Misunderstanding a Memorandum of Understanding

Donald Trump answering questions on the negotiations for a trade agreement between the US and China:

I think the MOU is going to be very short term.

I don’t like MOU’s because they don’t mean anything. To me they don’t mean anything. I think you’re better off just going into a document. I was never a fan of an MOU.

He was then contradicted by his top trade representative Robert Lighthizer:

A memorandum of understanding is a binding agreement between two people.

This was in front of  a Chinese delegation.

They obviously have different ideas about how to negotiate trade deals. They may both be wrong.

Investipedia: Memorandum of Understanding:

“A memorandum of understanding (MOU) is a nonbinding agreement between two or more parties outlining the terms and details of an understanding, including each parties’ requirements and responsibilities. An MOU is often the first stage in the formation of a formal contract.”

A memorandum of understanding (MOU) is not legally binding but is viewed as a serious document by the law. In the United States, an MOU is the same as a letter of intent, which is a nonbinding agreement stating a binding agreement will soon follow. MOUs are most often used as part of multinational international relations because, unlike treaties, they are quick and can be kept secret.

An MOU signals a legal contract is imminent. However, an MOU itself is not legally defensible but should still clearly outline specific points of an understanding. An MOU should describe the parties are, the project on which they are agreeing, the scope of the document, each parties’ roles and responsibilities, and more. An MOU can help two parties move in the right direction toward an agreement.

An MOU, while not an enforceable document, still holds a lot of power because of the time, energy and resources needed to draft an effective and fair document. An MOU forces the participating parties to reach a semblance of a mutual understanding, and, in the process, the two sides naturally mediate and figure out what is most important in moving toward an eventual future agreement that benefits both sides.

The misunderstanding about an MOU:

There were mixed responses, from:

Much as I hate to say this, but Trump is right. Any MoU I have negotiated included clauses that made it clear it was non-binding. It’s not a contract. Poor choice of a Trade Rep who doesn’t understand this though. The below is the official UK government definition.

To:

Jesus Christ Dom…. this is Government not commercial law…. MOUs are how trade deals are made functional. They bind countries.

It doesn’t surprise me that Trump gives no weight to an MOU – he dumps full trade agreements he doesn’t like, and starts trade wars as a way of forcing changes to trade practices and regulations.

The understanding from this is that anything goes with Trump, regardless of normal practice on negotiating trade agreements.

I don’t think that Trump’s rubbishing of the value of an MOU will give the Chinese any confidence about trade negotiations, and will negate the value of any Memorandums of Understanding.

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9 Comments

  1. Mother

     /  26th February 2019

    The Chinese delegates look bemused. The cultural divide is obvious – good.

    Reply
  2. David

     /  26th February 2019

    Trump has a point, the Chinese will sign an MOU and then totally ignore it so he needs a written legally binding agreement. Pretty standard with the nitty gritty of all deals and areas which are too tricky and not a huge problem in the overall scheme of things get covered by an MOU so they dont torpedo more important factors.
    All very well having a crack at Trump but a lot of US companies are sick to death of having their intellectual property stolen, the endless trade barriers China puts in place, their insistence on demanding the way foreign companies do business there without reciprocal arrangements and its about time the playing field was levelled and China forced to behave like other countries.
    Why do you think Fonterra has had to set up farms and other businesses in China ? We get shaken down too but not to the extent that Google, GM, Ford etc etc do if they want access to the Chinese market while the Chinese get free reign in the US.

    Reply
    • Gezza

       /  26th February 2019

      It will be interesting to see who the Chinese insist on to arbitrate disputes.

      Reply
    • Mother

       /  26th February 2019

      Chinese get free reign in free countries because free people are willing to bend to the inth degree. Meanwhile they gradually lose resilience and critical thought process. Then there comes a time when they can’t bend any more. To many people, Mr Trump is the voice for that time.

      I wish that Kiwis would listen more to the warnings. I think we are in an acute ‘losing resilience’ stage. We are too kind and cruel both at once. My message is – please consider Christianity for the Times. The old way involves harsh accuser judgements. The new way involves true and critical judgement.

      Reply
      • Mother

         /  26th February 2019

        I wonder what would happen if Trump gently said, “No we will not entertain a MOU because of (and cites past transgressions of MOU).”

        I know people will think this is a daft suggestion – but, free people have been great at applying kindness to communists. Yet they just don’t get it. It’s always one way. I would like to see our government apply critical thought to present and future relationship with China. Let them learn to come to us, however long that takes. It would hurt us, but some hurting can be for good. Our trouble as I see it is that we don’t even know why we are free. Our freedom is slipping away and it is the fault of the churches.

        Reply
  3. NOEL

     /  26th February 2019

    I remember the MoU between the then Government and the Agent Orange Joint Working Group supposedly representing Vietnam Veterans.

    The ink was hardly dry when the Whakanoa with free travel accommodation for Veterans and spouses was amended to Veterans only.
    The AOJWG recommendation on the issue of a replacement the contentious Vietnam service medal to replace the Australian one disguised under a NZ warrant was to NOT issue a bar to an existing medal and retain the campaign medal as it would be a sop.
    But that happened anyway. The existing medal to which the bar was attached was for those who had served where there was no campaign medal issued. Stolen valour by Gummitt decree.

    Lesson learnt, forget MoU’s go for a binding contract.

    Reply
  4. The Official Houston Preppy Handbook

     /  27th February 2019

    If I walk into a Dow Chemical board meeting and say “we need to do a turnaround”, that word has a completely different meaning than walking into a Dow chemical plant and saying “we need to do a turnaround.” The former means changing corporate structure and management to return a company to solvency, the latter means taking an industrial process unit offline to clean it out and replace equipment. My point is that a word can have completely different meanings in different contexts, and trying to apply an “Investopedia” definition of an MOU in business contract law to the use of the term in international trade law is going to get you nowhere. Lighthizer, having been Deputy U.S. Trade Representative in the Reagan administration, during which he negotiated over two dozen bilateral international agreements, including agreements on steel, automobiles, and agricultural products, certainly knows more about the meaning and significance of an MOU in international trade context than you, “Investopedia,” or Trump.

    Reply
  5. Alan Wilkinson

     /  27th February 2019

    Trump calls it as he sees it. The Left melt down. Situation normal.

    Lighthizer knows what worked for him in different time with different people. An MOU is a means to an end, that is all.

    Reply

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