U.S.-China Trade: USTR's China Compliance Reports and Plans Could Be Improved
Published: 2008-04-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress mandated that the United States Trade Representative (USTR) annually assess China's trade compliance and report its findings to Congress. In addition, USTR conducted an interagency "top-to-bottom review" of U.S. trade policies toward China. USTR's resulting February 2006 report outlined U.S objectives and action items. GAO was asked to (1) evaluate USTR's annual China trade compliance reports to Congress and the degree to which they present information necessary to fully understand China's compliance situation and (2) examine the status of the plans presented in USTR's February 2006 top-to-bottom report. GAO systematically analyzed the contents of USTR's compliance reports from 2002 to 2007 and reviewed information on the status of agencies' monitoring and enforcement activities.
section_title: What GAO Found
paragraphs: USTR's annual reports to Congress, which detail U.S. industry concerns with China's compliance and progress on resolving such concerns, are very consistent in format and language. However, they lack any summary analysis about the number, scope, and disposition of reported issues that would facilitate understanding of developments in China's trade compliance and better tracking of the effectiveness of U.S. monitoring and enforcement efforts with China. For example, USTR's narrative reports make it difficult to understand the relative level of progress China made in each trade area in a given year. USTR reported issues that spanned nine trade areas and ranged from very specific issues to broader concerns; however, USTR's narrative reports make it difficult to ascertain specific changes or trends. GAO's systematic content analysis quantified the number, type, and disposition of trade issues and identified 180 individual compliance issues from 2002 to 2007. GAO analysis showed that China resolved a quarter of these issues, but made no progress on one-third of them. Also, GAO's analysis revealed that China's progress in resolving compliance issues varied by trade area and has been slowing over time, especially since 2004, when most progress was made. GAO could only partially determine the status of U.S. agencies' implementation of USTR's 2006 top-to-bottom report, which outlines broad objectives and priority goals for U.S.-China trade relations as well as specific action items. GAO found that key trade agencies made considerable progress implementing planned action items. They increased bilateral engagement with the Chinese and monitoring and enforcement capacity by increasing staffing levels and training opportunities, but staffing gaps and limited Chinese language capacity are challenges at some agencies. However, GAO could not determine agencies' progress toward achieving some U.S. objectives and goals identified in the report. USTR does not formally assess its progress or measure program results. The lack of linkages between U.S. objectives and planned action items and undefined terms make it difficult to assess whether the steps agencies described taking were effective. Furthermore, the report has not been updated to reflect recent developments.

section_title: Letter
paragraphs: Recognizing that monitoring and enforcing China’s trade commitments, as  specified in China’s December 2001 World Trade Organization (WTO)  accession agreement, might prove difficult, Congress mandated that the  United States Trade Representative (USTR) review and assess China’s  compliance and annually report these findings to Congress. According to  these reports, China’s record in resolving compliance issues is mixed,  although China has taken significant steps to implement its trade  commitments and open its markets to foreign goods and services since its  accession. Many of China’s WTO commitments were phased in over the  first 5 years and have largely been implemented, but compliance with  some has proven especially difficult.
In addition to these annual compliance reviews, USTR conducted a one- time interagency “top-to-bottom review” of U.S. trade policies toward  China. USTR’s review considered GAO’s prior work, which identified  opportunities to improve U.S. government efforts in this area. USTR  reported on the results of this review in February 2006 and concluded that  the United States was entering a new more mature phase in its relationship  with China that required it to readjust its trade resources and priorities to  meet new challenges.
In response to your request to understand the U.S. government’s progress  in monitoring and enforcing China’s trade commitments, we reviewed (1)  USTR’s series of annual reports titled Report to Congress on China’s WTO  Compliance and (2) USTR’s February 2006 top-to-bottom report, U.S.- China Trade Relations: Entering a New Phase of Greater Accountability  and Enforcement. We (1) evaluated the degree to which USTR’s annual  reports to Congress on China’s WTO compliance present information  necessary to clearly understand China’s compliance situation and (2)  examined the status of USTR efforts to implement the action items and  achieve the objectives presented in its February 2006 top-to-bottom  report.
We reviewed and systematically analyzed the detailed narrative  descriptions of China’s compliance issues in USTR’s 2002 to 2007 reports  to Congress, quantified the number of compliance issues reported in each  year by USTR, and categorized the progress USTR reported in resolving  particular compliance issues. Our analysis relied on USTR’s reports, and  we did not do our own independent assessment of China’s compliance  with its trade commitments or of the actions taken by USTR or other  agencies. We interviewed key industry associations and verified with them  that USTR’s annual reports are generally fair and complete representations  of U.S. industry concerns. To assess USTR’s progress in implementing its  top-to-bottom report, we reviewed the document to identify the objectives,  related priority goals, action items, and implementing steps. We then had  USTR and three key agencies (Departments of Commerce, State, and  Agriculture) explain how they implemented the objectives, priority goals,  action items, and implementing steps, and provide documentation to  support their responses. To the extent possible, we independently verified  their responses against information in agency reports, planning  documents, WTO and Joint Commission on Commerce and Trade (JCCT)  documents, and staffing data. In addition, to support our review, we  interviewed officials at USTR, the Departments of Agriculture (USDA),  Commerce, and State, and private sector groups in Washington, D.C., and  in Beijing, China. We conducted this performance audit from March 2007  to April 2008 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: China’s December 2001 accession to the WTO resulted in commitments to  open and liberalize its economy and offer a more predictable environment  for trade and foreign investment in accordance with WTO rules. The U.S.  government’s efforts to ensure China’s compliance with its trade  commitments under the WTO are part of an overall U.S. structure, led by  USTR, to monitor and enforce foreign governments’ compliance with  existing trade agreements. Among other things, USTR is required by law  to identify any foreign policies and practices that constitute significant  barriers to U.S. goods and services, including those that are covered by  international agreements to which the United States is a party. At least 16  other agencies are involved, but USTR and the Departments of Commerce,  State, and Agriculture have the primary responsibilities regarding trade  agreement monitoring and enforcement. Each of these four key agencies  has within its organizational structure a unit that focuses on China or the  greater Asian region.
These units have primary responsibilities for coordinating the agencies’  China-WTO compliance activities, although numerous other units within  the agencies are also involved. The units routinely draw on assistance  from experts in these other units to obtain information and expertise, as  needed. Additionally, the key agencies have units in China or at the WTO,  and staff in those overseas units are also involved in the agencies’  compliance activities.
subsections: section_title: USTR Is Required to Report Annually to Congress on China’s Compliance with Its Trade Commitments
paragraphs: USTR’s annual compliance reports examine nine broad categories of WTO  commitments undertaken by China and include a detailed narrative  outlining China’s compliance with these commitments. USTR is required  to report annually to Congress on China’s compliance with commitments  made in connection with its accession to the WTO, including both  multilateral and bilateral commitments made to the United States. The  reports, which are submitted to Congress every year by December 11, the  anniversary of China’s accession to the WTO, are consistent in format and  language. They are approximately 100 pages in length and divided into  nine broad sections based on categories of WTO commitments. These  sections are (1) trading rights and distribution services, (2) import  regulation, (3) export regulation, (4) internal policies affecting trade,   (5) investment, (6) agriculture, (7) intellectual property rights, (8) services,  and (9) legal framework. In each of these sections, USTR identifies areas  where progress has been achieved by China in meeting its trade  commitments, and USTR also describes the shortcomings with a lengthy  description of the specific, as well as broad compliance issues faced by  U.S. industry. As USTR notes, the report does not provide an exhaustive  analysis of China’s implementation of the particular commitments made in  China’s WTO accession agreement.
