On December 10, the U.S., Mexican, and Canadian governments signed an updated United States-Mexico-Canada Agreement (“USMCA”) in Mexico City.  The new agreement comes on the heels of months of additional negotiations between the three governments after an original deal was reached last year.  The terms of the new deal respond to criticism that the agreement needed stronger labor provisions to protect workers’ rights, better enforceability to ensure the parties live up to the commitments, improved monitoring mechanisms, stronger environmental provisions, and clarification on prescription drugs provisions.

With the revisions in these areas included in the updated USMCA, Democrats have expressed support for the agreement.  Indications are that it will be put up for a vote in Congress in the near future.  USMCA will replace the North American Free Trade Agreement (“NAFTA”) that was implemented by the three governments in 1994.

Check back here for updates on USMCA, including an analysis of the revised USMCA once the text is released.

In July, France signed into law a tax, which targets companies with high digital revenues such as Facebook, Google, and Amazon.  On Monday, the Office of the U.S. Trade Representative (“USTR”) announced the conclusion of an investigation into France’s digital tax under Section 301 of the Trade Act of 1974 (“Section 301”).  The USTR found that the French digital tax discriminates against U.S. digital companies and is inconsistent with prevailing tax principles.  The announcement added that the “USTR is exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey.”

Based on the report, Ambassador Lighthizer proposed tariffs up to 100% on $2.4 billion worth of French products including sparkling wine, handbags, makeup, and cheese.  A public hearing regarding the proposed tariffs will be held on January 7, 2020.  The public is invited to comment on the proposed tariffs before January 6, 2020 and to submit post-hearing rebuttal comments by January 14, 2020.

On Tuesday, French Finance Minister Bruno Le Maire called the proposed tariffs “unacceptable” and stated that the European Union would be ready with a response if the tariffs take effect.

On Tuesday, as “phase one” of the trade negotiations between the U.S. and China nears completion, the Wall Street Journal reported that the interim agreement would not only deter new tariffs, but lessen existing tariffs.  However, the “phase one” agreement reportedly will not include language regarding forced technology transfers.

China’s practice of forcing U.S. companies to transfer technology is one of the major reasons that the U.S. took action under Section 301 of the Trade Act of 1974 in March 2018.  The Section 301 Report called China’s forced technology practice “inequitable” and stated that it “significantly undermines the value of American technology (including IP), thereby distorting markets and compromising U.S. companies’ global competitiveness.”

As a “contentious” topic, Trump Administration officials may plan to address forced technology transfers in subsequent “phases” of trade negotiations.

“Phase one” of the deal between the U.S. and China may conclude as early as this week.  If no deal is reached by December 15, President Trump has announced that he may impose tariffs on an additional $156 billion worth of Chinese products.

Last week, Congress sent to the President’s desk a bill supporting pro-democracy activists in Hong Kong.  The Hong Kong Human Rights and Democracy Act of 2019, sponsored by Sen. Marco Rubio (R-FL), passed the Senate by unanimous consent and the House by a vote of 417-1 (last month, the House passed a similar measure authored by Rep. Chris Smith (R-NJ)).  It is unclear if President Trump will sign the bill into law. Given the implications it could have for the ongoing “phase one” trade deal negotiations with China, President Trump could veto it to save face with the Chinese.  Due to the bill’s bipartisan and near-unanimous support, Congress would likely override a veto.

The bill requires the Department of State to provide annual reports to Congress regarding whether Hong Kong retains enough autonomy to justify its unique treatment, which has especially important implications for trade between the United States and Hong Kong.  Ending Hong Kong’s special status would see its imports and exports subject to the tariffs that currently exist on trade between the United States and China.  The bill also requires that the Department of Commerce submit an annual report on the extent and nature of violations of U.S. export controls and sanctions law occurring in Hong Kong.

The bill provides for sanctions against persons responsible for the extrajudicial rendition, arbitrary detention, or torture of any person in Hong Kong, or gross violations of human rights within Hong Kong.  The bill authorizes the President to impose sanctions by blocking assets, blocking persons from receiving a visa, admission, or parole into the United States, and revoking existing visas or entry documents.

Chinese officials have urged the United States to reconsider, and claimed that Beijing would impose “strong countermeasures” if the bill becomes law.

The bill’s timing complicates the “phase one” trade deal.  While neither side has said that its passage into law will end negotiations, tensions have been rising since President Trump and President Jinping’s handshake agreement in October.  President Trump recently noted the deal was close, but as more time passes without a concrete agreement, there are signs the two sides are slowly drifting apart, again.

A related bill, which also awaits President Trump’s signature, prohibits the export of tear gas, pepper spray, rubber bullets, and other crowd control munitions to the Hong Kong Police Force.

 

The holiday season is nearly upon us, yet things in the trade world are not so jolly.  The United Kingdom (UK) eked out a slight gain in the third quarter to avoid a recession.  In the fourth quarter, the usual High Street hustle and bustle is expected to be dampened somewhat as Brexit uncertainty continues and voters prepare for the first December general election since 1923, when a similarly gloomy mood prevailed.  Retailers are already enduring reduced pre-holiday sales, and negative impacts on UK and European Union (EU) trade in a post-Brexit world are widely predicted, at least in the short term.  Adding insult to injury, fifteen countries have come together in the WTO to oppose the UK and EU’s proposed way forward.

