USTR Highlights Issues, Improvements of Trade With China in Annual Report
Interventionist policies and the predominance of state-owned enterprises present in China continue to distort and bring friction to its trade relations with the U.S., which composes part of a “complex” bilateral trade relationship despite some positive indications for future commerce, the Office of the U.S. Trade Representative said in its 2016 Report to Congress on China’s World Trade Organization Compliance (here). “The United States notes that China’s current leadership, in place since 2013, has highlighted the need to pursue further economic reform in China, but to date not much progress is evident,” the report says. “Economic reform in China is a win-win for the United States and China.” USTR is calling on China to remove preferences for “domestic national champions” and market access barriers, lest the nation’s economic challenges increase and become more difficult. Curtailing interventionist policies would allow for more U.S. exports to the nation and a more balanced trade relationship, USTR said.
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But positives exist in the trade relationship, including the fact that U.S. goods exports to China rose 505 percent between 2001, when China acceded to the WTO, and 2015, when exports totaled $116 billion, making China the U.S.’s largest goods export market outside North America. During 2016, the two nations made “significant progress” on issues including cutting excess steel and aluminum capacity; on ensuring that information and communications technology (ICT) policies do not impose unnecessary nationality-based restrictions on the purchase, sale or use of those products by commercial enterprises; and on enhancing approval processes for agricultural biotechnology products. Despite these good signs, the U.S. will continue to engage China on issues including ICT policies, excess capacity, biotech approvals, technology localization, indigenous innovation, government subsidies, export restraints, state-owned enterprises, administrative licensing, government procurement, U.S. beef and poultry market access, food safety, pharmaceuticals and medical devices, cosmetics, financial services, express delivery services, and transparency, “among others,” USTR said.
While China is currently reforming its intellectual property rights regime, U.S. companies must still contend with unpunished thefts of trade secrets for the benefit of Chinese companies, widespread counterfeiting and “bad faith” trademark registration, whereby Chinese authorities “hold … them for ransom,” USTR said. But the report also notes that Chinese officials at the November 2016 Joint Commission on Commerce and Trade meeting in Washington publicly cited the potential harm caused by “bad faith” trademarks and confirmed they are taking more steps to combat these filings. Chinese financial support of manufacturing industries like steel and aluminum contribute to “massive” excess capacity in the country, which hurts producers in the U.S. and third country markets like Canada and Mexico, where U.S. exports compete with Chinese exports, the report says. China’s capacity growth appears to have slowed over the past two years, but its efforts to address excess capacity haven’t reduced its total steelmaking capacity, according to USTR.
Overly burdensome licensing requirements, discriminatory regulatory processes, and informal bans on entry and expansion continue to affect express couriers, telecommunications services, Internet-related services, and other service providers doing business in China, the report says. “No meaningful concrete steps” have been taken to further liberalize services sectors in the nation, despite a 2013 state declaration of intent to liberalize a number of them, USTR said. China continues to block foreign companies’ access to the document shipping segment of China’s domestic express delivery industry, and doesn’t “have a strong track record” of providing non-discriminatory treatment for foreign companies seeking business permits to access the package shipping segment of the industry, USTR said. Furthermore, in the export realm, quotas, licensing, minimum export prices, export duties and other restrictions on “a number of raw material inputs” that China produces in prodigious amounts allow the country to economically advantage a wide range of downstream domestic producers at the expense of foreign downstream producers, while creating pressure on the latter to relocate to China, USTR said.