Moving Forward to Create Jobs

By U.S. Congressman Rick Larsen
Co-chair, US-China Working Group

Next month's summit between President Obama and Chinese President Hu Jintao will receive worldwide attention, and appropriately so. The U.S. - China relationship is likely the most important bilateral relationship in the world, impacting every state, county, and congressional district in the United States. Economically, the US and the People’s Republic of China (PRC) are joined at the hip. According to the US-China Business Council (that keeps up-to-date US-China trade data for every State and Congressional district in the country) Washington State exports to China grew nearly 400 percent over the last decade – compared to 41 percent to the rest of the world – allowing small and medium sized businesses to export their products into the Chinese market and not their jobs. China is Washington’s largest export market, and as the President continues to work toward doubling exports in the next five years as part of his National Export Initiative, China will be a key market for U.S. companies.

But, many challenges face the trade relationship between the U.S. and China. Chinese government policy creates barriers to US companies’ ability to access the Chinese market. The most egregious example is the linkage between Chinese government procurement and innovation – known as indigenous innovation. Additionally, lack of intellectual property rights (IPR) protection in China, high barriers to investment, and the lack of transparency in Chinese government rule-making serve as barriers to US companies trying to enter or grow their exports in the Chinese market and unfairly tilt the playing field in the favor of Chinese domestic companies. The US-China Business Council’s “PRC Transparency Tracking” report of April 2010 found that, at best, roughly 50 percent of regulations and rules in China were posted for public comment, and few of those allowed the full 30 days for comment submissions.

The U.S. government has an opportunity to level the playing field for U.S. businesses when the Joint Committee on Commerce and Trade (JCCT) meets this week. Led by Commerce Secretary Gary Locke and United States Trade Representative (USTR) Ron Kirk on the U.S. side and Vice Premier Wang Qishan on the Chinese side, the JCCT is a forum for high-level dialogue on bilateral trade issues and a vehicle for promoting commercial relations between the U.S. and China. 

During the JCCT, it is necessary that U.S. representatives focus on removing barriers to U.S. exports into China. At the top of this list is breaking the link between Chinese government procurement and innovation. At both the central and provincial levels, Chinese government officials produce catalogs of products that receive procurement preferences by Chinese government agencies. To be included in these catalogs, the IPR of these products must be registered in China.  These indigenous innovation policies essentially remove the ability of American companies to compete fairly with their Chinese competitors for government procurement.

A second priority for the U.S. during the JCCT is IPR protection and enforcement. The U.S. business software industry lost close to $8 billion last year as a result of China’s lack of IPR protection.  For a company like Microsoft, this translates to the loss of 5,000 – 10,000 jobs; and the overall impact to the U.S. economy could be as high as 60,000 lost jobs in the United States.  China has indicated it is committed to cracking down on IPR fraud, but still has a long way to go. IPR protection is critical for innovation for both American and Chinese entrepreneurs. The better China protects IPR, the better off American and Chinese business leaders will be.

China must lower barriers to foreign investment.  The JCCT is a perfect opportunity for the U.S. to push China to open more sectors to foreign investment, especially the services sectors, and reduce ownership restrictions.  One example, consistent with outcomes of the Strategic and Economic Dialogue, is for China to remove any requirements for U.S. companies to transfer their technology in order to participate in China’s New Energy Vehicle (NEV) industry or entry into the NEV market.  

One constant concern raised by the Chinese is the U.S.’s export control policies. Earlier this month, President Obama announced a series of regulations as part of the implementation of the new U.S. export control system that was launched in August of 2010. Consistent with national security concerns, the key changes include the rebuilding of U.S. export control lists and revamping the licensing process. These improvements to U.S. export control policies are important as U.S. companies seek to increase exports around the world. The National Association of Manufacturers (NAM) has strongly endorsed these changes and the Milken Institute estimates that modernizing these controls could enhance GDP by $64.2 billion and create 160,000 manufacturing jobs. 

The ability of U.S. companies to export their products overseas, and particularly into the growing Chinese market, is critical for creating jobs here at home. The JCCT this week provides the Administration an opportunity to continue to push China to lower barriers to foreign investment and level the playing the field for U.S. companies to sell their products to the Chinese public.  

I look forward to seeing positive outcomes from the JCCT and from the upcoming summit between President Hu and President Obama.