FACTBOX-Key issues in U.S.-China trade ties

Thu Jan 13, 2011 1:47pm EST

 Jan 13 (Reuters) - The United States wants more a "more
equitable commercial relationship" with China and greater
follow-through on U.S.-China trade agreements, Commerce
Secretary Gary Locke said on Thursday. [ID:nN13293325]
 The remarks by Locke, the latest Obama cabinet China policy
speech ahead of Chinese President Hu Jintao's visit next week,
followed a speech on Wednesday by Treasury Secretary Timothy
Geithner, who urged China to move faster in allowing its
currency to appreciate and to remove other trade barriers.
 President Barack Obama hosts Hu for a state visit on Jan.
19, and administration officials say he will raise a range of
economic issues, ranging from intellectual property rights to
investment restrictions and barriers to markets.
 Almost 10 years after China's entry into the World Trade
Organization, U.S. officials complain China has not fully
implemented many important commitments to open its market and
relies on industrial policies to promote domestic firms at the
expense of foreign companies.
 The following is a snapshot of some of the problem areas in
the U.S.-China trade relationship:
 U.S. TRADE DEFICIT, CHINA'S SURPLUS
 A major driver of trade friction between the world's two
largest economies is the U.S. trade deficit with China.
 Despite a pledge by both countries to work on correcting
"global imbalances," the U.S. trade shortfall with China rose
20 percent in the first 10 months of 2010 and could top $270
billion for the year when final figures are in.
 That would surpass the record of $268 billion set in 2008,
illustrating how heavily China still relies on exports to the
United States to fuel economic growth.
 China's own figures showed its overall trade surplus
narrowed in 2010 for the second straight year. The 2010,
surplus was $183.1 billion, down 7 percent from $196.1 billion
in 2009. The 2009 figure had fallen 34 percent in 2009 from its
pre-crisis peak of nearly $300 billion in 2008.
 CURRENCY
 China's currency policies have been a major irritant in
ties for several years and a focus of U.S. congressional anger
at China since at least 2005.
 Many U.S. lawmakers believe the yuan is undervalued by 15
percent to 40 percent, giving Chinese companies an unfair price
advantage in international trade. China loosened its currency
from a nearly two-year peg to the dollar in June, and since
then it has risen about 3 percent in nominal value, but more in
real terms as a result of rising inflation in China.
The U.S. House approved a bill last September pushing the
Commerce Department to treat currency undervaluation as a
subsidy under U.S. trade law. That would allow U.S companies,
on a case-by-case basis, to ask for steeper countervailing
duties against Chinese imports than they currently can.
 But the bill died when the Senate did not hold a vote
before its term expired at year end. Prospects in the new
Congress are uncertain, but no movement is expected before Hu's
visit.
 Geithner continues to delay releasing a semi-annual report,
due out last Oct. 15, on whether China or any country is
manipulating its currency for an unfair trade advantage.
 LEGAL SOFTWARE
 Microsoft (MSFT.O) and other members of the Business
Software Alliance in the United States complain that nearly 80
percent of the software installed on personal computers in
China is pirated. They have called for a "results-based" deal
to boost U.S. software sales and exports to China by 50 percent
in two years. China has promised to plan for legal software
purchases in its government budgets.
 At U.S.-China trade talks last month, Chinese officials
pledged to increase use of legal software.
 PIRACY AND COUNTERFEITING
 The International Intellectual Property Alliance, which
represents U.S. copyright industry groups, has estimated U.S.
trade losses in China due to piracy at $3.5 billion in 2009.
Meanwhile, U.S. customs officials say 80 percent of the fake
tennis shoes, clothing, luxury bags and other goods they seize
each year at the border come from China.
 China has responded to U.S. complaints with a new six-month
campaign that began in November aimed at counterfeit books,
music, DVDs and software. China has promised "concrete results"
from the latest crackdown, but U.S. groups say a sustained
effort is necessary to achieve real results.
 INDIGENOUS INNOVATION
 Big U.S. companies like General Electric (GE.N) are worried
that China's "indigenous innovation" policies could make it
more difficult for them to compete in China. The regulations
