China-U.S. Trade Agreements: Compliance Issues

China-U.S. Trade Agreements: Compliance Issues

Order Code RL30555
CRS Report for Congress
Received through the CRS Web
China-U.S. Trade Agreements: Compliance Issues
Updated December 7, 2000
(name redacted)
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

China-U.S. Trade Agreements: Compliance Issues
Summary
On November 15, 1999, the United States and China completed a bilateral
agreement on China’s accession to the World Trade Organization (WTO). China
agreed to substantially liberalize its markets for U.S. agriculture, manufactured goods,
and services. In addition China has completed bilateral trade agreements with 35
other WTO members (an agreement with Mexico is still pending) and is close to
completing negotiations with the WTO Working Party handling its WTO application.
Once China completes all of its bilateral and multilateral agreements, it will likely join
the WTO soon after, and the terms of those agreements will apply equally to all WTO
members. China’s accession to the WTO would subject China’s trade regime to
multilateral trade rules, such as most-favored-nation (MFN), or nondiscriminatory,
trade status, national treatment for foreign firms, transparency of trade rules, and the
use of tariffs, rather than non-tariff barriers, to protect domestic firms (when
necessary). The terms of China’s WTO membership would be subject to monitoring
and review by WTO members, who, in case of Chinese non-compliance with WTO
obligations, would be able to bring a complaint before a WTO trade dispute resolution
panel for settlement.
Congressional concerns over China’s full compliance with its WTO commitments
became a factor in the congressional debate over H.R. 4444, a bill that would
permanent normal trade relations (PNTR) treatment to China upon its accession to
the WTO. Some congressional opponents of PNTR legislation charged that China
could not be trusted to implement the WTO agreements, based on the contention that
China had failed to fully comply with the terms of past trade agreements made with
the United States. Other analysts contended that, while China’s compliance with
trade agreements had been less than perfect, it did make important strides in fulfilling
its trade obligations with the United States. They further contended that the WTO’s
dispute resolution mechanism would provide a more effective means for the United
States to deal with trade disputes than relying on unilateral measures. In order to
ensure China’s full compliance with its WTO commitments, many Members of
Congress called for the establishment of special mechanisms that would closely
monitor China’s compliance with its WTO commitments. Such measures were
included in the final version of H.R. 4444, which passed both Houses and became law
on October 10, 2000.
This report addresses five major trade issues and related trade agreements
between the United States and China: (1) the 1979 trade agreement providing mutual
most-favored-nation (MFN) treatment, (2) the 1992 memorandum of understanding
(MOU) on market access, (3) the 1992 and 1995 MOUs on intellectual property
rights (IPR), (4) the 1997 MOU on textile quotas and market access, and (5) the 1992
MOU on prison labor exports. It provides an overview of the agreements and
summarizes various government and private sector assessments of China’s compliance
with the agreements. It also discusses issues arising from concerns over how to
ensure China’s compliance with its trade commitments relating to its accession to the
WTO (if and when it enters the WTO), including legislative proposals.

Contents
The 1979 Agreement on Trade Relations Between the United States and China . 2
Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Assessments of Chinese Compliance With the 1992 MOU . . . . . . . . . . . . . 6
Violations of U.S. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The 1992 IPR Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The 1995 IPR Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The 1996 Chinese Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Recent Assessments of China’s Compliance With IPR Agreements . . . . . 12
Illegal Textile Transshipments and Market Access Issues . . . . . . . . . . . . . . . . . 14
Prison Labor Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Provisions to Promote Chinese WTO Trade Compliance . . . . . . . . . . . . . . . . . 17
The Clinton Administration’s Compliance Proposals . . . . . . . . . . . . . . . . 18
Trade Compliance Measures in H.R. 4444 . . . . . . . . . . . . . . . . . . . . . . . . 19
Other Congressional Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Concluding Observations on U.S.-China Trade Agreements and Implications
For China’s Accession to the WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Tables
Table 1. U.S. Merchandise Trade with China: 1980-1999 . . . . . . . . . . . . . . . . 4
Table 2. U.S. Exports of Textile and Apparel Products to China: 1996-1999 . 16

China-U.S. Trade Agreements: Compliance
Issues
China over the past several years has been conducting negotiations with several
WTO members, including the United States, to join the World Trade Organization
(WTO), the multilateral trade agency that sets rules for most trade. Major progress
was made towards China’s WTO accession when the United States and China reached
a bilateral agreement on November 15, 1999, that would require China, following
WTO accession, to substantially lower barriers on agricultural products, industrial
goods, and services. China must still complete a trade agreement with Mexico, the
last of the original 37 WTO members that requested such negotiations, and finish
talks with the WTO Working Party handling China’s WTO application, before a vote
can be taken in the WTO to admit China.
On October 10, 2000, President Clinton signed into law H.R. 4444 (P.L. 106-
268), a bill that would grant PNTR status to China upon its accession to the WTO.
The Act, among other things, included provisions to establish mechanisms to monitor
and promote China’s compliance with its WTO commitments. A major factor in
congressional debate over PNTR legislation was whether China could be trusted to
fully implement its WTO commitments, and what kind of monitoring and enforcement
provisions, if any, were needed to ensure compliance.
Some opponents of PNTR charged that China had a poor record of complying
with past trade agreements it has made with the United States and therefore could not
be trusted to abide by its WTO commitments. Many proponents of PNTR for China
argued that China had generally complied with many or most aspects of the trade
agreements, especially in cases where China’s compliance was closely monitored and
U.S. pressure was brought to bear when compliance was deemed lacking. They also
contended that the WTO dispute resolution mechanism would provide an effective
means to ensure China’s compliance with its WTO trade commitments.
According to the U.S. Department of Commerce, since 1979, the United States
and China have concluded 14 trade agreements, including the November 1999
bilateral trade agreement on China’s accession to WTO.1 This report addresses five
major trade issues and related trade agreements between the United States and China:
(1) the 1979 trade agreement providing mutual most-favored-nation (MFN)
treatment2, (2) the 1992 memorandum of understanding (MOU) on market access, (3)
1 U.S. Department of Commerce, Asia Pacific Database, Trade Openness: China, February
2000, p. 1.
2 In 1998, Congress passed legislation changing the term most-favored-nation(MFN) status
to normal trade relations (NTR) status for the purposes of U.S. trade law. For the sake of
(continued...)

