BACKGROUND PRESS CALL
BY A SENIOR ADMINISTRATION OFFICIAL
ON THE SIGNING OF AN AGREEMENT BETWEEN
THE UNITED STATES AND CHINA
Via Teleconference
3:03 P.M. EST
MR. CANTRELL: Good afternoon, everyone. And thank you for joining today's background briefing call with a senior administration official on the signing of an agreement between the United States and China.
Today's briefing will be with [senior administration official]. The call will be on background, attributable to a senior administration official. We will begin with opening statements, and as time allows, we will follow with question and answer. All information is embargoed until the conclusion of the call. And with that, I would like to give it over to [senior administration official].
SENIOR ADMINISTRATION OFFICIAL: Great. Thank you very much. And thank you everyone for joining the call today. President Trump and Vice Premier Liu He from China signed a historic phase one trade deal today.
This effort to reach this deal started with the President's commitment to correct unfair trade practices and rebalance our trade relationship with China. It also rose out of the Section 301 investigation and report that USTR did relating to China's practices on technology transfer, intellectual property, and innovation. It was the product of many, many months of hard work by countless people on both sides. And it covers three main areas.
One is structural changes relating to intellectual property, technology transfer, agriculture, financial services, and currency.
The second is on increased purchases by China of U.S. goods and services.
And finally, the third piece of it relates to some tariff reduction that we have agreed to as part of the deal.
Now, on the structural issues, as I mentioned, it covers the five main areas. And I should say that all of this -- the structural issues and the purchases -- are all fully enforceable and subject to a very strong enforcement mechanism, which I also discuss in greater detail.
On the intellectual property structural issues, it addresses all the main areas of intellectual property protection and enforcement, including trade secrets, pharmaceutical-related intellectual property, patents, geographical indications, trademarks, and enforcement against pirated and counterfeit goods. It has both general broad commitments, as well as very specific commitments being made by China to address issues that our companies and right holders have had.
On technology transfer, that chapter has strong, binding, enforceable commitments relating to several of the technology transfer practices that we dealt with in our Section 301 investigation and report.
China has committed not to force or pressure companies to turn over their technology as a condition for market access, or administrative, or licensing approvals, or for receiving advantages from the government. And China has committed that, you know, any transfer of technology would have to be voluntary and take place on market terms. And China has also committed not to direct or support outbound investments aimed at acquiring foreign technology to meet its industrial plans.
On agriculture, that chapter deals with a number of structural barriers to our exports to China. It deals with a number of non-tariff barriers, what we call SPS barriers to trade that affect products including meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed, pet food, and others.
It also has very strong commitments on important areas like agricultural biotechnology. And that has been a source of issues with the Chinese over the past. And China has committed to implement fair and predictable, and science and risk-based regulatory process for approval of ag biotech products, and made a number of commitments relating to administrative improvements and how they process those applications.
There's also commitments in the ag chapter on China's domestic support policies and practices, and on tariff rate quota administration, which also has been an area -- a problematic area for our ag exports. And I'm happy to talk in more detail about what is in the provisions on (inaudible) administration.
On financial services, our financial services suppliers face a number of barriers in the Chinese market. And this chapter of the agreement would address those barriers. And those can -- it has commitments relating to licensing approvals, providing nondiscriminatory treatment to our companies dealing with issues relating to equity caps and investment restrictions, and other business restrictions -- regulatory restrictions that our companies have faced in the Chinese market. And it covers all of the areas of financial services, including banking, insurance, securities, credit rating services, electronic payment services, (inaudible) debt, as well as others.
And then, finally, on the structural issues, there are strong commitments in the currency chapter that will require China to refrain from competitive devaluations and targeting of exchange rates. There is import provisions on transparency and enforcement as well, relating to currency practices.
Those are the structural issues chapters. There is a chapter also on -- relating to China's commitments to increase its purchases of U.S. goods and services. And China has committed to increase its purchases of U.S. goods and services by $200 billion over the next two years, and with an agreement that the trajectory of increases will continue on that path after the two-year period, as well.
