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Don't Let Iran Hijack the U.S.-China Strategic and Economic Dialogue

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By Daniel Michaeli and Joel Backaler

Monday's Strategic and Economic Dialogue between the United States and China provides the Obama administration with an opportunity to forge agreements in a number of areas of crucial significance for both U.S. economic competitiveness and strategic stability in Asia--but only if U.S. negotiators are willing to give non-headline topics the attention they deserve.

At this time of economic uncertainty, the future of the American economy is firmly linked to the ability of U.S. companies to compete for marketshare in China, the world's fastest-growing market. So U.S. Treasury Secretary Geithner's agenda should not overstress the revaluation of China's currency. Despite the degree of media attention paid to the issue, nearly 80% of U.S. firms in China don't expect a revaluation to increase their profits, according to a recent American Chamber of Commerce in China survey. Rather, across a host of industries, Chinese commercial rules give domestic firms an unfair leg up over American ones, and this is the more significant reason U.S. companies have been unsuccessful in cracking the Chinese market.

Secretary Geithner should start with China's vexing rules limiting ownership of Chinese ventures by foreign companies. These rules empower Chinese partners to demand the transfer of high-end technologies in exchange for access to China's market. In recent years, Beijing forced companies like Siemens and Kawasaki to enter into joint ventures before bidding on multi-billion dollar high-speed rail projects. Today, Chinese venture partners and the national railway ministry are using the same foreign companies' own technology to outbid them around the world--including the building of California's new high-speed rail infrastructure.

Government procurement rules are another major source of trouble. To sell to state-owned enterprises, which control over 50 percent of total industrial assets in China, or to the Chinese government, multinational companies are forced to battle a constant stream of new policies discriminating against them.

While in Beijing, Secretary Geithner should certainly discuss global imbalances and economic recovery. And it is understandable that he will want to raise China's currency as a topic. But he should also make clear that a priority for the administration is addressing the market access problems most troubling American manufacturers, farmers, and technology innovators. This dialogue would be an ideal time for China to join--finally--the World Trade Organization's agreement against favoring national companies in government procurement.

On the strategic side of the dialogue, Iran and North Korea loom large, and appear likely to delay or sidetrack actions necessary for ensuring security in Asia over the longer term.

But Secretary Clinton needs to prioritize working to convince China to agree not just to open, but to keep open, lines of communication between the U.S. Pacific Command and commands in the People's Liberation Army. In January, Beijing suspended U.S.-China military-to-military ties in retaliation for a U.S. arms sale to Taiwan. Such retaliation makes little sense for China and can be downright dangerous: cutting lines of communication deepens mistrust, increases the risk of accidents and miscalculations, and encourages a quiet arms race in Asia.

And the secretary should also emphasize the importance of developing protocols for military incidents at sea and in the air, along the lines of what the U.S. and Soviet Union signed in 1972. Without a legal framework, as encounters between the U.S. and Chinese navies continue to increase, future deadly yet avoidable encounters are bound to occur, like the 2001 incident in which a Chinese fighter pilot lost his life.

Military matters like these traditionally lie within the realm of the U.S. Department of Defense. But a meaningful strategic and economic dialogue would be short-sighted if it failed to raise strategic issues of such importance.

Along the same vein, as U.S. and Russian nuclear stockpiles are reduced, the absence of U.S.-China bilateral discussions on nuclear arms is conspicuous. In 2005, former secretary of defense Rumsfeld was able to discuss nuclear doctrines with General Jing Zhiyuan, who commands the military branch responsible for China's nuclear arsenal. Now, the dialogue begun on these subjects in 2005 must be restarted and expanded, a step towards eventually incorporating China into future arms reductions agreements.

For Beijing, official talks with the United States can be opportunities to probe which issues require its attention and which it can disregard, depending on whether the issues are priorities for either the U.S. or the Chinese governments and how they affect Chinese national interests. Engaging China on pressing issues like Iran's nuclear program and North Korea's sinking of a South Korean navy ship earlier this year ought not come at the expense of long-term bilateral priorities. For the Strategic and Economic Dialogue of 2010 to be successful, the United States cannot allow discussion to be hijacked entirely by headline topics.


Daniel Michaeli is a research associate in Asia studies at the Council on Foreign Relations, and he blogs at Asia Ruminations; Joel Backaler is head of operations, Asia-Pacific for Frontier Strategy Group, and he blogs at the China Observer.