U.S.-China Trade: United States Has Secured Commitments in Key Bilateral Dialogues, but U.S. Agency Reporting on Status Should Be Improved
Published: 2014-02-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: China is the largest destination for U.S. exports outside North America and also the source of the largest U.S. bilateral trade deficit. The countries engage in two high-level dialogues to address trade barriers and cross-cutting economic issues. These are the JCCT, co-led for the United States by Commerce and USTR, and the economic track of the S&ED, led by Treasury. GAO was asked to review China's bilateral trade commitments made in these dialogues. This report (1) describes trade and investment commitments China has made at the JCCT and S&ED; (2) describes U.S. agency tracking of China's implementation of these commitments; and (3) evaluates U.S. agency reporting on implementation. GAO analyzed documents, including public fact sheets stating commitments; interviewed officials, industry representatives, and other experts; used a structured process to categorize commitments; and reviewed reports officials identified as reporting implementation status of commitments.
section_title: What GAO Found
paragraphs: GAO identified 298 trade and investment commitments made by China in the U.S.-China Joint Commission on Commerce and Trade (JCCT)—184 since 2004—and the U.S.-China Strategic and Economic Dialogue (S&ED) and its predecessor—114 since 2007. The commitments range from affirmations of open trade principles to sector-specific actions. GAO identified 11 issue areas to characterize the content of each commitment. The prominence of issue areas, measured in number of commitments associated with an issue area, differs between the dialogues, reflecting differences in the dialogues' structure and focus. Intellectual property rights commitments are among those most common in the JCCT and investment commitments are among those most common in the S&ED. (For a detailed inventory of commitments and their categorization, see GAO-14-224SP .)
U.S. agencies track commitment implementation through several means, including outreach to domestic stakeholders, issue-based working groups with China in the JCCT, and consultations in advance of S&ED annual meetings. No single document is used to track implementation, according to U.S. officials. In addition, although there have been calls to use metrics such as exports and sales in developing commitments, agencies identified only one such commitment in the dialogues and cited challenges in identifying appropriate data.
Although several reports on trade barriers present information on JCCT and S&ED commitments, information on commitment implementation in these reports does not provide a clear and comprehensive picture of progress across the dialogues. The Office of the U.S. Trade Representative (USTR) produces these reports with assistance from other agencies, including the Departments of Commerce (Commerce) and Treasury (Treasury). GAO's analysis of 10 software commitments from 2008-2011 shows, for example, that the implementation status of most could not be clearly identified. More comprehensive reporting would give Congress and other policy makers a clearer understanding of progress and the role of the dialogues as they continue to assess challenges in the U.S.-China relationship.
section_title: What GAO Recommends
paragraphs: To improve understanding of progress through the bilateral dialogues in increasing access to China's markets, USTR, in conjunction with Commerce and Treasury, should work to improve reporting on China's implementation of JCCT and S&ED trade and investment commitments. In written comments, USTR and Commerce did not directly agree or disagree with the recommendation, but raised several concerns. USTR maintained current reporting is comprehensive and Commerce noted resource constraints. GAO continues to believe improved reporting would benefit policymakers.

section_title: Letter
paragraphs: Since China joined the World Trade Organization (WTO) in 2001, trade  between the United States and China has grown substantially, with China  now the largest destination for U.S. exports outside North America.  However, U.S. imports from China exceed exports by more than $300  billion, making the U.S. trade deficit with China significantly larger than  with any other trading partner. Despite actions by China to open its  markets to the United States, formidable barriers remain. The  governments of the United States and China are engaged in a number of  forums that address trade issues, including two cabinet-level bilateral  dialogues—the U.S.-China Joint Commission on Commerce and Trade  (JCCT) and the U.S.-China Strategic and Economic Dialogue (S&ED).
The JCCT, initiated in 1983, focuses on addressing bilateral trade matters  and promoting commercial opportunities. The S&ED, established in 2009,  represents the highest-level bilateral dialogue to discuss a broad range of  both strategic and economic issues. (The S&ED was preceded by the  Strategic Economic Dialogue  in 2006 through 2008.) Some  observers and policy makers have raised questions about what  commitments China has made and implemented as a result of these  dialogues as well as what tangible benefits for the U.S. economy the  dialogues have produced.
You asked us to review issues related to China’s JCCT and S&ED trade  and investment commitments. In this report, we (1) describe the  commitments China made at the JCCT and the trade and investment  commitments China made at the S&ED, (2) describe U.S. agency  tracking of China’s implementation of these commitments, and  (3) evaluate U.S. agency reporting on the status of commitment  implementation.
To address these objectives, we analyzed documents and interviewed  U.S. officials, industry representatives, and other experts. To describe the  commitments, we analyzed public JCCT and S&ED fact sheets issued by  the U.S. government to identify individual commitments made by China,  including those made jointly with the United States, and categorized them  by trade issue areas using a structured review process. To describe U.S.  agency tracking of commitment implementation, we obtained and  analyzed documentary and testimonial evidence on relevant agency  activities. To evaluate U.S. agency reporting on implementation status,  we reviewed key reports that U.S. officials identified as containing their  assessments of the implementation of commitments made in these  dialogues, and discussed the results with officials and other experts.  (Appendix I provides more detailed information on our scope and  methodology.) In addition, an inventory of the commitments we identified  and their categorization by issue area is provided in an online e- supplement, GAO-14-224SP.
We conducted this performance audit from May 2012 to February 2014 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.
subsections: section_title: Background
paragraphs: Since 1979, when the United States and China signed a bilateral trade  agreement, China’s economy has grown at an unprecedented rate, as  has China’s bilateral economic engagement with the United States. In  recent years, China’s economy grew an average of 10 percent a year,  and in 2010 China replaced Japan as the world’s second largest  economy. Total U.S.-China trade increased from $2 billion in 1979 to  $536 billion in 2012. China is currently the second largest U.S. trading  partner, the third largest U.S. export market, and the largest source of  U.S. imports.