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the 1992 and 1995 MOUs on intellectual property rights (IPR), (4) the 1997 MOU
on textile quotas and market access, and (5) the 1992 MOU on prison labor exports.
It provides an overview of the agreements and summarizes various U.S. government
and private sector assessments of China’s compliance with the agreements. It also
discusses issues arising from concerns over how to ensure China’s compliance with
its trade commitments relating to its accession to the WTO (if and when it enters the
WTO), including legislative proposals that were introduced in the 106th Congress to
address these issues.
The 1979 Agreement on Trade Relations Between the
United States and China
U.S. MFN status for China was suspended by specific legislation in 1951. That
status was restored in 1980 on a conditional basis, based on the requirements of Title
IV of the 1974 Trade Act, as amended, which establishes requirements for restoring
and maintaining MFN status for certain non-market economies whose MFN status
was suspended by law. One of the requirements for restoring MFN status is the
conclusion of a bilateral trade agreement which, among other things, provides mutual
non-discriminatory (or MFN) treatment.3 The United States and China reached such
an agreement in July 1979, which entered in force in February 1980 (after the
conditions under Title IV had been met and the agreement received congressional
approval). In order for China’s MFN status to remain in effect, the President must,
every three years, certify that a satisfactory balance of trade concessions has been
maintained during the life of the agreement and that actual or foreseeable reductions
in U.S. tariffs and non-tariff barriers to trade resulting from multilateral negotiations
are reciprocated.4 The President has made such certifications for China triennially.5
The most recent extension was made on January 30, 1998, and runs through January
2001.6
2 (...continued)
consistency, the term MFN status is used throughout this report.
3 The agreement must also contain provisions pertaining to possible termination of the
agreement (such as due to national security interests), safeguard arrangements, protection of
intellectual property rights, arrangements for the settlement of commercial disputes,
arrangements for the promotion of trade, and procedures for consultations over the agreement.
Title IV also requires that certain freedom of emigration requirements (under the so-called
Jackson-Vanik amendment) be met before MFN status is restored.
4 In addition, the Jackson-Vanik requirements must be met on an annual basis.
5 Such certification does not require that China afford the United States the same trade
treatment that the United States gives to Chinese products (e.g., China does not have to charge
the same tariffs on goods from the United States that the United States charges on imports
from China). Instead, it requires China to give the same treatment to U.S. imports that it gives
to other countries.
6 See CRS Report, Most-Favored-Nation Status of the People’s Republic of China, by
Vladimir Pregelj, August 27, 1999, p.2.

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In a 1996 letter to Representative Nancy Pelosi, U.S. Trade Representative
(USTR) Charlene Barshefsky stated that the 1979 U.S.-China bilateral agreement on
trade relations is:
...the foundation of the U.S. economic relationship with China, and includes basic
rules for conducting commercial transactions between our countries. These rules
encompass matters ranging from customs rules and procedures, to providing
facilities for banking and financial transactions, to business facilitation activities
and ensuring that we receive MFN treatment under laws affecting the sale,
purchase, distribution and use of imported products in our domestic markets. A
key element of the 1979 Agreement is the obligation to exchange information and
consult on problems arising in our bilateral trade relationship. The United States
has been able to call upon this commitment to initiate consultations to resolve trade
disputes with China.7
Many Members of Congress have questioned whether the United States is
receiving “a satisfactory balance of trade concessions” from China. They cite the
sharp deterioration in the U.S. balance of trade with China, which went from a $2.7
billion surplus in 1980 to a $68.7 billion deficit in 1999 (see table 1). Many argue
that China’s pervasive trade barriers, restrictive investment policies, and failure to
protect U.S. intellectual property rights (IPR) in China substantially diminish U.S.
trade and investment opportunities in China (while U.S. markets are open to Chinese
goods), and they have pressed the executive branch to take action against China, such
as utilizing U.S. trade laws (e.g., Section 301 and Special 301), to induce China to
eliminate such unfair trade practices.8
7 Inside U.S. Trade, Text: Barshefsky Letter on China, July 5, 1996 (available on
www.insidetrade.com).
8 Despite Chinese trade barriers, U.S. exports to China have risen sharply, from $3.8 billion
in 1980 to $13.1 billion in 1999. China was the 12th largest U.S. export market in 1999 and
was an important market for several U.S. export industries, such as aircraft and machinery.
Still, many analysts argue that U.S. exports to China would be substantially higher if trade
restrictions were removed.

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Table 1. U.S. Merchandise Trade with China: 1980-1999
($ in billions)
Year
U.S. Exports
U.S. Imports
U.S. Trade Balance
1980
3.8
1.1
2.7
1981
3.6
1.9
1.7
1982
2.9
2.3
0.6
1983
2.2
2.2
0.0*
1984
3.0
3.1
-0.1
1985
3.9
3.9
0.0*
1986
3.1
4.8
-1.7
1987
3.5
6.3
-2.8
1988
5.0
8.5
-3.5
1989
5.8
12.0
-6.2
1990
4.8
15.2
-10.4
1991
6.3
19.0
-12.7
1992
7.5
25.7
-18.2
1993
8.8
31.5
-22.8
1994
9.3
38.8
-29.5
1995
11.7
45.6
-33.8
1996
12.0
51.5
-39.5
1997
12.8
62.6
-49.7
1998
14.3
71.2
-56.9
1999
13.1
81.8
-68.7
* The U.S. had a trade deficit with China, but it was less than $100 million.
Source: U.S. Department of Commerce.
Market Access
U.S. officials have held negotiations with China over the past several years
regarding U.S. concerns over Chinese restrictive trade and investment barriers. In
April 1991, the Bush Administration initiated a Section 301 case against four
significant unfair trading practices affecting U.S. exports to China:
! selected product-specific and sector-specific import prohibitions and
quantitative restrictions;
! selective restrictions on imports made effective through restrictive
import license requirements;

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! selected technical barriers to trade, including standards, testing and
certification requirements, and policy toward phytosanitary and
veterinary standards that create unnecessary obstacles to trade; and
! failure to publish laws, regulations, judicial decisions, and
administrative rulings of general application pertaining to customs
requirements, restrictions, or prohibitions on imports or affecting
their sale or distribution in China.
The Section 301 case against China was highly unusual due to its breadth of
coverage. Most Section 301 cases involve investigations of certain trade restrictions
on specific products. However, the China Section 301 case was the most sweeping
market access investigation in the USTR’s history. It was essentially aimed at
substantially reforming China’s entire trade regime. In addition, the USTR linked
U.S. support for China’s re-entry into the General Agreement on Tariffs and Trade
(GATT) to a successful resolution of the trade dispute.9
On Aug. 21, 1992, the USTR determined that negotiations had failed to resolve
the trade dispute and threatened to impose $3.9 billion in U.S. trade sanctions unless
an agreement was reached by Oct. 10, 1992. The proposed sanctions were the
highest level ever issued by the USTR under a Section 301 case. China in turn
threatened retaliation against a comparable level of U.S. products.
On Oct. 10, 1992, the United States and China reached an agreement settling the
Section 301 case. Under a Memorandum of Understanding (MOU), China pledged
to (1) reduce or eliminate a wide variety of trade barriers over the next five years
(according to specific timetables), including tariffs, quotas, import restrictions, import
licenses (covering over 1,200 products); (2) take a number of specified steps to make
its trade regime more transparent, such as publishing its trade laws and regulations;
(3) eliminate import substitution laws and policies; and (4) apply sanitary and
phytosanitary (SPS) regulations on agricultural products based on sound science
(within one year) and remove discriminatory standards and testing requirements on
non-agricultural products. For its part, the United States pledged to “staunchly
support” China’s entry into the GATT and to reduce export controls on computer and
telecommunications equipment exports to China.10
In late 1993, the USTR charged that China had failed to implement the market
access agreement and warned that the United States would impose trade sanctions
against China unless it took steps to abide by the agreement by the end of the year.11
A U.S. State Department report stated that by December 31, 1993, China had
lowered tariffs on 2,898 items and had eliminated non-tariff restrictions on 283 items.
9 The GATT in 1995 became the World Trade Organization (WTO).
10 Major exports affected by the agreement included chemicals, computers, integrated circuits,
medical equipment, autos and auto parts, machinery products, telecommunications equipment,
instant film and instant cameras, steel products, photocopiers, beer, wine, distilled spirits, and
mineral waters.
11 Inside U.S. Trade, November 3, 1993.

