By Doug Palmer
WASHINGTON (Reuters) - Ten years after joining the World Trade Organization, China still does not fully embrace many fundamental free market principles of the global trade body, the U.S. Trade Representative's office said on Monday in an annual report to Congress.
"In 2011, the prevalence of interventionist policies and practices, coupled with the large role of state-owned enterprises in China's economy, continued to generate significant concerns among U.S. stakeholders," the USTR said.
"Looking ahead, essential work for China includes the need to reduce market access barriers, uniformly follow the fundamental principles of non-discrimination and transparency, fully embrace the rule of law, and fully institutionalize market mechanisms," the report said.
"Completing this work is critical to realizing the tremendous potential presented by China's WTO membership, including the breadth and depth of trade and investment -- and prosperity -- possible in a thriving, balanced global trading system."
A deal struck by former USTR Charlene Barshefsky in 1999 set the stage for Congress to approve "permanent normal trade relations" (PNTR) with China the following year and then for China to enter the WTO on December 11, 2001.
Its bid to join the world trade body took 15 years, surpassed only recently by Russia, whose entry is expected to be approved this week in Geneva after some 18 years of talks.
Many members of the U.S. Congress remain skeptical over the benefits of China's accession. They blame the huge U.S. trade deficit with China, which hit a record $272 billion last year, for millions of lost U.S. manufacturing jobs.
A congressional and executive branch watchdog commission created by the 2000 PNTR legislation will hold a hearing on Tuesday to ask Assistant U.S. Trade Representative for China Claire Reade, and other witnesses the following question: "Ten years in the WTO: Has China kept its promises?"
USTR, in its report, noted that China made many changes to its laws and regulations during the first five years of its membership in the WTO. But starting in 2006, Chinese leaders started to back away from the types of market reforms that led to China's admission.
"Some Chinese government policies and practices raised increasing concerns that China had not yet fully embraced the key WTO principles of market access, non-discrimination and transparency. Similarly, in some instances, Chinese policymakers showed little appreciation of the carefully negotiated conditions for China's WTO accession that were designed to lead to significantly reduced levels of trade-distorting government policies," the report said.
The United States has so far brought 12 cases against China for violation of WTO rules, including five under President Barack Obama. That is always an option when direct dialogue does yield desired results, the USTR report said.
U.S. Trade Representative Ron Kirk, told Reuters in a recent interview, that some U.S. companies are "just horrified" with the obstacles that they face in China, while others are more optimistic and determined to remain there.
USTR's report also reflected that mixed picture, noting that China imported a record $92 billion of U.S. goods last year, the most after Canada and Mexico.
Given the size of the U.S.-China trade relationship and Beijing's move told more state intervention, Barshefsky told Reuters she expected a bumpy road ahead.
"Trade frictions always increase as economic relationships get larger. But two, I do think China is becoming more enamored of industrial policy as a tool of accelerated development and I find this very troubling. And I think the (Obama) administration likely finds it troubling as well," she said.
But EU Trade Commissioner Karel De Gucht painted a slightly more optimistic picture in a recent interview.
"It's true that they are not opening much further recently, for the last five years. But the opening of a society and of an economy, always comes with waves, you know.
"I believe the Chinese will be forced by the economic fundamentals to open further in the future. An economy as big as theirs is not sustainable unless you are fully integrated into the world trading system," De Gucht said.
(Reporting by Doug Palmer; editing by Christopher Wilson)