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

Letter

Background

Since 1979, when the United States and China signed a bilateral trade agreement, China’s economy has grown at an unprecedented rate, as has China’s bilateral economic engagement with the United States. In recent years, China’s economy grew an average of 10 percent a year, and in 2010 China replaced Japan as the world’s second largest economy. Total U.S.-China trade increased from $2 billion in 1979 to $536 billion in 2012. China is currently the second largest U.S. trading partner, the third largest U.S. export market, and the largest source of U.S. imports.

The governments of the United States and China have established two important bilateral dialogues—the JCCT and S&ED, which discuss and resolve trade and investment matters, including reducing trade barriers for U.S. firms and investors. (See figure 1 for the organization of the JCCT and the S&ED.) According to senior U.S. officials, the United States also engages with China at all levels of government in other bilateral interactions, such as formal and informal conversations at U.S.-China summits. In addition, the two governments discuss trade and investment issues in multilateral forums, such as the WTO and the Asia-Pacific Economic Cooperation (APEC) forum.

The JCCT, established in 1983, is the main bilateral dialogue for addressing trade matters and promoting commercial opportunities between the two countries. Since 2004, the U.S. Secretary of Commerce, the U.S. Trade Representative, and China’s Vice Premier for foreign trade have co-chaired the JCCT. The dialogue, which has multiple working groups focusing on specific issue areas, operates year-round and culminates in an annual plenary meeting that alternates between the United States and China. The two most recent JCCT plenary meetings took place in December 2012 in Washington, D.C., and in December 2013 in Beijing, China.

The S&ED, established by the Presidents of the United States and China in April 2009, represents the highest-level bilateral dialogue to discuss a broad range of issues between the two nations. The S&ED addresses bilateral, regional, and global economic and strategic issues, both medium and longer term. Under the S&ED, the two sides meet once a year, alternating between Washington, D.C., and Beijing. The fifth S&ED meeting was held in Washington, D.C., in July 2013. The S&ED has strategic and economic tracks; the U.S. Secretary of State and China’s State Councilor for foreign affairs co-chair the strategic track, and the U.S. Treasury Secretary and China’s Vice Premier for foreign trade co- chair the economic track. From 2006 through 2008, the S&ED was preceded by the SED, in which the two governments discussed the most important economic, but not political, issues in the bilateral relationship.

The S&ED’s economic track has four pillars, one of which focuses on trade and investment, and addresses short, medium, and longer term economic issues. In setting S&ED priorities, the Department of the Treasury (Treasury) and the National Security Staff lead an interagency process, working closely with the Department of Commerce (Commerce), the Office of the U.S. Trade Representative (USTR), and other agencies, on trade and investment issues. According to Treasury officials, discussions of S&ED economic track issues continue throughout the year between the annual plenary meetings.

Agencies report the outcomes of the JCCT and S&ED dialogues through public statements in the form of fact sheets that present commitments made by the United States and China. These fact sheets are issued following the conclusion of the JCCT and S&ED annual meetings. Commerce and USTR issue a JCCT fact sheet following the JCCT annual meeting; Treasury issues jointly with China an S&ED fact sheet for the economic track that presents the joint commitments negotiated by the United States and China following the S&ED annual meeting. Treasury also issues a U.S. fact sheet that discusses the benefits of the commitments for U.S. workers and companies. The Department of State (State) issues the fact sheet for the S&ED strategic track. According to senior U.S. agency officials, these fact sheets outline the official commitments negotiated with the Chinese government.

In addition to reporting commitments, the JCCT and S&ED fact sheets have in recent years included sections that identify cooperative or exchange activities between the United States and China. (These are referred to as “cooperative activities” in JCCT fact sheets and “institutional arrangements” in S&ED fact sheets.) According to Commerce officials, JCCT cooperative activities are undertaken with the goal of advancing U.S. priorities and are often crucial for developing successful policy commitments from China. They may involve discussions with public and private sector participants focusing on issues or areas at the pre-commitment level. For example, in 2009, China and the United States held a program, pursuant to JCCT commitments, with public and private participants to discuss legal liability for intellectual property rights infringement that occurs on the Internet. There were JCCT commitments related to this issue in 2010 and 2012 that resulted, according to U.S. officials, in the Supreme People’s Court’s publication of a judicial interpretation stating that those who facilitate online infringement will be held jointly liable for that conduct. Similarly, the S&ED allows for activities, such as consultations or technical exchanges, that are separate from commitments but allow the two sides to engage in a dialogue on a range of issues. For example, in 2012 the United States and China agreed to expand technical exchanges under the U.S.-China Transportation Forum and enhance coordination under the APEC framework.

