The U.S. Trade Representative’s annual report to Congress on China‘s compliance with its World Trade Organization obligations — the last in the Obama administration — presented a problematic picture on Monday.
The report said real reform is needed to improve China’s economic standing and its trading relationship with the U.S., one that seems quite strained as President-elect Donald Trump prepares to take office.
While citing some positive developments, the overall picture currently presented by China’s WTO membership remains complex, USTR said.
“Many of the problems that arise in the U.S.-China trade and investment relationship can be traced to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in China’s economy, which continue to generate significant trade distortions that inevitably give rise to trade frictions,” the report said.
“The United States notes that China’s current leadership, in place since 2013, has highlighted the need to pursue further economic reform in China, but to date, not much progress is evident,” the report said. “If pursued appropriately, a concerted reform effort offers the potential for addressing the problems brought on by a state-led economy and for helping to realize the tremendous potential of the U.S.-China trade and investment relationship. Indeed, economic reform in China is a win-win for the United States and China.”
In the U.S. view, USTR noted, if China is going to deal successfully with economic challenges at home, it must allow greater scope for market forces to operate, which requires altering the role of the state in planning the economy. China must also reform state-owned enterprises, eliminate preferences for domestic industry and remove market access barriers currently confronting foreign goods and services.
“Otherwise, China’s economic challenges will only increase and become more difficult to solve,” USTR said. “Further economic reform in China also would provide strong benefits to the U.S. It would help address the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises in China’s economy, which are the principal drivers of trade frictions. At the same time, it would lead to more sustainable Chinese economic growth, which in turn would lead to increased U.S. exports to China and a more balanced U.S.-China trade and investment relationship while also helping to drive global economic growth.”
In 2016, as in past years, when trade frictions arose, the U.S. pursued dialog with China to resolve them. However, when dialogue with China has not led to the resolution of key trade issues, the U.S. has not hesitated to invoke the WTO’s dispute settlement mechanism, USTR pointed out.
Since China’s accession to the WTO in 2001, the U.S. has brought 20 WTO cases against China, more than twice as many cases as any other WTO member.
“In doing so, the U.S. has placed a strong emphasis on the need for China to adhere to WTO rules and has held China fully accountable as a mature participant in, and a major beneficiary of, the WTO’s global trading system,” the report said.
USTR noted that China has seen a dramatic expansion in trade and investment with its many trading partners, including the U.S. Exports of U.S. goods to China totaled $116 billion in 2015, an increase of 505 percent since 2001 and positioning China as the U.S.’ largest goods export market outside of North America.
U.S. services exports reached $48 billion in 2015, an increase of 802 percent since 2001.
Major areas of specific concern continued to include serious problems with intellectual property rights enforcement in China, including in the area of trade secrets; the Chinese government’s prolific use of industrial policies favoring state-owned enterprises and domestic companies, including “secure and controllable” information and communications technology policies, export restraints, subsidies and unique national standards and investment restrictions; troubling agricultural policies that block U.S. market access; numerous continuing restrictions on services market access, and inadequate transparency, USTR said.
The U.S. looks to China to continue to reduce market access barriers, uniformly follow the fundamental principles of nondiscrimination and transparency, significantly reduce the level of government intervention in the economy, fully institutionalize market mechanisms, require state-owned enterprises to compete with other enterprises on fair and non-discriminatory terms and fully embrace the rule of law.
“Taking these steps is critical to realizing the tremendous potential presented by China’s WTO membership, including the breadth and depth of trade and investment — and prosperity — possible in a thriving, balanced global trading system,” the report said.
Throughout the past year, the U.S. focused on outcome-oriented dialog at all levels of engagement with China, while also taking concrete steps to enforce U.S. rights at the WTO as appropriate in areas where dialog had not resolved U.S. concerns.
The two sides were able to make significant progress on several key trade and investment issues through their bilateral engagement last year. For example, in the area of excess industrial capacity, China committed to take effective steps to address the challenges of excess capacity so as to enhance market function and encourage adjustment.
But many issues of concern remain, USTR said.
“The United States will continue to engage China on important issues in the areas of IPR enforcement, including trade secrets, secure and controllable ICT policies, technology localization, indigenous innovation, investment restrictions, excess capacity, government subsidization, export restraints, strategic emerging industries, state-owned enterprises, administrative licensing, government procurement, taxation, standards development, market access for U.S. beef and poultry, biotechnology product approvals, food safety, pharmaceuticals and medical devices, cosmetics, financial services, Internet-related services, theatrical films, telecommunications services, express delivery services, legal services, competition policy and transparency, among others,” USTR said.
On the enforcement side, the U.S. brought three new WTO complaints against China, while continuing to prosecute five other WTO cases against China.