Investment treaty key for US, China

US Trade Representative Michael Froman said negotiating a high-standard Bilateral Investment Treaty (BIT) is the focus of US trade talks with China.

His comments on Wednesday came after senior leaders in both countries recently expressed a strong desire to conclude the talks next year.

"Our focus with China right now is on the Bilateral Investment Treaty, which is one key set of issues on investment that are part of an overall high-standard approach," Froman told a group at the Wilson Center in Washington.

"We are working with China to see whether they can move forward on a high-standard bilateral investment treaty," he added.

The chief US trade negotiator said a short negative list discussed under the BIT would mean everything is open in China except for a few things that are specially listed. He described it as a good test case for a high-standard agreement with China.

Froman, who was in Beijing last week with President Barack Obama for the APEC leaders' summit and an official visit to China, called the tariff-cutting Information Technology Agreement (ITA) reached between the two countries a week ago "a major breakthrough".

He did not say why the US has not responded to last month's comment by Chinese Vice-Finance Minister Zhu Guangyao that the Trans-Pacific Partnership (TPP) is incomplete without China's participation.

Zhu's words are widely regarded as a major turning point in China's attitude towards TPP. China has evolved from having a deep suspicion of TPP as part of a US containment strategy of China to showing an interest in the regional free trade agreement.

Froman said he noted Zhu's comment, saying China has been following the TPP with some interest and has asked the US to update its officials on the status of the negotiations, "which we are happy to do".

He also noted that China is pursuing its own trade policies such as the Regional Comprehensive Economic Partnership (RCEP) or bilateral and trilateral trade agreements with neighbor countries.

In the past week, China and Australia announced the conclusion of a bilateral Free Trade Agreement (FTA), while China and South Korea announced they would conclude an FTA next year.

Froman said China and the US have agreed to keep each other updated on various initiatives and focus on areas where they can work together, such as the ITA.

Ely Ratner, a senior fellow and deputy director of the Asia-Pacific Security Program at the Center for a New American Security, wrote in Politico magazine that the growing consensus in Beijing that China should try to be part of the TPP reflects not only the potential economic benefits it could accrue by joining the grouping, but also the fact that the changes necessary for China to qualify for membership could advance President Xi Jinping's efforts to make domestic economic reforms in areas such as market access, government procurement, intellectual property rights, labor standards and environmental protection.

Froman said the Obama administration is working closely with the US Congress on the TPP, in particular the Trade Promotion Authority (TPA) that would give the US president fast-track negotiation authority. He said there have been 1,500 briefings regarding TPP alone on Capitol Hill.

While Obama would see more opposition to TPA from his fellow Democrats in Congress than the usually pro-trade Republicans, observers believe there is no guarantee that Republicans, who took over both houses of Congress in the midterm elections early this month, would let Obama score political points ahead of the 2016 presidential election. Deep divisions on issues such as immigration have intensified the partisan political gridlock in Washington.

Jean Harman, director of the Wilson Center, said on Wednesday that she hopes trade will be an issue that Obama and the Congress can use to mend fences. "I think the US faces a choice: be in or be left behind," she said.

"There are many strong economies and regional organizations in this world that are trading with each other. And I think this is a moment in US history where we are not necessarily in the driver's seat," she said.

Without the TPA from Congress, the Obama administration finds itself less convincing in negotiating with some of its 11 TPP partners, in particular Japan.

While the Japanese government, under heavy domestic political pressure, has refused to open its agriculture and automotive markets, news this week that the Japanese may have slid back into recession cast a new shadow over the talks. Meanwhile, the US has also been reluctant to open its dairy market.

Many analysts believe if Obama cannot conclude the TPP talks in 2015, he may never achieve it during the rest of his time in office, thereby delivering a heavy set-back to his rebalance to Asia strategy.