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Report to Congressional Committees:

October 2004:

U.S.-CHINA TRADE:

Opportunities to Improve U.S. Government Efforts to Ensure China's 
Compliance with World Trade Organization Commitments:

GAO-05-53:

GAO Highlights:

Highlights of GAO-05-53, a report to the Senate Committee on Finance 
and the House Committee on Ways and Means: 

Why GAO Did This Study:

China’s 2001 accession to the World Trade Organization (WTO) required 
China to reform its economy and trade practices. As part of ongoing 
work, GAO reviewed how the U.S. Trade Representative (USTR) and the 
Departments of Commerce, Agriculture, and State pursued China’s WTO 
compliance in 2003. Specifically, this report (1) discusses the scope 
and disposition of China’s compliance problems, (2) reviews the U.S. 
government’s bilateral and multilateral approaches for resolving these 
problems, (3) assesses the key agencies’ strategies and plans for 
ensuring compliance, and (4) assesses how the agencies have adapted 
their staff resources to conduct compliance activities.

What GAO Found:

China has successfully implemented many of its numerous WTO 
commitments, but USTR reported that over 100 separate compliance 
problems arose in 2002 and 2003. These problems ranged from specific, 
relatively simple issues to broader, more systemic concerns. Most 
problems continued from 2002 to 2003, an indication that China was 
able to address the more easily resolvable problems, while the more 
complex issues persisted. Furthermore, new problems emerged, with many 
arising from phased-in commitments that China was due to implement in 
2003. The U.S. government continued to pursue resolution of compliance 
problems in 2004, and the agencies noted the successful resolution of 
several major issues of economic importance to U.S. companies. The key 
U.S. agencies have done much to ensure China’s compliance, but GAO 
found three areas in which these key agencies could take steps to 
improve their efforts:

First, U.S. efforts to address compliance problems emphasized high-
level bilateral engagement with China in 2003, with increased senior-
level delegations to China and elevated participation in formal 
consultative mechanisms. U.S. multilateral engagement with China in 
2003 reflected more emphasis on working through regular WTO committee 
business, because the WTO’s annual review of China’s implementation, 
the Transitional Review Mechanism (TRM), has ongoing limitations. 
Nevertheless, the TRM has benefits and these could be enhanced by 
increased member participation and earlier U.S. submissions, which 
would maximize the potential for full and informed responses from 
China. 

Second, although interagency and intra-agency coordination on policy 
and high level compliance strategies was generally effective, GAO 
found various performance management limitations that make it difficult 
to clearly measure and assess the outcome of the key agencies’ China-
WTO compliance efforts. GAO found that the specific units within the 
agencies that are most directly involved with these efforts could 
improve how the agencies measure and report the results of their 
activities. Furthermore, developing clearer linkages between unit-
level results and agency goals that are established in accordance with 
the Government Performance and Results Act of 1993 could enhance the 
effectiveness of these units’ activities.

Third, turnover and lack of training limited the effectiveness of 
increased staff resources for China-WTO compliance activities. New 
staff members were called upon to take up complex monitoring and 
enforcement activities while relying primarily on on-the-job training, 
which was complicated by high and often predictable staff turnover. 
Attention to human capital management is particularly important, given 
the long-term challenges associated with ensuring China’s compliance. 

What GAO Recommends:

GAO recommends that the four key agencies undertake a range of actions 
to improve timeliness and participation in the WTO’s annual review of 
China’s compliance, performance management assessments and unit-level 
planning, and staff training. The agencies said they would consider 
our recommendations, but they expressed various concerns, including 
that the report did not sufficiently reflect their achievements in 
2004, and about whether their performance could be better assessed in 
a more quantifiable manner. We made changes throughout this report to 
update information and to clarify our findings as appropriate. 

www.gao.gov/cgi-bin/getrpt?GAO-05-53.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Loren Yager at (202) 
512-4128 or YagerL@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

China Successfully Implemented Many Commitments, but Concerns Remain:

U.S. Government Emphasized Primarily Bilateral Engagement to Resolve 
Compliance Issues in 2003, While Effectiveness of Annual Multilateral 
Review Continued To Be Limited:

Key Agencies' China Units Could Improve Their Performance Management 
Activities:

Key Agencies Added Staff Resources, but Turnover and Lack of Training 
Limited Overall Effectiveness:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendixes:

Appendix I: Objectives, Scope, and Methodology:

Appendix II: Description of Areas of China's Trade Regime Covered by 
China's WTO Commitments:

Appendix III: Summary of WTO Member Participation in China's 
Transitional Review Mechanism, 2002 and 2003:

Appendix IV: Comments from the United States Trade Representative:

GAO Comments:

Appendix V: Comments from the Department of Commerce:

GAO Comments:

Appendix VI: Comments from the Department of State:

GAO Comments:

Appendix VII: Comments from the Department of Agriculture:

GAO Comments:

Appendix VIII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Related GAO Products:

Tables:

Table 1: Main China-WTO Compliance Units in the Four Key U.S. Agencies:

Table 2: Examples of China's Successful Implementation of Its WTO 
Commitments, 2002-2003:

Table 3: Examples and Number of Compliance Problems in Each Area of 
China's Trade Regime, as of December 2003:

Table 4: Key Areas of Progress from the April 2004 JCCT:

Table 5: Key Agencies' GPRA Goals Related to China-WTO Compliance:

Table 6: Key Agencies' GPRA Performance Measures and Results for Fiscal 
Year 2003:

Table 7: Summary of Commerce Market Access and Compliance Cases for 
China Initiated and Concluded, Fiscal Years 2001-2003:

Table 8: Agency Staffing Estimates for Main Units Involved with China-
WTO Compliance Efforts, Fiscal Years 2000-2003:

Table 9: Description of GAO Categories for Disposition of China-WTO 
Compliance Issues and Examples of Disposition:

Table 10: Description of China's WTO Commitment Areas:

Table 11: WTO Member Participation in China's Transitional Review 
Mechanism, 2002:

Table 12: WTO Member Participation in China's Transitional Review 
Mechanism, 2003:

Abbreviations:

FAS: Foreign Agricultural Service:

FTE: full-time equivalent:

GPRA: Government Performance and Results Act of 1993:

IPR: Intellectual property rights:

JCCT: Joint Commission on Commerce and Trade:

OJT: on-the-job training:

OMB: Office of Management and Budget:

SARS: Severe Acute Respiratory Syndrome:

TRM: Transitional Review Mechanism:

USDA: U.S. Department of Agriculture:

USTR: U.S. Trade Representative:

WTO: World Trade Organization:

Letter October 6, 2004:

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate:

The Honorable William M. Thomas: 
Chairman:
The Honorable Charles B. Rangel: 
Ranking Minority Member:
Committee on Ways and Means: 
House of Representatives:

China's 2001 accession to the World Trade Organization (WTO) raised 
expectations with Congress and the private sector about the prospects 
for China to reform its markets and allow greater access to foreign 
goods and services. Indeed, U.S. trade with China has increased 
significantly between 2000 and 2003, including a 75-percent increase in 
U.S. goods exported to China over that time period. Despite this 
increase, growth in imports from China have outpaced growth in exports 
to China; and the U.S. trade deficit with China reached $124 billion in 
2003, according to U.S. trade data. This growing deficit, together with 
ongoing concern over China's adherence to WTO rules, has sharpened the 
focus on the U.S. government's efforts to ensure that U.S. firms secure 
the benefits of China's membership in the global trading system.

As part of your request that we undertake a long-term body of work 
related to China's membership in the WTO, we reviewed how the U.S. 
Trade Representative (USTR) and the Departments of Commerce, State, and 
Agriculture (USDA) were positioned to monitor and enforce China's 
compliance with its WTO commitments in 2003.[Footnote 1] Specifically, 
in this report we (1) examine the scope and disposition of China-WTO 
compliance problems the U.S. government is working to resolve; (2) 
review the U.S. government's bilateral and multilateral approaches for 
resolving compliance problems; (3) assess the agencies' strategies, 
plans, and measures for ensuring China's compliance; and (4) assess how 
the U.S. government has adapted its staff resources to conduct 
compliance activities.

To examine the scope and disposition of compliance problems, we 
analyzed the 2002 and 2003 versions of USTR's Report to Congress on 
China's WTO Compliance and verified the information included in the 
reports against problems raised by the private sector.[Footnote 2] To 
assess U.S. bilateral and multilateral monitoring and enforcement 
efforts, we reviewed agency and WTO documents and interviewed agency 
officials both in Washington, D.C., and Beijing, as well as WTO 
Secretariat and other member government officials. To assess agency 
strategies, plans, resources, and other activities related to China's 
compliance, we reviewed planning documents, budget and staffing data, 
and information on training from the four key agencies. We supplemented 
our review of this information by conducting individual interviews with 
over 50 staff and unit managers at the four key agencies that had China 
compliance as a main portion of their work portfolio. (See app. I for 
details on our scope and methodology.) We performed our work from June 
2003 to July 2004 in accordance with generally accepted government 
auditing standards.

Results in Brief:

China has successfully implemented many of its numerous WTO 
commitments, including rewriting hundreds of trade-related laws and 
regulations and making required tariff reductions. However, USTR's 
reports to Congress identified over 100 individual compliance problems 
concerning China's implementation of its WTO commitments, according to 
our analysis. These problems spanned all commitment areas and ranged 
from very specific, relatively simple problems, such as late issuance 
of particular regulations, to broader concerns over transparency in 
China's rule-making process, which are more difficult to implement and 
assess. Most compliance problems identified in 2002 persisted into 
2003. U.S. officials noted that this continuation was an indicator that 
China was able to address many of the more easily resolvable problems 
during 2002, but that the remaining issues had proven to be more 
difficult to address. Additionally, new problems emerged in 2003, with 
many of them arising from phased-in commitments that China was due to 
implement in 2003. The U.S. government has continued to pursue 
resolution of outstanding compliance problems in 2004 and has noted 
resolution of several problems that are of significant potential 
economic importance to U.S. exporters, including, for example, some in 
the area of trading rights within China. USTR is required to report on 
China's WTO compliance again in December 2004.

U.S. government approaches for resolving compliance problems with China 
included both bilateral and multilateral engagement. U.S. trade 
officials placed greater emphasis on high-level bilateral engagement 
with China in 2003, compared with 2002. For example, U.S. cabinet and 
subcabinet level trade delegations to China increased from 13 in 2002 
to 23 in 2003. We found that formal and informal U.S. government 
coordination on these efforts was generally effective. The United 
States continued to engage China multilaterally as well, and this 
included U.S. participation in the WTO's second annual review of 
China's compliance, referred to as the Transitional Review Mechanism 
(TRM). Although there were some benefits from the review, other WTO 
members' participation in this review declined from 2002 to 2003, U.S. 
submissions in 2003 gave China less time to prepare answers to 
implementation questions, and procedural and other limitations 
continued to hamper the review's effectiveness.

U.S. monitoring and enforcement of China's compliance with its WTO 
commitments requires a systematic effort based on extensive planning 
and attention to results. Although high-level policy coordination 
within and among the agencies and political engagement with China was 
generally effective, we found that various performance management 
shortcomings at each of the four key agencies (USTR, Commerce, State, 
and USDA) responsible for China-WTO compliance efforts make it 
difficult to assess the extent to which these agencies believe they are 
achieving their planned results, as called for under the Government 
Performance and Results Act of 1993 (GPRA). For example, despite having 
specific quantitative performance indicators (number of trade problems 
resolved and number pending) for its China-WTO compliance activities, 
USTR does not attempt to set measurable targets or use them to assess 
annual performance; instead, USTR states that it is difficult to 
accurately predict whether China will implement its commitments in any 
one year and provides narrative descriptions of the status of various 
problems. Furthermore, the specific units within the four agencies that 
were tasked with monitoring and enforcing China's compliance could 
improve how they plan, prioritize, and measure the results of their 
unit's activities in a way that could be clearly linked to the 
agencies' higher-level overall goals and enable them to more clearly 
assess their units' performance.

In 2003, the four key agencies (USTR, Commerce, State, and USDA) 
continued to add staff resources to meet the demands of monitoring 
China's compliance with its WTO commitments; however, turnover and lack 
of training was problematic. Estimated full-time equivalent (FTE) staff 
in the main units that were involved in these activities increased from 
about 25 to 58 from fiscal year 2000 to 2003. Overall, staff resources 
increased more at the agencies' headquarters than overseas in China. 
Notwithstanding these increases, we identified a number of factors that 
may have limited the effectiveness of the U.S. government's China 
compliance efforts. For example, despite high and often predictable 
staff turnover in many of the units we examined, the agencies' China 
units lacked specific training related to carrying out trade compliance 
duties or did not provide ample opportunity for staff to take relevant 
training. Instead, most units relied almost exclusively on on-the-job 
training (OJT) for new staff. Consequently, some staff with relatively 
short rotations in China compliance-focused offices said they spent a 
significant portion of their total tenure educating themselves about 
the complex China trade issues for which they were responsible.

We recommend that the four key agencies undertake a range of actions to 
enhance the U.S. government's China compliance efforts, including 
taking steps to ensure more timely and wider participation in the 
annual review of China's commitments within the WTO, improving 
performance management activities to enhance planning and assessment of 
China compliance efforts, and taking steps to mitigate the effects of 
staff turnover by providing increased staff training opportunities. In 
responding to our draft report, the agencies said they would consider 
our recommendations, but they expressed various concerns. These 
included concerns that the report did not sufficiently reflect their 
achievements to date in 2004 and about whether their performance could 
be better assessed in a more quantifiable manner. We agreed to address 
many of their concerns and made changes throughout this report to 
update information and to clarify our findings as appropriate.

Background:

China's December 2001 accession to the WTO resulted in commitments to 
open and liberalize its economy and offer a more predictable 
environment for trade and foreign investment in accordance with WTO 
rules. U.S. investment and trade with China has grown significantly 
over the past 10 years, and trade between China and the United States 
exceeded $180 billion in 2003, based on U.S. trade data. Consequently, 
China was the United States' third largest trading partner in 2003. 
U.S. goods exported to China increased by 29 percent to $28.4 billion 
in 2003 from $22.1 billion in 2002. U.S. imports from China are also 
rising and reached a level of $152.4 billion in 2003. According to 2003 
U.S. trade data, the U.S. trade deficit with China ($124 billion) is 
larger than that of any other U.S. trading partner.

The U.S. government's efforts to ensure China's compliance with its WTO 
commitments are part of an overall U.S. structure to monitor and 
enforce foreign governments' compliance with existing trade 
agreements.[Footnote 3] USTR has primary responsibility for monitoring 
and enforcing trade agreements. Among other things, USTR is required by 
law to identify any foreign policies and practices that constitute 
significant barriers to U.S. goods and services, including those that 
are covered by international agreements to which the United States is a 
party.[Footnote 4] At least 16 other agencies are involved in these 
monitoring and enforcement activities, but USTR and the Departments of 
Commerce, State, and USDA have the primary responsibilities regarding 
trade agreement monitoring and enforcement.

Each of these four key agencies we reviewed has within its 
organizational structure a main unit that focuses on China or the 
greater Asian region. These main units have primary responsibility for 
coordinating the agencies' China-WTO compliance activities, although 
numerous other units within the agencies are also involved. The main 
units routinely draw on assistance from experts in these other units to 
obtain information and expertise as needed. Additionally, the key 
agencies have units in China or at the WTO, and staff in those overseas 
units are also involved in the agencies' compliance activities. Table 1 
lists the main units with China-WTO responsibilities, as well as 
examples of other offices with which the units coordinate on an intra-
agency basis. 

Table 1: Main China-WTO Compliance Units in the Four Key U.S. Agencies:

Agency: USTR; 
Main headquarters units: Office of North Asian Affairs[A]; 
Main overseas units: U.S. Mission to the WTO; 
Examples of other units involved: General Counsel; Monitoring and 
Enforcement; Services, Investment, and Intellectual Property; WTO and 
Multilateral Affairs; and other industry and issue-specific units.

Agency: Commerce; 
Main headquarters units: Market Access and Compliance, Office of China 
Economic Area; Import Administration, Trade Remedy Compliance Staff; 
Main overseas units: China Trade Facilitation Office; 
Examples of other units involved: Import Administration (trade remedy 
investigations), Trade Development, U.S. and Foreign Commercial 
Service, the Trade Compliance Center, and the Office of General 
Counsel.

Agency: State; 
Main headquarters units: East Asia and Pacific, Office of Chinese and 
Mongolian Affairs; 
Main overseas units: Beijing Embassy, Economic Section, WTO Group; 
Examples of other units involved: Bureau of Economic and Business 
Affairs, industry and issue-specific units, and China consulates.

Agency: USDA; 
Main headquarters units: Foreign Agricultural Service, Asia and 
Americas Division; 
Main overseas units: Beijing Embassy, Agricultural Section; 
Examples of other units involved: Multilateral Trade Negotiations 
Division, China Agricultural Trade Offices, and other commodity and 
issue-specific units.

Source: GAO.

[A] In April 2004, USTR established a separate and expanded Office of 
China Affairs to focus solely on overseeing trade policy with China, 
Taiwan, Hong Kong, Macau, and Mongolia. The Establishment of the Office 
of China Affairs focuses responsibility for China-specific trade policy 
under an Assistant U.S. Trade Representative.

[End of table]

China Successfully Implemented Many Commitments, but Concerns Remain:

In its 2002 and 2003 reports to Congress on China's WTO compliance, 
USTR reported that China had successfully implemented many of its 
numerous WTO commitments, including rewriting hundreds of trade-related 
laws and regulations and making required tariff reductions. 
Nevertheless, USTR's reports identified over 100 individual compliance 
problems concerning China's implementation of its WTO commitments, 
according to our analysis. These problems spanned all commitment areas 
and ranged from very specific, relatively simple problems--such as late 
issuance of particular regulations--to broader concerns over 
transparency in China's rule-making process, which are more difficult 
to implement and assess. Most compliance problems identified in 2002 
persisted into 2003. U.S. officials noted this continuation was an 
indicator that China was able to address the more easily resolvable 
problems during 2002 but that the remaining issues had proven to be 
more difficult for China to address. USTR reported that China had mixed 
success in resolving compliance problems in 2002 and 2003. 
Additionally, new problems emerged in 2003, with many of them arising 
from phased-in commitments that China was due to implement in 2003. In 
2004, USTR and the other key agencies continued to pursue resolution of 
problems and noted many positive developments in resolving a number of 
these outstanding compliance issues.

