TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR NEWSLETTER OCTOBER 15, 2015
The October blog post will be broken up into two parts. This October 15th post will comment on the TPP Agreement signed today and well as President Xi Jinping’s recent trip to the US and my impressions from Beijing, China during that period.
A second newsletter will also cover the TPP Negotiations, Trade Policy, Trade, Customs, 337, IP/patent, antitrust and securities.
On October 5th, in Atlanta Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, reached an agreement on the Trans-Pacific Partnership (“TPP”), which will link up 40 percent of the world’s economy. President Obama cannot sign the Agreement for a minimum of 60 days after releasing the Agreement to the public. Congress cannot consider and pass the Agreement for a minimum of 30 days after that, which places Congressional passage possibly in January, the only window to consider the Agreement, before the elections heat up.
Meanwhile, from September 6 to September 27th I was in Hong Kong/Shenzhen, Shanghai and Beijing The last week in Beijing, September 21 to 26th, was very interesting because this was the period of President Xi’s trip to the United States. At the beginning of the week, in Washington State, President Xi’s visit went very well, but when President Xi came to Washington DC, the story was very different.
To read the US press in Washington DC and New York during the DC trip, it was almost like the two countries, China and the US, were on different planets with the US being on Mars (War God) and China being on Venus (Love God).
From much of the US Press point of view, President Xi’s trip was based on deception with the Chinese government having no real interest in coming to agreement on the US China trade problems on environment, cybersecurity, bilateral investment treaty and other hot button issues. In Beijing, China, however, Chinese television was truly involved in a love fest with the United States.
In the United States, we see cynicism. In China, I saw real friendship for the United States, and a determination to work with the United States in partnership based on a win-win principle that both sides must benefit from the relationship. This is the problem of the US China relationship in a nutshell. Never give any credit to China where credit is due and where they are making efforts to solve the bilateral problems.
Fortunately for the United States, China understands the importance of the US China relationship better than many US politicians and the US press. To be specific, there is more $500 billion in trade between the United States and China annually with US exports, including services, coming close to $200 billion. As stated above, trade is a two way street, and very few US politicians acknowledge the huge US exports to China, which create US jobs.
The Chinese government has agreed to do one very important thing with regards to the problems with the US government—talk about it. For the last several years, twice a year China and the US have conducted negotiations in the SED and JCCT talks. Now as a result, China will have periodic negotiations on cyber-attacks. In great contrast to Russia, China believes firmly in negotiations with the United States to iron out differences
As discussed in the next blog post, the problem with the attacks on China based on weak arguments and international trade in general is that they create a culture of international trade victimhood, blaming the foreigners and imports for the problems facing US industry and unions. That leads to protectionism, which as President Reagan stated in June 1986, leads to destructionism and the loss of jobs.
This is illustrated by the US victims of the US China Trade War as REC Silicon, a US exporter and major manufacturer of polysilicon to China, announces that it may close its US plant in Moses Lake, Washington because of the Solar Trade War with China.
TRANS PACIFIC PARTNERSHIP FINALIZED IN ATLANTA ROUND
On October 5, 2015, in Atlanta, Georgia, Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, announced the agreement on the Trans-Pacific Partnership, which will link up 40 percent of the world’s economy, following an exhausting round of last-minute negotiations that stretched over the weekend.
The scheduled two day session was extended by three days to deal with a number of contentious issues, including commercial exclusivity for biologic pharmaceuticals, automotive issues and market access for dairy products.
President Obama cannot sign the Agreement for a minimum of 60 days after the Agreement is published publicly. Congress cannot consider and pass the Agreement for a minimum of 30 days, after the 60 days, which places Congressional passage possibly in January. The process formally begins when President Barack Obama notifies Congress that he intends to sign the agreement and publishes it. From there, the administration will continue working to brief lawmakers on the contents of the agreement.
The release of the text will begin to determine the level of support, as many critics have long complained about secrecy of the negotiations. In another last-minute deal, Canada and Japan agreed to increase access to their tightly controlled dairy markets, allowing some American dairy products in, but New Zealand also persuaded the U.S. to accept more of its milk products. The dairy issue caught the attention of Congressional lawmakers, where Senator Ron Wyden and Representative Paul Ryan demanded that dairy producers in their states gain more access to Canadian consumers, a sensitive concession for Canada during its own election season.
Regarding currency manipulation, apparently there is a side deal to the TPP in which nations would pledge not to devalue their currencies in such a way as to gain an edge on their competitors, but it will not have any enforcement provisions. Country representatives will meet at least once a year to discuss the commitments and to try to coordinate macroeconomic policies.
In response to the Agreement, Senate Finance Committee Chairman Orrin Hatch stated:
“A robust and balanced Trans-Pacific Partnership agreement holds the potential to enhance our economy by unlocking foreign markets for American exports and producing higher-paying jobs here at home. But a poor deal risks losing a historic opportunity to break down trade barriers for American made products with a trade block representing 40 percent of the global economy. Closing a deal is an achievement for our nation only if it works for the American people and can pass Congress by meeting the high-standard objectives laid out in bipartisan Trade Promotion Authority. While the details are still emerging, unfortunately I am afraid this deal appears to fall woefully short. Over the next several days and months, I will carefully examine the agreement to determine whether our trade negotiators have diligently followed the law so that this trade agreement meets Congress’s criteria and increases opportunity for American businesses and workers. The Trans-Pacific Partnership is a once in a lifetime opportunity and the United States should not settle for a mediocre deal that fails to set high-standard trade rules in the Asia-Pacific region for years to come.”
Predictably, as soon as the deal was announced, Democratic Senator Bernie Sanders, who is running for President and bound at the hip with the labor unions, stated that the new trade deal was “disastrous,” and that he would work to defeat it. As Sanders further stated:
Wall Street and other big corporations have won again. It is time for the rest of us to stop letting multinational corporations rig the system to pad their profits at our expense. In the Senate, I will do all that I can to defeat this agreement. We need trade policies that benefit American workers and consumers, not just the CEOs of large multinational corporations.
On October 5th, Chairman Paul Ryan of the House Ways and Means Committee issued a press release, stating:
“A successful Trans-Pacific Partnership would mean greater American influence in the world and more good jobs at home. But only a good agreement—and one that meets congressional guidelines in the newly enacted Trade Promotion Authority—will be able to pass the House. I am reserving judgment until I am able to review the final text and consult with my colleagues and my constituents. In particular, I want to explore concerns surrounding the most recent aspects of the agreement. I’m pleased that the American people will be able to read it as well because TPA requires, for the first time ever, the administration to make the text public for at least 60 days before sending it to Congress for consideration. The administration must clearly explain the benefits of this agreement and what it will mean for American families. I hope that Amb. Froman and the White House have produced an agreement that the House can support.”
On October 4th and 5th, the United States Trade Representative issued a summary of the Trans Pacific Partnership, which will be attached to my blog. Some of the salient parts of the Summary are as follows:
Summary of the Trans-Pacific Partnership Agreement
On October 4, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced conclusion of their negotiations. The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections. We envision conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, as an important step toward our ultimate goal of open trade and regional integration across the region.
Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues. These features include:
Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.
Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.
Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state owned enterprises in the global economy.
Inclusive trade. The TPP includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade. It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments. It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.
Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.
