BACKGROUND PRESS CALL
BY SENIOR ADMINISTRATION OFFICIALS
ON PHASE ONE OF THE U.S.-CHINA TRADE AGREEMENT
Via Telephone
December 12, 2019
2:35 P.M. EST
MR. DEERE: Thank you, Operator, and thank you to everyone for joining us today for this background call on the phase one trade deal between the United States and China.
Our briefers today will include Larry Kudlow, who's the Director of the National Economic Council here at the White House, as well as [senior administration official].
Mr. Kudlow's comments will be on the record, attributable to him. And [senior administration official]'s portion will be during the Q&A, which will be on background, attributable to a senior administration official.
The call is embargoed until we conclude. And with that, I will turn it over Mr. Kudlow, the Director of the National Economic Council.
MR. KUDLOW: Thank you, Judd. Appreciate it. Hi, everybody. I will be brief because I want [senior administration official] to cover most of the important details. Suffice to say this is a very important first step in solving our trade relations and balances with China. As President Trump said this morning, it's a large phase one deal. It's an enormous first step. It represents an opening of China.
And I would just add my own view, that the President has vowed to defend American economic interest in general from unfair trading and other problems. He has vowed to defend the interests of the American worker and farmer and cattleperson and technology people across the board, just as we have with the recently completed USMCA deal. And this represents another step in that direction.
Included here are some tariff adjustments, schedules of Chinese purchases of American goods and services, financial service reform, currency reform, intellectual property rights reform, forced transfer of technology reform. All of the key chapters have been covered in this deal.
The deal goes into effect almost immediately, just as soon as some paperwork is completed and the translations. It is expected that Ambassador Lighthizer will sign it with Vice Premier Liu He at the ministerial level. That will happen in a few weeks. And phase two begins shortly thereafter. Actually, maybe phase two has already started.
But to give you over to the person that was involved in the details and the heavy lifting, all through this whole process, my friend, [senior administration official], it's all yours.
MR. DEERE: Operator, with that, we will begin the Q&A portion.
Q Good afternoon. Thanks for doing the call. I'll let either [senior administration official] or Mr. Kudlow take this. There's been not unanimous a claim for this, especially from some Democratic senators who are expressing concern that, essentially, the United States is giving away things without getting any hard commitments from the Chinese in return. I wonder how you respond to that criticism.
SENIOR ADMINISTRATION OFFICIAL: Well, we think that this phase one trade deal includes very important, substantial, and specific commitments by China on critically important structural issues. And those structural issues fall in the areas of intellectual property, technology transfer, agricultural structural issues, financial services, and currency and foreign exchange as well.
And so we think that these are commitments that are very significant and address issues in a way that have never been addressed before. They're all enforceable. There's a very strong, effective enforcement mechanism. And, of course, there are also commitments relating to purchases over the next two years, and then there's an expectation that those will continue going forward as well.
So we think this is a historic deal and very strong commitments in all these very important areas. And, of course, there will be tariffs remaining in effect at 25 percent on $250 billion worth of Chinese imports, as well as 7.5 percent on an additional roughly $120 billion worth of Chinese exports.
Now, there are additional issues, certainly, that need to be addressed. And we are committed to doing that in a phase two deal or, you know, in future negotiations. And so we're committed to resolving those issues there. But this phase one deal addresses a number of critically important issues in all of those areas. And I can, you know, explain those in further detail if you would like.
Q Hi, yeah. Thank you for doing the call. Quick question. One thing. One, will we eventually see the text of this agreement? And, two, describe some of that lasting protections for intellectual property. What can companies expect under this protection?
SENIOR ADMINISTRATION OFFICIAL: Great. Thank you. And it will become public eventually. We have to go through certain processes, including legal scrub and language authentication. And we have certain processes that we have to go through with our cleared advisors and through consultations with other agencies as well.
But it ultimately will become public, but we do have to go through those processes.
And on intellectual property, there are, you know, very specific, substantive, important commitments that China is making in all of the key areas of intellectual property, including in the areas of trade secrets, pharmaceutical-related intellectual property patents, the issue of geographical indications, as well as protections on trademarks and enforcement against pirated and counterfeit goods, as well as in the area of online infringement.
There's also changes being made in the areas of the criminal and civil procedures for enforcement of IP. So these are really significant, substantive commitments in this area, and again, will all be enforceable through the strong enforcement mechanism that we have.
Q Thank you so much for having the call. I was wondering if you could maybe read out the exact phrasing for how China is required or suggested, or has a goal of purchasing these agricultural and other goods that Ambassador Lighthizer mentioned earlier. I just wanted to understand how binding that was, how likely they are to meet that goal, and then whether it triggers the enforcement mechanism for -- there would be, you know, some kind of tariffs snapback or some other consequence if those numbers that Ambassador Lighthizer and President Trump mentioned aren't achieved. Thanks.
