Trade Policy Review of China, Statement by Ambassador Peter Allgeier

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Trade Policy Review of China, Statement by Ambassador Peter Allgeier
04/19/2006
Geneva

Thank you, Chair.

The United States warmly welcomes China’s head of delegation, Vice Minister of Commerce Yi, and the other representatives of China’s government, just as President Bush prepares to welcome President Hu in Washington, D.C. Vice Minister, we greatly appreciate the report that your team prepared for this meeting. We found it helpful in clarifying your government’s policy objectives and the direction of your economy.

As always, and perhaps more so than in any prior review, we are also grateful to the Secretariat for its hard work in compiling a comprehensive report. The Secretariat was faced with a challenging task, and the results have provided us with a detailed – and very useful – factual picture of China’s trade regime. Finally, we very much welcome Ambassador Gafoor’s contribution in getting us started today with some thought-provoking commentary and questions regarding China’s trade policies and practices.

This is China’s first Trade Policy Review since acceding to the WTO on December 11, 2001, a little more than four years ago. China is now the world’s third largest trader and its role as a major international player has redefined the global trading system and had far-reaching economic impact on economies throughout the world, including the United States. With China now a mature trading partner in the WTO’s rules-based system, the U.S.-China trade relationship has entered a new phase.

In February of this year, the Office of the U.S. Trade Representative completed a top-to-bottom review of U.S.-China trade policy. In a summary report of the review, we noted the benefits that the United States has derived from our trade relationship with China. U.S. consumers now have access to a wider variety of less costly goods from China, and this has helped spur U.S. economic growth while helping to check inflation. Access to Chinese inputs has also helped make U.S. companies and workers more competitive in the global economy. Since 2001, when China joined the WTO, U.S. exports to China have grown five times faster than they have to the rest of the world, and China has gone from being the ninth biggest to the fourth biggest export market for our farmers, ranchers, manufacturers and service providers. In fact, U.S. exports to China increased by an impressive 21 percent in 2005, building on similar growth in prior years and making China our fastest growing export market among our major trading partners.

Over the last four years, China’s economy has continued to grow at roughly 10 percent per year, and its growth has been closely tied to the open trade and investment regimes of the major economies of the world, which increases the importance of a successful Doha Round for China’s continued economic growth. Indeed, exports account for 40 percent of China’s GDP, as China has depended on the growth of its export sector to spur modernization of its economy and demonstrated that trade can support improved standards of living and lift millions of people in China out of poverty. According to Chinese data, the United States market has been the direct recipient of 21 percent of China’s export growth since 2001. Together, the United States and China have accounted for almost half of the economic growth globally in the past four years.

When it acceded to the WTO in 2001, China committed to extensive, far-reaching and often complex commitments to change its trade regime, at all levels of government. By now, most of the key commitments that China made in its accession agreement should have been phased in. In our view, China has made progress in implementing specific commitments and in adhering to the ongoing obligations of a WTO Member. At the same time, however, it is apparent that China has not yet fully embraced the key WTO principles of non-discrimination and national treatment, nor has China fully institutionalized market mechanisms and made its trade regime predictable and transparent. Despite many positive reforms, China continues to use an array of industrial policy tools to promote or protect favored industries, and these tools at times appear to collide with China’s ongoing WTO obligations.

The Steel Industry Development Policy that China issued last year provides a clear example. Although many aspects of this new policy have not yet been implemented, it still includes a host of objectives and guidelines that raise serious WTO concerns, such as calling for the use of domestically produced steel-manufacturing equipment and domestic technologies whenever domestic suppliers exist and imposing de facto technology transfer requirements. This policy is also troubling because it attempts to dictate industry outcomes and involves the government in making decisions that should be made by the market. It prescribes the number and size of steel producers in China, where they will be located, the types of products that will and will not be produced, and the technology that will be used. This high degree of government direction and decision-making regarding the allocation of resources into and out of China’s steel industry raises concerns in light of the commitment that China made in its WTO accession agreement that the government “would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises.”

Another example is the Automotive Industrial Policy issued by China in May 2004. This policy includes provisions discouraging the importation of auto parts and encouraging the use of domestic technology, while requiring new automobile and automobile engine plants to include substantial investment in research and development facilities, even though China expressly committed in its WTO accession agreement not to condition the right of investment on the conduct of research and development. This policy has also led to new measures, such as the auto parts regulations that went into effect in April 2005. In our view, those regulations unfairly discriminate against imported auto parts by assessing an additional charge on imported parts if they are incorporated into a vehicle that does not meet minimum levels of domestic content. The goal of the United States is to resolve issues through negotiation whenever possible. It provides a more satisfactory result for the parties and for the affected exporters. However, in this case, we were unable to make progress in addressing our concerns. That is why we joined with the European Union and now Canada in requesting formal WTO consultations.

