By Kevin E. Noonan --
On January 15th, the U.S. and China announced bilateral approval of an agreement resolving some of the trade disputes between the two countries that have developed (or become more evident) over the past three years. One of the most consistent (if sometimes incoherently expressed) policy positions taken by the Trump Administration (and Mr. Trump himself) is that the trade balance between the U.S. and China has been unbalanced and in need of correction. This idea is not unique to Mr. Trump (although its idée fixe nature may be) and has been a feature of the U.S. Trade Representative's Special 301 Report for the past decade (most recently last April). It has been the source of numerous tariffs imposed on China by this Administration (even in the face of criticism from economists and others that U.S. consumers and farmers, not the Chinese, bore the brunt of the consequences and the costs) and the periodic imposition of these tariffs has rattled the financial markets since the time when Mr. Trump first came into office.
Representatives from the U.S. and China announced, with much fanfare, the completion of the first round of what is envisioned (or purported) to be several agreements between the two countries, and released the text of the agreement that on its face looks favorable to U.S. interests but on further study may in fact not be.
The Agreement has eight chapters and several articles for each chapter. After reciting a Preamble containing the importance of a "bilateral economic and trade relationship" between the U.S. and China, and "adherence to international norms" to promote it, and acknowledging the "trade and investment concerns" identified by both countries and that it is desirable for the countries to resolve them, the Agreement in Chapter 1 immediately addresses Intellectual Property concerns.
These begin with generic representations such as "[t]he Parties shall ensure fair, adequate, and effective protection and enforcement of intellectual property rights. Each Party shall ensure fair and equitable market access to persons of the other Party that rely upon intellectual property protection" (Article 1.2) and then gets into specifics regarding Trade Secrets and Confidential Business Information (Article 1, Section B); Pharmaceutical-related Intellectual Property (Section C); Patents (Section D); Piracy and Counterfeiting on E-Commerce Platforms (Section E); Geographical Indications (Section F); Manufacture and Export of Pirated and Counterfeit Goods (Section G); Bad-Faith Trademarks (Section H); Judicial Enforcement and Procedure in Intellectual Property Cases (Section I); Bilateral Cooperation on Intellectual Property Protection (Section J); and Implementation (Section K). There are many specifics enunciated in these Sections, but they have in common that almost all of them recite a provision saying: "The United States affirms that its existing measures are consistent with its obligations in this Chapter" while setting forth specific representations and obligations for China to adhere to under these specific Sections. In context, these provisions appear to be an agreement that China will adopt U.S. law and practices (for example, in Article 1.5(2) regarding such specifics as when to shift the burden of proof to those accused of trade secret misappropriation in the face of a quantum of evidence that trade secret misappropriation has occurred) and "prohibit the unauthorized disclosure of undisclosed information, trade secrets, or confidential business information by government personnel or third party experts or advisors in any criminal, civil, administrative, or regulatory proceedings conducted at either the central or sub-central levels of government in which such information is submitted."
Regarding patents on pharmaceuticals, the agreement will loosen the strict application of Chinese law that has prevented applicants to provide supplemental information (i.e., not in the specification as filed) to support sufficiency of disclosure or a showing of inventive step in patent applications filed in China (which is a significant concession by China what will on its face provide patent protection for subject matter that was prior to signing the agreement unable to be patented). China also agrees to establish patent term extensions to make up for patent prosecution and regulatory approval delays. And the concessions in Section G regarding export of counterfeit goods may be the most significant, in view of accusations by the USTR of China's role in worldwide counterfeiting; particularly regarding counterfeit medicines, these requirements are very specific (Article 1:18(2)).
Chapter 2 involves technology transfer issues and the importance of having this objective achieved "on voluntary, market-based terms" in contrast to "forced" technology transfer, which is "a significant concern." This section addresses situations where the U.S. has alleged China has required disclosure of technology as a quid pro quo for coming to agreement with U.S. companies.
