China's Compliance With Its WTO Commitments Is Poor, USTR Reports
While the U.S. trade representative acknowledged some improvements in stopping counterfeit goods at the port before they leave, the overall conclusion of his 193-page report to Congress is that China's compliance with its World Trade Organization commitments is still poor 17 years after accession. China still embraces "a state-led, mercantilist approach to the economy and trade, despite WTO members’ expectations -- and China’s own representations -- that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO," the report said. Moreover, China is moving away from market-oriented policies in recent years, USTR said.
A few examples of distorting policies outlined in the report were: unscientific reviews of agriculture and biotechnology products; forced tech transfer through licensing regulations, theft and the abuse of administrative processes; blocking electronic payment services like PayPal even though they promised to allow access in 2006 and lost a WTO case in 2012. "As we catalogued in last year’s report, a consistent pattern exists where the United States has raised a particular concern, China has specifically promised to address that concern -- and China’s promise has not been fulfilled," USTR wrote.
The report also addressed specific customs and trade facilitation problems. Customs clearance varies from port to port, "lengthy delays are not uncommon, and the fees charged appear to be excessive," the report said. Instead of setting valuation by sales transaction prices, General Administration of Customs officials are assessing duties on reference prices, and that practice is increasing. The report said IT goods and wood goods are examples of categories that are subject to reference pricing. U.S. firms complain that customs officers make arbitrary decisions on how to classify goods, as well. Exporters complain that Chinese customs officials "do not seem to understand transfer pricing, inbound and outbound bonded zone valuation, and customer rebates and sales discounts associated with modern supply chains."
The report said there's a proliferation of companies known as evasion services, which help exporters and importers evade antidumping and countervailing duties. Moreover, there are parties in China who register trademarks that belong to U.S. firms, and the number of these bad faith registrations is growing, the report said. They then direct customs authorities to seize U.S. companies' goods as they are waiting to be exported.
Counterfeits coming from China, too, continue to be a large problem -- and sometimes a dangerous one, in the case of pharmaceuticals and some machinery -- even as the country has improved enforcement somewhat. About 48 percent of CBP seizures of counterfeit and pirated goods are goods that originated in China, and another 39 percent came from Hong Kong. However, the report noted, since a 2013 intellectual property rights working group formed, China has stopped some shipments from leaving the country, and helped CBP seize other shipments at its ports of entry.