U.S.-China Trade: Opportunities to Improve U.S. Government Efforts to Ensure China's Compliance with World Trade Organization Commitments
Published: 2004-10-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: China's 2001 accession to the World Trade Organization (WTO) required China to reform its economy and trade practices. As part of ongoing work, GAO reviewed how the U.S. Trade Representative (USTR) and the Departments of Commerce, Agriculture, and State pursued China's WTO compliance in 2003. Specifically, this report (1) discusses the scope and disposition of China's compliance problems, (2) reviews the U.S. government's bilateral and multilateral approaches for resolving these problems, (3) assesses the key agencies' strategies and plans for ensuring compliance, and (4) assesses how the agencies have adapted their staff resources to conduct compliance activities.
section_title: What GAO Found
paragraphs: China has successfully implemented many of its numerous WTO commitments, but USTR reported that over 100 separate compliance problems arose in 2002 and 2003. These problems ranged from specific, relatively simple issues to broader, more systemic concerns. Most problems continued from 2002 to 2003, an indication that China was able to address the more easily resolvable problems, while the more complex issues persisted. Furthermore, new problems emerged, with many arising from phased-in commitments that China was due to implement in 2003. The U.S. government continued to pursue resolution of compliance problems in 2004, and the agencies noted the successful resolution of several major issues of economic importance to U.S. companies. The key U.S. agencies have done much to ensure China's compliance, but GAO found three areas in which these key agencies could take steps to improve their efforts: First, U.S. efforts to address compliance problems emphasized high-level bilateral engagement with China in 2003, with increased senior-level delegations to China and elevated participation in formal consultative mechanisms. U.S. multilateral engagement with China in 2003 reflected more emphasis on working through regular WTO committee business, because the WTO's annual review of China's implementation, the Transitional Review Mechanism (TRM), has ongoing limitations. Nevertheless, the TRM has benefits and these could be enhanced by increased member participation and earlier U.S. submissions, which would maximize the potential for full and informed responses from China. Second, although interagency and intra-agency coordination on policy and high level compliance strategies was generally effective, GAO found various performance management limitations that make it difficult to clearly measure and assess the outcome of the key agencies' China-WTO compliance efforts. GAO found that the specific units within the agencies that are most directly involved with these efforts could improve how the agencies measure and report the results of their activities. Furthermore, developing clearer linkages between unit-level results and agency goals that are established in accordance with the Government Performance and Results Act of 1993 could enhance the effectiveness of these units' activities. Third, turnover and lack of training limited the effectiveness of increased staff resources for China-WTO compliance activities. New staff members were called upon to take up complex monitoring and enforcement activities while relying primarily on on-the-job training, which was complicated by high and often predictable staff turnover. Attention to human capital management is particularly important, given the long-term challenges associated with ensuring China's compliance.

section_title: Letter
paragraphs: China’s 2001 accession to the World Trade Organization (WTO) raised  expectations with Congress and the private sector about the prospects for  China to reform its markets and allow greater access to foreign goods and  services. Indeed, U.S. trade with China has increased significantly between  2000 and 2003, including a 75-percent increase in U.S. goods exported to  China over that time period. Despite this increase, growth in imports from  China have outpaced growth in exports to China; and the U.S. trade deficit  with China reached $124 billion in 2003, according to U.S. trade data. This  growing deficit, together with ongoing concern over China’s adherence to  WTO rules, has sharpened the focus on the U.S. government’s efforts to  ensure that U.S. firms secure the benefits of China’s membership in the  global trading system.
As part of your request that we undertake a long-term body of work related  to China’s membership in the WTO, we reviewed how the U.S. Trade  Representative (USTR) and the Departments of Commerce, State, and  Agriculture (USDA) were positioned to monitor and enforce China’s  compliance with its WTO commitments in 2003. Specifically, in this report  we (1) examine the scope and disposition of China-WTO compliance  problems the U.S. government is working to resolve; (2) review the U.S.  government’s bilateral and multilateral approaches for resolving  compliance problems; (3) assess the agencies’ strategies, plans, and  measures for ensuring China’s compliance; and (4) assess how the U.S.  government has adapted its staff resources to conduct compliance  activities.
To examine the scope and disposition of compliance problems, we  analyzed the 2002 and 2003 versions of USTR’s Report to Congress on  China’s WTO Compliance and verified the information included in the  reports against problems raised by the private sector. To assess U.S.  bilateral and multilateral monitoring and enforcement efforts, we reviewed  agency and WTO documents and interviewed agency officials both in  Washington, D.C., and Beijing, as well as WTO Secretariat and other  member government officials. To assess agency strategies, plans,  resources, and other activities related to China’s compliance, we reviewed  planning documents, budget and staffing data, and information on training  from the four key agencies. We supplemented our review of this  information by conducting individual interviews with over 50 staff and unit  managers at the four key agencies that had China compliance as a main  portion of their work portfolio. (See app. I for details on our scope and  methodology.) We performed our work from June 2003 to July 2004 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. U.S.  investment and trade with China has grown significantly over the past 10  years, and trade between China and the United States exceeded $180  billion in 2003, based on U.S. trade data. Consequently, China was the  United States’ third largest trading partner in 2003. U.S. goods exported to  China increased by 29 percent to $28.4 billion in 2003 from $22.1 billion in  2002. U.S. imports from China are also rising and reached a level of $152.4  billion in 2003. According to 2003 U.S. trade data, the U.S. trade deficit with  China ($124 billion) is larger than that of any other U.S. trading partner.
The U.S. government’s efforts to ensure China’s compliance with its WTO  commitments are part of an overall U.S. structure to monitor and enforce  foreign governments’ compliance with existing trade agreements. USTR  has primary responsibility for monitoring and enforcing 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  in these monitoring and enforcement activities, but USTR and the  Departments of Commerce, State, and USDA have the primary  responsibilities regarding trade agreement monitoring and enforcement.
Each of these four key agencies we reviewed has within its organizational  structure a main unit that focuses on China or the greater Asian region.  These main units have primary responsibility for coordinating the agencies’  China-WTO compliance activities, although numerous other units within  the agencies are also involved. The main 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. Table 1 lists the main units with China-WTO  responsibilities, as well as examples of other offices with which the units  coordinate on an intra-agency basis.
section_title: China Successfully Implemented Many Commitments, but Concerns Remain
paragraphs: In its 2002 and 2003 reports to Congress on China’s WTO compliance, USTR  reported that China had successfully implemented many of its numerous  WTO commitments, including rewriting hundreds of trade-related laws and  regulations and making required tariff reductions. Nevertheless, USTR’s  reports identified over 100 individual compliance problems concerning  China’s implementation of its WTO commitments, according to our  analysis. These problems spanned all commitment areas and ranged from  very specific, relatively simple problems— such as late issuance of  particular regulations—to broader concerns over transparency in China’s  rule-making process, which are more difficult to implement and assess.  Most compliance problems identified in 2002 persisted into 2003. U.S.  officials noted this continuation was an indicator that China was able to  address the more easily resolvable problems during 2002 but that the  remaining issues had proven to be more difficult for China to address.  USTR reported that China had mixed success in resolving compliance  problems in 2002 and 2003. Additionally, new problems emerged in 2003,  with many of them arising from phased-in commitments that China was  due to implement in 2003. In 2004, USTR and the other key agencies  continued to pursue resolution of problems and noted many positive  developments in resolving a number of these outstanding compliance  issues.
subsections: section_title: China Showed Progress in Implementing WTO Commitments
paragraphs: USTR noted several areas in which China has successfully implemented its  commitments since joining the WTO in December 2001. China’s WTO  commitments, which are described in over 800 pages of legal text, 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 2002, USTR reported that China reviewed more than 2,500  trade-related laws and regulations for WTO consistency, repealed or  amended nearly half of these, and issued many new laws and regulations.  China also restructured government ministries with a role in overseeing  trade, embarked on an extensive educational campaign on the benefits of  WTO membership, and made required tariff reductions.  USTR reported  that, in 2003, China also took steps to correct systematic problems in its  tariff-rate quota regime for bulk agricultural commodities, reduced  capitalization requirements in certain financial sectors, and opened up the  motor vehicle financing sector (see table 2). During this period of reform in  China, U.S. exports to China rose 48 percent between China’s WTO  accession in 2001 and 2003.
section_title: Implementation Problems Range Widely and Many Persist from Year to Year
paragraphs: Although China made progress in realizing many of its WTO commitments,  USTR reported over 100 compliance problems in 2002 and 2003, according  to our analysis. These problems spanned all areas in which China had made  commitments, and many problems identified in 2002 persisted through  2003.
subsections: section_title: USTR Reports Are Fair Representation of Compliance Problems
paragraphs: We found USTR’s annual reports to Congress to be the most complete  official U.S. source of information with which to analyze China’s WTO  compliance in 2002 and 2003. In conjunction with China’s 2001 accession to  the WTO, USTR was mandated to identify compliance with commitments  and annually report these findings to Congress. These annual reports  incorporate a broad range of input from key federal agencies and the  business community. We systematically cross-checked the reports with  industry testimony, industry association reports, and other U.S.  government documents and found the reports to be fair and complete  representations of industry concerns. Further, USTR officials stated that  these reports represented the most complete public summary of China- WTO compliance problems that the U.S. government is monitoring and the  actions taken to resolve the issues. As a result, we relied extensively on the  narrative descriptions of compliance problems set forth in the USTR  reports to analyze the number, type, and disposition of the problems that  the U.S. government was working to resolve.
