USTR Report Identifies Outstanding WTO Compliance Concerns on China
December 17, 2007
The Office of the U.S. Trade Representative issued recently its annual report on China’s compliance with the commitments it made upon joining the WTO in December 2001.
According to the report, China’s WTO membership has “substantial ongoing benefits” for U.S. workers, businesses, farmers, service providers and consumers. China has taken “many impressive steps” to reform its economy, including reducing tariff rates, eliminating non-tariff barriers, providing national treatment and improving market access to goods and services imported from the U.S. and other WTO members, improving transparency and protecting intellectual property rights. China’s implementation of its WTO commitments, while not complete in every respect, has led to significant increases in bilateral trade, including U.S. exports, while deepening China’s integration into the international trading system and facilitating and strengthening the rule of law and the economic reforms China began nearly three decades ago.
Nevertheless, the USTR states, more still needs to be done. The report identifies the following as the United States’ key outstanding concerns.
Intellectual Property Rights. U.S. industry reports showed no significant reduction in IPR infringement levels again in 2007, confirming that counterfeiting and piracy in China remain at unacceptably high levels and cause serious harm to U.S. businesses across many sectors of the economy. Indeed, despite anti-piracy campaigns in China and an increasing number of IPR cases in Chinese courts, the U.S. copyright industries’ most recent estimates indicate that 85 percent to 93 percent of all copyrighted products sold in China are pirated.
The U.S. continued to pursue extensive bilateral discussions with China on this issue in 2007. While these efforts achieved an agreement between the two countries’ customs authorities to cooperate on border enforcement, other concerns remained unaddressed. For example, China continued to deflect calls for better utilization of criminal remedies to combat rampant IPR infringement in China, claiming that its approach to enforcement was showing results.
Industrial Policies. China continues to pursue industrial policies that seek to limit market access for non-Chinese-origin goods and foreign service providers and offer substantial government resources to support Chinese industries and increase exports. In some cases, the objective of these policies seems to be to promote the development of Chinese industries that are higher up the economic value chain than those that make up China’s current labor-intensive base. In other cases, China appears simply to be protecting less competitive state-owned enterprises.
Examples of these policies remained readily evident in 2007, the report states. China continues to apply auto parts regulations that prolong prohibited local content requirements for motor vehicles while the WTO-consistency of those regulations is being
challenged at the WTO. China is also making increasingly restrictive use of export quotas and export duties on a number of raw materials where it is the world’s leading producer. In addition, even after re-committing to technology neutrality for 3G telecommunications standards in April 2006, China’s regulatory authorities continue to promote a home-grown standard and to expand its test market. China also continues to pursue unique national standards in a number of areas of high technology where international standards already exist, and it pressures foreign companies seeking to participate in the standards-setting process to license their technology or intellectual property on unfavorable terms.
China has also sought to protect many domestic industries through an increasingly restrictive investment regime, the USTR states. Recent measures have imposed requirements for state control of “critical” equipment manufacturers, established rules for foreign mergers and acquisitions that confer broad and vaguely defined powers on the government to block investments in a range of industries, and prevented further foreign investment in “pillar” industries. Some of these measures raise questions about China’s compliance with its WTO obligations in the areas of national treatment, market access, export restrictions, technology transfer and subsidies.
Trading Rights and Distribution Services. China has implemented its commitments on trading rights and distribution services in most sectors, and many U.S.
companies and individuals are now able to not only import and export goods directly without having to use a middleman but also to establish their own distribution networks within China.
Nevertheless, some “serious problems” still remain, the report states. In particular, China has continued to maintain import and distribution restrictions on copyright-intensive products such as theatrical films, DVDs, music, books and journals, which reduce and delay market access for these copyrighted products and thus create additional incentives for infringement in China’s market. China also continues to subject foreign direct sellers to unwarranted restrictions on their business operations and to discriminate against foreign retailers seeking to open new stores by making them satisfy burdensome requirements not applicable to domestic retailers.
