CHINA:

Hu Jintao visit to U.S. pushes wind-power subsidy issue into spotlight

President Obama plans to roll out the red carpet when Chinese President Hu Jintao lands on American soil later this month, even as a heavy bundle of economic and trade issues weighs on the leaders' summit.

On Jan. 19, when Hu meets with Obama at the White House, troubles on the Korean Peninsula could land top billing. But as the United States emerges from its economic recession and as China's role in the global economy expands further, analysts say trade issues, including one dealing with China's support for clean energy companies, will grab headlines.

The administration late last month said it is requesting consultations with China at the World Trade Organization to end China's government subsidies to wind-power producers.

The United Steelworkers (USW) in September filed a 5,800-page petition with the Office of the U.S. Trade Representative (USTR) that called on the Obama administration to launch a formal investigation into whether China has ignored international trade agreements to help its clean-energy technology sector. It cited a fleet of government export subsidies, including low-interest loans and access to cheap land, that allegedly give China's lower-cost manufacturers an unfair advantage.

In explaining the Dec. 22 request for consultation with the Chinese on the wind-power subsidy issue, the USTR targeted a nearly $1 billion fund the United States claims could violate WTO rules.

"In particular, USTR has verified that China's Wind Power Equipment Fund provides grants that appear to be contingent on the use of domestic over imported wind power equipment, and thus appears to be a prohibited subsidy," the agency explained.

In the run-up to Hu's visit, it's unclear where the wind power case ranks among the fleet of complicated economic, trade and military issues expected to come up during talks. Still, the U.S. government's clean energy gripe is part of a handful of China-related trade issues the administration has taken to the WTO, where disputes are adjudicated.

"Until the USTR decision, I would have said energy was one of the areas where there was great promise for cooperation," said Kelly Sims Gallagher, professor of energy and environmental policy at the Fletcher School at Tufts University.

Worries about a trade war

Gallagher took issue with the idea that China hasn't played fair by developing competitive advantages in clean energy, particularly its low cost of labor and its development of a mechanized manufacturing process.

"It's frustrating to the labor unions, but that's a legitimate comparative advantage," she said. China's manufacturing beachhead isn't just for the export market, Gallagher said, challenging the major premise behind the union's trade challenge. Through coherent national policies meant to build up wind power in China, she says the nation's carved out a growing domestic clean energy market, something she says the United States hasn't done.

But there are areas in which the U.S. government should be vigilant, Gallagher said, and the WTO case emphasizes the wrong thing. "There's a more important conversation to be had about market access than about subsidization," Gallagher said. "A lot of firms feel they don't have equal access. Our firms would like to take advantage of the subsidies the Chinese are offering."

U.S. companies with interests in China have been steadfast in their plea for Congress and the administration to refrain from stirring up a trade war. Still, few have openly criticized the United Steelworkers, or the administration, for stirring the pot on the issue of clean energy subsidies.

In a short, written statement, the Washington-based US-China Business Council said the USTR request for consultations with China "appears to be an appropriate first step." But its president, John Frisbie, has given stronger statements about U.S. trade policy with China in testimony before Congress.

"Our member companies are committed to the China market but have serious concerns about policy trends in China that unfairly favor domestic companies," Frisbie told the House Ways and Means Committee in June. "U.S. companies want to see the problems addressed with specific solutions, not sanctions or legislation that would disrupt the relationship."

And, for the most part, that appears to be the Obama administration's approach toward China.

In a report on China's WTO compliance publicized shortly before Christmas, the USTR said the Obama administration is focusing on "outcome-oriented dialogue" to increase the benefits of U.S.-China trade. At the same time, the agency says the administration is holding China's feet to the fire when it violates trade rules.

The administration remains under pressure from unions and U.S. economic hardliners to put more pressure on China to allow the value of its currency to increase and to trim subsidies to export-driven industries. China's protectionist measures breach global trade obligations and make it difficult for U.S. companies to compete in Asia, according to proponents of a tougher U.S. stand.

Two powers are 'stuck with each other'

Navigating the interests of U.S. business interests, labor unions and the government over how to treat China has been a delicate balancing act for the past four U.S. administrations. In the past two decades, China has transformed its command-and-control system into a fast-growing, market-driven economy and has emerged as Asia's dominant strategic power. And Asia experts say China is a more pluralistic society, where the government has to balance competing interests at home, as in the United States, and economic and strategic decisions are complex.

Since Nixon's visit to China in 1972, analysts say the need to maintain and expand dialogue has only increased given the two nations' reliance on each other and their influence on global finance and trade.

"President Obama and President Hu understand that they're stuck with each other," said Banning Garrett, director of the Asia program at the Atlantic Council. "We're threatened if the other power were to fail, economically or in other ways."

Garrett characterized the U.S.-China dialogue, and the upcoming summit in Washington, as perhaps the most important since Nixon's visit to China. "Is this going to set us on a vector, a direction where we reduce suspicions and we act more cooperatively on a range of issues?" he asked. "Or, will this be a blip?"

The leaders of both countries appear interested in managing the relationship and ensuring its trajectory leans toward open and positive dialogue.

"My concern is whether we can really start to build the trust and cooperation to sustain it," Garrett said. "We need to, but there are forces in both countries that make that very hard to do."

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