U.S.-China Trade: USTR's China Compliance Reports and Plans Could Be Improved
Released: 2008-05-14T00:00:00

Letter

Background

China’s December 2001 accession to the WTO resulted in commitments to open and liberalize its economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules. The U.S. government’s efforts to ensure China’s compliance with its trade commitments under the WTO are part of an overall U.S. structure, led by USTR, to monitor and enforce foreign governments’ compliance with existing trade agreements. Among other things, USTR is required by law to identify any foreign policies and practices that constitute significant barriers to U.S. goods and services, including those that are covered by international agreements to which the United States is a party. At least 16 other agencies are involved, but USTR and the Departments of Commerce, State, and Agriculture have the primary responsibilities regarding trade agreement monitoring and enforcement. Each of these four key agencies has within its organizational structure a unit that focuses on China or the greater Asian region.

These units have primary responsibilities for coordinating the agencies’ China-WTO compliance activities, although numerous other units within the agencies are also involved. The units routinely draw on assistance from experts in these other units to obtain information and expertise, as needed. Additionally, the key agencies have units in China or at the WTO, and staff in those overseas units are also involved in the agencies’ compliance activities.

USTR Is Required to Report Annually to Congress on China’s Compliance with Its Trade Commitments

USTR’s annual compliance reports examine nine broad categories of WTO commitments undertaken by China and include a detailed narrative outlining China’s compliance with these commitments. USTR is required to report annually to Congress on China’s compliance with commitments made in connection with its accession to the WTO, including both multilateral and bilateral commitments made to the United States. The reports, which are submitted to Congress every year by December 11, the anniversary of China’s accession to the WTO, are consistent in format and language. They are approximately 100 pages in length and divided into nine broad sections based on categories of WTO commitments. These sections are (1) trading rights and distribution services, (2) import regulation, (3) export regulation, (4) internal policies affecting trade, (5) investment, (6) agriculture, (7) intellectual property rights, (8) services, and (9) legal framework. In each of these sections, USTR identifies areas where progress has been achieved by China in meeting its trade commitments, and USTR also describes the shortcomings with a lengthy description of the specific, as well as broad compliance issues faced by U.S. industry. As USTR notes, the report does not provide an exhaustive analysis of China’s implementation of the particular commitments made in China’s WTO accession agreement.

The report incorporates a broad range of input from key federal agencies and U.S. industry. USTR bases the reports on its own experiences as well as information it collects from federal agencies such as the Departments of Commerce, State, Agriculture, and the Treasury through both an interagency process, as well as by working with officers from these agencies at the U.S. embassy and consulates general in China. In addition, USTR seeks public participation by publishing a notice in the Federal Register, holding a public hearing, and incorporating written comments and testimony. Industry associations we interviewed confirmed that USTR fairly represents the concerns and interests of U.S. business in its annual narrative reports on China’s compliance.

USTR Conducted an Interagency Top-to-Bottom Review of U.S.-China Trade Relations

Since GAO last reported on China’s compliance with its trade commitments in 2004, USTR undertook an interagency top-to-bottom review of U.S.-China trade relations over the past 25 years and issued a report in February 2006. USTR’s report noted that earlier U.S. trade policy with China focused on bringing China into the international trading system and urging China to implement its new WTO commitments. Its report focused on (1) identifying core principles and key objectives of U.S. trade policy with China; (2) assessing the current status and establishing priority goals for each key objective; and (3) identifying the specific action items that will help the United States achieve its priority goals. The report stated that the United States has entered an important new phase of accountability and enforcement in its trade relationship with China and will expect China to play a greater role in strengthening the global trading system. USTR stated in the report that given the importance of U.S. trade with China and the challenges that continually confront the United States as it enters this new period, the United States should readjust its U.S. trade resources and priorities.

USTR’s Annual Reports to Congress Do Not Systematically Analyze China’s Progress in Resolving Compliance Issues

USTR’s annual reports to Congress do not have the systematic analysis needed to clearly provide an understanding of China’s compliance situation. While the reports describe many issues with China’s compliance and progress on resolving such issues, they lack summary analysis about the number, scope, and disposition of reported problems that would facilitate understanding of key China trade issues and developments and allow the agency to track its effectiveness in monitoring and enforcing China’s trade compliance. Therefore, we conducted a systematic content analysis of USTR’s reports in order to quantify the number, type, and disposition of trade issues. We identified 180 compliance issues from 2002 to 2007, spanning nine trade areas ranging from very specific issues to broader, more complex concerns. Our analysis further revealed that while China has resolved some issues, most issues have persisted without resolution. In addition, our analysis showed that China’s progress in resolving issues varies by trade area. More detailed information on China’s slowed progress in certain areas and faster progress in others might help Congress better understand China’s compliance. USTR also reported continuous engagement with China through multiple avenues in order to solve compliance issues but has not mentioned taking any action on one- quarter of outstanding compliance issues. Additionally, since USTR’s latest report, China made further progress on various compliance issues.

USTR’s Annual Reports Lack Systematic Analysis and Comparative Information

While the lengthy detailed narrative in USTR’s reports describe many issues with China’s compliance, as well as China’s successes and progress on resolving such issues, more systematic analysis is needed to clearly understand the overall compliance situation. It is difficult to get a sense for the relative progress being made in each of the nine areas from reading the narrative descriptions. For instance, the reports do not describe how much progress is being made in the area of agriculture relative to the progress being made in intellectual property rights or services. In addition, USTR does not quantify the number of compliance issues or clearly describe the disposition of such issues. USTR also does not clearly identify priority areas or rank the issues in order of importance. While USTR highlights five or six areas of particular concern in the executive summary, some of these areas are crosscutting issues that involve more than one specific trade area. The reports also do not give a clear indication of the level of progress being made overall in each year, or show the relative progress made in one year versus other years. While USTR noted that the progress has slowed in recent years, there is no further information about the degree of this stagnation. Moreover, USTR’s narrative reports lack any high-level analysis, which might facilitate better monitoring and enforcement, and raise important questions that might prompt agencies to adjust their tactics and approaches. Therefore, more specific information on China’s slowed progress in certain areas and faster progress in others might help Congress better understand the trade compliance situation in China in a given year.

USTR Reports That China Made Progress on Implementing Its Trade Commitments

In its reports, USTR highlighted numerous areas in which China has successfully implemented its commitments since joining the WTO in December 2001. China’s WTO commitments are broad in scope and range from general pledges for how China will reform its trade regime to specific market access commitments for goods and services. In 2006, when deadlines for almost all of China’s commitments had passed, and China’s transition period as a new WTO member was essentially over, USTR reported that China had taken significant and impressive steps to reform its economy. In 2007, USTR also reported that China made noteworthy progress in adopting economic reforms that facilitated its transition toward a market economy. According to USTR, these actions include repealing, rewriting, or enacting more than 1,000 laws, regulations, and other measures, enacting annual reductions in tariff rates, eliminating nontariff barriers, expanding market access for foreign services providers, and improving transparency. Table 1 provides some examples of China’s successful implementation of its WTO commitments from each of USTR’s annual reports from 2002 through 2007.