The report incorporates a broad range of input from key federal agencies  and U.S. industry. USTR bases the reports on its own experiences as well  as information it collects from federal agencies such as the Departments  of Commerce, State, Agriculture, and the Treasury through both an  interagency process, as well as by working with officers from these  agencies at the U.S. embassy and consulates general in China. In addition,  USTR seeks public participation by publishing a notice in the Federal  Register, holding a public hearing, and incorporating written comments  and testimony. Industry associations we interviewed confirmed that USTR  fairly represents the concerns and interests of U.S. business in its annual  narrative reports on China’s compliance.
section_title: USTR Conducted an Interagency Top-to-Bottom Review of U.S.-China Trade Relations
paragraphs: Since GAO last reported on China’s compliance with its trade  commitments in 2004, USTR undertook an interagency top-to-bottom  review of U.S.-China trade relations over the past 25 years and issued a  report in February 2006. USTR’s report noted that earlier U.S. trade policy  with China focused on bringing China into the international trading system  and urging China to implement its new WTO commitments. Its report  focused on (1) identifying core principles and key objectives of U.S. trade  policy with China; (2) assessing the current status and establishing priority  goals for each key objective; and (3) identifying the specific action items  that will help the United States achieve its priority goals. The report stated  that the United States has entered an important new phase of  accountability and enforcement in its trade relationship with China and  will expect China to play a greater role in strengthening the global trading  system. USTR stated in the report that given the importance of U.S. trade  with China and the challenges that continually confront the United States  as it enters this new period, the United States should readjust its U.S. trade  resources and priorities.
section_title: USTR’s Annual Reports to Congress Do Not Systematically Analyze China’s Progress in Resolving Compliance Issues
paragraphs: USTR’s annual reports to Congress do not have the systematic analysis  needed to clearly provide an understanding of China’s compliance  situation. While the reports describe many issues with China’s compliance  and progress on resolving such issues, they lack summary analysis about  the number, scope, and disposition of reported problems that would  facilitate understanding of key China trade issues and developments and  allow the agency to track its effectiveness in monitoring and enforcing  China’s trade compliance. Therefore, we conducted a systematic content  analysis of USTR’s reports in order to quantify the number, type, and  disposition of trade issues. We identified 180 compliance issues from 2002  to 2007, spanning nine trade areas ranging from very specific issues to  broader, more complex concerns. Our analysis further revealed that while  China has resolved some issues, most issues have persisted without  resolution. In addition, our analysis showed that China’s progress in  resolving issues varies by trade area. More detailed information on China’s  slowed progress in certain areas and faster progress in others might help  Congress better understand China’s compliance. USTR also reported  continuous engagement with China through multiple avenues in order to  solve compliance issues but has not mentioned taking any action on one- quarter of outstanding compliance issues. Additionally, since USTR’s latest  report, China made further progress on various compliance issues.
subsections: section_title: USTR’s Annual Reports Lack Systematic Analysis and Comparative Information
paragraphs: While the lengthy detailed narrative in USTR’s reports describe many  issues with China’s compliance, as well as China’s successes and progress  on resolving such issues, more systematic analysis is needed to clearly  understand the overall compliance situation. It is difficult to get a sense  for the relative progress being made in each of the nine areas from reading  the narrative descriptions. For instance, the reports do not describe how  much progress is being made in the area of agriculture relative to the  progress being made in intellectual property rights or services. In addition,  USTR does not quantify the number of compliance issues or clearly  describe the disposition of such issues. USTR also does not clearly identify  priority areas or rank the issues in order of importance. While USTR  highlights five or six areas of particular concern in the executive summary,  some of these areas are crosscutting issues that involve more than one  specific trade area. The reports also do not give a clear indication of the  level of progress being made overall in each year, or show the relative  progress made in one year versus other years. While USTR noted that the  progress has slowed in recent years, there is no further information about  the degree of this stagnation. Moreover, USTR’s narrative reports lack any  high-level analysis, which might facilitate better monitoring and  enforcement, and raise important questions that might prompt agencies to  adjust their tactics and approaches. Therefore, more specific information  on China’s slowed progress in certain areas and faster progress in others  might help Congress better understand the trade compliance situation in  China in a given year.
section_title: USTR Reports That China Made Progress on Implementing Its Trade Commitments
paragraphs: In its reports, USTR highlighted numerous areas in which China has  successfully implemented its commitments since joining the WTO in  December 2001. China’s WTO commitments are broad in scope and range  from general pledges for how China will reform its trade regime to specific  market access commitments for goods and services. In 2006, when  deadlines for almost all of China’s commitments had passed, and China’s  transition period as a new WTO member was essentially over, USTR  reported that China had taken significant and impressive steps to reform  its economy. In 2007, USTR also reported that China made noteworthy  progress in adopting economic reforms that facilitated its transition  toward a market economy. According to USTR, these actions include  repealing, rewriting, or enacting more than 1,000 laws, regulations, and  other measures, enacting annual reductions in tariff rates, eliminating  nontariff barriers, expanding market access for foreign services providers,  and improving transparency. Table 1 provides some examples of China’s  successful implementation of its WTO commitments from each of USTR’s  annual reports from 2002 through 2007.
section_title: USTR’s Reports Contain a Significant Number and Wide Array of Remaining Compliance Issues
paragraphs: Our analysis of USTR’s reports to Congress from 2002 to 2007 identified  180 compliance issues mentioned in the reports spanning all nine areas of  China’s WTO commitments. The greatest number of compliance issues  mentioned were in the areas of import regulation and services, and there  were relatively few issues mentioned in legal framework and export  regulation (see table 2). China’s WTO commitments are broad and  complex. Some require a specific action from China, such as to reduce or  eliminate certain tariffs. Others are less specific, such as those that require  China to adhere to WTO principles of nondiscrimination treatment of  foreign and domestic enterprises. Compliance issues also ranged in scope  from specific, relatively straightforward issues, such as the late issuance of  regulations, to broader and more crosscutting concerns, such as  questionable judicial independence, which are more difficult to resolve  and assess. The compliance issues can be the result of a range of factors,  from political resistance, to lack of technical capacity, to issues of  resources and coordination among Chinese ministries.
It is important to note that not all compliance issues mentioned in USTR’s  reports equally affect U.S. exports to China and that some issues are more  easily resolved than others. Thus, while USTR’s reports identify key areas  of concern, the economic importance of many individual issues cannot be  easily quantified. USTR does not assign economic value to these concerns  in its reports, and we did not attempt to calculate the importance or  otherwise prioritize or rank the issues in our analysis.
section_title: While China Resolved Some Issues, Most Issues Have Persisted Without Resolution
paragraphs: Our analysis revealed that over 60 percent of the compliance issues USTR  reported to Congress were either resolved or progress was made on them  from 2003 to 2007. A compliance issue is considered resolved if USTR  reported that actions were taken by China that settled the specific issue  mentioned. Our analysis shows that almost one-quarter of all compliance  issues mentioned between 2002 and 2007 were ultimately resolved (see fig.  1). See table 3 for examples of compliance issues that have been resolved.  In addition, none of the issues that were reportedly resolved resurfaced in  later reports.
Furthermore, according to our analysis, USTR indicated that China made  progress, but did not resolve, about 40 percent of the compliance issues  reported. An issue was considered to be one in which China made some  progress if in any year USTR reported some type of improvement in the  situation, or if action taken by the Chinese improved but did not  completely resolve the issue. For example, if USTR reported that China  announced a commitment to take a certain action, such as revise a law,  which would eventually resolve the issue, then this was counted as  progress made in the year in which this commitment was made. Progress  can range in magnitude from small to substantial on a particular issue, as  well as in frequency of occurrence, with some issues making progress in  only 1 year and others in many years. For example, China made progress  in improving its inconsistent application and duplication in certification  requirements related to standards and technical regulations in only 1 of  the 6 years the issue was reported. In contrast, USTR reported that China  made progress toward improving transparency related to the  administration of its tariff rate quota system for bulk agricultural  commodities in 4 of the 6 years the issue was reported.