Chapter 3 sets forth the parties' agreement regarding trade in food and agricultural products, pledging "agricultural cooperation," although the terms of such agreements are "to be mutually agreed upon," i.e., not yet resolved. The agreement also contains provisions wherein the China-United States Scientific Cooperation and Exchange Program continues and there are to be "exchanges and dialogues on agricultural topics." But this chapter contains much more language regarding what the parties intend to address in future rather than firm (relatively) agreements on specific terms (and Annex 1:11 provides that "[f]or greater certainty, nothing in this Annex shall obligate either Party to expend, obligate, or transfer any funds, or to dedicate personnel or other resources to any cooperative activity"). Annex 2 of this Chapter concerns dairy products, infant formula, and inspections thereof (directed towards "meeting Chinese consumers' ever-growing needs"). Annex 3 concerns poultry (of particular concern in view of the propensity for variant strains of influenza to arise in domesticated poultry) and specifically committing the parties to sign and implement the Protocol on Cooperation on Notification and Control Procedures for Certain Significant Poultry Diseases within 30 days of when the agreement enters into force. Annex 4 concerns beef and commits the parties to continue to implement the 2017 Protocol for importing U.S. beef into China (with the terms of this agreement prevailing if there are inconsistencies), Annex 5 live breeding cattle, Annex 6 pork, and Annex 7 meat, poultry and processed meats, significantly wherein China acknowledges USDA's Food Safety and Inspection Service (FSIS) oversight over U.S.-sourced "meat, poultry meat, and processed meat and poultry meat facilities" but permitting China to have the right to audit U.S. food safety regulatory systems in coordination with FSIS. Annex 8 concerns electronic meat and poultry information systems to "access FSIS export certificates accompanying U.S. exports to China of meat, poultry, and meat and poultry products." Annex 9 concerns aquatic products (albeit committing to "resume bilateral meetings of the U.S.-China Technical Working Group on Seafood" and identifying steps to for China to provide evidence regarding controls for seafood products to be imported into the U.S.). Annex 10 concerns rice, and Annex 11 plant health (agreeing to consultations regarding a "phytosanitary protocol" for Chinese Bonsai, but excluding orchids). Also within the scope of this annex are phytosanitary protocols for imports to the U.S. of Chinese fragrant pear, Chinese citrus, and Chinese Jujube, and importation into China of U.S. potatoes, nectarines, blueberries, Hass avocadoes, barley, and alfalfa, but agreeing phytosanitary protocols are not required for frozen fruits and vegetables. Annex 12 concerns feed additives, premixes, compound feed, distillers' dried grains, and distillers' dried grains with solubles (mostly involving provisions that on-site audits or inspections are not required). Annex 13 concerns pet food and non-ruminant derived animal feed, wherein China will lift its ban on U.S. pet food containing ruminant ingredients and eliminate the use of polymerase chain reaction testing on such products. The parties also agree to have "technical discussions" in support of importing U.S. pet food into China while maintaining compliance with the 2004 Protocol on the Veterinary Health Requirements for Non-Ruminant Derived Animal Feed and Tallow to be Imported from the United States of America to the People's Republic of China. Annex 14 involves tariff rate quotas regarding food products; Annex 15 concerns "domestic support" in China regarding China's WTO obligations; and Annex 16 relates to agricultural biotechnology, with China agreeing to "implement a transparent, predictable, efficient, science- and risk-based regulatory process for safety evaluation and authorization of products of agricultural biotechnology." Finally, Annex 17, related to food safety, regards agreement that "[t]he Parties shall not implement food safety regulations, or require actions of the other Party's regulatory authorities, that are not science- or risk-based and shall only apply such regulations and require such actions to the extent necessary to protect human life or health" (without regard to the irony of the Trump administration including these provisions into this agreement). This chapter also contains appendices regarding food products not eligible for import from the U.S. to China.