section_title: More Than 100 Compliance Problems across Several Areas of China’s Trade Regime
paragraphs: Our analysis of USTR’s 2002 and 2003 reports to Congress identified 106  individual compliance problems. China’s compliance problems can be the  result of several factors, from political resistance to lack of technical  capacity to problems of resources and coordination among Chinese  ministries. These compliance problems fell within all nine broad areas of  China’s trade regime and varied from import regulation to export regulation  (see table 3 and app. II for descriptions of these nine areas). China’s WTO  commitments are broad and complex, and compliance problems also  ranged in scope from specific issues to more general concerns. For  example, some commitments require a specific action from China, such as  reporting information about China’s import-licensing requirements to the  WTO. Other commitments are less specific in nature, such as those that  confirm China’s general obligation to adhere to WTO principles of  nondiscrimination in the treatment of foreign and domestic enterprises.  Accordingly, compliance problems identified as of 2003 also ranged from  specific, relatively simple issues, such as the late issuance of regulations, to  broader and more crosscutting concerns, such as concerns about judicial  independence, which are more difficult to implement and assess.
It is important to note that not all problems equally affect U.S. exports to  China and that some problems are more easily resolved than others. For  example, weak intellectual property right enforcement, which may entail  industry losses of nearly $2 billion according to some industry estimates,  could impact more trade than the late issuance of regulations. Thus, while  USTR’s reports identify priority areas, the economic importance of many  individual problems cannot be easily quantified and cannot be reported,  nor did we attempt to calculate the importance or otherwise prioritize or  rank the problems in our analysis. In addition, our analysis of business  views on China’s implementation shows that the business community  expected intellectual property rights commitments to be the most difficult  to put into practice, whereas they expected tariff reductions to be relatively  easier to implement.
section_title: Most Problems Continued from 2002 to 2003, and Many Others Emerged
paragraphs: We found that about two thirds of the USTR-identified compliance  problems persisted from 2002 through 2003. U.S. officials noted that this  continuation might have been attributed to the fact that China resolved the  more easily implemented commitments during the first year, and the  remaining “holdover” issues proved to be more difficult to address. Other  U.S. officials and industry representatives cited both Severe Acute  Respiratory Syndrome (SARS) and major political and bureaucratic  transitions in China as contributing to the apparent slowdown in  implementation. However, USTR stated that these factors did not excuse  the apparent deceleration in China’s implementation in 2003. In addition to  the problems that persisted from 2002, about a quarter of all compliance  problems were new in 2003, with many of these problems arising from  phased-in commitments that China was due to implement in 2003.
China has had mixed success in resolving compliance problems. Based on  our assessment of USTR’s 2002 and 2003 reports, we found that China had  resolved or made some progress on just under half of the individual  problems described by U.S. officials. We also found that China’s progress in  resolving compliance problems also varied widely by area. For example,  among the key areas that USTR identified as priorities, China resolved or  made progress on well over half of the various problems in agriculture and  services, while progress on intellectual property rights was limited to less  than a quarter of the individual problems reported as of December 2003.
section_title: United States Continues to Pursue Resolution of Compliance Problems in 2004 and Noted Several Positive Developments
paragraphs: Since USTR’s December 2003 report, the U.S. government has continued to  pursue resolution of China’s WTO compliance problems. Notably, the  United States and China reached agreements in several key areas through  the Joint Commission on Commerce and Trade (JCCT). As discussed in  more detail later, the JCCT is a high-level government-to-government  consultative forum for China and the United States to discuss key trade  issues. The April 2004 JCCT meeting resulted in the formation of working  groups, several memoranda of understanding and letters of intent, and  several more specific agreements to improve China’s implementation. For  example, China agreed to take steps to strengthen intellectual property  rights enforcement and agreed to indefinitely suspend implementation of  discriminatory computer standards and services rules, according to USTR  officials. China also announced the publication of rules granting foreign  companies trading rights in China ahead of schedule. (See table 4.) In July  2004, USTR announced that the United States and China reached an  agreement to resolve a dispute over China’s discriminatory value-added tax  refund policy for semiconductors. This agreement followed the United  States’ March 2004 filing of the first WTO case by any member against  China. USTR’s next report on China’s compliance is due in December 2004.
section_title: U.S. Government Emphasized Primarily Bilateral Engagement to Resolve Compliance Issues in 2003, While Effectiveness of Annual Multilateral Review Continued To Be Limited
paragraphs: Compared with 2002, U.S. actions in 2003 to resolve compliance problems  reflected a strategy that emphasized high-level bilateral engagement with  China. For example, the United States sent more cabinet and subcabinet  level delegations to China in 2003 and elevated existing and initiated new  trade dialogues with China. We found that formal and informal interagency  coordination on these bilateral efforts was generally effective.  Multilaterally, the U.S. continued to engage China in the WTO at regular  council and committee meetings throughout the year. At the same time, the  U.S. actively participated in the WTO’s second annual review of China’s  implementation, referred to as the Transitional Review Mechanism (TRM).  However, despite U.S. officials’ hopes to the contrary, overall WTO member  participation in the review declined, and the review’s potential was  impaired by less timely U.S. submission of questions. Furthermore,  procedural and other types of problems that arose during the 2002 review  continued to limit the effectiveness of the 2003 TRM. Nevertheless, both  WTO and other WTO member trade officials indicated that the TRM  process had gone more smoothly in 2003 than in 2002 and that future TRM’s  would probably not vary in form from that used in 2003. In general, U.S.  officials noted that, despite some benefits, the TRM was a less effective  tool for resolving compliance issues compared with bilateral engagement.
subsections: section_title: United States Increased Bilateral Engagement with China in 2003 on WTO Issues
paragraphs: U.S. government efforts to resolve WTO compliance issues with China in  2003 reflected an emphasis on high-level bilateral engagement. Several U.S.  officials noted that bilateral engagement—particularly at the highest levels  of government—had proven to be the most effective means of resolving  WTO compliance issues with China. As one U.S. official stated, “change in  China starts at the top, so that’s where we focused much of our bilateral  compliance activity in 2003.” Accordingly, the United States undertook a  range of efforts reflecting this emphasis in 2003, including sending more  cabinet and subcabinet level delegations to China, utilizing bilateral  consultative mechanisms, and continuing to coordinate policy through the  interagency process.
subsections: section_title: U.S. Senior-Level Delegations to China Increased in 2003
paragraphs: Compared with 2002, the U.S. government sent more cabinet and  subcabinet delegations from the key economic and trade agencies in 2003  to engage their Chinese counterparts on trade issues. For example, senior- level delegations to China from the various agencies increased from 13 in  2002 to 23 in 2003, according to information provided by U.S. embassy  officials. U.S. officials also said that an increased number of high-level  delegations from China, including a visit from China’s Premier, also came to  the United States in 2003 and that trade issues were routinely a part of  those visit agendas. Finally, embassy officials noted that, because the  SARS outbreak interrupted travel to China for several months in 2003, most  of the delegations’ visits were concentrated within an 8-month period.
section_title: U.S. Used Bilateral Trade Mechanisms to Engage China
paragraphs: The U.S. government utilized two formal consultative mechanisms to  address trade issues with China, both of which further demonstrated an  emphasis on high-level, bilateral engagement. First, the United States  agreed to China’s request to elevate and transform the JCCT, a forum for  dialogue on bilateral trade issues and a mechanism to promote commercial  relations, to include three cabinet-level U.S. officials for 2004.  Consequently, in 2004, the Secretary of Commerce and the U.S. Trade  Representative headed the JCCT meetings for the United States, while a  vice premier headed China’s delegation. The U.S. Secretary of Agriculture  also participated in the newly elevated JCCT. Moreover, U.S. officials noted  that the JCCT was transformed from a trade promotion dialogue into a  mechanism to resolve trade disputes. Second, the United States initiated  the U.S.-China Trade Dialogue as a means for U.S. trade and economic  agencies to address trade issues with various Chinese officials at the  subcabinet level. The United States created the Trade Dialogue at the end  of 2002, with meetings scheduled to take place quarterly. However, due in  part to the SARS outbreak, only two such dialogues took place in 2003.
section_title: Interagency Coordination on Policy Issues Was Generally Effective
paragraphs: We found that both formal and informal, day-to-day coordination within  and among the key units on policy issues was generally effective. Formal  interagency coordination was accomplished through three main structures:  (1) the Trade Policy Review Group, (2) the Trade Policy Staff Committee,  and (3) the Trade Policy Staff Committee’s Subcommittee on China-WTO Compliance. Additionally, several officials noted that the National  Security Council played a greater role in coordinating interagency policy on  China compliance issues in 2003 than 2002. Officials said that this greater  role was to ensure a more unified U.S. position with regard to economic  relations with China, beyond the Trade Policy Review Group.