Additionally, our analysis of USTR’s reports showed that 37 percent of all  compliance issues mentioned from 2002 to 2007 achieved no resolution or  any progress over the entire period. An issue was considered to have made  no progress if the reports either explicitly noted that no progress had been  made on that particular issue or if the reports did not indicate that China  took any action to address the issue in the given year. See table 4 for  examples of issues that made no progress over the period 2003 to 2007.
In addition, our analysis showed that most compliance issues reported  over this period have persisted for many years. For instance, over 30  percent of all issues were mentioned in USTR’s annual reports for at least  5 of the 6 years. In addition, less than 40 percent of all issues were present  in USTR’s reports for 1 or 2 years; the remainder of issues, over 60  percent, was mentioned in the reports for at least 3 years or more   (see fig. 2).
In addition to the issues that were resolved over the period 2002 to 2007,  we discovered that a number of the issues mentioned in the reports were  not explicitly resolved but were nevertheless dropped from the report. An  issue is considered dropped from the report if the issue was mentioned in  1 or more years of USTR’s report, and not mentioned in a later year,  without any discussion about resolution of the issue. In total, 15 percent,  or 27 issues, were not explicitly resolved according to USTR’s reports but  were dropped from subsequent years, with the ultimate status of such  issues remaining unknown. Some of these issues might remain outstanding  but USTR chose not to include them in the report for a particular reason,  or the issues no longer present concerns for U.S. industry and, therefore,  were excluded from the report. A USTR official noted that issues  disappear from the report for various reasons, such as the business  community no longer considers it an issue, or the Chinese have offered a  suitable explanation, ultimately settling the issue.
While 37 percent of all issues mentioned in USTR’s reports from 2002 to  2007 were either resolved or dropped, the number of issues mentioned in  each annual report remained fairly stable over the period 2003 to 2007 (see  fig. 2). This suggests that, as compliance issues were resolved or dropped  from the report, a similar number of new compliance issues arose and  were included. USTR reported 15 to 27 new issues in its report each year,  with a decreasing number of new issues added over time from 2003 to  2007.
section_title: China’s Progress on Compliance Issues Slowed Since 2004
paragraphs: While USTR noted generally that China’s progress in resolving compliance  issues has slowed, our analysis provided information about the degree to  which progress has slowed in recent years. In its 2007 annual report, USTR  stated that beginning in 2006 and continuing throughout 2007, China’s  progress toward further market liberalization began to slow. Consistent  with USTR’s characterization, our analysis showed that while there have  been variations over time, the number and proportion of issues being  resolved or making progress has slowed, from just under 50 percent of  issues in 2003 down to about 30 percent of issues in 2007. For instance, the  number of issues resolved in each year has declined since 2004. In  addition, the number and proportion of issues that achieved some  progress in each year peaked in 2003, declining steadily through 2006, and  improved in 2007 (see fig. 3).
In addition to China’s slowed progress over the period, our analysis found  that there are an increasing number and proportion of compliance issues  where USTR reported no progress, which suggests that issues persist for  several years without resolution as new compliance issues continue to  arise. According to our analysis, the proportion of issues making no  progress rose from just over 50 percent in 2003 to about 70 percent in  2007, with a peak number of issues making no progress in 2006. USTR  explained in its 2007 report that U.S. industry is less focused on China’s  willingness to implement the specific commitments of its entry agreement  than on Chinese policies and practices that undermine previously  implemented commitments. According to the testimony submitted to  USTR by one major trade association, the current concerns lie with more  complicated issues such as a deviation from the WTO’s national treatment  principle, inadequate protection of intellectual property rights,  nontransparent legal and regulatory processes, and the development of  technical and product standards that may favor local companies. Thus,  while USTR reported that China has implemented many of its WTO  commitments, many of the outstanding and new issues are broader, more  complex issues that undermine the commitments and reforms already  implemented.
section_title: Progress Varies by Trade Area in USTR’s Annual Compliance Reports
paragraphs: USTR noted that China’s record on implementing its WTO commitments is  decidedly mixed, without presenting detailed summary information.  Through our analysis, we also found that the reported progress varies  significantly by trade area (see fig. 4). China has made more progress in  some commitment areas—such as trading rights and distribution services,  agriculture, and internal policies—having resolved over 30 percent of all  issues mentioned in each area, and less progress in other areas such as  services and intellectual property rights, where less than 10 percent of  issues have been resolved. Overall, while most trade areas have a  significant proportion of outstanding issues, the proportion of issues  where China is making progress or reaching resolution varies. For  instance, in the area of agriculture, the total number of compliance issues  mentioned each year is declining slightly, with a large number of issues,  about 85 percent, having either reached resolution or achieved some  progress from 2003 to 2007. Also, similar to the overall compliance  situation, the number of issues making progress or being resolved in the  area of agriculture seems to be declining. In fact, USTR mentioned some  specific sticking points such as transparency and selective intervention in  the market by China’s regulatory authorities. USTR explained that, while  U.S. exports of many agriculture commodities to China have reached  record levels, the increases are largely due to the result of greater demand.  Thus, while the results in the agricultural sector seem positive, there are  still some important compliance issues that remain outstanding.
Conversely, other trade areas such as intellectual property rights have  seen less progress, with the smallest proportion of issues, less than 10  percent, reaching resolution and a sizable proportion of issues, over 30  percent, not making any progress from 2003 to 2007. In addition, there are  an increasing number of compliance issues mentioned in this area, with a  peak in 2006. USTR noted in its 2007 annual report that while China has  put in place a relatively good set of laws and regulations aimed at  protecting intellectual property rights, some critical measures still need to  be revised, and China’s overall enforcement of these laws has been  ineffective. Thus, while many of the intellectual property laws have been  rewritten, there are still many outstanding issues, and more complex  issues related to enforcement continue to arise.
section_title: Annual Reports Describe the Types of U.S. Actions to Resolve Compliance Issues
paragraphs: USTR engages with China through multiple avenues to solve compliance  issues but has not mentioned taking action on several outstanding  compliance issues. In its annual reports, USTR outlines various types of  actions taken in order to resolve the compliance issues mentioned in the  reports. These actions include raising the issue at multiple forums and  dialogues with the Chinese, including the U.S.-China JCCT, the Strategic  Economic Dialogue (SED), the Transitional Review Mechanism (TRM) or  other forums at the WTO, or raising the issue bilaterally with the Chinese  through another mechanism. For this analysis, we considered USTR to  have taken action on a particular issue if USTR mentioned some type of  activity in any of its annual reports, such as the ones listed above. USTR  reported taking at least some type of action on most compliance issues  mentioned but did not mention taking any type of action on one-quarter of  compliance issues mentioned (see fig. 5). Specifically, USTR raised 32  percent of issues at the JCCT, 54 percent of issues at the TRM or other  WTO forum, 13 percent of issues at the SED, and 57 percent of issues were  pursued bilaterally with the Chinese through some other mechanism. Most  of the issues where USTR did not report taking any type of action were in  the areas of agriculture, import regulation, intellectual property rights, and  internal policies affecting trade.
USTR officials also highlighted that among the actions they reported, they  have taken the added step of filing WTO cases against China after bilateral  negotiations have made no progress. They noted that the United States has  brought six such WTO cases against China (see table 5).
section_title: China Made Further Progress on Various Compliance Issues in December 2007
paragraphs: Since USTR’s latest report, gains were made at the December 2007 JCCT  and SED meeting that are not mentioned in the 2007 annual report on  China’s compliance with the WTO. In December 2007, the United States  and China participated in the third cabinet-level meeting of the SED and  the 18th JCCT meeting; USTR, the Departments of Commerce and the  Treasury have all cited numerous areas of progress resulting from those  meetings. However, due to the timing of the meetings in late in 2007, the  results were not included in USTR’s 2007 annual report and, therefore,  were also not included in our analysis of such reports. Specifically, the  Department of Commerce cited several areas of progress as a result of the  December JCCT meeting, including steps taken by China in the areas of  intellectual property, product safety, and market access in several  industries such as medical devices, agriculture, and telecommunications.
