An American Reset of Trade Relations with China — Implications for Canadian Business | Bennett Jones LLP

Since taking office, the Biden administration has been slow to engage in the trade agenda, prioritizing jobs and seeking to reinvest in America’s competitiveness. US Trade Representative Katherine Tai has always said she will focus on a “worker-centered” trade policy. As work continues on multiple fronts under the Canada-U.S. Roadmap agreed between Prime Minister Trudeau and the President to ensure that supply chains and the border remain open to support the integrated North American economy, the United States has to date not pursued any new trade negotiations, has postponed consideration of joining the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP), and has yet to made concrete proposals to advance the agenda of the World Trade Organization (WTO).

On October 4, however, and following an eight-month internal review, Ms. Tai, in a major speech, explained how the United States intends to continue economic relations with China, which with Canada and Mexico, remains among the main trading partners of the United States. The main elements include:

• Maintain Trump-era tariffs on Chinese imports under the so-called Phase I agreement, in light of the fact that China has not finalized its purchases and other commitments under the agreement;
• Implement a simplified and more transparent tariff exclusion process to allow affected US companies to have access to essential inputs and imports at a lower cost;
• Addressing a range of Chinese practices not addressed in the Phase I agreement, encompassing what the United States describes as “non-market policies and practices such as abuse of state-owned enterprises, anti-competitive behavior and subsidies, [and] theft of US intellectual property ”, and threatening the use of retaliatory and unilateral tools to achieve results; and
• Work with allies and partners to modernize international trade and technology rules.

While the initial comment interpreted the position as a continuation of a confrontational policy with China, Ms. Tai was careful to stress that she did not want to stir up trade tensions, as the ultimate goal was to establish “coexistence.” lasting ‘bilateral and significant change. of China through “frank conversations” with its Chinese counterparts and “to engage directly with China” on its industrial policies. Indeed, at the end of last week, she spoke with her Chinese counterpart, Vice Premier Liu He. The aim would have been to put pressure on China to meet its Phase I commitments, as the basis for a future dialogue on the underlying structural and industrial policy issues.

The framework follows a similar approach taken by US Secretary of Commerce Gina Raimondo, who at the end of September acknowledged to the Street newspaper mural that an important part of its job is to defend American industry; and that Chinese economic policies disadvantage American companies by subsidizing exports at below market prices. She said the United States must trade with China given the size of its market, saying “a strong trade engagement will help ease potential tensions.”

In short, rather than an open trade war between the United States and China or a broad “decoupling”, it appears that China and the United States seek to manage their trade relations, even if the sensitive sectors and technologies will remain. areas of tension and controversy. In Canada, likewise, following the release of Michael Spavor and Michael Kovrig, Foreign Minister Garneau declared that Canada’s approach to China will be guided by a four-pronged approach: “coexist, compete, cooperate and contest ”.

Working with Allies and Partners — Implications for Canadian Business

Although it professes a desire to work with like-minded countries, the United States primarily seeks to improve its own terms of trade with China, which has several implications for Canadian businesses.

First, China’s Phase I purchase commitments for a range of US goods and services, from agricultural products to manufactured goods to energy, come at the expense of competing sales from other exporting countries, including Canada, and go against basic WTO rules that all concessions offered outside a free trade agreement should be made on a non-discriminatory and “most-favored-nation” basis. »To all business partners. China also pledged not to manipulate its currency, protect foreign intellectual property (IP), and refrain from forcing foreign companies to transfer technology.

As a result, Canadian exporters could be at a competitive disadvantage and face headwinds if, as expected, China orders its companies to purchase goods and services of American origin. It is therefore up to any company with current or potential sales to be proactive and vigilant in maintaining an open dialogue with purchasing entities to preserve and develop market share.

Second, along with the United States maintaining additional tariffs on Chinese imports, the administration’s promise to effectively use a range of enforcement tools to hold China to account carries the risk that Canadian exports to the United States are also involved, either because U.S. trade remedies can be applied globally (as Canadian steel producers have experienced), or because Canadian finished products may incorporate parts or components of Chinese origin that may be the subject of United States trade remedy complaints or anti-circumvention proceedings involving Chinese components / materials used in exports of Canadian products to the States -United. Similar vigilance and anticipatory analysis of US customs treatment is recommended.

Third and conversely, to the extent that the United States accompanies its unilateral approach with an effort to coordinate with its allies, the Canadian government can be encouraged to take a parallel approach, including the adoption of import restrictions and / or more stringent anti-circumvention measures. to ensure that Chinese exports do not enter the US market through the back door. Therefore, Canadian businesses should consider closely monitoring developments in Canada’s trade policy with China.

A look to the future

Later this week, US Trade Representative Tai will deliver another important speech in Geneva on the US approach to the WTO and multilateral trade relations. Along with his speech on China, we may be seeing the start of a more constructive engagement by the Biden administration on the international trade agenda. However, with the midterm elections looming and the Labor vote central to the perspectives of both political parties, an American approach first and American workers first is likely to dominate. Thus, while the Canada-United States-Mexico Free Trade Agreement (CUSA) provides some security, the application of “Buy American” preferences continues, including in any infrastructure package that may be approved by the United States. Congress will continue to hamper open competition for Canadian businesses. in the US market.