U.S.-Mexico-Canada Trade Agreement: Intellectual Property Provisions for the Modern Age

On October 1, 2018, the United States, Canada, and Mexico announced that they had reached an agreement to “modernize” the 24-year old North American Free Trade Agreement (NAFTA). When NAFTA came into effect, it created the largest free trade region in the world. Since then, developments in virtually every sector and the advent of cross-border issues such as digital trade, financial data storage, and unfair currency practices have created room for improvement.

The intellectual property (IP) chapter of the new U.S.-Mexico-Canada Agreement (USMCA), in particular, reflects significant updates.  While NAFTA included IP provisions – and was, in fact, the first trade agreement to do so – the USMCA reflects a more comprehensive approach to ensuring the United States’ most important trading partners respect and enforce IP rights at a high level.

The IP chapter of the USMCA is largely aligned with the IP terms agreed to by the United States, Canada, and Mexico in the Trans-Pacific Partnership (TPP) negotiations in 2016. Although the United States withdrew from the TPP, Canada, Mexico, and the 9 other remaining TPP countries ultimately adopted a modified version of that agreement, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in March 2018. The USMCA builds on the updated terms reached by the United States, Canada, and Mexico as part of the TPP negotiations and final CPTPP agreement.   Read More…      

U.S. Sanctions on Iran Have Been Fully Re-imposed

Today the U.S. Office of Foreign Assets Control (OFAC) amended the Iranian Transactions and Sanctions Regulations (ITSR, 31 C.F.R. Part 560) to fully re-impose U.S. sanctions on Iran following a wind down period that expired yesterday, November 4, 2018.  OFAC also issued new FAQs for foreign affiliates of U.S. companies and non-U.S. companies.

Foreign affiliates of U.S. companies are now generally prohibited from engaging in transactions directly or indirectly involving Iran, Iranian companies or persons, or Iranian-origin goods, unless a general license or exemption applies.  U.S.-owned or -controlled affiliates require a license from OFAC before accepting payments for authorized Iran-related business that occurred during the wind down period leading up to November 4th.  OFAC will review such requests on a case-by-case basis.

Non-U.S. companies face increased secondary sanctions risk for certain business involving Iran, as U.S. secondary sanctions on Iran have been fully re-imposed, including those with respect to:  Iran’s purchase of U.S. dollar banknotes; the provision of graphite and raw or semi-finished metals, including steel and aluminum; certain transactions in the Iranian rial; Iranian sovereign debt; the automotive sector; shipping; petroleum, petroleum products, and petrochemical products; crude oil exports; certain Iranian financial institutions; financial messaging services; insurance services; and the energy sector.

Today OFAC also sanctioned over 700 Iranian individuals, entities, aircraft, and vessels associated with the Government of Iran, including state-owned enterprises, by designating the parties as Specially Designated Nationals (SDNs).  Non-U.S. companies that conduct “significant” transactions with the newly listed parties face the threat of substantial U.S. secondary sanctions, unless an exception applies (such as those related to humanitarian transactions).  Before the re-imposition of sanctions, these parties appeared on the less-restrictive E.O. 13599 List, which generally allowed foreign affiliates of U.S. companies to conduct commercial transactions with the parties under OFAC General License H.  Now that the parties have been moved back to the SDN List, foreign affiliates of U.S. companies must ensure that these parties’ property and interests in property are not transferred, paid, exported, withdrawn, or otherwise dealt in.  These steps may include, for example, foreign affiliates of U.S. companies moving funds owed to such parties to restricted escrow accounts outside of the United States, among other measures.  Foreign affiliates of U.S. companies should consult with legal counsel familiar with U.S. sanctions rules on the appropriate steps to secure the property and interests in property of the newly designated parties.

Comment Opportunity: U.S.-Japan Trade Agreement

The Office of the U.S. Trade Representative (USTR) has opened a public comment period in connection with the proposed U.S.-Japan Trade Agreement negotiations.  On October 16, 2018, USTR notified Congress of its intent to enter into trade talks with Japan.  Those discussions cannot begin until mid-January 2019 at the earliest under the requirements of the Trade Promotion Authority law.

Any member of the public – including individual companies, industry coalitions, and trade associations – may submit written comments to USTR by November 26, 2018.  That is also the deadline to submit written notice of intent to testify, along with a summary of intended testimony, at a public hearing to be held on December 10, 2018 at 9:30 am.  The hearing will be held by the Trade Policy Staff Committee, an interagency committee chaired by USTR and comprised of 20 executive branch agencies that provide input into the Administration’s trade-related decision-making through review of policy papers and negotiating documents, and eliciting public feedback.  Procedures are available for commenters to submit business confidential information.  Continue Reading

European Parliament Votes to Ban Single Use Plastics by 2021

On Wednesday, the European Parliament voted 571-to-53 to ban certain single use plastic items from the EU by 2021.  The legislation is aimed at reducing marine pollution and was drafted in May 2018 by the European Commission.  The Commission estimates that more than 80 percent of marine litter is plastics and that the items considered in the legislation comprise 70 percent of marine litter.  The banned single use items will include plastic plates, cutlery, straws, balloon sticks, and cotton buds.  Oxo-degradable plastic products such as bags or fast-food containers will also be banned by 2021.

In addition, the legislation would create national reduction targets for the consumption of other plastic items such as food containers for fruits and vegetables and would require that 90 percent of beverage bottles be recycled by 2025.

The legislation will next be considered by the heads of state to the 28 Member States of the European Union via the European Council.  The European Council is expected to reach a “conclusion” by mid-December 2018.

Impact of a No-Deal Brexit on Agri-Food Business

Both the EU and the UK are eager to achieve a Brexit deal.  However, with time running short and red lines continuing to be drawn on both sides, a no-deal Brexit scenario remains a possibility.  For this reason, both the EU27 and the UK are expediting preparations for a hard Brexit.  Absent any temporary arrangements, if the UK leaves the EU without a deal on 29 March 2018, it will become a “third country” EU trading partner overnight.  Trade in agri-food between EU-UK would then be governed by World Trade Organization (WTO), EU and UK rules, and food products would no longer move freely throughout the EU.

Agri-food business operators should roll out their contingency measures.  Contingency planning for a “hard” Brexit includes making possible revisions to supply chains, buying-ahead, stockpiling, warehousing, relocating food production, transferring import function, re-labelling, obtaining relevant authorizations and certifications, and taking other practical measures to avoid business disruptions. Companies need to ensure proper controls are in place with regard to import and export regulations.  Continue Reading

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

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