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Tariffs on List 4A Products Halved under U.S.-Mainland China Phase One Trade Deal

The United States and mainland China have reached a “historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange”, according to a 13 December press release issued by the Office of the U.S. Trade Representative.

The press release states that the United States will maintain the current Section 301 tariffs on some US$250 billion worth of imports from mainland China, which cover goods in Lists 1, 2 and 3. The additional 15 percent tariff on some US$120 billion worth of mainland Chinese products (covering goods in List 4A) will be reduced to 7.5 percent, while the 15 percent tariff that was scheduled to be imposed on List 4B products on 15 December has been suspended indefinitely (a Federal Register notice implementing the suspension will be published on 18 December).

In exchange and according to a USTR fact sheet, mainland China has made the following commitments in the areas mentioned above and will also make “substantial additional purchases of U.S. goods and services in the coming years”.

  • Intellectual Property. The intellectual property chapter addresses numerous long-standing concerns in the areas of trade secrets, pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods.
  • Technology Transfer. The technology transfer chapter sets out binding and enforceable obligations to address several of the unfair technology transfer practices of mainland China that were identified in USTR’s Section 301 investigation. For the first time in any trade agreement, mainland China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to mainland Chinese companies as a condition for obtaining market access or administrative approvals, or receiving advantages from the government. Beijing has also committed to provide transparency, fairness and due process in administrative proceedings and to have technology transfer and licencing take place on market terms. In addition, mainland China will refrain from directing or supporting outbound investments aimed at acquiring foreign technology pursuant to industrial plans that create distortion.
  • Agriculture. The agriculture chapter addresses structural barriers to trade and is intended to support a substantial expansion of U.S. food, agriculture and seafood product exports to the mainland. A multitude of non-tariff barriers to U.S. agriculture and seafood products are addressed, including for meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food and products of agriculture biotechnology.
  • Financial Services. The financial services chapter addresses a number of long-standing trade and investment barriers to U.S. providers of a wide range of financial services, including banking, insurance, securities and credit rating services. These barriers include foreign equity limitations and discriminatory regulatory requirements.
  • Currency. The chapter on macroeconomic policies and exchange rate matters includes policy and transparency commitments related to currency issues. It addresses unfair currency practices by requiring high-standard commitments to refrain from competitive devaluations and targeting of exchange rates, while promoting transparency and providing mechanisms for accountability and enforcement.  
  • Expanding Trade. The expanding trade chapter includes commitments from mainland China to import various U.S. goods and services over the next two years in a total amount that exceeds mainland China’s annual level of imports for those goods and services in 2017 by no less than US$200 billion. Mainland China’s commitments cover a variety of U.S. manufactured goods, food, agricultural and seafood products, energy products and services. Mainland China’s increased imports of U.S. goods and services are expected to continue on this same trajectory for several years after 2021 and should contribute significantly to the rebalancing of the bi-lateral trade relationship.
  • Dispute Resolution. The dispute resolution chapter sets forth an arrangement to ensure the effective implementation of the agreement and to allow the parties to resolve disputes in a fair and expeditious manner. This arrangement creates regular bi-lateral consultations at both the principal level and the working level. It also establishes strong procedures for addressing disputes related to the agreement and allows each party to take proportionate responsive actions as appropriate.

The two sides will now carry out a legal scrub and a translation review and will make arrangements for a formal signing, which according to U.S. Trade Representative Robert Lighthizer will take place in early January. The terms of the agreement will go into effect 30 days from the signing date, which means that the 15 percent tariffs on List 4A products could remain in place until February. President Trump said the two sides will “immediately” begin negotiations on a Phase Two agreement but did not specify what issues those negotiations will address. Press reports cited Lighthizer as indicating that the United States plans no new tariffs as long as mainland China continues to negotiate in good faith.

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