China Showed Progress in Implementing WTO Commitments:

USTR noted several areas in which China has successfully implemented 
its commitments since joining the WTO in December 2001. China's WTO 
commitments, which are described in over 800 pages of legal text, 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.[Footnote 5] In 2002, USTR reported that China reviewed more 
than 2,500 trade-related laws and regulations for WTO consistency, 
repealed or amended nearly half of these, and issued many new laws and 
regulations. China also restructured government ministries with a role 
in overseeing trade, embarked on an extensive educational campaign on 
the benefits of WTO membership, and made required tariff reductions. 
USTR reported that, in 2003, China also took steps to correct 
systematic problems in its tariff-rate quota regime for bulk 
agricultural commodities, reduced capitalization requirements in 
certain financial sectors, and opened up the motor vehicle financing 
sector (see table 2). During this period of reform in China, U.S. 
exports to China rose 48 percent between China's WTO accession in 2001 
and 2003.[Footnote 6]

Table 2: Examples of China's Successful Implementation of Its WTO 
Commitments, 2002-2003:

Year: 2002; 
Examples of successful implementation: 
* Reduced tariffs on hundreds of goods; 
* Removed several nontariff trade barriers; 
* Restructured government ministries with roles in overseeing trade in 
goods and services; 
* Repealed and revised hundreds of trade laws and regulations for WTO 
consistency.

Year: 2003; 
Examples of successful implementation: 
* Took steps to correct systematic problems in the administration of 
its tariff rate quota system for bulk agricultural commodities; 
* Opened motor vehicle financing sector; 
* Reduced capitalization requirements in the insurance sector; 
* Resolved outstanding concerns related to WTO committee of 
participants on the Expansion of Trade in Information Technology 
Products; 
* Lifted certain geographic restrictions in the insurance sector ahead 
of schedule.

Sources: GAO summary of USTR and WTO information.

[End of table]

Implementation Problems Range Widely and Many Persist from Year to 
Year:

Although China made progress in realizing many of its WTO commitments, 
USTR reported over 100 compliance problems in 2002 and 2003, according 
to our analysis. These problems spanned all areas in which China had 
made commitments, and many problems identified in 2002 persisted 
through 2003.

USTR Reports Are Fair Representation of Compliance Problems:

We found USTR's annual reports to Congress to be the most complete 
official U.S. source of information with which to analyze China's WTO 
compliance in 2002 and 2003. In conjunction with China's 2001 accession 
to the WTO, USTR was mandated to identify compliance with commitments 
and annually report these findings to Congress.[Footnote 7] These 
annual reports incorporate a broad range of input from key federal 
agencies and the business community. We systematically cross-checked 
the reports with industry testimony, industry association reports, and 
other U.S. government documents and found the reports to be fair and 
complete representations of industry concerns. Further, USTR officials 
stated that these reports represented the most complete public summary 
of China-WTO compliance problems that the U.S. government is monitoring 
and the actions taken to resolve the issues. As a result, we relied 
extensively on the narrative descriptions of compliance problems set 
forth in the USTR reports to analyze the number, type, and disposition 
of the problems that the U.S. government was working to resolve.

More Than 100 Compliance Problems across Several Areas of China's Trade 
Regime:

Our analysis of USTR's 2002 and 2003 reports to Congress identified 106 
individual compliance problems. China's compliance problems can be the 
result of several factors, from political resistance to lack of 
technical capacity to problems of resources and coordination among 
Chinese ministries. These compliance problems fell within all nine 
broad areas of China's trade regime and varied from import regulation 
to export regulation (see table 3 and app. II for descriptions of these 
nine areas). China's WTO commitments are broad and complex, and 
compliance problems also ranged in scope from specific issues to more 
general concerns. For example, some commitments require a specific 
action from China, such as reporting information about China's import-
licensing requirements to the WTO. Other commitments are less specific 
in nature, such as those that confirm China's general obligation to 
adhere to WTO principles of nondiscrimination in the treatment of 
foreign and domestic enterprises. Accordingly, compliance problems 
identified as of 2003 also ranged from specific, relatively simple 
issues, such as the late issuance of regulations, to broader and more 
crosscutting concerns, such as concerns about judicial independence, 
which are more difficult to implement and assess.

Table 3: Examples and Number of Compliance Problems in Each Area of 
China's Trade Regime, as of December 2003:

Trade regime area: Import regulation; 
Examples of compliance problem: 
* Chinese customs officials inappropriately added royalty and software 
fees to dutiable value; 
* Fertilizer tariff rate quota regulations issued late; 
* Certain key provisions omitted in countervailing duty regulations; 
Number of compliance problems: 24.

Trade regime area: Services; 
Examples of compliance problem: 
* Banking regulations imposed prudential rules that exceeded 
international norms; 
* Regulations for foreign insurers imposed trade restricting branching 
requirements; 
* Regulations for legal services overly restricted scope of business; 
Number of compliance problems: 22.

Trade regime area: Internal policies affecting trade; 
Examples of compliance problem: 
* Application of value-added tax rebate for domestic producers of 
semiconductors violated WTO national treatment principle; 
* Comment periods for technical barriers to trade regulations were 
unacceptably brief; 
* Inconsistent application and duplication in certification 
requirements; 
Number of compliance problems: 16.

Trade regime area: Agriculture; 
Examples of compliance problem: 
* Tariff rate quotas for bulk agricultural commodities were issued 
late; 
* Application of standards for raw poultry and meat were not based on 
scientific evidence; 
* Selective enforcement of inspection-related requirements; 
Number of compliance problems: 18.

Trade regime area: Intellectual property rights; 
Examples of compliance problem: 
* Intent to sell was difficult to prove in administrative enforcement; 
* Criminal liability thresholds were high and rarely met; 
* Chinese laws were unclear as to whether a case warrants civil or 
criminal enforcement; 
Number of compliance problems: 13.

Trade regime area: Trading rights and distribution; 
Examples of compliance problem: 
* Foreign-invested enterprises' trading rights were limited by various 
requirements; 
* Retailing services commitments related to joint ventures that do not 
manufacture their own goods in China were subject to onerous threshold 
requirements; 
Number of compliance problems: 6.

Trade regime area: Investment; 
Examples of compliance problem: 
* Revised investment laws and regulations failed to eliminate 
technology transfer; 
* Chinese officials inappropriately considered local content when 
approving an investment or recommending a loan approval; 
Number of compliance problems: 3.

Trade regime area: Legal framework; 
Examples of compliance problem: 
* Concern over the independence of the judicial system; 
* China had a poor record of providing opportunity for public comment 
before regulations are implemented; 
Number of compliance problems: 3.

Trade regime area: Export regulation; 
Examples of compliance problem: 
* Restrictions and fees on exports of some raw materials and 
intermediate products; 
Number of compliance problems: 1.

Trade regime area: Total; 
Number of compliance problems: 106. 

Source: GAO analysis of USTR's 2002 and 2003 Report to Congress on 
China's WTO Compliance.

[End of table]

It is important to note that not all problems equally affect U.S. 
exports to China and that some problems are more easily resolved than 
others. For example, weak intellectual property right enforcement, 
which may entail industry losses of nearly $2 billion according to some 
industry estimates, could impact more trade than the late issuance of 
regulations. Thus, while USTR's reports identify priority areas, the 
economic importance of many individual problems cannot be easily 
quantified and cannot be reported, nor did we attempt to calculate the 
importance or otherwise prioritize or rank the problems in our 
analysis. In addition, our analysis of business views on China's 
implementation shows that the business community expected intellectual 
property rights commitments to be the most difficult to put into 
practice, whereas they expected tariff reductions to be relatively 
easier to implement.[Footnote 8]

Most Problems Continued from 2002 to 2003, and Many Others Emerged:

We found that about two thirds of the USTR-identified compliance 
problems persisted from 2002 through 2003. U.S. officials noted that 
this continuation might have been attributed to the fact that China 
resolved the more easily implemented commitments during the first year, 
and the remaining "holdover" issues proved to be more difficult to 
address. Other U.S. officials and industry representatives cited both 
Severe Acute Respiratory Syndrome (SARS) and major political and 
bureaucratic transitions in China as contributing to the apparent 
slowdown in implementation. However, USTR stated that these factors did 
not excuse the apparent deceleration in China's implementation in 2003. 
In addition to the problems that persisted from 2002, about a quarter 
of all compliance problems were new in 2003, with many of these 
problems arising from phased-in commitments that China was due to 
implement in 2003.

China has had mixed success in resolving compliance problems. Based on 
our assessment of USTR's 2002 and 2003 reports, we found that China had 
resolved or made some progress on just under half of the individual 
problems described by U.S. officials. We also found that China's 
progress in resolving compliance problems also varied widely by area. 
For example, among the key areas that USTR identified as priorities, 
China resolved or made progress on well over half of the various 
problems in agriculture and services, while progress on intellectual 
property rights was limited to less than a quarter of the individual 
problems reported as of December 2003.[Footnote 9]

United States Continues to Pursue Resolution of Compliance Problems in 
2004 and Noted Several Positive Developments:

Since USTR's December 2003 report, the U.S. government has continued to 
pursue resolution of China's WTO compliance problems. Notably, the 
United States and China reached agreements in several key areas through 
the Joint Commission on Commerce and Trade (JCCT). As discussed in more 
detail later, the JCCT is a high-level government-to-government 
consultative forum for China and the United States to discuss key trade 
issues. The April 2004 JCCT meeting resulted in the formation of 
working groups, several memoranda of understanding and letters of 
intent, and several more specific agreements to improve China's 
implementation. For example, China agreed to take steps to strengthen 
intellectual property rights enforcement and agreed to indefinitely 
suspend implementation of discriminatory computer standards and 
services rules, according to USTR officials. China also announced the 
publication of rules granting foreign companies trading rights in China 
ahead of schedule. (See table 4.) In July 2004, USTR announced that the 
United States and China reached an agreement to resolve a dispute over 
China's discriminatory value-added tax refund policy for 
semiconductors. This agreement followed the United States' March 2004 
filing of the first WTO case by any member against China. USTR's next 
report on China's compliance is due in December 2004.

Table 4: Key Areas of Progress from the April 2004 JCCT:

Area: Agriculture; 
China commitments: 
* Establish a consultative mechanism to facilitate an ongoing dialogue 
and strengthen technical cooperation and exchange between both 
countries in the field of food safety and animal and plant health; 
* Issue final safety certificates for U.S. biotech soybeans; 
* Announce biotech approvals for seven U.S. canola and four U.S. corn 
events and review the remaining two U.S. corn events in May; 
* Make it easier to export select American products subject to tariff 
rate quotas to China by providing the names of its domestic quota 
holders to U.S. exporters upon request.

Area: Trading rights and distribution; 
China commitments: 
* Implement its WTO trading rights obligations by July 1, 2004--6 
months ahead of schedule; 
* Provide distribution rights to U.S. companies in China on schedule 
by the end of 2004.

Area: Intellectual property rights (IPR); 
China commitments: 
* Significantly reduce IPR infringement levels; 
* Increase penalties for IPR violations by taking various specific 
actions by the end of 2004; 
* Crack down on violators through nationwide enforcement actions and 
increased customs enforcement; 
* Improve protection of electronic data by ratifying and implementing 
international IPR agreements as soon as possible and extend the ban on 
the use of pirated software to include local governments; 
* Launch national education campaign; 
* Establish an IPR working group under the JCCT.

Area: Standards; 
China commitments: 
* Suspend indefinitely its proposed implementation of a mandatory 
wireless encryption standard and revise its standard, taking into 
account comments received from Chinese and foreign firms; 
* Participate in international standards bodies on wireless encryption 
for computer networks; 
* Support technology neutrality with respect to the adoption of the so-
called "3G" telecommunications technology; 
* Refrain from negotiating royalty payment terms with "3G" IPR holders; 
* Allow telecommunications service providers in China to make their 
own choices as to which standard to adopt.

Area: Market access issues; 
China commitments: 
* Facilitate an exchange of scientific, technical, and regulatory 
information to help ensure the quality, safety, and proper labeling of 
consumer products; 
* Establish a framework that will expand trade show recruitment for 
U.S. companies to participate in Chinese trade shows and increase their 
export sales to China; 
* Foster activities that will lead to increased contacts between small 
and medium-sized businesses in both countries, thereby promoting more 
interaction and increased U.S. exports; 
* Allow U.S. carriers to open full branches and to operate without 
restrictions. 

Source: USTR.

[End of table]

U.S. Government Emphasized Primarily Bilateral Engagement to Resolve 
Compliance Issues in 2003, While Effectiveness of Annual Multilateral 
Review Continued To Be Limited:

Compared with 2002, U.S. actions in 2003 to resolve compliance problems 
reflected a strategy that emphasized high-level bilateral engagement 
with China. For example, the United States sent more cabinet and 
subcabinet level delegations to China in 2003 and elevated existing and 
initiated new trade dialogues with China. We found that formal and 
informal interagency coordination on these bilateral efforts was 
generally effective. Multilaterally, the U.S. continued to engage China 
in the WTO at regular council and committee meetings throughout the 
year. At the same time, the U.S. actively participated in the WTO's 
second annual review of China's implementation, referred to as the 
Transitional Review Mechanism (TRM). However, despite U.S. officials' 
hopes to the contrary, overall WTO member participation in the review 
declined, and the review's potential was impaired by less timely U.S. 
submission of questions. Furthermore, procedural and other types of 
problems that arose during the 2002 review continued to limit the 
effectiveness of the 2003 TRM. Nevertheless, both WTO and other WTO 
member trade officials indicated that the TRM process had gone more 
smoothly in 2003 than in 2002 and that future TRM's would probably not 
vary in form from that used in 2003. In general, U.S. officials noted 
that, despite some benefits, the TRM was a less effective tool for 
resolving compliance issues compared with bilateral engagement.

United States Increased Bilateral Engagement with China in 2003 on WTO 
Issues:

U.S. government efforts to resolve WTO compliance issues with China in 
2003 reflected an emphasis on high-level bilateral engagement. Several 
U.S. officials noted that bilateral engagement--particularly at the 
highest levels of government--had proven to be the most effective means 
of resolving WTO compliance issues with China. As one U.S. official 
stated, "change in China starts at the top, so that's where we focused 
much of our bilateral compliance activity in 2003." Accordingly, the 
United States undertook a range of efforts reflecting this emphasis in 
2003, including sending more cabinet and subcabinet level delegations 
to China, utilizing bilateral consultative mechanisms, and continuing 
to coordinate policy through the interagency process.

U.S. Senior-Level Delegations to China Increased in 2003:

Compared with 2002, the U.S. government sent more cabinet and 
subcabinet delegations from the key economic and trade agencies in 2003 
to engage their Chinese counterparts on trade issues. For example, 
senior-level delegations to China from the various agencies increased 
from 13 in 2002 to 23 in 2003, according to information provided by 
U.S. embassy officials. U.S. officials also said that an increased 
number of high-level delegations from China, including a visit from 
China's Premier, also came to the United States in 2003 and that trade 
issues were routinely a part of those visit agendas.[Footnote 10] 
Finally, embassy officials noted that, because the SARS outbreak 
interrupted travel to China for several months in 2003, most of the 
delegations' visits were concentrated within an 8-month period.

U.S. Used Bilateral Trade Mechanisms to Engage China:

The U.S. government utilized two formal consultative mechanisms to 
address trade issues with China, both of which further demonstrated an 
emphasis on high-level, bilateral engagement. First, the United States 
agreed to China's request to elevate and transform the JCCT, a forum 
for dialogue on bilateral trade issues and a mechanism to promote 
commercial relations, to include three cabinet-level U.S. officials for 
2004.[Footnote 11] Consequently, in 2004, the Secretary of Commerce and 
the U.S. Trade Representative headed the JCCT meetings for the United 
States, while a vice premier headed China's delegation. The U.S. 
Secretary of Agriculture also participated in the newly elevated JCCT. 
Moreover, U.S. officials noted that the JCCT was transformed from a 
trade promotion dialogue into a mechanism to resolve trade disputes. 
Second, the United States initiated the U.S.-China Trade Dialogue as a 
means for U.S. trade and economic agencies to address trade issues with 
various Chinese officials at the subcabinet level. The United States 
created the Trade Dialogue at the end of 2002, with meetings scheduled 
to take place quarterly. However, due in part to the SARS outbreak, 
only two such dialogues took place in 2003.

Interagency Coordination on Policy Issues Was Generally Effective:

We found that both formal and informal, day-to-day coordination within 
and among the key units on policy issues was generally effective. 
Formal interagency coordination was accomplished through three main 
structures: (1) the Trade Policy Review Group, (2) the Trade Policy 
Staff Committee, and (3) the Trade Policy Staff Committee's 
Subcommittee on China-WTO Compliance.[Footnote 12] Additionally, 
several officials noted that the National Security Council played a 
greater role in coordinating interagency policy on China compliance 
issues in 2003 than 2002. Officials said that this greater role was to 
ensure a more unified U.S. position with regard to economic relations 
with China, beyond the Trade Policy Review Group.[Footnote 13]

Our interviews with over 50 staff and managers in the main China units 
of the four agencies indicated that interagency coordination was 
generally effective at the working level and on specific issues. With 
respect to informal contact, managers and staff at both headquarters 
and overseas offices said that day-to-day coordination and information 
sharing among the agencies on China compliance greatly enhanced their 
ability to respond to compliance problems. Yet some staff believed that 
interagency coordination could be improved. For example, they suggested 
that coordination could be enhanced through better communication from 
the Washington, D.C., units to the China units about interagency 
meetings and China-related activities at the WTO. Also, within China, 
some staff noted that interagency meetings had been suspended in 2003 
because of SARS and that they had not been resumed by the end of the 
year, so their coordination efforts were hindered. Some China-based 
staff at State and Commerce complained that lack of communication had 
led to misunderstanding about the respective units' roles and 
responsibilities and that this had caused some confusion about engaging 
the Chinese in a few cases. Embassy officials told us that the 
interagency meetings had been resumed in 2004, but the schedule was 
driven primarily by the need to coordinate on upcoming events and that 
the meetings had not yet resumed on a consistent schedule.

