FIRST PHASE OF U.S. CHINA TRADE DEAL

Source: Financial Times

Intellectual property

China agrees to beef up its intellectual property protections in several ways to make it easier for US companies to seek recourse in both civil and criminal proceedings for the theft of trade secrets, without disclosing confidential business information. The deal also includes stricter measures related to patents, trademarks and geographical indications to prevent piracy and counterfeiting.  Although these measures apply to digital infringements, critics say this chapter addresses many “20th century” IP issues with China but fails to tackle the current era’s most pressing problem, as China did not make any sweeping commitments to combat cybertheft.

Technology transfer

China pledges not to force US companies to hand over their technology to its authorities in exchange for access to its market — a commitment it made when it joined the WTO, and then repeatedly violated, according to US officials. In the deal, China will not force US companies to hand over technology in M&A and investment transactions when seeking licensing or other administrative approvals.

Food and agriculture

China agrees to loosen some longstanding barriers to trade in food and agriculture — mostly related to health standards — that had applied to products including infant formula, poultry, beef, pork, rice and pet food. It also makes it easier for US grain producers to obtain biotech-related approvals for genetically modified crops. The relaxing of these barriers should make it easier for US farmers to export more goods to China. 

Financial services

China pledges a series of measures to open its financial services sector to US competition, in areas ranging from banking services to credit ratings, electronic payment services, asset management and insurance. The US also make some reciprocal promises to allow some Chinese financial services to receive non-discriminatory regulatory treatment in the US. This could ease fears that the US-China trade war will lead to a decoupling in capital markets, and ensures Wall Street’s support for the deal. 

Macroeconomic and exchange-rate policies

Both the US and China largely reaffirm pledges made to the G20 and IMF not to devalue their currencies to benefit their exporters, in order to maintain a market-based exchange rate, and to publicly disclose their foreign exchange positions.  They specifically note that any alleged violations of the terms of the deal would be subject to enforcement, which could mean invoking consultations with the IMF or even imposing unilateral tariffs. 

Purchases

China agrees to buy $200bn more in US goods than it did in 2017, the baseline before the start of the trade war, over the course of two years. The two-year total includes $77.7bn in additional manufacturing purchases, from aircraft to cars, iron and steel to machinery and pharmaceuticals. It also includes $52.4bn in purchases of energy products, like crude oil and liquefied natural gas, and $32bn in purchases of farm goods including oilseeds, meats, grains and seafood.  The agreement specifies that purchases “will be made at market prices based on commercial considerations” and that “market conditions” will affect the timing, language that sowed doubts in agricultural markets and sent the price of US soya beans down 1.4 per cent.  The deal also allocates $37.9bn for the purchase of services, such as cloud computing, financial services, travel and tourism.  In exchange for China’s purchasing commitments, the Trump administration will cancel new tariffs on roughly $156 billion in Chinese imports that were set to take effect December 15. The U.S. agrees to cut in half the existing 15% tariff rate on roughly $120 billion of Chinese goods that had been imposed on Sept. 1. Tariffs will remain on roughly $360 billion of annual Chinese imports to the U.S., a majority of the Chinese goods sold in America.

Dispute settlement

The agreement creates a framework for top officials from both countries to meet regularly to try to address alleged violations. But if the dispute is not resolved after meetings involving China’s vice-premier and the US trade representative, either side can impose punitive measures, such as tariffs, without a “counter-response”, as long as the action was taken in “good faith.” Rolling out this system could be challenging. Although confidentiality is supposed to be guaranteed, US companies might be hesitant to lodge a complaint against Chinese officials that risks reopening the trade war. 

Formalities

The last chapter of the trade deal includes formalities such as the deal coming into effect 30 days after it is signed and giving the US and China the right to scuttle the agreement within six days. It also states that Washington and Beijing will agree on the timing of new negotiations — although no timeline is given.  US and Chinese officials have said they were ready to begin a second stage of talks, which could lead to further tariff reductions. But there is no clarity on whether any deal will be reached by the November 2020 election.