As I first talked about here, it appears that the Trump administration has convinced China to sign on to a new kind of "unilateral" dispute resolution process as part of the the Economic and Trade Agreement between the U.S. and China, which was released today. Here's the key text from Chapter 7, Bilateral Evaluation and Dispute Resolution:
Article 7.4: Dispute Resolution
1. Appeal. Where one Party (the “Complaining Party”) believes that the other Party (the “Party Complained Against”) is not acting in accordance with this Agreement, the Complaining Party may submit an appeal (“Appeal”) to the Bilateral Evaluation and Dispute Resolution Office of the Party Complained Against. An Appeal shall be in writing and shall contain sufficient information to allow the Party Complained Against to make a proper assessment of the matter. The Appeal may, but need not, include information that could identify any company at issue or business confidential information. The Appeal and any information and matters related to it are confidential and shall not be shared beyond the Bilateral Evaluation and Dispute Resolution Office, absent the agreement of the Parties.
2. Scope of Appeal.
(a) The dispute resolution process covers all matters that occur after the date of entry into force of this Agreement.
(b) Any measure, including an action, of a Party taken prior to the date of entry into force of this Agreement, which is maintained or continues to have effect after that date, is also subject to the dispute resolution process. For an Appeal of such a measure, the Complaining Party shall provide to the Party Complained Against an explanation of the continuing effect of the measure.
3. Assessment. The Party Complained Against shall carry out and complete an assessment of the Appeal. The Party Complained Against shall consider the facts, nature, and seriousness of the issues presented by the Appeal. After the assessment is completed, the designated officials shall begin consultations.
4. Dispute Procedures. Both Parties will attempt to resolve the Appeal in the most efficient manner using the following procedures:
(a) If the Appeal cannot be resolved by the designated officials, the concerns may be raised to the designated Deputy United States Trade Representative and the designated Vice Minister. If the Appeal is not resolved at the deputy or vice-ministerial level, the Complaining Party may present the issue to the United States Trade Representative and the designated Vice Premier of the People’s Republic of China.
(b) If the concerns of the Complaining Party are not resolved at a meeting between the United States Trade Representative and the designated Vice Premier of the People’s Republic of China, the Parties shall engage in expedited consultations on the response to the damages or losses incurred by the Complaining Party. If the Parties reach consensus on a response, the response shall be implemented. If the Parties do not reach consensus on a response, the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship. The Party Complained Against can initiate an urgent meeting between the United States Trade Representative and the designated Vice Premier of the People’s Republic of China before the effective date of the action to be taken by the Complaining Party. If the Party Complained Against considers that the action by the Complaining Party pursuant to this subparagraph was taken in good faith, the Party Complained Against may not adopt a counter-response, or otherwise challenge such action. If the Party Complained Against considers that the action of the Complaining Party was taken in bad faith, the remedy is to withdraw from this Agreement by providing written notice of withdrawal to the Complaining Party.
I'm not sure what to make of the elaborate consultations process they have in mind. Maybe spelling out so much detail will help, maybe not. But the big story is that there is no neutral adjudication mechanism as part of this dispute procedure. Instead, each party can ultimately decide on its own whether the other is in violation, and then suspend obligations, impose tariffs, etc.: "If the Parties do not reach consensus on a response, the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship." The response is then governed by whether the Party Complained Against considers that the action of the Complaining Party was taken in good or bad faith.
It's not clear to me what the point of including this provision is. By now, we know that if the Trump administration is not happy about China's trade practices, it will impose tariffs. What does it add to put in a provision to this same effect? Without a neutral ruling as to whether China is in violation, it's hard to see China responding any differently under the deal than it has responded to the previous tariffs imposed outside of the deal. As a result, I'm not sure how enforceable this deal is. That's kind of a shame, because the provisions on technology transfer in Chapter 2 seem pretty useful (and more detailed than the similar ones in Section 7(3) of China's accession protocol). I think it would be helpful if these obligations were subject to normal trade agreement dispute settlement.
But we'll see how it all plays out. I've never seen anything quite like this before, so it's hard to say anything with too much certainty at this point. Ideally, the parties would be transparent about all of their disputes under this provision, but that may not be how this works in practice, as the text states: "The Appeal and any information and matters related to it are confidential and shall not be shared beyond the Bilateral Evaluation and Dispute Resolution Office, absent the agreement of the Parties." Thus, it may be difficult to evaluate the effectiveness of the process.
