U.S.-China Trade: USTR's China Compliance Reports and Plans Could
Be Improved (14-APR-08, GAO-08-405).				 
                                                                 
Congress mandated that the United States Trade Representative	 
(USTR) annually assess China's trade compliance and report its	 
findings to Congress. In addition, USTR conducted an interagency 
"top-to-bottom review" of U.S. trade policies toward China.	 
USTR's resulting February 2006 report outlined U.S objectives and
action items. GAO was asked to (1) evaluate USTR's annual China  
trade compliance reports to Congress and the degree to which they
present information necessary to fully understand China's	 
compliance situation and (2) examine the status of the plans	 
presented in USTR's February 2006 top-to-bottom report. GAO	 
systematically analyzed the contents of USTR's compliance reports
from 2002 to 2007 and reviewed information on the status of	 
agencies' monitoring and enforcement activities.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-405 					        
    ACCNO:   A81666						        
  TITLE:     U.S.-China Trade: USTR's China Compliance Reports and    
Plans Could Be Improved 					 
     DATE:   04/14/2008 
  SUBJECT:   Foreign governments				 
	     Foreign trade agreements				 
	     Foreign trade policies				 
	     Human capital					 
	     Human capital planning				 
	     Internal controls					 
	     International agreements				 
	     International cooperation				 
	     International economic relations			 
	     International organizations			 
	     International relations				 
	     International trade				 
	     International trade regulation			 
	     International trade restriction			 
	     Monitoring 					 
	     Noncompliance					 
	     Performance measures				 
	     Program evaluation 				 
	     Reporting requirements				 
	     Staff utilization					 
	     Trade agreements					 
	     Trade policies					 
	     Trade regulation					 
	     program goals or objectives			 
	     Program implementation				 
	     China						 

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GAO-08-405

   

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United States Government Accountability Office: 
GAO: 

Report to the Chairman, Committee on Finance, U.S. Senate: 

April 2008: 

U.S.-China Trade: 

USTRï¿½s China Compliance Reports and Plans Could Be Improved: 

GAO-08-405: 

GAO Highlights: 

Highlights of GAO-08-405, a report to the Chairman, Committee on 
Finance, U.S. Senate. 

Why GAO Did This Study: 

Congress mandated that the United States Trade Representative (USTR) 
annually assess Chinaï¿½s trade compliance and report its findings to 
Congress. In addition, USTR conducted an interagency ï¿½top-to-bottom 
reviewï¿½ of U.S. trade policies toward China. USTRï¿½s resulting February 
2006 report outlined U.S objectives and action items. 

GAO was asked to (1) evaluate USTRï¿½s annual China trade compliance 
reports to Congress and the degree to which they present information 
necessary to fully understand Chinaï¿½s compliance situation and (2) 
examine the status of the plans presented in USTRï¿½s February 2006 top-
to-bottom report. GAO systematically analyzed the contents of USTRï¿½s 
compliance reports from 2002 to 2007 and reviewed information on the 
status of agenciesï¿½ monitoring and enforcement activities. 

What GAO Found: 

USTRï¿½s annual reports to Congress, which detail U.S. industry concerns 
with China's compliance and progress on resolving such concerns, are 
very consistent in format and language. However, they lack any summary 
analysis about the number, scope, and disposition of reported issues 
that would facilitate understanding of developments in Chinaï¿½s trade 
compliance and better tracking of the effectiveness of U.S. monitoring 
and enforcement efforts with China. For example, USTRï¿½s narrative 
reports make it difficult to understand the relative level of progress 
China made in each trade area in a given year. USTR reported issues 
that spanned nine trade areas and ranged from very specific issues to 
broader concerns; however, USTRï¿½s narrative reports make it difficult 
to ascertain specific changes or trends. GAOï¿½s systematic content 
analysis quantified the number, type, and disposition of trade issues 
and identified 180 individual compliance issues from 2002 to 2007. GAO 
analysis showed that China resolved a quarter of these issues, but made 
no progress on one-third of them. Also, GAOï¿½s analysis revealed that 
Chinaï¿½s progress in resolving compliance issues varied by trade area 
and has been slowing over time, especially since 2004, when most 
progress was made. 

Figure: Resolution and Progress of Reported Compliance Issues in Total 
and Over Time, 2003-2007: 

[See PDF for image] 

Current Status of All Compliance Issues, 2002-2007: 
Resolved: 23%; 
Some progress noted: 40%; 
No progress noted: 37%. 

Chinaï¿½s Progress on Compliance Issues Over Time, 2003-2007: 

Year: 2003; 
Resolved: 9 issues; 
Some progress: 41 issues; 
No progress: 56 issues. 

Year: 2004; 
Resolved: 19 issues; 
Some progress: 28 issues; 
No progress: 64 issues. 

Year: 2005; 
Resolved: 7 issues; 
Some progress: 23 issues; 
No progress: 79 issues. 

Year: 2006; 
Resolved: 3 issues; 
Some progress: 16 issues; 
No progress: 93 issues. 

Year: 2007; 
Resolved: 3 issues; 
Some progress: 31 issues; 
No progress: 82 issues. 

Source: GAO analysis of USTR data. 

[End of figure] 

GAO could only partially determine the status of U.S. agenciesï¿½ 
implementation of USTRï¿½s 2006 top-to-bottom report, which outlines 
broad objectives and priority goals for U.S.-China trade relations as 
well as specific action items. GAO found that key trade agencies made 
considerable progress implementing planned action items. They increased 
bilateral engagement with the Chinese and monitoring and enforcement 
capacity by increasing staffing levels and training opportunities, but 
staffing gaps and limited Chinese language capacity are challenges at 
some agencies. However, GAO could not determine agenciesï¿½ progress 
toward achieving some U.S. objectives and goals identified in the 
report. USTR does not formally assess its progress or measure program 
results. The lack of linkages between U.S. objectives and planned 
action items and undefined terms make it difficult to assess whether 
the steps agencies described taking were effective. Furthermore, the 
report has not been updated to reflect recent developments. 

What GAO Recommends: 

To improve U.S. monitoring and enforcement related to China, USTR 
should (1) systematically identify and report the number, type, and 
disposition of issues in its annual compliance reports to Congress; (2) 
update and improve the plans in its 2006 top-to-bottom report; and (3) 
take steps to assess its implementation of these plans. USTR did not 
comment on GAOï¿½s recommendations but expressed concern about 
quantifying compliance information and said the top-to-bottom report 
was a one-time policy document, not a plan. Still, GAO believes 
effective reporting enhances USTRï¿½s ability to provide useful 
information on Chinaï¿½s WTO compliance and the status of U.S.-China 
trade objectives to Congress. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-405]. For more 
information, contact Loren Yager at (202) 512-4347 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

USTRï¿½s Annual Reports to Congress Do Not Systematically Analyze Chinaï¿½s 
Progress in Resolving Compliance Issues: 

USTRï¿½s Progress Toward Achieving Top-to-Bottom Report Objectives Cannot 
be Fully Determined: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Status of Top-to-Bottom Review: 

Appendix III: Comments from the United States Trade Representative: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Examples of Chinaï¿½s Successful Implementation of Its WTO 
Commitments, 2002-2007: 

Table 2: Number of Compliance Issues in Each Trade Area of Chinaï¿½s 
Trade Regime, 2002-2007: 

Table 3: Examples of Compliance Issues That USTR Reported Were 
Resolved, 2002-2007: 

Table 4: Examples of Compliance Issues Where USTR Reported That China 
Made No Progress, 2003-2007: 

Table 5: List of WTO Cases Filed by the United States Against China: 

Table 6: Examples of Key Areas of Progress from December 2007 JCCT and 
SED Meetings: 

Table 7: Examples of JCCT Working Groups: 

Table 8: Comparison of Agency Staffing for Key China-Trade Units for 
Fiscal Years 2003 and 2007 at Headquarters and Overseas: 

Table 9: Description of GAO Categories for Disposition of Chinaï¿½s WTO 
Compliance Issues and Examples of Disposition: 

Table 10: Action Items, Implementing Steps, Responsibilities, and 
Status: 

Table 11: Top-to-Bottom Objectives and Priority Goals: 

Figures: 

Figure 1: Current Status of All Compliance Issues, 2002-2007: 

Figure 2: Persistence of Compliance Issues and Number of Reported 
Compliance Issues, 2002-2007: 

Figure 3: Chinaï¿½s Progress on Compliance Issues Over Time, 2003-2007: 

Figure 4: Number of Issues and Overall Disposition, by Trade Area: 

Figure 5: USTR Action on Individual Compliance Issues: 

Abbreviations: 

AD/CVD: Antidumping/Countervailing Duty Operations: 

FAS: Foreign Agricultural Service: 

HHS: Department of Health and Human Services: 

JCCT: Joint Commission on Commerce and Trade: 

SED: Strategic Economic Dialogue: 

TPRG: Trade Policy Review Group: 

TPSC: Trade Policy Staff Committee: 

TRM: Transitional Review Mechanism: 

TBT: technical barriers to trade: 

USDA: United States Department of Agriculture: 

USPTO: United States Patent and Trademark Office: 

USTR: United States Trade Representative: 

VAT: value added tax: 

WTO: World Trade Organization: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 14, 2008: 

The Honorable Max Baucus: 
Chairman: 
Committee on Finance: 
United States Senate: 

Dear Mr. Chairman: 

Recognizing that monitoring and enforcing Chinaï¿½s trade commitments, as 
specified in Chinaï¿½s December 2001 World Trade Organization (WTO) 
accession agreement, might prove difficult, Congress mandated that the 
United States Trade Representative (USTR) review and assess Chinaï¿½s 
compliance and annually report these findings to Congress. [Footnote 1] 
According to these reports, Chinaï¿½s record in resolving compliance 
issues is mixed, although China has taken significant steps to 
implement its trade commitments and open its markets to foreign goods 
and services since its accession. [Footnote 2] Many of Chinaï¿½s WTO 
commitments were phased in over the first 5 years and have largely been 
implemented, but compliance with some has proven especially difficult. 

In addition to these annual compliance reviews, USTR conducted a one-
time interagency ï¿½top-to-bottom reviewï¿½ of U.S. trade policies toward 
China. USTRï¿½s review considered GAOï¿½s prior work, which identified 
opportunities to improve U.S. government efforts in this area. USTR 
reported on the results of this review in February 2006 and concluded 
that the United States was entering a new more mature phase in its 
relationship with China that required it to readjust its trade 
resources and priorities to meet new challenges. 

