The final report under the Bush administration on the progress China has made in complying with its World Trade Organisation accession commitments emphasises that Bush’s focus on engagement over enforcement has yielded appreciable progress in addressing bi-lateral trade irritants. The incoming Obama administration, as well as the Democrats who strengthened their hold on Congress in the recent election, have said holding China more accountable will be among their top trade priorities. Outside observers, however, have said that given the relatively peaceful trade relationship the U.S. and China have enjoyed in recent years, and the need for bi-lateral co-operation on more pressing issues, engagement is likely to remain the policy of choice in most cases.

The annual report by the Office of the U.S. Trade Representative states that bi-lateral engagement produced more near-term results in 2008 than in 2007 largely because China’s leadership displayed an increased willingness to work constructively and co-operatively with the U.S. The report cites “incremental but important progress in numerous areas” in 2008, including a delay in the publication of final rules that could have barred several types of U.S. high technology products from China’s market, an agreement to eliminate all remaining duplicative testing and inspection requirements for imported medical devices, and the establishment of notice and comment procedures for trade- and economic-related regulations.

On the other hand, the report finds that in some areas China has yet to fully implement its WTO commitments and questions have arisen regarding China’s adherence to WTO obligations and principles. “Invariably,” the report states, “these problems can be traced to China’s pursuit of industrial policies that rely on excessive, trade-distorting government intervention intended to promote or protect China’s domestic industries.” The result has been a slowdown in progress toward further market liberalisation and the emergence of a possible trend toward a more restrictive trade regime. The USTR saw more evidence of such a trend in 2008, including the setting of unique Chinese national standards, an array of policies promoting and protecting “pillar industries,” the promotion of famous Chinese brands of merchandise, the continued and incrementally more restrictive use of export quotas and export duties on a large number of raw materials, new and additional restrictions on foreign investment in China, and the continuing consideration of national economic security when evaluating mergers and acquisitions.

The report also identifies a number of priority issues for the U.S., most of which are unchanged from years past. These include intellectual property rights, industrial policies that seek to limit market access for non-Chinese origin goods and services, import and distribution restrictions on copyright-intensive products that create additional incentives for infringement, “capricious” practices by Chinese customs and quarantine agencies that can delay or halt shipments of agricultural products, and restrictions on foreign service providers.

How the U.S. will address these issues in 2009 will be determined primarily by the incoming Obama administration and, to a lesser extent, by direction from Congress. One possibility, given the rhetoric from Democrats and a number of Republicans as well, is an increase in the number of WTO complaints. The Bush administration has often been criticised for not filing more WTO cases against China, and there has been speculation that the Obama administration will reverse that trend. Knowledgeable observers have said, however, that the number of such complaints has declined at least in part because there is little support for them among U.S. businesses wary of provoking Beijing into potential retaliatory actions. The USTR report appears to acknowledge this situation, because while it warns of possible WTO actions on the issues listed above it also states that the USTR will “consult closely with U.S. stakeholders to ensure that U.S. policies and actions advance their interests.”