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This Week In Trade

Phase-one deal in flux as China reportedly debates whether to walk away

Posted: May 11, 2020

After months of touting the outcomes of the U.S.-China phase-one trade agreement, Trump administration officials have gone mum on whether they think the deal should remain in place -- while China reportedly is considering whether it should walk away.

Chinese state-run media on Monday, citing “sources close to the Chinese government,” said some officials in Beijing are now calling for new negotiations with the U.S. to take a more “tit-for-tat approach.”

“In the past, some trade negotiators believed that it would be worthwhile to make certain compromise to reach a partial truce in the 22-month trade war and ease escalating tensions,” the Global Times, a tabloid run by the Chinese Communist Party, said in an article on Monday. “However, given U.S. President Donald Trump's hyping an anti-China conspiracy that aims to cover up his mishandling of the COVID-19 pandemic, advisors close to the trade talks have suggested Chinese officials rekindling the possibility of invalidating the trade pact and negotiating a new one to tilt the scales more to the Chinese side, sources close the matter told the Global Times.”

President Trump on Friday was non-committal about the deal, saying he was “torn” over whether it should continue to be implemented. “Look, I'm having a very hard time with China. I made a great trade deal months before this whole thing happened and it was kicking in, you know, a month ago and starting to kick in and starting to produce and then this happens and it sort of overrides so much,” he told Fox News. “I feel differently than I did. I was the most -- I was very tough with China. They have to buy $250 billion worth of product, etc., etc.”

The president’s comments came hours after U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He and issued a statement saying China was still expected to meet all of the terms of the pact.

The statement did not mention China’s agreement to purchase $200 billion more in U.S. goods and services over two years than it did in 2017, but Beijing’s lag in purchases has been a focal point during the early days of the deal’s implementation. According to its own data, China’s goods imports from the U.S. through April were down 3 percent from last year’s numbers, putting it far behind the pace needed to up meet the terms of the deal.

White House trade adviser Peter Navarro has been pushing the narrative that China intentionally spawned the novel coronavirus and must face consequences. While repeating this claim -- without evidence -- on Monday, he refused to offer any speculation on the future of the phase-one deal.

“If you could look down at my feet here, you’d see a lane right over to my office and in that lane is not Bob Lighthizer or Steve Mnuchin who are handling the trade deal or President Trump,” Navarro said on CNBC. “My job is to make sure we localize our supply chains so we have what we need to defend people during the pandemic.”

Beijing on Saturday pushed back against the rhetoric that it is responsible for the global pandemic, releasing what it titled a “Reality Check of U.S. Allegations Against China on COVID-19” that rebutted -- over more than 11,000 words -- 24 claims made by U.S. officials.

“Recently, some U.S. politicians and media outlets have been fabricating preposterous allegations and lies of one kind or another in order to shift the blame to China for their inadequate response to COVID-19,” the document states. “However, as Abraham Lincoln said, ‘You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.’ Lies evaporate in the light of truth. It is time to let facts speak for themselves.”

Geneva stirs

About one-fifth of the World Trade Organization’s Secretariat will return to work this week after working from home for over a month. But even those returning staff will not be able to share offices or hold meetings.

The WTO will hold a virtual General Council session on Friday to discuss trade-related measures members have imposed during the pandemic. The meeting has been called solely to exchange information and the body will not make any decisions. Some members have expressed reluctance to make decisions via virtual platforms.

The pandemic has ground already slow and arduous trade talks to a halt. The negotiations to end harmful fisheries subsidies -- long seen as a bellwether for health of the WTO’s negotiating arm -- have stopped after the chair of the talks was unable to progress any farther absent in-person meetings.

While the WTO deals with operational issues, Sen. Josh Hawley (R-MO) is pushing to end its operations. Last week, Hawley proposed a resolution that would take the U.S. out of the WTO, arguing the multilateral trading system has failed the U.S. and should be reconstructed from the ground up.

Some trans-Atlantic talks on the move

U.S. and British trade negotiating teams are continuing a two-week initial round of talks on what the two sides hope will be a comprehensive trade deal. Negotiations were officially launched last week, virtually, and the teams will cover roughly 30 different topics during the first session. The two sides are hoping to move forward on all aspects of a deal simultaneously. After the first round, the chief negotiators will take stock and of which issues can be quickly resolved and which ones will need additional time. Subsequent negotiating rounds will be held about every six weeks.

But other trans-Atlantic talks -- between the U.S. and European Union -- have shown no signs of advancement, with the two sides instead escalating a long-running dispute over aircraft subsidies. USTR last week said the U.S. had fully complied with a WTO ruling faulting U.S. states for providing illegal subsidies to Boeing, a notion disputed by the EU. The EU is hoping to soon retaliate against the U.S. for the disputed subsidies, but it is awaiting a ruling by a WTO arbitrator specifying how much retaliation is permitted.

The U.S., meanwhile, continues to hit the EU with retaliatory tariffs over illegal subsidies member states have provided to Airbus. British products are among those being hit with the retaliatory duties and UK officials have said they hope to see those tariffs lifted as the U.S.-UK negotiations continue.

Events

  • The Asia Society Policy Institute on Tuesday will host a discussion with Chinese WTO Ambassador Zhang Xiangchen about what the WTO will look like in a post-COVID-19 world. ASPI Vice President Wendy Cutler will moderate the virtual event.
  • Pillsbury law partners Nancy Fisher, Elizabeth Vella Moeller and Matt Oresman on Tuesday will take part in a panel discussion about the trade implications of the coronavirus pandemic.
  • The Atlantic Council on Tuesday will host on online event on Brazil-Chinese relations and how that relationship could impact the U.S. Speakers are set to include deputy assistant Secretary of State Julie Chung, Arko Advice partner Thiago de Aragão, former Brazilian Ambassador to China Marcos Caramuru de Paiva and Trench Rossie Watanabe Advogados partner José Roberto Martins.
  • The Washington International Trade Association on Thursday continues its COVID-19 and trade webinar series with a discussion on drug development and biopharmaceutical supply chains. Wendy Cutler will moderate a discussion with Elissa Alben, Pfizer’s senior director of global trade policy; Joseph Diamond, executive vice president for international affairs at the Biotechnology Innovation Organization; and Jonathan Kimball, vice president of trade and international affairs at the Association for Accessible Medicines. -- Brett Fortnam (bfortnam@iwpnews.com)

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