China’s top legislature is expected to pass the country’s first Foreign Investment Law this week at a time when negotiators from Beijing and Washington work to hammer out a trade deal.

Analysts and business groups say the legislation is a step in the right direction, but still falls short. In some ways, they add, it even raises new concerns that negotiators need to address before the two sides reach a deal.

For decades, China has been grappling with the question of just how far and how fast it should open up its state directed economy, and steps — while always welcome — have long lagged behind expectations. The Foreign Investment Law is not different.

In a statement, the American Chamber of Commerce in China (AmCham China) said it welcomes the law and appreciates the effort to improve the investment environment.

“We are concerned, however, that such an important and potentially far-reaching piece of legislation will be enacted without extensive consultation and input from industry stakeholders, including Foreign Invested Enterprises,” the statement said.

An earlier version of the law was put together in 2015, but later stalled during the review process, only to resurface more recently. When it did, the wording was more general and more vague, analysts note. By contrast, the first version had 171 articles, the new one has 41.

This some argue, helped pave the way for the bills speedy passage. NPC Observer, a website that closely follows China’s legislature or National People’s Congress, notes that by keeping the legislation vague, the government will have more room and time to craft implementing regulations after the law is enacted.

“The law is phrased and drafted with very general provisions. There are a number of things that are not covered in there, such as what percentage of foreign investment qualifies as foreign invested,” said Lester Ross, who heads AmCham China’s policy committee. “Another major concern is the requirement for security assessments even for non-mergers and acquisitions, even for greenfield investments, which seems unnecessary.”

Subsidies still an issue

The newer version of the law was fast-tracked as Washington and Beijing work to hammer out a trade deal. While the provisions in the legislation address some persistent concerns, such as forced technology transfers, equal access to government procurement and national treatment, it does not address other issues, such as subsidies for state owned enterprises.

Clearly though, the legislation was pushed through the system in part to address what is being discussed at the negotiation table, said Mats Harborn, president of the European Chamber of Commerce in China.

“It is more than a law, it is a document that states principles and it is a document that states principles that we [foreign investors] would like to hear. And it also states the principles that U.S. negotiators want to have on paper from China,” Harborn said. “But the proof in the pudding will be the implementation.”

National security concerns

And while the law echoes concerns that are part of what trade negotiators are discussing, issues such as the broad application of national security reviews and the mention of national security in the law are cause for concern, argues Austin Lowe, a Washington D.C.-based consultant and analyst.

In a recent article on the legal and national security website Lawfare, Lowe highlighted provisions in the legislation that foreign companies should not “harm national security or the public interest” and that businesses that affect national security should be subject to a review.

“Together, these provisions essentially give the state — and, in turn, the Chinese Communist Party — free rein to intervene in a wide range of investment activity, signaling to foreign investors that they are better off avoiding any investment in an area that may be construed as politically sensitive or threatening,” he wrote.

Ross notes that while security reviews have been in place since 2011, they have, so far, been used very selectively and largely for mergers and acquisitions.

“Now it looks like this is an additional hurdle that will apply across the board,” he said.

While it doesn’t mean that every investment could face such scrutiny, there are no bounds to how it can be applied, and in some cases that would require revealing a company’s intellectual property, Ross added.

“When you put national security into any document it creates a great deal of arbitrary judgement on what is national security and what is not,” notes the EU Chamber of Commerce’s Mats Harborn. “It is a very wide definition that creates uncertainty.”

Not only does it create uncertainty, but the questions the new law raises will add to the issues negotiators will need to resolve going forward, Ross said.

“While on the one hand it is a good thing that they are showing some significant degree of intention to reduce barriers to foreign investment and actually making some substantive changes, once the law is in place it may actually be more difficult to make departures from that in the course of the negotiations,” he said.
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U.S. President Donald Trump said on Wednesday he was in no rush to complete a trade pact with China and insisted that any deal include protection for intellectual property, a major sticking point between the two sides during months of negotiations.

Trump and Chinese President Xi Jinping had been expected to hold a summit at the president’s Mar-a-Lago property in Florida later this month, but no date has been set for a meeting and no in-person talks between their trade teams have been held in more than two weeks.

