U.S. Statement at the Trade Policy Review of the People’s Republic of China

Statement as delivered by Ambassador Dennis C. Shea
on Behalf of the United States of America

July 11, 2018 (TPR Day One)

Thank you, Chair, and thank you to Ambassador Chambovey as Discussant.  The United States welcomes Vice Minister of Commerce Wang Shouwen and the rest of China’s delegation, including my WTO colleague Ambassador Zhang Xiangchen.

Given the importance of China to the future of the World Trade Organization (WTO), I believe that we should be frank and direct in discussing China’s role as a WTO Member and the nature of its trade policies and practices.

China’s failure to fully embrace the open, market-oriented policies on which this institution is founded must be addressed, either within the WTO or outside the WTO.  Given China’s very large and growing role in international trade, and the serious harm that China’s state-led, mercantilist approach to trade and investment causes to China’s trading partners, this reckoning can no longer be put off.  If the WTO is to remain relevant to the international trading system, change is necessary.

When China acceded to the WTO nearly 17 years ago, WTO Members expected that the terms set forth in China’s Protocol of Accession would permanently dismantle existing state-led, mercantilist policies and practices that were incompatible with an international trading system expressly based on open, market-oriented policies and rooted in the principles of non-discrimination, market access, reciprocity, fairness and transparency. But those expectations have not been realized.  Instead, China has used the imprimatur of WTO membership to become one of the WTO’s largest traders, while largely retaining its state-led, mercantilist approach to trade and investment, to the detriment of the United States and other WTO Members and their industries and workers.  This situation is actually worse today than it was five years ago. The state’s role in China’ economy has increased, as have the seriousness and breadth of concerns facing foreign companies seeking to do business in China or attempting to compete with Chinese companies in their home markets.

To be clear, the United States does not object to the Chinese government’s desire to guide and support domestic industries through the issuance of five-year plans and other similar efforts.  Other WTO Members also seek to help their industries develop.  However, China’s overall approach is materially different, as China’s industrial policies typically go well beyond traditional approaches to guiding and supporting domestic industries.  China provides massive, market-distorting subsidies and other forms of state support to its domestic industries, which too often leads to severe excess capacity, and at the same time it actively seeks to impede, disadvantage and harm the foreign competition.  China helps its domestic industries by skewing the playing field against imported goods and services and foreign manufacturers and services suppliers in myriad ways, such as market access limitations, investment restrictions and massive financial support.  It also employs preferential treatment for state-owned enterprises and other favored Chinese companies, discriminatory regulatory requirements, unique national standards, technology transfer requirements, inadequate protection and enforcement of intellectual property rights, cyber theft, overly broad and discriminatory cybersecurity measures, cross-border data restrictions and data localization requirements, and the use of competition law for industrial policy purposes, among many other ways.  Exacerbating this situation is the abuse of administrative licensing and approval processes by Chinese government officials, China’s incomplete adoption of the rule of law, a lack of an independent judiciary and inadequate transparency.

It is clear, moreover, that the WTO currently does not offer all of the tools necessary to remedy this situation.

The WTO’s dispute settlement mechanism is not designed to address a situation in which a WTO member has opted for state-led trade and investment policies that prevail over market forces and that pursues policies guided by mercantilism rather than global economic cooperation. Rather, it is narrowly targeted at disputes where one Member believes that another Member has adopted a measure or taken an action that violates a WTO obligation.  While some Chinese measures have been found by WTO panels or the Appellate Body to run afoul of China’s WTO obligations, fundamental problems remain unaddressed as many of the most significant Chinese policies and practices are not directly disciplined by WTO rules or the additional commitments that China made in its Protocol of Accession.

Meanwhile, there is no clear path toward the negotiation of new rules to address the unique problems posed by China’s state-led, mercantilist trade and investment regime.  As we all know, the WTO is a consensus organization, and the prospects for negotiating strong and effective new rules are low, and in any event they would not be timely in addressing the serious harm currently being suffered by WTO Members.  China’s claim to developing country status is also not helpful.  The United States would remind Members that China’s Protocol of Accession questioned China’s claim to be a developing country and expressly denied China’s right to self-elect developing country status under several of the WTO agreements, yet China persists in claiming to be a “developing Member” in the context of every future negotiation at the WTO.  Similarly unhelpful is China’s claim to be a “recently acceded Member” after nearly 17 years of WTO membership.

The United States notes that, for many years, it tried to work cooperatively with China through extensive bilateral engagement. As we look back on that engagement, we find no indication that China has been prepared to make the fundamental changes that would be necessary to bring its trade and investment regime into alignment with the regimes of other WTO Members.

Going forward, the best solution is for China finally to take the initiative to fully and effectively embrace open, market-oriented policies.  China knows what needs to be done, and we urge China to take that route.

Thank you, Chair.

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