China and the United States continue to move towards finalizing a “phase one” trade deal. Speaking to the Economic Club of New York, President Trump stated that the United States is “close” to a deal and that it “could happen soon.” The President was also quick to note that he would only accept a deal that is “good for the United States and our workers and our great companies.”

This news follows comments made last week by Chinese Ministry of Commerce spokesperson Gao Feng, who told the press that China and the United States have agreed to reduce tariffs over time if they are able to finalize a “phase one” agreement. “In the past two weeks, the lead negotiators from both sides have had serious and constructive discussions on resolving various core concerns appropriately. Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations,” said Feng, according to Reuters.

The two countries would reduce tariffs over time, although the extent of the reductions will depend on what is included in the ultimate agreement. The United States could potentially cancel the tariffs scheduled to be imposed on December 15 as part of the agreement. Given the Administration’s willingness to use tariffs as leverage to achieve its broader trade goals, which tariffs would be reduced and by how much is largely uncertain. President Trump also noted in his remarks that he would substantially increase tariffs if the two countries were unable to reach a deal.

Both comments suggest that China and the United States are still in the process of “papering” the handshake deal reached last month between President Trump and President Xi Jinping. The agreement, originally blogged here, centers on a commitment by China to purchase up to $50 billion of U.S. agricultural products in return for the suspension of planned U.S. tariff increases on $250 billion in Chinese goods.

Both sides had hoped to finalize the agreement at the Asia-Pacific Economic Cooperation summit in Chile this month, but Chile called off the event due to ongoing protests in the country. A new venue has proven elusive. President Trump suggested Iowa, but China is unlikely to agree to a location in the heartland of the United States. An administration official said that London is a possibility, after the NATO summit in December.

Those attempting to track the meandering Brexit trail in the three years since the referendum which decided that the United Kingdom (UK) would leave the European Union (EU) are well aware that the general election on 12 December most likely will determine the path forward. What that might mean for the cannabis market in the UK is less discussed.

Election front-runners, the Conservatives and Labour Parties, which recent polls projected to have 41 and 29 percent of the votes respectively, both have been reticent to support the use of cannabis-based products.  The Liberal Democrats, with less than 15 percent of the projected votes, and the Greens with even less, both support liberalization. As recently as this summer, however, a cross-party group of Members of the UK Parliament returned from a study visit in Canada prepared to vote against party lines.  As the UK potentially moves toward under a revitalized Conservative government to seal a deal with the EU before 31 January 2020 predicate to embarking on a process of resetting its rules as an independent nation, there is plenty of opportunity for change. The UK re-branding undoubtedly will seek to build on its reputation for excellence in research and development in the life sciences sector, including its extensive expertise in clinical studies of potential new treatments. The future may well include a significant increase in clinical research on cannabis products.

On 11 November 2019, the UK’s National Institute for Health and Care Excellence (NICE) published guidance that clears the way for two cannabis-based medicines to be used within the UK’s National Health System (NHS). NICE reversed the position it took in draft guidance in August when it questioned the efficacy GW Pharma’s Epidiolex despite the European Medicines Agency approving it in September for the entire EU market. NICE also overcame its hesitancy concerning the pricing of Epidiolex as well as Sativex, another GW Pharma product, approved for medicinal use in the UK in 2010 but which NICE had rejected earlier this year as not cost-effective.  Subsequent work between NICE and GW Pharma on economic modelling as well as public consultations paved the way for the change in position.

Medical cannabis was legalised in the UK in November 2018 under certain conditions. NICE’s guidance enables, for the first time, NHS specialists to prescribe cannabis-based products for patients across England.  Epidiolex, a purified cannabidiol (CBD) solution, is used to treat seizures in children with Lennos Gastaut or Dravat syndromes while Sativex, which contains equal portions CBD and tetrahydocannabinol (THC), treats spasticity related to multiple sclerosis.  Sativex will be available only when other treatments have failed and where local NHS authorities agree to cover costs for a four week period. Continuation of the treatment by prescription from a general practitioner is possible where symptoms improve by at least twenty percent during the trial period.

NICE’s recommendation on Sativex was welcomed by the MS (multiple sclerosis) Trust. Similarly, Epilepsy Action considers the recommendation on Epidiolex to be an important step forward but calls for more research on the use of medicines containing THC for epilepsy patients.  The patient advocacy group End our Pain, which last spring brought families of patients with epilepsy to the offices of more than 80 Members of the UK Parliament, has criticized the NICE guidance for not also recommending medicines with THC for NHS use in treating symptoms of epilepsy.

