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Trump’s Tariffs Against China: A Negotiating Tactic?

Trump has imposed tariffs on Chinese shipments of export cargo and import cargo in international trade.
Archives, Commentary, Global Trade Daily, Imports/Exports, In The News, International Trade

Trump’s Tariffs Against China: A Negotiating Tactic?

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Given the administration’s stance on trade with China, since the early days of the presidential campaign and the launch of this Section 301 investigation back in August, the proposed tariffs themselves are not a great surprise but their size and related investment restrictions are obviously very significant. President Trump, Secretary Ross and the USTR Lighthizer have had no hesitation wielding tariffs against what they deem to be unfair trading practices. As we have seen with the steel and aluminum tariffs on national security grounds, the exemptions for which were announced yesterday, the threat of tariffs have become somewhat of a negotiating tactic. We will therefore be watching closely for the draft list of goods that the USTR is preparing in the next 15 days as well as China’s response and subsequent dialogues.

The United States has long had grave concerns with China’s record on intellectual property. Just recently and touched on by the USTR, the tech sector has sounded the alarm on China’s new Cybersecurity Law, which has been adopted but is being rolled-out towards the end of this year. The law imposes certification requirements on the sale of computer equipment in that country, requiring security reviews to deem that equipment as being secure. Companies have argued this provision could require them to disclose intellectual property, such as source coding, which could then be copied by domestic companies.

Chinese counterfeit and pirated goods have also been in the headlines for many years and a report released this week by the USTR pointed to Chinese restrictions on market access of cloud computing as being a key barrier to digital trade worldwide. This action also follows stricter and potentially expanded Committee on Foreign Investment in the United States (CFIUS) reviews on the acquisition of US companies with potentially sensitive IP by Chinese conglomerates.

While these tariffs may be seen as a blunt instrument, they are addressing issues that have been on the table for some time and a real stumbling block in trade negotiations between the two countries.

That said, the Supreme People’s Court of China earlier this month vowed to strengthen its intellectual property rights and legal enforcement, so it begs the question on the timing of this announcement and whether these tariffs will have their intended consequences or whether it will actually drive China to backtrack on these moves forward.

Frank Samolis is co-chair of the International Trade Practice at Squire Patton Boggs.

TPP will likely increase volumes of shipments of export cargo and import cargo in international trade for some U.S. industries.
Archives, Commentary, Global Trade Daily, Imports/Exports, International Trade

TPP and U.S. Exports – What’s Next?

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After several missed deadlines and multiple rounds of negotiations, the Trans-Pacific Partnership (TPP) ministerial meeting in Atlanta concluded on October 5 with the announcement of a final deal. If implemented, the agreement would cover 40 percent of global trade. While the full text of the 30-chapter deal is not expected to be available for several weeks, the Obama administration and the Office of the U.S. Trade Representative (USTR) recently released background information, which provides a general overview of the agreement. Supporters of the TPP agreement suggest that the deal will open markets for U.S. goods. However, whether the agreement will significantly increase U.S. exports will vary by industry.

For many industry stakeholders, the agreement will standardize the export process and open up new markets. A critical component of the agreement is that it eliminates or reduces tariffs on a broad range of industrial and agricultural goods. The agreement also addresses other non-tariff trade barriers, requiring restrictions on imports for safety or environmental reasons to have a scientific basis. This is a boon for many U.S. manufacturing businesses, which are currently locked-out of some Asia-Pacific markets due to tariff or non-tariff trade barriers.

On the other hand, some U.S. industries may find it difficult to compete with the products from other countries involved in the deal. If early reports are accurate, the agreement could have a significant impact on the automobile and the pharmaceuticals industries.

With respect to the automobile industry, the U.S. and Japan, along with Canada and Mexico, reportedly reached an agreement on market access and rules of origin. Under the agreement, the U.S. would phase out certain tariffs on trucks and automobiles, and immediately eliminate its tariffs on 80 percent of auto parts.

The agreement would also have a significant impact on the pharmaceuticals industry. Ambassador Michael Froman said the final deal would entail at least five years of exclusivity for data used to show the safety and efficacy of advanced drugs known as biologics. While this protection would be complemented by other mechanisms that TPP countries already have in place, it falls far short of the 12 years of market exclusivity sought by the U.S. brand-name pharmaceutical industry.

