Britain to United States: We want a trade deal and a digital tax

Britain to United States: We want a trade deal and a digital tax
LONDON (Reuters) – Britain wants a trade deal with the United States but will impose a digital service tax on the revenue of companies such as Google, Facebook and Amazon, business minister Andrea Leadsom said on Thursday.

“The United States and the United Kingdom are committed to entering into a trade deal with each other and we have a very strong relationship that goes back centuries so some of the disagreements that we might have over particular issues don’t in any way damage the excellent and strong and deep relationship between the U.S. and the UK,” Leadsom told Talk Radio.

“There are always tough negotiations and tough talk but I think where the tech tax is concerned it’s absolutely vital that these huge multinationals who are making incredible amounts of income and profit should be taxed and what we want to do is to work internationally with the rest of the world to cover with a proper regime that ensures that they’re paying their fair share.”

Under the British plan, tech companies that generate at least 500 million pounds ($657 million) a year in global revenue will pay a levy of 2% of the money they make from UK users from April 2020.

(Reporting by Elizabeth Howcroft; writing by Guy Faulconbridge; editing by Kate Holton)

China says it hopes to reach phased trade pact with U.S. as soon as possible

China says it hopes to reach phased trade pact with U.S. as soon as possible
BEIJING (Reuters) – China hopes to reach a phased agreement in a protracted trade dispute with the United States and cancel tariffs as soon as possible, the Commerce Ministry said on Thursday, adding that trade wars had no winners.

A phased agreement would help restore market confidence and reduce uncertainty, ministry spokesman Gao Feng told reporters, adding that both sides were maintaining close communication.

“The final goal of both sides’ negotiations is to end the trade war and cancel all additional tariffs,” Gao said. “This would benefit China, the U.S. and the whole world. We hope that both sides will continue to work together, advance negotiations, and reach a phased agreement as soon as possible.”

Chinese premier Li Keqiang said both China and the United States need to resolve the issues through dialogue. He made the comments on Thursday when he met delegates led by Evan Greenberg, chairman of the U.S.-China Business Council.

“China will create an internationalized business environment ruled by law where domestic and foreign firms are treated equally,” Li said. “Property and intellectual property rights will be strictly protected.”

White House economic adviser Larry Kudlow meanwhile said he saw momentum to finalize the initial phase of a trade deal which could be signed at the APEC forum next month in Chile.

U.S. President Donald Trump on Oct. 11 outlined the first phase of a deal and suspended a threatened tariff hike, but officials on both sides said much more work needed to be done.

Trump had originally planned to proceed with a rise in tariffs to 30% from 25% on about $250 billion worth of Chinese goods last week. But the U.S. administration has yet to make a decision on how to address planned 10% tariffs on roughly $156 billion of Chinese goods due to take effect on Dec. 15.

U.S. and Chinese trade negotiators are working on nailing down a Phase 1 trade deal text for their presidents to sign next month, U.S. Treasury Secretary Steven Mnuchin said on Wednesday.

Mnuchin said the Trump administration’s “objective” was for the agreement to be signed between the presidents of the two countries at a Nov. 16-17 summit of Asia-Pacific Economic Cooperation countries in Santiago, Chile.

Working-level representatives from both countries were working on specifics of an agreement now, Gao said.

There have been positive signs from China in recent days.

China’s securities regulator on Friday unveiled a firm timetable for scrapping foreign ownership limits in futures, securities and mutual fund companies for the first time. Increasing foreign access to the sector is among the U.S. demands at the trade talks.

A day before, the U.S. Department of Agriculture confirmed net sales of 142,172 tonnes of U.S. pork to China in the week ended Oct. 3, the largest weekly sale to the world’s top pork market on record.

Trump said China had agreed to make purchases of $40 billion to $50 billion of U.S. agricultural goods. Mnuchin said the purchases would be scaled up to that amount annually.

On Wednesday, Li said China would remove business restrictions on foreign banks, brokerages and fund management firms, without giving details.

“Since this year, under the effect of China-U.S. trade frictions, trade and investment between the U.S. and China have fallen,” Gao said.

“This fully demonstrates that trade wars have no winners.”

(Reporting by Gabriel Crossley; Writing by Ryan Woo; Editing by Alex Richardson and Nick Macfie)

U.S., China resume high-level talks to end grueling trade war

By David Lawder

WASHINGTON (Reuters) – Top U.S. and Chinese negotiators met on Thursday for the first time since late July to try to find a way out of a 15-month trade war as new irritants between the world’s two largest economies threatened hopes for progress.

U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer greeted Chinese Vice Premier Liu He on the steps of the USTR office before a meeting in which they will seek to narrow differences enough to avoid an escalation of tit-for-tat tariffs that have roiled financial markets and stoked fears of a global recession.

The mood surrounding the talks soured this week when the U.S. government blacklisted 28 Chinese public security bureaus, technology and surveillance firms and imposed visa restrictions on Chinese officials over allegations of abuses of Muslim minorities in China.