Whomever ends up in office to guide the UK through the coming rocky steps can expect to hear plenty more from constituents about the potential benefits of cannabis-based products and the need for regulatory reform.

On November 1, 2019, the World Trade Organization (WTO) authorized China to suspend $3.579 billion in trade concessions to the United States, roughly half the $7 billion amount China had requested. The Arbitrator’s Decision stems from a complaint originally lodged by China in 2013 regarding the use of certain methodologies in antidumping investigations on Chinese goods. China must now request the WTO’s permission to suspend specific concessions, which will likely take the form of increased tariffs on U.S. goods.

The underlying dispute focused on three issues in U.S. antidumping proceedings: (1) the weighted average-to-transaction methodology applied by the U.S. Department of Commerce (the Department) in antidumping cases, including the use of zeroing; (2) the Department’s treatment of certain exporters in non-market economies (NMEs) as an NME-wide entity (the single rate presumption); and (3) the Department’s use of adverse facts available in determining dumping margins. The zeroing methodology has been the subject of numerous disputes at the WTO. While some have argued that the practice violates WTO rules, the U.S. has continued to defend it. Speaking in April, Ambassador Lighthizer stated “[t]he WTO rules do not prohibit ‘zeroing[.]’ The United States never agreed to any such rule in the WTO negotiations, and never would. WTO Appellate Body reports to the contrary are wrong. . .”

This award, which comes in the wake of last month’s $7.5 billion award in the U.S.-E.U. Aircraft dispute, is the third largest in WTO history. The $3.579 billion award is authorized on a per annum basis until the U.S. brings its law into compliance with its WTO obligations. The U.S. and China may also seek to resolve the dispute as part of the negotiations in the ongoing trade war.

More than a quarter of pesticides used by U.S. farmers are banned in the European Union. Atrazine which the U.S. Environmental Protection Agency estimates to be the most widely used herbicide in the U.S., for instance, was banned in the EU in 2003 due to concerns that it is a groundwater contaminant. In April 2018, based on potential health risks to bees, the three main neonicotinoid pesticides – clothianidin, imidacloprid and thiamethoxam – which are used to treat about 90 percent of the corn planted in the U.S. also were barred in the EU for all outdoor usage. The EU moreover is planning new bans on pesticides that hold authorizations in the U.S. based on potential harm to humans and bees: the insecticide chlorpyrifos may be banned in the EU as of February 2020 and a neonicotinoid insecticide known as thiacloprid as of May 2020. The EU default values of maximum allowed levels for pesticide residues in or on food and feed of plant and animal origin (0.01 mg/kg for pesticides not specifically mentioned) also are lower than those found in most countries, including the U.S., as well as the international CODEX guidelines.

The existing gulf between the U.S. and EU on pesticides regulation underscores a widely disparate policy approach. While the EU espouses the so-called precautionary principle for approving pesticides and setting maximum residue levels (MRLs) – thus taking protective action where scientific evidence is inconclusive but there is a presumption of risk to human or animal health or the environment -, science-based proof of harm has to be demonstrated for regulatory action to be taken in the U.S. Whereas the EU further maintains it is necessary to apply the precautionary principle to protect consumer health and the environment, it has been the object of strong pushback from the U.S., among other countries, for being trade inhibiting.

Accordingly, in a submission to the World Trade Organization (WTO) Council for Trade in Goods on 4 July 2019, the U.S. and 14 other countries (Brazil, Australia, Canada, Malaysia, Costa Rica, Peru, Colombia, Paraguay, Ecuador, Guatemala, Honduras, Dominican Republic, Nicaragua, Panama, and Uruguay) called on the EU to re-evaluate its approach to product approvals which “unnecessarily and inappropriately” restrict trade and to “use internationally accepted methods” of setting pesticide residue tolerances. The precautionary principle also recently has come under fire by Brazil within the context of the EU-Mercosur trade deal, with President of Brazil Jair Bolsonaro threatening to challenge EU at the WTO if the principle is used for “protectionist” purposes. Brazil is the world’s largest user of pesticides and Bolsonaro, within the first 100 days of becoming President, authorized the registration of 152 previously banned pesticides, many of which are banned in the EU. In the meantime, Brazil and the U.S. have strengthened trade ties, with a free trade agreement reportedly in the pipeline.

