The key contents and basic judgment on the #U.S.-#China trade negotiation
China and the United States have recently reached an agreement on the contents of the first phase of the trade deal. In China, the State Council Information Office held a rare press conference at 11 p.m. on December 13, and invited Ning Jizhe, Deputy Director of the National Development and Reform Commission, Liao Min, Deputy Director of the General Office of the Central Financial and Economic Affairs Commission and Vice Minister of Finance, Zheng Zeguang, Vice Minister of Foreign Affairs, Han Jun, Vice Minister of Agriculture & Rural Affairs, and Wang Shouwen, Vice Minister of Commerce and the Head of the Chinese Delegation, to introduced the status of U.S.-China economic and trade negotiations.
In view of the numerous rumors about U.S.-China negotiations, based on the information released by the Chinese official and the Office of the United States Trade Representative (USTR), combined with relevant reports from Reuters, ANBOUND's macro research team has summarized the relevant contents of the first phase of the U.S.-China trade agreement as follows:
The contents and the progress of the agreement: According to the Chinese side, the text of the agreement includes nine chapters: the preface, intellectual property rights, technology transfer, food and agricultural products, financial services, exchange rate and transparency, trade expansion, bilateral assessment and dispute settlement, and the final terms. At present, both parties of this agreement need to complete their own legal review, translation verification, and other necessary procedures before agreeing on a time, place and form to sign the agreement. The two sides are currently negotiating on these issues.
The tariff: The Chinese side stated that the two sides have reached an agreement that the U.S. will fulfill its commitment to phase out additional tariffs on Chinese products. The first is to cancel some of the proposed additional tariffs on China and the additional tariffs that have been imposed. The second is to increase the tariff exemption for Chinese exports to the United States. China will also make some arrangements accordingly. According to Reuters, the United States will not impose planned 15% tariffs that were scheduled to go into effect this December 15 on nearly US$ 160 billion worth of Chinese goods, including cell phones, laptop computers, toys, and clothing. China canceled its retaliatory tariffs, including a 25% tariff on U.S.-made autos. The U.S. will halve to 7.5% the tariffs it imposed on US$ 120 billion worth of Chinese goods on September 1. Whereas, the U.S. tariffs of 25% on US$ 250 billion worth of Chinese goods will remain unchanged. It should be noted that this arrangement provides the U.S. with a bargaining chip in the second phase of U.S.-China negotiations next year.
The trade deficit: According to the USTR, China has pledged to import a variety of U.S. goods and services over the next two years, adding at least US$ 200 billion to China's annual import level in 2017. China's commitment covers a wide range of U.S. manufactured goods, food, agricultural products and seafood, energy products and services. China is expected to continue increasing imports of U.S. goods and services along the same trajectory in the years after 2021, making a significant contribution to the rebalancing of the U.S.-China trade relationship.
Agriculture: China has committed to increase purchases of U.S. agriculture products by US$ 32 billion within two years. That would average an annual total of about US$ 40 billion, compared to a baseline of US$ 24 billion in 2017 before the trade war started. U.S. Trade Representative Robert Lighthizer said China agreed to make its best efforts to increase its purchases by another US$ 5 billion annually to get close US$ 50 billion level expected by President Trump. China has committed to reduce non-tariff barriers to agricultural products such as poultry, seafood, and feed additives as well as approval of biotechnology products.
5: Intellectual property: According to Chinese side, China and the United States have reached several consensuses on the protection of intellectual property rights, including trade secret protection, drug-related intellectual property rights, extension of patent validity, geographical indications, combating piracy and counterfeit on e-commerce platforms, countering piracy production and export of counterfeit products, combating malicious registration of trademarks, as well as strengthening intellectual property law enforcement and procedures. These are similar to those disclosed by USTR.