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In addition, in June 1994, China eliminated 208 non-tariff barriers, including a
number ahead of, or in addition to, the schedule set in the MOU.12
Failure on the part of China to gain status as a founding member of the WTO at
the end of 1994 led China to subsequently announce that it would no longer abide by
the market access agreement because of the U.S. position on conditions for China’s
entry into the WTO. However, following the signing of the U.S.-Chinese agreement
on IPR in March 1995 (see below) , U.S. and Chinese officials announced that an
agreement had been reached in which China would resume its implementation of the
1992 market access MOU by the end of March1995 and that talks would be held with
the United States concerning liberalizing China’s markets for telecommunications
services and insurance.13
Assessments of Chinese Compliance With the 1992 MOU
In January 1994, the USTR determined that, to date, China was “substantially
in compliance” with the 1992 market access agreement. In January 1995, GAO
issued a report examining China’s compliance with the 1992 agreement. Based on
interviews with U.S. government and industry officials, GAO stated that the Chinese
government had complied overall with the provisions regarding transparency and tariff
and non-tariff barriers, although a number of significant problems remained in these
areas.14 According to the report, USTR officials told GAO that they believed that
China no longer maintained import substitution polices. However, GAO noted the
growing pressure from the Chinese government to force foreign firms to increase local
content (i.e., the share of the value of the product made locally) for certain operations
in China. GAO found that China’s implementation of the agricultural standards
provisions had been slow and that China continued to use such barriers to restrict
U.S. imports.15 Finally, GAO noted that resistence to central government regulations
by provincial and local governments, as well as central government ministries seeking
to protect the industries under their jurisdiction, impeded the full implementation of
the market access MOU. 16
In congressional testimony in 1996, (then Acting) USTR Charlene Barshefsky
drew similar conclusions over China’s compliance with the 1992 MOU on market
access. She stated that “to its credit, China has done much to implement the
12 U.S. Department of State, Country Reports on Economic Policy and Trade Practices,
February 1995, p. 43.
13 This appears to have delayed somewhat the implementation of China’s reduction of trade
barriers. China’s removal of trade barriers in July 1995 were five months behind schedule.
Ibid, p.45
14 GAO noted that despite improvements, transparency in China’s trade laws and regulations
was still far from perfect, and that non-transparency was one of the most cited problems of
doing business in China by U.S. firms survey by GAO. In the case of non-tariff barriers,
GAO observed that China removed some barriers but then instituted new ones.
15 GAO, U.S.-China Trade: Implementation of Agreements on Market Access and
Intellectual Property, January 1995, pp 18-25.
16 Ibid, p. 31.

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agreement,” such as eliminating tariff and non-tariff barriers and making its trade
regime more transparent. However, compliance in other areas was lacking:
While China has removed a substantial number of non-tariff barriers, we are
concerned with China’s tendency to give with one hand and take away with the
other. In some instances, China has substituted new barriers in the place of those
removed. For example, quotas have been replaced with “tendering requirements”
or “registration requirements. “ In sectors such as medical equipment and film,
new regulations have prevented the market access we anticipated as a result of the
1992 agreement. China must live up to its agreement and eliminate those
impediments to fair trade.17
Barshefsky also criticized China for failure to remove trade barriers on U.S.
agricultural products (such as wheat and citrus), as specified under the agreement,
saying:

If I could pick one area under it where we are dissatisfied, seriously dissatisfied,
I would say it is in the agricultural sector.18
The 1992 market access MOU was supposed to have been fully implemented by
December 31, 1997. The USTR’s 1998 Foreign Trade Barriers Report made the
following observations on areas where China’s compliance with the market access
was lacking:19
! Non-tariff barriers. China has generally met the requirements of
the 1992 MOU to remove various explicit non-tariff barriers on
products specified under the MOU.20 However, China still maintains
a large number of non-tariff administrative controls (such as
registration requirements) to implement its industrial policies, which
tend to act as a new de facto licensing requirement. About 400 of
the products covered by the 1992 agreement are subject to these
registration requirements.21
! Transparency. While China has significantly improved the
transparency of its trade regime since 1992, several problems remain.
For example, the coverage of Chinese trade publications of new
17 Testimony of Ambassador Charlene Barshefsky Before the U.S. House Ways and Means
Committee, Subcommittee on Trade, September 19, 1996.
18 Ibid.
19 In April 1999, China agreed to remove SPS restrictions on U.S. exports of Northwest
wheat, citrus, and meat exports to China. Other trade policies pertaining to transparency in
trade laws, non-tariff barriers, SPS restrictions, and import substitution laws were addressed
in the November 1999 U.S.-China WTO agreement and are also being considered in the WTO
Working Party handling China’s accession application.
20 Various USTR reports indicate that China removed over 1,000 quotas and licenses.
However, in some instances, certain non-tariff barriers were not removed on schedule.
21 USTR, 1998 National Trade Estimate Report on Foreign Trade Barriers, 1998, p.48.

