Will the U.S. - China Trade Deal Violate MFN?
Washington is pressing Beijing to enter into multiyear contracts to buy US agricultural and energy imports as part of a broader trade deal aimed at reducing the $337bn bilateral trade deficit with China.
But the move could mean taking Chinese business away from key US allies such the EU, Australia, Brazil and Argentina, whose exports could be hit by President Donald Trump’s gambit.
Commerce secretary Wilbur Ross is expected to discuss a list of products that China sources from other countries but could buy from the US on a visit to Beijing later this week. The list was presented to Beijing this month.
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The US push for long-term “product-by-product” contracts with China is intended to insulate an eventual trade deal from political pressures on either side of the Pacific, according to people familiar with the discussions.
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During his trip next week, Mr Ross will push China to firm up commitments on additional purchases from the US that its negotiators made during a visit to Washington this month. The US wants those to be “contractualised” and enforceable, a feature officials say has been missing from past US trade deals.
Mr Ross is expected to focus on US exports that can be substituted for commodities that China currently imports from elsewhere such as crude oil and refined products, liquefied natural gas, and agricultural exports such as beef, poultry and soyabeans.
It's hard to know what to make of this, in part because I don't know who in China will be taking action here. Are they talking about the Chinese national government? Chinese state-owned enterprises? Chinese companies taking direction from the government? Chinese companies taking direction from the U.S. government (if that is even possible)?
But assuming it is some part of the Chinese government taking action here, wouldn't this violate MFN? Here's the text of GATT Article I:1:
With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
The "matters referred to in paragraphs 2 and 4 of Article III" include "laws, regulations and requirements affecting ... internal sale, offering for sale, purchase, transportation, distribution or use." I would think that a Chinese government direction to switch the purchase of other imported products to U.S. products as part of a contract would constitute a "requirement" that affects the internal sale of the product. And pretty clearly there is an "advantage, favour, privilege or immunity" accorded -- through the contract -- to one country (the U.S.) but not to other countries.
So with the caveat that I don't fully understand what anyone has in mind here in terms of this "trade deal," it sounds to me like an MFN violation, if any affected country wants to bring a claim.