The TPP includes 30 chapters covering trade and trade-related issues, beginning with trade in goods and continuing through customs and trade facilitation; sanitary and phytosanitary measures; technical barriers to trade; trade remedies; investment; services; electronic commerce; government procurement; intellectual property; labour; environment; ‘horizontal’ chapters meant to ensure that TPP fulfils its potential for development, competitiveness, and inclusiveness; dispute settlement, exceptions, and institutional provisions.
In addition to updating traditional approaches to issues covered by previous free trade agreements (FTAs), the TPP incorporates new and emerging trade issues and cross-cutting issues. These include issues related to the Internet and the digital economy, the participation of state-owned enterprises in international trade and investment, the ability of small businesses to take advantage of trade agreements, and other topics.
TPP unites a diverse group of countries – diverse by geography, language and history, size, and levels of development. All TPP countries recognize that diversity is a unique asset, but also one which requires close cooperation, capacity-building for the lesser-developed TPP countries, and in some cases special transitional periods and mechanisms which offer some TPP partners additional time, where warranted, to develop capacity to implement new obligations.
SETTING REGIONAL TRADE RULES
Below is a summary of the TPP’s 30 chapters. Schedules and annexes are attached to the chapters of the Agreement related to goods and services trade, investment, government procurement, and temporary entry of business persons. In addition, the State-Owned Enterprises chapter includes country-specific exceptions in annexes.
Initial Provisions and General Definitions
Many TPP Parties have existing agreements with one another. The Initial Provisions and General Definitions Chapter recognizes that the TPP can coexist with other international trade agreements between the Parties, including the WTO Agreement, bilateral, and regional agreements. It also provides definitions of terms used in more than one chapter of the Agreement.
TPP Parties agree to eliminate and reduce tariffs and non-tariff barriers on industrial goods, and to eliminate or reduce tariffs and other restrictive policies on agricultural goods. The preferential access provided through the TPP will increase trade between the TPP countries in this market of 800 million people and will support high-quality jobs in all 12 Parties. Most tariff elimination in industrial goods will be implemented immediately, although tariffs on some products will be eliminated over longer timeframes as agreed by the TPP Parties. The specific tariff cuts agreed by the TPP Parties are included in schedules covering all goods. The TPP Parties will publish all tariffs and other information related to goods trade to ensure that small- and medium-sized businesses as well as large companies can take advantage of the TPP. They also agree not to use performance requirements, which are conditions such as local production requirements that some countries impose on companies in order for them to obtain tariff benefits. In addition, they agree not to impose WTO-inconsistent import and export restrictions and duties, including on remanufactured goods – which will promote recycling of parts into new products. If TPP Parties maintain import or export license requirements, they will notify each other about the procedures so as to increase transparency and facilitate trade flows.
On agricultural products, the Parties will eliminate or reduce tariffs and other restrictive policies, which will increase agricultural trade in the region, and enhance food security. In addition to eliminating or reducing tariffs, TPP Parties agree to promote policy reforms, including by eliminating agricultural export subsidies, working together in the WTO to develop disciplines on export state trading enterprises, export credits, and limiting the timeframes allowed for restrictions on food exports so as to provide greater food security in the region. The TPP Parties have also agreed to increased transparency and cooperation on certain activities related to agricultural biotechnology.
The TPP Parties agree to eliminate tariffs on textiles and apparel, industries which are important contributors to economic growth in several TPP Parties’ markets. Most tariffs will be eliminated immediately, although tariffs on some sensitive products will be eliminated over longer timeframes as agreed by the TPP Parties. The chapter also includes specific rules of origin that require use of yarns and fabrics from the TPP region, which will promote regional supply chains and investment in this sector, with a “short supply list” mechanism that allows use of certain yarns and fabrics not widely available in the region. In addition, the chapter includes commitments on customs cooperation and enforcement to prevent duty evasion, smuggling and fraud, as well as a textile-specific special safeguard to respond to serious damage or the threat of serious damage to domestic industry in the event of a sudden surge in imports.
To provide simple rules of origin, promote regional supply chains, and help ensure the TPP countries rather than non-participants are the primary beneficiaries of the Agreement, the 12 Parties have agreed on a single set of rules of origin that define whether a particular good is “originating” and therefore eligible to receive TPP preferential tariff benefits. The product-specific rules of origin are attached to the text of the Agreement. The TPP provides for “accumulation,” so that in general, inputs from one TPP Party are treated the same as materials from any other TPP Party, if used to produce a product in any TPP Party. The TPP Parties also have set rules that ensure businesses can easily operate across the TPP region, by creating a common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin. Importers will be able to claim preferential tariff treatment as long as they have the documentation to support their claim. In addition, the chapter provides the competent authorities with the procedures to verify claims appropriately.
Customs Administration and Trade Facilitation . . . .
To help counter smuggling and duty evasion, the TPP Parties agree to provide information, when requested, to help each other enforce their respective customs laws.
Sanitary and Phytosanitary (SPS) Measures
In developing SPS rules, the TPP Parties have advanced their shared interest in ensuring transparent, non-discriminatory rules based on science, and reaffirmed their right to protect human, animal or plant life or health in their countries. The TPP builds on WTO SPS rules for identifying and managing risks in a manner that is no more trade restrictive than necessary. . . .
Technical Barriers to Trade (TBT)
In developing TBT rules, the TPP Parties have agreed on transparent, non-discriminatory rules for developing technical regulations, standards and conformity assessment procedures, while preserving TPP Parties’ ability to fulfill legitimate objectives. They agree to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade. . . .
The Trade Remedies chapter promotes transparency and due process in trade remedy proceedings through recognition of best practices, but does not affect the TPP Parties’ rights and obligations under the WTO. The chapter provides for a transitional safeguard mechanism, which allows a Party to apply a transitional safeguard measure during a certain period of time if import increases as a result of the tariff cuts implemented under the TPP cause serious injury to a domestic industry. These measures may be maintained for up to two years, with a one-year extension, but must be progressively liberalized if they last longer than a year. . . .
In establishing investment rules, the TPP Parties set out rules requiring non-discriminatory investment policies and protections that assure basic rule of law protections, while protecting the ability of Parties’ governments to achieve legitimate public policy objectives. . . .
TPP Parties adopt a “negative-list” basis, meaning that their markets are fully open to foreign investors, except where they have taken an exception (non-conforming measure) in one of two country specific annexes: (1) current measures on which a Party accepts an obligation not to make its measures more restrictive in the future and to bind any future liberalization, and (2) measures and policies on which a Party retains full discretion in the future. . . .
Cross-Border Trade in Services
Given the growing importance of services trade to TPP Parties, the 12 countries share an interest in liberalized trade in this area. TPP includes core obligations found in the WTO and other trade agreements . . . .
The TPP Financial Services chapter will provide important cross-border and investment market access opportunities, while ensuring that Parties will retain the ability to regulate financial markets and institutions and to take emergency measures in the event of crisis. The chapter includes core obligations found in other trade agreements . . . . In addition, the TPP includes specific commitments on portfolio management, electronic payment card services, and transfer of information for data processing.
The Financial Services chapter provides for the resolution of disputes relating to certain provisions through neutral and transparent investment arbitration. It includes specific provisions on investment disputes related to the minimum standard of treatment, as well as provisions requiring arbitrators to have financial services expertise, and a special State-to-State mechanism to facilitate the application of the prudential exception and other exceptions in the chapter in the context of investment disputes. . . .
