Wu Yi must compromise to ease friction

Chinese Vice-Premier Wu Yi will lead a delegation to Washington this month for what may be the toughest trade negotiations since the World Trade Organization accession talks of 2000 and 2001.

The two sides will address a number of thorny issues that could set the tone for Sino-US trade relations in the next four years.

President George W. Bush, seeking a second term in November's presidential election, is under pressure from labor unions and small and medium-sized manufacturers to extract concessions from the mainland.

"The trade relationship is the best in the past 25 years, but the trade friction is also at the worst in the past 25 years," said Tao Dong, an economist for Credit Suisse First Boston in Hong Kong.

Ms Wu's delegation, including 10 ministers and vice-ministers, is scheduled to arrive in the US on April 21.

Ministry of Commerce spokeswoman Fu Yan refused to comment on Beijing's strategy but analysts believe Ms Wu will at least offer to buy "several billion dollars" worth of US products to help lower the trade deficit.

Jim Gradoville, a vice-president of government relations at Motorola in Beijing and the chairman of the American Chamber of Commerce, said, "If that is all the Chinese side is willing to concede, that would not be sufficient."

Two weeks ago, Mr. Gradoville was on Capitol Hill offering politicians a perspective from the US business community on the mainland. The chamber was pushing for Washington to gain concessions from Beijing, the foremost one being transparency, Mr. Gradoville said.

"There are so many new laws and regulations in progress. We are looking for a way to engage the Chinese government. We hope to give input before the laws are implemented."

A second concern regards industry standards. Officials have been trying to force international manufacturers, many of which subcontract on the mainland, to make Chinese standards their global standards. Foreign companies are excluded from this process.

There are also concerns regarding the protection of intellectual property rights. Software piracy and counterfeits cost producers of foreign brands and hi-tech companies billions of dollars every year.

"This is the highest priority for the US government," Mr. Gradoville said.

US officials will push Ms Wu to make counterfeiting a crime with stiff prison sentences. At present, counterfeiters and pirates are often given just token fines.

Another issue concerns capital requirements. Despite its WTO commitment to allow foreign banks and insurers full market access by 2007, mainland officials disregard the capital reserves these firms may have abroad and require them to deposit substantial amounts of capital on the mainland just to open branches.

Distribution rights may also be on the agenda. By December 11, foreign firms will be able to have full distribution rights on the mainland under another WTO pledge. However, officials have yet to give any clue on when a draft regulation on distribution rights will be ready. (South China Morning Post)