China Has Made Commitments in a Number of Trade and Investment Areas and Sectors

China has made 298 trade and investment commitments since 2004 in the JCCT and S&ED, ranging from statements affirming open trade principles to statements that focus on trade actions specific to a sector. The prominence of issue areas across the commitments differs between the dialogues, reflecting differences in the dialogues’ structure and focus. Some commitments reaffirm prior commitments and some commitments acknowledge progress since the previous year’s meeting.

Prominent Issue Areas Include Intellectual Property Rights for JCCT Commitments and Investment for S&ED Trade and Investment Commitments

We identified 184 commitments in the JCCT since 2004 and 114 trade and investment commitments in the S&ED since 2007 that involve China or China and the United States. The commitments include statements affirming open trade principles, statements of policy intent, and statements that focus on trade actions specific to a sector. U.S. officials stressed that not all commitments are of equal value and significance.

We examined the JCCT and S&ED commitments to provide an overview of their areas of emphasis and other characteristics. We identified 11 issue areas to characterize the content of each commitment, including sector-specific issues. Fifty-four percent of the JCCT commitments and 48 percent of the S&ED trade and investment commitments were related to two or three issue areas. See figure 2 for the list of issue areas and number of commitments related to each issue area. Table 2 in appendix I describes each issue area and provides examples of commitments.

At the JCCT, a large share of commitments are related to intellectual property rights (62 commitments or 34 percent) and technical and regulatory barriers to trade (45 commitments or 24 percent). China has made commitments related to both of these issue areas every year since 2004, with at least 20 percent of commitments related to intellectual property rights and at least 10 percent of commitments related to technical and regulatory barriers to trade. In addition, 110 commitments (or 60 percent of all China’s JCCT commitments) refer to a specific sector, including 28 commitments related to pharmaceuticals and medical devices, 19 commitments related to agriculture, and 18 commitments related to software use.

For the S&ED, 70 percent of the trade and investment commitments are related to one or more of the following three issue areas: investment (30 commitments or 26 percent), multilateral issues (26 commitments or 23 percent), and transparency (24 commitments or 21 percent).

Differences in the number of commitments associated with specific issue areas across the two dialogues may reflect differences in the dialogues’ structure and focus. According to U.S. officials, the JCCT has had greater focus on bilateral trade issues and sectors, in contrast with the S&ED, where trade and investment issues have been discussed within a broader range of economic and strategic issues. In addition, our analysis shows that statements of joint actions by China and the United States are more common at the S&ED (75 percent). According to Treasury officials, this reflects the broad economic focus and cross-cutting discussions of the S&ED’s economic track. The majority of China’s JCCT commitments (76 percent) involve China alone.

Expected Timeframes of Commitment Implementation

Commitments in the two dialogues generally do not specify timeframes although according to U.S. officials, many commitments are either expected to be implemented by the next annual meeting or are considered to be ongoing. According to Commerce officials, that would be the case, for example, for a commitment by China to provide fair treatment to foreign investors. According to Treasury officials, in the S&ED the two sides work under the general assumption, unless stated otherwise, that each year’s S&ED commitments are to be implemented by the next S&ED meeting. Some JCCT and S&ED commitments do specify a timeframe. Of the commitments we identified, timeframes were specified in 17 percent of China’s 184 JCCT commitments and 18 percent of China’s 114 S&ED trade and investment commitments. For example, at the 2011 JCCT meeting, China agreed to publish procedures for telecommunications network access license and radio type approval by the end of 2011. At the 2013 S&ED meeting, China committed to submit a new revised offer to join the WTO’s Government Procurement Agreement (GPA) by the end of 2013.

Some Commitments Have Been Reaffirmed and Others Have Evolved

Our analysis shows continuity of issues and objectives pursued at the two dialogues from 2004 through 2013. Some specific commitments have been made repeatedly, while others have evolved.

Within S&ED issue areas, some commitments have been reaffirmed over time. For example, in investment—which is associated with 26 percent of China’s S&ED trade and investment commitments—the United States and China committed to bilateral investment treaty negotiations each year, with commitments becoming increasingly specific. The 2013 commitment stated that the bilateral investment treaty will provide national treatment at all phases of investment, including market access (“pre-establishment”), and be negotiated under a “negative list” approach.” In another example, China repeatedly affirmed its intent to follow the generally accepted principles and practices of sovereign wealth funds.

Other commitments illustrate how efforts to address trade barriers in an issue area or sector have evolved over time. For example, the United States has secured multiple commitments in both the JCCT and S&ED concerning the terms under which China will accede to the GPA. These have become increasingly specific, moving from initially seeking China’s commitment to submit a revised accession offer to subsequently seeking commitments related to the specific elements of such an offer. USTR reported U.S. concerns with each offer in its annual National Trade Estimate Reports on Foreign Trade Barriers (NTE) for 2011 through 2013:

At the May 2010 S&ED, China committed to submit a revised offer to accede to the GPA by July of that year, which it did. However, USTR reported that China could improve its next offer by, among other things, including sub-central entities and certain state-owned enterprises.