In response to your request to understand the U.S. governmentï¿½s 
progress in monitoring and enforcing Chinaï¿½s trade commitments, we 
reviewed (1) USTRï¿½s series of annual reports titled Report to Congress 
on Chinaï¿½s WTO Compliance and (2) USTRï¿½s February 2006 top-to-bottom 
report, U.S.-China Trade Relations: Entering a New Phase of Greater 
Accountability and Enforcement. We (1) evaluated the degree to which 
USTRï¿½s annual reports to Congress on Chinaï¿½s WTO compliance present 
information necessary to clearly understand Chinaï¿½s compliance 
situation and (2) examined the status of USTR efforts to implement the 
action items and achieve the objectives presented in its February 2006 
top-to-bottom report. [Footnote 3] 

We reviewed and systematically analyzed the detailed narrative 
descriptions of Chinaï¿½s compliance issues in USTRï¿½s 2002 to 2007 
reports to Congress, quantified the number of compliance issues 
reported in each year by USTR, and categorized the progress USTR 
reported in resolving particular compliance issues. [Footnote 4] Our 
analysis relied on USTRï¿½s reports, and we did not do our own 
independent assessment of Chinaï¿½s compliance with its trade commitments 
or of the actions taken by USTR or other agencies. We interviewed key 
industry associations and verified with them that USTRï¿½s annual reports 
are generally fair and complete representations of U.S. industry 
concerns. [Footnote 5] To assess USTRï¿½s progress in implementing its 
top-to-bottom report, we reviewed the document to identify the 
objectives, related priority goals, action items, and implementing 
steps. We then had USTR and three key agencies (Departments of 
Commerce, State, and Agriculture) explain how they implemented the 
objectives, priority goals, action items, and implementing steps, and 
provide documentation to support their responses. To the extent 
possible, we independently verified their responses against information 
in agency reports, planning documents, WTO and Joint Commission on 
Commerce and Trade (JCCT) documents, and staffing data. In addition, to 
support our review, we interviewed officials at USTR, the Departments 
of Agriculture (USDA), Commerce, and State, and private sector groups 
in Washington, D.C., and in Beijing, China. We conducted this 
performance audit from March 2007 to April 2008 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

USTRï¿½s annual reports to Congress do not have the systematic analysis 
needed to clearly understand Chinaï¿½s compliance situation. The reports, 
which describe many issues with Chinaï¿½s compliance and progress on 
resolving such issues in detail, are very consistent in format and 
language. However, they lack summary analysis about the number, scope, 
and disposition of reported issues, which would facilitate 
understanding of developments in Chinaï¿½s trade compliance and better 
tracking of the effectiveness of U.S. monitoring and enforcement 
efforts with China. For example, USTRï¿½s narrative reports make it 
difficult to understand the comparative level of progress China made in 
each trade area in a given year and identify overall patterns or trends 
over time. Therefore, we conducted a systematic content analysis of 
USTRï¿½s annual reports in order to quantify the number, type, and 
disposition of trade issues, and our analysis identified about 180 
individual compliance issues from 2002 to 2007. These issues spanned 
nine trade areas and ranged from very specific issues, such as China 
failing to establish or designate an official journal dedicated to 
publication of all laws and regulations, to broader concerns such as a 
lack of transparency in its quota allocation process. Our analysis of 
USTRï¿½s reports showed that China resolved a quarter of these issues, 
but made no progress on one-third of them. In addition, our analysis 
revealed that Chinaï¿½s progress in resolving compliance issues appears 
to be slowing over time, especially since 2003 and 2004, when most 
progress was made. We also found that Chinaï¿½s progress on resolving 
individual issues varies significantly by trade area. For instance, 
USTR reported that the highest proportion of issues on which China 
either made progress or resolved the issue were in the agriculture 
section, and the lowest proportion of progress was in import 
regulation. 

We were able to only partially determine the status of the U.S. 
agenciesï¿½ implementation of USTRï¿½s 2006 top-to-bottom report, which 
outlines broad objectives, priority goals and action items for U.S.-
China trade relations and serves as a plan to focus U.S. government 
resources. On one hand, we found that USTR and the other agencies have 
made considerable progress implementing the planned action items listed 
in the report. The key U.S. trade agencies took steps to increase 
bilateral engagement with the Chinese, expand the U.S. governmentï¿½s 
capacity to enforce and negotiate by increasing staffing levels in 
headquarters and overseas, and improve training opportunities. However, 
we found that some previously identified management challenges, namely 
staffing gaps and limited Chinese language capacity, remain at some 
agencies. On the other hand, we could not fully determine USTRï¿½s 
progress toward achieving the reportï¿½s broad objectives, which go 
beyond trade compliance. While this report lays out USTRï¿½s 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 
other USTR plans. The lack of linkages between U.S. objectives and 
planned action items and undefined terms makes it difficult to assess 
whether the steps agencies reported taking were effective. Furthermore, 
the report has not been updated to reflect developments such as the 
creation of the Treasury-led Strategic Economic Dialogue (SED) and U.S. 
trade actions against China. 

To improve policymakersï¿½ and the publicï¿½s understanding of Chinaï¿½s 
trade compliance situation, USTR should clearly and systematically 
identify the number, type, and disposition of the trade issues it is 
pursuing with China and report this and more detailed trend information 
in its annual China trade compliance reports to Congress. 

To help achieve U.S. trade objectives with China, USTR should update 
and improve the plans reported to Congress in its 2006 top-to-bottom 
report by considering the 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. USTR should also take steps to monitor 
implementation of these plans over time. 

In responding to our draft report, 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 
did not comment specifically on our recommendations. They asked us to 
clarify certain aspects of our analysis of their annual reports and 
raised several concerns. For instance, USTR believed that we 
undervalued the systematic analysis in their annual reports, that there 
were inherent limitations and difficulties in developing meaningful 
quantitative measures, and was concerned about the advisability of 
providing quantitative analysis in USTRï¿½s annual reports. However, we 
disagree and continue to believe that providing summary analysis -- 
both quantitative and qualitative -- in the annual reports would 
enhance understanding about Chinaï¿½s compliance situation and provide 
important information for Congress to conduct oversight and for senior 
policymakers to assess the success of USTRï¿½s and other key trade 
agenciesï¿½ 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 ï¿½in the narrow and specific senseï¿½ 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 
USTRï¿½s annual reports to Congress on Chinaï¿½s WTO compliance. However, 
it is our understanding that USTRï¿½s 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. USTRï¿½s 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 Officeï¿½s activities. 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. 

We also received technical comments from USTR and the Departments of 
Agriculture, Commerce, and the Treasury, and we have made changes 
throughout this report to update information and to clarify our 
findings as appropriate. 

Background: 

Chinaï¿½s 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. governmentï¿½s efforts to ensure Chinaï¿½s compliance with 
its trade commitments under the WTO are part of an overall U.S. 
structure, led by USTR, to monitor and enforce foreign governmentsï¿½ 
compliance with existing trade agreements. [Footnote 6] 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. [Footnote 7] 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 
agenciesï¿½ 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 agenciesï¿½ compliance activities. 

USTR Is Required to Report Annually to Congress on Chinaï¿½s Compliance 
with Its Trade Commitments: 

USTRï¿½s annual compliance reports examine nine broad categories of WTO 
commitments undertaken by China and include a detailed narrative 
outlining Chinaï¿½s compliance with these commitments. USTR is required 
to report annually to Congress on Chinaï¿½s compliance with commitments 
made in connection with its accession to the WTO, including both 
multilateral and bilateral commitments made to the United States. 
[Footnote 8] The reports, which are submitted to Congress every year by 
December 11, the anniversary of Chinaï¿½s 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 Chinaï¿½s 
implementation of the particular commitments made in Chinaï¿½s 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 Chinaï¿½s 
compliance. 

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

Since GAO last reported on Chinaï¿½s 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. [Footnote 9] USTRï¿½s 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. 

USTRï¿½s Annual Reports to Congress Do Not Systematically Analyze Chinaï¿½s 
Progress in Resolving Compliance Issues: 

USTRï¿½s annual reports to Congress do not have the systematic analysis 
needed to clearly provide an understanding of Chinaï¿½s compliance 
situation. While the reports describe many issues with Chinaï¿½s 
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 Chinaï¿½s trade compliance. Therefore, we 
conducted a systematic content analysis of USTRï¿½s 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 Chinaï¿½s progress in resolving issues 
varies by trade area. More detailed information on Chinaï¿½s slowed 
progress in certain areas and faster progress in others might help 
Congress better understand Chinaï¿½s 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 USTRï¿½s 
latest report, China made further progress on various compliance 
issues. 

USTRï¿½s Annual Reports Lack Systematic Analysis and Comparative 
Information: 

While the lengthy detailed narrative in USTRï¿½s reports describe many 
issues with Chinaï¿½s compliance, as well as Chinaï¿½s 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, USTRï¿½s 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 Chinaï¿½s 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. Chinaï¿½s 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 Chinaï¿½s commitments had passed, and 
Chinaï¿½s 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 Chinaï¿½s successful implementation of its WTO 
commitments from each of USTRï¿½s annual reports from 2002 through 2007. 

Table 1: Examples of Chinaï¿½s Successful Implementation of Its WTO 
Commitments, 2002-2007: 

Year: 2002; 
Examples of successful implementation: 
* China removed several nontariff barriers; 
* China repealed and revised hundreds of trade laws and regulations. 

Year: 2003; 
Examples of successful implementation: 
* China opened its motor vehicle financing sector; 
* China lifted certain geographic restrictions in the insurance sector 
ahead of schedule. 

Year: 2004; 
Examples of successful implementation: 
* China implemented the required tariff changes on agricultural goods 
on schedule; 
* China lifted geographic restrictions in the banking and insurance 
sectors on schedule. 

Year: 2005; 
Examples of successful implementation: 
* China worked toward bringing its standards regime in line with 
international standards. 

Year: 2006; 
Examples of successful implementation: 
* China successfully implemented new rules requiring computers to be 
preinstalled with licensed operating system software. 

Year: 2007; 
Examples of successful implementation: 
* China implemented annual tariff reductions on time. 

Source: GAO analysis of USTRï¿½s 2002-2007 Reports to Congress on Chinaï¿½s 
WTO Compliance. 

[End of table] 

USTRï¿½s Reports Contain a Significant Number and Wide Array of Remaining 
Compliance Issues: 

Our analysis of USTRï¿½s reports to Congress from 2002 to 2007 identified 
180 compliance issues mentioned in the reports spanning all nine areas 
of Chinaï¿½s 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). Chinaï¿½s 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. 

Table 2: Number of Compliance Issues in Each Trade Area of Chinaï¿½s 
Trade Regime, 2002-2007: 

Trade area: Import regulation; 
Number of compliance issues: 32. 

Trade area: Services; 
Number of compliance issues: 32. 

Trade area: Internal policies affecting trade; 
Number of compliance issues: 29. 

Trade area: Agriculture; 
Number of compliance issues: 28. 

Trade area: Intellectual property rights; 
Number of compliance issues: 24. 

Trade area: Trading rights and distribution; 
Number of compliance issues: 22. 

Trade area: Investment; 
Number of compliance issues: 7. 

Trade area: Legal framework; 
Number of compliance issues: 4. 

Trade area: Export regulation; 
Number of compliance issues: 2. 

Trade area: Total; 
Number of compliance issues: 180. 

Source: GAO analysis of USTRï¿½s 2002-2007 Reports to Congress on Chinaï¿½s 
WTO Compliance. 