Our interviews with over 50 staff and managers in the main China units of  the four agencies indicated that interagency coordination was generally  effective at the working level and on specific issues. With respect to  informal contact, managers and staff at both headquarters and overseas  offices said that day-to-day coordination and information sharing among  the agencies on China compliance greatly enhanced their ability to respond  to compliance problems. Yet some staff believed that interagency  coordination could be improved. For example, they suggested that  coordination could be enhanced through better communication from the  Washington, D.C., units to the China units about interagency meetings and  China-related activities at the WTO. Also, within China, some staff noted  that interagency meetings had been suspended in 2003 because of SARS  and that they had not been resumed by the end of the year, so their  coordination efforts were hindered. Some China-based staff at State and  Commerce complained that lack of communication had led to  misunderstanding about the respective units’ roles and responsibilities and  that this had caused some confusion about engaging the Chinese in a few  cases. Embassy officials told us that the interagency meetings had been  resumed in 2004, but the schedule was driven primarily by the need to  coordinate on upcoming events and that the meetings had not yet resumed  on a consistent schedule.
section_title: Multilateral Engagement with China Shifts Away from Annual Transitional Review Mechanism, Which Remains Limited
paragraphs: During China’s membership negotiations, the United States successfully  pushed for an annual review of China’s implementation to take place within  the WTO’s General Council and 16 subsidiary bodies. This effort was  based on concerns about China’s ability to implement its WTO  commitments and the fact that China was allowed to join before making all  of its trade-related laws and regulations WTO-consistent. Compared with  the 2002 review, the 2003 TRM was less contentious but reflected less WTO  member participation and less timely U.S. submission of questions. Despite  the TRM’s continued limitations and although procedures for the TRM are  unlikely to change for future reviews, U.S. officials cited benefits from  using this multilateral forum as part of their overall approach for  monitoring and enforcing China’s compliance. U.S. officials said they put  more emphasis on engaging China outside of the TRM in regular WTO  meetings in 2003. Additional multilateral monitoring may occur when  China is expected to undergo a separate WTO review of its trade policies,  possibly in early 2006.
subsections: section_title: 2003 TRM Process Was Similar to 2002, with Less Debate Regarding Procedural Issues
paragraphs: U.S., WTO Secretariat, and other WTO member government officials noted  that there was less debate about how to conduct the TRM in 2003 than  2002. As we reported previously, the initial TRM did not result in the  thorough and detailed review of China’s compliance that U.S. officials had  envisioned. Chinese officials told us that while they will abide by their  TRM commitments, they view the TRM as a discriminatory mechanism that  was imposed on China during their WTO membership negotiations. With  this as the prevailing sentiment from China, the 2002 review was marked by  contention between China and some of the other WTO members regarding  the form, timing, and specific procedures for the TRM. The United States  and some other members were disappointed that China refused to provide  written answers to members’ written questions in advance of TRM  meetings. Additionally, some members were disappointed that the review  did not result in any conclusions or recommendations regarding China’s  implementation.
Following the conclusion of the first TRM, U.S. and European Union  officials stated that they would seek improvements for subsequent reviews.  However, in 2003 officials concluded that there would have been little use  in reopening the previous year’s debates about the procedures for the TRM  given the lack of specificity in China’s WTO commitments regarding  procedural aspects of the review.  U.S. officials and some other members  noted that, because any changes would require consensus from all  members, China would most likely have blocked any attempt to clarify the  TRM procedures regarding written responses and furthermore would not  likely approve a WTO report with recommendations regarding China’s  implementation. Thus, in 2003 there were no formal proposals from WTO  members for changing the TRM, although there were informal discussions  among some committee chairpersons regarding overall procedures.  Because there was less debate regarding procedures, U.S., WTO, and  foreign officials told us that the 2003 TRM went more smoothly, compared  with the previous year. However, as in 2002, China did not respond in  writing to member questions during the 2003 review, nor did the TRM result  in a WTO report with conclusions or recommendations. U.S., WTO, and  other foreign officials told us that they expected future TRM reviews to  operate similar to the 2003 review, with no substantive changes in  procedures or outputs. USTR officials told us they expect fewer issues to  be taken up in future TRM reviews, after China revises and issues various  laws and regulations as its remaining commitments are phased in.
section_title: WTO Member Participation in the TRM Decreased in 2003
paragraphs: Although the United States continued to take a leading role in the TRM,  participation by other WTO member governments decreased between the  2002 and 2003 reviews despite U.S. officials’ hopes for members’ increased  involvement. For example, the number of WTO members that submitted  written questions to China in advance of the TRM meetings declined from  11 in 2002 to 7 in 2003. Similarly, the number of WTO members that asked  questions or made statements during the TRM meetings decreased from 23  to 11 over the same time period. WTO Secretariat and member government  officials that we interviewed cited several possible reasons for the  decreased participation in the 2003 TRM. Some developing country WTO  members stated that they viewed the TRM as mainly a political tool for  developed country WTO members to put pressure on China and that the  TRM was of little use to them, in terms of raising and resolving trade issues  with China. Additionally, other WTO member governments were less active  in the 2003 TRM because those governments elected to focus on engaging  China bilaterally on trade issues.
section_title: U.S. and China TRM Submissions Were Less Timely in 2003
paragraphs: Compared with 2002, we found that the United States’ submission of  questions to China was less timely in 2003. USTR officials told us that part  of their overall strategy for the 2003 TRM was an internal deadline to  submit questions to China 4 to 6 weeks in advance of the TRM meetings to  ensure that China had enough time to prepare responses. On average, the  U.S. submitted questions to China 34 days in advance of the committee  meetings in 2002. However, in 2003, the United States submitted questions  only 9 days in advance of the meetings, on average. In a few of the  committee meetings in 2003, the Chinese representative stated that he was  unable to prepare and provide answers to questions that were received just  prior to the meetings.
The timeliness of China’s submissions to the various committees also  affected TRM proceedings. China’s accession agreement describes various  types of information that China is required to submit to the WTO subsidiary  bodies in advance of the TRM, but the agreement does not set forth specific  timelines for the submissions. In 2003, China’s submissions predated the  TRM meetings by an average of 6 days, compared with an average of 16  days in 2002. During the meetings, some members commented that they  were unable to prepare a complete set of questions since they had not had  sufficient time to review China’s submissions. (See app. III for more details  on the 2002 and 2003 TRMs.)
section_title: U.S. Officials Cited Benefits of the TRM Despite the Review’s Limitations
paragraphs: U.S. officials acknowledged the continuing limitations of the TRM in 2003,  but cited three major benefits of the review: (1) the TRM increased China’s  transparency on trade issues, (2) the TRM resulted in a useful exchange of  information and fostered better coordination among key Chinese  ministries, and most importantly, (3) the TRM provided the United States  with a formal multilateral forum for raising compliance problems. First,  U.S. officials stated that the TRM was an effective way to urge China to  disclose information about its implementation in a formal, public multilateral forum. Officials said it was important to demonstrate to China  that the United States and other concerned members would be actively  seeking information about China’s implementation on an annual basis.  Second, several U.S., WTO Secretariat, and other member government  officials said that China sent more experts from the relevant ministries to  attend the TRM in 2003, and many officials stated that this had resulted in a  more effective exchange of information during the reviews. Further, U.S.  and foreign officials, including China’s ambassador to the WTO, indicated  that the TRM process was effective in helping China’s main trade ministry,  the Ministry of Commerce, gain cooperation and coordination from other  Chinese ministries that might not have understood the problems or might  have been reluctant to cooperate otherwise. Third, U.S. officials said that  the TRM provided the United States with an opportunity to highlight  specific areas of concern about China’s implementation and obtain an  official, public position from China on key issues. U.S. officials further  noted that, although the TRM was never intended to supplant the dispute  settlement process, the TRM could help lay the groundwork for any  potential areas where the United States would initiate a WTO dispute  settlement case with China.
section_title: Multilateral Engagement in Regular WTO Meetings Takes on More Importance
paragraphs: U.S. officials also said that part of the U.S. multilateral strategy for  resolving compliance problems with China in 2003 was to raise issues with  China during other WTO committee meetings outside of the TRM. Regular  WTO business takes place in the subsidiary bodies mentioned above, which  formally meet anywhere from one to four, or more, times a year, and the  United States is a very active participant. Established WTO practice holds  that members are to respond in writing to each other’s questions that are  submitted through the normal (i.e., not TRM) WTO committee structure.  Additionally, U.S., WTO, and other foreign officials noted that China is  generally cooperative during regular, non-TRM WTO meetings. The degree  to which members (including the United States and China) review and  question each other’s laws, regulations, and trade practices varies by  committee. WTO Secretariat officials told us that, compared to what they  had observed in some of the TRM meetings, similar or even more technical  information was routinely exchanged between members in a few of the  committees—like the Committee on Antidumping Practices—whereas  such exchanges were relatively rare in other committees, like the  Committee on Trade-Related Investment Measures.