At the December 2010 JCCT, China committed to submit a second revised offer—whose content would be based on intra-governmental consultations on the entities to be subject to the agreement—to join the GPA before the WTO Committee on Government Procurement’s final meeting in 2011. USTR reported that China submitted the offer but that it excluded too many state-owned enterprises.

At the May 2012 S&ED, China committed to submit a new comprehensive revised offer that responded to the requests of the GPA parties to the WTO Committee on Government Procurement before the committee’s final meeting in 2012. China submitted its third revised offer in November 2012.

China’s commitments in software have also evolved over time. We identified 22 software-related commitments—18 in the JCCT beginning in 2004 and 4 in the S&ED beginning in 2011. In 2004, China committed to extend an existing ban on the use of pirated software in central and local governments. This commitment continued in subsequent years with the inclusion of state-owned enterprises in 2006. In 2010, China committed to establish software asset management systems for government agencies and to allocate budgetary funds for purchasing, upgrading, and replacing agency software, and in 2012, China confirmed that it required state- owned enterprises to use legitimate software. In the S&ED, China committed to strengthening inspections to ensure legitimate government software use in 2011 and to extending software management pilot projects to the enterprise sector in 2012.

Agencies Use Various Means to Track Implementation

U.S. agencies track the implementation of commitments through various means including interactions with their Chinese counterparts and outreach to industry. U.S. agencies identified JCCT working groups and mid-year reviews, discussions with Chinese officials while developing joint fact sheets prior to S&ED meetings, U.S. industry associations and companies, and U.S. officials based in China as key sources for information on progress. U.S. agencies use several tracking documents that capture information on the status of some commitments over time and do not have a single document that encompasses either dialogue. In addition, U.S. agencies have sought to identify commercial metrics such as increased sales to use as indicators of implementation progress where possible, but cited challenges in identifying appropriate data.

U.S. Agencies Track Information on Implementation through Several Means

U.S. agencies collect information on the status of commitment implementation through several means, including ongoing engagement with their Chinese counterparts in preparation for meetings, and regular outreach to domestic stakeholders. One important source of tracking information is the 16 JCCT working groups. The working groups each comprise U.S. and Chinese officials; some focus on specific industries, such as steel, and some on trade issues such as intellectual property. According to U.S. agency officials and documents, the JCCT has added working groups in response to changes in the trade relationship—for example, adding the Trade and Investment Working Group which covers a range of trade and investment issues. U.S. agencies obtain updated information on implementation status from their Chinese counterparts at working group meetings. For example, Commerce and USTR officials received information from working group meetings about Chinese actions taken to shut down websites selling counterfeit medicines, in response to 2010 and 2011 JCCT commitments. Intellectual Property Rights working group officials stated that their working group has been instrumental in following the implementation of commitments to reduce end-user piracy of software by government agencies and state-owned enterprises.

The Office of Science and Technology Policy (OSTP) tracks implementation of commitments China makes at the Innovation Dialogue which are part of the overall S&ED commitments. Established in 2010 at the request of the U.S. and Chinese leaders of the S&ED, the Innovation Dialogue is a forum to share best practices in promoting innovation. The dialogue established a working group of U.S. and Chinese private sector experts and government officials, which monitors implementation of commitments and advises on barriers to successful implementation.

U.S. government officials also analyze commitment implementation while preparing the joint fact sheet for the coming year’s S&ED plenary meeting, according to Treasury officials. Treasury solicits and compiles input from key U.S. federal agencies on their priorities, which it exchanges with its Chinese counterparts. They then negotiate the wording of the joint fact sheet. This process can identify information on the status of past commitments, as well as in some cases on follow-on commitments. USTR and Treasury officials stated that participants actively negotiate JCCT commitment language immediately before and during the JCCT plenary meetings, and Treasury officials said that joint fact sheet language is also actively discussed during the time of the S&ED plenary meetings.

In addition, in 2010, the United States and China instituted a mid-year review within the JCCT as an additional tool to track commitment implementation and to prepare for annual plenary meetings. According to a USTR official and our review of mid-year review agendas, the review focuses on selected priority commitments from the previous year and proposing outcomes for the upcoming plenary.

