GSP Renewal Now Underway
February 14, 2018NAFTA Re-Branded as Canada Joins Pact With U.S. & Mexico
October 1, 2018NAFTA Deal – President Donald Trump announced Monday that the United States and Mexico agreed to update some parts of NAFTA, but key trade lawmakers urged the administration to keep Canada in any final deal to revamp the overall accord.
With the U.S.-Mexico bilateral agreement, the Trump administration finishes one of many steps needed to revise the 1994 North American Free Trade Agreement. The Mexico-U.S. talks centered on new rules for the car industry.
Any final deal to update the current NAFTA agreement will require congressional approval.
During Monday’s White House announcement, U.S. Trade Representative Robert Lighthizer said that he planned to send a letter to congressional trade committees — Senate Finance and House Ways and Means — by Friday to start the mandatory 90-day clock for review of the preliminary deal.
The agreement calls for cars made in either country to have 75 percent (up from the current level of 62.5 percent) of their components made in either the United States or Mexico. The pact also asks that 40-45 percent of auto content be made by workers earning at least $16 per hour, USTR said in a statement.
Lighthizer and senior administration officials said they modified the U.S. request to end the trade agreement after five years, instead agreeing to a 16-year deal, with a review in the sixth year. At that time, negotiators can change or renew the agreement for another 16 years. If the two sides do not extend for another 16 years, negotiators would meet annually to reach an agreement on a 16-year extension. If an agreement can’t be reached, businesses would have enough time to make adjustments, the officials said.
Under the U.S.-Mexico agreement, corporations would be limited to arbitration against a country in cases of government appropriation of property or failure of a government to extend most favored nation treatment. The current investor-state dispute settlement process allows corporations to use private, three-person arbitration panels to seek monetary damages for a country’s policies or laws they say affect their bottom line. Companies in the oil and gas, infrastructure, energy generation and telecommunications industries that have contracts with the U.S. or Mexican governments would continue to have traditional investor-state dispute settlement options without conditions, the officials said.
USTR Hearings – Representatives from the U.S. manufacturing, apparel and small business sectors have begun to take advantage of a weeklong forum to press the Trump administration to avoid targeting Chinese products that are essential to their production models as the White House expands its trade dispute with China.
As hearings began last week, witnesses sought to persuade a panel of administration officials from agencies including the Office of the U.S. Trade Representative and the State, Commerce and Labor Departments to exclude products they need for production from a final list of targeted Chinese goods — arguing that additional costs would harm their companies and potentially lead them to go out of business.
They contend that imports from China are in many cases necessary for creation of their U.S.-made final products and could drive companies to move domestic production facilities overseas. Some argued that while they support the Trump administration’s broader goal of cracking down on China’s intellectual property practices, tariffs would be an ineffective means to achieve that end.
Hundreds of witnesses are scheduled to testify. The hearings, which are being hosted by USTR at the U.S. International Trade Commission, will give interested parties an opportunity to argue why certain products should or should not be included in the final list of $200 billion in Chinese goods that the administration plans to hit with tariffs as high as 25 percent later this year.
You can find a full list of witnesses slated to testify during the hearings here.
Those tariffs will come on top of penalties the Trump administration has already imposed or will soon impose on $50 billion in Chinese goods, and are part of a wider effort to force China to reconsider policies and practices that the White House says promote intellectual property theft and forced technology transfers.
The hearings are scheduled to wrap up on Tuesday, Aug. 28. A public comment period on the potential tariffs will remain open until Sept. 6, and administration officials will then make a decision on what products to include and how high of a tariff to implement.
USDA Aide Plan – The Department of Agriculture detailed on Monday how it plans to distribute an initial $6.3 billion in aid for farmers stung by trade retaliation.
The administration has said the package could include up to $12 billion in aid. A second round of cash could be made available “if warranted,” USDA said in a media release on Monday afternoon.
As expected, soybean farmers are set to receive more than any other commodity — by a long shot. Soybean farmers are poised to get $3.6 billion out of the $4.7 billion in total direct payments being planned at this stage, according to the release.
Pork producers will take in the second-highest amount of payments, at $290 million. Cotton, sorghum, dairy, wheat and corn farmers will also receive financial assistance.
Corn growers will receive compensation at a rate of a penny per bushel. The corn industry has estimated its growers have lost 44 cents per bushel due to trade woes, amounting to a total loss of some $6 billion.
In addition to the direct payments, USDA outlined $1.2 billion in commodity purchases designed to bolster prices for crops hurt by retaliatory tariffs. Pork is slated to be the largest beneficiary of that program, with a planned purchase of $558 million.
A long list of other commodities, including apples, dairy, oranges, pistachios and potatoes, would also be purchased under the plan, according to the release. USDA also intends to purchase quantities of almonds and sweet cherries, but the release said that details have yet to “yet to be determined.”
The department was expected to say it is planning to buy $111 million in sweet cherries, for example, but it was not clear how officials would accomplish that aim now that the season for the crop has ended.
USDA will also devote $200 million to developing foreign markets for U.S. crops, through efforts such as advertising, participation in trade fairs and market research.
China Trade Talks – The U.S. and China finished two days of trade talks last Thursday with no sign of an end to the escalating trade war. “We … exchanged views on how to achieve fairness, balance and reciprocity in the economic relationship, including by addressing structural issues in China such as those identified in the Section 301 report,” White House deputy press secretary Lindsay Walters said. “We appreciated the Chinese delegation coming to the United States to participate in these meetings. The U.S. delegation will be briefing their principals on the discussions.”
Trump wants to lower America’s trade deficit with Beijing and discourage U.S. firms from outsourcing manufacturing operations to China, among other aims. His push for tariffs on another $200 billion worth of Chinese goods, which would bring the total to more than $250 billion, seeks to force Beijing to change policies and practices that the White House says promote theft of American intellectual property or force U.S. companies operating in China to transfer valuable technology.
Reaching the point of duties on $250 billion in Chinese goods would cover roughly half of all U.S. imports from China, which totaled about $505 billion last year.
LNG – LNG will likely land right in the middle of the escalating trade dispute between the United States and China. China, the world’s largest gas importer, included U.S. liquefied natural gas on a list of goods August 3rd that could be hit with a 25 percent duty. While no date has been set to implement the tariff, the announcement comes just a few months ahead of winter, when Chinese demand for the U.S. heating fuel is likely to peak.
If LNG is included in the trade war, it would threaten to slow the growth of the entire industry. Higher LNG import prices in China might make Xi reconsider the country’s pivot from coal to gas.
New liquefied natural gas terminals are expanding the country’s import capacity by about 19 percent versus the start of last winter. The new infrastructure underscores President Xi Jinping’s effort to swap coal for cleaner burning natural gas in homes and factories amid an effort to clear urban skies. Gas consumption surged so much last winter LNG importers exceeded the nameplate capacity of their terminals to keep pace with demand.
One obsession for the Trump administration has been to reduce a bilateral trade deficit with China. LNG is one of the most obvious ways to lower a trade deficit between the U.S. and China and if there is a deal to be done, LNG will be involved. When Secretary Mnuchin and Commerce Secretary Wilbur Ross led missions to Beijing earlier this year, one key priority was securing increased purchases of American soybeans, LNG and other commodities.
As always, we will continue to monitor this and update you accordingly. Please do not hesitate to contact us if we can be of additional assistance. If you would like more information on the topics above please email matthew.majure@arlaw.com.
(Source: Adams and Reese, LLP)