The governments of the United States and China have established two  important bilateral dialogues—the JCCT and S&ED, which discuss and  resolve trade and investment matters, including reducing trade barriers  for U.S. firms and investors. (See figure 1 for the organization of the  JCCT and the S&ED.) According to senior U.S. officials, the United States  also engages with China at all levels of government in other bilateral  interactions, such as formal and informal conversations at U.S.-China  summits. In addition, the two governments discuss trade and investment  issues in multilateral forums, such as the WTO and the Asia-Pacific  Economic Cooperation (APEC) forum.
The JCCT, established in 1983, is the main bilateral dialogue for  addressing trade matters and promoting commercial opportunities  between the two countries. Since 2004, the U.S. Secretary of Commerce,  the U.S. Trade Representative, and China’s Vice Premier for foreign trade  have co-chaired the JCCT. The dialogue, which has multiple working  groups focusing on specific issue areas, operates year-round and  culminates in an annual plenary meeting that alternates between the  United States and China. The two most recent JCCT plenary meetings  took place in December 2012 in Washington, D.C., and in December  2013 in Beijing, China.
The S&ED, established by the Presidents of the United States and China  in April 2009, represents the highest-level bilateral dialogue to discuss a  broad range of issues between the two nations. The S&ED addresses  bilateral, regional, and global economic and strategic issues, both  medium and longer term. Under the S&ED, the two sides meet once a  year, alternating between Washington, D.C., and Beijing. The fifth S&ED  meeting was held in Washington, D.C., in July 2013. The S&ED has  strategic and economic tracks; the U.S. Secretary of State and China’s  State Councilor for foreign affairs co-chair the strategic track, and the  U.S. Treasury Secretary and China’s Vice Premier for foreign trade co- chair the economic track. From 2006 through 2008, the S&ED was  preceded by the SED, in which the two governments discussed the most  important economic, but not political, issues in the bilateral relationship.
The S&ED’s economic track has four pillars, one of which focuses on  trade and investment, and addresses short, medium, and longer term  economic issues. In setting S&ED priorities, the Department of the  Treasury (Treasury) and the National Security Staff lead an interagency  process, working closely with the Department of Commerce (Commerce),  the Office of the U.S. Trade Representative (USTR), and other agencies,  on trade and investment issues. According to Treasury officials,  discussions of S&ED economic track issues continue throughout the year  between the annual plenary meetings.
Agencies report the outcomes of the JCCT and S&ED dialogues through  public statements in the form of fact sheets that present commitments  made by the United States and China. These fact sheets are issued  following the conclusion of the JCCT and S&ED annual meetings.  Commerce and USTR issue a JCCT fact sheet following the JCCT annual  meeting; Treasury issues jointly with China an S&ED fact sheet for the  economic track that presents the joint commitments negotiated by the  United States and China following the S&ED annual meeting. Treasury  also issues a U.S. fact sheet that discusses the benefits of the  commitments for U.S. workers and companies. The Department of State  (State) issues the fact sheet for the S&ED strategic track. According to  senior U.S. agency officials, these fact sheets outline the official  commitments negotiated with the Chinese government.
In addition to reporting commitments, the JCCT and S&ED fact sheets  have in recent years included sections that identify cooperative or  exchange activities between the United States and China. (These are  referred to as “cooperative activities” in JCCT fact sheets and  “institutional arrangements” in S&ED fact sheets.) According to  Commerce officials, JCCT cooperative activities are undertaken with the  goal of advancing U.S. priorities and are often crucial for developing  successful policy commitments from China. They may involve discussions  with public and private sector participants focusing on issues or areas at  the pre-commitment level. For example, in 2009, China and the United  States held a program, pursuant to JCCT commitments, with public and  private participants to discuss legal liability for intellectual property rights  infringement that occurs on the Internet. There were JCCT commitments  related to this issue in 2010 and 2012 that resulted, according to U.S.  officials, in the Supreme People’s Court’s publication of a judicial  interpretation stating that those who facilitate online infringement will be  held jointly liable for that conduct. Similarly, the S&ED allows for activities,  such as consultations or technical exchanges, that are separate from  commitments but allow the two sides to engage in a dialogue on a range  of issues. For example, in 2012 the United States and China agreed to  expand technical exchanges under the U.S.-China Transportation Forum  and enhance coordination under the APEC framework.
section_title: China Has Made Commitments in a Number of Trade and Investment Areas and Sectors
paragraphs: China has made 298 trade and investment commitments since 2004 in  the JCCT and S&ED, ranging from statements affirming open trade  principles to statements that focus on trade actions specific to a sector.  The prominence of issue areas across the commitments differs between  the dialogues, reflecting differences in the dialogues’ structure and focus.  Some commitments reaffirm prior commitments and some commitments  acknowledge progress since the previous year’s meeting.
subsections: section_title: Prominent Issue Areas Include Intellectual Property Rights for JCCT Commitments and Investment for S&ED Trade and Investment Commitments
paragraphs: We identified 184 commitments in the JCCT since 2004 and 114 trade  and investment commitments in the S&ED since 2007 that involve China  or China and the United States. The commitments include statements  affirming open trade principles, statements of policy intent, and  statements that focus on trade actions specific to a sector. U.S. officials  stressed that not all commitments are of equal value and significance.