U.S. officials observed that discussions of the status of particular commitments take place across a wide range of settings aside from those directly related to the JCCT and S&ED. Treasury officials stated that they follow up on the implementation of certain types of S&ED commitments in various meetings with their Chinese counterparts, citing government procurement issues as particularly relevant for discussions with their counterparts at the Ministry of Finance, which leads on the issue. One agency cited mechanisms for engaging their Chinese counterparts, such as memoranda of understanding with provisions related to implementation of JCCT commitments. U.S. reports cited forums such as WTO standing committees and the APEC forum as examples of meetings where JCCT and S&ED trade and investment commitment implementation may be discussed. For example, according to WTO documents, China reported to the WTO Committee on Government Procurement that it expected to submit a revised offer on government procurement to the committee before the end of 2013, consistent with its 2013 S&ED commitment.

U.S. agencies obtain information on implementation status from U.S. industry and U.S. officials abroad. U.S. officials based in Washington told us they work with U.S. industry associations and companies in developing information on an ongoing basis on China’s implementation progress. For example, USTR solicits written submissions from interested parties through the issuance of Federal Register notices issued in conjunction with the preparation of annual mandated reports. U.S. officials based in China provide information on implementation status in reporting to headquarters while preparing annual mandated reports on trade issues, such as the Special 301 Report (on intellectual property rights protection) and the NTE. Embassy staff submits cables on key issues that include discussions of the status of trade barriers raised in the JCCT. U.S. officials serving in China obtain feedback from industry representatives based in that country. For example, locally based industry representatives provided information to U.S. embassy officials that China had effectively implemented a 2009 JCCT commitment to eliminate redundant medical device product recall regulations. According to Treasury officials, they regularly solicit government and industry sources for information on S&ED priorities in preparation of and after each dialogue.

Various Documents Track Separate Aspects of Implementation Status

U.S. agency officials stated that they use various documents to track the status of implementation over time and that there is no single, consolidated document or system that captures the status of implementation of JCCT or S&ED commitments. USTR officials said that the preparation of documents used to brief senior officials in advance of formal meetings—such as annual plenary meetings, mid-term reviews, and ad hoc high level meetings between U.S. and Chinese officials—is one of the processes used for tracking the status of implementation. According to representatives of the JCCT’s Intellectual Property Rights working group, briefing papers, together with other sources, also serve as a useful record of the status of implementation, and can help to facilitate knowledge transfer in the event of personnel turnover.

According to Commerce officials, a Commerce staff person, designated to help coordinate Commerce’s JCCT activities, maintained a spreadsheet for the official’s own use in tracking follow-up on China’s JCCT commitments. The official used the spreadsheet to identify actions taken on the commitments made in the current year and to facilitate briefing senior officials in advance of meetings. Commerce officials stated that this spreadsheet is not an interagency document and does not constitute a department or interagency position on the status of implementation of commitments.

Agencies Generally Have Not Used Commercial Metrics to Track Implementation of Commitments

Some policymakers and private sector representatives have asked the administration to use commercial metrics (e.g., exports and sales) to track commitment implementation where possible. According to a senior agency official, framing commitments in terms of commercial results such as increased sales can focus attention on the ultimate goal of increased exports rather than on individual trade barriers, which may be removed but replaced by different trade barriers.

Although agency officials identified one JCCT or S&ED commitment directly linking a commercial metric (increased sales) to implementation, they cited the difficulty in identifying appropriate commercial metrics generally. In a 2012 S&ED commitment concerning intellectual property- intensive industries, the United States and China committed to create environments for their respective markets in which the level of sales of legitimate intellectual property-intensive products and services would increase in line with the two countries’ status as globally significant producers and consumers. In addition, officials indicated that it is easier to measure implementation of commitments that entail concrete and transparent legal actions – such as enactment of a law or other measure, or accession to a treaty – than to measure implementation of commitments to reaffirm existing policies or to a general policy direction.

Lack of Comprehensive Information on Implementation of Commitments across Reports Limits Understanding of Progress

USTR includes information in nine reports on trade barriers generally and efforts to address them, but does not provide comprehensive information to Congress and the public on the status of implementation of JCCT and S&ED trade and investment commitments. The reports focus on various aspects of trade barriers and market access and have different areas of focus and structures. Our analysis of selected commitments indicated that reporting on implementation status is not comprehensive because the reports are sometimes not clear and complete. This lack of comprehensive information makes it more difficult for policymakers to understand the progress made by the implementation of these commitments in removing trade barriers.

USTR Describes JCCT and S&ED Commitment Implementation Status in Several Trade-Related Reports

USTR reports on the status of trade barriers and market access broadly through nine reports, which it identified as the source for public information on JCCT and S&ED commitment implementation. In its strategic plan for fiscal years 2013 through 2016, USTR identifies these reports as important for building congressional support for the administration’s trade agenda by helping Congress gain a comprehensive understanding of the efforts the administration undertakes to dismantle trade barriers. Further, it characterized the reports as important to the agency’s commitment to transparency and accountability to Congress and stakeholders. In addition, the administration has identified the work of these bilateral dialogues in removing trade barriers in China as critical to the success of the national goal of doubling exports by the end of 2014.

