The Office of the U.S. Trade Representative issued three reports on 30 March that highlight the administration’s efforts in addressing key trade barriers to U.S. exports. The first report, entitled 2011 National Trade Estimate Report on Foreign Trade Barriers, documents foreign restrictions on U.S. exports of goods and services, foreign direct investment and protection of intellectual property rights in 62 major trading partners in each region of the world. Issues raised in the NTE report are usually brought up during bi-lateral talks with concerned countries and may serve as the basis for future investigations of unfair trade practices. The second report, 2011 Report on Technical Barriers to Trade, focuses on non-tariff barriers to U.S. exports such as product standards, testing requirements and other technical requirements. Lastly, the 2011 Report on Sanitary and Phytosanitary Measures identifies SPS barriers to U.S. agricultural exports and outlines on-going efforts to remove those barriers.

Some of the more notable highlights of these reports related to mainland China and Hong Kong are outlined below. Copies of the reports are available at http://www.ustr.gov/about-us/press-office/reports-and-publications/2011.

Mainland China

The NTE report addresses many of the same issues that have been raised time and again by U.S. officials in recent years, including these well-known complaints.

• The lack of effective IPR protection and enforcement remains a major challenge. Key concerns include unacceptable levels of retail and wholesale counterfeiting; persistently high levels of book and journal piracy, end-user piracy of business software and copyright piracy over the Internet; the lack of deterrent penalties; and other policies, such as barriers to the market for legitimate products.
• China’s willingness to encourage domestic or “indigenous” innovation at the cost of foreign innovation and technologies is a troubling trend that emerged in 2009 and continued last year. Chinese officials took important steps at the December 2010 meeting of the U.S.-China Joint Commission on Commerce and Tradeto assuage U.S. concerns about these policies, including a commitment not to maintain any measures that provide government procurement preferences for goods or services based on the location where the intellectual property is owned or was developed. During Chinese President Hu’s January 2011 state visit to the United States, China further committed to delink its innovation policies from the provision of government procurement preferences.
• China has continued to restrict the importation and distribution of copyright-intensive products such as books, newspapers, journals, theatrical films, DVDs and music, although it did agree to remove these restrictions following a WTO dispute settlement panel ruling.
• U.S. automakers are concerned that China’s efforts to regulate new energy vehicles such as hybrid and battery electric vehicles may discriminate against foreign-invested producers. The report notes that current drafts of China’s NEV legislation reportedly specify that automakers that intend to manufacture electric vehicles in the mainland must demonstrate a “mastery” level of proficiency in key parts such as electric vehicle batteries, motors or control systems before receiving a licence to produce and sell electric vehicles. Manufacturers would also be required to demonstrate clear ownership of IPR to the technologies that enable the “mastery.” U.S. automakers are worried that Beijing may implement these proposed requirements by requiring that production of key NEV parts take place in the mainland.
• China’s Steel and Iron Industry Development Policy includes a number of objectives and guidelines that raise serious concerns. For example, foreign enterprises seeking to invest in mainland Chinese iron and steel enterprises are required to possess proprietary technology or intellectual property in the processing of steel, which appears to constitute an illegal de facto technology transfer requirement because foreign investors are not allowed to have a controlling share in steel and iron companies. The Steel Policy also appears to discriminate against foreign equipment and technology imports by calling for the use of domestically produced steel manufacturing equipment and domestic technologies whenever domestic suppliers exist.
• The U.S. believes that China has used its value-added tax policies to benefit domestic fertilizer producers. Moreover, China’s tariff rate-quota system for fertilizer has suffered from systemic problems for many years, including insufficient transparency and administrative guidance affecting how the allocated quota is used.
• There are continuing reports that mainland Chinese authorities are seeking to discourage the use of imported telecommunications components and equipment in order to promote domestic suppliers.
• China still maintains high duties on a range of products that compete with sensitive domestic industries. In addition, the wide discretion Chinese customs officers have in classifying imports, the government’s failure to uniformly implement the various customs valuation measures following its accession to the WTO, inefficient and inconsistent customs clearance procedures, and the uneven application of value-added taxes continue to pose difficulties.
• China has emerged as a leading user of antidumping measures and U.S. authorities contend that its AD regime continues to suffer from a lack of transparency and procedural fairness.
• Many U.S. industries complain that they face significant non-tariff barriers to trade, including regulations that set high thresholds for entry into service sectors such as banking, insurance and telecommunications; selective and unwarranted inspection requirements for agricultural imports; and the use of questionable sanitary and phytosanitary measures to control import volumes.
• China has imposed criteria for obtaining approval to pursue new wind power projects that appear to discriminate against foreign enterprises. One such criterion involves a requirement of prior experience in supplying large-scale wind power projects in the mainland. Chinese authorities agreed to eliminate this requirement at the December 2010 JCCT meeting.
• U.S. companies continue to complain about the uneven application of the VAT, which often results in U.S. companies having to pay a tax that their domestic competitors fail to pay.
• Despite extensive U.S. engagement, the Chinese government has continued to impose restrictions on exports of raw materials that can significantly distort trade – including quotas, duties and related fees, licensing requirements and other restraints – as it has continued to guide the development of downstream industries. A WTO panel was established in December 2009 to hear a formal U.S. complaint on this matter and is expected to issue a decision this year.
• A general lack of transparency makes it difficult to identify and quantify possible export subsidies provided by the Chinese government. U.S. industry has alleged that subsidisation is a key reason mainland Chinese exports are undercutting prices in the United States and gaining market share. Of particular concern are China’s practices in the steel, petrochemical, high technology, forestry and paper products, textiles, hardwood, plywood, machinery and copper, and other nonferrous metals industries.
• China imposes restrictions in a number of services sectors that prevent or discourage foreign suppliers from gaining or further expanding market access. These include failing to grant new licences or utilising a licensing review process that is opaque or slow-moving, imposing foreign equity limitations or other discriminatory measures on foreign suppliers, high minimum capital requirements, and overly burdensome regulatory regimes or other restrictions.
• Several Chinese ministries have jurisdiction over electronic commerce and impose a range of burdensome restrictions on Internet use, including registration requirements for Web sites and arbitrary and non-transparent content controls.
• Transparency remains a core concern across virtually all industry and service sectors, as many of China’s regulatory regimes continue to lack the necessary transparency. U.S. officials are also of the opinion that laws and regulations in China often contain provisions that are relatively general and ambiguous, which results in inconsistency and confusion in their application.
• Although China was the world’s second-largest destination for foreign direct investment in 2010, investors continue to complain of a lack of transparency, inconsistently enforced laws and regulations, weak IPR protection, corruption and an unreliable legal system that fails to enforce contracts and judgments. These is also evidence that China has taken a number of steps to discriminate against or otherwise disadvantage foreign investors. These restrictions are often accompanied by other troublesome industrial policies such as the increased use of subsidies and the development of China-specific standards.

