This month the USTR released the text of the first phase of the Economic and Trade Agreement between
the United States and China. The 91-page deal is structured in 8 chapters, covering Intellectual property
(“IP”), technology transfer, food & agricultural, financial services, macroeconomic policies, expansion of
trade, financial services, and dispute resolution. While the agreement did not foresee the truce on the
existing additional tariffs against China, it set out relevant commitments by China.
Rebalancing trade with China is one of the clear goals of the deal. Specifically, the sixth chapter on
balancing trade aims to reduce U.S. trade deficit with China, with the voluminous figure of $200 bi on
Chinese purchases of U.S. services and products such as manufacturing goods and agricultural products.
If implemented, this commitment could potentially divert China’s purchases from other origins, such as
soybeans from Brazil. Trade diversion is a serious risk of this commitment.
The deal’s dispute settlement chapter establishes a process of bilateral consultations within each party’s
“Bilateral Evaluation and Dispute Resolution Office”, composed by a designated Deputy USTR in the case
of the United States and by a designated Vice Minister in the case of China. There is no neutral third-party
arbitrator in this mechanism. Although this could prevent immediate retaliations due to the agreed
consultation procedure, the deal still ultimately allows for one party to potentially retaliate in case it
deems that the other party is not complying with its commitments under the agreement.
On the tariffs front, following the signature of the deal, the USTR announced the reduction from 15% to
7.5% on $120 billion of Chinese imports (products listed under the so-called Section 301 List 4A).
Nonetheless, most of the tariffs are still in place, as the additional 25% tariffs on over $250 billion worth
of Chinese products (Lists 1 to 3) remain in force.
Finally, the current deal does not cover relevant topics. While there is a chapter outlining commitments
on the technology transfer front, we should expect more work on this front in the next phases. We should
also expect provisions on government cybertheft, industrial subsidies, and state-owned enterprises, as
the current deal did not address these “hot topics”. In parallel, the US, Japan and the EU met to discuss
ways to strengthen WTO rules on industrial subsidies (see link below)
Overall, the deal takes significant steps to reform China’s trade practices by attempting to reduce nontariff barriers to U.S. exports, IP rights’ violation, and forced technology transfer. The agreement would
enter into force in mid-February, unless parties agree in writing to an earlier date. Actual implementation
of these commitments in US and China laws, enforcement, and actions remain to be seen.
Full text of the agreement available here.
See also:
• USMCA passed in the U.S. Senate on January 16, 2020
• 232 case update at U.S. Court of Appeals for the Federal Circuit
• New CFIUS regulation for Reviewing Foreign Investment in U.S. Businesses
• Statement by Ministers in Davos on the WTO Dispute Settlement System
• Joint Statement on Industrial Subsidies of the Trilateral Meeting of the Trade Ministers of Japan,
the United States and the European Union