In addition, the Department of the Treasury also noted many areas of  progress resulting from the December SED meeting including areas such  as integrity of trade and product safety, financial sector reform,  environmental sustainability, and transparency (see table 6).
section_title: USTR’s Progress Toward Achieving Top-to-Bottom Report Objectives Cannot be Fully Determined
paragraphs: We were only able to partially determine the status of USTR’s 2006 top-to- bottom report, which outlines objectives for U.S.-China trade relations and  serves as a plan to focus U.S. trade resources and priorities in this regard.  On one hand, we found that USTR and the other agencies have made  considerable progress implementing planned action items listed in the  report. The key U.S. trade agencies took steps to increase bilateral  engagement with the Chinese and expand the U.S. government’s capacity  to enforce and negotiate by increasing staff levels in headquarters and  overseas and improving training opportunities. However, we found that  some previously identified management challenges—staffing gaps and  limited Chinese language capacity—remain. On the other hand, we could  not determine progress toward achieving the top-to-bottom report’s broad  objectives, which go beyond trade compliance. While this report lays out  USTR’s plans for U.S.-China trade relations, USTR does not formally  assess its progress or measure its results as we have recommended in our  past reviews of USTR plans. The lack of clear linkages between U.S.  objectives and planned action items and vague language make it difficult  to determine whether the steps agencies reported taking were effective.  Furthermore, the report has not been updated to reflect subsequent  developments.
subsections: section_title: Trade Agencies Have Made Considerable Progress in Implementing Top-to- Bottom Action Items
paragraphs: We found that USTR and the key trade agencies have made considerable  progress in implementing the planned action items listed in the top-to- bottom report. We learned that various agencies share responsibility for  carrying out the activities planned in this report either individually or  collectively. USTR informed us that, of the 25 implementing steps, 10  implementing steps were interagency; USTR was responsible for 6, the  Department of Commerce for 5, other agencies for 3, and the Department  of State for 1. After assessing the information provided by USTR and the  other key trade agencies, we determined that 17 out of 25 steps were  implemented or are in the process of being implemented; the status of 8  steps was unclear because the ‘top-to-bottom’ review did not define terms  such as ‘strengthen’ and ‘effectiveness’ nor did it provide baseline data  from which to measure progress. For example, with regard to  strengthening interagency coordination, the report says that export  promotion activities will be increased, but without any baseline  measurement information we could not determine if there had been an  increase in these activities. (See app. II, table 10, which identifies the 10  action items and the accompanying 25 implementing steps, along with  agency responsibilities and status.)
We confirmed that key U.S. trade agencies took steps to increase bilateral  engagement with the Chinese and expanded the U.S. government’s  capacity to enforce and negotiate by increasing staff levels in headquarters  and overseas and by improving training opportunities. While assessing  these agencies’ implementation of the top-to-bottom report action items,  we also followed up on progress made addressing management challenges  identified in our 2004 report on U.S. monitoring and enforcement activities  related to China. We recommended that the key agencies take various  steps to improve performance management pertinent to China WTO  compliance efforts and that they undertake actions to mitigate the effects  of staff turnover in the agencies China WTO compliance units. We found  that some previously identified challenges—staffing gaps and limited  Chinese language capacity—remained at some agencies.
subsections: section_title: U.S. Government Increased Bilateral Engagement with China on Various Trade Issues
paragraphs: As a result of the top-to-bottom report, key trade agencies are undertaking  several action items to improve and increase bilateral engagement with  China. The U.S. government has utilized two formal consultative  mechanisms to address commerce, trade, and financial issues, both of  which demonstrated an emphasis on high-level, bilateral engagement.  First, the United States uses the JCCT, a forum for dialogue on bilateral  trade issues and a mechanism to promote commercial relations. This  forum had been elevated to a higher level after a 2003 meeting and  refocused to give greater attention to outstanding trade disputes. Second,  the United States and China created the SED in September 2006, as  another bilateral high-level forum to address the most important, long- term, strategic issues in the United States-China economic relationship.  The meeting of the SED, which is convened every six months, is led by a  U.S. Cabinet Official and a Chinese Vice Premier, and each dialogue  session comprises U.S. cabinet officials and Chinese ministers.
The SED allows both governments to communicate at the highest levels  and with one voice on issues of long-term and strategic importance,  including issues that extend across multiple departments and agencies.  The United States has three core objectives for the SED: (1) to advance the  U.S.-China economic relationship by establishing new habits of  cooperation; (2) to accelerate China’s next wave of economic transition;  and (3) to encourage China to act as a responsible global economic power.  According to Department of the Treasury officials, there are no formal  working groups associated with the SED. Rather, U.S. cabinet officials and  Chinese ministers determine strategic areas of focus for the intervening  six months between meetings of the SED. For example, at the first SED in  December 2006, civil aviation was selected. At second SED, product safety  was identified and in December 2007 at the third SED, energy and  environment was a strategic area of focus.
According to some U.S. agency officials, there was confusion over the  purpose of the SED when, at the May 2007 SED meeting, the United States  used the meeting to discuss trade compliance issues. Officials told us that  they have since clarified the issue. Department of the Treasury officials  told us the JCCT focuses mostly on short-term trade issues, while the SED  focuses on solutions to long-term, strategic, economic issues (see table 7  below for list of JCCT work areas).
USTR planned to strengthen and expand bilateral dialogues on numerous  current and potential problem areas, another key action item in the top-to- bottom report. The U.S. government held a number of bilateral dialogues  covering 8 different subject areas to address trade issues with China,  which demonstrated a continuing emphasis on bilateral engagement (see  app. II; table 10, which lists these dialogues). Many U.S. government  agencies engaged their Chinese counterparts on a multitude of topics such  as agricultural, environmental, labor, subsidies and standards, and  telecommunications issues. While some of these dialogues are very active  and have resulted in accomplishments such as China’s acceding and  ratifying the World Intellectual Property Organization Internet Treaties in  2007, others dialogues have not yet been implemented. For instance, both  the Environmental Protection Agency and the Department of Labor  indicate they have not established formal dialogues with their Chinese  counterparts as planned.
There are other means of bilateral engagement. For example, USDA  officials told us they prefer to handle issues with their Chinese  counterparts using science-based rationale. This often requires USDA  Foreign Agricultural Service (FAS) to engage Chinese officials in technical  forums and through capacity building initiatives, even though USDA  participates in high-level JCCT working groups on agricultural and  sanitary and phytosanitary issues.
The number of high-level meetings between senior U.S. and Chinese  officials has increased. For instance, the key economic and trade agencies  sent more cabinet and sub cabinet delegations to China to engage their  Chinese counterparts on trade issues; senior-level delegations to China  from various U.S. government agencies increased from 31 in 2006 to 63 in  2007, a level equal to about one a week. Furthermore, this represents a  substantial increase from 2002 and 2003, where there were 13 and 23 such  meetings, respectively.
section_title: U.S. Government Expanded Capacity to Enforce China’s Trade Compliance and Improved Training, but Staffing Issues Persist
paragraphs: Since the top-to-bottom report, the key trade agencies have increased staff  in headquarters and overseas to expand the U.S. government’s capacity to  enforce China’s trade compliance and to negotiate with China on trade  issues. They also increased staff training opportunities. GAO’s prior work  recommended that the key trade agencies better manage their human  capital to enhance the U.S. government’s China WTO compliance efforts  and mitigate the effects of staff turnover. Nevertheless, agency officials  told us they still experienced staffing gaps and turnover in key overseas  offices and shortfalls in language skills.
