Survey: U.S. companies in China happy with phase-one deal, unsure if worth the cost

While the majority of U.S. businesses in China are happy with the phase-one trade deal struck last month, more than half say it’s too soon to tell whether the deal will be worth the cost of Section 301 tariffs, according to a U.S.-China Business Council survey released on Thursday.

The group represents 230 members in a diverse array of sectors and, accordingly, can claim to accurately reflect the views of U.S. industry in China, USCBC President Craig Allen said in remarks to reporters on Thursday. The phase-one agreement will enter into force on Friday.

Seventy-eight percent of USCBC members view the phase-one deal positively, according to the survey. Of those, 64 percent said they backed it because the deal “marks a cessation of further tariff escalation and puts the relationship on a more sustainable trajectory,” while 17 percent said it “resolves or addresses a specific challenge my company experiences in the market.”

Of the 12 percent of respondents who held a negative view of the phase-one deal, 82 percent said the pact was not a “long-term solution for U.S.-China tensions,” and significant tariffs remain in place. Allen said 89 percent of U.S. Section 301 tariffs will remain in effect, according to the group’s calculations.

“Those who are affected by those tariffs are less pleased, less happy about the deal,” he said. “I think that we can extrapolate from that that America manufacturers are less happy than service companies.”

Just under a fifth of members said the benefits of the phase-one deal outweighed the costs of the Section 301 tariffs, while 30 percent said they did not; 51 percent said it was too early to tell.

“So, there’s a lot of uncertainty on that and most of our members want to see how this develops,” Allen said.

Addressing the deal’s provisions, 30 percent of council members said Chinese purchase commitments were most relevant to their companies; 27 percent pointed to the deal’s intellectual property protections; and 15 percent highlighted the tech transfer commitments.

A little more than a fifth of members — 22 percent — said they were likely to avail themselves of the deal’s dispute resolution mechanism, while 30 percent said they were unlikely to do so and 48 percent were unsure. Of those who said they would utilize dispute settlement, 36 percent said they would do so through their trade associations, 17 percent said they would work anonymously with the U.S. government and 13 percent said they would prefer to address issues privately with Beijing.

Asked why relatively few members were willing to avail themselves of the enforcement mechanism, which the group has previously touted, Allen pointed to the nearly half who said they were unsure about using it.

“This is a new style of mechanism and it is reasonable that companies are going to want to wait and see how this develops,” he said. “And I think that prudence, that caution is probably a good thing.”

“What we don’t want is for small or idiosyncratic issue, perhaps at the local level, to be raised as large, systemic issues,” he added.

Allen said companies also were concerned about retribution from the Chinese government and of being used as a “symbolic gesture” by the U.S. government.

“Really what they want to do is solve problems in China, not to become a symbol,” he said.

He said the provisions of the phase-one deal would help spur internal reform in China. Allen cited the intellectual property chapter of the deal in particular, claiming it would improve the efficacy of Chinese courts and administrative procedures.

“I think it’s very prudent to be cautious on this and to work the system internally as aggressively as possible to try and reach a conclusion,” he said.

Allen said he did not believe the outbreak of coronavirus in China would affect implementation of the deal, though he acknowledged it could impact the timing of its execution, particularly the purchase commitments that Beijing made. Meetings to begin talks for a phase-two agreement also could be delayed due to the health crisis, he said.

Treasury Secretary Steven Mnuchin on Wednesday said the administration had the chapters for a phase-two deal “dealt with.” Allen said the administration had not set out a timeline for those talks.

He said the group was “anxious” to learn how China handles its retaliatory tariffs on American goods, which affect its ability to meet the purchase targets. Beijing last week announced it would halve tariffs on $75 billion worth of goods, effective Friday.

“I think it’s clear to all that the commitments, the import commitments, that the Chinese government has made cannot be realized with the existing tariff structure in place, putting American product at a structural disadvantage to Japanese or European or Australian product,” he said. — Anshu

Source: Inside Trade

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