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entitled 'World Trade Organization: First-Year U.S. Efforts to Monitor 
China's Compliance' which was released on March 31, 2003.



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Report to Congressional Committees:



March 2003:



World Trade Organization:



First-Year U.S. Efforts to Monitor China’s Compliance:



GAO-03-461:



GAO Highlights:



Highlights of GAO-03-461, a report to the Chairman and the Ranking 
Minority

Member, Senate Committee on Finance, and to the Chairman and the 
Ranking 

Minority Member, House Committee on Ways and Means



Why GAO Did This Study:



China’s December 2001 membership in the World Trade Organization 
created 

substantial opportunities for U.S. companies seeking to expand into 

China’s 

vast market, and for significant reforms within China at all levels of 

government. However, the benefits of China’s membership in the World 

Trade 

Organization are contingent on China’s successful implementation of its 

commitments. In recognizing this fact, Congress has provided increased 

resources to executive branch agencies to enhance the government’s 

ability 

to effectively monitor and enforce China’s compliance. In this study, 

one 

of several that GAO will conduct for Congress on China-World Trade 

Organization issues, GAO was asked to (1) examine key agencies’ 

organizational changes and the interagency process used to carry out 

compliance responsibilities and (2) review how the agencies have 

addressed 

compliance issues that arose during the first year of China’s 

membership, 

by using two specific examples; the examples illustrate the type of 

compliance issues U.S. officials face but are not representative of 

China’s compliance record overall. The U.S. Trade Representative and 

other 

agency officials provided technical and editorial comments mainly on 

our 

characterization of issues relating to tariff-rate quotas and the 

multilateral review of China’s trade policies. We clarified these 
issues 

and made other changes as appropriate.



What GAO Found:



In order to better monitor China’s compliance with its World Trade 

Organization commitments, the U.S. Trade Representative and the 

departments of Agriculture, Commerce, and State have 



* reorganized or established intra-agency teams to coordinate their 

oversight of China’s compliance;



* increased staff from about 28 to 53 in key units in Washington, D.C., 

and China from fiscal year 2000 to 2002; and



* reflected these changes in their agencies’ recent performance and 

strategic plans.



In addition, the U.S. Trade Representative is leading a new interagency

 working group on China’s compliance to identify, analyze, and resolve 

problems. This group, which utilizes private sector input, was very 

active 

in monitoring and responding to issues during the first year of China’s 

membership, although it took some time for agencies to work out their 

respective roles and responsibilities in the interagency group. U.S. 

agencies’ experiences in two areas during the first year of China’s 

World 

Trade Organization membership illustrate the challenges ahead in 

addressing compliance issues. First, problems regarding China’s 

commitments

to grant market access to certain bulk agricultural commodities through 

the use of tariff-rate quotas show the extensive effort required to 

identify difficulties, gather and analyze information, and begin to 

resolve complex and technical issues with China. Second, disagreement 

among World Trade Organization members over how to conduct a 

comprehensive 

annual review of China’s trade policies within the World Trade 

Organization led to a limited first-year review that did not meet U.S. 

expectations, and illustrated the challenges of gaining consensus in 

this 

multilateral forum to improve future oversight. Problems in both of 

these 

areas are unresolved, and U.S. officials continue to pursue their 

resolution with China in 2003.



www.gao.gov/cgi-bin/getrpt?GAO-03-461. To view the full report, 

including the scope and methodology, click on the link above. For more 

information, contact Susan Westin at (202) 512-4128 or westins@gao.gov.



[End of section]



Letter:



Results in Brief:



Background:



Key Agencies Have Increased Focus on China WTO Compliance and 

Coordinate Efforts through an Interagency Process:



U.S. Experience in Two Areas Illustrates Challenges Ahead:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Objectives, Scope, and Methodology:



Appendix II: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Acknowledgments:



Tables:



Table 1: Agency Staffing Estimates for Key Offices Involved in China 
WTO 

Compliance Efforts, Fiscal Years 2000-2002:



Table 2: U.S. Company Likelihood of Contacting Groups Regarding 

Difficulties Related to China’s Implementation of Its WTO Commitments:



Table 3: Time line of Key U.S. Government TRQ-Related Activities and 

Events, 2001-2003:



Table 4: Time line of Key TRM-related Activities and Events, 2002:



Abbreviations:



FAS: Foreign Agricultural Service:



FCS: Foreign Commercial Service:



MOFTEC: Ministry of Foreign Trade and Economic Cooperation :



SPDC: State Development and Planning Commission:



USDA: U.S. Department of Agriculture:



USTR: U.S. Trade Representative:



TRIPS: Trade-related Aspects of Intellectual Property Rights :



TRM: Transitional Review Mechanism:



TRQ: Tariff-rate Quota:



WTO: World Trade Organization:



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Letter March 31, 2003:



The Honorable Charles E. Grassley

Chairman

The Honorable Max Baucus

Ranking Minority Member

Committee on Finance

United States Senate:



The Honorable William M. Thomas

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

Committee on Ways and Means

House of Representatives:



China’s accession to the World Trade Organization in December 2001 

signified that the U.S.’s fourth largest trading partner would be 

subject to the multilateral organization’s requirements to liberalize 

its trade. By joining the World Trade Organization, China committed to 

adhere to the principles of a rules-based global trading system and 

give foreign goods and services greater access to its markets. U.S. 

officials have recognized that the benefits of these comprehensive 

commitments are contingent on China’s fulfilling its obligations. 

Recognizing that monitoring and enforcement of the commitments 

specified in China’s accession agreement would be of great importance, 

Congress enacted legislation to ensure such oversight.[Footnote 1]



As part of your request for us to undertake a long-term body of work 

related to China’s membership in the World Trade Organization, we 

reviewed how the U.S. Trade Representative, the Department of Commerce, 

the Department of Agriculture, and the Department of State are 

positioned to monitor and enforce China’s compliance with its 

commitments. Specifically, in this report we (1) describe the changes 

to each agency’s organization, resources, and plans in light of China’s 

accession, and to the interagency process used to fulfill these 

responsibilities; and (2) review how these agencies have addressed 

certain compliance issues that have arisen during the first year of 

China’s World Trade Organization membership.



In order to perform our review, we studied the agencies’ budget and 

staffing information, performance and strategic planning documents, and 

other official documentation and reports relating to the agencies’ 

efforts to monitor and enforce China’s compliance with its commitments. 

We supplemented this information by reviewing World Trade Organization 

documents and by interviewing knowledgeable U.S., foreign government, 

and World Trade Organization officials and private sector 

representatives. To analyze how the United States has addressed 

compliance issues, we examined two areas of China’s commitments. First, 

we chose to examine activities related to China’s regulating imports of 

certain bulk agricultural commodities (such as corn and cotton) because 

the area was economically important to U.S. exporters, China made 

extensive commitments to change its practices, and significant 

monitoring and enforcement activity occurred in the first year of 

China’s World Trade Organization membership. Second, we chose to 

examine activities that related to implementing a comprehensive annual 

review of China’s trade policies within the World Trade Organization, 

because the area concerned issues that were important to U.S. 

officials, including Congress, and conducting the review is an 

important aspect of World Trade Organization members’ ability to 

monitor and enforce Chinese compliance. These two areas are not 

representative of China’s compliance record overall but do illustrate 

the kinds of compliance issues that U.S. officials try to 

resolve.[Footnote 2] (See app. I for details on our scope and 

methodology.):



Results in Brief:



China’s accession to the World Trade Organization led to increased 

monitoring and enforcement responsibilities for the U.S. government. In 

response to these increased responsibilities, the U.S. Trade 

Representative and the departments of Commerce, Agriculture, and State 

have undertaken various efforts to enhance their ability to monitor 

China’s compliance with its World Trade Organization commitments. For 

example, the agencies have reorganized or established intra-agency 

teams to improve the coordination of their monitoring and enforcement 

efforts. Additionally, the 

agencies have added staff in Washington, D.C., and overseas in China to 

carry out these efforts. For example, estimated full-time equivalent 

staff in key units that are involved in China monitoring and 

enforcement activities across the four agencies increased from about 28 

to 53 from fiscal year 2000 to 2002, with the largest increases at the 

Department of Commerce. The agencies’ recent strategic and planning 

documents also reflect an emphasis on China trade compliance efforts. 

On a broader level, the U.S. Trade Representative has established an 

interagency group to coordinate U.S. government compliance activities. 

The interagency group, which utilizes the private sector to support its 

efforts, was very active in monitoring and responding to issues during 

the first year of China’s membership, although it took some time for 

agencies to work out their respective roles and responsibilities in the 

interagency group.



Monitoring and enforcement of China’s compliance with World Trade 

Organization requirements is a complex and challenging task, as shown 

by the U.S.’s experience in two areas during 2002: examining China’s 

regulation of imports of bulk agricultural commodities and 

participating in an annual multilateral review of China’s trade 

practices. In the first area we reviewed, China’s commitments related 

to its importing bulk agricultural commodities, implementation problems 

that arose in 2002 included concerns about Chinese authorities missing 

deadlines for issuing tariff-rate quotas on commodities; disagreement 

over whether China’s interpretation of its commitments met World Trade 

Organization requirements; and questions about whether new Chinese 

administrative practices are in keeping with China’s obligations. The 

United States has undertaken both bilateral and multilateral activities 

to settle these complex issues, which have yet to be resolved. The 

large number of U.S. government activities in this area, which included 

at least monthly engagement with China, illustrates the extensive 

effort agencies must undertake to identify problems, gather and analyze 

information, and respond to some issues. In the second area we 

reviewed, the U.S. experience implementing a comprehensive annual 

review of China’s trade practices within the World Trade Organization 

shows the challenge of achieving multilateral support and consensus on 

an issue. Disagreement among World Trade Organization members over 

implementing commitments creating this “transitional review mechanism” 

limited the World Trade Organization’s multilateral oversight of 

China’s compliance in 2002. The first review of China’s trade practices 

did not meet the initial expectations of U.S. officials with regard to 

the thoroughness of the review. They also expressed disappointment over 

the results of the review, which failed to produce a final report or 

recommendations to improve future implementation because there was no 

consensus to do so among WTO members, including China. However, U.S. 

officials cited benefits from participating in the World Trade 

Organization review process, such as demonstrating to China the United 

States’ commitment to thoroughly reviewing China’s World Trade 

Organization implementation, and solidifying interagency coordination 

for the years ahead. U.S. officials also said they will work with China 

and other World Trade Organization members to establish more workable 

procedures for future reviews, and that they were hopeful that the 

process will be improved over the next 9 years that the review is 

scheduled to be conducted.



