The preliminary US-China trade deal seems rather fragile

The preliminary trade deal between the US and China doesn’t have an independent appellate body which can decide on disputes between the two parties.

The agreement which both governments endorsed on Wednesday says that disputes have to be resolved bilaterally through a consultative process.

Given the extent of distrust between the governments, the nature of the dispute resolution mechanism makes this deal rather fragile.

According to the agreement, both sides should create a bilateral evaluation and dispute resolution office. In the case of the US, it will be headed by a Deputy United States Trade Representative and China’s office will be under the charge of a designated Vice Minister.

The dispute resolution has a process of escalation if the first level of the resolution mechanism is not able to solve the problem.

The key is what happens if there is no resolution? If there is an independent resolution mechanism, the verdict can be made binding. That is not possible in a bilateral deal where disputes have to be solved through consultation.

In the event, the consultation breaks down the complainant can take action, including suspending an obligation under the agreement.

This does seem a potential pitfall. There is no sign of an adequate level of trust between the US and China which will ensure a serious dispute can be resolved mutually.

DISCLAIMER : Views expressed above are the author’s own.

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