China’s use of industrial policy tools – including government subsidization – to promote and protect these and other industries appears to be on the rise, instead of in decline, and it is a cause of great concern to the United States. The United States does recognize the significant challenges that China faces, not the least of which is the need to create over 100 million new jobs over the next decade. Nevertheless, the Chinese government’s increasing efforts to dictate outcomes in the market is beginning to overshadow the many positive reforms undertaken by China in connection with its accession to the WTO. As we read the Government Report, we are pleased to see China’s commitment to deepen economic reform and let the market play more of a role in matters such as resource allocation. However, we also see China’s contradictory pledge to strengthen the government’s guidance of China’s industrialization.

Vice Minister, we have submitted a number of questions about China’s industrial policies, and we look forward to receiving your written responses today. I note that several of these questions relate specifically to China’s subsidies practices. This is in large part because, at the time we submitted our questions for this review, China had not yet submitted any of the annual subsidies notifications required by Article 25 of the Agreement on Subsidies and Countervailing Measures since joining the WTO in 2001. We welcome the submission of China’s first subsidies notification last week. We are reviewing it carefully and will address any questions or concerns that we have, both bilaterally and in the Subsidies Committee.

Another area that continues to generate significant problems for the United States is China’s inadequate enforcement of laws, particularly in the area of intellectual property rights. As the Secretariat’s Report explains, enforcement remains weak and infringement of intellectual property rights remains widespread in China. A number of factors contribute to this situation, including lack of coordination among the main enforcement agencies, local protectionism and corruption, inadequate deterrence provided by China’s system of administrative, civil and criminal penalties, and a lack of sufficient training of enforcement personnel.

Vice Minister, we look forward to receiving your written responses today to our questions in this area as well. We note that the Government Report sets out numerous actions that have been undertaken by the Chinese authorities to improve the enforcement of intellectual property rights, but at the same time those efforts have not significantly reduced infringement levels. In your written responses, we hope to see China’s views about how the Chinese authorities’ enforcement efforts can be made more effective.

We note that, since we submitted our questions for this review, China has announced a broad action plan for improving the protection of intellectual property rights in China, including steps in the areas of enforcement, legislation and education. We look forward to China’s implementation of this action plan and would welcome China’s explanation of the specific steps that it will be taking to implement this action plan, the specific ways in which China envisions intellectual property rights enforcement improving as a result of this action plan, and the expected reductions in infringement levels.

The service sector is another area that has generated concerns. The Secretariat’s Report only selected two sectors to examine – financial services and telecommunications services – but they are representative of problems that the United States has encountered in other areas. In these sectors, we have seen protectionist and non-transparent policies, delays in the issuance of regulatory measures and the use of entry threshold requirements – particularly capital requirements – that exceed international norms. In the questions that we submitted, we seek clarification of several of China’s policies.

In the area of agriculture, particularly with regard to sanitary and phytosanitary measures (SPS), we note that, despite rapid progress since its WTO accession, China has not fully embraced international standards and science-based rulemaking. However, we are pleased by China’s commitment to make improvements in this area. We also appreciate China’s efforts to notify its food safety standards and requirements to the WTO, although we remain concerned that many Chinese regulatory agencies continue to implement and enforce new or revised SPS measures without prior notification or public comment periods.

Transparency, meanwhile, is a concern that cuts across sectors. While exercises like this review are helpful, on a day-to-day basis many of China’s regulatory regimes continue to suffer from systematic opacity, frustrating efforts by foreign – and domestic – businesses to achieve the potential benefits of China’s accession to the WTO. This is an area where China is working to improve, and we urge China to continue its efforts.

The United States is working bilaterally with China to resolve these and other concerns through cooperative and constructive engagement. Emblematic of that approach was last week’s meeting of the U.S.-China Joint Commission on Commerce and Trade (JCCT), chaired by Vice Premier Wu Yi on the Chinese side and U.S. Trade Representative Rob Portman and Secretary of Commerce Carlos Gutierrez on the U.S. side. The two sides were able to make clear progress in a number of core areas. The United States is looking to China for full and timely implementation of the commitments that it made.

In closing, Vice Minister, the United States looks forward to further cooperative and constructive engagement with China, both bilaterally and here at the WTO, including as we strive to achieve our common objective of completing the WTO’s Doha Development Agenda negotiations with a timely and ambitious package. We were pleased in that regard to see, in the Government Report, China’s support for further liberalization of the international trading system and China’s pledge to work with other WTO Members to conclude the Round by the end of this year. In our view, China’s enormous success as a WTO Member carries with it the responsibility to play a leadership role in the negotiations, and we look forward to working with China during the remainder of the Round.

Vice Minister, we thank you for your time and attention.