jobs from our shores.”

The statement said that Lighthizer will be part of an effort to secure “good trade deals that put the American worker first” and emphasised his “extensive experience” in the legislative branch, the executive branch and the private sector. Under Reagan, Lighthizer played “a major role” in “negotiating roughly two dozen bilateral international agreements” that “frequently resulted in significant reductions in the shipment of unfairly traded imports into the United States.” He also served as chief of staff on the Senate Finance Committee “when Congress passed the Reagan program of tax cuts and spending reductions,” aided in the passage of legislation that implemented the Tokyo Round of trade negotiations, and represented the United States at meetings of the Organisation for Economic Co-operation and Development and meetings related to the General Agreement on Tariffs and Trade (the precursor to the WTO). In private practice, Lighthizer has “represented American manufacturers in many of the largest and most significant trade cases of the last 25 years,” helping secure outcomes that “reduc[ed] unfair imports and help[ed] thousands of American workers and numerous businesses.”

In related news, the DOC recently announced the establishment of the Advisory Council on Trade Enforcement and Compliance to advise the department on matters relating to the enforcement of U.S. trade remedy laws and foreign government compliance with trade agreements. Although created by the out-going Obama administration, the ACTEC could potentially play a significant role in the incoming Trump administration.

According to the DOC, the ACTEC will provide advice on laws and government policies that deal with trade enforcement; identify and recommend programmes, policies and actions to help the DOC in its efforts to ensure that U.S. trading partners comply with their trade agreement commitments; and recommend ways that the DOC’s trade enforcement and compliance policies and programmes can better support a strong trade and manufacturing agenda and enhance the commercial competitiveness of the United States. In doing so the council is directed to survey and evaluate the trade enforcement and compliance concerns of its stakeholders, identify and examine specific trade problems that require attention, and recommend specific solutions to the problems and needs it identifies.

Content provided by Picture: HKTDC Research
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