[End of table] 

It is important to note that not all compliance issues mentioned in 
USTRï¿½s reports equally affect U.S. exports to China and that some 
issues are more easily resolved than others. Thus, while USTRï¿½s 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. 

Figure 1: Current Status of All Compliance Issues, 2002-2007: 

[See PDF for image] 

Current Status of All Compliance Issues, 2002-2007: 
Resolved: 23%; 
Some progress noted: 40%; 
No progress noted: 37%. 

Source: GAO analysis of USTR data. 

[End of figure] 

Table 3: Examples of Compliance Issues That USTR Reported Were 
Resolved, 2002-2007: 

Trade area: Trading rights and distribution; 
Examples of resolved compliance issues: 
* Foreign-invested majority owned joint venture enterprises trading 
rights limited by various requirements; 
* Late eligibility requirements for minority owned joint venture 
enterprises; 
* Distribution by [some] minority joint venture wholesaling and 
commission agents seeking to distribute goods made by other enterprises 
in China limited by qualifications requirements and other restrictions. 

Trade area: Agriculture; 
Examples of resolved compliance issues: 
* Tariff-rate quotas for bulk agricultural commodities had small 
allocation sizes; 
* Administration of tariff-rate quota system had burdensome licensing 
requirements; 
* Planned suspension of soybean imports not based on legitimate phyto-
sanitary concerns. 

Trade area: Internal policies affecting trade; 
Examples of resolved compliance issues: 
* Application of value added tax (VAT) rebate on semiconductors 
violates WTO national treatment principle; 
* Concern over the use of mandatory standards that do not comply with 
accepted international standards; 
* Concern over the clarity of requirements and deadlines regarding 
recycled scrap. 

Trade area: Import regulation; 
Examples of resolved compliance issues: 
* Complete regulations for the rules of origin not yet issued; 
* State Council late in issuing necessary regulations; 
* Lack of transparency in the quota allocation process. 

Trade area: Services; 
Examples of resolved compliance issues: 
* Motor vehicle financing regulations subject foreign financial 
institutions to unnecessarily long approval process; 
* Concerns regarding the independence of the regulator; 
* Express delivery services subject to problematic restrictions 
involving entrustment authority. 

Trade area: Intellectual property rights; 
Examples of resolved compliance issues: 
* Concern that Chinese regulations do not provide well-known foreign 
trademarks national treatment; 
* Foreign companies must use an agent to register trademarks, but 
domestic companies do not. 

Source: GAO analysis of USTRï¿½s 2002-2007 Reports to Congress on Chinaï¿½s 
WTO Compliance. 

[End of table] 

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 USTRï¿½s 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. 

Table 4: Examples of Compliance Issues Where USTR Reported That China 
Made No Progress, 2003-2007: 

Trade area: Import regulation; 
Examples of compliance issues with no progress noted: 
* Chinese customs officials inconsistently apply regulations from one 
Customs Administration Office to the other; 
* There is concern over the terms and conditions governing the 
extension of a safeguard measure. 

Trade area: Services; 
Examples of compliance issues with no progress noted: 
* China restricts access to its markets by foreign credit card 
companies; 
* China has still not established an independent regulator in the 
financial information services sector. 

Trade area: Internal policies affecting trade; 
Examples of compliance issues with no progress noted: 
* Chinese producers are able to avoid paying the VAT through poor 
collection, special deals, and fraud; 
* Computation of consumption tax rate for certain products violates WTO 
national treatment principle. 

Trade area: Intellectual property rights; 
Examples of compliance issues with no progress noted: 
* Low fines in administrative enforcement are ineffective deterrent 
against violators; 
* Most judges lack necessary technical training in civil enforcement. 

Trade area: Trading rights and distribution; 
Examples of compliance issues with no progress noted: 
* China has not yet implemented its trading rights commitments insofar 
as they relate to the importation of books, newspapers, and magazines; 
* China may not be fully implementing its commitment to allow foreign 
enterprises to sell gasoline at the retail level. 

Trade area: Investment; 
Examples of compliance issues with no progress noted: 
* Revised investment laws and regulations fail to eliminate 
requirements to transfer technology; 
* Officials inappropriately consider export performance and local 
content when approving an investment or recommending a loan approval. 

Trade area: Agriculture; 
Examples of compliance issues with no progress noted: 
* There is reported selective enforcement of inspection-related 
requirements for agricultural products. 

Source: GAO analysis of USTRï¿½s 2002-2007 Reports to Congress on Chinaï¿½s 
WTO Compliance. 

[End of table] 

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 USTRï¿½s annual reports for at 
least 5 of the 6 years. In addition, less than 40 percent of all issues 
were present in USTRï¿½s 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). 

Figure 2: Persistence of Compliance Issues and Number of Reported 
Compliance Issues, 2002-2007: 

[See PDF for image] 

This figure contains both a pie-chart and a stacked vertical bar graph. 
The pie-chart depicts the following data: 

Age of issues: 
1-2 years: 38%; 
3-4 years: 30%; 
5-6 years: 32%. 

The bar graph depicted the following data: 

Year: 2002; 
Issues carried over from a previous year: 0; 
New issues added: 79; 
Total: 79. 

Year: 2003; 
Issues carried over from a previous year: 79; 
New issues added: 27; 
Total: 106. 

Year: 2004; 
Issues carried over from a previous year: 89; 
New issues added: 22; 
Total: 111. 

Year: 2005; 
Issues carried over from a previous year: 89; 
New issues added: 20; 
Total: 109. 

Year: 2006; 
Issues carried over from a previous year: 95; 
New issues added: 17; 
Total: 112. 

Year: 2007; 
Issues carried over from a previous year: 101; 
New issues added: 15; 
Total: 116. 

Source: GAO analysis of USTR data. 

[End of figure] 

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 USTRï¿½s 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 USTRï¿½s 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 USTRï¿½s 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. 

Chinaï¿½s Progress on Compliance Issues Slowed Since 2004: 

While USTR noted generally that Chinaï¿½s 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, Chinaï¿½s progress toward further market liberalization 
began to slow. Consistent with USTRï¿½s 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). 

Figure 3: Chinaï¿½s Progress on Compliance Issues Over Time, 2003-2007: 

[See PDF for image] 

This figure is a multiple line graph depicting the following data: 

Chinaï¿½s Progress on Compliance Issues Over Time, 2003-2007: 

Year: 2003; 
Resolved: 9 issues; 
Some progress: 41 issues; 
No progress: 56 issues. 

Year: 2004; 
Resolved: 19 issues; 
Some progress: 28 issues; 
No progress: 64 issues. 

Year: 2005; 
Resolved: 7 issues; 
Some progress: 23 issues; 
No progress: 79 issues. 

Year: 2006; 
Resolved: 3 issues; 
Some progress: 16 issues; 
No progress: 93 issues. 

Year: 2007; 
Resolved: 3 issues; 
Some progress: 31 issues; 
No progress: 82 issues. 

Source: GAO analysis of USTR data. 

[End of figure] 

In addition to Chinaï¿½s 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 Chinaï¿½s 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 
WTOï¿½s 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 USTRï¿½s Annual Compliance Reports: 

USTR noted that Chinaï¿½s 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 areasï¿½such as trading rights and distribution 
services, agriculture, and internal policiesï¿½having 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 Chinaï¿½s 
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. 

Figure 4: Number of Issues and Overall Disposition, by Trade Area: 

[See PDF for image] 

This figure contains multiple bar graphs depicting the following data: 

Trade area: All; 
Number of issues: 180; 
Number of issues by year, 2002: 79; 
Number of issues by year, 2003: 106; 
Number of issues by year, 2004: 111; 
Number of issues by year, 2005: 109; 
Number of issues by year, 2006: 112; 
Number of issues by year, 2007: 116; 
Age of issues, less than 3 years: 38%; 
Age of issues, 3 or more years: 62%; 
Resolution: resolved: 23%; 
Resolution: some progress noted: 41%; 
Resolution: No progress noted: 37%. 

Trade area: Agriculture; 
Number of issues: 28; 
Number of issues by year, 2002: 13; 
Number of issues by year, 2003: 18; 
Number of issues by year, 2004: 14; 
Number of issues by year, 2005: 15; 
Number of issues by year, 2006: 13; 
Number of issues by year, 2007: 12; 
Age of issues, less than 3 years: 36%; 
Age of issues, 3 or more years: 64%; 
Resolution: resolved: 32; 
Resolution: some progress noted: 54%; 
Resolution: No progress noted: 14%. 

Trade area: Trading rights and distribution; 
Number of issues: 22; 
Number of issues by year, 2002: 0; 
Number of issues by year, 2003: 6; 
Number of issues by year, 2004: 9; 
Number of issues by year, 2005: 12; 
Number of issues by year, 2006: 10; 
Number of issues by year, 2007: 10; 
Age of issues, less than 3 years: 68%; 
Age of issues, 3 or more years: 32%; 
Resolution: resolved: 45%; 
Resolution: some progress noted: 23%; 
Resolution: No progress noted: 32%. 

Trade area: Intellectual property rights; 
Number of issues: 24; 
Number of issues by year, 2002: 9; 
Number of issues by year, 2003: 13; 
Number of issues by year, 2004: 12; 
Number of issues by year, 2005: 13; 
Number of issues by year, 2006: 18; 
Number of issues by year, 2007: 14; 
Age of issues, less than 3 years: 50%; 
Age of issues, 3 or more years: 50%; 
Resolution: resolved: 8%; 
Resolution: some progress noted: 58%; 
Resolution: No progress noted: 33%. 

Trade area: Internal policies affecting trade; 
Number of issues: 29; 
Number of issues by year, 2002: 11; 
Number of issues by year, 2003: 16; 
Number of issues by year, 2004: 19; 
Number of issues by year, 2005: 14; 
Number of issues by year, 2006: 13; 
Number of issues by year, 2007: 21; 
Age of issues, less than 3 years: 48%; 
Age of issues, 3 or more years: 52%; 
Resolution: resolved: 31%; 
Resolution: some progress noted: 35%; 
Resolution: No progress noted: 35%. 

Trade area: Services; 
Number of issues: 32; 
Number of issues by year, 2002: 15; 
Number of issues by year, 2003: 22; 
Number of issues by year, 2004: 25; 
Number of issues by year, 2005: 26; 
Number of issues by year, 2006: 27; 
Number of issues by year, 2007: 27; 
Age of issues, less than 3 years: 16%; 
Age of issues, 3 or more years: 84%; 
Resolution: resolved: 9%; 
Resolution: some progress noted: 53%; 
Resolution: No progress noted: 38%. 

Trade area: Other (export regulation, investment, legal framework); 
Number of issues: 13; 
Number of issues by year, 2002: 7; 
Number of issues by year, 2003: 7; 
Number of issues by year, 2004: 9; 
Number of issues by year, 2005: 10; 
Number of issues by year, 2006: 12; 
Number of issues by year, 2007: 13; 
Age of issues, less than 3 years: 23%; 
Age of issues, 3 or more years: 77%; 
Resolution: resolved: 0%; 
Resolution: some progress noted: 46%; 
Resolution: No progress noted: 54%. 

