Ho Wai Man: Unilateral action violates the U.S.-China Phase One agreement

Source: Global Times

Reuters recently quoted the head of a group as saying that since "China has not implemented the procurement commitments in the first phase of the Sino-US economic and trade agreement", the US government will consider a series of trade measures with China, including restarting the "301 investigation". And consult with allies and act together.

If the United States acts unilaterally as reported, it will just violate the phase one economic and trade agreement between China and the United States. The agreement clearly stipulates the provisions of the assessment and dispute settlement mechanism between the two sides, so since the US side believes that it is justified, why does it not follow the procedures stipulated in the agreement? Simply taking the actual trade performance of China and the United States in 2021 as a criterion, accusing China of not completing its commitment to increase procurement and import of $200 billion in products and services (including $162.1 billion in goods) from the United States within two years is not looking at all the terms of the agreement, or selective blindness.

The Phase One agreement between China and the United States is not a simple Chinese procurement agreement. It includes intellectual property protection, technology transfer, trade in food and agricultural products, macroeconomic policies, exchange rates and trade expansion. Both China and the United States must abide by it equally.

The agreement stipulates that China promised to purchase and import $162.1 billion more goods from the United States within two years, but did not stipulate the actual import performance in 2021. Because common sense tells us that import commitments, agreements, and contracts are not the same thing as the actual performance of imports in the current year. Often because of changes in conditions, the agreement cannot be fully turned into a contract, the contract cannot be fully realized because of the performance rate problem, and the import is often delivered after several years.

According to Chinese customs statistics, China's imports from the United States reached $179.531 billion in 2021, an increase of 32.7% over the previous year, higher than the increase in imports from the world (30.1%), and also higher than the increase in US exports to the world (23.1%) in official U.S. statistics.

The agreement stipulates that "the parties acknowledge that procurement activities will be carried out on the basis of market prices and commercial considerations". That is, procurement is conditional: first, it is based on market prices, and if U.S. products do not have a price advantage over other sources of supply, procurement activities are difficult to occur. The second is to be based on commercial considerations. Because procurement is carried out by enterprises. In 2021, state-owned enterprises, foreign enterprises and private enterprises accounted for 24.1%, 38.0% and 36.4% of China's total imports, respectively. Whether to purchase can only be decided by the enterprise based on commercial conditions.

Clause 7.6 of the Agreement provides that "if a party is delayed by a natural disaster or other unforeseen circumstance beyond the control of the parties and is unable to perform its obligations under this Agreement in a timely manner, the parties shall consult." "The outbreak of the new crown epidemic in 2020 has seriously impacted the world economy and disrupted the supply chain, which is an unpredictable and uncontrollable situation, and the delay caused by it is inevitable and should be consulted by both sides."

The agreement also provides that "If China considers that its ability to implement its obligations under this section is affected by the united states taking or failing to take action or other circumstances within the united states, China has the right to propose consultations with the united states." "This mainly includes two aspects: on the one hand, artificial restrictions in the United States. The United States has unilaterally included more than 600 Chinese enterprises and institutions in the entity list, and has continuously imposed export restrictions and technology blockades, which has seriously hindered China's procurement from the United States. On the other hand, the grounding of the Boeing 737MAX, the loss of car chip supply, and the congestion of freight terminals have caused the supply capacity of the United States to fail to keep up. Therefore, it is best for the US side to examine the reasons for itself and not to keep an eye on China.

China's commitment to increase purchases is only a specific part of the chapter on expanding trade in the agreement. The chapter begins with the aim of expanding trade, in which the two sides believe that the U.S.-China economies are highly complementary and that a willingness to cooperate constructively is fundamental. If unilateral action is taken at every turn, this premise is removed and the additional purchase loses its meaning.

The "301 investigation" has been found to violate WTO rules, and unilateral tariffs have been found to be illegal by the WTO expert group. Naturally, it is a matter between the United States and the United States to negotiate with its allies, but it does not apply to the Phase One agreement between China and the United States, because it is a bilateral agreement and does not involve third parties. There are also cooperation and consultation mechanisms between China and the EU, which do not require the Intervention of the United States. The WTO adopted its eighth review of China's trade policy more than three months ago, and the next review will be held for nearly two years. So it would be wise to go back to bilateral consultations. In the spirit of expanding cooperation, we will properly solve problems and jointly promote the implementation of the first phase of the agreement and the stable development of bilateral economic and trade between China and the United States. (The author is a senior researcher at Chongyang University of China)