Trade among the so-called “sensitive products” became just that – highly sensitive and contentious. Ultimately, it appears that the TPP prescribes relatively mild changes for U.S. firms in these areas.

For many years, the U.S. has protected its domestic sugar market from lower-priced global suppliers. Despite congressional pressure demanding a “significant opening of access to sugar,” reports suggest that negotiators took a more measured stance, only moderately expanding US sugar quotas.

In a move viewed as favorable to US rice exporters, Japan has apparently provided the United States a country-specific quota and agreed to reallocate some of its World Trade Organization (WTO) import quota to medium-grain rice. This would allow the U.S. to sell over 100,000 tons of additional rice per year to Japan.

Under the Trade Promotion Authority (TPA) legislation signed into law earlier this year, the President must notify Congress of his intent to sign the agreement at least 90 days before doing so, and must publicly post the text of the agreement no less than 60 days before his signature. At this point, the timing for Congress’ vote on the agreement remains unclear. But with the impending Presidential election, the administration may wish to see the bill move through Capitol Hill as soon as possible, which would be in early 2016.

Meanwhile, negotiations for another major trade deal continue. The eleventh round of Transatlantic Trade and Investment Partnership (TTIP) negotiations between the U.S. and the European Union will convene in Miami on October 19. Moving forward, U.S. exporters should keep a close eye on future negotiations and work to promote market opening initiatives.

 

Frank Samolis is chair of the international trade practice at the law firm Squire Patton Boggs.

Archives, Commentary, Global Trade Daily, International Trade, Uncategorized

AGOA and Next Steps for African Trade

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International trade has rocketed into the headlines in 2015. Never has there been so many trade acronyms bounded around with such vigor. One such acronym has profound significant for both the U.S. and nearly the entire African continent.

The reauthorization of the African Growth and Opportunity Act (AGOA) passed Congress on June 25 with President Obama signing it into law on June 29, to very little fanfare. Indeed, it seemed to be almost entirely overshadowed by the far more contentious votes on the Trade Promotion Authority (TPA) and the international trade negotiations that have been underway, particularly the Trans-Pacific Partnership between 12 nations in North America and Asia-Pacific and the Transatlantic Trade and Investment Partnership (TTIP) between the US. and E.U.

As AGOA is a trade preference program and unilateral grant, it is not negotiated between countries and thus has had less headline grabbing battles.

AGOA was first passed into law in 2000 for 15 years and would have therefore expired this year. After negative per capita growth rates in the mid-1990s, African trade was seen as a key plank in international relations. With bipartisan support, the Clinton administration agreed to a set of trade incentives on certain goods from African countries that led to the Act.

While the ten-year reauthorization may have been overshadowed by other trade issues, it’s breadth should not be underestimated. With just under 7,000 tariff lines, AGOA has already provided for nearly $12.5 billion of aggregate exports to the U.S. in the 2015 year-to-date through May. Since 2000, trade from Africa has nearly tripled, with the biggest beneficiaries being the apparel industries. Many African countries have gone from negative to healthy growth levels due to their level of exports.

The Act is not without its controversies. First, nearly three quarters of the benefits go to petroleum products, arguably one of the products in the least need of assistance. Second, while there was great optimism from the August 2014 African Summit in Washington that AGOA might be extended and enhanced, little has changed in its reauthorization.

Third, with the current trade negotiations under way, many other countries—particularly in Asia—could gain a competitive advantage over their African counterparts with unrestricted free trade. Other peripheral issues exist as well, such as the contentious Export-Import Bank, whose charter has not yet been renewed but is still referenced in the Act.

Some soundings by the current U.S. Trade Representative, Michael Froman, on the possibility of agreement between the U.S. and the EU on African trade could enhance the AGOA reauthorization. For now, while it still represents a massive trade benefits grant, other trade negotiations may take a bite out of the U.S. import pie.

 

Frank Samolis is a partner at Squire Patton Boggs LLP and co-head of its international trade practice group. He previously served as counsel to the Subcommittee on Trade of the Committee on Ways and Means for the U.S. House of Representatives.