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Few issues loom as large on U.S. economic and foreign policy agendas as our relationship with China. China is a $500 billion market for American companies—and should be more. Meanwhile, China exported nearly $450 billion to the U.S. in 2013, as more Chinese companies look to the United States to invest. In fact, Chinese annual FDI in the U.S. now exceeds FDI by U.S. companies into China.
Yet there are serious and growing challenges—both strategic and economic—that could derail these positive trends. Since the opening to China in 1972, senior government officials and business leaders have shared a commitment to keep our relationship on track. We urgently need to revive that vision again—in both capitals at senior levels, supported by the two business communities.
With the 5th U.S.-China Strategic and Economic Dialogue (S&ED) to begin July 9, and President Obama visiting China for the APEC Leaders’ Meeting in November, the U.S. Chamber of Commerce sees a critical, 100-day window for both governments to strengthen U.S.-China relations. Last month, we issued an 80-page report, in Chinese, that assesses the opportunities for Chinese participation in U.S. infrastructure. And later this year, we will join the Peterson Institute of International Economics in its release of a new study on the economic and policy considerations of a U.S. – China Free Trade Agreement. Overall, we are focused on three key ways to deepen U.S.-China economic relations: promoting two-way investment, enhancing government and business cooperation in the areas of financial services, healthcare, and energy and environment, and advocating free and open bilateral trade in the Asia Pacific region through APEC and ultimately, a “WTO-plus” regional arrangement.
Start with two-way investment. The single most decisive step both sides can take to accelerate two-way investment is to conclude negotiations on a bilateral investment treaty (BIT). When the U.S. Chamber and China Center for International Economic Exchanges (CCIEE) co-convene CEOs and former senior officials on both sides for the sixth time later this month in Beijing, they will again underscore the need not only for a timely conclusion to the negotiation, but for a more positive “narrative” about the benefits of increased two-way FDI. A high-standard BIT, with narrowly focused and sharply limited negative lists, can address many of the commercial concerns in the relationship. The Chamber is urging both governments to conclude an agreement as soon as possible.
Even as BIT negotiations move forward, the two governments should take immediate action to promote two-way investment. In the U.S., this means keeping the door open to Chinese investment, ensuring the CFIUS foreign investment review process continues to work efficiently, and rejecting the call by some to expand reviews to include economic benefit criteria. In China, this means taking immediate steps—consistent with the Third Plenum Decision—to remove FDI limitations and other barriers in sectors ranging from financial and electronic payments services to value-added telecommunications, cloud and express delivery services. By boosting China’s services economy, these steps would help pave the way for China to join the Trade in Services Agreement (TISA) and ultimately the Transpacific Partnership (TPP). They would also create new opportunities for all companies in China, regardless of national origin and ownership, to compete equally—a critical step in Beijing’s reform agenda.
The second opportunity area is sector-specific commercial partnerships. Some of the targets here are financial services, energy and healthcare. For example, the U.S. financial services industry is uniquely positioned to provide financial products and services that can help China’s citizens and businesses invest, mitigate risk, provide for retirement, and consume at higher levels. This would help China develop an economy that is more consumption-driven and in which capital is more efficiently allocated—two keys to China’s effort to realize a more stable and sustainable economy.
Third, as a path to WTO-plus, the two countries should aim at strengthening the WTO as well as promoting free and open trade in the region through APEC. The most immediate opportunity to drive this element of the agenda is for both governments to reach agreement at this week’s S&ED to expand the WTO Information Technology Agreement (ITA II).
We should also expand information exchange on the Transpacific Partnership (TPP), Regional Comprehensive Economic Partnership (RCEP) and other regional negotiations, in order to enlarge the areas where our interests converge. Once the TPP and RCEP agreements are concluded, both sides can work together to enhance APEC’s role to help facilitate the integration of all APEC economies by 2020.
None of these recommendations will be easy to achieve, but in every case the opportunities are significant, and the downside of failure enormous. For our part, the U.S. Chamber will continue our efforts to educate both sides about the massive opportunities in the relationship, as well as advocate for policy changes that will create a better environment for two-way commerce.