6: Technology transfer. The USTR statement's section on "Technology Transfer" sets out binding and enforceable obligations to address several unfair technology transfer practices of China as identified in USTR's Section 301 investigation. For the first time in any trade agreement, China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, administrative approvals, or receiving advantages from the government. China also commits to provide transparency, fairness, and due process in administrative proceedings and to have technology transfer and licensing take place on market terms. Separately, China further commits to refrain from directing or supporting outbound investments aimed at acquiring foreign technology pursuant to industrial plans that create distortion.
7: Currency: The currency agreement contains China's policy and transparency commitments related to currency issues. This agreement contains pledges by China to refrain from competitive currency devaluations while increasing transparency and at the same time providing accountability and enforcement mechanisms so as to address unfair currency practices. Such an approach would help strengthen the stability in macroeconomics and exchange rate to ensure that China will not use monetary practices to compete unfairly with U.S. exporters.
8: Dispute resolution: China did not take the initiative to discuss the relevant content. According to USTR, the "Dispute Resolution" chapter sets forth an arrangement to ensure the effective implementation of the agreement and to allow the parties to resolve disputes in a fair and expeditious manner. This arrangement creates regular bilateral consultations at both the principal level and the working level. It also establishes strong procedures for addressing disputes related to the agreement and allows each party to take proportionate responsive actions that it deems appropriate. The Reuters report said that if China fails to meet its commitments, the U.S. would restore the tariffs to its original level (known as the "snapback" mechanism). Lighthizer said the U.S. expected neither side would retaliate if appropriate action was taken as part of the process and following "consultation in good faith."
Financial services: USTR said the deal includes improved access to China's financial services market for U.S. companies, including banking, insurance, securities and credit rating services. It aims to address a number of longstanding U.S. complaints about investment barriers in the sector including foreign equity limitations and discriminatory regulatory requirements. China, which has pledged for years to open up its financial services sector to more foreign competition, said the deal would boost imports of financial services from the United States.
It is worth noting that as for the content of the agreement as reported by the media, there have been claims within China such as "China suffers a loss" or "China has made too many concessions". However, Chinese officials gave a positive assessment of the content of the agreement. Liao Min, Vice Minister of Finance, listed out four points:
(1) The agreement is in the interest of the people of the U.S., China, and the world.
(2) The agreement is generally in line with the main direction of China's deepening reform and opening-up, as well as the internal needs for advancing the high-quality economic development. Implementation of the agreement will help to safeguard the legitimate rights and interests of all companies including foreign firms in China, and protect the legitimate rights and interests of Chinese firms in their economic and trade activities with the United States.
(3) All enterprises in China, including SOEs, private enterprises and foreign enterprises, will follow the principle of marketization and commercialization to expand bilateral trade cooperation and activities between China and the United States, so that Chinese consumers and producers can enjoy diversified products and services.
(4) The agreement will help the two countries to enhance economic and trade cooperation, effectively manage, control and resolve differences, and promote the steady development of bilateral economic and trade relations.
Coincidentally, the Trump administration is also facing some criticism in the U.S. Some opponents believe that the U.S. will lose its bargaining chip to China after the deal is reached. Others argue that the U.S. is experiencing setback in the rules-based international trading system. U.S. Treasury Secretary Steven Mnuchin dismissed such claims, and stating that a level playing field with China would benefit the global economy. It can be seen that after nearly two years of the trade war, the Chinese and American governments are willing to temporarily ease the situation and create a better environment for the development of the two countries.
Final analysis conclusion:
Obviously, in addition to focusing on the specific terms of the trade agreement, China should also consider the impact of the U.S.-China trade agreement on its long-term development in terms of the current external economic and geopolitical environment. Just as China negotiated with the United States to join the WTO 20 years ago, China needs to strive for an environment conducive to its own development to improve and seek for better development in the future.
He Jun is a master in the Institute for the History of Natural Sciences, Chinese Academy of Sciences, majoring in intellectual history of science and is a senior researcher at Anbound Consulting, an independent think tank with headquarters in Beijing. Established in 1993, Anbound specializes in public policy research.