ILMA Compoundings - February 2020 - 14

INDUSTRY RUNDOWN

International Insight
The U.S.-China
Trade War: Ending?
By James Eggenschwiler
Perhaps the new year has ushered in a new day in the
relatively short relationship between China and the U.S.
At least Jan. 15 seems to have spawned that hope. As the
ball dropped in Times Square in the closing seconds of
2019, few would have anticipated that actual progress
in the roughly 2-year-old trade war was in the making.
For, even as the month of December approached its
close, product manufacturers and retailers were voicing
two virtually unanimous concerns: No progress had
much potential for at least another nine months, and
penalty tariff rates might remain for years. Against
these expectations, the announcement in mid-January
that a signed trade deal was imminent caught many
off-guard and doubtful.
PENALTY TARIFF RELIEF
The announcement itself was head turning. The initial economic relief it offers isn't. U.S. manufacturers and importers,
whose products or materials are included in the fourth
tranche of U.S. penalty tariffs, will likely see it as a welcome
good start. Many manufacturers and importers impacted
by the fourth tranche of penalty tariffs probably view it as a
good start, as the deal anticipates the U.S. cutting its fourthtranche penalty tariffs by half - from 15% to 7.5%. Given
the $120 billion value the fourth tranche represents, it's
quite a gesture to induce China to move forward with the
regulatory and judicial policy "infrastructure" commitments
required by the agreement.
Nevertheless, this is naturally disappointing to U.S.
lubricant manufacturers and product/raw material importers. This group was part of the second tranche (which very
quickly followed the first tranche) and has been impacted
far longer with little exclusion benefit from the U.S. trade
representative's process. However, this opening development
does offer hope to the lubricants industry. The very broad
coverage of goods covered by the fourth tranche translates
into a significant financial reduction with very significant
benefit to the economies of both countries. This serves the

FEBRUARY 2020

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purpose of making a statement of strong intent that will
possibly serve to spawn more cooperation in kind.
INTELLECTUAL PROPERTY PROTECTIONS AND
TECHNOLOGY TRANSFER
The primary purpose of the agreement itself is to create a new
legal and regulatory infrastructure in China that will support
the type of policies and commitments intended by the deal,
chief of which is protection of intellectual property rights.
The absence of these protections is the chief premise posed by
the U.S. for implementing penalty tariffs in the first place.
The agreement itself addresses these topics in the first
two chapters that bear their respective names, "Chapter 1,
Intellectual Property" and "Chapter 2, Technology Transfer." Their respective prominence in the agreement seems a
clear indication of the importance placed upon the subjects
during the negotiations. The commitments included in the
agreement on these points (as well as on other topics) are
futuristic, with milestone requirements to support verifiable
progress. Many of the initial milestones are to show progress
within 30 to 60 days of signing the agreement.
The document articulates a commitment by China
to adopt policies securing the protection of intellectual
property rights of U.S. companies and to refrain from compulsory or "pressured" disclosure of intellectual property and
technology to the Chinese government. At this point, the
commitment stops there without definitions or other details
and does not necessarily reflect a specific set of actions as
part of the commitment. This lack of detail and specificity

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