US appears split on key clause in trade talks with China

As the US inches toward a deal with China by accepting Beijing’s demand for a “two-way, fair and equal” enforcement system for resolving their trade disputes, cracks seem to be surfacing among its negotiators on the final elements, analysts said.

The US is now veering round to the view that it would accept a two-way enforcement system for resolving bilateral trade disputes arising from the proposed US-China trade agreement. An early announcement by the US treasury secretary Steven Mnuchin about the two-way enforcement system on the margins of the annual International Monetary Fund (IMF) and the World Bank meeting on Saturday is seen as a “sign of split” with the US chief negotiator Ambassador Robert Lighthizer, according to a report in the Financial Times on Monday.

“The biggest risk he [Ambassador Lighthizer] faces in the China negotiations is not necessarily from the other side of the table but from his side of the table, from being undermined at home,” the FT report said quoting an unnamed former senior US trade official.

Mnuchin suggested the bilateral deal will have “real enforcement on both sides, including detailed enforcement office on both sides with significant resources,” according to a report in the Wall Street Journal on Saturday.

Up until now, Lighthizer has insisted on his unilateral demand that only the US can retaliate in case China fails to adhere to the commitments agreed in the bilateral agreement—but not Beijing, if the US failed to comply with its side of the bargain.

The USTR also suggested that the proposed bilateral dispute resolution system should be stationed in Washington to oversee China’s implementation of all the commitments. Such a system based on the USTR’s demands, said a Chinese trade official, would be a throwback to the days of the unequal treaties of the 19th century.

A senior Chinese trade official Wang Shouwen, China’s vice-minister of commerce, had repeatedly insisted that any proposed enforcement mechanism had to be “two-way, fair, and equal.” China had also pushed back against US demands in electronic commerce, especially on issues of removing restrictions on data flows and storing data in its local servers, according to media reports.

Ahead of the crucial round of bilateral negotiations this week, Mnuchin told reporters on the margins of the International Monetary Fund and World Bank meeting in Washington on Saturday that “there are certain commitments the US is making in this agreement and there are certain commitments that China is making. And I would expect the enforcement works in both directions,” according to the WSJ report.

For the past several months, there has been a running tension between the US treasury secretary and the USTR because of their priorities. The US treasury secretary wants to safeguard the interests of US banks and financial services suppliers in which the Chinese purchase of American treasury bills play a major role.