Temporary Entry for Business Persons
The Temporary Entry for Business Persons chapter encourages authorities of TPP Parties to provide information on applications for temporary entry, to ensure that application fees are reasonable, and to make decisions on applications and inform applicants of decisions as quickly as possible. TPP Parties agree to ensure that information on requirements for temporary entry are readily available to the public, including by publishing information promptly and online if possible, and providing explanatory materials. The Parties agree to ongoing cooperation on temporary entry issues such as visa processing. Almost all TPP Parties have made commitments on access for each other’s business persons, which are in country-specific annexes.
TPP Parties share an interest in ensuring efficient and reliable telecommunications networks in their countries. . . .
In the Electronic Commerce chapter, TPP Parties commit to ensuring free flow of the global information and data that drive the Internet and the digital economy, subject to legitimate public policy objectives such as personal information protection. The 12 Parties also agree not to require that TPP companies build data centers to store data as a condition for operating in a TPP market, and, in addition, that source code of software is not required to be transferred or accessed. The chapter prohibits the imposition of customs duties on electronic transmissions, and prevents TPP Parties from favoring national producers or suppliers of such products through discriminatory measures or outright blocking. . . .
TPP Parties share an interest in accessing each other’s large government procurement markets through transparent, predictable, and non-discriminatory rules. In the Government Procurement chapter, TPP Parties commit to core disciplines of national treatment and non-discrimination. They also agree to publish relevant information in a timely manner, to allow sufficient time for suppliers to obtain the tender documentation and submit a bid, to treat tenders fairly and impartially, and to maintain confidentiality of tenders. . . ..
TPP Parties share an interest in ensuring a framework of fair competition in the region through rules that require TPP Parties to maintain legal regimes that prohibit anticompetitive business conduct, as well as fraudulent and deceptive commercial activities that harm consumers. . . . TPP Parties agree to adopt or maintain national competition laws that proscribe anticompetitive business conduct and work to apply these laws to all commercial activities in their territories. . . .
The chapter is not subject to the dispute settlement provisions of the TPP, but TPP Parties may consult on concerns related to the chapter.
State-Owned Enterprises (SOEs) and Designated Monopolies
All TPP Parties have SOEs, which often play a role in providing public services and other activities, but TPP Parties recognize the benefit of agreeing on a framework of rules on SOEs. The SOE chapter covers large SOEs that are principally engaged in commercial activities. Parties agree to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations, except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services. They also agree to ensure that their SOEs or designated monopolies do not discriminate against the enterprises, goods, and services of other Parties. Parties agree to provide their courts with jurisdiction over commercial activities of foreign SOEs in their territory, and to ensure that administrative bodies regulating both SOEs and private companies do so in an impartial manner. TPP Parties agree to not cause adverse effects to the interests of other TPP Parties in providing non-commercial assistance to SOEs, or injury to another Party’s domestic industry by providing non-commercial assistance to an SOE that produces and sells goods in that other Party’s territory. TPP Parties agree to share a list of their SOEs with the other TPP Parties and to provide, upon request, additional information about the extent of government ownership or control and the non-commercial assistance they provide to SOEs. There are some exceptions from the obligations in the chapter, for example, where there is a national or global economy emergency, as well as country-specific exceptions that are set out in annexes.
TPP’s Intellectual Property (IP) chapter covers patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets, other forms of intellectual property, and enforcement of intellectual property rights, as well as areas in which Parties agree to cooperate. The IP chapter will make it easier for businesses to search, register, and protect IP rights in new markets, which is particularly important for small businesses.
The chapter establishes standards for patents, based on the WTO’s TRIPS Agreement and international best practices. On trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the marketplace. The chapter also requires certain transparency and due process safeguards with respect to the protection of new geographical indications, including for geographical indications recognized or protected through international agreements. These include confirmation of understandings on the relationship between trademarks and geographical indications, as well as safeguards regarding the use of commonly used terms. . . .
In addition, the chapter contains pharmaceutical-related provisions that facilitate both the development of innovative, life-saving medicines and the availability of generic medicines, taking into account the time that various Parties may need to meet these standards. . . .
Finally, TPP Parties agree to provide strong enforcement systems, including, for example, civil procedures, provisional measures, border measures, and criminal procedures and penalties for commercial-scale trademark counterfeiting and copyright or related rights piracy. In particular, TPP Parties will provide the legal means to prevent the misappropriation of trade secrets, and establish criminal procedures and penalties for trade secret theft, including by means of cyber-theft, and for cam-cording.
All TPP Parties are International Labour Organization (ILO) members and recognize the importance of promoting internationally recognized labour rights. TPP Parties agree to adopt and maintain in their laws and practices the fundamental labour rights as recognized in the ILO 1998 Declaration, namely freedom of association and the right to collective bargaining; elimination of forced labour; abolition of child labour and a prohibition on the worst forms of child labour; and elimination of discrimination in employment. They also agree to have laws governing minimum wages, hours of work, and occupational safety and health. These commitments also apply to export processing zones. The 12 Parties agree not to waive or derogate from laws implementing fundamental labour rights in order to attract trade or investment, and not to fail to effectively enforce their labour laws in a sustained or recurring pattern that would affect trade or investment between the TPP Parties. In addition to commitments by Parties to eliminate forced labour in their own countries, the Labour chapter includes commitments to discourage importation of goods that are produced by forced labour or child labour, or that contain inputs produced by forced labour, regardless of whether the source country is a TPP Party.
Each of the 12 TPP Parties commits to ensure access to fair, equitable and transparent administrative and judicial proceedings and to provide effective remedies for violations of its labour laws. They also agree to public participation in implementation of the Labour chapter, including establishing mechanisms to obtain public input.
The commitments in the chapter are subject to the dispute settlement procedures laid out in the Dispute Settlement chapter. To promote the rapid resolution of labour issues between TPP Parties, the Labour chapter also establishes a labour dialogue that Parties may choose to use to try to resolve any labour issue between them that arises under the chapter. This dialogue allows for expeditious consideration of matters and for Parties to mutually agree to a course of action to address issues. The Labour chapter establishes a mechanism for cooperation on labour issues, including opportunities for stakeholder input in identifying areas of cooperation and participation, as appropriate and jointly agreed, in cooperative activities.
As home to a significant portion of the world’s people, wildlife, plants and marine species, TPP Parties share a strong commitment to protecting and conserving the environment, including by working together to address environmental challenges, such as pollution, illegal wildlife trafficking, illegal logging, illegal fishing, and protection of the marine environment. The 12 Parties agree to effectively enforce their environmental laws; and not to weaken environmental laws in order to encourage trade or investment. . . .
The chapter is subject to the dispute settlement procedure laid out in the Dispute Settlement chapter. . . .
Cooperation and Capacity Building . . ..
Competitiveness and Business Facilitation
The Competitiveness and Business Facilitation chapter aims to help the TPP reach its potential to improve the competitiveness of the participating countries, and the Asia-Pacific region as a whole. . . .
The TPP Parties seek to ensure that the TPP will be a high-standard model for trade and economic integration, and in particular to ensure that all TPP Parties can obtain the complete benefits of the TPP, are fully able to implement their commitments, and emerge as more prosperous societies with strong markets. . . .
