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Article: Selective Engagement? Future Path for US–China Economic Relations and Its Implications

28 July 2021

By Dr Xue BAI

 

The US–China economic relationship and its implications for the world economy have been the subject of intense debate within the trading system. The question of the path forward for US–China economic interactions has been the centre of attention.

Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre’s Co-Director Professor Heng Wang, in his recent article, argues that a path of selective engagement based on issues with which both sides engage, probably reflects the future of US–China economic interactions.

 

In this article, Professor Wang explains that the 2020 US–China Economic and Trade Agreement (Phase One agreement, or Phase One deal), and related measures (e.g., extra tariffs) adopted a selective path. In particular, the Phase One agreement has a three-pronged structure:

 

  1.  ‘less common’ voluntary import expansion through China’s purchase commitments, a first in China’s trade agreements,
  2.  sectoral regulatory rules, which are much narrower than US FTAs, and
  3.  unilateral enforcement that abandons the third-party adjudication in FTAs and the law of the World Trade Organization (WTO).

 

The article further identifies the current special focuses of selective engagement as (i) unprecedented emphasis on market access, and (ii) delegalized implementation (unilateral enforcement). In particular, through a detailed comparative study the Phase One agreement and deep FTAs, the article reveals that regulatory disciplines are the major focus of deep free trade agreements (e.g., CPTPP), while market access is the essence or core of the Phase One agreement. The article further observes that implementation in selective engagement, as reflected in the Phase One agreement, essentially relies more on unilateral enforcement. This means one side may initiate complaints to the other side and eventually impose tariffs or exit the agreement if its grievances remain unsettled.

 

Professor Wang argues that the selective engagement has advantages including efficiency and flexibility. However, selective engagement also carries profound implications, ranging from rule vacuum and inconsistency, increased protection and economic disintegration, to the marginalization of multilateralism. That said, the uncertainties exist regarding the future of US-China economic relations are a moving target. Close attention is needed to this issue.

 

This article is published by Journal of World Trade. The preprint of the article is available here.

Professor Wang’s research may be found at ResearchGateSSRN, Twitter @HengWANG_law, and LinkedIn.