Beijing is planning to tighten visa restrictions for U.S. nationals with ties to anti-China groups, sources said.

U.S. President Donald Trump has threatened to raise tariffs on $250 billion worth of Chinese goods on Oct. 15 if no progress is made in the on-again, off-again negotiations.

That would make nearly all Chinese goods imports into the United States – more than $500 billion – subject to tariffs.

“Big day of negotiations with China,” Trump said on Twitter. “They want to make a deal, but do I?” He added that he would be meeting with Liu at the White House on Friday.

Chinese officials indicated more willingness to negotiate. “The Chinese side came with great sincerity, willing to cooperate with the U.S. on the trade balance, market access and investor protection,” Xinhua quoted Liu as saying on Thursday.

A U.S. Chamber of Commerce official said there was a possibility U.S. and Chinese negotiators would reach a currency agreement in exchange for a delay of the tariff hikes.

Major U.S. stock exchanges were trading higher on hopes of progress in the talks.

Although some media reports suggested both sides are considering an “interim” deal that would suspend the planned further U.S. tariffs in exchange for additional purchases of American farm products, Trump has repeatedly dismissed this idea, insisting he wants a “big deal” with Beijing that addresses core intellectual property issues.

The U.S. Agriculture Department said on Thursday that private exporters reported a snap sale of 398,000 tonnes of soybeans to China, part of a flurry of purchases the top buyer of the oilseed has made since granting waivers to some importers to buy U.S. soy exempt from tariffs as a goodwill gesture.

Chinese firms have bought more than 3.5 million tonnes of U.S. soybeans since the beginning of September. Soybeans, the most valuable U.S. agricultural export, have been among the products hardest hit by China’s retaliatory tariffs.

LOWERED EXPECTATIONS

The two sides have been at loggerheads over U.S. demands that China improve protections of American intellectual property, end cyber theft and the forced transfer of technology to Chinese firms, curb industrial subsidies and increase U.S. companies’ access to largely closed Chinese markets.

But Chinese officials, surprised by the U.S. blacklisting of Chinese companies, including video surveillance gear maker Hikvision, along with the suspension of U.S. visas for some Chinese officials, told Reuters that Beijing had lowered expectations for significant progress from the talks.

“I’ve never seen China respond with concessions to someone throwing down the gauntlet in this manner,” said Scott Kennedy, a China trade expert at the Center for Strategic and International Studies in Washington. “It suggests to me that the U.S. may have determined that progress was impossible, so everyone is just going through the motions.”

Other flashpoints that have cropped up in recent days include China’s swift action to cut corporate ties to the National Basketball Association over a team official’s tweet in support of Hong Kong pro-democracy protesters.

U.S. Commerce Secretary Wilbur Ross said in Sydney on Thursday that the tariffs were working, forcing Beijing to pay attention to American concerns about its trade practices.

“We do not love tariffs – in fact we would prefer not to use them – but after years of discussions and no action, tariffs are finally forcing China to pay attention to our concerns,” Ross said in remarks prepared for delivery on an official visit to Australia.

(Reporting by David Lawder; Editing by Simon Cameron-Moore and Paul Simao)

U.S. to withdraw 5,000 troops from Afghanistan, close bases: U.S. negotiator

U.S. special representative for Afghanistan, Zalmay Khalilzad (L), meets with Afghanistan Chief Executive Abdullah Abdullah in Kabul, Afghanistan September 2, 2019. Afghan Chief Executive office/Handout via REUTERS

By Hamid Shalizi and Abdul Qadir Sediqi

KABUL (Reuters) – The United States would withdraw almost 5,000 troops from Afghanistan and close five bases within 135 days under a draft peace accord agreed with the Taliban, the chief U.S. negotiator Zalmay Khalilzad said on Monday.

The deal, reached after months of negotiations with representatives from the insurgent movement, must still be approved by U.S. President Donald Trump before it can be signed, Khalilzad said in an interview with Tolo News television.

“In principle, we have got there,” he said.

Afghan President Ashraf Ghani has been briefed on a draft of the accord and will look at details of the deal before giving an opinion, his spokesman said on Monday.

In exchange for the phased withdrawal, the Taliban would commit not to allow Afghanistan to be used by militants to plot attacks on the United States and its allies.

It includes provision for so-called “intra-Afghan” talks to reach a broader political settlement and end the fighting between the Taliban and the Western-backed government in Kabul.

However details of any future negotiations remain unclear, with the Taliban so far refusing to deal directly with the government, which it considers an illegitimate “puppet” regime.

Ghani met Khalilzad and will “study and assess” details of the draft, spokesman Sediq Sediqqi told reporters earlier on Monday.

“But for us, a meaningful peace or a path to a meaningful peace is the end of violence and direct negotiation with the Taliban,” he said.

Many Afghan government officials have resented the exclusion of the government from the U.S.-Taliban talks. There was some uncertainty about whether Ghani had been given a copy of the agreement, or simply shown it.

