After 15 years of negotiations to join the WTO, on December 11, 2001, China bound itself to open and liberalize its economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules. U.S. investment and trade with China is of substantial interest to U.S. companies and has increased during the past 10 years. Our 2002 survey of U.S. company views revealed companies’ expectation of a positive impact from China’s implementation of WTO commitments as well as anticipation of difficulties during implementation. The results of China’s negotiations to join the WTO are described and documented in China’s final accession agreement, the Protocol on the Accession of the People’s Republic of China, which includes the accompanying Report of the Working Party on the Accession of China, the consolidated market access schedules for goods and services, and other annexes. China’s WTO commitments are complex and broad in scope. Some commitments related to reforming China’s trade regime require a specific action from China, such as reporting particular information to the WTO, while others are more general in nature, such as those that affirm China’s adherence to WTO principles. The accession agreement includes market access commitments regarding goods and services. These include commitments that will reduce tariffs on products, as well as commitments to reduce or eliminate many other trade barriers such as quotas or licensing requirements on some of these products. Further, China made commitments to allow greater market access in 9 of 12 general service sectors. In the banking sector, for example, China has agreed to reduce licensing requirements and has removed restrictions on foreign currency services. To improve its trade regime, China has generally agreed to make numerous rule of law-related reforms such as publishing and translating trade-related laws and regulations and applying them uniformly at all levels of government and throughout China. China committed to adhere to internationally accepted norms to protect intellectual property rights and enforce relevant laws and regulations related to patents, trademarks, and copyrights. Moreover, China made a substantial number of other rule of law-related commitments regarding transparency of law, judicial review, and nondiscriminatory treatment of businesses. In the past 10 years, U.S. investment and trade with China have increased significantly. At the end of 2002, U.S. companies had total direct investments of $10.3 billion in China, largely in the manufacturing sector. This amount represents more than 10 times the approximately $900 million invested a decade earlier in 1993. In addition, U.S. goods exports and services to China grew at an average annual rate of 12 percent since 1993, totaling $27 billion in 2002, according to the Department of Commerce. While the United States holds a large bilateral trade deficit with China, it has a bilateral goods surplus in areas such as transportation equipment and agricultural products. Appendix III provides additional details regarding U.S. investment and trade with China. In 2002, we conducted a study of U.S. companies’ views about the importance of, the anticipated effects of, and the prospects for, China’s implementing its WTO commitments. Our analysis of responses from 191 of 551 surveyed companies revealed that most of China’s WTO commitments were important to the companies, with rule of law-related reforms the most important. Specifically, at least three quarters of the respondents selected intellectual property rights; consistent application of laws, regulations, and practices; and transparency of laws, regulations, and practices as the most important commitment areas for their companies. Other than those related to rule of law, respondents most frequently selected trading rights; tariffs, fees, and charges; and scope of business restrictions as important commitments. We also found that most companies expected that China’s implementation of its WTO commitments would have a positive impact on their business operations, although many anticipated impediments to implementation of China’s WTO reforms. More than three quarters of the companies reported that they expected China’s implementation of its WTO commitments would lead to an increase in their companies’ activities in China, including their export volume to China, market share in China, and distribution of products there. However, many respondents also expected that many WTO commitments, particularly in rule of law-related commitment areas regarding consistent application of laws, regulations, and practices, and intellectual property rights, would be difficult for Chinese officials to implement. (See table 1 for 2002 survey respondents’ views on the expected level of difficulty of China’s implementation of commitment areas that were most important to them.) Overall, in 2003, respondents thought that China had implemented most of the 26 specific WTO commitment areas to at least some extent when asked to characterize China’s reform efforts along a four-point scale ranging from no extent to great extent. Responses were mixed when company representatives assessed the commitment areas that we found to be of greatest importance to their businesses. In addition, the importance placed on specific commitment areas differed among respondents of the four industry groups--agriculture, banking, machinery, and pharmaceuticals. It is also important to note that many respondents reported they had no basis to judge the extent to which China had made reforms related to some WTO commitment areas, for reasons that varied depending on each company’s experience