Background:



China became the 143RD member of the World Trade Organization (WTO) on 

December 11, 2001, after almost 15 years of negotiations. These 

negotiations resulted in China’s commitments to open and liberalize its 

economy and offer a more predictable environment for trade and foreign 

investment in accordance with WTO rules. The United States and other 

WTO members have stated that China’s membership in the WTO provides 

increased opportunities for foreign companies seeking access to China’s 

vast market. China is already a major destination of U.S. investment 

overseas, and total trade between China and the United States was an 

estimated $145 billion in 2002, based on U.S. trade data.



The U.S. government’s efforts to ensure China’s compliance with its WTO 

commitments are part of an overall U.S. structure to monitor and 

enforce foreign governments’ compliance with existing trade 

agreements.[Footnote 3] At least 17 federal agencies, led by the Office 

of the U.S. Trade Representative (USTR), are involved in these overall 

monitoring and enforcement activities. USTR and the departments of 

Agriculture (USDA), Commerce, and State have relatively broad roles and 

primary responsibilities with respect to trade agreement monitoring and 

enforcement. Other agencies, such as the departments of the Treasury 

and Labor, play more specialized roles. Federal monitoring and 

enforcement efforts are coordinated through an interagency mechanism 

comprised of several management-and staff-level committees and 

subcommittees. The congressional structure for funding and overseeing 

federal monitoring and enforcement activities is also complex, because 

it involves multiple committees of jurisdiction. Congressional agencies 

and commissions also support Congress’s oversight on China-WTO trade 

issues. In addition to the executive branch and congressional 

structures, multiple private sector advisory committees exist to 

provide federal agencies with policy and technical advice on trade 

matters, including trade agreement monitoring and enforcement.



Key Agencies Have Increased Focus on China WTO Compliance and 

Coordinate Efforts through an Interagency Process:



In response to the increased responsibilities arising from China’s 

accession to the WTO, USTR, Commerce, USDA, and State have undertaken 

various efforts to increase their ability to monitor China’s compliance 

with its WTO commitments. On an intra-agency level, each of the four 

agencies have reorganized or established teams to better coordinate the 

activities among the various agency units involved in China WTO 

compliance. Additionally, the agencies have devoted additional staff 

resources in Washington, D.C., and China to enhance their monitoring 

and enforcement efforts. The agencies’ recent performance and strategic 

planning documents also reflect this increased emphasis on monitoring 

and enforcement. In addition to the efforts of the individual agencies, 

USTR established a staff-level interagency working group focused on 

China WTO compliance to identify, analyze, and resolve problems. 

Businesses and industry associations support the U.S. government’s 

efforts by providing information on Chinese trade practices, alerting 

the government to market access problems, and providing input on policy 

issues.



Agencies Have Made Organizational Changes to Facilitate China WTO 

Compliance Efforts:



To enhance coordination on China WTO compliance issues, USTR has 

reorganized by merging two offices, while Commerce, State, and USDA 

have established intra-agency teams. Each of the agencies we reviewed 

includes within their organizational structures an office that focuses 

exclusively on China or the greater Asian region. These offices have 

the primary responsibility for coordinating the agencies’ China WTO 

compliance efforts, but other units in the agencies are routinely 

involved. Coordination with these units generally includes obtaining 

input from and sharing information with specialists in other offices on 

China trade issues, communicating with agency staff in the field 

overseas, participating in the interagency process of reviewing China’s 

WTO compliance, and coordinating with other governments and private 

sector representatives.



USTR:



USTR’s recent reorganization responds to the new responsibilities 

arising from China’s membership in the WTO. USTR created an Office of 

North Asian Affairs in June 2002 by merging the Office of China and the 

Office of Japan; the office has primary responsibility for coordinating 

the agency’s efforts on China WTO trade issues.[Footnote 4] According 

to USTR, the reorganization reflected a shift in the agency’s 

activities resulting from China’s accession to the WTO and enables the 

agency to make the best possible use of its resources to maintain a 

high level of attention to trading partners in the region.



The Office of General Counsel and other sector-and function-specific 

offices within USTR continue to support the Office of North Asian 

Affairs on China trade issues by providing subject matter or other 

specialized expertise.[Footnote 5] Additionally, USTR’s Monitoring and 

Enforcement Unit within the Office of General Counsel would have 

primary responsibility for representing the United States if a China-

related dispute settlement case were brought before the WTO. Moreover, 

the USTR office in Geneva, Switzerland, represents U.S. interests in 

proceedings at the WTO.



Department of Commerce:



Commerce created an intra-agency China Compliance Team in May 2001 (in 

anticipation of China’s accession to the WTO) to facilitate the 

agency’s compliance efforts, which are related to industrial goods and 

services. Staff from six[Footnote 6] Commerce units comprise the team, 

which is chaired by the Executive Director of Commerce’s Market Access 

and Compliance division.[Footnote 7] The team meets twice weekly to 

share information among the various offices and coordinate the agency’s 

position and actions on China’s implementation of its WTO commitments.



USDA:



Shortly after China’s accession to the WTO in December 2001, USDA 

recognized the need to gather expertise from across the agency to aid 

in effectively monitoring China’s WTO compliance regarding agriculture. 

As a result, USDA created two intra-agency task forces-a USDA-wide task 

force and a working-level task force within USDA’s Foreign Agricultural 

Service (FAS). Six USDA agencies participate in the USDA-wide China 

Task Force, which was created in February 2002 and meets quarterly. The 

FAS-wide China Task Force, which was first convened in March 2002, 

meets monthly to develop strategies for resolving China compliance 

issues.[Footnote 8] FAS officials said that both task forces are an 

effective means of sharing information and ensuring that the technical 

expertise of all relevant units are taken into consideration when 

responding to a compliance issue.[Footnote 9]



Department of State:



Following China’s accession to the WTO, State officers at the U.S. 

embassy in Beijing took the lead in coordinating the U.S. government’s 

compliance efforts in China. To that end, the embassy established a WTO 

Implementation Coordination Committee, which meets monthly and is 

chaired by the embassy’s economic minister. The committee coordinates 

the embassy’s WTO monitoring, compliance, technical assistance, and 

outreach efforts. State officers from relevant sections, as well as 

overseas officers from Commerce, USDA, and Customs, comprise the 

committee. According to State, the committee plays an important role in 

gathering, summarizing, and communicating information from China to 

U.S. government agencies in Washington, D.C.[Footnote 10]



At State headquarters, the Office of Chinese and Mongolian Affairs 

serves as the main communications link between U.S. agencies in 

Washington, D.C., and the U.S. embassy and consulates general in China. 

The office is therefore responsible for coordinating instructions and 

other diplomatic dispatches to the posts on China WTO compliance 

issues. This office coordinates with offices in State’s Bureau of 

Economic and Business Affairs to obtain sector-specific and other 

technical expertise on China trade issues.



Agencies Have Allocated Additional Resources to China Monitoring and 

Enforcement Efforts:



USTR, Commerce, USDA, and State have requested and received additional 

resources to carry out the additional responsibilities arising from 

China’s accession to the WTO. For example, full-time equivalent staff 

in key units that are involved in China monitoring and enforcement 

activities across the four agencies increased from about 28 to 53 from 

fiscal year 2000 to 2002, based on agency officials’ estimates (see 

table 1). Congress’s October 2000 legislation authorizing the President 

to grant permanent normal trade relations status to China contained 

specific provisions authorizing the appropriation of additional 

resources for monitoring and enforcement efforts at agencies’ 

headquarters and on the ground in China.[Footnote 11] Although no 

appropriation has been made under that October 2000 legislation, the 

President’s fiscal year 2001 budget requested $22 million for the four 

agencies to fund a Trade Compliance Initiative that emphasized the need 

for resources to monitor WTO compliance. Subsequently, Congress 

appropriated funds for the agencies’ overall monitoring and enforcement 

efforts, a portion of which the agencies used to enhance China 

compliance efforts.



Table 1: Agency Staffing Estimates for Key Offices Involved in China 

WTO Compliance Efforts, Fiscal Years 2000-2002:



Agency: USTR; 2000: 3; 2001: 3; 2002: 5.



Agency: Commerce; Market Access and Compliance[A]; Import 

Administration[B]; 2000: ; 7; 1.7; 2001: ; 19; 3.3; 2002: ; 22; 6.7.



Agency: USDA; Asia and the Americas Division [C]; FAS China field 

offices (excluding Hong Kong); 2000: ; 2.5; 5; 2001: ; 2.5; 5; 2002: ; 

2.5; 8.



Agency: State; Office of Chinese and Mongolian Affairs[D]; Beijing 

embassy economic section[E]; 2000: ; 2.25; 6; 2001: ; 2.25; 6; 2002: ; 

3.25; 5.5.



Agency: Total; 2000: 27.5; 2001: 41.1; 2002: 53.



Sources: USTR, Commerce, USDA, and State estimates for fiscal years 

2000-2002.



Note: Totals do not add due to rounding.



[A] Figures for Market Access and Compliance include actual full-time 

staff in the Office of China Economic Area, the Trade Compliance 

Center, and members of a Rapid Response trade compliance team who focus 

on China. The figure for 2002 does not include two overseas compliance 

officers that were approved in 2001, but were not placed until the end 

of fiscal year 2002 and early fiscal year 2003.



[B] With the exception of officers posted overseas in China, Import 

Administration officers do not have country-specific work portfolios. 

Therefore, these figures are based on Import Administration’s estimates 

of actual full-time equivalent staff working on China compliance 

issues. These figures do not include staff who conduct antidumping 

proceedings involving imports from China.



[C] Figures for the Asia and the Americas Division are based on FAS 

estimates of actual full-time equivalent staff working on China 

compliance issues.



[D] Figures for the Office of Chinese and Mongolian affairs are based 

on State’s estimates of actual full-time equivalent staff in the unit’s 

economic section, which is the section that is most involved in China 

WTO compliance issues.



[E] Figures for the Beijing embassy economic section are based on 

State’s estimates of actual full-time equivalent staff working on China 

compliance issues.



