U.s.-china Trade Talks Face Big Obstacle: Ensuring That Promises Are Kept
BEIJING — When China joined the World Trade Organization, the global fraternity of cross-border commerce, it promised to open itself up to foreigners in lucrative businesses like banking, telecommunications and electronic-payment processing.
More than 17 years later, China’s telecommunications industry remains firmly under government control. Only recently did China say it would allow foreign companies to own their own bank businesses here. And after nearly two decades of legal fights, China is still reviewing the applications of Visa and Mastercard to get into the country’s payment-processing market.
The broken promises hang over Robert Lighthizer, the United States trade representative, and Treasury Secretary Steven Mnuchin as they arrive in Beijing for two days of talks to end a trade war between the United States and China. They face a March 2 deadline, after which President Trump has threatened to increase by more than double the tariffs the administration imposed last autumn on $200 billion a year on Chinese imports.
A top priority for Mr. Lighthizer and Mr. Mnuchin, according to several people with detailed knowledge of the negotiations, is to ensure that any deal they strike has teeth if Beijing does not live up to its obligations.
American negotiators want to create a mechanism that would automatically raise tariffs on Chinese goods if its exports to the United States keep rising, said three of the people, who spoke on the condition of anonymity because the talks are not public.
Even a temporary deal that simply papers over the two countries’ differences could benefit both the Chinese government, which is contending with slowing economic growth, and Mr. Trump, who wants to be able to declare a victory after a string of political defeats. But the talks face big obstacles, including how to enforce China’s earlier promises and whether Chinese officials will make further pledges on issues like protecting intellectual property, halting forced transfers of American technology and limiting government subsidies to exporters.
“At this point, a full-scale accord seems unlikely,” said Mark Wu, a Harvard Law School professor and former United States trade official.
Mr. Trump said Tuesday that he would consider delaying the March 2 deadline if he felt the negotiations were going well.
“If we’re close to a deal where we think we can make a real deal, I could see myself letting them slide for a little while,” the president said during remarks at the Oval Office. Mr. Trump added that he wanted any agreement “to be a real deal, not just a deal that looks cosmetically good for a year.”
But he appeared to acknowledge that not all of the outstanding issues were likely to be resolved by negotiators and that he and President Xi Jinping of China might need to be involved before a final agreement is reached.
“At some point, I expect to meet with Xi,” Mr. Trump said, noting that the two leaders could potentially “make the parts of the deal that the group is unable to make.”
The American negotiators will probably get a frosty greeting in Beijing.
Already, a stopgap deal reached by Mr. Trump and Mr. Xi on Dec. 1 in Buenos Aires has proved to be unpopular within the Chinese government, people with detailed knowledge of Chinese economic policy deliberations said. The agreement essentially allowed Mr. Trump to maintain tariffs he had ordered on Chinese goods while China stepped back from many of its retaliatory moves.
The internal displeasure in Beijing may be contributing to the lack of progress in trade talks since then. United States trade officials noted at a White House briefing on Jan. 31 that negotiators had not produced a draft framework of what a final agreement might look like.
Still, given the Chinese government’s track record for failing to keep its trade promises, American negotiators feel that any deal must have some sort of mechanism that will swiftly inflict higher tariffs on China if it does not comply.
The mechanism they have in mind is one Beijing has fought vociferously in the past.
When China joined the World Trade Organization in 2001, the international body approved a rule that allowed member countries to raise tariffs if increases in Chinese exports disrupted their domestic markets. Many countries were loath to use it, given China’s growing economic might.
President George W. Bush turned down four chances to invoke the rule, because his advisers feared doing so might set off a full-blown trade war.
President Barack Obama used it once, in 2009, to impose tariffs on Chinese-made tires. China answered by placing tariffs on American cars, keeping the duties in place until 2013, and poultry imports, which Beijing lifted only last year. The W.T.O. sided with the United States, although the Obama administration was criticized at home over the added cost to consumers.
The tariff landscape has changed since then. The right to employ such provisions against China under W.T.O. rules expired in 2013, theoretically making any retaliatory moves by China now more defensible on the world stage.
The Trump administration’s negotiators want to be able to use the maneuver anyway, according to the people familiar with the talks. That would include easing the current legal requirement, under Section 421 of the 1974 Trade Act, that the government prove other countries’ exports are hurting American industries before the president can impose tariffs.
Raising the prospect of such tariffs is a gamble for the Trump administration. Despite China’s previous opposition, American officials hope the country’s current economic weakness will outweigh those concerns at the negotiating table.
Many American companies used to be critical of the trade law. Business leaders are more divided on the subject these days, with some sympathetic to the administration’s view that China does too much to help its exporters and to discourage imports.
United States trade officials are motivated by what they see as a litany of failures by Beijing to live up to its trade promises.
China is still in the regulatory process for allowing foreign credit card companies like Visa and Mastercard into its market. China agreed to let in foreign electronic-payment services when it joined the W.T.O., and then lost a case at the trade body in 2012 for not having done so.
China also agreed in 2001 to let in foreign banks, but then set regulations so stringent that foreign banks found it hard to meet them. Foreign banks now represent less than 2 percent of banking assets in China.
China also agreed in 2001 to allow some foreign telecommunications services into the country. But Beijing has defined such access narrowly and has blocked internet services like Google and Facebook and overseas cloud computing services like Amazon’s.
China banned American beef during a mad cow disease scare in 2003. Despite numerous agreements since then to fully reopen the market, shipments of American beef for human or pet consumption continue to encounter obstacles.
Chinese officials insist that they have consistently delivered on their promises, but that acting on them has sometimes taken longer than expected. There is little evidence that the foot-dragging stems from a single government policy. The reform-minded Chinese officials who negotiated the country’s entry into the W.T.O. hoped it would force China to become more market oriented and shake up the sluggish state-controlled part of the economy. But powerful bureaucrats and state-run companies fought to protect their turf, slowing progress in many areas.
American interest in revisiting a W.T.O.-style rule to increase tariffs is not the only obstacle to reaching even the outlines of a deal this week. American officials also want the Chinese government to stop subsidizing exporters and to take other steps to relax the government’s hold on the economy.
But Trump administration officials have consistently declined to provide a detailed text spelling out how they think China should amend its laws and policies, contending that only those changes that are drafted by Beijing officials are likely to be put in place.
Despite the seemingly wide gulf between the countries, some experts contend that a lot of progress could be made if the two sides agree on how to enforce a deal.
“This could very well be the best opportunity to confront China’s predatory and protectionist policies,” said Michael Wessel, a member of the United States-China Economic and Security Review Commission, an advisory body created by Congress.