President Trump signs Phase 1 trade agreement with China

By Ron Kotrba | January 15, 2020

President Donald Trump signed the Phase One trade agreement between the U.S. and China Jan. 15, a move expected to deescalate trade tensions between the two economic giants while reopening key markets for U.S. farmers. Despite the new deal, however, Chinese tariffs on U.S. soybeans remain in place.

According to the USDA, the new, enforceable agreement requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. The Phase One deal also includes a commitment from China that it will make “substantial additional purchases of U.S. goods and services in the coming years,” the USDA stated.  Furthermore, the new trade agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement. The U.S. has agreed to modify its Section 301 tariff actions “in a significant way,” USDA stated.

“This agreement is proof President Trump’s negotiating strategy is working,” said Secretary of Agriculture Sonny Perdue. “While it took China a long time to realize President Trump was serious, this China Phase One deal is a huge success for the entire economy. This agreement finally levels the playing field for U.S. agriculture and will be a bonanza for America’s farmers, ranchers, and producers. China has not played by the rules for too long, and I thank President Trump for standing up to their unfair trading practices and for putting America first. We look forward to exporting to Chinese customers hungry for American products.”

Information on specific chapters of the Phase One agreement, provided by the USDA, is provided below.

Agriculture. The agriculture chapter addresses structural barriers to trade and will support a dramatic expansion of U.S. food, agriculture and seafood product exports, increasing American farm and fishery income, generating more rural economic activity, and promoting job growth. A multitude of nontariff barriers to U.S. agriculture and seafood products are addressed, including for meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agriculture biotechnology.

Intellectual Property. The intellectual property chapter addresses numerous longstanding concerns in the areas of trade secrets, pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods.

Technology Transfer. The technology transfer chapter sets out binding and enforceable obligations to address several of the unfair technology transfer practices of China that were identified in the United States Trade Representative’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.

Financial Services. The financial services chapter addresses a number of longstanding trade and investment barriers to U.S. providers of a wide range of financial services, including banking, insurance, securities, and credit rating services, among others. These barriers include foreign equity limitations and discriminatory regulatory requirements. Removal of these barriers should allow U.S. financial service providers to compete on a more level playing field and expand their services export offerings in the Chinese market.

Currency. The chapter on macroeconomic policies and exchange rate matters includes policy and transparency commitments related to currency issues. The chapter addresses unfair currency practices by requiring high-standard commitments to refrain from competitive devaluations and targeting of exchange rates, while promoting transparency and providing mechanisms for accountability and enforcement. This approach will help reinforce macroeconomic and exchange rate stability and help ensure that China cannot use currency practices to unfairly compete against U.S. exporters.

Expanding Trade. The expanding trade chapter includes commitments from China to import various U.S. goods and services over the next two years in a total amount that exceeds China’s annual level of imports for those goods and services in 2017 by no less than $200 billion. China’s commitments cover a variety of U.S. manufactured goods, food, agricultural and seafood products, energy products, and services. China’s increased imports of U.S. goods and services are expected to continue on this same trajectory for several years after 2021 and should contribute significantly to the rebalancing of the U.S.-China trade relationship.

Dispute Resolution. 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.

Sen. Chuck Grassley, R-Iowa, who received special mention from President Trump, attended the White House signing ceremony.

“President Trump and Ambassador Lighthizer should be commended for this significant progress toward a full and enforceable deal with China,” Grassley said.” Farmers have borne the brunt of retaliation throughout this trade war. At the White House today, I was thinking of my neighbors in Iowa and all the other farmers across the country who have stood strong throughout this process. I hope this proves to be a turning point in our economic relationship with China, but I’ve seen enough history to be clear-eyed. Not only must China follow through with its commitments in this Phase One deal, but also work toward a comprehensive agreement that ends forced technology transfers, intellectual property theft and unfair restrictions on U.S. goods, including agriculture. Only then will we know if China can be a reliable economic partner in the 21st century.”

The soybean industry applauded the deal and remains hopeful it will lead to additional measures that restore open trade between the two countries, including a negotiated solution in the next phase that removes tariffs on American soybeans shipped to China.

“We have long supported changes to how China conducts business with the world, in agriculture and other industries,” said Bill Gordon, president of the American Soybean Association and soy farmer from Worthington, Minnesota. “Today’s signing addresses many of those concerns and is a positive for the U.S., including reduction of nontariff barriers to trade that are important to soybean growers and other agriculture groups.”

Changes outlined in the Phase One deal, such as increased agriculture purchases, a more predictable, efficient, science- and risk-based regulatory process for evaluation and authorization of agricultural biotechnology products, improvements to sanitary and phytosanitary measures, and intellectual property protection for agriculture, are “encouraging,” the ASA stated.  

“We are very pleased to see true progress on the regulatory process for ag biotech products, sanitary and phytosanitary measures, and other big points of concern,” Gordon said. “And, importantly, this milestone moment in the negotiation process bodes well for deescalation of the tension between our two countries and making further progress. Yet, as an industry, we have a lingering unease regarding the tariff on U.S. beans, which was not addressed in this deal. China needs to take action, and, as a goodwill gesture, offer to remove its retaliatory tax on our soybeans.”

According to documents released by the White House outlining details of the deal, China’s imports of U.S. agricultural products, “such as soybeans, cotton, grains, meats, ethanol, seafood, and the full range of other agricultural products,” will total at least $80 billion over the next two years.

 

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