United States General Accounting Office 

GAO Testimony 

Before the Committee on Ways and 

Means, House of Representatives 

For Release on Delivery 


Expected at 2:00 p.m., EST 


Thursday 


October 30, 2003


WORLD TRADE 


ORGANIZATION 


Ensuring China’s 

Compliance Requires a 

Sustained and Multifaceted 

Approach 

Statement of Loren Yager, Director 

International Affairs and Trade 

GAO-04-172T 

Highlights of GAO-04-172T, a testimony 

before the Committee on Ways and 

Means, House of Representatives 

China’s accession to the World 

Trade Organization (WTO) in 

December 2001 created 

substantial opportunities for U.S. 

companies seeking to expand into 

China’s market. In joining the 

WTO, China agreed to liberalize 

its trade regime and open its 

markets to foreign goods and 

services. However, the U.S. 

government has become 

concerned about ensuring that 

China honors its commitments to 

offer a more predictable 

environment for trade. 

GAO was asked to describe (1) 

the monitoring of compliance 

challenges associated with the 

scope and complexity of China’s 

WTO commitments and (2) the 

efforts to date of the key players 

involved in ensuring China’s 

compliance: the executive branch, 

Congress, the private sector, the 

WTO and its other members. 

GAO’s observations are based on 

its prior analysis of China’s WTO 

commitments, its previous survey 

of and interviews with private 

sector representatives, and its 

examination of first-year efforts 

to ensure China’s WTO 

compliance. 

www.gao.gov/cgi-bin/getrpt?GAO-04-172T. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4347 or YagerL@gao.gov. 

October 30, 2003 

WORLD TRADE ORGANIZATION 

Ensuring China's Compliance Requires a 

Sustained and Multifaceted Approach 

The scope and complexity of China’s WTO commitments present two 

main challenges to verifying China’s compliance with its WTO accession 

agreement. First, the agreement is very broad: It encompasses more than 

800 pages, spans eight broad areas, and sets forth hundreds of individual 

commitments on how China’s trade regime will adhere to the WTO’s 

agreements, principles, and rules and allow greater market access. 

Second, the agreement is complicated: Interrelated parts will be phased 

in at different times, and some commitments are so general in nature that 

it may not be immediately clear whether China has fully complied with 

its obligations. 

Each of the key players involved in ensuring China’s compliance—the 

executive branch, Congress, the private sector, and the WTO and its 

members--has made efforts to ensure China’s compliance. However, the 

first-year experience in this regard has demonstrated that these efforts 

will need to be sustained over a long period. The executive branch has 

applied additional resources and new intra-agency teams to these efforts, 

but it takes time to organize these activities. Congress has enacted 

legislation and established new entities to increase oversight of China’s 

compliance. The private sector also has provided information to the 

executive branch and to Congress on the status of China’s compliance 

efforts. And, within the WTO, a China-specific mechanism was 

established as a means for WTO members to annually review China’s 

implementation of its commitments. Nonetheless, GAO’s analysis 

indicates that a sustained approach is needed to ensure China’s 

compliance. 

Multifaceted Approach Essential to Ensuring China’s WTO Compliance 
Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss our observations on the 

challenges involved in ensuring that China honors its commitments to the 

World Trade Organization (WTO). This hearing takes place not only at a 

time of increasing trade between the United States and China, but also at a 

time of increasing concern about broader aspects of the U.S.-China 

relationship. Although China’s implementation of its WTO commitments 

cannot fully eliminate those concerns, compliance with its WTO 

obligations is a central feature of China’s economic relationship with the 

United States and other WTO members. However, as we have found in our 

analysis of the first year’s efforts to monitor and enforce China’s 

compliance with its WTO commitments, the scope and complexity of the 

agreement indicate that ensuring compliance will be difficult and will 

require sustained efforts from all the key players to be successful. 

To provide you with an update on these issues, today I will discuss (1) the 

compliance challenges associated with the scope and complexity of 

China’s WTO commitments and (2) the efforts to date of each of the key 

players involved in ensuring China’s compliance with its WTO obligations: 

the executive branch, Congress, the private sector, and the WTO and its 

members. My observations are based on a series of studies that we 

initiated at the request of this Committee and of the Senate Committee on 

Finance. That work has included a comprehensive analysis of China’s 

commitments,1

 our survey and interviews with the private sector 

representatives,2

 and our examination of first-year U.S. compliance 

efforts.3

 Before I turn to the specifics on these issues, let me provide a 

brief summary. 

1

See U.S. General Accounting Office, World Trade Organization: Analysis of China’s 

Commitments to Other Members, GAO-03-4 (Washington, D.C.: Oct. 3, 2002). 

