Negotiating with China: Lessons from theHangzhou G20 Bilateral Meeting
Claire Reade
Senior Associate (Non-resident), FreemanChair in China Studies
As the Obama administration’s tenure comesto a close, many are doing a stocktaking of its China policy, what has workedand where things could be made more effective. One useful question to consideris how to strengthen the returns from the various bilateral and multilateralvenues 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 resultsof the U.S-China economic meeting, listed in a jointfact sheet, included an astoundingly long list of trade and investmentoutcomes.
Media buzz focused on the glitches ingetting President Obama off his plane with appropriately respectful ceremonyand what the fraught negotiations over red carpeting imply for futureU.S.-China relations, but negotiations over the trade and investment outcomesalso bear a closer look. The next administration can take some useful lessonsfrom this outcomes list in terms of negotiating with the Chinese. Three rulesof thumb come to mind, ironically because they seem to have been honored in thebreach at this particular meeting.
Rule #1: Keep the list of topics shortat a top-level meeting . Why? The leverage forprogress at a presidential meeting includes the invaluable fact that the twopresidents will engage directly and therefore have to be fully briefed on thekey issues for the meeting. Chinese officials do not like telling their bossesbad 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 toughtopics. In addition, the two presidents may become personally interested in anissue area, and this too can sometimes trigger real progress. (See climatechange.) But the presidents have only so much bandwidth across the many areasthey must cover, which extend well beyond the trade and investment realm.Covering a very large set of trade topics risks muddying the communicationregarding what is critically important. Losing the focus on a few toppriorities also diffuses the pressure to make significant progress on anything.
The 2016 G20 bilateral economic meeting didnot follow Rule #1. The economic outcomes statement included at least 10different trade and investment topics. This may be why it produced very generalstatements on some key issue areas, creating minimal accountability for Chinagoing forward. For example, on financial services, China simply said it wouldcontinue to press ahead with reforms, and on services writ large, it stated itwould continue to open more markets to competition. On state-owned enterprise(SOE) reform, China offered a general statement about pursuing a comprehensivestrategy that included SOE reform and would cover reducing SOE debt. Bycontrast, in the 2015 Strategic and Economic Dialogue (S&ED), China committedto multiple specific financial services market openings, and in the 2016S&ED, China made specific commitments to enhance coverage and reporting onthe important transparency issue of how money flows from the government toSOEs. Those kind of commitments have bite.
Rule #2: Precisely track what you havealready negotiated as commitments in the past, so you do not get again what youhave already bought and paid for . The Chinese aremeticulous record keepers with long memories. They know exactly what they havenegotiated but will never hesitate to tee it up again, even as a freshcommitment, if they can. Occasionally, a hard fought negotiation on an issuewill bring no progress, but you want to publicize the fact that the issue is onthe table as a priority, so you decide to reaffirm what you have alreadyagreed. This signals the importance of the issue and the need for China tocontinue to focus on it. But if you have made no progress, you often do notwant to include the issue area in an outcomes document, because it pads thedocument, making it look robust and therefore giving the Chinese unearned face.This reduces the pressure to demonstrate through the outcomes that realprogress has been made.
It is hard to conceive of a solid reason tostate a previously negotiated commitment as if it were a new one. That wouldseem to indicate a lack of understanding of what China has already committed ora willingness to let the earlier commitment go by the boards, which couldembolden the Chinese to increase their efforts to simply “negotiate” the sameoutcome over and over again.
The G20 U.S.-China economic fact sheet, forwhatever reason, did not follow Rule #2 on several issues. It appears that someprogress was made on excess capacity issues, with China’s new commitment to bewilling to use its bankruptcy law, as well as a reference to creating a processfor tackling the issue at the global level. China also for the first timementioned that aluminum excess capacity is a problem. However, the overarchingcommitment in the fact sheet to “take effective measures to address thechallenges so as to enhance market function and encourage adjustment” isidentical to the commitment China already made in the 2016 S&ED. Rule #2would indicate that the United States should have insisted that thiscommitment, if it is going to be reiterated, be “reaffirmed,” not stated as ifit were a new breakthrough.
The G20 U.S.-China fact sheet commitment onnondiscrimination in innovation policies likewise lacks any new elements. It repeatspart of a seminal 2010 S&ED commitment on core principles for innovation(nondiscrimination), and it echoes the exact wording of the 2015 Xi visitcommitment not to engage in forced technology transfer. On a relatedintellectual property (IP) issue, it includes similar, though arguably weakerwording, 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 toprotect innovators from this kind of litigation. At their 2016 G20 bilateralmeeting, they only committed to continue to “exchange views,” an activity lessrobust than cooperation to actually protect innovators from this problem.Despite making no further progress on these issues, the fact sheet includesthese outcomes and expresses them as new ones, not as reaffirmations ofexisting commitments.
Rule #3: Do not accept language thatallows China to weaken or backtrack from a prior commitment . This is common sense, though exceptions do prove the rulesometimes, when circumstances change and the language must change too. However,if language from the past is not being closely compared, or institutionalmemory is thin, this kind of situation can slip by inadvertently.
As mentioned above, Rule #3 was notfollowed regarding the commitment on bad faith litigation. The G20 commitmenton the Joint Commission on Commerce and Trade (JCCT) also was subtly weakerthan the commitment made at the Xi visit in 2015. At the G20, China committedto “continue holding communication and dialogue…on…issues of interest,” to“work hard to seek solutions,” and then separately, to “work…towards thesuccess of the 27th JCCT.” In 2015, the Xi visit outcome included a commitmentto ensure the success of the next JCCT “by making progress on key tradematters.” In other words, in 2015 the success of the JCCT was tied explicitlyto making progress on key concerns. In 2016, the wording unties the JCCT’ssuccess from this kind of progress.
The G20 commitment on the bilateralinvestment treaty (BIT) may be a Rule #3 exception. As of the September 2015 Xivisit, the commitment was “to intensify the negotiations and to workexpeditiously to conclude the negotiation of a mutually beneficial treaty.” Forthe G20, the commitment had downshifted to “further intensify the negotiationwith a view to concluding” such a treaty. It seems plausible that the near-termoutlook for the BIT is not as optimistic as it was a year ago.
Outsiders can never entirely know whatcircumstances lead negotiators to take particular positions, and thedocumentation from a negotiation may not reflect all the building blocks laidfor future progress. None of the language choices ultimately made torpedoes acore U.S. interest; nonetheless, it may help to keep these three rules of thumbin mind going forward, since China surely will.
Claire Reade is a senior associate withthe Freeman Chair in China Studies at the Center for Strategic andInternational Studies and senior counsel at Arnold & Porter in Washington,D.C.