USTR’s Reports Contain a Significant Number and Wide Array of Remaining Compliance Issues

Our analysis of USTR’s reports to Congress from 2002 to 2007 identified 180 compliance issues mentioned in the reports spanning all nine areas of China’s WTO commitments. The greatest number of compliance issues mentioned were in the areas of import regulation and services, and there were relatively few issues mentioned in legal framework and export regulation (see table 2). China’s WTO commitments are broad and complex. Some require a specific action from China, such as to reduce or eliminate certain tariffs. Others are less specific, such as those that require China to adhere to WTO principles of nondiscrimination treatment of foreign and domestic enterprises. Compliance issues also ranged in scope from specific, relatively straightforward issues, such as the late issuance of regulations, to broader and more crosscutting concerns, such as questionable judicial independence, which are more difficult to resolve and assess. The compliance issues can be the result of a range of factors, from political resistance, to lack of technical capacity, to issues of resources and coordination among Chinese ministries.

It is important to note that not all compliance issues mentioned in USTR’s reports equally affect U.S. exports to China and that some issues are more easily resolved than others. Thus, while USTR’s reports identify key areas of concern, the economic importance of many individual issues cannot be easily quantified. USTR does not assign economic value to these concerns in its reports, and we did not attempt to calculate the importance or otherwise prioritize or rank the issues in our analysis.

While China Resolved Some Issues, Most Issues Have Persisted Without Resolution

Our analysis revealed that over 60 percent of the compliance issues USTR reported to Congress were either resolved or progress was made on them from 2003 to 2007. A compliance issue is considered resolved if USTR reported that actions were taken by China that settled the specific issue mentioned. Our analysis shows that almost one-quarter of all compliance issues mentioned between 2002 and 2007 were ultimately resolved (see fig. 1). See table 3 for examples of compliance issues that have been resolved. In addition, none of the issues that were reportedly resolved resurfaced in later reports.

Furthermore, according to our analysis, USTR indicated that China made progress, but did not resolve, about 40 percent of the compliance issues reported. An issue was considered to be one in which China made some progress if in any year USTR reported some type of improvement in the situation, or if action taken by the Chinese improved but did not completely resolve the issue. For example, if USTR reported that China announced a commitment to take a certain action, such as revise a law, which would eventually resolve the issue, then this was counted as progress made in the year in which this commitment was made. Progress can range in magnitude from small to substantial on a particular issue, as well as in frequency of occurrence, with some issues making progress in only 1 year and others in many years. For example, China made progress in improving its inconsistent application and duplication in certification requirements related to standards and technical regulations in only 1 of the 6 years the issue was reported. In contrast, USTR reported that China made progress toward improving transparency related to the administration of its tariff rate quota system for bulk agricultural commodities in 4 of the 6 years the issue was reported.

Additionally, our analysis of USTR’s reports showed that 37 percent of all compliance issues mentioned from 2002 to 2007 achieved no resolution or any progress over the entire period. An issue was considered to have made no progress if the reports either explicitly noted that no progress had been made on that particular issue or if the reports did not indicate that China took any action to address the issue in the given year. See table 4 for examples of issues that made no progress over the period 2003 to 2007.

In addition, our analysis showed that most compliance issues reported over this period have persisted for many years. For instance, over 30 percent of all issues were mentioned in USTR’s annual reports for at least 5 of the 6 years. In addition, less than 40 percent of all issues were present in USTR’s reports for 1 or 2 years; the remainder of issues, over 60 percent, was mentioned in the reports for at least 3 years or more (see fig. 2).

In addition to the issues that were resolved over the period 2002 to 2007, we discovered that a number of the issues mentioned in the reports were not explicitly resolved but were nevertheless dropped from the report. An issue is considered dropped from the report if the issue was mentioned in 1 or more years of USTR’s report, and not mentioned in a later year, without any discussion about resolution of the issue. In total, 15 percent, or 27 issues, were not explicitly resolved according to USTR’s reports but were dropped from subsequent years, with the ultimate status of such issues remaining unknown. Some of these issues might remain outstanding but USTR chose not to include them in the report for a particular reason, or the issues no longer present concerns for U.S. industry and, therefore, were excluded from the report. A USTR official noted that issues disappear from the report for various reasons, such as the business community no longer considers it an issue, or the Chinese have offered a suitable explanation, ultimately settling the issue.

While 37 percent of all issues mentioned in USTR’s reports from 2002 to 2007 were either resolved or dropped, the number of issues mentioned in each annual report remained fairly stable over the period 2003 to 2007 (see fig. 2). This suggests that, as compliance issues were resolved or dropped from the report, a similar number of new compliance issues arose and were included. USTR reported 15 to 27 new issues in its report each year, with a decreasing number of new issues added over time from 2003 to 2007.

China’s Progress on Compliance Issues Slowed Since 2004

While USTR noted generally that China’s progress in resolving compliance issues has slowed, our analysis provided information about the degree to which progress has slowed in recent years. In its 2007 annual report, USTR stated that beginning in 2006 and continuing throughout 2007, China’s progress toward further market liberalization began to slow. Consistent with USTR’s characterization, our analysis showed that while there have been variations over time, the number and proportion of issues being resolved or making progress has slowed, from just under 50 percent of issues in 2003 down to about 30 percent of issues in 2007. For instance, the number of issues resolved in each year has declined since 2004. In addition, the number and proportion of issues that achieved some progress in each year peaked in 2003, declining steadily through 2006, and improved in 2007 (see fig. 3).

In addition to China’s slowed progress over the period, our analysis found that there are an increasing number and proportion of compliance issues where USTR reported no progress, which suggests that issues persist for several years without resolution as new compliance issues continue to arise. According to our analysis, the proportion of issues making no progress rose from just over 50 percent in 2003 to about 70 percent in 2007, with a peak number of issues making no progress in 2006. USTR explained in its 2007 report that U.S. industry is less focused on China’s willingness to implement the specific commitments of its entry agreement than on Chinese policies and practices that undermine previously implemented commitments. According to the testimony submitted to USTR by one major trade association, the current concerns lie with more complicated issues such as a deviation from the WTO’s national treatment principle, inadequate protection of intellectual property rights, nontransparent legal and regulatory processes, and the development of technical and product standards that may favor local companies. Thus, while USTR reported that China has implemented many of its WTO commitments, many of the outstanding and new issues are broader, more complex issues that undermine the commitments and reforms already implemented.