2

See U.S. General Accounting Office, World Trade Organization: Selected U.S. Company 

Views About China’s Membership, GAO-02-1056 (Washington, D.C.: Sept. 23, 2002). 

3

See U.S. General Accounting Office, World Trade Organization: First-Year U.S. Efforts to 

Monitor China’s Compliance, GAO-03-461 (Washington, D.C.: Mar. 31, 2003). 

Page 1 GAO-04-172T 
Summary 

Background 

The comprehensive scope and complexity of China’s WTO accession 

agreement present two main challenges for successfully monitoring and 

enforcing China’s compliance with its obligations. First, the broad scope 

of the agreement, which covers numerous aspects of China’s trade regime 

and market access commitments for goods and services, makes it difficult 

to determine if each commitment has been fully implemented. Similarly, 

the complexity of the agreement also presents challenges for assessing 

compliance. Specifically, some interrelated commitments are phased in at 

different times, and many commitments are so general in nature that it will 

be difficult to immediately assess compliance. 

A sustained approach from several key players, including the executive 

branch, Congress, the private sector, and the WTO and its members, is 

essential to ensuring China’s compliance. Since China’s accession to the 

WTO, these actors have undertaken a range of efforts to ensure China’s 

compliance: the executive branch has ramped up its resources for China 

monitoring and enforcement; Congress has enacted legislation focusing on 

China’s adherence to its obligations; the private sector has continued to 

monitor China’s progress and provide input on compliance priorities; and 

the WTO and its members have conducted an initial review of China’s 

implementation. These compliance efforts encountered various challenges 

in the first year, thus demonstrating the need for a sustained approach to 

successfully ensure that China lives up to its WTO obligations. 

China became the 143rd member of the WTO on December 11, 2001, after 

almost 15 years of negotiations. These negotiations resulted in China’s 

commitments to open and liberalize its economy and offer a more 

predictable environment for trade and foreign investment in accordance 

with WTO rules. The United States and other WTO members have stated 

that China’s membership in the WTO provides increased opportunities for 

foreign companies seeking access to China’s market. The United States is 

one of the largest sources of foreign investment in China, and total 

merchandise trade between China and the United States exceeded $145 

billion in 2002, according to U.S. trade data. However, the United States 

still maintains a trade deficit with China: Imports from China totaled 

$124.8 billion, while exports totaled $20.6 billion in 2002. Through the first 

half of 2003, exports to and imports from China grew about 25 percent 

compared to same period in the previous year. 

Page 2 GAO-04-172T 
The U.S. government’s efforts to ensure China’s compliance with its WTO 

commitments are part of an overall U.S. structure to monitor and enforce 

foreign governments’ compliance with existing trade agreements.4

 At least 

17 federal agencies, led by the Office of the U.S. Trade Representative 

(USTR), are involved in these overall monitoring and enforcement 

activities. USTR and the departments of Agriculture (USDA), Commerce, 

and State have relatively broad roles and primary responsibilities with 

respect to trade agreement monitoring and enforcement. Other agencies, 

such as the departments of the Treasury and Labor, play more specialized 

roles. Federal monitoring and enforcement efforts are coordinated 

through an interagency mechanism comprising several management- and 

staff-level committees and subcommittees. The congressional structure for 

funding and overseeing federal monitoring and enforcement activities is 

similarly complex, because it involves multiple committees of jurisdiction. 

Congressional agencies, including GAO, and commissions also support 

Congress’s oversight on China-WTO trade issues. In addition to the 

executive branch and congressional structures, multiple private sector 

advisory committees exist to provide federal agencies with policy and 

technical advice on trade matters, including trade agreement monitoring 

and enforcement. 

Scope and 

Complexity of China’s 

WTO Commitments 

Present Challenges 

for Ensuring 

Compliance 

China’s accession agreement is the most comprehensive of any WTO 

member’s to date, and, as such, verifying China’s WTO compliance is a 

challenging undertaking for two main reasons. The first reason is the 

scope of the agreement: The more than 800-page document spans eight 

broad areas and sets forth hundreds of individual commitments on how 

China’s trade regime will adhere to the organization’s agreements, 

principles, and rules and allow greater market access for foreign goods 

and services. The second reason is the complexity of the agreement: 

Interrelated parts of the agreement will be phased in at different times, 

and some commitments are so general in nature that it will not be 

immediately clear whether China has fully complied with its obligations in 

some cases. 

