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Investment, Supply Chain Security, Trade Secrets Among Topics at U.S.-China Meeting

Tuesday, July 16, 2013
Sandler, Travis & Rosenberg Trade Report

The U.S. and China held the fifth annual meeting under their Strategic and Economic Dialogue July 10-11 in Washington, D.C. The S&ED is an annual gathering of senior officials from across the two governments that constitutes the main forum for bilateral policy dialogue. There are typically few achievements made at these meetings, but the topics discussed and comments made can offer an informative overview of the issues each side sees as priorities.

Investment. China agreed to resume negotiations on a bilateral investment treaty based on the updated model BIT the U.S. announced in 2012. According to the Treasury Department, this BIT will utilize a “negative list” approach under which all stages of investment and sectors except those specifically noted will be covered by the agreement. Treasury Secretary Jacob Lew said this is the first time China has agreed to such expansive coverage.

China also reaffirmed a 2012 commitment to implement a more proactive strategy for opening up to foreign investment and is now actively studying measures in this area. One such measure is the Shanghai Free Trade Zone pilot, which is to implement a new foreign capital administrative model on a trial basis and create a market environment that provides equal access for all types of enterprises, domestic and foreign.

The U.S. affirmed that all investment reviews by the Committee on Foreign Investment in the United States will focus exclusively on national security issues and not economic or other national policies. However, CFIUS reviews are not generally the problem, as they have rarely resulted in a formal disapproval. Instead, there seems to be a growing anxiety among the public and lawmakers about Chinese acquisitions of U.S. businesses that will put pressure on the White House to uphold a commitment it reiterated last week to “maintain an open investment environment for Chinese investors, including [state-owned enterprises], as with investors from other countries.” 

Trade Secrets. The two sides committed to providing “vigorous protection and enforcement of trade secrets” and to strengthen procedures and remedies according to law. The electronic theft of trade secrets has been a hot topic of late and officials discussed it at length, but no specific measures were announced. The U.S. Chamber of Commerce said that while it is “encouraged by this week’s discussions on cyber-enabled economic espionage … the proof of progress will come only when the two governments agree that such behavior is a punishable crime, and implement a clear action plan to substantially reduce such theft emanating from China.”

Export Controls. The U.S. repeated a commitment to “give fair treatment to China during its export control reform process and to consider China’s concerns seriously by promoting and facilitating bilateral high-tech trade with China of commercial items for civil end uses and civil end users.” Beijing regularly complains about U.S. restrictions on exports of such goods, which it says are contributing to the United States’ growing trade deficit with China, but the U.S. typically responds that only a very small percentage of its exports to China are subject to such restrictions.

IPR. China said it will further promote the use of legal software by state-owned enterprises, including by strengthening supervision of central SOEs and large state-owned financial institutions by establishing software asset management systems, enforcing the requirement to purchase and use legitimate software by these SOEs, providing budget guarantees for software and promoting centralized procurement.

AD/CV Duties. Both sides committed to administer antidumping and countervailing duty investigations in a “fair, objective and transparent manner,” recognizing that “it is critical to follow WTO rules when undertaking trade remedy investigations or imposing trade remedy measures to prevent their abuse.” China has accused the U.S. of specifically targeting its exports for such measures and using methodologies that yield higher than normal AD and CV duties, while Washington claims that China often levies retaliatory AD/CV duties based more on political than economic concerns.

Officials also said they will continue to consult through the Joint Commission on Commerce and Trade “to work toward China’s market economy country status in an expeditious and comprehensive way.” Granting this status would likely lower AD/CV duties on Chinese goods.

Supply Chain Security. U.S. Customs and Border Protection and the General Administration of China Customs agreed to discuss the deployment of GACC officers to U.S. ports under the Container Security Initiative.

The two sides have begun discussions on the mutual recognition of their authorized economic operator programs and intend to conduct more joint validations before the end of 2013 in China, with the possibility of additional joint validations in 2014 and 2015.

An action plan was signed that aims to facilitate the exchange of best practices, explore joint operational exercises and strengthen customs-to-customs cooperation to identify and interdict illicit materials traveling via air and maritime cargo.

The Department of Energy’s National Nuclear Security Administration and GACC signed a memorandum of understanding under which they will work together to combat the illicit trafficking of nuclear and other radioactive materials and to collaborate on the technical aspects of equipping priority seaports with radiation detection equipment.

Government Procurement. China will submit a new revised offer on joining the World Trade Organization’s Government Procurement Agreement by the end of 2013 and will begin “intensive technical discussions with the United States this summer to ensure that its offer is commensurate with the coverage of other GPA parties.” However, China has postponed its GPA accession on numerous occasions in the past despite similar commitments.

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