section_title: WTO Has an Additional Review Mechanism
paragraphs: U.S. and other officials also pointed out that the WTO’s Trade Policy  Review Mechanism would provide an additional opportunity for a  meaningful review of China’s trade policies. The Trade Policy Review  Mechanism, which is unrelated to the TRM, provides for a broad review of  all WTO members’ trade policies and practices, trade policy-making  institutions, and macroeconomic conditions. Each member undergoes  these reviews on a scheduled basis, and the frequency of an individual  member’s review depends on its share of world trade. Based on its total  volume of trade, China is expected to undergo the review every 2 years,  although the exact timing of China’s initial review has yet to be determined,  according to WTO Secretariat officials. While the Trade Policy Review is  not a review of members’ implementation of WTO commitments, the  review does provide an opportunity for members’ to submit questions to  and receive written responses from the reviewee. The reviews also result  in a summary report that describes the findings of the review.
section_title: Key Agencies’ China Units Could Improve Their Performance Management Activities
paragraphs: Although the key agencies’ formal plans address trade monitoring and  enforcement activities, it is difficult to assess the effectiveness of the  agencies’ China-WTO compliance efforts based on their performance  management reports. Planning and measuring results are important  components to ensuring that government resources are used effectively to  achieve the agencies’ goals. Good planning and management links overall  agency goals to individual unit activities and priorities. USTR, Commerce,  State, and USDA’s plans reflect China-WTO compliance efforts, albeit to  varying degrees and in different ways. However, in most cases, we found  weaknesses in these key agencies’ performance management efforts; and  these weaknesses prevented the agencies from providing a clear or  accurate assessment of their performance in this regard. Moreover, the  specific units within the agencies that are most directly involved with  China compliance activities lacked specific strategies for ensuring that they  supported their agency’s goals, and they did not measure their unit’s  results.
subsections: section_title: Establishing Goals and Measuring Results are Important
paragraphs: The Government Performance and Results Act of 1993 (GPRA) requires  federal agencies to engage in a results-oriented strategic planning  process. GPRA requires agencies to set multiyear strategic goals in their  strategic plans and corresponding annual goals in their performance plans,  measure performance toward the achievement of those goals, and report  on their progress in their annual performance reports. These reports are  intended to provide important information to agency managers,  policymakers, and the public on what each agency accomplished with the  resources it was given.
Moreover, GPRA calls for agencies to develop performance goals that are  objective, quantifiable, and measurable and directs agencies to establish  performance measures that adequately indicate progress toward achieving  those goals. Thus, GPRA requires agencies to report on program  performance for the previous fiscal year, based on their established goals  and measures. Agencies are to compare performance with the established  goals, summarize findings of program evaluations, and revise or describe  the actions needed to address any unmet goals. Agencies have flexibility in  establishing goals and in using performance measures, as long as they  reflect the major activities carried out as part of their particular missions.   Furthermore, with Office of Management and Budget (OMB) concurrence,  agencies can express their performance goals for particular programs in an  alternative form when they are not able to define goals in an objective and  quantifiable form, as long as it allows for actual performance to be  compared to the goal. Our previous work has noted that a lack of clear  measurable goals makes it difficult for program managers and staff to link  their day-to-day efforts to achieving the agency’s intended mission. Lastly,  good planning and performance measurement at both the overall agency  and unit levels enhances program oversight and is a critical component to  effective and informed decision making.
section_title: Key Agencies’ Goals Vary in How They Address China- WTO Compliance Efforts
paragraphs: Consistent with GPRA’s requirements, the four key agencies set long-term  and annual goals that address China compliance efforts in their most recent  strategic and performance plans; however, the degree of specificity can and  does vary in these goals. USTR and State (China-mission level) plans  include China-specific goals related to their WTO compliance efforts,  whereas USDA and Commerce include their China-WTO compliance  efforts within broader goals of monitoring and enforcing WTO agreements  and ensuring market access for U.S. companies.
More specifically, USTR’s most recent strategic plan, which spans fiscal  years 2000 to 2005, includes a general goal related to monitoring and  enforcing trade agreements, while the 2004 performance plan includes a  specific annual performance goal for USTR to monitor and review China’s  implementation of WTO commitments to ensure compliance. State’s  agencywide strategic planning documents describe broad goals for creating  open markets and supporting U.S. businesses, while the 2004 Mission  Performance Plan for the overseas posts in China is linked to these broad  goals and sets forth a related performance goal specific to China. Although  the most recent Commerce and USDA planning documents do not include  specific goals relating to China’s WTO compliance, the plans do include  more general strategic and performance goals for ensuring fair trade and  enforcing existing trade agreements, which according to agency officials,  broadly reflect their China-related activities. Agencies’ strategic and  performance goals related to China-WTO compliance are summarized in  table 5.
section_title: Difficult to Assess the Performance of Agencies’ China-WTO Compliance Efforts
paragraphs: We found that it was not possible to clearly determine the outcome of the  key agencies’ China-WTO compliance efforts based on the agencies’  performance reports. Agencies should, at a minimum, have objective  measurable (preferably quantifiable under GPRA) measures that allow for  accurate and measurable evaluation of key agency programs, which we  believe could include those covering China trade compliance. Based on  GPRA’s provisions, we found problems in USTR, State, and Commerce’s  assessment of program performance relevant to China-WTO compliance  activities. For USDA, we found it was difficult to determine the  effectiveness of the agency’s efforts with regard to China-WTO compliance  because that agency chose goals and measures that were not specific to  China or monitoring and enforcement, but agency officials did demonstrate  how their China activities contributed to their performance measurement.  Table 6 summarizes the key agencies’ relevant performance measures and  the results they have reported.
USTR reported its 2003 results in the President’s Annual Report on the  Trade Agreements Program, but not in a measurable way that compares  the agency’s performance against a predetermined annual target or  objective. USTR’s performance plan identifies a quantifiable, measurable  indicator of performance specific to China’s compliance, namely, the  number of trade problems resolved and the number pending. These  measures, if used, would have allowed for numerical evaluation of USTR’s  China compliance activities if a target outcome was chosen. However, the  aforementioned report only provides a narrative description of the status of  China’s compliance problems and the U.S. responses; and as such, the  report does not address USTR’s performance measure and thus does not  allow for a clear measurable assessment of whether USTR is achieving its  intended China compliance goal. We believe sound performance  management requires an agency to specifically address its performance  measures when it reports results.
Furthermore, USTR’s performance measures should have been  accompanied by targets that would have allowed the agency to clearly  report results. For example, USTR could set a target to resolve some  percentage of high priority compliance problems, or more generally, to  eliminate some particular outstanding problems. Instead, USTR’s FY 2004  Performance Plan and FY 2002 Annual Performance Report states, “It is  difficult to predict with accuracy whether or not implementation/  negotiation will be completed in any one year.” Furthermore, despite  setting forth quantifiable measures in its performance plan, USTR officials  said that they did not believe it was appropriate to quantify their  performance results because of the many intangible factors that affect the  interpretation of results, especially the various weights of different  problems in terms of trade importance. As noted earlier, while quantitative  measures are preferred under GPRA, GPRA provides agencies the  flexibility, when appropriate, to use alternative (that is, nonquantifiable)  measures—such as descriptive statements—as long as they allow for an  accurate and independent determination of whether the agency is meeting  its intended goal. Nevertheless, since USTR did establish quantitative  measures, sound performance management would have dictated that it  establish targets and report the results related to those measures.
subsections: section_title: Commerce’s Performance Measurement May Need Improvement
paragraphs: Commerce has established reasonably objective, quantifiable measures for  its China-WTO compliance related efforts, but there are potential  weaknesses in the reliability of the data used to judge results, as noted by  the Commerce Inspector General. Commerce’s three related measures   are the numbers of market access and compliance cases (1) initiated,   (2) concluded, and (3) dollar value of trade addressed. The measures apply  generally to all market access and compliance cases, but they also include  information specific to China. Commerce uses a centrally maintained  database to track market access and compliance cases it is working to  resolve. Commerce has taken several important steps to improve the  quality of the database, including providing training to staff on how to use  the database, creating a users’ manual, and overseeing the timeliness and  completeness of staff entries. However, some staff we interviewed noted  that the quality of information in the Trade Compliance Center database is  dependent on how thorough staff members are in entering information.  Staff said that certain types of crosscutting issues or company-specific  problems are still not always entered into the database. Others noted that  information in the database on some issues is often incomplete, which  raises new concerns about the reliability of the data. Commerce collects  information on China market access and compliance cases, and agency  officials provided us data that demonstrated the extent to which China- related cases contribute to the agency’s overall performance measures.  (See table 7 for the China-specific results.)
We reviewed State’s 2004 Mission Performance Plan for China because,  unlike the overall agencywide plan, it explicitly addressed China-WTO  compliance activities. Although the plan sets forth broad baseline  indicators and targets, the mission plan does not indicate progress toward  achieving the mission’s goals in this regard. The mission plan includes two  relevant strategies to accomplish its performance goal relating to  integrating China into the world economic system: one specifically related  to monitoring China’s WTO compliance and another related to promoting  U.S. economic interests. Furthermore, although the mission plan provides a  useful discussion of the tactics proposed to achieve each of these  strategies, we found the mission’s two annual performance indicators do  not allow for quantifiable, measurable results.
