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AHEC Trade Alert: Many unanswered questions in US China trade deal

As most of you know by now, yesterday the US and China signed “Phase 1” of a new trade deal designed to reduce tensions between the world’s two largest economies.  A copy of the trade agreement is attached to this email, and it is extremely encouraging to see hardwood lumber specifically mentioned on page 6-3 under “Other Manufactured Goods” for which China has agreed to increase imports over the next two years.  Indeed, hardwood lumber (HS Code 4407…), hardwood logs (HS code 4403..) and hardwood veneer (HS code 4408…) are all listed in the table beginning on page 6-11 as products to be included in China’s commitment to increase purchases by $200 million by December 31, 2021.

 

The high profile accorded to our industry by the US trade negotiators is a testament to the hard work and effectiveness of your hardwood industry associations working under the umbrella of the Hardwood Federation,  as well as the large number of industry leaders who have been actively engaging with our government over the past year and a half.

 

However, while the news is certainly encouraging, there are many questions left to be answered about how exactly these increased imports will be accomplished, and what it will mean specifically for hardwoods.  There are three main paths forward for China to increase imports of the targeted US products: 1) tariff reductions; 2) tariff exclusions for specific products; or 3) Chinese government purchases of American goods.  The US embassy in Beijing confirms that as of yet, there has been no communication from the Chinese government concerning any tariff reductions, and Bloomberg News is reporting that tariff reductions are unlikely to occur before the US elections later this year.  This could, of course, change at any time.

 

It is also unclear how large a role Chinese government purchases could potentially play in expanding hardwood exports from the US.  While state-owned enterprises are rapidly increasing their footprint in China, the furniture, flooring and architectural millwork industries that are our largest customers are still overwhelmingly private.  It is unclear what mechanisms the Chinese government could use to encourage private companies to import more American products if tariffs remain unchanged.

 

Another potential pitfall of the new agreement concerns China’s WTO obligations to all of its trading partners, and how exactly promises to increase imports from the US (presumably at the expense of other exporters) is to be achieved.  It is difficult to believe that the EU, Japan or Brazil will sit idly by while China provides preferential treatment to US goods in violation of its “Most Favored Nation” (MFN) obligations.  The result is likely to be lengthy and disruptive WTO disputes.

 

Finally, while it is encouraging to see hardwoods listed specifically among the goods to be included in China’s import commitments, there is nothing in the agreement that states how much of each product must be purchased, or indeed that purchases of all  listed products must be increased.  It is conceivable that China hits its target of $200 billion without any hardwoods as part of the mix.  Unlikely, but possible.

 

It is not my intention to splash cold water on what is undoubtedly a positive step forward, but it is important that we realize as an industry that this is only a first step and there is still considerable work to be done.  AHEC will continue to engage with Chinese industry and end user associations to ensure that they are communicating the importance of expanded hardwood trade to the Chinese government  and I would encourage all of you to speak with your Chinese customers as well.  The message is simple—sustainable American hardwoods as a raw material not only helps to create employment in China, it also allows the country to continue that growth while honoring its public commitment to a sustainable, low carbon future.

 

Mike Snow

AHEC Headquarters

42777 Trade West Drive

Sterling, VA 20166

 

Please click the link. Phase 1 Trade Agreement

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