Dec.15 -- The U.S. and China have agreed to the first phase of a broader trade deal, bringing a temporary calm to their escalating trade war. The 86-page agreement includes chapters on intellectual property, technology transfers and expanding China’s import of U.S. agricultural goods. Bloomberg’s Sharon Chen reports on “Bloomberg Markets: China Open.
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub.L. 115–97, is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA), that amended the Internal Revenue Code of 1986. Major elements of the changes include reducing tax rates for businesses and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptions and making it less beneficial to itemize deductions, limiting deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the alternative minimum tax for individuals and eliminating it for corporations, reducing the number of estates impacted by the estate tax, and cancelling the penalty enforcing individual mandate of the Affordable Care Act
The Act is based on tax reform advocated by congressional Republicans and the Trump administration. The nonpartisan Congressional Budget Office (CBO) reported that under the Act individuals and pass-through entities like partnerships and S corporations would receive about $1,125 billion in net benefits (i.e. net tax cuts offset by reduced healthcare subsidies) over 10 years, while corporations would receive around $320 billion in benefits. The CBO estimates that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years, or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.
The Agreement is the result of a 2017–2018 renegotiation of the North American Free Trade Agreement (NAFTA) by its member states, which informally agreed to the terms on September 30, 2018, and formally on October 1. The USMCA was signed by United States President Donald Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau on November 30, 2018 as a side event of the 2018 G20 Summit in Buenos Aires. Each country's legislature still must ratify the agreement.
Negotiations "focused largely on auto exports, steel and aluminum tariffs, and the dairy, egg, and poultry markets." One provision "prevents any party from passing laws that restrict the cross-border flow of data". Compared to NAFTA, USMCA increases environmental and labour regulations, and incentivizes more domestic production of cars and trucks. The agreement also provides updated intellectual property protections, gives the United States more access to Canada's dairy market, imposes a quota for Canadian and Mexican automotive production, and increases the duty free limit for Canadians who buy U.S. goods online from $20 to $150.
Intellectual Property: The Intellectual Property (IP) chapter addresses numerous longstanding concerns in the areas of trade secrets, pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods.
• Technology Transfer: The Technology Transfer chapter sets out binding and enforceable obligations to address several of the unfair technology transfer practices of China that were identified in USTR’s Section 301 investigation. For the first time in any trade agreement, China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, administrative approvals, or receiving advantages from the government. China also commits to provide transparency, fairness, and due process in administrative proceedings and to have technology transfer and licensing take place on market terms. Separately, China further commits to refrain from directing or supporting outbound investments aimed at acquiring foreign technology pursuant to industrial plans that create distortion.
• Agriculture: The Agriculture Chapter addresses structural barriers to trade and will support a dramatic expansion of U.S. food, agriculture and seafood product exports, increasing American farm and fishery income, generating more rural economic activity, and promoting job growth. A multitude of non-tariff barriers to U.S. agriculture and seafood products are addressed, including for meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agriculture biotechnology. • Financial Services: The Financial Services chapter addresses a number of longstanding trade and investment barriers to U.S. providers of a wide range of financial services, including banking, insurance, securities, and credit rating services, among others. These barriers include foreign equity limitations and discriminatory regulatory requirements. Removal of these barriers should allow U.S. financial service providers to compete on a more level playing field and expand their services export offerings in the Chinese market.
• Currency: The chapter on Macroeconomic Policies and Exchange Rate Matters includes policy and transparency commitments related to currency issues. The chapter addresses unfair currency practices by requiring high-standard commitments to refrain from competitive devaluations and targeting of exchange rates, while promoting transparency and providing mechanisms for accountability and enforcement. This approach will help reinforce macroeconomic and exchange rate stability and help ensure that China cannot use currency practices to unfairly compete against U.S. exporters.
• Expanding Trade: The Expanding Trade chapter includes commitments from China to import various U.S. goods and services over the next two years in a total amount that exceeds China’s annual level of imports for those goods and services in 2017 by no less than $200 billion. China’s commitments cover a variety of U.S. manufactured goods, food, agricultural and seafood products, energy products, and services. China’s increased imports of U.S. goods and services are expected to continue on this same trajectory for several years after 2021 and should contribute significantly to the rebalancing of the U.S.-China trade relationship.
• Dispute Resolution: The Dispute Resolution chapter sets forth an arrangement to ensure the effective implementation of the agreement and to allow the parties to resolve disputes in a fair and expeditious manner. This arrangement creates regular bilateral consultations at both the principal level and the working level. It also establishes strong procedures for addressing disputes related to the agreement and allows each party to take proportionate responsive actions that it deems appropriate.