Progress Varies by Trade Area in USTR’s Annual Compliance Reports

USTR noted that China’s record on implementing its WTO commitments is decidedly mixed, without presenting detailed summary information. Through our analysis, we also found that the reported progress varies significantly by trade area (see fig. 4). China has made more progress in some commitment areas—such as trading rights and distribution services, agriculture, and internal policies—having resolved over 30 percent of all issues mentioned in each area, and less progress in other areas such as services and intellectual property rights, where less than 10 percent of issues have been resolved. Overall, while most trade areas have a significant proportion of outstanding issues, the proportion of issues where China is making progress or reaching resolution varies. For instance, in the area of agriculture, the total number of compliance issues mentioned each year is declining slightly, with a large number of issues, about 85 percent, having either reached resolution or achieved some progress from 2003 to 2007. Also, similar to the overall compliance situation, the number of issues making progress or being resolved in the area of agriculture seems to be declining. In fact, USTR mentioned some specific sticking points such as transparency and selective intervention in the market by China’s regulatory authorities. USTR explained that, while U.S. exports of many agriculture commodities to China have reached record levels, the increases are largely due to the result of greater demand. Thus, while the results in the agricultural sector seem positive, there are still some important compliance issues that remain outstanding.

Conversely, other trade areas such as intellectual property rights have seen less progress, with the smallest proportion of issues, less than 10 percent, reaching resolution and a sizable proportion of issues, over 30 percent, not making any progress from 2003 to 2007. In addition, there are an increasing number of compliance issues mentioned in this area, with a peak in 2006. USTR noted in its 2007 annual report that while China has put in place a relatively good set of laws and regulations aimed at protecting intellectual property rights, some critical measures still need to be revised, and China’s overall enforcement of these laws has been ineffective. Thus, while many of the intellectual property laws have been rewritten, there are still many outstanding issues, and more complex issues related to enforcement continue to arise.

Annual Reports Describe the Types of U.S. Actions to Resolve Compliance Issues

USTR engages with China through multiple avenues to solve compliance issues but has not mentioned taking action on several outstanding compliance issues. In its annual reports, USTR outlines various types of actions taken in order to resolve the compliance issues mentioned in the reports. These actions include raising the issue at multiple forums and dialogues with the Chinese, including the U.S.-China JCCT, the Strategic Economic Dialogue (SED), the Transitional Review Mechanism (TRM) or other forums at the WTO, or raising the issue bilaterally with the Chinese through another mechanism. For this analysis, we considered USTR to have taken action on a particular issue if USTR mentioned some type of activity in any of its annual reports, such as the ones listed above. USTR reported taking at least some type of action on most compliance issues mentioned but did not mention taking any type of action on one-quarter of compliance issues mentioned (see fig. 5). Specifically, USTR raised 32 percent of issues at the JCCT, 54 percent of issues at the TRM or other WTO forum, 13 percent of issues at the SED, and 57 percent of issues were pursued bilaterally with the Chinese through some other mechanism. Most of the issues where USTR did not report taking any type of action were in the areas of agriculture, import regulation, intellectual property rights, and internal policies affecting trade.

USTR officials also highlighted that among the actions they reported, they have taken the added step of filing WTO cases against China after bilateral negotiations have made no progress. They noted that the United States has brought six such WTO cases against China (see table 5).

China Made Further Progress on Various Compliance Issues in December 2007

Since USTR’s latest report, gains were made at the December 2007 JCCT and SED meeting that are not mentioned in the 2007 annual report on China’s compliance with the WTO. In December 2007, the United States and China participated in the third cabinet-level meeting of the SED and the 18th JCCT meeting; USTR, the Departments of Commerce and the Treasury have all cited numerous areas of progress resulting from those meetings. However, due to the timing of the meetings in late in 2007, the results were not included in USTR’s 2007 annual report and, therefore, were also not included in our analysis of such reports. Specifically, the Department of Commerce cited several areas of progress as a result of the December JCCT meeting, including steps taken by China in the areas of intellectual property, product safety, and market access in several industries such as medical devices, agriculture, and telecommunications.

In addition, the Department of the Treasury also noted many areas of progress resulting from the December SED meeting including areas such as integrity of trade and product safety, financial sector reform, environmental sustainability, and transparency (see table 6).

USTR’s Progress Toward Achieving Top-to-Bottom Report Objectives Cannot be Fully Determined

We were only able to partially determine the status of USTR’s 2006 top-to- bottom report, which outlines objectives for U.S.-China trade relations and serves as a plan to focus U.S. trade resources and priorities in this regard. On one hand, we found that USTR and the other agencies have made considerable progress implementing planned action items listed in the report. The key U.S. trade agencies took steps to increase bilateral engagement with the Chinese and expand the U.S. government’s capacity to enforce and negotiate by increasing staff levels in headquarters and overseas and improving training opportunities. However, we found that some previously identified management challenges—staffing gaps and limited Chinese language capacity—remain. On the other hand, we could not determine progress toward achieving the top-to-bottom report’s broad objectives, which go beyond trade compliance. While this report lays out USTR’s plans for U.S.-China trade relations, USTR does not formally assess its progress or measure its results as we have recommended in our past reviews of USTR plans. The lack of clear linkages between U.S. objectives and planned action items and vague language make it difficult to determine whether the steps agencies reported taking were effective. Furthermore, the report has not been updated to reflect subsequent developments.

Trade Agencies Have Made Considerable Progress in Implementing Top-to- Bottom Action Items

We found that USTR and the key trade agencies have made considerable progress in implementing the planned action items listed in the top-to- bottom report. We learned that various agencies share responsibility for carrying out the activities planned in this report either individually or collectively. USTR informed us that, of the 25 implementing steps, 10 implementing steps were interagency; USTR was responsible for 6, the Department of Commerce for 5, other agencies for 3, and the Department of State for 1. After assessing the information provided by USTR and the other key trade agencies, we determined that 17 out of 25 steps were implemented or are in the process of being implemented; the status of 8 steps was unclear because the ‘top-to-bottom’ review did not define terms such as ‘strengthen’ and ‘effectiveness’ nor did it provide baseline data from which to measure progress. For example, with regard to strengthening interagency coordination, the report says that export promotion activities will be increased, but without any baseline measurement information we could not determine if there had been an increase in these activities. (See app. II, table 10, which identifies the 10 action items and the accompanying 25 implementing steps, along with agency responsibilities and status.)

We confirmed that key U.S. trade agencies took steps to increase bilateral engagement with the Chinese and expanded the U.S. government’s capacity to enforce and negotiate by increasing staff levels in headquarters and overseas and by improving training opportunities. While assessing these agencies’ implementation of the top-to-bottom report action items, we also followed up on progress made addressing management challenges identified in our 2004 report on U.S. monitoring and enforcement activities related to China. We recommended that the key agencies take various steps to improve performance management pertinent to China WTO compliance efforts and that they undertake actions to mitigate the effects of staff turnover in the agencies China WTO compliance units. We found that some previously identified challenges—staffing gaps and limited Chinese language capacity—remained at some agencies.

