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U.S. Export & Reexport Compliance for Canadian Operations

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U.S. Export & Reexport Compliance for Canadian Operations

January 25 – 27, 2022 | Toronto, ON + Livestream Option Available

The Canadian Institute (CI) and the American Conference Institute (ACI) invites you to attend the 11th Annual Forum on U.S. Export & Re-Export Compliance for Canadian Operations in Toronto, ON on January 25–27, 2022!

Over the last decade, this acclaimed event has gathered senior U.S. and Canadian government officials, as well as legal and compliance experts from aerospace, defense, technology, satellite, space, telecom, energy, logistics, and many more industries. CI/ACI are excited to host this event in-person this year (following all local Covid measures) to give a chance for attendees to network once again in-person. The event will also be live-streamed to give a wider audience a chance to access the expertise and updates shared by CI/ACI’s speaker faculty.

As in past years, the 2022 agenda will focus on the most complex issues posed by the interplay of U.S. and Canadian export/re-export controls, as well as the nuances of applying U.S. requirements to the Canadian context.

HERE ARE YOUR TOP 5 REASONS TO ATTEND:

1. Hear directly from key government decision-makers.

2. Benchmark with leading exporters through audience polling and structured breakout conversations.

3. Stay in the loop on critical development in Canada and the U.S.

4. Gain best practices for navigating compliance risks that are unique to the Canadian context.

5. As the only event of its kind in Canada, this is your best chance to expand your network and brain trust.

Don’t miss the only comprehensive event for the export and re-export compliance community in Canada!

Register now to take advantage of early rates! SAVE 10% with Global Trade Magazine Code: D10-856-856BX01.

Online: https://bit.ly/3kEgKx2

Email: customerservice@canadianinstitute.com

Phone: 1-877-927-7936

biscuits

The U.S. Boosts Sweet Biscuit Imports

IndexBox has just published a new report: ‘U.S. – Sweet Biscuits Without Chocolate – Market Analysis, Forecast, Size, Trends And Insights’. Here is a summary of the report’s key findings.

American sweet biscuit imports jumped by +7% y-o-y to 561K tonnes in 2020. In value terms, the purchases from abroad stood at $1.4B. Last year, Mexico remained the largest supplier to the U.S., comprising 70% of the American sweet biscuit imports. Among other major exporters, India saw the highest increase in biscuit shipments to the U.S. The average sweet biscuit import price in America dropped by -7.7% against the previous year.

U.S. Sweet Biscuit Imports

Sweet biscuit imports into the U.S. rose notably to 561K tonnes in 2020, increasing by +7% against the year before. In value terms, sweet biscuit imports stood at $1.4B (IndexBox estimates) in 2020.

In 2020, Mexico (391K tonnes) constituted the largest supplier of sweet biscuits to the U.S., with a 70% share of total imports. Moreover, sweet biscuits imports from Mexico exceeded the figures recorded by the second-largest supplier, Canada (77K tonnes), fivefold. The third position in this ranking was occupied by India (14K tonnes), with a 2.5% share.

In 2020, the average annual rate of growth in terms of volume from Mexico amounted to +13.1%. The remaining supplying countries recorded the following average annual rates of imports growth: Canada (-2.2% per year) and India (+23.7% per year).

In value terms, Mexico ($658M), Canada ($332M) and Denmark ($52M) constituted the largest sweet biscuit suppliers to the U.S., with a combined 76% share of total imports. India lagged somewhat behind, accounting for a further 2.1%.

In 2020, the average sweet biscuit import price amounted to $2,442 per tonne, declining by -7.7% against the previous year. Prices varied noticeably by the country of origin; the country with the highest price was Denmark ($5,603 per tonne), while the price for Mexico ($1,681 per tonne) was amongst the lowest. In 2020, the most notable rate of growth in terms of prices was attained by India, while the prices for the other major suppliers experienced a decline.

Source: IndexBox Platform

aluminium

American Imports of Aluminium Plates, Sheets and Strips Drop to $2.5B

IndexBox has just published a new report: ‘U.S. Aluminum Sheet, Plate, And Foil Market. Analysis And Forecast to 2025’. Here is a summary of the report’s key findings.

