TWN Info Service on WTO and Trade Issues (Sept19/11)
30 September 2019
Third World Network

US and China resume their trade talks

Published in SUNS #8981 dated 20 September 2019

Geneva, 19 Sep (D. Ravi Kanth) – The United States has made it difficult for Chinese companies and investors to gain any entry into data and high-tech American businesses on grounds of national security restrictions, even as the two sides resume their trade talks at the deputy-level officials on Thursday for reaching an agreement soon.

Ahead of today’s meeting, the US President Donald Trump has suggested that a trade deal will be reached soon.

China is apparently anxious to reach an agreement before the elections in 2020 because Chinese officials understand the US will strike a harder deal after the election.

“If it’s after the election, it will be a deal like you’ve never seen, it’ll be the greatest deal ever and China knows that,” the US president told reporters in Washington on 17 September.

“They think I’m going to win, China thinks I’m going to win so easily and they’re concerned because I told them, if it is after the election it’s going to be far worse than what it is right now. I told them that. Would they like to see somebody else win? Absolutely,” he said, according to a report in the Washington Trade Daily on 18 September.

Expressing satisfaction over China’s latest move to exempt soybeans and pork from the 30% tariff that was put in place by Beijing after the two sides intensified their trade war early this year, “they are starting to buy our farm products big league,” he claimed, according to the WTD report.

However, the chief US trade negotiator Ambassador Robert Lighthizer has maintained that much more work needs to be done before the US can conclude an agreement with China.

During his meeting with the US Chamber of Commerce on Monday (16 September), Ambassador Lighthizer is reported to have said the administration is pushing for a “real agreement”, not an interim deal.

Notwithstanding the cautious moves by both sides towards an agreement on the trade front, the US has further tightened the rules governing entry of foreign investors into American businesses through takeovers and equity participation in sensitive technology and high-tech areas on national security considerations.

The US move was directed primarily at the Chinese investors who had earlier invested in several start-up companies in the Silicon Valley area in California.

On Tuesday (17 September), the US treasury department officials “provided a first glimpse of how they would implement Congress’s order last year to expand the scope of national-security reviews of foreign investment deals, including those involving satellites, oil refineries, financial-market systems and drinking water utilities,” according to a report in the Wall Street Journal.

“Today’s proposed regulations will provide clarity and certainty to investors regarding CFIUS’s (Committee on Foreign Investments in US) enhanced authorities to address national security risks that arise from certain foreign investments,” the US Treasury Secretary Steven T Mnuchin said in a statement, according to WSJ.

The CFIUS regulates foreigners, or aliens in the American lingo, from acquiring controlling stakes in areas involving “critical technology” with national security implications.

Over the past several years, a range of Chinese venture funds and investors apparently poured billions of dollars in the start-ups in Silicon Valley by picking up minority stakes.

For overcoming this lacunae in the CFIUS which is in operation since 2007 following the Foreign Investment and National Security Act of 2007, the US Congress has already enacted a bill titled FIRRMA or Foreign Investment Risk Review Modernization Act of 2017. The bill is largely directed against the Chinese investment and also included significant changes to the existing CFIUS review.

More important, the new legislation would expand CFIUS’s jurisdiction to cover a number of new types of transactions such as purchases or leases of real estate in close proximity to sensitive US government facilities in the Silicon Valley and other cities, and the contribution of intellectual property and associated support to a foreign person through any arrangement, including joint venture.

“Both of these categories would capture transactions beyond the traditional mergers and acquisitions currently subject to CFIUS review,” says White & Case, a law firm.

“Additionally, FIRRMA provides CFIUS with broader jurisdiction for transactions involving critical technology or infrastructure firms.”

“Tuesday’s proposed rules explained what kind of sensitive data collected by US businesses could trigger a national-security review if a foreign investor becomes involved, narrowing the panel’s review authority to companies with data on more than one million people or on populations that include US military members,” the WSJ maintained.

“Industry officials concerned about the implementation said potential regulatory overreach could overwhelm Treasury staff with new filings,” the WSJ reported.

In effect, even as China is ready to conclude a bilateral trade agreement with the US, Chinese investors will not be able to secure an entry into high-tech areas in the US due to national security considerations. China’s companies such as Huawei are already facing several restrictions for the supply of key components and chips from the American companies.

“Huawei’s founder Ren Zhengfei was quoted by New York Times as saying earlier this month that the company is open to sharing its 5G technologies and techniques with US companies, and those companies can even change the software,” according to a report titled “The 5G race is over, and US lost … 6G is next frontier,” in Global Times, a Chinese publication, on 18 September.

Interestingly, the US and Japan, which are the two leading drivers of the informal joint initiative in electronic commerce plurilateral talks at the World Trade Organization, are now increasingly resorting to national security provisions to deny the supply of sensitive materials and chips to foreign companies.

Korea has launched a trade dispute against Japan at the World Trade Organization complaining that Tokyo’s export restrictions on technology transfer among other issues are inconsistent with global trade rules.

In a complaint lodged with the WTO’s Dispute Settlement Body on 10 September, Korea called on Japan to enter into Article 4 consultations over Tokyo’s recent implementation of trade-restrictive measures with respect to the export of certain products and technologies destined for Korea.

In conclusion, the US, Japan and other major countries are now resorting to intangible restrictions for the supply of technologies as well as on investment flows at a time when they are championing plurilateral agreements in electronic commerce and investment facilitation at the WTO.