We examined the JCCT and S&ED commitments to provide an overview  of their areas of emphasis and other characteristics. We identified 11  issue areas to characterize the content of each commitment, including  sector-specific issues. Fifty-four percent of the JCCT commitments and  48 percent of the S&ED trade and investment commitments were related  to two or three issue areas. See figure 2 for the list of issue areas and  number of commitments related to each issue area. Table 2 in appendix I  describes each issue area and provides examples of commitments.
At the JCCT, a large share of commitments are related to intellectual  property rights (62 commitments or 34 percent) and technical and  regulatory barriers to trade (45 commitments or 24 percent). China has  made commitments related to both of these issue areas every year since  2004, with at least 20 percent of commitments related to intellectual  property rights and at least 10 percent of commitments related to  technical and regulatory barriers to trade. In addition, 110 commitments  (or 60 percent of all China’s JCCT commitments) refer to a specific  sector, including 28 commitments related to pharmaceuticals and medical  devices, 19 commitments related to agriculture, and 18 commitments  related to software use.
For the S&ED, 70 percent of the trade and investment commitments are  related to one or more of the following three issue areas: investment (30  commitments or 26 percent), multilateral issues (26 commitments or 23  percent), and transparency (24 commitments or 21 percent).
Differences in the number of commitments associated with specific issue  areas across the two dialogues may reflect differences in the dialogues’  structure and focus. According to U.S. officials, the JCCT has had greater  focus on bilateral trade issues and sectors, in contrast with the S&ED,  where trade and investment issues have been discussed within a broader  range of economic and strategic issues. In addition, our analysis shows  that statements of joint actions by China and the United States are more  common at the S&ED (75 percent). According to Treasury officials, this  reflects the broad economic focus and cross-cutting discussions of the  S&ED’s economic track. The majority of China’s JCCT commitments (76  percent) involve China alone.
section_title: Expected Timeframes of Commitment Implementation
paragraphs: Commitments in the two dialogues generally do not specify timeframes  although according to U.S. officials, many commitments are either  expected to be implemented by the next annual meeting or are  considered to be ongoing. According to Commerce officials, that would be  the case, for example, for a commitment by China to provide fair  treatment to foreign investors. According to Treasury officials, in the  S&ED the two sides work under the general assumption, unless stated  otherwise, that each year’s S&ED commitments are to be implemented by  the next S&ED meeting. Some JCCT and S&ED commitments do  specify a timeframe. Of the commitments we identified, timeframes were  specified in 17 percent of China’s 184 JCCT commitments and 18 percent  of China’s 114 S&ED trade and investment commitments. For example,  at the 2011 JCCT meeting, China agreed to publish procedures for  telecommunications network access license and radio type approval by  the end of 2011. At the 2013 S&ED meeting, China committed to submit a  new revised offer to join the WTO’s Government Procurement Agreement  (GPA) by the end of 2013.
section_title: Some Commitments Have Been Reaffirmed and Others Have Evolved
paragraphs: Our analysis shows continuity of issues and objectives pursued at the two  dialogues from 2004 through 2013. Some specific commitments have  been made repeatedly, while others have evolved.
Within S&ED issue areas, some commitments have been reaffirmed over  time. For example, in investment—which is associated with 26 percent of  China’s S&ED trade and investment commitments—the United States  and China committed to bilateral investment treaty negotiations each  year, with commitments becoming increasingly specific. The 2013  commitment stated that the bilateral investment treaty will provide  national treatment at all phases of investment, including market access  (“pre-establishment”), and be negotiated under a “negative list”  approach.” In another example, China repeatedly affirmed its intent to  follow the generally accepted principles and practices of sovereign wealth  funds.
Other commitments illustrate how efforts to address trade barriers in an  issue area or sector have evolved over time. For example, the United  States has secured multiple commitments in both the JCCT and S&ED  concerning the terms under which China will accede to the GPA. These  have become increasingly specific, moving from initially seeking China’s  commitment to submit a revised accession offer to subsequently seeking  commitments related to the specific elements of such an offer. USTR  reported U.S. concerns with each offer in its annual National Trade  Estimate Reports on Foreign Trade Barriers (NTE) for 2011 through  2013:
At the May 2010 S&ED, China committed to submit a revised offer to  accede to the GPA by July of that year, which it did. However, USTR  reported that China could improve its next offer by, among other  things, including sub-central entities and certain state-owned  enterprises.
At the December 2010 JCCT, China committed to submit a second  revised offer—whose content would be based on intra-governmental  consultations on the entities to be subject to the agreement—to join  the GPA before the WTO Committee on Government Procurement’s  final meeting in 2011. USTR reported that China submitted the offer  but that it excluded too many state-owned enterprises.
At the May 2012 S&ED, China committed to submit a new  comprehensive revised offer that responded to the requests of the  GPA parties to the WTO Committee on Government Procurement  before the committee’s final meeting in 2012. China submitted its third  revised offer in November 2012.
China’s commitments in software have also evolved over time. We  identified 22 software-related commitments—18 in the JCCT beginning in  2004 and 4 in the S&ED beginning in 2011. In 2004, China committed to  extend an existing ban on the use of pirated software in central and local  governments. This commitment continued in subsequent years with the  inclusion of state-owned enterprises in 2006. In 2010, China committed to  establish software asset management systems for government agencies  and to allocate budgetary funds for purchasing, upgrading, and replacing  agency software, and in 2012, China confirmed that it required state- owned enterprises to use legitimate software. In the S&ED, China  committed to strengthening inspections to ensure legitimate government  software use in 2011 and to extending software management pilot  projects to the enterprise sector in 2012.