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regulations is often incomplete and not always timely. U.S. firms
often have difficulty learning which regulations apply to their
operations in China.22 The lack of regulatory transparency and few
implementing regulations continue to inhibit the entry of foreign
goods and services. Moreover, publication of trade-related laws and
regulations does not always precede implementation. For example,
information on China’s import quotas, crucial for foreign and
domestic traders, has yet to be published on an itemized basis.
! Import substitution laws. China claims that it no longer utilizes
import substitution policies. However in 1994, the Chinese
government announced an “Auto Industry Policy” that included
import substitution requirements. The government policy directed
that autos and auto parts should be purchased from Chinese
producers and that all automotive and component manufacturers in
China should strive for complete localization of production. The
policy required producers to include a minimum amount of local
materials and value added work in their final products. Foreign joint
venture vehicle assemblers are required to begin with 40% local
content, achieve 60% by the second year of production, and 80% the
following year. In 1996, the government issued policies on
pharmaceutical pricing that discriminated against foreign producers
and embodied an import substitution policy.23
! Sanitary and phytosanitary (SPS) issues. Since 1992, China has
made some progress in removing SPS restrictions on certain U.S.
agricultural items through the signing of bilateral protocols for live
horses; apples from Washington, Oregon, and Idaho; ostriches,
bovine embryos, swine and cattle; cherries from Washington; and
grapes from California. However, SPS measures continued to bar
imports of U.S. citrus, plums, and Pacific Northwest wheat.24 In
addition, China’s standards system often lacks transparency and is
unevenly applied (i.e., different standards are used for imports from
different countries, and standards for imports differ from those
applied to domestically produced products). Finally, many such
standards are not based on sound science.25
22 Ibid, p. 48.
23 Ibid, p. 49. The 2000 USTR Foreign Trade Barriers Report stated that China had also
developed import substitution policies for generic medicines, telecommunications equipment,
and power generating equipment.
24 These issues were reportedly resolved in April 1999 when the United States and China
reached an agreement on agricultural cooperation. China agreed to immediately remove
import restrictions on U.S. Pacific Northwest wheat, citrus, and meat products. However,
according to U.S. officials, China has only recently begun to implement the agreement. See
U.S. Department of Agriculture Release, March 22, 2000.
25 Ibid., pp. 50-51.

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Violations of U.S. Intellectual Property Rights
Section 182 of the Trade Act of 1974 as amended (also known as Special 301),
requires the USTR to identify and investigate “priority foreign countries” that fail to
provide adequate and effective protection of U.S. IPR (such as patents, copyrights,
trademarks, and trade secrets) or deny fair and equitable market access to U.S. firms
that rely on IPR protection. The USTR is directed to seek negotiations with the
priority nations to end such violations and, if necessary, impose trade sanctions.
The 1979 U.S.-China bilateral trade agreement calls for each nation to offer
copyright, patent, and trademark protection equal to the protection correspondingly
accorded in the other country. In 1985, U.S. officials expressed concern over IPR
protection in China during talks held under the auspices of the U.S.-Chinese Joint
Commission on Commerce and Trade (JCCT), and similar concerns were raised in
market access negotiations begun in 1987. Concerns over Chinese IPR protection led
the USTR to place China on its Special 301 “priority watch list” in 1989 and 1990.26
The 1992 IPR Agreement
In April 1991, China (along with India and Thailand) was named as a “priority
foreign country” under Special 301, and in May 1991, the USTR began a Section 301
investigation of four specific deficiencies in China’s IPR practices: (1) failure to
provide product patent protection for chemicals, pharmaceuticals, and agrochemicals;
(2) lack of copyright protection for U.S. works not first published in China; (3)
deficient levels of protection under Chinese copyright law and regulations; and (4)
inadequate protection of trade secrets. In November 1991, the USTR threatened to
impose $1.5 billion in trade sanctions if an IPR agreement was not reached by January
1992. Last-minute negotiations yielded an agreement on January 16, 1992. China
promised to strengthen its patent, copyright, and trade secret laws, and to improve
protection of U.S. intellectual property, especially computer software, sound
recordings, chemicals, and pharmaceuticals.
The 1995 IPR Agreement
In 1994, the USTR determined that China had met most of the conditions of the
1992 agreement, namely the establishment of new laws and regulations protecting
26 The USTR annually issues a three-tier list of countries which are considered to maintain
inadequate regimes for the protection of U.S. IPR or deny market access: (1) priority foreign
countries which are considered to be the worst violators of U.S. IPR and are subject to
Section 301 investigations and possible U.S. trade sanctions; (2) priority watch list countries
which are considered to have serious deficiencies in their IPR regime, but do not currently
warrant a Section 301 investigation; and (3) watch list countries which have been identified
because they maintain IPR practices or barriers to market access that are of particular
concern, but do not yet warrant higher level designations. In addition, the USTR has made
“out-of-cycle” decisions throughout the year concerning the IPR regimes of particular
countries, including the designation of countries as priority foreign countries and the
imposition of trade sanctions for IPR violations.

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IPR, but failed to enforce such laws.27 As a result, in June 1994, the USTR again
designated China as a Special 301 “priority foreign country.” According to then-
USTR Mickey Kantor, China’s enforcement of its laws was sporadic at best and
virtually non-existent for copyrighted works. The USTR cited the establishment of
26 factories in China producing pirated compact and laser disks (producing 75 million
CDs per year, of which about 70 million were exported) as an example of China’s
“egregious” violation of U.S. IPR. In addition, the USTR stated that China
maintained a myriad of hidden quotas and non-transparent regulations that restricted
access to China’s market for U.S. movies, videos, and sound recordings, and that
such restrictions encouraged piracy of such products in China.28 When negotiations
failed to produce a new agreement, the USTR on February 4, 1995 issued a list of
Chinese products, with an estimated value of $1.1 billion, which would be subject to
U.S. import tariffs of 100%. However, a preliminary agreement was reached on
February 26, 1995, and a formal agreement was signed on March 11, 1995. The new
agreement pledged China to substantially beef up its IPR enforcement regime and to
remove various import and investment barriers to IPR-related products. Specifically,
China agreed to:
! Take immediate steps to stem IPR piracy in China over the course of
the next three months by taking action against large-scale producers
and distributors of pirated materials, and prohibiting the export of
pirated products.
! Establish mechanisms to ensure long-term enforcement of IPR laws,
such as banning the use of pirated materials by the Chinese
government, establishing a coordinated IPR enforcement policy
among each level of government, beefing up IPR enforcement
agencies, creating an effective customs enforcement system,
establishing a title verification system in China to ensure that U.S.
audio visual works are protected against unauthorized use, reforming
China’s judicial system to ensure that U.S. firms can obtain access to
effective judicial relief, establishing a system of maintaining statistics
concerning China’s enforcement efforts and meeting with U.S.
officials on a regular basis to discuss those efforts, improving
transparency in Chinese laws concerning IPR, and strictly enforcing
IPR laws.
! Provide greater market access to U.S. products by removing import
quotas on U.S. audio visual products, allowing U.S. record
companies to market their entire works in China (subject to Chinese
27 A January 1995 General Accounting Office (GAO) report noted that China had amended
its patent law, issued copyright regulations, joined international copyright conventions and
enacted protection for trade secrets. However, China made little progress in establishing the
legal and administrative framework that would provide effective procedures and remedies to
address IPR infringement and to deter further infringement. See GAO, U.S.-China Trade:
Implementation of Agreements on Market Access and Intellectual Property, January 1995,
p. 39.
28 Inside U.S. Trade, July 1, 1994, p. 6.

