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U.S., China begin talks on innovation trade dispute

By Doug Palmer

WASHINGTON (Reuters) - U.S. and Chinese officials kicked off new talks on Tuesday on a thorny trade issue at the center of Western government and industry concerns that China is becoming less open to foreign firms.

Chinese Minister of Science and Technology Wan Gang, who played a key role in drafting "indigenous innovation" policies that have strained trade ties, met with U.S. officials led by White House science and technology adviser John Holdren.

He also met separately with Commerce Secretary Gary Locke and key corporate members of the U.S.-China Business Council which have a large stake in open trade relations.

Deputy U.S. Trade Representative Demetrios Marantis, in a speech last week, called China's plans to use its vast government procurement programs to spur domestic innovation "one of our greatest challenges with China today."

"As drafted, China's indigenous innovation policies threaten global intellectual property protections, fair government procurement policies, market competition and innovators' freedom to decide how and when they transfer technology," Marantis said.

The spat affects big U.S. manufacturers such as General Electric <GE.N>, whose chief executive Jeffrey Immelt caused a stir this month when he was quoted as saying Beijing was growing increasing protectionist.

BASF SE's <BASF.DE> Juergen Hambrecht and Siemens AG's <SIEGn.DE> Peter Loescher also complained about China's business climate during a meeting this week with Premier Wen Jiabao, the Financial Times reported.

Wan's meeting on Tuesday follows through on a commitment Chinese officials made at the U.S.-China Strategic and Economic Dialogue meeting in May to hold further talks.

More meetings are expected, and U.S. officials hope for concrete results by November when Locke and U.S. Trade Representative Ron Kirk will host Chinese Vice Premier Wang Qishan for the annual Joint Commission on Commerce and Trade.

Although China has pledged its indigenous innovation policies would not discriminate against foreign companies, it has not yet dropped one core idea that U.S. business groups see as especially problematic.

That is a plan to use lists of innovative products chosen by the Chinese government to determine which companies qualify for government procurement preferences.

An aide said Locke reinforced in his meeting with Wan "what he said before, the importance of (China adopting) innovation policies that are non-discriminatory."

The earlier meeting led on the U.S. side by White House science and technology adviser Holdren was a reassuring sign of the importance President Barack Obama places on the issue, a business source said.

At the same time, Holdren's office is not normally involved in the sort of detailed negotiation the issue requires and it is important other U.S. agencies such as the State Department, the Commerce Department and the U.S. Trade Representative remain involved, the source said.

(Editing by Mohammad Zargham)

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