U.S.-China Trade: Opportunities to Improve U.S. Government	 
Efforts to Ensure Open and Fair Markets (14-APR-05, GAO-05-554T).
                                                                 
Today's hearing takes place not only at a time of increasing	 
trade between the United States and China but also amidst a	 
period of ongoing concern about the growing U.S. trade deficit	 
with China, which totaled $162 billion in 2004. Managing this	 
relationship with one of the United States' most important	 
trading partners is an effort that calls upon the resources of	 
nearly every aspect of the U.S. trade policy apparatus. Our	 
ongoing body of work has examined several aspects of this	 
apparatus, including U.S. government efforts to ensure China's	 
compliance with complex and far-reaching World Trade Organization
(WTO) commitments, as well as the federal government's		 
application of available trade remedies against China. As part of
that work that has been issued to date, we have recently put	 
forth a number of recommendations to the key executive branch	 
agencies about how to improve the U.S. government's efforts in	 
these areas. To provide Congress with an update on these issues, 
this statement discusses (1) the key findings and recommendations
from our recently issued work on U.S. government efforts to	 
ensure China's compliance with WTO commitments, as well as U.S.  
efforts to protect U.S. intellectual property rights overseas and
(2) issues related to how the United States has applied a key	 
trade remedy--the China textile safeguard. These observations are
based on a series of reports initiated at the bipartisan request 
of various congressional committees. That work has included an	 
analysis of China's commitments, surveys and interviews with	 
private sector representatives, the results of two annual	 
assessments of the U.S. government's compliance efforts, a review
of overseas intellectual property rights protection, and, most	 
recently, a review of the China textile safeguard.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-554T					        
    ACCNO:   A21699						        
  TITLE:     U.S.-China Trade: Opportunities to Improve U.S.	      
Government Efforts to Ensure Open and Fair Markets		 
     DATE:   04/14/2005 
  SUBJECT:   Foreign trade policies				 
	     Interagency relations				 
	     International agreements				 
	     International economic relations			 
	     International law					 
	     International organizations			 
	     International trade				 
	     International trade regulation			 
	     International trade restriction			 
	     Trade policies					 
	     Textile industry					 
	     China						 

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GAO-05-554T

                 United States Government Accountability Office

GAO Testimony

Before the Committee on Ways and

Means, House of Representatives

Not to be Released

Before 11:00 a.m. EDT U.S.-CHINA TRADE

April 14, 2005

Opportunities to Improve U.S. Government Efforts to Ensure Open and Fair Markets

Statement for the Record by Loren Yager, Director International Affairs and
Trade

GAO-05-554T

Mr. Chairman and Members of the Committee:

We are pleased to have the opportunity to comment on issues related to
U.S.-China trade. Today's hearing takes place not only at a time of
increasing trade between the United States and China but also amidst a
period of ongoing concern about the growing U.S. trade deficit with China,
which totaled $162 billion in 2004. Managing this relationship with one of
the United States' most important trading partners is an effort that calls
upon the resources of nearly every aspect of the U.S. trade policy
apparatus. Our ongoing body of work has examined several aspects of this
apparatus, including U.S. government efforts to ensure China's compliance
with complex and far-reaching World Trade Organization (WTO) commitments,
as well as the federal government's application of available trade
remedies against China. As part of that work that has been issued to date,
we have recently put forth a number of recommendations to the key
executive branch agencies about how to improve the U.S. government's
efforts in these areas.

