TWN Info Service on WTO and Trade Issues (May19/04)
9 May 2019
Third World Network

China unlikely to yield to US demands in bilateral talks

Published in SUNS #8902 dated 8 May 2019

Geneva, 7 May (D. Ravi Kanth) – As China attends the bilateral trade talks with the United States starting on Wednesday, Beijing is unlikely to yield to Washington’s demands that include a huge payment on market access, a unilateral enforcement mechanism, and complex structural reforms to deny policy space for its autonomous development.

Chinese negotiators are due to reach Washington Wednesday for renewed US-China bilateral trade talks, with the Chinese vice-premier set to go to Washington on Thursday for an abbreviated round of talks, according to the US and Chinese media.

Though on Monday the state of the talks remained uncertain, and the US stock markets have been going up and down, reacting to comments and threats on the US side of raising tariffs, Beijing seemed to brush aside Tuesday the US threats, with the remark “we have heard it before”, and there was an official statement that the Chinese official delegation would be in Washington on Wednesday, and the vice-premier on Thursday for what was being described as an “abbreviated round of talks”.

While the USTR, the Treasury Secretary Mnuchin, White House economic advisor Larry Kudlow and trade-and-manufacturing advisor Peter Navarro all claimed that the Chinese side was going back on what the US thought it had agreed to earlier, they provided no specifics on the areas where Beijing had now gone back, citing the language in a Chinese draft that has been sent to Washington.

While the bilateral talks are now expected to start on Wednesday, it appear s that Beijing is unlikely to yield to Washington’s demands that include huge payment on market access (by Beijing cutting back on retaliatory tariffs it had already put in place, without equivalent immediate reciprocal action by the US), a unilateral enforcement mechanism, and complex structural reforms to deny policy space for its autonomous development.

[Reports on some specialist blogs in the US suggest that in fact the US is demanding guarantees that Beijing would not persist with its strategic vision on technology, including artificial intelligence, that would make China an equal, if not, dominant partner. SUNS]

The eleventh round of talks which would be held in Washington from 8 May has already been soured due to incessant threats by the Trump administration.

The prospects for a balanced agreement seem difficult as the US President Donald Trump, his Trade Representative (USTR) Ambassador Robert Lighthizer and the Treasury Secretary Steven Mnuchin have threatened that Washington will impose higher tariffs on Chinese goods on 10 May.

The USTR and the Treasury Secretary on Monday charged Beijing of reneging on its promises during the tenth round of talks that ended in Beijing last week.

The USTR said “over the course of the last week or so, we have seen erosion in commitments by China, I would say retreating from commitments that have already been made, in our judgement.”

Washington will impose tariffs of up to 25% on $200 billion of Chinese goods from Friday (10 May), Ambassador Lighthizer told reporters on Monday.

The US officials claimed that they had seen some attempts by China to walk back from previous commitments during negotiations last week.

The degree of backsliding, they suggested, has become even more apparent in a new draft agreement that China sent to the US over the last weekend.

China has apparently suggested in the draft that it would reopen issues that Washington assumed had already been clinched.

“We are not willing to go back on documents that have been negotiated in the past,” the USTR said.

The US Treasury Secretary claimed that Washington had no clue about the change of Chinese positions until China submitted new language last weekend.

The two US officials “made it clear there are deep concerns about the direction of talks that go beyond negotiating style,” according to a report in the Wall Street Journal (WSJ) on 7 May.

Till now, the USTR had adopted hawkish positions demanding far-reaching changes in the Chinese trading regime while his Treasury colleague Steven Mnuchin chose to adopt a dovish stance, suggesting a two-way enforcement system for overseeing the implementation of commitments.

But, “in a show of unity by an administration often divided between trade-friendly officials and China hawks, the two officials were joined at Monday’s briefing by economic advisor Larry Kudlow and President Trump’s trade-and-manufacturing advisor Peter Navarro,” the WSJ report suggests.

Quoting Professor Eswar Prasad of Cornell University, the WSJ report suggested that “the level of brinkmanship on both sides and their obvious mutual distrust has made the path to even a temporary cease-fire a lot murkier that just a few days ago.”

“It is likely a cooling-off period will be needed to get the talks back on track, but the imposition of additional tariffs [of 25% on Chinese goods] by the US later this week could keep the talks derailed for a while to come,” Prasad told the WSJ.

Significantly, neither the USTR, nor the US Treasury Secretary clearly indicated on which areas or issues that China has retreated from the previous agreed language.

Ambassador Lighthizer pointed an accusing finger at hawks in Beijing for retreating from previously agreed language.

“My own view is that there were serious, real commitments that were enforce able and that some people in China found that difficult and objected to it,” Ambassador Lighthizer said, claiming that major issues still remain unresolved.

The USTR had presented maximalist demands on a range of issues such as stringent disciplines to eliminate industrial subsidies in China, especially for state-owned enterprises, enhanced rules on intellectual property rights to push back on mandatory transfer of technology and other trade secrets, and sweeping commitments in electronic commerce, particularly removing all restrictions on cross-border data flows and storing of data in foreign servers and cloud computing.

Clearly, one area where there appear to be irreconcilable differences between the two sides is over Washington’s evasive stance that it will phase out the retaliatory tariffs it had already imposed on more than $250 billion of Chinese goods in stages depending on Beijing’s implementation of the commitments agreed in the final deal, a Chinese official told the SUNS last week.

China wants lifting of all retaliatory tariffs imposed on Chinese goods once the agreement is concluded, the official suggested.

China also demanded a balanced agreement that would include an enforcement mechanism to oversee Washington’s implementation of its own commitments set out in the agreement.

China is unwilling to agree on cross-border data flows, storing of its data in foreign servers, web services, and cloud computing among others.

Despite the dire threats issued by President Trump and his officials, China has decided to attend the talks in Washington from 8 May.

A Chinese foreign ministry spokesperson said the US threats to impose additional tariffs on Chinese goods from Friday is “something we have seen many times before.”

According to an editorial comment in China’s Global Times on 7 May, the US side claimed that Washington intends to raise the tariffs imposed on $200 billion of Chinese goods from 10% to 25% on Friday, and $325 billion of additional goods will be taxed shortly at a rate of 25%.

The US side, according to the Chinese daily, complained that China-US trade talks were proceeding “too slowly,” that the tariffs paid to the US “are partially responsible for great economic results in the US,” but “have had little impact on product cost, mostly borne by China.”

“What matters most now for China is calm – the Chinese public wants an agreement, but meanwhile is well prepared for other potential outcomes, including a temporary breakdown in talks,” the Chinese daily maintained.

Further, “the Chinese society’s expectation of a quick deal is not as high as that of American society – even if talks fail, the impact on China will be controllable,” the Chinese daily suggested.

In sum, China appears to be facing a defining moment as to how it navigates through this week’s crucial talks with the US. Any sign of weakness on China’s part could badly damage its international standing.