U.S. Government Increased Bilateral Engagement with China on Various Trade Issues

As a result of the top-to-bottom report, key trade agencies are undertaking several action items to improve and increase bilateral engagement with China. The U.S. government has utilized two formal consultative mechanisms to address commerce, trade, and financial issues, both of which demonstrated an emphasis on high-level, bilateral engagement. First, the United States uses the JCCT, a forum for dialogue on bilateral trade issues and a mechanism to promote commercial relations. This forum had been elevated to a higher level after a 2003 meeting and refocused to give greater attention to outstanding trade disputes. Second, the United States and China created the SED in September 2006, as another bilateral high-level forum to address the most important, long- term, strategic issues in the United States-China economic relationship. The meeting of the SED, which is convened every six months, is led by a U.S. Cabinet Official and a Chinese Vice Premier, and each dialogue session comprises U.S. cabinet officials and Chinese ministers.

The SED allows both governments to communicate at the highest levels and with one voice on issues of long-term and strategic importance, including issues that extend across multiple departments and agencies. The United States has three core objectives for the SED: (1) to advance the U.S.-China economic relationship by establishing new habits of cooperation; (2) to accelerate China’s next wave of economic transition; and (3) to encourage China to act as a responsible global economic power. According to Department of the Treasury officials, there are no formal working groups associated with the SED. Rather, U.S. cabinet officials and Chinese ministers determine strategic areas of focus for the intervening six months between meetings of the SED. For example, at the first SED in December 2006, civil aviation was selected. At second SED, product safety was identified and in December 2007 at the third SED, energy and environment was a strategic area of focus.

According to some U.S. agency officials, there was confusion over the purpose of the SED when, at the May 2007 SED meeting, the United States used the meeting to discuss trade compliance issues. Officials told us that they have since clarified the issue. Department of the Treasury officials told us the JCCT focuses mostly on short-term trade issues, while the SED focuses on solutions to long-term, strategic, economic issues (see table 7 below for list of JCCT work areas).

USTR planned to strengthen and expand bilateral dialogues on numerous current and potential problem areas, another key action item in the top-to- bottom report. The U.S. government held a number of bilateral dialogues covering 8 different subject areas to address trade issues with China, which demonstrated a continuing emphasis on bilateral engagement (see app. II; table 10, which lists these dialogues). Many U.S. government agencies engaged their Chinese counterparts on a multitude of topics such as agricultural, environmental, labor, subsidies and standards, and telecommunications issues. While some of these dialogues are very active and have resulted in accomplishments such as China’s acceding and ratifying the World Intellectual Property Organization Internet Treaties in 2007, others dialogues have not yet been implemented. For instance, both the Environmental Protection Agency and the Department of Labor indicate they have not established formal dialogues with their Chinese counterparts as planned.

There are other means of bilateral engagement. For example, USDA officials told us they prefer to handle issues with their Chinese counterparts using science-based rationale. This often requires USDA Foreign Agricultural Service (FAS) to engage Chinese officials in technical forums and through capacity building initiatives, even though USDA participates in high-level JCCT working groups on agricultural and sanitary and phytosanitary issues.

The number of high-level meetings between senior U.S. and Chinese officials has increased. For instance, the key economic and trade agencies sent more cabinet and sub cabinet delegations to China to engage their Chinese counterparts on trade issues; senior-level delegations to China from various U.S. government agencies increased from 31 in 2006 to 63 in 2007, a level equal to about one a week. Furthermore, this represents a substantial increase from 2002 and 2003, where there were 13 and 23 such meetings, respectively.

U.S. Government Expanded Capacity to Enforce China’s Trade Compliance and Improved Training, but Staffing Issues Persist

Since the top-to-bottom report, the key trade agencies have increased staff in headquarters and overseas to expand the U.S. government’s capacity to enforce China’s trade compliance and to negotiate with China on trade issues. They also increased staff training opportunities. GAO’s prior work recommended that the key trade agencies better manage their human capital to enhance the U.S. government’s China WTO compliance efforts and mitigate the effects of staff turnover. Nevertheless, agency officials told us they still experienced staffing gaps and turnover in key overseas offices and shortfalls in language skills.

Key trade agencies have continued to increase staff positions to meet the demands of the U.S.-China trade relationship (see table 8). Staff resources more than doubled at headquarters and in Beijing since 2004. The estimated number of full-time equivalent staff in units most directly involved with China trade compliance efforts increased from 60 in fiscal year 2003 to 135 in fiscal year 2007. USTR doubled its staff positions in headquarters from 5 to 10 positions and established an internal China Enforcement Task Force that includes staff from USTR’s Office of General Counsel and the China Affairs Office to prepare and handle potential WTO cases. USTR also added personnel in its China office to coordinate collection and integration of information on current and potential China trade issues. In response to increased responsibilities arising from the new U.S.-China trade relationship, USTR, Treasury, and Commerce’s U.S. Patent and Trademark Office added four new positions at the embassy in Beijing. Department of Commerce’s and USDA’s Foreign Services in China are the largest overseas office for each department. For example, 10 percent of Commerce’s Foreign Commercial Service is in China. In addition, as a result of an increased focus on China, the FAS has increased the number of staff that work in China, which now accounts for 10 percent of its overseas staff, according to USDA.

Staffing Gaps and Turnover Remain Furthermore, agencies have experienced staffing gaps and shortages. In headquarters, USTR experienced staff turnover from fiscal year 2006 to 2007. USTR’s China Affairs Office had four staff depart and hired five additional staff. As of November 2007, the office is authorized to have nine staff but only have eight. The International Trade Administration officials in the Department of Commerce said that there is still a relatively high amount of staff turnover because employees in the Market Access and Compliance acquire a skill set that is highly desirable and attractive to the private sector. Department of Commerce officials noted that one official in the Market Access and Compliance’s Office of Chinese Economic Area had moved from headquarters to Beijing since January 2007. Overseas, both the Departments of State and Commerce have experienced staffing challenges. For instance, a senior Department of State official told us there has been a high level of turnover in the economic section at the embassy, which has included curtailed Foreign Service rotations. These changes have resulted in significant gaps in filling positions and reorganizations to compensate for lost expertise. To maintain current staffing levels, the department has sometimes pulled staff from Chinese language training. Although State added seven positions in China as part of its Global Repositioning Initiative, only five were at the embassy in Beijing, and two staff still had not arrived at post as of the end of 2007. One of the five economic section positions at the Beijing embassy tasked to work on China trade compliance at the embassy has been seconded to work with the senior Department of the Treasury official at post.