The president, speaking to reporters at the White House, said he thought there was a good chance a deal would be made, in part because China wanted one after suffering from U.S. tariffs on its goods.

But he acknowledged Xi may be wary of coming to a summit without an agreement in hand after seeing Trump end a separate summit in Vietnam with North Korean leader Kim Jong Un without a peace deal.

“I think President Xi saw that I’m somebody that believes in walking when the deal is not done, and you know there’s always a chance it could happen and he probably wouldn’t want that,” Trump said.

China has not made any public comment confirming Xi is considering going to meet Trump in Florida or elsewhere.

The president, who likes to emphasize his own deal-making abilities, said an agreement to end a months-long trade war could be finished ahead of a presidential meeting or completed in-person with his counterpart.

“We could do it either way. We could have the deal completed and come and sign, or we could get the deal almost completed and negotiate some of the final points. I would prefer that,” he said.

Trump decided last month not to increase tariffs on Chinese goods at the beginning of March, giving a nod to the success of negotiations so far.

But hurdles remain, and intellectual property is one of them. Washington accuses Beijing of forcing U.S. companies to share their intellectual property and transfer their technology to local partners in order to do business in China. Beijing denies it engages in such practices.

Asked on Wednesday if intellectual property had to be included in a trade deal, Trump said: “Yes it does.”

He indicated that from his perspective, a meeting with Xi was still likely.

“I think things are going along very well – we’ll just see what the date is,” Trump told reporters at the White House.

“I’m in no rush. I want the deal to be right. … I am not in a rush whatsoever. It’s got to be the right deal. It’s got to be a good deal for us and if it’s not, we’re not going to make that deal.”

‘Maintaining contact’

China’s Foreign Ministry said on Tuesday that Xi had previously told Trump that he is willing to “maintain contacts” with the U.S. president.

Over the weekend, Vice Commerce Minister Wang Shouwen, who has been deeply involved in the trade talks with the United States, did not answer questions from reporters on whether Xi would go to Mar-a-Lago.

Two Beijing-based diplomatic sources, familiar with the situation, told Reuters that Xi would not be going to Mar-a-Lago, at least in the near term.

One said there had been no formal approach from the United States to China about such a trip, while the second said the problem was that China had realized a trade agreement was not going to be as easy to reach as they had initially thought.

“This is media hype,” said the first source, of reports Xi and Trump could meet this month in Florida.

Though Trump said he is not in a hurry, a trade deal this spring would give him a win to cite as an economic accomplishment as he advances his 2020 re-election campaign. The trade war has hurt the global economy and hung over stock markets, which would likely benefit from an end to the tensions.

In addition to smoothing over sticking points on content, the United States is eager to include a strong enforcement mechanism in a deal to ensure that Beijing can be held accountable if it breaks any of its terms.

U.S. Trade Representative Robert Lighthizer, who has spearheaded the talks from the American side, said on Tuesday that U.S. officials hoped they were in the final weeks of their talks with China but that major issues remained to be resolved.
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Democrats in the U.S. House of Representatives gave a cool reception to the replacement for the North American Free Trade Agreement on Wednesday as the top U.S. trade negotiator opened a  campaign to win broad support for the accord in Congress.

Several Democrats said a closed-door meeting between United States Trade Representative Robert Lighthizer and their caucus failed to ease their concerns about the new U.S.-Mexico-Canada Agreement’s (USMCA) provisions on labor, biologic drugs and some other issues.

A USTR spokeswoman declined to comment on the meeting.

The support of Democrats, who control the House, is considered important to passage of the USMCA, and Wednesday’s meeting at the U.S. Capitol signaled that the Trump administration has a lot of work to do to address the party’s concerns.

Democrats questioned whether new labor standards aimed at ensuring workers have the right to organize can be adequately enforced, as this depends partly on Mexico passing new labor laws.

“What you’re hearing is that a lot of people don’t think it’s good enough,” Representative Pramila Jayapal said of USMCA after the meeting, adding that she was concerned the new pact would not solve the biggest shortcoming of NAFTA, which allowed Mexican wages to stagnate.

