By and  on May 24, 2007

WASHINGTON — U.S. and Chinese officials completed two days of economic talks here Wednesday without a breakthrough on the issue of China's currency controls, leading to renewed threats from Congress to pass legislation intended to restrict trade.

Treasury Secretary Henry Paulson Jr. has come under rising pressure to get concessions from China because U.S. manufacturers and labor unions contend that China keeps the yuan artificially weak, making goods cheaper and costing Americans jobs.

"I pressed for greater flexibility in the short term and for a transition to a market-determined exchange rate in the medium term," Paulson said during a news conference after the close of the talks, called the Strategic Economic Dialogue.

Paulson and other Bush administration officials stressed that the biannual meetings are long-term in nature and are not intended as negotiating sessions on single issues. But Capitol Hill lawmakers want to see movement on controls that they say restrain the value of the yuan by as much as 40 percent.

The currency issue has taken on a life beyond its economic significance, Paulson said.

"It is important in trade flows, but even more importantly, it has become a symbol for the pace of reform of the Chinese economy," he said, noting that China also wants to transform its economy. "Where we differ is not over the goals, but the pace of change."

Last week, China increased the amount the yuan can fluctuate each day to 0.5 percent from 0.3 percent, but it isn't clear how much government policy makers will allow the currency to appreciate.

Vice Premier Wu Yi, who led the Chinese delegation, said the discussions covered "hot spots," but characterized the bilateral forum as a "complete success."

"China and the United States are closely linked to each other and interdependent," Wu said in her closing remarks.

She stressed the importance of direct consultation and dialogue rather than the "easy resort" to sanctions, referring to the more aggressive stance the U.S. has taken in the trade arena. The Bush administration this year filed three World Trade Organization cases against China on intellectual property protections and state subsidies, and changed a long-standing Commerce Department policy, opening up China to countervailing duty trade cases."We listened to Chinese concerns about our recent decision to apply countervailing duties and confirmed our position and our firm commitment to use tools at our disposal to enforce fair competition," said Commerce Secretary Carlos Gutierrez, who participated in the meetings.

With more than 30 high-level officials taking part, the talks did produce agreements to further open the Chinese market to financial and aviation services, and to promote tourism, among other items.

Wu and her delegation took the unusual step of meeting with members of Congress in an effort to defuse some of the growing criticism. Lawmakers are angered by what they said was a failure of both sides to adequately address the yuan. The lack of momentum may prompt movement on bills that would impose punitive tariffs on Chinese imports.

House Speaker Nancy Pelosi (D., Calif.) and Majority Leader Steny Hoyer (D., Md.) conferred with the Chinese, as did House Ways & Means chairman Charles Rangel (D., N.Y.) and other key committee members. The delegation is to meet with Senate Finance chairman Max Baucus (D., Mont.) and other committee members today.

"Dialogue between our two great nations is essential, but so are real results that improve the health of our economic relationship," Baucus said in a statement. "I am pleased that Secretary Paulson and Vice Premier Wu Yi were able to make progress on some issues, including environmental goods and services. But I am deeply concerned that the [talks] did not address China's unscientific and WTO-inconsistent ban on U.S. beef or the undervaluation of China's currency."

Even with the meeting's emphasis on strategic thinking, there was a sense from observers that more could have been done.

"It's really quite disappointing," said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. "There's not even a hint of Chinese commitment to do anything about domestic rebalancing [of economic growth]. I would have thought they could come up with some language that indicated China's commitment to move away from such heavy reliance on expanding its trade and current account surpluses and relying more on domestic demand."

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