Thank you for permitting me to address the TPSC today at this first hearing on China's WTO compliance record.


Self introduction
I am Robert Kapp, president of the US-China Business Council. The Council (501/c/6), established in 1973, is the principal organization of American companies engaged in trade and investment activity with China, and serves approximately 225 member companies in a wide variety of business sectors from its Washington headquarters and field offices in Beijing and Shanghai.

Council-USTR Cooperation
The Council has worked closely with the Office of the United States Trade Representative for many years, and with particular intensity in the context of preparations for and the aftermath of China's accession to the WTO. We very much appreciate the USTR's receptiveness to our views and to our representatives, whether from member corporations or from our staff. We wish to thank the USTR for its exceptionally valuable role in advancing US economic interests through the long process of US-China bilateral WTO negotiations and the multilateral accession negotiations in Geneva. We further thank the USTR for its continuing and expanding efforts to encourage China's full implementation of its extensive WTO commitments.

Council Written Statement
The Council has today submitted a written document detailing its views on China's achievements to date in adjusting its policies and its conduct to the requirements laid out in the documents defining its accession to the WTO. This written statement is the core commentary of this Council at this point in the emergence of China's WTO record.

Council Written Statement - Provenance
The document is the work of key members of the Council staff in Washington and in China. It draws on the Council's daily research and analysis of Chinese trade and economic developments, conducted throughout each year, and on direct Council contact with corporate member companies with regard to their experiences "on the ground" since accession. It is not the result of polling or of questionnaire-driven gathering of information. It is not intended as a statement on behalf of any one company or group of member companies in the US-China Business Council. It represents Council staff analysis of what the Council and its member companies have observed and experienced.

Council Written Statement - Basic Dimensions
The Council's written report is organized principally around the categories of WTO provisions most significant to member companies across a broad range of business sectors. By agreement with our firms and on the basis of our own best judgment, our report does not take up corporate issues in detail and with specific names. The written document concludes with a series of recommendations focused both on WTO-related topics of particular concern in the second year of China's WTO membership and on US approaches to the encouragement of the fullest possible Chinese fulfillment of its WTO commitments.

Council Written Statement and Other Presentations
We have intentionally made no effort to coordinate our findings and recommendations with those of other interested parties, in the belief that multiple perspectives on these key issues will be beneficial to sound policy making and effective government action. Nevertheless, we would expect that many of our views will be similar to those of others offering their observations to you today. Indeed, the nuanced variations in the totality of the testimony you receive may provide some of the most useful information and insights to be gained from this important hearing.

Council Written Statement: Brief Findings
In brief, our paper indicates that China has made extensive efforts, and has achieved considerable progress, on a number of fronts in the first 8 months of its WTO membership, with the most conspicuous advances to be found in the most clear-cut areas: tariffs, legislative and regulatory revision, and human resources training.

At the same time, our paper points to a number of areas in which China's progress could have, and in our view ought to have, been stronger than it has been, and in which it is essential for China to register decisive advances in "Year Two" of its membership if China's WTO membership is not to assume a darker and more contentious cast. Our observations reflect a growing concern that patterns of regulatory and other behavior are emerging in China which, if left unchallenged, will have the effect of compromising some of the most critical commitments imposed on China by the terms of China's WTO accession agreements.

We are most particularly concerned with problems of insufficient transparency of procedure among many (but not all) organs of central government; with instances of insufficient timeliness in the introduction and implementation of WTO-mandated reforms; with accumulating signs that technical and procedural barriers whose effect is discriminatory against non-Chinese entities or products have begun to appear in multiple business fields in ways that may suggest conscious intent on the part of Chinese agencies; with the clear and acknowledged inadequacy of China's first-year management of various quotas and tariff rate quotas; and by continued uncertainties of policy and regulation in critically important areas of agricultural trade.

Concluding Observations: The Year One Review in Context
All of this, and more, is detailed in our paper. As I close these brief observations, let me offer a few points for the broader consideration of the TPSC.