“We know that when you don’t have strong enforcement provisions, you are essentially facilitating the outsourcing of jobs and bad worker protections and undercutting of U.S. workers,” said Jayapal.

NAFTA dealt with labor provisions in an unenforceable side-letter, allowing unions in Mexico to remain weak and wages low, drawing factories from the United States and Canada.

While USMCA’s labor chapter is part of the trade agreement itself and requires Mexico to adhere to International Labor Organization standards, Democrats questioned whether this could be adequately enforced through a state-to-state dispute settlement mechanism.

The Mexican government expects its Congress to pass a labor bill by the end of April that it says will strengthen the rights of unionized workers and fulfill its commitments under USMCA. Mexico “could say they passed the laws, but the laws could be very weak,” said Representative Judy Chu, a Democrat on the House Ways and Means Committee.

She said Lighthizer told Democrats that he believed that Mexico’s labor law would meet the terms of the agreement and that any enforcement issues could be resolved through a subsequent agreement following ratification. Jayapal added that Lighthizer said this could be addressed through implementing legislation.

Some Democrats said that Lighthizer listened closely to their concerns and that he would work to address them. 

“He understands the concerns of our caucus and he knows we’re not there yet,” said Representative Bill Pascrell.

Other Democrats raised concerns about the prospect for higher drug prices resulting from the USMCA’s provision for 10 years of data exclusivity for biologic drugs. The United States allows 12 years currently and negotiated a five-year exclusivity period in the Trans-Pacific Partnership trade deal, which President Donald Trump declined to join in 2017.

Representative Rosa DeLauro, a Democrat who opposed several previous trade deals, called this an “absolutely unbelievable giveaway to the pharmaceutical industry.”

House Ways and Means Committee Chairman Richard Neal, whose panel will handle the USMCA legislation, said the meeting did not provide any further clarity on the timing of the Trump administration’s submission of implementing legislation to Congress, or when a vote might occur.
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Spotify has filed a complaint with European Union antitrust regulators against Apple, saying the iPhone maker unfairly limits rivals to its own Apple Music streaming service. 

Spotify, which launched a year after the 2007 launch of the iPhone, said on Wednesday that Apple’s control of its App Store deprived consumers of choice and rival providers of audio streaming services to the benefit of Apple Music, which began in 2015. 

Central to Spotify’s complaint, filed with the European Commission on Monday, is what it says is a 30 percent fee Apple charges content-based service providers to use Apple’s in-app purchase system (IAP). 

Forced to raise price

Horacio Gutierrez, Spotify’s general counsel, said the company was pressured into using the billing system in 2014, but then was forced to raise the monthly fee of its premium service from 9.99 to 12.99 euros, just as Apple Music launched at Spotify’s initial 9.99 price. 

Spotify then ceased use of Apple’s IAP system, meaning Spotify customers could only upgrade to the fee-based package indirectly, such as on a laptop. 

Under App Store rules, Spotify said, content-based apps could not include buttons or external links to pages with production information, discounts or promotions and faced difficulties fixing bugs. Such restrictions do not apply to Android phones, it said. 

“Promotions are essential to our business. This is how we convert our free customers to premium,” Gutierrez said. 

Voice recognition system Siri would not hook iPhone users up to Spotify, and Apple declined to let Spotify launch an app on its Apple Watch, Spotify said. 

Spotify declined to say what economic damage it believed it had suffered. 

“We feel confident in the economic analysis we have submitted to the commission that we could have done better than we have done so far,” Gutierrez said. 
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The United States is working on a plan to lift tariffs from Mexican and Canadian steel and aluminum but preserve the gains that domestic producers have received from the duties so far, U.S. Trade Representative Robert Lighthizer said on Tuesday.

“What I’m trying to do is a have a practical solution to a real problem … get rid of tariffs on these two, let them maintain their historic access to the U.S. market which I think will allow us to still maintain the benefit of the steel and aluminum program,” he told the U.S. Senate Finance Committee at a hearing about the World Trade Organization.