CRS-11
censorship concerns), and allowing U.S. intellectual property-related
industries to enter into joint production arrangements with Chinese
firms in certain cities.
Several U.S. firms charged that IPR piracy in China worsened in 1995, despite
the 1995 IPR agreement, and pressed the USTR to take tougher action against China.
The International Intellectual Property Alliance (IIPA), an association of eight U.S.
copyright-based industries, called on the USTR to impose sanctions against China
unless it agreed to fully implement the 1995 IPR agreement. A February 1996 IIPA
press release stated: “Illegal CD and other factories continue to produce and export
pirate product, and China has not opened its markets to U.S. copyright industries as
promised.”29 IPR-related industries estimated that IPR piracy by Chinese firms cost
U.S. firms $2.2 billion in lost trade during 1995.30 The USTR’s 1996 Foreign Trade
Barriers Report stated: “By early 1996, it was clear that China made significant and,
in some localities, effective efforts in the retail sector within China to begin to reduce
piracy and counterfeiting. However, effective action against producers and major
distributors of pirated audiovisual and computer software products has been lacking.”
The USTR report further stated that exports of pirated products in third markets
continued at the same or even higher levels than before the 1995 IPR agreement.31
The 1996 Chinese Action Plan
On April 30, 1996, the USTR again designated China as a Special 301 “priority
foreign country” for not fully complying with the February 1995 IPR agreement.
According to the USTR, while China had cracked down on piracy at the retail level
(launching raids and destroying millions of pirated CDs and hundreds of thousands of
pirated books, sound recordings, and computer software), it had failed to take
effective action against an estimated 34 or so factories in China that were
mass-producing and exporting pirated products. U.S. officials called on the Chinese
government to close such factories, prosecute violators, and destroy equipment used
in the production of pirated products. Further, the USTR stated that China had failed
to establish an effective border enforcement mechanism within its customs service to
prevent the export of pirated products. Finally, the USTR indicated that China had
failed to provide sufficient market access to U.S. firms, due to high tariffs, quotas, and
regulatory restrictions. Shortly after, the USTR indicated it would impose U.S.
sanctions on $2 billion worth of Chinese products by June 17, 1996, unless China
took more effective action to fully implement the IPR agreement.
On June 17, 1996, (then acting) USTR Charlene Barshefsky announced that the
United States and China had reached an accord on China’s implementation of the
1995 agreement. The accord outlined steps that China had recently taken to enforce
the IPR agreement (such as the closing of 15 plants producing illegal CDs, several
seizures of pirate CDs, VCDs, and LDs by Chinese customs officials, and the issuance
of new regulations directing government agencies to seek out and close illegal plants)
29 IIPA press release, February 20, 1996, p.1.
30 USTR, 1996 National Trade Estimate Report on Foreign Trade Barriers, 1996, p. 54.
31 Ibid.

CRS-12
and China’s pledge to extend a period of focused enforcement of anti-piracy
regulations against regions of particularly rampant piracy, such as Guangdong
Province. The Chinese government also promised to improve border enforcement to
halt exports of pirated products as well as illegal imports of presses used to
manufacture CDs, open up its market to imports of IPR-related products, and
improve monitoring and verification efforts to ensure that products made by Chinese
CD plants and publishing houses were properly licensed. Finally, the Chinese
government reaffirmed that public and private sector entities would use only
legitimate software.32
In April 1997, the USTR reported that, following the June 1996 accord, China
had “made significant progress in combating IPR violations,” including the closure of
nine factories and 28 illegal production facilities, and confiscation of millions of
unauthorized LDs, CDs, and VCDs and other publications, increased checks on IPR-
related cases, significantly strengthened border enforcement against IPR-related
smuggling, and improved market access for certain U.S. IPR-related industries. The
USTR stated: “The Administration commends China for taking these promising steps
on effectively enforcing IPRs.”33
Recent Assessments of China’s Compliance With IPR Agreements
In February 2000, the USTR stated that over the past couple of years China has
made great strides in improving its IPR protection regime, noting that it has passed
several new IPR-related laws, closed 80 assembly operations for illegal production
lines, seized millions of illegal audio-visual products, curtailed exports of pirated
products, improved customs enforcement, expanded training of judges and law
enforcement officials on IPR protection and established special IPR courts, and has
expanded legitimate licensing of film and music production in China.34 In April 1999,
the USTR announced that the Chinese government had issued a new high-level
directive to all Chinese government entities directing that they use only legitimate
computer software, a move described by the USTR as a “milestone in China’s efforts
to increase intellectual property protection.”35 According to the USTR’s 2000
Foreign Trade Barriers Report, prior to the U.S.-China agreements on IPR, China
was one of the world’s IPR pirates and a major exporter of pirated products. Since
then, China has improved its legal framework for IPR enforcement and has “virtually
shut down the illegal production and export of pirated music and video CDs and CD
ROMs.” In addition, China has made enforcement of IPR part of its anti-crime
campaign and has been conducting a nationwide anti-piracy campaign. However, the
USTR noted that resistence from the provincial and local level has undermined central
government efforts to implement IPR reforms.
32 USTR IPR Piracy Fact Sheet, June 17, 1996.
33 USTR, 1997 National Trade Estimate Report on Foreign Trade Barriers, 1997, p. 53.
34 USTR, 2000 National Trade Estimate Report on Foreign Trade Barriers, 2000, pp. 61-
62.
35 USTR Press Release, April 7, 1999.

