TWN Info Service on WTO and Trade Issues (Dec18/03)
7 December 2018
Third World Network

China faces defining moment in safeguarding its "development model"
Published in SUNS #8811 dated 6 December 2018

Geneva, 5 Dec (D. Ravi Kanth) - China faces a defining moment in safeguarding its trade and economic "development model", as the United States intensifies its transactional trade war with Beijing, threatening to impose extraordinary sanctions, including a ban on the entry of Chinese high-technology products into the American market.

On Tuesday (4 December), the US President Donald Trump and his advisors issued several threats in case China did not agree to the US demands on market access and dismantling the trade and economic policies pursued by the Chinese government.

Even before the start of the actual negotiations, following the understanding reached on 1 December at the Xi- Trump talks during the G20 meet at Buenos Aires on a standstill agreement for not imposing tit-for-tat tariffs on each other, US President Donald Trump has already resorted to issuing dire threats that he would intensify the tariff war with China if Beijing refuses to concede to his demands.

Trump declared himself as a "Tariff Man" in a tweet issued on 4 December.

Subsequently, in a series of tweets, he warned that tariffs "will always be the best way to max[imize] out our economic power."

"We are right now taking in $ billions in tariffs. MAKE AMERICA RICH AGAIN."

In a final tweet issued on Tuesday evening, Trump said he will "happily sign" a "fair" deal with China "that does all of the many things we know must be finally done."

"We are either going to have a REAL DEAL with China or no deal at all - at which point we will be charging major Tariffs against Chinese products being shipped into the United States," Trump threatened.

Trump's tweets followed what some of his officials warned at the Wall Street Journal's CEO forum on 4 December.

The US National Security Advisor John Bolton, known for his jingoistic and unilateral utterances, said: "we need to see some major changes in their [Chinese] behaviour."

Bolton indicated that the best way to stop the theft of US intellectual property is to ban the import of Chinese stolen-IP products.

"How about a rule or policy that says there will be no import into the United States of any products or services that are based on the theft of American intellectual property," Bolton suggested.

"I think it's an idea that should be considered," the National Security Advisor opined, according to Washington Trade Daily (WTD) of 5 December.

The White House National Economic Council Director Larry Kudlow expressed caution (over the impending China-US trade talks), saying, "I'm not sure we'd get there in 90 days with China."

"But I think on specific matters we can move the ball," Kudlow pointed out, according to WTD. "But it's got to be a good deal and it's got to be verifiable," Kudlow said.

The US Treasury Secretary Steven Mnuchin said that "our expectation is there will [be] specific deliverables, there will be specific timelines and we have an agreement that there will be penalties if China does not meet those timelines and those commitments."

The Trump administration wants an eventual agreement that would cover more than 142 separate issues, including enhanced intellectual property rules, technology, cybersecurity, currency, agriculture, and energy.

"If we can get the structural changes, US companies are going to sell a lot more goods with growing China middle class, [and] if we can get this right it is one of the biggest economic opportunities," Mnuchin said, according to a report in the Wall Street Journal of 4 December.

Speaking at the same meeting of the Wall Street Journal's CEO forum on Tuesday, the World Trade Organization Director-General Roberto Azevedo said that World Trade Organization rules need to be reformed to better deal with the rise of countries like China.

"But at the same time, members must understand that the WTO is "not the silver bullet" that can solve all the problems in the global trading system," Azevedo said, according to WTD of 5 December.

Significantly, the stock market fell nearly 800 points in New York after Trump's tweets and pronouncements by his officials about the recent meeting with China in Argentina.

In a statement issued on Wednesday (5 December), a spokesperson of China's Ministry of Commerce said the latest meetings between the presidents of China and the United States on economic and trade issues was "very successful."

"We are confident about the implementation [of the consensus from the meeting]", China's MOC (ministry of commerce) spokesperson said.

"In 90 days, economic and trade teams of both sides will actively push forward the consultation following clear schedule and roadmap," the spokesperson said.

"China will start with implementing the specific aspects of the newly reached consensus as soon as possible," according to the MOC spokesperson.

Chinese President Xi Jinping and his US counterpart Donald Trump also instructed "the economic teams of the two sides to step up negotiations toward the removal of all additional tariffs and reach a concrete agreement that would lead to win-win results," according to the MOC statement.

Clearly, China faces several challenges during the negotiations, said a trade envoy, who asked not to be quoted.

The deal that was struck by the two presidents on 1 December to defer the imposition of tariff increases on the Chinese goods and continue talking for the next 90 days was described as a welcome development in several media reports.

The White House summary of the dinner says that President Trump "will leave the tariffs on $200 billion worth of product at 10% rate, and not raise it to 25% at this time".

In return, China will purchase an unspecified amount of agricultural, energy, industrial and other products from the US to reduce the trade imbalance bet ween the two countries.

According to the White House summary, the two countries "have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture."

If the two sides are unable to conclude a deal on these make-or-break issues within the next 90 days, the current 10% additional duties on Chinese goods of $200 billion will be raised to 25%, the US claimed.

The Chinese statement on the Trump-Xi meeting was somewhat different from that of the US.

Initially, China said there was no deadline agreed for the talks at the meeting.

China said: "They [the two leaders] reached consensus not to impose new additional tariffs and agreed to instruct the economic teams of the two sides to step up negotiations toward the removal of additional tariffs."

More crucially, Beijing has also emphasized that "it will work to open its market, expand imports and resolve economy- and trade-related issues in China-US relations in the process of a new round of reform and opening-up and in line with the needs of its domestic market and people."

In a position paper issued last week in Geneva before the US-China meeting in Buenos Aires on 1 December, China called for respecting "members' development models", implying that countries cannot be unilaterally targeted for pursuing specific developmental models.

"The (WTO) reform should prohibit discrimination against enterprises or certain members in investment security review and anti-trust investigations" and reforms "should address the abuse by developed members of export control measures in obstructing technology cooperation", China said.

It called on WTO members to "oppose special and discriminatory disciplines against state-owned enterprises in the name of WTO reform".

Last month, China's trade envoy Ambassador Zhang Xiangchen rejected binding provisions for free cross-border data flows, preventing data localization and protection of source code among others.

The WTO reform, according to China, "should address the abuse by developed members of export control measures in obstructing technology cooperation."

China said it "opposes special and discriminatory disciplines against state -owned enterprises in the name of WTO reform and the inclusion of issues based on groundless accusations in the WTO reform agenda."

Barring this major issue of allowing countries to pursue their "development models" without being penalized, China's concept paper is largely aimed at preserving the current WTO architecture in the face of a relentless assault by the US administration, which is aided and abetted by other industrialized countries in select areas of the WTO reforms.

"The trade nationalists want to move production back to the US, make it harder for the Chinese to compete with US-based high-tech firms, and divert China-based supply chains to other countries," wrote Professor David M. Trubek, an academic from the University of Wisconsin, in the International Economic Law and Policy (IELP) blog last week.

"But the hawks want China to fundamentally alter its system of economic organization, abandon strategies that have benefited millions, and give up its ambition to become a world leader in high tech industries," Trubek said, suggesting that China will not accept those changes.

In short, China now faces a defining moment, either conceding to the US demands that would bring an end to its specific economic model or stand up to call the bluff of Washington by sticking to its economic and trade policies.

The great helmsman of China Mao Zedong had famously used the phrase "paper tiger" to describe the American hegemony and its world order.

[It remains to be seen whether President Xi will follow the Mao line vis-a-vis threats by Trump or hew his own path. SUNS]