The United States imposed the “Section 232” tariffs on steel and aluminum nearly a year ago to protect domestic producers on national security grounds. A plan to lift tariffs on the metals from Canada and Mexico was once linked to the renegotiation of the North American Free Trade Agreement but ultimately was excluded from that deal.

Since then, a number of U.S. lawmakers have said they did not believe the new U.S.-Mexico-Canada Agreement (USMCA) could win approval in Congress if the metals tariffs — along with and retaliatory duties on U.S. farm and other products — were left in place.

Members of the New Democrat Coalition in the House of Representatives echoed a similar message in a meeting with Lighthizer later on Tuesday.

“Some of us impressed the need to resolve 232 before we have a chance to move forward” on consideration of USMCA, said Representative Ron Kind, a pro-trade Democrat from Wisconsin.

Kind added that Lighthizer expected to meet with Mexican and Canadian counterparts on the issue this week.

A spokeswoman for the U.S. Trade Representative’s office declined to comment, saying there were no scheduling announcements on the 232 issue.

The United States has sought quotas on steel and aluminum in lieu of tariffs, but Canada and Mexico have resisted such restrictions, arguing that they pose no threat to U.S. national security.

A Mexican official said talks were continuing.

“Our position is that we should not have tariffs or quotas.

We have to help the U.S. construct the narrative of why exclusion for Mexico is valid,” added the official, who was not authorized to speak publicly on the matter and requested anonymity.

Kind cautioned that the Trump administration would need to submit the USMCA enabling legislation soon to Congress so it could be considered before the August recess. After that, it could become caught up in another border wall funding fight in the fall and later the 2020 presidential election campaign, which would diminish its approval chances.

“There’s a lot of work and the clock’s ticking,” Kind added.
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Mexican President Andres Manuel Lopez Obrador on Tuesday denied any delay to a flagship refinery project in his home state after the deputy finance minister was quoted as saying $2.5 billion for its construction will be moved to state oil firm Pemex.

The planned investment for the Dos Bocas refinery “can go to exploration and production” for Pemex, Arturo Herrera told the Financial Times in an interview during a trip to London for meetings with investors.

However, Lopez Obrador stood by his plan to build the refinery within three years, saying the tender could be unveiled next week. In answer to a question about whether the $2.5 billion would be spent this year on the refinery, said “Yes.”

The president’s plans to fast-track construction of the new refinery in Tabasco, his home state, have concerned investors that it would take away much-needed resources from Pemex, which is creaking under $106 billion of debt.

His energy minister, Rocio Nahle, said she understood Herrera’s budget concerns but said the project was on track.

“The faster we do this project, the cheaper it will be,” she said on Mexican radio.

The conflicting statements appeared to confuse investors.

Mexico’s benchmark stock index reversed gains and weakened 0.7 percent after Lopez Obrador’s rebuttal of Herrera’s comments, while the peso pared gains.

“Contradictions within the federal government do not help financial markets,” said James Salazar, an economist at bank CI Banco.

The government is under growing pressure to dispel doubts Pemex can successfully manage more than $16 billion of debt payments due by the end of next year, halt the firm’s extended oil output slide and avert a threatened credit rating downgrade to “junk.”

Finance minister Carlos Urzua said last week the government would announce new measures to support the ailing company, after unveiling a $3.9 billion bailout in February that failed to impress ratings agencies.

Herrera said the government was in talks with the International Monetary Fund and other multilateral organizations about structuring a fresh capital injection for Pemex, though he noted that those discussions were technical and no borrowing was involved, according to the Financial Times.

Lopez Obrador said it was very likely the government would make an announcement about tenders for the refinery on March 18, a national holiday that celebrates the 1938 nationalization of Mexico’s oil industry.

He also predicted Pemex would reverse its output decline by next year, with “new wells” coming on line by December under a production plan that allows Pemex to hire service companies to help explore mature fields.

He repeated that the refinery would cost between $6 billion and $8 billion, and said that work for now was focused on preparing the ground at the refinery site and readying the framework for the tender.

The refinery has already hit obstacles after the proposed construction site was cleared of protected mangrove without the correct environmental permits. The government has yet to present an environmental impact assessment for the wildlife-rich site.

