2017 National Trade Estimate Report on

FOREIGN TRADE
BARRIERS

Office of the United States Trade Representative

 CHINA
TRADE SUMMARY

The U.S. goods trade deficit with China was $347.0 billion in 2016, a 5.5 percent decrease ($20.1 billion)
over 2015. U.S. goods exports to China were $115.8 billion, down 0.3 percent ($297 million) from the
previous year. Corresponding U.S. imports from China were $462.8 billion, down 4.2 percent. China was
the United States' 3rd largest goods export market in 2016.

U.S. exports of services to China were an estimated $48.4 billion in 2015 (latest data available) and U.S.
imports were $15.1 billion. Sales of services in China by majority U.S.-owned affiliates were $54.9 billion
in 2014 (latest data available), while sales of services in the United States by majority China-owned firms
were $4.8 billion.

U.S. foreign direct investment in China (stock) was $74.6 billion in 2015 (latest data available), a 10.5
percent increase from 2014. U.S. direct investment in China is led by manufacturing, wholesale trade, and
depository institutions.

KEY TRADE BARRIERS

The United States continues to pursue vigorous and expanded bilateral and multilateral engagement to
increase the benefits that U.S. businesses, workers, farmers, ranchers, service providers and consumers
derive from trade and economic ties with China. In an effort to remove Chinese barriers blocking or
impeding U.S. exports and investment, the United States uses outcome-oriented dialogue at all levels of
engagement with China, while also taking concrete steps to enforce U.S. rights at the WTO as appropriate.
At present, Chinas trade policies and practices in several specific areas cause particular concern for the
United States and U.S. stakeholders. The key concerns in each of these areas are summarized below. For
more detailed information on these concerns, see the 2016 USTR Report to Congress on Chinas WTO
Compliance, issued on January 9, 2017, at https://ustr.gov/sites/default/files/2016-China-Report-to-
Congress.pdf. The USTR Report to Congress on Chinas WTO Compliance provides comprehensive
information on the status of the trade and investment commitments that China has made through the United
States-China Joint Commission on Commerce and Trade (JCCT) and the United States-China Strategic and
Economic Dialogue (S&ED).

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Overview

After its accession to the WTO, China undertook a wide-ranging revision of its framework of laws and
regulations aimed at protecting the IPR of domestic and foreign rights holders, as required by the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). Currently,
China is in the midst of a further round of revisions to these laws and regulations, as it seeks to make them
more effective. Nevertheless, inadequacies in Chinas IPR protection and enforcement regime continue to
present serious barriers to U.S. exports and investment. As a result, China was again placed on the Priority
Watch List in USTRs 2016 Special 301 report. In addition, in December 2016, USTR announced the
results of its 2016 Out-of-Cycle Review of Notorious Markets, which identifies online and physical markets
that exemplify key challenges in the global struggle against piracy and counterfeiting. Several Chinese
markets were among those named as notorious markets.
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discouraged U.S. investment. In addition, Chinas restrictions on services associated with television, radio
and film production and distribution prohibit or greatly limit participation by foreign suppliers.

Express Delivery Services

The United States continues to raise concerns with China regarding implementation of the 2009 Postal Law
and related regulations. China has blocked foreign companies access to the document segment of Chinas
domestic express delivery market, and it does not have a strong track record of providing non-
discriminatory treatment in awarding foreign companies business permits for access to the package segment
of Chinas domestic express delivery market, where it also applies overly burdensome regulatory
approaches.

Legal Services

China has issued measures intended to implement the legal services commitments that it made upon joining
the WTO. However, these measures restrict the types of legal services that can be provided by foreign law
firms, including through a prohibition on foreign law firms hiring lawyers qualified to practice Chinese
law, and impose lengthy delays for the establishment of new offices.

BARRIERS TO DIGITAL TRADE

Overview

Chinas Internet regulatory regime is restrictive and non-transparent, affecting a broad range of commercial
services activities conducted via the Internet. In addition, Chinas treatment of foreign companies seeking
to participate in the development of cloud computing services, including computer data and storage services
provided over the Internet, raises concerns.

Cloud Computing Restrictions

In major markets, including China, cloud computing services are typically offered through commercial
presence in one of two ways: as an integrated service in which the owner and operator of a
telecommunication network also offers computing services, including data storage and processing function,
over that network; or as a stand-alone computer service, with the customer responsible for arranging
connectivity to the computing service site. Although Chinas GATS commitments cover both options,
neither is currently open to foreign-invested companies.

China is seeking to similarly restrict the ability of foreign enterprises to offer cloud computing services into
China on a cross-border basis. Late in 2016, Chinas regulator issued a draft notice on regulating cloud
computing, elements of which also appeared in a recently issued measure entitled On Cleaning up and
Regulating Internet Access Services Market that prohibits Chinese telecommunication operators from
offering consumers leased lines or virtual private network connections reach to overseas data centers. The
United States has raised this issue with China and continues to evaluate it in the context of Chinas WTO
GATS obligation to ensure access to and use of leased lines for cross-border data processing services. The
United States will work to ensure that legitimate cross-border services can continue to be offered into China.