In 2020, American imports of aluminium plates, sheets and strips slumped to 836K tonnes, reducing by -35.6% y-o-y. In value terms, they shrank from $4.2B to $2.5B over the last year. Canada, China and Saudi Arabia remain the largest suppliers of aluminium plates, sheets and strips to the U.S. In 2020, Thailand, Saudi Arabia and Canada managed to boost shipments to the American market, while other exporting countries experienced significant drops in supplies. The average import price for aluminium plates, sheets and strips in the U.S. decreased by -6% y-o-y to near $3,000 per tonne.


 

American Imports of Aluminium Plates, Sheets and Strips

In 2020, the amount of aluminium plates, sheets and strips of a thickness exceeding 0.2 mm imported into the U.S. shrank markedly to 836K tonnes, dropping by -35.6% compared with the previous year. In value terms, imports of aluminium plates, sheets and strips dropped remarkably from $4.2B to $2.5B (IndexBox estimates) in 2020.

Canada (131K tonnes), China (113K tonnes) and Saudi Arabia (93K tonnes) were the main suppliers of imports of aluminium plates, sheets and strips to the U.S., together comprising 40% of total imports. Oman, Germany, South Africa, Thailand, Turkey, South Korea, Austria, Taiwan (Chinese), the UK and Spain lagged somewhat behind, together accounting for a further 38%.

In 2020, amongst the key exporters, Thailand (+47% y-o-y), Saudi Arabia (+9.8% y-o-y), and Canada (+2.1% y-o-y) featured the most notable growth rate of supplies to the U.S. in physical terms, while imports from other countries went down.

In value terms, the largest aluminium plates, sheets and strips suppliers to the U.S. were Canada ($387M), China ($325M) and Saudi Arabia ($255M), with a combined 38% share of total imports. Germany, Oman, Austria, South Africa, Thailand, South Korea, Turkey, the UK, Taiwan (Chinese) and Spain lagged somewhat behind, together comprising a further 38%.

In 2020, the average import price for aluminium plates, sheets and strips amounted to $3,009 per tonne, falling by -6% against the previous year. Prices varied noticeably by the country of origin; the country with the highest price was Austria ($4,416 per tonne), while the price for Oman ($2,437 per tonne) was amongst the lowest. In 2020, the most notable rate of growth in terms of prices was attained by Thailand, while the prices for the other major suppliers experienced mixed trend patterns.

Source: IndexBox Platform

canadian

A Founder’s Guide to Importing with Canadian Fulfillment

Since the year 2010 when it overtook the United States, it is no longer news that China has become the world’s leading nation in terms of manufacturing. The United Nations Statistics Division (UNSD) released data that estimated China’s contribution to global manufacturing in 2019 at a massive 28.7 percent. This has turned the attention of many ambitious entrepreneurs to the East where the most populous nation on earth presents itself as an irresistible manufacturing market.

On the other hand, the trade war between the US and China – which has seen both parties slap heavy tariffs on each other’s goods has made it economically difficult to import goods directly from China, and by extension frustrating the efforts of American businesses that are trying to explore the Chinese market.

So, how can the American entrepreneurs that want to take advantage of the booming Chinese market beat the harsh economic demands of direct importation from China? The answer is in taking Canada as a smart China-to-US route and leveraging Section 321 and Canadian Fulfillment.

What is Section 321 and how does it work?

Section 321 is one of the most common US Customs and Border Protection (CBP) statutes known by ecommerce businesses. Introduced in 2019, the section authorizes low-value merchandise below the minimum of $800 to be exempted from paying custom duties or taxes.

What does Canadian fulfillment mean?

Canadian fulfillment companies are third-party companies in Canada that receive and provide warehousing and logistic services, as well as handle the shipping processes, checking in imported stock for business organizations, and helping them to deliver orders directly to their customers. Their delivery service makes sure the processing and shipping of orders to the US are carried out on the same day just as would be the case from a store in the States.

How do you take full advantage of Section 321 through Canadian fulfillment?