The nine reports respond to statutory requirements and have different focuses and structures. The China WTO Compliance report, the only one focusing solely on China trade issues, examines the status of commitments made by China in connection with its accession to the WTO. Since 2008, the China WTO Compliance report has included a section on bilateral engagement that describes the outcomes for the present year; information on the status of past commitments is not included in that section but can be found in other sections of the report. Others among the nine reports have a worldwide scope and may include information on a specific sector, trade barrier, or policy area, including information on China and on the JCCT and S&ED commitments where appropriate. Section 1377 Review of Telecommunications Agreements, for example, focuses on trade barriers in a specific sector and the NTE identifies key barriers to U.S. trade and describes barriers in a number of countries. Table 1 provides an overview of the nine reports.

USTR officials told us that the WTO Compliance report is the primary report on the status of the implementation of commitments, and the other eight reports contain additional information on some commitments. USTR prepares these nine reports with assistance from Commerce, Treasury, and other agencies on the Trade Policy Staff Committee. Such assistance includes reporting from U.S. embassies, reviewing drafts to ensure accuracy and, in the case of the China WTO Compliance and Special 301 reports, holding public hearings to obtain private sector views. For instance, a senior Treasury official told us that Treasury participates in the preparation of the China WTO Compliance report by reviewing a draft for accuracy.

In addition to this public reporting, Commerce, USTR, and Treasury officials stated that they inform stakeholders on the status of implementation through briefings to industry associations and to members of Congress and their staffs, participation in congressional hearings, and briefings to the trade advisory committees. Further, agency officials said they have briefed Congress repeatedly on broader U.S. engagement with China. Agency officials told us that while they did not generally provide reports to accompany the briefings, they may bring fact sheets, remarks, and recent speeches; we did not identify additional regular documentary reporting on the status of implementation of JCCT and S&ED commitments beyond the public reports.

Reports Lack Clear and Comprehensive Information on Status of Implementation of JCCT and S&ED Trade and Investment Commitments

Our review of reporting on implementation status revealed challenges to obtaining clear and comprehensive information. For some commitments, the reports lack information on the status of implementation and for some the reporting is not clear. Additionally, differences in the formats of the reports make locating information on a given commitment or issue area across reports difficult in some cases. The lack of detailed information on China’s progress in implementing certain commitments makes it difficult for Congress and other stakeholders to fully understand the progress the United States is making in reducing trade barriers.

Our analysis found several instances of incomplete reporting on the status of specific commitments related to market access barriers in sectors, such as software, and in cross-cutting areas such as industrial policy. For example,

We identified 9 commitments from the 2008-2011 JCCT, and 1 from the 2011 S&ED related to software legalization. Based on our analysis of the nine reports identified above, we were not able to clearly identify the implementation status of most of these specific commitments. For example, USTR has not reported on whether China has increased resources devoted to conducting audits and inspections as it committed to do at the 2011 JCCT.

A second software legalization example illustrates a lack of clarity across reports on implementation status. At the 2011 JCCT, China committed to complete software legalization programs at the provincial level by the middle of 2012 and to publish the results of its software audits. The 2013 NTE report indicated that, because of a lack of published information, USTR could not verify that China had completed a program to ensure provincial governments used legal software. However, the 2013 Special 301 report, issued a month later, stated that China had completed the program. In addition to the difference regarding completion status of the legalization program at the provincial level, it is unclear whether China has implemented its related commitment to publish the results of audits. Thus, it cannot be determined whether the gap in implementation is one of program completion or one of reporting.

There has not been reporting on implementation of commitments concerning certain Chinese industrial policies. Specifically, at the 2011 JCCT, China committed to ensure open and transparent processes for developing standards for smart-grid products and technologies. USTR has not reported on the status of implementation of this commitment, despite having a specific report that describes progress in greenhouse gas reducing technologies. The greenhouse gas reports issued in 2012 and 2013 do not describe the steps taken in the JCCT regarding this issue.

USTR has not reported on the implementation of some commitments made by China related to its use of technical standards to favor domestic suppliers. In the 2011 JCCT, China reported on the development and publication of revised safety standards for medical devices, acknowledged the value of closer cooperation with the United States on those standards, and committed to participate in an information exchange program with the United States in 2012. The status of that commitment was not addressed in either the 2012 or 2013 reports.

Reporting on implementation of China’s commitments to reform state- owned enterprises has been incomplete. In the 2010 S&ED, China committed to continue its reform of these entities by, among other actions, inviting non-public and foreign investors to take equity stakes in them. China also committed at the 2010 JCCT that all enterprises in China, including state-owned enterprises, will make purchases and sales based solely on commercial considerations. As part of that same commitment, it committed to leave such decisions to those entities and to provide equal treatment to public and private enterprises. USTR has not reported on the status of implementation of these commitments in any of the nine trade-related reports.