4

For more information on the overall roles and responsibilities of U.S. government agencies 

in monitoring and enforcing trade agreements, see U.S. General Accounting Office, 

International Trade: Strategy Needed to Better Monitor and Enforce Trade Agreements, 

GAO/NSIAD-00-76 (Washington, D.C.: Mar. 14, 2000). 

Page 3 GAO-04-172T 
Scope of Commitments 

Poses Inherent 

Compliance Issues 

The comprehensive scope of China’s WTO accession agreement represents 

a challenge for the U.S. government’s compliance efforts. The 

commitments cover eight broad areas of China’s trade regime, including 

import regulations, agriculture, services, and intellectual property rights. 

Within these eight broad areas, we identified nearly 700 individual 

commitments that China must implement to comply with its WTO 

obligations. China has also committed to lower a variety of market access 

barriers to foreign goods. These obligations include commitments to 

reduce or eliminate tariffs on more than 7,000 products and eliminate 

nontariff barriers on about 600 of these products. Additionally, China 

made commitments to allow greater market access in 9 of 12 general 

services sectors, including banking, insurance, and telecommunications. 

The scope of compliance problems raised in the first year of China’s 

membership reflects the scope of the agreement itself. Although the 

executive branch’s first-year assessment of China’s implementation of its 

WTO commitments acknowledged China’s effort and progress in some 

areas, the assessment also noted compliance problems in all eight broad 

areas of China’s trade regime.

5

 In particular, the executive branch 

emphasized problems in agriculture, services, and intellectual property 

rights, as well as a crosscutting concern about transparency. Some 

preliminary assessments of China’s second-year implementation from the 

private sector suggest that many of those problems persist and that 

concern about the number and scope of compliance issues continues to 

increase. 

5

See U.S. Trade Representative, 2002 Report to Congress on China’s WTO Compliance 

(Washington, D.C.: Office of the U.S. Trade Representative, Dec. 11, 2002). 

Page 4 GAO-04-172T 
Complexity of Agreement 

Presents Additional 

Challenges for Assessing 

Compliance 

While many of China’s commitments were due to be phased in upon 

China’s accession to the WTO in 2001, a number of interrelated 

commitments are scheduled to be implemented over extended time 

frames. For example, commitments on trading rights and distribution are 

not scheduled to be fully phased in until the end of 2004 and 2006, 

respectively. As a result, foreign businesses will be unable to fully 

integrate import, export, and distribution systems until that time. 

Additionally, although market access for most goods and services will be 

phased in by 2007, some tariffs will not be fully liberalized until 2010. (See 

fig. 1.) 

Page 5 GAO-04-172T 
Figure 1: Summary of Key Phase-in Dates for China’s WTO Commitments, 2001-2016 

Legend 


NTM: nontariff measure 


TBT: technical barriers to trade 


TRQ: tariff-rate quota 


TRM: transitional review mechanism


Page 6 GAO-04-172T 
The varying nature of China’s commitments also complicates U.S. 

government compliance efforts. On the one hand, some of China’s WTO 

obligations require specific actions from China, such as reporting 

particular information to the WTO, or lowering a tariff on a product. 

Assessing compliance with these specific types of commitments is 

relatively easy. On the other hand, a significant number of commitments 

are more general in nature and relate to systemic changes in China’s trade 

regime. For example, some commitments of this type require China to 

adhere to general WTO principles of nondiscrimination and transparency. 

Determining compliance with these more general types of commitments is 

more difficult and can complicate the dialogue over achieving compliance. 

It is useful to note that many private sector representatives told us that 

implementing these general types of commitments, such as those that 

relate to the rule of law, was relatively more important than carrying out 

specific commitments to increase market access and liberalize foreign 

investment in China. Specifically, China’s commitments in the areas of 

transparency of laws, regulations, and practices; intellectual property 

rights; and consistent application of laws, regulations, and practices 

emerged as the most important areas of China’s accession agreement in 

our September 2002 survey of and interviews with U.S. companies 

operating in China. 6 However, private sector representatives also 

indicated that they thought these rule-of-law-related commitments would 

be the most difficult for China to implement. 

Because China is such an important trading partner, ensuring China’s 

compliance with it s commitments is essential and requires a sustained 

effort on the part of the executive branch, Congress, the private sector, 

and the WTO and its other members. (See fig. 2.) For example, the 

executive branch has extensive involvement in monitoring and enforcing 

China’s commitments, and additional resources and new structures have 

been applied to these tasks. However, the U.S.’s first-year experience 

showed that it takes time to organize these structures to effectively carry 

out their functions and that progress on the issues can be slow. In addition 

to the executive branch’s efforts, Congress has enacted legislation, 

provided resources, and established new entities to increase oversight of 

China’s compliance. The private sector also has undertaken a wide range 

of efforts that provide on-the-ground information on the status of China’s 

Sustained Effort from 

Key Players Required 

to Ensure China’s 

Compliance, but Firstyear Experience 

Demonstrates 

Challenges 

6

For a further description of our results, see GAO-02-1056. 

