The U.S.-China Strategic and Economic Dialogue (S&ED): Economic Outcomes and Issues

The U.S.-China Strategic and Economic Dialogue (S&ED): Economic Outcomes and Issues

July 14, 2015
The U.S.-China Strategic and Economic Dialogue (S&ED):
Economic Outcomes and Issues
From June 22-24, 2015, U.S. and Chinese officials held the
the Secretary of State on the U.S. side and focuses on
seventh round of the U.S.-China Strategic and Economic
political and strategic issues, while the second track (the
Dialogue (S&ED), a forum that was established in 2009 by
“Economic Track”) is headed on the U.S. side by the U.S.
President Obama and then-Chinese President Hu Jintao to
Treasury Secretary, and focuses largely on economic and
address long-term economic and strategic issues. The
trade issues. The first round of the S&ED was held in
S&ED is a continuation of the Strategic Economic Dialogue
Washington, D.C., in July 2009, and included 12 U.S.
(SED) that was initiated by President George W. Bush and
Cabinet officials and agency heads and 15 Chinese
President Hu Jintao in 2006.
ministers, vice ministers, and agency heads.
During the June 2015 S&ED discussions, a number of
The Four Main Economic Pillars of the S&ED
major economic issues were discussed and specific
The S&ED Economic Track focuses on four broad topics:
outcomes identified. The effectiveness of the S&ED forum
in resolving significant short-term bilateral trade disputes

Achieving sustainable and balanced growth through the use
and improving cooperation on broader long-term economic
of certain macroeconomic and structural policies.
issues has been subject to debate among U.S. policymakers.

Promoting more resilient, open, and market-oriented
financial systems.
Background on U.S.-China Economic Forums

Deepening bilateral trade and investment ties.
The original goal of the SED was to have discussion on
major economic issues at the “highest official level.” As

Strengthening the international financial architecture.
noted by former Secretary of the Treasury Henry M.
Source: U.S. Department of the Treasury.
Paulson Jr. in his April 2015 book (Dealing with China: An
Insider Unmasks the New Economic Superpower): “Our
The first S&ED (Economic Track) session in 2009 focused
dealings with China had become mired in perhaps a
on deepening bilateral cooperation in response to the 2008
hundred diffuse low-level exchanges and needed to be
global economic crisis, continuing commitments by both
coordinated and prioritized better.” According to Paulson,
sides to promote policies to achieve more balanced
the SED was set up to “establish a top-down process that
economic growth, encouraging China to continue economic
would address long-term concerns while delivering short-
and financial reforms, expanding China’s participation in
term results.” Prior to the creation of the SED, the highest
international economic forums, and attempting to avoid
level bilateral economic forum was the U.S.-China Joint
new forms of protection. Then-Secretary of the Treasury
Commission on Commerce and Trade (JCCT), which was
Timothy Geithner stated: “Recognizing that cooperation
created in 1983, and is currently co-chaired on the U.S. side
between China and the United States will remain vital not
by the Secretary of Commerce and the U.S. Trade
only to the well-being of our two nations but also the health
Representative (USTR). The JCCT remains an important
of the global economy, we agreed to undertake policies to
linchpin in the structure of U.S.-China economic dialogues.
bring about sustainable, balanced global growth once
economic recovery is firmly in place.”
Five SED rounds were held between December 2006 and
December 2008. The United States sought to persuade
Six additional S&ED rounds have been held through June
China to quicken the pace of its currency reforms, expand
2015. During the 7th round, held in Washington, D.C., about
market access for financial and nonfinancial services
400 Chinese officials, including 13 ministers and 40 vice
(beyond its World Trade Organization commitments), take
minister-level officials, attended. A fact sheet released by
steps to boost domestic consumption (including developing
the U.S. Department of the Treasury summarizing the
a social safety net), improve the business climate in China
Economic Track meetings noted continued efforts by China
for U.S. firms (such as through greater transparency of rules
to deepen market-oriented exchange rate reforms, rebalance
and regulations), and to address U.S. high priority trade
the economy toward greater domestic consumption, and to
issues, such as Chinese restrictions on U.S. beef,
further liberalize the financial sector (including interest rate
intellectual property rights protection, and health and safety
reforms and expanded market access for foreign firms). On
issues regarding imported Chinese products.
specific bilateral issues, China pledged that it would
improve transparency and expand consultations with the
The S&ED Replaces the SED
United States on proposed rules on information and
In April 2009, President Obama and then Chinese President
communications technology (ICT). Many foreign ICT firms
Hu agreed to continue the high-level forum, but expanded
contend that such rules are discriminatory or could require
and renamed it the S&ED. The new dialogue established
them to turn over sensitive technologies and intellectual
two tracks. The first (the “Strategic Track”) is headed by
property to the Chinese government. On proposed ICT
https://crsreports.congress.gov