In addition to incomplete or unclear reporting on the status of implementation of some commitments, differing report structures make it difficult in some cases to obtain information across reports. For example, we found reporting relevant to a 2010 S&ED commitment on new energy technologies discussed in the import barriers section of the NTE report’s chapter on China, whereas the WTO Compliance report discussed it under investment. Similarly, with respect to a 2012 JCCT commitment by China to issue a catalogue for the purchase of official use vehicles, the WTO Compliance report discussed the commitment in the intellectual property rights section, and the NTE report discussed it in a newly created category for the China chapter of the report, “Indigenous Innovation, Technology Transfer and Strategic Emerging Industry Barriers.”

In interviews and documents, agency officials emphasized the need to balance reporting on the status of implementation of commitments with the requirement to avoid disclosures that would disadvantage the United States in ongoing consultations. For example, in the NTE report, USTR indicates that it does not provide estimates of the impact of trade barriers that are the subject of ongoing consultations to avoid disrupting them. In the case of the trade agenda, USTR may submit classified information to Congress in confidence, if it deems necessary.

The absence of clear and complete reporting on the status of implementation of commitments makes it difficult for policymakers to gain a comprehensive understanding of the progress made toward reducing trade barriers through the implementation of commitments from the dialogues. Moreover, accountability is reinforced through public reporting of agency results and, if appropriate, confidential reporting to Congress.

Conclusions

China has made a significant number and wide array of commitments to the United States in the JCCT and S&ED, high-level bilateral U.S.-China dialogues which address trade issues. While information on the commitments is available from agency fact sheets, information on the status of implementation is not presented in a manner that provides a comprehensive understanding of China’s overall progress in implementing the commitments. Although at least nine reports present information on the status of U.S. efforts to decrease trade barriers with China, in some cases referencing the JCCT and S&ED, obtaining specific information on implementation status from the reports presents challenges. These nine reports aim to provide a comprehensive picture of the administration’s efforts to address trade barriers through consultative mechanisms such as the JCCT and S&ED. Without comprehensive reporting—easily accessible in one location and complete—it is difficult for external parties to understand the progress being made in removing barriers to this very important export market through bilateral dialogue. More consolidated and complete information on the status of China’s implementation of its JCCT commitments and S&ED trade and investment commitments would give policymakers a better basis to identify areas of success or failure.

Recommendation for Executive Action

To improve policymakers’ and the public’s understanding of progress through bilateral dialogues in increasing access to China’s markets, we recommend that the U.S. Trade Representative, in conjunction with the Secretary of Commerce and the Secretary of the Treasury, work to provide clearer and more comprehensive reporting on the status of China’s implementation of its JCCT and S&ED trade and investment commitments. This reporting should include more complete information on the status of implementation of these commitments, as well as a more clearly identified source for consolidated information, which could be an existing report.

Agency Comments and Our Evaluation

We provided a draft of this report to Commerce, USTR, Treasury, State, USDA, and OSTP. Commerce and USTR provided written comments which are reproduced in appendixes II and III. Commerce, USTR, Treasury, USDA, and OSTP provided technical comments which we incorporated as appropriate.

Neither Commerce nor USTR directly agreed or disagreed with our recommendation. Commerce stated that it would take GAO’s ideas and findings under careful consideration, but expressed concern regarding our conclusion that lack of comprehensive reporting makes it difficult for external parties to understand progress made in bilateral trade dialogues with China. It further observed that assessments of reporting needs should include consideration of resource requirements. We agree that resource considerations are a key factor in agency approaches to reporting, but believe that steps to make information on commitment implementation status more comprehensive and accessible can be taken.

USTR stated that it welcomed GAO’s suggestions and would consider them carefully, but identified several concerns. First, USTR expressed its view that some commitments are more noteworthy than others and counting and categorizing commitments can be misleading when used as the basis for conclusions about the relative significance of issue areas. We agree that not all commitments are of equal significance and reflected that view in our draft report. We believe, however, that summary quantitative information is one useful tool for conveying information about the issues addressed in these dialogues.

USTR commented that the report’s discussion of agencies’ tracking of the implementation of China’s commitments is generally accurate, but stated that the role of U.S. stakeholders such as industry associations and companies is not adequately reflected in the report. We agree that such organizations are an important source of information on commitment implementation and have added additional information in the report to reflect their role.