Agriculture. While U.S. exports of agricultural commodities largely fulfill the potential envisioned by U.S. negotiators during the years leading up to China’s WTO accession, trade with China in the agricultural sector remains among the least transparent and predictable of the world’s major markets and continues to be plagued by uncertainty, largely because of selective intervention in the market by China’s regulatory authorities. As in past years, capricious practices by Chinese customs and quarantine officials can delay or halt shipments of agricultural products into China, while sanitary and phytosanitary measures with questionable scientific bases and a generally opaque regulatory regime frequently bedevil traders in agricultural commodities. The principal targets of questionable practices by China’s regulatory authorities in 2007 were poultry, pork and soybeans. In addition, China continued to block the importation of U.S. beef and beef products, even after they had been declared safe to trade under international guidelines.
Services. While the market for U.S. service providers in China remains promising, in some sectors it appears that China’s commitments to increase market access and remove restrictions have still not been fully realized. Chinese regulatory authorities continue to frustrate the efforts of U.S. providers of banking, insurance, telecommunications, construction and engineering, legal and other services to achieve their full market potential in China through the use of an opaque regulatory process, overly burdensome licensing and operating requirements and other means.
For example, China has so far failed to fulfill a commitment it made in April 2006 to lower excessive capital requirements that have been blocking market access for foreign providers of basic telecommunications services. Its state news agency has persisted in its refusal to withdraw rules imposing new restrictions on foreign providers of financial information services. In addition, questions have been raised about China’s failure to implement important commitments scheduled to be phased in by Dec. 11, 2006, that would allow foreign credit card companies to provide electronic payments processing services for domestic currency transactions.
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AES Compliance Reviews
December 17, 2007
Jerry Greenwell, Regulations Outreach and Education Branch chief at the Census Bureau’s Foreign Trade Division, reported on the Automated Export System compliance reviews that Census began conducting earlier this year. Greenwell said that between March and September Census visited 46 companies whose AES compliance rate was 80 percent or lower. Various FTD offices work together to select the companies to be reviewed, focusing on those whose filings consistently fail AES edits because the data provided is outside the acceptable range as well as those with fatal errors in the system (i.e., those who essentially move their cargo without filing). Greenwell said these reviews have been effective in helping companies identify and resolve the issues at fault for their non-compliance, noting that the average error rate for these companies has declined from 3 percent to 1.6 percent.
Greenwell pointed out that exporters who use freight forwarders to file their shipment data in AES should know and verify what information is being filed, as it is the exporter that ultimately has liability for the accuracy of those records. He noted that forwarders do not always fully report the required information or share AES error messages with exporters. For example, a number of the companies Census reviewed for AES compliance were visited because they were filing their shipment data late, and of those companies most did not know what the filing requirements actually were. Greenwell said Census will provide exporters with one year of their shipment data free of charge to allow them to conduct an internal audit and address any associated issues.
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Foreign Trade Regulations
December 17, 2007
Greenwell said Census expects to issue a final rule overhauling its foreign trade regulations in the “realistic future” but did not offer a more specific date. He indicated that this rule will closely resemble Census’ February 2005 proposed rule, which would revise the Foreign Trade Statistics Regulations by, among other things, requiring export information to be filed through the AES or AESDirect, revising the post-departure filing (formerly Option 4) approval procedures, amending the list of data elements required to be reported and increasing penalties for regulatory violations.
Greenwell said Census is continuing to work closely with U.S. Customs and Border Protection to address its concerns on when export data is filed and how that data is shared with other countries. CBP has said it is not comfortable with the ten-day grace period currently afforded to exporters who participate in the post-departure filing program and has asked Census to either eliminate the program or increase the requirements for accepting new participants. CBP also wants to be allowed to share export information with foreign governments, which the U.S. business community opposes for fear that competitors could gain access to confidential business information.
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Commerce Control List Review
December 17, 2007
The BIS is currently conducting a systematic review of the Commerce Control List, which lists the commodities, software and technologies that are subject to the Export Administration Regulations and plays an important role in the U.S. system for controlling the export of dual-use items. The period for public comments on the issues being considered in this review closed Nov. 1. The RPTAC submitted comments addressing the following issues.