The U.S.-China Strategic and Economic Dialogue (S&ED): Economic Outcomes and Issues
regulations in the banking sector, China pledged that it
achieve results. In addition, the SED/S&ED provided
would seek and take into account comments from foreign
incentive for both to work internally across agencies to
and domestic parties on draft regulations and would ensure
develop a list of each government’s most important
that such regulations are nondiscriminatory and do not
priorities. The importance of the current S&ED process is
impose nationality-based conditions or restrictions on
further highlighted by the fact that the presidents of each
foreign firms. The two sides also reaffirmed that reaching a
country have designated the co-chairs for both the strategic
bilateral investment treaty (BIT) remained a high priority
and economic tracks as “special representatives” with
and pledged to intensify negotiations and exchange
authority to coordinate the agencies in their respective
improved “negative list” offers (i.e., exceptions) in early
governments, thus, theoretically making it easier to come to
September 2015.
agreements on policies and issues that are covered by
multiple government agencies.
SED/S&ED Progress on a U.S.-China BIT
The current S&ED process has also faced criticism. Some
SED/S&ED Meeting
Results
analysts contend that the annual S&ED fact sheets on
June 2008 SED
Two sides launch BIT negotiations.
outcomes often repeat what was agreed upon in previous
These are later put on hold until the
S&ED sessions or in the JCCT, sometimes lack specifics on
United States develops a new model
how China will remove certain trade and investment
BIT in 2012.
barriers, and may not always provide assessments of how
commitments made by China in previous rounds were
July 2013 S&ED
China committed to negotiate a high-
implemented. A 2013 report by the Center for Strategic and
standard BIT with the United States
International Studies (CSIS) argued that ceremony now
and provide nondiscriminatory
overwhelms substance in the S&ED, that pressure for short-
treatment on all stages of U.S.
term deliverables at each event detracts from the dialogue’s
investment except for sectors
objective of fostering long-term strategic cooperation, and
identified on “negative list.”
that the structure of the S&ED undermines the efforts of
individual agencies to work on critical elements of the
July 2014 S&ED
Two sides indicate intent to reach
relationship because the process is routinized and unwieldy.
agreement on core issues and major
articles of BIT text by end of 2014
Others contend that the S&ED sometimes fails to produce
(although this was not achieved) and to
enough specific results on important issues, despite the
start negotiations on the “negative list”
high-level nature of the process. For example, over the past
in 2015.
few years, cyber-theft of U.S. trade secrets and government
June 2015 S&ED
19th session of BIT negotiations held
information has become a major source of tension between
(June 8-12); each side submitted first
the two countries. At the start of the June 2015 S&ED talks,
negative list proposals. At June S&ED
U.S. Treasury Secretary Jacob Lew stated: “We have a
session, China agreed to submit
shared interest and a joint responsibility to pursue policies
improved negative list by early
that support the global economy as well as uphold and
September 2015.
continue to improve the global economic and financial
architecture. That includes responsibilities to abide by
Source: U.S. Department of the Treasury Fact Sheets.
certain standards of behavior within cyberspace. We remain
deeply concerned about government-sponsored cyber theft
Evaluating the S&ED Process
from companies and commercial sectors.” The cyber issue
The effectiveness of the SED/S&ED process in enhancing
was also raised by President Obama when he met with a
cooperation on long-term economic issues and resolving
high-level Chinese delegation of government officials. Yet,
trade disputes is a topic debated among some U.S. policy
China does not appear to have made any specific
makers and observers. U.S. executive branch officials
commitments on cyber theft issues.
describe the S&ED as not just an annual meeting of top
officials from both sides, but a process that involves
Congress may wish to examine the effectiveness of the
extensive consultations between U.S. and Chinese
S&ED process, such as requiring the Administration to
counterparts throughout the year. As noted by U.S.
submit more detailed information on the S&ED talks
Undersecretary of Treasury Nathan Sheets: “It’s not an
(beyond the information summarized in the fact sheets),
event, but rather a mechanism. A mechanism for managing
provide specific assessments of China’s implementation of
and building the relationship between the world’s two
past commitments, describe how the S&ED process has
largest economies, and it’s powered by day-in and day-out
advanced U.S. economic interests, and to suggest how the
interactions.” Paulson contends that prior to the creation of
S&ED structure and process can be improved.
the SED/S&ED, each U.S. department and agency
attempted to independently lobby their Chinese
counterparts on various issues, which often achieved little
Wayne M. Morrison, Specialist in Asian Trade and
because Chinese ministries often lacked the authority to
Finance
implement changes themselves. However, the SED/S&ED
IF10257
process now brought together U.S. cabinet officials with
high-level Chinese officials, which made it easier to

https://crsreports.congress.gov

The U.S.-China Strategic and Economic Dialogue (S&ED): Economic Outcomes and Issues

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10257 · VERSION 3 · NEW