Page 7 GAO-04-172T 
compliance efforts and input to the executive branch and to Congress on 

priorities for compliance efforts. Finally, the WTO has existing 

mechanisms as well as a new, China-specific mechanism created as a 

means for WTO members to annually review China’s implementation of its 

commitments. Nonetheless, despite the involvement of all of these players 

in the first year, the United States will need a sustained—and cohesive— 

approach to successfully carry out this endeavor. 

Figure 2: Multifaceted Approach Essential to Ensuring China’s WTO Compliance 

China’s accession to the WTO has led to increased monitoring and 

enforcement responsibilities and challenges for the U.S. government. In 

response to these increased responsibilities, USTR and the departments of 

Commerce, Agriculture, and State have undertaken various efforts to 

enhance their ability to monitor China’s compliance with its WTO 

commitments. Agencies have reorganized or established intra-agency 

teams to improve coordination of their monitoring and enforcement 

efforts. Additionally, the agencies have added staff in Washington, D.C., 

and overseas in China to carry out these efforts. For example, estimated 

full-time equivalent staff in key units that are involved in China monitoring 

and enforcement activities across the four agencies increased from about 

28 to 53 from fiscal years 2000 to 2002, with the largest increases at the 

Department of Commerce. On a broader level, USTR has established an 

interagency group to coordinate U.S. government compliance activities. 

The interagency group, which utilizes the private sector to support its 

efforts, was very active in monitoring and responding to issues during the 

Key Executive Branch 

Agencies Have Increased 

Focus on China’s 

Compliance, but First-Year 

Efforts Demonstrate 

Challenges 

Page 8 GAO-04-172T 
first year of China’s membership. Nevertheless, it took some time for 

agencies to work out their respective roles and responsibilities in the 

interagency group. 

Monitoring and enforcing compliance with WTO requirements is a 

complex and challenging task, as shown by our 2002 assessment of the 

U.S. government’s efforts to ensure China’s compliance with commitments 

regarding administration of tariff-rate quotas (TRQ)7

 for certain bulk 

agricultural commodities.8

 TRQ implementation problems in 2002 included 

concerns about Chinese authorities missing deadlines for issuing TRQs on 

certain bulk agricultural commodities; disagreement over whether China’s 

interpretation of its commitments met WTO requirements; and questions 

about whether China’s administrative practices were in keeping with its 

obligations. The United States has undertaken both bilateral and 

multilateral efforts to settle these complex issues. The large number of 

U.S. government activities on these issues alone, which still are not fully 

resolved, included at least monthly engagements with China and illustrates 

the extensive effort agencies must undertake to identify problems, gather 

and analyze information, and respond to some issues. 

Congressional Focus on 

China Compliance Issues 

Has Increased 

Substantially 

Congress has had an active role in overseeing trade relations between the 

United States and China and in setting expectations for vigilant monitoring 

and enforcement of China’s WTO commitments. In the U.S.-China 

Relations Act of 2000,9

 Congress found that for the trade benefits with 

China to be fully realized, the U.S. government must effectively monitor 

and enforce its rights under China’s WTO agreements. To accomplish this, 

Congress 

• 	 authorized additional resources at USTR and the departments of 

Commerce and Agriculture; 

• called for an annual review of China’s compliance in the WTO; 

7

Under China’s TRQ commitments, a specific quantity of certain agricultural bulk 

commodities is to be allowed in at a low duty, while imports above that quota face higher 

tariffs. 

8

See GAO-03-461. 

9

This constituted a major part of the legislation that led to China’s receiving permanent 

normal trade relations status. See Pub. L. No. 106-286, 114 Stat. 880. 

Page 9 GAO-04-172T 
• 	 established the Congressional-Executive Commission on the People’s 

Republic of China to monitor China’s compliance with human rights and 

the development of the rule of law in China; 

• 	 established a Task Force on the Prohibition of Importation of Products of 

Forced Prison Labor from China; 

• 	 authorized a program to conduct rule of law training and technical 

assistance in China; and 

• 	 enacted legislation implementing China’s WTO commitment allowing WTO 

members to apply a product-specific safeguard when increases in Chinese 

imports threaten or cause injury to domestic industry. 