Herrera said the tender framework was being prepared, but said the finance ministry needed to see a solid financial plan before releasing funds.

“We will not authorize (construction) until we have a final figure that is not very different from the original $8 billion,” said Herrera.

($1 = 19.3083 Mexican pesos)
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The United States is preparing to impose “very significant” Venezuela-related sanctions against financial institutions in the coming days, U.S. special envoy Elliott Abrams said on Tuesday.

Abrams did not elaborate on the fresh measures but his warning came a day after the U.S. Treasury imposed sanctions on Russian bank Evrofinance Mosnarbank for helping Venezuelan state oil firm PDVSA evade U.S. financial restrictions.

Abrams said Washington was also preparing to withdraw more U.S. visas from Venezuelans with close ties to President Nicolas Maduro.

Washington has taken the lead in recognizing opposition leader Juan Guaido as Venezuela’s rightful president after the 35-year-old Congress chief declared Maduro’s 2018 re-election a fraud and announced an interim presidency in January. Most countries in Europe and Latin America have followed suit.

Abrams’ comments came as Venezuela ordered American diplomats to leave the country within 72 hours.

Washington said it had decided to withdraw the remaining diplomats due to deteriorating conditions in Venezuela, which has been plunged into its worst blackout on record.

Abrams emphasized that the withdrawal of diplomats was not a change in U.S. policy.

“This does not represent any change in U.S. policy toward Venezuela, nor does it represent any reduction in the commitment we have to the people of Venezuela and to their struggle for democracy,” he said, adding that the U.S. intended to keep up pressure on Maduro through sanctions.

“You will see very soon a significant number of additional visa revocations. You will see in the coming days some very significant additional sanctions,” Abrams added.

He said the United States was in talks with other countries that could act as its “protecting power” in Venezuela to ensure the safety of the U.S. embassy’s premises and provide assistance to Americans in trouble.

A “protecting power” is a country that represents another in cases where two countries have broken off diplomatic relations.

Washington, for example, has appointed Switzerland as its “protecting power” in Iran.

“We are trying to decide on a protecting power,” Abrams said.

He said the safety of U.S. diplomats was a key factor in the withdrawal decision reached by U.S. Secretary of State Mike Pompeo in the late hours of Monday night.
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North Korean leader Kim Jong Un may not be able to achieve his economic development goals given the divergent ideas over denuclearization exhibited by Washington and Pyongyang after the Hanoi summit, said experts.

After the Hanoi summit broke down last month over discussions of Washington’s demand on denuclearization and Pyongyang’s demand on sanctions relief, Kim made a first public statement emphasizing economic development, a goal he set for this year during his New Year’s Day speech.

If the sanctions are not lifted, North Korea and its citizens will likely to face tougher economic conditions this year.

North Korea’s main state media outlet, Korea Central News Agency (KCNA), reported on Saturday that Kim stressed last week “the need to concentrate all efforts of information and motivation on accelerating socialist economic construction.” KCNA added that Kim emphasized the [North] Korean people should “further display their might in the spirit of self-reliance.”

Ahead of the report, U.S. National Security Advisor John Bolton told Fox Business Network last week the U.S. is looking to increase sanctions if Pyongyang is not willing to denuclearize.

“They’re not going to get relief from the crushing economic sanctions that have been imposed on them,” Bolton said. “We’ll look at ramping those sanctions up in fact.”

A State Department official said on Thursday that the U.S. is not looking to provide exemptions to South Korea to resume joint economic projects with North Korea, which Seoul has been pushing for since the first inter-Korean summit in April.

Missile sites

Based on commercial satellite imagery, North Korea appeared to be rebuilding the Sohae Satellite Launching Station at Tongchang-ri last week. Pyongyang began to dismantle the largest missile engine test site in the country after the first summit with the U.S.in Singapore in June.

Movements around the Samundong facility near Pyongyang were also detected last week, suggesting North Korea might be preparing for a missile launch.

Built in 2012, the Samundong facility’s mission is the development of long-range missiles and space-launch vehicles, such as the Hwasong-15 intercontinental ballistic missile, which analysts agree is capable of reaching the U.S. mainland. 