Khalilzad, who has completed nine rounds of talks with Taliban representatives, is scheduled to hold meetings with a number of Afghan leaders in Kabul this week to build a consensus before the deal is signed.

The peace talks have taken place against a backdrop of relentless violence, with the Taliban mounting two large-scale attacks on the major northern cities of Kunduz and Pul-e Khumri over the weekend.

Afghan security forces pushed back Taliban fighters from both cities but a suicide bomber detonated his explosives on Monday in Kunduz, killing at least six policemen and wounding 15, officials and the Taliban said.

Trump has made little secret of his desire to bring the roughly 14,000 troops home from Afghanistan, where American troops have been deployed since a U.S.-led campaign overthrew the Taliban in 2001.

But there are concerns among Afghan officials and U.S. national security aides about a U.S. withdrawal, with fears Afghanistan could be plunged into a new civil war that could herald a return of Taliban rule and allow international militants, including Islamic State, to find a refuge.

(Additional reporting by Rupam Jain in Kabul, Ahmad Sultan in Nangarhar, Mustafa Andalib in Ghazni,; Editing by Darren Schuettler, Robert Birsel and Alison Williams)

Last-ditch talks to keep Iran under nuclear limits headed for failure

Iran's top nuclear negotiator Abbas Araqchi and Secretary General of the European External Action Service (EEAS) Helga Schmit attend a meeting of the JCPOA Joint Commission in Vienna, Austria, June 28, 2019. REUTERS/Leonhard Foeger

By John Irish and Francois Murphy

VIENNA (Reuters) – Last-ditch talks to persuade Tehran not to exceed nuclear limits within days were on course for failure on Friday, as Iranian officials said their demands had not been met and Washington rebuffed European calls to ease sanctions to allow negotiations.

A week after Washington called off air strikes just minutes before impact, diplomats say Iran is on course within days to exceed the threshold of enriched uranium allowed under its nuclear deal with world powers, which Washington quit last year.

Any such move would reshape the diplomatic landscape, at a time when European officials are warning that a small mistake on either side could push the United States and Iran to war.

Iranian officials met in Vienna with representatives of the countries that are still party to the nuclear deal — Britain, France, Germany, Russia and China. The Iranians repeated their demand that they be allowed to sell oil.

The talks were a “last chance for the remaining parties … to gather and see how they can meet their commitments towards Iran,” Foreign Ministry spokesman Abbas Mousavi said.

Despite abandoning the deal, Washington has demanded European countries force Iran to continue complying with it. Iran says it cannot do so unless the Europeans provide it with some way to receive the deal’s promised economic benefits.

“For one year we exercised patience. Now it is the Europeans’ turn to exercise patience,” Mousavi said. “They should try to find solutions, practical solutions.”

French President Emmanuel Macron said this week that he would ask U.S. President Donald Trump to ease sanctions to allow negotiations to begin. But the plea seemed to have fallen on deaf ears, with Trump’s Iran envoy saying on Friday sanctions would remain in place to end Iranian oil exports altogether.

“We will sanction any imports of Iranian crude oil… There are right now no oil waivers in place,” Brian Hook, the U.S. Special Representative On Iran, told reporters in London.

European countries, which opposed Trump’s decision to abandon the deal and reimpose sanctions, have promised to find ways to allow Iran access to trade in return for continuing to comply. But in practice, the effort has failed, with major European companies canceling all plans to invest in Iran.

DEADLINES

Iran has set a number of deadlines in recent weeks after which it would cease complying with specific terms of the nuclear deal. The first expired on Thursday, the date Tehran said the quantity of enriched uranium it is holding could exceed the deal’s permissible threshold.

Diplomats in Vienna, headquarters of the U.N. nuclear agency IAEA, told Reuters on Thursday that the latest data from inspectors suggested the threshold had not yet been breached, but it could be as soon as Saturday or Sunday.

Another deadline, when Iran says it could enrich uranium to a purity forbidden under the deal, expires on July 7.

Iran says that if it does exceed thresholds, the steps would be reversible and it still aims to keep the deal in place.

The crisis between Iran and the United States that began with Trump’s withdrawal from the pact has escalated in recent weeks after Washington sharply tightened its sanctions from the start of May to halt all Iranian oil exports.

The Trump administration argues that the 2015 agreement reached under his predecessor Barack Obama was too weak because many terms are not permanent and it excludes non-nuclear issues such as missiles and Iran’s regional behavior. Washington says the aim of sanctions is to force Tehran to renegotiate.

Tehran says there can be no talks as long as sanctions are in place and Washington is ignoring the deal it already signed.

The confrontation took on a military dimension in recent weeks, with Washington blaming Tehran for attacks on ships in the Gulf, which Iran denies. Iran shot down a U.S. drone last week, saying it had entered its air space. Washington said the drone was in international skies, and Trump ordered, then aborted, retaliatory air strikes on Iranian targets.

