Caixin
Dec 19, 2019 08:32 PM
OPINION

Opinion: The Knowns and Unknowns of the Agreed Phase One Deal

There has been mounting skepticism about the phase one trade deal announced by the U.S. and China on Friday evening. Critics are unconvinced that there is a valid agreement on the table, given the limited information provided by the two sides and the absence of the text of the deal itself.

Scott Kennedy, a well-known China expert at the Washington-based Center for Strategic and International and Studies, said that he would not “pop champagne” to celebrate the deal. There is “significant ambiguity” in the announcements, Kennedy said, including China’s undeclared commitments on purchases, market opening, structural reforms or tariff reductions. He concluded that it is “an agreement in principle” and also “fragile.” “It is not hard at all to see how it could collapse as a result of untoward actions by either side,” he said.

To address such criticisms, it is worth examining the deal to determine of which criticisms are valid and which are not. First, there is certainly a deal on the table. The next step in the process is for the two sides to present the text of the agreement, but that hasn’t happened yet, which isn’t all that surprising.

Robert Lighthizer, U.S. President Donald Trump’s trade representative, said on the CBS program “Face the Nation” on Sunday that the deal “is totally done.” He said “there is a translation period” and “some scrubs” remaining.

Shawn Donnan of Bloomberg, a veteran trade reporter, also wisely pointed out in a Twitter post: “Deal is done, lawyers ‘scrub’ the text and then it all gets signed/unveiled. It is the most normal thing happening here.”

I also have first-hand experience of the process. In early October 2015, I covered the final round of the then-mega-regional trade agreement, the Trans-Pacific Partnership (TPP), in Atlanta, Georgia. On the morning of Oct. 5, then U.S. President Barack Obama’s trade representative and former Harvard classmate, Michael Froman, announced the successful conclusion of the TPP. It took lawyers three months to go over the full text before its release in January 2016. So it is perfectly normal that the full text hasn’t been made public yet.

Second, China has clearly made substantial commitments and compromises in the deal. According to a fact sheet released by the Office of the U.S. Trade Representative (USTR), “For the first time in any trade agreement, China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, administrative approvals or receiving advantages from the government.”

China has also agreed to establish a dispute-resolution chapter that Beijing has previously strongly objected to. According to the fact sheet, the arrangement creates regular “bilateral consultations at both the principal level and the working level” to resolve disputes. It also allows each party to take “proportionate responsive actions that it deems appropriate.”

“The United States can then take an action if China doesn’t keep its commitments in a 90-day period,” Lighthizer said on “Face the Nation.”

Third, it’s unclear if China has committed to purchase, at minimum, $50 billion worth of American agricultural products as previously reported, but it appears to be around that amount. When asked about it during the interview, Lighthizer dodged the question. After the host pursued it, however, Lighthizer answered that there are “specific breakdowns by products” and “we have a commitment for $40 (billion) to $50 billion in sales,” which is “$80 (billion) to $100 billion in new sales for agriculture over the course of the next two years.”

“Just massive numbers,” he touted.

Fourth, the schedule of the U.S. rollback of tariffs imposed on Chinese goods has been unclear, and sort of mysterious now amid a dispute between the USTR and the Wall Street Journal. Two Wall Street Journal reporters, Bob Davis and Lingling Wei, previously reported that Washington offered to cut the tariff rates by as much as one half on approximately $360 billion worth of Chinese imports. But the USTR and U.S. Treasury Department vehemently denied the report in a rarely issued joint statement on media reports, saying “this is totally false, untrue and baseless.” “There is not a single knowledgeable American negotiator who would support this falsehood,” the statement said. “Further, there is no Chinese negotiator who could honestly be this source.”

On Tuesday, the Wall Street Journal responded. “We stand by the reporting of Bob Davis and Lingling Wei,” said Steve Severinghaus, communication director for the newspaper, in a report by the news website Politico.

Furthermore, Lighthizer doesn’t seem so sure about the level of the deal’s implementation. He told CBS that “whether this whole agreement works is going to be determined by who's making the decisions in China, not in the United States.”

“If the hardliners are making the decisions, we're going to get one outcome. If the reformers are making the decisions, which is what we hope, then we're going to get another outcome,” he explained. However, he said the U.S. and China have “two very different systems” and the phase one deal is “a first step in trying to integrate the two.”

And finally: Who will represent the two countries at the signing of the phase one deal? When and where? After that, will there be follow-up talks for a phase two deal? Well, these are unknowns. There has been speculation that the two presidents could meet at the World Economic Forum next month in Davos, Switzerland, and use the occasion for the signing ceremony there. If it turns out to be true, then the Davos forum will be extraordinary this year.

Lighthizer also hinted during the CBS interview that phase two negotiations could begin soon, but he did not have a specific starting date. For now, he said: “We have to get the final translations worked out, (and) the formalities. We're going to sign this agreement. But I'll tell you this — the second phase is going to be determined also by how we implement phase one. Phase one is going to be implemented right down to every detail.”

Lu Zhenhua joined Caixin Global as senior editor in August. He had worked at the South China Morning Post and the 21st Century Business Herald, reporting from Hong Kong, Brussels and Washington.

Contact author Lu Zhenhua (zhenhualu@caixin.com)

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