Multilateral Engagement with China Shifts Away from Annual Transitional 
Review Mechanism, Which Remains Limited:

During China's membership negotiations, the United States successfully 
pushed for an annual review of China's implementation to take place 
within the WTO's General Council and 16 subsidiary bodies.[Footnote 14] 
This effort was based on concerns about China's ability to implement 
its WTO commitments and the fact that China was allowed to join before 
making all of its trade-related laws and regulations WTO-consistent. 
Compared with the 2002 review, the 2003 TRM was less contentious but 
reflected less WTO member participation and less timely U.S. submission 
of questions. Despite the TRM's continued limitations and although 
procedures for the TRM are unlikely to change for future reviews, U.S. 
officials cited benefits from using this multilateral forum as part of 
their overall approach for monitoring and enforcing China's compliance. 
U.S. officials said they put more emphasis on engaging China outside of 
the TRM in regular WTO meetings in 2003. Additional multilateral 
monitoring may occur when China is expected to undergo a separate WTO 
review of its trade policies, possibly in early 2006.

2003 TRM Process Was Similar to 2002, with Less Debate Regarding 
Procedural Issues:

U.S., WTO Secretariat, and other WTO member government officials noted 
that there was less debate about how to conduct the TRM in 2003 than 
2002. As we reported previously, the initial TRM did not result in the 
thorough and detailed review of China's compliance that U.S. officials 
had envisioned.[Footnote 15] Chinese officials told us that while they 
will abide by their TRM commitments, they view the TRM as a 
discriminatory mechanism that was imposed on China during their WTO 
membership negotiations. With this as the prevailing sentiment from 
China, the 2002 review was marked by contention between China and some 
of the other WTO members regarding the form, timing, and specific 
procedures for the TRM. The United States and some other members were 
disappointed that China refused to provide written answers to members' 
written questions in advance of TRM meetings. Additionally, some 
members were disappointed that the review did not result in any 
conclusions or recommendations regarding China's implementation.

Following the conclusion of the first TRM, U.S. and European Union 
officials stated that they would seek improvements for subsequent 
reviews. However, in 2003 officials concluded that there would have 
been little use in reopening the previous year's debates about the 
procedures for the TRM given the lack of specificity in China's WTO 
commitments regarding procedural aspects of the review. U.S. officials 
and some other members noted that, because any changes would require 
consensus from all members, China would most likely have blocked any 
attempt to clarify the TRM procedures regarding written responses and 
furthermore would not likely approve a WTO report with recommendations 
regarding China's implementation. Thus, in 2003 there were no formal 
proposals from WTO members for changing the TRM, although there were 
informal discussions among some committee chairpersons regarding 
overall procedures. Because there was less debate regarding procedures, 
U.S., WTO, and foreign officials told us that the 2003 TRM went more 
smoothly, compared with the previous year. However, as in 2002, China 
did not respond in writing to member questions during the 2003 review, 
nor did the TRM result in a WTO report with conclusions or 
recommendations. U.S., WTO, and other foreign officials told us that 
they expected future TRM reviews to operate similar to the 2003 review, 
with no substantive changes in procedures or outputs. USTR officials 
told us they expect fewer issues to be taken up in future TRM reviews, 
after China revises and issues various laws and regulations as its 
remaining commitments are phased in.

WTO Member Participation in the TRM Decreased in 2003:

Although the United States continued to take a leading role in the TRM, 
participation by other WTO member governments decreased between the 
2002 and 2003 reviews despite U.S. officials' hopes for members' 
increased involvement. For example, the number of WTO members that 
submitted written questions to China in advance of the TRM meetings 
declined from 11 in 2002 to 7 in 2003. Similarly, the number of WTO 
members that asked questions or made statements during the TRM meetings 
decreased from 23 to 11 over the same time period. WTO Secretariat and 
member government officials that we interviewed cited several possible 
reasons for the decreased participation in the 2003 TRM. Some 
developing country WTO members stated that they viewed the TRM as 
mainly a political tool for developed country WTO members to put 
pressure on China and that the TRM was of little use to them, in terms 
of raising and resolving trade issues with China. Additionally, other 
WTO member governments were less active in the 2003 TRM because those 
governments elected to focus on engaging China bilaterally on trade 
issues.

U.S. and China TRM Submissions Were Less Timely in 2003:

Compared with 2002, we found that the United States' submission of 
questions to China was less timely in 2003. USTR officials told us that 
part of their overall strategy for the 2003 TRM was an internal 
deadline to submit questions to China 4 to 6 weeks in advance of the 
TRM meetings to ensure that China had enough time to prepare responses. 
On average, the U.S. submitted questions to China 34 days in advance of 
the committee meetings in 2002. However, in 2003, the United States 
submitted questions only 9 days[Footnote 16] in advance of the 
meetings, on average.[Footnote 17] In a few of the committee meetings 
in 2003, the Chinese representative stated that he was unable to 
prepare and provide answers to questions that were received just prior 
to the meetings.

The timeliness of China's submissions to the various committees also 
affected TRM proceedings. China's accession agreement describes various 
types of information that China is required to submit to the WTO 
subsidiary bodies in advance of the TRM, but the agreement does not set 
forth specific timelines for the submissions.[Footnote 18] In 2003, 
China's submissions predated the TRM meetings by an average of 6 days, 
compared with an average of 16 days in 2002. During the meetings, some 
members commented that they were unable to prepare a complete set of 
questions since they had not had sufficient time to review China's 
submissions. (See app. III for more details on the 2002 and 2003 
TRMs.)

U.S. Officials Cited Benefits of the TRM Despite the Review's 
Limitations:

U.S. officials acknowledged the continuing limitations of the TRM in 
2003, but cited three major benefits of the review: (1) the TRM 
increased China's transparency on trade issues, (2) the TRM resulted in 
a useful exchange of information and fostered better coordination among 
key Chinese ministries, and most importantly, (3) the TRM provided the 
United States with a formal multilateral forum for raising compliance 
problems. First, U.S. officials stated that the TRM was an effective 
way to urge China to disclose information about its implementation in a 
formal, public multilateral forum. Officials said it was important to 
demonstrate to China that the United States and other concerned members 
would be actively seeking information about China's implementation on 
an annual basis. Second, several U.S., WTO Secretariat, and other 
member government officials said that China sent more experts from the 
relevant ministries to attend the TRM in 2003, and many officials 
stated that this had resulted in a more effective exchange of 
information during the reviews. Further, U.S. and foreign officials, 
including China's ambassador to the WTO, indicated that the TRM process 
was effective in helping China's main trade ministry, the Ministry of 
Commerce, gain cooperation and coordination from other Chinese 
ministries that might not have understood the problems or might have 
been reluctant to cooperate otherwise. Third, U.S. officials said that 
the TRM provided the United States with an opportunity to highlight 
specific areas of concern about China's implementation and obtain an 
official, public position from China on key issues. U.S. officials 
further noted that, although the TRM was never intended to supplant the 
dispute settlement process, the TRM could help lay the groundwork for 
any potential areas where the United States would initiate a WTO 
dispute settlement case with China.

Multilateral Engagement in Regular WTO Meetings Takes on More 
Importance:

U.S. officials also said that part of the U.S. multilateral strategy 
for resolving compliance problems with China in 2003 was to raise 
issues with China during other WTO committee meetings outside of the 
TRM. Regular WTO business takes place in the subsidiary bodies 
mentioned above, which formally meet anywhere from one to four, or 
more, times a year, and the United States is a very active participant. 
Established WTO practice holds that members are to respond in writing 
to each other's questions that are submitted through the normal (i.e., 
not TRM) WTO committee structure. Additionally, U.S., WTO, and other 
foreign officials noted that China is generally cooperative during 
regular, non-TRM WTO meetings. The degree to which members (including 
the United States and China) review and question each other's laws, 
regulations, and trade practices varies by committee. WTO Secretariat 
officials told us that, compared to what they had observed in some of 
the TRM meetings, similar or even more technical information was 
routinely exchanged between members in a few of the committees--like 
the Committee on Antidumping Practices--whereas such exchanges were 
relatively rare in other committees, like the Committee on Trade-
Related Investment Measures.

WTO Has an Additional Review Mechanism:

U.S. and other officials also pointed out that the WTO's Trade Policy 
Review Mechanism would provide an additional opportunity for a 
meaningful review of China's trade policies. The Trade Policy Review 
Mechanism, which is unrelated to the TRM, provides for a broad review 
of all WTO members' trade policies and practices, trade policy-making 
institutions, and macroeconomic conditions. Each member undergoes these 
reviews on a scheduled basis, and the frequency of an individual 
member's review depends on its share of world trade.[Footnote 19] Based 
on its total volume of trade, China is expected to undergo the review 
every 2 years, although the exact timing of China's initial review has 
yet to be determined, according to WTO Secretariat officials. While the 
Trade Policy Review is not a review of members' implementation of WTO 
commitments, the review does provide an opportunity for members' to 
submit questions to and receive written responses from the 
reviewee.[Footnote 20] The reviews also result in a summary report that 
describes the findings of the review.

Key Agencies' China Units Could Improve Their Performance Management 
Activities:

Although the key agencies' formal plans address trade monitoring and 
enforcement activities, it is difficult to assess the effectiveness of 
the agencies' China-WTO compliance efforts based on their performance 
management reports. Planning and measuring results are important 
components to ensuring that government resources are used effectively 
to achieve the agencies' goals. Good planning and management links 
overall agency goals to individual unit activities and priorities. 
USTR, Commerce, State, and USDA's plans reflect China-WTO compliance 
efforts, albeit to varying degrees and in different ways. However, in 
most cases, we found weaknesses in these key agencies' performance 
management efforts; and these weaknesses prevented the agencies from 
providing a clear or accurate assessment of their performance in this 
regard. Moreover, the specific units within the agencies that are most 
directly involved with China compliance activities lacked specific 
strategies for ensuring that they supported their agency's goals, and 
they did not measure their unit's results.

Establishing Goals and Measuring Results are Important:

The Government Performance and Results Act of 1993 (GPRA) requires 
federal agencies to engage in a results-oriented strategic planning 
process.[Footnote 21] GPRA requires agencies to set multiyear strategic 
goals in their strategic plans and corresponding annual goals in their 
performance plans, measure performance toward the achievement of those 
goals, and report on their progress in their annual performance 
reports. These reports are intended to provide important information to 
agency managers, policymakers, and the public on what each agency 
accomplished with the resources it was given.

Moreover, GPRA calls for agencies to develop performance goals that are 
objective, quantifiable, and measurable and directs agencies to 
establish performance measures that adequately indicate progress toward 
achieving those goals. Thus, GPRA requires agencies to report on 
program performance for the previous fiscal year, based on their 
established goals and measures. Agencies are to compare performance 
with the established goals, summarize findings of program evaluations, 
and revise or describe the actions needed to address any unmet goals. 
Agencies have flexibility in establishing goals and in using 
performance measures, as long as they reflect the major activities 
carried out as part of their particular missions. Furthermore, with 
Office of Management and Budget (OMB) concurrence, agencies can express 
their performance goals for particular programs in an alternative form 
when they are not able to define goals in an objective and quantifiable 
form, as long as it allows for actual performance to be compared to the 
goal. Our previous work has noted that a lack of clear measurable goals 
makes it difficult for program managers and staff to link their day-to-
day efforts to achieving the agency's intended mission.[Footnote 22] 
Lastly, good planning and performance measurement at both the overall 
agency and unit levels enhances program oversight and is a critical 
component to effective and informed decision making.

Key Agencies' Goals Vary in How They Address China-WTO Compliance 
Efforts:

Consistent with GPRA's requirements, the four key agencies set long-
term and annual goals that address China compliance efforts in their 
most recent strategic and performance plans; however, the degree of 
specificity can and does vary in these goals. USTR and State (China-
mission level) plans include China-specific goals related to their WTO 
compliance efforts, whereas USDA and Commerce include their China-WTO 
compliance efforts within broader goals of monitoring and enforcing WTO 
agreements and ensuring market access for U.S. companies.

More specifically, USTR's most recent strategic plan, which spans 
fiscal years 2000 to 2005, includes a general goal related to 
monitoring and enforcing trade agreements, while the 2004 performance 
plan includes a specific annual performance goal for USTR to monitor 
and review China's implementation of WTO commitments to ensure 
compliance. State's agencywide strategic planning documents describe 
broad goals for creating open markets and supporting U.S. businesses, 
while the 2004 Mission Performance Plan[Footnote 23] for the overseas 
posts in China is linked to these broad goals and sets forth a related 
performance goal specific to China. Although the most recent Commerce 
and USDA planning documents do not include specific goals relating to 
China's WTO compliance, the plans do include more general strategic and 
performance goals for ensuring fair trade and enforcing existing trade 
agreements, which according to agency officials, broadly reflect their 
China-related activities. Agencies' strategic and performance goals 
related to China-WTO compliance are summarized in table 5.

Table 5: Key Agencies' GPRA Goals Related to China-WTO Compliance:

Agency: USTR; 
Relevant strategic goals: Monitor, enforce and, where necessary, modify 
trade and investment agreements to ensure that the intended benefits 
are achieved; 
Relevant annual performance goals: Monitor and review China's 
implementation of WTO commitments to ensure compliance.

Agency: Commerce; 
Relevant strategic goals: Provide the information and the framework to 
enable the economy to operate efficiently and equitably; 
Relevant annual performance goals: Ensure fair competition in 
international trade.

Agency: State; 
Relevant strategic goals: Economic prosperity and security: Strengthen 
world economic growth, development, and stability, while expanding 
opportunities for U.S. businesses and ensuring economic security for 
the nation; 
Relevant annual performance goals: Increased trade and investment 
achieved through market-opening international agreements and further 
integration of developing countries into the trading system; China 
Mission relevant performance goal: Further integrate China, the world's 
largest transitioning economy, into the world economic system.

Agency: USDA; 
Relevant strategic goals: Enhance economic opportunities for 
agricultural producers; 
Relevant annual performance goals: Expand international marketing 
opportunities.

Source: GAO summary based on USTR, Commerce, State, and USDA strategic 
and performance planning documents.

[End of table]

Difficult to Assess the Performance of Agencies' China-WTO Compliance 
Efforts:

We found that it was not possible to clearly determine the outcome of 
the key agencies' China-WTO compliance efforts based on the agencies' 
performance reports. Agencies should, at a minimum, have objective 
measurable (preferably quantifiable under GPRA) measures that allow for 
accurate and measurable evaluation of key agency programs, which we 
believe could include those covering China trade compliance. Based on 
GPRA's provisions, we found problems in USTR, State, and Commerce's 
assessment of program performance relevant to China-WTO compliance 
activities. For USDA, we found it was difficult to determine the 
effectiveness of the agency's efforts with regard to China-WTO 
compliance because that agency chose goals and measures that were not 
specific to China or monitoring and enforcement, but agency officials 
did demonstrate how their China activities contributed to their 
performance measurement. Table 6 summarizes the key agencies' relevant 
performance measures and the results they have reported.

Table 6: Key Agencies' GPRA Performance Measures and Results for Fiscal 
Year 2003:

Agency: USTR; 
Relevant performance measures: The number of negotiations and trade 
problems resolved and the number pending (with China), as indicated in 
the President's Annual Report on the Trade Agreements Program[A]; 
Reported results: The 2003 President's report discusses results on 
China WTO compliance as follows: 

"…as China continued to pursue the implementation of its WTO 
commitments in 2003, China's second year of WTO membership, a number of 
positive developments occurred. China began to take steps to correct 
systemic problems in its administration of…" 

"Despite these gains, 2003 also proved to be a year in which China's 
WTO implementation efforts lost a significant amount of momentum. In a 
number of different sectors, including some key sectors of economic 
importance…".

Agency: Commerce; 
Relevant performance measures: 
* Number of market access and compliance cases initiated; 
* Number of market access and compliance cases concluded; 
* Dollar value of trade barriers addressed[B]; 
Reported results: Although there are no China-specific measures, 
Commerce's (International Trade Administration) 2003 performance 
assessment reports that targets for the first general compliance 
measure were not met, and that targets were met for the second and 
third measures for ensuring fair competition in international trade.

Agency: State; 
Relevant performance measures: 
State overall measures: 
* Status of negotiations on open markets for services, trade, and 
investment; 
* Number of market opening transportation agreements in place; 
* Number of countries allowing commercial use of agricultural 
biotechnology and global acreage of biotech crops under cultivation; 
* Number of new accessions to the WTO; 
* International Telecommunication Union recommendations adopted; 
China Mission Performance Plan indicators: 
* Encourage WTO compliance; 
* Support U.S. exports; 
Reported results: State overall results: Although there are no China 
or compliance-specific measures, State's fiscal year 2003 performance 
report indicates that, overall, the agency determined it was "on 
target" or "significantly above target" for meeting the various goals 
related to creating open and dynamic world markets; 
China Mission performance results: State does not report results at 
the mission level.

Agency: USDA; 
Relevant performance measures: 
* Estimated (value) annual trade opportunities preserved through WTO 
trade negotiations and notification process; 
* Estimated gross trade value of markets expanded/retained by market 
access activities other than WTO notification process; 
* Average tariff rate on agriculture imports worldwide; 
* Increase the number of new or modified export protocols that 
facilitate access to foreign markets; 
* Increase the number of international animal and plant health 
standards adopted; 
Reported results: USDA's fiscal year 2003 report indicates that the 
agency met or exceeded all of the targets established for the goals 
relating to its monitoring and enforcement efforts, and includes China-
related examples. 

Source: GAO summary based on USTR, Commerce, State, and USDA planning 
documents.

