January 15, 2020

U.S. and China Sign on The Dotted Line for Phase One Deal

Casie Daugherty

The U.S. and China signed their Phase 1 deal moments ago and released the text of the agreement.

Read the Agreement

Among the topline items included in the agreement:

Intellectual Property

The deal details commitments on intellectual property including trade secrets and confidential business information. The Chinese agreed to enumerate acts constituting trade secret misappropriation, including through electronic intrusion, breach of duty, and unauthorized disclosure. China also commitment to clarify “great loss” as a threshold for criminal enforcement.

The U.S. and China also agreed to “strengthen cooperation” and “combat infringement and counterfeiting in the e-commerce market.” As a part of this, China committed to require expeditious takedowns, extend the deadline to file a complaint to 20 days, and ensure validity of takedown notices and counter-notifications. China must also provide increased personnel to inspect, detain, seize and execute customs’ enforcement against counterfeit and pirated goods.

Within 30 working days, China is required to promulgate an Action Plan to implement the measures agreed to in the Phase One Agreement.

Agriculture

The U.S. and China set out a number of provisions related to agriculture, including specific sections on a number of commodities, including:

  • Dairy and Infant Formula
  • Poultry
  • Beef
  • Pork
  • Aquatic Products
  • Rice
  • Feed Additives
  • Pet Food

Additionally, the agreement addresses agricultural biotechnology and requires China to accept product approvals on an on-going basis.

Technology Transfer

The U.S. and China agreed, among other provisions, that:

  • All transfer or licensing must be based on market terms that are voluntary
  • Parties shall not support or direct the outbound foreign direct investment activities aimed at acquiring foreign technology
  • Parties shall not require or pressure the transfer of technology in relation to acquisitions, joint ventures, or other investment transactions
  • Neither party shall adopt or maintain administrative and licensing requirements or processes that require or pressure technology transfer

Currency

The U.S. and China agree to “respect” the other’s autonomy in monetary policy in accordance with its domestic law, while also agreeing to honor currency-related commitments undertaken in G20 communiques.

The countries agreed that each should “achieve and maintain a market-determined exchange rate regime” and “strengthen underlying economic fundamentals, which reinforces the conditions for macroeconomic and exchange rate stability.” And agree to refrain from competitive devaluations and not target exchange rates for competitive purposes.

For enforcing this section, the parties agree that issues should be referred to the Secretary of the Treasury (U.S.) and the Governor of the People’s Bank of China. If there is failure to reach a resolution in a dispute, the parties can request that IMF initiate formal consultations and provide input.

Ultimately, there is very little new in this section.

Expanding Trade

The deal contains a number of details on purchase commitments from the Chinese government. The numbers below reflect an increase over the 2017 purchases:

  • $32.9 billion increase in manufactured goods in 2020; $44.8 billion increase in 2021
  • $12.5 billion increase in agricultural goods in 2020 and a $19.5 billion increase in 2022
  • $18.5 billion increase in energy products in 2020 and a $33.9 billion increase in 2021
  • $12.8 billion increase in services in 2020 and a $25.1 billion increase in 2021.
  • from Late this afternoon, the Treasury Department released two sets of CFIUS regulations that were mandated by FIRRMA. Both regulations are scheduled to be published on the Federal Register by the end of the week. Although they are considered final regulations and will go into effect on February 13, 2020, Treasury has chosen to use an interim rule on the definition of a “principal place of business.” Comments on the definition should be submitted to Treasury by February 18, 2020.

The deal includes a list of tariff codes for products in specific sectors that could be purchased to meet the above commitments.

Enforcing the Agreement

The Agreement sets up mechanisms for the U.S. and China to evaluate the progress of the agreement and to resolve disputes. The countries will create a Trade Framework Group to discuss implementation of the agreement, including problems and future work. Meetings by the Group will be held every 6 months.

Additionally, the deal establishes a Bilateral Evaluation and Dispute Resolution for each party; in the U.S., it will be headed by a designated Deputy USTR and in China will be headed by a designated Vice Minister. Parties can submit an appeal to the particular office, followed by the other party conducting an investigation. If a resolution cannot be reached, a complaint would be elevated to a meeting between the United States Trade Representative and the Vice Premier.


Casie Daugherty
Casie leads the firm’s trade practice, where she covers client needs in relation to Section 301, Section 232, NAFTA/USMCA, CFIUS, and other trade-related actions.