President Trump’s Stamp of Disapproval on International Postal Treaty

On October 17, President Trump announced that the United States may withdraw from a 144-year-old international postal agreement.

The Universal Postal Union (“UPU”), established by the Treaty of Bern of 1874, is an agency of the United Nations that facilitates postal cooperation between governments and regulates cross-border traffic of international mail.

The Trump Administration fears that U.S. businesses are disadvantaged by policies of the UPU that allow Chinese businesses to ship a variety of goods to the United States at “unfairly low prices.” The administration is also concerned that current policies of the UPU facilitate the shipping of counterfeit or otherwise illegal goods to the United States.

The UPU allows developing countries, including China, to ship small packages at lower rates than developed nations. The Trump Administration is seeking changes to the treaty that would allow countries to set their own rates for parcels weighing less than 4.4 lbs.  Under the current rules, small packages shipped from China to the U.S. are discounted between 40 and 70 percent.  It is estimated that subsidized rates for small packages from China cost the U.S. $300 million per year. Continue Reading

Export Quotas in Mexico’s Future

On October 15, 2018, chief Mexican trade negotiator Jesus Seade indicated that the United States is seeking to replace Section 232 tariffs on Mexican steel with an export quota program.  Seade stated that a deal regarding any potential export quotas on Mexican steel must be reached in the coming weeks, prior to the December, 1, 2018 inauguration of new Mexican President Andres Manuel Lopez Obrador.

This announcement was issued just days after the trilateral trade agreement, the U.S.-Mexico-Canada Agreement (“USMCA”) was reached among the United States, Canada, and Mexico.  Notably, the Section 232 tariffs, imposed in June on the basis of national security pursuant to the Trade Expansion Act of 1962, remain in place for both Mexico and Canada despite the USMCA agreement being finalized.

As of June 1, 2018, imports of Mexican steel became subject to a 25 percent duty, while aluminum shipments are subject to a 10 percent duty.  Certain countries, including Argentina, Brazil and South Korea, have already negotiated export quotas to nullify the Section 232 duties.  For example, South Korean officials agreed in March to cut steel exports by 30 percent of the 2015-2017 average. Continue Reading

Mexico, China and Section 301

One of the potential consequences of the U.S.-China trade dispute is that more companies may consider supply chain sourcing from third countries such as Mexico.   This may include direct sourcing in the third country or the processing of Chinese components into finished products in third countries prior to entry into the United States.  There are a number of issues to consider where the processing of Chinese products subject to section 301 duties occurs in third countries prior to importation in the United States.

For example, the imported Chinese components processed in a third country may nonetheless be subject to section 301 duties when imported into the United States unless they are “substantially transformed” into a new and different article of commerce in the third country.  This is a product-specific analysis and involves a review of components and production steps. Recently, the Court of International Trade ruled that mere assembly of foreign component parts does not constitute substantial transformation. (Energizer Battery Inc. v. United States, 190 F. Supp. 3d 1308 (Ct. Intl. Trade 2016). The decision noted that, “whether there has been a substantial transformation depends on whether there has been a change in the name or use of the components.”  The court focused not on whether “the components as imported have the form and function of the final product” but rather “whether the components have a pre-determined end-use at the time of importation.”  The court suggested that the imported parts would need to undergo “further work” beyond mere assembly to be considered substantially transformed.

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Canada to Impose Safeguard Measures on Steel Imports

This week the Government of Canada announced its intent to impose restrictions on imports of seven classes of steel products to mitigate harm caused by “the diversion of foreign steel products into Canada.”  See the News Release dated Oct. 11, 2018,  and Notice of Commencement of Safeguard Inquiry.

The seven classes include wire rod; stainless steel wire; hot-rolled sheet; heavy plate; energy tubular; pre-painted steel; and concrete reinforcing bar.

These “safeguard measures” were reportedly prompted by complaints from Canada’s steel industry that U.S. Section 232 tariffs on steel and aluminum have resulted in shipments of cheap steel to be diverted to Canada from the U.S., and follows the country’s countermeasures imposed on July 1st applying tariffs on over $12 billion worth of U.S. goods in response to those tariffs.

Notably, the safeguards do not apply to goods originating in and imported from the U.S., Chile and Israel.  However imports of energy tubular and wire rod from Mexico “are within the scope of the Tribunal’s inquiry.” Continue Reading

ITC Initiates Investigation of the Likely Impact of USMCA

Last Friday, the U.S. International Trade Commission (“ITC”) formally launched an investigation into the economic benefits of the new U.S.-Mexico-Canada Agreement (“USMCA”) that is to replace NAFTA.

Under the Trade Promotion Authority (“TPA”) law, known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, the ITC must prepare a report that assesses the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors, as well as the interests of U.S. consumers.  This report, which will be made public, is due to the President and Congress no more than 105 days after the President signs the agreement. The TPA requires the President to wait 90 days from the date of the notification before signing the USMCA.  President Trump notified Congress of his intent to enter into the new trade agreement on August 31, 2018.  Therefore, the earliest the President may sign the agreement is November 30, 2018.

Congress is expected to wait until the ITC report is issued before voting on the new agreement.  In fact, Senate majority leader Mitch McConnell recently told Bloomberg in an interview that the vote on USMCA will be a “next-year issue.”

