Chinese Distorting Policies Causing Trade Friction, U.S. Says

China’s trade-distorting actions a decade after joining the World Trade Organization have triggered clashes with the Obama administration, an assistant U.S. Trade Representative told a congressional panel.

Restrictions and “interventionist policies” on issues such as intellectual property rights remain a concern for American companies operating in China, Claire Reade, the U.S. trade official in charge of China affairs, said yesterday in testifying to Congress on a Dec. 12 report.

China discriminates against foreign business in “numerous sectors” of the economy, according to the report. Continued government intervention is a “troubling trend,” the U.S. said.

“Trade frictions with China can be traced to China’s pursuit of industrial policies that rely on trade-distorting actions to promote or protect China’s state-owned enterprises,” Reade said at a hearing evaluating China’s WTO participation.

The trade office sent its report to Congress as China marked 10 years since joining the Geneva-based WTO after agreeing to scrap trade barriers. China has become the world’s biggest exporter and second-largest importer. Trade in goods such as clothing, electronics, toys and appliances soared to almost $3 trillion last year from $510 billion in 2001, with exports and imports each expanding almost fivefold.

The growth has provided opportunities for U.S. companies, workers and farmers, according to the report. U.S. exports to China increased 380 percent since 2001, to $92 billion from $19 billion. Services provided from majority U.S.-invested companies in China totaled $23 billion in 2009.

Complex Relationship

U.S.-China trade talks this year resulted in progress “on some meaningful issues, but many issues remain outstanding,” the report found. The Chinese trend toward state action has led to a complex relationship between the world’s two biggest economies and both need to “redouble their efforts going forward,” according to the U.S. report.

The Obama administration will push China for further transparency, Reade said. China’s membership in the WTO is an “important tool” for managing the relationship between the two countries, she said.

Representative Chris Smith, a New Jersey Republican, said China failed to keep promises to support workers’ rights and move toward a market economy as a WTO member, while exports have surged. U.S. workers can’t compete with Chinese corporations that benefit from “China’s heinous labor practices,” he said.

‘Massive Shift’

“The level playing field promised as part of China’s WTO accession has not arrived,” Smith said at the hearing. “WTO membership has resulted in a massive shift of jobs and wealth from the United States to China, which has come at a huge cost to us.”

When political efforts to change China’s policies failed, the U.S. brought WTO complaints over actions tied to poultry, steel, industrial raw materials, electronic payment services, wind power and tire imports.

“Looking ahead, essential work for China includes the need to reduce market access barriers, uniformly follow the fundamental principles of non-discrimination and transparency, fully embrace the rule of law and fully institutionalize market mechanisms,” the U.S. said in the report.

While China has been revising its legal system to protect intellectual property rights, little success is reported in enforcing laws amid widespread counterfeiting, pirating and other infringement, the report concluded. There are few deterrents for criminals, the USTR said. Import and distribution restrictions on legitimate copyrighted products such as theatrical films have resulted in ensuring that pirated products dominate the markets, the U.S. wrote.

Yuan Appreciation

The Obama administration has also criticized the pace of appreciation in the yuan. In October, the U.S. Senate passed legislation designed to punish China for maintaining an undervalued currency, though it stalled in the House of Representatives.

China’s trade surplus with the U.S. has helped the country accumulate a record $3.2 trillion in foreign-exchange reserves and made it the U.S.’s biggest overseas creditor, contributing to bilateral friction.

“There’s no indication it will get any better,” Senator Sherrod Brown, an Ohio Democrat, said during the hearing. “China’s state-owned sector is growing, further skewing the playing field in favor of China’s heavily subsidized state-owned enterprises.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE