Success of U.S.-China trade talks will hinge on verification and effective enforcement on pledges

During earlier negotiations, although Beijing has made wide ranging commitments, it has taken its own sweet time, at times more than a decade, to implement its pledges. Unless China walks the talk, negotiations are unlikely to be fruitful. China’s pledges will have to be effectively verified and enforced.

American trade officials have utilized the 3 days of negotiations in Beijing to get more details on China’s pledges to balance its trade with the U.S. and cut its surplus. The officials are also looking for ways to hold China responsible for any commitments it makes for changes to its industrial policies.

Washington has presented Beijing with a list of demands that will rewrite their terms of trade. U.S demands includes changes to Chinese policy vis-a-vis technology transfers, intellectual property rights, non-tariff barriers to trade and industrial subsidies, among others.

Although 40 days have gone by in the 90-day truce, so far very few concrete details have emerged from both sides on the progress that have been made so far. Since the meetings in Beijing were not at ministerial levels, investors and analysts did not expect them to produce a deal that would end the trade war.

U.S. and Chinese officials discussed “ways to achieve fairness, reciprocity and balance in trade relations,” stated the U.S. Trade Representative’s office in a statement, while adding, “The talks also focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured, and other products and services from the United States”.

Besides buying some soybeans, China has not purchased any big-ticket items.

A spurt in the purchase of U.S. commodities and big-ticket goods would send a positive signal that China aims to work on its past commitments. However, it would do nothing to resolve the U.S. demands that require structural changes in China’s industrial policy.

Further, it is unclear how much progress can be expected in such issues in 90 days.

For China, the stakes are high given its trade surplus. Trump has threatened to impose tariffs on Chinese goods worth $200 billion if China is not invested enough in resolving the trade matters in the 90 days.

Trump has also said, he would increase those duties to 25%, up from 10%, if no deal is reached by March 2, 2019. He has also threatened to impose tax on 100% items exported by China to the U.S. if Beijing fails to cede to U.S. demands.

On its part, Beijing has stated, it will not give up ground on issues that it considers as its core.

One of the biggest challenges for the United States, is to enforce whatever has been agreed upon, which includes hacking of U.S. computer networks, forced technology transfers, and theft of intellectual property.

Thus any agreement between the two countries will have to include “complete implementation subject to ongoing verification and effective enforcement.”

In the past, although China has made big promises, it took a decade to implement them: in the past while China had pledged to resume the import of U.S. beef, it took more than a decade to actually implement its pledge.

“What really matters here is what enforcement will the U.S. have when the Chinese don’t follow through,” said Derek Scissors, a China scholar at the American Enterprise Institute, a Washington think tank. Scissors went on to add, this would need to entail a threat to reimpose tariffs by a certain date.

Speaking after the conclusion of the negotiations, Ted McKinney, the U.S. under secretary for trade and foreign agricultural affairs, told the media in Beijing that talks “went just fine” and that “It’s been a good one for us.”

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