US and China signal progress toward trade talk breakthrough

By Bloomberg | 05 Nov 2019 at 14:46hrs
The U.S. and China signaled further progress on Monday toward a breakthrough in trade talks that could culminate in a meeting between Donald Trump and Xi Jinping later this month.

China had hoped that if Xi traveled to the U.S. to sign a phase one trade deal it would be as part of a state visit, but is open to having him go even if it isn't, people familiar with the matter said. Chinese Premier Li Keqiang on Monday met a U.S. delegation that included National Security Adviser Robert O'Brien and U.S. Commerce Secretary Wilbur Ross at a regional summit in Bangkok.

Before meeting Li, Ross told a morning business forum that the U.S. was "very far along" with "phase one" of a trade deal with China. Earlier, Trump told reporters that a trade agreement, if completed, would be signed somewhere in the U.S. No final decision has been made, said a Chinese official, who asked not to be named discussing the private negotiations.

"We're relatively close to an agreement," O'Brien told reporters in Bangkok on Monday, adding that Trump invited Xi to the U.S. if the two sides are ready to sign the phase one agreement. "I'm cautiously optimistic about it."

In an interview with Bloomberg on Sunday, Ross expressed optimism the U.S. would conclude an initial agreement with China this month before working on additional phases. He also said licenses would be coming "very shortly" for U.S. firms to sell components to China's Huawei Technologies Co.

China's offshore strengthened as much as 0.27% to 7.0227 per dollar on Monday, at one point breaking through its 100-day moving average for the first time since May.

Ross called the phase one agreement "particularly complicated" and said the U.S. was "making sure that each side has a very correct and clear, detailed understanding of what each side has agreed to." Iowa, Alaska, Hawaii and locations in China were all possible places for Trump and President Xi Jinping to sign the deal after the cancellation of this month's Asia-Pacific Economic Cooperation summit in Chile.

"We're in good shape, we're making good progress, and there's no natural reason why it couldn't be," Ross said. "But whether it will slip a little bit, who knows. It's always possible."
Downgraded Delegation

Ross and National Security Adviser Robert O'Brien are leading a downgraded American delegation to meetings hosted by the 10-member Association of Southeast Asian Nations in Thailand. Ross said Monday that the Trump administration remained "fully committed" to the Indo-Pacific region, amid questions over U.S. strategy fueled by the president's absence.

Asian leaders were separately expected to announce a breakthrough on another trade pact, the China-backed Regional Comprehensive Economic Partnership, at the end of the meetings. It remained uncertain whether the pact would include India, which jeopardized it with last-minute requests.

Ross in the interview downplayed the significance of RCEP, which would lower tariffs in an area that represents roughly a third of the global economy, and defended U.S. engagement in Asia after Trump skipped the Asean meetings for a second straight year.

Contentious issues remain and the terms aren't yet known, but RCEP would at least partly fill a trade gap left by Trump's 2017 withdrawal from the Trans-Pacific Partnership. Southeast Asia collectively has the world's fifth largest economy and has struggled to wade through the economic fallout of U.S.-China trade tensions.
‘Constructive' Call

Top American and Chinese negotiators both spoke on the phone Friday and described the talks as "constructive" as they look to lower tensions in a trade war that has roiled global growth. On Saturday after the call, Chinese state media reiterated the nation's core demands, including the removal of all punitive tariffs.

The deal would see China increase purchases of U.S. agriculture products, keep its currency stable and open financial services markets to American firms. In return, Beijing wants the U.S. to do away with new import taxes due to take effect Dec. 15 on goods including smart-phones.

Ross remained non-committal on whether the Trump administration would suspend the December tariff hike. He also said further phases of the deal would depend on things involving legislation on the part of China and an enforcement mechanism.

Asked about a potential meeting between Xi and Trump, Chinese foreign ministry spokesman Geng Shuang repeated that the two are in "in touch by various means" at a regular briefing in Beijing on Monday.

Chinese officials have cast doubts about reaching a comprehensive long-term trade deal even as the two sides close in on the phase one agreement, Bloomberg reported last week. China has stated for months that a final deal must include the removal of all punitive tariffs, and has balked at reforms in areas such as state-run enterprises that could jeopardize the Communist Party's grip on power.

Trump has placed dozens of Chinese firms on the Commerce Department's "entity list," hampering their ability to purchase American software and components. It first targeted Huawei in May for national security reasons, and last month added 28 more companies including artificial intelligence giants SenseTime Group Ltd., Megvii Technology Ltd. and Hangzhou Hikvision Digital Technology Co.
Awaiting Licenses

Entities on the list are prohibited from doing business with American companies without being granted a U.S. government license, although some have maintained relationships with banned companies through international subsidiaries. China's government has signaled it will hit back over the blacklist, and the companies have denied wrongdoing.

The blacklist is also hurting American companies that do business with China, and particularly Huawei. Trump said in June after meeting with Xi in Japan that he'd "easily" agreed to allow American firms to continue certain exports to Huawei, and weeks later Trump said he'd accelerate the approval process for licenses.

Still, none have been granted so far. The president as recently as this month green-lit the approval of licenses in a meeting with advisers, according to people familiar with the matter, but an announcement has yet to be made.

Ross on Sunday said the licenses "will be forthcoming very shortly," noting that the government received 260 requests.



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