Small- and Medium-Sized Enterprises
TPP Parties have a shared interest in promoting the participation of small- and medium-sized enterprises in trade and to ensure that small- and medium-sized enterprises share in the benefits of the TPP. . . .
TPP’s Regulatory Coherence chapter will help ensure an open, fair, and predictable regulatory environment for businesses operating in the TPP markets by encouraging transparency, impartiality, and coordination across each government to achieve a coherent regulatory approach. . . .
Transparency and Anti-Corruption
The TPP’s Transparency and Anti-Corruption chapter aims to promote the goal, shared by all TPP Parties, of strengthening good governance and addressing the corrosive effects bribery and corruption can have on their economies. . . .
Administrative and Institutional Provisions
The Administrative and Institutional Provisions Chapter sets out the institutional framework by which the Parties will assess and guide implementation or operation of the TPP, in particular by establishing the Trans-Pacific Partnership Commission, composed of Ministers or senior level officials, to oversee the implementation or operation of the Agreement and guide its future evolution. This Commission will review the economic relationship and partnership among the Parties on a periodic basis to ensure that the Agreement remains relevant to the trade and investment challenges confronting the Parties.. . .
The Dispute Settlement chapter is intended to allow Parties to expeditiously address disputes between them over implementation of the TPP. TPP Parties will make every attempt to resolve disputes through cooperation and consultation and encourage the use of alternative dispute resolution mechanisms when appropriate. When this is not possible, TPP Parties aim to have these disputes resolved through impartial, unbiased panels. The dispute settlement mechanism created in this chapter applies across the TPP, with few specific exceptions. . . .
Should consultations fail to resolve an issue, Parties may request establishment of a panel, which would be established within 60 days after the date of receipt of a request for consultations or 30 days after the date of receipt of a request related to perishable goods. Panels will be composed of three international trade and subject matter experts independent of the disputing Parties, with procedures available to ensure that a panel can be composed even if a Party fails to appoint a panelist within a set period of time. These panelists will be subject to a code of conduct to ensure the integrity of the dispute settlement mechanism. . . .
To maximize compliance, the Dispute Settlement chapter allows for the use of trade retaliation (e.g., suspension of benefits), if a Party found not to have complied with its obligations fails to bring itself into compliance with its obligations. Before use of trade retaliation, a Party found in violation can negotiate or arbitrate a reasonable period of time in which to remedy the breach.
The Exceptions Chapter ensures that flexibilities are available to all TPP Parties that guarantee full rights to regulate in the public interest, including for a Party’s essential security interest and other public welfare reasons. This chapter incorporates the general exceptions provided for in Article XX of the General Agreement on Tariffs and Trade 1994 to the goods trade-related provisions, specifying that nothing in the TPP shall be construed to prevent the adoption or enforcement by a Party of measures necessary to, among other things, protect public morals, protect human, animal or plant life or health, protect intellectual property, enforce measures relating to products of prison labour, and measures relating to conservation of exhaustible natural resources. . . .
In addition, it specifies that no Party is obligated to furnish information under the TPP if it would be contrary to its law or public interest, or would prejudice the legitimate commercial interests of particular enterprises. A Party may elect to deny the benefits of Investor-State dispute settlement with respect to a claim challenging a tobacco control measure of the Party.
The Final Provisions chapter defines the way the TPP will enter into force, the way in which it can be amended, the rules that establish the process for other States or separate customs territories to join the TPP in the future, the means by which Parties can withdraw, and the authentic languages of the TPP. It also designates a Depositary for the Agreement responsible for receiving and disseminating documents. . . .
IMPRESSIONS OF CHINESE PRESIDENT XI’S TRIP TO THE US—VIEWS FROM BEIJING
During most of September I was in China, and in Beijing during the key week of September 21 to 26th. Watching the US press and listening to US politicians in Washington DC during President Xi’s visit as compared to the Press in China was like watching people on different planets. In the United States, news outlets and politicians were very bellicose, very cynical, and expecting China simply to trick the US and out negotiate them. Shades of Donald Trump. In direct and distinct contrast, China was having a love fest with the United States.
In the United States, especially before and after the Washington DC trip, commentators and newspapers attacked China on cyber-hacking, currency manipulation, foreign policy and every other rock that could be thrown at China.
During that same week that President Xi was in China, Chinese speaking television was running a TV series to every day Chinese, somewhat like Roots, entitled Life and Death Commitment. The series was about how during the War against Japan, which became the Second World War, 100s if not 1,000s of Chinese peasants gave their lives to protect a specific American Flying Tiger pilot that had been shot down. The series showed entire villages and families executed by the Japanese for refusing to reveal the whereabouts of the American pilot. What made the series so powerful is that it is based on a true story.
I realized how powerful an impact this series was having on Chinese people because on Friday September 25th while climbing a mountain at the Red Snail Temple outside Beijing with a Group of Chinese, at a pavilion we ran into a Chinese peasant looking for plastic bottles. He immediately asked the Chinese in my Group, where is the foreigner from. They answered United States and he got excited and said “Flying Tiger”.
As President Xi mentioned in his Seattle speech, China will not forget the sacrifice of American lives in World War 2 against Germany and Japan. Even before World War 2, however, there were many examples of the United States coming to the aide of China. In the early 1900s, the United States was the only foreign country to pay China back for money paid as reparations by the Chinese government as a result of the Boxer rebellion. The US used the Chinese reparations money to establish a famous Chinese university and hospital in Beijing and send Chinese to study in the US. In other words, based on history, the Chinese truly like Americans, and that is a fundamental reason and basis for future US/China cooperation.
In contrast, I was told by one Chinese that Russia and China simply use each other. There is no trust between China and Russia. In the early 1950, because Chairman Mao refused to follow the commands of Joseph Stalin, Russia pulled out of China, destroying all the instruction books to the machinery, rail cars and other products provided to China. That action plus the Great Leap Forward led to a famine in China in which millions died. Chinese do not forget.
In contrast to Washington DC, high tech companies and businessmen in Washington State were very welcoming to President Xi, listening to his every word, because for Washington State China is its largest export market with $20 billion in exports every year to China and that is not just Boeing airplanes.
US High tech companies are making billions in China selling their products and consumer technology to China. Qualcomm’s income was $10 billion with $5 billion coming from China. On the plane to China, I sat next to a Marketing official from a large high tech company that was selling touch screen products to China. He told me that he was on the plane to China every other week.
While in China, on the CCTV English channel I saw one US Administration official stating that we see the US China relationship is “too big to fail”. At least someone in the US government and Obama Administration understands the importance of the US China relationship. In the Bush Administration, Treasury Secretary Paulson stated that he believed the US China relationship was the most important economic relationship in the World.
During my trip to Beijing, Chinese English TV was following the President Xi trip closely putting specific emphasis on the dialogue between the United States. I became convinced that China truly believes in a Win Win situation for China and the United States and that is not just a slogan.
Before President Xi’s trip to China, one article featured a panda and Uncle Sam walking arm and arm together. On September 27, the Chinese Global Times reported on the front page:
China and the US have agreed to continue building a new model for major country relationship based on mutual cooperation. . . .Aside from agreeing to build a new model for major-country relationship, the two countries said they would maintain close communication and exchanges at all levels, further expand practical cooperation at bilateral, regional and global levels and manage differences to a constructive way to achieve new concrete results in Sino-US relations. . . .