Any move by Iran that violated the terms of the nuclear deal would put pressure on the Europeans to take sides.

“We will repeat to the Iranians that nuclear issues are not negotiable. We want them to stay in the accord, but we won’t accept them messing us around,” a senior European diplomat said before Friday’s meeting.

The cornerstone of European efforts to placate the Iranians is the creation of INSTEX, a mechanism to use barter to allow some trade that would avoid entanglement in U.S. sanctions.

Almost six months after it was created, it is still not operational and diplomats say it will be able to handle only small volumes for items like medicine, not the large oil sales Iran is seeking.

“If INSTEX fails to meet Iran’s demands within the framework of the nuclear deal, we will take the next steps more decisively,” Mousavi said, adding that “the implementation of the EU’s trade mechanism has been delayed due to some lack of commitments”.

(Additional reporting by Bozorgmehr Sharafedin and Guy Faulconbridge in London and Parisa Hafezi in Dubai; Editing by Peter Graff)

Iran on course to exceed nuclear pact limit within days: diplomats

FILE PHOTO: A general view of Bushehr nuclear power plant, 1,200 km (746 miles) south of Tehran, August 21, 2010. REUTERS/Raheb Homavandi

By Francois Murphy and Christopher Gallagher

VIENNA/TOKYO (Reuters) – Iran is on course to breach a threshold in its nuclear agreement with world powers within days by accumulating more enriched uranium than permitted, although it has not done so yet, diplomats said, citing the latest data from U.N. inspectors.

France, one of the European powers caught in the middle in an escalating confrontation between Washington and Tehran, said it would ask U.S. President Donald Trump to suspend some sanctions on Iran to allow negotiations to defuse the crisis.

A week after Trump called off air strikes on Iran minutes before impact, world leaders are trying to pull the two countries back from the brink, warning that a mistake on either side could lead to war.

“I want to convince Trump that it is in his interest to re-open a negotiation process (and) go back on certain sanctions to give negotiations a chance,” French President Emmanuel Macron said in Japan, where he is due to meet Trump on the sidelines of a summit in coming days.

A move by Tehran that clearly breached its 2015 nuclear agreement with world powers would transform the diplomatic landscape and probably force European countries to take sides.

Macron said he had two priorities: de-escalating military tension and keeping Iran from violating the accord, which European countries still hope to save even though Trump ignored their advice and quit it last year.

The latest data from U.N. inspectors suggested Iran had not yet violated the deal on Thursday, despite having named it as a day when it might do so.

“They haven’t reached the limit… It’s more likely to be at the weekend if they do it,” said one diplomat in Vienna, headquarters of the U.N. nuclear agency IAEA, on condition of anonymity.

“OBLITERATION”

The United States withdrew from the pact last year under which Iran accepted curbs on its nuclear program in return for access to international trade. Iran has said it wants to abide by the agreement but cannot do so indefinitely as new U.S. sanctions mean it is receiving none of the benefits.

The escalating crisis has put the United States in the position of demanding its European allies enforce Iranian compliance with an accord Washington itself rejects.

The United States sharply tightened its sanctions last month, ordering all countries to halt purchases of Iranian oil, the main source of revenue to feed Iran’s 80 million people.

Trump’s aborted air strikes last week were the culmination of weeks of heightened military tension. Washington accused Iran of being behind attacks on ships in the Gulf, which it denies.

Last week Iran shot down a U.S. drone it said was in its air space. The United States said it was in international skies.

Since the aborted air strikes last week there have been no major incidents, but rhetoric on both sides has become menacing.

This week Trump threatened Iran’s “obliteration” if it attacked U.S. interests while Rouhani, typically the mild-mannered face of the Tehran government, called White House policy “mentally retarded”. Trump later said he hoped to avoid war, which would be short and not involve boots on the ground.

IRANIAN RESPONSE

In the latest volley in the war of words, Iran’s parliament speaker Ali Larijani said the downing of the U.S. drone had taught Washington the cost of violating Iranian air space.

“Iran’s reaction will be stronger if they repeat their mistake of violating our borders,” Iran’s Tasnim news agency quoted Larijani as saying.

The Trump administration says its ultimate goal is to force Iran back to the table for negotiations. It argues that the 2015 deal, negotiated under Trump’s predecessor Barack Obama, was too weak because it is not permanent and does not cover non-nuclear issues, such as Iran’s missile program and regional behavior.

Iran says it cannot negotiate further unless the United States observes the existing agreement and lifts sanctions.

Tehran says Washington would be to blame if it ends up breaching the limit on uranium stockpiles, since the deal allows it to sell excess uranium abroad to reduce its holdings, but U.S. sanctions have prevented this.

It has set a separate deadline of July 7 when it could breach another major threshold, on the level of purity of uranium it has enriched.