And it covers four major areas of purchases: manufactured goods, agriculture, energy, and services. There's been, obviously, a lot of discussion on the agriculture purchases. These commitments will result in China making purchases of U.S. agricultural products over the next two years in the range of $40- to $50 billion each year. The total will be $80 billion at least over the years.
But there are also commitments on manufactured goods to increase by over $75 billion over the next two years. For energy, over $50 billion over the next two years. And services, close to $38 billion. And that’s split up into more specific sub-categories, as well. Each of those four categories has sub-categories. The specific numbers on those will remain confidential because of -- in the interest of not in any way distorting markets or revealing confidential business information.
And, once again, those commitments on the purchases are fully enforceable and subject to the dispute resolution section chapter of the agreement. And I'll talk a little bit now about that. It has a very strong enforcement mechanism. There will be regular meetings of various officials, even separate from the dispute resolution piece of that chapter, but then it provides a process for the resolution of dispute, and basically just sets out very specific time frames and the process, which will start at an attempt to resolve a dispute at the working level. There's 21 days for that.
And then it would rise to my level, at the deputy or vice-ministerial level, and there would be a total of 45 days from the start of the appeal to resolve that at the deputy level. And then if that can’t be resolved, there's another 30 days to resolve at the USTR-Vice Premier level.
And if it can't be resolved at that point, the complaining party has the ability to take proportionate action. And as long as that action is in good faith, the other side would not be able to either take counter measures or otherwise challenge that action at the WTO or at any international forum.
And the final thing that I'll mention is the tariff reduction I think has been well reported. We have agreed not to implement what was scheduled -- the tariffs that were scheduled to go in effect December 15th. We've also agreed not to increase the tariffs that had been scheduled to -- the increase had been scheduled to go in effect on October 15th, from 25 to 30 percent. Those will stay at 25 percent.
And then, finally, we have agreed to reduce the September 1 tariffs from 15 percent to 7.5 percent. There is no other agreement on tariff reduction at, despite reports. That is the entirety of the tariff reduction. The tariff reduction on the September 1 tariffs will -- I believe is scheduled to go in effect 30 days from today, when the agreement will enter into force. And that is the date for entering into force of the agreement is 30 days from today.
So that is really an overview of the agreement. And obviously it covers a lot of ground and a lot of really detailed issues. And I'm happy to answer any questions.
MR. CANTRELL: Operator, we can take some questions, please.
Q Hi, this is Haik Gugarats with Argus Media. On the chapter dealing with purchase commitments, how do you monitor it, or what is the role of USTR or any other government agency? Are you putting Chinese companies in touch with the American counterparts? Or are you just going to look at census numbers and say, "Well, this is what it adds up to for the year" and they either consider it or not? Just, can you explain it -- that part?
SENIOR ADMINISTRATION OFFICIAL: Yes, we will be actively monitoring both the Chinese import data and our export data. And it will be, you know, the official statistics from both to ensure that China is meeting the purchase commitments.
We will also, as part of the bilateral evaluation and dispute resolution chapter of the agreement, be having regular meetings with the Chinese, at the working level. They will happen at least once a month, at my level. At the deputy and vice-ministerial level, it will happen at least once a quarter. And then, at the USTR and Vice Premier level, twice a year, every six months.
So we will have regular meetings and an raise issues relating to what we view as any failure to implement the purchase commitments or concerns we have about that, or difficulties that are being encountered. But we will be actively monitoring the official data sources for both countries to ensure that the Chinese are fulfilling their commitments on the purchases.
Q Hi, it's David Lawder calling from Reuters News Service. Just a quick question regarding the enforcement. What's the total time period from when you bring a complaint and when you can, like, take retaliatory measures, presumably putting tariffs on? And how do you define "good faith," in terms of, you know, if they've acted in good faith, the other party can't take a countermeasure against you? How do you define that good faith?
SENIOR ADMINISTRATION OFFICIAL: Well, thank you. And so, in terms of the timeframe, it’s going to be roughly a 90-day timeframe from start to finish. And that’s based on -- it’s going to be a 75-day period from the start of the appeal until, you know, resolution -- if it can be resolved -- at the USTR and Vice-Premier level.
