The road to accession for the People's Republic of China was a long and complicated
one. During the fifteen years of the journey, China made profound changes to
its economic system. These made China more able to accept the obligations of
membership. Nevertheless, of all the accessions to the WTO or its predecessor
entity, the GATT, China's was the most challenging both for the acceding country
and for the existing membership. This was due to basic economic differences
coupled with China's size and extraordinary economic and trade growth in the
time period during which accession discussions took place. Because its economic
system remains different from a market economy in many ways and because of practical
problems trading partners experienced in China's inability to implement commitments
throughout the country that could affect the benefits expected by other member
countries from China's accession, WTO members explored and required extensive
commitments which they hoped would make membership a beneficial experience for
the existing members as well as China. At the same time, China has been unable
to accept all obligations its trading partners required for membership at the
time of accession. This means that there are many commitments that will be undertaken
over time rather than immediately upon accession.
These same differences in economic systems and the tremendous trade flows China
has been able to generate over short periods of time, have led a number of important
trading partners to take actions outside of the WTO rules to protect domestic
interests. These actions by China's trading partners will be phased out over
time. Similarly, the membership generally felt it necessary to have special
rights to address trade surges from China until such time as China has fully
implemented all obligations including those to be adopted after accession.
Finally, because of the enormity of the task before China and the many commitments
that phase in over time, existing members have insisted on an annual review
process to monitor implementation of obligations by China (China is also able
to comment on compliance of other members actions in certain areas during the
review).
Compliance Will Be a Work in Progress For Many Years
It would be unrealistic to assume that China can implement its commitments
fully and timely at accession or as new obligations come due. This is not an
excuse for Chinese non-performance but rather a reflection of what is left to
be done and the likely difficulties in developing the institutions and new patterns
of behavior needed for full implementation in a timely manner.
China has been doing a great deal in terms of adopting and modifying laws and
regulations. Hence, many obligations undertaken by China will be met in terms
of statutory or regulatory language consistent with obligations. Implementation
of those laws and regulations, however, presents many new challenges. Some areas
should be easier to implement than others. Problems are more likely in areas
where enforcement actions are required by Chinese government officials or where
the same government ministry is regulating foreign investors and state-owned
enterprises. In such situations, there are often tremendous training needs,
institution building and even cultural modifications needed for truly effective
and fair implementation. As the U.S.-China Business Council noted in its September
2001 review of PRC implementation (page 1), "Uneven enforcement of IPR
laws remains the central problem in China's IPR regime." This is true even
though IPR rights and enforcement have been the subject of bilateral agreements
and cooperation for many years.
WTO Members have a right to expect China to have modified all laws at the time
of accession that would need modifications. Clearly much has been and is being
done. See, e.g., The U.S.-China Business Council, June 2001 and September 2001
write-ups "Toward WTO: Highlights of PRC Implementation Efforts to Date".
Laws modified in recent years include laws in the rules area (antidumping and
countervailing duty laws in China), intellectual property laws (to conform to
Trade-Related htmects of Intellectual Property Rights ("TRIPs") obligations)
and joint venture laws (to conform, inter alia, to Trade-Related Investment
Measures ("TRIMs") obligations). Regulations are being adopted in
many areas (e.g., telecommunications) as part of the conformance program. Consider,
for example, the following eighteen notices from China's Ministry of Foreign
Trade and Economic Cooperation just in December 2001 addressing actions to implement
WTO obligations, to enforce those obligations or to alert domestic producers
of changed rights/obligations under the WTO:
12/30/2001, China Issues Governing Regulations for Overseas Financial Institutions
12//30/2001, WTO Entry to Challenge China's Administration System ("After
the accession, 25 of the 30 government administrative regulations that need
drafting or amending have been completed while 12 others have been abolished.
The implementation of 36 State Council documents on administration will be stopped
very soon")
12/30/2001, Private Firms to Be Allowed to Import Oil ("decision was made
in accordance with China's commitments made on joining the World Trade Organization")
12/28/2001, China Seizes Over 114 Million Illegal Audio-Visual Products (seizures
in 2001)
12/27/2001, China Publishes Chinese Version of Agreements on Its WTO Entry Online
("MOFTEC published the full English text of legal documents concerning
China's accession to the WTO on its website on December 10. A guide book and
bilingual version of the legal documents will also be published after the Chinese
full text version is formally presented.")
12/26/2001, China Completes Rectification of WTO-related Laws ("China has
completed the rectification of six laws, making them all conforming to the rules
of the World Trade Organization (WTO)." "The six laws are: the Law
on Chinese-Foreign Equity Joint Ventures, the Trademark Law and the Copy Right
Law that were revised this year and the Law on Chinese-Foreign Contractual Joint
Ventures, the Law on Foreign-Capital Enterprises and the Patent Law that were
rectified last year. The six laws concern the use of foreign capital and the
protection of intellectual property. Zhang said amending of such laws is in
the spirit of the WTO and represents the principles of 'national treatment'
and 'most-favored-nation clauses'.")