Key trade agencies have continued to increase staff positions to meet the  demands of the U.S.-China trade relationship (see table 8). Staff resources  more than doubled at headquarters and in Beijing since 2004. The  estimated number of full-time equivalent staff in units most directly  involved with China trade compliance efforts increased from 60 in fiscal  year 2003 to 135 in fiscal year 2007. USTR doubled its staff positions in  headquarters from 5 to 10 positions and established an internal China  Enforcement Task Force that includes staff from USTR’s Office of General  Counsel and the China Affairs Office to prepare and handle potential WTO  cases. USTR also added personnel in its China office to coordinate  collection and integration of information on current and potential China  trade issues. In response to increased responsibilities arising from the new  U.S.-China trade relationship, USTR, Treasury, and Commerce’s U.S.  Patent and Trademark Office added four new positions at the embassy in  Beijing. Department of Commerce’s and USDA’s Foreign Services in China  are the largest overseas office for each department. For example, 10  percent of Commerce’s Foreign Commercial Service is in China. In  addition, as a result of an increased focus on China, the FAS has increased  the number of staff that work in China, which now accounts for 10 percent  of its overseas staff, according to USDA.
Staffing Gaps and Turnover Remain  Furthermore, agencies have experienced staffing gaps and shortages. In  headquarters, USTR experienced staff turnover from fiscal year 2006 to  2007. USTR’s China Affairs Office had four staff depart and hired five  additional staff. As of November 2007, the office is authorized to have nine  staff but only have eight. The International Trade Administration officials  in the Department of Commerce said that there is still a relatively high  amount of staff turnover because employees in the Market Access and  Compliance acquire a skill set that is highly desirable and attractive to the  private sector. Department of Commerce officials noted that one official in  the Market Access and Compliance’s Office of Chinese Economic Area had  moved from headquarters to Beijing since January 2007. Overseas, both  the Departments of State and Commerce have experienced staffing  challenges. For instance, a senior Department of State official told us there  has been a high level of turnover in the economic section at the embassy,  which has included curtailed Foreign Service rotations. These changes  have resulted in significant gaps in filling positions and reorganizations to  compensate for lost expertise. To maintain current staffing levels, the  department has sometimes pulled staff from Chinese language training.  Although State added seven positions in China as part of its Global  Repositioning Initiative, only five were at the embassy in Beijing, and two  staff still had not arrived at post as of the end of 2007. One of the five  economic section positions at the Beijing embassy tasked to work on  China trade compliance at the embassy has been seconded to work with  the senior Department of the Treasury official at post.
Similarly, the Department of Commerce’s Trade Facilitation Office has  been understaffed and has experienced high turnover in two staff  positions according to department officials. One Market Access and  Compliance position was vacant for a year, and the office had waited over  6 months for a Director. We were told that the individual has been hired  and assumed duty in late February 2008. A senior Department of  Commerce official stated that one contributing factor to the high turnover  for the Trade Facilitation Office is that department hires experienced  people with China business backgrounds, in a highly competitive job  market. These individuals are on a limited 2-year noncareer appointment  (with the possibility of the appointment being extended to a maximum of 5  years) with no opportunities for promotion.
In 2004, GAO reported that the four key trade agencies lacked specific  training relevant to executing China-WTO compliance responsibilities, but  since then the Departments of Commerce and State, and USDA have  offered staff opportunities for training on trade monitoring and  compliance. Training opportunities for staff have increased, but most  training is still ad hoc and does not apply specifically to China trade  compliance. Department of State staff overseas stated they had sufficient  funds for training. In addition, both departments offer courses online for  staff. Department of State offers about nine training courses related to  WTO compliance issues to its employees, as well as employees from other  agencies. In fiscal year 2007, approximately 172 individuals took these  courses. Since 2005, Department of Commerce has offered several training  courses related to compliance and market access. Commerce employees  in International Trade Administration participated in training on  compliance and market access database. In addition, to ensure data  accuracy in the Department of Commerce’s case database, about 195  employees have been trained on case procedures and received guidance  on how to document their work in the database. USDA officials stated the  agency increased training opportunities for its China staff since 2005.
Senior management from the Departments of Commerce and State  expressed concerns about the language skills of China unit staff. For  instance, newer staff often have insufficient language skills, according to a  senior Commerce official. As of September 2007, the Department of  Commerce’s Office of Chinese Economic Area offers Mandarin language  training and has five staff taking the course; however, Beijing staff  confirmed that they were not fluent in Chinese and said they rely on the  Chinese Foreign Service Nationals to translate and conduct research to  enhance the officers’ abilities to perform their duties. Some Department of  State staff told us that officers come to the embassy before they have  finished their language training. According to a senior Department of State  official, this limits them in their official capacities. Although senior  department management and staff said they had funds to take language  training, the heavy visitor schedule and workload have made it difficult to  consistently take advantage of the language instruction available at the  post.
section_title: Progress Toward Broad U.S.-China Trade Objectives Is Difficult to Determine
paragraphs: We could not determine agencies’ progress toward achieving the plan’s  broader U.S.-China trade objectives for several reasons. First, USTR  officials said that while the top-to-bottom report is their planning tool,  they have not formally assessed the progress they have made in  implementing it, although USTR officials told GAO that USTR periodically  reviewed their progress and made informal internal assessments.  However, USTR did not provide GAO any of its informal internal  assessments. Second, assessing USTR’s progress toward achieving its  objectives and priority goals for U.S.-China trade is difficult since the  objectives and priority goals are clearly linked to the action items in the  report. Furthermore, some of the action items use undefined terms such as  “strengthen” and “effectiveness” and others do not include baseline  information from which to measure progress. As a result, it is difficult to  ascertain how the agency’s action items and implementing steps  contribute to achieving the larger U.S. trade objectives and priority goals  with China. Third, USTR has not updated the report despite major changes  in the U.S.-China trade relations since conducting the top-to-bottom  review, such as the establishment of the Department of the Treasury-led  SED in September 2006 and filing of several dispute settlement cases.
subsections: section_title: USTR Uses the Top-to-Bottom Report as a Planning Tool but Does Not Formally Assess Its Progress in Implementing It
paragraphs: USTR officials told us they use the top-to-bottom report as the planning  tool for USTR’s China Affairs Office, and it guides USTR’s as well as the  U.S. government’s engagement with China on trade issues. Nevertheless,  USTR officials told us they do not formally assess the progress they have  made in implementing it. Rather, they said that in their regular discussions  on China, they are inevitably touching on the issues in the top-to-bottom  report. In Washington, D.C., and overseas, managers and staff we  interviewed at other agencies said they were aware of the report, but that  it was not used as a guide for planning their China trade compliance  priorities.
The top-to-bottom report indicated that the Trade Policy Review Group  (TPRG) and Trade Policy Staff Committee (TPSC) were to conduct  monthly reviews of the progress made in achieving the key objectives  identified in the report to help ensure coordination of China trade policy  formulation and implementation and appropriate focus among agencies on  key U.S. trade objectives with China. However, USTR said that although  these groups discuss key objectives and priority goals, they do not track  progress made on achieving the action items. The TPSC Subcommittee on  China met 5 times in 2007 between January and August to discuss various  issues such as WTO disputes, SED and JCCT dialogues, and coordination  with U.S. trading partners. The TPRG met 10 times between March 2006  and June 2007 to discuss a variety of issues related to its strategy in WTO  dispute settlement. In addition, no minutes are kept on either the TPRG or  the TPSC so we could not determine to what extent these objectives were  informally discussed in these meetings.