[End of table]



Commerce had the largest overall increase in staff devoted to China WTO 

compliance. Specifically, staffing levels in Commerce’s Market Access 

and Compliance division increased from 7 to 22 between fiscal years 

2000 and 2002. Additionally, Commerce’s Import Administration, which 

takes the lead on monitoring China’s commitments concerning subsidies 

and unfair trade practices, also significantly increased staff 

dedicated to China compliance activities over the same time 

period.[Footnote 12] Commerce has also increased the number of staff 

involved in agency’s compliance efforts on the ground in China by 

creating a Trade Facilitation Office within the Beijing 

embassy.[Footnote 13] In fiscal year 2001, Commerce established 

positions in this office for two Market Access and Compliance officers 

and two Import Administration officers. However, the positions were not 

filled until the end of fiscal year 2002 and early fiscal year 2003 due 

to training and delays in obtaining security clearances for the staff. 

According to Commerce, the office works with industry representatives 

to identify and address market access and WTO compliance concerns. USDA 

has also increased the number of overseas staff involved in the 

agency’s China WTO compliance activities. Specifically, FAS added a 

senior policy agricultural attaché to the embassy in Beijing and added 

two officers at the Agricultural Trade Offices in Beijing and Shanghai 

in fiscal year 2002.[Footnote 14] Attachés at the embassy are most 

directly involved in implementing the agency’s efforts to oversee 

China’s WTO compliance with its agriculture commitments. FAS officials 

said that other overseas officers play a critical role in tracking 

China’s compliance through their contacts with Chinese officials and 

traders in China. For example, officers in the Agricultural Trade 

Offices track agriculture-related laws and regulations issued by the 

Chinese government and communicate this information to headquarters 

staff.



Agency Performance and Strategic Planning Documents Reflect Emphasis on 

China WTO Compliance Issues:



In addition to making organizational changes and devoting additional 

resources to China WTO compliance efforts, the key agencies have also 

identified monitoring and enforcement as a priority in the agencies’ 

recent planning documents.[Footnote 15] For example, USTR specifically 

added China WTO monitoring and enforcement as a key agency performance 

goal in the agency’s fiscal year 2003 performance plan and most recent 

strategic plan. Additionally, State’s 2003 Mission Performance Plan for 

the overseas posts in China added specific goals, actions, and 

strategies related to the posts’ roles in monitoring and assisting in 

the enforcement of China’s WTO commitments.[Footnote 16] And although 

the most recent Commerce and USDA planning documents do not include 

specific goals relating to China WTO compliance, the plans do include 

more general goals relating to the monitoring and enforcement of 

existing WTO agreements. Both of these agencies’ plans also set forth 

broad strategies for ensuring market access for U.S. companies.



New Interagency Group Coordinates Compliance Activities and Utilizes 

Private Sector to Support Efforts:



U.S. government agencies coordinate their monitoring and enforcement 

activities through a formal interagency process and structure that is 

intended to ensure that the development of trade policy reflects a 

range of agency perspectives.[Footnote 17] Within this overall 

structure, a newly established multiagency, staff-level group focuses 

on China’s compliance with its WTO commitments. The agencies also seek 

input from businesses and industry groups for support on compliance 

activities.



Interagency Group Focuses on China WTO Compliance:



In 2001, USTR created an interagency group whose mandate is devoted 

exclusively to monitoring China and the extent to which it is complying 

with its WTO commitments.[Footnote 18] USTR’s Office of North Asian 

Affairs is responsible for chairing this new Trade Policy Staff 

Committee, Subcommittee on China WTO Compliance. Almost 40 officials, 

representing 14 departments and executive offices, participate in the 

China compliance subcommittee. This subcommittee is part of a structure 

of regionally, functionally, and industry-oriented subcommittees and 

task forces that are chaired by USTR staff and comprised of staff from 

a wide range of federal agencies. USTR assigns responsibilities for 

issue analysis to members of the appropriate staff subcommittee. 

Sometimes China-related trade issues are coordinated in other groups or 

at a higher level in the interagency structure process. For example, 

the intellectual property subcommittee took responsibility for some 

China WTO issues and coordinated its activities with the China WTO 

Compliance Subcommittee, according to USTR officials.



USTR’s China WTO Compliance Subcommittee adopted an action plan with 

eight components at its inaugural meeting on December 4, 2001. The 

action plan had eight components. Under the plan, the subcommittee is 

to conduct:



* comprehensive monitoring activities on a coordinated interagency 

basis, with input from private sector groups;



* regular dialogue with other WTO members;



* outreach to the private sector about the business environment it 

should expect in China;



* outreach to Chinese officials about their WTO commitments and 

compliance and its benefits;



* technical assistance and capacity building activities for China;



* active participation in the WTO Transitional Review Mechanism 

process;



* facilitation of congressional oversight, by providing an annual 

report to Congress; and:



* efforts to seek enforcement of U.S. rights through bilateral and 

multilateral means, including recourse to WTO dispute settlement 

procedures, as appropriate.



The China WTO Compliance Subcommittee was very active in its first 

year, and it met 11 times in 2002. In these meetings, officials 

evaluated and prioritized the monitoring activities undertaken, 

reviewed the steps that China has taken to implement its commitments, 

and decided on appropriate responses. Agency officials noted that much 

of the work and communication they do on China monitoring takes place 

informally outside of these formal meetings. Also, the subcommittee 

held a public hearing on September 18, 2002, and USTR issued its first 

annual report to Congress on China’s WTO Compliance on December 11, 

2002, as required by law.[Footnote 19]



Still, it took some time for the subcommittee to get up to full speed. 

For example, it took time for the various participants to work out 

roles and responsibilities, according to some agency officials. USTR 

officials sought to delineate tasks related to carrying out their 

monitoring action plan in China, Washington, D.C., and Geneva, 

including expectations for information gathering, reporting, and 

setting initial priorities. Furthermore, agency officials told us that 

obtaining timely and accurate translations of Chinese laws and 

regulations was sometimes a problem, which affected the agencies’ 

efforts to review the information. Also, agency officials undertook 

several activities at the beginning of the year to educate themselves 

on China’s WTO obligations. This was important, because monitoring 

these obligations entailed new or expanded responsibilities for 

officials in the field and many of the Washington-based officials were 

relatively new to their current jobs. For example, many of the USTR 

officials who had actively participated in the U.S. negotiations with 

China establishing those obligations changed jobs and/or left the 

government soon after China became a WTO member in 2001. Nevertheless, 

monitoring activities took place throughout the entire year.



Informal Private Sector Participation Is Important to Monitoring:



The private sector plays an important role in monitoring and 

enforcement activities. However, with regard to China, this role is 

generally carried out through informal contacts rather than through a 

formal system involving trade advisory committees from the private 

sector. These private sector committees complement the U.S. 

government’s interagency committee system.



USTR officials said the U.S. officials involved in China compliance 

monitoring obtain information from an informal, ad hoc network of 

business associations and individual companies to get information about 

Chinese trade practices and policies, to be alerted to market access 

problems and potential WTO violations, and to help weigh policy 

options. Business-government contacts take place both in China and in 

Washington, D.C. According to USTR officials, most of their business 

contacts are with individual companies. Business groups, including the 

U.S.-China Business Council, the U.S. Chamber of Commerce, the National 

Association of Manufacturers, and the American Chamber of Commerce in 

China, among others, also provide input and comment on policies 

relevant to the members of their organizations.



USTR officials said that USTR, Commerce, and USDA officials keep the 

various formal trade advisory committees informed of their China 

compliance-related activities and they sometimes receive input from 

these groups about the issues that concern them.[Footnote 20] However, 

these committees are not the primary source of private sector 

involvement in China-related monitoring and enforcement. There is no 

active private sector advisory committee on China or any geographic 

area.[Footnote 21]



A number of U.S. business and industry association representatives we 

interviewed generally thought they had established a good working 

relationship with executive branch officials on China trade issues. In 

our 2002 survey of U.S. companies with a presence in China, we asked 

business representatives whom they would be likely to contact if faced 

with difficulties related to China’s implementation of its WTO 

commitments. Business representatives reported that they were most 

likely to contact the U.S. embassy or consulate in China, their U.S. 

trade associations, China’s Ministry of Foreign Trade and Economic 

Cooperation, and USTR. They were less likely to contact other U.S. 

agencies in Washington, D.C. (See table 2.):



Table 2: U.S. Company Likelihood of Contacting Groups Regarding 

Difficulties Related to China’s Implementation of Its WTO Commitments:



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

embassy or consulate in China; Very or somewhat likely: 59%; Likely as 

unlikely: 10%; Very or somewhat unlikely: 21%; Don’t know: 9%; 	Number 

of responses: 181.



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

trade associations representing your company’s interests; Very or 

somewhat likely: 55; Likely as unlikely: 13; Very or somewhat unlikely: 

22; Don’t know: 10; Number of responses: 183.



Contact groups: (Rank-ordered responses expressed as percents): China’s 

Ministry of Foreign Trade and Economic Cooperation; Very or somewhat 

likely: 43; Likely as unlikely: 14; Very or somewhat unlikely: 30; 

Don’t know: 13; Number of responses: 183.



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

Trade Representative; Very or somewhat likely: 42; Likely as unlikely: 

21; Very or somewhat unlikely: 25; Don’t know: 12; Number of responses: 

178.



Contact groups: (Rank-ordered responses expressed as percents): Other 

Chinese government agencies or officials; Very or somewhat likely: 40; 

Likely as unlikely: 12; Very or somewhat unlikely: 21; Don’t know: 28; 	

Number of responses: 165.



Contact groups: (Rank-ordered responses expressed as percents): Chinese 

consultants; Very or somewhat likely: 39; Likely as unlikely: 16; Very 

or somewhat unlikely: 34; Don’t know: 12; Number of responses: 178.



Contact groups: (Rank-ordered responses expressed as percents): WTO 

Center in Shanghai; Very or somewhat likely: 38; Likely as unlikely: 

17; Very or somewhat unlikely: 28; Don’t know: 17; Number of responses: 

177.



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

Department of Commerce; Very or somewhat likely: 36; Likely as 

unlikely: 21; Very or somewhat unlikely: 30; Don’t know: 13; Number of 

response: 179.



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

Department of State; Very or somewhat likely: 23; Likely as unlikely: 

21; Very or somewhat unlikely: 40; Don’t know: 16; Number of responses:

178.