12/24/2001, New Regulations for Management of Overseas Funded Insurance Companies
12/18/2001, China's First Telecom Joint Venture to Start Service
12/17/2001, First Life Insurance Firm Open to Overseas Investors Set up in China
(Heng'an Life Insurance Co., the first life insurance company authorized to
set up a joint venture with overseas investors since China joined the World
Trade Organization last week, was launched Sunday in Tianjin.")
12/14/2001, China to Improve Statistics Quality with IMF Standards ("The
move is part of the Chinese government's drive to improve the quality of statistics
and service in response to transparency requirements after the country's entry
into the World Trade Organization.")
12/14/2001, New Body to Handle Anti-dumping
12/13/2001, China Promotes Anti-Dumping, Anti-Subsidy study ("Ma said fair
trade policies and laws concerning imports and exports are important parts of
China's foreign trade policies and laws. China will not only make anti-dumping,
anti-subsidy and safeguard investigations against imports on the basis of WTO
rules, but also guide domestic enterprises to actively defend their rights and
interests in investigation cases against Chinese exports.")
12/13/2001, China Issues Protection Code for Local Industries (antidumping,
anti-subsidy and safeguard provisions)
12/12/2001, China to Cut Tariff Level to 12 Percent by End of 2002 ("China
is to cut the average level of tariffs of imported goods from the current 15.3
percent to 12 percent by the end of 2002, the Ministry of Finance announced
Tuesday. The reduction of tariffs will begin from January 1, 2002. The Chinese
government has decided to lower the tariff rates of 5,300 items in 2002, accounting
for 73 percent of the total items of tariffs." "He said in the next
few years, China will continue to cut the tariff rates step by step according
to its duty under the WTO.")
12/10/2001, China to Allow Renminbi Business for Overseas Banks in Shanghai,
Shenzhen ("China will allow overseas financial institutions in Shanghai
and Shenzhen to engage in Chinese Renminbi business as of December 11, the day
when China will formally become a member of the World Trade Organization")
12/05/2001, 2002 to See Greatly Cut Auto Tariffs/Restrictions by China ("China's
auto tariffs on auto imports will be cut to 25% level starting from 2002 to
July 1, 2006. Of these the biggest cut will be seen in 2002 and scrapping of
auto quota licensing in 2005." "Apart from tariff cuts on auto imports
the official further noted that there are also some other commitments to be
honored as compulsory. One is related to a complete scrapping of preferential
policies honoring domestic auto products. Two is for a repeal of man-made restrictions
on manufacturers' investment, auto models and types to be developed by 2003,
making sure every manufacturer has the right to produce the types or auto models
of their own choice. Aside from the above said, limits to a fixed JV share not
over 50% by foreign partners will also be cancelled immediately after China's
entry of the WTO.")
12/05/2001, Preparation for WTO Entry Well Under Way: Trade Minister ("The
preparatory work for China's accession to the World Trade Organization (WTO)
is going smoothly, said the Minister of Foreign Trade and Economic Cooperation
Shi Guangsheng Tuesday." "China is busy revising and adjusting laws,
to provide legislative assurance for the new situation after the entry. After
completing the amendments to most national laws and regulations, China has started
checking local laws and provisions")
12/04/2001, China's Pharmacy Sector to Explore New Ways for WTO Entry ("In
2000, the medicine manufacturers ranking the top ten in the world reported a
sales volume accounting for about 47 percent of the global medicine industry.
However, about 97 percent of the Chinese-made medicine and raw medicine made
in China are somewhat copy of those made in the developed countries. With China's
newly WTO entry the implementation of regulations on intellectual property protection
will forbid the random replication of foreign patented medicine, which will
be a great challenge to China's national pharmaceutical industry.")
Nonetheless, implementation issues are likely to be paramount to the smooth
integration of China into the global trading system. Concerns of WTO Members
about China accession have included, inter alia, the uniform administration
of laws and regulations, particularly in special economic zones, transparency
of the governmental rules and regulations and the process of modifying such
laws, obtaining adherence of local governmental laws and regulations to WTO
obligations undertaken by China, providing judicial review of all administrative
actions on relevant trade matters and timely implementation of all obligations
under the TRIPs Agreement. These are all areas where there are significant
changes in behavior required and conformity by entities that are not as committed
to WTO implementation as the reform part of the Chinese government. The
enormous effort expended by the U.S. (and by others such as the EU) on TRIPs
issues and enforcement throughout most of the last decade demonstrates the level
of difficulty of obtaining full compliance in some areas even where there is
strong technical assistance. Press accounts have suggested that as much as 85-90%
of computer software and audio/visual products sold in China continued to be
counterfeit in 2001 despite stepped up enforcement efforts and many years of
training and assistance.