CRS-13
In April 2000, the U.S. Interactive Digital Software Association (IDSA) , a trade
body representing U.S. video and computer game software companies, stated that the
Chinese government, over the past two years, has “mostly lived up to their obligations
under the 1995 agreement and the 1996 action plan to close down pirate optical
media production and halt exports.” However, IDSA noted that IPR piracy in
China’s domestic markets remains a serious problem, estimating the rate of IPR piracy
for computer and video games at 95% and costing U.S. firms $1.3 billion annually.
Of particular concern to IDSA has been a massive increase in imports into China
(from such sources as Hong Kong and Taiwan) of pirate products, which has acted
to offset many of the gains made in closing illegal plants in China. The IDSA has also
stated that China uses vague cultural standards to restrict certain imports.36 Finally,
IDSA noted that IPR enforcement remained a serious problem. However, the IDSA
states: “the fact that enormous piracy and market access problems in China persist
does not mean that China is not taking the problem more seriously, or that no
progress has been made, or that there is not an improved attitude in China toward
addressing the issue. To the contrary, we believe there has been progress and there
are signs China recognizes additional steps are required.”37
The IIPA estimates that IPR piracy in China cost U.S. firms $1.7 billion in lost
sales in 1999–an improvement over 1998 losses which were estimated at $2.6 billion.
However, while China has continued to maintain significant enforcement actions
against IPR piracy, the IIPA states that such enforcement is hampered by the failure
of the government to take sufficient action against criminal, followed by deterrent
penalties against well organized pirates. IIPA notes that China has largely ceased
exporting pirated products but has developed a major domestic piracy problem along
with an increase in pirated imports. In addition, the piracy rate for music and sound
recordings rose from 56% in 1998 to 90% in 1999.38
In 1999, the U.S. Embassy in Beijing reported that China’s IPR efforts had
produced mixed results:
China has made significant progress in protecting intellectual property rights
(IPR), but still faces major problems. On the one hand, a respectable (but not
perfect) IPR legal system is in place, along with government agencies handling
copyright, patent, trademark, and enforcement matters. At the same time, fueled
by unemployed workers, and boosted by a lack of market access for legitimate
products, smuggling and counterfeiting continue at a high rate, often swamping
enforcement efforts.39
36 According to the ISDA, China requires foreign firms to submit their software for content
screening to a Software Approval Board.
37 Testimony of Douglas Lowenstein, Interactive Digital Software Association on Permanent
Normal Trade Relations With China before the Senate Finance Committee, April 6, 2000.
38 IIPA, 2000 Special 301 Report: People’s Republic of China, 2000, February 18, 2000, p.
26
39 U.S. Department of Commerce, International Trade Administration, International Market
Insight Report, Intellectual Property Rights: China, March 24, 1999, p. 1.

CRS-14
The U.S. Embassy observed that, despite improvements in IPR protection in China,
“IPR violations continue on a massive scale.” It was noted that effective enforcement
action is often hampered by local protectionism, lack of training of judicial officials,
and corruption.40
In reaction to continued IPR problems, over 20 U.S. companies in China recently
formed an informal coalition to draw the attention of Chinese and U.S. government
authorities to the counterfeiting problem in China and to propose ways of
strengthening enforcement. These companies estimate their annual losses due to
counterfeiting at over $1 billion. Limited market access for products such as foreign
movies and computer software, and relatively small fines for persons convicted of
piracy are viewed as major incentives for smugglers and counterfeiters. Some U.S.
companies have devoted considerable on-the-ground resources to combating IPR
violations, with mixed results.41 For example, Gillette China, which estimates $20
million in revenue losses due to piracy, won a 2-year court case against a razor blade
counterfeiter, who was fined the equivalent of only $2,400 after he pled guilty.42
Illegal Textile Transshipments and Market Access Issues
China is a major source of U.S. textile and apparel imports. Chinese textile and
apparel exports to the United States are limited by U.S. quotas established under a
bilateral agreement with China. The most current agreement was reached in February
1997 and is effective over four years.43
The U.S. Customs Service has found evidence in the past that China has
attempted to circumvent U.S. quotas by transshipping Chinese textile and apparel
products through Hong Kong and Macau as well as through a number of countries,
to the United States using false country of origin labels and through mis-classification
of textile and apparel products.44
In July 1993, then-USTR Mickey Kantor announced the creation of an
interagency task force to fight textile and apparel transshipments. He estimated that
40 Ibid, p. 2.
41 U.S. Department of Commerce, International Trade Administration, Country Commercial
Guide: China, FY 2000, July 15, 1999.
42 Far Eastern Economic Review, March 23, 2000, p. 47.
43 Under the November 1999 U.S.-China WTO agreement, the United States agreed to end its
textile and apparel quotas on Chinese products in 2005, while China agreed to allow the
United States to utilize a special safeguard provision (once China entered the WTO) until
2008 that would allow it to impose restraints on textile and apparel imports from China if
such imports caused market disruptions to U.S. domestic producers.
44 While Hong Kong and Macau are now part of China, they maintain autonomy over their
economic systems; the United States maintains separate textile quota agreements with them.

CRS-15
such transshipments from China alone totaled $2 billion annually.45 During 1993 and
1994, U.S. officials sought to include specific enforcement provisions against
transhipments during negotiations to extend the U.S.-China textile and apparel
agreement. Under the threat of reduced quota levels, China in January 1994 agreed
to a textile agreement allowing U.S. officials to inspect Chinese factories and, if China
repeatedly circumvented the agreement by shipping goods through other countries,
impose penalties against Chinese quotas equal to three times the amount of the
transshipment.46
Evidence of transshipments has led the United States on a number of occasions
to reduce China’s textile quotas on certain products. Between 1994 and 1996, the
United States imposed $80 million in charges against China’s textile quotas, including
approximately $19 million in punitive triple charges against China’s 1996
quota allowance. The 1997 agreement also allowed the United States to impose triple
charges if evidence of extensive transshipment was found. On May 5, 1998, the
USTR announced that it would impose $5 million in triple charges against China’s
textile quotas due to persistent Chinese textile transshipments. A USTR official
testified in June 1998 that the Chinese government “appears to be making progress
in preventing transshipment.”47
The 1997 U.S. China textile agreement contained a market access provision.
China agreed to reduce and bind (i.e., they cannot be increased in the future) tariffs
at applied rates and to ensure that non-tariff barriers do not impede the achievement
of improved access. China agreed to phase in the tariff cuts beginning by December
31, 1997 and ending by December 31, 2000 (with most cuts occurring in 1997 and
1998). An official from the Department of Commerce stated that, overall, China has
complied with these tariff reductions (with a few minor exceptions out of about 900
tariff lines).48
To date, however, it does not appear that China’s tariff reductions have had a
significant impact on U.S. textile and apparel exports to China, as indicated in Table
2. U.S. textile and apparel exports to China fell from $8,716 million in 1997 to
$8,657 million in 1998 (the first year in which tariff cuts took effect), but rose to
$8,889 million in 1999 (a 2.7% increase over 1998 exports).49
45 Inside U.S. Trade, August 6, 1993.
46 Inside U.S. Trade, January 21, 1994.
47 Prepared testimony of Susan Esserman , General Counsel, USTR, before the House Ways
and Means Committee on Renewal of MFN Tariff Status for China, June 17, 1999.
48 Phone conversation with Linda Shelton, U.S. Department of Commerce, April 18, 2000.
49 Overall U.S. exports to China from 1998 to 1999 fell by 8.0%.

