US, China agree to launch investment negotiations, energy cooperation

6/18/2008

WASHINGTON he United States and China, concluding high-level economic talks, agreed to launch negotiations on an investment treaty that holds out the promise of greatly expanded opportunities for U.S. companies in China's vast market.

The two countries also pledged greater cooperation to deal with energy shortages and global pollution.

The agreements were announced on Wednesday by Treasury Secretary Henry Paulson, who said he believed the initiatives would produce "significant progress" on two shared priorities of both nations.

The announcement on the investment negotiations and the 10-year cooperative agreement on energy and the environment came as the two countries concluded two days of talks aimed at defusing simmering economic tensions.

Paulson held a joint news conference in Treasury's ornate Cash Room with Chinese Vice Premier Wang Qishan to wrap up the fourth round of a series of talks known as the Strategic Economic Dialogue.

Paulson said the cooperative agreement would allow the two countries to address "some of the most important and difficult challenges facing our nations and the world today energy security, environmental sustainability and climate change."

The announcement Wednesday represented a fleshing out of details of an agreement that was initially announced at the last round of talks in Beijing in December. Paulson said the framework would focus on five major areas electricity, air, water, transportation and conservation of forest and wetland ecosystems.

In his remarks, Wang called the discussions a "complete success" and said the decisions made would have far-reaching impacts. He said he believed the strategic dialogue process would play an "increasingly important" role in the future with the next meeting scheduled for China in December.

Paulson and Wang both led large delegations that included many of the top economic policymakers in both nations. President Bush met with the Chinese officials shortly before the closing signing ceremony.

The decision to pursue an investment treaty with China offers the prospect of dismantling a multitude of barriers that U.S. companies now face in their efforts to do business in China.

Administration officials stressed that the negotiations were expected to be lengthy and intense. It took 17 months of preliminary discussions to begin the negotiations.

Business groups praised the decision to go forward with the investment negotiations but critics of the administration's trade policies complained the process could easily become bogged down and fail to produce the market-opening that U.S. companies are seeking.

There were also complaints that the administration is failing to push the Chinese hard enough to stop manipulating its currency to gain unfair trade advantages. American manufacturers contend that the Chinese yuan is undervalued by as much as 40 percent, even though it has risen in value by 20 percent against the dollar since July 2006.

"The unfair price advantage that the undervalued (Chinese currency) gives Chinese firms has forced many American companies to declare bankruptcy or even go out of business, harming our workers, families and middle class," said a letter sent to the administration by a bipartisan group of 11 senators including Democrats Barack Obama, Debbie Stabenow and Chuck Schumer and Republicans Jim Bunning, Olympia Snowe and Elizabeth Dole.

The critics contend that China's soaring trade deficit, which last year reached an all-time high of $256 billion, is the result of unfair trade practices, including currency manipulation, and has contributed to the loss of 3 million manufacturing jobs since 2001.

Paulson is hoping the discussions would produce enough results to persuade the next administration to continue the meetings, and Wang said in his opening comments Tuesday said that "no matter what happens, it's necessary to continue using this important platform."

The twice-a-year discussions, alternating between Beijing and Washington, began in 2006 at Paulson's urging.

Wang on Tuesday urged patience going forward as China implements necessary reforms. He cautioned that the two countries must avoid "complicating and politicizing economic issues."

The Chinese have grown concerned about a number of bills introduced in Congress that would impose economic sanctions on China unless it moves more quickly to let its currency rise in value against the dollar.

The talks also included Federal Reserve Chairman Ben Bernanke and Zhou Xiachuan, the head of China's central bank. Zhou said the Chinese were interested in learning from Bernanke's presentation the regulatory mistakes that had contributed to the subprime mortgage crisis.

The Bush administration wants the Chinese to open their financial system to foreign banks and investment houses. But the Chinese are strongly resisting that, given the billions of dollars in losses suffered by U.S. financial giants in the credit crisis that erupted last August.

One area the administration is touting as a success is in food safety, where the United States used the dialogue to press the Chinese to strengthen inspections after a series of high-profile recalls last year.

Health and Human Services Secretary Michael Leavitt said Tuesday that the United States expects to have food and drug inspectors placed in three Chinese cities Beijing, Shanghai and Guangzhou by the end of this year.

But Chinese officials said the approval is being delayed until the U.S. grants a Chinese request for increased Chinese inspectors in the United States.