The Office of the U.S. Trade Representative issued three reports on 2 April that highlight the administration's efforts in addressing key trade barriers to U.S. exports. The first report, entitled 2012 National Trade Estimate Report on Foreign Trade Barriers, documents foreign restrictions on U.S. exports of goods and services, foreign direct investment and protection of intellectual property rights in 62 major trading partners in each region of the world. Issues raised in the NTE report are usually brought up during bi-lateral talks with concerned countries and may serve as the basis for future investigations of unfair trade practices. The second report, 2012 Report on Technical Barriers to Trade, focuses on non-tariff barriers to U.S. exports such as product standards, testing requirements and other technical requirements. Lastly, the 2012 Report on Sanitary and Phytosanitary Measures identifies SPS barriers to U.S. agricultural exports and outlines on-going efforts to remove those barriers.
Some of the more notable highlights of these reports related to mainland China are outlined below.
China
The NTE report addresses many of the same issues that have been raised time and again by U.S. officials in recent years, including these well-known complaints.
• Mainland China has continued to restrict the importation and distribution of copyright-intensive products such as books, newspapers, journals, theatrical films, DVDs and music, although it did agree to remove these restrictions following a World Trade Organisation dispute settlement panel ruling. In February 2012 the United States and mainland China signed a memorandum of understanding addressing the film-related aspects of the WTO ruling that provides for increased market access for imported films and better terms of compensation for foreign film producers.
• On 14 November 2011, China's Ministry of Industry and Information Technology published for public comment a revised draft Guiding Catalogue of Indigenous Innovation in Key Technologies and Equipment. While the document is a positive step in the eyes of U.S. officials because it removes the specific eligibility criteria contained in the 2009Catalogue Guiding Indigenous Innovation in Major Technology Equipment and no longer provides that products will be eligible for government procurement preferences, the U.S. is still concerned about the document's "subjective and vague" product selection criteria and the fact that government benefits are not specifically enumerated.
• The U.S. raised serious concerns about mainland China's policies for new energy vehicles during the preparations for the November 2011 Joint Commission on Commerce and Trade. As a result of these efforts, Beijing confirmed that it will not require foreign automobile manufacturers to transfer technology to mainland Chinese enterprises or to establish mainland Chinese brands in order to invest in the domestic NEV segment. Mainland Chinese authorities also confirmed that foreign-invested enterprises would have equal access to subsidies and other preferential policies for NEVs and that these policies would conform to WTO rules. While mainland China has removed the 50 percent limit on foreign capital for almost all the key components of NECs, U.S. officials are concerned about and will continue to urge their mainland Chinese counterparts to eliminate the existing restriction on NEV batteries
• China's Steel and Iron Industry Development Policy includes a number of objectives and guidelines that raise serious concerns. For example, foreign enterprises seeking to invest in mainland Chinese iron and steel enterprises are required to possess proprietary technology or intellectual property in the processing of steel, which appears to constitute an illegal de facto technology transfer requirement because foreign investors are not allowed to have a controlling share in steel and iron companies. The Steel Policy also appears to discriminate against foreign equipment and technology imports by calling for the use of domestically produced steel manufacturing equipment and domestic technologies whenever domestic suppliers exist. More broadly, the U.S. remains apprehensive about the high degree of government direction and decision-making in the domestic steel sector in light of mainland China's WTO commitments. The report also notes that the U.S. is working with Canada, Mexico, the European Union and other trading partners to monitor and support concrete steps by mainland China to rein in its steelmaking capacity, which according to estimates from the Organisation for Economic Co-operation and Development reached a whopping 770 million metric tonnes in 2010.
• China's Twelfth Five-Year Plan calls for an increase in research and development in the domestic semiconductor sector, replacing the emphasis on production capacity found in former five year plans. The U.S. intends to monitor closely new financial support for domestic integrated circuit producers for consistency with the WTO Subsidies Agreement.
• The U.S. believes that mainland China has used its value-added tax policies to benefit domestic fertilizer producers. Moreover, mainland China's tariff rate-quota system for fertilizer has suffered from systemic problems for many years, including insufficient transparency and administrative guidance affecting how the allocated quota is used.
• There are continuing reports that mainland Chinese authorities are seeking to discourage the use of imported telecommunications components and equipment in order to promote domestic suppliers.
• Mainland China has significantly increased its support to agriculture in recent years, establishing a direct payment programme, instituting minimum support prices for basic commodities, and sharply increasing input subsidies. Concerns in this area include mainland China's classification of certain programmes and the methodology used to calculate certain support measures, especially those related to price support policies and direct payments.
• Mainland China still maintains high duties on a range of products that compete with sensitive domestic industries. For example, the tariff on large motorcycles and most video, digital video and audio recorders and players is 30 percent. In addition, the wide discretion mainland Chinese customs officers have in classifying imports, the government's failure to uniformly implement the various customs valuation measures following its accession to the WTO (including the use of reference pricing in certain instances and the failure to properly apply the rules related to software royalties and licence fees), inefficient and inconsistent customs clearance procedures, and the uneven application of value-added taxes continue to pose difficulties.
• Mainland China seemingly provides preferential import duty and VAT treatment to certain products from Russia even when those products are not confined to frontier traffic as envisioned by Article XXIV of GATT 1994.
• Mainland China has emerged as a leading user of antidumping measures and U.S. authorities contend that its AD regime continues to suffer from a lack of transparency and procedural fairness. Key areas of concern include inadequate disclosure of key documents placed on the record by mainland Chinese producers; insufficiently detailed disclosures of the essential facts underlying MOFCOM decisions, such as the results of on-site verification, all others rate calculations and evidence supporting injury and dumping conclusions; and inadequate responses to critical arguments or evidence put forwardby interested parties. The U.S. is currently pursuing two WTO disputes alleging multiple violations of multi-lateral rules in mainland China's AD and countervailing duty investigations on U.S. grain-oriented electrical steel and chicken broiler products.
