China Not Living Up to Phase One Commitments, US Says

The Biden administration plans to revisit its phase one trade deal with China and will continue closely scrutinizing Chinese investments that seek to acquire sensitive U.S. technologies, senior officials said this week. The officials, speaking about the U.S.’s monthslong review of its China trade relationship, said China hasn’t met its phase one purchase commitments and stressed that all of its trade tools “are on the table” as they look to enforce the deal.

“Here’s what’s clear: The current state of this trade relationship does not meet the needs of American workers, businesses, farmers, and producers,” a senior administration official told reporters Oct. 3. “We will revisit the phase one agreement and emphasize that China must follow through on the commitments it has made.”

The administration said it plans to discuss with China the “areas where we believe they may have fallen short.” China reportedly failed to meet its 2020 purchase commitments of U.S. goods (see 2010230065 and 2101210019), which may have been hampered by the COVID-19 pandemic and the resulting supply-chain disruptions. While officials said the trade agreement has “produced results for some sectors of the American economy,” they said “it’s been less helpful for other sectors.”

U.S. Trade Representative Katherine Tai said the U.S. has seen agricultural exports to China rise in recent years, but also said the U.S. market share is “shrinking” and agricultural products continue to face unpredictability. “China’s regulatory authorities continue to deploy measures that limit or threaten the market access for our producers -- and their bottom line,” Tai told the Center for Strategic and International Studies Oct. 4. “The reality is, this agreement did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy.”

Tai declined to tell CSIS whether she would push for more U.S. market access during negotiations with Beijing. "Is what we’re looking for more liberalized trade, and just more trade," she said, "or are we looking for smarter and more resilient trade?” In a virtual expert panel after Tai's remarks, Anna Ashton, vice president of government affairs for the U.S.-China Business Council, said "it certainly seems like we can’t count on" the U.S. prioritizing expanding U.S. market access in China.

Although officials said they aren’t sure what talks with Beijing “will look like,” they said Tai plans to be “frank” with China about its performance under the deal. “We are not going to predetermine what the outcomes of those conversations are,” an official said. “I’ll just say that all tools will be on the table to us as we look to enforce that agreement and maximize the benefits that China committed to our workers, businesses and farmers.” The official added that the U.S. isn’t yet seeking a phase two negotiation.

The official declined to provide a timeline for when the U.S. hopes China will fulfill its commitments. “I don’t know that I can put a time frame on getting results on that,” the official said. “That’s why it’s really important for us to also convey the message that all tools are on the table for us, all options are available for us to consider what we need to do to defend our interests.”

While the U.S. plans to use the deal’s dispute resolution mechanism, the official also pointed to trade restrictions the U.S. has issued in the last several months that it could continue to deploy, including a June executive order that expanded a ban on investments in Chinese military companies (see 2106030067). The administration also has added various Chinese companies to the Entity List (see 2107090027).

“We’ve taken action to impose restrictions on individuals and companies involved in human rights abuses in China’s Xinjiang region,” the official said. “I think you’re going to continue to see the administration move out on all parts of our economic agenda towards China. The focus obviously, in the near term, is going to be on the trade front.”

The official also pointed to its screening authorities under the Committee on Foreign Investment in the U.S., saying the administration has been “robustly screening Chinese direct investments” due to the “often-opaque structures that Chinese companies use to list their securities in the U.S.” Trade lawyers have increasingly noticed CFIUS targeting non-notified deals involving China and sensitive technologies (see 2109240038). China's embassy in Washington didn't respond to a request for comment.