section_title: Agencies Use Various Means to Track Implementation
paragraphs: U.S. agencies track the implementation of commitments through various  means including interactions with their Chinese counterparts and  outreach to industry. U.S. agencies identified JCCT working groups and  mid-year reviews, discussions with Chinese officials while developing joint  fact sheets prior to S&ED meetings, U.S. industry associations and  companies, and U.S. officials based in China as key sources for  information on progress. U.S. agencies use several tracking documents  that capture information on the status of some commitments over time  and do not have a single document that encompasses either dialogue. In  addition, U.S. agencies have sought to identify commercial metrics such  as increased sales to use as indicators of implementation progress where  possible, but cited challenges in identifying appropriate data.
subsections: section_title: U.S. Agencies Track Information on Implementation through Several Means
paragraphs: U.S. agencies collect information on the status of commitment  implementation through several means, including ongoing engagement  with their Chinese counterparts in preparation for meetings, and regular  outreach to domestic stakeholders. One important source of tracking  information is the 16 JCCT working groups. The working groups each  comprise U.S. and Chinese officials; some focus on specific industries,  such as steel, and some on trade issues such as intellectual property.  According to U.S. agency officials and documents, the JCCT has added  working groups in response to changes in the trade relationship—for  example, adding the Trade and Investment Working Group which covers  a range of trade and investment issues. U.S. agencies obtain updated  information on implementation status from their Chinese counterparts at  working group meetings. For example, Commerce and USTR officials  received information from working group meetings about Chinese actions  taken to shut down websites selling counterfeit medicines, in response to  2010 and 2011 JCCT commitments. Intellectual Property Rights working  group officials stated that their working group has been instrumental in  following the implementation of commitments to reduce end-user piracy of  software by government agencies and state-owned enterprises.
The Office of Science and Technology Policy (OSTP) tracks  implementation of commitments China makes at the Innovation Dialogue  which are part of the overall S&ED commitments. Established in 2010 at  the request of the U.S. and Chinese leaders of the S&ED, the Innovation  Dialogue is a forum to share best practices in promoting innovation. The  dialogue established a working group of U.S. and Chinese private sector  experts and government officials, which monitors implementation of  commitments and advises on barriers to successful implementation.
U.S. government officials also analyze commitment implementation while  preparing the joint fact sheet for the coming year’s S&ED plenary  meeting, according to Treasury officials. Treasury solicits and compiles  input from key U.S. federal agencies on their priorities, which it  exchanges with its Chinese counterparts. They then negotiate the  wording of the joint fact sheet. This process can identify information on  the status of past commitments, as well as in some cases on follow-on  commitments. USTR and Treasury officials stated that participants  actively negotiate JCCT commitment language immediately before and  during the JCCT plenary meetings, and Treasury officials said that joint  fact sheet language is also actively discussed during the time of the  S&ED plenary meetings.
In addition, in 2010, the United States and China instituted a mid-year  review within the JCCT as an additional tool to track commitment  implementation and to prepare for annual plenary meetings. According to  a USTR official and our review of mid-year review agendas, the review  focuses on selected priority commitments from the previous year and  proposing outcomes for the upcoming plenary.
U.S. officials observed that discussions of the status of particular  commitments take place across a wide range of settings aside from those  directly related to the JCCT and S&ED. Treasury officials stated that they  follow up on the implementation of certain types of S&ED commitments in  various meetings with their Chinese counterparts, citing government  procurement issues as particularly relevant for discussions with their  counterparts at the Ministry of Finance, which leads on the issue. One  agency cited mechanisms for engaging their Chinese counterparts, such  as memoranda of understanding with provisions related to  implementation of JCCT commitments. U.S. reports cited forums such as  WTO standing committees and the APEC forum as examples of meetings  where JCCT and S&ED trade and investment commitment  implementation may be discussed. For example, according to WTO  documents, China reported to the WTO Committee on Government  Procurement that it expected to submit a revised offer on government  procurement to the committee before the end of 2013, consistent with its  2013 S&ED commitment.
U.S. agencies obtain information on implementation status from U.S.  industry and U.S. officials abroad. U.S. officials based in Washington told  us they work with U.S. industry associations and companies in developing  information on an ongoing basis on China’s implementation progress. For  example, USTR solicits written submissions from interested parties  through the issuance of Federal Register notices issued in conjunction  with the preparation of annual mandated reports. U.S. officials based in  China provide information on implementation status in reporting to  headquarters while preparing annual mandated reports on trade issues,  such as the Special 301 Report (on intellectual property rights protection)  and the NTE. Embassy staff submits cables on key issues that include  discussions of the status of trade barriers raised in the JCCT. U.S.  officials serving in China obtain feedback from industry representatives  based in that country. For example, locally based industry representatives  provided information to U.S. embassy officials that China had effectively  implemented a 2009 JCCT commitment to eliminate redundant medical  device product recall regulations. According to Treasury officials, they  regularly solicit government and industry sources for information on  S&ED priorities in preparation of and after each dialogue.
section_title: Various Documents Track Separate Aspects of Implementation Status
paragraphs: U.S. agency officials stated that they use various documents to track the  status of implementation over time and that there is no single,  consolidated document or system that captures the status of  implementation of JCCT or S&ED commitments. USTR officials said that  the preparation of documents used to brief senior officials in advance of  formal meetings—such as annual plenary meetings, mid-term reviews,  and ad hoc high level meetings between U.S. and Chinese officials—is  one of the processes used for tracking the status of implementation.  According to representatives of the JCCT’s Intellectual Property Rights  working group, briefing papers, together with other sources, also serve as  a useful record of the status of implementation, and can help to facilitate  knowledge transfer in the event of personnel turnover.