Trade area: Import regulation; 
Number of issues: 32; 
Number of issues by year, 2002: 24; 
Number of issues by year, 2003: 24; 
Number of issues by year, 2004: 23; 
Number of issues by year, 2005: 19; 
Number of issues by year, 2006: 19; 
Number of issues by year, 2007: 19; 
Age of issues, less than 3 years: 28%; 
Age of issues, 3 or more years: 72%; 
Resolution: resolved: 25%; 
Resolution: some progress noted: 19%; 
Resolution: No progress noted: 56%. 

Note: Percentages may not total 100% due to rounding. 

Source: GAO analysis of USTR data. 

[End of figure] 

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 Chinaï¿½s 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. 

Figure 5: USTR Action on Individual Compliance Issues: 

[See PDF for image] 

This figure is a pie-chart depicting the following data: 

USTR Action on Individual Compliance Issues: 
Action: 75%; 
No action: 25%. 

Percentage of issues raised by the forum: 
WTO: 13%; 
JCCT: 32%; 
TRM: 54%; 
Other: 57%. 

Source: GAO analysis of USTR data. 

[End of figure] 

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). 

Table 5: List of WTO Cases Filed by the United States Against China: 

Name of case: Measures Affecting Financial Information Services and 
Foreign Financial Information Suppliers; 
Date filed: March 3, 2008; 
Outcome: Ongoing. 

Name of case: Measures Affecting Trading Rights and Distribution 
Services for Certain Publications and Audiovisual Entertainment 
Products; 
Date filed: April 10, 2007; 
Outcome: Ongoing. 

Name of case: Measures Affecting the Protection and Enforcement of 
Intellectual Property Rights; 
Date filed: April 10, 2007; 
Outcome: Ongoing. 

Name of case: Certain Measures Granting Refunds, Reductions or 
Exemptions from Taxes and Other Payments; 
Date filed: February 2, 2007; 
Outcome: Agreement reached in December 2007 

Name of case: Measures Affecting Imports of Automobile Parts; 
Date filed: March 30, 2006; 
Outcome: Ongoing. 

Name of case: Value-Added Tax on Integrated Circuits; 
Date filed: March 18, 2004; 
Outcome: Agreement reached in October 2005. 

Source: WTO. 

[End of table] 

China Made Further Progress on Various Compliance Issues in December 
2007: 

Since USTRï¿½s latest report, gains were made at the December 2007 JCCT 
and SED meeting that are not mentioned in the 2007 annual report on 
Chinaï¿½s 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 USTRï¿½s 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). 

Table 6: Examples of Key Areas of Progress from December 2007 JCCT and 
SED Meetings: 

Trade area: Intellectual property rights; 
Key areas of progress: 
* China agreed to strengthen enforcement of laws against company name 
misuse. The two sides also agreed to cooperate on case-by-case 
enforcement against such company name misuse. 

Trade area: Product safety; 
Key areas of progress: 
* China agreed in the JCCT to address specific loopholes in its 
regulation of bulk chemicals used as active pharmaceutical ingredients. 
China committed to expand its regulations to control bulk chemicals 
used as the underlying source of many counterfeit drugs. 

Trade area: Market access; 
Key areas of progress: 
* China agreed to take action to eliminate remaining redundancies in 
its testing and certification requirements for imported medical 
devices, and committed to implement a ï¿½one test, one feeï¿½ policy, 
establishing a single conformity assessment system for medical device 
testing. 

Trade area: Agriculture; 
Key areas of progress: 
* China agreed to allow six U.S. pork processing facilities to resume 
exports to China. 
* China agreed to eliminate the requirement to submit viable biotech 
seeds for testing, which will reduce the possibility of illegal copying 
of patented agricultural materials. 

Trade area: Telecommunications; 
Key areas of progress: 
* China confirmed that it will lower the registered capital 
requirements for U.S. telecommunications service providers to operate 
in China. 

Trade area: Integrity of trade and product safety; 
Key areas of progress: 
* The Environmental Protection Agency and Chinaï¿½s General 
Administration of Quality Supervision, Inspection and Quarantine have 
signed a Memorandum of Agreement to strengthen cooperation on sound 
environmental management practices related to imports and exports. 
* The U.S. Department of Health and Human Services (HHS) and Chinaï¿½s 
State Food and Drug Administration have agreed to expand cooperation in 
the areas of the safety of drugs and medical devices. 

Trade area: Financial sector; 
Key areas of progress: 
* China has agreed to allow foreign companies doing business in China, 
including banks, to issue stocks and bonds in Chinese currency. 

Trade area: Energy efficiency and security and climate change; 
Key areas of progress: 
* The United States and China reaffirmed their commitment ï¿½to reduce, 
or as appropriate, eliminate tariffs and non-tariff barriers to 
environmental goods and servicesï¿½ in the WTO. 

Sources: GAO analysis of information from the Departments of Commerce 
and the Treasury. 

[End of table] 

USTRï¿½s Progress Toward Achieving Top-to-Bottom Report Objectives Cannot 
be Fully Determined: 

We were only able to partially determine the status of USTRï¿½s 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. governmentï¿½s 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 challengesï¿½staffing gaps and limited Chinese language 
capacityï¿½remain. On the other hand, we could not determine progress 
toward achieving the top-to-bottom reportï¿½s broad objectives, which go 
beyond trade compliance. While this report lays out USTRï¿½s 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 ï¿½top-to-
bottomï¿½ review did not define terms such as ï¿½strengthenï¿½ and 
ï¿½effectivenessï¿½ 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. 
governmentï¿½s capacity to enforce and negotiate by increasing staff 
levels in headquarters and overseas and by improving training 
opportunities. While assessing these agenciesï¿½ 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 challengesï¿½staffing gaps and limited Chinese language 
capacityï¿½remained 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 Chinaï¿½s 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). 

Table 7: Examples of JCCT Working Groups JCCT working groups: 

* Agriculture Working Group; 
* Aviation Subgroup;
* Commercial Law Working Group; 
* Environment Subgroup; 
* High Tech Working Group; 
* Information Industry Working Group; 
* Insurance Dialogue; 
* Intellectual Property Rights Working Group; 
* Pharmaceuticals and Medical Devices Subgroup; 
* Steel Dialogue; 
* Structural Issues Working Group; 
* Textile Consultative Group; 
* Trade Remedies Working Group; 
* Trade Statistics Working Group; 
* Travel and Tourism Working Group;
* U.S.-China Legal Exchange. 

Source: Department of Commerce. 

[End of table] 

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 Chinaï¿½s 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. 
[Footnote 10] 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 Chinaï¿½s 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. governmentï¿½s 
capacity to enforce Chinaï¿½s trade compliance and to negotiate with 
China on trade issues. They also increased staff training 
opportunities. GAOï¿½s prior work recommended that the key trade agencies 
better manage their human capital to enhance the U.S. governmentï¿½s 
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. 

Staff Levels Increased: 

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 USTRï¿½s 
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 Commerceï¿½s U.S. Patent and Trademark Office added 
four new positions at the embassy in Beijing. Department of Commerceï¿½s 
and USDAï¿½s Foreign Services in China are the largest overseas office 
for each department. For example, 10 percent of Commerceï¿½s 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. [Footnote 11] 

Table 8: Comparison of Agency Staffing for Key China-Trade Units for 
Fiscal Years 2003 and 2007 at Headquarters and Overseas: 

Agency: Headquarters units: USTR; 
Main headquarters units: Office of China Affairs; 
Staffing 2003: 5; 
Staffing 2007: 10. 

Agency: Headquarters units: Commerce[A]; 
Main headquarters units: International Trade Administration, Import 
Administration; 
Staffing 2003: 9; 
Staffing 2007: 55. 

Agency: Headquarters units: Commerce[A]; 
Main headquarters units: International Trade Administration, Market 
Access and Compliance; 
Staffing 2003: 22; 
Staffing 2007: 21. 

Agency: Headquarters units: Commerce[A]; 
Main headquarters units: International Trade Administration, 
Manufacturing and Services; 
Staffing 2003: 0; 
Staffing 2007: 10. 

Agency: Headquarters units: Commerce[A]; 
Main headquarters units: International Trade Administration, Foreign 
Commercial Service; 
Staffing 2003: 2; 
Staffing 2007: 2. 

Agency: Headquarters units: State[B]: 
Main headquarters units: East Asia and the Pacific-China Desk; 
Staffing 2003: 3.25; 
Staffing 2007: 4. 

Agency: Headquarters units: State[B]: 
Main headquarters units: Economic Bureau-Intellectual Property Rights; 
Staffing 2003: 0; 
Staffing 2007: 1. 

Agency: Headquarters units: Agriculture[C]: 
Main headquarters units: Foreign Agricultural Service, Washington; 
Staffing 2003: 2.5; 
Staffing 2007: 9.9. 

Subtotal for headquarters units: 
Staffing 2003: 44; 
Staffing 2007: 113. 

Agency: Overseas units in Beijing, China: USTR; 
Main headquarters units: Minister Counselor for Trade Affairs; 
Staffing 2003: 0; 
Staffing 2007: 1. 

Agency: Overseas units in Beijing, China: Commerce; 
Main headquarters units: Trade Facilitation Office, Import 
Administration; 
Staffing 2003: 2; 
Staffing 2007: 2. 

Agency: Overseas units in Beijing, China: Commerce; 
Main headquarters units: Trade Facilitation Office, Market Access and 
Compliance; 
Staffing 2003: 2; 
Staffing 2007: 2. 

Agency: Overseas units in Beijing, China: Commerce; 
Main headquarters units: Trade Facilitation Office, Manufacturing and 
Services and National Institute of Standards and Technology; 
Staffing 2003: 0; 
Staffing 2007: 1. 

Agency: Overseas units in Beijing, China: Commerce; 
Main headquarters units: U.S. Patent and Trademark Office; 
Staffing 2003: 0; 
Staffing 2007: 2. 

Agency: Overseas units in Beijing, China: State; 
Main headquarters units: Economic Section, External Unit; 
Staffing 2003: 7.25; 
Staffing 2007: 7. 

Agency: Overseas units in Beijing, China: Agriculture
Main headquarters units: Office of Agriculture Affairs FAS; 
Staffing 2003: 5; 
Staffing 2007: 6. 

Agency: Overseas units in Beijing, China: Treasury; 
Main headquarters units: Minister Counselor for Financial Affairs; 
Staffing 2003: 0; 
Staffing 2007: 1. 

Subtotal for overseas units: 
Staffing 2003: 16; 
Staffing 2007: 22. 

Total all units: 
Staffing 2003: 60; 
Staffing 2007: 135. 

Sources: GAO summary of USTR, Commerce, State, and USDA data. 

Note: Figures do not total precisely due to rounding and are authorized 
full-time equivalent slots. Overseas data includes U.S. government full-
time equivalent slots only; it does not include staff outside of 
Beijing or Foreign Service Nationals. 

