Dentons, the global law firm, recently released its Global Regulatory Trends to Watch in 2018, available here.  In this six-part series, Global Trade is publishing excerpts from the report focusing on public affairs, foreign investment, national security and economic sanctions, and trade across the world. Authors for these are listed at the end of the report on the firm’s downloadable link above.

Trade and economic sanctions: Canada

Trade agreements. The single most important trade issue to face Canada in 2018 will be the renegotiation of the NAFTA. Given the drama associated with the NAFTA negotiations, other momentous trade agreement developments in the past year have received less than their fair share of attention. Notably, comparatively less attention has been given to the long-delayed implementation of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) and the reboot of the Trans-Pacific Partnership (TPP) following the withdrawal of the US in the early days of the Trump Administration.

Looking ahead, the implementation of the CETA in September of 2017 will continue in 2018 to have a profound impact on Canada-EU trade and investment. Businesses are now starting to feel the concrete effects of the tariff reductions and other trade promoting measures of the agreement. The momentum of trans-Atlantic Canada-EU activity is accelerating, with more EU businesses looking at export and investment opportunities in Canada, notwithstanding uncertainties related to the NAFTA. We expect that this growth in activity will continue and that businesses in Canada and the EU will increasingly look for opportunities across the Atlantic and feel the competitive pressures of new entrants into established markets, including in government procurement, infrastructure, manufacturing, construction, financial and consulting services, IT, software and health care, among others.

When President Trump pulled out of the TPP (one of his very first acts in office), it was expected that this would spell the end of the agreement. Soon after the US withdrawal, however, the concept of a “TPP minus 1” (TPP11) started to gain momentum among the remaining participants in the agreement (including Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and  Vietnam). In May 2017, at a TPP Ministerial Meeting, the TPP was reborn as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The new name is largely the result of Canadian pressure but, ironically, Canada is now one of the last stumbling blocks in finalizing the agreement.

In November 2017, at an APEC Trade Ministerial Meeting, the remaining 11 parties agreed to the “core elements” of the CPTPP but several news outlets blamed Canada for delaying the finalization of a deal. At press time, negotiations to finalize the CPTPP continue in earnest but concerns have emerged that unless a deal is concluded very soon, the political window for a deal may close. One of the remaining concerns for Canada involves rules of origin for automobiles. The original deal provided for duty free treatment if 45 percent of the vehicle’s value originated in the TPP region (by contrast, the same threshold is 62.5 percent in the NAFTA). This has raised concerns that the CPTPP will dampen Japanese car-makers’ incentive to invest in the Canadian auto sector.

Reports now suggest that Japan is pushing hard for a deal to be signed at an upcoming APEC Ministerial meeting in Chile in March. If a deal can be concluded, it will have significant implications for Canadian businesses across a wide cross-section of industries, notably the agri-food sector, forestry products and the auto industry.

Sanctions. On the sanctions front, there continue to be significant differences between Canadian and US sanctions, notably on Iran and Cuba. As Iran has opened up to greater economic exchanges with the West, Canadian companies have taken advantage of opportunities not available to US competitors. However, given remaining sanctions on Iran both in Canada and the US, compliance concerns persist. To control risks, Canadian companies need to proceed very carefully and have in place a strong suite of due diligence, contractual protections and other safeguards to ensure remaining sanctions are complied with. As Canadian trade with and investment in Iran continues to expand, sanctions compliance issues will continue to be of significant concern in 2018.

In 2017, Canada also adopted a so-called “Magnitsky Act”. The law’s formal title is the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (S.C. 2017, c. 21). This law and its accompanying regulations impose targeted measures against foreign nationals who are, in the opinion of Canada, responsible for or complicit in gross violations of human rights, or are public officials involved in acts of significant corruption. The regulations prohibit anyone in Canada, or Canadians outside Canada, from, among other things, dealing in any property, wherever situated, of a listed person. So far, the Schedule to the regulations lists 52 foreign nationals from South Sudan, Russia and Venezuela. This new sanctions regime imposes on Canadian companies’ added obligations to screen counterparties against yet another list. This continues to be a cumbersome process as the Government of Canada does not publish a consolidated list of sanctions entities and individuals.

Trade disputes. As predicted in our Dentons’ Pick of Global Regulatory Trends to Watch last year, the Canada-US softwood lumber anti-dumping and countervailing duty (AD/CVD) dispute continued to work its way through the US AD/CVD investigation process throughout 2017, without a settlement of the case being reached. The outcome so far has been very high punitive AD and CVD duties being imposed on Canadian exports of softwood lumber to the US. Canada has launched several legal challenges against the duties, which will continue to grind their way through the various processes, including the WTO Dispute Settlement Body and NAFTA Chapter 19 panels. Historically, Canada has had some significant litigation successes in relation to previous softwood lumber investigations and is banking on being able to have the duties reduced again. In the meantime, we expect that the dispute will not be settled in 2018 and that US importers of Canadian softwood will continue to pay heavy duties. We also expect that alternative sources of lumber supply (such as Scandinavia and Russia) will continue to increase their market share in the US.