are intended to promote innovation within China and reduce its
dependence on foreign technology and companies.
 U.S. industry fears China is using discriminatory policies
in areas ranging from government procurement to technical
standards and tax policy to promote its state-owned enterprises
at the expense of foreign firms.
 U.S. companies are also worried that under indigenous
innovation, they would be forced to transfer development and
ownership of intellectual property to China to participate in
the country's huge government procurement market.
 In recent speeches, Chinese leaders have indicated goods
produced by Chinese affiliates of U.S. and other foreign firms
would be considered indigenous innovation products. But the
U.S. Chamber of Commerce is looking for stronger commitments
this week to ensure China's policies do not discriminate
against foreign companies.
 BEEF
 China, along with many other countries, banned imports of
U.S. beef in 2003, when the first case of mad cow disease was
found in the U.S. cattle herd. Only three animals in the United
States have tested positive for the disease, the last in 2006.
 The United States says it has taken appropriate steps to
ensure its beef is safe and China's continued ban is
unjustified. It has rejected conditions offered by China for
resuming imports, saying they were not commercially viable and
did not conform with international food safety standards.
 The December trade meeting produced an agreement by China
to hold talks on removing import restrictions on U.S. beef --
raising the U.S. meat industry's expectations of more concrete
agreements by the time Hu meets with Obama.
 CLEAN ENERGY
 The United States hailed China's announcement in 2009 that
it was dropping a 70-percent local content provision for wind
turbines after U.S. officials complained it was inconsistent
with Beijing's World Trade Organization commitments.
 But China's critics in Congress charge that China simply
found other ways to thwart U.S. sales.
 The United Steelworkers union accuses China of using
illegal subsidies and other trade-distorting policies to create
jobs in its clean energy sector at the expense of the United
States. They want the U.S. Trade Representative's office to
file a case at the WTO.
 USTR is due to make a decision on that petition by Jan. 15,
which is just days before Hu's visit next week.
 A large group of U.S. and Chinese clean energy industry
executives will gather in Washington on the sidelines of Hu's
summit with Obama.
 RARE EARTHS
 China, which controls 97 percent of currently available
global rare earth supplies, has alarmed its trading partners by
restricting exports of the minerals which are used in a variety
of clean energy and high-industry technologies.
 The U.S. Chamber of Commerce has pressed the United States
to secure a commitment from China to remove rare earth export
taxes and quotas, and the United Steelworkers union also raised
concern about the issue in its petition to USTR.
 China has defended its restrictions as measures to manage
supplies and control pollution associated with rare earth
production. USTR officials have said they are looking at what
action they can take, and note they have challenged other
Chinese export restrictions at the WTO.
 INVESTMENT
 Beijing complains that Washington, while pushing for
greater access for U.S. firms in the Chinese market, imposes
unwarranted restrictions on Chinese investment in the United
States, often citing national security concerns. China says it
wants a level playing field for its investment into the United
States, saying that its intentions are benign and will benefit
the U.S. economy and create jobs.
 Meanwhile, U.S. companies complain China restricts
investment opportunities in many services sectors.
 Geithner's speech on Wednesday held out the promise of
giving China greater U.S. investment opportunities.
 EXPORT CONTROLS
 China says it would buy more from the United States if not
for overly restrictive U.S. controls on high-technology goods.
The United States says China's argument is overstated. But it
is in the process of reforming its export control system, which
could lead to increased sales of some less-sensitive items.
 Experts say better Chinese protection of U.S. intellectual
property is a prerequisite for any major easing of export
controls. Without that, say analysts, U.S. tech exports will
taper off as Chinese firms copy the products.
(Reporting by Doug Palmer and Paul Eckert; Editing by Paul
Simao)


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