The executive arm of the EU currently is undertaking a fitness check of regulations relating to pesticides approval and maximum allowed levels for pesticide residues which could lead to new or updated legislation. It is expected that the fitness check will reaffirm the EU’s commitment to the precautionary principle, focusing efforts on how to improve implementation of the legislation and addressing any gaps and administrative burdens. The new EU Commissioners, i.e. heads of the EU’s executive arm, taking office before the end of the year also have suggested they will take measures to bolster health and environmental protection measures, including by stimulating the take-up of low-risk and non-chemical alternatives, in particular those of biological origin, and reducing bureaucracy for these to be brought to the market quicker. EU’s trade policy further will be focused on protecting the environment by spreading environmentally friendly goods and incentivizing trade partners to implement measures to protect the environment and combat climate change.

In light of these developments, the regulatory gap on pesticides is set to widen. As new measures on pesticides can have profound impacts on global agricultural production and trade in key products, companies will have their eyes peeled on the European and American policy spaces. Increased regulatory divergence on pesticides also likely will flare up existing transatlantic trade sensitivities, which have long been strained over dissimilar food standards, and could become a point of tension in any post-Brexit UK-U.S. trade talks.

On October 31, 2019, the World Trade Organization (WTO) ruled in favor of the United States in determining that Government of India provides prohibited export subsidies to Indian producers and exporters.  The WTO dispute panel determined that the: Merchandise Exports from India Scheme (MEIS); Export Oriented Units Scheme (EOU) and related sector-specific schemes; Special Economic Zones (SEZ); Export Promotion Capital Goods Scheme (EPCG); and Duty-Free Imports for Exporters Scheme (DFIS) are in violation of India’s obligations set forth in the Agreement on Subsidies and Countervailing Measures (SCM Agreement), a multilateral agreement that defines and regulates subsidies provided to entities located within the territory of a WTO member.  The United States requested consultations at the WTO in March 2018 concerning these subsidies, which have provided over $7 billion annually to Indian producers and exporters in the form of import duty exemptions, tax exemptions/deductions, and direct transfers of funds to pay additional duties and taxes otherwise owed to the Government of India.

The SCM Agreement classifies subsidies under two categories: prohibited or actionable.  Prohibited subsides include export subsidies—receipt of benefits is contingent, in whole or in part, upon export performance—and local content subsidies—receipt of benefits is contingent, whole or in part, upon the use of domestic over imported goods.  In contrast, actionable subsidies are not prohibited but are subject to challenges if they adversely affect a WTO member.   In the decision handed down Thursday, each of the subsidies was determined to be a prohibited export subsidy.

Based on its findings over the course of the proceeding, the WTO dispute panel concluded that the withdrawal of the aforementioned subsidies would require amendments to India’s Foreign Trade Policy, central government notifications, and operational procedures, actions that may also necessitate review by the Indian Parliament.  As a result of these facts and a review of each level of government associated with the prohibited programs, the WTO dispute panel gave India: 90 days to withdraw DFIS; 120 days to withdraw the EOU and related sector-specific schemes, EPCG scheme, and MEIS; and 180 days to withdraw the SEZ schemes.

The full WTO dispute panel report can be read here.

First Set of Exclusions Set to Expire December 28, 2019

On October 28, 2019, the Office of the United States Trade Representative (USTR) announced plans to begin considering extensions of up to one year for certain previously-granted product exclusions from Section 301 tariffs on Chinese imports. From November 1 – November 30, USTR will accept comments for or against product exclusions that are set to expire December 28, 2019.

The relevant product exclusions were granted December 28, 2018 in USTR’s initial set of exclusions from Section 301 duties on Chinese imports that took effect July 6, 2018. The 25 percent tariff covered more than 800 tariff lines, representing approximately $34 billion in annual trade value. In its December 28 action, USTR granted exclusions for more than 1,000 specific products classified within a tariff-covered 8-digit HTSUS subheading.

USTR subsequently issued seven more rounds of product exclusions from its July 6, 2018 tariff action (all expiring one year from the date of publication in the Federal Register) and continues considering exclusion requests for subsequent tariff actions. While additional extension request opportunities are anticipated going forward, the current opportunity only covers exclusions granted on December 28, 2018.

As detailed in a draft Federal Register Notice, USTR will evaluate the possible extension of each exclusion on a case-by-case basis. USTR has indicated it will focus its evaluation on whether the product under consideration remains only available from China. USTR will also consider whether additional duties would result in severe economic harm to U.S. interests. Additionally, USTR has asked commenters to address: Continue Reading USTR Begins Process to Consider Extending Certain Section 301 Product Exclusions

On Friday, October 25th, the Office of the U.S. Trade Representative (USTR) announced that the United States will be suspending certain benefits for imports from Thailand under the United States’ Generalized System of Preferences (GSP) program for failure to “adequately provide internationally-recognized worker rights.”  As a result, 573 U.S. Harmonized Tariff Schedule line items from Thailand, including all seafood, will no longer be subject to duty-free GSP treatment as of April 25, 2020.  The removal of benefits for these imports affects approximately one-third of Thailand’s GSP trade, which totaled $4.4 billion in 2018.