In its agencywide plan, State uses performance indicators for trade-related  goals that do not specifically target either China or monitoring and  enforcement-related activities. These worldwide indicators focus on  concluding various types of negotiations, the acceptance of biotechnology  in the agricultural sector, and the adoption of favorable international  telecommunication practices. State’s report does not include how these  measures apply to specific countries.
section_title: USDA’s Measures Are Not Specific to China and Are Subject to Other Factors
paragraphs: USDA’s plan includes several relevant quantifiable measures, as well as a  useful discussion of the means and strategies that the agency employs to  increase international marketing opportunities for U.S. agricultural  exporters. Furthermore, in several instances USDA reports its efforts in  China are part of its strategy for achieving its goals. Because the agency  chose goals and measures that were neither specific to China nor to  monitoring and compliance, it is not possible to determine the  effectiveness of the agency’s efforts with China-WTO compliance from its  performance reports. However, agency officials were able to demonstrate  that their China activities contributed to their performance measurement.
Nevertheless, we found that several of the measures USDA uses to assess  performance against the broad goal of expanding international marketing  opportunities can be significantly impacted by external factors that affect  trade in general. USDA’s fiscal year 2004 plan includes a brief list of the  factors that may impact the agency’s progress toward achieving the goals,  but the discussion of those factors does not present the agency’s strategies  for mitigating those potential effects. As a result, it is difficult to determine  the extent to which performance results are attributable to agency efforts  or to external factors. USDA officials said that they understood their  measures were problematic and said the agency was in the process of  developing more effective measures, including country-specific  performance measures.
section_title: More Attention to Performance Management Could Improve Unit-Level Activities
paragraphs: Agency officials told us about the substantial high-level effort they make to  establish and follow an aggressive strategy to ensure China’s continued  implementation of its WTO commitments. Furthermore, officials engage in  significant interagency planning and regularly adjust priorities at the most  senior levels in order to achieve results.
However, these strategies and priorities are not reflected in agencies’  performance management activities that help guide lower level unit  activities. Although GPRA requirements do not apply specifically to the  planning activities of individual units, unit-level planning and performance  reporting is essential to an agency’s oversight of its key programs. Such  performance management activities help managers focus their efforts and  resources on long-term priorities in the face of ongoing short-term  exigencies.
Furthermore, we found that the lower level units most directly involved  with China-WTO compliance activities do not establish longer term annual  unit-level objectives or priorities for their unit’s activities. Managers in all  four key agencies said they did not set specific measurable performance  goals or objectives for their units in support of agency overall performance  management goals, nor did they set their own priorities and align resources  to those priorities in any unit-level plan. Instead, managers indicated that  their units’ priorities were adjusted frequently to respond to compliance  problems as they arose depending on the level and number of companies  complaining about a compliance problem, the amount of trade affected by  a problem, the scope and magnitude of a problem, and which issues the  Administration or Congress were focused on at the time, among other  considerations. Units undertook various activities as needed to support  these changing priorities. Many managers and staff believed that there was  very little their units could do to predict which areas of China’s  implementation would falter and that the units needed to remain flexible in  order to respond to any compliance problems that might arise or to take  advantage of any opportunity to solve a compliance problem. They  believed this despite the fact that many of the compliance problems that  have arisen to date have persisted since China’s accession.
This approach was reflected in our interviews with staff. Most staff said  prioritization of their unit’s activities was informal and ad hoc; no staff  reported a formal prioritization scheme for addressing compliance issues.  Furthermore, many staff and some managers were unable to articulate  longer-term performance plans for their unit’s efforts. Of staff familiar with  relevant performance goals, managers and staff at the four key agencies  also said that they believe that their agencies’ existing performance  measures do not fully capture their unit’s activities. For example,  Commerce staff noted that much of the work they do regarding trade  capacity building programs with the Chinese government and outreach to  the private sector is not included in the database used to measure their  performance in monitoring and enforcement, although those efforts can  have a positive effect on China’s compliance.
Because the units’ activities are not clearly tied to agency performance  management efforts, China unit managers are not able to assess the results  of their unit’s activities and use this information to guide future work.  Managers could not comment on whether they had achieved  predetermined objectives for any one year or specifically how their unit  contributed to their agencies’ overall performance goals.
section_title: Key Agencies Added Staff Resources, but Turnover and Lack of Training Limited Overall Effectiveness
paragraphs: In 2003, the key agencies continued to add resources to meet the demands  of monitoring China’s compliance with its WTO commitments, especially in  headquarters units. However, we found that high rates of planned and  unplanned staff turnover in the main China units presented challenges to  the agencies’ compliance efforts. Despite anticipated staff turnover in the  units we examined, staff in those units lacked the opportunity to receive  specific training related to carrying out their assigned responsibilities.  Instead, the units generally relied on on-the-job training (OJT) for new  staff. Consequently, staff with relatively short rotations in units focused on  China’s WTO compliance spent a significant portion of their total tenure in  the office getting up to speed on complex China trade issues.
subsections: section_title: Agencies Have Increased Staff Levels in Main Units; Proportionally More Increases at Headquarters Units
paragraphs: In response to the increased responsibilities arising from China’s WTO  membership, USTR, Commerce, State, and USDA increased staff resources  at both headquarters offices and in China. The estimated number of FTE  staff in the units most directly involved with China-WTO compliance efforts  across the four key agencies increased from about 25 to 58 between fiscal  years 2000 and 2003. Staff in the main China-related headquarters units in  Washington, D.C, increased at a rate of about 3 to 1 over China-based units  over the same period, and over 70 percent of the staff resources were  located within the agencies’ headquarters units by 2003. Commerce added  the largest number of staff, as estimated FTE staff increased from about 9  to 35 between fiscal years 2000 and 2003. (See table 8.)
The 2004 Appropriations Act for Commerce, Justice, and State intended  additional staff increases and funds necessary for the U.S. government’s  China compliance efforts. Specifically, the Congress called for Commerce  to reorganize and dedicate more resources to China compliance efforts by,  among other things, establishing an enforcement office within the Market  Access and Compliance division to provide legal and investigative  assistance to companies seeking to enforce their rights under existing trade  agreements and reorganizing the Import Administration to include an office  that deals specifically with antidumping cases involving China and other  nonmarket economy countries. The Congress also called for USTR to  dedicate more resources to China trade issues by adding three positions in  the agency’s main China trade unit and six other positions in other offices  that have a role in monitoring and enforcing China’s trade commitments.  Notably, these intended changes would continue the trend of increasing  staff at the headquarters instead of the agencies’ field units.
Although the key agencies (excluding USTR) have many staff located in  China, a relatively small proportion of those staff have a direct role in the  U.S. government’s China-WTO compliance activities. Officials in various  overseas units assist the agencies’ China-WTO compliance efforts, but this  assistance is not a primary component of their responsibilities. For  example, Commerce had 23 officers located in China in fiscal year 2003, but  only four officers had explicit China-WTO compliance responsibilities; the  other officers were Commercial Officers, and their primary duties involved  trade promotion. Similarly, only about a quarter of the 26 Foreign Service  officers and staff within the Beijing embassy’s economic section focused  primarily on China-WTO compliance in 2003. About the same proportion of  USDA’s Foreign Agriculture Service (FAS) officers in China had an explicit  role in China-WTO compliance issues, while the other officers were  primarily focused on promoting and facilitating U.S. agricultural exports.
section_title: Staff Turnover in Main Units Reduced Agencies’ Ability to Ensure China’s Compliance
paragraphs: Relatively high rates of planned and unplanned staff turnover in several of  the main China units with primary responsibility for monitoring and  enforcing China’s WTO commitments presented challenges for the  agencies’ China compliance efforts. Managers and staff in the units we  reviewed cited several negative effects of turnover on their units’  compliance efforts.
subsections: section_title: Planned and Unplanned Rates of Turnover Were High in Some Main Units
paragraphs: Turnover across all executive branch agencies averaged 5.8 percent in  fiscal year 2003, but turnover in several of the agencies’ main China units  was significantly higher.  For example, between fiscal years 2000 and 2003,  the average annual turnover rate in the Office of China Economic Area at  Commerce was about 25 percent, and the rate was about 32 percent in  USTR’s 3 to 5 person China office, over the same period. Additionally,  according to State data, six of the eight staff (75 percent) in the section that  oversees the embassy’s China compliance efforts turned over in 2002 alone.  Lastly, although turnover has not been an issue in USDA’s Asia and the  Americas Division, staff noted that because of the small size of the office,  staff departures could create a substantial loss of institutional memory.