Contact groups: (Rank-ordered responses expressed as percents): 

Other[A]; Very or somewhat likely: 22; Likely as unlikely: 0; Very or 

somewhat unlikely: 26; Don’t know: 52; Number of responses: 23.



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

Congress; Very or somewhat likely: 21; Likely as unlikely: 21; Very or 

somewhat unlikely: 46; Don’t know: 13; Number of responses: 175.



Contact groups: (Rank-ordered responses expressed as percents): U.S. 

Department of Agriculture; Very or somewhat likely: 8; Likely as 

unlikely: 13; Very or somewhat unlikely: 64; Don’t know: 15; Number of 

response: 172.



Source: GAO.



Notes: GAO Survey of U.S. Companies on China-WTO issues, question 22 

(reprinted in U.S. General Accounting Office, World Trade Organization: 

Selected U.S. Company Views About China’s Membership, GAO-02-1056 

[Washington, D.C.: Sept. 23, 2002], p. 46).



Percentages are based on the number of respondents answering each 

question item.



[A] Other responses included, among others, China’s Ministry of 

Finance, U.S. Treasury, and the U.S.-China Business Council.



[End of table]



Companies reported mixed views regarding concerns that reporting 

compliance problems with WTO commitments to the U.S. government might 

result in retaliatory action by Chinese government entities against 

their companies. Specifically, almost half of the 48 companies that we 

interviewed said they were concerned about retaliatory action, and at 

least one had experienced such actions at first hand. A number of 

company representatives explained that they prefer to work under the 

cover of industry associations, resolve problems behind the scenes, 

and/or resolve problems directly in order to preserve business 

relationships in China. Other company representatives who did not fear 

retaliation noted that they had a history of raising issues with either 

the U.S. or the Chinese government.



U.S. Experience in Two Areas Illustrates Challenges Ahead:



U.S. agencies’ experiences in addressing compliance issues that arose 

in two areas during the first year of China’s WTO membership illustrate 

the challenges ahead. First, problems regarding China’s commitments to 

grant market access to certain bulk agricultural commodities through 

the use of tariff-rate quotas (TRQ) show the extensive effort that is 

needed to identify and begin to resolve what are sometimes complex and 

technical issues. Second, disagreement over implementing commitments 

creating a comprehensive review-referred to as a transitional review 

mechanism (TRM)-within the WTO to monitor China’s compliance shows the 

importance of having common expectations and gaining early consensus on 

the meaning of the terms agreed upon in a multilateral forum. In both 

of these areas, we describe the relevant WTO commitments that China 

made, the issues that arose in 2002 regarding implementation of these 

commitments, and the ways in which U.S. agencies sought to resolve 

these issues. The problems in both of these areas are unresolved, and 

these areas illustrate the types of challenges that U.S. officials may 

face in the second year of China’s membership. China’s actions 

regarding the interpretation and implementation of these commitments 

provide insight into how China might act as a WTO member in the future 

with regard to contentious issues. U.S. officials plan to pursue 

resolution of the TRQ and TRM issues with China in 2003.



Agricultural TRQs Demonstrate Monitoring Challenges:



China’s implementation of its agricultural TRQ commitments was an area 

of contention in the first year of China’s WTO membership. Under 

China’s TRQ commitments, a specific quantity of certain agricultural 

bulk commodities is to be allowed in at a low duty, while imports above 

that quota amount face higher tariffs. The commodities covered by TRQs 

are sensitive to China, and the trading of these commodities has been 

under government control.[Footnote 22] At the same time, these 

commodities are important for U.S. exporters because of the great 

market potential in China. According to USDA estimates, the increased 

access to China’s market under the WTO will expand annual U.S. farm 

incomes by $800 million from 2002 to 2009. Notwithstanding the 

potential of China’s market for agricultural goods, USTR highlighted 

agriculture as one of the three general areas (in addition to systemic 

transparency concerns) that generated significant problems in 2002 and 

warranted continued U.S. scrutiny. More specifically, USTR noted that 

the administration of China’s TRQ system was the “most troublesome” 

area within agriculture. The issues surrounding China’s implementation 

of its TRQ commitments are ongoing, and the problems have yet to be 

resolved. Meanwhile, the United States has attempted to resolve these 

problems through both bilateral and multilateral efforts.



China’s Agricultural TRQ Commitments Are Detailed, Varied, and 

Numerous:



China’s commitments relating to agricultural TRQs are detailed, varied, 

and numerous. Some commitments provide specific procedural guidance for 

administering China’s TRQ system, while others address the general 

principles of how the system should operate. China’s administration of 

its TRQ system, which includes decisions about how much of the total 

quota amount for each product is allocated and to whom, affects whether 

exporters can take full advantage of the market potential in China. The 

large number and type of TRQ commitments reflect the concerns that some 

WTO members held about the way in which China’s TRQ system would 

operate following its accession. For example, among the 58 WTO 

commitments that we identified as relating to TRQs, we found 40 to be 

guidance related. These types of commitments provide specific 

procedures for how China should administer its TRQ system. However, 

some commitments are less specific, such as those that address the 

general principles that China should abide by. China has committed to:



* increase its tariff-rate quota volumes over a 3 to 4 year 

implementation period;



* reserve a portion of the TRQs for importation through trading 

enterprises not run by the government;



* administer TRQs on a transparent, predictable, uniform, fair, and 

nondiscriminatory basis;



* follow specific time lines to publish quotas, accept applications, 

and allocate TRQs;



* establish government enquiry points and publish information on its 

quota allocation in an official journal; and:



* designate a single, central authority to make the decisions regarding 

all allocations and reallocations to end-users.



TRQ Implementation Issues Ranged Widely:



Besides a cross-cutting U.S. concern over transparency, a wide range of 

issues relating to China’s TRQ administration caused concern in the 

first year of China’s membership.[Footnote 23] Examples of the issues 

include the following: (1) China’s quota allocations to end-users 

missed the deadlines specified in the commitments; (2) the United 

States and China presented different opinions on what constitutes a 

“commercially viable” shipping quantity; and (3) the United States and 

China disagreed on whether China’s reserving a portion of the TRQ for 

reexporting violated China’s WTO commitments.



First, China missed the deadline specified in the accession agreement 

for issuing the quotas. China’s designated authority for agricultural 

TRQ administration, SDPC, was late to issue both draft and final 

regulations on TRQ quota allocation. Not only was SDPC late to begin 

the TRQ quota application process, but also its subsequent allocation 

of TRQs did not begin until late April 2002, approximately 4 months 

after the date specified in China’s WTO commitments. U.S. officials 

were unsure of the precise effect of this delay on market access. 

However, they agreed that the delay probably reduced the benefit of the 

quota allocations in 2002, since U.S. exporters missed the spring 

marketing season. Chinese officials whom we interviewed outlined 

several reasons for the delay: (1) China received many more 

applications for TRQs than expected, thus placing a heavy burden on 

China’s limited resources; (2) the switch of TRQ allocation authority 

from the provinces to a single central authority was a drastic 

adjustment for SDPC; and (3) China became a WTO member late in the year 

and therefore did not have enough time to prepare to issue TRQs by 

January 1. Problems with the timeliness of TRQ allocations for certain 

of the commodities have surfaced in 2003 as well. According to USTR and 

USDA officials, although China announced the 2003 TRQ amounts on time, 

the actual quota allocations to end-users had yet to be verified as of 

early March 2003.



Second, the United States and China presented different opinions on 

what constitutes commercially viable quantities. China’s WTO 

commitments require that quotas be allocated in commercially viable 

shipping quantities. The United States believed that SDPC allocated a 

portion of its 2002 TRQs for some commodities in smaller than 

commercially viable quantities--that is, the amount of the quota was 

too small to justify the cost of shipping the product from the United 

States to China. China maintained that the allocations were in fact 

made in commercially viable quantities. However, China noted in the WTO 

Committee on Agriculture transitional review meeting in September 2002 

that China was open to considering suggestions and further discussing 

this issue with the United States and other interested WTO members.



Third, the United States considered China’s practice of reserving a 

portion of the quotas for “processing trade” to be inconsistent with 

WTO obligations. China reserved a certain portion of the TRQ for each 

agricultural commodity for companies that process the imported 

commodities for reexport. End-users that received such quota 

allocations (after applying to another ministry) were required to 

reexport the processed product, and selling of the processed product in 

the Chinese domestic market was prohibited. In its first-year 

compliance report, USTR argued that this practice limited the market 

share held by foreign imports in China’s domestic markets. At the same 

time, they contended that this practice distorted trade by creating 

greater competition for WTO members’ processed goods in export markets 

outside of China. The United States further argued against the practice 

of reserving a portion of the TRQ for processing trade by referring to 

other commitments China had made as well as to general WTO 

principles.[Footnote 24] China responded that the processing trade has 

been in existence for 2 decades and that many enterprises in China, 

including joint ventures, engage in this business. China argued that 

those business interests should be accommodated. Furthermore, reserving 

a portion of the TRQs for those enterprises was based on objective 

demand and consumer preferences, and thus the practice was within the 

framework of TRQ commitments.



United States Used Multiple Sources and Bilateral and Multilateral 

Means to Address TRQ Issues:



The U.S. experience in addressing TRQ issues in 2002 shows that 

monitoring China’s compliance can entail significant effort. U.S. 

government agencies gathered information from the private sector, U.S. 

embassy personnel, and the Chinese government to identify potential 

problems concerning China’s compliance with its TRQ commitments. First, 

U.S. agencies used an informal network of business associations and 

individual companies to obtain information about Chinese trade 

practices and policies and to be alerted to market access problems and 

potential WTO violations. Industry groups used formal and informal 

channels to voice their concerns over TRQ implementation and provided 

input for USTR’s comments to the Chinese government on TRQ regulations. 

Several agricultural groups and companies also submitted written 

comments for USTR’s report on China’s WTO compliance in September 2002. 

Agricultural groups we interviewed noted that they also relied on 

informal means to communicate with USTR and USDA. Second, agency 

officials working in the U.S. embassy in Beijing were another prominent 

source of information. For example, the U.S. embassy translated various 

TRQ regulations from Chinese to English. The third source of 

information was the Chinese government. SDPC circulated the interim 

regulation on TRQs and the allocation guidance for public comment 

before issuing them in final form. USTR, USDA, and other agencies in 

the interagency process analyzed this information and determined how to 

respond. Therefore, USTR was able to provide detailed written feedback 

to the Chinese and anticipate potential problems. For example, the U.S. 

concern over reserving a portion of the quotas for the processing trade 

was expressed in the U.S. comments on the draft regulations early in 

the process of responding to China’s TRQ administration.



