Feb 7, 2020
Daria Novak, a former U.S. State Department official with
significant experience in Chinese affairsChinese government
officials, and even some trade experts in Beijing, breathed a quick
sigh of relief as the 96-page, Phase One of the US-China trade deal
was inked on January 15, 2020. But does it represent more than a
short respite in the trade war?
Unlike previous American administrations President Trump demanded,
and won, real concessions from the Chinese along with rules for
enforcing those changes. The US stood its ground in the trade talks
and refused to accept the small, incremental moves offered to and
accepted without reciprocity by previous American administrations –
Republican and Democrat alike. While it remains questionable that
China will enforce all the new trade rules, especially if they
stand in opposition to the government’s domestic economic
development plan, Phase One will define the path the two nations
walk going forward in 2020. For the first time there is a new law
creating a domestic mechanism in China that can be used by
aggrieved parties to demand a fairer playing field when it comes to
the theft of intellectual property (IP).
According to the Agreement China must create a public action plan
to explain how it will implement enforcement of IP rights and
obligations. The requirement that China publish this enforcement
data will, at a minimum, provide a more accurate method for
Washington to gauge China’s progress. This was lacking in previous
negotiations. In return the US has agreed only to reduce a portion
of the tariffs on $360 billion in Chinese imports in the
eight-chapter agreement.
President Xi Jinping now faces a robust series of provisions in the
agreement related to technology transfer and intellectual property
theft designed to shed light on China’s unfair trade practices. At
issue for the United States is whether or not Xi will take the
pragmatic steps required to implement those provisions. On the
other hand, the Trump Administration is not facing any new Chinese
demands on technology transfer or IP protections – with
well-deserved credit going to USTR Lighthizer who negotiated
Washington’s core grievance well.
A less noticed but significant provision in the Agreement is
the establishment of a Bilateral Evaluation and Dispute Resolution
Office. This mechanism provides a tiered and straight-forward
system headed by the USTR and a Chinese vice premier. Below them
are designated positions to handle day-to-day issues and the
appeals process. If no resolution can be reached there is a process
in place that parties may use to escalate the complaint. In the
past, US companies bristled at exposing their firms to the public
scrutiny of making such a complaint. Whether the Office is a
success may depend on American’s firms’ willingness to use it.
Remedial measures, according to the Agreement, are to be
proportionate and not retaliatory with the goal of creating and
maintaining a normal trading relationship. If the other side does
not agree, the only possible recourse is to withdraw from the
agreement with a 60-day written notice, an action China is not
likely to take over a single issue. Talks on Phase 2 of the trade
deal are likely to begin soon but not conclude until after the US
Presidential this fall.
At home President Xi faces a myriad of issues related to the US
economic sanctions, including a cooling domestic economy with
growth slowing to levels below the required 6.2% required to
achieve the country’s 10-year economic plan goal. If China’s top
policymakers cannot find ways to curtail the slowdown and maintain
growth there may be increased instability in the Chinese economy.
This is on top of other domestic issues Xi must deal with such as
the unrest in Hong Kong and the Uighur minority in western
China.