Similarly, the Department of Commerce’s Trade Facilitation Office has been understaffed and has experienced high turnover in two staff positions according to department officials. One Market Access and Compliance position was vacant for a year, and the office had waited over 6 months for a Director. We were told that the individual has been hired and assumed duty in late February 2008. A senior Department of Commerce official stated that one contributing factor to the high turnover for the Trade Facilitation Office is that department hires experienced people with China business backgrounds, in a highly competitive job market. These individuals are on a limited 2-year noncareer appointment (with the possibility of the appointment being extended to a maximum of 5 years) with no opportunities for promotion.

In 2004, GAO reported that the four key trade agencies lacked specific training relevant to executing China-WTO compliance responsibilities, but since then the Departments of Commerce and State, and USDA have offered staff opportunities for training on trade monitoring and compliance. Training opportunities for staff have increased, but most training is still ad hoc and does not apply specifically to China trade compliance. Department of State staff overseas stated they had sufficient funds for training. In addition, both departments offer courses online for staff. Department of State offers about nine training courses related to WTO compliance issues to its employees, as well as employees from other agencies. In fiscal year 2007, approximately 172 individuals took these courses. Since 2005, Department of Commerce has offered several training courses related to compliance and market access. Commerce employees in International Trade Administration participated in training on compliance and market access database. In addition, to ensure data accuracy in the Department of Commerce’s case database, about 195 employees have been trained on case procedures and received guidance on how to document their work in the database. USDA officials stated the agency increased training opportunities for its China staff since 2005.

Senior management from the Departments of Commerce and State expressed concerns about the language skills of China unit staff. For instance, newer staff often have insufficient language skills, according to a senior Commerce official. As of September 2007, the Department of Commerce’s Office of Chinese Economic Area offers Mandarin language training and has five staff taking the course; however, Beijing staff confirmed that they were not fluent in Chinese and said they rely on the Chinese Foreign Service Nationals to translate and conduct research to enhance the officers’ abilities to perform their duties. Some Department of State staff told us that officers come to the embassy before they have finished their language training. According to a senior Department of State official, this limits them in their official capacities. Although senior department management and staff said they had funds to take language training, the heavy visitor schedule and workload have made it difficult to consistently take advantage of the language instruction available at the post.

Progress Toward Broad U.S.-China Trade Objectives Is Difficult to Determine

We could not determine agencies’ progress toward achieving the plan’s broader U.S.-China trade objectives for several reasons. First, USTR officials said that while the top-to-bottom report is their planning tool, they have not formally assessed the progress they have made in implementing it, although USTR officials told GAO that USTR periodically reviewed their progress and made informal internal assessments. However, USTR did not provide GAO any of its informal internal assessments. Second, assessing USTR’s progress toward achieving its objectives and priority goals for U.S.-China trade is difficult since the objectives and priority goals are clearly linked to the action items in the report. Furthermore, some of the action items use undefined terms such as “strengthen” and “effectiveness” and others do not include baseline information from which to measure progress. As a result, it is difficult to ascertain how the agency’s action items and implementing steps contribute to achieving the larger U.S. trade objectives and priority goals with China. Third, USTR has not updated the report despite major changes in the U.S.-China trade relations since conducting the top-to-bottom review, such as the establishment of the Department of the Treasury-led SED in September 2006 and filing of several dispute settlement cases.

USTR Uses the Top-to-Bottom Report as a Planning Tool but Does Not Formally Assess Its Progress in Implementing It

USTR officials told us they use the top-to-bottom report as the planning tool for USTR’s China Affairs Office, and it guides USTR’s as well as the U.S. government’s engagement with China on trade issues. Nevertheless, USTR officials told us they do not formally assess the progress they have made in implementing it. Rather, they said that in their regular discussions on China, they are inevitably touching on the issues in the top-to-bottom report. In Washington, D.C., and overseas, managers and staff we interviewed at other agencies said they were aware of the report, but that it was not used as a guide for planning their China trade compliance priorities.

The top-to-bottom report indicated that the Trade Policy Review Group (TPRG) and Trade Policy Staff Committee (TPSC) were to conduct monthly reviews of the progress made in achieving the key objectives identified in the report to help ensure coordination of China trade policy formulation and implementation and appropriate focus among agencies on key U.S. trade objectives with China. However, USTR said that although these groups discuss key objectives and priority goals, they do not track progress made on achieving the action items. The TPSC Subcommittee on China met 5 times in 2007 between January and August to discuss various issues such as WTO disputes, SED and JCCT dialogues, and coordination with U.S. trading partners. The TPRG met 10 times between March 2006 and June 2007 to discuss a variety of issues related to its strategy in WTO dispute settlement. In addition, no minutes are kept on either the TPRG or the TPSC so we could not determine to what extent these objectives were informally discussed in these meetings.

Furthermore, as discussed in the previous section of our report, USTR still does not attempt to measure the results of its efforts to resolve trade compliance problems with China, even though they are an integral part of many U.S.-China trade objectives. USTR’s top-to-bottom review drew upon GAO past reviews of monitoring and enforcement efforts. In GAO’s 2004 report, for example, we found that the specific units within the agencies most directly involved with China compliance activities lacked specific strategies for ensuring that they supported their agency’s goals, and they also did not assess their unit’s results. We noted that planning and measuring results were important components to ensuring that government resources were used effectively to achieve the agencies’ goals. In addition, we stated that good planning and management links overall agency goals to individual unit activities and priorities. We recommended that these agencies take steps to improve performance management pertinent to the agencies’ China-WTO compliance efforts. Specifically, we said that USTR should set annual measurable targets related to its China compliance performance measures and asses the results in its annual performance plan.

Other Key Agencies Have Some Related Plans We asked the other agencies to provide us with their China unit plans. However, the Department of State provided their information too late for us to assess. The Department of Commerce’s International Trade Administration has developed a strategic plan, and it has China objectives and goals that are broad; however, there is no performance measures related to China and the information provided on China is not very specific. The International Trade Administration’s Office of China Economic Area which has major responsibility for China compliance and trade issues does not have a specific unit plan, although Department of Commerce officials told us that the activities undertaken by the Office of the Chinese Economic Area are fully consistent with the International Trade Administration’s Office’s strategic plan. The Market Access and Compliance unit which is over the Office of China Economic Area does have a draft plan but it does not mention China specifically. USDA’s Office of Country and Regional Areas and the Office on Negotiations and Agreements have developed unit plans for China, but the documents have not been officially approved by agency management.