Canada itself has continued to use AD/CVD duties to target imports, particularly from China. In 2017, five new investigations were launched against imports of silicon metal, line pipe, PT resin, copper pipe fittings and pasta. For 2018, we anticipate continued AD/CVD activity as the remaining 2017 cases conclude and other findings come up for “sunset review” and new cases are initiated.

Canada has also been active at the WTO, notably launching in late 2017 (publicly disclosed in early 2018) a massive broadside complaint against numerous aspects of the US anti-dumping and countervailing duty system. This case comes on the heels of numerous US investigations that have targeted Canada, including on softwood lumber, newsprint and aircraft. Canada’s frustration with US AD/CVD duties has been building for years and the complaint seeks the elimination of numerous aspects of US trade remedies that Canada considers unfair. This huge case will continue to work its way through the WTO dispute settlement process in 2018 and may have a significant impact on trade agreement negotiations, including the ongoing negotiations on the renewal of the NAFTA and to settle the softwood lumber dispute.

Trade and economic sanctions: UK

Developing trading relationships with the wider world post-Brexit will need to be balanced against foreign policy objectives. Currently, the UK wields significant influence in relation to the development and imposition of sanctions (arms embargoes, asset freezes, visa or travel bans and trade embargoes) both as an EU Member State and a member of the UN Security Council. The applicable sanctions are implemented by unanimous agreement at the EU level, either following UN action or as a result of autonomous measures by the EU.

Leaving the EU raises a number of questions about how the UK can maintain its influence in this important area. The EU External Affairs Sub-Committee of the House of Lords has undertaken an inquiry into UK sanctions policy after Brexit and published its report on December 17, 2017. It concluded that the effectiveness of UK sanctions will be undermined unless the UK can quickly agree on arrangements for future sanctions policy co-operation with the EU. Without this, the UK could be left with the choice of imposing less effective unilateral sanctions or aligning with EU sanctions over which it will have no influence.

In particular, there are concerns the Government’s proposed “tailored” and “unprecedented” approach to UK-EU collaboration on sanctions policy is untested. Informal engagement with the EU is not regarded as a substitute for the force of joint decision-making at the EU level. A political forum has been suggested for regular discussion and coordination of sanctions policy. This would seem to be an area where there is political will on both sides to reach agreement quickly.

Meanwhile, the EU (Withdrawal) Bill will freeze current sanctions regimes and designations in effect on the date of the UK’s withdrawal from the EU. Further, the Sanctions and Anti-Money Laundering Bill, introduced to the House of Lords on 18 October 2017, proposes a legislative framework to “enable the UK to continue to implement United Nations (UN) sanctions regimes and to use sanctions to meet national security and foreign policy objectives”. If adjustments are required to the retained EU sanctions regimes, the Bill provides for temporary powers to make the necessary changes. Legal jurisdiction for matters relating to the post-Brexit sanctions regime will rest with the UK courts. However, it is unlikely that the UK will pursue a completely independent and divergent strategy. Instead, alignment with the EU and its other key trading partners, in particular the US, will be the likely outcome.

Trade and economic sanctions: US

2018 will likely be a challenging year for trade compliance around the world. From macro-challenges surrounding the status of long standing trade agreements such as the North American Free Trade Agreement (NAFTA), Britain’s post-BREXIT trading regimes, and the global trade rules under the WTO, to granular enforcement and regulatory actions at borders such as increased use of antidumping and countervailing duty mechanisms, supply chain issues around forced/slave labor and intellectual property enforcement, to name just a few, trade compliance professionals will have to keep a keen eye open to operational and compliance challenges.

Enforcement actions are a high priority in the US and other countries too. In the US, the trend towards high profile antidumping and countervailing duty investigations (such as cases involving newsprint, large civil aircraft and aluminum sheet) will likely continue in 2018. The enforcement agenda also includes novel cases including Section 232 national security investigations on aluminum and steel imports and safeguard investigations on solar products and washing machines. These cases may result in significant additional duties and increased friction with US trading partners. For example, the Trump Administration National Security Strategy states that the US “will no longer turn a blind eye to violations, cheating, or economic aggression,” and that the Trump administration may take further action against Chinese trading practices, as well as other countries viewed as threats to US economic and/or national security.