Another article in the Global Times urged the United States to reciprocate China’s goodwill. But the cynicism of many in the US press and US politicians seemed to undercut much of the Chinese goodwill.
President Xi’s US trip started well in Seattle. On Tuesday, September 22, 2015, at a speech in Seattle, Henry Kissinger introduced President Xi by stating that his vision of a Win Win scenario, which emphasizes the economic interdependence of China and the United States based on mutual interests and importance of the economic development of the other country was very important. Kissinger specifically stated that partnership between two potential advisories can replace antagonism between them.
As President Xi further indicated in his speech, he understands how important the US China relationship is and his government will do everything in their power to maintain it. President Xi specifically stated in Seattle:
. . . Washington is the leading state in U.S. exports to China and China is the No. 1 trading partner of the Port of Seattle. Washington and Seattle have become an important symbol of the friendship between Chinese and American people and the win-win cooperation between the two countries. As the Chinese saying goes, the fire burns high when everyone brings wood to it. It is the love and care and hard work of the national governments, local authorities, friendly organizations, and people from all walks of life in those countries that have made China-U.S. relations flourish. . . .
Ladies and gentlemen, dear friends. Since the founding of the People’s Republic, especially since the beginning of reform and opening up, China has set out on an extraordinary journey. The Chinese of my generation have had some first-hand experience. Toward the end of the 1960s, when I was in my teens, I was sent from Beijing to work as a peasant in a small village, where I spent seven years. At that time, the villagers and I lived in earth caves and slept on earth beds. Life was very hard. There was no meat in our diet for months. . . .
At the spring festival earlier this year, I returned to the village. It was a different place now. I saw black top roads. Now living in houses with bricks and tiles, the villagers had Internet access. Elderly folks had basic old-age care, and all villagers had medical care coverage. Children were in school. Of course, meat was readily available. This made me kindly aware that the Chinese dream is, after all, a dream of the people.
We can fulfill the Chinese dream only when we link it with our people’s yearning for a better life.
What has happened in [my village] is but a microcosm of the progress China has made through reform and opening up. In a little more than three decades, we have turned China into the world’s second largest economy, lifted 1.3 billion people from a life of chronic shortage, and brought them initial prosperity and unprecedented rights and dignity.
This is not only a great change in the lives of the Chinese people, but also a huge step forward in human civilization, and China’s major contribution to world peace and development.
At the same time, we are civilly-aware that China is still the world’s largest developing country. Our per capita GDP is only two-thirds that of global average and one-seventh that of the United States, ranking around 80th in the world. By China’s own standard, we still have over 70 million people living under the poverty line. If measured by world bank standard, the number would be more than 200 million. . . .
During the past two years, I have been to many poor areas in China and visited many poor families. I wouldn’t forget the look in their eyes longing for distant, happy life.
I know that we must work still harder before all our people can live a better life. That explains why development remains China’s top priority. To anyone charged with the governance of China, their primary mission is to focus all the resources on improving people’s living standard and gradually achieve common prosperity. To this end, we have proposed the two centenary goals mentioned by Dr. Kissinger, namely to double the 2010 GDP and per capita income of the Chinese and complete the building of a moderately prosperous society by 2020 and to build a prosperous, strong, democratic … harmonious, modernist socialist country that realizes the great renew of the Chinese nation by the middle of the century.
Whatever we do now is aimed at fulfilling these goals. To succeed in completing the building of a moderately prosperous society in all respects, we must comprehensively deepen reform, advance the law-based governance, and apply strict … discipline. That is what our proposed 4-pronged strategy is all about. . . .
China’s economy will stay on a steady course with fairly fast growth. The Chinese economy is still operating within a proper range. It grew by 7 percent in the first half of this year, and this growth rate remains one of highest in world. It has not come by easily, given the complex and volatile situation in world economy. At present, all economies are facing difficulties, and our economy is also under downward pressure. But this is only a problem in the course of progress. It will take … steps to achieve stable growth, deepen reform, adjust structure, improve livelihood, and prevent risks while strengthening and innovating macro-regulation to keep the growth at medium-to-high rate.
Currently, China is continuing to move forward in this new type of industrialization, digitalization, urbanization, and agricultural modernization. With a high savings rate, a huge consumption potential, a hard working population, and a rising proportion of middle income people — now we have 300 million middle income earnings in China — China enjoys enormous space … to grow in terms of market size and potential. China will focus more on improving the quality and efficiency of economic growth, and accelerating the shift of growth model and adjustment in economic structure. I will lay greater emphasis on innovation and consumption-driven growth — in this way, we will solve the problem of unbalanced, uncoordinated, and unsustainable development, and enable the Chinese economy to successfully transform itself and maintain strong momentum of growth.
Recent abnormal ups and downs in China’s stock market has caused wide concern. Stock prices fluctuating accordance with your inherent laws and it is the duty of the government to ensure an open, fair, and just market order and prevent massive panic from happening. This time, the Chinese government took steps to stabilize the market and contain panic in the stock market, and thus avoided the systemic risk. Mature markets in various countries have tried similar approaches. Now, China’s stock market has reached the phase of self-recovery, and self-adjustment.
On the 11th of August, China moved to improve its RMB central parity quotation mechanism, giving the market a greater role in determining the exchange rates. Our efforts have achieved initial success in correcting the exchange rate deviation. Given the economic and financial situation at home and abroad, there is no basis for continuous depreciation of the RMB. We will stick to the purpose of our reform to have the exchange rate decided by market supply and demand and allow the RMB to float both ways. We are against competitive depreciation or a currency war. We will not lower the RMB exchange rate to boost export. To develop the capital market and improve the market-based pricing of the RMB exchange, is the direction of our reform. This will not be changed by the recent fluctuation in the stock market.
The key to China’s development lies in reform. Our reform is aimed at modernizing the country’s governance system, and governance capabilities so that the market can play a decisive role in the allocation of resources. The government can play a better role and there is faster progress in building the socialist market economy, democracy, advanced culture, harmonious society, and soundly environment. . . .
We have the results and guts to press ahead, and take reform forward. We will stick to the direction of market economy reform and continue to introduce bold and result-oriented reform measures concerning the market, taxation, finance, investment and financing, pricing, opening up, and people’s livelihood.
China will never close its open door to the outside world. Opening up is a basic state policy of China. Its policies that attract foreign investment will not change, nor will its pledge to protect legitimate rights and interests of foreign investors in China, and to improve its services for foreign companies operating in China. We respect the international business norms and practice of non-discrimination, observe the …principle of national treatment commitment, treat all market players — including foreign-invested companies — fairly, and encourage transnational corporations to engage in all forms of cooperation with Chinese companies.
We will address legitimate concerns of foreign investors in timely fashion, protect their lawful rights and interests, and work hard to provide an open and transparent legal and policy environment, an efficient administrative environment, and a level playing field in the market, with a special focus on IPR protection so as to broaden the space of cooperation between China and the United States and other countries.
China will follow the basic strategy of the rule of law in governance. Law is the very foundation of governance. We will coordinate our efforts to promote the rule of law in governance and administration, for the building of the country, the government and society on solid basis of the rule of law, build greater trust in judicial system, and ensure that human rights are respected and effectively upheld. China will give fair treatment to foreign institutions and foreign companies in the country’s legislative, executive, and judicial practices. We are ready to discuss rule of law issues with the U.S. side in the spirit of mutual learning for common progress.