Lack of Linkages and Specificity Make It Difficult to Assess Progress

Assessing USTR’s progress toward achieving its objectives for U.S.-China trade is difficult since the broad objectives and the more specific action items are not clearly linked in the top-to-bottom report. The top-to-bottom report sets forth the following six U.S.-China trade objectives: Participation—integrate China more fully as a responsible stakeholder into the global rules-based system of international trade and secure its support for efforts to further open world markets; Implementation and compliance—monitor China’s adherence to international and bilateral trade obligations and secure full implementation and compliance; Enforcement of U.S. trade laws—ensure that U.S. trade remedies and other import laws are enforced fully and transparently, so that Chinese imports are fairly traded, and U.S. and Chinese products are able to compete in the U.S. market on a level playing field; Further market access and reform—secure further access to the Chinese market and greater economic reforms in China to ensure that U.S. companies and workers can compete on a level playing field; Export promotion—pursue effective U.S. export promotion efforts with special attention to areas of particular U.S. export growth potential in China; and Proactive identification and resolution of trade problems—identify mid- and long-term challenges that the trade relationship may encounter, and seek proactively to address those challenges.

However, these six objectives and 31 related priority goals are not linked to the 10 action items and 25 specific implementing steps. (See table 11 in app. II for a list of the six objectives and 31 related priority goals.) As a result, it is difficult to ascertain how the agency’s action items and implementing steps contribute to progress and achieve the larger U.S. trade objectives with China. Therefore, we asked USTR to identify which objective each action item and implementing step is supposed to help achieve. There was a wide range in the level of planned activity to achieve different objectives. Based on the information USTR provided, we found that 11 implementing steps focused on one objective concerning implementation and compliance, while other objectives concerning proactive identification and resolution of trade issues and export promotion each only had 1 implementing step associated with them. Furthermore, the scope and specificity of some objectives and their related priority goals, did not match the actions meant to implement them. Therefore, it is not clear that the planned priority goal actions, if implemented, would fully address all of USTR’s objectives. For example, as part of planned export promotion efforts, they intended to give special attention to noncoastal parts of China, from small/medium enterprises, from high-tech firms, and in sectors where the United States is competitive; in contrast, the planned action related to export promotion is very general in nature, is discussed in the context of strengthening interagency coordination, and does not mention any of these specifics.

It was also difficult to assess progress because terms in the plan do not provide a means to understand how USTR or other government agencies might determine when an action item had been achieved. Several action items state that particular initiatives will be expanded, strengthened, or increased; however, no strategy or baseline information is provided to allow one to determine how this would be done or whether actions on the part of agencies have actually expanded, increased, or strengthened the program. For example, one action item is to “increase effectiveness of high-level meetings with China’s leaders,” but the implementing steps do not state how greater effectiveness will be accomplished; instead, the step is limited to “continue to hold high-level meetings.” Similarly, with regard to strengthening interagency coordination, the report says that export promotion activities will be increased, but without any details or measurement information we could not determine if there had been an increase in activity or how this might lead to strengthened coordination.

Plans Have Not Been Updated Finally, it is difficult to assess the status of U.S.-China trade objectives because the report does not reflect some important developments. USTR has not updated its plans. USTR stated in its report that these are “initial steps” and that additional action items would be developed and implemented in consultation with Congress and other stakeholders to ensure meaningful progress in achieving the reports’ key objectives. However, the action items in the report have not been updated since its issuance over 2 years ago in February 2006.

There have been several important developments in U.S.-China trade since the top-to-bottom review occurred, which are not reflected in USTR’s report. The creation of the SED is a new high-level forum and now involves the Department of the Treasury. The United States has filed five dispute settlement cases at the WTO against China since February 2006 (see table 5). Also, U.S. industries have filed numerous trade remedy petitions against Chinese imports under U.S. trade laws, including requests for safeguard actions and antidumping and countervailing duty investigations. In 2007, Commerce made the determination to apply the countervailing duty law to Chinese imports, representing a major change from its long-standing policy of not applying this law to non-market economies.

Conclusions

Clearer information on the number and disposition of trade issues with China and the trends over time helps Congress and the public understand the results of U.S. government monitoring and enforcement activities. It also better informs policymakers trying to adjust tactics in response to new developments and shift resources to where they can be the most effective. Measuring program results on an ongoing basis can be a powerful management tool. For example, analyses like the ones we conducted could prompt policymakers to shift priorities to focus on trade areas with the greatest number or most persistent unresolved issues. Also, it is possible that lessons can be learned from the tactics and approaches used in those areas where the most issues have been resolved.

Similarly, USTR’s top-to-bottom review produced a 2006 governmentwide plan for U.S.-China trade relations. Since then, the key trade agencies have taken steps to implement the various action items this plan laid out, including an expansion of U.S. monitoring and enforcement capacity, increased number of bilateral forums for U.S.-China dialogue about trade and economic issues, and proactively identifying and resolving trade issues with China. However, it is not always clear how these activities will achieve the many objectives the United States has regarding trade relations with China. A clearer linkage between planned activities and objectives, and regular progress reviews could help agencies adjust priorities, focus their efforts, and ensure that there is movement toward all objectives. Furthermore, this plan for engaging China would be strengthened if it reflected new developments, like the creation of the SED, and the results from ongoing U.S. government monitoring and enforcement activities described in USTR’s annual trade compliance report to Congress. The upcoming change in administration, new Congress, expected changes in Chinese leadership, and 2-year anniversary of the top-to-bottom report, provide USTR with an opportune time to update its plan.

Recommendations for Executive Action

To improve policymakers’ and the public’s understanding of China’s trade compliance situation, we recommend the USTR clearly and systematically identify the number, type, and disposition of the trade issues it is pursuing with China and report this and more useful trend information in its annual China trade compliance report to Congress.

To help achieve U.S. trade objectives with China, we recommend USTR update and improve the plans reported to Congress in its 2006 top-to- bottom report by considering recent developments and the results of ongoing U.S. monitoring and enforcement activities and by reviewing how specific implementing steps and action items align with broad objectives and priority goals. We also recommend USTR take steps to formally monitor implementation of these plans over time.

Agency Comments and Our Evaluation

We provided a draft of this report to USTR and the Departments of Agriculture, Commerce, and State for their comment. USTR provided written comments, which are reprinted and evaluated in appendix III. USTR officials said they appreciated our advice to ensure that USTR is doing the most effective job in reporting on results and they would consider our insights and ideas, but they did not comment directly on our recommendations. USTR asked that we clarify our analysis of agency actions taken and the persistence of compliance issues; we made revisions, where appropriate. USTR believed that we undervalued the systematic analysis of China’s WTO compliance in USTR’s annual reports. In addition, USTR believed that the quantitative analysis of progress made reveals inherent limitations and difficulties in developing meaningful quantitative compliance measurements. Moreover, USTR expressed concern about the advisability of providing quantitative analysis in USTR’s annual reports. However, we disagree and still believe that providing summary analysis – both qualitative and quantitative -- would enhance understanding about China’s compliance situation and provide important information for Congress to conduct oversight and for senior policymakers to assess the success of USTR’s and other key trade agencies’ activities. USTR has many options for tailoring such analysis in order to address any concerns they might have.

