(Archived Content)
The United States and China today concluded the third Cabinet-level meeting of the Strategic Economic Dialogue (SED). President George W. Bush and President Hu Jintao established the SED to create a Cabinet-level forum to articulate long-term objectives while managing short-term challenges in our economic relationship. During the meeting held December 12 and 13, 2007 at Grand Epoch City near Beijing, 6 U.S. Cabinet officials and agency heads joined Secretary Paulson for discussions with China's Vice Premier Wu Yi and a delegation of 14 Chinese ministers and agency heads.
The SED is a mechanism for managing the U.S.-China economic relationship on a strategic basis. Stable and prosperous bilateral economic relations are increasingly important to both countries. At the meeting this week, leaders from both countries discussed the following topics: integrity of trade and product safety; balanced economic development, including financial sector reform; energy efficiency and security; environmental sustainability; and bilateral investment.
Integrity of Trade and Product Safety
The United States is one of the most open economies in the world, and American consumers benefit from this openness through access to a wide variety of products from around the world. Americans have every expectation these products are safe, and the United States continues to take steps with all trading partners to maintain that confidence in the safety and quality of these products.
China is an important trading partner for the United States, and both countries have a continuing dialogue to strengthen the integrity of their trade relationship. This has resulted in agreements this week by China to meet the strict requirements the United States has in place to protect consumers and ensure the safety and quality of products sold in the marketplace.
- Food and Feed Safety: As a result of a Memorandum of Agreement between the U.S. Department of Health and Human Services (HHS) and China's General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), China will strengthen requirements for registering and regulating companies that export food and feed products to the United States. This step will help prevent adulterated and substandard food and feed products from being transported between China and the United States. Additionally, China will begin to certify products that meet the requirements of HHS. To continuously ensure and monitor the safety of food and feed coming from China, the United States will establish processes to audit Chinese procedures for registration and certification of exporting companies.
- The U.S. Department of Agriculture (USDA) is finalizing a separate agreement with China's AQSIQ to allow both countries to facilitate trade related to meat, poultry and egg products.
- Drugs and Medical Products: HHS and China's State Food and Drug Administration (SFDA) have agreed to expand cooperation in the areas of the safety of drugs and medical devices. These steps will allow China to further combat pharmaceutical counterfeits, and strengthen the quality and safety of finished drugs, active pharmaceutical ingredients and exported to the United States.
- Environmentally Compliant Imports and Exports: The Environmental Protection Agency and China's AQSIQ have signed a Memorandum of Agreement to strengthen cooperation on sound environmental management practices related to imports and exports.
- Alcohol and Tobacco Products: The United States and China have signed a Memorandum of Understanding to expand collaboration and cooperation for the exchange of information on regulatory standards for alcohol and tobacco products, to improve the safety of imports and exports between the two countries.
- Consumer Products: Additionally, since September 2007, the United States and China have signed three separate agreements and work plans that strengthen cooperation with the goal of increasing the safety of consumer products. These agreements and work plans cover toys, fireworks, lighters, and electrical products; motor-vehicle safety; and pesticides. The agreements, in total, demonstrate the United States' continuing commitment to ensuring the safety of the American consumers and the integrity of products in the American marketplace.
Financial Sector Reform
New Commitments at the Third Cabinet-level SED
- Foreign Issuance of RMB Stocks and Bonds: China has agreed to allow foreign companies doing business in China, including banks, to issue RMB-denominated stocks and bonds. This will provide U.S. companies with new opportunities to finance and expand their sales in China.
- Limits on Foreign Investment: By the end of next year, China agreed to complete a study with recommendations on policies governing foreign equity participation in the banking sector. China also agreed to complete a study with recommendations on adjusting the extent of foreign equity participation in the securities sector. This will pave the way for greater business opportunities in China's growing financial sector for U.S. companies.
- Bank Administered Mutual Funds: Chinese and U.S. regulators have agreed to an exchange of letters allowing mutual funds administered by Chinese banks to invest in the U.S. stock market. This will create new business opportunities for U.S. money managers and new financing opportunities for U.S. companies.
Implementation of Previous SED Commitments
- Securities: China announced they will resume licensing of new joint-venture securities companies. In addition, China has also announced that it will allow foreign securities firms to expand their operations in China to include brokerage, proprietary trading and fund management. This will create new opportunities for U.S. firms in a variety of securities businesses. Several foreign firms, including some U.S. firms are in advanced stages of establishing new joint ventures.
- Qualified Foreign Institutional Investors: China has raised the quota for Qualified Foreign Institutional Investors, which allow foreign mutual funds to invest in China's domestic stock market, from $10 billion to $30 billion, creating new opportunities for U.S. mutual funds and money managers.
Exchange Rate Policy
- RMB Appreciation: The RMB has appreciated 12.2% since July 2005, and in the past year the annual pace of appreciation has accelerated from 3.4% in 2006 to 6.1% in 2007 year to date.
Energy Efficiency and Security and Climate Change
Building on the themes of the Major Economies Meeting hosted by President Bush in September, which stressed energy security and climate change, the United States and China agreed to conduct extensive cooperation over a ten-year period to address the challenges of environmental sustainability, climate change and energy security. This ten year collaboration will advance technological innovation, further the adoption of highly-efficient, clean energy technology, promote the development of technology to address climate change, and promote the sustainability of natural resources. We will establish a working group in order to start planning as soon as possible.