China is a staunch defender of cybersecurity. It is also a victim of hacking. The Chinese government will not, in whatever form, engage in commercial thefts or encourage or support such attempts by anyone. Both commercial cyber theft and hacking against government networks are crimes that must be punished in accordance with law and relevant international treaties. The international community should, on the basis of mutual respect and mutual trust, work together to build a peaceful, secure, open, and cooperative cyberspace. China is ready to set up a high-level joint dialogue mechanism with United States on fighting cyber crimes. . . .
China will continuing fighting corruption. As I once said, one has to be very strong if he wants to strike the iron. The blacksmith referred to here is the Chinese communist party. The fundamental aim of the party is to serve the people’s heart and soul. The party now has over 87 million members and unavoidably, it has problems of one kind or another. If we let these problems go unchecked we will risk losing the trust and support of the people. That is why we demand strict enforcement of party discipline as the top priority of governance. In our vigorous campaign against corruption, we have punished both tigers and flies —corrupt official — irrespective of ranking, in response to our people’s demand. This has nothing to do with power struggle. In this case, there is no House of Cards. . . .
China will keep to the path of peaceful development. We have just celebrated the 70th anniversary of the victory of the Chinese people’s resistance against Japanese aggression and the world anti-fascist war.
An important lesson history teaches us is that peaceful development is the right path, while any attempt to seek domination or hegemony through force is against the historical trend and doomed to failure.
The Chinese recognized as early as 2,000 years ago that though a country is now strong, bellicosity will lead to its ruin. China’s defense policy is defensive in nature and its military strategy features active defense. Let me reiterate here that no matter how developed it could become, China will never seek hegemony or engage in expansion.
To demonstrate our commitment to peaceful development, I announced not long ago that the size of China’s military will be cut by 300,000. China is ready to work with other countries to build a new type of international relations with win-win cooperation at its core, replacing confrontation and domination with win-win cooperation and adopting a new thinking of building partnerships so as to jointly open a new vista of common development and shared security.
As far as the existing international system is concerned, China has been a participant, builder, and contributor. We stand firmly for the international order and system that is based on the purposes and principles of the UN charter. . . .
China has benefitted from the international community and development, and China has in turn made its contribution to global development. Our Belt and Road initiative, our establishment of the Silk Road fund, and our proposal to set up the AAIB, are all aimed at helping the common development of all countries, rather than seeking some kind of spheres of political influence. The Belt and Road initiative is open and inclusive; we welcome participation of the U.S. and other countries, and international organizations.
We have vigorously promoted economic integration in the Asia Pacific and the Free Trade area of the Asia Pacific in particular because we want to facilitate the shaping of a free, open, convenient, and dynamic space for development in the Asia Pacific. We … for an outlook of common, comprehensive, cooperative, and sustainable security because we want to work with other countries in the region and the rest of the international community to maintain peace and security in the Asia Pacific.
Ladies and gentlemen, dear friends. In our Sunnylands meeting in 2013, President Obama and I reached the important agreement to jointly build a new model of major country relationship between the two countries.
This was a major strategic choice we made together on the basis of historical experience, our respective national conditions and the prevailing trend of world. Over past two years and more, the two sides have acted in accordance, with the agreement steadily moving forward by actual coordination and cooperation in various fields, and made important progress. We worked hand-in-hand to cope with aftermath of international financial crisis and promoted global economic recovery. We deepened pragmatic exchanges and cooperation in all fields, which brought about tangible benefits to the two people’s. Last year, actual trade, two-way investment stock, and total number of personnel exchanges all hit a record high. . . .
As an old Chinese saying goes, peaches and plums do not talk, yet a path is formed beneath them. These worthy fruits of cooperation across the Pacific Ocean speaks eloquently to the vitality and potential of China-U.S. relations.
This leads to the question: What shall we do to advance the new model of major country relationship between China and the U.S. from a new starting point and how we can work together to promote world peace and development. The answer is to stick to the right direction of such a new model of relationship and make gradual, solid progress.
An ancient Chinese said, after taking into account the past, the future, and the normal practices, a decision can be made.
A number of things are particularly important for our efforts. First, we must read each other’s strategic intentions correctly. Building a new model of major country relationship with the United States that features no confrontation, no conflicts, mutual respect and willing cooperation is the priority of China’s foreign policy. We want to deepen mutual understanding with the U.S. on each other’s strategic orientation and development path. We want to see more understanding and trust; less estrangement and suspicion in order to … misunderstanding and miscalculation.
We should strictly base our judgment on facts, lest we become victim to hearsay, paranoid, or self-imposed bias. … Should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.
Second, we must firmly advance win-win cooperation. Cooperation is the only right choice to bring about benefits, but cooperation requires mutual accommodation of each other’s interest and concerns, and the quest of the great common ground of converging interest. If China and the U.S. cooperate well, they can become a bedrock of global stability and a booster of world peace. Should they enter into conflict or confrontation, it would lead to disaster for both countries and the world at large.
The areas where we should and can cooperate are very broad. For instance, we should help improve the global governance mechanism and work together to promote sustained growth of world economy and maintain stability in the global financial market.
We should conclude as soon as possible a balanced and high quality BIT, deepen the building of a new type of mill-to-mill relations, expand pragmatic cooperation on clean energy and environmental protection, strengthen exchanges in law enforcement, anti-corruption, health, and local affairs, and tap the corporation potential in infrastructural development. We should deepen communication and cooperation at the United Nations A-PEC, G-20, and other multi-electoral mechanisms, as well as our major international and regional issues and global challenges so as to make a bigger contribution to world peace, stability, and prosperity.
Third, we must manage our differences properly and effectively. As a Chinese saying goes, the sun and moon shine in different ways yet their brightness is just right for the day and night, respectively. It is precisely because of so many differences that the world has become such a diverse and colorful place, and that the need to broaden common ground and iron out differences has become so important. A perfect, pure world is non-existent, since disagreements are a reality people have to live with. China and the U.S. do not see eye to-eye on every issue and it is unavoidable that we may have different positions on some issues. What matters is how to manage the differences and what matters most is that we should respect each other, seek common ground while reserving differences, take a constructive approach to understanding … and spare no effort to turn differences into areas of cooperation.
Fourth, we must foster friendly sentiments among the peoples. People-to-people relations underpin state-to state relations. Though geographically far apart, our peoples boast a long history of friendly exchanges.
Some 230 years ago, Empress of China, a U.S. merchant ship, sailed across the vast oceans to the shores of China. Some 150 years ago, tens of thousands of Chinese workers joined their American counterparts in building the Transcontinental Pacific Railway. Some 30 years ago, China and the United States, as allies in World War II, fought shoulder-to-shoulder to defend world peace and justice. In that war, thousands of American soldiers laid down their precious lives for the just cause of the Chinese people.
We will never forget the moral support and invaluable assistance the American people gave to our just resistance against aggression and our struggle for freedom and independence. The Chinese people have always held American entrepreneurship and creativity in high regards. . . .
I believe it’s always important to make an effort to get deep a understanding of the cultures and civilizations that are different from our own. The Chinese character Ren, or people, is in a shape of two strokes supporting each other. The foundation of the China-U.S. friendship has its roots in the people and its future rests with the youth. . . .