With regard to the top-to-bottom-review, USTR officials stated that it was a not a plan “in the narrow and specific sense” used in our analysis; instead it was a one-time policy document that was not intended to be updated. USTR stated it does provide updates through USTR’s annual reports to Congress on China’s WTO compliance. Furthermore, USTR stated that the report’s action items were short-term steps and were not in themselves designed to achieve the objectives and priority goals. However, it is our understanding that USTR’s report on the results of the top-to-bottom review was a plan, based on interviews with USTR staff and our reading of the document. USTR’s report has many of the characteristics of a good plan and addresses our 2004 recommendation for a China unit plan in that the report establishes goals and priorities for the various China Affairs Office activities. In addition, USTR’s report implies that updates were going to be provided, however, we agree that USTR’s report includes no requirement or explicit promise to present revised objectives, goals, subsequent actions, or the degree of progress in a new version of the report. While USTR provides numerous reports to Congress on its activities, USTR still has not updated the six objectives and 31 priority- goals specified in the top-to-bottom report to reflect subsequent developments nor formally assessed progress. GAO advocates agency strategic planning and using such plans on an ongoing basis as a management tool. We suggest that USTR reconsider its treatment of this report as a one-time policy statement and that it update and improve the report in order to enhance accountability and inform all stakeholders, including Congress and the public.

In addition, we received technical and editorial comments from Department of Agriculture and Commerce officials that sought to clarify our description of information they provided about the departments’ China-related activities, such as Commerce staffing information and the correction of minor errors. We revised our report, as appropriate, in response to these comments. The Department of State did not provide any comments on our draft report.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the U.S. Trade Representative; the Secretaries of Commerce, State, and Agriculture; and interested congressional committees. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff has any questions regarding this report, please call me at (202) 512-4128. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO contact and staff acknowledgments are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

To assist Congress in better understanding the United States Trade Representative’s (USTR) reporting on the U.S. government’s progress in monitoring and enforcing China’s trade commitments, we reviewed two key USTR reports, its annual December 11 report to Congress on China’s WTO Compliance and its February 2006 top-to-bottom report, U.S.-China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement. We were asked to (1) evaluate the degree to which USTR’s annual reports to Congress on China’s World Trade Organization (WTO) compliance present information necessary to clearly understand China’s compliance situation and (2) examine the status of USTR efforts to implement the action items and achieve the objectives presented in its February 2006 top-to-bottom report.

To examine the scope and disposition of compliance issues, we reviewed USTR’s Report to Congress on China’s WTO Compliance from 2002 to 2007. These annual reports, mandated by Congress in conjunction with China’s 2001 accession to the WTO, incorporate a broad range of input from key federal agencies, as well as the business community. To assure ourselves that the reports generally included the main compliance issues and concerns that had arisen, we interviewed three key industry associations, which together represent over 1,300 companies in over 40 industries, in Beijing, China, and Washington, D.C., about USTR’s annual reports, and these groups noted that they were generally satisfied with the report’s portrayal of the compliance situation in China. We identified each unique compliance issue that was reported by USTR in the narrative of each of their annual reports. Our identification was based on USTR’s description and definition of problems in the narrative of the report. USTR’s categorization of issues in the report and the manner in which issues were grouped and presented, also guided the identification of individual issues. We did not include areas where China initially complied fully with its commitments and, therefore, no issues were raised, these were considered successes as reported in table 2. In all, we identified 180 issues in the six annual reports.

To analyze the disposition of the compliance issues, we reviewed the narrative descriptions provided in the reports and made determinations according to three broad categories: No Progress Noted, Some Progress Noted, and Resolved. We categorized an issue as “No Progress Noted” if the report text either explicitly stated that no progress had been made or did not indicate that China had undertaken any actions to address the issue. We categorized an issue as “Some Progress Noted” if the report text indicated that China had undertaken any action to address the issue but had not completely resolved it. We categorized issues as “Resolved” if the report language clearly indicated that the compliance issue was resolved and the U.S. government was no longer pursuing a resolution of that particular issue (see table 9 for additional details). Two of our staff independently identified each compliance issue and made initial determinations of the dispositions. After those staff had reconciled differences in their initial identification and disposition of issues, additional staff reviewed issues and dispositions to ensure consistency and accuracy in the dispositions.

We did not attempt to identify the relative importance of the compliance issues as the report text does not provide clear indications that would allow us to make that determination. However, we based our analysis on the premise that all these compliance issues had been considered serious enough by USTR to include in its annual reports. Indeed, USTR reported that it focused the report on trade concerns raised by U.S. stakeholders that merit attention within the WTO context. In some instances, we noted that after a compliance issue in a particular area had been resolved, other issues arose in the same area. For example, in some areas, after a particular commitment was implemented, other restrictions were imposed that made it difficult for U.S. companies to realize the full benefits of the commitment. In those instances, we identified two separate issues and noted their dispositions according to the evidence. As a result, our total count of issues includes several that are related, but that were identified as separate problems in USTR’s reports.

In addition, for the 2004 through 2007 annual reports, we quantified the number of issues where USTR mentioned taking various types of actions in order to resolve the issue in the narrative of the report. These actions include raising the issue at multiple forums and dialogues with the Chinese, including the JCCT, the Strategic Economic Dialogue (SED), the Transitional Review Mechanism (TRM), or other forums at the WTO, or raising the issue bilaterally with the Chinese through another mechanism. For example, regarding the concerns from the U.S. telecommunications industry about interference from Chinese regulators regarding standards and contract negotiations, USTR reported that they raised this issue during a 2004 JCCT meeting. Therefore, we noted that USTR took action toward resolving this issue at the JCCT.

To assess USTR’s progress in implementing the objectives and action items presented in its February 2006 top-to-bottom report, U.S.-China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement, we analyzed the document by identifying the six objectives and each of the associated priority goals. After that, we delineated the 10 action items and each of their associated implementing steps. We created a chart and divided the implementing steps under each associated action item. Next, we asked USTR to (1) identify the agency responsible for implementing each action item, (2) complete the chart, (3) indicate whether the action item was implemented and if so how was it implemented, and (4) provide supporting documentation for each response. Since we had observed that the action items were not clearly linked to the report’s objectives, we asked USTR to identify which objective the action item addressed. We also asked the Departments of Commerce and Agriculture to complete a chart for their individual agencies; identify which action item they were responsible for implementing, indicate the status of this action item, and provide supporting documentation for their responses. We asked the Department of State to provide documentation for the one step that USTR said this department was solely responsible for implementing.