According to Commerce officials, a Commerce staff person, designated to  help coordinate Commerce’s JCCT activities, maintained a spreadsheet  for the official’s own use in tracking follow-up on China’s JCCT  commitments. The official used the spreadsheet to identify actions taken  on the commitments made in the current year and to facilitate briefing  senior officials in advance of meetings. Commerce officials stated that  this spreadsheet is not an interagency document and does not constitute  a department or interagency position on the status of implementation of  commitments.
section_title: Agencies Generally Have Not Used Commercial Metrics to Track Implementation of Commitments
paragraphs: Some policymakers and private sector representatives have asked the  administration to use commercial metrics (e.g., exports and sales) to track  commitment implementation where possible. According to a senior  agency official, framing commitments in terms of commercial results such  as increased sales can focus attention on the ultimate goal of increased  exports rather than on individual trade barriers, which may be removed  but replaced by different trade barriers.
Although agency officials identified one JCCT or S&ED commitment  directly linking a commercial metric (increased sales) to implementation,  they cited the difficulty in identifying appropriate commercial metrics  generally. In a 2012 S&ED commitment concerning intellectual property- intensive industries, the United States and China committed to create  environments for their respective markets in which the level of sales of  legitimate intellectual property-intensive products and services would  increase in line with the two countries’ status as globally significant  producers and consumers. In addition, officials indicated that it is easier  to measure implementation of commitments that entail concrete and  transparent legal actions – such as enactment of a law or other measure,  or accession to a treaty – than to measure implementation of  commitments to reaffirm existing policies or to a general policy direction.
section_title: Lack of Comprehensive Information on Implementation of Commitments across Reports Limits Understanding of Progress
paragraphs: USTR includes information in nine reports on trade barriers generally and  efforts to address them, but does not provide comprehensive information  to Congress and the public on the status of implementation of JCCT and  S&ED trade and investment commitments. The reports focus on various  aspects of trade barriers and market access and have different areas of  focus and structures. Our analysis of selected commitments indicated that  reporting on implementation status is not comprehensive because the  reports are sometimes not clear and complete. This lack of  comprehensive information makes it more difficult for policymakers to  understand the progress made by the implementation of these  commitments in removing trade barriers.
subsections: section_title: USTR Describes JCCT and S&ED Commitment Implementation Status in Several Trade-Related Reports
paragraphs: USTR reports on the status of trade barriers and market access broadly  through nine reports, which it identified as the source for public  information on JCCT and S&ED commitment implementation. In its  strategic plan for fiscal years 2013 through 2016, USTR identifies these  reports as important for building congressional support for the  administration’s trade agenda by helping Congress gain a comprehensive  understanding of the efforts the administration undertakes to dismantle  trade barriers. Further, it characterized the reports as important to the  agency’s commitment to transparency and accountability to Congress  and stakeholders. In addition, the administration has identified the work of  these bilateral dialogues in removing trade barriers in China as critical to  the success of the national goal of doubling exports by the end of 2014.
The nine reports respond to statutory requirements and have different  focuses and structures. The China WTO Compliance report, the only  one focusing solely on China trade issues, examines the status of  commitments made by China in connection with its accession to the  WTO. Since 2008, the China WTO Compliance report has included a  section on bilateral engagement that describes the outcomes for the  present year; information on the status of past commitments is not  included in that section but can be found in other sections of the report.  Others among the nine reports have a worldwide scope and may include  information on a specific sector, trade barrier, or policy area, including  information on China and on the JCCT and S&ED commitments where  appropriate. Section 1377 Review of Telecommunications Agreements,  for example, focuses on trade barriers in a specific sector and the NTE  identifies key barriers to U.S. trade and describes barriers in a number of  countries. Table 1 provides an overview of the nine reports.
USTR officials told us that the WTO Compliance report is the primary  report on the status of the implementation of commitments, and the other  eight reports contain additional information on some commitments. USTR  prepares these nine reports with assistance from Commerce, Treasury,  and other agencies on the Trade Policy Staff Committee. Such  assistance includes reporting from U.S. embassies, reviewing drafts to  ensure accuracy and, in the case of the China WTO Compliance and  Special 301 reports, holding public hearings to obtain private sector  views. For instance, a senior Treasury official told us that Treasury  participates in the preparation of the China WTO Compliance report by  reviewing a draft for accuracy.
In addition to this public reporting, Commerce, USTR, and Treasury  officials stated that they inform stakeholders on the status of  implementation through briefings to industry associations and to members  of Congress and their staffs, participation in congressional hearings, and  briefings to the trade advisory committees. Further, agency officials said  they have briefed Congress repeatedly on broader U.S. engagement with  China. Agency officials told us that while they did not generally provide  reports to accompany the briefings, they may bring fact sheets, remarks,  and recent speeches; we did not identify additional regular documentary  reporting on the status of implementation of JCCT and S&ED  commitments beyond the public reports.
section_title: Reports Lack Clear and Comprehensive Information on Status of Implementation of JCCT and S&ED Trade and Investment Commitments
paragraphs: Our review of reporting on implementation status revealed challenges to  obtaining clear and comprehensive information. For some commitments,  the reports lack information on the status of implementation and for some  the reporting is not clear. Additionally, differences in the formats of the  reports make locating information on a given commitment or issue area  across reports difficult in some cases. The lack of detailed information on  China’s progress in implementing certain commitments makes it difficult  for Congress and other stakeholders to fully understand the progress the  United States is making in reducing trade barriers.
Our analysis found several instances of incomplete reporting on the  status of specific commitments related to market access barriers in  sectors, such as software, and in cross-cutting areas such as industrial  policy. For example,
We identified 9 commitments from the 2008-2011 JCCT, and 1 from  the 2011 S&ED related to software legalization. Based on our  analysis of the nine reports identified above, we were not able to  clearly identify the implementation status of most of these specific  commitments. For example, USTR has not reported on whether China  has increased resources devoted to conducting audits and  inspections as it committed to do at the 2011 JCCT.
