U.S.-China Trade:

Opportunities to Improve U.S. Government Efforts to Ensure Open and Fair Markets

GAO-05-554T: Published: Apr 14, 2005. Publicly Released: Apr 14, 2005.

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Today's hearing takes place not only at a time of increasing trade between the United States and China but also amidst a period of ongoing concern about the growing U.S. trade deficit with China, which totaled $162 billion in 2004. Managing this relationship with one of the United States' most important trading partners is an effort that calls upon the resources of nearly every aspect of the U.S. trade policy apparatus. Our ongoing body of work has examined several aspects of this apparatus, including U.S. government efforts to ensure China's compliance with complex and far-reaching World Trade Organization (WTO) commitments, as well as the federal government's application of available trade remedies against China. As part of that work that has been issued to date, we have recently put forth a number of recommendations to the key executive branch agencies about how to improve the U.S. government's efforts in these areas. To provide Congress with an update on these issues, this statement discusses (1) the key findings and recommendations from our recently issued work on U.S. government efforts to ensure China's compliance with WTO commitments, as well as U.S. efforts to protect U.S. intellectual property rights overseas and (2) issues related to how the United States has applied a key trade remedy--the China textile safeguard. These observations are based on a series of reports initiated at the bipartisan request of various congressional committees. That work has included an analysis of China's commitments, surveys and interviews with private sector representatives, the results of two annual assessments of the U.S. government's compliance efforts, a review of overseas intellectual property rights protection, and, most recently, a review of the China textile safeguard.

The complexity, breadth, and ongoing nature of many of the problems with China's WTO compliance demonstrate the need for a cohesive and sustained effort from the key U.S. agencies to effectively monitor and enforce China's implementation of its commitments. The U.S. Trade Representative (USTR), and the Departments of Commerce, State, and Agriculture (USDA) have coordinated on policy issues and increased staff resources to enhance their capacity to carry out these efforts. Our previous work acknowledged the administration's concerted and deliberate strategy of high-level bilateral engagement with China. However, recent turnover of key U.S. trade officials has seemed to interfere with this strategy this year. These developments punctuate the relevance of our recommendations for the key agencies to institutionalize U.S. compliance efforts at the working levels through better strategic planning and human capital management. Specifically, in order that agencies more effectively plan and measure results, we recommended that each of the key agencies improve performance management of their China-WTO compliance efforts. Further, we recommended that, in an environment of high and regular staff turnover, the key agencies should direct additional management attention to ensuring that staff have an opportunity to acquire training relevant to their China-WTO compliance responsibilities. The agencies generally responded positively to most aspects of these recommendations, and indicated that efforts were under way to enhance performance management and provide additional training opportunities for staff. We are in the process of following up with the agencies regarding their specific plans for implementing the recommendations. Finally, in our review of intellectual property protection overseas, we found that coordination on policy matters had helped lead to strengthened laws but that enforcement in China and other countries remains weak. We suggested that the Congress review the efforts of the key interagency mechanism for coordinating law enforcement efforts on intellectual property. Managing the U.S.-China trade relationship goes beyond ensuring access for U.S. businesses seeking to enter China's market. It also includes ensuring U.S. industries are protected from harmful surges in imports and unfair Chinese trade practices. The terms of China's WTO membership allowed the United States and other members to put special mechanisms in place to respond to such situations while China's economy was in transition. Our most recent report examined the U.S. government's interagency Committee for the Implementation of Textile Agreements (CITA) use of one of these special mechanisms--the China textile safeguard. We found that procedural shortcomings have impaired effective application of this safeguard mechanism. First, 17 months elapsed before CITA issued any procedures and, second, the procedures did not clearly indicate how CITA would proceed in "threat-based" cases. A court-ordered injunction has prevented further consideration of the threat-based cases until litigation is resolved and, as a result, new actual market disruption cases have been initiated instead. Additionally, the lack of production data impaired access to safeguard measures for U.S. sock producers and may pose similar problems if other producers in similar circumstances seek application of this mechanism. To address these issues, we recommended that CITA clarify its procedures for threat-based safeguard cases and that Commerce take actions to make production data more available for industry sectors that are at risk of experiencing disruptive import surges. Lastly, we have an ongoing body of work on other import relief mechanisms regarding China, including countervailing and antidumping actions, and the China product-specific safeguard measures authorized under section 421 of the Trade Act of 1974, as amended.

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