[A] The increased number of Import Administration staff working on 
China was due to the International Trade Administration Reorganization 
in 2004, which established the China/Non-Market Economy Unit within 
Import Administration Antidumping/Countervailing Duty 
Operations(AD/CVD). The China/NME Unit works almost exclusively on 
China cases. The offices included are AD/CVD Operations Offices 4, 8, 
and 9 and the Unitï¿½s Senior Enforcement Coordinatorï¿½s Office. The 
current staffing number for the China/Non-Market Economy Unit is 55. 
This figure does not include the number of employees in Import 
Administrationï¿½s Office of Policy, who work substantially on China 
issues. 

[B] In fiscal year 2007, State estimated that it had another 20 staff 
that devoted part of their time to China WTO issues. 

[C] USDAï¿½s FAS division estimates of full-time equivalent staff working 
on China compliance issues. Figures do not include other USDA agenciesï¿½ 
staff (e.g., the Animal and Plant Health Inspection Service or Food 
Safety and Inspection Service) that have routine responsibilities in 
supporting the governmentï¿½s work on China-WTO compliance efforts or 
staff positions inside FAS that are obligated but unfilled. 

[End of table] 

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. USTRï¿½s 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 Complianceï¿½s 
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. 
[Footnote 12] 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 Commerceï¿½s 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. 

Training Opportunities Expanded: 

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 
Commerceï¿½s 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. 

Language Skill Gaps Remain: 

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 
Commerceï¿½s 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 officersï¿½ 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. [Footnote 13] 

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

We could not determine agenciesï¿½ progress toward achieving the planï¿½s 
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 USTRï¿½s 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 ï¿½strengthenï¿½ and ï¿½effectivenessï¿½ and others 
do not include baseline information from which to measure progress. As 
a result, it is difficult to ascertain how the agencyï¿½s 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 USTRï¿½s China Affairs Office, and it guides USTRï¿½s as 
well as the U.S. governmentï¿½s 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. [Footnote 14] 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. 

Results Not Measured: 

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. USTRï¿½s top-to-bottom review 
drew upon GAO past reviews of monitoring and enforcement efforts. In 
GAOï¿½s 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 
agencyï¿½s goals, and they also did not assess their unitï¿½s results. We 
noted that planning and measuring results were important components to 
ensuring that government resources were used effectively to achieve the 
agenciesï¿½ goals. In addition, we stated that good planning and 
management links overall agency goals to individual unit activities and 
priorities. [Footnote 15] We recommended that these agencies take steps 
to improve performance management pertinent to the agenciesï¿½ 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 Commerceï¿½s 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 Administrationï¿½s 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 Administrationï¿½s Officeï¿½s 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. USDAï¿½s 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 USTRï¿½s 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: 

* Participationï¿½integrate 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 complianceï¿½monitor Chinaï¿½s adherence to 
international and bilateral trade obligations and secure full 
implementation and compliance; 

* Enforcement of U.S. trade lawsï¿½ensure 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 reformï¿½secure 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 promotionï¿½pursue 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 problemsï¿½identify 
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 
agencyï¿½s 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 USTRï¿½s 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 ï¿½increase effectiveness 
of high-level meetings with Chinaï¿½s leaders,ï¿½ but the implementing 
steps do not state how greater effectiveness will be accomplished; 
instead, the step is limited to ï¿½continue to hold high-level meetings.ï¿½ 
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 ï¿½initial stepsï¿½ and that additional action items would 
be developed and implemented in consultation with Congress and other 
stakeholders to ensure meaningful progress in achieving the reportsï¿½ 
key objectives. [Footnote 16] 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 
USTRï¿½s 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, USTRï¿½s 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 USTRï¿½s 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 policymakersï¿½ and the publicï¿½s understanding of Chinaï¿½s 
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 Chinaï¿½s WTO compliance in USTRï¿½s 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 USTRï¿½s annual reports. However, we disagree and still 
believe that providing summary analysis ï¿½ both qualitative and 
quantitative -- would enhance understanding about Chinaï¿½s compliance 
situation and provide important information for Congress to conduct 
oversight and for senior policymakers to assess the success of USTRï¿½s 
and other key trade agenciesï¿½ 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 ï¿½in the narrow and specific senseï¿½ 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 
USTRï¿½s annual reports to Congress on Chinaï¿½s WTO compliance. 
Furthermore, USTR stated that the reportï¿½s 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 USTRï¿½s 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. USTRï¿½s 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, USTRï¿½s report implies that updates were going to be 
provided, however, we agree that USTRï¿½s 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 departmentsï¿½ 
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 [hyperlink, 
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. 

Sincerely yours, 

Signed by: 

Loren Yager: 
Director, International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To assist Congress in better understanding the United States Trade 
Representativeï¿½s (USTR) reporting on the U.S. governmentï¿½s progress in 
monitoring and enforcing Chinaï¿½s trade commitments, we reviewed two key 
USTR reports, its annual December 11 report to Congress on Chinaï¿½s 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 USTRï¿½s 
annual reports to Congress on Chinaï¿½s World Trade Organization (WTO) 
compliance present information necessary to clearly understand Chinaï¿½s 
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. [Footnote 17] 

To examine the scope and disposition of compliance issues, we reviewed 
USTRï¿½s Report to Congress on Chinaï¿½s WTO Compliance from 2002 to 2007. 
[Footnote 18] These annual reports, mandated by Congress in conjunction 
with Chinaï¿½s 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 USTRï¿½s annual reports, and these groups noted that they 
were generally satisfied with the reportï¿½s portrayal of the compliance 
situation in China. [Footnote 19] 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 USTRï¿½s description and 
definition of problems in the narrative of the report. USTRï¿½s 
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 ï¿½No Progress Notedï¿½ 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 ï¿½Some Progress Notedï¿½ 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 
ï¿½Resolvedï¿½ 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. 

Table 9: Description of GAO Categories for Disposition of Chinaï¿½s WTO 
Compliance Issues and Examples of Disposition: 

Disposition category: No progress noted; 
Description of disposition category: USTR reported that China has made 
no progress in resolving a compliance issue or did not otherwise note 
progress on an issue. 
Example of disposition of issue: The issue that comment periods for 
technical barriers to trade (TBT) regulations are unacceptably brief 
was present from 2002 to 2007. In 2007, USTR reported that the United 
States has consistently highlighted during regular meetings that the 
comment periods established by China for the TBT measures continued to 
be unacceptably brief. 

Disposition category: Some progress noted; 
Description of disposition category: USTR reported that China had 
undertaken some action to resolve a compliance issue; however, the 
issue was not yet fully resolved. 
Example of disposition of issue: The issue that application of 
standards for foreign raw poultry and meat are not based on scientific 
evidence and violates national treatment persisted between 2002 and 
2007. In December 2005, Chinaï¿½s regulators were in the process of 
drafting new pathogen standards. 

Disposition category: Resolved; 
Description of disposition category: USTR reported that China had 
successfully undertaken steps to resolve compliance issue and that the 
issue was no longer a concern for the United States or the affected 
industry. 
Example of disposition of issue: The issue of small allocation sizes 
for tariff rate quotas for bulk agricultural commodities persisted 
between 2002 and 2004. In 2004, during the run-up to the April 2004 
Joint Commission on Commerce and Trade (JCCT) meeting, China 
implemented new regulatory provisions calling for the increase of quota 
allocation sizes. 

Source: GAO analysis of USTRï¿½s 2002-2007 Reports to Congress on Chinaï¿½s 
WTO Compliance. 

[End of table] 

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 USTRï¿½s 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 USTRï¿½s 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 reportï¿½s 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. 

[End of section] 

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 10: Action Items, Implementing Steps, Responsibilities, and 
Status: 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 1. Establish a China Enforcement Task Force and establish a 
Chief Counsel for China Trade Enforcement. 
Agency responsible for implementing: USTR; 
Status of implementing step: Implemented 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 2. Add at least seven new positions in China to report on 
economic developments, including monitoring compliance issues. 
Agency responsible for implementing: State; 
Status of implementing step: State Implemented. 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 3. Add more Intellectual Property Rights attachï¿½s and 
intellectual property rights foreign service nationals in Beijing and 
Guangzhou. 
Agency responsible for implementing: Commerce (U.S. Patent and 
Trademark Office [USPTO])
Status of implementing step: Implemented. 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 4. Expand intellectual property rights small and medium-sized 
enterprises Advisory Program, which provides U.S. companies with a 
free, 1-hour consultation with an experienced intellectual property 
rights attorney on protecting and enforcing intellectual property 
rights in China. 
Agency responsible for implementing: Commerce; 
Status of implementing step: Difficult to determine; because no 
baseline from which to judge. Commerce distributed a flyer to advertise 
the program and reached out to hundreds of U.S. companies. 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 5. Expand mechanism to transfer certain intellectual property 
rights cases to Chinese authorities. Enables the U.S. government to 
pass, to Chinaï¿½s government for action, vetted cases of intellectual 
property rights infringement involving U.S. rights holders who have 
been unable to effectively enforce their intellectual property rights 
in China. 
Agency responsible for implementing: Commerce (USPTO); 
Status of implementing step: Program not expanded; China notified 
Commerce in June 2007 that China had suspended the program. 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 6. Begin technical exchanges with Chinese to enforce 
intellectual property rights at its own borders and reduce Chinaï¿½s 
exports of counterfeit goods. 
Agency responsible for implementing: Homeland Security (Customs and 
Border Protection); 
Status of implementing step: Implemented. 

Action items and implementing steps: Action item 1: Expand enforcement 
capacity; 7. Continue seminars offered by U.S. officials to Chinese 
legislators on drafting intellectual property rights laws. 
Agency responsible for implementing: Commerce (USPTO); 
Status of implementing step: Implemented. 

Action items and implementing steps: Action item 2: Expand USTR 
capability to obtain and apply comprehensive, forward-looking 
information regarding Chinaï¿½s trade regime and practices to U.S. trade 
policy formulation and implementation; 8. Add personnel in China Office 
in support of China Enforcement Task Force. 
Agency responsible for implementing: USTR; 
Status of implementing step: Implemented. 

Action items and implementing steps: Action item 2: Expand USTR 
capability to obtain and apply comprehensive, forward-looking 
information regarding Chinaï¿½s trade regime and practices to U.S. trade 
policy formulation and implementation; 9. Create an Advisory Committee 
on Trade Policy and Negotiations China Task Force. 
Agency responsible for implementing: USTR; 
Status of implementing step: Implemented. 

Action items and implementing steps: Action item 3: Expand U.S. trade 
policy and negotiating capacity in Beijing 10. Post a senior trade 
official at the U.S. Embassy. 
Agency responsible for implementing: USTR; 
Status of implementing step: Implemented. 

Action items and implementing steps: Action item 4: Increase 
coordination with other trading partners 11. USTR will increase 
coordination with other trading partners. 
Agency responsible for implementing: Interagency; 
Status of implementing step: Difficult to determine; no baseline data 
provided; coordination with other trading partners is occurringï¿½USTR 
cites 14 instances. 