In responding to the TRQ compliance problems, the U.S. government used 

both bilateral and multilateral mechanisms. The bilateral activities 

included sending a “demarche,” or formal message, and letters to 

Chinese officials. Additionally, TRQs were discussed during USTR, USDA, 

State, and Commerce officials’ visits to China throughout the year. 

However, early bilateral meetings with the Chinese did not enable the 

United States to obtain the information it was seeking. So, after an 

interagency decision, the United States invoked a Chinese commitment 

for more formal bilateral consultations at the WTO. As a result of 

those consultations, the United States was able to get additional 

information about China’s TRQ administration. Generally, the United 

States tried to engage other WTO members to help resolve problems with 

China if there was multilateral interest. Additionally, five WTO 

members submitted questions to China relating to TRQs in the context of 

the transitional review mechanism at the WTO in September. The time 

line in table 3 illustrates the considerable number and type of 

activities that U.S. officials undertook at the bilateral and WTO 

multilateral level from late 2001 to early 2003 to address TRQ issues.



Table 3: Time line of Key U.S. Government TRQ-Related Activities and 

Events, 2001-2003:



Date: November 2001; Bilateral activities and events: U.S. provides 

written comments to China on draft TRQ regulations.; WTO multilateral 

activities and events: [Empty].



Date: December; Bilateral activities and events: USTR Chief 

Agricultural Negotiator meets with SDPC to discuss timeliness and other 

concerns related to TRQs.; WTO multilateral activities and events: USTR 

raises TRQ concerns with Chinese representative on the margins of the 

WTO General Council meeting.



Date: January 2002; Bilateral activities and events: Demarche notes 

China’s failure to publish regulations and application criteria, as 

well as allocate quotas by Jan. 1, 2002.; WTO multilateral activities 

and events: [Empty].



Date: February; Bilateral activities and events: U.S. provides written 

comments to China on final TRQ regulations; U.S. delegation raises 

agriculture-related concerns, including TRQs, during Bush-Jiang summit 

in Beijing; Demarche encourages China to allocate TRQs and publish 

relevant information as soon as possible.; WTO multilateral activities 

and events: [Empty].



Date: March; Bilateral activities and events: USTR official meets with 

MOFTEC officials about TRQ concerns.; WTO multilateral activities and 

events: U.S. delegation attends special session of the Committee on 

Agriculture and raises China TRQ issue.



Date: April; Bilateral activities and events: USTR Ambassador raises 

TRQ issues during visit to China. Subsequently, raises TRQ issues again 

in follow-up letter to MOFTEC Minister; Commerce Undersecretary 

meets with Chinese officials and is told that the national government 

has forwarded information on TRQs to the provinces; Commerce 

Secretary raises TRQ issues during visit to China; USTR officials 

meet with Chinese officials and are reassured of the allocation of 

TRQs; Demarche encourages the Chinese to make TRQ allocations; 

U.S. embassy requests a list of recipients for TRQ allocations from 

SDPC and MOFTEC.; WTO multilateral activities and events: [Empty].



Date: May; Bilateral activities and events: Demarche requests 

information about the TRQ allocations and expresses concern over lack 

of response from China on earlier requests; USTR Ambassador raises 

TRQ issues with MOFTEC Minister at Asia Pacific Economic Cooperation 

Ministerial.; WTO multilateral activities and events: U.S. addresses 

TRQ issues at the meeting of the Committee on Import Licensing. China 

responds that it has not anticipated difficulty and promises to 

allocate on time next year.



Date: June; Bilateral activities and events: Demarche requests that 

Chinese officials take responsibility for TRQ allocation; SDPC 

official meets with USTR official to discuss the status of China’s TRQ 

allocations.; WTO multilateral activities and events: U.S. raises TRQ 

issues at WTO Market Access Committee meeting; U.S. raises TRQ 

issues at WTO Agriculture Committee meeting.



Date: July; Bilateral activities and events: USTR official meets with 

Chinese officials to discuss TRQ allocations; Commerce official 

meets with MOFTEC officials to discuss TRQ concerns.; WTO multilateral 

activities and events: USTR formally requests bilateral consultation 

with China in Geneva concerning TRQ administration of agricultural 

goods for August 12, 2002.



Date: August; Bilateral activities and events: Letter from USDA to 

Chinese official notes the need to address the TRQ problem; USDA 

Secretary discusses TRQ issues during visit to China.; WTO multilateral 

activities and events: [Empty].



Date: September; Bilateral activities and events: An interagency team 

lead by USTR has discussions with senior Chinese officials in Beijing 

in a lead-up to the Crawford, Texas Presidential Summit.; WTO 

multilateral activities and events: USTR holds formal consultations 

(under the TRQ headnote) in Geneva with a delegation from China. 

; Committee on Agriculture holds its 32[ND] meeting on September 26. 

China responds to questions and comments regarding TRQs by the United 

States, Canada, the European Community, Japan, and Thailand in advance 

of the review.; U.S. raises TRQ issues at WTO Market Access Committee 

transitional review meeting; U.S. raises TRQ issues at WTO Import 

Licensing Committee transitional review meeting.



Date: October; Bilateral activities and events: FAS letter to SDPC 

delineates various concerns regarding TRQ implementation.; WTO 

multilateral activities and events: [Empty].



Date: November; Bilateral activities and events: [Empty]; WTO 

multilateral activities and events: U.S. delegation asks China about 

the TRQ license application process and the requirement that China has 

set aside a portion of the TRQ for entities that further process and/or 

reexport product imported under the TRQ at the WTO Committee on 

Agriculture meeting in Geneva.



Date: December; Bilateral activities and events: USTR sends letter to 

MOFTEC concerning China’s TRQ administration of bulk agricultural 

products.; WTO multilateral activities and events: [Empty].



Date: January 2003; Bilateral activities and events: [Empty]; WTO 

multilateral activities and events: USTR meets with Chinese delegation 

to the WTO in Geneva to lay the groundwork for USTR Ambassador’s trip 

to China and to discuss TRQ implementation issues.



Date: February 2003; Bilateral activities and events: USTR Ambassador 

meets with Chinese Premier-elect and MOFTEC Minister and discusses 

TRQs; Deputy USTR raises TRQ concerns during new trade dialog in 

Beijing.; WTO multilateral activities and events: [Empty].



Source: USTR, USDA, Commerce, and State.



Note: MOFTEC = Ministry of Foreign Trade and Economic Cooperation.



[End of table]



TRQ Issues Are Still Ongoing, as Private Sector Concerns Continue:



U.S. officials continue to pursue many of the TRQ-related issues with 

China to gain greater market access for U.S. exports of the affected 

products. In a December 2002 letter, the National Cotton Council urged 

the U.S. government to initiate dispute settlement consultations in the 

WTO with respect to China’s implementation of its TRQ for imported 

cotton fiber, and, if necessary, request the establishment of a dispute 

settlement panel to resolve the issue. It is important to note that 

implementation problems are not universal across all commodities. For 

example, getting a list of TRQ quota holders and a commercially viable 

shipping quantity have been concerns for U.S. cotton exporters but not 

for U.S. exporters of edible oil, according to industry representatives 

we interviewed. Furthermore, the various U.S. agricultural groups’ 

level of concern over China’s TRQ implementation varies because the 

commercial considerations vary for each commodity. China’s 

administration of its TRQ system is only one among many factors that 

affect U.S. exports to China. Chinese domestic demand and supply, as 

well as the size of the domestic Chinese stock of these commodities are 

important determinants of trade flows. Also, international competition 

with other exporting countries as well as exchange rates affect U.S. 

exports to China. As a result of all these factors together, in 2002, 

the level of agricultural exports that filled the various Chinese quota 

amounts for the TRQ commodities ranged from zero to 67 

percent.[Footnote 25]



The Transitional Review Mechanism Did Not Meet U.S. Expectations:



Because China’s economy is in a transitional stage from a nonmarket to 

a market economy, and because China’s commitments required China to 

make extensive changes to its trade regime, WTO members, and 

particularly the United States,[Footnote 26] pushed for China’s 

accession package to include commitments creating a transitional review 

mechanism. This mechanism is intended to be a means for WTO members to 

annually review China’s implementation of its WTO commitments and the 

development of China’s trade with other WTO members until all of 

China’s commitments are phased in.[Footnote 27] These TRM commitments 

are important, because they establish a multilateral monitoring 

mechanism that allows WTO members to better understand China’s trade 

practices and to communicate their expectations to China.



Just as the establishment of a transitional review mechanism was one of 

the more challenging issues to negotiate with China, implementing the 

process during the first year (2002) also proved to be challenging. WTO 

members did not reach consensus on how the review should proceed 

because of the lack of specificity in some of the commitments, leaving 

the process open to debate. The United States, China, and other WTO 

members had different expectations about what the review should entail 

and produce. They disagreed on the form and timing of the information 

to be exchanged and on the thoroughness of the review. U.S. activities 

to resolve these differences on a multilateral basis through the WTO 

did not yield a consensus and were unsuccessful. As a result, with few 

exceptions, there was not a complete and thorough review of China’s 

compliance issues, nor any summary conclusions about the first year of 

China’s implementation by the WTO. Thus, the TRM process fell short of 

the meaningful review hoped for by U.S. and other country officials. 

U.S. government officials agreed that the TRM process would have worked 

better if there had been greater consensus from WTO members on their 

expectations regarding China’s actions. However, U.S. officials cited 

benefits from participating in the TRM process, such as demonstrating 

to China the United States’ commitment to thoroughly reviewing China’s 

WTO implementation, and solidifying interagency coordination for the 

years ahead. U.S. officials said they are hopeful that they can work 

with China and other WTO members to achieve more workable procedures 

for future reviews.



