Statement by Ambassador Michael Punke
U.S. Permanent Representative to the WTO
May 31, 2010
Thank you, Mr. Chairman.
The United States warmly welcomes China’s head of delegation, Vice Minister Yi, other representatives of China’s government, and, of course, Ambassador Sun. We appreciate the Report that your team prepared for this meeting. We also thank China for its responses to our written questions, which we will examine carefully. As always, we are grateful to the Secretariat for its hard work in compiling its Report. Finally, we appreciate Ambassador Swärd Capra’s contribution in getting us started today with insightful commentary and important questions regarding China’s trade policies and practices.
This is the third Trade Policy Review for China since acceding to the WTO nearly nine years ago. Under the terms of China’s Protocol of Accession, China became responsible for full adherence to WTO rules nearly four years ago, when all of the transition periods that China had been allowed as a new Member of the WTO expired.
During China’s Trade Policy Review two years ago, the United States urged China to become fully engaged in WTO processes, citing China’s status as a full Member of the WTO and the size of China’s trade flows. Indeed, China has risen to become the world’s third largest trader, creating far-reaching impacts on economies throughout the world. As one of the world’s major traders, and as one of the major beneficiaries of the global trading system, China has a responsibility to take on a leading role at the WTO and to help shape future trade liberalization – and the United States again urges China to do so.
The WTO process that needs China’s participation most urgently is the Doha Development Agenda. Since the Doha Round was launched in 2001, China’s power and influence in the world economy have expanded dramatically. It is vital for China, like other major emerging economies, to accept the responsibility that goes along with its power and influence. We believe that sustained engagement, including through bilateral negotiations between the United States and China, is critical to building momentum for a successful conclusion to a balanced and ambitious Round.
Turning to the analysis in the Secretariat’s Report, the United States notes its disagreement with the Report’s broad assertion that “China has maintained its long-term strategy of gradually opening up its economy to international trade and FDI” since its Trade Policy Review in 2008. In the United States’ view, this statement should be qualified.
In the first years after China’s accession to the WTO, China made noteworthy progress in adopting economic reforms that facilitated its transition toward a market economy and increased the openness of its economy to trade and investment. However, beginning in 2006, progress toward further market liberalization began to slow.
By the time of China’s Trade Policy Review in 2008, the United States noted evidence of a possible trend toward a more restrictive trade regime, citing several Chinese measures signaling new restrictions on market access and foreign investment in China. At the root of many of these problems was China’s continued pursuit of problematic industrial policies that relied on excessive government intervention in the market through an array of trade-distorting measures designed to promote and protect domestic industries. This government intervention appeared to be a reflection of China’s historic yet unfinished transition from a centrally planned economy to a free-market economy governed by rule of law.
Since China’s Trade Policy Review in 2008, there is increasing evidence of such a restrictive trend. Examples from the past two years include: (1) the continued and incrementally more restrictive use of export quotas and export duties on a large number of raw material inputs; (2) the selective use of other border measures such as value-added tax rebates to encourage or discourage exports of particular products; (3) the setting and enforcement of unique Chinese national standards, such as an informal requirement that all new 3G mobile handsets be enabled with a unique Chinese national standard for wireless Internet access; (4) China’s government procurement practices, including an array of new central, provincial and local government “Buy China” policies; (5) a new Postal Law that excludes foreign suppliers from a major segment of the domestic express delivery market; (6) impediments to the foreign supply of value-added telecommunications services and an informal ban on new entrants in China’s basic telecommunications sector; and (7) continuing significant restrictions on foreign investment in China, along with continuing consideration of “national economic security” when evaluating foreign investment through mergers and acquisitions.
The Secretariat’s Report itself notes that China “has been continuing with its direct intervention measures to ‘guide’ resources into certain sectors of the economy, particularly manufacturing.” It also identifies a number of ways in which China’s trade regime is restrictive. For example, the Secretariat’s Report discusses in some detail China’s export regime, which it explains “is still characterized by various restrictions, notably prohibitions, licensing, quotas, taxes, and less than full rebates of VAT on exports.” The Report also notes that “China’s Government Procurement Law requires the Government to procure domestically produced goods and services.” Addressing foreign investment, the Report explains that “there are still significant restrictions, such as foreign participation limits, on some sectors and private-sector activities,” particularly in services sectors.
