U.S. Should Get Tougher on China’s Deal Making, Panel Says

November 17, 2016


[Edward Wong| November 17, 2016 |The New York Times]

Congress should exercise greater scrutiny over trade and investment practices between the United States and China in order to prevent China from taking advantage of the economic relationship, a congressional commission said in a report released on Wednesday.

In its long list of recommendations, the commission advised Congress to authorize a government panel that reviews foreign takeover deals to bar Chinese state-owned companies from acquiring or gaining “effective control” of American companies. It also said Congress should ask a government watchdog agency to write a report on whether large-scale outsourcing of manufacturing to China “is leading to the hollowing out of the defense industrial base.”

The commission also suggested ways in which Congress could better bring antidumping cases against China.

Each year, the U.S.-China Economic and Security Review Commission releases a report to Congress with recommendations based on months of research. The commission aims to make suggestions after examining trade, investment and national security issues between the two nations. Its recommendations are not binding.

The report this year took a critical look at the free-trade relationship between the United States and China — for example, implying that the countries are not competing on a level playing field. It follows a populist airing of grievances over the downsides of free trade and a globalized economy in Western nations this year. That helped lead to the election last week of Donald J. Trump as the next United States president and to the vote by Britons in June to leave the European Union.

China, in its recent public statements, has emphasized the tight economic ties between the two major trading partners and said the countries would benefit more from working together.

During his campaign, Mr. Trump said he would bring manufacturing jobs back to Middle America and consider imposing a 45 percent tariff on Chinese exports, as well as labeling China a currency manipulator. Some economists have said a trade war with China would harm the United States economy and lead to a recession.

In September, after prodding from some lawmakers, the Government Accountability Office, a watchdog agency, said that it would examine whether reviews of foreign purchases should include a stricter look at more types of foreign investments and be broadened to define more industries as important to the nation’s economy.

The review process is done by the Committee on Foreign Investment in the United States, or Cfius, which approves most of the foreign purchases that it examines. The report released Wednesday said it is that panel that Congress should authorize to reject purchases by Chinese state-owned enterprises. Such companies are the main drivers of China’s economy.

The new report said Congress should also create an office in the International Trade Administration to identify and bring antidumping and countervailing duty cases. Countervailing duties are imposed on goods to offset the fact that the goods may have been made with the help of subsidies.

Besides trade and investment, the report covers topics like security relations, China’s global footprint and the United States’ rebalancing to Asia.

In one section, the authors criticize what they see as meager American government efforts to block intelligence collection by China. The Obama administration has expressed concern over what it sees as state-sponsored hacking from China in recent years.

“The U.S. government response to the threat from Chinese intelligence collection has suffered from the lack of an integrated, coordinated effort within the U.S. intelligence community,” the report said.

“The U.S. government’s efforts to counter Chinese intelligence collection operations have manifested largely as a series of espionage prosecutions rather than a strategic, whole-of-government response,” it added. “The Obama administration has taken steps to improve cybersecurity among U.S. government agencies and defense contractors, but these measures could mitigate, not eliminate, the significant cyber espionage threats to these organizations.”

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