This is not to say that China is not making efforts to build the institutions
and develop the training needed to obtain compliance. For example, WTO training
programs for government officials have been instituted, government and private
sector individuals have participated in conferences in China and attended programs
in the U.S. and elsewhere and there will be many requests for technical assistance
by China to the WTO in the months and years ahead. The process of meaningful
implementation of new obligations, however, has not been easy for existing WTO
members and will almost certainly present enormous challenges for the Chinese
government in the months and years ahead. Thus, China and its trading partners
should both be interested in seeing the maximum level of technical assistance
and the broadest array of tools to monitor compliance so as to facilitate the
steps that will obviously be necessary.
The WTO Transitional Review Mechanism
The WTO Agreements contain extensive transparency obligations for members in
the form of periodic notifications of laws, regulations and programs. Trading
partners regularly review and make inquiries about new laws or regulations or
special government actions in the context of the numerous Committees that make
up the WTO. Moreover, during the Uruguay Round itself, countries agreed to an
overall periodic review of each member's trade regime and progress in liberalization
and identification of concerns by trading partners. Thus, there has always been
a mechanism within the WTO to pursue issues of compliance outside of the dispute
settlement process. In addition, as noted above, the WTO provides a significant
amount of technical assistance to countries interested in better understanding
various agreements while other multilateral organizations (e.g., WIPO) have
worked with countries needing assistance implementing obligations under certain
agreements (e.g., TRIPs). Similarly, individual nations have provided funds
to the WTO or offered technical assistance directly to other nations that have
needed help in implementing their obligations. The fundamental purpose of all
of these efforts is to ensure that Members can and do meet their WTO obligations.
All of these transparency obligations and assistance programs will similarly
apply or be available to China now that it is a Member of the WTO.
Uniquely, China must also go through an annual review under Section 18
of the Protocol of Accession for each of the first eight years and a last special
review in the tenth year after accession. While Section 18 permits China to
"raise issues relating to any reservations under Section 17 or to any other
specific commitments made by other Members in this Protocol" (18.1), the
stated purpose of the exercise is to "review * * * the implementation by
China of the WTO Agreement and of the related provisions of this Protocol."
(18.1) The primary benefit of this mechanism is to maintain focus of the WTO
as an entity on China's implementation. Section 18 does not provide for a separate
remedy, so its purpose is primarily to provide peer group pressure for conformance
to obligations undertaken.
The annual review mechanism neither provides new remedies nor bars recourse
to existing WTO remedies. As is made clear by Section 18.3, "Consideration
of issues pursuant to this Section shall be without prejudice to the rights
and obligations of any Member, including China, under the WTO Agreement or any
Plurilateral Trade Agreement, and shall not preclude or be a precondition to
recourse to consultation or other provisions of the WTO Agreement or this Protocol."
Thus, while information developed might help Members understand how China is
implementing its obligations in fact, the annual review doesn't create new obligations
and can't prevent Members from pursuing their rights through dispute settlement
or otherwise.
Annex 1A to the Protocol (WT/L/432 at 13-18) requires a large amount of information
which presumably will permit individual countries to measure the effectiveness
of China's actual actions in meeting its WTO obligations. There are requests
for large amounts of economic data that will help Members understand trade flows
and whether certain forms of historic discrimination on foreign products (e.g.,
VAT and VAT rebates) have been eliminated. The data will also allow Members
to determine whether certain obligations have been met (e.g., elimination of
export duties or taxes). Information is also required on laws and regulations.
Such information will go to various WTO Committees or Councils depending on
jurisdiction. Consider the following outline of areas where information is required
to be supplied by China:
Economic data (10 types of information)
Economic policies:
Framework for making and enforcing policies
Policies affecting trade in goods
Policies affecting trade in services (five areas where data are required)
Trade-related intellectual property regime
Specific questions in the context of the transitional review mechanism
While one will not know how the transitional review process works in fact until
at least one or two reviews have been concluded, it is likely that both China
and its major trading partners will put significant energy into the process
to help China with its implementation commitments. Stated differently, the review
process should be a win-win for China and its trading partners. I assume that
the U.S. government will use not only the various agencies involved in monitoring
China's compliance with obligations but also the many private sector sources
(whether formal such as the advisory committees and individual company/group
identification of problems or informal such as working with the U.S.-China Business
Council, U.S. Chamber, NAM and other groups with an active interest). Importantly,
this Commission can play an active role by helping to identify areas of interest/concern
and by making recommendations on steps the Administration and Congress can take
to ensure that the proper level of technical assistance is available from multilateral
and plurilateral organizations and from the U.S. government and private sector.
