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AUSSIE 10-YEAR TECHS

(Z1) Near-Term Strength Persists

By Iris Ouyang
     BEIJING (MNI) - China should be able to achieve the full removal of tariffs
placed on its exports by the U.S. if it further reforms its economy, a senior
researcher at a Ministry of Commerce think tank told MNI, noting that the
mechanism used to impose the duties means they cannot be reversed in what he
expects to be successful trade talks.
     Progress in structural economic reform, addressing issues such as subsidies
and the role of state-owned enterprises, could permit the U.S. to end an
investigation under Section 301 of the Trade Act, which was used by President
Donald Trump to implement punitive levies, Huo Jianguo, a former head of the
research institute of the MOFCOM and currently vice chairman of the ministry's
China Society for World Trade Organization Studies, said in an interview
     "The problem is that the U.S. considers the 301 investigation to be a
separate legal procedure, which can't be ended due to a trade deal," Huo said.
"But if China performs well and its reforms are done properly, the negotiators
could discuss removing the tariffs [after a trade deal is reached]."
     The easing of the dispute between China and the U.S. should support global
trade this year, Huo said, predicting that it could grow by 3% this year,
compared with a World Trade Organization forecast of 2.6%.
     Chinese and U.S. officials are discussing a mechanism to allow mutual
enforcement of a deal, which will be likely to maintain 25% tariffs on $50
billion in Chinese goods and a portion of the 10% tariffs on another $200
billion in goods, MNI understands.
     "If China continues to advance its structural reforms to meet requirements
mentioned in the 301 investigation, then the U.S. will have the necessary
justification for ending it," he said. "But such goals won't appear in the trade
deal."
     --ENFORCEMENT MECHANISM
     Huo said China will require a dual enforcement mechanism, despite previous
U.S. insistence that it will unilaterally review China's compliance with a deal.
     "We are also concerned that the U.S. might not keep its promises," he said.
     Under a proposed deal, officials from both countries will hold regular
talks, on a monthly basis at deputy assistant secretary level, quarterly at
vice-ministerial level, and twice-yearly for top level officials, MNI
understands.
     Acceleration of China's economic opening and reform is the only way not
only to reduce trade frictions with the U.S. but also with other countries, Huo
said, acknowledging that some U.S. demands were reasonable. It would be to
China's advantage if it reconsidered its national-level industrial planning,
which the U.S. says allows unfair support of some sectors, as well as the role
of state-owned enterprises and intellectual property rules, he said.
     "There is a very good chance of a China-U.S. trade agreement, because China
wants to open up its economy and the U.S. concerns are in line with our domestic
reforms," he said. "Some things the U.S. government has said are not wrong:
China really needs a fair business environment."
     But, as Beijing brings subsidy and industrial policies more in line with
international standards, it will also push for change at the World Trade
Organization, Huo said, noting that the G20 summit in Japan in June will mark
only the start of a long process of reform of the body.
     "We may insist that WTO Appellate Body issues be tackled first. The WTO
needs to recover the function of this organization. And other issues are
complicated too, they won't be solved in a short time."
     China's goal, though, will be to integrate more closely into the
international trading community.
     "China has realised that we can't follow the separate path, which makes
other countries see us as an outlier," he said. "We need to stick to obeying
international rules and regulations ... So when China rises, more countries will
accept it."
--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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