A second software legalization example illustrates a lack of clarity  across reports on implementation status. At the 2011 JCCT, China  committed to complete software legalization programs at the  provincial level by the middle of 2012 and to publish the results of its  software audits. The 2013 NTE report indicated that, because of a  lack of published information, USTR could not verify that China had  completed a program to ensure provincial governments used legal  software. However, the 2013 Special 301 report, issued a month later,  stated that China had completed the program. In addition to the  difference regarding completion status of the legalization program at  the provincial level, it is unclear whether China has implemented its  related commitment to publish the results of audits. Thus, it cannot be  determined whether the gap in implementation is one of program  completion or one of reporting.
There has not been reporting on implementation of commitments  concerning certain Chinese industrial policies. Specifically, at the  2011 JCCT, China committed to ensure open and transparent  processes for developing standards for smart-grid products and  technologies. USTR has not reported on the status of implementation  of this commitment, despite having a specific report that describes  progress in greenhouse gas reducing technologies. The greenhouse  gas reports issued in 2012 and 2013 do not describe the steps taken  in the JCCT regarding this issue.
USTR has not reported on the implementation of some commitments  made by China related to its use of technical standards to favor  domestic suppliers. In the 2011 JCCT, China reported on the  development and publication of revised safety standards for medical  devices, acknowledged the value of closer cooperation with the  United States on those standards, and committed to participate in an  information exchange program with the United States in 2012. The  status of that commitment was not addressed in either the 2012 or  2013 reports.
Reporting on implementation of China’s commitments to reform state- owned enterprises has been incomplete. In the 2010 S&ED, China  committed to continue its reform of these entities by, among other  actions, inviting non-public and foreign investors to take equity stakes  in them. China also committed at the 2010 JCCT that all enterprises in  China, including state-owned enterprises, will make purchases and  sales based solely on commercial considerations. As part of that  same commitment, it committed to leave such decisions to those  entities and to provide equal treatment to public and private  enterprises. USTR has not reported on the status of implementation of  these commitments in any of the nine trade-related reports.
In addition to incomplete or unclear reporting on the status of  implementation of some commitments, differing report structures make it  difficult in some cases to obtain information across reports. For example,  we found reporting relevant to a 2010 S&ED commitment on new energy  technologies discussed in the import barriers section of the NTE report’s  chapter on China, whereas the WTO Compliance report discussed it  under investment. Similarly, with respect to a 2012 JCCT commitment by  China to issue a catalogue for the purchase of official use vehicles, the  WTO Compliance report discussed the commitment in the intellectual  property rights section, and the NTE report discussed it in a newly  created category for the China chapter of the report, “Indigenous  Innovation, Technology Transfer and Strategic Emerging Industry  Barriers.”
In interviews and documents, agency officials emphasized the need to  balance reporting on the status of implementation of commitments with  the requirement to avoid disclosures that would disadvantage the United  States in ongoing consultations. For example, in the NTE report, USTR  indicates that it does not provide estimates of the impact of trade barriers  that are the subject of ongoing consultations to avoid disrupting them. In  the case of the trade agenda, USTR may submit classified information to  Congress in confidence, if it deems necessary.
The absence of clear and complete reporting on the status of  implementation of commitments makes it difficult for policymakers to gain  a comprehensive understanding of the progress made toward reducing  trade barriers through the implementation of commitments from the  dialogues. Moreover, accountability is reinforced through public reporting  of agency results and, if appropriate, confidential reporting to Congress.
section_title: Conclusions
paragraphs: China has made a significant number and wide array of commitments to  the United States in the JCCT and S&ED, high-level bilateral U.S.-China  dialogues which address trade issues. While information on the  commitments is available from agency fact sheets, information on the  status of implementation is not presented in a manner that provides a  comprehensive understanding of China’s overall progress in  implementing the commitments. Although at least nine reports present  information on the status of U.S. efforts to decrease trade barriers with  China, in some cases referencing the JCCT and S&ED, obtaining specific  information on implementation status from the reports presents  challenges. These nine reports aim to provide a comprehensive picture of  the administration’s efforts to address trade barriers through consultative  mechanisms such as the JCCT and S&ED. Without comprehensive  reporting—easily accessible in one location and complete—it is difficult  for external parties to understand the progress being made in removing  barriers to this very important export market through bilateral dialogue.  More consolidated and complete information on the status of China’s  implementation of its JCCT commitments and S&ED trade and  investment commitments would give policymakers a better basis to  identify areas of success or failure.
section_title: Recommendation for Executive Action
paragraphs: To improve policymakers’ and the public’s understanding of progress  through bilateral dialogues in increasing access to China’s markets, we  recommend that the U.S. Trade Representative, in conjunction with the  Secretary of Commerce and the Secretary of the Treasury, work to  provide clearer and more comprehensive reporting on the status of  China’s implementation of its JCCT and S&ED trade and investment  commitments. This reporting should include more complete information  on the status of implementation of these commitments, as well as a more  clearly identified source for consolidated information, which could be an  existing report.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to Commerce, USTR, Treasury, State,  USDA, and OSTP. Commerce and USTR provided written comments  which are reproduced in appendixes II and III. Commerce, USTR,  Treasury, USDA, and OSTP provided technical comments which we  incorporated as appropriate.
Neither Commerce nor USTR directly agreed or disagreed with our  recommendation. Commerce stated that it would take GAO’s ideas and  findings under careful consideration, but expressed concern regarding our  conclusion that lack of comprehensive reporting makes it difficult for  external parties to understand progress made in bilateral trade dialogues  with China. It further observed that assessments of reporting needs  should include consideration of resource requirements. We agree that  resource considerations are a key factor in agency approaches to  reporting, but believe that steps to make information on commitment  implementation status more comprehensive and accessible can be taken.