Experts said Kim will not be able to develop North Korea’s economy, one of the world’s most opaque, without a sanctions lift from the U.S.

According to South Korea’s central bank, North Korea’s economy shrank 3.5 percent in 2017, a year after the United Nations Security Council imposed sanctions banning North Korea’s key exports including coal, textiles and fisheries and limited its imports of oil. Without the income derived from selling those export commodities, the North Korean economy is likely to face limits on its growth. 

“Sanctions are really serious obstacles to the prospects for North Korea to fully develop its economy,” said Scott Snyder, director of the U.S.-Korea policy program at the Council of Foreign Relations. 

Robert Manning, a senior fellow at the Atlantic Council, said the North Korean economy is likely to dwindle as the result of sanctions. 

“Kim’s economy is in difficult shape, squeezed by sanctions,” Manning said. “Some think it is likely to contract in 2019.”

Snyder said North Korea will likely continue to look for ways to bypass sanctions, and turn to Russia and China, which have been willing partners in that effort in the past. But, he thinks that Pyongyang is unlikely to get very far with Moscow and Beijing. 

Since the U.S.-North Korean summit process started in June, Snyder said China has eased off enforcing sanctions in the past two months.

“But I believe that China is willing to continue to apply sanctions up to a point, and that the level of relaxation on the part of China is not going to be sufficient to meet North Korea’s desire toward its needs,” he added.

Joshua Stanton, a Washington-based attorney who helped draft the North Korea Sanctions Act in 2016, thinks the consequence of sanctions are not rigorous enough at the current level to deter evasions by North Korea.

“So far, they are not,” Stanton said. “You need to go out to Chinese banks that continue to launder money for North Korea. And although the Trump administration threatened that, it hasn’t followed through with that threat.” 

US legislation

A day before the Hanoi summit that took place Feb. 27-28, Congressman Brendan Boyle, a Democrat from Pennsylvania, introduced a bill calling for the prohibition of lifting sanctions on North Korea. 

Stanton said Congress will likely look for ways to make sanctions stronger now that North Korea has demonstrated its unwillingness at the Hanoi summit to agree to U.S. demands on denuclearization. 

Ken Gause, director of the International Affairs Group at the Center for Naval Analyses, said North Korea is most likely to turn to South Korea for concessions and look to resume inter-Korean projects, such as the Kaesong Industrial Complex and Mount Kumgang tourism, which South Korea has been planning to discuss with the U.S. prior to beginning preparatory work because of potential sanctions violations.

​The Kaesong Industrial Complex that opened in 2004 included factories where South Korean manufacturers could employ North Korean workers for low wages. It was shut down in 2016 following a North Korean nuclear test. South Korean tours to the venerated Mount Kumgang ended in 2008 after a South Korean tourist was shot by a North Korean guard. 

Gause said, “It will definitely make it more difficult for [South Korean President Moon Jae-in] to just provide concessions to North Korea with the United States taking a hardline following Hanoi.”

Snyder thinks “the inter-Korean projects cannot go ahead under current circumstance because they would pursue contrary to the sanctions efforts,” and if South Korea tries to resume the projects with North Korea, “it would definitely create tension.” 

“So I believe South Korea is going to get essentially a red light on the idea of large-scale economic cooperation,” he added. 

Gause, on the other hand, thinks inter-Korean economic projects could help U.S. negotiate denuclearization with North Korea.

“If the South Koreans were able to get some sanctions relief and provide North Korea with some resources, maybe reopening the Kaesong Industrial Complex or Mount Kumgang, that could actually lay the path for better negotiations with the United States down the line than if we just take a hard line against North Korea, and they go into a shell,” said Gause. 

After the Hanoi summit, Snyder said North Korea is looking for a way to boost its leverage over the U.S. position by making a preparation to resume testing. 

“One leverage that North Korea can use to push back on the U.S. position is the idea of making preparations for possible resumption of testing,” he said. “It’s kind of logical move for North Korea to make as a means by which to send the signal that the North Koreans also have some leverage and they’re not just going to roll over.” 
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