U.S. efforts to address fundamental problems with Beijing’s “state-led, non-market approach to the economy and trade” over the past 20 years have been largely unsuccessful, highlighting the need to pursue new strategies and tools, the Office of the U.S. Trade Representative indicated in its annual report on China’s compliance with its World Trade Organization commitments.

The report reiterates longstanding U.S. complaints about China’s “poor” record of compliance with its WTO obligations, including “violating, disregarding and evading WTO rules to achieve its industrial policy objectives.” Further, “China’s embrace of a state-led, non-market approach to the economy and trade has increased rather than decreased over time, and the mercantilism that it generates has harmed and disadvantaged U.S. workers and companies, as well as workers and companies of other WTO Members, often severely.”

The U.S. has employed a variety of bilateral and multilateral efforts to address these problems, the report states, including high-level dialogues as well as WTO enforcement measures, but “they did not result in meaningful changes.” The report identifies a number of reasons for this, including the “unenforceable” nature of commitments the U.S. secured in talks with Beijing and the inability of the WTO’s dispute settlement mechanism to effectively discipline China for violating WTO rules. It has thus become evident, the report states, that new strategies are needed, including “solutions independent of the WTO.”

The report also emphasizes the use of “domestic trade tools strategically … to achieve a more level playing field with China.” This has been a hallmark of past U.S. policies as well and has typically referred to AD/CV duties and similar measures. Going forward, however, it could mean further use of Section 301 proceedings like the one underlying the higher tariffs currently being imposed on hundreds of billions of dollars’ worth of imports from China, especially given that the report appears to lend some legitimacy to at least the motivations behind that proceeding.

What appears clear to U.S. authorities is that any strategic approach pursued by the U.S. must become more sophisticated, it “must focus not only on the near-term, but also on the longer term”, and it should be pursued in coordination like-minded trading partners around the world. Effective strategies for dealing with China also need to be flexible, according to the report, and the U.S. “must be prepared to adapt and adjust its strategic approach over time as China’s non-market policies and practices evolve and as global trade patterns shift and alliances and interests change.”

The U.S. will therefore continue to pursue a multi-faceted strategic approach that “involves the pursuit of strategic domestic investment, bilateral engagement of China, enforcement actions, the deployment of domestic trade tools and close coordination with allies and partners.” This will include:

- taking steps domestically to invest in, and build policies that are supportive of, the industries of today and tomorrow (important steps taken to date according to the report include the passage of the CHIPS and Science Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act);

- continuing to pursue bilateral engagement with China focused on the most fundamental concerns, and holding China accountable for its existing commitments including under the Phase One Agreement;

- continuing to explore how best to use and improve domestic trade tools to reflect current realities; and

- working more intensely and broadly with allies and like-minded partners to build support for solutions to the many problems that China’s state-led, non-market approach to the economy and trade has created for the global trading system.

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