and operations in China. Respondents’ assessments of each area varied widely, but they generally reported low and moderate ratings of China’s implementation. See figure 1 for respondents’ views on the extent of China’s implementation of the 26 commitment areas, excluding those with no basis to judge. Many respondents had no basis to judge the extent of China’s WTO reforms in certain commitment areas. This indicates that few companies have an in- depth knowledge of Chinese reforms across all 26 areas, as discussed in further detail later. Consequently, the number of company representatives evaluating each individual commitment area varied from 14 to 67. On average, respondents assigned lower marks when assessing the implementation of 19 of the 26 listed commitment areas. For example, company representatives thought that China had made reforms to only some or little extent when assessing China’s trading rights reforms (right to import or export products) and price controls. Company representatives said they eagerly awaited the implementation of China’s trading rights commitments in late 2004. Several company representatives noted that implementation of these commitments would provide more control over their business relationships in China and reduce or eliminate the need to rely on third parties such as distributors and trading companies. Although China had agreed to stop using price controls to restrict the level of imports, one company representative derided China’s price control reforms and others noted their concern regarding the Chinese government’s continuing control of prices on specific products. Respondents on average assigned higher marks to the remaining 7 commitment areas. For example, respondents thought that China had made reforms to a moderate extent when assessing China’s reforms to tariffs, fees, and charges; requirements stipulating a minimum amount of production that must be exported; and restrictions on partnerships and joint ventures. Several respondents described China’s efforts in lowering tariffs, fees, and charges including one respondent who noted that China had reduced tariffs for an agricultural product from 35 to 15 percent since joining the WTO. Company representatives also discussed China’s allowance for greater market access for services, stated that WTO has allowed companies to provide after-sales service, and one said that “China is doing a good job” in addressing this area. Respondents’ assessments of the most important commitment areas provide further detail regarding companies’ views on China’s progress. See table 2 for the ranking of the commitment areas by importance to respondents, which we calculated using weighted responses. More than half of respondents reported that China had made reforms to a moderate or great extent when asked to assess China’s overall progress in implementing reforms that were important to their companies. However, when asked to assess China’s implementation of specific commitment areas, responses for four of the five most important areas fell in the “some or little extent” category. Company representatives from the four industries assigned varied levels of importance to specific commitment areas. The five specific commitment areas ranked as most important to respondents overall were (1) standards, certifications, registration, and testing requirements; (2) customs procedures and inspection practices; (3) intellectual property rights; (4) tariffs, fees, and charges; and (5) consistent application of laws, regulations, and practices. Among these five areas, tariffs, fees and charges received higher marks, with respondents reporting on average that China had made reforms to a moderate extent. Respondents noted that it was relatively easy to assess China’s implementation of tariffs, fees, and charges because China had set time schedules for tariff reductions on various products. Many respondents told us that China’s efforts to achieve tariff reductions were on schedule, allowing companies to pay lower tariffs on imported products. Respondents provided lower ratings on average for the four other important commitment areas and indicated that China had only implemented these reforms to some or little extent. In the area of standards, certifications, registration, and testing requirements, for example, some respondents discussed continuing requirements such as product registrations that require approval from multiple Chinese government agencies, delays and bureaucratic bottlenecks in processing product registration, and the use of product standards to protect Chinese agricultural producers. When evaluating China’s reforms made in customs procedures and inspection practices, company representatives discussed the “hassles” and inefficiencies created by an unpredictable and slow customs system characterized by inconsistent application of standards and duties. In addition, numerous company representatives discussed the limitations of China’s efforts to address intellectual property rights. Respondents cited specific experiences with generic copies of pharmaceutical products, products illegally copied to look like those of U.S. companies, and false labeling of Chinese products. Some respondents even commented on the Chinese government’s inadequate enforcement of intellectual property rights. Furthermore, some respondents noted inconsistency in China’s application of laws, regulations, and practices within and among national, provincial, and local levels of government. For example, one banking representative said that different local governments each have different explanations of China’s laws and regulations.