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U.S. Statement on the Trade Policy Review of China
June 12, 2012

Trade Policy Review of the People’s Republic of China
Statement delivered by Ambassador Michael Punke

U.S. Permanent Representative to the WTO

Geneva, June 12, 2012

(as delivered)

Thank you, Mr. Chairman.

The United States welcomes China’s head of delegation, Assistant Minister Yu, other representatives of China’s government and, of course, our colleague, Ambassador Yi.   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 Smidt’s contribution in getting us started today with helpful commentary and important questions regarding China’s trade policies and practices.

In the ten years since it acceded to the WTO, China has risen to become the world’s second largest exporter, and it is now the world’s third largest importer.  It is clear that China benefits immensely from the global trading system.  It is equally clear that China’s emergence and growth have, in turn, had far-reaching impacts on economies throughout the world, as well as a major impact on the World Trade Organization and the negotiations we conduct in this institution.

In the years immediately following its 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 in China began to slow, and a trend toward the increasing use of measures imposing new restrictions on market access and foreign investment began to emerge.  We are worried, to use Ambassador Smidt’s proverb – not only of China standing still, but also moving backward.  Since China’s 2010 TPR, it appears the trend toward state intervention in the Chinese economy has intensified.  China’s tighter embrace of state capitalism now runs directly counter to the economic reform goals that originally drove its pursuit of WTO membership, goals that had offered real leadership and real promise for China’s future economic growth.  The United States continues to urge the Chinese government to reconsider its divergence from the path of reform.

As we look back on developments in particular areas since China’s last TPR, the United States notes both positive developments and negative developments.

One area that continues to generate significant concerns for the United States is China’s inadequate and uneven enforcement of intellectual property rights.  The Secretariat’s Report and the Government Report set out numerous actions 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.  In our view, a key metric of success needs to focus on a central issue – whether the legitimate goods and services purchased in large volumes around the globe can also achieve reasonable levels of sales in China.

With regard to industrial policies, which reflect China’s growing embrace of state capitalism, the Secretariat’s Report notes several ways in which the Chinese Government actively seeks to manage trade, allocate resources, “support[ ] national champions,” and enhance the competitiveness of state-owned enterprises.  Many of the specific policies used by China are problematic.   For example, grave concerns about discrimination and poor long-term economic development arise from certain policies promoting “indigenous innovation,” as well as from policies mandating the use of unique national standards, pursuing restrictive government procurement practices, imposing investment restrictions, creating pressure to transfer technology, using variable value-added tax rebate rates for exports and deploying export restraints.

The Secretariat’s Report also explains that the use of subsidies is “an important feature of” China’s trade policy regime.  The Report notes that China submitted a subsidies notification under the Agreement on Subsidies and Countervailing Measures in October 2011, but adds that “in many cases there are no figures on the magnitude of support provided, and no information is available on subsidies . . . provided at the provincial level, which are believed to be considerable.”  It is also disturbing that, in several instances, China failed to provide information requested by the Secretariat for its Report.  In a similar, disturbing vein, the United States notes that it filed a counter notification under Article 25.10 of the SCM Agreement in September 2011, detailing 200 central and sub-central government subsidies – including subsidies that appeared to be prohibited – that had never been notified by China.   In these circumstances, Article 25.10 called on China to notify those subsidies promptly.  However, in its subsequent subsidies notification, China included only 10 of the 200 subsidies identified in the U.S. counter notification and has not taken any further action.  In addition, China has failed to notify large fisheries subsidies, even though China is the world’s greatest fishing power and the Secretariat’s Report cites a study indicating that the Chinese Government’s support of this industry has exceeded $4 billion per year.  The United States expects China, commensurate with its fishing status, to notify all of its fisheries subsidies promptly and to make a significant contribution in the WTO’s ongoing work toward ambitious and effective disciplines on fisheries subsidies.

