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Annual Report Examines Chinese Economic and Trade Actions

Tuesday, November 25, 2014
Sandler, Travis & Rosenberg Trade Report

The U.S.-China Economic and Security Review Commission has released its 2014 report to Congress on the national security implications of the trade and economic relationship between the U.S. and China. This year’s report covers key U.S.-China economic and trade issues, security developments, and China’s diplomatic efforts in the Asia-Pacific region and beyond. In addition, the report examines bilateral clean energy cooperation, China’s growing health care sector, and the safety of Chinese drug imports into the United States. Also covered in the report are matters related to the East Asian regional balance of power, China’s ongoing military modernization, Chinese domestic stability and China’s bilateral relationships.

As has typically been the case, the report casts a critical eye on Chinese policies and practices and makes a number of recommendations for responsive action by the U.S. government. On the positive side, the report welcomes efforts by Chinese authorities to extend better health care and health insurance particularly to the underserved rural population as well as the first steps to lift the domestic residency permit system. China also began to implement plans for a free trade zone in Shanghai that might provide greater access to foreign financial services and health care companies.


- The U.S. trade deficit with China grew by 4.1% during January-August 2014 despite a 6.2% increase in U.S. exports. The bilateral trade deficit stood at $318.4 billion in 2013, setting a record for the fourth straight year.

- China has stalled on liberalizing key sectors in which the U.S. is competitive globally, such as services. Meanwhile, Chinese foreign investment flows into the U.S. have grown while U.S. FDI into China is lower due to an increasingly hostile investment climate. Growing Chinese investment in the U.S. could be a boon to U.S. employment but the peculiarities of state influence on Chinese corporate behavior in the U.S. may also pose significant competitive challenges for domestic companies, with serious drawbacks for U.S. workers.

- China’s chronic overcapacity, especially in sectors such as steel and solar panels, continued to harm U.S. manufacturing and exports by dumping excess supply into global markets.

- The Chinese government made little to no progress this year in implementing the economic reforms designated by its leadership during the 2013 Third Plenum. Instead, Chinese President Xi Jinping and his leadership team focused on a broad anticorruption campaign while using stimulus to avoid further economic slowdown.

- Even as U.S. manufacturing has slumped U.S. corporations have relocated manufacturing operations to China and imports of Chinese manufactured goods have grown exponentially. Unfair Chinese trade practices, including market protections, subsidization and favoritism toward certain domestic players as well as provisions for limiting foreign investment in certain manufacturing operations, have also contributed indirectly to the ongoing decline in U.S. manufacturing employment.

- Although China committed to sweeping reforms when it joined the WTO, Chinese efforts to honor these commitments have slackened in the last ten years. U.S. enforcement actions have increased but the results of these efforts have been limited and many issues remain unaddressed.

Key Trade/Economic Recommendations

- Congress should direct the Government Accountability Office to update its report on the effectiveness of the U.S.-China Joint Commission on Commerce and Trade and the Strategic and Economic Dialogue. The updated report should include an assessment of the objectives sought by the U.S. in these talks and whether China has honored its commitments to date.

- Congress should require the Department of the Treasury to include in its semiannual report to Congress specific information on the beneficial economic impact of China moving to a freely floating currency in terms of U.S. exports, economic growth and job creation. In addition, Congress should urge the administration to begin immediate consultations at the G-7 to identify a multilateral approach to addressing China’s currency manipulation.

- Congress should consider amending existing trade enforcement rules to ensure that foreign investment in the U.S. cannot be used to impede the ability of domestic producers to bring petitions for trade enforcement actions.

- Congress should consider legislation that would make available a remedy to domestic firms that have been injured from the anticompetitive actions (such as access to low-cost or no-cost capital) of foreign state-owned companies for the injury that has been inflicted and allow for the potential award of treble damages.

- Congress should request that the Office of the U.S. Trade Representative, the Department of Commerce and the International Trade Commission report on the extent to which existing authorities would allow for sanctions to be imposed against entities that benefit from trade secrets or other information obtained through cyber intrusions or other illegal means and were provided by a national government, foreign intelligence service or other entity utilizing such means. If authorities do not exist, they should provide a proposal to address such problems.

- Congress should urge the FDA to insist on expedited approvals from the Chinese government for work visas for agency staff as well as on expanded authority to conduct unannounced visits at drug manufacturing facilities in China.

- Congress should pursue measures to improve the government’s information about drug ingredient and dietary supplement producers, especially for imports. To this end, Congress should urge the FDA to work with its Chinese counterparts to establish a more comprehensive regulatory regime for registering China-based active pharmaceutical ingredient producers and make this producer information available on demand for U.S. agencies.

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