The US-China Business Council board came together earlier this year to outline its goals for the evolving US-China commercial relationship.
In February, the US-China Business Council (USCBC) released its first ever board of directors statement of priorities outlining its to-do list for both the US and PRC governments. The priorities cover a set of five big ideas: ensuring a fair and open investment environment, reducing trade barriers and enforcing globally accepted trade rules, ensuring equal treatment of companies and improving transparency, providing strong intellectual property protection, and adhering to mutually beneficial innovation policies. CBR Associate Editor Ben Baden spoke with USCBC President John Frisbie in mid-June to discuss USCBC’s recently released priorities and his take on the progress that has been made in opening up the Chinese market to US companies.
Why did you choose to release the board statement of priorities now, and what do you hope to accomplish with the statement?
Frisbie: USCBC’s board includes CEOs and senior executives representing some of the best companies in America. I think that both the US and Chinese governments recognize this, which is why USCBC gains such strong access to government leadership in both countries. The USCBC directors discussed over the past several board meetings whether there are better ways to foster engagement between the US and Chinese governments and make progress on issues important to the business community. One tool we had not used was to put the weight of the USCBC board behind a specific set of priorities and recommendations that would yield positive results for what has quickly become the most important bilateral commercial relationship for both countries. We need to see progress on the issues prioritized in USCBC’s board statement. In the absence of progress on these core issues, support for the commercial relationship will weaken over time.
How would you describe China’s overall progress to open up its market to US companies in recent years?
Frisbie: The numbers are pretty clear: Since China joined the World Trade Organization (WTO) in December 2001,US exports to China have grown exponentially and topped $100 billion in 2011. American companies that have invested in China sell another $127 billion in China. If you include services exports and exports to China through Hong Kong, China is probably a $250 billion market for US companies, after eliminating overlaps.
It has been almost 25 years since P&G started its business in China. Now, P&G China is the largest consumer product goods company in China with 10 manufacturing plants and annual revenues of more than $6 billion.
Having said that, the market should be even bigger. China still has investment and market access barriers in numerous sectors, and intellectual property piracy further undermines sales of legitimate products that would benefit Chinese consumers. For example, USCBC has counted about 100 product or services sectors in which China imposes ownership restrictions on US companies. Licensing delays impact expansion of financial sector and other companies seeking to expand in China. Foreign financial companies have less than 2 percent of assets in China. Express delivery companies have continuous customs clearance and other issues that prevent the flow of goods and services. The list goes on.
Some of the issues outlined in the board statement were addressed at the Strategic and Economic Dialogue (S&ED) held in Beijing in May. Are you satisfied with the outcomes?
Frisbie: The S&ED, the US-China Joint Commission on Commerce and Trade (JCCT), and the US-China Investment Forum are all important components of expanded and continuous engagement on economic and commercial issues between the US and Chinese governments. There has also been fairly constant engagement at the presidential and vice presidential levels, as well as telephone calls in between the summit events involving Treasury Secretary Tim Geithner and Vice Premier Wang Qishan, for example. This engagement needs to continue—and probably expand to fit the size of the ever-expanding relationship.
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USCBC BOARD OF DIRECTORS’ STATEMENT OF PRIORITIES IN THE US-CHINA COMMERCIAL RELATIONSHIP
The US-China Business Council (USCBC) supports a strong, mutually beneficial commercial relationship with China. The relationship has made many positive strides over the past three decades, thanks to the collaborative work of the governments, business communities, and other stakeholders in both countries.
More work needs to be done in order to fully develop commercial ties, tackle unresolved issues, and bring greater benefit to each country’s economy, companies, employees, farmers, and consumers. USCBC calls upon the US and Chinese governments to work together on the following priority issues in the commercial relationship, and lends its full support to achieving the following goals:
- Ensure fair and open investment environments that create jobs
- Reduce trade barriers and enforce globally accepted trade rules
- Ensure competitive neutrality and improve transparency
- Provide consistent, strong intellectual property rights protection
- Adhere to mutually beneficial innovation policies
The May S&ED did produce valuable outcomes for the business community in the areas of raising ownership caps for foreign securities firms in China, opening up the auto financing business, resuming negotiations on a bilateral investment treaty (BIT), and at least expressing intent to make improvements in access to China’s government procurement market and strengthening intellectual property rights enforcement. In fact, of the 25 or so specific recommendations in the USCBC board priorities statement, about a dozen were included or touched upon in the S&ED joint statement of outcomes. The S&ED may not have solved every issue, and the agenda remains full, but progress has to continue if we are to show that dialogue is better than protectionism.
Looking ahead to the fall, do you expect further progress to be made on the US-China commercial relationship with elections in the United States and a leadership transition in China?
Frisbie: Elections in the United States and the leadership transition in China ensure that we will see a slowdown in high-level exchanges as we get into the last half of 2012 and the first half of 2013. I expect we will see a fairly robust set of working level exchanges on key items, such as the resumption of discussions between the United States and China on a BIT. Now that the Obama administration has finished its review of the US model BIT, it is time to find out if the core component of a strong BIT—the elimination of ownership restrictions on foreign investors—is something China is willing to put on the table. China has concluded something like 40 BITs with other countries including Germany, but none of them have dealt with this important level-playing-field issue.
The JCCT remains in front of us, too. I suspect the JCCT leadership meeting will take place after the US elections and, most likely, the Chinese Communist Party Congress in the autumn. That meeting will bring Vice Premier Wang to the United States, and I hope the two sides will continue to reduce trade and investment barriers through this important channel. Many observers overlook that a “mid-year review” was added under the Obama administration, at the deputy level, designed to keep pushing forward on the issues in between the annual JCCT leadership summit. That session should take place this summer, and I hope the two sides will show constituencies in their respective countries that this is a relationship that keeps moving forward and solving issues that hold back economic growth.
With a new board and board chair, where do you see USCBC headed in the future?
Frisbie: Incoming USCBC Chair Bob McDonald leads one of the great American companies, Procter & Gamble (P&G). P&G is in fact the largest consumer goods company in China—that says a lot. In our immediate future is a USCBC board delegation visit to China in late June to hold discussions with senior Chinese government officials, including the incoming premier, and Chinese CEOs on how to advance this most-important of commercial relationships. With the upcoming political calendars in each country, the timing couldn’t be better. The USCBC board’s statement of priorities in the US-China commercial relationship will be front and center in our delegation meetings.