Action items and implementing steps: Action item 5: Deepen and 
strengthen regional engagement 12. Pursue increased trade 
liberalization with Asian economies and within the Asia-Pacific 
Economic Cooperation, including the Free Trade Agreement with Korea. 
Agency responsible for implementing: USTR; 
Status of implementing step: Difficult to determine; because 
deepen/strengthen are not defined. 

Action items and implementing steps: Action item 6: Increase focus on 
regulatory reform in China 13. Promote regulatory reform regarding (1) 
structural reform, (2) subsidies under the WTO, (3) sanitary and 
phytosanitary standards obligations under the WTO, and (4) development 
of antimonopoly laws. 
Agency responsible for implementing: Interagency; 
Status of implementing step: Being implemented. 

Action items and implementing steps: Action item 7: Increase 
effectiveness of high-level meetings with Chinaï¿½s leaders 14. Continue 
to hold high-level meetings with Chinese leaders via JCCT. 
Agency responsible for implementing: Interagency; 
Status of implementing step: Difficult to determine because 
effectiveness is not defined. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 15. Dialogue on participation in global institutions- This 
involves the (a) Pursuing Doha Development Agenda, (b) WTO Government 
Procurement Agreement Accession, (c) World Intellectual Property 
Organization Internet Treaties accession, and (d) Increase Chinese 
participation in Agricultural Standard-Setting Bodies. 
Agency responsible for implementing: Interagency: (a)USTR; 
(b)Interagency; (c)Commerce (USPTO); (d)Interagency; 
Status of implementing step: Being implemented: (a) Being implemented; 
(b) Being implemented; (c) Implemented; (d) Being implemented 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 16. Dialogue on services-Address Chinaï¿½s polices related to 
services, including (a) telecommunications, (b) direct selling 
industry, (c) distribution sector, (d) information technology, (e) 
health care, and (f) post financial attachï¿½ in Beijing and launch 
financial regulators dialogue. 
Agency responsible for implementing: Interagency: (a) Interagency; (b) 
Interagency; (c)Commerce; (d) Commerce; (e) Commerce/Health and Human 
Services; (f) Treasury; 
Status of implementing step: Being implemented: (a) Being implemented; 
(b) Being implemented; (c) Being implemented; (d) Being implemented; 
(e)Being implemented; (f) Implemented. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 17. Dialogue on subsidies and structural issues Address 
subsidies through (a) WTO and JCCT working group and (b) launch steel 
dialogue. 
Agency responsible for implementing: Interagency: (a) Interagency; (b) 
Interagency; 
Status of implementing step: Being implemented: (a) Being implemented; 
(b) Being implemented. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 18. Dialogue on standards (a) Launch Standards and Conformity 
Assessment Program in Beijing and (b) Technical Exchanges and 
Roundtables with Chinaï¿½s General Administration for Quality 
Supervision, Inspection and Quarantine. 
Agency responsible for implementing: Interagency: (a) Commerce/TDA; (b) 
Commerce; 
Status of implementing step: Being implemented: (a) Being implemented; 
(b) Being implemented. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 19. Dialogue on labor issues; 
Agency responsible for implementing: Department of Labor; 
Status of implementing step: Being implemented. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 20. Dialogue on environmental protection; 
Agency responsible for implementing: Environmental Protection Agency; 
Status of implementing step: Being implemented. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 21. Dialogue on Chinaï¿½s administration of antidumping laws; 
Agency responsible for implementing: Commerce; 
Status of implementing step: Being implemented. 

Action items and implementing steps: Action item 8: Strengthen and 
expand bilateral dialogues on numerous current and potential problem 
areas. 22. Dialogue on transparency and uniform application of laws; 
Agency responsible for implementing: Interagency; 
Status of implementing step: Being implemented. 

Action items and implementing steps: Action item 9: Strengthen U.S. 
government interagency coordination. 23. TPRG and TPSC to conduct 
monthly reviews of strategies and progress made in achieving the key 
objectives in the February 2006-U.S.-China Trade Relations report. 
Agency responsible for implementing: Interagency; 
Status of implementing step: Difficult to determine; meetings are held, 
but no minutes are kept so not able to determine if strategies and 
progress are assessed. 

Action items and implementing steps: Action item 9: Strengthen U.S. 
government interagency coordination. 24. TPCC will increase export pro 
motion activities. 
Agency responsible for implementing: Interagency; 
Status of implementing step: Difficult to determine; no baseline 
information is available; however, China is the largest post for 
Commerce with 125 employees and several activities have taken place. 

Action items and implementing steps: Action item 10: Strengthen the 
executive-congressional partnership on China trade 25. Initiate regular 
briefings for members and staff to discus the status of the top-to-
bottom review. 
Agency responsible for implementing: USTR; 
Status of implementing step: USTR Unable to determine if partnership 
has been strengthened, but USTR briefed congressional members. 

Sources: GAO analysis of USTR, Departments of Commerce and State, and 
USDA information. 

[End of table] 

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

Table 11: Top-to-Bottom Objectives and Priority Goals: 

Objective 1: 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. 
* Secure greater participation within the Doha negotiations. 
* Have China join the (1) WTO Government Procurement Agreement, (2) 
accede to the World Intellectual Property Organization Internet 
Treaties, and (3) join World Organization for Animal Health. 
* Secure greater participation in international standard-setting 
organizations. 

Objective 2: Implementation and compliance. Monitor Chinaï¿½s adherence 
to international and bilateral trade obligations and secure full 
implementation and compliance. 
* Enhance intellectual property rights protection. 
* Ensure that standards and regulations are consistent with WTO 
requirements. 
* Eliminate market access barriers for services that may be 
inconsistent with WTO obligations. 
* Eliminate industrial subsidies, industrial policies and preferences 
for state-owned enterprises that may be inconsistent with WTO 
obligations. 
* Eliminate sanitary and phyto-sanitary barriers and export subsidies 
for agricultural products that may be inconsistent with WTO 
obligations. 
* Ensure that Chinaï¿½s administration of antidumping laws is consistent 
with WTO obligations. 
* Ensure that China complies with WTO requirements regarding 
transparency of laws and uniform application of laws. 

Objective 3: 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. 
* Ensure full and transparent enforcement of U.S. trade remedy laws and 
agreements (e.g., antidumping laws). 
* Ensuring Chinaï¿½s compliance with U.S. rules for food safety, invasive 
species. 
* Seizing counterfeit products and those made with forced/bonded labor 
at U.S. borders. 

Objective 4: Further market access and reform. Beyond what is granted 
under Chinaï¿½s current commitments, 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. 
* Promote Chinaï¿½s reliance on market forces. 
* Foster rule-based competitive regulations. 
* Expand market access in intellectual property rights-intensive 
sectors (e.g., publishing). 
* Address market access issues in the telecommunication sector. 
* Address market access issues in the financial services sector. 
* Ensure independence of regulators. 
* Reduce tariffs and nontariff barriers to manufactured and 
agricultural U.S. exports. 
* Promote reform of the health care system. 

Objective 5: Export promotion. Pursue effective U.S. export promotion 
efforts with special attention to areas of particular U.S. export 
growth potential in China. 
* Promote exports to noncoastal parts of China. 
* Promote U.S. exports from small/medium enterprises. 
* Promote U.S. exports from high-tech firms. 
* Promote U.S. exports in competitive sectors. 
* Coordinate WTO-compliance and other trade promotion with specific 
export goals. 

Objective 6: 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. 
* Coordinate U.S. government interagency focus on specific priority 
trade goals. 
* Develop a full-range of options for addressing trade concerns. 
* Enhance capability to obtain information regarding Chinaï¿½s trade 
regime and practices. 
* Formalize input from stakeholders to identify prospective trade 
issues. 
* Monitor and measure Chinaï¿½s compliance with specific obligations. 

Source: GAO analysis of USTRï¿½s top-to-bottom report. 

[End of table] 

Appendix III: Comments from the United States Trade Representative: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

Executive Office Of The President: 
Office Of The United States Trade Representative: 
Washington, D.C. 20508: 

March 26, 2008: 

Mr. Loren Yager: 
Director: 
International Affairs and Trade: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Mr. Yager: 

I am writing to convey the comments of the Office of the United States 
Trade Representative (USTR) on the two-part draft report of the 
Government Accountability Office (GAO), US-China Trade: USTR's China 
Compliance Reports and Plans Could Be Improved (draft Report). We 
appreciate the advice offered by GAO to ensure that we are doing the 
most effective job in reporting on the results of the Administration's 
efforts to ensure that China complies with its World Trade Organization 
(WTO) commitments. The draft Report contains a number of useful 
insights and ideas that we will consider carefully. 

USTR's Annual Reports: 

The first part of your draft Report addresses USTR's annual reports to 
the Congress on China's WTO compliance. In this regard, by statute, 
USTR is required to submit annual reports to the Congress on 
"compliance by the People's Republic of China with commitments made in 
connection with its accession to the World Trade Organization, 
including both multilateral commitments and any bilateral commitments 
made to the United States." See 22 U.S.C. ï¿½ 6951. In fulfilling this 
requirement, USTR submits annual reports to the Congress that
comprehensively describe not only China's WTO commitments and the 
efforts that China has made to comply with those commitments, but also 
the Administration's efforts to secure China's compliance where China 
has not fulfilled its commitments. 

As your draft Report notes, key U.S. industry associations consider 
these annual reports to be fair and complete. These annual reports also 
reflect the substantial progress that has been achieved through the 
Administration's efforts. Your draft Report attempts to quantify this 
progress and finds that more than 60 percent of compliance issues that 
arose during the period from 2002 through 2007 were resolved or made 
progress. We would add that, since China joined the WTO in 2001, our 
goods exports to China have grown by 240 percent, reaching a total of 
$65 billion in 2007 and making China our third largest export market 
(behind Canada and Mexico). Similarly, our services exports have nearly 
doubled, growing from $5.6 billion in 2001 to $10.9 billion in 2006 
(the latest year for which data is available). 

We note that the first part of your draft Report concludes that it 
would be useful for USTR to include more data in its annual reports 
measuring China's progress in complying with its WTO obligations in 
quantitative terms. USTR will explore how that objective could be 
accomplished, taking into account: (1) the inherent limitations and 
difficulties involved in accurately quantifying this type of subject 
matter; (2) our mutual goal of not having a quantification and 
reporting structure that makes it more difficult to achieve substantive 
progress; and (3) the most effective deployment of resources. 

USTR would like to highlight some issues of concern with the first part 
of your draft Report. As discussed below, the draft Report seems to 
undervalue the systematic analysis of China's WTO compliance already 
contained in USTR's annual reports. We also believe that the 
quantitative analysis of "progress made" used in GAO's draft Report 
reveals the inherent limitations and difficulties in developing 
meaningful quantitative compliance measurements, particularly at the 
level of detail used by GAO. Separately, we have serious concerns about 
the advisability of providing the kind of quantitative analysis 
advocated by GAO in USTR's annual reports. 