(Additional reporting by Christopher Gallagher in Tokyo; Writing by Peter Graff; Editing by Jon Boyle)

U.S., North Korea in behind-the-scenes talks over third summit, Moon says

FILE PHOTO: North Korea's leader Kim Jong Un and U.S. President Donald Trump talk in the garden of the Metropole hotel during the second North Korea-U.S. summit in Hanoi, Vietnam February 28, 2019. REUTERS/Leah Millis

By Hyonhee Shin

SEOUL (Reuters) – The United States is in behind-the-scenes talks with North Korea over a possible third summit and has proposed working-level negotiations that have been stalled since the second such meeting in February, South Korean President Moon Jae-in said on Wednesday.

FILE PHOTO: South Korea's President Moon Jae-in attends a press meeting at the Royal Palace in Stockholm, Sweden June 14, 2019. Henrik Montgomery/TT News Agency/via REUTERS

FILE PHOTO: South Korea’s President Moon Jae-in attends a press meeting at the Royal Palace in Stockholm, Sweden June 14, 2019. Henrik Montgomery/TT News Agency/via REUTERS

Moon, in written answers to questions posed by visiting foreign journalists, said there was no reason to talk of a “stalemate” just because there had been no official dialogue, aimed at the denuclearization of North Korea.

U.S. President Donald Trump and North Korean leader Kim Jong Un held their second meeting in the Vietnamese capital of Hanoi in February but failed to reach a deal due to differences between U.S. calls for denuclearization and North Korean demands for relief from sanctions.

“Both sides have been engaged in dialogue in regard to a third summit,” Moon said.

“It’s noteworthy that the behind-the-scenes talks have been preceded by the mutual understanding of each other’s position gained through the Hanoi summit.”

The United States had made a proposal for working-level talks, Moon said, urging North Korea to return to the negotiating table “at the earliest date possible”.

North Korea pursued nuclear and missile program for years in defiance of U.N. Security Council resolutions and U.N. and U.S. sanctions.

Moon has been an ardent champion of efforts to end the confrontation, vowing to play a mediator role in nudging North Korea into giving up its nuclear weapons in exchange for an end to sanctions and security guarantees.

The Hanoi breakdown was a blow for Moon, who days before the summit offered to “ease the burden” of the United States by providing concessions to the North through inter-Korean economic initiatives which he seeks to revive.

Moon did not specify when and how the U.S. proposal was made. But U.S. Secretary of State Mike Pompeo said on Sunday that a recent exchange of letters between Trump and Kim boosted hopes for a restart of talks, calling it a “very real possibility.”

North Korea’s official KCNA news agency said on Sunday that Trump’s letter had “excellent content” and Kim would “seriously contemplate” it, without elaborating.

‘NEXT LEVEL’

Stephen Biegun, the U.S. special envoy for North Korea who led working-level talks ahead of the Hanoi summit, is visiting Seoul from Thursday for meetings with South Korean officials before joining Trump, who is due in South Korea this weekend.

Trump is considering visiting the demilitarized zone separating the two Koreas, where Kim and Moon had their historic first summit last year, a South Korean official said. The two Koreas are technically still at war after their 1950-53 conflict ended in a truce, not a treaty.

But a U.S. official said on Tuesday that Trump had no plans to meet Kim during his trip and declined to comment on whether Trump would go to the DMZ.

Trump wanted to travel to the DMZ on a 2017 visit to South Korea but heavy fog prevented it.

“The resumption of negotiations between North Korea and the United States will take it to the next level. I believe everything has now fallen into place for that to happen,” Moon said.

The Hanoi summit cast doubt on Kim’s commitment to denuclearize. There has been little progress since then, with Pyongyang resuming some limited testing of weapons and being aloof toward dialogue offers both from Washington and Seoul.

There is also a gray area over talk about the denuclearization of the “Korean peninsula”, which, by North Korea’s reckoning, includes the regional U.S. nuclear umbrella protecting Japan and South Korea. The United States only wants North Korea to denuclearize.

Moon said Kim had told him he wanted to “finalize a denuclearization process as soon as possible and to concentrate on economic development”.

Moon called for the North to scrap the “passive stance” it has presented since the Hanoi summit and take action on its past promises.

“By responding to the U.S. proposal for working-level negotiations, it can also show its determination to denuclearize,” he said.

The questions for the written interview were provided by Reuters, AP, AFP, Yonhap, Kyodo, Xinhua and Tass ahead of a symposium on the Korea peace process hosted by Yonhap in Seoul on Thursday.

(Reporting by Hyonhee Shin; Editing by Nick Macfie)

Iran says U.S. sanctions on Khamenei mean end of diplomacy

FILE PHOTO: Iran's Supreme Leader Ayatollah Ali Khamenei waves his hand as he arrives to deliver a speech during a ceremony marking the 30th death anniversary of the founder of the Islamic Republic Ayatollah Ruhollah Khomeini in Tehran, Iran June 4, 2019. Official Khamenei website/Handout via REUTERS

By Parisa Hafezi

DUBAI (Reuters) – New U.S. sanctions against Iran’s supreme leader and foreign minister have closed off diplomacy, Iran said on Tuesday, blaming the United States for abandoning the only route to peace just days after the two foes came within minutes of conflict.