Ladies and gentlemen. Dr. Kissinger wrote in his book, World Order, that, and I quote, each generation will be judged by whether the greatest and most consequential issues of the human condition have been faced.
And Martin Luther King said, ‘the time is always right to do the right thing. Today we have come once again to a historical juncture. Let us work together to bring about an even better future for China-U.S. relations and make an even greater contribution the happiness of our two people’s and well-being of the world.”
For the full text of President Xi’s speech, see http://www.globaltimes.cn/content/944177.shtml and http://www.chinadaily.com.cn/world/2015xivisitus/2015-09/24/content_21964069.htm To see the entire speech, go to https://www.youtube.com/watch?v=P9aQPvus8Tw.
After Seattle, President Xi flew to Washington DC. Although Washington State is not wallowing in international trade victimhood, Washington DC is not Washington State. Just as President Xi Jinping arrived in Washington DC, John Brinkley at Forbes illustrated the hard line on China stating:
Xi Jinping In Washington: No Glad Tidings From The East
WASHINGTON — It’s hard to recall a visit to Washington by a head of state that has aroused as much apprehension and preoccupation as that of Chinese President Xi Jinping, who arrived here Thursday night.
Given the abundance of requests and demands that await him here, you might expect him to be wearing a red suit and a long white beard. But Xi has not come bearing gifts.
Issue No. 1 for the Obama administration is Chinese hacking.
China is the most prolific source of cyber-attacks against the U.S. government and business sector and it costs the U.S. economy billions of dollars every year, according to FBI Director James Comey. Xi has expressed a willingness to combat it, but he denies that his government has anything to do with it. He says China too is a victim of cyber-attacks.
Maybe so, but that’s like saying Microsoft is threatened by Atari.
Last Spring, Chinese hackers broke into the U.S. General Services Administration’s servers and stole Social Security numbers, fingerprints and other identifying data on about 4 million current and former government employees.
President Obama is incensed about this and is expected to read the riot act to Xi. Given the pervasiveness of the problem, though, even Xi’s best efforts are not going to solve it or even make a dent in it anytime soon.
China also leads the world in counterfeiting of consumer products and intellectual property theft. It accounts for 50% to 80% of all IP theft from the United States, according to the Commission on the Theft of American Intellectual Property.
Since arriving in Seattle on Tuesday, Xi has been getting an earful about this and he’ll get more when he comes to Washington, D.C. . . .
China recently devalued its currency, the renminbi, against the dollar and that caused the American anti-trade camp to scream bloody murder. They said it was a blatant ploy to make Chinese exports to the U.S. cheaper and U.S. exports to China more expensive. A gazillion American jobs would be lost as a result.
They couldn’t have been more wrong. Xi said in a speech in Seattle on Tuesday that the renminbi had been devalued “in order to stabilize the market and contain panic in the stock market,” not to increase exports. “We are against competitive depreciation or a currency war,” he said. “We will not lower the RMB exchange rate to boost exports.” We should take him at his word.
China’s human rights performance continues to be deplorable, but Xi doesn’t seem willing to acknowledge this. His predecessors, when criticized about human rights violations, usually said: mind your own business. Xi’s rhetoric has not been much of an improvement. In Seattle, he said the government would “ensure that human rights are respected and effectively upheld.” Isn’t that comforting? . . . .
One might expect a meeting between the leaders of the world’s two largest economies to produce some tangible outcomes. Don’t bet on it. More likely, they’ll say they had “frank and fruitful” discussions, made “good progress” (isn’t all progress good?), and agreed on “a way forward.”
Making measurable progress on cyber-attacks and intellectual property theft will take years, maybe decades.
Unlike other heads of state, Xi considers his country to be America’s equal. So, he won’t be cowing to Obama or expressing contrition.
On the bright side, Xi is hell-bent on stamping out corruption in his government. That might be a better reason for hope than anything that might transpire during his two days in Washington.
For full article, see http://www.forbes.com/sites/johnbrinkley/2015/09/25/xi-jinping-in-washington-no-glad-tidings-from-the-east/.
The Brinkley Article was followed by strong US press attacks on the Cyber Agreement between the US and China. On September 26, 2015, the International New York Times in an Editorial stated as follows:
DOUBLE TALK FROM CHINA
The Xi government has a long way to go in protecting the rights of foreign companies and fighting cybercrime. . . .
Chinese officials are believed to be behind some of the .many cyberattacks against American companies and government agencies. Some of these hackers clearly work for the government and are stealing corporate secrets to help Chinese companies, American officials and cybersecurity experts say. Mr Xi’s government denies that it is involved in the attacks.
Aside from cybersecurity issues, the Xi government has also proposed regulations that could make it impossible for American technology companies to operate there. They would be forced to store data about Chinese customers in China and provide the Chinese government backdoor access to their systems and encrypted communications.
Mr. Xi and his officials need to realize that trade and investment has to be a two-way street. Many Chinese firms are trying to expand by acquiring companies, real estate and other assets in the United States and elsewhere. But if the Xi government continues to put up roadblocks to foreign companies, China cannot expect the-rest of the world to open its doors to more investment without reciprocity.
On September 27, 2015, the Wall Street Journal stated in an editorial:
The Obama-Xi Cyber Mirage
A digital arms deal that is full of promises but no enforcement.
Not long before Xi Jinping’s state visit to Washington last week, the Obama Administration leaked that it might sanction Chinese companies and individuals for digitally plundering U.S. trade secrets and intellectual property. That followed an April executive order that declared “significant malicious cyber-enabled activities” to be a “national emergency” punishable by visa bans, asset freezes and other means.
“We’re not going to just stand by while these threats grow,” one Administration official told the Washington Post at the time. “If you think you can just hide behind borders and leap laws and carry out your activities, that’s just not going to be the case.”
Well, never mind. On Friday Presidents Xi and Obama announced a new cyber-agreement that is supposed to put the unpleasantness to rest. A White House fact sheet notes that both sides agreed that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.”
Other steps include information exchanges; legal cooperation in investigating cybercrimes “in a manner consistent with their respective national laws”; a “high-level joint dialogue mechanism” with regularly scheduled meetings; a “hotline for the escalation of issues”; and a U.N.-influenced effort to “further identify and promote appropriate norms of state behavior in cyberspace.”
All of this is an elaborate way of saying that the two sides agreed to nothing. Though Mr. Obama hailed the deal for creating “architecture to govern behavior in cyberspace that is enforceable and clear,” it transparently is neither. Mr. Xi still insists that his government “does not engage in theft of commercial secrets in any form,” or encourage Chinese companies to do so, as he told The Wall Street Journal last week. So what’s the problem?
As for enforceability, the line about abiding by “respective national laws” gives the game away. In China the Communist Party is by definition above the law, as are the companies and entities it controls. If Mr. Xi won’t admit to the problem, his minions won’t either. Knowing this, U.S. officials will also be reluctant to disclose much of what they know about Chinese cyber-espionage abuses lest they compromise U.S. sources and methods.
