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China-U.S. Economic and Trade Agreement: Phase One

Client Updates

On January 15, 2020, the United States and China signed an enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.  The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years.  Importantly, the agreement establishes a dispute resolution system that ensures prompt and effective implementation and enforcement.  The United States has agreed to modify its Section 301 tariff actions in a significant way.

Intellectual Property: 
The IP chapter requires China to:

  • Expand the scope of civil liability for trade secret misappropriation beyond entities directly involved in the manufacture or sale of goods and services, so that trade secret owners can bring suit against any natural or legal persons, including individual former employees or cyberhackers.[Article 1.3]
  • Cover acts such as electronic intrusions, breach of confidentiality, and inducement of a breach of confidentiality as prohibited acts of trade secret theft.[Article 1.4]
  • Level the playing field by shifting the burden of producing evidence or burden of proof in civil cases to the defendants when trade secret owners have a reasonable indication of trade secret theft.[Article 1.5]
  • Make it easier for trade secret owners to obtain preliminary injunctions to prevent the use of stolen trade secrets before the trade secret has lost its value.[Article 1.6]
  • Allow for the initiation of criminal investigations for trade secret theft without the need to show actual losses, which are difficult to prove before the trade secret has lost its value.[Article 1.7]
  • Ensure that criminal enforcement is available for willful trade secret misappropriation, including a requirement for China’s system to at least cover theft, fraud, physical or electronic intrusion for an unlawful purpose, and the unauthorized or improper use of a computer system in the scope of prohibited acts.[Article 1.8]
  • When undisclosed information, trade secrets, or confidential business information is submitted to the central or sub-central levels of government, prohibit the unauthorized disclosure of such information by government personnel or third-party experts or advisors, including:[Article 1.9]
    • limiting requests for information to no more than necessary for the legitimate exercise of investigative or regulatory authority[Article 1.9(2)(a)];
    • limiting access to submitted information to only government personnel necessary for the exercise of legitimate investigative or regulatory functions[Article 1.9(2)(b)];
    • ensuring that third party experts or advisors with conflicts of interest do not have access to such information[Article 1.9(2)(d)]; and
    • providing deterrent criminal, civil, and administrative penalties, including monetary fines, the suspension or termination of employment, and imprisonment, for the unauthorized disclosure of a trade secret or confidential business information[Article 1.9(2)(f)].
  • Establish a mechanism for the early resolution of potential pharmaceutical patent disputes, including a cause of action to allow a patent holder to seek expeditious remedies before the marketing of an allegedly infringing product, so that innovative pharmaceutical companies can effectively enforce their rights in China.[Article 1.11]
  • Provide patent term extensions to compensate for unreasonable patent office and marketing approval delays that cut into the effective patent term.[Article 1.12]
  • Permit the use of supplemental data to meet relevant patentability criteria for pharmaceutical patent applications.[Article 1.10]

Technology Transfer: 
The Technology Transfer chapter addresses certain acts, policies, and practices of China identified in the Section 301 investigation related to technology transfer, intellectual property, and innovation.  For instance, the parties have agreed to:

  • Prohibit the forcing or pressuring of foreign companies to transfer their technology as a condition for market access, administrative approvals, or receipt of any advantages.[Articles 2.2 and 2.3]
  • Require that any transfer or licensing of technology be based on market terms that are voluntary and reflect mutual agreement.[Article 2.1(2)]
  • Prohibit state-directed or supported outbound investment aimed at acquiring foreign technology in sectors and industries targeted by a party’s industrial policies.[Article 2.1(3)]
  • Ensure that enforcement and administrative proceedings are impartial, fair, transparent, and non-discriminatory.[Article 2.4]

The Agriculture chapter addresses structural barriers to trade and supports an expansion of U.S. food, agriculture and seafood product exports.  A multitude of non-tariff barriers to U.S. agriculture and seafood products are addressed, including for meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agriculture biotechnology.

Financial Services: 
The Financial Services chapter addresses a number of trade and investment barriers to U.S. providers of a wide range of financial services, including banking, insurance, securities, and credit rating services, among others. 

Key outcomes of the Phase One agreement include, but are not limited to:

  • Securities Services:By April 1, 2020, China will eliminate the foreign equity cap for securities companies, expanding opportunities for wholly U.S.-owned suppliers of securities services.China also will ensure that U.S. suppliers are able to access China’s market on a non-discriminatory basis, including in regard to review and approval of qualified license applications.[Article 4.7]
  • Insurance Services:By April 1, 2020, China will eliminate the foreign equity caps for U.S. suppliers of life, health, and pension insurance services.In addition, China will remove all discriminatory regulatory requirements and processes in all insurance services sectors and will expeditiously review and approve licensing applications to supply insurance services.[Article 4.6]
  • Electronic Payment Services:China has a growing electronic payment services market that for many years has been closed to foreign suppliers, including world-leading U.S. credit and debit card companies.Going forward, China will ensure that its regulatory authorities operate an improved and timely licensing process for U.S. suppliers of electronic payment services so as to facilitate their access to China’s market.[Article 4.4]

The chapter on Macroeconomic Policies and Exchange Rate Matters includes policy and transparency commitments related to currency issues.  The chapter addresses unfair currency practices by requiring high-standard commitments to refrain from competitive devaluations and targeting of exchange rates, while promoting transparency and providing mechanisms for accountability and enforcement. 

Expanding Trade: 
The Expanding Trade chapter includes commitments from China to import various U.S. goods and services over the next two years in a total amount that exceeds China’s annual level of imports for those goods and services in 2017 by no less than $200 billion.   China’s commitments cover a variety of U.S. manufactured goods, food, agricultural and seafood products, energy products, and services.

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