To provide you with an update on these issues, this statement discusses
(1) the key findings and recommendations from our recently issued work on
U.S. government efforts to ensure China's compliance with WTO commitments,
as well as U.S. efforts to protect U.S. intellectual property rights
overseas1 and (2) issues related to how the United States has applied a
key trade remedy-the China textile safeguard.2 These observations are
based on a series of reports initiated at the bipartisan request of
various congressional committees. That work has included an analysis of
China's commitments, surveys and interviews with private sector
representatives, the results of two annual assessments of the U.S.
government's compliance efforts, a review of overseas intellectual
property rights protection, and, most recently, a review of the China
textile safeguard.3 Our work on China-WTO issues included fieldwork in
Washington, D.C., China, and at the WTO headquarters in Geneva,
Switzerland, and was

1See GAO, U.S.-China Trade: Opportunities to Improve U.S. Government
Efforts to Ensure China's Compliance with World Trade Organization
Commitments, GAO-05-53 (Washington, D.C.: Oct. 6, 2004); and GAO,
Intellectual Property: U.S. Efforts Have Contributed to Strengthened Laws
Overseas, but Challenges Remain, GAO-04-912 (Washington, D.C.: Sept. 8,
2004).

2See GAO, U.S.-China Trade: Textile Safeguard Procedures Should Be
Improved, GAO-05-296 (Washington, D.C.: Apr. 4, 2005).

3See Related GAO Products.

Summary

conducted in accordance with generally accepted government auditing
standards.

The complexity, breadth, and ongoing nature of many of the problems with
China's WTO compliance demonstrate the need for a cohesive and sustained
effort from the key U.S. agencies to effectively monitor and enforce
China's implementation of its commitments. The U.S. Trade Representative
(USTR), and the Departments of Commerce, State, and Agriculture (USDA)
have coordinated on policy issues and increased staff resources to enhance
their capacity to carry out these efforts. Our previous work acknowledged
the administration's concerted and deliberate strategy of high-level
bilateral engagement with China. However, recent turnover of key U.S.
trade officials has seemed to interfere with this strategy this year.
These developments punctuate the relevance of our recommendations for the
key agencies to institutionalize U.S. compliance efforts at the working
levels through better strategic planning and human capital management.
Specifically, in order that agencies more effectively plan and measure
results, we recommended that each of the key agencies improve performance
management of their China-WTO compliance efforts. Further, we recommended
that, in an environment of high and regular staff turnover, the key
agencies should direct additional management attention to ensuring that
staff have an opportunity to acquire training relevant to their China-WTO
compliance responsibilities. The agencies generally responded positively
to most aspects of these recommendations, and indicated that efforts were
under way to enhance performance management and provide additional
training opportunities for staff. We are in the process of following up
with the agencies regarding their specific plans for implementing the
recommendations. Finally, in our review of intellectual property
protection overseas, we found that coordination on policy matters had
helped lead to strengthened laws but that enforcement in China and other
countries remains weak. We suggested that the Congress review the efforts
of the key interagency mechanism for coordinating law enforcement efforts
on intellectual property.

Managing the U.S.-China trade relationship goes beyond ensuring access for
U.S. businesses seeking to enter China's market. It also includes ensuring
U.S. industries are protected from harmful surges in imports and unfair
Chinese trade practices. The terms of China's WTO membership allowed the
United States and other members to put special mechanisms in place to
respond to such situations while China's economy was in transition. Our
most recent report examined the U.S. government's

interagency Committee for the Implementation of Textile Agreements (CITA)
use of one of these special mechanisms-the China textile safeguard. We
found that procedural shortcomings have impaired effective application of
this safeguard mechanism. First, 17 months elapsed before CITA issued any
procedures and, second, the procedures did not clearly indicate how CITA
would proceed in "threat-based" cases. A court-ordered injunction4 has
prevented further consideration of the threat-based cases until litigation
is resolved and, as a result, new actual market disruption cases have been
initiated instead. GAO does not take any position on the legal issues
involved in the lawsuit, but this situation affects the speed, scope, and
duration of potential relief for U.S. producers of these products.
Additionally, the lack of production data impaired access to safeguard
measures for U.S. sock producers and may pose similar problems if other
producers in similar circumstances seek application of this mechanism. To
address these issues, we recommended that CITA clarify its procedures for
threat-based safeguard cases and that Commerce take actions to make
production data more available for industry sectors that are at risk of
experiencing disruptive import surges. The agencies did not comment on our
recommendation relating to clarifying procedures for threat-based cases
due to ongoing litigation and disagreed with our recommendations regarding
production data, stating that such actions would be unproductive. We
maintain that our recommendations would make the China textile safeguard
more transparent and accessible. Lastly, we have an ongoing body of work
on other import relief mechanisms regarding China, including
countervailing and antidumping actions, and the China product-specific
safeguard measures authorized under section 421 of the Trade Act of 1974,
as amended.