SENIOR ADMINISTRATION OFFICIAL: Thank you. And we have a specific commitment from China in these purchases areas over the next two years. They have committed to increasing their purchases of manufactured good, agricultural goods, energy products, and services by at least $200 billion over the course of the next two years. There will be breakdowns by, you know, those four categories that I just mentioned. And that will become publicly available.
In the agriculture area, we're looking at China making purchases -- commitments to make purchases in each of the next two years, about average, about 40- to 50 billion dollars, which is, you know -- so that's -- given the baseline number that we've looked at in 2017, those are going to be significant increases there.
So it's -- so these are very significant increases in purchases. They are commitments that -- that China has made over the next two years with the objective being that that will continue, you know, beyond the next two years as well, and at a similar trajectory. And then these commitments will be enforceable under the enforcement mechanism, which is applicable to -- to all the chapters of the agreement.
Q Yes. Thanks. Can you describe some of the structural changes in agricultural trade? In other words, has any of China's barriers to U.S. agricultural projects, have they agreed to lift any of those? Such as, for example, biotech approval or growth hormones and (inaudible) and those types of things.
SENIOR ADMINISTRATION OFFICIAL: Yes. The agriculture chapter has very strong commitments in those areas in addressing, really, a multitude of non-tariff barriers to U.S. agriculture and seafood exports, including for products like meat, poultry, seafood, rice, dairy, infant formula, horticulture products, animal feed, feed additives, pet food. And it also addresses the really critically important issue of ag biotech as well. And we -- we're, you know, we think that those are important commitments there as well as in the areas of domestic support and TRQs as well.
Q Hi. Thank you so much for taking the call. As you’ve probably seen, there was some skepticism about whether the U.S. could actually export 40 [billion] to 50 billion dollars of agriculture products to China. Was there an evaluation of whether U.S. producers could actually meet those thresholds?
And then, secondly, I wanted to ask: With regard to digital trade issues, is there anything in the pact that refers to those issues or protections for data? There’s been some concern from the business community that the IP protections are kind of 20th century issues rather than 21st century issues. How would you comment on that? Thank you.
SENIOR ADMINISTRATION OFFICIAL: Well, thank you. And, yes, there was certainly an evaluation of what our farmers and growers and ranchers could do, in the way of exports. And, you know, we of course worked closely with USDA and others on those issues in doing the analysis, and with our stakeholders. And we are very comfortable that our farmers, ranchers, and growers can meet those numbers.
And on digital trade, you know, as you know, those are difficult issues. With China, we’re actually planning to address those in future negotiations. You know, we couldn’t resolve those as part of the phase one deal, but those are issues we’re very committed to addressing in future negotiations.
And as to any criticism that this is, you know, not a future-looking trade deal, I think that will clearly be refuted once people know more about what this deal has in it. It has state-of-the-art protections on intellectual property and all those areas I mentioned. We have important commitments on technology transfer, which were, of course, an integral part of our Section 301 investigation.
In fact, for the first time in any trade agreement, China has agreed to end its longstanding practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, licensing, or administrative approvals, or receiving advantages from the government.
They’ve also committed to provide transparency, fairness, and due process in their administrative proceedings, and to have technology transfer and licensing take place on market terms. And, you know, they’re committing to refrain from directing or supporting outbound direct investments aimed at acquiring foreign technology, which, pursuant to industrial plans, they create distortions.
So these are really important commitments on critical issues that are very much state-of-the-art. And I would say that’s true in financial services as well. And we have important commitments on currency in the area of increasing transparency, as well as substantive commitments on policy issues relating to competitive devaluations as well, which all this is enforceable.
And the ag biotech commitments as well, in agriculture, are important for the future of agriculture. So these are all really important commitments. They’re good for our companies and farmers now, and workers. But they’re -- you know, they’re going to be important. This is going to be a very much living document that’s going to be important for the economy moving forward. It really does go to our future competitiveness on all these areas.
Q Hi. Thanks for doing this. It’s an interesting list. But what is left over -- could you perhaps elaborate -- for phase two? You’ve twice referred to additional issues which have to be done in phase two. So what is left over which could not be addressed in phase one?
SENIOR ADMINISTRATION OFFICIAL: Well, you know, there are a number of issues that we could address moving forward. You know, I mentioned data localization and cross-border data transfers. There’s issues remaining to subsidies and SOE disciplines that could be likely areas that we would want to address, and on cyber intrusions as well.
So those are all very important but difficult issues. And there are other important issues that we would want to address. And that’s why we’re, you know, continuing to keep on the tariffs that we have, because there are other issues that we need to address, moving forward. And we’re very much committed to doing that.