And then, after that, there will be an opportunity for expedited consultations on the remedy that’s imposed, if the violation has not been addressed and resolved.
So we’re thinking that’s going to be roughly -- you know, would be finished within a 10- to 15-day period. So, from start to finish, it’s going to be roughly 90 days.
And the in terms of the “good faith,” I think that’s -- you know, it has not be defined. But, you know, there will be, through the process -- you know, the parties will be exchanging information and facts relating to any alleged violations. And you know, there will be a consideration of the factual basis and whether the action taken has been a proportionate one. And then, if it -- if, as I said, if it’s in good faith, there will not be any -- there cannot be any counter-measures or challenge to the action taken.
If the party that is being alleged to have violated the agreement thinks that the action taken has been bad faith, the only remedy is to get out of the agreement.
Q So they can’t put retaliatory tariffs on? All they can do is quit the agreement?
SENIOR ADMINISTRATION OFFICIAL: Correct. That’s correct.
Q Mara Lee, International Trade Today. I wanted to ask -- you said you believe that the 15 percent tariff will drop to 7.5 percent 30 days from now. Why do you say “believe”? Is that not determined yet?
SENIOR ADMINISTRATION OFFICIAL: No, it is. I should have been more precise. Yes, that is going to be the date. And, you know, I don’t know that a Federal Register notice has been issued yet, but it is in process. So it will be 30 days. It’s in line with the date of entry into force of the agreement. So it will be 30 days. I should have been more precise on that.
Q Thank you.
Q Yes, hello. This is Alex Lawson from Law360. I had another question about the enforcement mechanism. It was already established that, you know, if one country believes that the other country has acted in bad faith, that the agreement then calls on them to drop out -- to withdraw from the agreement entirely. Can you just explain the reasoning behind that? Is that to prevent just a sort of wild escalation of exchanging retaliatory tariffs? And if so, I mean, might that happen anyway if someone drops out of the agreement?
SENIOR ADMINISTRATION OFFICIAL: Well, yeah. It was designed so that there would not be the ability to take an action at the WTO or other international forum to challenge an action that was taken in response to a violation of the agreement or to allow for, you know, retaliation, as you mentioned. So it was designed to not allow for that.
Now, again, if the party decides to get out of the agreement, they can take action at that time. That is true. But I think this was designed to try to prevent an escalation of disputes.
And, you know, there will be -- I think that each party that is -- if there’s action taken against them -- if we decide to take an action against China for a violation of the agreement, they will have to make an assessment of whether they want to stay in the agreement or not. I think there are obviously broader interests that would keep them in the agreement rather than getting out.
So I think they would see it in their interest to stay in the agreement. And this was designed to avoid them counter-retaliating or challenging us at the WTO.
So this was obviously set up as an expedited enforcement mechanism to ensure strong enforcement and to avoid the other side just being able to do something in terms of its response.
Q Hi this is Heather Scott with AFP. Two quick questions. You mentioned the U.S. action on tariffs -- the reducing to 7.5. What has China agreed to do on the tariffs they have implemented?
And also, if I could ask more about the currency provisions. What is new? Because the commitment not to target exchange rates for competitive purposes was a longstanding G20 commitment, and there doesn’t seem to be any enforcement on that in particular.
SENIOR ADMINISTRATION OFFICIAL: Thank you. And so, on the tariffs, China has not agreed -- made any specific commitment to adjust its tariffs, reduce its tariffs, or eliminate its tariffs. But China does have specific enforceable commitments to increase its purchases in all these various areas that I mentioned in significant amounts. And China will have to determine how it’s going to make that happen and to ensure that nothing, either in the form of tariffs or non-tariff barriers, barriers prevents them from being able to do that, because they are all enforceable commitments on the purchases.
They do have an exclusion process for -- you know, in their system, just as we do in ours. And my understanding is they’re going to continue to refine that and improve that exclusion system that they have. And so we’re monitoring, of course. But the fact is that the Chinese will have to make these purchases and they will -- you know, they will have to make sure that their tariffs do not in any way inhibit them from doing so.
