January 13, 2011 / 6:48 PM / 7 years ago

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

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 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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