USTR stated that it welcomed GAO’s suggestions and would consider  them carefully, but identified several concerns. First, USTR expressed its  view that some commitments are more noteworthy than others and  counting and categorizing commitments can be misleading when used as  the basis for conclusions about the relative significance of issue areas.  We agree that not all commitments are of equal significance and reflected  that view in our draft report. We believe, however, that summary  quantitative information is one useful tool for conveying information about  the issues addressed in these dialogues.
USTR commented that the report’s discussion of agencies’ tracking of the  implementation of China’s commitments is generally accurate, but stated  that the role of U.S. stakeholders such as industry associations and  companies is not adequately reflected in the report. We agree that such  organizations are an important source of information on commitment  implementation and have added additional information in the report to  reflect their role.
With respect to U.S. agency reporting on commitment implementation,  USTR stated that in its view the Administration’s written reporting  currently provides congressional policymakers and other stakeholders  comprehensive information on China’s implementation of JCCT and  S&ED commitments, and stated that it also meets with those parties on  these issues. It stated that not all JCCT and S&ED commitments warrant  discussion in the reports, but acknowledged that GAO’s analysis identifies  commitments whose implementation status should be reported on and  has not been. Based on extensive analysis of agency reporting on the  implementation of these commitments, we concluded that information on  the status of commitments made in these bilateral dialogues with China is  not complete and easily accessible, which can make it difficult for  policymakers to identify areas of success and failure and assess options  for moving forward. We recognize that meetings with policymakers and  stakeholders are also an important part agency communication on these  issues.
We are sending copies of this report to the appropriate congressional  committees; the U.S. Trade Representative; the Secretaries of  Commerce, the Treasury, State, and Agriculture; the Director, Office of  Science and Technology Policy; and other interested parties. The report  also is available at no charge on the GAO website at http://www.gao.gov.
If you or your staff has any questions about this report, please contact  David Gootnick at (202) 512-3149 or gootnickd@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. Key contributors to this report are  listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: In this report, we (1) describe the commitments China made at the Joint  Commission on Commerce and Trade (JCCT) and the trade and  investment commitments China made at the Strategic and Economic  Dialogue (S&ED), (2) describe U.S. agency tracking of China’s  implementation of these commitments, and (3) evaluate U.S. agency  reporting on the status of commitment implementation.
To conduct this review, we interviewed knowledgeable U.S. government  officials from the Department of Commerce (Commerce), the Office of the  U.S. Trade Representative (USTR), the Departments of the Treasury  (Treasury), State (State), and Agriculture (USDA) as well as the Office of  Science and Technology Policy (OSTP) in Washington, D.C., and in  Beijing, China (via a videoconference). We also interviewed  representatives of trade associations and research organizations.
To describe the commitments, we conducted a detailed review of the fact  sheets issued at the conclusion of annual meetings at the JCCT from  2004 through 2012, the S&ED from 2009 through 2013, and the SED  from 2006 through 2008. Commerce and USTR issue a JCCT fact sheet;  Treasury issues jointly with China an S&ED fact sheet for the economic  track that presents the joint commitments negotiated by the United States  and China. (Treasury also issues a U.S. fact sheet that discusses the  benefits of the commitments for U.S. workers and companies.) According  to senior Commerce, USTR, and Treasury officials, the fact sheets  present the commitments negotiated between the U.S. and Chinese  governments. In addition to presenting the commitments, the fact sheets  also contain details of cooperative activities between the two countries.  We used the joint fact sheets for our analysis of China’s S&ED  commitments because, according to senior officials, they reflect the two  governments’ understanding of the results of the S&ED plenary meeting.  For the S&ED, we limited our analysis to China’s commitments in the  trade and investment pillar of the dialogue’s economic track. In our  analysis, “S&ED commitments” refer to the trade and investment  commitments China made in the S&ED in 2009 through 2013 and in the  SED in 2007 and 2008.
We discussed the fact sheets with cognizant officials from Commerce and  USTR, the two agencies that jointly lead the JCCT for the United States,  and from Treasury, which leads the S&ED’s economic track for the United  States, to obtain an understanding of the information they contain and  how they are put together. According to senior USTR officials, the  commitments as presented in the fact sheets are high-level political  commitments and are the outcomes of the structured dialogues  established to address and resolve a range of issues. While the outcomes  documents are not legal instruments, the commitments are taken  seriously, according to these officials.
To identify the commitments, we separated the fact sheet text describing  steps taken by China into individual commitments, created a database,  and systematically analyzed individual commitments. The fact sheets  state China’s commitments, U.S. commitments, and joint U.S-China  commitments. We excluded fact sheet text reflecting U.S. commitments,  but included statements about commitments made jointly by the United  States and China and by China alone.
We identified 184 JCCT commitments and 114 S&ED trade and  investment commitments. (An inventory of the commitments we identified  and their categorization by issue area, described below, is provided in an  online e-supplement, GAO-14-224SP.) JCCT fact sheets, written by the  U.S. government, are typically written in bulleted form, with each bullet  generally considered by us as one commitment. S&ED fact sheets are  different in that the precise wording of every commitment is negotiated  jointly by the U.S. and Chinese governments. The 2013 S&ED fact sheet  listed the trade and investment commitments in bulleted format. Prior to  that, the commitments were written in paragraphs that included  statements on multiple topics. The JCCT and S&ED fact sheets vary in  terms of the number of areas and activities addressed, and in the  specificity of the statements. We discussed with U.S. agencies ways to  identify and count specific commitments in fact sheets, and determined  that there is no single way to do so. For example, an analysis of the  S&ED fact sheets for 2009 through 2012 might treat a paragraph as a  commitment. We chose to break some paragraphs into multiple  commitments, using decision rules that we developed to ensure the  consistency and completeness of this exercise. These included whether  the paragraph referred to more than one intended action or discrete  concept, and whether it specified a deadline. In addition, if the same or  similarly worded commitment was made in multiple years, we counted it  anew each time.
