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U.S. President Donald Trump and U.S. negotiators are 'very optimistic' about concluding Phase 1 of a trade deal with China, White House adviser Larry Kudlow said.Kevin Lamarque/Reuters

The United States and China on Friday said they made progress in talks aimed at defusing a nearly 16-month-long trade war that has harmed the global economy, and U.S. officials said a deal could be signed this month.

The Chinese Commerce Ministry on Friday said the world’s two largest economies had reached “consensus on principles” during a “serious and constructive” telephone call between their main trade negotiators.

U.S. President Donald Trump said he hoped to sign an agreement with Chinese President Xi Jinping at a U.S. location, perhaps in the farming state of Iowa, which will be a key battleground state in the 2020 presidential election.

“China wants to make the deal very much,” Trump told reporters at the White House on Friday evening. “I don’t like to talk about deals until they happen, but we’re making a lot of progress.”

U.S. and Chinese negotiators have been racing to finalize a text of a ‘phase one’ agreement for Trump and Xi to sign this month, a process clouded by wrangling over U.S. demands for a timetable of Chinese purchases of U.S. farm products.

A critical date is Dec. 15, when new U.S. tariffs on Chinese imports such as laptops, toys and electronics are set to kick in. Both the United States and China have an interest in reaching a deal and averting those tariffs.

U.S. and Chinese negotiators had made “enormous progress” toward finalizing the phase one agreement, although the deal was not yet 100% complete, White House economic adviser Larry Kudlow told reporters on Friday.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin moved forward on a range of issues during their call with China’s Vice Premier Liu He, and were working to resolve outstanding issues, USTR said in a statement.

The talks are set to continue at the deputy level.

“The deal is not completed, but we made enormous progress. We’re beyond where we were last spring, so I’m going to play that from the optimistic side,” Kudlow told reporters.

U.S. officials have said the two sides were close to an agreement in May, but talks faltered when China backtracked on commitments to change its laws to resolve core U.S. complaints about theft of intellectual property, forced technology transfers and other practices.

THREE PHASES NEEDED

For now, Kudlow said the planned Dec. 15 tariffs would remain on the table. The decision on whether to cancel them would be made by Trump, he said.

Washington still hoped to sign the deal this month, he added, despite Chile’s withdrawal as host of the Asia Pacific Economic Cooperation summit, where Trump and Chinese President Xi Jinping had been expected to ink the agreement.

“We’re looking for a venue,” he said. “We’d love the timing to be similar, but it will all be determined.”

White House trade adviser Peter Navarro told Fox Business Network three phases of the trade agreement would be required to address all of China’s “structural deadly sins.”

He said Lighthizer was insisting on an enforcement mechanism that would allow the United States to impose tariffs without fear of retaliation if China violated the deal.

Agreements on agriculture, financial services and currency were nearly completed, and there had been “excellent progress” on intellectual property theft issues, Kudlow said, although some additional work remained on that topic.

He said the thorny issue of technology transfer to China would likely be pushed back to a second phase.

The agreement covered Chinese purchases of U.S. farm products, and other steps to open up its market to agricultural goods, while in financial services, the agreement would “give 100 per cent ownership to American companies in China,” Kudlow said, citing insurers, security firms, and investment and commercial banks.

A Chinese ministry website also showed that China plans to let foreign-funded firms raise money via stock and bond issuance both in China and overseas, and to let them freely repatriate profits, as part of its moves to encourage foreign investment.

‘ANTI-DUMPING’ SANCTIONS

A World Trade Organization (WTO) panel said on Friday that China was entitled to slap compensatory sanctions on U.S. imports worth US$3.579-billion annually for the U.S. failure to remove anti-dumping duties – roughly half the amount China had sought.

In the WTO ruling, a three-member arbitration panel said Chinese exporters suffered impairment to trade valued at US$3.579-billion annually. China may now ask the WTO’s Dispute Settlement Body for a green light to impose the retaliatory tariffs on imported U.S. goods valued up to that amount each year.

China told the WTO in September, 2018, that it had suffered US$7.043-billion in damages annually owing to U.S. anti-dumping duties ruled illegal by a WTO panel in 2016 and later upheld. China therefore requested permission to raise trade barriers on U.S. goods to the same amount, as allowed under WTO rules.

As the Trump administration objected to the amount, the issue was sent to arbitration.

The case relates to U.S. dumping duties on industries including machinery and electronics, light industry, metals and minerals, and the U.S. Commerce Department’s way of calculating the amount of “dumping” – Chinese exports that are priced to undercut American-made goods on the U.S. market.

The U.S. calculation method, known as “zeroing,” tended to increase the level of U.S. anti-dumping duties on foreign producers and was repeatedly ruled to be illegal in a series of trade disputes brought to the WTO.

The U.S. Trade Representative’s office in Washington had no immediate response.

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