Despite its discussion of these restrictive aspects of China’s trade and investment regime, the Secretariat’s Report fails to note more broadly the change in the pace and direction of China’s trade liberalization efforts over the past two years. In the United States’ view, China has become much more focused on developing industrial policy initiatives aimed at helping Chinese enterprises move up the value chain in key industries, and China has demonstrated a highly selective interest in continuing to open its market more fully and fairly to foreign participation.
At present, the industrial policies generating the most controversy are China’s so-called “indigenous innovation” policies. Over time, it has become evident that many of these programs contain elements that could discriminate against foreign products, foreign investors, foreign technology and/or foreign intellectual property. Recent measures have generated intense concern among WTO Members and their business communities by more concretely demonstrating a policy direction that seems designed to limit market access for imports and foreign investors and pressure enterprises to localize research and development in China, as well as transfer technologies. We welcome the progress that we made on these matters during bilateral meetings in Beijing last week and look forward to continued intensive discussions with China in this area.
The United States recognizes the significant economic and social challenges that China faces. We also recognize the important contribution China’s economic progress has been making to global growth and development. Nevertheless, the Chinese government’s continued efforts to intervene in the economy and to direct the development of its domestic industries are generating increasing concern.
One area that continues to generate significant problems for the United States is China’s inadequate enforcement of intellectual property rights. We acknowledge that the Secretariat’s Report and the Government Report set out numerous actions that have been undertaken by the Chinese authorities to try to improve the enforcement of intellectual property rights. However, those efforts have still not significantly reduced the unacceptably high infringement levels in China, and therefore the United States continues to seek ways to work with China to improve China’s enforcement regime.
The services sector has also generated concerns. While the Secretariat’s Report only addresses a few services sectors in depth, it does correctly note that “[w]hile the Government’s intention is to open the services sector further to private and foreign participation as a means of boosting growth and providing alternative employment to agriculture, the pace of liberalization has been slower than that for manufacturing. As a result, some services sectors are still subject to a high degree of state control and lack of competition.” In the United States’ view, key services sectors affected by these problems include banking, insurance, telecommunications, electronic payment systems, express delivery and legal services.
In the area of agriculture, we note that China has still not fully embraced international standards, science-based rulemaking and advance notification, particularly with regard to sanitary and phytosanitary measures. China remains an unpredictable market for agricultural products, largely because of selective intervention in the market by China’s regulatory authorities.
Transparency, meanwhile, is an ongoing concern that cuts across sectors. Many of China’s regulatory regimes continue to suffer from systematic opacity, thereby frustrating efforts by both foreign and domestic businesses to achieve the potential benefits of China’s accession to the WTO. In addition, China has fallen behind on its obligation to notify its subsidy programs and has never notified any provincial or local government subsidies, even though dozens of them were the subject of a recent prohibited subsidies WTO dispute brought by the United States, Mexico and Guatemala. China has also resisted providing greater transparency for its export credit regime. However, we recognize that China has improved its transparency on other fronts. In particular, the National People’s Congress and the State Council have been regularly publishing draft laws and regulations for public comment, although many individual ministries and agencies have displayed more difficulty publishing departmental rules for public comment. China also now regularly publishes new laws, regulations and departmental rules issued by the central government in an official journal. Nevertheless, China continues to lag behind in providing translations of these same measures, despite having committed to do so in its Protocol of Accession.
The United States is working bilaterally with China to resolve our concerns through cooperative and constructive engagement. Indeed, we appreciate China’s willingness to engage in a wide range of formal and informal bilateral dialogues, working groups and meetings. We have continued to use avenues like the U.S.-China Joint Commission on Commerce and Trade to seek pragmatic resolutions to pressing trade issues and the U.S.-China Strategic and Economic Dialogue to help manage the complex United States-China economic relationship on a long-term, strategic basis. We continue to make progress through this bilateral engagement, and we also have made constructive use of other mechanisms where dialogue has failed to resolve our differences. Since China’s last Trade Policy Review in 2008, we have initiated two WTO dispute settlement cases against China, and in both cases we have been joined by other Members.
In closing, Mr. Chairman, the United States looks forward to further cooperative and constructive engagement with China, both bilaterally and here at the WTO. We stand ready to do our share of the hard work, and we hope that China will join us.
Thank you, Mr. Chairman.