With respect to U.S. agency reporting on commitment implementation, USTR stated that in its view the Administration’s written reporting currently provides congressional policymakers and other stakeholders comprehensive information on China’s implementation of JCCT and S&ED commitments, and stated that it also meets with those parties on these issues. It stated that not all JCCT and S&ED commitments warrant discussion in the reports, but acknowledged that GAO’s analysis identifies commitments whose implementation status should be reported on and has not been. Based on extensive analysis of agency reporting on the implementation of these commitments, we concluded that information on the status of commitments made in these bilateral dialogues with China is not complete and easily accessible, which can make it difficult for policymakers to identify areas of success and failure and assess options for moving forward. We recognize that meetings with policymakers and stakeholders are also an important part agency communication on these issues.

We are sending copies of this report to the appropriate congressional committees; the U.S. Trade Representative; the Secretaries of Commerce, the Treasury, State, and Agriculture; the Director, Office of Science and Technology Policy; and other interested parties. The report also is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff has any questions about this report, please contact David Gootnick at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

In this report, we (1) describe the commitments China made at the Joint Commission on Commerce and Trade (JCCT) and the trade and investment commitments China made at the Strategic and Economic Dialogue (S&ED), (2) describe U.S. agency tracking of China’s implementation of these commitments, and (3) evaluate U.S. agency reporting on the status of commitment implementation.

To conduct this review, we interviewed knowledgeable U.S. government officials from the Department of Commerce (Commerce), the Office of the U.S. Trade Representative (USTR), the Departments of the Treasury (Treasury), State (State), and Agriculture (USDA) as well as the Office of Science and Technology Policy (OSTP) in Washington, D.C., and in Beijing, China (via a videoconference). We also interviewed representatives of trade associations and research organizations.

To describe the commitments, we conducted a detailed review of the fact sheets issued at the conclusion of annual meetings at the JCCT from 2004 through 2012, the S&ED from 2009 through 2013, and the SED from 2006 through 2008. Commerce and USTR issue a JCCT fact sheet; Treasury issues jointly with China an S&ED fact sheet for the economic track that presents the joint commitments negotiated by the United States and China. (Treasury also issues a U.S. fact sheet that discusses the benefits of the commitments for U.S. workers and companies.) According to senior Commerce, USTR, and Treasury officials, the fact sheets present the commitments negotiated between the U.S. and Chinese governments. In addition to presenting the commitments, the fact sheets also contain details of cooperative activities between the two countries. We used the joint fact sheets for our analysis of China’s S&ED commitments because, according to senior officials, they reflect the two governments’ understanding of the results of the S&ED plenary meeting. For the S&ED, we limited our analysis to China’s commitments in the trade and investment pillar of the dialogue’s economic track. In our analysis, “S&ED commitments” refer to the trade and investment commitments China made in the S&ED in 2009 through 2013 and in the SED in 2007 and 2008.

We discussed the fact sheets with cognizant officials from Commerce and USTR, the two agencies that jointly lead the JCCT for the United States, and from Treasury, which leads the S&ED’s economic track for the United States, to obtain an understanding of the information they contain and how they are put together. According to senior USTR officials, the commitments as presented in the fact sheets are high-level political commitments and are the outcomes of the structured dialogues established to address and resolve a range of issues. While the outcomes documents are not legal instruments, the commitments are taken seriously, according to these officials.

To identify the commitments, we separated the fact sheet text describing steps taken by China into individual commitments, created a database, and systematically analyzed individual commitments. The fact sheets state China’s commitments, U.S. commitments, and joint U.S-China commitments. We excluded fact sheet text reflecting U.S. commitments, but included statements about commitments made jointly by the United States and China and by China alone.

We identified 184 JCCT commitments and 114 S&ED trade and investment commitments. (An inventory of the commitments we identified and their categorization by issue area, described below, is provided in an online e-supplement, GAO-14-224SP.) JCCT fact sheets, written by the U.S. government, are typically written in bulleted form, with each bullet generally considered by us as one commitment. S&ED fact sheets are different in that the precise wording of every commitment is negotiated jointly by the U.S. and Chinese governments. The 2013 S&ED fact sheet listed the trade and investment commitments in bulleted format. Prior to that, the commitments were written in paragraphs that included statements on multiple topics. The JCCT and S&ED fact sheets vary in terms of the number of areas and activities addressed, and in the specificity of the statements. We discussed with U.S. agencies ways to identify and count specific commitments in fact sheets, and determined that there is no single way to do so. For example, an analysis of the S&ED fact sheets for 2009 through 2012 might treat a paragraph as a commitment. We chose to break some paragraphs into multiple commitments, using decision rules that we developed to ensure the consistency and completeness of this exercise. These included whether the paragraph referred to more than one intended action or discrete concept, and whether it specified a deadline. In addition, if the same or similarly worded commitment was made in multiple years, we counted it anew each time.

