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U.S.-China to negotiate investment treaty

The 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.
/ Source: The Associated Press

The United States and China have 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, concluding high-level economic talks, 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 priorities both nations share.

The announcements came as the two countries concluded two days of talks aimed at defusing simmering economic tensions. Paulson and Chinese Vice Premier Wang Qishan participated in a joint signing ceremony in Treasury’s ornate Cash Room to wrap up the fourth round of a series of talks known as the Strategic Economic Dialogue.

Paulson said the 10-year 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 affects. 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 reach an agreement to begin the negotiations and the expectation is that any deal will not be completed until a new administration takes office.

But House Ways and Means Committee Chairman Charles Rangel and Rep. Sander Levin, who heads the panel’s trade subcommittee, sent the administration a letter expressing “serious concerns” that the administration, with only a few months left in office, might be tempted to rush the negotiations and accept a deal without adequate safeguards for U.S. companies.

“The negotiations are going to be very, very tough and very lengthy,” said Frank Vargo, vice president for international affairs at the National Association of Manufacturers. “But this is important to us because we need the rule of law in China and greater certainty about investment.”

Rob Nichols, president of the Financial Services Forum, said U.S. banks and other financial service organizations support any efforts that will lead to China opening up its financial system to greater participation by foreign institutions.

Critics of the administration’s approach to China complained that the latest talks failed to produce any significant breakthroughs in the key areas in dispute.

Sen. Sherrod Brown, D-Ohio, said that in the two years in which the talks have been held “China’s currency remains undervalued, the dollar has depreciated and toxic imports continue to find their way onto store shelves and into our homes.”

Critics complained 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 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.

Asked whether the United States urged China in the meetings to speed up reforms meant to lift the value of China’s currency, Assistant Finance Minister Zhu Guangyao told reporters Wednesday that Paulson spoke of “notable progress in reform” of the Chinese currency.

Paulson is hoping the discussions will produce enough results to persuade the next administration to continue the meetings. The twice-a-year discussions, alternating between Beijing and Washington, began in 2006 at Paulson’s urging.

Nicholas Lardy, a China expert at the Peterson Institute in Washington, said the Chinese would like the talks to continue as a way of helping to maintain a strong working relationship with the United States.

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 on the regulatory mistakes that had contributed to the subprime mortgage crisis. He also told reporters at a briefing that he believed the dollar’s decline against other currencies over the past several years was contributing to the surge in the price of oil and other commodities.

Asked about those comments, Paulson said Wednesday, “I don’t know why Chinese officials can’t say something about U.S. dollar weakness. Everybody else does.”

While the administration wants the Chinese to open their financial system to foreign banks and investment houses, 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.

Food safety was one area the administration touted as a success with both countries signing a joint progress statement outlining the progress made in implementing better safeguards for food safety.