Ensuring China's compliance with its WTO commitments is a continuing
priority for the U.S. government. The complexity, breadth, and ongoing
nature of many of China's problems complying with its obligations
demonstrate the need for the U.S. government to have a well-coordinated,
sustained effort to ensure China's compliance. To that end, we have
recommended that the key agencies involved in this effort take steps to
improve performance management and ensure that staff has adequate
opportunity to acquire the training necessary to carry out their
responsibilities. The agencies generally responded positively to most

4See U.S. Ass'n of Importers of Textiles and Apparel v. United States, Ct.
No. 04-00598 (C.I.T. Dec. 1, 2004).

Recommendations to Improve the U.S. Government's Efforts to Ensure China's
Compliance with its WTO Commitments

aspects of these recommendations, and indicated that efforts were under
way to enhance performance management and provide additional training
opportunities for staff. We are in the process of following up with the
agencies regarding their specific plans for implementing the
recommendations. Additionally, we recommended that Congress consider
reviewing the efforts of a U.S. government coordinating group on
intellectual property law enforcement.

Problems with China's WTO Compliance Are Broad in Scope, Complex, and Ongoing

China's WTO obligations span eight broad areas and include hundreds of
individual commitments on how China's trade regime is to adhere to the
WTO's agreements, principles, and rules and allow greater market access
for foreign goods and services. Some of these commitments are relatively
simple and require specific actions from China, such as reporting
information to the WTO or lowering tariffs. Others, however, are
significantly more complex and relate to systemic changes in China's trade
regime. For example, some commitments require China to adhere to WTO
principles of nondiscrimination in the treatment of foreign and domestic
enterprises. China has successfully implemented many of its WTO
commitments, but a significant number of problems arose in these first
years of China's membership. Problems in implementing these obligations
spanned all areas in which China had made commitments. Importantly, many
of these compliance problems have continued from year to year, and many
concerns relate to China's inability thus far to make some of the systemic
changes that its WTO commitments require. For example, USTR's most recent
report (2004) on China's WTO compliance cites continuing problems with
lack of transparency and protection of intellectual property-problems that
USTR has cited in each of its annual reports since China's accession to
the WTO in 2001.5

Key Agencies Need to Improve Performance Management of China Compliance Efforts

We found weaknesses in the key agencies' ability to assess the
effectiveness of their China-WTO compliance efforts and determined that
agencies would benefit from increased emphasis on planning and performance
management. The Government Performance and Results Act and our substantial
body of work on planning emphasize the importance and usefulness of
developing unit-and program-level plans and measures that are connected to
an agency's overall mission. We acknowledge the

5See USTR, 2004 Report to Congress on China's WTO Compliance (Washington,
D.C.: Dec. 11, 2004).

challenges of developing measurable goals, given the extent to which
external factors can influence agencies' trade compliance efforts;
however, we believe that it is possible for these agencies to better
quantify and measure results annually.

We recommended that USTR and the Secretaries of Commerce, State, and USDA
take steps to improve performance management pertinent to the agencies'
China-WTO compliance efforts. Specifically, we recommended that (1) USTR
set annual measurable predetermined targets related to its China
compliance performance measures and assess the results in its annual
performance reports; (2) Commerce take further steps to improve the
accuracy of the data used to measure results for the agency's trade
compliance-related goals; (3) State require its China mission to assess
results in meeting its goals and report this information as part of the
annual Mission Performance Plan; and (4) USDA further examine the external
factors that may affect the agency's progress toward achieving its
trade-related goals and present the agency's strategies for mitigating
those potential effects. Furthermore, we recommended that the head of each
agency direct the agency's main China compliance units to set forth unit
plans that are clearly linked to agency performance goals and measures,
establish unit priorities for its activities, and annually assess unit
results to better manage its resources.