• CCL structure – The RPTAC suggested changing the CCL to a single-column format and publishing it on the BIS Web site instead of in the Federal Register.
• Antiterrorism controls – The RPTAC recommended that the BIS develop technical criteria for removing items from the list of those whose export is controlled for antiterrorism reasons. Other advisory committees should review items before they are moved from the AT control list to EAR99 (non-controlled items).
• Wassenaar Arrangement changes – RPTAC members urged the BIS to consider how it can implement the export control changes adopted under the Wassenaar Arrangement more quickly in order to improve the competitiveness of U.S. exporters; e.g., by establishing a 30-day period after which industry could begin operations based on such changes.
• Specially designed – The committee asked the BIS to narrow the scope of the term “specially designed,” which is currently defined as “capable of” a particular use, to something more along the lines of the “exclusively used for” definition in the Missile Technology Control Regime regulations.
• License exceptions – The RPTAC noted that license exceptions that incorporate specific shipment values have not been adjusted for inflation and suggested that the U.S. consumer product index be used to make appropriate adjustments.
• Country groups – The committee said the country groups currently included in the EAR, which indicate the controls applicable to exports to various countries, should be replaced with a country chart that would be easier to use and allow changes to be made more quickly.
Deputy Assistant Secretary of Commerce for Export Administration Matt Borman said he hopes to issue a statement in early January outlining how the BIS will respond to these and other comments it has received. Borman indicated that he expects a number of changes to come out of this process but that they will be implemented on a rolling basis, with the easiest ones done first. Other officials said the BIS hopes to conduct CCL reviews on a regular basis, perhaps yearly, in the future.
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President Bush Signs U.S.-Peru FTA into Law
December 19, 2007
President Bush signed the U.S.-Peru Trade Promotion Agreement Implementation Act into law at a Dec. 14 meeting with Peruvian president Alan Garcia. It is unknown, however, when the agreement will actually take effect, as this depends on U.S. government certification that Peru has taken the necessary steps to comply with the provisions of the agreement.
According to a White House press release, the Peru FTA, once implemented, will immediately eliminate duties on about 80 percent of U.S. consumer and industrial goods and more than two-thirds of U.S. agricultural products sold in Peru. All remaining duties on consumer and industrial goods will be phased out within 10 years and most remaining duties on farm goods will be eliminated over the next 15 years.
At the signing, the president also urged members of Congress to approve pending FTAs with Colombia and Panama, two other regional partners, as well as South Korea.
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U.S. and Vietnam Conduct First Meeting Under Trade and Investment Agreement
December 19, 2007
The Office of the U.S. Trade Representative reports that the U.S. and Vietnam held their first meeting under the bilateral Trade and Investment Framework Agreement Dec. 17 to discuss Vietnam’s implementation of its WTO commitments and various other trade and investment topics. The TIFA was signed June 21, 2006, and negotiated under the Enterprise for ASEAN Initiative.
According to a USTR press release, USTR Susan Schwab said the U.S. would stay “actively engaged” to support Vietnam’s WTO implementation efforts. She noted that the U.S. is particularly interested in ensuring that Vietnam, which became a WTO member in January 2007, fulfills its commitments regarding its distribution and other service sectors. She also urged Vietnam to take additional steps to improve its enforcement of intellectual property protection. The two sides touched on other issues as well, including agriculture, telecommunications, textiles and Vietnam’s requests for further technical assistance to support its reform efforts.
The USTR notes that trade between the two countries continues to grow. Two-way goods trade totaled $10.2 billion during the first 10 months of 2007, an increase of 25 percent over the same period the previous year. U.S. exports to Vietnam increased 62 percent during this period to $1.4 billion, with key categories including machinery, motor vehicles, plastics and cotton.
