On November 14, 2012, the U.S.-China Economic and Security Review Commission (“USCC”) released its annual report to Congress on developments in both bilateral trade relations with the People’s Republic of China (“China”) and security-related concerns. In its transmittal letter to Congress, the USCC highlights several areas of trade-related issues, namely, the continuing relocation of manufacturing capacity from the U.S. to China; inadequate disclosures by Chinese enterprises that seek access to U.S. capital markets; inadequate protection of intellectual property in China and technological transfers to China; and China’s noncompliance with its obligations under the World Trade Organization (“WTO”). The USCC presents 32 recommendations to Congress to address the economic and security concerns discussed in the report.

The USCC recommends that “Congress examine the access of small- and medium-sized enterprises to the remedies contained in the U.S. antidumping and countervailing duty laws” and consider providing state and local governments with standing under those statutes. The report also recommends the enactment of “legislation that would provide a private right of action for domestic producers who suffer injury from antidumping and countervailing duty violations” by Chinese state-owned enterprises that operate in the U.S. In addition, the USCC suggests closer inspection of inbound Chinese investments in the U.S.

With regard to the report’s analysis, the USCC discusses in detail the continuing trade tensions between the U.S. and China. The USCC points to the persistent trade deficit with China, which continued its upward trajectory to reach $295.4 billion in 2011. The report also indicates that U.S. exports to China increased 13.1 percent from 2010 to 2011, reaching $103.9 billion in value. The report notes that, while China is aware of the need to rebalance its economic policies toward increased domestic consumption to reduce reliance on export-led growth, China is reluctant to change policies in view of its weakening economic growth.

The USCC finds that U.S. companies continue to experience difficulties in accessing the Chinese market because of China’s restriction of inbound foreign investments and rules that impede foreign competition. To address these obstacles, the U.S. brought several cases against China in recent years in the WTO. For instance, China prevented foreign companies from entering the Chinese market for electronic payments, effectively granting a monopoly to a national champion. The U.S. successfully initiated a case in the WTO, which resulted in a panel decision that ruled against the Chinese measures. China also has used its trade remedy regime to impede U.S. competitors.

The USCC also examines the implications of China’s industrial and technological policies in its Twelfth Five-Year Plan covering 2011 to 2015. Under these policies, Chinese central authorities emphasize the development of national champions in designated industries, governmental support for these industries to expand their market shares overseas, and acquisition of foreign technology to manufacture higher-valued products. To implement these plans, China provides generous subsidies and preferential lending that favor state-owned and state-controlled enterprises. The U.S. Department of Commerce has determined that similar subsidies provided to Chinese manufacturers were countervailable. In those cases, Commerce provided relief to U.S. industries that brought successful cases.

With respect to China’s official emphasis on technological innovation, the report notes that the lack of financing options for smaller start-ups and inadequate protection of intellectual property impede the development of indigenous innovation. The USCC is concerned that China will resort to “technological mercantilism” by both forcing foreign investors to transfer technology and by engaging in industrial espionage.