1. The draft Report undervalues the systematic analysis of China's WTO 
compliance contained in USTR's annual reports. 

[See comment 1] The draft Report at first seems to recognize the 
systematic analysis of China's WTO compliance contained in USTR's 
annual reports. It acknowledges the detailed narrative information 
presented each year in those reports regarding China's progress and 
shortcomings in complying with its WTO commitments, the utilization of 
a common template in which the relevant information is presented from 
year to year, and the demonstrated ability of the readers of the 
reports to judge the comprehensiveness and fairness of that 
information. However, the draft Report seems to ignore these findings 
and concludes instead that USTR's annual reports "lack systematic 
analysis" and therefore does not facilitate a clear understanding of 
China's compliance situation. 

The title of the draft Report concludes that USTR's annual reports can 
be improved. USTR is always open to improving its communications with 
the Congress and the public regarding trade policy matters. It is, in 
our view, not accurate to state that that the entire USTR report lacks 
systematic analysis, simply because it does not utilize a numerical 
methodology preferred by GAO. 

The draft Report uses narrow and, in our view, overly simplistic 
concepts of "systematic" and "understanding." For GAO, it appears that 
an analysis can only be "systematic" and "facilitate understanding" if 
it is "quantitative." We do not think that is the case. Indeed, as 
USTR's annual reports have demonstrated over the years, a report can 
provide systematic - and very informative - analysis without reliance 
on detailed quantitative measurements. More importantly, we believe the 
approach adopted by USTR in its annual reports is superior to GAO's 
approach in providing meaningful information given the diverse nature 
and number of issues addressed. 

2. GAO's own quantitative analysis reveals the inherent limitations and 
difficulties in developing meaningful quantitative compliance 
measurements. 

[See comment 2] The draft Report recommends that USTR add more 
quantitative analysis to its annual reports to Congress on China's WTO 
compliance. Specifically, after finding that USTR addresses well over 
100 WTO compliance issues in any given year and attempting to place 
these issues into categories like "resolved," "progress made" and "no 
progress made," GAO calls for USTR to "improve" its annual reports by 
providing similar quantitative analysis in future reports. GAO 
recommends that USTR's future reports include a summary quantitative 
analysis of the number, scope and disposition of WTO compliance issues, 
and it also criticizes previous reports because they do not include a 
ranking of the (more than 100) issues in order of importance, a 
quantitative demonstration of the relative progress made in one trade 
area versus another and a quantitative demonstration of overall 
progress from one year to the next. 

In USTR's view, there are several factors that make it difficult to 
engage in the quantitative approach to analyzing China's WTO compliance 
set forth in the draft Report and that may cause the results of such an 
analysis to be unreliable - and even misleading. The draft Report seems 
to recognize some of these factors, but not others. 

The draft Report acknowledges that China's WTO commitments can be very 
specific (such as reducing a tariff) or broad and complex (enforcement 
of intellectual property rights) and that the compliance issues that 
arise can similarly be relatively straightforward to resolve or much 
more difficult. The draft Report also acknowledges that compliance 
issues can be the result of factors ranging from political resistance 
to lack of coordination among ministries to technical incapacity. 

The GAO analysis, however, does not seem to take into account other 
relevant and important points that USTR brought to GAO's attention. 

For example, a critical threshold issue affecting the validity of the 
draft Report's quantitative analysis is the question of how even to 
decide what constitutes an "issue," i.e., how broadly or narrowly to 
define an "issue" so that one can quantitatively measure progress. Two 
GAO staffers apparently tried to agree between themselves as to whether 
a particular matter should be counted as an "issue" in the GAO 
analysis. However, it is not clear what criteria they used to 
accomplish this task or how they applied those criteria. Matters being 
addressed by USTR often have several components. Is each component a 
separate issue, or is the entire matter one issue? Decisions about how 
to define an issue in this type of situation can greatly affect the 
outcome of any quantitative analysis, and there is not necessarily one 
correct answer. For senior policymakers, how broadly or narrowly to 
define and approach an issue is a matter of judgment. 

In USTR's view, compliance issues also vary widely in their 
significance to U.S. industry, and this variation can significantly 
complicate or undermine the value of quantitative analyses. Some issues 
can have relatively minor significance for the affected U.S. industry, 
while other issues can be of crucial importance to the affected U.S. 
industry. Some issues affect only one U.S. industry or a few companies, 
while other issues affect a range of companies and industries. U.S. 
policymakers consider these critical nuances when determining how and 
when to devote resources to pursue particular compliance issues, just 
as they consider the reasons behind China's non-compliance and the 
likelihood of a successful outcome when the issue is raised with the 
Chinese government. These nuances make it meaningless to calculate 
numbers to compare one compliance issue to another, much less to treat 
them all the same as the draft Report does in its quantitative 
analysis. The draft Report tries to elude this problem by stating that 
GAO is operating under the premise that all of the compliance issues 
should be "counted" because they have all been considered serious 
enough by USTR to be included in its annual reports. However, just 
because USTR's annual reports are comprehensive does not mean that all 
compliance issues addressed in those reports can or should be weighted 
equally. 

Other considerations also create complications for efforts to develop a 
meaningful analysis of the "progress" that has been or can be made. It 
is necessary to recall, as the draft Report itself acknowledges, that 
there can be many different reasons why progress is not made on a 
particular issue. It may not simply be political resistance or 
protectionist objectives; it may be technical incapacity, an 
underdeveloped regulatory regime, a lack of understanding or an 
inability to coordinate among ministries. The mere existence of an 
outstanding compliance issue often may not provide meaningful 
information about the nature of broader progress achieved in working 
with the relevant Chinese agency or agencies. In addition, if progress 
in one trade area is being stymied by an underdeveloped regulatory 
regime or technical incapacity, it is a not meaningful to compare 
progress achieved in that trade area versus progress in another trade 
area where the regulator maybe restricting market access for purely 
protectionist purposes - it's comparing apples to oranges. Similarly, a 
string of successes on relatively minor, easily resolved issues for one 
affected U.S. industry in one trade area does not mean that more 
progress is being made in that trade area than in another trade area 
where a number of issues remain outstanding but one crucial market 
access issue has been resolved. 

When all of these various considerations are taken into account, USTR 
does not believe that the draft Report's quantitative analysis 
meaningfully measures the progress being made in a particular trade 
area or whether more progress is being made in one trade area versus 
another. USTR believes that the wide variance in complexity, difficulty 
of resolution, significance and political posture among China WTO 
compliance issues makes it extremely difficult to use quantitative 
analysis to develop a meaningful metric for progress. When USTR drafts 
its annual reports, we believe it would be impractical - and in many 
respects, misleading - to provide detailed quantifications of progress 
made or to rank trade areas or individual issues. Instead, as required 
by statute, we use our annual reports to provide a detailed, balanced 
and nuanced narrative explanation of China's WTO compliance progress, 
recognizing the multiple audiences for those reports. In essence, we 
think it is much more meaningful and helpful to fully qualify and 
contextualize trade issues with China, rather than provide 
quantification at a level of detail where it would obscure rather than 
illuminate important considerations affecting our trade relationship 
with China. 

3. Even if a detailed quantitative analysis like the one advocated by 
GAO could be developed to provide reliable results, USTR believes that 
it would be ill-advised to provide such an analysis in USTR's annual 
reports. 

[See comment 3] Even if a detailed quantitative analysis like the one 
advocated by GAO could be developed to take into account the factors 
outlined above and to provide reliable results regarding progress made 
on China WTO compliance issues, a separate question is whether it would 
be desirable to provide such an analysis in USTR's annual reports. USTR 
believes that it would be ill-advised to do so. 

Such an analysis would send an ill-advised signal to China - one of the 
audiences for USTR's annual reports. It would tell China which issues 
are more important and which ones are less important. That type of 
ranking of issues would not be in the interests of affected U.S. 
constituencies, particularly the companies or industries whose issues 
may not be deemed as significant as the issues facing others. 

In addition, to the extent that such an analysis tried to compare 
progress made in one trade area with progress in another, it would 
again send an ill-advised signal to China. Based on previous 
negotiations with Chinese officials, we expect that they would use such 
information to argue that China has already done enough in certain 
trade areas and that the United States should not expect more. 

Even if such an analysis were confined to addressing overall progress 
from one year to the next, it would still generate similar concerns. 
China again could use this type of reporting to our disadvantage in 
future negotiations. For example, China could gauge the amount of its 
cooperation and avoid further progress by arguing that it has already 
done as much as the previous year. 

4. The draft Report's separate categorization of compliance issues 
according to "action taken" and "no action taken" is unclear. 

[See comment 4] In addition to placing China WTO compliance issues into 
categories based on levels of progress made, the draft Report also 
places them into two other categories, i.e., "action taken" and "no 
action taken." USTR notes that these two categories are based solely on 
the four corners of USTR's annual reports to Congress on China's WTO 
compliance and not on any follow-up discussions with USTR to clarify 
the state of play on particular issues. For example, even when GAO 
could not tell from the four corners of USTR's reports whether USTR or 
other agencies have taken actions to address a particular issue, GAO 
classified the issue as "no action taken" without seeking clarification 
from the involved agencies. Although the draft Report does not itemize 
the issues that it placed under the category of "no action taken," USTR 
believes that it would be rare for USTR or other agencies not to have 
taken some action to address an issue described in one of USTR's annual 
reports to Congress on China's WTO compliance, unless the issue had 
resolved itself or circumstances had changed so that there was no 
continued need to pursue that particular issue. On the other hand, to 
the extent that those reports have not been clear on this point, USTR 
agrees that in future reports it should provide further clarity about 
actions taken. 

USTR notes that the draft Report does not explain how it categorizes 
issues when USTR has brought a WTO case after bilateral negotiations 
made no progress. In fact, GAO does not mention any WTO cases in the 
part of its draft Report addressing USTR's annual reports to Congress 
on China's WTO compliance. This is an extremely significant omission. 
The United States has brought 6 WTO cases against China, many more than 
any other WTO member. 

Implementation of USTR's "Top-to-Bottom " Review: 

The second part of your draft Report addresses the Administration's 
implementation of USTR's "top-to-bottom" review of U.S.-China trade 
relations. The "top-to-bottom" review is a one-time policy document 
setting forth a new policy framework for U.S. policymakers following 
China's completion of its transition period as a new WTO member. Among 
other things, it includes numerous short-term action items designed to 
better position the Administration to pursue long-term objectives and 
priority goals. We were pleased that your draft Report finds that the 
Administration has implemented or is in the process of implementing all 
17 of the action items that you could evaluate, but would also like to 
highlight several issues of concern with the second part of your draft 
Report. 