[A] USTR prefaces these measures with "It is difficult to predict with 
accuracy whether or not implementation/negotiation will be completed in 
any one year."

[B] This measure was discontinued in fiscal year 2004.

[End of table]

USTR Does Not Establish Specific Performance Management Targets:

USTR reported its 2003 results in the President's Annual Report on the 
Trade Agreements Program, but not in a measurable way that compares the 
agency's performance against a predetermined annual target or 
objective. USTR's performance plan identifies a quantifiable, 
measurable indicator of performance specific to China's compliance, 
namely, the number of trade problems resolved and the number pending. 
These measures, if used, would have allowed for numerical evaluation of 
USTR's China compliance activitiesif a target outcome was chosen. 
However, the aforementioned report only provides a narrative 
description of the status of China's compliance problems and the U.S. 
responses; and as such, the report does not address USTR's performance 
measure and thus does not allow for a clear measurable assessment of 
whether USTR is achieving its intended China compliance goal. We 
believe sound performance management requires an agency to specifically 
address its performance measures when it reports results.

Furthermore, USTR's performance measures should have been accompanied 
by targets that would have allowed the agency to clearly report 
results. For example, USTR could set a target to resolve some 
percentage of high priority compliance problems, or more generally, to 
eliminate some particular outstanding problems. Instead, USTR's FY 2004 
Performance Plan and FY 2002 Annual Performance Report states, "It is 
difficult to predict with accuracy whether or not implementation/ 
negotiation will be completed in any one year."[Footnote 24] 
Furthermore, despite setting forth quantifiable measures in its 
performance plan, USTR officials said that they did not believe it was 
appropriate to quantify their performance results because of the many 
intangible factors that affect the interpretation of results, 
especially the various weights of different problems in terms of trade 
importance. As noted earlier, while quantitative measures are preferred 
under GPRA, GPRA provides agencies the flexibility, when appropriate, 
to use alternative (that is, nonquantifiable) measures--such as 
descriptive statements--as long as they allow for an accurate and 
independent determination of whether the agency is meeting its intended 
goal. Nevertheless, since USTR did establish quantitative measures, 
sound performance management would have dictated that it establish 
targets and report the results related to those measures.

Commerce's Performance Measurement May Need Improvement:

Commerce has established reasonably objective, quantifiable measures 
for its China-WTO compliance related efforts, but there are potential 
weaknesses in the reliability of the data used to judge results, as 
noted by the Commerce Inspector General.[Footnote 25] Commerce's three 
related measures are the numbers of market access and compliance cases 
(1) initiated, (2) concluded, and (3) dollar value of trade addressed. 
The measures apply generally to all market access and compliance cases, 
but they also include information specific to China. Commerce uses a 
centrally maintained database to track market access and compliance 
cases it is working to resolve. Commerce has taken several important 
steps to improve the quality of the database, including providing 
training to staff on how to use the database, creating a users' manual, 
and overseeing the timeliness and completeness of staff entries. 
However, some staff we interviewed noted that the quality of 
information in the Trade Compliance Center database is dependent on how 
thorough staff members are in entering information. Staff said that 
certain types of crosscutting issues or company-specific problems are 
still not always entered into the database. Others noted that 
information in the database on some issues is often incomplete, which 
raises new concerns about the reliability of the data. Commerce 
collects information on China market access and compliance cases, and 
agency officials provided us data that demonstrated the extent to which 
China-related cases contribute to the agency's overall performance 
measures. (See table 7 for the China-specific results.)

Table 7: Summary of Commerce Market Access and Compliance Cases for 
China Initiated and Concluded, Fiscal Years 2001-2003:

Cases initiated and concluded: Compliance cases initiated; 
2001: 7; 
2002: 22; 
2003: 12; 
Total: 41.

Cases initiated and concluded: Market access cases initiated; 
2001: 18; 
2002: 14; 
2003: 2; 
Total: 34.

Cases initiated and concluded: Total cases initiated; 
2001: 25; 
2002: 36; 
2003: 14; 
Total: 75.

Cases initiated and concluded: Compliance cases concluded; 
2001: 4; 
2002: 16; 
2003: 12; 
Total: 32.

Cases initiated and concluded: Market access cases concluded; 
2001: 13; 
2002: 8; 
2003: 9; 
Total: 30.

Cases initiated and concluded: Total cases concluded; 
2001: 17; 
2002: 24; 
2003: 21; 
Total: 62. 

Source: Commerce.

[End of table]

State Does Not Measure China-Specific Results:

We reviewed State's 2004 Mission Performance Plan for China because, 
unlike the overall agencywide plan, it explicitly addressed China-WTO 
compliance activities. Although the plan sets forth broad baseline 
indicators and targets, the mission plan does not indicate progress 
toward achieving the mission's goals in this regard. The mission plan 
includes two relevant strategies to accomplish its performance goal 
relating to integrating China into the world economic system: one 
specifically related to monitoring China's WTO compliance and another 
related to promoting U.S. economic interests. Furthermore, although the 
mission plan provides a useful discussion of the tactics proposed to 
achieve each of these strategies, we found the mission's two annual 
performance indicators do not allow for quantifiable, measurable 
results.

In its agencywide plan, State uses performance indicators for trade-
related goals that do not specifically target either China or 
monitoring and enforcement-related activities. These worldwide 
indicators focus on concluding various types of negotiations, the 
acceptance of biotechnology in the agricultural sector, and the 
adoption of favorable international telecommunication practices. 
State's report does not include how these measures apply to specific 
countries.

USDA's Measures Are Not Specific to China and Are Subject to Other 
Factors:

USDA's plan includes several relevant quantifiable measures, as well as 
a useful discussion of the means and strategies that the agency employs 
to increase international marketing opportunities for U.S. agricultural 
exporters. Furthermore, in several instances USDA reports its efforts 
in China are part of its strategy for achieving its goals. Because the 
agency chose goals and measures that were neither specific to China nor 
to monitoring and compliance, it is not possible to determine the 
effectiveness of the agency's efforts with China-WTO compliance from 
its performance reports. However, agency officials were able to 
demonstrate that their China activities contributed to their 
performance measurement.

Nevertheless, we found that several of the measures USDA uses to assess 
performance against the broad goal of expanding international marketing 
opportunities can be significantly impacted by external factors that 
affect trade in general. USDA's fiscal year 2004 plan includes a brief 
list of the factors that may impact the agency's progress toward 
achieving the goals, but the discussion of those factors does not 
present the agency's strategies for mitigating those potential effects. 
As a result, it is difficult to determine the extent to which 
performance results are attributable to agency efforts or to external 
factors. USDA officials said that they understood their measures were 
problematic and said the agency was in the process of developing more 
effective measures, including country-specific performance measures.

More Attention to Performance Management Could Improve Unit-Level 
Activities:

Agency officials told us about the substantial high-level effort they 
make to establish and follow an aggressive strategy to ensure China's 
continued implementation of its WTO commitments. Furthermore, officials 
engage in significant interagency planning and regularly adjust 
priorities at the most senior levels in order to achieve results.

However, these strategies and priorities are not reflected in agencies' 
performance management activities that help guide lower level unit 
activities. Although GPRA requirements do not apply specifically to the 
planning activities of individual units, unit-level planning and 
performance reporting is essential to an agency's oversight of its key 
programs. Such performance management activities help managers focus 
their efforts and resources on long-term priorities in the face of 
ongoing short-term exigencies.

Furthermore, we found that the lower level units most directly involved 
with China-WTO compliance activities do not establish longer term 
annual unit-level objectives or priorities for their unit's activities. 
Managers in all four key agencies said they did not set specific 
measurable performance goals or objectives for their units in support 
of agency overall performance management goals, nor did they set their 
own priorities and align resources to those priorities in any unit-
level plan. Instead, managers indicated that their units' priorities 
were adjusted frequently to respond to compliance problems as they 
arose depending on the level and number of companies complaining about 
a compliance problem, the amount of trade affected by a problem, the 
scope and magnitude of a problem, and which issues the Administration 
or Congress were focused on at the time, among other considerations. 
Units undertook various activities as needed to support these changing 
priorities. Many managers and staff believed that there was very little 
their units could do to predict which areas of China's implementation 
would falter and that the units needed to remain flexible in order to 
respond to any compliance problems that might arise or to take 
advantage of any opportunity to solve a compliance problem. They 
believed this despite the fact that many of the compliance problems 
that have arisen to date have persisted since China's accession.

This approach was reflected in our interviews with staff. Most staff 
said prioritization of their unit's activities was informal and ad hoc; 
no staff reported a formal prioritization scheme for addressing 
compliance issues. Furthermore, many staff and some managers were 
unable to articulate longer-term performance plans for their unit's 
efforts. Of staff familiar with relevant performance goals, managers 
and staff at the four key agencies also said that they believe that 
their agencies' existing performance measures do not fully capture 
their unit's activities. For example, Commerce staff noted that much of 
the work they do regarding trade capacity building programs with the 
Chinese government and outreach to the private sector is not included 
in the database used to measure their performance in monitoring and 
enforcement, although those efforts can have a positive effect on 
China's compliance.

Because the units' activities are not clearly tied to agency 
performance management efforts, China unit managers are not able to 
assess the results of their unit's activities and use this information 
to guide future work. Managers could not comment on whether they had 
achieved predetermined objectives for any one year or specifically how 
their unit contributed to their agencies' overall performance goals.

Key Agencies Added Staff Resources, but Turnover and Lack of Training 
Limited Overall Effectiveness:

In 2003, the key agencies continued to add resources to meet the 
demands of monitoring China's compliance with its WTO commitments, 
especially in headquarters units. However, we found that high rates of 
planned and unplanned staff turnover in the main China units presented 
challenges to the agencies' compliance efforts. Despite anticipated 
staff turnover in the units we examined, staff in those units lacked 
the opportunity to receive specific training related to carrying out 
their assigned responsibilities. Instead, the units generally relied on 
on-the-job training (OJT) for new staff. Consequently, staff with 
relatively short rotations in units focused on China's WTO compliance 
spent a significant portion of their total tenure in the office getting 
up to speed on complex China trade issues.

Agencies Have Increased Staff Levels in Main Units; Proportionally More 
Increases at Headquarters Units:

In response to the increased responsibilities arising from China's WTO 
membership, USTR, Commerce, State, and USDA increased staff resources 
at both headquarters offices and in China. The estimated number of FTE 
staff in the units most directly involved with China-WTO compliance 
efforts across the four key agencies increased from about 25 to 58 
between fiscal years 2000 and 2003. Staff in the main China-related 
headquarters units in Washington, D.C, increased at a rate of about 3 
to 1 over China-based units over the same period, and over 70 percent 
of the staff resources were located within the agencies' headquarters 
units by 2003. Commerce added the largest number of staff, as estimated 
FTE staff increased from about 9 to 35 between fiscal years 2000 and 
2003. (See table 8.)

Table 8: Agency Staffing Estimates for Main Units Involved with China-
WTO Compliance Efforts, Fiscal Years 2000-2003:

Agency: Headquarters units: USTR: Office of North Asian Affairs[A]; 
2000: 3; 
2001: 3; 
2002: 5; 
2003: 5.

Agency: Headquarters units: Commerce: Market Access and Compliance[B]; 
2000: 7; 
2001: 19; 
2002: 22; 
2003: 22.

Agency: Headquarters units: Commerce: Import Administration, Trade 
Remedy Compliance Staff[C]; 
2000: 1.7; 
2001: 3.3; 
2002: 6.7; 
2003: 9.

Agency: Headquarters units: State: East Asia and Pacific, Office of 
Chinese and Mongolian Affairs[D]; 
2000: 2.25; 
2001: 2.25; 
2002: 3.25; 
2003: 3.25.

Agency: Headquarters units: USDA: Foreign Agricultural Service, Asia 
and the Americas Division[E]; 
2000: 2.5; 
2001: 2.5; 
2002: 2.5; 
2003: 2.5.

Agency: Headquarters units: Subtotal for headquarters units; 
2000: 16; 
2001: 30; 
2002: 40; 
2003: 42.

Agency: Overseas units in China: Commerce: Trade Facilitation 
Office[F]; 
2000: 0; 
2001: 0; 
2002: 0; 
2003: 4.

Agency: Overseas units in China: State: Beijing Embassy, Economic 
Section, WTO Group[G]; 
2000: 6; 
2001: 6; 
2002: 5.5; 
2003: 7.25.

Agency: Overseas units in China: USDA: Foreign Agricultural Service, 
Beijing Embassy Agricultural Section[H]; 
2000: 3; 
2001: 3; 
2002: 4; 
2003: 5.

Agency: Overseas units in China: Subtotal for overseas units; 
2000: 9; 
2001: 9; 
2002: 10; 
2003: 16.

Total all units; 
2000: 25; 
2001: 39; 
2002: 50; 
2003: 58. 

Sources: USTR, Commerce, State, and USDA estimates.

Note: Figures do not total precisely due to rounding.

[A] Figures include actual FTE staff working on China compliance, and 
figures for 2003 include two staff temporarily detailed to USTR from 
State and the International Trade Commission. In April 2004, USTR 
established a separate and expanded Office of China Affairs to focus 
solely on overseeing trade policy with China, Taiwan, Hong Kong, Macau, 
and Mongolia.

[B] Figures include actual FTE staff in the Office of China Economic 
Area (18 staff), the Trade Compliance Center (2 staff), and members of 
a Rapid Response trade compliance team (2 staff) who focus on China 
issues.

[C] Figures based on Import Administration estimates of FTE staff 
working on China compliance and do not include estimates of staff who 
conduct antidumping proceedings involving imports from China.

[D] Figures based on State estimates of FTE staff working on China 
compliance issues. Although other units at State do not focus 
specifically on China, State's Bureau of Economic and Business Affairs 
provides sector and other technical advice on China trade issues. The 
Bureau estimated that the equivalent of 1.4 full-time staff were 
devoted to working on China trade issues in fiscal year 2003.

[E] Figures are based on USDA estimates of FTE staff working on China 
compliance issues.

[F] Figures include two actual FTE staff from Market Access and 
Compliance and two from Import Administration, Trade Remedy Compliance 
Staff. Staffing for the office was approved during fiscal year 2001, 
but the officers were not placed until late fiscal year 2002 and early 
fiscal year 2003. Figures do not include Commerce's U.S. and Foreign 
Commercial Service staff who are located in five cities throughout 
China and who also play a role in supporting the U.S. government's 
compliance efforts.

[G] Figures based on State estimates of FTE staff working on China 
compliance in the Beijing Embassy's Economic Section. Figures do not 
include staff from other embassy sections or consular staff who also 
play a role in supporting the U.S. government's compliance efforts.

[H] Figures include actual FTE staff, including policy attachés, 
agricultural specialists, and a senior-level Minister-Counselor. The 
figures do not include staff in USDA's Agricultural Trade Offices 
located in three cities throughout China who also play a role 
supporting the U.S. government's compliance efforts--there were six 
actual full-time staff in these offices in fiscal year 2003.

[End of table]

The 2004 Appropriations Act for Commerce, Justice, and State[Footnote 
26] intended additional staff increases and funds necessary for the 
U.S. government's China compliance efforts.[Footnote 27] Specifically, 
the Congress called for Commerce to reorganize and dedicate more 
resources to China compliance efforts by, among other things, 
establishing an enforcement office within the Market Access and 
Compliance division to provide legal and investigative assistance to 
companies seeking to enforce their rights under existing trade 
agreements and reorganizing the Import Administration to include an 
office that deals specifically with antidumping cases involving China 
and other nonmarket economy countries. The Congress also called for 
USTR to dedicate more resources to China trade issues by adding three 
positions in the agency's main China trade unit and six other positions 
in other offices that have a role in monitoring and enforcing China's 
trade commitments. Notably, these intended changes would continue the 
trend of increasing staff at the headquarters instead of the agencies' 
field units.

Although the key agencies (excluding USTR) have many staff located in 
China, a relatively small proportion of those staff have a direct role 
in the U.S. government's China-WTO compliance activities. Officials in 
various overseas units assist the agencies' China-WTO compliance 
efforts, but this assistance is not a primary component of their 
responsibilities. For example, Commerce had 23 officers located in 
China in fiscal year 2003, but only four officers had explicit China-
WTO compliance responsibilities; the other officers were Commercial 
Officers, and their primary duties involved trade promotion. Similarly, 
only about a quarter of the 26 Foreign Service officers and staff 
within the Beijing embassy's economic section focused primarily on 
China-WTO compliance in 2003. About the same proportion of USDA's 
Foreign Agriculture Service (FAS) officers in China had an explicit 
role in China-WTO compliance issues, while the other officers were 
primarily focused on promoting and facilitating U.S. agricultural 
exports.

Staff Turnover in Main Units Reduced Agencies' Ability to Ensure 
China's Compliance:

Relatively high rates of planned and unplanned staff turnover in 
several of the main China units with primary responsibility for 
monitoring and enforcing China's WTO commitments presented challenges 
for the agencies' China compliance efforts. Managers and staff in the 
units we reviewed cited several negative effects of turnover on their 
units' compliance efforts.

Planned and Unplanned Rates of Turnover Were High in Some Main Units:

Turnover across all executive branch agencies averaged 5.8 percent in 
fiscal year 2003, but turnover in several of the agencies' main China 
units was significantly higher. For example, between fiscal years 2000 
and 2003, the average annual turnover rate in the Office of China 
Economic Area at Commerce was about 25 percent, and the rate was about 
32 percent in USTR's 3 to 5 person China office, over the same period. 
Additionally, according to State data, six of the eight staff (75 
percent) in the section that oversees the embassy's China compliance 
efforts turned over in 2002 alone. Lastly, although turnover has not 
been an issue in USDA's Asia and the Americas Division, staff noted 
that because of the small size of the office, staff departures could 
create a substantial loss of institutional memory.