The GSP program, established by the Trade Act of 1974, is designed to promote economic development by eliminating duties on certain eligible products when imported from a beneficiary country or territory.  The program involves an annual review process during which the USTR and other participating executive branch agencies, through a body known as the Trade Policy Staff Committee (TPSC), assess potential changes to countries and products eligible for duty-free treatment under the program.  Private interested parties may petition for modifications to the list of countries and products eligible for GSP treatment.  In addition, the TPSC undertakes a triennial assessment of each GSP beneficiary country’s compliance with the statutory eligibility criteria, and may self-initiate a full review of a country’s ongoing GSP eligibility if warranted.  Factors for assessment include whether a country is providing workers with internationally recognized labor rights and to what extent the country is providing adequate and effective protection of intellectually property rights, among other factors.  See 19 U.S.C. § 2462(c).

Friday’s announcement to suspend GSP benefits for Thailand was the culmination of an eligibility review stemming from a 2015 petition by the AFL-CIO alleging Thailand’s shortcomings in the area of worker rights.  The United States had been engaged with Thailand on labor issues in the years prior to the AFL-CIO petition as well.  According to USTR, those engagement efforts have not been successful, resulting in the decision to suspend certain GSP trade benefits for Thailand.

Also on October 25th, USTR announced the following:

(1) The closing of reviews of GSP eligibility for Bolivia (worker rights), Iraq (worker rights), and Uzbekistan (intellectual property protections) without changes to those programs.

(2) The reinstatement – effective October 30, 2019 – of one-third ($12 million trade value) of GSP benefits previously suspended for Ukraine in December 2017 due to Ukraine’s inadequate protection of intellectual property rights.

(3) The initiation of GSP eligibility reviews for Azerbaijan (worker rights) and South Africa (intellectual property protections).  USTR will announce future opportunities for public hearing and comment on these eligibility reviews.

Please contact us with questions about these specific GSP changes or the GSP country/product review process.

 

After an announcement from the President today, OFAC removed the Turkish Ministry of Energy and Natural Resources, the Ministry of National Defense, and the ministers of Defense, Energy and Natural Resources, and Interior from the SDN List.  The move effectively lifts the sanctions imposed on Turkey two weeks ago for its incursion into Syria.

Companies with interests in Turkey should monitor developments in Congress, which may consider legislation to impose new sanctions on Turkey in the coming weeks.

On October 18, the United States Trade Representative announced an exclusion process for products included on China Section 301 List 4A, which covers $300 billion of imports. Imported products on this list are presently subject to an additional 15 percent duty, which went into effect September 1, 2019.

Importers of products on List 4A may file exclusion requests with the agency beginning October 31, 2019 through January 31, 2020. Once USTR posts a request, there is a 14-day comment period for interested stakeholders to oppose or support, followed by a 7-day rebuttal period for the requestor to respond. USTR will grant approvals and denials on a rolling basis.

If granted, any importer of a product may utilize an exclusion, which would apply retroactively to the September 1, 2019 effective date. Importers may use an exclusion going forward, and also may seek duty refunds through U.S. Customs and Border Protection. USTR has set a uniform expiration date of September 1, 2020 for List 4A exclusions, regardless of the date they are granted.

The exclusion process does not cover products on List 4B, which are scheduled to be assessed an additional 15 percent duty effective December 15, 2019. Cabinet officials have suggested the President may forgo increasing tariffs on List 4B products pending the outcome of ongoing negotiations with China to address IP violations, forced technology transfer and cyber intrusions.

On October 22, 2019, the Office of Foreign Assets Control (OFAC) issued General License No. 2G authorizing U.S. persons to engage in transactions involving nine companies: Belarusian Oil Trade House, Belneftekhim, Belneftekhim USA, Inc., Belshina OAO, Grodno Azot OAO, Grodno Khimvolokno OAO, Lakokraska OAO, Naftan OAO, and Polotsk Steklovolokno OAO. Executive Order 13405 had previously prohibited transactions involving the companies. The general license does not authorize the release of previously blocked property.

The new general license is valid until April 26, 2021. The prior General License 2F was set to expire on October 25, 2019.