In some instances, turnover in the units is part of a planned staffing  process. For example, a core principle of State’s staffing model is to create  generalists who can serve in any overseas mission. Consistent with this  objective, most entry- and mid-level Foreign Service officers are rotational  and change posts every 2 to 4 years. USDA’s FAS officers are subject to  minimum 3-year rotations. Additionally, in 2003, two of the five staff in  USTR’s China office were temporary detailees from other agencies, and  these staff typically rotate back to their home agency after 1 year. In other  cases, staff turnover resulted from unplanned staff separations, such as  when staff left to take positions in another agency or in the private sector.   Lastly, we previously reported that the core officials that actively  participated in China’s WTO accession negotiations had changed jobs or  left the government by 2002.
section_title: Officials Cited Negative Effects of Turnover
paragraphs: Managers and several staff in the key headquarters and field units said that  turnover had generally negative effects on the units’ activities. First, several  officials said that turnover in the units meant that new staff sometimes did  not have sufficient time to develop expertise on complex China trade  issues before they rotated to another position or left the agency.  Consequently, staff with relatively short rotations (1 to 3 years) in China  compliance-focused units spent a significant portion of their tenure  learning the issues rather than focusing on actively resolving compliance  problems. Second, other officials noted that this problem is compounded  because outgoing and incoming staff sometimes only overlap for a brief  period, if at all. For example, all officers and staff in two units at State that  were involved in China-WTO issues were scheduled to rotate at the same  time in 2004, so there would likely be little or no overlap with their  successors. Lack of overlap between transitioning staff requires incoming  staff to learn their assigned portfolio of issues without the benefit of  guidance from their predecessors. Third, one embassy official pointed out  that staff turnover makes it difficult for officers to effectively establish and  cultivate contacts with their counterparts in the Chinese government.
section_title: Staff Lacked Training Opportunities on Relevant Skills; Agencies Relied Heavily on On-the-Job Training
paragraphs: The main China units at the four key agencies lacked specific training  relevant to executing China-WTO compliance responsibilities, or, to the  extent that the agencies’ offered specific training, staff generally lacked  sufficient opportunities to receive it. Additionally, as noted in our previous  reports, some agencies’ efforts continued to be hampered by shortfalls in  Chinese language training. We found that agencies relied almost  exclusively on OJT to give new staff the skills necessary to do their jobs.
subsections: section_title: Limited Training Opportunities for Staff in the Agencies’ Main China Units
paragraphs: About half of the staff and managers we interviewed in the main  headquarters and field units indicated that formal training opportunities for  staff were limited or that additional training would enhance their units’  effectiveness. Our model of strategic human capital management  emphasizes the importance of structured training as a means to develop  and retain staff and describes the important linkages between training and  effectively attaining an agency’s strategic and performance goals. However,  none of the units we reviewed offered or required staff to take part in  formal training curricula related to carrying out the mission of the unit. In  some cases, the agencies’ offered trade-related training courses, but staff in  each of those offices said that their opportunities to take those courses  were limited by time and workload constraints. For example, State’s  Foreign Service Institute offers several courses on trade issues, including  trade agreement implementation, the WTO dispute settlement process,  trade law, and trade and environment issues. While officers in the China  embassy’s WTO Group and Commerce’s Trade Facilitation Office took part  in the course on trade agreement implementation, the officers we  interviewed noted that they had taken few, if any, other courses.  Furthermore, USTR officials told us that USTR only hires experienced  personnel, who do not need training.
A factor that illustrates the importance of training is that many vacancies in  the main China units are filled by junior and mid-level staff who would  benefit from more training. For example, in Commerce’s Office of China  Economic area, 11 of the 17 new staff hired between fiscal years 2001 and  2003 were at the GS-9 level or below. Similarly, mid- and junior-level  officers (FS-03 and lower) filled five of the eight positions at the WTO unit  at Embassy Beijing in fiscal year 2003. Embassy officials, including the  Deputy Chief of Mission, noted the need for greater expertise and  experience among officers at the post to deal with complex China trade  issues. Even staff that had experience working in China or working on  trade issues who were hired or rotated into China-trade units indicated that  they would benefit from training on issues other than China-WTO  compliance, such as training on writing cables and briefing papers.
section_title: Shortfalls in Language Training Continued
paragraphs: We previously reported on the shortfalls of foreign language skills,  including gaps in Mandarin Chinese at State’s overseas posts and within  Commerce’s Foreign Commercial Service. Despite State’s recent  improvement in addressing this shortfall, many staff we interviewed noted  that Chinese language training opportunities were limited, even for State  Foreign Service officers. At the same time, managers and staff in the key  units said that, while Chinese language is not essential for all positions, it is  difficult to effectively engage their Chinese counterparts on complex trade  issues without having sufficient language skills. Embassy staff said that due  to the heavy visitor schedule and workload, they found it difficult to  consistently take advantage of the language instruction available at the  post.  Furthermore, they noted that 1-year rotational officers who have not  had adequate language training filled many positions in the embassy’s WTO  Group.
section_title: Main Units Relied on On-the-Job Training
paragraphs: All of the units we reviewed relied almost exclusively on OJT to acquaint  staff with how to carry out their China-WTO compliance responsibilities.  Without formal guidance regarding their responsibilities, many staff said  they generally relied on colleagues and supervisors for further direction.  Although OJT is essential to developing expertise on complex China-WTO  trade issues, it cannot ensure that new staff have all the information they  need to perform their duties. Our previous work notes that effective  utilization of human capital is best achieved through a comprehensive mix  of both formal and OJT. Additionally, we identified other problems with the  agencies’ reliance on OJT. For example, we found that inconsistencies in  how the main units track and share information on China compliance can  limit the effectiveness of OJT. Not only is tracking information an  important aspect of the overall monitoring and enforcement process, but it  can also help mitigate the effects of turnover and is an important OJT tool  for acquainting new staff with their assigned portfolio of responsibilities.  Staff across the four key agencies said that there was little or no internal  guidance about the types of information that should be collected and how  the information should be compiled and shared. Finally, as one high-level  embassy official noted, relying on OJT can significantly add to the  workload of more senior staff, who must be diverted from their own  portfolios in order to provide informal guidance to new staff.
section_title: Conclusions
paragraphs: Ensuring China’s compliance with its WTO commitments is a continuing  priority for the U.S. government. The complexity, breadth, and ongoing  nature of many of the problems that have arisen to date demonstrate the  need for a cohesive and sustained effort from the key U.S. agencies to  monitor and enforce China’s implementation of WTO policies. The key  agencies have done much to enhance their capacity to carry out these  efforts by coordinating on policy issues and increasing staff resources.  However, there are three areas in which USTR, Commerce, State, and  USDA should take steps to improve these efforts and maximize the  effectiveness of the resources allocated to the task of securing the benefits  of China’s membership in the WTO.
First, while U.S. monitoring and enforcement activities in 2003 reflected  increased high-level bilateral engagement by executive branch officials,  some multilateral efforts did not achieve their full potential. Specifically,  the WTO’s annual TRM was intended to be a thorough review of China’s  implementation, but many U.S., WTO, and foreign officials agree that the  mechanism has limitations. Nevertheless, the TRM and the benefits it  provides could be enhanced by increased member participation and more  timely U.S. preparation, which would improve the chances for full and  informed responses from Chinese officials and maximize the potential  exchange of information. Thus, even with a continued U.S. emphasis on  bilateral and other multilateral engagement, the TRM can continue to  provide an important avenue to pursue U.S. trade interests.
Second, the U.S. government’s China-WTO compliance efforts would  benefit from increased emphasis on planning and performance  management within each of the key agencies. While we acknowledge that  unit managers need to be flexible when reacting to compliance problems,  setting clear unit priorities and measurable goals that support overall  agency objectives need not reduce their flexibility. To the contrary, GPRA  and our substantial body work on planning emphasizes the importance and  usefulness of developing unit and program-level plans and measures that  are connected to an agency’s overall mission. We acknowledge the  challenges of developing measurable goals, given the extent to which  external factors can influence agencies’ trade compliance efforts; however,  we believe that it is possible to better measure results annually.
Third, we found that these agencies have opportunities to better manage  their human capital involved in the U.S. government’s China-compliance  activities. Specifically, in an environment of high and regular staff turnover,  new staff are called upon to take up monitoring and enforcement activities  that involve complex, long-term issues. New staffs’ effectiveness and  efficiency is reduced when no formal training is available to help them with  their day-to-day activities, and when staffing gaps mean they cannot learn  from their more experienced predecessors. Increased management  attention to providing an adequate mix of OJT and formal training can help  ensure that new employees have the necessary tools for doing their jobs  well.
section_title: Recommendations for Executive Action
paragraphs: To improve multilateral engagement with China on WTO compliance  issues, we recommend that the U.S. Trade Representative (USTR) take  steps to maximize the potential benefits of the Transitional Review  Mechanism (TRM). These steps could include establishing and meeting  internal deadlines to submit written questions to the Chinese delegation 4  to 6 weeks or more before each TRM and coordinating with other WTO  members to increase participation in the review.