CRS-16
Table 2. U.S. Exports of Textile and Apparel Products to China:
1996-1999
($ in millions)
Percent
Change
1996
1997
1998
1999
1998-1999
Apparel and Related Products
6,781
7,994
7,995
8,233
5.6
Textile Mill Products
418
618
582
581
-0.2
Man-Made Fibers
152
104
80
85
6.3
Total
7,351
8,716
8,657
8,889
2.7
Source: U.S. Department of Commerce.
Prison Labor Exports
Many human rights activists charge that the use of forced labor is widespread
and a long-standing practice in China, and that such labor is used to produce exports,
a large portion of which may be targeted to the United States. The importation from
any country of commodities produced through the use of forced labor is prohibited
by U.S. law, although obtaining proof of actual violations for specific imported
products is often extremely difficult.
On August 7, 1992, the United States and China signed an MOU to ensure that
prison labor products were not exported to the United States.50 According to U.S.
officials, China’s initial implementation of the agreement was “spotty.” Chinese
officials were slow to respond to U.S. requests for information and to visit suspected
sites.51 The United States sought to establish specific guidelines for the
implementation of the MOU. This led to the signing of a “statement of cooperation”
(SOC) on March 14, 1994 that, among other things, included timetables for
responding to requests for information and site visits to production facilities suspected
of exporting prison labor products. According to the U.S. State Department, the
SOC “fostered a more productive relationship between (U.S.) Customs and the
(Chinese) Ministry of Justice.”52 Between March 1994 and April 1995, Customs was
allowed to visit five facilities in China, but China turned down several other requests
to visit other sites. President Clinton’s report to Congress on renewing China’s MFN
50 The agreement provided for prompt investigation of suspected prison labor exports,
exchanges of information on law enforcement efforts, meetings between officials of the two
sides, the furnishing of evidence that can be used in proceedings against violators, and the
prompt facilitation of visits to relevant facilities upon the request of either party.
51 Testimony of Jeffrey A. Bader, Deputy Assistant Secretary for East Asian and Pacific
Affairs before the Senate Foreign Relations Committee, May 21, 1997, p. 2.
52 Ibid, p. 2.

CRS-17
status in May 1994 stated that China had generally abided by the agreements on
prison labor.
However, China’s cooperation with the United States on prison labor decreased
following the visit of Taiwan President Lee Teng-hui to the United States in the
Spring of 1995; the Chinese government refused all U.S. requests for site visits
throughout the rest of 1995. In 1996 Chinese authorities granted access to one
prison labor facility requested by U.S. Customs, and to two sites in 1997 (at which
time no evidence of prison labor was found). The U.S. Department of State’s 1998
China Country Report on Human Rights Practices states that: “Although the signing
of the SOC initially helped foster a more productive relationship between the U.S.
Customs and Chinese authorities, cooperation overall has been inadequate.”53
According to the 1999 China Country Report on Human Rights, during 1999, U.S.
Customs unsuccessfully pursued several standing requests to visit eight sites
suspected of exporting prison labor products (one of which dated back to 1992, and
several dating back to 1994), and renewed requests (several dating back to 1994) for
the Chinese Ministry of Justice to investigate seven factories and three penal facilities
for evidence of prison labor exports; none of these requests have been granted. 54
Provisions to Promote Chinese WTO Trade Compliance
Ensuring China’s full compliance with its WTO obligations (if and when it joins
the WTO) became an important factor in congressional debate over whether to extend
PNTR status to China. Many Members expressed concerned over whether the
Chinese government would be willing, as well as able, to fully implement the trade
liberalization measures it agreed to in order to join the WTO. For example, some
analysts contended that WTO reforms in the short run could cause widespread
employment disruptions in China (as many inefficient Chinese firms are forced into
bankruptcy due to increased foreign competition). They argued that order to maintain
social stability, the Chinese government might decide to delay or roll back the
implementation of economic reforms. Other analysts contended that the rule of law
is very weak in China and that it might be very difficult for the central government
to ensure that local government officials, as well trade and industry ministers in the
central government, implement rules and regulations that are consistent with China’s
WTO obligations. Another concern expressed was that China might (as it did in the
past) remove barriers specified under the WTO trade agreements, but then attempt
to replace them with new barriers not specifically addressed by those agreements.
In response to a question to Secretary of Commerce William Daley on his
expectations of China’s compliance with its WTO trade commitments during
congressional hearings in April 2000, Daley responded:
53 1998 China Country Report on Human Rights Practices, February 26, 1999, p.48.
54 U.S. Department of State, 1999 Country Reports on Human Rights Practices: China,
February 25, 2000, pp. 51-52.

CRS-18
I think it will be difficult for them, I think it will be difficult for us. I do not
pretend to think that this implementation of this agreement by the Chinese will be
easy for them, and I would assume that we will have to, in the next administration,
have to be very aggressive in their enforcement of the commitments that have been
made.55
The Clinton Administration’s Compliance Proposals
On May 3, 2000, the Clinton Administration announced a five-point plan to
promote China’s compliance with its WTO commitments:56
! Enforcement Efforts. Establish a new Commerce Department
Deputy Assistance Secretary for China devoted to monitoring and
enforcing China’s WTO trade agreements; establish a “rapid-
response compliance” team of 12 staff working in the United States
and China, and a China-specific subsidy enforcement team, to
monitor China’s trade compliance; and create a new website
providing up-to-date information on China’s WTO trade
commitments and Chinese laws and regulations.
! Technical Assistance to China. Provide training and technical
assistance to Chinese officials and lawmakers on issuing new laws
and regulations to help China implement its WTO obligations.
! Prompt Response to Market Access Problems. Implement an
accelerated investigation procedure of market access problems that
would allow U.S. firms to file a complaint with the U.S. rapid
response team on market access problems in China, which in turn
would then contact the appropriate Chinese government agency to
address the problem.
! Trade Promotion. Initiate a nation-wide campaign to educate U.S.
companies on their legal rights and opportunities presented by
China’s WTO accession and expand government programs for
promoting trade with China.
! Monitor Trade Flows. Monitor U.S. data on U.S. exports to
China, and imports from China, to ensure that market access has
55 Federal Document Clearing House, Transcript of Testimony by Secretary of Commerce
William Daley before the Senate Commerce Committee, April 11, 2000.
56 According to the Clinton Administration, this was part of a broader government initiative
to improve U.S. monitoring of, and foreign compliance with, U.S. bilateral and multilateral
trade agreements. The Administration requested $22 million in additional funding in FY2001
for federal agencies (e.g., USTR, Department of Commerce, State Department, and
Department of Agriculture) that monitor and seek enforcement of trade agreements.