In some instances, turnover in the units is part of a planned staffing 
process. For example, a core principle of State's staffing model is to 
create generalists who can serve in any overseas mission. Consistent 
with this objective, most entry-and mid-level Foreign Service officers 
are rotational and change posts every 2 to 4 years. USDA's FAS officers 
are subject to minimum 3-year rotations. Additionally, in 2003, two of 
the five staff in USTR's China office were temporary detailees from 
other agencies, and these staff typically rotate back to their home 
agency after 1 year. In other cases, staff turnover resulted from 
unplanned staff separations, such as when staff left to take positions 
in another agency or in the private sector.[Footnote 28] Lastly, we 
previously reported that the core officials that actively participated 
in China's WTO accession negotiations had changed jobs or left the 
government by 2002.

Officials Cited Negative Effects of Turnover:

Managers and several staff in the key headquarters and field units said 
that turnover had generally negative effects on the units' activities. 
First, several officials said that turnover in the units meant that new 
staff sometimes did not have sufficient time to develop expertise on 
complex China trade issues before they rotated to another position or 
left the agency. Consequently, staff with relatively short rotations (1 
to 3 years) in China compliance-focused units spent a significant 
portion of their tenure learning the issues rather than focusing on 
actively resolving compliance problems. Second, other officials noted 
that this problem is compounded because outgoing and incoming staff 
sometimes only overlap for a brief period, if at all. For example, all 
officers and staff in two units at State that were involved in China-
WTO issues were scheduled to rotate at the same time in 2004, so there 
would likely be little or no overlap with their successors. Lack of 
overlap between transitioning staff requires incoming staff to learn 
their assigned portfolio of issues without the benefit of guidance from 
their predecessors. Third, one embassy official pointed out that staff 
turnover makes it difficult for officers to effectively establish and 
cultivate contacts with their counterparts in the Chinese government.

Staff Lacked Training Opportunities on Relevant Skills; Agencies Relied 
Heavily on On-the-Job Training:

The main China units at the four key agencies lacked specific training 
relevant to executing China-WTO compliance responsibilities, or, to the 
extent that the agencies' offered specific training, staff generally 
lacked sufficient opportunities to receive it. Additionally, as noted 
in our previous reports, some agencies' efforts continued to be 
hampered by shortfalls in Chinese language training. We found that 
agencies relied almost exclusively on OJT to give new staff the skills 
necessary to do their jobs.

Limited Training Opportunities for Staff in the Agencies' Main China 
Units:

About half of the staff and managers we interviewed in the main 
headquarters and field units indicated that formal training 
opportunities for staff were limited or that additional training would 
enhance their units' effectiveness. Our model of strategic human 
capital management emphasizes the importance of structured training as 
a means to develop and retain staff and describes the important 
linkages between training and effectively attaining an agency's 
strategic and performance goals. However, none of the units we reviewed 
offered or required staff to take part in formal training curricula 
related to carrying out the mission of the unit. In some cases, the 
agencies' offered trade-related training courses, but staff in each of 
those offices said that their opportunities to take those courses were 
limited by time and workload constraints. For example, State's Foreign 
Service Institute offers several courses on trade issues, including 
trade agreement implementation, the WTO dispute settlement process, 
trade law, and trade and environment issues. While officers in the 
China embassy's WTO Group and Commerce's Trade Facilitation Office took 
part in the course on trade agreement implementation, the officers we 
interviewed noted that they had taken few, if any, other courses. 
Furthermore, USTR officials told us that USTR only hires experienced 
personnel, who do not need training.

A factor that illustrates the importance of training is that many 
vacancies in the main China units are filled by junior and mid-level 
staff who would benefit from more training. For example, in Commerce's 
Office of China Economic area, 11 of the 17 new staff hired between 
fiscal years 2001 and 2003 were at the GS-9 level or below. Similarly, 
mid-and junior-level officers (FS-03 and lower) filled five of the 
eight positions at the WTO unit at Embassy Beijing in fiscal year 2003. 
Embassy officials, including the Deputy Chief of Mission, noted the 
need for greater expertise and experience among officers at the post to 
deal with complex China trade issues. Even staff that had experience 
working in China or working on trade issues who were hired or rotated 
into China-trade units indicated that they would benefit from training 
on issues other than China-WTO compliance, such as training on writing 
cables and briefing papers.

Shortfalls in Language Training Continued:

We previously reported on the shortfalls of foreign language skills, 
including gaps in Mandarin Chinese at State's overseas posts and within 
Commerce's Foreign Commercial Service.[Footnote 29] Despite State's 
recent improvement in addressing this shortfall, many staff we 
interviewed noted that Chinese language training opportunities were 
limited, even for State Foreign Service officers.[Footnote 30] At the 
same time, managers and staff in the key units said that, while Chinese 
language is not essential for all positions, it is difficult to 
effectively engage their Chinese counterparts on complex trade issues 
without having sufficient language skills. Embassy staff said that due 
to the heavy visitor schedule and workload, they found it difficult to 
consistently take advantage of the language instruction available at 
the post. Furthermore, they noted that 1-year rotational officers who 
have not had adequate language training filled many positions in the 
embassy's WTO Group.

Main Units Relied on On-the-Job Training:

All of the units we reviewed relied almost exclusively on OJT to 
acquaint staff with how to carry out their China-WTO compliance 
responsibilities. Without formal guidance regarding their 
responsibilities, many staff said they generally relied on colleagues 
and supervisors for further direction. Although OJT is essential to 
developing expertise on complex China-WTO trade issues, it cannot 
ensure that new staff have all the information they need to perform 
their duties. Our previous work notes that effective utilization of 
human capital is best achieved through a comprehensive mix of both 
formal and OJT. Additionally, we identified other problems with the 
agencies' reliance on OJT. For example, we found that inconsistencies 
in how the main units track and share information on China compliance 
can limit the effectiveness of OJT. Not only is tracking information an 
important aspect of the overall monitoring and enforcement process, but 
it can also help mitigate the effects of turnover and is an important 
OJT tool for acquainting new staff with their assigned portfolio of 
responsibilities. Staff across the four key agencies said that there 
was little or no internal guidance about the types of information that 
should be collected and how the information should be compiled and 
shared. Finally, as one high-level embassy official noted, relying on 
OJT can significantly add to the workload of more senior staff, who 
must be diverted from their own portfolios in order to provide informal 
guidance to new staff.

Conclusions:

Ensuring China's compliance with its WTO commitments is a continuing 
priority for the U.S. government. The complexity, breadth, and ongoing 
nature of many of the problems that have arisen to date demonstrate the 
need for a cohesive and sustained effort from the key U.S. agencies to 
monitor and enforce China's implementation of WTO policies. The key 
agencies have done much to enhance their capacity to carry out these 
efforts by coordinating on policy issues and increasing staff 
resources. However, there are three areas in which USTR, Commerce, 
State, and USDA should take steps to improve these efforts and maximize 
the effectiveness of the resources allocated to the task of securing 
the benefits of China's membership in the WTO.

First, while U.S. monitoring and enforcement activities in 2003 
reflected increased high-level bilateral engagement by executive branch 
officials, some multilateral efforts did not achieve their full 
potential. Specifically, the WTO's annual TRM was intended to be a 
thorough review of China's implementation, but many U.S., WTO, and 
foreign officials agree that the mechanism has limitations. 
Nevertheless, the TRM and the benefits it provides could be enhanced by 
increased member participation and more timely U.S. preparation, which 
would improve the chances for full and informed responses from Chinese 
officials and maximize the potential exchange of information. Thus, 
even with a continued U.S. emphasis on bilateral and other multilateral 
engagement, the TRM can continue to provide an important avenue to 
pursue U.S. trade interests.

Second, the U.S. government's China-WTO compliance efforts would 
benefit from increased emphasis on planning and performance management 
within each of the key agencies. While we acknowledge that unit 
managers need to be flexible when reacting to compliance problems, 
setting clear unit priorities and measurable goals that support overall 
agency objectives need not reduce their flexibility. To the contrary, 
GPRA and our substantial body work on planning emphasizes the 
importance and usefulness of developing unit and program-level plans 
and measures that are connected to an agency's overall mission. We 
acknowledge the challenges of developing measurable goals, given the 
extent to which external factors can influence agencies' trade 
compliance efforts; however, we believe that it is possible to better 
measure results annually.

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

Recommendations for Executive Action:

To improve multilateral engagement with China on WTO compliance issues, 
we recommend that the U.S. Trade Representative (USTR) take steps to 
maximize the potential benefits of the Transitional Review Mechanism 
(TRM). These steps could include establishing and meeting internal 
deadlines to submit written questions to the Chinese delegation 4 to 6 
weeks or more before each TRM and coordinating with other WTO members 
to increase participation in the review.

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

Further, we recommend that USTR and the Secretaries of Commerce, State, 
and USDA undertake actions to mitigate the effects of both anticipated 
and unplanned staff turnover within the agencies' main China-WTO 
compliance units by identifying China compliance-related training needs 
and taking steps to ensure that staff have adequate opportunity to 
acquire the necessary training. These actions could include determining 
which of the agencies' existing courses would be appropriate for staff, 
determining what types of external training are available, developing 
training courses on relevant issues, and establishing a plan and 
timelines for existing and new staff to receive training.

Agency Comments and Our Evaluation:

We provided draft copies of this report to the Office of the U.S. Trade 
Representative, and the Departments of Commerce, State, and 
Agriculture, and we received written comments from all four agencies 
(the agencies' comments and our specific responses are reproduced in 
appendixes IV through VII). USTR and Commerce also provided technical 
comments, which we incorporated as appropriate.

In general, the agencies noted they would consider our recommendations, 
but they raised various concerns and provided additional information 
for our consideration. USTR, Commerce, and State expressed similar 
concerns about our analysis of the scope and disposition of the 
compliance problems presented in USTR's 2002 and 2003 reports on 
China's WTO compliance. The agencies emphasized the importance of 
developments in resolving compliance problems that occurred in 2004 and 
believed that our characterization of the disposition of compliance 
problems was potentially misleading. We generally agreed with these 
comments and updated the report to provide more equal treatment of 2004 
developments and modified the presentation of our analysis of the 
disposition of China's compliance problems. Our responses to the 
agencies' specific concerns on these issues are presented in appendixes 
IV through VI.

USTR, Commerce, and USDA also made specific comments that our report 
did not adequately reflect extensive high-level strategic coordination 
efforts among the key agencies, and they provided additional 
information regarding these efforts. We modified the report to include 
further discussion of high-level strategic planning efforts and 
clarified that our assessment and recommendations focus on the 
agencies' performance management efforts. The agencies expressed 
related concerns about the challenges associated with quantitatively 
measuring performance of their monitoring and enforcement efforts. 
State and USDA indicated that efforts are under way in those agencies 
to improve aspects of their performance planning and measurement, while 
USTR responded that their performance measurements were adequate and 
complied with GPRA and OMB guidance. We maintain that our assessments 
of the agencies' performance management are accurate, especially in 
light of OMB guidance (set forth in OMB Circular No. A-11), and that 
moreover our recommendations, if implemented, would aid in better 
management of the U.S. government's efforts to ensure China's 
compliance.

USTR commented that our discussion of the TRM overlooked the U.S. 
government's efforts to engage China outside of the TRM through the 
regular WTO committee structure, and disagreed with our conclusion that 
greater lead time for U.S. TRM submissions to China would increase the 
potential for fuller oral responses from China. We amplified our 
discussion of U.S. multilateral efforts in the WTO, but we continue to 
believe that USTR should take steps to maximize the potential of the 
TRM, which would include providing greater lead time in submitting TRM 
questions to China.

Commerce, State, and USDA indicated that training is a priority and 
that training opportunities exist for staff in the agencies China 
units. Furthermore, State believed our criticisms concerning training 
were overstated and did not take into account various structural 
constraints faced by that department. USTR said that USTR staff did not 
require training since the agency only hires experienced staff. We 
acknowledge that training opportunities, including OJT, do exist in the 
agencies and that many staff have extensive backgrounds on China trade 
issues. Nevertheless, we continue to believe that a more cohesive 
approach to training can help alleviate the effects of turnover and 
maximize staff effectiveness. Lastly, some of the agencies provided 
additional information regarding various activities and other 
contextual information associated with ensuring China's compliance. To 
the extent that this information was within the scope of our review, we 
have modified the report as appropriate.

We are sending copies of this report to the U.S. Trade Representative, 
the Secretaries of Commerce, State, and Agriculture, and interested 
congressional committees. We will make copies available to other 
interested parties upon request. In addition this report will be 
available at our Web site at [Hyperlink, http://www.gao.gov].

If you or your staff have any questions regarding this report, please 
call me at (202) 512-4128. Other GAO contacts and staff acknowledgments 
are listed in appendix VIII.

Signed by: 

Loren Yager: 
Director, International Affairs and Trade:

[End of section]

Appendixes:

Appendix I: Objectives, Scope, and Methodology:

As part of a long-term body of work that the Chairman and the Ranking 
Minority Member of the Senate Committee on Finance, as well as the 
Chairman and the Ranking Minority Member of the House Committee on Ways 
and Means, requested, we examined how the U.S. Trade Representative 
(USTR) and the Departments of Commerce, State, and Agriculture (USDA) 
are positioned to monitor and enforce China's compliance with its World 
Trade Organization (WTO) commitments. Specifically, in this report, we 
(1) examined the scope and disposition of China-WTO compliance problems 
that the U.S. government is working to resolve; (2) reviewed the U.S. 
government's bilateral and multilateral approaches for resolving 
compliance problems; (3) assessed the agencies' strategies, plans, and 
measures for ensuring China's compliance; and (4) assessed how the U.S. 
government has adapted its staff resources to monitor and resolve China 
compliance problems.

To examine the scope and disposition of compliance problems, we 
reviewed the USTR's Report to Congress on China's WTO Compliance from 
2002 and 2003. These annual reports, mandated in conjunction with 
China's 2001 accession to the WTO, incorporate a broad range of input 
from key federal agencies as well as the business community. We 
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. Other reports included those 
issued by the U.S.-China Business Council and the U.S. Chamber of 
Commerce, which represent a broad cross-section of U.S. industries and 
companies doing business in China. We found the USTR reports to be a 
generally fair and complete representation of U.S. industry concerns. 
After verifying the content of USTR's reports to the extent possible, 
we quantified the number of compliance problems in each area of China's 
WTO commitment based on the report's narrative descriptions of China's 
compliance problems.

To analyze the disposition of the compliance problems, we again relied 
extensively on the narrative descriptions provided in the reports to 
make a determination and assigned three broad categories to describe 
the disposition of the problems: No progress noted, some progress 
noted, and resolved. The determination that there was "no progress 
noted" on a particular problem was based on the fact that the report 
did not indicate that China took any action to resolve the issue after 
a range of enforcement strategies carried out by USTR and the other key 
agencies. If the reports indicated that China had undertaken actions to 
resolve a compliance problem, we coded this as "some progress noted." 
The assessment of "some progress noted" included a range of steps that 
China took to address U.S. concerns, from delaying the implementation 
of problematic measures to exempting certain industries from WTO-
inconsistent restrictions. We coded problems as "resolved" only if the 
report language clearly indicated that the compliance problem was 
resolved and the U.S. government was no longer pursuing a resolution of 
that particular problem. Although we note in the report that the U.S. 
government has indicated positive developments in resolving some of the 
problems in 2004, our analysis focused only on the issues raised in the 
2002 and 2003 reports. Several of our staff reviewed these analyses to 
ensure consistency and consensus. See table 9 for our assessment 
criteria and examples.

Table 9: Description of GAO Categories for Disposition of China-WTO 
Compliance Issues and Examples of Disposition:

Disposition category: No progress noted; 
Description of disposition category: USTR reported that China had made 
no progress in resolving a compliance problem, or did not otherwise 
note progress on a problem; 
Example of disposition of problem: The U.S. asserted that China 
discriminated against foreign companies by using different tax bases to 
compute consumption taxes for domestic and imported products. The U.S. 
raised this issue bilaterally and within the Transitional Review 
Mechanism in both 2002 and 2003. China had not revised these 
regulations as of the end of 2003.

Disposition category: Some progress noted; 
Description of disposition category: USTR reported that China had 
undertaken some action to resolve a compliance issue, however the
problem was not yet fully resolved; 
Example of disposition of problem: The U.S. asserted that China 
restricted foreign insurance companies through excessive capitalization 
requirements. The U.S. raised issues in bilaterally and at the WTO, 
and established a technical working group. China issued draft rules 
that demonstrated some progress with regard to capitalization 
requirements and transparency.

Disposition category: Resolved; 
Description of disposition category: USTR reported that China had 
successfully undertaken steps to resolve a compliance issue and that 
the issue was no longer a concern for the U.S. or the affected 
industry; 
Example of disposition of problem: The problem of subdividing tariff-
rate quotas for bulk agricultural commodities persisted between 2002 
and 2003. After several bilateral engagements culminating in high-level 
meetings in Beijing, China changed its regulations to eliminate 
separate allocations for general trade and processing trade.

Source: GAO analysis of USTR's 2002 and 2003 Report to Congress on 
China's WTO Compliance.

[End of table]

To assess U.S. bilateral and multilateral engagement strategies, we 
reviewed agency and WTO documents and interviewed agency officials both 
in Washington, D.C., and Beijing, China, as well as WTO Secretariat and 
other member governments in Geneva, Switzerland, and Brussels, Belgium. 
To assess overall U.S. government strategy, we interviewed USTR 
officials in Geneva and Washington D.C., and reviewed official 
testimony. Our review of the Transitional Review Mechanism (TRM) is 
based on analysis of official WTO documents, which include minutes and 
questions or comments submitted by member countries, as well as 
interviews with U.S. officials and with member countries officials in 
Geneva.

To assess USTR, Commerce, State, and USDA strategies and plans, we 
examined planning documents such as annual performance reports, budget 
documents, and annual reviews. We reviewed each agency's most recent 
performance and strategic plans to determine how China WTO monitoring 
and enforcement is incorporated into the agencies' planning process. 
Our evaluation of agency planning efforts was informed by our previous 
studies on the Government Performance and Results Act of 1993 (GPRA). 
We enhanced our review of this information by interviewing agency 
officials regarding agency wide and unit-level planning and evaluation 
efforts. To gather staff and management perspectives on planning and 
performance measures, we conducted standardized interviews within all 
four agencies.