In terms of the currency: You know, you mentioned G20 commitments. Now, these are very strong commitments in this chapter, which are comparable to what we have in USMCA.
But, you know, these are all subject to our enforcement mechanism in the agreement. So, again, if there is a violation -- if there is targeting of exchange rates or competitive devaluations, we can challenge -- by the Chinese -- we can challenge that through our dispute resolution mechanism, and within, you know, 90 days taken action against the Chinese. There is nothing at all like that in the G20 or through the G20 process.
So this is a much -- you know, these are binding, enforceable commitments that the Chinese have made on currency.
Q Hi, my question was also just really about tariffs. So you’re basically saying China will have to make that decision on their own in terms of agricultural -- tariffs on the agricultural products?
SENIOR ADMINISTRATION OFFICIAL: That is correct. They will have to take action on their own. Now, our understanding is -- and we’re seen this with respect to at least a few products thus far on agriculture -- that they have started, you know, granting exclusions.
And, in fact, I think there’s been indications that they’re (inaudible) automatic exclusions from the tariffs from certain -- for certain products in the ag area.
So they, I think, will continue to refine and improve that exclusion process. And I think they, you know, will have to address that to be able to fulfil their commitments. But that’s -- you know, they will have to find a way to make that work.
But our indications are that they are already taking action through exclusions from the tariffs.
MR. CANTRELL: Operator, [senior administration official] is happy to take one more question.
Q Hi, it’s Bob Davis from the Wall Street Journal. One thing -- I came in late. Is this on record or “senior administration official”?
And then also, a couple of things to clear up: One, how do you respond to the charge that, with the purchases, what you’re doing is manage trade and encouraging China in the wrong direction on that issue?
And then, secondly, on the enforcement, can you sort of walk us through? I mean, do you expect a company to come to you and complain that, you know, they’re getting pressured on tech transfer, and then you would represent the company? And if so, how do you get companies to volunteer, given their concern about the retaliation in China?
SENIOR ADMINISTRATION OFFICIAL: Right. Thank you, Bob. And so, first of all, it’s on background by a senior administration official, to answer your first question.
Q Okay.
SENIOR ADMINISTRATION OFFICIAL: On the purchases -- on your question there, you know, these are -- and when you see the chapter, you’ll see this is all sort of laid out in here. I mean, clearly, we’re setting forth in here that the purchases are going to made at market prices based on commercial considerations.
And, you know, it also clearly shows -- and throughout the rest of the agreement as well -- that the changes that are being made here by China, and other changes that it is making in its own economy, are going to significantly expand demand for our exports and facilitate the ability for our companies to be able to sell their products and supply services in the Chinese market.
And so, I think this is just a reflection of that to, you know -- for China to commit to making these purchases. We think they’re going to have the need for, and a strong demand for, these products and services in the Chinese market. So it’s just a natural outgrowth of everything we’re doing and they’re doing. And it will all be done through market forces or commercial considerations at market prices.
So again, it’s -- and I think it’s something that I think the Chinese themselves have recognized that they have a need for greater imports of U.S. products and U.S. services.
On enforcement, in terms of how that will work, you know, companies do already, of course, come to us and raise concerns or issues that they have relating to a number of issues with China, including forced technology transfer. The dispute resolution chapter specifically provides for us to be able to bring issues to the Chinese on a confidential basis without identifying companies. And that was put in there specifically for the reason that you mentioned, because of the concerns that I know that companies have regarding retaliation. So we were trying to -- we have, you know, specific provisions in there to avoid that type of retaliation.
So we will -- we’ll have, you know, officials and a mechanism set up within USTR to be able to field these complaints and then bring them into the regular process that’s set up in the dispute resolutions chapter, and keep it all in a confidential basis.
MR. CANTRELL: Thank you, everyone. This will conclude our call. Again, remarks were on background, attributable to a "senior administration official." As always, direct all further questions to the White House Press Office or to USTR.
Thank you, everyone, for joining this call this afternoon.
SENIOR ADMINISTRATION OFFICIAL: Thank you.
END 3:30 P.M. EST
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