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U.S., China Aim for Core Investment Deal This Year, Will Continue Talks on Tech Goods

Monday, July 14, 2014
Sandler, Travis & Rosenberg Trade Report

The sixth meeting of the Strategic and Economic Dialogue between the U.S. and China, held in Beijing July 9-10, featured discussions on a wide range of trade-related topics but few concrete results. According to information from U.S. government agencies, highlights of the meeting included the following.

Currency. China is to continue market-oriented exchange rate reform, reduce foreign exchange intervention as conditions permit, and increase exchange rate flexibility. Some U.S. lawmakers said prior to the meeting that “China's continued currency misalignment is unsustainable and unacceptable.” Others cited a recent Treasury Department report showing that “progress made in 2013 toward appreciation was reversed in the early months of 2014” and warned that “without inclusion of strong and enforceable currency manipulation disciplines in any future trade agreement, the president’s trade agenda, including the passage of the TPP [Trans-Pacific Partnership], is in jeopardy.”

Information Technology Goods. There were “constructive discussions” regarding the expansion of the Information Technology Agreement and both sides committed to continue discussions within the next few weeks in an effort to “create conditions to restart plurilateral negotiations.” The U.S. has accused China of stalling the talks by refusing to back down from a list of dozens of products it says should be excluded or subject to long tariff phase-outs. The U.S. has also threatened to leave China out of separate negotiations on a Trade in Services Agreement unless there is progress on the ITA issue.

Investment. The two sides will “intensify” their negotiations on a bilateral investment treaty, are working to reach agreement on core issues and major articles of the treaty text by the end of 2014, and intend to initiate early in 2015 talks based on each other’s “negative list” (i.e., only specified sectors will be excluded) offers.

Export Controls. The U.S. reaffirmed its commitments to (a) give fair treatment to China in its export control reform process, (b) encourage and facilitate exports of high-technology items to China for civilian end-uses and civilian end-users, and (c) process and decide upon, in a timely manner, individual license applications once it receives all necessary information required under the Export Administration Regulations.

Trade Secrets. China incorporated the protection and enforcement of trade secrets in its 2014 Priorities of the Nationwide Crack Down on Intellectual Property Infringement and Production of Counterfeit and Shoddy Products document, published by the State Council on April 14. As a next step, China is to vigorously investigate and prosecute trade secret theft cases, ensure that civil and criminal cases are tried and that judgments are published according to law, and protect trade secrets contained in materials submitted by companies as part of regulatory, administrative and other proceedings, according to Chinese law. House and Senate trade leaders told U.S. officials in a July 8 letter that they “continue to be greatly alarmed by the rampant trade secret theft and economic espionage activity targeting the United States and U.S. companies, carried out with the support of the Chinese government for the benefit of Chinese companies,” which they said is “rapidly and significantly eroding trust and undermining our economic relationship.”

VAT. China commits to improve its value-added tax rebate system, including actively studying international best practices, and to deepen communication with the U.S. on this matter, including regarding its impact on trade.

Drugs. China commits, during the process of revising its Drug Administration Law, to develop and seriously consider amendments requiring regulatory control of the manufacturers of bulk chemicals that can be used as active pharmaceutical ingredients (bulk chemicals), including export-only producers and distributors. The U.S. commits to continue to review its authority to exclude from consideration the import of bulk chemicals from firms that are not registered with China Food and Drug Administration.

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