24 November 2008

Report Identifies Concerns in U.S.-China Trade and Economic Relationship

This article is extracted from the 24 November 2008 edition of “WorldTrade Interactive”.

The U.S.-China Economic and Security Review Commission released last week its annual report to Congress on the national security implications of the trade and economic relationship between the U.S. and China. As is typically the case, the report casts a critical eye on China’s actions and motivations and suggests a number of U.S. responses.

Areas of Concern. This year’s report focuses on the following issues.

• Proliferation – China’s role in the proliferation of weapons of mass destruction and other weapons (including dual-use technologies)…

• Economic Transfers – the qualitative and quantitative nature of the transfer of U.S. production activities to China, including the relocation of high technology, manufacturing and research and development facilities, the impact of such transfers on U.S. national security, economic security and employment, and the adequacy of U.S. export control laws

• Energy – the effect of China’s large and growing economy on world energy supplies and the role the U.S. can play … in influencing China’s energy policy

• U.S. Capital Markets – the extent of China’s access to and use of U.S. capital markets, including whether or not existing disclosure and transparency rules are adequate to identify Chinese companies engaged in harmful activities

• Regional Impacts – the economic and security relationship among the U.S., Taiwan and China, China’s national budget and its fiscal strength in relation to internal instability and the likelihood of the externalization of problems arising from such instability

• Bilateral Programs – science and technology programs, the degree of noncompliance by China with bilateral agreements on prison labor imports and intellectual property rights, and U.S. enforcement policies with respect to such agreements

• WTO Compliance – China’s compliance with its World Trade Organization accession agreement

• Freedom of Expression….

The commission states that, as in its previous five annual reports, it sees progress on some issues but the continuation of a number of troubling trends. These include the U.S. trade deficit with China, which totaled $167.7 billion for the first eight months of 2008 and was up 2.4 percent over the same period in 2007, and China’s currency policy, where the rate of appreciation of the yuan against the dollar has slowed in recent months amid concerns that a strong yuan could negatively affect Chinese exports. The report also expresses concern about Chinese laws and policies that may restrict foreign access to China’s markets and protect and assist domestic producers (e.g., new antimonopoly and patent laws and increased tax rebates to textile manufacturers), a government policy designed to make China a technology superpower and enhance its exports, and the increasing investment of foreign technology firms in research and development and production facilities in China. …

Recommendations. The commission states that it attempted to take an integrated approach in this year’s review, believing that the intersections of U.S. geopolitical, economic, security, diplomatic and cultural interests form a complex web of concerns that are connected to the overall bilateral relationship. In this context, the report makes 45 recommendations for action by Congress, including the following that are deemed to be of particular significance.

• urge the administration to employ more aggressively all trade remedies authorized by WTO rules to counterac