To assess agency resources and other activities related to China's 
compliance, we reviewed the four key agencies' planning documents, 
budget and staffing data, and information on training. Our evaluation 
was informed by past GAO studies on human capital management issues. We 
asked each agency to provide us with the actual number of FTE staff and 
staff attrition rates in key units involved in China-WTO compliance 
efforts for fiscal years 2002 and 2003. In some cases, agencies were 
unable to provide us with actual staffing numbers because some staff 
did not work on China issues full-time. In those instances, we asked 
agency officials to estimate FTE staff working solely on China 
compliance. To ensure that the data were reliable to the extent 
possible and necessary for our review, we discussed criteria for making 
estimates with the agencies to ensure that the estimates were 
consistent between agencies. We compared agency information on staffing 
with information we received for previous reviews and discussed changes 
in staffing levels with cognizant agency officials. We determined that 
the staffing information was sufficiently reliable for our review. We 
asked each agency to supply us with training documents or manuals and 
minutes or records from coordinating meetings. We supplemented our 
review of this information by conducting individual interviews with 
over 50 staff and unit managers from the four key agencies that had 
China compliance as a main portion of their work portfolio. These were 
standardized interviews conducted individually, with the exception of 
USTR, which required a group interview. We were able to interview over 
two-thirds of U.S. government staff in the main units at the four key 
agencies who work primarily on China-WTO compliance.

We conducted our work in Washington, D.C., Beijing, China, Geneva, 
Switzerland, and Brussels, Belgium. We performed our work from July 
2003 to June 2004 in accordance with generally accepted government 
auditing standards.

[End of section]

Appendix II: Description of Areas of China's Trade Regime Covered by 
China's WTO Commitments:

USTR's 2002 and 2003 Report to Congress on China's WTO Compliance 
identified compliance problems within nine broad areas related to 
China's trade regime where China had made commitments to other WTO 
members. Our previous work used similar categories to analyze China's 
commitments.[Footnote 31] Table 10 describes the commitment categories 
used in USTR's reports.

Table 10: Description of China's WTO Commitment Areas:

Commitment area: Import regulation; 
Description of commitment area: Border measures affecting imports, 
such as customs duties, other taxes, and charges; nontariff measures, 
such as quotas; regulatory measures, and technical barriers to trade, 
such as packaging, marketing, or labeling requirements.

Commitment area: Services; 
Description of commitment area: Regulations and restrictions affecting 
trade in services and operations of foreign services suppliers in 
China, including commitments on nondiscrimination and market access 
for particular service sectors.

Commitment area: Internal policies affecting trade; 
Description of commitment area: Internal policies affecting 
nondiscrimination (equal treatment of imported and domestic goods), 
taxation, subsidies, price controls, standards and regulations, state-
owned, state-invested and state-trading enterprises and government 
procurement.

Commitment area: Agriculture; 
Description of commitment area: Measures and policies that affect the 
agricultural sector, such as customs duties, tariff-rate quotas, export 
subsidies, domestic support and measures restricting imports for health 
and environmental reasons (sanitary and phytosanitary measures).

Commitment area: Intellectual property rights; 
Description of commitment area: Includes laws and regulations, as well 
as their enforcement, providing for the protection and enforcement of 
intellectual property rights, such as copyrights, trademarks, and 
patents.

Commitment area: Trading rights and distribution; 
Description of commitment area: China's restrictions on the right to 
import or export products (trading rights) and its treatment of 
wholesaling services, commission agents' services and direct retailing 
services (distribution rights).

Commitment area: Investment; 
Description of commitment area: Prohibitions on investment measures 
that violate nondiscrimination and quantitative restrictions on 
imports.

Commitment area: Legal framework; 
Description of commitment area: Legal reforms in the areas of 
transparency, uniform application of laws and judicial review.

Commitment area: Export regulation; 
Description of commitment area: Border measures affecting exports, 
including licensing requirements, export duties, and other taxes and 
charges.

Source: GAO.

[End of table]

[End of section]

Appendix III: Summary of WTO Member Participation in China's 
Transitional Review Mechanism, 2002 and 2003:

China's commitments to the WTO provide for an annual review, referred 
to as the Transitional Review Mechanism (TRM), of China's 
implementation to take place within the WTO's General Council and 16 
subsidiary bodies.[Footnote 32] Under the TRM, WTO members can submit 
written questions to China in advance of the meetings, and address 
China directly during the meetings. Additionally, China's accession 
agreement describes various types of information that China is required 
to submit to the WTO subsidiary bodies in advance of the TRM. Tables 
12 and 13 list the dates of the meetings where the TRM took place in 
2002 and 2003 and summarize specific information regarding WTO members' 
participation in the meetings for each year.

Table 11: WTO Member Participation in China's Transitional Review 
Mechanism, 2002:

WTO committee or council: Committee on Agriculture; 
Date of TRM meeting: 09/26/2002; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 29; 
Other members that submitted questions: EU, Japan, Canada, Thailand; 
Number of members that participated during TRM: 7.

WTO committee or council: Committee on Import Licensing; 
Date of TRM meeting: 09/24/2002; 
Number of days China's submissions preceded TRM: 5; 
Number of days U.S. questions to China preceded TRM: 28; 
Other members that submitted questions: EU, Japan, Chinese Taipei; 
Number of members that participated during TRM: 4.

WTO committee or council: Committee on Rules of Origin; 
Date of TRM meeting: 11/15/2002; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: Chinese Taipei; 
Number of members that participated during TRM: 7.

WTO committee or council: Committee on Trade-Related Investment 
Measures; 
Date of TRM meeting: 10/14/2002; 
Number of days China's submissions preceded TRM: 4; 
Number of days U.S. questions to China preceded TRM: 12; 
Other members that submitted questions: EU, Japan, Chinese Taipei; 
Number of members that participated during TRM: 8.

WTO committee or council: Committee on Customs Valuation; 
Date of TRM meeting: 11/04/2002; 
Number of days China's submissions preceded TRM: 7; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: EU, Chinese Taipei; 
Number of members that participated during TRM: 3.

WTO committee or council: Committee on Market Access; 
Date of TRM meeting: 09/23/2002; 
Number of days China's submissions preceded TRM: 5; 
Number of days U.S. questions to China preceded TRM: 26; 
Other members that submitted questions: EU, Japan, Canada, France; 
Number of members that participated during TRM: 13.

WTO committee or council: Committee on Safeguards; 
Date of TRM meeting: 10/28/2002; 
Number of days China's submissions preceded TRM: 60; 
Number of days U.S. questions to China preceded TRM: 45; 
Other members that submitted questions: EU, Japan, Chinese Taipei; 
Number of members that participated during TRM: 5.

WTO committee or council: Committee on Antidumping Practices; 
Date of TRM meeting: 10/24/2002; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: EU, Japan, Chinese Taipei, 
Canada, South Korea; 
Number of members that participated during TRM: 6.

WTO committee or council: Committee on Subsidies and Countervailing 
Measures; 
Date of TRM meeting: 10/31/2002; 
Number of days China's submissions preceded TRM: 2; 
Number of days U.S. questions to China preceded TRM: 14; 
Other members that submitted questions: EU, Japan, Mexico; 
Number of members that participated during TRM: 5.

WTO committee or council: Committee on Sanitary and Phytosanitary 
Measures; 
Date of TRM meeting: 11/07/2002; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 9; 
Other members that submitted questions: EU, Chinese Taipei; 
Number of members that participated during TRM: 7.

WTO committee or council: Committee on Technical Barriers to Trade; 
Date of TRM meeting: 10/17/2002; 
Number of days China's submissions preceded TRM: 1; 
Number of days U.S. questions to China preceded TRM: 13; 
Other members that submitted questions: EU, Japan, Chinese Taipei; 
Number of members that participated during TRM: 7.

WTO committee or council: Committee on Balance of Payment Restrictions; 
Date of TRM meeting: 11/18/2002; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 68; 
Other members that submitted questions: EU; 
Number of members that participated during TRM: 3.

WTO committee or council: Council on Trade-Related Aspects of 
Intellectual Property Rights; 
Date of TRM meeting: 09/17/2002; 
Number of days China's submissions preceded TRM: 61; 
Number of days U.S. questions to China preceded TRM: 67; 
Other members that submitted questions: EU, Japan, Canada, Australia, 
Switzerland; 
Number of members that participated during TRM: 9.

WTO committee or council: Council for Trade in Goods; 
Date of TRM meeting: 11/22/2002; 
Number of days China's submissions preceded TRM: 4; 
Number of days U.S. questions to China preceded TRM: 88; 
Other members that submitted questions: EU, Japan; 
Number of members that participated during TRM: 4.

WTO committee or council: Committee on Financial Services; 
Date of TRM meeting: 10/21/2002; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 20; 
Other members that submitted questions: Canada, EU, Japan, Chinese 
Taipei; 
Number of members that participated during TRM: 9.

WTO committee or council: Council for Trade in Services; 
Date of TRM meeting: 10/25/2002; 
Number of days China's submissions preceded TRM: 3; 
Number of days U.S. questions to China preceded TRM: 24; 
Other members that submitted questions: Australia, EU, Japan, Chinese 
Taipei; 
Number of members that participated during TRM: 9.

WTO committee or council: General Council; 
Date of TRM meeting: 12/10/ 2002; 
Number of days China's submissions preceded TRM: 21; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: [Empty]; 
Number of members that participated during TRM: 16.

Source: GAO analysis of WTO documents.

Notes: EU = European Union. 
N/A = not applicable. 
Chinese Taipei = Separate Customs Territory of Taiwan, Penghu, Kinmen 
and Matsu.

[End of table]

Table 12: WTO Member Participation in China's Transitional Review 
Mechanism, 2003:

WTO Committee or Council: Committee on Agriculture; 
Date of TRM meeting: 09/25/2003; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 13; 
Other members that submitted questions: Chinese Taipei; 
Number of members that participated during TRM: 3.

WTO Committee or Council: Committee on Import Licensing; 
Date of TRM meeting: 10/02/2003; 
Number of days China's submissions preceded TRM: 9; 
Number of days U.S. questions to China preceded TRM: 2; 
Other members that submitted questions: EU, Japan, Chinese Taipei; 
Number of members that participated during TRM: 4.

WTO Committee or Council: Committee on Rules of Origin; 
Date of TRM meeting: 10/03/2003; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: none; 
Number of members that participated during TRM: 1.

WTO Committee or Council: Committee on Trade-Related Investment 
Measures; 
Date of TRM meeting: 10/03/2003; 
Number of days China's submissions preceded TRM: 2; 
Number of days U.S. questions to China preceded TRM: 10; 
Other members that submitted questions: EU; 
Number of members that participated during TRM: 9.

WTO Committee or Council: Committee on Customs Valuation; 
Date of TRM meeting: 10/06/2003; 
Number of days China's submissions preceded TRM: 14; 
Number of days U.S. questions to China preceded TRM: 3; 
Other members that submitted questions: Chinese Taipei; 
Number of members that participated during TRM: 3.

WTO Committee or Council: Committee on Market Access; 
Date of TRM meeting: 10/20/2003; 
Number of days China's submissions preceded TRM: 5; 
Number of days U.S. questions to China preceded TRM: 10; 
Other members that submitted questions: EU, Japan; 
Number of members that participated during TRM: 3.

WTO Committee or Council: Committee on Safeguards; 
Date of TRM meeting: 10/20/2003; 
Number of days China's submissions preceded TRM: 3; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: Japan; 
Number of members that participated during TRM: 3.

WTO Committee or Council: Committee on Antidumping Practices; 
Date of TRM meeting: 10/23/2003; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 1; 
Other members that submitted questions: Japan; 
Number of members that participated during TRM: 2.

WTO Committee or Council: Committee on Subsidies and Countervailing 
Measures; 
Date of TRM meeting: 10/28/2003; 
Number of days China's submissions preceded TRM: 4; 
Number of days U.S. questions to China preceded TRM: 1; 
Other members that submitted questions: EU, Mexico; 
Number of members that participated during TRM: 4.

WTO Committee or Council: Committee on Sanitary and Phytosanitary 
Measures; 
Date of TRM meeting: 10/29/2003; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 26; 
Other members that submitted questions: EU, Chinese Taipei; 
Number of members that participated during TRM: 3.

WTO Committee or Council: Committee on Technical Barriers to Trade; 
Date of TRM meeting: 11/7/2003; 
Number of days China's submissions preceded TRM: 1; 
Number of days U.S. questions to China preceded TRM: 17; 
Other members that submitted questions: EU, Japan; 
Number of members that participated during TRM: 3.

WTO Committee or Council: Committee on Balance of Payment Restrictions; 
Date of TRM meeting: 11/13/2003; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: N/A; 
Other members that submitted questions: Chinese Taipei; 
Number of members that participated during TRM: 1.

WTO Committee or Council: Council on Trade-Related Aspects of 
Intellectual Property Rights; 
Date of TRM meeting: 11/18/2003; 
Number of days China's submissions preceded TRM: 1; 
Number of days U.S. questions to China preceded TRM: 8; 
Other members that submitted questions: EU, Japan, Chinese Taipei; 
Number of members that participated during TRM: 6.

WTO Committee or Council: Council for Trade in Goods; 
Date of TRM meeting: 11/26/2003; 
Number of days China's submissions preceded TRM: 5; 
Number of days U.S. questions to China preceded TRM: 9; 
Other members that submitted questions: EU, Japan; 
Number of members that participated during TRM: 4.

WTO Committee or Council: Committee on Financial Services; 
Date of TRM meeting: 12/01/2003; 
Number of days China's submissions preceded TRM: N/A; 
Number of days U.S. questions to China preceded TRM: 7; 
Other members that submitted questions: Canada, EU, Japan, Chinese 
Taipei; 
Number of members that participated during TRM: 7.

WTO Committee or Council: Council for Trade in Services; 
Date of TRM meeting: 12/05/2003; 
Number of days China's submissions preceded TRM: 8; 
Number of days U.S. questions to China preceded TRM: 11; 
Other members that submitted questions: Australia, EU, Japan, Chinese 
Taipei; 
Number of members that participated during TRM: 5.

WTO Committee or Council: General Council; 
Date of TRM meeting: 12/15/ 2003; 
Number of days China's submissions preceded TRM: 10; 
Number of days U.S. questions to China preceded TRM: N/A; 
Number of members that participated during TRM: 6. 

Source: GAO analysis of WTO documents.

Notes: EU = European Union. 
N/A = not applicable. 
Chinese Taipei = Separate Customs Territory of Taiwan, Penghu, Kinmen 
and Matsu.

[End of table]

[End of section]

Appendix IV: Comments from the United States Trade Representative:

EXECUTIVE OFFICE OF THE PRESIDENT: 
DEPUTY UNITED STATES TRADE REPRESENTATIVE: 
WASHINGTON, D.C. 20508:

SEP 21 2004:

Mr. Loren Yager: 
Director: 
International Affairs and Trade Issues: 
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 draft report of the Government 
Accountability Office (GAO), Opportunities to Improve U.S. Government 
Efforts to Ensure China's Compliance with World Trade Organization 
Commitments (Report). Ensuring China's compliance with its World Trade 
Organization (WTO) commitments is a key priority for the 
Administration, and we appreciate the GAO's advice which is offered to 
ensure that we are doing the best possible job at that critical task. 
The Report contains some useful recommendations that we will consider 
carefully.

As your Report notes, in 2004 the Administration resolved or made 
important progress on a number of key trade issues with China. Indeed, 
just last week, the American Chamber of Commerce in China released its 
annual report and noted the substantial progress we have made over the 
past year on China WTO compliance issues. In the last 12 months, U.S. 
exports to China grew to $33 billion, more than double the level in 
2001, making China one of the fastest growing export markets in US 
history. Maintaining this momentum will require sustained attention by 
the U.S. Government.

USTR would like to highlight four issues of concern with the Report. It 
(1) focuses on events only through December 11, 2003 and is therefore 
outdated; (2) focuses on U.S. activities in connection with China's 
Transitional Review Mechanism without a full discussion of the 
multilateral engagement process at the WTO; (3) claims an inability to 
measure U.S. Government efforts, while seemingly ignoring the reams of 
reporting and testimony released annually by the agencies in question; 
and (4) does not adequately reflect the extensive interagency process 
at the most senior levels of the U.S. Government devoted to strategic 
planning and management of U.S.-China trade relations, particularly as 
that process influenced events in 2004.

Time Period. The draft Report assesses the disposition of compliance 
issues only through 2003 and treats as unresolved issues on which the 
United States in fact achieved substantial progress in 2004. Some of 
the 2004 results - in particular, the progress made during the April 
meetings of the Joint Commission on Commerce and Trade (JCCT) - are 
noted in the Report, but they are not reflected in the GAO's analysis 
of the disposition of compliance concerns.

Any assessment of the disposition of compliance concerns or U.S. 
government efforts should not end at the period ten months before the 
Report's publication. As noted in the Report, China faced an 
unprecedented, infectious health crisis in 2003, limiting the ability 
of U.S. negotiators to interact with Chinese officials and manage trade 
concerns for a significant portion of that year. Since the end of 2003, 
USTR has established a new Office of China Affairs, doubled the size of 
its China-focused staff, and resolved or made progress on a number of 
the thorniest problems in the U.S.-China trade relationship, including:

* Successfully resolving a WTO dispute regarding China's tax refund 
policy for semiconductors, a growing market currently worth $2 billion 
to American manufacturers and workers.

Problem-solving through months of detailed work with Chinese officials 
in a host of ministries, culminating in an April 2004 JCCT meeting with 
Chinese Vice Premier Wu Yi, at which the United States and China 
resolved or made progress on a number of key trade disputes over 
matters including wireless Internet standards; Third-Generation (3G) 
mobile phone standards; intellectual property; trading rights; 
distribution services; express delivery; agricultural biotechnology; 
tariff-rate quotas for agricultural commodities including wheat and 
cotton; and financial services, including insurance.

* Exercising its rights to impose safeguards against Chinese imports to 
protect U.S. textile workers making products such as robes, 
undergarments, and knit fabric.

