From: / Will Leahy, Manager, China Policy
To: / Asia Task Force, China AmChams
I) Joint Economic Committee Hearing on Sovereign Wealth Funds
II) WTO Rules Against China in Auto Parts Case
I) Joint Economic Committee Hearing on Sovereign Wealth Funds
The Senate Joint Economic Committee held a hearing earlier today on the topic, “Do Sovereign Wealth Funds Make the U.S. Economy Stronger or Pose National Security Risks?”
Senator Charles Schumer (D-NY) and Congresswoman Carolyn Maloney (D-NY) co-chaired the hearing. Senators Amy Klobuchar (D-MN) and Jim Webb (D-VA) also participated.
In his opening statement, Schumer expressed his belief that “in general, foreign investment has a healthy impact on the U.S. economy…[however] the closer foreign governments come to exercising control and influence, the greater my concerns.”
Schumer emphasized that SWF’s should voluntarily agree to best practices promoting “good governance, accountability, and transparency”, and expressed his intention to “take a hard look” at the new Foreign Investment and National Security Act (FINSA) implementing regulations due this spring from the Bush Administration.
Schumer asserted that if the subsequently reformed CFIUS process was not sufficiently prepared to address the “unique risks” associated with SWF investments, then additional legislation might be necessary to “close any loopholes.”
The committee first heard testimony from David McCormick, Under Secretary for International Affairs, Department of Treasury. McCormick presented essentially the same testimony as that which he presented before a November 14th Senate Banking Committee hearing. In it he highlighted recent steps taken by the Bush Administration to address potential concerns raised by SWF investments including:
·  Implementation of FINSA;
·  Support for the IMF’s efforts to draft voluntary best practices, which McCormick thought would be completed and made public this coming fall;
·  Convening of discussions with foreign government officials and individual sovereign wealth funds;
·  Creation of a sovereign wealth fund working group drawing on the expertise of the department’s offices of International Affairs and Domestic Finance.
In the question and answer period Under Secretary McCormick expressed his belief that the current CFIUS process provides the Executive Branch with the appropriate and necessary tools to thoroughly review SWF investments. In addition he expressed his optimism that best practices currently being drafted by the IMF will be widely accepted by SWFs as it is in the “interests of investors and investment recipients alike.”
Recent public comments by SWF managers, including during a panel discussion at the World Economic Forum, seem to indicate some reluctance to accept investment guidelines, even those drafted multilaterally and espoused voluntarily.
Comments by some members of the JEC seemed to imply that a failure on the behalf of SWFs to accept voluntary guidelines might lead to legislation.
The committee heard subsequent testimony from:
·  Stuart Eizenstat, Partner and Chair of the International Practice Group, Covington and Burling LLP; and
·  Douglas Rediker, Co-Director Global Strategic Finance Initiative, New America Foundation
II) WTO Rules Against China in Auto Parts Case
The World Trade Organization today ruled that China was breaking trade rules by taxing imported auto parts at the same rate as complete foreign-made automobiles.
It is the first WTO ruling to condemn Chinese trade practices, and trade officials see it as a victory for the U.S., Canada and the European Union. The ruling will be officially released in March.
China, which will still be able to appeal, claims the tariffs are intended to stop whole cars being imported in large chunks, allowing companies to avoid the higher tariff rates for finished cars. It argues that all measures are fully consistent with WTO rules and do not discriminate against foreign auto parts.
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