What does Phase one Trade deal means?

  • Jan 17, 2020 AEDT
  • Team Kalkine
What does Phase one Trade deal means?

For over 18 months, there had been back to back events that kept fuelling tensions between the US and China. The countries who never claimed to be enemies to each other seemed like becoming an antagonist to each other. But, the tables seem to have turned, and long-prevalent tensions in the international trade look like falling into place, although the latter is expected to take time.

The two countries endured through a year of consultations and negotiations, extreme intensification in a jiffy, ostentatious display of easement, and much more. In the latest development, the two nations ended up signing for the “phase one” of a trade deal which might have just laid the foundation for the faux bros to become true bros.  

The trade deal signed among the nations with top economies in the world comprises of several negotiations and revisions to the issues that were causing intense moments of heat.

The US President, Donald Trump believes the phase one deal to be a momentous step that has never been taken before with China in the direction of an impartial and mutual trade.

The official text released by the US Government from the phase one of the trade deal comprises of eight chapters which enclose several previously made pledges by China at the WTO or in G20 summits, and reorganised measures that China had previously been taking towards more open markets.

The Government of the United States of America and the Government of the People’s Republic of China have agreed on the following aspects:

Chapter-1 INTELLECTUAL PROPERTY

Chapter-2 TECHNOLOGY TRANSFER

Chapter-3 TRADE IN FOOD AND AGRICULTURAL PRODUCTS

Chapter-4 FINANCIAL SERVICES

Chapter-5 MACROECONOMIC POLICIES AND EXCHANGE RATE MATTERS AND TRANSPARENCY

Chapter-6 EXPANDING TRADE

Chapter-7 BILATERAL EVALUATION AND DISPUTE RESOLUTION

Chapter-8 FINAL PROVISIONS

One thing worth noticing was that the issue of Cybertheft could not find a place in the long list of the negotiations and revisions. Although the phase one of the deal encompasses stricter measures linked to trademarks, patents and geographical indications to avert piracy and counterfeiting, China did not make any all-encompassing assurances to fight against cyber theft.

No matter how agreeable the two countries might seem, there seems to be some room for the US and China drifting apart with some forced negotiations regarding market access for agriculture.

For example, China is expected to ensure that purchases and imports into China from the US exceed the corresponding 2017 baseline amount by no less than USD 200 billion, during the two-year period from 1 January 2020 through 31 December 2021.

These USD 200 billion are divided further into

  • USD 77 billion in the US manufactures;
  • USD 32 billion in agriculture;
  • USD 52 billion in energy; and
  • USD 37 billion in the services sector.

The above constitute the products that China would import from any other country like pork. Moreover, China has also agreed to grant the already signalled exposure opportunity for foreign companies to its financial services sector. It seems that it is Beijing that shall drive all the benefit from the deal.

Experts also believe that the accord between the US and China is a triumph for China in the long run since it doesn’t have to make changes to any of its laws or regulations under the phase one of the trade deal.

With no clear indications about the issue of cyber theft in the initial trade deal, the existing Chinese government continues to govern with same regulations and laws as earlier, and there are no changes to be brought into effect that could affect its aspirations of becoming a global influencer in technology worldwide.

However, uncertainties of collateral damage to the exporters of Australian loom over their head with the US agreeing to sell USD 32 billion worth of beef, wheat, cotton and all the other items listed in the agreement to China.

Additionally, the current scenario of Australia being a close ally of the US has almost rested its relationship with China in peace. In times of thinner scope for making an error, the challenges for Australian government get thicker to secure its exporters against any adverse winds from the US China trade deal.

Things might get worse when the deal to export USD 52 billion worth of liquefied natural gas and coal comes into reality. Since Australia is the biggest supplier of both LNG and coal to China at present, the terms mentioned in the phase one of the trade deal might hurt the exporters.

No matter how much President Trump or the allies of the US make praises for the trade deal, the reality can be shaky for the Australian dairy, beef, energy and coal exporters with the following terms in the trade deal:

  • Mandatory Chinese purchases of at least USD 80 billion in American food and agricultural products over the next two years;
  • Prolonged access to China's rapidly growing market for the US exporters of beef, pork, and poultry, as well as live breeding cattle;
  • Increased exports of US beef to China;

Economic experts believe that the US China trade deal can cause collateral damage to the Australian exporters once the terms of the phase one trade deal come into force.

Bottomline

What might look like a big win for the US might not be a loss for China. The phase one trade deal has attracted mixed reactions in the market from media houses, international relations experts, economists and other agents. Things shall be clearer once the trade agreement is brought into effect, and the countries happen to execute the same on a fair note. With phase one of the trade deal raising concerns for other countries who have direct trade with the US and China, we can hope for a better package in phase two of the trade deal.


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