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Remarks By United States Ambassador To The World Trade Organization Michael Punke On The China Transitional Review Of The Protocol Of Accession To The WTO Agreement

United States Ambassador To The World Trade Organization Michael Punke

On The China Transitional Review Of The Protocol Of Accession To The WTO Agreement
Geneva, Switzerland
November 30, 2011

**AS DELIVERED**

“As Members conclude the tenth and final Transitional Review Mechanism (TRM) for China, my delegation would like to share its observations on China’s first ten years of WTO membership.

“But, as always, we would first like to express appreciation to Ambassador Yi, the Chinese delegation and the many Chinese officials in Beijing who have worked hard over the years to provide responses to the numerous questions raised by other WTO Members. We recognize the significant amount of time and effort that the TRM has required, particularly on the part of China’s Ministry of Commerce, which oversees China’s participation in the TRM.

“As Members may recall, the TRM was created largely because China was admitted to WTO membership before it had revised all of its trade-related laws and regulations to comply with its WTO obligations, and because China was allowed a variety of transition periods before it implemented certain of its WTO obligations.

“Active monitoring of China’s implementation progress through the TRM was considered an important mechanism to help ensure that China successfully integrated into the WTO’s open, market-oriented and rules-based trading system.

“Following China’s accession to the WTO, China took impressive steps to implement a sweeping set of commitments. It reduced tariffs, eliminated many non-tariff barriers that denied national treatment and market access for goods and services imported from other WTO members, and made legal improvements in intellectual property protections and in transparency.

“Almost all of these steps took place in the first five years after China’s WTO accession. They deepened China’s integration into the international trading system and strengthened China’s rule of law and economic reform.

“Trade and investment has also expanded dramatically between China and its many trading partners, as China has become one of the major engines of economic growth in the world. From a bilateral perspective, the expanding trade and investment between the United States and China has provided numerous and substantial opportunities for U.S. businesses, workers, farmers and service suppliers and a wealth of affordable goods for U.S. consumers.

“Nevertheless, despite this progress, the overall picture presented by China’s first ten years of WTO membership remains complex, given a troubling trend in China toward intensified state intervention in the Chinese economy over the last five years. Increasingly, trade frictions with China can be traced to China’s pursuit of industrial policies that rely on trade-distorting government actions to promote or protect China’s state-owned enterprises and domestic industries.

“In fact, China seems to be embracing state capitalism more strongly each year, rather than continuing to move toward the economic reform goals that originally drove its pursuit of WTO membership. This is a troubling development, and the United States urges the Chinese government to reconsider the path it is on.

“During the TRMs conducted earlier this fall, the United States highlighted the tremendous progress that China had made in the complex task of implementing its WTO commitments. Even with much progress behind it, however, China still faces remaining work. One measure of the work remaining can be found in the WTO disputes generated by China’s actions and inactions.

“Over the past ten years, the United States and various co-complainants have invoked the WTO dispute settlement mechanism against China on 12 separate occasions after bilateral engagement failed to address concerns about China’s adherence to important commitments and obligations.

“Three cases, including one within the past year, have involved allegations indicating that China has employed prohibited subsidies throughout its first ten years of WTO membership. Three cases have included claims that China failed to implement its commitments to liberalize services trade, as evidenced by restrictions on foreign suppliers of distribution services, financial information services and electronic payment services.

“Two cases have challenged Chinese policies that undermined protection of intellectual property rights in China. Three cases have focused on claims of major trade-distortive Chinese industrial policies, including discriminatory tax treatment, local content requirements and export restraints. Two cases have alleged multiple violations of procedural and substantive obligations related to the conduct of anti-dumping and countervailing duty proceedings.

“The United States and other Members are also trying to resolve a range of concerns with China through bilateral engagement. Effective enforcement of intellectual property rights in China remains a significant challenge.

“China's pursuit of an array of other industrial policies also raises serious concerns. For example, while China has made progress in eliminating certain discriminatory ‘indigenous innovation’ policies in the government procurement context, it continues to implement these trade-distorting policies in many other areas of its economy, retarding innovation and harming those who develop or first register their intellectual property outside China. China also makes selective use of border measures, such as value-added tax rebates and export duties to encourage or discourage exports of particular products. China continues to pursue unique national standards in a number of areas of high technology where international standards already exist. China continues to protect many domestic industries through a restrictive investment regime, particularly so-called ‘pillar industries’ and ‘strategic emerging industries.’

“In the area of agriculture, China remains among the least transparent and predictable of the world’s major markets for agricultural products, largely because of seemingly capricious customs and quarantine practices that delay or halt shipments and because sanitary and phytosanitary measures are sometimes imposed with what appear to be questionable scientific bases. We remain highly concerned that China’s lack of required transparency complicates the WTO’s ability to resolve difficult issues – or even to have a meaningful conversation – for example in the area of agricultural subsidies.

“In the area of services, discriminatory regulatory processes, informal bans on entry, overly burdensome and capricious licensing and operating requirements, and other similar problems frustrate efforts of foreign suppliers of banking, insurance, express delivery, telecommunications, legal and other services to achieve anywhere near their full market potential in China. It also appears that China has more to do in implementing some of its cross-cutting transparency obligations.

“We do understand the difficulties that China must confront in order to transition from a planned economy to a more market-oriented economy. We also recognize the important contribution China’s economic progress has been making to global economic growth and development.

“However, the developments I have described indicate that essential work remains ahead to reduce market access barriers, to increase rule of law, including transparency and predictability, and to fully institutionalize market mechanisms in China.

“Before concluding our review of China’s first ten years of WTO membership, one other aspect of China’s conduct as a WTO Member needs to be highlighted and discussed, and that is the perception among WTO Members that Chinese government authorities at times use intimidation as a trade tool.

“China’s trading partners have heard from their enterprises on too many occasions that Chinese regulatory authorities threaten to withhold necessary approvals or take other retaliatory actions against foreign enterprises if they speak out against problematic Chinese policies or are perceived as responding cooperatively to their governments' efforts to challenge them.

“In recent years, a pattern also has seemed to emerge of the Chinese government’s reflexive resort to trade actions in response to legitimate actions taken by the United States or other trading partners under their trade remedies laws.

"This type of conduct is at odds with fundamental principles of the WTO’s rules-based system.

“The United States strongly urges China to eliminate any basis for these adverse perceptions. All WTO Members need to encourage – not discourage – foreign enterprises that want to shed light on policies they perceive to be problematic. And, if a WTO Member believes a trade action taken by another Member raises concerns, procedures provided by the WTO, such as the WTO’s dispute settlement mechanism, are available to try to resolve those concerns.

“In conclusion, let me reiterate that we appreciate the efforts China has made in participating in the TRM for the past ten years, and we also acknowledge the many major steps that China has taken to implement its numerous WTO commitments.

“In the years ahead, we look forward to working with China on a bilateral basis to facilitate further improvements in its trade regime. We also remain committed to working with China here at the WTO. Thank you, Chair.”