U.S. President Donald Trump signed an executive order imposing sanctions on Monday against Supreme Leader Ayatollah Ali Khamenei and other senior figures. Sanctions against Foreign Minister Mohmmad Javad Zarif are expected later this week.

The moves came after Iran shot down a U.S. drone last week and Trump called off a retaliatory air strike minutes before impact, which would have been the first time the United States had bombed Iran in decades of hostility between them.

Trump said he decided at the last minute that too many people would die.

“Imposing useless sanctions on Iran’s Supreme Leader and the commander of Iran’s diplomacy is the permanent closure of the path of diplomacy,” Iranian Foreign Ministry spokesman Abbas Mousavi said on Twitter.

“Trump’s desperate administration is destroying the established international mechanisms for maintaining world peace and security,” Mousavi tweeted.

In a televised address, President Hassan Rouhani said sanctions against Khamenei would have no practical impact because the cleric had no assets abroad.

Rouhani, a pragmatist who won two elections on promises to open Iran up to the world, described the U.S. moves as desperate and called the White House “mentally retarded” – an insult Iranian officials have used in the past about Trump but a departure from Rouhani’s own comparatively measured tone.

Rouhani and his cabinet run Iran’s day-to-day affairs, while Khamenei, in power since 1989, is Iran’s ultimate authority.

“The White House actions mean it is mentally retarded,” Rouhani said. “Tehran’s strategic patience does not mean we have fear.”

Russian Foreign Minister Sergei Lavrov said the situation around Iran was developing toward a dangerous scenario, RIA news agency reported.

“OPEN DOOR”

Trump’s hawkish national security adviser, John Bolton, visiting Israel, repeated earlier offers to hold talks, as long as Iran was willing to go beyond the terms of a 2015 nuclear deal with world powers which Trump abandoned last year.

“The president has held the door open to real negotiations to completely and verifiably eliminate Iran’s nuclear weapons program, its pursuit of ballistic missile delivery systems, its support for international terrorism and other malign behavior worldwide,” Bolton said in Jerusalem. “All that Iran needs to do is to walk through that open door.”

The United States has imposed crippling economic sanctions against Iran since last year, when Trump withdrew from an agreement between Tehran and world powers to curb Iran’s nuclear program in return for the lifting of sanctions.

The crisis has escalated sharply since last month, when the Trump administration tightened the sanctions, ordering all countries to halt purchases of Iranian oil.

That has effectively starved the Iranian economy of the main source of revenue Tehran uses to import food for its 81 million people, and left Iran’s pragmatic faction with no benefits to show for its nuclear agreement.

Washington says the 2015 agreement reached under Trump’s predecessor Barack Obama did not go far enough because it is not permanent and does not cover issues beyond the nuclear program, such as missiles and regional behavior.

Iran says there is no point negotiating with Washington when it has abandoned a deal that was already reached.

The downing of the U.S. drone – which Iran says was over its air space and the United States says was international skies – was the culmination of weeks of rising tensions that had begun to take on a military dimension.

The United States and some regional allies have blamed Iran for attacks on tankers in the Gulf, which Tehran denies. Washington’s European allies have repeatedly warned both sides of the danger that a small mistake could lead to war.

Russian Security Council Secretary Nikolai Patrushev came to Iran’s support, saying the drone was in Iranian airspace when it was shot down and that the evidence on the tanker attacks was of poor quality and unprofessional, not enough to draw conclusions.

During a visit to Jerusalem, Patrushev also said it was unacceptable to portray Iran as a threat to international security and called for restraint to help defuse the situation.

Washington says forcing Iran to the table is the purpose of its sanctions. Tehran has said it is willing to talk if the United States lifts the new sanctions first, although Tuesday’s statements appear to toughen that stance.

Trump is leaving a path open to diplomacy with Iran but Tehran would be making a mistake if it interprets his restraint over the downing of a drone as weakness, U.S. disarmament ambassador Robert Wood told a conference in Geneva.

“We will not initiate a conflict against Iran, nor do we intend to deny Iran the right to defend its airspace but if Iran continues to attack us, our response will be decisive,” he said.

U.S. officials have launched a diplomatic campaign to rally their allies in the face of the escalating crisis. Foreign Secretary Mike Pompeo jetted to the Middle East on Monday to meet leaders of Saudi Arabia and the United Arab Emirates, Gulf Arab states that favor the toughest possible line against Iran.

The U.S. envoy on Iran, Brian Hook, is visiting Europe, where he is likely to get a frostier reception from allies who support the nuclear deal. They believe Trump’s decision to quit the accord was a mistake that has strengthened Iran’s hardline faction, weakened its pragmatists and endangered regional peace.

