23rd February 2012

Bridges Weekly | Trade Issues Come to the Fore as US Hosts Chinese Vice President


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Washington and Beijing’s often contentious trade relationship again found itself in the spotlight last week, with the much-anticipated visit of Chinese Vice President Xi Jinping - expected to take the helm of the Chinese government next year - to the US. Trade dominated the agenda of the weeklong trip, which saw the resolution of a five-year conflict regarding Beijing’s restrictions on the importation and distribution of foreign films.

Movie deal

The US and China have long been at odds over the latter’s policies regarding foreign film imports - a disagreement that was addressed with other trade barriers for audiovisual services in a 2007 WTO dispute, billed in the press as a fight between Hollywood and Beijing.

“US studios and independent filmmakers cite China as one of their most important world markets, but barriers imposed by China and challenged by the United States in the WTO have artificially reduced the revenue US film producers received from their movies in the Chinese market,” said US Trade Representative Ron Kirk.

“This agreement will help to change that, boosting one of America’s strongest export sectors in one of our largest export markets,” Kirk continued.

China imposes an import quota of 20 foreign films per year, which has previously limited Hollywood’s access to China’s entertainment market. Under the deal announced by US Vice President Joe Biden on 17 February, China will now allow an additional 14 foreign films per year in enhanced formats such as IMAX or 3D, along with the 2D counterparts for these films.

The revenue-sharing component of the agreement also raises the cut that foreign film companies will get from box office ticket sales from the current 13 to 17 percent to 25 percent.

This week’s agreement only addresses part of the WTO dispute and does not take the form of formal WTO ruling implementation.

In the China - Publications and Audiovisual Products case(DS363) at the WTO, Washington argued that Beijing’s requirements for copyrighted publications and audiovisual products - books, journals, video games, music, DVDs, and the like - to be imported and distributed via a handful of state-approved or state-run middlemen violated China’s commitments at the global trade body.

The US also claimed that these rules encouraged piracy that severely hampered the ability of US producers of such products to make money in China.

China lost an Appellate Body ruling in December 2009; the parties then agreed that China would implement the decision by 19 March 2011, only for Washington to later challenge Beijing’s compliance efforts with the ruling. Despite China arguing that it was making “tremendous efforts” in this area, the two sides have spent the latter half of 2011 working to resolve their differences (see Bridges Weekly, 30 March 2011).

The deal will be reviewed after five years, according to the White House announcement; if it is not working as expected, the US could bring the issue back to the global trade arbiter. Other issues that had been addressed in the WTO dispute, however, continue to await implementation in China. No formal statements are available at this point as to whether the US will continue to pursue the option of retaliatory measures for these elements of the dispute.

The US has a US$12 billion global trade surplus on films and other audiovisual products, according to the White House.

Trade tensions lurking in the background

With the US election year in full swing, campaign trail rhetoric from both sides has repeatedly targeted Washington’s fractious trade relationship with Beijing - a tension that was not lost on officials on either side during Xi’s visit.

The two countries have sparred repeatedly in recent years, on issues ranging from Beijing’s valuation of its currency and protections of intellectual property rights to both countries’ support of their respective renewable energy sectors.

The US trade deficit with China also widened in 2011 to a record US$295.5 billion, according to trade data released earlier this month by the US government, adding to existing tensions.

Just one day prior to his meeting with Xi, Obama submitted a budget proposal request for the 2013 fiscal year that asked Congress for US$26 million in new funding to ensure that Washington would have the “capacity to bring additional trade cases that will level the playing field against countries around the world, including China,” according to White House officials.

The economic and trade issues between the two countries featured prominently during the Chinese Vice President’s discussions last week with both the US President and Vice President.

After meetings with both officials, Xi told a business audience last week that China “has taken steps” to address US concerns regarding the current trade imbalance, intellectual property rights protection, indigenous innovation, and the investment environment.

In light of these efforts, Beijing hopes “that the US side will adopt the same positive attitude and take credible steps as soon as possible to address Chinese concerns on lifting restrictions on high-tech exports to China and providing a level playing field for Chinese companies investing in America,” he continued.

Meanwhile, Biden emphasised at the same event that “competition can only be mutually beneficial if the rules of the game are understood, agreed upon, and followed,” while noting improvements in “areas of concern.”

The contentious currency issue also came up during Xi’s visit, with Obama and Biden both telling the Chinese Vice President that the yuan - also known as the renminbi - still remains “substantially undervalued,” despite recent appreciation.

Critics of Beijing’s currency policies argue that the undervaluation of the renminbi acts as the equivalent of an export subsidy by making Chinese goods cheaper than their foreign counterparts.

ICTSD reporting; “Chinese leader Xi, Biden promote trade, in LA,” ASSOCIATED PRESS, 18 February 2012; “U.S. Films Win China Access as Xi Wraps Tour with Import Vow,” BLOOMBERG, 19 February 2012; “Obama attacks Chinese business practices,” FINANCIAL TIMES, 15 February 2012; “Obama eyes more money for China trade enforcement,” REUTERS, 13 February 2012.

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