Asia-Pacific, Economy & Trade, Headlines, North America

TRADE: U.S., China Reach Deal, Major Issues Remain

Emad Mekay

WASHINGTON, May 23 2007 (IPS) - The United States and China agreed Wednesday at the close of high-level meetings that China will take steps to open its financial and other services markets – moves that still fall short of the many sweeping measures hawkish U.S. lawmakers have been calling for to narrow the U.S. trade deficit with the Asian nation.

"We agreed today on a wide variety of next steps, including significant items in financial services, energy and the environment, and civil aviation," said U.S. Treasury Secretary Henry Paulson who along with Wu Yi, vice premier of China, co-chaired the U.S.-China Strategic Economic Dialogue.

Dozens of senior officials from both sides took part in the discussions, first agreed on in September 2006 under pressure from U.S. lawmakers unhappy with the mushrooming trade deficit with China.

Among the measures announced is a deal between the U.S. Export-Import Bank and its Chinese counterpart, Export-Import Bank of China, to start providing loan guarantees for the large-scale export of capital goods from the United States to China.

The move is designed to convince Congress that the measure will support U.S. export jobs.

Beijing also agreed to allow new foreign securities firms and resume licensing securities companies, including joint-ventures, in the second half of 2007.

China said that it will further allow foreign-invested banks to immediately offer their own brand of RMB-denominated credit and debit cards, which will allow U.S. banks to offer a full range of services in the local currency and compete with Chinese banks that currently offer such services.

China said it will also widen the range of services offered by U.S. insurance firms already working in China and will allow them to increase the amount of capital under their management for investment.

The two countries said they will work together towards greater energy cooperation, including developing clean coal technologies.

Washington continued to lobby China on intellectual property rights, a disconcerting point for U.S. lawmakers, during the meetings. They now say they reached a deal that would provide for an exchange of information on counterfeit good seizures, and improve intellectual property rights enforcement.

Both sides agreed that China will grant U.S. cargo carriers with "virtually unfettered access to Chinese markets" by lifting all government-set limits on the number of cargo flights and cargo carriers serving the two countries by 2011

"While we have much more work to do, we have tangible results for our efforts thus far," Paulson said.

"These results are like signposts on the long- term strategic road, building confidence and encouraging us to continue moving forward together," he said.

Despite the positive mood that closed the meetings, the gathering was held against a background of tough rhetoric from the U.S. Congress, which is trying to "level the playing field" and correct a trade imbalance with China that hit 233 billion dollars last year

Sen. Byron Dorgan, a Democrat from North Dakota, has even introduced a bill to end normal trade relations with China.

Congressional leaders want China to strengthen its intellectual-property protections and remove the subsidies it gives to its own companies, which critics say put U.S. firms at a disadvantage. They say they want to see the Chinese currency, the RMB, appreciate as soon as possible.

Just before the talks started, 21 congressional leaders, including Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley, pre-empted the Washington meetings with a letter on May 18 to the Chinese vice president that urged immediate action on all U.S. concerns.

"Progress in many areas has been long promised and is overdue," the lawmakers said, warning that failure to act could "undermine the relationship between our two countries".

While the George W. Bush administration has resisted tough measures against China for fear that they could be counter-productive, U.S. trade officials succumbed to Congressional pressure in February and announced that Washington was taking China before the World Trade Organisation (WTO) to complain about Beijing&#39s use of "illegal subsidies".

Washington alleges that China is fixing its tax laws and using other means to promote its own exports and to discriminate against imports of U.S. manufactured goods.

Only a few U.S. analysts have warned that U.S. pressure on China could be counter-productive.

"The presumption that China is &#39cheating&#39 – and doing so at the expense of U.S. jobs – is strengthening as the U.S. bilateral trade deficit with the People&#39s Republic of China continues to reach new highs," said James Dorn, an expert with the libertarian Washington-based think tank Cato Institute.

"The danger is that mounting pressure will lead to unwise protectionist legislation that could impede U.S.-China trade and harm the global economy," he warned.

The outcome of the two-day talks still received positive reviews, especially from some business lobbies.

"This outcome should speak loudly to those in Congress who have doubted the value of the consultative approach in dealing with China," said Bob Vastine, president of the Coalition of Service Industries. "It shows that the Chinese are committed to sustaining a constructive commercial relationship with the United States."

The service sector, which stands to gain the most from the deals announced today, accounts for nearly 80 percent of all U.S. private sector Gross Domestic Product, and employs 80 percent of the U.S. workforce. U.S. service exports reached 414 billion dollars last year, with a global trade surplus of 73 billion dollars.

"We are pleased at the specific announcements about improvements, especially the big breakthrough agreement in expanding passenger and cargo flights, but also the important new cooperation in financing U.S. exports to China, new market access for the financial sector, increased cooperation in energy, and announcements of large purchases of U.S. products" said John Engler, president of the National Association of Manufacturers, another U.S. business lobby group.