Congress also required that the executive branch issue several China 

trade-related reports to assist its continuing oversight. These requirements 

included USTR’s annual report on China’s compliance, which is based in 

part on input from the general public. In addition, this Committee, 

together with the Senate Finance Committee (on a bipartisan basis), 

requested that we continue our work on China-WTO issues and report on 

China’s compliance, executive branch efforts, and U.S. business views 

over 4 years. Finally, congressional committees and commissions have 

held at least 35 China-focused hearings since 2001—a further indication of 

congressional involvement in U.S.-China issues. 

Private Sector Plays Key 

Role in Monitoring China’s 

Compliance 

U.S. businesses operating in China provide valuable assistance in 

monitoring the status of China’s implementation of its WTO commitments, 

and, as such, effective coordination between the U.S. government and the 

private sector is essential. For example, industry-specific expertise and 

input from within the private sector are indispensable components for 

determining whether the scores of highly technical laws and regulations 

that the Chinese government issues are WTO compliant and being 

implemented. Further, private sector industry and business associations 

are active in conducting their own analyses and issuing reports on China’s 

WTO compliance, providing input to congressional committees and 

commissions, engaging the Chinese on specific WTO issues, and 

representing their members’ interests to the U.S. government in order to 

inform the U.S.’s compliance priorities. 

Page 10 GAO-04-172T 
WTO Has General and 

China-specific Mechanisms 

to Ensure Compliance 

Concluding 

Observations 

The WTO’s framework of more than 20 multilateral agreements covers 

various aspects of international trade and sets forth the rules by which 

China and other members must abide. Notably, the WTO’s dispute 

settlement mechanism is intended to give all WTO members access to a 

formal mechanism for pursuing and resolving WTO-related compliance 

issues with other members, including China. Thus far, no WTO member 

has initiated a dispute settlement case against China, although some 

Members of Congress and private sector groups have urged the U.S. 

government to initiate a case related to China’s administration of TRQs. 

Another WTO mechanism relates specifically to China. China’s accession 

commitments created a Transitional Review Mechanism (TRM), as a 

means for WTO members to annually review China’s implementation of its 

commitments for 8 years, with a final review in the 10th year following 

China’s accession.10 Just as establishing the TRM was one of the more 

challenging issues to negotiate with China, implementing the TRM process 

during the first year (2002) also proved challenging. Disagreement among 

WTO members, including China, over the form, timing, and thoroughness 

of the TRM led to a limited initial review of China’s trade practices. The 

review did not meet U.S. expectations and illustrated the challenges of 

gaining consensus with China and other members within this multilateral 

forum over implementation issues. Although U.S. officials cited benefits 

from participating in the initial review, they expressed disappointment 

over the first-year results. U.S. officials are hopeful that future reviews will 

be more comprehensive. The second-year TRM is under way, but it is still 

too early to determine if the current review will meet U.S. and other WTO 

members’ expectations. 

In assessing China’s first-year implementation efforts, the executive 

branch, other WTO member government officials, and many private sector 

representatives observed that, despite several first-year compliance 

problems, China had demonstrated a willingness to implement its WTO 

commitments. For example, the executive branch noted China’s progress 

in revising the framework of laws and regulations governing various 

aspects of China’s trade regime. In the second year of China’s 

membership, however, concerns about the number of compliance 

10The TRM is additional to WTO’s trade policy review mechanism, which provides for a 

broad review of the trade regimes of all WTO members on a scheduled basis. However, 

WTO members viewed the trade policy review mechanism as insufficient to oversee 

China’s implementation of its commitments and pursued the TRM. 

Page 11 GAO-04-172T 
problems have grown, as well as the number of events that have 

potentially interfered with China’s implementation of its commitments. 

Specifically, some observers have noted events such as changes in China’s 

central government leadership, reconfigurations of key ministries, a 

growing concern about unemployment and labor unrest, and the SARS 

outbreak as possibly temporarily interrupting progress on implementation. 

In closing, Mr. Chairman, the theme of my testimony is that a cohesive and 

sustained approach is necessary to monitor and enforce China’s 

commitments to the WTO. I believe that this hearing that focuses on the 

key elements of the U.S.-China economic relationship and brings together 

three of the key players is exactly the kind of oversight that is necessary to 

ensure that a cohesive and sustained approach is actually carried out. 

Mr. Chairman and Members of the Committee, this concludes my prepared 

statement. I would be happy to answer any questions on my testimony that 

you may have. 

Contacts and 	 For further information regarding this testimony, please contact Adam 

Cowles at (202) 512-9637. Matthew Helm, Rona Mendelsohn, Richard 

Acknowledgments Seldin, and Kim Siegal also made key contributions to this testimony. 

(320229) Page 12 GAO-04-172T 
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