WTO Dispute Settlement -- Available But the Last Approach
The WTO dispute settlement system has been increasingly used by member nations
to resolve matters where bilateral consultations have proven inadequate to achieve
change in practice by one or more Members. Certainly, the U.S. and other WTO
members have the right to bring challenges to China's actions if they so choose.
I would expect relatively few formal challenges in the first few years of China's
accession -- assuming general good faith efforts by China to fulfill its obligations.
As a general matter, WTO members usually provide a de facto grace period free
from formal challenges to new members. During this period, Members typically
focus on technical assistance needs as well as engaging in bilateral discussions
to identify problems and the need for corrective action. Refusal to act or inability
to act because of internal problems could be reasons for going to formal dispute
settlement procedures, and the U.S. will want to be prepared and willing to
use the process where warranted. Other new members have typically been much
smaller participants in the trading system and so the past may not be a good
gauge of the future for China. But I believe we will see general restraint before
cases are brought, again assuming a general good faith effort by China to implement
obligations undertaken.
It must be remembered that while the dispute settlement system has been successful
in many cases in resolving disputes, the process is time consuming (it can take
several years from initial request for consultations until the time for implementation
of changes has arrived). Moreover, the system does not have the capacity to
handle large numbers of cases in any given year. For example, the November Update
of WTO Dispute Settlement Cases (through November 5, 2001) showed the following
results and pending matters [WT/DS/OV/2]:
adopted panel and Appellate Body reports (since 1995) = 56 cases
active panels = 18 cases
settled or inactive cases = 33
cases in consultations (includes cases that have been inactive for a number
of years) = 93
The dispute settlement system is an important guarantor of adherence to the
obligations undertaken by all members. Under a properly working system, Members
will only resort to the mechanism where efforts at bilateral resolution have
been unsuccessful and where significant matters are at stake.
Bilateral Cooperation and Focus
The U.S. has had an active program of technical assistance for many acceding
countries to the WTO where there is a need for assistance and a willingness
to receive it. During the accession process for certain countries, the U.S.
has sent technical advisors who are able to coordinate U.S. agency support to
help acceding countries understand what the WTO obligations are and ways that
compliance might be obtained. For example, the Customs Service has worked with
many countries on issues such as enforcement of TRIPs issues at the border,
Customs Valuation and other matters. The same has been true for other agencies.
For China, there has been and will continue to be significant support from the
U.S. and from other countries as well as the WTO as an entity.
The U.S. government is also devoting resources to monitor implementation at
many agencies, including USTR, Commerce, State, Labor and Agriculture. This
is a critical first step so issues of concern can be identified quickly and
brought to the Chinese government's attention for action. In the January 2002
Export America, the Department of Commerce reviews steps that have been taken
to permit bilateral resolution of problems (pages 25 and 26):
Commerce's China Team holds semiweekly strategy sessions to review cases and
implementation plans. A new China-specific website () provides U.S. business
with detailed information on China's WTO obligations, compliance and market
opportunities. China Team representatives meet regularly with the commercial
staff from the Chinese Embassy in Washington, D.C. and Commercial Service officers
meet regularly with Ministry of Foreign Trade and Economic Cooperation in Beijing,
to review specific market access and compliance problems.
* * *
In Beijing, Commercial Service officers, along with State Economic officers,
Foreign Agricultural Service officers and Customs Attaches, participate in a
WTO Implementation Coordination Committee which meets regularly to assess progress
and monitor problems, with input from U.S. consulates in Shanghai, Guangzhou,
Shenyang and Chengdu.
The private sector obviously has a critical stake in timely and full implementation
by China of its many obligations. Our companies will experience the problems
and face the loss of business and other difficulties if obligations are not
complied with as promised. While many problems will be addressed with local
authorities, U.S. companies can and should work with the U.S. government in
China and at home to get problems addressed where needed. Organizations like
the U.S.-China Business Council, the U.S. Chamber and NAM are actively working
on monitoring implementation and should become important resources for identifying
problems and searching for rapid solutions.
Conclusion
China's accession to the World Trade Organization is a very important event
for China, for the trading system and certainly for the United States. China
has assumed many obligations. Initial reports suggest that China is making major
strides in adopting legislation and regulations related to WTO obligations.
It is equally clear that many of the obligations assumed by China go well beyond
adopting legislation or regulations and will likely take significant time before
fully implemented. Technical assistance, education, close bilateral working
relationships and, where necessary, formal challenges will all have a role in
ensuring that the world's most populous nation fully implements the obligations
assumed and provides the market access envisioned by our negotiators. Realistically,
full implementation will take time.
Thank you for the opportunity to appear today. I would be pleased to respond
to questions.