Statement by Deputy Chief of Mission Chris Wilson
on Behalf of the United States
July 1, 2014
-For the Record-
Thank you, Mr. Chairman.
The United States welcomes China’s head of delegation, Assistant Minister Wang, other representatives of China’s government and, of course, our colleague, Ambassador Yu. We appreciate the Report that your team prepared for this meeting, and we 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. We also appreciate the contribution of Ambassador Reiter (Sweden) in getting us started today with helpful commentary and important questions regarding China’s trade policies and practices.
Mr. Chairman, China acceded to the WTO 12 years ago. Looking back, it is easy to see how dramatically trade and investment have expanded among China and its many trading partners, including the United States, since China joined the WTO. Indeed, China has risen to become the WTO’s largest trader. It is clear from these results that China benefits immensely from the global trading system. It is equally clear that China’s emergence and growth have, in turn, had a tremendous impact on economies throughout the world, as well as on the WTO as an institution.
China’s rise has not always followed the path envisioned by China’s Protocol of Accession. During most of the past decade, China emphasized the state’s role in the economy, diverging from the path of economic reform that had driven China’s accession to the WTO. With the state leading China’s economic development, China pursued new and more expansive industrial policies guiding and supporting Chinese industries, particularly ones dominated by state-owned enterprises. This heavy state intervention in the economy generated serious trade frictions with China’s many trade partners, including the United States.
Over the past year, however, there have been several positive signs that China’s new leaders are focused on re-energizing economic reform in China, including a top-level decision reached in November 2013 at the Third Plenum of the 18th Central Committee of the Chinese Communist Party, which endorsed a number of far-reaching economic reform pronouncements – not the least of which is that the market shall be “decisive” in allocating resources. While the Third Plenum pronouncements and other important developments over the past year have yet to translate into substantial changes in China’s trade and investment regimes, the United States is encouraged by the direction that they provide.
That said, as we consider the Secretariat’s Report, we are struck by the obstacles that the Secretariat encountered in trying to pull together the required analysis of China’s trade and investment regime. Many of these obstacles seem unique to China. China’s deep involvement in the economy might suggest that the Chinese government would be in an especially favorable position to provide information to the Secretariat, but the Secretariat’s Report instead reflects systemic difficulties in securing needed information. Indeed, it has been our experience that many aspects of China’s trade and investment policies and practices seem to remain hidden away in unpublished measures, internal instructions, oral directives and confidential documents – or for some other reason are simply unavailable. Similarly, the operations of China’s state-owned enterprises – which represent a major part of China’s economy – are largely shielded from view by mechanisms such as unpublished government budgets, infrequent WTO notifications and a law that can treat commercial information as state secrets.
Compounding these challenges to fully understanding China’s trade and investment regimes is another challenge – China’s failure to implement important transparency commitments that China made to the WTO membership when it acceded to the WTO in 2001. For example, China committed to make available in one or more WTO languages all laws, regulations and other measures pertaining to or affecting trade in goods, services, trade-related intellectual property rights or the control of foreign exchange. Yet, China still has not taken any steps to put in place procedures for undertaking and making available the required translations, even as it has become the WTO’s largest trader. As the Secretariat’s Report demonstrates, the lack of available translations can create significant challenges when trying to understand and navigate China’s trade and investment regimes. Several times in its report, the Secretariat states that it was not possible to explain a Chinese policy or to confirm a statement made by the Chinese authorities because the underlying documents were only available in the Chinese language. Mr. Chairman, we know that the European Union translates all of its official documents – not just measures relating to trade – into 24 languages, and we know that China is not the only WTO Member to have taken on this type of transparency obligation. In our view, the challenges evident from this year’s report by the Secretariat, combined with China’s huge role in the world trading system, underscore the importance of China finding the means and know-how to translate its trade-related measures into one WTO language, as it promised to do long ago. While this would be a significant undertaking, it also would create a win-win scenario. Making translations of China’s trade-related measures readily accessible can only serve to increase trade and investment – and isn’t that one of the main purposes of this organization?
Turning to the specifics of this year’s Trade Policy Review, as we look back over the past two years, the United States notes both positive developments and negative developments in key areas.
As in past years, one area that continues to generate significant concerns for the United States is China’s inadequate and uneven protection and enforcement of intellectual property rights. While the Secretariat’s Report and the Government Report both describe extensive efforts by the Chinese authorities to make improvements, an enormous amount of work remains to close significant loopholes in China’s legal framework, and to reduce the unacceptably high infringement levels in China.
