The fifth round of the U.S.-China Strategic and Economic Dialogue ("S&ED") yielded some forward progress in addressing a number of investment and trade issues. U.S. Treasury Secretary Jacob Lew and Chinese Vice Premier Wang Yang led the Economic Track of the S&ED. They were joined by a high-level delegation of Cabinet members, ministers, agency heads, and senior officials from both countries.

The S&ED is an annual, high-level, bilateral forum to discuss a broad range of economic and security issues between the United States and China. President Obama and China's then-President Hu Jintao established the S&ED in April 2009 as the successor to the Senior Dialogue and Strategic Economic Dialogue started under the Bush administration. The S&ED is billed as an "essential step in advancing a positive, constructive, and comprehensive relationship between the two countries." The discussions held in the Economic Track of the S&ED are continued in the ongoing dialogue that takes place under the U.S.-China Joint Commission on Commerce and Trade ("JCCT"), a separate high-level forum for addressing bilateral trade and investment issues and promoting commercial opportunities between the United States and China.

Bilateral Investment Treaty

Chief among the significant outcomes of the fifth round of the Economic Track of the S&ED was a commitment by China to begin the negotiation of a Bilateral Investment Treaty ("BIT") with the United States. Specifically, in a clear signal of its interest in finally moving forward with the negotiation of a BIT with the United States, China has committed to negotiations on the basis of a model BIT containing two key elements: "pre-establishment" treatment and a "negative list" approach. Pre-establishment treatment refers to allowing the investments and investors of one country into the territory of another country on terms no less favorable than those that apply to domestic investors or investors from third countries at all stages of investment (rather than after an investment has been admitted and established in a territory). Under a negative list approach, all sectors and measures covering investment must be liberalized unless otherwise specified.

Protection of Intellectual Property Rights

In the area of cybersecurity and trade secret theft, the United States and China held discussions on both the Economic and Strategic Tracks. China pledged to better protect against trade secret theft and to take measures to promote the use of legal software by its state-owned enterprises ("SOEs"). The United States and China also committed to increase cooperation, including through the exchange of enforcement data. Such a data exchange could lead to concrete benchmarks by which to measure China's enforcement efforts.

State-Owned Enterprises

With respect to SOEs, China for the first time committed to ensure that all forms of enterprises have equal access to production inputs such as energy, land, and water. China also confirmed that it would develop a mechanism to derive market-based pricing for those inputs. The elimination of preferential input pricing for SOEs will further level the playing field for foreign enterprises competing with SOEs that are known to pay below market prices for many of their inputs.

A complete outline of the S&ED outcomes can be found here.

Joseph Laroski