Indeed, in its annual report on China WTO compliance issues, the 
American Chamber of Commerce in China concludes:

"With the exception of intellectual property rights, we believe China 
is substantially in compliance with its WTO deadlines and specific 
obligations. While some commitments remain problematic and there 
continue to be many areas where the market access opportunities 
anticipated still have not been realized, China has taken noteworthy 
steps this year to comply with its basic commitments in the areas of 
trading rights, insurance, auto finance, and agriculture, among others. 
Some of this progress resulted from bilateral dialogue between the 
United States and Chinese governments, in particular at the April 2004 
Joint Commission on Commerce and Trade, for which we commend both 
governments for their constructive efforts and encourage more of the 
same in the future."

Like the Chamber, we have serious concerns regarding intellectual 
property protection in China, and ensuring China's effective 
enforcement of intellectual property rights is one of this 
Administration's top priorities. At the April JCCT meeting, China 
presented a detailed action plan to significantly reduce the piracy and 
counterfeiting of American products and innovations. We are working to 
ensure that China follows through on its action plan, and will conduct 
a special review in early 2005 under the "Special 301" provisions of 
the Trade Act of 1974 to measure progress.

Transitional Review Mechanism. The Report focuses heavily on the 
Transitional Review Mechanism (TRM) that was established under the 
terms of China's accession to the WTO and treats the TRM and bilateral 
engagement as the two main tools available to the United States to 
address compliance problems with China. The TRM is an important tool, 
but it is one of many. The Administration pursues issues with China 
through, inter alia, interventions by the U.S. Embassy in Beijing, 
letters and phone calls directly to China's officials, demarches 
presented to China's government, visits to China by USTR and other 
agency officials, regular trade dialogue meetings at the working and 
senior-level, recourse to U.S. trade laws, and technical assistance 
programs. We also pursue China compliance issues through meetings of 
WTO councils and committees (whether identified as TRM meetings or 
not), side meetings with China and other Members at the WTO, 
consultations under the WTO framework, dispute settlement at the WTO 
(including the threat thereof), informal coordination with other WTO 
Members, and use of other multilateral fora. The context of the TRM is 
not fully presented in the Report.

The Report identifies two shortcomings in the 2003 TRM. The first 
problem identified is that the United States provided its questions to 
China with a shorter lead time prior to WTO committee and council 
meetings in 2003 than 2002. We see no basis for the conclusion that a 
greater lead time in TRM questions would change the effectiveness of 
U.S. government efforts to ensure China's compliance with WTO 
commitments. In addition, the GAO should clarify that the need for long 
lead times that existed in 2002, when we were seeking written answers 
in advance of meetings, was less pressing in 2003, when it had become 
clear that China would not provide advance written responses.

The second shortcoming identified in the Report is the decreased number 
of Members that submitted TRM questions in 2003 as compared to 2002. 
USTR agrees that participation by more WTO Members would be desirable. 
Indeed, the United States has urged other Members to participate and 
has taken a leading role in the TRM every year. However, third-party 
participation is not within U.S. Government control and the GAO made no 
finding that the lack of participation was due to any action or 
inaction on the part of the U.S. Government. Therefore, the focus on 
this issue, in a report intended to assess U.S. agencies' efforts, is 
misplaced.

Alleged Inability to Determine Outcome ofAgencies Efforts. The GAO 
found that it was difficult to assess the outcome of agencies' China-
WTO compliance efforts because of various performance management 
limitations and urges USTR to establish a quantifiable measure of its 
compliance activities. The Report's conclusion is surprising, given 
that USTR reports exhaustively on compliance problems each year and 
steps taken to address those problems (in 2003, USTR's report to 
Congress on China WTO compliance totaled more than 60 single-spaced 
pages). In addition, USTR and other agency officials testify regularly 
before the Congress to report on our China-WTO compliance efforts.

As for the lack of quantitative measure or assessment, the GAO itself 
states elsewhere in the report that agencies have flexibility in 
establishing goals under the Government Performance and Results Act of 
2003 (GPRA) and in using performance measures, as long as they reflect 
the major activities carried out as part of their particular missions. 
USTR has proposed, adopted upon approval from the Office of Management 
and Budget (OMB), and reported upon its alternative form of measurement 
regarding its performance goal with respect to China's compliance with 
its WTO obligations (as well as with respect to other USTR performance 
goals). USTR's use of this form of measurement is in full conformance 
with the GPRA and OMB requirements.

Planning and Prioritizing. In assessing agencies' performance 
management systems, the GAO should recognize that USTR and other 
agencies, including at the most senior levels, engage in significant 
planning activity with respect to China WTO compliance issues and have 
established priorities for their compliance activities. The 
Administration sets forth its priorities with respect to China WTO 
compliance in regular Congressional testimony as well as annually, in 
USTR's report to Congress on China's WTO compliance. In addition, the 
President sets forth his overall trade agenda on an annual basis. USTR 
and other agencies also periodically assess how to prioritize trade 
issues as part of our structured dialogue with China and in the lead-up 
to meetings between senior officials. In late 2003 and 2004, for 
example, the U.S. Government engaged in an extensive interagency 
planning and prioritization process involving Cabinet and sub-Cabinet 
officials, as well as other senior officials from all relevant 
agencies, that resulted in significant advancement of U.S. interests in 
securing improved compliance by China with its WTO obligations. The 
GAO should recognize these planning and prioritization activities.

We welcome the GAO's suggestions on how we can more effectively address 
WTO compliance concerns with China and look forward to continuing to 
work with the GAO on this study.

Sincerely,

Signed by: 

Josette Sheeran Shiner: 

The following are GAO's comments on USTR's letter dated September 21, 
2004.

GAO Comments:

1. We updated our draft report to include additional information on 
developments in 2004, including the resolution of the dispute over 
China's discriminatory value-added tax refund policy for 
semiconductors. Since our analysis of the 2002 and 2003 USTR reports 
cannot be updated in the absence of the forthcoming 2004 USTR report in 
December, we modified our presentation about the disposition of China's 
compliance problems to provide a more balanced treatment of those 
issues. However, we still demonstrate the scope of compliance problems, 
how China's compliance problems can persist for 2 years or more, and 
the extent to which China's progress in resolving these issues has been 
mixed.

2. We amplified our discussion of other multilateral engagement through 
regular WTO committees in order to put the TRM in better context. 
Nevertheless, after reviewing the minutes of the various TRM meetings, 
we continue to believe that earlier U.S. submission of questions to 
China in advance of the TRM meetings could increase the chances for 
more thorough oral responses from the Chinese delegation. We also 
continue to believe that U.S. efforts to increase other WTO members' 
participation in the TRM could improve its effectiveness, despite its 
ongoing limitations and support the other key agencies' outreach 
efforts in this regard.

3. While USTR submits long narrative reports to Congress on China's WTO 
compliance and the steps the U.S. government takes to address problems, 
these reports are not a substitute for a bottom-line performance 
management assessment of the degree to which the agency has achieved 
pre-determined measurable annual objectives. We noted that USTR has 
described numerical indicators in its performance plan, yet has not set 
targets or measured the agency's performance against these indicators. 
Although we agree that USTR has some flexibility under GPRA to 
establish performance measures that are not strictly quantitative, the 
agency specifically sets forth numerical measures in its performance 
plan. Accordingly, USTR should have specifically addressed these 
measures in its results report. Additionally, while USTR states that 
its approach was approved by OMB and was in compliance with GPRA, the 
OMB guidance requires all agencies to report a comparison of actual 
performance with projected, target levels of performance; without 
establishing targets, we believe USTR is not able to make this required 
comparison. We revised our draft report to clarify and further 
emphasize our assessment.

4. We added some discussion to better recognize these senior-level 
policy coordination initiatives and also clarified that our findings 
about planning and prioritizing was in the context of performance 
management. Also, we refined our observations about how the China units 
in the key agencies would benefit from improved performance management 
that institutionalized high-level priorities and planning to better 
guide unit-level China compliance activities, which support these 
initiatives.

[End of section]

Appendix V: Comments from the Department of Commerce:

UNITED STATES DEPARTMENT OF COMMERCE: 
The Under Secretary for International Trade: 
Washington, D.C. 20230:

SEP 21 2004: 

Mr. Loren Yager: 
Director: 
International Affairs and Trade Issues: 
U. S. General Accounting Office: 
441 G Street, NW:
Washington, DC 20548:

Dear Loren:

Thank you for sending your draft report, Opportunities to Improve U.S. 
Government Efforts to Ensure China's Compliance with World Trade 
Organization Commitments, for our review. As you know, I have 
tremendous respect for the work the General Accounting Office (GAO) has 
done on Chinese accession to the World Trade Organization (WTO) and 
related compliance issues in the past. Prior GAO reports proved 
instrumental in Congress' understanding of the process of accession, 
the merits of the agreement eventually negotiated, and the requirements 
that accord imposed on China.

I appreciate the recommendations this new report offers the Department 
of Commerce and other agencies. I would nonetheless want to provide 
some important further context for the report. This information touches 
on the significant progress made by the Administration on China's WTO 
compliance in the course of 2004 and on the underlying strategy we have 
pursued to achieve this.

First, it is worth reiterating the basic strategy the Administration 
has pursued. To ensure China's continued implementation of its WTO 
obligations, in the late summer of 2003, the Administration at the 
highest levels developed a comprehensive strategy to ensure progress on 
China's compliance. That strategy included monthly visits by Cabinet or 
immediate-sub Cabinet officials to China to engage with China's 
leaders. Further, it involved development of a roadmap setting specific 
goals for progress, achieving Chinese government agreement to pursue 
those goals, and structuring senior-level meetings to establish 
milestones to push this process forward. In particular, meetings prior 
to the December, 2003, visit by Premier Wen Jiabao set the stage for 
agreement to elevate the level of the JCCT and to pursue a set of 
concrete outcomes for that meeting. Between December and the April 
JCCT, we held numerous meetings and teleconferences with our Chinese 
counterparts to push forward our mutually agreed agenda of issues.

These efforts paid off. At the JCCT meeting in April 2004, we resolved 
several significant issues and laid the foundation for important 
progress on others. Issues resolved included implementation of China's 
commitments on trading rights and distribution services, potentially 
worth billions of dollars of increased market access to U.S. companies, 
and the WAPI encryption issue. We also achieved significant commitments 
on IPR, and we are now seeing the Chinese government follow through on 
these. Further, we achieved Chinese concurrence to open a dialogue on 
the key structural issues (such as subsidies) that can distort U.S.-
China trade and create an un-level playing field for U.S. companies. 
While not technically a WTO implementation issue, I would note our 
breakthrough agreement at the JCCT on an arrangement for end-use 
visits on high technology items. In addition, I believe the successful 
JCCT paved the way for the subsequent resolution of the integrated 
circuit VAT issue, which was resolved bilaterally without the need for 
lengthy litigation at the WTO.

Second, to reinforce the Administration's strategy, the Department of 
Commerce has undertaken a number of new steps that will continue to pay 
dividends in the future. These include establishment of the compliance 
investigations office, increased staffmg and recruitment of top 
language-qualified China experts to manage our China compliance 
efforts, the creation of a China Office in our Import Administration to 
focus and deepen our expertise on unfair trade cases from China, and 
for the first time using technology to enable compliance officers in 
China and the United States to work collaboratively on compliance cases 
in the Market Access and Compliance Bureau on a real time basis. In 
addition, the Department of Commerce has undertaken extensive "capacity 
building" efforts as part of a carefully thought out, strategic effort 
to ensure China's compliance with WTO commitments and avoid future 
obstacles to U.S. exports to China. These efforts, though difficult to 
quantify, have produced results that help us identify and address key 
problems in China's WTO implementation.

Consistent with the effort to expand the Commerce Department staff 
dedicated to compliance, we have also provided a continuous cycle of 
training opportunities to enhance their skills. We have made strenuous 
efforts to increase our staffing on the China compliance issue to 
reflect its growing importance to the United States, and we have added 
management to this staff to enhance the development of the China office 
and engage the staff in more training opportunities. In fact, reflected 
in budget requests for the International Trade Administration from the 
outset of this Administration, you will see that our personnel and 
their training has been our top priority.

In closing, I hope that the above affords a fuller treatment of our 
strategic approach to the issue of China's WTO implementation and the 
significant progress - much of it in 2004 - that we have achieved as a 
result. While there are many ways to measure progress on such a complex 
issue, one key indicator is the attitude of the U.S. business 
community. In this connection, I would draw your attention to the 
American Chamber of Commerce in China's annual report issued last week, 
which notes the progress made in 2004 on China compliance issues 
thanks, in part, to U.S.-China bilateral dialogue.

The U.S. government is working hard to ensure that China complies with 
its WTO commitments, and there is much work to be done in the future on 
this issue. But there should also be a clear recognition of the 
successes already achieved, thanks in part to hard work by the U.S. 
government and increased resources for these efforts from Congress. 
Again, I thank you for your recommendations and for this opportunity to 
comment on the draft GAO report.

Sincerely,

Grant D. Aldonas: 

The following are GAO's comments on Commerce's letter dated September 
21, 2004.

GAO Comments:

1. We updated our draft report to better reflect high-level policy 
coordination on China compliance efforts and to clarify our focus on 
unit-level performance management activities. We also included 
additional information on developments in 2004, including the 
resolution of the dispute over China's discriminatory value-added tax 
refund policy for semiconductors.

2. We did not assess the organizational changes that Commerce has 
recently implemented to enhance its monitoring and enforcement 
activities, but noted that these changes were under way. Nevertheless, 
these changes create an opportunity for the International Trade 
Administration to improve performance management and human capital 
management along the lines we recommend in order to maximize the 
effectiveness of these China compliance-related offices and the staff 
they have hired or reassigned.

[End of section]

Appendix VI: Comments from the Department of State:

United States Department of State: 
Assistant Secretary and Chief Financial Officer: 
Washington, D.C. 20520:

Ms. Jacqueline Williams-Bridgers: 
Managing Director:
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W.
Washington, D.C. 20548-0001:

SEP 2 2004:

Dear Ms. Williams-Bridgers:

We appreciate the opportunity to review your draft report,
"U.S. - CHINA TRADE: Opportunities to Improve U.S. Government Efforts 
to Ensure China's Compliance with World Trade Organization 
Commitments," GAO Job Code 320194.

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report.

If you have any questions concerning this response, please contact 
David Bonine, Foreign Affairs Officer, Bureau of East Asia and Pacific 
Affairs, at (202) 647-6782.

Sincerely,

Signed by: 

Christopher B. Burnham: 

cc: GAO - Adam Cowles: 
EAP - James Kelly:
EB - E. Anthony Wayne: 
State/OIG - Mark Duda:

Department of State Comments on GAO Draft Report: U.S. - CHINA TRADE: 
Opportunities to Improve U.S. Government Efforts to Ensure China's 
Compliance with World Trade Organization Commitments (GAO-04-936, GAO 
Code 320194):

The State Department is concerned with the underlying notion of the GAO 
report that one can meaningfully and accurately quantify United States 
Government (USG) progress in ensuring China's compliance with World 
Trade Organization (WTO) commitments. The chart in Figure 1 classifies 
issues as resolved, made progress, or no progress. This system of 
organization places equal weight on an issue that affects $1,000 worth 
of trade and an issue worth $1 billion-an inappropriate notion if the 
USG is to prioritize its efforts. A more accurate measure of USG 
effectiveness would provide a trade volume/market value on the issues 
resolved, moved forward, and unresolved. Our key priorities in 2002-
2003 were: soybeans, insurance, agricultural Tariff Rate Quotas (TRQs) 
and postal law. We believe these to be priority issues because of the 
dollar value and urgency involved. We basically resolved these issues, 
and U.S. exports of goods and services in these areas grew (or in the 
case of insurance, will grow) sharply. It is also noteworthy that no 
export growth figures are presented in the report, which is ultimately 
the bottom line of trade concerns. Even then, export growth figures may 
not always correctly convey the importance of a success, for example, a 
change in law, regulation, or practice that bolsters Intellectual 
Property Rights (IPR) protection.

There is also a fine line between "made progress" and "no progress." 
What may appear to be no progress from an individual company's 
perspective may in fact be progress in moving an issue up the decision-
making hierarchy toward eventual resolution. Many of these are not 
clear-cut issues that lend themselves to a clear, timely, and 
quantifiable solution (e.g., "concern over the independence of the 
judicial system"). Additionally, it appears that many complaints raised 
by U.S. companies are treated as examples of "noncompliance," but these 
may or may not be legitimate, impartial instances of noncompliance.

Report Conclusions:

Bilateral vs. Multilateral Approaches to Achieving Results:

The report concludes the USG found bilateral approaches to be more 
effective than multilateral ones, citing USG emphasis on progress made 
at the Joint Commission on Commerce and Trade (JCCT), versus lesser 
success and emphasis placed on the TRM mechanism at the WTO. While 
State agrees that the USG continues to rely on regular high-level 
bilateral contact to make progress on key issues, the multilateral 
forum remains an important component of overall strategy. USG 
preparation in the Transitional Review Mechanism (TRM) this year is 
more thorough and timely than in 2003. Moreover, the USG successfully 
used the WTO Dispute Settlement mechanism for the first time in the 
semiconductor VAT case, a case that attracted the formal support of 
Japan, the EU, Mexico and Chinese Taipei. We continue to work closely 
with the EU and other partners around the world to coordinate common 
positions on issues of mutual concern regarding China's compliance with 
its WTO commitments.

Other countries have also found enhanced bilateral contact to be an 
effective tool with China in WTO compliance. Notably, the EU has an 
annual high-level Trade Dialogue with China in which they discuss 
contentious issues and attempt to head off more drastic action. In this 
regard, it is important to note the additional time and effort required 
to multilaterally coordinate complex and sometimes differing interests 
into effective action.

