U.S.-China JCCT – A never-ending dialogue, for an ever-expanding list of issues.

In December 14-15, Chinese officials met with their American counterpart in Washington DC for the plenary meeting of the U.S.-China Joint Committee on Commerce and Trade (JCCT). This was the 21^st Session of the JCCT, high level talks between U.S. and Chinese government officials intended to address the more technical trade issues of the bilateral relationship. This month’s session was co-chaired by U.S. Commerce Secretary Gary Locke and U.S. Trade Representative Ron Kirk, together with China’s Vice Premier Wang Qishan.

Established in 1983, the JCCT is an annual government-to-government platform designed to develop and facilitate the U.S.-China commercial relationship. Over the years, the JCCT talks have grown to cover a multitude of issues, conducted by an ever growing number of delegates and diplomats. This JCCT is in preparation of President Hu’s visit to Washington DC, in mid-January, 2011.

U.S.-China trade relations have always been ‘complicated,’ but in recent years (post financial crisis) they have taken an added significance. The U.S. is running a huge trade deficit with China, and unemployment is well over 10%. Couple that with China’s undervalued currency and increasing use of industrial policies, and tensions between the two are running high.

The need for more in-depth trade negotiations between the U.S. and China were never more important. The U.S. uses the JCCT as a forum to identify and resolve problems and to expand trade opportunities in China. China, however, uses the forum as an opportunity to stall the resolution of bilateral trade issues, and delay any meaningful market reform domestically.

This month’s talks included a plethora of issues that have been of concern to the U.S. government and private businesses. However, most of these issues have been on the table for years, and final resolution is still not certain, even after the recent negotiations. The fact sheet on the 21^st U.S.-China JCCT, issued on December 15 2010, further delineates all the issues discussed and all the positions to be taken by China and the U.S. Here are some of the highlights:

· Intellectual Property Rights (IPR) protection – The U.S. government has been complaining about the inadequacies of China’s IPR protections for a long time, and it even filed a complaint with the WTO Dispute Settlement Body on April 2007. Of particular concern to the U.S. have been violations committed by Chinese government agencies and Chinese state-owned enterprises. China promised to establish a ‘software asset management systems’ for government agencies, to more effectively implement software legalization. As a start, thirty major Chinese state-owned enterprises will participate in a pilot project with the government aimed at boosting use of legal software. China promised more studies and investigations into the mater, and more talk in January 2011 on how to better verify compliance with legalization requirements.

· Indigenous Innovation policies – China’s “indigenous innovation” program has been of particular concern to the U.S. and the EU, because it mandates that government procurement favor Chinese products. This is especially troubling to an economy where state-owned and state-controlled enterprises still dominate the market. China provided new assurances that its efforts to promote domestic innovation wouldn’t discriminate against foreign firms. Furthermore, China promised not to provide preferential treatment based on the standard or technology used in 3G or successor networks. However, promises made by the central government will be hard to maintain by local authorities, especially for something like promoting indigenous innovation – a primary objective of China’s five-year plan.

· Accession to the WTO’s Government Procurement Agreement – China is able to implement its discriminating and trade distorting ‘indigenous innovation’ program because it never signed the WTO’s government procurement agreement, which prohibits such favorable policies. Although China promised when joining the WTO in 2001 that it would do so “soon”, it has yet to make any serious effort to that end. China has agreed to provide a second revised offer to the WTO Government Procurement Committee before that body’s final meeting in 2011.

· Beef and Poultry – U.S. beef has been effectively barred from the Chinese market since 2003 after a scare over mad cow disease. Over a year ago, U.S. poultry from select states was also restricted access to the Chinese market (by restricting import licenses to U.S. poultry importers), due to concerns over avian influenza. China has now agreed to lift the ban on U.S. poultry, and to pursue a “staged” opening of its beef market. Of course, further talks will have to be conducted in January.

Although China made a number of new commitments on a range of issues and bilateral trade problems, the most recent JCCT did not produce any agreement on how to verify and measure progress towards meeting these commitments. This was a requirement pursued strongly by both business leaders and members of the U.S. Congress, who are increasingly growing impatient with the lack of progress on bilateral trade issues.

Although the U.S. government has tried many times to ‘negotiate’ its way out of trade issues with China, complaints about Chinese discriminatory policies have fallen increasingly on deaf ears. Unless the U.S. is willing to back its complaints with credible treats of retaliatory action (or other types of real leverage), there is no incentive for the Chinese government to change what has proven a very successful trade strategy. This attitude by the Chinese government has further amplified by the quick rebound and the strong economic performance by Chinese after the global financial crisis.

China needs to demonstrate that it can live up to its promises, before U.S. government and the U.S. Congress lose all patience and adopt a more hard line towards China. More WTO cases to open-up the Chinese market or retaliatory legislation about the undervalued Chinese currency might be on their way.

Unfortunately, next month’s visit to Washington DC by China’s president is too soon for any course correction, or any meaningful demonstration on the part of China that it understands the changing attitude of American policy-makers.