• Many U.S. industries complain that they face significant non-tariff barriers to trade, including regulations that set high thresholds for entry into service sectors such as banking, insurance and telecommunications; selective and unwarranted inspection requirements for agricultural imports; and the use of questionable sanitary and phytosanitary measures to control import volumes.
• Mainland China has imposed criteria for obtaining approval to pursue new wind power projects that appear to discriminate against foreign enterprises. One such criterion involves a requirement of prior experience in supplying large-scale wind power projects in the mainland. Mainland Chinese authorities agreed to eliminate this requirement at the December 2010 JCCT meeting.
• Mainland China discourages the export of certain primary and intermediary products by reducing or eliminating VAT rebates and perhaps also imposing export duties on them, resulting in increased domestic supply and lower domestic prices. In some situations, mainland China has also used its border taxes to encourage the export of certain finished products over other finished products within a sector, especially in the steel and aluminium sectors.
• Despite extensive U.S. engagement, the mainland Chinese government has continued to impose restrictions on exports of raw materials that can significantly distort trade – including quotas, duties and related fees, licensing requirements and other restraints – as it has continued to guide the development of downstream industries. These export restrictions affect U.S. and other foreign producers of a wide range of downstream products, including steel, chemicals, hybrid and electric cars, energy efficiency light bulbs, wind turbines, hard-disc drives, magnets, lasers, ceramics, semiconductor chips, refrigerants, medical imagery, aircraft, refined petroleum products, fibre optic cables and catalytic converters.
• The lack of effective IPR protection and enforcement remains a major challenge. Key concerns include unacceptable levels of retail and wholesale counterfeiting; persistently high levels of book and journal piracy, end-user piracy of business software and copyright piracy over the Internet; the lack of deterrent penalties; and other policies, such as barriers to the market for legitimate products.
• Mainland China imposes restrictions in a number of services sectors that prevent or discourage foreign suppliers from gaining or further expanding market access. These include failing to grant new licences or utilising a licensing review process that is opaque or slow-moving, imposing foreign equity limitations or other discriminatory measures on foreign suppliers, and excessive and sometimes discriminatory capital requirements.
• Mainland China maintains a number of barriers in the telecommunications sector, including foreign equity requirements and investment approval procedures that are non-transparent and lengthy.
• Burdensome and complex restrictions remain on Internet use, including the filtering of Internet traffic entering the mainland.
• Mainland China has been slow to implement a commitment to provide a reasonable period for public comment on new or modified trade-related laws and regulations before implementing them. Mainland Chinese authorities committed to issue a measure last year to implement the requirement to publish all proposed trade- and economic-related administrative regulations and departmental rules on the State Council's Web site for a public comment period of not less than 30 days from the date of publication, subject to certain exceptions. However, this measure has not yet been implemented.
• Laws and regulations in mainland China often contain provisions that are relatively general and ambiguous, resulting in inconsistent and confusing application of legal requirements. Governmental authorities can also wield their discretionary power on foreign or disfavoured investors or make threats or special demands, while corruption remains a key concern.
• Although mainland China was the world's second-largest destination for foreign direct investment in 2011, investors continue to complain of a lack of transparency, inconsistently enforced laws and regulations, weak IPR protection, corruption and an unreliable legal system that fails to enforce contracts and judgments. These is also evidence that mainland China has taken a number of steps to discriminate against or otherwise disadvantage foreign investors. These restrictions are often accompanied by other troublesome industrial policies such as the increased use of subsidies and the development of China-specific standards. U.S. officials argue that many of these developments appear to represent protectionist tools created by industrial planners to shield inefficient or monopolistic enterprises from competition.
The TBT report indicates, among other things, that mainland China and other U.S. trading partners have adopted problematic measures that block or restrict U.S. exports with cryptographic capabilities for commercial use. For example, mainland Chinese authorities are considering implementing rules that could limit access to the domestic market solely to those companies that are willing to disclose their proprietary encryption technology to the government. Moreover, mainland China and other countries require U.S. companies to enter into joint ventures with indigenous partners, thus jeopardising business proprietary information, or require U.S. companies to use a country-specific cipher or algorithm. The report also states that mainland China does not currently allow organic products produced under foreign standards and observes that mainland Chinese authorities have adopted measures that require companies to disclose a product's precise recipe or formula as part of its domestic product registration process.
The report also includes a fairly detailed discussion of the China Compulsory Certification mark, noting concerns about the scope of the programme, the inconsistent application of CCC mark requirements and limitations on foreign-invested conformity assessment bodies. In addition, companies in some sectors continue to express concern about duplication of safety certification requirements, particularly for radio and telecommunications equipment, medical equipment and automobiles. The U.S. also has serious worries regarding mainland China's requirement that its WAPI wireless local area networks standard be used in mobile handsets as well as a proposed mandatory information security testing and certification requirements for information technology products.
Issues raised in the SPS report include a requirement that a biotech product developed in a foreign country be first approved for use in that country before mainland Chinese authorities begin to consider approving the product for use in the mainland; mainland China's ban on pork imports containing any residue of the veterinary drug ractopamine; a zero tolerance limit for the presence of Salmonella, Listeria spp. and other pathogens in imported meat and poultry; a duplicative and cumbersome product-based registration process for U.S. companies that produce animal feed;and bans or restrictions on the importation of various agricultural products, including protein-free tallow, apples, pears, table stock potatoes, strawberries and poultry from three U.S. states.