1. We have to start with the realization that nine months is not enough time for any nation, or any interest group, to form a comprehensive, final portrait of China's efforts and achievements in meeting its WTO obligations. We can -- and should -- catalogue progress and problems to date and point to emerging trends that cause either satisfaction or concern, but we must avoid setting in stone any bald characterizations of China's WTO record less than a year into a multi-year (or multi-decade) process of enormous complexity.

2. In the starkest of "glass half full/glass half empty" terms, we consider the glass more than half full as the end of the first year approaches, thanks to the extensive and highly visible efforts China has made in many areas of WTO-mandated reform. We perceive, however, a tone of impatience and uneasiness among some respected and experienced business observers within China over the PRC's accomplishments and intentions in some of the areas which have proven most problematic in Year One. Because we are still in such "early days," American companies have not seen fit to issue, through the US-China Business Council, stark characterizations at this time, but the concerns registered in our written submission require close observation and may require additional action.

3. Although some of the deficiencies in Year One implementation have emanated from specific central government agencies or have arisen from bureaucratic conflicts among such organs, the Council is of the view that the highest authorities in the Chinese government are strongly committed to full implementation of China's WTO commitments as defined in its accession documents. We perceive neither a comprehensive national government intent to evade or disregard China's WTO obligations nor a comprehensive inability at the central government level to propel China in the direction of WTO implementation. The extent of the efforts underway to introduce WTO concepts and practices throughout China's enormous land mass and immense bureaucracy -- and the unquestioned eagerness of large numbers of Chinese citizens to understand and assimilate the WTO into their economic lives -- merits acknowledgment and respect.

4. We are intensely aware of the enormous economic and social difficulties facing China today, and of the concern in many quarters that adherence to the PRC's WTO obligations will make these economic and social problems even worse. We associate ourselves with the strong body of opinion in China that sees the WTO challenge as wrenching but on balance better for the Chinese economy than the alternative, and of course we believe that China's fullest possible achievement of WTO conformity is in the best interests of the US economy and the world economy. Recognition of the huge economic problems facing the Chinese authorities should encourage the United States to redouble its commitments to assisting China in making the transition to full WTO compliance, but it must not encourage any amnesia as to the necessity of full and timely implementation of the terms of China's WTO accession.

5. We fully understand the intensity of US domestic interest, notably in the US legislative and executive branches, in China's progress toward fulfillment of its WTO responsibilities, and we share that interest. At the same time, we urge that the US work hard to ensure that the WTO's own multilateral review processes be thorough, judicious and constructive. One of the benefits of including China in the rules-based global trading system was, and is, the substitution of effective multilateral processes for the draining rigors of bilateral US-China confrontations. We should seek to maximize that benefit in this year's and succeeding years' reviews of China's WTO progress.

6. Working with our Chinese counterparts, the United States should seek continually to refine and improve the process by which the United States engages the Chinese authorities on WTO issues. New bilateral mechanisms should not be established simply for their appearance on organization charts, but should be established if both sides can agree on their practical utility in the management of bilateral trade issues in the new WTO environment. The strongest suggestion of the potential value of new channels of engagement are the signs of interministerial difficulties in instituting effective compliance with WTO requirements; if a new and more senior level of US-China dialogue on compliance might help to address such problems, the United States might well attempt to develop an appropriate mechanism with Chinese counterparts.

7. US-China engagement over WTO does not exist in a vacuum. Clear and unquestioned Chinese progress in conforming to WTO norms will itself help to strengthen overall US-China relations by increasing both sides' confidence in the value of shared international agreements and strengthening US confidence in China's willingness and ability to adhere thereto. A rougher and less constructive pattern in the WTO arena will have a darker impact on the overall US-China relationship. On the other hand, progress on outstanding non-trade issues is likely to strengthen the hands of those within China who are most committed to mutually beneficial trade relations with the United States and thus who are most committed to strong WTO performance by the PRC. Conflict and bitterness on non-trade fronts will tend to strengthen the hands of economic and other nationalists within China who view the United States with suspicion and the requirements of the WTO with alarm.

Thank you again for the opportunity to share ideas with the TPSC today. I hope members will have an opportunity to consult the Council's written presentation for more detailed elaborations of our views on major aspects of China's WTO record in this first year of PRC membership.