CRS-19
been expanded as promised and to guard against import surges and
dumping of Chinese products into the United States.57
Trade Compliance Measures in H.R. 4444
On October 10, 2000, President Clinton signed into law H.R. 4444 (P.L. 106-
268), a bill that would grant PNTR status to China upon its accession to the WTO.
The Act (among other things) contains a number of provisions aimed at ensuring
China’s WTO compliance. First, it states it the United States should seek to obtain,
within the protocol of accession of China to the WTO, an annual review of China’s
compliance with the terms of accession to the WTO. Second, it authorizes additional
appropriations for the U.S. Departments of Commerce, State, and Agriculture and the
USTR’s office to help fund efforts to monitor China’s WTO compliance. And third,
it requires the USTR to issue annual reports on China’s compliance with its WTO
commitments (beginning one year after it accedes to the WTO).
Other Congressional Proposals
In addition to H.R. 4444, three other bills were introduced in the 106th Congress
seeking to promote Chinese compliance with its WTO trade obligations. On February
29, 2000, Senator Max Baucus introduced S. 2115, a bill that would establish
procedures for monitoring China’s compliance with its WTO commitments, require
the President to issue reports to Congress on China’s compliance, and enable the
House Committee on Ways and Means and the Senate Finance Committee to vote to
require the USTR to initiate a Section 301 investigation against Chinese violations of
its WTO commitments. On April 13, 2000, Representative Sam Gejdenson
introduced H.R. 4306, a bill that would provide U.S. support for commercial and
labor rule of law programs in China. On May 5, 2000, Senator John Ashcroft
introduced S. 2548, a bill that would make the granting of U.S. PNTR status to China
contingent to a U.S.-China agreement that would enable the United States (rather
than the WTO) to determine the level of sanctions to be imposed against China in
instances where the United States wins a WTO dispute resolution case against China
but China fails to comply with the WTO’s ruling to remove the trade barrier.
Concluding Observations on U.S.-China Trade
Agreements and Implications For China’s Accession
to the WTO
It is difficult to make broad assessments of China’s compliance or non-
compliance with its bilateral trade agreements with the United States. U.S.
government officials have stated on a number of occasions that China’s compliance
57 For an overview of U.S.-China dumping and import surge issues, see CRS Report
RS20570, Trade Remedies and the U.S.-China Bilateral WTO Accession Agreement, by
(name redacted), May 5, 2000.

CRS-20
with its trade agreements has been “mixed” or “somewhat mixed.”58 USTR Charlene
Barshefsky argues that China has generally implemented its trade agreements most
satisfactorily when its obligations were “concrete, specific, and open to monitoring.”59
The United States appears to have had initial success with its prison labor
agreements with China. However, the Chinese government appears to have been less
cooperative in recent years; it has not permitted U.S. site visits since 1997, despite
repeated U.S. requests. China appears to have, for the most part, abided by the
market access provisions of the 1997 textile agreement. However, to date, that
agreement does not appear to have produced a significant increase in U.S. textile and
apparel exports to China. China appears to have implemented a significant portion
of the 1992 market access agreement.60 However, it failed to remove all
unscientifically-based standards on certain agricultural products. In addition, China
sometimes removed one barrier only to replace it with another, and while
transparency of trade laws was improved, it still remains a problem. Finally, in the
case of IPR protection, China in 1992 agreed to enact new IPR laws. However,
enforcement of those laws was weak, prompting the United States to threaten
sanctions. China took new steps to strengthen IPR enforcement. However, such
steps were deemed inadequate by the United States, which again in 1996 threatened
sanctions. China responded with increased raids against illegal production facilities
and smuggling of IPR-related products and made limited improvements in market
access for foreign IPR-related industries. However, despite a vastly improved legal
and enforcement IPR regime, U.S. officials state that IPR violations continue on a
massive scale.
Obtaining full compliance with trade agreements appears to have been hampered
by a variety of factors, including Chinese policies to promote and protect certain
industries, lack of resources by Chinese government agencies to enforce trade rules
and regulations, official government corruption, resistence from the provincial and
local level (who often impose trade barriers against Chinese products from outside
their localities as well), and mutual differences over what constitutes compliance.
The U.S. experience with China over its compliance with past trade agreements
should be considered in the context of the U.S. experience with other countries.
Problems with obtaining full compliance with trade agreements has not only been a
problem for the United States in its trade relationship with China, but also with its
dealings with several other trading partners as well. For example, the American
Chamber of Commerce in Japan surveyed 63 trade agreements between the United
58 For example, see USTR Mickey Kantor Statement to the U.S.-China Business Council,
January 31, 1996, p. 3, and U.S. Deputy Treasury Secretary Stuart Eizenstat statement to the
Nixon Center on April 19, 2000.
59 The Federal Document Clearing House. Testimony of USTR Charlene Barshefsky before
the Senate Finance Committee on the U.S.-China Bilateral Trade Agreement on China’s
Accession to the WTO, February 23, 2000.
60 In April 1999, China agreed to remove SPS barriers on U.S. exports of meat, citrus, and
Pacific Northwest wheat, although it has only recently implemented the agreement. See CRS
Report RS20169, Agriculture and China’s accession to the World Trade Organization, by
(name redacted), Jan. 11, 2000.

CRS-21
States and Japan reached between 1980 and 1999. The Chamber determined that,
based on such factors as content, implementation, and results, 53% of the agreements
were “fully successful or mostly successful,” but 47% of the agreements were either
“only partially successful, successful in one or two areas, or were unsuccessful.”61
The extent of China’s compliance with its WTO obligations could have a number
of important implications. For China, full implementation of WTO reforms could
cause difficult short-term adjustments for many Chinese industrial and agricultural
sectors and could displace millions of workers. However, over the long run, such
reforms will promote greater economic efficiency and hence more rapid economic
growth. Thus, the biggest winner of China’s WTO reforms would likely be China
itself. However, if the short-term effects of the Chinese economy are too severe, the
Chinese government might seek to delay the implementation of its WTO agreements.
Similarly, local government officials or central government ministries, hoping to
protect industries under their jurisdiction or control, might attempt to circumvent
China’s WTO commitments.
Many analysts are concerned that Chinese non-compliance with WTO trade rules
and agreements could undermine the WTO as a multilateral institution and
international support for free trade, especially if non-compliance was widespread and
extensive, and could not be adequately dealt with in the WTO. For example, Chinese
noncompliance could result in the WTO Dispute Resolution Body being swamped
with multiple trade complaints brought against China, which could hamper the ability
of the WTO to resolve trade disputes in a timely manner. Conversely, if WTO
members failed to take aggressive action against Chinese non-compliance, it might
undermine international support for the WTO (for failing to enforce trade rules) and
for free trade in general (e.g., if China does not comply with WTO trade rules, why
should other members do so?).
Some analysts have argued that a special mechanism should be established within
the WTO to monitor China’s compliance with WTO rules in order to maintain
pressure on the Chinese government to keep its commitments as well as to deal with
compliance problems in their early stages, rather than bringing multiple trade dispute
cases before the WTO for resolution. Other analysts have contended that, in addition
to monitoring and enforcement efforts, the United States and other developed WTO
countries should provide extensive technical assistance to China to help it bring its
trade regime in line with WTO rules.
61 The American Chamber of Commerce in Japan. Making Trade Talks Work., 2000, p. 17.

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