If Congress does not pass the TPA, the President has threatened to withdraw from NAFTA.  Continue Reading

U.S. Opens Trade Talks with EU, Japan, and the UK

Yesterday, the Office of the U.S. Trade Representative (“USTR”) officially notified Congress that it would be launching separate trade discussions with the European Union, Japan, and the United Kingdom.  The letters sent to Congress provide notice of the Administration’s intent to negotiate trade agreements with each partner as required by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, often referred to as Trade Promotion Authority (“TPA”).  USTR must wait at least 90 calendar days from yesterday’s notification to initiate negotiations, and must also publish specific negotiating objectives in the Federal Register at least 30 days before talks begin.

In addition to general negotiating objectives across numerous areas – including trade in goods, services, and agriculture; intellectual property; digital trade and cross-border data flows; labor and the environment; trade remedies; anti-corruption; and dispute settlement – TPA also establishes procedures for consultation with Congress and other stakeholders throughout trade agreement negotiations.  These procedures include required reports on certain aspects of the agreement prior to signing the agreement; Congressional notification 90 days before signature; release of the final agreement text 60 days before signature; and Congressional notification of expected changes to U.S. law 60-180 days before signature.  USTR also engages with public and private sector stakeholders through consultation with various policy- and sector-oriented trade advisory committees and through comment periods and hearings announced in the Federal Register. Continue Reading

China Lingers in the Background of USMCA

As we previously reported, the United States, Canada, and Mexico have reached agreement on the United States-Mexico-Canada Agreement (“USMCA”) to replace the North American Free Trade Agreement (“NAFTA”), which has governed trade between the three countries since 1994.  Article 32.10 of the agreement requires each country to notify the others of any intention to negotiate a free trade agreement with a “non-market country.”  The provision defines a “non-market country,” as any country that: (1) one or more USMCA member countries has determined to be a non-market economy for purposes of the USMCA member country’s trade remedy laws; and (2) none of the USMCA member countries has a free trade agreement with.

Last year, as a result of the expiration of certain language in China’s World Trade Organization (“WTO”) Protocol, the U.S. Department of Commerce conducted a review of its designation of China as a non-market economy country for purposes of the U.S. antidumping laws.  The Department announced the results of its review of China’s status on October 26, 2017, concluding that China continued to be a non-market economy country.  Further, none of the USMCA member countries have a free trade agreement with China.  As a result, China would be considered a “non-market country” for purposes of the USMCA.

Article 32.10 requires a USMCA member country seeking to negotiate a free trade agreement with China, or any other “non-market country” to: Continue Reading

Trilateral Trade Agreement Reached with Heads of State of Canada, Mexico, and US

On Sunday, the heads of state of Canada and the United States agreed on terms for a new trilateral deal with Mexico.  The agreement, now known as the United States-Mexico-Canada Agreement “USMCA,” provides several new updates to its NAFTA predecessor.  The deal’s terms, including those established in August in an agreement between the U.S. and Mexico, are contained in 34 chapters of various topics from Agriculture to Macroeconomic Policies and Exchange Rate Matters.   In addition, the agreement contains country-specific annexes and “Side Letters”.

The “Side Letters” accompanying the deal include, among other topics, promises that the U.S. will not impose tariff or import restrictions under Section 232 on Canada or Mexico for 60 days as the countries continue to negotiate on the topic.  The Side Letters also provide for the exclusion of several products from measures under Section 232.  In particular, the U.S. agreed to exclude light trucks and 2.6 million passenger vehicles per year from both Canada and Mexico.  In addition, the U.S. will exclude $32.4 billion and $108 billion in declared customs value of auto parts per year from Canada and Mexico, respectively.

Among other noteworthy updates, the agreement establishes new provisions for rules of origin.  The deal requires that 75 percent of auto content be made in North America and that 40-45 percent of auto content be made by workers earning at least $16 an hour.  Updated provisions and procedures for rules of origin were also included to help prevent duty evasion.

The new agreement also prohibits customs duties on digital products and minimizes limits on where data may be stored to promote digital trade, and includes extensive environmental obligations to address a variety of concerns.  Several new industry-specific agreements were reached, including those relating to pharmaceuticals, medical devices, cosmetic products, and chemicals.

Congress is expected to vote on the deal in 2019.

 

 

 

What are the prospects of a U.S.-UK trade agreement after Brexit?

Brexiteers claim that leaving the EU single market and customs union creates a golden opportunity for the UK to regain power over its international trade.  The potential future post-Brexit free-trade agreement that has received the most attention is that between the U.S. and the UK.  A U.S.-UK Trade and Investment Working Group was set up in July 2017 to lay the groundwork for a potential future U.S.-UK free-trade agreement after Brexit.  Political interest on both sides of the Atlantic was also boosted last week in New York as U.S. President Donald Trump and UK Prime Minister Theresa May reiterated their “mutual desire to form a wide-ranging trade deal.”  The U.S. is, however, the more important market with the stronger bargaining power. The UK takes only 3 percent of U.S. exports, while the U.S. accounts for 15 percent of UK exports, as well as roughly 19 percent of the UK’s total imports of services and nearly 22 percent of the UK’s total exports of services. Continue Reading

United States and Japan to Discuss Bilateral Trade Deal

In a joint statement issued yesterday, the United States and Japan announced that the two countries will begin discussions to enter into a bilateral trade deal.  The announcement comes after President Trump and Prime Minister Shinzo Abe attended a Summit Meeting in New York to discuss a host of issues, including trade.  The joint statement highlighted that the two countries will enter into negotiations for a trade agreement that will cover goods and services, as well as other unnamed areas.  Following completion of the trade deal, the two countries also “intend to have negotiations on other trade and investment items.”

The joint statement also reflects the established positions of each government with respect to certain sectors, with the auto industry likely to take center stage on the U.S. agenda: Continue Reading

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