CSIS – Negotiating with China: Lessons from the Hangzhou G20 Bilateral Meeting

Negotiating with China: Lessons from the Hangzhou G20 Bilateral Meeting
By Claire Reade
November 7, 2016

As the Obama administration’s tenure comes to a close, many are doing a stocktaking of its China policy, what has worked and where things could be made more effective. One useful question to consider is how to strengthen the returns from the various bilateral and multilateral venues where we engage each other. September’s G20 summit in Hangzhou, China, culminated in a multicountry leaders’ communique, but it also produced outcomes from concomitant bilateral meetings. The results of the U.S-China economic meeting, listed in a joint fact sheet, included an astoundingly long list of trade and investment outcomes.

Media buzz focused on the glitches in getting President Obama off his plane with appropriately respectful ceremony and what the fraught negotiations over red carpeting imply for future U.S.-China relations, but negotiations over the trade and investment outcomes also bear a closer look. The next administration can take some useful lessons from this outcomes list in terms of negotiating with the Chinese. Three rules of thumb come to mind, ironically because they seem to have been honored in the breach at this particular meeting.

Rule #1: Keep the list of topics short at a top-level meeting. Why? The leverage for progress at a presidential meeting includes the invaluable fact that the two presidents will engage directly and therefore have to be fully briefed on the key issues for the meeting. Chinese officials do not like telling their bosses bad news, but this kind of meeting requires some issues to be dealt with, whether the officials like it or not. That can lead to steps forward on tough topics. In addition, the two presidents may become personally interested in an issue area, and this too can sometimes trigger real progress. (See climate change.) But the presidents have only so much bandwidth across the many areas they must cover, which extend well beyond the trade and investment realm. Covering a very large set of trade topics risks muddying the communication regarding what is critically important. Losing the focus on a few top priorities also diffuses the pressure to make significant progress on anything.

The 2016 G20 bilateral economic meeting did not follow Rule #1. The economic outcomes statement included at least 10 different trade and investment topics. This may be why it produced very general statements on some key issue areas, creating minimal accountability for China going forward. For example, on financial services, China simply said it would continue to press ahead with reforms, and on services writ large, it stated it would continue to open more markets to competition. On state-owned enterprise (SOE) reform, China offered a general statement about pursuing a comprehensive strategy that included SOE reform and would cover reducing SOE debt. By contrast, in the 2015 Strategic and Economic Dialogue (S&ED), China committed to multiple specific financial services market openings, and in the 2016 S&ED, China made specific commitments to enhance coverage and reporting on the important transparency issue of how money flows from the government to SOEs. Those kind of commitments have bite.

Rule #2: Precisely track what you have already negotiated as commitments in the past, so you do not get again what you have already bought and paid for. The Chinese are meticulous record keepers with long memories. They know exactly what they have negotiated but will never hesitate to tee it up again, even as a fresh commitment, if they can. Occasionally, a hard fought negotiation on an issue will bring no progress, but you want to publicize the fact that the issue is on the table as a priority, so you decide to reaffirm what you have already agreed. This signals the importance of the issue and the need for China to continue to focus on it. But if you have made no progress, you often do not want to include the issue area in an outcomes document, because it pads the document, making it look robust and therefore giving the Chinese unearned face. This reduces the pressure to demonstrate through the outcomes that real progress has been made.

It is hard to conceive of a solid reason to state a previously negotiated commitment as if it were a new one. That would seem to indicate a lack of understanding of what China has already committed or a willingness to let the earlier commitment go by the boards, which could embolden the Chinese to increase their efforts to simply “negotiate” the same outcome over and over again.

The G20 U.S.-China economic fact sheet, for whatever reason, did not follow Rule #2 on several issues. It appears that some progress was made on excess capacity issues, with China’s new commitment to be willing to use its bankruptcy law, as well as a reference to creating a process for tackling the issue at the global level. China also for the first time mentioned that aluminum excess capacity is a problem. However, the overarching commitment in the fact sheet to “take effective measures to address the challenges so as to enhance market function and encourage adjustment” is identical to the commitment China already made in the 2016 S&ED. Rule #2 would indicate that the United States should have insisted that this commitment, if it is going to be reiterated, be “reaffirmed,” not stated as if it were a new breakthrough.

The G20 U.S.-China fact sheet commitment on nondiscrimination in innovation policies likewise lacks any new elements. It repeats part of a seminal 2010 S&ED commitment on core principles for innovation (nondiscrimination), and it echoes the exact wording of the 2015 Xi visit commitment not to engage in forced technology transfer. On a related intellectual property (IP) issue, it includes similar, though arguably weaker wording, than the commitment in the 2015 S&ED on bad faith IP litigation. In 2015, China and the United States agreed to strengthen their cooperation to protect innovators from this kind of litigation. At their 2016 G20 bilateral meeting, they only committed to continue to “exchange views,” an activity less robust than cooperation to actually protect innovators from this problem. Despite making no further progress on these issues, the fact sheet includes these outcomes and expresses them as new ones, not as reaffirmations of existing commitments.

Rule #3: Do not accept language that allows China to weaken or backtrack from a prior commitment. This is common sense, though exceptions do prove the rule sometimes, when circumstances change and the language must change too. However, if language from the past is not being closely compared, or institutional memory is thin, this kind of situation can slip by inadvertently.

As mentioned above, Rule #3 was not followed regarding the commitment on bad faith litigation. The G20 commitment on the Joint Commission on Commerce and Trade (JCCT) also was subtly weaker than the commitment made at the Xi visit in 2015. At the G20, China committed to “continue holding communication and dialogue…on…issues of interest,” to “work hard to seek solutions,” and then separately, to “work…towards the success of the 27th JCCT.” In 2015, the Xi visit outcome included a commitment to ensure the success of the next JCCT “by making progress on key trade matters.” In other words, in 2015 the success of the JCCT was tied explicitly to making progress on key concerns. In 2016, the wording unties the JCCT’s success from this kind of progress.

The G20 commitment on the bilateral investment treaty (BIT) may be a Rule #3 exception. As of the September 2015 Xi visit, the commitment was “to intensify the negotiations and to work expeditiously to conclude the negotiation of a mutually beneficial treaty.” For the G20, the commitment had downshifted to “further intensify the negotiation with a view to concluding” such a treaty. It seems plausible that the near-term outlook for the BIT is not as optimistic as it was a year ago.

Outsiders can never entirely know what circumstances lead negotiators to take particular positions, and the documentation from a negotiation may not reflect all the building blocks laid for future progress. None of the language choices ultimately made torpedoes a core U.S. interest; nonetheless, it may help to keep these three rules of thumb in mind going forward, since China surely will.

Claire Reade is a senior associate with the Freeman Chair in China Studies at the Center for Strategic and International Studies and senior counsel at Arnold & Porter in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2016 by the Center for Strategic and International Studies. All rights reserved.

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