On 11 December 2003, two years after China joined the World Trade Organisation (WTO), the United States Trade Representative (USTR) published its second report to the United States Congress on China's compliance with its WTO obligations.

While favourably acknowledging the growth in US-China trade, the report concludes that there are "a number of systemic concerns that remain, making further improvements in that relationship problematic". The United States government will use "all available means" to resolve its concerns, preferably "through bilateral consultations in a timely and effective manner", but, if these are not successful, "through other means, including dispute resolution at the WTO".

On the positive side, the USTR commends China for the steps it took during 2003 to implement WTO commitments, including measures to improve the tariff-rate quota (TRQ) system for bulk agricultural commodities (largely, the USTR notes, in response to "high-level engagement" by the United States government), the relaxation of some barriers to soybean trade that allowed United States exporters to achieve record sales, the reduction of capitalisation requirements in financial services sectors, the opening up of motor vehicle financing, and the removal of obstacles to China’s membership in the WTO’s Committee of Participants in the Expansion of Trade in Information Technology Products.

The main complaint of the USTR is that China failed to implement its WTO commitments in some key sectors of economic importance to the United States. The USTR charges that institutionalisation of market mechanisms remains incomplete, with Chinese government officials intervening frequently in the market. It also accuses China of diverting attention from this implementation failure by manipulating trade flows to produce a temporary increase in affected imports from the United States.

* China’s actual and threatened use of what the USTR considers to be "unreasonable" rules on biotechnology, most notably in the case of soybeans, and "questionable" sanitary and phytosanitary (SPS) measures have, says the USTR, continued to frustrate efforts of U.S. agricultural traders to develop a consistent market for their exports to China.

* China appears also, it suggests, to be using subsidies to promote some agricultural exports.

* China’s administration of TRQs for bulk agricultural commodities has also "caused serious concern". Since China’s WTO accession, the setting of sub-quotas, the use of what the USTR calls "Catch-22 import licensing procedures", the allocation of TRQs in commercially unviable quantities and the alleged lack of transparency in TRQ allocation and management have combined to limit what should be an expanding market for U.S. exporters, particularly in the case of cotton. China has, though, taken steps to eliminate separate allocations for general trade and processing trade, eliminate certain unnecessary licensing requirements, and create a new mechanism for identifying allocation recipients, so the United States decided not to initiate WTO dispute resolution on this issue in 2003.

* Intellectual propery rights (IPR) are protected by legislation, but because enforcement is ineffecitve there is not yet a "meaningful system of IPR protection".

* IPR problems cover the widespread production, distribution and end-use of counterfeit and pirated products, brands and technologies. Violations include the "rampant piracy" of film, music, publishing and software products, infringement of pharmaceutical, chemical, information technology and other patents, and counterfeiting of consumer goods, electrical equipment, automotive parts and industrial products.

* IPR infringements, points out the USTR, do not merely have an economic impact, they may also have health and safety implications for China’s population and for international consumers.

* Problems in the services sectors are largely those of a lack of transparency and, says the USTR, of China’s use of capitalisation and other requirements that exceed international norms. Following discussions with the United States, China did begin to take steps to reduce capitalisation requirements in the insurance sector.

* The United States remain "at odds" over issues such as China’s implementation of its commitments on branching by insurance companies.

* China uses value-added tax (VAT) policies to encourage domestic production in a number of

industrial and agricultural sectors.

* In the case of semiconductors, the USTR alleges that China’s policy of providing VAT rebates to domestic semiconductor producers disadvantages United States exports and "raises serious WTO concerns".

* In the case of fertiliser, China exempts from the VAT fertiliser that is primarily produced domestically and that competes directly with the principal United States fertiliser export.

* While some Chinese ministries and agencies have taken steps to improve opportunities for public comment on draft laws and regulations, and to provide appropriate WTO enquiry points, China’s overall effort, says the USTR, is "plagued by uncertainty and a lack of uniformity". The USTR charges that some of China’s ministries and agencies seek selective comment on proposed regulations and implementing rules from domestic Chinese interests, while excluding participation from foreign businesses active in the China market.

* The USTR acccuses China of having fallen behind in its implementation of its commitment to ensure the unrestricted rights of all Chinese and foreign businesses to engage in importing and exporting by 11 December 2004.