US-China phase one trade deal is ‘modest but helpful’, say business leaders

US business executives say a broad outline of the phase one trade deal with China coming into focus includes some advances in intellectual property protection, big-ticket farm purchases and a reduction in barriers to exports.

“The agreement seems modest but nonetheless directionally helpful,” said a trade consultant briefed on aspects of the agreement. “The best thing still is that we have a path toward not accelerating tariffs further this year.”

Executives cautioned that they had not seen the text of the agreement although they had been briefed in some detail by government and White House officials.

“For the first time, we have something to applaud in the US-China relationship,” said one executive briefed by Trump administration officials. He and others declined to be identified over concerns it could hurt their standing with the administration.

They added that they did not expect to see anything in writing before a scheduled signing ceremony on Wednesday between US President Donald Trump and Chinese Vice-Premier Liu He.

This partly reflects Trump’s desire to take credit, emphasise the deal’s significance and manage public opinion, executives and analysts said.

While every president does this to some degree, Trump also hopes to avoid too much scrutiny of the deal’s provisions, which could call into question whether the grinding 18-month trade war has been worth the cost and the uncertainty Americans have suffered, they added.

“Optically they will want to announce the narrative,” said one executive involved in international trade. “They want to control everything.”

As outlined in mid-December, the deal does away with threatened tariffs on around US$155 billion worth of Chinese imports set for December 15 and halves tariffs to 7.5 per cent on another US$120 billion. But it keeps in place the 25 per cent import taxes on US$250 billion worth of Chinese products that have been in place for more than a year.

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Executives said they had been briefed that enforcement and dispute resolution mechanisms in the deal will mirror those worked out in May before talks fell apart.

These will give the US the ability to impose tariffs and otherwise take unilateral action after 90 days if its concerns are not met.

This has one of the thorniest issues in the talks and a major reason why negotiations collapsed seven months ago. The US has long bridled at signing a trade deal only to see China undercut the results through subjective enforcement and wobbly implementation.

“China is just a master, especially in agriculture, at negotiating a concession for a promise down the road,” said Philip Shull, president of the Philip Shull Group consultancy and former minister counsellor for agriculture at the US embassy in Beijing. “It’s like the Popeye cartoon: I’ll gladly pay you Tuesday for a hamburger today.”

He said that he had not been briefed on phase one details.

China is just a master, especially in agriculture, at negotiating a concession for a promise down the road

Philip Shull, former minister counsellor at US embassy in Beijing

China, meanwhile, has balked at allowing US officials to vet the inner workings of its system and punish it unilaterally for perceived noncompliance, which it views as a breach of its sovereignty.

In October, Beijing officially acknowledged progress in narrowing the gap over enforcement provisions, although both sides have given few details of how any mechanism would work in practice.

Last month, Trump said China had pledged to buy US$40 billion to US$50 billion a year in farm purchases, adding that American farmers should “buy larger tractors” given such a positive outlook.

One executive said she had heard from six different officials that the administration would not provide much detail on how it plans to reach these figures.

Beijing has not confirmed how much in US farm products it is willing to buy. And Chinese agricultural vice-minister Han Jun told Caixin in an article published on Tuesday that China would not increase its import quotas for corn, wheat and rice, which appears to fly in the face of a massive buying spree.

Reuters also reported on Tuesday that China suspended a national plan to mix gasoline with 10 per cent ethanol, another potential setback for US corn growers.

China has also balked at sharply curtailing agricultural imports from Brazil and Argentina – arguing that this would violate World Trade Organisation rules – which would presumably be necessary to meet the US$40 billion target.

These purchases are of enormous concern to US farmers, who played a major role in electing Trump in 2016 but have since suffered from his aggressive tariff policies.

Farm bankruptcies rose 24 per cent last year, while 2019 farm debt is on target to hit a record US$416 billion.

“This is a big source of consternation for [the US Department of Agriculture] and farmers,” one executive said.

The executive continued that American farmers have been studying the locations of Brazilian soy plants for clues on their China export strategies, adding: “That’s the level of granularity we’re seeing.”

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Business officials said they had been told that intellectual property safeguards in the phase one agreement appear relatively robust, including measures aimed at protecting trade secrets during the administrative licensing process.

US companies have long been frustrated by a Chinese expert panel that reviews and approves new products, business plans, factory layouts and other sensitive issues when foreign companies enter or expand operations in China.

They say these panels often include representatives from state-owned companies, industry associations and well-connected academics who are in a position to share proprietary details with their Chinese competitors.

One executive with ties to the White House said: “That’s been addressed in the agreement. That’s a big deal.”

Another provision reportedly would bar Chinese companies from gaining approval, marketing or selling generic versions of pharmaceuticals still under patent abroad, an issue known as “patent linkage”.

But there has been little apparent progress on forced technology transfer, executives said.

As reported last month, foreign insurance companies will be allowed to take 100 per cent stakes in Chinese life insurers, up from 51 per cent. But another dozen or so US service sectors that had hoped for greater Chinese market access have been disappointed, one executive said.

Executives said the agreement was hardly groundbreaking. But it does put a stop, at least for now, to months of chest thumping and destructive tit-for-tat import taxes affecting huge swathes of the US and Chinese economies.

The deal also addresses complaints over so-called “geographical indications” under which local companies or areas can claim rights to a name even if it’s been widely used abroad.

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In early November, China and the European Union signed a side deal recognising 100 of each other’s regional specialities, including products such as champagne or feta cheese.

But American companies have bridled under the system’s restrictions. Changes in the deal will reportedly include a more flexible approach, mirroring that in the proposed new US-Mexico-Canada trade agreement, which allows for more transparency and recognition when a name is commonly used internationally.

This is amazing progress on stuff we’ve been talking about for two decades

Beyond the commitment to buy more agricultural products, executives said the deal had made some progress in tackling certain non-tariff barriers to food exports, for example blocking meat imports by citing microscopic and completely healthy traces of bacteria.

Executives say language in the deal addresses these so-called sanitary and phytosanitary measures relating to seafood, pet food, beef, pork, poultry, ethanol and biotech products. Securing approval for new biotech products also reportedly advanced. “This is amazing progress on stuff we’ve been talking about for two decades,” said the executive briefed by the White House.

Executives also said the deal includes provisions making it easier to prosecute intellectual property violations through Chinese courts and administrative bodies, which dovetails increasingly with China’s own national interest as more Chinese hi-tech companies innovate and expand globally.

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