Commitments Create TRM, but Procedural Details Not Specified:



The transitional review mechanism, which is unique to China, is defined 

through about 75 commitments in China’s accession agreement.[Footnote 

28] The commitments address two matters: (1) the scope and process for 

the WTO review and (2) the exchange of information. First, these TRM 

commitments lay out the scope of review and some procedures for China 

and WTO members to follow. About a dozen commitments require annual 

reviews by all 16 WTO subsidiary bodies and then by the WTO General 

Council, making use of the results of those of the subsidiary 

bodies.[Footnote 29] The reviews are to occur annually for 8 years, 

with a final review in year 10.[Footnote 30] The General Council 

reviews are not limited to an examination of China’s implementation of 

its WTO commitments but are to include broader issues dealing with (1) 

the development of China’s trade with WTO members and other trading 

partners and (2) recent developments and cross-sectoral issues 

regarding China’s trade regime. Second, in regard to the exchange of 

information, China’s accession agreement sets forth a broad range of 

information that China must provide annually to the 16 WTO subsidiary 

bodies for their reviews. We identified 62 commitments requiring China 

to provide economic data and information on its (1) economic policies, 

(2) framework for making and enforcing policies, (3) policies affecting 

trade in goods and services, and (4) trade-related intellectual 

property regime.



USTR officials believed additional rules were needed to ensure timely 

responses from China. While China’s accession agreement establishes a 

general framework for TRM procedures, several other aspects of the 

review are not specified. Therefore, these aspects have to be 

coordinated between the members of the various WTO subsidiary bodies 

and the General Council, which includes China. For example, China’s 

commitments require China to submit information and documentation 

relating to the General Council’s review no later than 30 days prior to 

the review date. However, there is no similar specific requirement for 

when China needs to provide information to the subsidiary bodies for 

their reviews, which need to be done before those of the General 

Council. Similarly, China is to respond to specific questions from 

members in connection with the review conducted by both the subsidiary 

bodies and the General Council. However, while the agreement indicates 

that members should submit questions and China should respond to those 

questions in advance of the reviews, the agreement does not establish 

how the process should work with any more particularity. For example, 

the agreement does not set forth agreed timelines for the process, nor 

whether questions raised in advance by WTO members should be answered 

in writing or provided orally.



No Consensus on Expectations for TRM:



U.S. officials expected a detailed multilateral review of China’s WTO 

implementation each year of the TRM, but this expectation differed from 

that of China. Under U.S. expectations, China’s TRM would follow a set 

of mutually agreed to procedures, and China would provide the usual 

information required of all WTO members as well as additional 

information related to its accession agreement. Furthermore, U.S. 

officials expected that China would respond to their questions before 

the relevant WTO committee meetings and in writing. They also expected 

opportunities for follow-up questions and answers either in writing or 

in subsequent meetings. With all this information in hand, members then 

could thoroughly analyze the answers and take them into account as part 

of their review to come to conclusions about China’s implementation. In 

addition, U.S. officials initially were seeking to have the WTO General 

Council synthesize the results of the reports of the various subsidiary 

bodies, come to some summary conclusions, and issue a final report with 

recommendations.



Chinese officials seemed to expect a more limited review and took a 

more narrow view of the TRM commitments. In fact, Chinese officials 

told us that while they would abide by these commitments, they 

considered the review mechanism discriminatory in nature, since it only 

applied to China, and that it had been “imposed on them.” They would 

not accept any additional procedures concerning the form, nature, and 

timing of the information they were to submit or the review itself. 

Chinese officials told us that such procedures were not in the 

commitments and appeared to them as an attempt to renegotiate and add 

to the terms of their accession. They took the position that any 

information that was specifically called for in their commitments 

(outside of regular WTO notification requirements) could be submitted 

orally and that it need not be submitted before individual committee 

meetings where the “review” was to take place. Chinese officials 

believed the review should come at the last meeting of the year in each 

subsidiary body, just before the last General Council meeting in 2002, 

and should be limited to that one meeting.



The expectations of other WTO members varied. Some members sympathized 

with China and believed that other WTO members were pushing the TRM too 

hard, especially since this was the first year of China’s membership. 

Other members were less sympathetic and expected the review to help 

resolve problems and to exert pressure on China to fully implement its 

commitments. Similarly, there was no agreement among WTO members 

concerning the interpretation and implementation of the TRM 

commitments. For example, some members agreed with China and did not 

think that these commitments required China to answer questions in 

writing and did not expect China to do so. Other members shared the 

U.S. expectation that Chinese commitments to provide information to 

other members in advance implicitly required China to provide answers 

in writing. Additionally, other members’ expectations about the nature 

of the final product of the review also varied or were uncertain.



U.S. Activities Related to TRM Implementation:



Planning and preparations for the first WTO review of China’s 

implementation of its commitments got off to a slow start after China 

became a WTO member. Through the first half of 2002, U.S. officials, 

other WTO members, and WTO Secretariat officials searched for consensus 

about how the review should proceed. Moreover, there was a lack of an 

early plan of action from the United States, other WTO members, and the 

WTO Secretariat[Footnote 31] concerning scheduling meetings and other 

procedural issues. Chinese officials refused to agree to have any 

discussion of TRM-related procedures placed on the agenda for (early) 

subsidiary body meetings. At that time, officials from other member 

countries expressed concern that the lack of an agreed strategy on TRM 

procedures might affect the quality of the reviews.



It was not until April 2002 that the U.S. interagency China WTO 

Compliance Subcommittee agreed to a paper for the WTO setting forth 

U.S. views as to the appropriate timing and procedures for the TRM. The 

United States proposed that China submit the information called for in 

its accession agreement and that members’ questions and China’s answers 

begin to be exchanged in writing at agreed time periods in advance of 

each subsidiary body meeting so that further exchanges could take place 

at the meetings themselves. Furthermore, the United States proposed 

that the required WTO reports present a focused juxtaposition of 

members’ concerns and Chinese responses. U.S. officials said they were 

open to other procedures that accomplished their objectives.



However, Chinese officials rejected the U.S. proposal and any deadlines 

and requests for written answers to members’ questions. USTR held 

formal and informal discussions in Geneva to resolve the various 

logistical matters and procedures necessary to implement the TRM 

properly, such as the dates of meetings and the deadlines for China to 

submit relevant information and to respond to other WTO members’ 

questions. USTR said that these discussions had not gone as quickly as 

it would have liked, in part because the Chinese delegation was still 

trying to become familiar with WTO practices and procedures. Around 

midyear, it was accepted that the TRM would begin with WTO subsidiary 

body meetings in September, according to USTR officials.



Thus, with regard to the TRM, U.S. activities in the first half of 2002 

were focused on procedural issues. With no consensus on the TRM, each 

subsidiary body made ad hoc decisions about how the TRM would proceed, 

according to USTR officials.



Nevertheless, beginning in March the U.S. and other WTO member 

officials began raising individual substantive implementation issues 

with Chinese officials on numerous occasions during various WTO 

meetings. Typically these issues involved time-sensitive matters, for 

which it did not make sense to wait for the annual TRM in the fall, 

according to USTR officials.



Then in the second half of 2002, U.S. activities focused on raising 

substantive issues in the TRM context. In July, USTR began preparations 

for U.S. participation in the TRM, establishing deadlines for the U.S. 

agencies comprising the China WTO Compliance Subcommittee to provide 

input for questions to ask China in advance of the WTO subsidiary body 

reviews. USTR also solicited the views of the private sector through 

the:



chairs of the various formal trade advisory committees. The United 

States and other WTO members submitted questions in writing to the 

Chinese in advance and tried to press them for further information 

during various committee meetings. Table 4 presents a chronology of key 

events related to the TRM in 2002.



Table 4: Time line of Key TRM-related Activities and Events, 2002:



Month: January; Event: [Empty].



Month: February; Event: [Empty].



Month: March; Event: U.S. interagency China WTO Compliance Subcommittee 

discusses TRM.



Month: April; Event: China WTO Compliance Subcommittee approves U.S. 

proposal on TRM timing and procedures; China blocks TRM from being 

placed on some committee agendas. China rejects U.S. proposal.



Month: May; Event: USTR holds bilateral consultations with Chinese and 

other WTO members on TRM procedures.



Month: June; Event: USTR holds bilateral consultations with Chinese and 

other WTO members on TRM procedures.



Month: July; Event: USTR requests input on TRM from Interagency Trade 

Advisory Committees and Private Sector Trade Advisors on behalf of the 

China WTO Compliance Subcommittee.



Month: August; Event: United States begins submitting written questions 

to China for TRM issues in advance of subsidiary body meetings.



Month: September; Event: Review by Council on TRIPS, and committees on 

Agriculture, Antidumping, Import Licensing, and Market Access.



Month: October; Event: Review by Council on Services, and committees on 

Technical Barriers to Trade, Safeguards, Trade-Related Investment 

Measures, and Financial Services.



Month: November; Event: Review by Council on Goods and committees on 

Balance-of-Payments, Sanitary and Phytosanitary Measures, Subsidies, 

Customs Valuation, and Rules of Origin.



Month: December; Event: Review by General Council.



Source: USTR and WTO documents.



Note: TRIPS = Trade-Related Aspects of Intellectual Property Rights.



[End of table]



WTO Review Was Limited and Results Were Disappointing:



The depth of the TRM reviews conducted in almost all the reviewing WTO 

councils and committees was limited. Overall, the Chinese did an 

adequate job of submitting their standard written WTO notifications and 

other information called for in China’s accession agreement, according 

to USTR officials. However, in several committee meetings, U.S. 

officials expressed their disappointment that China missed deadlines, 

provided incomplete information, and failed to meet some reporting 

requirements. While the United States and other WTO members sought 

answers to their questions in writing well before WTO meetings, Chinese 

officials submitted answers to some questions in writing just before or 

during meetings and submitted written versions of their oral answers to 

other members’ questions after some other meetings. While appreciating 

the answers they received, some WTO members expressed concern in many 

meetings that all of their questions had not been fully answered. In 

response, Chinese officials offered to give information to individual 

members bilaterally and orally after the meetings but outside of the 

context of the TRM. Although China’s WTO “notifications” containing the 

usual information required of all WTO members were useful, U.S. 

officials did not obtain the type of additional information they had 

hoped for. A USTR official said that the method of operation that the 

WTO eventually adopted for the first year was an interim solution that 

needs to be improved upon.



Generally, however, U.S. officials told us they were disappointed with 

the results of the first TRM. The subsidiary bodies held their reviews 

in September through November 2002 and did not conduct any assessment 

per se. The reports to the General Council were factual and limited to 

descriptions of the discussion in the meetings where the review was 

held; these descriptions presented the issues that WTO members raised 

and China’s responses in the meetings without providing any summary, 

analysis, or conclusions. The General Council held its review in 

December; however, it did not issue a report and it did not make any 

recommendations.



