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Trade negotiations and “poison pill” provisions

The United States continues in its efforts to place pressure on China on opening up its markets. This pressure was in evidence in the agreement the U.S. had with Mexico and Canada. In that agreement, the U.S. added a provision allowing nations to exit deals with a “non-market country.” According to U.S. officials, China would be one of these non-market countries.

A recent South China Morning Post article talks about the U.S. adding such a “poison pill” to future trade agreements as well. Specifically, if three countries enter into such an agreement and one enters into a trade deal with one of these non-market countries, the other two countries can exit the deal within six months and also form a separate bilateral deal.

What the U.S. hopes to achieve with the “poison pill” provisions?

In entering an agreement with Mexico and Canada, the U.S. can provide a veto with other free-trade partners to make certain agreements follow market principles. The U.S. is also negotiating with the European Union and Japan. U.S. officials may try to insert “poison pill” provisions in any agreement with them as well. The goal of the U.S. is likely to reduce large trade deficits concerning particular goods.

If accomplished, such trade agreements would place greater pressure upon China. It would hopefully provide a correction to China’s current practices regarding intellectual property and trade.

Chinese officials are not likely willing to accept the label of being a non-market economy. However, if China continues with economic reforms, it’s possible that other nations will begin to view it as a market economy.

It’s too early to know precisely what will occur. Continued negotiations with China are not likely going to progress until after the midterm elections in November. In the meantime, American businesses will continue seeking opportunities within China. Locating the right legal and investment advice will always remain essential regardless of the positions of public officials.

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