We conducted this performance audit from March 2007 to April 2008, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Status of Top-to-Bottom Review

Table 10 identifies the 11 action items and the accompanying 25 implementing steps, along with agency responsibilities and status in the top-to-bottom review.

Table 11 is a list of the six objectives and 31 related priority goals in the top-to-bottom review.

Appendix III: Comments from the United States Trade Representative

The following are GAO’s comments on the United States Trade Representative’s letter dated March 26, 2008.

GAO Comments

1. We disagree that report undervalues the systematic analysis of China’s WTO compliance contained in USTR’s annual reports. In our report, we acknowledge the detailed narrative information presented by USTR and the consistent format used to present this information in its annual reports on China’s WTO compliance. Nevertheless, we believe that the lack of systematic analysis in these reports make it difficult for Congress and the public to understand the overall compliance situation in China. USTR’s annual reports lack not only quantitative measurement and analysis, but qualitative summary analysis as well. While there is a significant amount of detailed information contained in USTR’s reports, it is difficult to determine the overall progress being made in each of the nine areas. In addition, without systematic analysis of the lengthy narrative descriptions it is difficult to assess the level of progress being made in each year, or the trends over time. While there are other ways to conduct such analysis, our work demonstrates that it is possible to provide both systematic qualitative and quantitative analysis to make the information in the report more meaningful and accessible. 2. We disagree with USTR’s statement that the variety and nuances of individual compliance issues make summary analysis meaningless. In fact, we believe the opposite is true. As we noted in our report, we identified each unique compliance issue based on the description and definition of problems in the narrative of the report. The categorization of issues in USTR’s reports and the manner in which issues were grouped and presented guided our identification of individual issues. We recognize that it is possible to group the issues differently, and if USTR finds another method of grouping and identifying issues, we encourage USTR to use such methods in providing summary analysis in future reports. In addition, we believe that this type of analysis is important to help Congress and the public better understand the overall compliance situation regarding China. Should USTR choose to define issues differently, we are confident that this will not change the overall results and patterns found through our analysis.

Our report discusses the fact that the compliance issues mentioned in USTR’s reports may not all equally affect U.S. exports to China. In addition, we acknowledge that the level of progress made on one particular compliance issue might not be equal to the progress made on other issues. We agree with USTR that the relative importance of such issues and the relative progress made should guide decisions about how and when to devote resources to pursue particular compliance issues. That is precisely why we believe that more systematic information included in USTR’s annual compliance reports will provide further understanding to Congress and other stakeholders (and therefore help improve decision making regarding China’s trade compliance). To the extent that USTR believes it is important to give more weight to certain issues or explain other nuances that surround individual issues and the progress made on such issues, we encourage USTR to incorporate these variables when conducting any summary analysis for future reports. 3. We disagree with USTR that it will be ill-advised to provide a detailed quantitative analysis in USTR’s annual reports. We believe that more transparency and clarity in USTR’s reports enhances understanding about China’s compliance situation and provides important information for Congress to conduct oversight and for senior policymakers to assess the success of their activities. Such information would promote a more informed discussion about U.S.-trade policy toward China among all stakeholders. While USTR could decide to more clearly prioritize the almost 180 issues it reports, we did not advocate ranking these issues. In addition, U.S. trade negotiators could use summary information on China’s progress (or lack thereof) on resolving compliance issues to better argue that more needs to be done in certain areas and that the United States expects greater progress overall. Nevertheless, USTR would have many options for how to conduct and present such summary information, giving it the flexibility to mitigate any concerns that negotiators might have. 4. USTR states our categorization of compliance issues according to “action taken” and “no action taken” is unclear. Our report states clearly that our analysis of actions taken is based solely on the information provided in USTR’s annual reports. In addition, USTR stated that it was unclear how we categorized issues when they had brought a WTO case after bilateral negotiations. We considered any actions mentioned in USTR’s annual compliance reports at any WTO forum as “raised at the WTO” including dispute settlement cases. Furthermore, we added information to our report to clearly identify the cases filed by the United States against China. 5. USTR states the “top-to-bottom” report is not a “plan” in the narrow and specific sense used in our report. However, this was not our understanding based on interviews with USTR staff during our review and our reading of the document. USTR’s report on the results of its “top-to-bottom” report addresses our 2004 recommendation for a China unit plan in that the report establishes goals and priorities for the various China Affairs Office activities. GAO advocates agency strategic planning and using such plans on an ongoing basis as a management tool. USTR’s report has many of the characteristics of a good plan: it clearly defines objectives, goals, and action items; provides a detailed discussion of the problems; delineates agency responsibilities; provides specific activities and programs; and identifies human resources needed to achieve action items. In a February 2006 news conference announcing the report on the top-to- bottom report, the then U.S. Trade Representative was asked, among other things, how he would measure USTR’s progress on U.S.-China trade issues. He replied that “… the way to measure our performance is to go point by point through the report looking at the issues that I’ve talked about at the outset….” We believe that USTR should reconsider its treatment of this report only as a one-time policy statement. 6. USTR states that the top-to-bottom” report did not promise or anticipate the drafting of update. Based on our analysis of the report, it is implied that updates were going to be provided; however, we agree that the report includes no requirement or explicit promise to present revised objectives and goals, subsequent action items, and the degree of progress in a new version of the report. So we removed language indicating that there was an explicit requirement or promise. However, we suggest that USTR reconsider its treatment of this report as a one- time policy statement. Regular briefings are important, but USTR should have a written record that specifies revised objectives and goals, subsequent action items, and the degree of progress toward achieving them.

USTR states that through annual reports like its annual reports to Congress on China’s WTO compliance, USTR already provides the written updates on the “top-to-bottom” report. While USTR provides numerous reports to Congress on its activities, USTR still has not updated the six objectives and 31 priority goals specified in the top-to- bottom report to reflect subsequent developments nor formally assessed progress. We still advocate that USTR update and improve this report, commensurate with its promised actions to help ensure that it is best positioned to meet its key China trade objectives and to ensure meaningful progress toward achieving them.

USTR states that we misunderstood the relationship between action items, on the one hand, and objectives and priority goals, on the other.

We found the relationship between action items and the objectives in the top-to-bottom report were unclear. Therefore, we went through an exercise with USTR staff to identify how and whether short-term action items link to specific long-term objectives and priority goals and report on the outcome. In the future, USTR should formally identify these linkages in an updated plan that includes subsequent action items to ensure they are taking all the steps necessary to achieve their stated objectives.

Our recommendations would enhance USTR’s accountability and inform all stakeholders, including Congress and the public, about the status of the U.S. objectives and priority goals for trade relations with China.

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the individual named above, Adam Cowles, Assistant Director; Diana Blumenfeld; Martin de Alteriis; Rhonda Horried; and Paul Revesz made key contributions to this report. Karen Deans and Marc Molino provided technical assistance.