Furthermore, as discussed in the previous section of our report, USTR still  does not attempt to measure the results of its efforts to resolve trade  compliance problems with China, even though they are an integral part of  many U.S.-China trade objectives. USTR’s top-to-bottom review drew upon  GAO past reviews of monitoring and enforcement efforts. In GAO’s 2004  report, for example, we found that the specific units within the agencies  most directly involved with China compliance activities lacked specific  strategies for ensuring that they supported their agency’s goals, and they  also did not assess their unit’s results. We noted that planning and  measuring results were important components to ensuring that  government resources were used effectively to achieve the agencies’ goals.  In addition, we stated that good planning and management links overall  agency goals to individual unit activities and priorities. We recommended  that these agencies take steps to improve performance management  pertinent to the agencies’ China-WTO compliance efforts. Specifically, we  said that USTR should set annual measurable targets related to its China  compliance performance measures and asses the results in its annual  performance plan.
Other Key Agencies Have Some Related Plans  We asked the other agencies to provide us with their China unit plans.  However, the Department of State provided their information too late for  us to assess. The Department of Commerce’s International Trade  Administration has developed a strategic plan, and it has China objectives  and goals that are broad; however, there is no performance measures  related to China and the information provided on China is not very  specific. The International Trade Administration’s Office of China  Economic Area which has major responsibility for China compliance and  trade issues does not have a specific unit plan, although Department of  Commerce officials told us that the activities undertaken by the Office of  the Chinese Economic Area are fully consistent with the International  Trade Administration’s Office’s strategic plan. The Market Access and  Compliance unit which is over the Office of China Economic Area does  have a draft plan but it does not mention China specifically. USDA’s Office  of Country and Regional Areas and the Office on Negotiations and  Agreements have developed unit plans for China, but the documents have  not been officially approved by agency management.
section_title: Lack of Linkages and Specificity Make It Difficult to Assess Progress
paragraphs: Assessing USTR’s progress toward achieving its objectives for U.S.-China  trade is difficult since the broad objectives and the more specific action  items are not clearly linked in the top-to-bottom report. The top-to-bottom  report sets forth the following six U.S.-China trade objectives:    Participation—integrate China more fully as a responsible stakeholder  into the global rules-based system of international trade and secure its  support for efforts to further open world markets; Implementation and compliance—monitor China’s adherence to  international and bilateral trade obligations and secure full  implementation and compliance;   Enforcement of U.S. trade laws—ensure that U.S. trade remedies and  other import laws are enforced fully and transparently, so that Chinese  imports are fairly traded, and U.S. and Chinese products are able to  compete in the U.S. market on a level playing field;   Further market access and reform—secure further access to the Chinese  market and greater economic reforms in China to ensure that U.S.  companies and workers can compete on a level playing field;   Export promotion—pursue effective U.S. export promotion efforts with  special attention to areas of particular U.S. export growth potential in  China; and   Proactive identification and resolution of trade problems—identify mid-  and long-term challenges that the trade relationship may encounter, and  seek proactively to address those challenges.
However, these six objectives and 31 related priority goals are not linked  to the 10 action items and 25 specific implementing steps. (See table 11 in  app. II for a list of the six objectives and 31 related priority goals.) As a  result, it is difficult to ascertain how the agency’s action items and  implementing steps contribute to progress and achieve the larger U.S.  trade objectives with China. Therefore, we asked USTR to identify which  objective each action item and implementing step is supposed to help  achieve. There was a wide range in the level of planned activity to achieve  different objectives. Based on the information USTR provided, we found  that 11 implementing steps focused on one objective concerning  implementation and compliance, while other objectives concerning  proactive identification and resolution of trade issues and export  promotion each only had 1 implementing step associated with them.  Furthermore, the scope and specificity of some objectives and their  related priority goals, did not match the actions meant to implement them.  Therefore, it is not clear that the planned priority goal actions, if  implemented, would fully address all of USTR’s objectives. For example,  as part of planned export promotion efforts, they intended to give special  attention to noncoastal parts of China, from small/medium enterprises,  from high-tech firms, and in sectors where the United States is  competitive; in contrast, the planned action related to export promotion is  very general in nature, is discussed in the context of strengthening  interagency coordination, and does not mention any of these specifics.
It was also difficult to assess progress because terms in the plan do not  provide a means to understand how USTR or other government agencies  might determine when an action item had been achieved. Several action  items state that particular initiatives will be expanded, strengthened, or  increased; however, no strategy or baseline information is provided to  allow one to determine how this would be done or whether actions on the  part of agencies have actually expanded, increased, or strengthened the  program. For example, one action item is to “increase effectiveness of  high-level meetings with China’s leaders,” but the implementing steps do  not state how greater effectiveness will be accomplished; instead, the step  is limited to “continue to hold high-level meetings.” Similarly, with regard  to strengthening interagency coordination, the report says that export  promotion activities will be increased, but without any details or  measurement information we could not determine if there had been an  increase in activity or how this might lead to strengthened coordination.
Plans Have Not Been Updated  Finally, it is difficult to assess the status of U.S.-China trade objectives  because the report does not reflect some important developments. USTR  has not updated its plans. USTR stated in its report that these are “initial  steps” and that additional action items would be developed and  implemented in consultation with Congress and other stakeholders to  ensure meaningful progress in achieving the reports’ key objectives.  However, the action items in the report have not been updated since its  issuance over 2 years ago in February 2006.
There have been several important developments in U.S.-China trade since  the top-to-bottom review occurred, which are not reflected in USTR’s  report. The creation of the SED is a new high-level forum and now  involves the Department of the Treasury. The United States has filed five  dispute settlement cases at the WTO against China since February 2006  (see table 5). Also, U.S. industries have filed numerous trade remedy  petitions against Chinese imports under U.S. trade laws, including requests  for safeguard actions and antidumping and countervailing duty  investigations. In 2007, Commerce made the determination to apply the  countervailing duty law to Chinese imports, representing a major change  from its long-standing policy of not applying this law to non-market  economies.
section_title: Conclusions
paragraphs: Clearer information on the number and disposition of trade issues with  China and the trends over time helps Congress and the public understand  the results of U.S. government monitoring and enforcement activities. It  also better informs policymakers trying to adjust tactics in response to  new developments and shift resources to where they can be the most  effective. Measuring program results on an ongoing basis can be a  powerful management tool. For example, analyses like the ones we  conducted could prompt policymakers to shift priorities to focus on trade  areas with the greatest number or most persistent unresolved issues. Also,  it is possible that lessons can be learned from the tactics and approaches  used in those areas where the most issues have been resolved.
Similarly, USTR’s top-to-bottom review produced a 2006 governmentwide  plan for U.S.-China trade relations. Since then, the key trade agencies have  taken steps to implement the various action items this plan laid out,  including an expansion of U.S. monitoring and enforcement capacity,  increased number of bilateral forums for U.S.-China dialogue about trade  and economic issues, and proactively identifying and resolving trade  issues with China. However, it is not always clear how these activities will  achieve the many objectives the United States has regarding trade  relations with China. A clearer linkage between planned activities and  objectives, and regular progress reviews could help agencies adjust  priorities, focus their efforts, and ensure that there is movement toward all  objectives. Furthermore, this plan for engaging China would be  strengthened if it reflected new developments, like the creation of the  SED, and the results from ongoing U.S. government monitoring and  enforcement activities described in USTR’s annual trade compliance  report to Congress. The upcoming change in administration, new  Congress, expected changes in Chinese leadership, and 2-year anniversary  of the top-to-bottom report, provide USTR with an opportune time to  update its plan.
section_title: Recommendations for Executive Action
paragraphs: To improve policymakers’ and the public’s understanding of China’s trade  compliance situation, we recommend the USTR clearly and systematically  identify the number, type, and disposition of the trade issues it is pursuing  with China and report this and more useful trend information in its annual  China trade compliance report to Congress.
