USTR Criticizes China’s WTO Compliance in Annual Report

Trade Update • FEBRUARY 25, 2021

The Office of the United States Trade Representative last week released its 2021 Report on China’s World Trade Organization Compliance, the 20th edition of the annual assessment and the first issued since the January 2020 “Phase One Agreement” entered into force.

After 20 years of WTO membership, the report states, “China still embraces a state-led, non-market approach to the economy and trade, despite other WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO.”

According to the report, China has continued its poor record of WTO compliance and observing the fundamental principles upon which WTO agreements are based – non-discrimination, openness, reciprocity, fairness and transparency.

“Too often, China flouts the rules to achieve industrial policy objectives. In addition, and of more serious concern to the United States and other WTO members, China has not made sufficient progress in transitioning toward a market economy,” the report says.

Problematic Trade Policies and Practices

Among the key concerns highlighted in the report are the following:

Intellectual Property Rights
“Currently, China is in the midst of establishing an intellectual property appellate court and revisions to certain laws and regulations. Despite various plans and directives issued by the State Council, inadequacies in China’s intellectual property protection and enforcement regime continue to present serious barriers to U.S. exports and investment. As a result, China was again placed on the Priority Watch List in USTR’s 2021 Special 301 Report.”

“The Phase One Agreement addresses numerous longstanding U.S. concerns relating to China’s inadequate intellectual property protection and enforcement.”

“As of December 2021, China has published a number of draft measures for comment and issued some final measures relating to implementation of the intellectual property chapter of the Phase One Agreement.”

Agriculture
“China remains a difficult and unpredictable market for U.S. agricultural exporters, largely because of inconsistent enforcement of regulations and selective intervention in the market by China’s regulatory authorities.”

With respect to the enforceable purchasing commitments made under the Phase One Agreement, “China has also fallen far short of implementing its commitments to purchase U.S. goods and services in 2020 and 2021,” the report determined.

Services
“The prospects for U.S. service suppliers in China should be promising, given the size of China’s market. Nevertheless, the U.S. share of China’s services market remains well below the U.S. share of the global services market.”

“In 2021, numerous challenges persisted in a number of services sectors. As in past years, Chinese regulators continued to use 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.”

Transparency
“One of the core principles reflected throughout China’s WTO accession agreement is transparency. Unfortunately, after 20 years of WTO membership, China still has a poor record when it comes to adherence to its transparency obligations.”

Multifaceted Strategies and Tools

Dealing with China will require new strategies and trade tools, according to the USTR. Those strategies must be multifaceted – and they must begin with bilateral consultations with Beijing.

“As one part of this strategic approach, the United States is continuing to pursue bilateral engagement with China and is seeking to find areas where some progress can be achieved,” the report says. “China is an important trading partner, and every avenue for obtaining real change in its trade regime must be utilized.”

While repeating calls previously made by USTR Katherine Tai for new trade tools, the report does not elaborate what they would do or how they would work. “It is also apparent that existing trade tools need to be strengthened, and new trade tools need to be forged,” the report says. “China pursues unfair policies and practices that were not contemplated when many of the U.S. trade statutes were drafted decades ago, and we are therefore exploring ways in which to update our trade tools to counter them.”

China’s Reaction

As reported by state media, China’s Ministry of Commerce said it “firmly opposes” the USTR’s report, seeing that it “lacks legal and factual basis.”

The report fails to objectively evaluate China’s implementation of its WTO commitments in accordance with the WTO rules. Instead, it is based on unilateralism and trade protectionism, ignores China’s tremendous achievements in implementing its WTO commitments, and denies China’s important contributions to the multilateral trading system and the world economy, an official with the ministry said.

Having fully delivered on its accession commitments to the WTO and firmly abided by its rules, China has been widely recognized and commended by WTO members, the official noted.

Meanwhile, China has always been upholding multilateral trading system and practising true multilateralism, said the official.