On February 16, 2022, the Office of the United States Trade Representative (USTR) released its 2021 Report to Congress on China's WTO Compliance. This is the 20th report prepared pursuant to section 421 of the US-China Relations Act of 2000, which requires the USTR to submit an annual report to Congress on China's compliance with commitments made in connection with its accession to the World Trade Organization (WTO). It is also the first report issued under U.S. Trade Representative Katherine Tai.
The report consists of four parts: 1) an assessment of China's WTO membership; 2) the bilateral and multilateral efforts pursued by the U.S. and other WTO members to address what the USTR describes as "unique challenges" presented by China's WTO membership; 3) an explanation of the United States' new strategy to address "the many problems posed by China's state-led, non-market approach to the economy and trade"; and 4) Chinese policies and procedures that the USTR views as problematic.1
Part one provides a brief history of China's accession to the WTO, then explains the obligations and steps China agreed to take in order to accede, including special provisions drafted to address China's particular situation. In particular, the report emphasizes that China "agreed to embrace the WTO's open, market-oriented approach" and to integrate this approach into its trading system and institutions. The report asserts that China has a "poor record" when it comes to "complying with WTO rules and observing fundamental principles on which the WTO agreements are based." Since the previous report, there has been no change in the USTR's assessment of China's record in terms of the adoption of market-oriented policies.2
Part two starts with an overview of China's first twenty years of WTO membership, including bilateral meetings between the United States and China that took place "to push China toward complying with and internalizing WTO rules and norms and making other market-oriented changes." It then discusses the WTO mechanisms, including dispute resolution, and the domestic trade tools that the United States has used to address "China's adherence to its WTO obligations" and China's "unfair" trade practices. The domestic trade tools include the Section 301 investigations and resulting imposition of additional tariffs, and the Phase One Agreement entered into by both countries. The report argues that the Phase One Agreement "does not address many of the . . . concerns that the United States" wanted to address in its negotiations with China, including "industrial plans, subsidies, state-owned enterprises, excess capacity, state-sponsored cyber-enabled theft of intellectual property, standards, cybersecurity, data localization requirements, restrictions on cross-border data transfers, competition law enforcement and regulatory transparency," and "certain issues in the areas of intellectual property, technology transfer and services market access[.]" The report claims that, just like in 2020, China is "not on track to implement its commitments to purchase U.S. goods and services in calendar year 2021." Part two concludes with a discussion of the "fundamental problems" that persist with China's economic and trade regime, stressing fundamental structural issues like a heavy reliance on "market-distorting industrial policies . . . preferential treatment of state enterprises, massive subsidization of domestic industries . . . forced technology transfer, state-sponsored theft of intellectual property and severe and persistent non-market excess capacity in key industries."3
Part three calls for new strategies to address China's practices. The new "multi-faceted strategic [U.S.] approach" consists of the following: 1) continued bilateral engagement with China, both regarding China's compliance with its Phase One Agreement obligations and "issues that are a priority" for the current Administration; 2) continued use of domestic trade tools, which the United States "is prepared to use . . . as needed in order to achieve a more level playing field with China for U.S. workers and businesses"; 3) exploration of an update to the United States' trade tools, both by strengthening existing trade tools and creating new ones; and 4) collaboration with "like-minded" trading partners to explore new initiatives to "address the unique problems posed by non-market policies and procedures," including strengthening existing trade relationships in the Indo-Pacific region, working to make critical supply chains less vulnerable, and pursuing initiatives at the WTO and forums like the G7, G20, and Organization for Economic Cooperation and Development. In particular, at the WTO, the U.S. agenda "includes pushing for and building support for WTO reforms" to update the organization and "respond to the experiences since its inception, including China's accession to the WTO."4
Part four summarizes the United States' key concerns regarding China's approach to domestic economic policy and trade. The report flags a broad range of concerns, ranging from non-tariff measures to intellectual property rights, agriculture to services, and to transparency. Regarding non-tariff measures, the report states, "China continues to pursue a wide array of industrial plans and related policies that seek to limit market access for imported goods, foreign manufacturers and foreign services suppliers, while offering substantial government guidance, resources, and regulatory support to Chinese industries." The report argues that "one of the more far-reaching and harmful industrial plans" is China's Made in China 2025 plan, which it argues has an "overriding aim . . . to replace foreign technologies, products and services with Chinese technologies, products and services in the China market[.]" The report acknowledges "China's WTO subsidy notifications have marginally improved over the years in terms of timeliness and completeness." However, it asserts that "China has not yet submitted to the WTO a complete notification of subsidies maintained by the central government."5
Regarding intellectual property rights, the report notes China is in the process of establishing an intellectual property appellate court and revising certain laws and regulations. However, the report argues "inadequacies in China's intellectual property protection and enforcement regime continue to present serious barriers to U.S. exports and investment." Furthermore, several markets in China have been flagged as "exemplify[ing] key challenges in the struggle against piracy and counterfeiting." The report notes the Phase One Agreement addressed many of these concerns. It adds that China has published a number of draft measures and even issued some final measures "relating to the implementation of the intellectual property chapter of the" agreement, including the Patent Law, the Copyright Law, and the Criminal Law. However, the report notes "China has work to do to finalize the draft measures . . . and to publish other draft measures," and that the U.S. "continues to monitor China's implementation of the intellectual property chapter of the Phase One Agreement."6
Regarding agriculture, the report describes China as "a difficult and unpredictable market for U.S. agricultural exporters," mostly due to "inconsistent enforcement of regulations and selective intervention in the market by China's regulatory authorities." The Phase One Agreement "addresses many non-tariff barriers to agricultural trade" and "includes enforceable commitments requiring China to purchase and import increased amounts of U.S. agricultural and seafood products in 2020 and 2021." The report notes China's implementation of this part of the agreement has been "generally positive, with significant reform in some agricultural sub-sectors[.]" However, it also comments that "[t]here has been a notable lack of meaningful action in other areas, including with regard to agricultural biotechnology and a required risk assessment for the use of ractopamine in the production of beef and pork."7
As for services, the report states "the U.S. share of China's services market remains well below the U.S. share of the global services market, and the Organization for Economic Cooperation and Development continues to rate China's services regime as one of the most restrictive among the world's major economies." The report identifies numerous challenges that persisted in 2021 in several service sectors, which it attributes to Chinese regulators' continued use of "discriminatory regulatory processes, informal bans on entry and expansion, case-by-case approvals in some services sectors, overly burdensome licensing and operating requirements, and other means to frustrate the efforts of U.S. suppliers of services to achieve their full market potential in China." While the Phase One Agreement "addresses a number of longstanding trade and investment barriers to U.S. providers of a wide range of financial services," the report notes that "China's restrictions on cross-border data flows could continue to create significant challenges for U.S. financial services providers in China."8
Finally, turning to transparency, the report argues that "[o]ne of the core principles reflected throughout China's WTO accession agreement is transparency." However, the report claims China still "has a poor record when it comes to adherence to its transparency obligations."9
To learn more, you can find a copy of the report here.
1. USTR, 2021 USTR Report to Congress on China's WTO Compliance at 4 (February 2022), available at https://ustr.gov/sites/default/files/enforcement/WTO/2021 USTR Report to Congress on China's WTO Compliance.pdf.
2. Id. at 6-7.
3. Id. at 13-17.
4. Id. at 20-24.
5. Id. at 28.
6. Id. at 47-48.
7. Id. at 51-52.
8. Id. at 56-57.
9. Id. at 62.
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