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This Week In Trade

China awaits Trump’s Hong Kong decision; USMCA days dwindling

Posted: November 25, 2019

A bill declaring U.S. support for Hong Kong protesters awaits a decision by the president -- and it could drive a wedge between the U.S. and China in trade negotiations. U.S. lawmakers, meanwhile, have returned to their districts for the Thanksgiving break, with many still fretting about the fate of the U.S.-Mexico-Canada Agreement.

The House and Senate last week passed a bill mandating a re-examination of Hong Kong’s status as a special administrative region if its autonomy is threatened by China. It also stridently backs pro-Democratic protests in Hong Kong. China has threatened to impose countermeasures if the bill becomes law. The president has 10 days, excluding Sundays, to decide whether to sign the bill. If he does not sign or veto it in that time, it will automatically become law.

The issue is embroiled in the ongoing trade negotiations between the U.S. and China. Trump last week said Chinese intervention in Hong Kong would have a “tremendously negative impact” on the trade talks.

According to White House trade adviser Peter Navarro, the bill is being vetted by White House lawyers.

Michael Pillsbury, a senior fellow at the Hudson Institute and an adviser to President Trump on U.S.-China policy, on Monday suggested the president could refuse to sign the bill as a goodwill gesture to Chinese President Xi Jinping.

“He still refers to President Xi Jinping as his friend and a great guy,” Pillsbury said on Fox News, referring to comments Trump made on Friday. “He could as a gesture to Xi Jinping not sign it or look like he’s dragging his feet to help President Xi Jinping.”

Pillsbury also suggested that Trump could move to impose even higher tariffs on China. The U.S. has levied 25 percent duties on $250 billion worth of Chinese goods and 15 percent tariffs on another $112 billion worth of Chinese goods. Trump has also threatened to hit an additional $160 billion of Chinese goods with 15 percent tariffs on Dec. 15.

“I think we’re in the final stage now, whether the first phase is going to work or not,” Pillsbury said. “I’m kind of pessimistic. I think the president still likes to be called ‘tariff man.’ I think the idea of putting tariffs back on at a much higher level still exists. So I’m not complacent that we have the final goal in sight. There are still some major concessions China has to make.”

One major area in which China must concede is intellectual property rights, Pillsbury said. China's government on Sunday released a policy directive ordering agencies to “accelerate the revision and improvement of patent law, trademark law, and copyright law,” which must include strengthening “civil judicial protection and effectively implement the punitive damages system.”

This is not the first time China has promised to better its IP protections. Just last month, China published implementing regulations for its “Foreign Investment Law” that included punitive damages for copyright and trademark infringement.

Pillsbury, however, said the Chinese improvements do not go far enough. “I think it’s a step forward that China wants to raise the penalties on IP theft; the only thing is they floated that last summer and they said they already had a law they were going to pass to do just that,” he said. “The penalties are really quite small … in some cases if the company loses the case, a foreign company sues the Chinese company for property theft. The penalty you might think would be large -- no, it’s as low as $5,000. So they have to go a long way beyond what they’ve already announced to really appease the president’s concern on intellectual property theft.”

USMCA's fate remains uncertain

The House and Senate are scheduled to be in session for just eight more days in 2019, unless plans are changed, offering a tight window to pass Trump’s signature trade deal by the end of the year. House Speaker Nancy Pelosi (D-CA) and Trump have in recent days suggested it might not.

Trump on Sunday blamed Democrats for failing to move any important legislation, calling USMCA and other efforts “dead in the water” because of them.

House Democrats are working with U.S. Trade Representative Robert Lighthizer to address concerns with USMCA labor, environment, pharmaceutical and enforcement provisions. But even if the two sides reach a deal soon, Pelosi suggested last week, getting a USMCA bill to the floor this year could still prove difficult.

DST decision looming

This week will mark 90 days since Trump and French President Emmanuel Macron met in Biarritz, France, for the G-7 summit, where they discussed France’s digital services tax. USTR launched a Section 301 investigation into the tax earlier this summer. The U.S. agreed it would delay a decision on whether to impose tariffs for at least 90 days as the negotiations on an international digital tax framework continued at the Organization for Economic Cooperation and Development.

The OECD published a framework for an international tax structure last month that elicited concerns from U.S. business groups who worry about the potentially broad scope of the rules. France has said it will repeal its digital services tax if OECD members reach a deal.

USTR’s Section 301 investigation into France’s new measure has not deterred other countries from considering their own digital services tax. The United Kingdom, Canada and others have also suggested implementing such taxes, much to the ire of the U.S.

Brazil’s economy minister pays a visit

Brazilian Economy Minister Paulo Guedes will be in Washington, DC, this week. On Tuesday, he will discuss his government’s agenda at the Peterson Institute for International Economics.

Brazilian officials have repeatedly expressed an interest in striking a trade deal with the U.S. Lighthizer and Brazilian Foreign Affairs Minister Ernesto Araújo in September said the two sides were crafting an initial trade “package” with the hopes of reaching a broader deal. -- Brett Fortnam (bfortnam@iwpnews.com)