As mentioned above, Section 321 is a bridge for direct importation from China to the US. It is important to note, however, Section 321 alone, is not enough. There are certain conditions and best practices that could make the process tedious and difficult for business owners to ship their goods through the border. These conditions, if not complied with, may also lead to serious punishments and delays in shipment.

Here is how you as an entrepreneur that has an ecommerce business can take advantage of Canadian fulfillment, maximize the benefits of section 321 and bypass its constraints:

1. Importers are only allowed to claim Section 321 once daily. If you are going to be importing goods that are worth above the $800 value threshold (which is very likely), this means you will not be able to ship your entire goods through the US border all at once. As an entrepreneur, using the services of a Canadian fulfillment company will aid in maintaining business-to-customer and business-to-business delivery operations across the border at an economy-friendly cost, and without having to worry about the import duty and tax.

2. Apart from the daily limit, the logistic effort of receiving very large ecommerce shipments from China, shipping them to the U.S., and the cost of transporting them to your warehouse could be very overwhelming and unnecessary. E-commerce business owners have settled with using the warehousing services of Canadian fulfillment to save cost and prevent stress.

3. An entrepreneur that does not have to worry about the logistic and warehousing aspect of their business would have the opportunity of focusing on other things.

Summarily, leveraging on Section 321 through Canadian fulfillment can help entrepreneurs conveniently maximize their exploits in the Chinese market without feeling the economic heat of the trade war.

trucking

Canadian Companies Form Partnership for First-of-its-Kind Trucking Technology

Canada’s first-ever automated heavy-duty trucking technology is one step closer to launching thanks to a recent partnership between Canadian Tire Corporation, NuPort Robotics Inc., and the Ontario government. In a release earlier this week, a $3 million investment was confirmed to support the automated trucking project which will further highlight the need for middle-mile and short-haul solutions. The technology aims to provide solutions for these trucks by increasing fuel efficiency and safety while enhancing the driver experience.

“Ontario is proud to be a global leader in automated and connected vehicle technology and this innovative project is an exciting milestone toward automated vehicle tech in the trucking industry,” said Caroline Mulroney, Minister of Transportation. “Ontarians rely on goods being delivered by trucks across the province every day and projects like this are demonstrating the ways that automated truck technology could help businesses meet delivery demands more efficiently while supporting a strong supply chain in Ontario.”

“This project applies unique and made-in-Ontario Artificial Intelligence technology that offers increased safety and efficiency, with a reduced carbon footprint, to the goods supply chains on which we all rely,” said Vic Fedeli, Ontario Minister of Economic Development, Job Creation and Trade. “This is the latest example of how Ontario’s Autonomous Vehicle Innovation Network acts as a catalyst, fostering partnerships between ambitious technology start-ups and industry to develop and commercialize next-generation transportation technologies that strengthen our economy and benefit society.”

The project – which is currently estimated to take about two years, will utilize technologies including NuPort’s very own artificial intelligence to aid in retrofitting two semi-tractor trailers with features such as high-tech sensors and controls, a touchscreen navigation system, and other advanced obstacle and collision avoidance features.

“The trucks are currently transporting goods between a Canadian Tire distribution center in the Greater Toronto Area and nearby rail terminals within a 12.5-mile radius, and early results are promising,” said Raghavender Sahdev, CEO of NuPort Robotics. “The aim of the project is to develop a system that incorporates an autopilot feature for conventional trucks with a driver, leading to the most efficient way to drive and increase safety. The sensors work as a ‘safety cocoon’ to cover blind spots and prevent accidents and the end result is peak fuel efficiency, meaning lower carbon emissions, and peak driving performance for an overall more optimal transportation experience.”

“Canadian Tire embraces innovation and is always testing new technologies to improve our operational efficiency and safety. As proud Canadian companies, the safety of all stakeholders, including drivers, employees, customers, and public will be the top priority as we work together towards deployment of this technology,” said Gary Fast, Vice-President of Transportation, Canadian Tire.

“Over the last three years, Canadian Tire has made a significant effort to solve complex business problems by using the Canadian start-up Artificial Intelligence ecosystem, and NuPort Robotics exemplifies what we look for in a start-up with a focus on innovation, automation and artificial intelligence,” added Cari Covent, Vice President of Intelligent Automation, Canadian Tire.