The Reactive Nature of USG Strategy to Ensure China's Compliance with 
WTO Commitments:

State agrees, as the report states, that there are "significant 
challenges [to] developing measurable goals, given the extent to which 
external factors can influence agencies' trade compliance efforts." In 
addition to external factors, there are several other difficulties in 
developing such goals (see related comments in paragraph 1). Many 
issues become important, prompt USG policy formulation, and are 
resolved within a calendar year, complicating attempts to proactively 
set priorities and goals. Timely and reliable data on which to base 
such goals are not always available, and mission and bureau planning 
documents are usually drafted 2 years in advance. Finally, many 
compliance issues do not easily lend themselves to meaningful 
quantification.

Despite these difficulties, State will work towards refining our annual 
planning process to more rigorously identify and prioritize
existing/persistent problems with China's WTO compliance and develop 
overall strategies to address those deficiencies. Similarly, 
State will work to develop measurable performance goals for evaluating 
our work in ensuring China's WTO compliance where it would be 
meaningful and appropriate to do so.

Turnover and Training:

The Secretary has stressed the importance of in-service training and 
professional development, and great improvements have been made over 
the last several years. Nonetheless, State believes that criticism 
concerning the level of training officers receive before working on 
China WTO compliance is overstated, and does not take account of 
pressing structural constraints. The topic is not well suited to 
classroom study because the complex and detailed issues change 
frequently: an issue that was a priority concern and demanded 
significant attention in one year may be resolved or insignificant the 
next. That said, the Department has long recognized the need to have a 
cadre of officers with adequate economic and language skills, but this 
is a long-term goal. Mandarin is a difficult language requiring serious 
commitment and many years to master, meaning staffing levels cannot 
increased quickly. More important, the State Department faces severe 
shortages of mid-level officers, largely the result of low hiring 
levels in the nineties, now exacerbated by staffing demands in Iraq and 
Afghanistan. The problems of turnover and training are tied to this 
staffing shortage. Attempting to create greater overlap between 
incoming and outgoing officers or extend the length of service for 
officers assigned to China WTO compliance are not feasible options. 

The following are GAO's comments on State's letter dated September 2, 
2004.

GAO Comments:

1. We believe that measurable indicators provide policymakers with 
meaningful summary information, however the figure in our draft report 
was outdated and we removed it. As we indicate in our report, 
priorities can be established according to a number of factors, 
including trade volume/market value. We agree that such information 
might provide a more accurate measure of results. Our report points out 
that, while USTR's annual China compliance reports identify "priority" 
areas, the economic importance of many individual problems cannot be 
easily quantified (as noted in State's letter) and was not reported. As 
a result we did not attempt to calculate the importance or otherwise 
prioritize or rank the problems in our analysis. With regard to our 
discussion of the disposition of problems in 2002 and 2003, we explain 
our methodology for categorizing what USTR has reported to Congress in 
detail in appendix I.

2. We added information about other multilateral activities to put the 
TRM in better context. We agree that the TRM remains an important 
component of China compliance activities and appreciate that continued 
efforts to coordinate compliance issues multilaterally, as we 
recommend, are sometimes difficult and are not always effective.

3. We appreciate State's performance management challenges and welcome 
the intention to refine its annual planning process and to develop 
measurable performance goals for its China-WTO compliance activities. 
We reiterate that assessing and reporting annual results at the mission 
(or bureau) level can help ensure that unit-level activities reflect 
agency priorities.

4. Previous GAO reports have discussed human capital management 
challenges at State more thoroughly. In this report, we discuss some 
particular issues as they relate to China compliance efforts, including 
planned and unplanned turnover of staff and how the press of daily 
business makes staff development difficult. We believe that mitigating 
the effects of turnover through greater attention to training, either 
in or outside of the classroom, can nevertheless help while solutions 
to longer-term human capital challenges are being pursued.

[End of section]

Appendix VII: Comments from the Department of Agriculture:

USDA:

United States Department of Agriculture:
Farm and Foreign Agricultural Services:

Foreign Agricultural Service:

1400 Independence Ave, SW: 
Room 5071-S Stop 1001: 
Washington, DC 20250-1001:

SEP 8 2004:

Mr. Loren Yager:
Director, International Affairs and Trade Issues: 
U.S. Government Accountability Office:
441 G Street, N.W.: 
Washington, D.C. 20548:


Dear Mr. Yager:

Thank you for providing the U.S. Department of Agriculture (USDA) with 
your draft report entitled "U.S.-CHINA TRADE: Opportunities to Improve 
U.S. Government Efforts to Ensure China's Compliance with World Trade 
Organization Commitments." Your report identifies three areas in which 
U.S. government (USG) agencies could improve their efforts and maximize 
the effectiveness of resources dedicated to ensuring China's compliance 
with its WTO commitments. We would like to offer the following comments 
for your consideration.

Multilateral efforts have not achieved their full potential. Your 
report states that the World Trade Organization (WTO) annual Trade 
Review Mechanism (TRM), which is intended to be a thorough review of 
China's implementation, could be improved through increased member 
participation and "more timely U.S. preparation." As part of its 
overall monitoring responsibilities, USDA is an integral part of the 
interagency effort to prepare for WTO committee meetings of the TRM. 
For the Foreign Agricultural Service (FAS), this effort includes 
soliciting comments from industry groups, commodity experts, and 
marketing analysts in the Department, as well as FAS' offices in China. 
Through the Trade Policy Staff Committee (TPSC), the U.S. Trade 
Representative (USTR) invites and coordinates input from other USG 
trade-related agencies. Trade-agency submissions are provided to the 
WTO Secretariat and China before the TRM discussions. Coordination with 
other WTO members in advance and during the TRM discussions on issues 
of shared concern is an important outreach function consistent with 
multiplying U.S. efforts towards addressing concerns identified in the 
TRM. The WTO Committee on Agriculture is scheduled to take up the 
review on September 23, and elements of the submissions may be 
discussed before the Committee on Import Licensing scheduled for 
September 30. Active participation by Argentina and Brazil is being 
invited concerning China's licensing of import inspections.

Agencies involved in USG's China-WTO compliance efforts need to 
increase emphasis on planning and performance management. Your report 
acknowledges the challenges of developing measurable goals given the 
extent to which "external factors" can influence agencies' trade 
compliance efforts, but at the same time, emphasizes the importance and 
usefulness of developing program-level plans and measures that are 
connected to agencies' overall missions.

FAS concurs that planning and measuring results are important 
components to ensuring that government resources are used effectively 
to achieve agencies' goals. FAS' Strategic Plan identifies expanding 
international market opportunities, which includes expanded foreign 
market access, as a strategic goal. Among actionable strategies, FAS 
pursues trade liberalization through multilateral trade negotiation 
(MTN), monitors and enforces compliance with trade agreements to ensure 
fair access, encourages the use of sound science, and coordinates trade 
policy initiatives through partner organizations such as the various 
USTR Trade Policy committees. Consistent with the Government 
Performance Results Act, FAS is implementing country-specific 
performance measures. FAS' China Task Force monitors China's compliance 
with the Sanitary and Phytosanitary (SPS) Agreement. All USDA agencies 
participate in this quarterly meeting.

The FAS Budget and Performance Integration Plan for FY 2004-2005 has as 
its primary objective expanding foreign market access for U.S. 
agricultural exporters. One of the actionable strategies to achieve 
this is coordination of trade policy initiatives through partner 
organizations such as the TPSC, in which FAS continues to play an 
important role.

Opportunities to maximize human resource potential. Your report 
recommends that greater emphasis be placed on training and retention of 
China monitoring staff, due to the potential loss of institutional 
memory related to staff departures or rotation away from the Asia & 
Americas Division's (AAD) China Desk in FAS' International Trade Policy 
(ITP) Program area. As conveyed to GAO officials during the exit 
interview, a number of other FAS program areas (International 
Cooperation and Development and Commodity and Marketing Programs) and 
USDA agencies (the Agricultural Research Service, the Animal and Plant 
Health Inspection Service (APHIS), the Food Safety and Inspection 
Service (FSIS), and the Economic Research Service) devote staff 
resources to dealing with China issues. FAS trade policy analysts in 
AAD, as well as the Food Safety and Technical Services Division 
(FSTSD), effectively coordinate across the agency and with their 
counterparts in APHIS and FSIS on monitoring issues associated with the 
MTN agricultural agreement. FSTSD devotes considerable resources to 
monitoring SPS notifications, sharing China's notifications with all 
USG regulatory agencies for comment, and coordinating actions in the 
WTO SPS Committee.

Training is an important element for ongoing professional staff 
development, and staff participates in monitoring-specific training 
opportunities. An Asia program, which included FAS' Beijing staff, was 
conducted in December 2003 in Bangkok, Thailand. Also FAS' China staff 
participates in policy-related training and consultations annually 
during the Washington-based Global Attache Conference. Although area-
specific knowledge is important and may be part of an analyst's 
training program, agency-mandated individual development planning 
tends to focus on broader trade-policy skills.

In closing, I again want to thank you for allowing us to comment on 
this draft report. Please let us know if you would like to discuss our 
comments further.

Sincerely, 

Signed by: 

A. Ellen Terpstra: 
Administrator: 

The following are GAO's comments on USDA's letter dated September 8, 
2004.

GAO Comments:

1. Our report summarizes the various components of USDA and the other 
key agencies' strategic and performance plans. We did not review the 
forthcoming country-specific performance measures to which USDA refers; 
we concur that the development and implementation of effective measures 
that allow for more meaningful assessments of results would be a 
positive step in improving USDA's performance management.

2. Our report acknowledges that many units within USDA play an 
important role in the U.S. government's China-WTO compliance efforts, 
and our earlier work on China-WTO compliance issues provides an 
overview of the various intra-agency structures. We did not review 
staff turnover in each of the units USDA listed, but we continue to 
assert that relatively high planned and unplanned turnover in the units 
we reviewed underscores the need for greater attention to staff 
training. Lastly, we acknowledge that USDA has existing training 
programs and makes opportunities available to its staff, but we 
maintain that the agencies should undertake a more systematic approach 
to ensure that staff further develop necessary job skills.

[End of section]

Appendix VIII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Adam Cowles (202) 512-9637 Matthew E. Helm (202) 512-7959:

Acknowledgments:

In addition to those named above, Jennifer Costello, Jane-yu Li, Jamie 
McDonald, Valérie Nowak, Richard Seldin, and Kimberly Siegal made key 
contributions to this report.

[End of section]

Related GAO Products:

World Trade Organization: U.S. Companies' Views on China's 
Implementation of Its Commitments. 
[Hyperlink, http://www.gao.gov/ cgi-bin/getrpt?GAO-04-508] 
Washington, D.C.: March 24, 2004.

World Trade Organization: Ensuring China's Compliance Requires a 
Sustained and Multifaceted Approach. 
[Hyperlink, http://www.gao.gov/ cgi-bin/getrpt?GAO-04-172T] 
Washington, D.C.: October 30, 2003.

GAO's Electronic Database of China's World Trade Organization 
Commitments. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-797R] 
Washington, D.C.: June 13, 2003.

World Trade Organization: First-Year U.S. Efforts to Monitor China's 
Compliance. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03- 461] 
Washington, D.C.: March 31, 2003.

World Trade Organization: Analysis of China's Commitments to Other 
Members. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-4] 
Washington, D.C.: October 3, 2002.

World Trade Organization: Selected U.S. Company Views about China's 
Membership. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02- 1056] 
Washington, D.C.: September 23, 2002.

World Trade Organization: Observations on China's Rule of Law Reforms. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-812T] 
Washington, D.C.: June 6, 2002. 

(320194):

FOOTNOTES

[1] See related GAO products, p. 70.

[2] See USTR, 2002 Report to Congress on China's WTO Compliance 
(Washington, D.C.: Dec. 11, 2002) and USTR, 2003 Report to Congress on 
China's WTO Compliance (Washington, D.C.: Dec. 11, 2003).

[3] 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. The WTO's dispute 
settlement system also provides a forum for members to resolve 
complaints regarding another members' noncompliance with WTO 
commitments.

[4] See 19 U.S.C. § 2241(a)(1)(A)(i) and (a)(2)(c).

[5] For additional information on China's commitments see GAO, World 
Trade Organization: Analysis of China's Commitments to Other Members, 
GAO-03-4 (Washington, D.C.: Oct. 3, 2002).

[6] USTR notes that compliance does not always correspond to market 
access and that rising exports to China should not necessarily be taken 
as an indication of progress on WTO implementation. 

[7] Mandated by legislation authorizing Permanent Normal Trade 
Relations for China (Pub. L. 106-286, § 421, 114 Stat. 903).

[8] GAO, World Trade Organization: Selected U.S. Companies' Views about 
China's Membership, GAO-02-1056 (Washington, D.C.: Sept. 23, 2002).

[9] USTR also identified transparency, an issue that crosscut several 
categories, and trading rights and distribution as key areas of concern 
in 2002 and 2003. Additionally, USTR identified China's value-added tax 
policies as a key issue in 2003.

[10] Additionally, President Bush and China's President Hu Jintao 
discussed U.S.-China trade issues at the Asia-Pacific Economic 
Cooperation summit in Bangkok in October 2003. U.S.-China trade issues 
were also part of the dialogue during China Premier Wen Jiabao's visit 
to the United States in December 2003 and during Vice Premier Wu Yi's 
visit to Washington in April 2004.

[11] The JCCT includes working groups covering trade and investment 
issues, business development and industrial cooperation, commercial 
law, intellectual property rights, structural issues and market economy 
status, textiles, and statistics, as well as a side dialogue on export 
controls. 

[12] Congress created an interagency structure in the Trade Expansion 
Act of 1962, codified at 19 U.S.C. § 1872, which has been amended 
several times. This structure, called the Trade Policy Committee, led 
by USTR, has two subordinate bodies--the Trade Policy Review Group (a 
management-level committee) and the Trade Policy Staff Committee (a 
senior staff-level committee subordinate to the management-level 
committee). Numerous subcommittees under the Trade Policy Staff 
Committee have also been established to facilitate interagency 
coordination on a variety of trade issues.

[13] Officials from the National Security Council declined to meet with 
us to discuss their role.

[14] The General Council is composed of all WTO members and has 
authority to adopt interpretations of the various WTO agreements. The 
subsidiary bodies are described as councils or committees and are 
generally organized according to the various trade subjects covered by 
the WTO agreements.

[15] For further details on our analysis of the 2002 TRM see GAO, World 
Trade Organization: First-Year U.S. Government Efforts to Monitor 
China's Compliance, GAO-03-461 (Washington, D.C.: Mar. 9, 2003).

[16] Our analysis is based on our review of the documents submitted 
through the WTO Secretariat in advance of the TRM meetings. USTR 
officials noted that, generally, they circulated questions to the 
Chinese delegation to the WTO a few days earlier than the actual dates 
reflected on the WTO documents, but still fell short of their 4 to 6 
week objective. 

[17] In 2003, the European Union and Japan submitted questions to China 
about 30 and 36 days, respectively, in advance of the various TRM 
meetings. 

[18] China's accession agreement states that China is to submit the 
information annually, but provides no other guidance on the timing of 
China's submissions for the TRM.

[19] Under the Trade Policy Review Mechanism, the four WTO members with 
the largest shares of world trade are reviewed each 2 years, the next 
16 are reviewed each 4 years, and others are reviewed each 6 years. A 
longer period may be fixed for least-developed country members.

[20] The United States underwent a Trade Policy Review in 2003 and 
received over 500 questions from other members--all of which the United 
States was required to respond to in writing.

[21] Pub. L.103-62, 107 Stat. 285.

[22] See GAO, Results-Oriented Government: GPRA Has Established a Solid 
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.: 
Mar. 10, 2004).

[23] Mission Performance Plans are annual embassy plans describing 
performance goals, objectives, and resources needed to execute those 
goals and objectives. The strategies and objectives set forth in the 
plans are linked to State's overall planning process.

[24] USTR's report includes similar statements for annual performance 
indicators for other goals or as part of their performance verification 
statements. USTR officials said that this reflected administration 
policy, with regard to results management for trade negotiations and 
monitoring and enforcement activities. 

[25] Department of Commerce, Office of Inspections and Program 
Evaluations, International Trade Administration: Trade Compliance 
Efforts Need Improved Coordination, Final Inspection Report No. IPE-
14282 (Washington, D.C.: March 2002).

[26] Pub. L. 108-199, 118 Stat. 46, 64.

[27] The accompanying House Report (H.R. Rep. 108-221, at 63-73) 
provides details on the committee's directions to the agencies 
regarding changes and increases to agencies' China trade-related 
offices. 

[28] Our previous work describes high turnover rates in the U.S. 
government's trade agencies, particularly at USTR and Commerce. We 
noted that staff cited long hours, the intensity of work, and more 
lucrative offers in the private sector as reasons for turnover. For 
more information, see GAO, Human Capital: Major Human Capital 
Challenges at SEC and Key Trade Agencies, GAO-02-662T (Washington, 
D.C.: Apr. 23, 2002).

[29] See GAO, Foreign Languages: Human Capital Approach Needed to 
Correct Staffing and Proficiency Shortfalls, GAO-02-375 (Washington, 
D.C.: Jan. 31, 2002); GAO, State Department: Staffing Shortfalls and 
Ineffective Assignment System Compromise Diplomatic Readiness at 
Hardship Posts, GAO-02-626 (Washington, D.C.: June 18, 2002); GAO, 
State Department: Targets for Hiring, Filling Vacancies Overseas Being 
Met, but Gaps Remain in Hard-to-Learn Languages, GAO-04-139 
(Washington, D.C.: Nov. 19, 2003).

[30] Following several of our reports on language shortfalls, State 
took several steps to address the problems. For example, State 
incorporated a measurable human capital goal in its 2004 performance 
plan related to language skills and is also attempting to more 
accurately measure posts' language needs through improved surveys of 
language-training graduates and post leadership.

[31] GAO, World Trade Organization: Analysis of China's Commitments to 
Other Members, GAO-03-4 (Washington, D.C.: Oct. 3, 2002).

[32] The General Council is composed of all WTO members and has 
authority to adopt interpretations of the various WTO agreements. The 
subsidiary bodies are described as councils or committees and are 
generally organized according to the various trade subjects covered by 
the WTO agreements.

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