Key Agencies Should Take Steps to Improve Training Opportunities

We found that the key agencies have opportunities to better manage their
human capital involved in China-compliance activities. Specifically, in an
environment of high and regular staff turnover, new staff are called upon
to take up monitoring and enforcement activities that involve complex,
long-term issues. New staffs' effectiveness and efficiency is reduced when
(1) no formal training is available to help them with their day-to-day
activities and (2) when staffing gaps mean that they cannot learn from
more-experienced predecessors. Increased management attention to provide
an adequate mix of on-the-job training and formal training can help ensure
that new staffs have the necessary tools for doing their jobs well.

We recommended that USTR and the Secretaries of Commerce, State, and USDA
undertake actions to mitigate the effects of both anticipated and
unplanned staff turnover within the agencies' main China-WTO compliance
units by identifying China compliance-related training needs and taking
steps to ensure that staff have adequate opportunity to acquire the
necessary training. These actions could include determining which of the
agencies' existing courses would be appropriate for staff, determining

what types of external training are available, developing training courses
on relevant issues, and establishing a plan and time lines for existing
and new staff to receive training.

Congress Should Review Efforts of Interagency Law Enforcement Coordinating Group
on Intellectual Property

Recommendations to Improve the U.S. Government's Use of the China Textile
Safeguard

We found that in contrast to the relatively successful coordination
efforts agencies had in strengthening intellectual property laws overseas,
a key mechanism for coordinating law enforcement activities has not been
effective. The National Intellectual Property Law Enforcement Coordination
Council (NIPLECC), which was established to coordinate domestic and
international intellectual property law enforcement among U.S. federal and
foreign entities, has struggled to find a clear mission, has undertaken
few activities, and is perceived by the private sector and some U.S.
agency officials as having little impact.

We suggested that the Congress review the council's authority, operating
structure, membership, and mission and noted that such a review could help
the council identify appropriate activities and operate more effectively
to coordinate Intellectual property law enforcement issues. Subsequently,
the 2005 appropriations act made changes that responded to some of these
issues and provided funding for the council.

The WTO China textile safeguard is a transitional mechanism that allows
the United States and other WTO members to temporarily restrict growth in
textile and apparel imports from China through the end of 2008, even
though WTO textile and apparel quotas in general were eliminated on
January 1, 2005. The U.S. government's interagency Committee for the
Implementation of Textile Agreements (CITA) has established procedures
that explain to the public how it will consider safeguard action requests.
These procedures stipulate that when requesting safeguard actions,
producers must submit data on imports, market share, U.S. production, and
additional information showing how imports from China have adversely
affected U.S. industry or any other data deemed pertinent.

CITA has applied safeguard quotas on specific products in response to four
out of five U.S. industry requests that were primarily based on evidence
of actual market disruption. Twelve threat-based requests remain
unresolved. Since the recent imposition of a court-ordered injunction, new
actual market disruption-based cases have been initiated.

Procedural shortcomings have impaired effective application of the China
textile safeguard. First, 17 months elapsed before CITA issued any

procedures about the China textile safeguard, and, second, the procedures
did not clearly indicate how CITA would proceed in threat-based cases.
Currently, a court-ordered injunction prevents further government
consideration of threat-based cases until litigation is resolved. We do
not take any position on the legal issues involved in this ongoing
litigation. Regardless of the result of the lawsuit, this situation will
affect the speed, scope, and duration of potential relief available to
U.S. producers who made these requests. Additionally, the unavailability
of production data on about 20 percent of textile and apparel product
categories-data that are necessary to fulfill CITA filing
requirements-inhibits equal access to the safeguard. These categories
represented about half of the total value of textile and apparel imports
from China. Beyond these issues, uncertainty about future developments in
global textile trade makes the future impact of the safeguard unclear. For
example, it is unclear to what extent any textile safeguards imposed on
China will provide relief to the U.S. industry or whether the textile
safeguards will instead increase the market share obtained by other
foreign producers, such as India, Pakistan, or Vietnam.