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Trade Gap Narrows in Q3
The JOURNAL of COMMERCE ONLINE
December 19, 2007
The U.S. trade gap shrank during the third quarter by 5.5 percent to $178.5 billion in the July-September period, the Commerce Department reported.
The deficit in goods shrank by 2.2 percent to $199.7 billion as record levels of export sales helped offset a rising foreign oil bill. Including services and foreign investment, the current deficit accounted for 5.1 percent of the country's total economic output, down from 5.5 percent in the second quarter, the lowest level since 2004. Last week, Commerce reported that the monthly deficit in goods and services rose in October to $57.8 billion, reflecting record oil prices and a record deficit with China. U.S. exports rose by 0.2 percent in October to $123.6 billion, buoyed by increasing demand for computers, drilling equipment and medicines. U.S. imports of goods and services dropped by 2.7 percent in October to $182.5 billion, the biggest monthly drop since December, 2001.
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EU Approves Bloc-Wide E-Customs Plan
December 20, 2007
The European Commission has announced the approval by the European Parliament and the European Council of a measure to create a pan-European electronic customs system. According to a commission press release, taxation and customs commissioner Laszlo Kovacs said the decision “paves the way to a paper free environment for customs which will allow faster and better exchange of information between European customs authorities and traders … increase the competitiveness of companies doing business in Europe, reduce compliance costs and improve security at the EU borders.”
The press release notes that while all EU member states already have electronic customs systems, they are generally not interconnected. The decision promoting the European electronic customs initiative contains actions and deadlines for making these individual systems compatible with each other and creating a common electronic portal. The commission expects that by 2011 economic operators will be enable to file electronically all the information required by customs legislation for EU cross-border movements of goods.
Mexico Reviewing AD Duties on Imports from China. Mexico has launched a review of the antidumping duties it imposes on goods imported from China but will keep those duties in place until the review is complete. Mexico faced a Dec. 11 deadline for ensuring that its AD duty orders on Chinese goods are in compliance with WTO rules, but press reports indicate that the review could take up to 18 months. The review covers textiles, apparel, toys and electrical machinery from China, which currently face AD duty rates as high as 533 percent.
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Mercosur Signs FTA with Israel
December 20, 2007
The South American Mercosur trade bloc signed Dec. 17 a free trade agreement with Israel, its first ever outside Latin America. A press release from Israel’s Ministry of Foreign Affairs said Mercosur will reduce its duties on industrial and agricultural products imported from Israel by 40 percent within four years and eliminate them entirely within ten years. The ministry added that over 85 percent of exports from Mercosur to Israel already enter duty-free. Two-way trade is currently estimated at about $1.1 billion annually, and the FTA could double that within three years.
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OMB Completes 10+2 Review
R.G. Edmonson / The JOURNAL of COMMERCE ONLINE
December 20, 2007
WASHINGTON -- The White House Office of Management and Budget on Wednesday completed its review of Customs and Border Protection's security filing rule, known as 10+2, clearing the way for Customs to publish it for public comment.
There is no indication when the proposed rule will be published in the Federal Register, but Customs officials previously have said that they expected the rule to be out before the end of the year. The rule, which the agency has negotiated with the trade industry for more than a year, would require importers and carriers to report 12 data elements not included on the cargo manifest to improve Customs’ ability to identify high-risk cargo that warrants greater scrutiny. While the final list won’t be known until the proposal is published, it’s generally understood that carriers will be required to file a vessel stow plan and container status messages. The other 10 elements to be filed are likely to include full names and addresses for shippers and consignees, plus the location where a container is stuffed.
The budget office noted that the cost to the trade for compliance with the rule is relatively small, compared with the value of the cargo being shipped. The rule, however, may cause delays in shipments, particularly for consolidated containers, and consolidators may have to advance their cutoff times for receiving goods. Still unanswered is how importers and carriers will transmit the additional data to Customs. By law, Customs officials are not allowed to discuss the rule while it is under review.
The analysis by OMB may be found online at: www.reginfo.gov/public/do/eoViewRule?ruleID=281302.