All of this means the Chinese are unlikely to be deterred from engaging in the kind of cybertheft that has served them so well, such as the 2007 hack of one of the military contractors building the F-35 fighter jet, which allowed the Chinese to develop the copycat J-20 and J-31 stealth planes. Other victims of suspected Chinese cyberespionage include Canada’s once-giant Nortel Networks, which was driven into bankruptcy in 2009 partly due to the hacking, as well as media companies like Bloomberg and this newspaper.
The agreement gives Mr. Xi the opportunity to play the diplomatic games China has specialized in for years regarding the South China Sea, known to Beijing-watchers as “talk and take.” In the South China version, Beijing has become adept at negotiating endlessly with its Asian neighbors over disputed claims and codes of conduct—all while seizing control of disputed reefs, building islands, and interfering in maritime traffic. To adapt Clausewitz, diplomacy for the Chinese is the continuation of cyberespionage by other means.
The agreement also ignores China’s cyberassaults on U.S. government targets, such as last year’s mega-hack of the Office of Personnel Management. Washington may have good reasons not to codify principles that would prohibit the U.S. from responding to such an attack, but if so it would be good to know if the Administration is forgiving the OPM hack.
In his press conference with Mr. Xi, Mr. Obama said the U.S. would use sanctions and “whatever other tools we have in our tool kit to go after cybercriminals, either retrospectively or prospectively.” But nearly seven years into his Presidency, Mr. Obama isn’t famous for follow through.
The cyber accord looks like another case of Mr. Obama claiming an imaginary moral high ground that sounds tough but is likely to be unenforceable. Expect more digital theft until Beijing pays a price for it, presumably in a future U.S. Administration.
But on September 29, 2015, in response to specific questions from Senator Manchin in the Senate Armed Services Committee, James R. Clapper, Director of National Intelligence, testified that China cyber- attacks to obtain information on weapon systems are not cyber- crime. It is cyber espionage, which the United States itself engages in. As Dr. Clapper stated both countries, including the United States, engage in cyber espionage and “we are pretty good at it.” Dr. Clapper went on to state that “people in glass houses” shouldn’t throw stones. See http://www.armed-services.senate.gov/hearings/15-09-29-united-states-cybersecurity-policy-and-threats at 1hour 8 minutes to 10 minutes.
In response to a question from Senator Ayotte, Director Clapper also specifically admitted that the attack on OPM and theft of US government employee data is state espionage and not commercial activity, which the US also engages in. See above hearing at 1 hour 18 and 19 minutes. This illustrates the hypocrisy of much of the political attacks on China regarding cyber-attack on OPM, which are based on incorrect definitions as set down by the US government itself.
Senator McCain stated that he was astonished by Director Clapper’s statements. What is astonishing is the at Senior Senators, such as John McCain, which have engaged in relentless attacks on China, do not know the specific policy of the United States government.
During the same hearing, in response to questions from Senator Hirano of Hawaii, Administration officials stated that the Cyber Agreement with China will be very helpful if the Chinese government live up to it. As Senator Hirano stated, now we have an agreement between the US and China to talk about it. The officials stated that the Agreement is a confidence building measure because it requires annual meetings at the very high ministerial level between the United States and China at which the US Attorney General and Head of Homeland Security will participate. In other words, according to Administration officials this is a good first step.
What does this mean? It means that the US government never asked China for a comprehensive agreement to stop cyber hacking, because the US government is engaged in cyber espionage too and “we are pretty good at it. . . . People in glass houses…”. The US government may have already hacked the Chinese government and obtained all the personal information on their government workers. We simply do not and cannot know.
But more importantly, the US government did not request the Chinese government to agree to stop all cyber-attacks on the US government. What the US Government did demand on the threat of economic sanctions was for the Chinese government to stop cyber-attacks on commercial interests, including the theft of intellectual property. The Chinese government agreed, not only because of the threats of economic sanctions but also because they realize how important the US China economic/trade relationship is for China, the Chinese people and the entire World. This Agreement is just a President Xi face saving gesture. The Chinese government and people understand how important the US China economic relationship is, even if many in the US Congress and US government do not understand the reality of the situation.
What did the Chinese government specifically agree to do on Cyber crime?
As the September 25, 2015 White House Fact Sheet Press related to President Xi’s visit, which will be attached to my blog, www.uschinatradewar.com, states:
FACT SHEET: President Xi Jinping’s State Visit to the United States
On September 24-25, 2015, President Barack Obama hosted President Xi Jinping of China for a State visit. The two heads of state exchanged views on a range of global, regional, and bilateral subjects. President Obama and President Xi agreed to work together to constructively manage our differences and decided to expand and deepen cooperation in the following areas: . . .
The United States and China agree that timely responses should be provided to requests for information and assistance concerning malicious cyber activities. Further, both sides agree to cooperate, in a manner consistent with their respective national laws and relevant international obligations, with requests to investigate cybercrimes, collect electronic
evidence, and mitigate malicious cyber activity emanating from their territory. Both sides also agree to provide updates on the status and results of those investigation to the other side, as appropriate.
o The United States and China agree that neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.
o Both sides are committed to making common effort to further identify and promote appropriate norms of state behavior in cyberspace within the international community. The United States and China welcome the July 2015 report of the UN Group of Governmental Experts in the Field of Information and Telecommunications in the Context of International security, which addresses norms of behavior and other crucial issues for international security in cyberspace. The two sides also agree to create a senior experts group for further discussions on this topic.
o The United States and China agree to establish a high-level joint dialogue mechanism on fighting cybercrime and related issues. China will designate an official at the ministerial level to be the lead and the Ministry of Public Security, Ministry of State Security, Ministry of Justice, and the State Internet and Information Office will participate in the dialogue. The U.S. Secretary of Homeland Security and the U.S. Attorney General will co-chair the dialogue, with participation from representatives
from the Federal Bureau of Investigation, the U.S. Intelligence Community and other agencies, for the United States. This mechanism will be used to review the timeliness and quality of responses to requests for information and assistance with respect to malicious cyber activity of concern identified by either side. As part of this mechanism, both sides agree to establish a hotline for the escalation of issues that may arise in the course of responding to such requests. Finally, both sides agree that the first meeting of this dialogue will be held by the end of 2015, and will occur twice per year thereafter.
The fact sheet lists other very important areas for further cooperation and discussion, including Nuclear Security, Strengthening Development Cooperation, 2030 Agenda for Sustainable Development. Food Security, Public Health and Global Health Security, and Humanitarian Assistance and Disaster Response. In addition, with regards to Strengthening Bilateral Relations, China and the United States agreed specifically with regard to Military Relations:
Building on the two Memoranda of Understanding on Confidence Building Measures (CBMs) signed by the United States and China in November 2014, the two sides completed new annexes on air-to-air safety and crisis communications. The two sides committed to continue discussions on additional annexes to the Notification of Major Military Activities CBM, with the United States prioritizing completion of a mechanism for informing the other party of ballistic missile launches. The U.S. Coast Guard and the China Coast Guard have committed to pursue an arrangement whose intended purpose is equivalent to the Rules of Behavior Confidence Building Measure annex on surface-to-surface encounters in the November 2014 Memorandum of Understanding between the United States Department of Defense and the People’s Republic of China Ministry of National Defense.
In other words, in distinct contrast to Russia, the Chinese government agreed to hold periodic high level meetings at the ministerial level to discuss cyber- crime and military issues with the United States. Does this sound like a country that wants to invade other countries and follow Vladimir Putin in a military expansion?