In the event the courts should rule that CITA may process threat-based
requests for China textile safeguards, we recommended that CITA amend its
procedures to clarify how it will proceed in threat-based cases, including
the information that producers should submit. To enhance access to
safeguard relief for all segments of the textile and apparel industry that
may face import surges, we also recommended that Commerce, as CITA's
chair, review the products and categories for which the U.S. Bureau of the
Census production data are unavailable and, with public input, conduct a
risk assessment aimed at identifying industry sectors at high risk of
experiencing disruptive import surges from China. We further recommended
that on the basis of the risk assessment, Commerce's Office of Textiles
and Apparel work with the Census Bureau to explore options to make
production data concerning these industry sectors available for safeguard
requests. The agencies did not comment on our recommendation relating to
clarifying procedures for threat-based cases due to ongoing litigation,
and disagreed with our recommendations regarding production data, stating
that such actions would be unproductive. We maintain that our
recommendations would make the China textile safeguard more transparent
and accessible.

In addition to our recent work on the textile safeguard, we are continuing
a body of work on other import relief mechanisms. We expect that this
ongoing work will result in a series of reports on relief mechanisms
available to U.S. producers who are adversely affected by unfair or
surging imports and the manner in which these remedies have been applied
to

China. These reports will cover countervailing and antidumping actions and
China product-specific safeguard measures authorized under section 421 of
the Trade Act of 1974, as amended.

Contacts and For further information regarding this statement, please
contact Adam Cowles at (202) 512-9637. Matthew Helm also made key
contributions to Acknowledgments this statement.

Related GAO Products

U.S.-China Trade: Textile Safeguard Procedures Should Be Improved.
GAO-05-296. Washington, D.C.: April 4, 2005.

U.S.-China Trade: Summary of 2003 World Trade Organization Transitional
Review Mechanism for China. GAO-05-209R. Washington, D.C.: January 25,
2005.

U.S.-China Trade: Opportunities to Improve U.S. Government Efforts to
Ensure China's Compliance with World Trade Organization Commitments.
GAO-05-53. Washington, D.C.: October 6, 2004.

International Trade: Current Government Data Provide Limited Insight into
Offshoring of Services. GAO-04-932. Washington, D.C.: September 22, 2004.

Intellectual Property: U.S. Efforts Have Contributed to Strengthened Laws
Overseas, but Challenges Remain. GAO-04-912. Washington, D.C.: September
8, 2004.

World Trade Organization: U.S. Companies' Views on China's Implementation
of Its Commitments. GAO-04-508. Washington, D.C.: March 24, 2004.

International Trade: U.S. Customs and Border Protection Faces Challenges
in Addressing Illegal Textile Transshipment. GAO-04-345. Washington, D.C.:
January 23, 2004.

World Trade Organization: Ensuring China's Compliance Requires a Sustained
and Multifaceted Approach. GAO-04-172T. Washington, D.C.: October 30,
2003.

GAO's Electronic Database of China's World Trade Organization Commitments.
GAO-03-797R. Washington, D.C.: June 13, 2003.

World Trade Organization: First-Year U.S. Efforts to Monitor China's
Compliance. GAO-03-461. Washington, D.C.: March 31, 2003.

World Trade Organization: Analysis of China's Commitments to Other
Members. GAO-03-4. Washington, D.C.: October 3, 2002.

World Trade Organization: Selected U.S. Company Views about China's
Membership. GAO-02-1056. Washington, D.C.: September 23, 2002.

World Trade Organization: Observations on China's Rule of Law Reforms.
GAO-02-812T. Washington, D.C.: June 6, 2002.

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