Additionally, we recommend that the USTR and the Secretaries of  Commerce, State, and Agriculture (USDA) take steps to improve  performance management pertinent to the agencies’ China-WTO  compliance efforts. Specifically, USTR should set annual measurable  predetermined targets related to its China compliance performance  measures and assess the results in its annual performance reports. The  Secretary of Commerce should take further steps to improve the accuracy  of the data used to measure results for the agency’s trade compliance- related goals. The Secretary of State should require the China mission to  assess results in meeting their goals and report this information as part of  the annual mission performance plan. The Secretary of USDA should  further examine the external factors that may affect agency’s progress  toward achieving its trade-related goals and present the agency’s strategies  for mitigating those potential effects. Furthermore, the head of each agency  should direct their main China compliance units to set forth unit plans that  are clearly linked to agency performance goals and measures, establish  unit priorities for their activities, and annually assess unit results to better  manage their resources.
Further, we recommend that USTR and the Secretaries of Commerce,  State, and USDA undertake actions to mitigate the effects of both  anticipated and unplanned staff turnover within the agencies’ main China- WTO compliance units by identifying China compliance-related training  needs and taking steps to ensure that staff have adequate opportunity to  acquire the necessary training. These actions could include determining  which of the agencies’ existing courses would be appropriate for staff,  determining what types of external training are available, developing  training courses on relevant issues, and establishing a plan and timelines  for existing and new staff to receive training.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided draft copies of this report to the Office of the U.S. Trade  Representative, and the Departments of Commerce, State, and Agriculture,  and we received written comments from all four agencies (the agencies’  comments and our specific responses are reproduced in appendixes IV  through VII). USTR and Commerce also provided technical comments,  which we incorporated as appropriate.
In general, the agencies noted they would consider our recommendations,  but they raised various concerns and provided additional information for  our consideration. USTR, Commerce, and State expressed similar concerns  about our analysis of the scope and disposition of the compliance problems  presented in USTR’s 2002 and 2003 reports on China’s WTO compliance.  The agencies emphasized the importance of developments in resolving  compliance problems that occurred in 2004 and believed that our  characterization of the disposition of compliance problems was potentially  misleading. We generally agreed with these comments and updated the  report to provide more equal treatment of 2004 developments and modified  the presentation of our analysis of the disposition of China’s compliance  problems. Our responses to the agencies’ specific concerns on these issues  are presented in appendixes IV through VI.
USTR, Commerce, and USDA also made specific comments that our report  did not adequately reflect extensive high-level strategic coordination  efforts among the key agencies, and they provided additional information  regarding these efforts. We modified the report to include further  discussion of high-level strategic planning efforts and clarified that our  assessment and recommendations focus on the agencies’ performance  management efforts. The agencies expressed related concerns about the  challenges associated with quantitatively measuring performance of their  monitoring and enforcement efforts. State and USDA indicated that efforts  are under way in those agencies to improve aspects of their performance  planning and measurement, while USTR responded that their performance  measurements were adequate and complied with GPRA and OMB  guidance. We maintain that our assessments of the agencies’ performance  management are accurate, especially in light of OMB guidance (set forth in  OMB Circular No. A-11), and that moreover our recommendations, if  implemented, would aid in better management of the U.S. government’s  efforts to ensure China’s compliance.
USTR commented that our discussion of the TRM overlooked the U.S.  government’s efforts to engage China outside of the TRM through the  regular WTO committee structure, and disagreed with our conclusion that  greater lead time for U.S. TRM submissions to China would increase the  potential for fuller oral responses from China. We amplified our discussion  of U.S. multilateral efforts in the WTO, but we continue to believe that  USTR should take steps to maximize the potential of the TRM, which  would include providing greater lead time in submitting TRM questions to  China.
Commerce, State, and USDA indicated that training is a priority and that  training opportunities exist for staff in the agencies China units.  Furthermore, State believed our criticisms concerning training were  overstated and did not take into account various structural constraints  faced by that department. USTR said that USTR staff did not require  training since the agency only hires experienced staff. We acknowledge  that training opportunities, including OJT, do exist in the agencies and that  many staff have extensive backgrounds on China trade issues.  Nevertheless, we continue to believe that a more cohesive approach to  training can help alleviate the effects of turnover and maximize staff  effectiveness. Lastly, some of the agencies provided additional information  regarding various activities and other contextual information associated  with ensuring China’s compliance. To the extent that this information was  within the scope of our review, we have modified the report as appropriate.
We are sending copies of this report to the U.S. Trade Representative, the  Secretaries of Commerce, State, and Agriculture, and interested  congressional committees. We will make copies available to other  interested parties upon request. In addition this report will be available at  our Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please call me  at (202) 512-4128. Other GAO contacts and staff acknowledgments are  listed in appendix VIII.
section_title: Objectives, Scope, and Methodology
paragraphs: As part of a long-term body of work that the Chairman and the Ranking  Minority Member of the Senate Committee on Finance, as well as the  Chairman and the Ranking Minority Member of the House Committee on  Ways and Means, requested, we examined how the U.S. Trade  Representative (USTR) and the Departments of Commerce, State, and  Agriculture (USDA) are positioned to monitor and enforce China’s  compliance with its World Trade Organization (WTO) commitments.  Specifically, in this report, we (1) examined the scope and disposition of  China-WTO compliance problems that the U.S. government is working to  resolve; (2) reviewed the U.S. government’s bilateral and multilateral  approaches for resolving compliance problems; (3) assessed the agencies’  strategies, plans, and measures for ensuring China’s compliance; and (4)  assessed how the U.S. government has adapted its staff resources to  monitor and resolve China compliance problems.
To examine the scope and disposition of compliance problems, we  reviewed the USTR’s Report to Congress on China’s WTO Compliance  from 2002 and 2003. These annual reports, mandated 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. We  systematically cross-checked the reports with testimony and reports  submitted to the Trade Policy Staff Committee, Subcommittee on China- WTO Compliance as part of its 2002 and 2003 hearings on China-WTO  compliance and other relevant reports. Other reports included those issued  by the U.S.-China Business Council and the U.S. Chamber of Commerce,  which represent a broad cross-section of U.S. industries and companies  doing business in China. We found the USTR reports to be a generally fair  and complete representation of U.S. industry concerns. After verifying the  content of USTR’s reports to the extent possible, we quantified the number  of compliance problems in each area of China’s WTO commitment based  on the report’s narrative descriptions of China’s compliance problems.
To analyze the disposition of the compliance problems, we again relied  extensively on the narrative descriptions provided in the reports to make a  determination and assigned three broad categories to describe the  disposition of the problems: No progress noted, some progress noted, and  resolved. The determination that there was “no progress noted” on a  particular problem was based on the fact that the report did not indicate  that China took any action to resolve the issue after a range of enforcement  strategies carried out by USTR and the other key agencies. If the reports  indicated that China had undertaken actions to resolve a compliance  problem, we coded this as “some progress noted.” The assessment of  “some progress noted” included a range of steps that China took to address  U.S. concerns, from delaying the implementation of problematic measures  to exempting certain industries from WTO-inconsistent restrictions. We  coded problems as “resolved” only if the report language clearly indicated  that the compliance problem was resolved and the U.S. government was no  longer pursuing a resolution of that particular problem. Although we note  in the report that the U.S. government has indicated positive developments  in resolving some of the problems in 2004, our analysis focused only on the  issues raised in the 2002 and 2003 reports. Several of our staff reviewed  these analyses to ensure consistency and consensus. See table 9 for our  assessment criteria and examples.
To assess U.S. bilateral and multilateral engagement strategies, we  reviewed agency and WTO documents and interviewed agency officials  both in Washington, D.C., and Beijing, China, as well as WTO Secretariat  and other member governments in Geneva, Switzerland, and Brussels,  Belgium. To assess overall U.S. government strategy, we interviewed USTR  officials in Geneva and Washington D.C., and reviewed official testimony.  Our review of the Transitional Review Mechanism (TRM) is based on  analysis of official WTO documents, which include minutes and questions  or comments submitted by member countries, as well as interviews with  U.S. officials and with member countries officials in Geneva.
To assess USTR, Commerce, State, and USDA strategies and plans, we  examined planning documents such as annual performance reports, budget  documents, and annual reviews. We reviewed each agency’s most recent  performance and strategic plans to determine how China WTO monitoring  and enforcement is incorporated into the agencies’ planning process. Our  evaluation of agency planning efforts was informed by our previous studies  on the Government Performance and Results Act of 1993 (GPRA). We  enhanced our review of this information by interviewing agency officials  regarding agency wide and unit-level planning and evaluation efforts. To  gather staff and management perspectives on planning and performance  measures, we conducted standardized interviews within all four agencies.
To assess agency resources and other activities related to China’s  compliance, we reviewed the four key agencies’ planning documents,  budget and staffing data, and information on training. Our evaluation was  informed by past GAO studies on human capital management issues. We  asked each agency to provide us with the actual number of FTE staff and  staff attrition rates in key units involved in China-WTO compliance efforts  for fiscal years 2002 and 2003. In some cases, agencies were unable to  provide us with actual staffing numbers because some staff did not work  on China issues full-time. In those instances, we asked agency officials to  estimate FTE staff working solely on China compliance. To ensure that the  data were reliable to the extent possible and necessary for our review, we  discussed criteria for making estimates with the agencies to ensure that the  estimates were consistent between agencies. We compared agency  information on staffing with information we received for previous reviews  and discussed changes in staffing levels with cognizant agency officials. We  determined that the staffing information was sufficiently reliable for our  review. We asked each agency to supply us with training documents or  manuals and minutes or records from coordinating meetings. We  supplemented our review of this information by conducting individual  interviews with over 50 staff and unit managers from the four key agencies  that had China compliance as a main portion of their work portfolio. These  were standardized interviews conducted individually, with the exception of  USTR, which required a group interview. We were able to interview over  two-thirds of U.S. government staff in the main units at the four key  agencies who work primarily on China-WTO compliance.