After identifying individual commitments, we categorized them by several characteristics (issue areas, joint or China-only, deadline). We identified 11 issue areas to characterize the content of each commitment after an iterative review of all of the commitments in our database by several analysts. To support development of these categories we used as a reference point categories developed in a previous GAO report on China’s commitments as well as the headers used in JCCT source documents. (S&ED fact sheets do not use headers and sub-headers for the commitments in the trade and investment pillar.) These were adapted and recombined producing a set of categories that took into account the specific language of the specific sets of commitments from recent years and covered both dialogues. See the list of issue areas with descriptions and examples in table 2.

We then assessed each commitment for the issue area(s) it covered. Because many commitments covered multiple issue areas, we assigned up to three issue areas to each commitment. Ninety-nine of the 184 JCCT commitments and 55 of the 114 S&ED commitments were associated with two or three issue areas. We identified some commitments that did not fit any of the 11 issue areas and categorized these commitments as “other.”

Many commitments, including 110 JCCT and 11 S&ED commitments, were related to specific sectors (see examples for agriculture and software in table 2). We identified 15 sectors: agriculture, distribution/retail, information technology and security, insurance, new energy vehicles, pharmaceuticals and medical devices, postal/courier, shipping, software, steel, telecommunications, textiles, transportation, travel and tourism, and wind power. We discussed this methodology with officials from Commerce, USTR, Treasury, State, and USDA.

To ensure the validity of this analysis we performed multiple sets of reviews and checks. Initial testing of subsets of the commitments was done by two analysts and a methodologist. The full analysis of all commitments was performed by two analysts who cross-checked each other’s analysis and reconciled differences through discussion. A methodologist provided a spot-check of the analysis. Finally, the full team met and discussed in detail every commitment to ensure final consensus on the issue area categorization.

To describe how agencies track the status of implementation of commitments, we interviewed officials and reviewed documents from Commerce, USTR, Treasury, State, USDA, and OSTP. We also discussed these issues with U.S. embassy staff in Beijing, via videoconference. We discussed with the officials their processes for tracking commitment status, and sought corroborating information where needed. For example, we sought corroborating information from officials concerning their engagement with China in other various bilateral and multilateral forums, and their obtaining input from industry stakeholders and U.S. government officials based overseas. We corroborated this information by reviewing public reports from the outcomes of other diplomatic forums such as minutes from World Trade Organization standing committee meetings and public comments submitted by industry officials in conjunction with agency preparation of public reports. We also reviewed a cable from the 2010 JCCT mid-year review and a cable about the 2010 S&ED annual meeting. Finally, we reviewed agendas for the 2010-2012 JCCT mid-term reviews. We also interviewed industry associations.

With respect to the use of tools such as tracking sheets to maintain and share information on commitment implementation, we discussed agency staff-level methods for tracking the status of commitments with officials from Commerce. For contextual purposes, we also discussed with State officials their process for tracking the status of commitments in the strategic track of the S&ED. We discussed with Commerce staff the characteristics and use of a tracking document developed by staff for compiling information on commitment implementation for use in briefing senior officials for key meetings.

To evaluate how U.S. agencies report on the status of commitment implementation, we asked agency officials and consulted agency documents to identify relevant public documents and other types of reports they use to inform the public and Congress on the outcomes and status. They identified nine reports that describe administration efforts to reduce trade barriers through negotiations, consultations and dispute settlement, which are identified in the body of this report. To make assessments of the reporting that we identified across the reporting documents, we focused primarily on identifying information that specifically referenced the status of implementation of the commitment by the Chinese government or other relevant Chinese entities. To assess the completeness of the reporting, we examined the nine reports for information on the status of implementation of commitments made in the JCCT and the S&ED in 2010 and 2011 and in additional years—2008 and 2009—related to software legalization. We examined these commitments related to software legalization because intellectual property was a prominent JCCT issue area and we had identified software earlier in our review as a potential illustrative area. For each of these commitments, we reviewed reporting subsequent to when the commitment was made. The assessment included keyword searches of the nine reports.. For example, for a software legalization commitment we performed keyword searches using “software,” “legalization,” and other terms specific to the commitment. We also did a more general reading of reporting language relevant to a given commitment. This analysis was reviewed by a second analyst and any differences the reviewer had with the original analysis were reconciled.

We reviewed the congressional budget justifications for Commerce, USTR, Treasury, and USDA to describe how U.S. efforts to track and report on the status of China’s implementation of commitments supported agency and administration goals. We also reviewed comments from industry representatives submitted in conjunction with the preparation of statutory reports.

We conducted this performance audit from May 2012 to February 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Comments from the Department of Commerce

Appendix III: Comments from the Office of the U.S. Trade Representative

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above, Celia Thomas (Assistant Director), R. Gifford Howland, Shakira O’Neil, Sada Aksartova, Karen Deans, David Dornisch, Etana Finkler, and Ernie Jackson made key contributions to this report.