U.S., China to begin "challenging" investment talks

By Doug Palmer

WASHINGTON (Reuters) - The United States and China have agreed to begin talks on an investment pact that U.S. officials hope can give American companies a stronger foothold in Chinese markets ranging from financial services to heavy industry.

The negotiations could easily take more than a year, making it the job of the next U.S. administration -- which takes office in January 2009 -- to finish the talks and win Senate approval, U.S. officials said on Wednesday.

"We believe that we've got a reasonably good chance of being able to negotiate an agreement with China that will meet the high standards typical of U.S. bilateral investment treaties," a Bush administration official told reporters, speaking on the condition that he not be identified.

But "it's obviously going to be a very challenging negotiation" because the United States will be pushing China to lower many longstanding investment barriers, such as caps on foreign ownership of Chinese firms, the official said.

"Whether or not we actually conclude an agreement will very much depend on the quality of what we think we can get out of the negotiation," the official said.

U.S. SEEKS NATIONAL TREATMENT

Washington will press for a comprehensive pact with high standard legal protections for U.S. investors and "national treatment" provisions requiring China to treat American companies the same as Chinese, the official said.

The national treatment issue is expected to be one of the more difficult area of the talks, since China has not included that in previous investment pacts, he said.

The United States has relatively few restrictions on foreign investment so a successful pact would level the playing field for U.S. investors in China, U.S. officials said.

The United States and China were expected to formally announce the start of investment talks later on Wednesday. The two have been holding high-level trade and economic talks at the U.S. Naval Academy in Annapolis, Maryland.

Chinese Commerce Minister Chen Deming told reporters on the sidelines of those talks that Chinese companies' foreign

investments follow internationally recognized business regulations as well as local rules and regulations.

"We hope our companies will receive equitable and just treatment in their host countries, and that the relevant policy framework will be transparent and open, so that our investors can have a sense of security," Chen said.

The decision to launch the negotiations follows 17 months of exploratory talks. A treaty would create a forum to resolve investment disputes between the two countries and -- depending on the pact's final scope -- could tear down some investment barriers U.S. companies now face in China's market.

NATIONAL SECURITY CLAUSE