In the many months of negotiations since March 2017, when the UK submitted its formal notice of intent to withdraw from the EU, the EU has steadfastly refused to engage in talks about the post-Brexit period until the terms of the so-called “divorce” were agreed and ratified – a goalpost yet to be reached.  The UK and EU did move forward, however, on a plan to divvy up existing preferential tariff rate quotas between the UK and the remaining bloc of 27 EU Member States.  Under the proposal agreed in August 2017, the UK would take over a portion of the EU quota commensurate to its average consumption over the most recent three-year period, thereby leaving WTO trading partners “no worse off” than before Brexit.  Argentina, Brazil, Canada, New Zealand, Thailand, Uruguay, and the United States (US) immediately complained that split quotas did not provide the same market opportunities as the current single EU market.  The countries claimed that such changes constitute more than a technical rectification, thus requiring consultation and consent from trading partners.

At last week’s WTO Goods Council, the number of countries expressing concerns about the proposed reallocation of the EU quotas rose to fifteen.  Australia, Canada, the US, and others claim that losses from Brexit uncertainty are already being felt.  As recompense for current commercial loss as well as future losses resulting from trade disruption and smaller markets, they seek concessions from the UK and the EU to provide improved access to both post-Brexit markets.  Calling the proposal “unjustifiable,” the US asserts that trading partners are at risk of being crowded out and would suffer market access losses in both markets.  The worry is that the EU will claim a large portion of the UK quota and vice versa.  The proposal could have particularly harsh results for US exports of pork and wine.

How the conflict is resolved in the near term may depend on whether an alternative dispute resolution system comes to fruition when the WTO’s Appellate Body ceases to function on December 10, 2019.  On that day, the Appellate Body will no longer have the three members necessary to review a case on appeal.  With the US holding fast to its position that blocking Appellate Body nominations is the only way to bring about WTO reform, something will have to give.  One alternative under consideration by the EU and Canada is an interim arbitration arrangement based closely on existing WTO rules.  Another possibility would entail Members agreeing to accept the Panel’s decision at the outset of a dispute.  With uncertainty piled on top of uncertainty, traders’ worries are not likely be lessened this holiday season.

 

 

On November 7, the United States Government Accountability Office (“GAO”) released a report assessing actions the U.S. Department of Commerce (“Commerce”) and U.S. Customs and Border Protection (“CBP”) have taken to address weaknesses in the process for collecting antidumping (“AD”) and countervailing (“CV”) duties.

The report noted the following facts:

  • For bills issued in fiscal years 2001 – 2018, CBP collected over $20 billion in uncollected AD/CV duties.
  • For bills issued over the same period, $4.5 billion in AD/CV duties remained uncollected as of May 2019.
  • Only 20 importers accounted for $1.93 billion (or 43.3 percent) of the $4.5 billion in AD/CV duties with the remaining $2.52 billion (or 56.7 percent) in uncollected duties accounted for by 1,118 importers.

The report also notes that one cause for concern at Commerce is the significantly increased workload, with a lack of corresponding increase in staff.  The report explains that from fiscal years 2012 to 2018, the total number of AD/CV duty orders enforced by Commerce has increased from 280 to 457, with the number of case analysts increasing only from 118 to 127.  Commerce has sought to address the increased workloads by implementing a variety of internal procedures and establishing a training unit.

CBP has also undertaken variety of measures to address uncollected duties.  Perhaps most interesting is CBP’s use of new statistical models to identify key risk factors associated with nonpayment.  As noted above, with only 20 importers accounting for more than 43 percent of the value of billed but uncollected duties, identifying high risk importers would appear to be a prudent step.

The report also identified the United States’ retrospective system of duty assessment as one factor contributing to complexities in duty collection faced by both agencies.  The retrospective system is widely viewed as a net positive, however, which leads to more accurate duty assessment over time.  The report concludes that while the two agencies have undertaken measures to address weaknesses in the process for collecting duties, more can be done. Continue Reading GAO Report Reveals Deficiencies in Process for Collecting Antidumping and Countervailing Duties

The Office of the U.S. Trade Representative (USTR) has announced a hearing date and related deadlines for review of certain countries’ ongoing eligibility under the United States’ Generalized System of Preferences (GSP) program.  We previously wrote about these GSP reviews here, which may result in the United States’ decision to suspend duty-free GSP benefits for imports from countries that no longer satisfy the eligibility requirements.

The current round of GSP reviews by the interagency Trade Policy Staff Committee (TPSC) will evaluate whether:

  1. Azerbaijan, Georgia, Kazakhstan, and Uzbekistan are meeting the GSP eligibility criterion requiring that a GSP beneficiary country afford workers in that country internationally recognized worker rights;
  2. Ecuador is meeting the GSP eligibility criterion requiring a GSP beneficiary country to act in good faith in recognizing as binding or in enforcing applicable arbitral awards;
  3. Indonesia and South Africa are meeting the GSP eligibility criterion requiring adequate and effective protection of intellectual property rights;
  4. Indonesia and Thailand are meeting the GSP eligibility criterion requiring a GSP beneficiary country to provide equitable and reasonable access to its markets and basic commodity resources; and
  5. Laos meets all of the GSP eligibility criteria and should be newly designated as a GSP beneficiary country.

USTR initiated the GSP country practice reviews of Azerbaijan and South Africa following the TPSC’s own determination and interested party petitions.  Reviews of the other countries examined in this round are the result of interested party petitions.

The TPSC will hold its hearing on January 30, 2020.  Interested parties intending to file written pre-hearing comments and/or requests to appear at the hearing must do so by January 17, 2020.  Any post-hearing comments must be submitted by February 28, 2020.  More information regarding these deadlines and submission requirements can be found here.

 

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.