With regard to industrial policies, while we are hopeful that the Third Plenum will eventually lead to a significantly reduced role for the government in China’s economy, China’s embrace of state capitalism over the past decade generated innumerable policies that seek to limit market access for imported goods, foreign manufacturers and foreign service suppliers, while offering substantial government guidance, resources and regulatory support to China’s state-owned enterprises and other favored domestic companies. For example, China continues to deploy export quotas, export duties, variable value-added tax rebates and other export restraints, particularly on raw material inputs where it holds the leverage of being among the world’s leading producers. China also pursues discriminatory policies promoting “indigenous innovation,” maintains investment restrictions, mandates the use of unique national standards and imposes many other kinds of direct and indirect restrictions on foreign companies and their goods and services.
One other key way in which China supports its domestic industries is through subsidization, as is well-documented by WTO disputes and Members’ anti-subsidy investigations. A review of China’s numerous five-year plans strongly suggests, moreover, that this subsidization is widespread and massive. It is therefore particularly troubling that China remains years behind in its required subsidies notifications and that the Secretariat’s report notes several instances in which China was unwilling or unable to provide requested information. In its 12 years of WTO membership, China has submitted only two notifications under Article 25 of the SCM Agreement, with its last notification covering only 2005 to 2008. Furthermore, China’s notifications have been seriously incomplete. China has never notified any sub-central government subsidies, even though hundreds of them have been the subject of WTO disputes. China also has yet to notify a single wild capture fishery subsidy program since becoming a WTO Member, even though China is by far the world’s greatest fishing power and the Secretariat’s Report lists over thirty on-going fishery support programs. This lack of transparency is unacceptable in the face of the rapidly declining state of the world’s fish stocks. In addition, China 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.
In the area of services, the Secretariat’s Report characterizes the new Shanghai Free Trade Zone as “a pilot project to test the further liberalization of trade in services.” We look forward to further liberalization, both inside and outside the Shanghai Free Trade Zone, and hope that it will address Chinese regulators’ continued use of discriminatory regulatory processes, informal bans on entry and expansion, restrictions on the cross-border supply of services, overly burdensome licensing and operating requirements and other measures that have frustrated the efforts of U.S. suppliers in several important sectors to achieve their full market potential in China.
In the area of agriculture, despite robust trade, China remains an unpredictable market, largely because of selective intervention in the market by China’s regulatory authorities. It also appears that China has still not fully embraced international standards and science-based rulemaking with regard to both sanitary and phytosanitary barriers and other measures.
The United States is working bilaterally with China to resolve our concerns through cooperative and constructive engagement. Our principal avenues for dialogue include the U.S.-China Joint Commission on Commerce and Trade, where the two sides seek pragmatic resolutions to pressing trade issues, and the U.S.-China Strategic and Economic Dialogue, which helps manage the complex U.S.-China economic relationship on a long-term, strategic basis.
At the same time, the United States actively pursues dispute settlement at the WTO when dialogue does not resolve our concerns. Two years ago before the Trade Policy Review Body, we felt compelled to discuss two recently filed WTO disputes, which reflected our deep concerns about a pattern of conduct by China’s Ministry of Commerce – specifically, what seemed to be a reflexive resort to domestic trade remedy investigations and duties in response to legitimate actions taken by the United States or other trading partners under their trade remedies laws. We explained that this type of apparently retaliatory conduct, which is specifically provided for under Chinese law, is at odds with fundamental WTO principles, and that the WTO’s dispute settlement mechanism, not the immediate initiation of a new trade remedy investigation, is the appropriate means to try to resolve concerns about a trading partner’s actions. We can now report that WTO panels and the Appellate Body have issued findings in three separate disputes brought by the United States confirming that China failed to abide by WTO disciplines when imposing its duties.
In conclusion, Mr. Chairman, now that China is the WTO’s largest trader, there can be no question about China’s enormous impact on global trade and the operation and functioning of institutions like the WTO. We now need to see China’s active leadership to support these institutions, including through the actions that China takes at home, to match its trading status. China’s notification, just yesterday, of Category A provisions under the new Trade Facilitation Agreement is a welcome indication of such leadership. We look for additional indications of such leadership, including notably through redoubled efforts by China to bring about a balanced and commercially significant conclusion to negotiations to expand the Information Technology Agreement. WTO Members rightfully have high expectations of its top traders. As one of those top traders, the United States looks forward to working with China with a shared sense of responsibility, both in the negotiations we conduct and in how we approach adherence to the important disciplines of the WTO.
We wish China a successful trade policy review.