And just to go back to a prior question, just to be clear: To the extent of, like, data protections, you know, just in the IP agreement, we do have very strong provisions relating to online infringement. So I didn’t want to suggest that we’re not covering any of those issues. I was, really, specifically talking about cross-border data transfers and data localization. So that’s something that we want to address -- that issue we want to address, moving forward.
But we have important issues relating -- or important provisions relating to online infringement in the IP agreement.
Q Hi. Thanks for the briefing. One quick question: Is the first week of January the, sort of, timeline for signing this?
And then a broader question, could you give us an overview of -- in terms of the structural reforms, as the previous questioner was saying, you seem to have got a lot of this list. Could you do a, kind of, like -- percentage-wise, out of everything you want to achieve, how much is left after this?
SENIOR ADMINISTRATION OFFICIAL: Yeah, I don’t -- I don’t think I’m in a position really to assess, sort of, what the percentage is that is left at this point. I mean, there are, you know, important issues that we do expect to address moving forward. And the expectation is, I think, that this would be signed the first week of January. And that’s what we’re targeting. We do have to go through these legal processes, but that’s what we’re targeting at this point.
Q Yes, thank you. If you wouldn’t mind just kind of sketching out the basics of the strong dispute resolution system referred to in the USTR press release. Thank you.
SENIOR ADMINISTRATION OFFICIAL: Sure. So there is a strong, effective enforcement mechanism that we have, that we think really will ensure that we have a rapid and effective implementation and enforcement of the agreement. There will be, you know, a mechanism set up which will be led by the USTR, the U.S. Trade Representative, and the Vice Premier. And there will be an office set up to assess the implementation and attempt to resolve disputes.
So there will be process. And in a certain amount of time, it will start at the designated official, or working level, and then will rise up to my level, the [redacted] level, and then if an issue cannot be resolved, it will ultimately go up to the minister level. For us, it would be USTR; for them, it would be the Vice Premier.
So there is this -- you know, that process has a very specific timeframe for those various steps to proceed. And if ultimately we’re not able to resolve the dispute, you know, the complaining party is able to take a responsive action in a proportionate way that it would deem appropriate. And then there would, sort of, consultations on that as well, as to what action would be taken.
Q Hi. Charlie Spiering from Breitbart News. You mentioned the penalty and the enforcement mechanism, but do you have any sense of what that enforcement mechanism will be? Is there going to be any additional tariff threatened if they fail to meet these thresholds? And also, why didn’t China specify the level of agricultural purchases?
SENIOR ADMINISTRATION OFFICIAL: Yeah, I can’t really speak to why they didn’t specify that. And the purchase levels are what I laid out, and I can’t speak to why they didn’t talk about that. And there are specific commitments on that, and they are in enforceable.
And so then there will be -- as I mentioned, there will be these four categories that I laid out. But also, there will be specific subcategories as well. But the numbers there will be in a document that will be classified and confidential because of the possible -- if those numbers got out -- you know, potential market effects or also potential disclosure of business proprietary information. So we’re trying to, you know, avoid that. But those are all laid out, and they are specific commitments.
And as for this enforcement mechanism, it is a very specific enforcement mechanism that’s laid out in the chapter. And the procedures are specifically laid out, and that timeframes are laid out. And this is going to be a very prompt, effective mechanism. And then, ultimately, if the complaining party decides -- if we decide that China has violated a violation -- or a provision of the agreement, we can take responsive action and/or suspend concessions under the agreement.
So it's something that we can take action. It could be potentially in the form of tariffs, but we have the ability to take that action if they are not -- if they are abiding by their commitment.
Q Hello. I was wondering if you could talk about the currency provision that's in the agreement -- whether that includes central banks and whether or not the chapter in the deal is modeled on the USMCA, and any other details that you can provide on the currency issue.
SENIOR ADMINISTRATION OFFICIAL: Great. Thank you. And it is based on what we had in the USMCA -- similar to that. And as I mentioned, it includes both policy and transparency commitments in that area, and it requires commitments to refrain from competitive devaluations and targeting of exchange rates. It also would significantly increase transparency and provide mechanisms for accountability and enforcement.
So these are -- these are enforceable commitments and we think that that’s going to really help to reinforce, you know, macroeconomic exchange rate stability and ensure that China cannot use its currency practices to unfairly compete against U.S. exports.
MR. DEERE: With that, I do want to thank our briefers for assisting us today. Just a reminder that Mr. Kudlow's remarks at the top were on the record and that [senior administration official]'s comments during the Q&A portion have been on background, attributable to a senior administration official. Your embargo lifts with the conclusion of this call, and we thank you for joining us today.
END 2:58 P.M. EST
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