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Business Groups Decry China Tariffs, Seek Structural Changes in Ongoing Talks

Thursday, January 24, 2019
Sandler, Travis & Rosenberg Trade Report

The U.S. Chamber of Commerce and the American Chamber of Commerce in China have submitted detailed recommendations on the outcomes the U.S. should seek in its ongoing trade negotiations with China.

The chambers acknowledge that China’s “long-standing intellectual property rights violations, forced technology transfers, and state interventions in the economy” are problems that require “permanent, verifiable and enforceable solutions.” However, they also point out that “China remains a critical market for American companies,” a majority of which “reported revenue and profit growth there” in 2018. As a result, the chambers oppose the “untargeted, punitive tariffs” the Trump administration has imposed on imports of Chinese goods, which they say “undermine American competitiveness, escalate a counterproductive cycle of retaliation, and lead to unintended, damaging consequences.”

Instead, the chambers recommend that the following three objectives guide U.S. negotiators.

- The U.S. should prioritize outcomes that address systemic issues in the Chinese economy, such as industrial policies and the subsidies that underpin them, that result in unfair competition and non-market outcomes. Reducing the trade deficit and purchases of U.S. exports are a secondary concern.

- The U.S. should take a holistic approach to the “interlocking set of policies” China maintains on forced technology transfer, which include “not only caps on foreign equity ownership but more importantly procedures related to administrative licensing, standards, procurement, data localization, and competition and security reviews.” This approach should seek specific and concurrent changes to laws, regulations, and standards across China’s policy landscape.

- The U.S. should seek to remove all forms of data localization policies, which limit access to the burgeoning Chinese market for U.S. digital products and services, and ensure China applies national security requirements precisely and narrowly so as not to discriminate against foreign companies and undermine competition.

In addition, the chambers recommend a two-step process to support verification of China’s commitments as well as enforcement where differences may arise.

- securing explicit changes to Chinese normative guidance, laws, and regulations that comprise the regulatory structure used to force technology transfer and establishing clear benchmarks, timelines, and intensive monitoring to ensure these changes are lasting

- negotiating new disciplines with China that will bind and limit its ability (in practice) to apply laws, regulations, and policies in a manner that results in discriminatory treatment against U.S. companies in China, and establishing an independent arbitration mechanism to ensure strong deterrence and, when needed, fair and effective enforcement

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