On January 15, 2020, the United States and China signed a long-awaited trade agreement, the result of years of negotiations between the two countries after the United States initiated a Section 301 investigation in August 2017. According to the text of the agreement, it is scheduled to take effect within 30 days of execution.
The "Phase One" trade deal does not directly address any of the U.S. tariffs currently effective against Chinese goods, which are expected to remain in place for the foreseeable future. Nevertheless, as part of the announcement in December 2019 that an agreement in principle between the two countries had been struck, the Trump administration suspended the "List 4B" tariffs scheduled to take effect that month. In addition, "List 4A" tariffs of 15% on $110 billion in Chinese imports are expected to be halved from 15% to 7.5% on February 14, 2020.
As part of the agreement, China has agreed to substantially increase its imports of certain U.S. goods and services during the next two years, at a total value of at least $200 billion above 2017 levels, related to the following sectors:
- Certain manufactured goods (including industrial machinery, electrical equipment, pharmaceuticals, aircraft, vehicles, optical and medical equipment, iron and steel, solar-grade silicon, hardwood lumber, and chemicals): An increase of at least $120 billion in 2020 and at least $131.9 billion in 2021.
- Certain agricultural goods (including soybeans, cotton, grains, metals, ethanol, and seafood): An increase of at least $80 billion across 2020 and 2021.
- Certain energy products (including LNG, crude oil, and metallurgical coal): An increase of at least $30.1 billion in 2020 and at least $45.5 billion in 2021.
- Financial services, insurance services, cloud services, and travel services: An increase of at least $99.9 billion in 2020 and at least $112.2 billion in 2021.
In addition, with respect to the intellectual property (IP) concerns raised by the United States, China has agreed to increase protections for trade secrets and enforcement against trade secret theft; make reforms to its judicial system to address IP theft, including increased civil remedies and criminal penalties for violations; increase patent protections and incentives for pharmaceuticals; address trademark concerns, and enhance protections for U.S. brand names and geographical indicators (GIs); and increase enforcement against pirated and counterfeit goods online. Many of the specific details of how China will meet these agreements are yet to be worked out; China has agreed to issue an Action Plan within 30 days that outlines the details and dates for the structural changes to take place pursuant to the country's commitments.
With regard to technology transfers, another major source of concern for U.S. companies interested in establishing a presence in Chinese markets, China has agreed to take further steps, like prohibiting pressure on foreign companies to transfer their technology as a condition for market access or administrative approvals; requiring technology licensing or transfers to be voluntary, mutual, and based on market terms; prohibiting state-directed outbound investment aimed at acquiring foreign technology; and ensuring that enforcement proceedings are impartial and transparent.
The trade deal also contains additional specific agreements by China regarding agricultural and seafood approvals and regulatory processes and restrictions on banking and related financial services. In addition, both the United States and China have agreed to regular and ongoing public disclosure of foreign exchange reserve and balance-of-payments information, and the avoidance of any policies that would devalue currency or manipulate exchange rates.
Enforceability is one of the most critical aspects of an agreement between the United States and China. To that end, the two countries have agreed to establish a dispute resolution arrangement, to consist of bilateral consultative bodies at both the principal level and the working level, tasked with discussing and coordinating implementation of the agreement. This arrangement involves the establishment of a high-level Trade Framework Group, to discuss overall implementation of the agreement, and the creation of a working-level Bilateral Evaluation and Dispute Resolution Office in each country, to raise specific issues relating to implementation of the agreement and to address and resolve complaints raised by the other country. Under this framework, in the normal course, when one country believes the other is not acting in accordance with the agreement, it will submit an appeal to the other's Bilateral Evaluation and Dispute Resolution Office. The countries will then begin consultations and attempt to resolve the issue, escalating it to the Trade Framework Group level if necessary.
Looking ahead, the Trump administration has communicated its intent to pursue a second phase of the agreement with China to address trade issues not covered in the "Phase One" deal. According to the administration, tariffs on China goods are expected to be lifted if and when this subsequent agreement concludes.
In addition to the text of the agreement, the Office of the U.S. Trade Representative has released several fact sheets that outline further details. To discuss specifics about this deal, and its potential impact on the trade environment that businesses can expect in 2020 and beyond, do not hesitate to reach out to Venable's International Trade Group for more details.