1. The "top-to-bottom" review is not a "plan" in the narrow and 
specific sense used by the draft Report. 

[See comment 5] We disagree with the draft Report's repeated 
characterization of the "top-to-bottom" review as a "plan" in the sense 
that GAO uses this term. The draft Report views the "top-to-bottom" 
review as a "plan" in a very narrow and specific sense. It essentially 
argues that USTR created the "top-to-bottom" review as its action plan 
for U.S.-China relations, and then it seeks to treat this action plan 
like one in which an agency would normally set forth program goals, 
describe its plan for meeting those goals, measure program performance 
in meeting those goals and report on results. However, the "top-to-
bottom" review was not intended to be that type of plan. It is a sui 
generis policy document, which was developed based on a promise that 
Ambassador Portman made to the Senate Finance Committee at his 
confirmation hearing in 2005. He recognized that China had completed a 
transition period as a new WTO member and that the United States was 
entering a new phase in its trade relations with China, i.e., a phase 
in which China should be held accountable as a mature member of the 
international trading system. Given those circumstances, he saw 
significant value in reassessing how we engaged China. The "top-to-
bottom" review is exactly that - a review - essentially a one-time 
white paper, setting forth a new framework for U.S. policymakers at 
USTR and other agencies as they engage China during this new phase. 
Many actions could and would flow from the new perspective on China, 
but the "top-to-bottom" review itself was not intended to establish a 
new mechanism for measuring performance or adjusting future goals. 

2. The "top-to-bottom " review did not promise or anticipate the 
drafting of updates. 

[See comment 6] We disagree with the draft Report's statements that 
USTR promised or anticipated the drafting of updates to the "top-to-
bottom" review. USTR did not promise to draft updates of the "top-to-
bottom" review, nor does the "top-to-bottom" review indicate that USTR 
would or should draft updates. The "top-to-bottom" review states: 
"Based on the results of the review, the Administration will take a 
series of actions to help ensure that we are best positioned to meet 
our key China trade objectives. The list below includes initial steps 
we will be taking. Additional action items will be developed and 
implemented in consultation with Congress and other stakeholders to 
ensure meaningful progress in achieving these key objectives." It 
further states: "USTR will initiate a program of regular briefings for 
Congressional members and staff, to update them on progress in pursuing 
the objectives outlined in this report." USTR has since
provided and continues to provide regular Congressional briefings on 
various initiatives, including new ones like the Strategic Economic 
Dialogue, which the Administration has undertaken, inter alia, in 
pursuit of the objectives outlined in the "top-to-bottom" review. In 
fact, in response to GAO's data requests, USTR identified 39 relevant 
Congressional briefings in 2006 and 2007. 

3. Through annual reports like USTR's annual reports to Congress on 
China's WTO compliance, USTR already provides the written updates that 
GAO would like to see to the "top-to-bottom" review. 

[See comment 6] The written updates to the "top-to-bottom" review 
sought by the draft GAO study, i.e., regarding the launching of the 
Strategic Economic Dialogue, new WTO cases against China and the 
Commerce Department's application of U.S. countervailing duty law to 
China (see pages 4, 30 and 34-35), have already been reported on in 
writing by USTR in its annual reports to Congress on China's WTO 
compliance. It is those annual USTR reports (along with other annual 
reports prepared by USTR, such as the NTE Report, Special 301 report, 
Subsidies Enforcement Report and Section 1377 review) that are designed 
to provide the updates sought by the draft GAO study. 

4. The draft Report misunderstands the relationship between action 
items, on the one hand, and objectives and priority goals, on the 
other, in the "top-to-bottom" review. 

[See comment 6] The draft Report focuses on how the Administration has 
implemented the "action items" identified in the "top-to-bottom" 
review, and it acknowledges the considerable progress made. However, 
the draft Report also faults the "top-to-bottom" review for not 
providing more clarity regarding how the action items "achieve" the 
"objectives" and "priority goals" identified in the "top-to-bottom" 
review. The draft Report misunderstands the relationship between action 
items, on the one hand, and objectives and priority goals, on the 
other. For the most part, action items were intended as useful short-
term steps to be taken to better position the Administration to pursue 
the "top-to-bottom" review's long-term objectives and priority goals. 

Again, we welcome GAO's suggestions about how we can more effectively 
report to the Congress on the Administration's efforts to ensure that 
China complies with its WTO commitments. 

Sincerely, 

Signed by: 

Warren	H. Maruyama: 
General Counsel: 

[End of letter] 

The following are GAOï¿½s comments on the United States Trade 
Representativeï¿½s letter dated March 26, 2008. 

GAO Comments: 

1. We disagree that report undervalues the systematic analysis of 
Chinaï¿½s WTO compliance contained in USTRï¿½s 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 Chinaï¿½s 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. USTRï¿½s 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 USTRï¿½s 
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 USTRï¿½s 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 USTRï¿½s 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 
USTRï¿½s 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 USTRï¿½s annual compliance reports will provide further 
understanding to Congress and other stakeholders (and therefore help 
improve decision making regarding Chinaï¿½s 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 USTRï¿½s annual reports. We believe 
that more transparency and clarity in USTRï¿½s reports enhances 
understanding about Chinaï¿½s 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 Chinaï¿½s 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 
ï¿½action takenï¿½ and ï¿½no action takenï¿½ is unclear. Our report states 
clearly that our analysis of actions taken is based solely on the 
information provided in USTRï¿½s 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 USTRï¿½s annual compliance reports at any WTO forum as 
ï¿½raised at the WTOï¿½ 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 ï¿½top-to-bottomï¿½ report is not a ï¿½planï¿½ 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. USTRï¿½s report on the results of its ï¿½top-
to-bottomï¿½ 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. 
USTRï¿½s 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 USTRï¿½s progress on U.S.-China trade 
issues. He replied that ï¿½...the way to measure our performance is to go 
point by point through the report looking at the issues that Iï¿½ve 
talked about at the outset...ï¿½ 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-bottomï¿½ 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 Chinaï¿½s WTO compliance, USTR already provides the written 
updates on the ï¿½top-to-bottomï¿½ 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 USTRï¿½s 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. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager, (202) 512-4347, or [email protected]. 

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. 

[End of section] 

Footnotes: 

[1] U.S.-China Relations Act of 2000 (Pub. L. No. 106-286, Div.B, Title 
IV, ï¿½ 421(a), 114 Stat. 880a 903). 

[2] See USTR, 2002 Report to Congress on Chinaï¿½s WTO Compliance 
(Washington, D.C.: Dec. 11, 2002); USTR, 2003 Report to Congress on 
Chinaï¿½s WTO Compliance (Washington, D.C.: Dec. 11, 2003); USTR, 2004 
Report to Congress on Chinaï¿½s WTO Compliance (Washington, D.C.: Dec. 
11, 2004); USTR, 2005 Report to Congress on Chinaï¿½s WTO Compliance 
(Washington, D.C.: Dec. 11, 2005); USTR, 2006 Report to Congress on 
Chinaï¿½s WTO Compliance (Washington, D.C.: Dec. 11, 2006); and USTR, 
2007 Report to Congress on Chinaï¿½s WTO Compliance (Washington, D.C.: 
Dec. 11, 2007). 

[3] USTR, U.S.-China Trade Relations: Entering a New Phase of Greater 
Accountability and Enforcement, Top-to-Bottom Review (Washington, D.C.: 
Feb. 11, 2006). 

[4] In a prior GAO report, GAO, U.S. China Trade: Opportunities to 
Improve U.S. Government Efforts to Ensure Chinaï¿½s Compliance with World 
Trade Organization Commitments, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-53] (Washington, D.C.: Oct. 6, 2004), we examined the 
scope and disposition of USTRï¿½s 2002 and 2003 Report to Congress on 
Chinaï¿½s WTO Compliance. 

[5] See appendix I, the objectives, scope, and methodology in 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-53] for detailed 
explanation of how we systematically verified the content of USTRï¿½s 
2002 and 2003 reports. 

[6] The WTO was established in 1995, and exists to facilitate the 
implementation, administration, and operation of multiple agreements 
that govern trade among its member governments to resolve complaints 
regarding another membersï¿½ noncompliance with WTO commitments. 

[7] See 19 U.S.C. ï¿½ 2241(a)(1)(A)(i) and (a)(2)(c). 

[8] Pursuant to section 421(a) Div.B. Title IV of Pub. L. No. 106-286. 

[9] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-53]. 

[10] These numbers are based on GAO analysis of unverified Department 
of State information. These numbers do not include congressional 
delegations. 

[11] This is the percentage of FAS personnel stationed in China 
compared with all FAS personnel stationed overseas, not including 
contractors detailed to the United States Agency for International 
Development or locally employed staff working in FAS offices. 

[12] In 2006, the Department of State established the Global 
Repositioning Initiative to shift hundreds of positions from across the 
world to critical emerging areas in Africa, South Asia, and elsewhere 
that will shape U.S. interests in the future. 

[13] GAO has reported on language skills shortfalls, including Chinese. 
See GAO, State Department: Staffing and Foreign Language Shortfalls 
Persist Despite Initiatives to Address Gaps, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-1154T] (Washington, D.C.: Aug. 
1, 2007). 

[14] USTR administers and chairs both the Trade Policy Review Group 
(TPRG) and the Trade Policy Staff Committee (TPSC), which is composed 
of 19 federal agencies and offices; make up the sub-cabinet level 
mechanism for developing and coordinating U.S. Government positions on 
international trade and trade-related investment issues. 

[15] For examples of how to improve planning and to better measure 
results, see GAO, Results-Oriented Government: Practices That Can Help 
Enhance and Sustain Collaboration among Federal Agencies, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-15] (Washington, D.C.: Oct. 
21, 2005); GAO, Results-Oriented Government: Improvements to DHSï¿½s 
Planning Process Would Enhance Usefulness and Accountability, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-300] (Washington, 
D.C.: Mar. 31, 2005); GAO, Results-Oriented Government: GPRA Has 
Established a Solid Foundation for Achieving Greater Results, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-38] (Washington, 
D.C.: Mar. 10, 2004), and GAO, Results-Oriented Government: Using GPRA 
to Address 21st Century Challenges, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-1166T] (Washington, D.C.: Sept. 18, 2003). 

[16] USTR told us they held 39 briefings or meetings with members of 
Congress in the past 2 years since the top-to-bottom report was written 
but were not able to identify the degree to which they specifically 
discussed progress toward achieving their objectives. 

[17] USTR, U.S.-China Trade Relations: Entering a New Phase of Greater 
Accountability and Enforcement, Top-to-Bottom Review (Washington, D.C.: 
Feb. 11, 2006). 

[18] In a prior GAO report in October 2004 [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-53], we examined the scope and 
methodology and disposition of USTRï¿½s 2002 and 2003 Report to Congress 
on Chinaï¿½s WTO Compliance. We relied on this prior analysis of the 2002 
and 2003 reports and continued using the same methodology to analyze 
the 2004 through 2007 annual reports. 

[19] In the prior GAO report [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-53], we also systematically cross-checked the reports 
with testimony and reports submitted to the Trade Policy Staff 
Committee, Subcommittee on China-WTO Compliance, as part of its 2002 
and 2003 hearings on China-WTO compliance and other relevant reports. 
This analysis also found the USTR reports to be a generally fair and 
complete representation of U.S. industry concerns. 

[End of section] 

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