Trade Agreement's Implications Discussed by Stephen Kho and Clete Willems, According to Law360
The United States and China are set to sign a preliminary trade agreement this week, following months of negotiations that culminated in a deal last month. The agreement, dubbed the 'Phase One' deal, is a significant step towards resolving the trade standoff between the two economic powerhouses.
However, concerns about the enforcement mechanism of the agreement linger. The durability of the mechanism is a key aspect to consider, as continuous retaliation or withdrawal from the agreement could be a political test. Clete Willems, a public law and policy partner at Gump, is eager to see if the enforcement mechanism can handle a high volume of trade fights.
The effectiveness of the agreement may be questioned if it allows for a re-escalation of tariffs. Another area of concern is the agreement's ability to handle multiple trade disputes and its durability. The utility of the agreement may be questioned if there is a continual retaliation or withdrawal from it by either party.
One of the primary issues that led to the trade standoff was China's insufficient protection for foreign intellectual property. The agreement's effectiveness in addressing this issue remains to be seen. Similarly, Beijing's insistence on companies turning over sensitive technology as a condition of doing business was another impetus for the trade standoff.
The agreement includes a chapter addressing financial services, with expectations that it will address rules regarding joint venture requirements and limits on controlling ownership. It also includes provisions for the issuance of export licenses by the US for certain technologies, mainly related to controlled exports like advanced semiconductors. However, specific detailed licensing rules are not publicly detailed in the available sources.
The deal should require China to issue licenses to companies on an equitable basis. There is a concern that China may remove equity caps but fail to grant licenses to U.S. firms. It is worth noting that US authorities resumed issuing licenses for Nvidia's China-specific AI chip model H20 amid trade tensions, reflecting some regulatory licensing mechanisms in place.
The Trump administration used tariffs as a means to force China to the negotiating table. The phase-one deal is expected to address rules regarding joint venture requirements and limits on controlling ownership, providing a potential avenue for U.S. firms to obtain licenses.
In conclusion, while the 'Phase One' trade agreement between the US and China is a step in the right direction, its effectiveness will largely depend on the enforcement mechanism's ability to handle multiple trade disputes and its durability. The agreement's success in addressing China's intellectual property protection and technology transfer issues, as well as its ability to ensure equitable licensing for U.S. firms, will be crucial factors to watch in the coming months.