Iran says it still aims to comply with the nuclear deal, but cannot do so indefinitely unless it receives some benefits. It has given European countries until July 8 to find a way to shield its economy from U.S. sanctions, or else it will enrich uranium to levels banned under the deal.

(Reporting by Parisa Hafezi; Writing by Peter Graff; Editing by Jon Boyle/Mark Heinrich)

U.S. holds out for more from Mexico in talks over tariffs, border

By Roberta Rampton

WASHINGTON (Reuters) – Mexican and U.S. officials are set to resume talks on trade and migration on Thursday, with the United States resisting calls from its southern neighbor, businesses and some Republican lawmakers to ease up on a plan to impose import tariffs on Mexico.

Vice President Mike Pence, who led an initial round of negotiations in Washington on Wednesday, said talks were positive but emphasized the Trump administration still wants Mexico to commit to working harder to combat illegal immigration.

“We welcomed the efforts of the Mexican officials to offer solutions to the crisis at our southern border, but we need Mexico to do more,” Pence said on Thursday.

He was echoing President Donald Trump, who said on Wednesday that “not nearly enough” progress was made in the first round of talks, and warned that the tariffs would go into effect on Monday if Mexico cannot help stem the flow of mostly Central American migrants heading for the U.S. border.

Last week, Trump said Mexico must take a harder line on migrants or face 5% tariffs on all its exports to the United States from June 10, rising to as much as 25% later this year.

The unexpected announcement rattled global financial markets and even Trump’s fellow Republicans fretted about the potential economic impact on U.S. businesses and consumers who would have to absorb the costs.

MEXICO ECONOMY

Mexico would also take an economic hit that analysts warn could spark a recession. Credit ratings agency Fitch downgraded Mexico’s sovereign debt rating on Wednesday, citing trade tensions among other risks, while Moody’s lowered its outlook to negative.

Staff-level meetings are scheduled to begin at 2 p.m. (1800 GMT) on Thursday with Mexican officials at the White House, a White House official said. Mexican Foreign Minister Marcelo Ebrard earlier had meetings at the U.S. State Department.

The immigration issue came into sharper focus on Wednesday with news that U.S. border officers said they apprehended more than 132,000 people crossing from Mexico in May, the highest monthly total in more than a decade and reaching what officials said were “crisis” levels.

German bond yields fell to new lows on Thursday and U.S. treasury yields resumed their fall as trade tensions doused a rally fueled by hopes for more central bank stimulus ahead of a European Central Bank meeting. [US/]

Sentiment had soured on a lack of progress in talks between U.S. and Mexican officials, and Trump issuing a fresh threat to hit China with tariffs on at least another $300 billion worth of goods.

With Trump on a trip to Europe until Friday night, a quick agreement in the U.S.-Mexico talks is not anticipated by the U.S. side, although Mexican President Andres Manuel Lopez Obrador struck a positive note.

“The U.S. authorities have behaved very well, (including) President Trump, because they haven’t closed themselves off to dialogue and we hope that a deal is reached today,” he told a news conference on Thursday.

Nevertheless, Mexican officials have prepared a list of U.S. products that may face retaliatory tariffs if talks do not end in agreement.

The tariffs would target U.S. products from agricultural and industrial states regarded as Trump’s electoral base, a tactic China has also used with an eye toward the Republican’s re-election bid in the 2020 U.S. presidential election.

Mexico ramped up efforts to halt the flow of Central American migrants crossing the border to the United States on Wednesday, with Mexican soldiers, armed police and immigration officials blocking migrants along its own southern border with Guatemala.

It was unclear whether the hardening of Mexico’s response would appease Trump, who is struggling to make good on his key 2016 presidential campaign promise to build a wall along the U.S.-Mexico border as part of a hard-line immigration stance.

Senator Chuck Grassley, Republican chairman of the finance committee, had expressed hope on Wednesday of a quick deal with Mexico but he was more cautious on Thursday.

“The fact that there wasn’t any agreement probably isn’t surprising as long as they are going to be here two or three days,” said Grassley, one of several Republican lawmakers who have expressed concern about imposing tariffs on Mexico.

(Reporting by Roberta Rampton in Washington; Additional reporting by Alexandra Alper, Susan Cornwell and Lesley Wroughton in Washington and Anthony Esposito and Diego Ore in Mexico City; Writing by Alistair Bell; Editing by Bernadette Baum and James Dalgleish)

Exclusive: China backtracked on almost all aspects of U.S. trade deal – sources

FILE PHOTO: Chinese Vice Premier Liu He, right, looks as U.S. Treasury Secretary Steven Mnuchin, center, swaps places with his Trade Representative Robert Lighthizer during a photograph session before they proceed to their meeting at the Diaoyutai State Guesthouse in Beijing, Wednesday, May 1, 2019. Andy Wong/Pool via REUTERS

By David Lawder, Jeff Mason and Michael Martina

WASHINGTON/BEIJING (Reuters) – The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks.