Other WTO members recognized that the 2002 TRM process had problems as 

well. Several WTO members expressed frustration in some WTO subsidiary 

body meetings about the TRM and said they were not satisfied with the 

review that had taken place. During the General Council review, several 

WTO members, including the United States, expressed hope that the TRM 

process could be improved in 2003. Acknowledging the problems in the 

2002 review overall, the Chairman of the General Council said that next 

year’s TRM would benefit from having time built into the process 

throughout the year to conduct the next review.



U.S. Officials Noted Some Benefits of TRM:



While U.S. officials recognized that there were many problems in the 

WTO’s review of China’s compliance under the TRM process in 2002, they 

said that the effort was valuable nevertheless. First, the process 

enabled them to have a constant engagement with China on a wide variety 

of issues--in a multilateral setting. As a result, the United States 

was able to demonstrate to China its commitment to reviewing China’s 

WTO implementation. Second, as part of the process there was a greater 

flow of information--between WTO members and China, and also within 

national bureaucracies. Third, the process further institutionalized 

China’s commitment to reform.



Furthermore, U.S. officials told us that the U.S. government’s 

monitoring efforts benefited at the interagency level from the 

experience gained in participating in the TRM process. For example, 

some officials noted that the TRM resulted in improved U.S. government 

attention to China WTO compliance issues. The process also forced 

better coordination and cooperation among agencies as they worked 

together to submit questions and analysis to Geneva in advance of the 

WTO committee meetings.



Implications for the 2003 Review:



The first year of China’s TRM did not result in the thorough and 

detailed multilateral review of China’s compliance that U.S. officials 

envisioned. If the experience in the 2002 TRM does not result in 

improvements, however, the situation could set an unfortunate precedent 

for future WTO reviews of China. While the review was beneficial, it 

was undercut by the U.S. and other WTO members’ inability to get 

complete and timely information from China and by disagreement over 

whether the WTO should come to any conclusions or make any 

recommendations about China’s implementation of its WTO commitments. It 

is important to acknowledge two mitigating factors. First, this was the 

first year of operations for the TRM and the China WTO Compliance 

Subcommittee that coordinates U.S. participation. Second, any changes 

in the WTO review process would have required the consensus of all 

members, including the Chinese. The incentives for China to do so are 

unclear. Nevertheless, without any change, continued problems and 

frustrations can be expected as a result of the 2003 review.



However, USTR officials told us they would continue to press for 

procedures that will provide for the orderly give and take of 

information. For example, they said they could build on the relatively 

successful 2002 review in the Council on Trade-Related Aspects of 

Intellectual Property Rights, which reviewed implementation of China’s 

legislation in this area. USTR officials told us they plan to consult 

with other WTO members about how to improve the TRM through more 

regular procedures. They hope that more countries will actively 

participate in the next review, since only a handful of countries 

submitted questions in advance of subsidiary body meetings in 2002. 

USTR officials told us that they have begun to develop a strategy to 

make the process better for the future, and they raised the issue with 

Chinese officials in February 2003. They are optimistic that China will 

be more open to multilateral review of its compliance now that it has 

the experience of being a WTO member for more than 1 year.



Agency Comments and Our Evaluation:



We requested comments on a draft of this report from the U.S. Trade 

Representative and the secretaries of Agriculture, Commerce, and State 

or his or her designee. On March 18, 2003, the Deputy Assistant U.S. 

Trade Representative for China provided us with written technical 

comments on the draft. These comments included the views of officials 

from the departments of Commerce and State, which were transmitted to 

USTR in its capacity as chair of the interagency Trade Policy Staff 

Committee, Subcommittee on China WTO Compliance. Department of 

Agriculture officials provided written comments directly to us on March 

17, 2003.



Many of the agency officials’ comments focused on our in-depth look at 

TRQ and TRM issues. USTR officials provided us new information about 

additional key efforts they had made to resolve the TRQ problem “in 

order to give a proper sense of what is involved in pressing sensitive 

issues like TRQs,” and we incorporated this information in the draft 

report where appropriate. We also revised the draft based on technical 

comments regarding our descriptions of first-year TRQ compliance issues 

and the status of China’s TRQ allocations in 2003. In response to their 

comments on our draft TRM section, we clarified our observation that it 

was planning and preparations for the TRM that got off to a slow start, 

not the WTO TRM process itself, which was expected to begin in the 

fall, according to USTR officials. Furthermore, we clarified our 

description of the United States and other members raising questions 

about China’s WTO implementation to make it apparent that these efforts 

began earlier in the year and were independent of the transitional 

review for China. We made similar clarifications to this section about 

the consensus needed to proceed in the WTO and the benefits of the 

first TRM, among other things. We also modified our observations about 

the U.S. government’s preparations for the 2003 TRM after USTR 

officials provided some additional information about their plans and 

activities to date.



Agency officials also made specific technical and editorial comments 

about other sections of the draft, which we accepted when appropriate. 

For example, we made changes to the draft regarding our discussion of 

agency resources based on State’s estimates of full-time equivalent 

staff in the Beijing embassy’s economic section working on China 

compliance issues. In some cases we declined to accept the agencies’ 

alternative characterizations. For example, the agencies disagreed with 

our observation that it took some time for interagency roles and 

responsibilities to be worked out. They commented that this was a 

relatively short period of time and that such a situation might be 

expected with a new endeavor of this type. While we present the 

agencies’ comment here, we nevertheless believe that it is important to 

make it clear that there were some initial difficulties associated with 

interagency coordination on China WTO compliance during 2002.



:



We are sending copies of this report to the U.S. Trade Representative, 

the secretaries of Agriculture, Commerce, and State, and interested 

congressional committees. Copies of this report will also be made 

available to other interested parties on request. In addition, the 

report will be made available at no charge on the GAO Web site at 

http://www.gao.gov.



If you or your staff have any questions about this report, please 

contact me on (202) 512-4128. Other GAO contacts and staff 

acknowledgments are listed in appendix II.



Susan S. Westin

Managing Director, International Affairs and Trade:



Signed by Susan S. Westin:



[End of section]



Appendixes:



Appendix I: Objectives, Scope, and Methodology:



As part of a long-term body of work that the Chairman and the Ranking 

Minority Member of the Senate Committee on Finance, as well as the 

Chairman and the Ranking Minority Member of the House Committee on Ways 

and Means, requested, we examined how the U.S. Trade Representative 

(USTR) and the departments of Commerce, Agriculture (USDA), and State 

are positioned to monitor and enforce China’s compliance with its World 

Trade Organization (WTO) commitments. Specifically, in this report, we 

(1) describe the changes to each agency’s plans, organization, and 

resources in light of China’s accession to the WTO, and to the 

interagency process used to fulfill these responsibilities; and (2) 

review how these agencies have addressed certain compliance issues that 

have arisen during the first year of China’s WTO membership.



To describe the changes to the agencies’ organization, resources, and 

plans, and to the interagency process used to monitor and enforce 

China’s compliance, we reviewed a variety of official documents and 

interviewed knowledgeable agency officials. First, we reviewed each 

agency’s most recent performance and strategic plans to determine how 

China WTO monitoring and enforcement is incorporated into the agencies’ 

planning processes. Second, to determine how each agency is organized 

to carry out China WTO compliance efforts, we reviewed official 

statements and other agency documents, including information that 

describes the structure and function of intra-agency China WTO 

compliance teams. We supplemented this information by interviewing 

knowledgeable agency officials. Third, we asked each agency to provide 

us with the actual number of full-time equivalent staff in key units 

involved in China WTO compliance efforts for fiscal years 2000 to 2002. 

If detailed staffing data were not available, we asked the agency to 

estimate the number of actual full-time equivalent staff involved in 

the agency’s China WTO compliance activities. We did not verify the 

accuracy of the agencies’ estimates. Last, we reviewed documents 

detailing the interagency process for monitoring China’s WTO 

compliance, including minutes, agendas, hearing submissions, and 

hearing transcripts from the Trade Policy Staff Committee, Subcommittee 

on China WTO Compliance.



To describe the role of the private sector, we interviewed several 

business associations, including the U.S.-China Business Council, the 

U.S. Chamber of Commerce, the National Association of Manufacturers, 

and the American Chamber of Commerce in China (Beijing and Shanghai). 

To determine where U.S. companies with a presence in China go for 

assistance with their compliance problems, we surveyed 551 selected 

chief executive officers or presidents of U.S. companies with a 

presence in China. We also conducted structured interviews with 

representatives of 48 U.S. firms in Beijing, Guangzhou, Shanghai, and 

Shenzhen, China.[Footnote 32]



To review how these agencies have addressed compliance issues that have 

arisen in the first year of China’s WTO membership, we examined two 

areas of China’s commitments where there was significant monitoring and 

enforcement activity. First, we chose to examine activities related to 

China’s regulating imports of certain bulk agricultural commodities 

through a tariff-rate quota (TRQ) system because (1) the area was 

economically important to U.S. exporters, (2) China made numerous WTO 

commitments to change its practices in this area, and (3) there was 

significant compliance activity on the part of the U.S. government in 

the first year of China’s WTO membership related to this issue. 

Additionally, USTR noted that agriculture, and specifically China’s 

regulation of these bulk commodities, was an area of concern for the 

first year of China’s implementation of its WTO commitments. Second, we 

chose to examine activities that related to implementing an annual 

review--referred to as a transitional review mechanism (TRM)--of 

China’s trade policies within the WTO, because the mechanism is an 

important aspect of WTO members’ ability to monitor China’s compliance 

with its commitments. Additionally, although the United States and some 

WTO members had problems with China’s compliance with its TRM 

commitments, USTR did not discuss the issue in its first report to 

Congress on China’s WTO compliance. Last, the area concerned issues 

that were important to Congress and other U.S. officials. For example, 

legislation authorizing the President to grant China permanent normal 

trade relations with the United States emphasized the importance of 

creating a multilateral review of China’s commitments within the WTO by 

making the establishment of the review an explicit U.S. negotiating 

objective.[Footnote 33] Our descriptions of China’s commitments in 

these areas are based on our past work.[Footnote 34]



It is important to note that these two areas are not representative of 

China’s compliance record overall but do illustrate the kinds of 

compliance issues that U.S. officials try to resolve. Similarly, our 

observations about the U.S. government’s experience in monitoring and 

enforcing commitments in these two areas cannot be generalized to other 

parts of the agreement. USTR’s first report to Congress on China’s WTO 

compliance described other examples of issues faced in the first year 

of China’s membership.[Footnote 35] The report noted that overall in 

2002 China made significant progress in implementing its commitments, 

both in undertaking many of the required systemic changes and in 

implementing specific commitments. At the same time, the report noted 

serious concerns in some areas where implementation had not yet 

occurred or was inadequate.