We conducted our work in Washington, D.C., Beijing, China, Geneva,  Switzerland, and Brussels, Belgium. We performed our work from July 2003  to June 2004 in accordance with generally accepted government auditing  standards.
section_title: Description of Areas of China’s Trade Regime Covered by China’s WTO Commitments
paragraphs: USTR’s 2002 and 2003 Report to Congress on China’s WTO Compliance  identified compliance problems within nine broad areas related to China’s  trade regime where China had made commitments to other WTO members.  Our previous work used similar categories to analyze China’s  commitments. Table 10 describes the commitment categories used in  USTR’s reports.
section_title: Summary of WTO Member Participation in China’s Transitional Review Mechanism, 2002 and 2003
paragraphs: China’s commitments to the WTO provide for an annual review, referred to  as the Transitional Review Mechanism (TRM), of China’s implementation  to take place within the WTO’s General Council and 16 subsidiary bodies.  Under the TRM, WTO members can submit written questions to China in  advance of the meetings, and address China directly during the meetings.  Additionally, China’s accession agreement describes various types of  information that China is required to submit to the WTO subsidiary bodies  in advance of the TRM. Tables 12 and 13 list the dates of the meetings  where the TRM took place in 2002 and 2003 and summarize specific  information regarding WTO members’ participation in the meetings for  each year.
section_title: Comments from the United States Trade Representative
paragraphs: The following are GAO’s comments on USTR’s letter dated September 21,  2004.
subsections: section_title: GAO Comments
paragraphs: 1. We updated our draft report to include additional information on  developments in 2004, including the resolution of the dispute over  China’s discriminatory value-added tax refund policy for  semiconductors. Since our analysis of the 2002 and 2003 USTR reports  cannot be updated in the absence of the forthcoming 2004 USTR report  in December, we modified our presentation about the disposition of  China’s compliance problems to provide a more balanced treatment of  those issues. However, we still demonstrate the scope of compliance  problems, how China’s compliance problems can persist for 2 years or  more, and the extent to which China’s progress in resolving these issues  has been mixed.  2. We amplified our discussion of other multilateral engagement through  regular WTO committees in order to put the TRM in better context.  Nevertheless, after reviewing the minutes of the various TRM meetings,  we continue to believe that earlier U.S. submission of questions to  China in advance of the TRM meetings could increase the chances for  more thorough oral responses from the Chinese delegation. We also  continue to believe that U.S. efforts to increase other WTO members’  participation in the TRM could improve its effectiveness, despite its  ongoing limitations and support the other key agencies’ outreach  efforts in this regard. 3. While USTR submits long narrative reports to Congress on China’s  WTO compliance and the steps the U.S. government takes to address  problems, these reports are not a substitute for a bottom-line  performance management assessment of the degree to which the  agency has achieved pre-determined measurable annual objectives. We  noted that USTR has described numerical indicators in its performance  plan, yet has not set targets or measured the agency’s performance  against these indicators. Although we agree that USTR has some  flexibility under GPRA to establish performance measures that are not  strictly quantitative, the agency specifically sets forth numerical  measures in its performance plan. Accordingly, USTR should have  specifically addressed these measures in its results report. Additionally,  while USTR states that its approach was approved by OMB and was in  compliance with GPRA, the OMB guidance requires all agencies to  report a comparison of actual performance with projected, target levels  of performance; without establishing targets, we believe USTR is not  able to make this required comparison. We revised our draft report to  clarify and further emphasize our assessment. 4. We added some discussion to better recognize these senior-level policy  coordination initiatives and also clarified that our findings about  planning and prioritizing was in the context of performance  management. Also, we refined our observations about how the China  units in the key agencies would benefit from improved performance  management that institutionalized high-level priorities and planning to  better guide unit-level China compliance activities, which support these  initiatives.
section_title: Comments from the Department of Commerce
paragraphs: The following are GAO’s comments on Commerce’s letter dated September  21, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We updated our draft report to better reflect high-level policy  coordination on China compliance efforts and to clarify our focus on  unit-level performance management activities. We also included  additional information on developments in 2004, including the  resolution of the dispute over China’s discriminatory value-added tax  refund policy for semiconductors. 2. We did not assess the organizational changes that Commerce has  recently implemented to enhance its monitoring and enforcement  activities, but noted that these changes were under way. Nevertheless,  these changes create an opportunity for the International Trade  Administration to improve performance management and human  capital management along the lines we recommend in order to  maximize the effectiveness of these China compliance-related offices  and the staff they have hired or reassigned.
section_title: Comments from the Department of State
paragraphs: The following are GAO’s comments on State’s letter dated September 2,  2004.
subsections: section_title: GAO Comments
paragraphs: 1. We believe that measurable indicators provide policymakers with  meaningful summary information, however the figure in our draft  report was outdated and we removed it. As we indicate in our report,  priorities can be established according to a number of factors,  including trade volume/market value. We agree that such information  might provide a more accurate measure of results. Our report points  out that, while USTR’s annual China compliance reports identify  “priority” areas, the economic importance of many individual problems  cannot be easily quantified (as noted in State’s letter) and was not  reported. As a result we did not attempt to calculate the importance or  otherwise prioritize or rank the problems in our analysis. With regard to  our discussion of the disposition of problems in 2002 and 2003, we  explain our methodology for categorizing what USTR has reported to  Congress in detail in appendix I. 2. We added information about other multilateral activities to put the TRM  in better context. We agree that the TRM remains an important  component of China compliance activities and appreciate that  continued efforts to coordinate compliance issues multilaterally, as we  recommend, are sometimes difficult and are not always effective. 3. We appreciate State’s performance management challenges and  welcome the intention to refine its annual planning process and to  develop measurable performance goals for its China-WTO compliance  activities. We reiterate that assessing and reporting annual results at the  mission (or bureau) level can help ensure that unit-level activities  reflect agency priorities. 4. Previous GAO reports have discussed human capital management  challenges at State more thoroughly. In this report, we discuss some  particular issues as they relate to China compliance efforts, including  planned and unplanned turnover of staff and how the press of daily  business makes staff development difficult. We believe that mitigating  the effects of turnover through greater attention to training, either in or  outside of the classroom, can nevertheless help while solutions to  longer-term human capital challenges are being pursued.
section_title: Comments from the Department of Agriculture
paragraphs: The following are GAO’s comments on USDA’s letter dated September 8,  2004.
subsections: section_title: GAO Comments
paragraphs: 1. Our report summarizes the various components of USDA and the other  key agencies’ strategic and performance plans. We did not review the  forthcoming country-specific performance measures to which USDA  refers; we concur that the development and implementation of effective  measures that allow for more meaningful assessments of results would  be a positive step in improving USDA’s performance management. 2. Our report acknowledges that many units within USDA play an  important role in the U.S. government’s China-WTO compliance efforts,  and our earlier work on China-WTO compliance issues provides an  overview of the various intra-agency structures. We did not review staff  turnover in each of the units USDA listed, but we continue to assert that  relatively high planned and unplanned turnover in the units we  reviewed underscores the need for greater attention to staff training.  Lastly, we acknowledge that USDA has existing training programs and  makes opportunities available to its staff, but we maintain that the  agencies should undertake a more systematic approach to ensure that  staff further develop necessary job skills.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, Jennifer Costello, Jane-yu Li, Jamie  McDonald, Valérie Nowak, Richard Seldin, and Kimberly Siegal made key  contributions to this report.
section_title: Related GAO Products
paragraphs: World Trade Organization: U.S. Companies’ Views on China’s  Implementation of Its Commitments. GAO-04-508. Washington, D.C.:  March 24, 2004.
World Trade Organization: Ensuring China’s Compliance Requires a   Sustained and Multifaceted Approach. GAO-04-172T. Washington, D.C.:  October 30, 2003.
GAO's Electronic Database of China’s World Trade Organization  Commitments. GAO-03-797R. Washington, D.C.: June 13, 2003.
World Trade Organization: First-Year U.S. Efforts to Monitor China’s  Compliance. GAO-03-461. Washington, D.C.: March 31, 2003.
World Trade Organization: Analysis of China’s Commitments to Other  Members. GAO-03-4. Washington, D.C.: October 3, 2002.
World Trade Organization: Selected U.S. Company Views about China’s  Membership. GAO-02-1056. Washington, D.C.: September 23, 2002.
World Trade Organization: Observations on China’s Rule of Law  Reforms.  GAO-02-812T. Washington, D.C.: June 6, 2002.
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