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Web Filtering and Blocking

China continues to engage in extensive blocking of legitimate websites, imposing significant costs on both
suppliers and users of web-based services and products. According to the latest data, China currently blocks
11 of the top 25 global sites, and U.S. industry research has calculated that up to 3,000 sites in total are
blocked, affecting billions of dollars in business, including communications, networking, news and other
sites. While becoming more sophisticated over time, the technical means of blocking, dubbed the Great
Firewall, still often appears to affect sites that may not be the intended target, but that may share the same
Internet Protocol address. In addition, there have been reports that simply having to pass all Internet traffic
through a national firewall adds delays to transmission that can significantly degrade the quality of the
service, in some cases to a commercially unacceptable level, thereby inhibiting or precluding the cross-
border supply of certain services.

Voice-over-Internet Protocol (VOIP) Services

While computer-to-computer VOIP services are permitted in China, Chinas regulatory authorities have
restricted to basic telecommunications service licensees the ability to offer VOIP services interconnected
to the public switched telecommunications network (i.e., to call a traditional phone number). There is no
obvious rationale for such a restriction, which deprives consumers of a useful communication option, and
thus the United States continues to advocate for eliminating it.

Domain Name Rules

U.S. and other foreign stakeholders continue to express concern over rules proposed in 2016 to regulate
Internet Domain Names, a critical input into many web-based services offered in China. While China
clarified that initial fears that the rules sought to block access to any website not registered in China were
based on a misreading of the intent of the proposed rules, concerns remain with respect to how China intends
to implement requirements on registering and using domain names and other Internet resources. The United
States will continue to closely monitor this rulemaking.

Cybersecurity Law and Sector-specific Laws Implementing Data and Facilities Localization

A number of elements of Chinas new Cybersecurity Law, issued in November 2016, authorize Chinese
agencies to further restrict market access for cloud computing and other Internet-enabled related services,
based on data and facilities localization policies applicable to services deemed critical. China is likely to
issue additional sector-specific measures to implement this law, including by identifying services deemed
critical. These developments have generated serious concerns in the United States and among U.S. and
other foreign companies. The United States will continue to closely monitor developments in this area.

Restrictions on Online Video and Entertainment Software

China restricts the online supply of foreign video and entertainment software through measures affecting
both content and distribution platforms. With respect to content, the most burdensome restrictions are
implemented through exhaustive content review requirements, based on vague and otherwise non-
transparent criteria. In addition, with respect to online video, SAPPRFT has required Chinese online
platform suppliers to spend no more than 30 percent of their acquisition budget on foreign content. With
respect to distribution platforms, SAPPRFT has instituted numerous measures, such as requirements that
video platforms all be state-owned, that prevent foreign suppliers from qualifying for a license. SAPPRFT
and other Chinese regulatory authorities have also taken actions to prevent the cross-border supply of online

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video services. The United States is carefully evaluating whether measures governing the distribution of
both online videos and entertainment software comport with Chinas WTO GATS commitments, which
include both the investment in and cross-border supply of video and entertainment software services. The
United States will continue to seek to engage with China to address these restrictions.

Encryption

Use of ICT products and services is increasingly dependent on robust encryption, an essential functionality
for protecting privacy and safeguarding of sensitive commercial information. Such functionality is
particularly important in China, given the high incidence of cybertheft in this market. Onerous requirements
on the use of encryption, including intrusive approval processes and, in many cases, mandatory use of
indigenous encryption algorithms (e.g., for WiFi and 4G cellular products), continue to be cited by
stakeholders as a significant trade barrier. The United States will continue to monitor implementation of
existing rules, and will remain vigilant toward the introduction of any new requirements hindering
technologically neutral use of robust, internationally standardized encryption.

Restrictions on Internet-enabled Payment Services

The Peoples Bank of China (PBOC) first issued regulations for non-bank suppliers of online payment
services in 2010, and it subsequently began processing applications for licensees in a sector that previously
had been unregulated. Regulations were further strengthened in 2015, with additional provisions aimed at
increasing security and traceability of transactions. According to a recent U.S. industry report, of over 200
such licenses issued as of June 2014, only two were issued to foreign-invested suppliers, and those two
were for limited services. This report provides clear evidence supporting stakeholder concerns about the
difficulties they have faced entering the market and the slow process foreign firms face in getting licensed.
In addition, as with other ICT sectors, PBOC has required suppliers to localize data and facilities in China.
The United States will continue to seek to engage with China to address these restrictions.

AGRICULTURE

Overview

China is the largest agricultural export market for the United States, with more than $21 billion in U.S.
agricultural exports in 2016, up from $20 billion in 2015. Much of this success resulted from intensive
engagement by the United States with Chinas regulatory authorities. Notwithstanding this success, China
remains among the least transparent and predictable of the worlds major markets for agricultural products,
largely because of uneven enforcement of regulations and selective intervention in the market by Chinas
regulatory authorities. Seemingly capricious practices by Chinese customs and quarantine agencies delay
or halt shipments of agricultural products into China. Sanitary and phytosanitary (SPS) measures with
questionable scientific bases or a generally opaque regulatory regime frequently have created difficulties
and uncertainty for traders in agricultural commodities, who require as much certainty and transparency as
possible. With China moving forward with implementation of its 2015 Food Safety Law, new regulations
and new concerns such as burdensome and unnecessary requirements for official certification of low-risk
food exports are on the increase. In addition, market access promised through the TRQ system set up
pursuant to Chinas WTO accession agreement still has yet to be fully realized. At the same time, China
has been steadily increasing domestic support for key commodities, and reports commissioned by certain
U.S. farm groups have concluded that China may be exceeding its WTO limits.

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