China innovation policies 'a deep concern' - USTR

WASHINGTON (Reuters) - China's "indigenous innovation" policies that keep U.S. companies out of its huge government procurement market are "a deep concern" for the United States, a top U.S. trade official said on Thursday.

"That's an example of the kind of industrial policies that we're seeing in China that are a significant concern to us," Deputy U.S. Trade Representative Demetrios Marantis said during a discussion at Georgetown University's law school.

"We need to look at what's going to be the most effective way of addressing these policies, but it's a deep concern for us," Marantis said.

U.S. business groups have complained to both President Barack Obama's administration and senior Chinese leaders about Chinese government procurement policies that give preferences to companies that develop intellectual property in China.

The program put forward in November is intended to promote more innovation in the Chinese economy, but the United States argues it is essentially a trade barrier that does not reflect how products are developed in the global economy.

A former campaign adviser to President Barack Obama told the U.S.-China Economic and Security Review Commission on Thursday that China's indigenous innovation program was "far more restrictive than any other buy-domestic program in the world."

"Its adverse impacts will very quickly be felt across all industries, but especially in computers and consumer electronics, 'things green,' autos and aviation, and specialty materials, where we are desperately trying to hold on to our own manufacturing capabilities," Leo Hindery, chairman of the U.S. Economy/Smart Globalization Initiative at the New America Foundation, told the U.S. watchdog panel at a hearing.

It is difficult for Washington to legally challenge China's indigenous innovation policy since Beijing has not joined the World Trade Organization's government procurement pact.

Hindery urged the Obama administration to use a unilateral U.S. trade move known as a Section 301 investigation. That could potentially set the stage for retaliatory U.S. sanctions on Chinese goods if Beijing does not change its policies.

Marantis, asked about the viability of a Section 301 case to address U.S. concerns, did not rule it out.

However, he said the United States had communicated its concerns to China and expected the issue would be addressed at two big bilateral dialogues this year.

Those are the Strategic and Economic Dialogue expected in the first half of the year and the Joint Committee on Commerce and Trade slated for the second half.

"Fostering domestic industries and good jobs is an understandable goal for China. But China can and must do so in a way that does not discriminate against foreign companies. This administration is working hard to address such policies so that our companies get fair treatment in China," Marantis said.

(Reporting by Doug Palmer; Editing by Jackie Frank and Eric Walsh)