III.	Conclusion and Recommendations

China's record of compliance with its accession commitments and WTO obligations during the first two years of WTO membership is a mixed one.  In many areas, China has made a good faith effort to reform its legal structure, amend and enact laws and regulations to conform to WTO requirements, implement changes to its tariff schedule, and transform its trade practices to be in conformity with WTO norms.  However, in many significant areas, as described in the body of the foregoing report, China has fallen short of meeting fully its WTO and accession commitments and obligations.  Indeed, USTR's 2003 report noted that China’s WTO implementation efforts lost a significant amount of momentum in the past year. 

Significant areas where China has not fully complied with its obligations to open market access, implement commitments or otherwise meet WTO requirements include, among others, trading rights, agricultural TRQs, VAT applied to semiconductors, auto financing, financial services (both banking and insurance), transparency, and intellectual property rights protection and enforcement.

The challenges posed by China's entry into the WTO are broad.  There is no single answer or key to China's compliance with its WTO commitments. The United States and other WTO Members are not faced with just one or two issues requiring resolution.  Rather, there are many issues confronting the US and others in their efforts to help China observe WTO norms.  The United States can and should work cooperatively with China in those situations where China is willing to work with the United States.  But, where China is not a cooperative partner in its willingness to continue moving toward full compliance (for example, in the area of IPR), then the United States should take active and, in some cases, aggressive steps to encourage China to fulfill its obligations.  The United States should employ the full range of options available in its efforts to help or compel China to achieve full WTO compliance, including consultations and other bilateral meetings, technical assistance, and, if necessary, dispute settlement.

The Commission may wish to consider the following in making recommendations to Congress for promoting and improving China's WTO compliance.

Ø The United States should be more aggressive in pursuing resolution of chronic compliance problems, including giving serious consideration to filing WTO dispute settlement cases to address the most important and pressing issues.  In areas where the evidence demonstrates that China is not even attempting to move forward to implement its WTO commitments, and bilateral discussions or other efforts at resolution have not succeeded, the United States should exercise the option to file a WTO dispute settlement case.  The first example of this course of action occurred on March 18, 2004, when the United States filed the first WTO dispute settlement case against China with respect to China's VAT on imported semiconductors.

Ø The United States should change its policy of non-applicability of countervailing duty laws to non-market economy countries such as China.  If accompanied with a reasonable explanation, Commerce has the discretion to make the change in policy itself.  If Commerce will not do so, then Congress should legislate that countervailing duty laws apply to NMEs.

Ø Improvement in China's IPR protection and enforcement will require long-term efforts and dedication.  Congress should direct the Administration to prepare a long-term IPR action plan that seeks to maintain pressure on China to reform its IPR enforcement system and that focuses additional technical assistance regarding IPR protection and enforcement toward regional and local governments in China.

Ø The transitional review mechanism is an important and useful multilateral forum at the WTO for monitoring China's compliance with its WTO commitments.  To date, the TRM has not been as effective or useful in assisting China's compliance as envisioned by the United States and other WTO Members.  In part, the TRM has fallen short due to lack of procedural specificity in the protocol and because of China's limited and strict interpretation of its TRM obligations.  The United States should continue to attempt to make the TRM a forum for clarifying and resolving compliance problems.  To the extent possible, the United States should attempt to amend and improve the procedural rules governing the TRM process, including requiring China to submit responses to questions in writing and to provide such responses to Members reasonably far in advance of the TRM meetings.

Ø In the protocol of accession, China agreed to be subject to certain special safeguard mechanisms during a transitional period in its WTO membership.  The Section 421 safeguard and the special textile safeguard were intended to help US industries suffering market disruption due to increased Chinese imports.  To date, the Administration has granted limited relief to domestic producers from Chinese textile imports but has denied relief in every Section 421 case in which the ITC made an affirmative finding of market disruption.  Section 421 relief was intended to be reasonably available if the statutory criteria was met for relief.  Congress should reexamine Section 421 with a view to revising Section 421 to strictly define the rare and limited instances where the President has discretion to deny relief.  Congress should also reaffirm its strong support for application of the special textile safeguard in appropriate cases.