TWN Info Service on WTO and Trade Issues (Jun19/01)
10 June 2019
Third World Network

US shoring up alliance with EU, Japan in trade war with China

Published in SUNS #8917 dated 29 May 2019

Washington DC, 28 May (D. Ravi Kanth) – The United States has shored up its alliance with the European Union and Japan to intensify its trade war with China. This conflict is increasingly proving to be costly to the US farm and tech sectors, according to media reports.

“But as we have heard from our farmers, they do want us to find a path forward with China. The tariffs are hurtful now, but the President will continue negotiating. We hope that we can get a deal soon,” US Republican Senator Joni Ernst (from Iowa) told the CNN on Sunday.

All over the US Midwest, there is increasing concern among farmers that the trade war is dragging on with no immediate breakthrough in sight.

“It is very tense time,” Senator Ernst said, pointing out that though farmers want an agreement with China soon, it is not going to happen in the summer.

In a package of measures to help farmers from the losses suffered due to the trade war, the Trump administration on Thursday (23 May) announced that it would provide $16 billion to offset losses from the 10-month trade war with China.

“The farmers have been attacked by China,” President Trump said in a press conference about the aid package.

“But the $16 billion of funds will … make clear that no country has veto on America’s economic and national security,” he said.

Last year, the US administration had already provided close to $10 billion as an aid package.

[US media reports show that the bulk of this package was garnered by a few large agri-firms, with small and medium farms getting much less benefit. SUNS]

Several countries, including key members in the Cairns group of farm exporting countries, had voiced concern during a meeting of the World Trade Organization’s Committee on Agriculture.

But the US had brushed aside these concerns, saying its aid package is consistent with WTO rules.

Although the US farm aid measures have not been challenged at the WTO, several trade envoys have said that the US aid package is inconsistent with its commitments.

Even in the tech sector where the US has imposed prohibitions on the Chinese telecom giant Huawei on intangible security grounds, there is concern among the tech firms as well as rural telecom enterprises that these prohibitions could adversely affect them in several ways.

According to a report in the New York Times (NYT) on 25 May, the Trump administration’s ban against Huawei had adversely affected the operations of “wireless carriers in several countries including Britain and Japan.”

The NYT report added: “But perhaps nowhere will the changes be felt more acutely than in rural America, where wireless service is spotty, despite years-long government efforts to improve coverage. They also add to the economic uncertainty created by the White House’s trade war with China. Farmers are fearful of an extended hit to their exports.”

There is also mounting concern on Wall Street that China’s purchase of US treasuries could be adversely affected if the trade war persisted in the coming months.

China, which has more than $1 trillion of holdings in the US treasuries, could induce volatility if it even modestly sells its holdings just to cause ripples in the market, say several news reports in the American media.

With Beijing remaining firm about its stand to safeguard its interests in key domestic sectors and negotiate only after the Trump administration includes Huawei and other issues on the table, the prospects for an early breakthrough seem bleak.

[According to a post on US web-log “zerohedge”, while China is still considering whether or not to implement quotas on rare-earth exports, including on their downstream products (like magnets, batteries etc) or use any of the other ” nuclear options” in response to the escalating trade and tech war, China’s Global Times has reported that a new cybersecurity rule is in the process of promulgation. A draft regulation has been published for public comments before finalisation. This would enable possible retaliation against the US technology companies if their products and services are found to pose a threat to China’s national security, the Global Times reported.

[Under the draft regulation, which was released on 24 May for public comment and appears to be a direct response to rising pressure on Huawei by the US and various other nations, companies involved in key information infrastructure would face cybersecurity reviews by regulators, if they acquired internet products and services.

[In what is thought to be China’s response to the US Committee on Foreign Investment in the United States, or CFIUS, nearly a dozen Chinese government agencies, including the National Development and Reform Commission, the Ministry of Public Security and the Ministry of Commerce, will set up a mechanism for cybersecurity reviews and the CAC will set up an office to coordinate the efforts. SUNS]

Given the tough stand adopted by China, at a joint press conference in Tokyo on Monday alongside Japanese leader Shinzo Abe, President Trump claimed, “I think they probably wish they made the deal that they had on the table before the y tried to renegotiate it.”

“They would like to make a deal. We’re not ready to make a deal,” he said.

Against this backdrop, the trade ministers of the United States, the European Union, and Japan agreed in Paris on 23 May to work jointly for negotiating new trade rules to prohibit industrial subsidies, discipline state-owned enterprises, and curb practices involving forced transfer of technologies.

During their meeting on the margins of the annual Organization for Economic Cooperation and Development (OECD) ministerial meeting in Paris, the US Trade Representative Ambassador Robert Lighthizer, the EU trade commissioner Ms Cecilia Malmstrom, and Japan’s trade minister Hiroshige Seko reiterated their commitment to address a range of non-market-oriented policies and practices of third countries that lead to various distortions in global trade.

The three members of the Trilateral group said they remain committed “to continue working together to maintain the effectiveness of existing WTO [World Trade Organization] disciplines, including through ongoing WTO disputes.”

The US, the EU, and Japan said they reviewed the prevailing “non-market-oriented policies and practices of third countries that lead to severe overcapacity, create unfair competitive conditions for their workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade.”

Without naming China, they expressed sharp concerns “about third parties developing State Enterprises to dominate global markets.”

For developing disciplines against industrial subsidies, the three members underscored the need for accelerating work on “increasing transparency, identifying harmful subsidies,” and finalize “trilateral text-based work on these and other issues in order to engage with other key WTO members on the need to strengthen industrial subsidies rules to address market distortions.”

[Interestingly, while calling for “transparency” at the WTO, the US and some of its allies have been strongly resisting at the ongoing World Health Assembly, an Italian-sponsored resolution calling for full transparency in the costs of research and development of pharmaceutical products. SUNS]

The three members want to pursue joint trade disputes at the WTO for addressing non-market distortions and subsidies through public bodies.

They also said that they would address the issue of forced technology transfers by “cooperating on enforcement, on the development of new rules, on investment review for national security purposes, on export controls.”

The three trade ministers confirmed ongoing trilateral cooperation on investment review mechanisms and sharing of best practices on risk analysis and mitigation methods.

The three partners also submitted a revised proposal on transparency and notification provisions as part of the WTO reform. They agreed to work jointly for strengthening the role of the WTO committees.

Significantly, the three trade ministers said they will step up their work on differentiation for availing special and differential treatment by developing countries in current and future trade negotiations.

They called on advanced developing countries such as China, India, South Africa, and Indonesia among others to “undertake full commitments in ongoing and future WTO negotiations.”

They applauded “some WTO members” like Brazil for not claiming developing country status.

More important, the three trade chiefs praised the Joint Statement on Electronic Commerce issued in Davos on 25 January, saying members must strive to “achieve a high standard agreement with the participation of as many WTO members as possible.”

But the three trade chiefs remained silent on the future of the WTO’s Appellate Body (AB) that will become dysfunctional after 11 December 2019 due to the continued blockage by the US for filling vacancies at the AB.

The AB will have only one member from 11 December 2019 and thereby it could become dysfunctional.

The US apparently told the EU and Japan at the meeting that it is not going to discuss the AB, said a source, who is familiar with the discussion at the meeting.

In short, the US seems to be making a determined effort to shore up alliances with the EU and Japan, in the face of knowing full well that it is going to be a protracted battle with China on the trade, science and technology fronts.

But China seems to be prepared to wage another “Long March”, according to its president Xi Jinping. He said China will safeguard its interests in the vital national economy sectors regardless of their escalating threats to its survival.