To help achieve U.S. trade objectives with China, we recommend USTR  update and improve the plans reported to Congress in its 2006 top-to- bottom report by considering recent developments and the results of  ongoing U.S. monitoring and enforcement activities and by reviewing how  specific implementing steps and action items align with broad objectives  and priority goals. We also recommend USTR take steps to formally  monitor implementation of these plans over time.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to USTR and the Departments of  Agriculture, Commerce, and State for their comment. USTR provided  written comments, which are reprinted and evaluated in appendix III.  USTR officials said they appreciated our advice to ensure that USTR is  doing the most effective job in reporting on results and they would  consider our insights and ideas, but they did not comment directly on our  recommendations. USTR asked that we clarify our analysis of agency  actions taken and the persistence of compliance issues; we made  revisions, where appropriate. USTR believed that we undervalued the  systematic analysis of China’s WTO compliance in USTR’s annual reports.  In addition, USTR believed that the quantitative analysis of progress made  reveals inherent limitations and difficulties in developing meaningful  quantitative compliance measurements. Moreover, USTR expressed  concern about the advisability of providing quantitative analysis in USTR’s  annual reports. However, we disagree and still believe that providing  summary analysis – both qualitative and quantitative -- would enhance  understanding about China’s compliance situation and provide important  information for Congress to conduct oversight and for senior  policymakers to assess the success of USTR’s and other key trade  agencies’ activities. USTR has many options for tailoring such analysis in  order to address any concerns they might have.
With regard to the top-to-bottom-review, USTR officials stated that it was a  not a plan “in the narrow and specific sense” used in our analysis; instead  it was a one-time policy document that was not intended to be updated.  USTR stated it does provide updates through USTR’s annual reports to  Congress on China’s WTO compliance. Furthermore, USTR stated that the  report’s action items were short-term steps and were not in themselves  designed to achieve the objectives and priority goals. However, it is our  understanding that USTR’s report on the results of the top-to-bottom  review was a plan, based on interviews with USTR staff and our reading of  the document. USTR’s report has many of the characteristics of a good  plan and addresses our 2004 recommendation for a China unit plan in that  the report establishes goals and priorities for the various China Affairs  Office activities. In addition, USTR’s report implies that updates were  going to be provided, however, we agree that USTR’s report includes no  requirement or explicit promise to present revised objectives, goals,  subsequent actions, or the degree of progress in a new version of the  report. While USTR provides numerous reports to Congress on its  activities, USTR still has not updated the six objectives and 31 priority- goals specified in the top-to-bottom report to reflect subsequent  developments nor formally assessed progress. GAO advocates agency  strategic planning and using such plans on an ongoing basis as a  management tool. We suggest that USTR reconsider its treatment of this  report as a one-time policy statement and that it update and improve the  report in order to enhance accountability and inform all stakeholders,  including Congress and the public.
In addition, we received technical and editorial comments from  Department of Agriculture and Commerce officials that sought to clarify  our description of information they provided about the departments’  China-related activities, such as Commerce staffing information and the  correction of minor errors. We revised our report, as appropriate, in  response to these comments. The Department of State did not provide any  comments on our draft report.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the U.S.  Trade Representative; the Secretaries of Commerce, State, and  Agriculture; and interested congressional committees. We also will make  copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff has any questions regarding this report, please call me  at (202) 512-4128. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  GAO contact and staff acknowledgments are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To assist Congress in better understanding the United States Trade  Representative’s (USTR) reporting on the U.S. government’s progress in  monitoring and enforcing China’s trade commitments, we reviewed two  key USTR reports, its annual December 11 report to Congress on China’s  WTO Compliance and its February 2006 top-to-bottom report, U.S.-China  Trade Relations: Entering a New Phase of Greater Accountability and  Enforcement. We were asked to (1) evaluate the degree to which USTR’s  annual reports to Congress on China’s World Trade Organization (WTO)  compliance present information necessary to clearly understand China’s  compliance situation and (2) examine the status of USTR efforts to  implement the action items and achieve the objectives presented in its  February 2006 top-to-bottom report.
To examine the scope and disposition of compliance issues, we reviewed  USTR’s Report to Congress on China’s WTO Compliance from 2002 to  2007. These annual reports, mandated by Congress in conjunction with  China’s 2001 accession to the WTO, incorporate a broad range of input  from key federal agencies, as well as the business community. To assure  ourselves that the reports generally included the main compliance issues  and concerns that had arisen, we interviewed three key industry  associations, which together represent over 1,300 companies in over 40  industries, in Beijing, China, and Washington, D.C., about USTR’s annual  reports, and these groups noted that they were generally satisfied with the  report’s portrayal of the compliance situation in China. We identified each  unique compliance issue that was reported by USTR in the narrative of  each of their annual reports. Our identification was based on USTR’s  description and definition of problems in the narrative of the report.  USTR’s categorization of issues in the report and the manner in which  issues were grouped and presented, also guided the identification of  individual issues. We did not include areas where China initially complied  fully with its commitments and, therefore, no issues were raised, these  were considered successes as reported in table 2. In all, we identified 180  issues in the six annual reports.
To analyze the disposition of the compliance issues, we reviewed the  narrative descriptions provided in the reports and made determinations  according to three broad categories: No Progress Noted, Some Progress  Noted, and Resolved. We categorized an issue as “No Progress Noted” if  the report text either explicitly stated that no progress had been made or  did not indicate that China had undertaken any actions to address the  issue. We categorized an issue as “Some Progress Noted” if the report text  indicated that China had undertaken any action to address the issue but  had not completely resolved it. We categorized issues as “Resolved” if the  report language clearly indicated that the compliance issue was resolved  and the U.S. government was no longer pursuing a resolution of that  particular issue (see table 9 for additional details). Two of our staff  independently identified each compliance issue and made initial  determinations of the dispositions. After those staff had reconciled  differences in their initial identification and disposition of issues,  additional staff reviewed issues and dispositions to ensure consistency  and accuracy in the dispositions.
We did not attempt to identify the relative importance of the compliance  issues as the report text does not provide clear indications that would  allow us to make that determination. However, we based our analysis on  the premise that all these compliance issues had been considered serious  enough by USTR to include in its annual reports. Indeed, USTR reported  that it focused the report on trade concerns raised by U.S. stakeholders  that merit attention within the WTO context. In some instances, we noted  that after a compliance issue in a particular area had been resolved, other  issues arose in the same area. For example, in some areas, after a  particular commitment was implemented, other restrictions were imposed  that made it difficult for U.S. companies to realize the full benefits of the  commitment. In those instances, we identified two separate issues and  noted their dispositions according to the evidence. As a result, our total  count of issues includes several that are related, but that were identified as  separate problems in USTR’s reports.
In addition, for the 2004 through 2007 annual reports, we quantified the  number of issues where USTR mentioned taking various types of actions  in order to resolve the issue in the narrative of the report. These actions  include raising the issue at multiple forums and dialogues with the  Chinese, including the JCCT, the Strategic Economic Dialogue (SED), the  Transitional Review Mechanism (TRM), or other forums at the WTO, or  raising the issue bilaterally with the Chinese through another mechanism.  For example, regarding the concerns from the U.S. telecommunications  industry about interference from Chinese regulators regarding standards  and contract negotiations, USTR reported that they raised this issue during  a 2004 JCCT meeting. Therefore, we noted that USTR took action toward  resolving this issue at the JCCT.