Chapter 4 is directed to financial services, wherein the parties evince a belief that "they have a significant opportunity for cooperation and mutual benefit in bilateral services trade." Article 4.2 relates to banking services; Article 4.3 to credit rating services (including provisions that the U.S. "affirms it accords non-discriminatory treatment to Chinese credit rating service suppliers"); Article 4.4 for electronic payment services (including provisions that the U.S. "affirms it accords non-discriminatory treatment to Chinese electronic payment service suppliers, including UnionPay"); Article 4.5 to financial asset management services; Article 4.6 to insurance services; and Article 4.7 for securities, fund management, futures services.
Chapter 5 is directed towards macroeconomic policies and exchange rate matters and transparency, wherein the parties pledge to "respect the other Party's autonomy in monetary policy, in accordance with its domestic law," involving "pursuing policies that strengthen underlying economic fundamentals, foster growth and transparency, and avoid unsustainable external imbalances."
Chapter 6 is more directly aspirational regarding expanding trade, having to do with "trade and economic structural changes resulting from this Agreement and from other actions being taken by China to open up its economy and improve its trade regime should lead to improved trade flows, including significant increases in exports of goods and services to China by the United States and other countries." China agrees to import no less than $200 billion of U.S. goods between January 1, 2020 and December 31, 2021, with more specific quotas (because that is what they appear to be) of particular goods set out in Article 6.2 (including manufactured goods, agricultural goods, energy products and services); the agreement contains an extensive table of the types of goods and services encompassed by these provisions of the agreement.
Chapter 7 sets forth dispute resolution provisions in an "arrangement" wherein is provided a Trade Framework Group for setting forth the mechanisms for implementing the agreement (under Article 7.2.1, entitled "High Level Engagement"), to be led by the U.S. Trade Representative and "a designated Vice Premier" of the PRC. Also provided are "macroeconomic meetings" led by the U.S Secretary of the Treasury and the designated Vice Premier of the PRC. For "daily work, the agreement provides a Bilateral Evaluation and Dispute Resolution Office for each country. The agreement permits each country to request information from the other (Article 7.3) and Article 7.4 sets forth mechanisms for dispute resolution (specifics for the "working procedures" of the Group are set forth in Annex 7-A).
The final Chapter 8 involves amendments, entry into force and termination provisions, and for further negotiations.
As mentioned above, one interesting feature of the agreement is that many of the provisions setting forth standards for protection of party rights contain the affirmative statement (requirement to requirement) that "[t]he United States affirms that existing U.S. measures afford treatment equivalent to that provided for in this Article," indicating that the negotiators conceded to adopt U.S. standards for intellectual property protection and other matters falling within the scope of the agreement. Indeed, it is difficult to ascertain any concessions made by the U.S. for obtaining China's approval of these terms. There is an aphorism that if a deal seems to good to be true then perhaps it isn't (true, that is). It is contrary to this administration's puffery that the U.S. might not get the better part of any agreement it enters, and when making arrangements with economically weaker partners that may tend to be true because the odds tend to be stacked in our country's favor. But in view of China's strengths it might be foolish to think that the Chinese will be as accommodating as the Trump Administration would prefer them to be, and agreements inconsistent with these realities are likely to be ephemeral.
"Finally, Annex 17, related to food safety, regards agreement that "[t]he Parties shall not implement food safety regulations, or require actions of the other Party's regulatory authorities, that are not science- or risk-based and shall only apply such regulations and require such actions to the extent necessary to protect human life or health" (without regard to the irony of the Trump administration including these provisions into this agreement)." To what irony do you refer?
Posted by: Edmund Pitcher | January 27, 2020 at 07:06 AM
"Science-based" seems ironic in view of this Administration's actions here at home to suppress inconvenient scientific truths, research results, and arguments. And not limited to climate change.
Posted by: Kevin E Noonan | January 27, 2020 at 11:32 AM