Both sides agreed to take additional steps to promote energy efficiency and security and address climate change:
- Low Sulfur Fuels: The United States and China agreed to expand cooperation on development of a detailed plan to gradually reduce the sulfur content in fuels to 50 PPM or lower and to introduce corresponding advanced vehicle pollution control technology, for incorporation into China's 12th Five-Year Plan. Sulfur dioxide is one of the contributors to acid rain, and adopting low sulfur fuels will allow China to reduce sulfur dioxide emissions from vehicles while addressing global energy efficiency and security challenges.
- Biofuels: The United States and China signed a memorandum of understanding to strengthen cooperation on the development of biofuels, which enhances energy sufficiency and lowers countries' carbon profile.
- Eliminating Barriers to Trade in Environmental Goods and Services: The United States and China reaffirmed their commitment "to reduce, or as appropriate, eliminate tariffs and non-tariff barriers to environmental goods and services" in the WTO. Recognizing the urgency of environmental challenges, both sides also agreed to meet in early 2008 and to work together to promote the negotiation in the WTO on the reduction or, as appropriate, the elimination of tariffs and non-tariff barriers to environmental goods and services to achieve results as soon as possible.
- Cooperation on Strategic Oil Stocks: The United States and China agreed to strengthen cooperation on construction and management of strategic oil stocks, including cooperation with the International Energy Agency (IEA). Coordinated use of strategic petroleum reserves increases energy security for net oil importing countries during times of significant supply disruption.
Environmental Sustainability
Protecting the environment and promoting clean energy represent a shared priority for the United States and China. The two countries are the two largest consumers of natural resources, and recognize that meaningful results require cooperation on a wide range of sustainable resource and environment initiatives. Agreements reached between the two countries include:
- Establishment of a National Emissions Trading Program in China: China announced that based on a joint U.S. and China study initiated at the first Cabinet-level meeting of the SED, China will develop and implement a nationwide program on sulfur dioxide emissions trading in the power sector. Sulfur dioxide emissions from power plants contribute to acid rain and fine particle pollution, and emissions trading is one of the most cost effective methods for reducing these emissions. The United States has agreed to provide technical assistance to support the development of the necessary infrastructure and institutional capacity for the successful implementation of the program.
- Combating Illegal Logging and Associated Trade: China and the United States concluded a Memorandum of Understanding (MOU) to combat illegal logging and associated trade and to promote sustainable forest management. The MOU establishes a bilateral forum that will commence work immediately to share information concerning shipments of timber, enhance law enforcement against illegal activity and encourage partnerships with the private sector to promote sustainable forest management. The MOU provides the basis for the negotiation of a detailed bilateral agreement on illegal logging and associated trade issues.
The MOU between the United States and China is groundbreaking as it is the first to address the important issue of illegal trade in a natural resource such as timber. Illegal logging contributes significantly to the high rates of deforestation currently occurring worldwide. Deforestation not only threatens the health and survival of forests and the humans and wildlife that depend on them, it is also estimated to contribute to 20 percent of worldwide greenhouse gas emissions.
- Clean Water: The United States will provide technical assistance in basic water management programs to assist China in the establishment of sound water pollution control and management practices, including permitting, the development of technology-based effluent standards, monitoring, enforcement, and compliance.
Bilateral Investment
The United States continues to vigorously promote openness to trade and investment. Inbound and outbound investment benefits the United States by stimulating growth, creating jobs, enhancing prosperity, and fostering competitiveness. Both the United States and China have a mutual interest in supporting and promoting open investment and market-based competition, and have agreed to create a high-level exchange on investment that covers investment policies, practices and climates.
- Progress on a Bilateral Investment Treaty: The United States and China jointly agreed to intensify ongoing discussions regarding the prospects of negotiating a Bilateral Investment Treaty providing meaningful investor protections. The next steps in discussions will continue to focus, in concrete terms, on the potentially most significant differences and expand the focus on other BIT obligations.
Transparency
Transparency in the rule-making process promotes confidence in government and provides predictability for market participants, thereby facilitating informed economic and business planning decisions. The United States and China have agreed to have rule-making systems that provide for public participation in rule-making, and to continue cooperating on transparency issues.
- Administrative Rulemaking: China and the United States each agreed, when possible, to publish in advance any measure covered by its WTO obligations that are proposed for adoption, and provide where applicable interested persons a reasonable opportunity to comment on such proposed measures. Each country may comply with this obligation by regularly publishing such proposed measures in its designated official journal or by posting and permanently maintaining these measures on an official website. They also agreed to publish in its designated official journal any final measure covered by its WTO obligations before implementation or enforcement.
- Cooperation: China and the United States agreed to discuss the scope of their international obligations on transparency, including their respective WTO and APEC obligations, before the next Cabinet-level meeting of the SED. They also agreed to continue exchanging information on administrative rule-making, including methods for reviewing and responding to public comments, and on the conditions, procedures, and timeframes for granting administrative licenses in areas of the Chinese market of interest to the United States and areas of the U.S. market of interest to China.
Innovation
The U.S. Departments of Commerce and State and the Chinese Ministry of Science and Technology, National Development and Reform Commission, and Ministry of Commerce co-hosted an Innovation Conference on December 10, 2007 in Beijing. At this important meeting, both sides discussed the factors contributing to a successful ecosystem for innovation, the appropriate roles of the public and private sectors in fostering innovation, and how to encourage the creation, protection and dissemination of intellectual assets. Both sides also reaffirmed the importance of the rule of law, market oriented policies and competition for innovation and confirmed the role of a robust intellectual property protection regime in supporting an innovation ecosystem. The two sides agreed to sustain dialogue and jointly host public-private innovation discussions.