Trade
‘Phase one’ US–China trade deal better than no deal
Author: Bashar Malkawi, University of Arizona
The ‘phase one’ trade deal between the United States and China entered into force on 14 February 2020. As part of this agreement, China agreed to make structural reforms, open up its financial services and strengthen intellectual property. China also pledged to buy at least US$200 billion in additional US goods and services over 2020 and 2021.
But after almost two years, complaints have arisen about China not meeting its obligations. According to some statistics, China has reached only 62 per cent of that target, raising the question of compliance and enforcement under the phase one deal.
The United States and China agreed to an innovative approach as part of their agreement, detailed in chapter seven. The phase one deal created the Trade Framework Group to discuss the agreement implementation, led by the US trade representative and a designated Chinese vice premier, with a bilateral evaluation and dispute resolution office for each party.
As in a typical trade agreement, a complaining party can submit an appeal to the office of the party complained against when an issue arises. If the issue is not resolved, it can be raised to the designated deputy US trade representative and Chinese vice minister.
If the concerns of the complaining party are not resolved at that level, then ‘the parties shall engage in expedited consultations in response to the damages or losses incurred by the complaining party’. If the parties do not reach a consensus, the complaining party can suspend an obligation under or adopt ‘a remedial measure in a proportionate way’.
The language used creates room for wide interpretation. Rather than achieving the purported goals of managing trade peacefully, the dispute resolution language may lead to an escalation of trade tensions. Under the terms of the phase one deal, it is the complaining party who determines whether there is a violation of the agreement, rather than an independent panel or tribunal. The deal is also not clear on the remedial measures that can be taken by the complaining party and for how long these measures can be taken.
So under article 7.4, the United States can unilaterally determine whether a violation has occurred, the duration of the suspension of concessions and the severity of this suspension.
The question of whether the United States will take unilateral measures to enforce the phase one deal remains. Though US officials have made statements indicating that this is likely, evidence suggests that enforcement under the phase one deal may not happen.
When the United States takes action, China can either accept the remedial measure — along with a promise not to retaliate — or withdraw from the phase one deal. The latter option is more harmful than taking the remedial measure.
From an economic perspective, any targets achieved under the deal are better than no deal or reverting to trade wars with China.
From a geopolitical perspective, there are few alternative venues to force China to abide by its trade obligations. The World Trade Organisation (WTO) is in bad shape, especially its Appellate Body, ‘the crown jewel’ of the organisation, which has the final say on trade disputes. Over the years, the Appellate Body has developed a strong tradition of precedents. This, in part, subjected it to criticism mainly by the United States and eventually led to blocking the appointment of Appellate Body judges. It is also doubtful whether the phase one deal is legitimate under WTO rules, since it prohibits measures such as bilateral voluntary export restraints and orderly marketing agreements that limit the import of certain products.
There is also the question of whether the substance of the deal is legitimate. The purpose of this deal is to manage trade instead of correct market problems between the United States and China. One of the main provisions of the deal is that China engages more heavily in trade with the United States. The phase one deal creates trade diversion whereby imports of US goods into the Chinese market would replace imports from other countries. Therefore, the United States and China walk a fine line so as not irritate their relations with other countries such as the European Union, Brazil, and Australia.
This provision of the deal can be attributed to the misdiagnosis of the market issues between these two countries by former US president Donald Trump. According to Trump, the root of the market issues between the United States and China was the trade deficit. But managing trade to improve…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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