Recommending that the U.S. and China work toward a free-trade deal is a bit like stepping into a prize fight and asking the boxers to settle their differences peacefully.
But some powerful people on both sides of the Pacific Ocean are doing exactly that. A report by a blue-ribbon, binational panel assembled by the China-United States Exchange Foundation said this week that the countries “should begin early-stage discussions of the opportunities and challenges of an eventual bilateral free-trade agreement.”
The foundation, although little known to the general public, carries enough weight that Henry Kissinger, the former secretary of state who was present at China’s opening to the world in the 1970s, showed up to launch the report at a packed event on May 21 at the Asia Society on New York’s Upper East Side.
C.H. Tung, the foundation’s chairman, was the first chief executive of Hong Kong after it was absorbed by China in 1997. Members of its steering committee include, on the U.S. side, Kissinger; Bill Gates; former Commerce Secretary Carlos Gutierrez; Carlyle Group (CG) CEO David Rubinstein; PepsiCo (PEP) CEO Indra Nooyi; PricewaterhouseCoopers Chairman Dennis Nally; former Chicago Mayor Richard Daley; and insurance executive Maurice Greenberg, who ran American International Group (AIG) when it was the world’s biggest insurer. Chinese representatives included top executives from such companies as Haier (HRELY), Industrial & Commercial Bank of China, Suntech Power (STP), Sinopec (SHI), and SAIC Motor (600104).
The group chosen to write the report included a Nobel laureate, economist Michael Spence of New York University, and a range of other economists, executives, and government officials from the U.S., Hong Kong, and mainland China.
The report, “U.S.-China 2022,” urges that a study of “the feasibility and the benefits” of a free-trade agreement be completed within a year of commencement, and that “if the results of the study are positive, then a process toward negotiations should be initiated.” In addition, the report says the countries should complete negotiations on an investment treaty “as soon as possible, preferably within one year.” Trade applies to the purchase of goods and services, while investment applies to land, buildings, companies, and the like.
The authors don’t see bilateral free trade as a replacement for broad free-trade agreements. In fact, they say China and the U.S. should “take the lead to reinvigorate” the Doha Round of global trade talks under the auspices of the World Trade Organization.
The hurdle for free trade is high because even the trade relationship the U.S. and China already have is fraught with stress. The latest flash point is accusations by the U.S. and Europe that Chinese manufacturers of solar panels have dumped their products abroad at below cost, damaging or destroying U.S. and European domestic producers. Preliminary talks are under way now to set a quota on Chinese exports and a minimum price for solar-energy equipment, in exchange for suspending U.S. duties on the goods, Bloomberg reported May 20.
The dispute-resolution mechanism of the World Trade Organization has become a battleground for trade complaints involving China and the U.S., University of Arkansas political scientist Ka Zeng wrote this year in a blog post for The Diplomat, an Asia-Pacific current affairs magazine.
Meanwhile, Chinese officials are skeptical of America’s intentions in negotiating the Trans-Pacific Partnership, a free-trade agreement for Pacific Rim nations that doesn’t—at least for now—include China, an article in the Washington Quarterly said last year.
One question is whether the gain of negotiating a free-trade agreement is worth the pain. Multilateral trade groups such as the WTO or, some day, the TPP, might actually be a better forum for the U.S. and China, allowing the two countries to settle their differences in a less confrontational way than in face-to-face bilateral talks.