The United States would like to underscore that these concerns about China’s subsidies practices are far from trivial.  During China’s tenure as a WTO Member, investigatory work by the United States has led to the filing of three WTO disputes involving allegations that China has employed scores of prohibited subsidies, both at the central government level and the sub-central government level.  In each dispute, China subsequently withdrew the challenged subsidies or removed export contingencies or local content requirements.

In the area of services, the Secretariat’s Report states that, “[a]ccording to the authorities, China’s general policy is of gradual, progressive, and managed opening, with a view to promoting development through a win-win strategy for both domestic and foreign services suppliers.”  The United States’ perspective unfortunately is less positive.  While China has increased market access in some sectors, our stakeholders’ experience in multiple sectors has shown that discriminatory regulatory processes, overly burdensome and capricious licensing and operating requirements, informal bans on entry and other similar problems frustrate efforts of foreign services suppliers to achieve anywhere near their full market potential in China.  Key services sectors affected by these problems include telecommunications, banking, insurance, express delivery, electronic payment, legal and other services.

In the area of agriculture, we note concerns that China has still not fully embraced international standards and science-based rulemaking with regard to both sanitary and phytosanitary (SPS) barriers and other measures.  For many agricultural products, China remains an unpredictable market, largely because of selective intervention in the market by China’s regulatory authorities.   Key U.S. exports adversely affected by these practices include beef, poultry and pork.

Serious concerns also continue to arise in the area of transparency.  China’s notification practices at the WTO offer one example, not only when it comes to subsidies notifications under the SCM Agreement, but also agricultural support.  Indeed, China, despite repeated requests from the United States and others, has failed to notify any agricultural support provided after 2008, even though it appears that China has significantly increased its subsidies for many agricultural products in recent years –including what appears to be the world’s largest subsidies in the area of cotton.  China also needs to improve its notification practices for proposed SPS measures and proposed standards, technical regulations and conformity assessment procedures.  At the same time, we recognize that China has improved its transparency on other fronts, particularly by publishing draft laws, regulations, and departmental rules for public comment more regularly.  Nevertheless, improvements are needed.  According to a recent study by the U.S.-China Business Council, the National People’s Congress (NPC) passed 9 trade-related laws from March 2011 to March 2012 but only posted drafts of 3 of them on the NPC website for public comment.  The same study found that only 49 percent of draft trade-related regulations and departmental rules had been published on the State Council’s website for public comment.

The United States is working bilaterally with China to resolve our concerns through cooperative and constructive engagement, using 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 (S&ED) to help manage the complex U.S.-China economic relationship on a long-term, strategic basis.   We note our appreciation for China’s commitment at the most recent S&ED meeting to submit a comprehensive, revised Government Procurement Agreement (GPA) accession offer, which responds to the requests of the GPA Parties, before the last GPA Committee meeting this year.  We look forward to an offer from China that is of the same high quality of coverage as that provided by the GPA Parties.

We also have made constructive use of other mechanisms where dialogue with China has failed to resolve our concerns.  Since China’s last TPR in 2010, the United States has initiated five WTO dispute settlement cases against China.

I note that two of the WTO cases recently brought by the United States reflect our continuing deep concerns about a pattern of Chinese Government action that has seemed to emerge in recent years.  China seems to have reflexively resorted to domestic trade remedy actions in response to legitimate actions taken by the United States or other trading partners under their trade remedies laws.  In our view, this type of apparently retaliatory conduct, which is specifically provided for under Chinese law, is at odds with fundamental WTO principles.  The WTO’s dispute settlement mechanism, not the immediate initiation of a new trade remedy investigation, is the appropriate means to try to resolve legitimate concerns about a trading partner’s actions.

In conclusion, Mr. Chairman, there can be no question about the ever-increasing impact of China on global trade and the operation and functioning of institutions like the WTO.  With such influence, of course, comes great responsibility.  We urge China to live up to the high expectations of its trading partners – and we look forward to working with China toward that end.  We wish China a successful trade policy review.

Thank you.