To assess USTR’s progress in implementing the objectives and action  items presented in its February 2006 top-to-bottom report, U.S.-China  Trade Relations: Entering a New Phase of Greater Accountability and  Enforcement, we analyzed the document by identifying the six objectives  and each of the associated priority goals. After that, we delineated the 10  action items and each of their associated implementing steps. We created  a chart and divided the implementing steps under each associated action  item. Next, we asked USTR to (1) identify the agency responsible for  implementing each action item, (2) complete the chart, (3) indicate  whether the action item was implemented and if so how was it  implemented, and (4) provide supporting documentation for each  response. Since we had observed that the action items were not clearly  linked to the report’s objectives, we asked USTR to identify which  objective the action item addressed. We also asked the Departments of  Commerce and Agriculture to complete a chart for their individual  agencies; identify which action item they were responsible for  implementing, indicate the status of this action item, and provide  supporting documentation for their responses. We asked the Department  of State to provide documentation for the one step that USTR said this  department was solely responsible for implementing.
We conducted this performance audit from March 2007 to April 2008, in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Status of Top-to-Bottom Review
paragraphs: Table 10 identifies the 11 action items and the accompanying 25  implementing steps, along with agency responsibilities and status in the  top-to-bottom review.
Table 11 is a list of the six objectives and 31 related priority goals in the  top-to-bottom review.
section_title: Appendix III: Comments from the United States Trade Representative
paragraphs: The following are GAO’s comments on the United States Trade  Representative’s letter dated March 26, 2008.
subsections: section_title: GAO Comments
paragraphs: 1.  We disagree that report undervalues the systematic analysis of China’s  WTO compliance contained in USTR’s annual reports.  In our report,  we acknowledge the detailed narrative information presented by USTR  and the consistent format used to present this information in its annual  reports on China’s WTO compliance.  Nevertheless, we believe that the  lack of systematic analysis in these reports make it difficult for  Congress and the public to understand the overall compliance  situation in China.  USTR’s annual reports lack not only quantitative  measurement and analysis, but qualitative summary analysis as well.   While there is a significant amount of detailed information contained  in USTR’s reports, it is difficult to determine the overall progress being  made in each of the nine areas.  In addition, without systematic  analysis of the lengthy narrative descriptions it is difficult to assess the  level of progress being made in each year, or the trends over time.  While there are other ways to conduct such analysis, our work  demonstrates that it is possible to provide both systematic qualitative  and quantitative analysis to make the information in the report more  meaningful and accessible.  2.  We disagree with USTR’s statement that the variety and nuances of  individual compliance issues make summary analysis meaningless. In  fact, we believe the opposite is true. As we noted in our report, we  identified each unique compliance issue based on the description and  definition of problems in the narrative of the report.  The  categorization of issues in USTR’s reports and the manner in which  issues were grouped and presented guided our identification of  individual issues. We recognize that it is possible to group the issues  differently, and if USTR finds another method of grouping and  identifying issues, we encourage USTR to use such methods in  providing summary analysis in future reports.  In addition, we believe  that this type of analysis is important to help Congress and the public  better understand the overall compliance situation regarding China.   Should USTR choose to define issues differently, we are confident that  this will not change the overall results and patterns found through our  analysis.
Our report discusses the fact that the compliance issues mentioned in  USTR’s reports may not all equally affect U.S. exports to China. In  addition, we acknowledge that the level of progress made on one  particular compliance issue might not be equal to the progress made  on other issues.  We agree with USTR that the relative importance of  such issues and the relative progress made should guide decisions  about how and when to devote resources to pursue particular  compliance issues.  That is precisely why we believe that more  systematic information included in USTR’s annual compliance reports  will provide further understanding to Congress and other stakeholders  (and therefore help improve decision making regarding China’s trade  compliance).  To the extent that USTR believes it is important to give  more weight to certain issues or explain other nuances that surround  individual issues and the progress made on such issues, we encourage  USTR to incorporate these variables when conducting any summary  analysis for future reports.    3.  We disagree with USTR that it will be ill-advised to provide a detailed  quantitative analysis in USTR’s annual reports. We believe that more  transparency and clarity in USTR’s reports enhances understanding  about China’s compliance situation and provides important  information for Congress to conduct oversight and for senior  policymakers to assess the success of their activities. Such information  would promote a more informed discussion about U.S.-trade policy  toward China among all stakeholders. While USTR could decide to  more clearly prioritize the almost 180 issues it reports, we did not  advocate ranking these issues.   In addition, U.S. trade negotiators  could use summary information on China’s progress (or lack thereof)  on resolving compliance issues to better argue that more needs to be  done in certain areas and that the United States expects greater  progress overall.  Nevertheless, USTR would have many options for  how to conduct and present such summary information, giving it the  flexibility to mitigate any concerns that negotiators might have.    4.  USTR states our categorization of compliance issues according to  “action taken” and “no action taken” is unclear.  Our report states  clearly that our analysis of actions taken is based solely on the  information provided in USTR’s annual reports.  In addition, USTR  stated that it was unclear how we categorized issues when they had  brought a WTO case after bilateral negotiations. We considered any  actions mentioned in USTR’s annual compliance reports at any WTO  forum as “raised at the WTO” including dispute settlement cases.  Furthermore, we added information to our report to clearly identify  the cases filed by the United States against China.    5.  USTR states the “top-to-bottom” report is not a “plan” in the narrow  and specific sense used in our report. However, this was not our  understanding based on interviews with USTR staff during our review  and our reading of the document. USTR’s report on the results of its  “top-to-bottom” report addresses our 2004 recommendation for a  China unit plan in that the report establishes goals and priorities for  the various China Affairs Office activities. GAO advocates agency  strategic planning and using such plans on an ongoing basis as a  management tool. USTR’s report has many of the characteristics of a  good plan: it clearly defines objectives, goals, and action items;  provides a detailed discussion of the problems; delineates agency  responsibilities; provides specific activities and programs; and  identifies human resources needed to achieve action items. In a  February 2006 news conference announcing the report on the top-to- bottom report, the then U.S. Trade Representative was asked, among  other things, how he would measure USTR’s progress on U.S.-China  trade issues.  He replied that “… the way to measure our performance  is to go point by point through the report looking at the issues that I’ve  talked about at the outset….”  We believe that USTR should reconsider  its treatment of this report only as a one-time policy statement.  6.  USTR states that the top-to-bottom” report did not promise or  anticipate the drafting of update. Based on our analysis of the report, it  is implied that updates were going to be provided; however, we agree  that the report includes no requirement or explicit promise to present  revised objectives and goals, subsequent action items, and the degree  of progress in a new version of the report. So we removed language  indicating that there was an explicit requirement or promise. However,  we suggest that USTR reconsider its treatment of this report as a one- time policy statement. Regular briefings are important, but USTR  should have a written record that specifies revised objectives and  goals, subsequent action items, and the degree of progress toward  achieving them.
USTR states that through annual reports like its annual reports to  Congress on China’s WTO compliance, USTR already provides the  written updates on the “top-to-bottom” report. While USTR provides  numerous reports to Congress on its activities, USTR still has not  updated the six objectives and 31 priority goals specified in the top-to- bottom report to reflect subsequent developments nor formally  assessed progress. We still advocate that USTR update and improve  this report, commensurate with its promised actions to help ensure  that it is best positioned to meet its key China trade objectives and to  ensure meaningful progress toward achieving them.
USTR states that we misunderstood the relationship between action  items, on the one hand, and objectives and priority goals, on the other.
We found the relationship between action items and the objectives in  the top-to-bottom report were unclear. Therefore, we went through an  exercise with USTR staff to identify how and whether short-term  action items link to specific long-term objectives and priority goals and  report on the outcome. In the future, USTR should formally identify  these linkages in an updated plan that includes subsequent action  items to ensure they are taking all the steps necessary to achieve their  stated objectives.
Our recommendations would enhance USTR’s accountability and  inform all stakeholders, including Congress and the public, about the  status of the U.S. objectives and priority goals for trade relations with  China.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Adam Cowles, Assistant  Director; Diana Blumenfeld; Martin de Alteriis; Rhonda Horried; and Paul  Revesz made key contributions to this report. Karen Deans and Marc  Molino provided technical assistance.