To review TRQ issues, we analyzed WTO correspondence, U.S. government 

demarches and letters to Chinese officials, and questions from WTO 

members to China in the context of the TRM. In addition, we interviewed 

officials at the National Cotton Council of America, National Oilseed 

Processors Association, and U.S. Wheat Associates, and reviewed trade 

data related to these commodities.



To review issues related to the WTO’s TRM for China, we analyzed World 

Trade Organization and U.S. agency documents, including summaries of 

questions submitted to the WTO’s General Council and subsidiary 

committees, and interviewed knowledgeable U.S. government, foreign 

government, and World Trade Organization officials.



We performed our work from November 2002 through February 2003 in 

accordance with generally accepted government auditing standards. This 

work builds on prior GAO analyses initiated in July 2001.



[End of section]



Appendix II: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Loren Yager (202) 512-5351

Adam Cowles (202) 512-9637

Matthew E. Helm (202) 512-7959:



Acknowledgments:



In addition to those named above, Ming Chen, Shakira Edwards, Nima 

Patel-Edwards, Jane-yu Li, Rona Mendelsohn, Michelle Sager, and Richard 

Seldin made key contributions to this report.



(320164):



FOOTNOTES



[1] Pub. L. 106-286, 114 Stat. 901 (Oct. 10, 2000).



[2] The U.S. Trade Representative’s first report to Congress on China’s 

World Trade Organization compliance noted that overall in 2002 China 

made significant progress in implementing its commitments, both in 

undertaking many of the required systemic changes and in implementing 

specific commitments. At the same time, the report noted serious 

concerns in some areas where implementation had not yet occurred or was 

inadequate. See U.S. Trade Representative, 2002 Report to Congress on 

China’s WTO Compliance (Washington, D.C.: Office of the U.S. Trade 

Representative, Dec. 11, 2002).



[3] For more information on the overall roles and responsibilities of 

U.S. government agencies in monitoring and enforcing trade agreements, 

see U.S. General Accounting Office, International Trade: Strategy 

Needed to Better Monitor and Enforce Trade Agreements, GAO/NSIAD-00-76 

(Washington, D.C.: Mar. 14, 2000).



[4] An Assistant U.S. Trade Representative heads the office, which has 

overall responsibility for overseeing trade policy toward China, Japan, 

Hong Kong, South Korea, Mongolia, and Taiwan.



[5] In some cases, these offices take the lead on certain China trade 

issues. For example, USTR’s Office of Services, Investment, and 

Intellectual Property has the lead role on China-related intellectual 

property issues, such as monitoring China’s compliance with WTO rules 

on enforcing patent and trademark protection. However, the office 

coordinates with the Office of North Asian Affairs to ensure 

information sharing between the two units.



[6] Besides Market Access and Compliance, the other offices that 

comprise the China Compliance Team are Import Administration, Trade 

Development, U.S. and Foreign Commercial Service (FCS), the Trade 

Information Center, and the Office of General Counsel.



[7] Within Market Access and Compliance, two offices, the Office of 

China Economic Area and the Trade Compliance Center, are directly 

involved in coordinating the agency’s China compliance activities on 

most issues.



[8] Within FAS, the Asia and the Americas Division and the Multilateral 

Trade Negotiations Division have direct responsibility for coordinating 

the agency’s China WTO compliance efforts. These two divisions 

coordinate with other FAS units to obtain input and expertise on 

specific agricultural commodities and other technical issues. For 

example, staff in FAS commodity-specific units analyze and provide 

input on China’s regulations relating to biotechnology and sanitary 

measures. 



[9] Both task forces may convene more frequently if the need arises.



[10] The embassy has also established a working group specifically 

focused on monitoring China’s intellectual property legislation and 

enforcement.



[11] Pub. L. 106-286, § 413, 114 Stat. 901.



[12] Import Administration’s responsibilities include enforcing U.S. 

law relating to antidumping measures and countervailing duties. 

Antidumping measures include a duty or fee imposed to neutralize the 

injurious effect of unfair pricing practices known as “dumping.” 

Dumping refers to the sale of a commodity in a foreign market at a 

lower price than its normal market value. A countervailing duty is a 

special duty that an importing country imposes to offset the economic 

effect of a subsidy and to prevent injury to a domestic industry caused 

by a subsidized import.



[13] U.S. and Foreign Commercial Service (FCS) officers in five 

locations throughout China (Beijing, Chengdu, Guangzhou, Shanghai, and 

Shenyang) also support Commerce’s in-country compliance and monitoring 

efforts by maintaining contact with U.S. companies in China and 

gathering information about potential compliance problems. 



[14] A third Agricultural Trade Office is located in Guangzhou.



[15] The Government Performance and Results Act of 1993, Pub. L. 103-

62, requires federal agencies to engage in a results-oriented strategic 

planning process. In general, the plans include descriptions of agency 

goals and objectives, and measures for assessing the agency’s 

performance in meeting those goals. 



[16] Mission Performance Plans are annual embassy plans describing 

performance goals and objectives.



[17] Congress created an interagency structure in the Trade Expansion 

Act of 1962, codified at 19 U.S.C. §1872, which has been amended 

several times. This structure, called the Trade Policy Committee, led 

by USTR, has two subordinate bodies--the Trade Policy Review Group (a 

management-level committee) and the Trade Policy Staff Committee (a 

senior staff-level committee subordinate to the management-level 

committee). These subordinate committees include all the agencies that 

are members of the Trade Policy Committee, as well as a wide range of 

other agencies.



[18] This subcommittee replaced an existing China subcommittee, which 

had a more general mandate and was not as active. 



[19] Pub. L. 106-286, § 421, 114 Stat. 903.



[20] Congress created the private sector advisory committee system to 

ensure that U.S. trade policy and negotiation objectives reflect U.S. 

commercial and economic interests. (See sec. 135 of the Trade Act of 

1974, as amended, codified at 19 U.S.C. § 2155.) Generally, these 

advisory committees provide information and advice both prior to the 

United States entering into trade agreement negotiations and on other 

matters relating to U.S. trade policy. See U.S. General Accounting 

Office, International Trade: Advisory Committee System Should Be 

Updated to Better Serve U.S. Policy Needs, GAO-02-876 (Washington, 

D.C.: Sept. 24, 2002).



[21] Instead, the advisory committees that the agencies keep informed 

have an industry-specific or sector focus, such as on agricultural 

commodities or on functional cross-sectoral issues, such as 

intellectual property rights.



[22] These agricultural bulk commodities include wheat, corn, rice, 

cotton, soybean oil, palm oil, rapeseed oil, sugar, and wool, covering 

37 tariff lines in China’s WTO accession schedule.



[23] USTR pointed out that China’s designated TRQ administrative 

authority, the State Development and Planning Commission (SDPC), 

offered limited transparency, because the authority refused to provide 

specific details on the amounts and the recipients of the TRQ 

allocations.







[24] Among others, some of the arguments the U.S. made against China’s 

practice are the following: (1) The practice lacks transparency; (2) 

The practice appears to be inconsistent with China’s obligation to have 

a single, central authority (SDPC) to administer TRQs; (3) The practice 

appears to be inconsistent with the obligation to allocate the entire 

TRQ to end-users by January 1 of each year; and (4) The practice 

improperly attaches restrictions to the use of some imported products.



[25] The percentage of China’s TRQs that were actually filled (that is, 

fill rate) in 2002 for certain key commodities including corn was 0.1 

percent; cotton, 21.6 percent; soybean oil, 34.6 percent; sugar, 67.1 

percent; and wheat 7.5 percent. The simple average of the TRQ fill rate 

for all countries reported by WTO was 50 percent in 1999. 



[26] A provision in the legislation authorizing the President to grant 

permanent normal trade relations to China stated that “[i]t shall be 

the objective of the United States to obtain. . .an annual review 

within the WTO of the compliance by the People’s Republic of China with 

its terms of accession to the WTO” (Pub.L. 106-286, § 401, 114 Stat. 

900).



[27] The TRM is additional to the WTO’s trade policy review mechanism, 

which provides for a broad review of the trade regimes of all WTO 

members on a scheduled basis. However, WTO members viewed the trade 

policy review mechanism as insufficient to oversee China’s 

implementation of its commitments and pursued the TRM.



[28] For more details regarding how we analyzed the commitments, see 

U.S. General Accounting Office, World Trade Organization: Analysis of 

China’s Commitments to Other Members, GAO-03-4 (Washington, D.C.: Oct. 

3, 2002). 



[29] The General Council is composed of all WTO members and has general 

authority to supervise the various agreements under the jurisdiction of 

the WTO. The subsidiary bodies are described as councils or committees 

and generally are organized according to the various trade subjects 

covered by the WTO agreements--for example, the Council for Trade in 

Goods, the Council for Trade in Services, and the Committees on 

Agriculture and Technical Barriers to Trade. 



[30] The agreement does not specifically say when the reviews will end. 

Although the review process is scheduled to conclude with a final 

review in the 10TH year after China’s accession, the General Council 

could decide to terminate it at any time after the 8TH year.



[31] The WTO Secretariat’s main duties are to supply technical support 

for the various councils and committees and the ministerial 

conferences, to provide technical assistance for developing countries, 

to analyze world trade, and to explain WTO affairs to the public and 

the media.



[32] See U.S. General Accounting Office, World Trade Organization: 

Selected Company Views About China’s Membership, GAO-02-1056 

(Washington, D.C.: Sept. 23, 2002) for additional detail regarding our 

survey and structured interviews.



[33] Pub. L. 106-286, § 401, 114 Stat. 900.



[34] See U.S. General Accounting Office, World Trade Organization: 

Analysis of China’s Commitments to Other Members, GAO-03-4 (Washington, 

D.C.: Oct. 3, 2002).



[35] See U.S. Trade Representative, 2002 Report to Congress on China’s 

WTO Compliance (Washington, D.C.: Office of the U.S. Trade 

Representative, Dec. 11, 2002).



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