After identifying individual commitments, we categorized them by several  characteristics (issue areas, joint or China-only, deadline). We identified  11 issue areas to characterize the content of each commitment after an  iterative review of all of the commitments in our database by several  analysts. To support development of these categories we used as a  reference point categories developed in a previous GAO report on  China’s commitments as well as the headers used in JCCT source  documents. (S&ED fact sheets do not use headers and sub-headers for  the commitments in the trade and investment pillar.) These were adapted  and recombined producing a set of categories that took into account the  specific language of the specific sets of commitments from recent years  and covered both dialogues. See the list of issue areas with descriptions  and examples in table 2.
We then assessed each commitment for the issue area(s) it covered.  Because many commitments covered multiple issue areas, we assigned  up to three issue areas to each commitment. Ninety-nine of the 184 JCCT  commitments and 55 of the 114 S&ED commitments were associated  with two or three issue areas. We identified some commitments that did  not fit any of the 11 issue areas and categorized these commitments as  “other.”
Many commitments, including 110 JCCT and 11 S&ED commitments,  were related to specific sectors (see examples for agriculture and  software in table 2). We identified 15 sectors: agriculture,  distribution/retail, information technology and security, insurance, new  energy vehicles, pharmaceuticals and medical devices, postal/courier,  shipping, software, steel, telecommunications, textiles, transportation,  travel and tourism, and wind power. We discussed this methodology with  officials from Commerce, USTR, Treasury, State, and USDA.
To ensure the validity of this analysis we performed multiple sets of  reviews and checks. Initial testing of subsets of the commitments was  done by two analysts and a methodologist. The full analysis of all  commitments was performed by two analysts who cross-checked each  other’s analysis and reconciled differences through discussion. A  methodologist provided a spot-check of the analysis. Finally, the full team  met and discussed in detail every commitment to ensure final consensus  on the issue area categorization.
To describe how agencies track the status of implementation of  commitments, we interviewed officials and reviewed documents from  Commerce, USTR, Treasury, State, USDA, and OSTP. We also  discussed these issues with U.S. embassy staff in Beijing, via  videoconference. We discussed with the officials their processes for  tracking commitment status, and sought corroborating information where  needed. For example, we sought corroborating information from officials  concerning their engagement with China in other various bilateral and  multilateral forums, and their obtaining input from industry stakeholders  and U.S. government officials based overseas. We corroborated this  information by reviewing public reports from the outcomes of other  diplomatic forums such as minutes from World Trade Organization  standing committee meetings and public comments submitted by industry  officials in conjunction with agency preparation of public reports. We also  reviewed a cable from the 2010 JCCT mid-year review and a cable about  the 2010 S&ED annual meeting. Finally, we reviewed agendas for the  2010-2012 JCCT mid-term reviews. We also interviewed industry  associations.
With respect to the use of tools such as tracking sheets to maintain and  share information on commitment implementation, we discussed agency  staff-level methods for tracking the status of commitments with officials  from Commerce. For contextual purposes, we also discussed with State  officials their process for tracking the status of commitments in the  strategic track of the S&ED. We discussed with Commerce staff the  characteristics and use of a tracking document developed by staff for  compiling information on commitment implementation for use in briefing  senior officials for key meetings.
To evaluate how U.S. agencies report on the status of commitment  implementation, we asked agency officials and consulted agency  documents to identify relevant public documents and other types of  reports they use to inform the public and Congress on the outcomes and  status. They identified nine reports that describe administration efforts to  reduce trade barriers through negotiations, consultations and dispute  settlement, which are identified in the body of this report. To make  assessments of the reporting that we identified across the reporting  documents, we focused primarily on identifying information that  specifically referenced the status of implementation of the commitment by  the Chinese government or other relevant Chinese entities. To assess the  completeness of the reporting, we examined the nine reports for  information on the status of implementation of commitments made in the  JCCT and the S&ED in 2010 and 2011 and in additional years—2008 and  2009—related to software legalization. We examined these commitments  related to software legalization because intellectual property was a  prominent JCCT issue area and we had identified software earlier in our  review as a potential illustrative area. For each of these commitments, we  reviewed reporting subsequent to when the commitment was made. The  assessment included keyword searches of the nine reports.. For example,  for a software legalization commitment we performed keyword searches  using “software,” “legalization,” and other terms specific to the  commitment. We also did a more general reading of reporting language  relevant to a given commitment. This analysis was reviewed by a second  analyst and any differences the reviewer had with the original analysis  were reconciled.
We reviewed the congressional budget justifications for Commerce,  USTR, Treasury, and USDA to describe how U.S. efforts to track and  report on the status of China’s implementation of commitments supported  agency and administration goals. We also reviewed comments from  industry representatives submitted in conjunction with the preparation of  statutory reports.
We conducted this performance audit from May 2012 to February 2014 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: Comments from the Department of Commerce
section_title: Appendix III: Comments from the Office of the U.S. Trade Representative
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Celia Thomas (Assistant  Director), R. Gifford Howland, Shakira O’Neil, Sada Aksartova, Karen  Deans, David Dornisch, Etana Finkler, and Ernie Jackson made key  contributions to this report.