The TBT report indicates, among other things, that China and other U.S. trading partners have adopted problematic measures that block or restrict U.S. exports with cryptographic capabilities for commercial use. For example, mainland Chinese authorities require U.S. companies to provide their source codes as a condition to market their products. The report also includes an extensive discussion of the China Compulsory Certification mark, which must be applied to goods in more than 159 product categories including electrical machinery, IT equipment, household appliances and their components. In addition, it highlights additional concerns regarding mandatory testing and certification for IT products, conformity assessment procedures for medical devices, standards for mobile phones and patents used in Chinese national standards.

Issues raised in the SPS report include China’s ban on pork imports containing any residue of the veterinary drug ractopamine; a zero tolerance limit for the presence of Salmonella, Listeria spp. and other pathogens in imported meat and poultry; China’s ban on U.S. beef and beef products as well as poultry and poultry products from certain U.S. states; and restrictions on the importation of U.S. apples, pears, potatoes and strawberries. 

Hong Kong

As in 2010, the 2011 NTE report recognises Hong Kong’s open trade regime and outlines only a handful of relatively minor concerns regarding trade barriers to U.S. exports. With respect to IPR, the report again expresses concern about the rapid growth of unauthorised file sharing over peer-to-peer networks on the Internet, end-user software piracy, and the illicit importation and transhipment of pirated and counterfeit goods (including pharmaceuticals and luxury goods) from mainland China and elsewhere. U.S. industry has also expressed concerns about lengthy approval procedures for new pharmaceuticals and the lack of transparency in the Hong Kong Hospital Authority’s approval process for new drugs. In addition, the report provides an update on Hong Kong’s competition law and notes that the U.S. government is engaged in a dialogue to encourage Hong Kong to eliminate its 100 percent tax on spirits with more than 30 percent alcohol content.