The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters.

In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

U.S. President Donald Trump responded in a tweet on Sunday vowing to raise tariffs on $200 billion worth of Chinese goods from 10 to 25 percent on Friday. timed to land in the middle of a scheduled visit by China’s Vice Premier Liu He to Washington to continue trade talks.

The United States said on Wednesday the higher tariffs would go into effect on Friday, according to a notice posted on the Federal Register.

Trump said on Wednesday that China is mistaken if it hopes to negotiate trade later with a Democratic presidential administration.

“The reason for the China pullback attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to ‘negotiate’ with Joe Biden or one of the very weak Democrats,” Trump tweeted. Trump also said he would be happy to keep tariffs on Chinese imports in place.

The stripping of binding legal language from the draft struck directly at the highest priority of U.S. Trade Representative Robert Lighthizer – who views changes to Chinese laws as essential to verifying compliance after years of what U.S. officials have called empty reform promises.

Lighthizer has pushed hard for an enforcement regime more like those used for punitive economic sanctions such as those imposed on North Korea or Iran than a typical trade deal.

“This undermines the core architecture of the deal,” said a Washington-based source with knowledge of the talks.

‘PROCESS OF NEGOTIATION’

Spokespeople for the White House, the U.S. Trade Representative and the U.S. Treasury Department did not immediately respond to requests for comment.

Chinese Foreign Ministry spokesman Geng Shuang told a briefing on Wednesday that working out disagreements over trade was a “process of negotiation” and that China was not “avoiding problems”.

Geng referred specific questions on the trade talks to the Commerce Ministry, which did not respond immediately to faxed questions from Reuters.

Lighthizer and U.S. Treasury Secretary Steven Mnuchin were taken aback at the extent of the changes in the draft. The two cabinet officials on Monday told reporters that Chinese backtracking had prompted Trump’s tariff order but did not provide details on the depth and breadth of the revisions.

Liu last week told Lighthizer and Mnuchin that they needed to trust China to fulfill its pledges through administrative and regulatory changes, two of the sources said. Both Mnuchin and Lighthizer considered that unacceptable, given China’s history of failing to fulfill reform pledges.

One private-sector source briefed on the talks said the last round of negotiations had gone very poorly because “China got greedy.”

“China reneged on a dozen things, if not more … The talks were so bad that the real surprise is that it took Trump until Sunday to blow up,” the source said.

“After 20 years of having their way with the U.S., China still appears to be miscalculating with this administration.”

FURTHER TALKS THIS WEEK

The rapid deterioration of negotiations rattled global stock markets, bonds and commodities this week. Until Sunday, markets had priced in the expectation that officials from the two countries were close to striking a deal.

Investors and analysts questioned whether Trump’s tweet was a negotiating ploy to wring more concessions from China. The sources told Reuters the extent of the setbacks in the revised text were serious and that Trump’s response was not merely a negotiating strategy.

On Wednesday morning, U.S. stock market indexes were mostly weaker again, pointing to a third straight day of losses on Wall Street. The S&P 500 has fallen more than 2 percent so far this week. Yields on benchmark U.S. Treasury securities fell to the lowest in more than a month.

Chinese negotiators said they couldn’t touch the laws, said one of the government sources, calling the changes “major.”

Changing any law in China requires a unique set of processes that can’t be navigated quickly, said a Chinese official familiar with the talks. The official disputed the assertion that China was backtracking on its promises, adding that U.S. demands were becoming more “harsh” and the path to a deal more “narrow” as the negotiations drag on.

Liu is set to arrive in Washington on Thursday for two days of talks that just last week were widely seen as pivotal; a possible last round before a historic trade deal. Now, U.S. officials have little hope that Liu will come bearing any offer that can get talks back on track, said two of the sources.

To avert escalation, some of the sources said, Liu would have to scrap China’s proposed text changes and agree to make new laws. China would also have to move further toward the U.S. position on other sticking points, such as demands for curbs on Chinese industrial subsidies and a streamlined approval process for genetically engineered U.S. crops.

The U.S. administration said the latest tariff escalation would take effect at 12:01 a.m. Friday (0401 GMT), hiking levees on Chinese products such as internet modems and routers, printed circuit boards, vacuum cleaners and furniture.

The Chinese reversal may give China hawks in the Trump administration, including Lighthizer, an opening to take a harder stance.

Mnuchin, who has been more open to a deal with improved market access, and at times clashed with Lighthizer, appeared in sync with Lighthizer in describing the changes to reporters on Monday, while still leaving open the possibility new tariffs could be averted with a deal.

Trump’s tweets left no room for backing down, and Lighthizer made it clear that, despite continuing talks, “come Friday, there will be tariffs in place.”

(Additional reporting by Chris Prentice and Dan Burns in NEW YORK, and Jing Xu and Ben Blanchard in BEIJING; Editing by Simon Webb, Brian Thevenot and Paul Simao)