Combined investments from the Ontario government through Ontario’s Autonomous Vehicle Innovation Network (AVIN) ($1 million) and matched investments totaling $1 million by Canadian Tire and NuPort Robotics will support the overall focus on creating sustainable supply chain solutions in transportation while focusing on middle-mile transportation needs.

“As NuPort Robotics continues to develop new technologies to overcome middle-mile supply chain problems and advance autonomous trucking, I am extremely grateful for the support of the Ontario Government through AVIN and the Ontario Centre of Innovation. With their continued support, we are striving to position Canada as the leader in autonomous transportation,” Sahdev said.

usmca

NAFTA to USMCA: A Brief Overview of Significant Changes

The United States-Mexico-Canada Agreement (USMCA) became effective on July 1, 2020, 26 years after its predecessor, the North America Free Trade Agreement (NAFTA). While NAFTA was originally conceived during the 1980s, the free-trade block did not materialize until the early 1990s, in part as a result of the perceived need to counterbalance the effects of the then–recently created European Union (1993). Mexico was experiencing unprecedented economic growth under the administration of President Salinas de Gortari (1988-1994), an economist and the first non-lawyer elected into the Mexican presidency since 1958, while President Bill Clinton (1993-2001) was driving sustained economy growth in the United States that ultimately led to a US federal budget surplus from 1998 to 2001. Canada, on the other hand, had just elected Prime Minister Jean Chrétien (1993-2003), who had run, at least partly, on a promise to renegotiate NAFTA within six months, as he believed that the new free trade agreement negotiated by then–Prime Minister Brian Mulroney (1984-1993) made too many concessions to the Mexicans and Americans.

In contrast, the USMCA comes into effect in what undoubtedly are unprecedented times in modern history. Although there existed a consensus among member states that the tri-lateral agreement needed an update, no one could have predicted that its successor would be greeted by an economic downturn caused (or accelerated) by a crippling pandemic that has forced an almost complete shutdown of the Mexican and United States economies.

In addition, while the US-Mexico relationship appears relatively strong, the US relationship with Canada has been more strained, marked by intermittent friction between the two countries on a variety of trade-related issues, such as steel tariffs in the United States and dairy tariffs in Canada. Given this backdrop, it is hard to predict how smooth the implementation of the USMCA will be. For example, in late-July hearings in the US House, both parties’ lawmakers exacted promises from the US Trade Representative’s office that it would quickly and aggressively use the USMCA’s enforcement mechanisms, with those representatives revealing that some cases were “ready to go” and would be on file by this autumn.

The general consensus is that the USMCA achieves some notable changes and a number of incremental improvements. A full description of these changes is beyond the scope of this discussion, but the changes that will likely have the greatest impact relate to a few, select industries, and certain procedural changes, including the following:

Domestic Content Rules for Automobiles

Auto content rules were a major issue throughout the USMCA negotiations. The USMCA includes two significant changes to how cars will be made and when they can be declared as made in the United States. First, the USMCA increases to 75% (from 62.5%) the percentage of a vehicle’s parts that must be manufactured in North America. Although the 75% number has garnered most of the attention, the USMCA (as did NAFTA) actually includes different rules: Part content is divided into core, principal, and complementary parts with content requirements of 75%, 65%, and 60%, respectively. The content calculations will also be subject to the USMCA’s rules of origin, which do away with NAFTA’s tracing scheme as well as the concept of “deemed originating.” These changes will affect the automotive supply chain. For example, the USMCA introduces a new rule requiring that 70% of the total steel and aluminum used in an automobile must be sourced from North American suppliers. Combined with the elimination of the tariff shift rules for stamped products, this will require supply chain changes for a number of auto producers.

While there are broader labor rules incorporated into the USMCA, the primary focus is on the agreement’s new requirements that workers earning at least $16 per hour make 40% to 45% of a vehicle’s components.

In keeping with the findings of Section 232 of the Trade Expansion Act of 1962 relating to automobiles, the USMCA incorporates quotas for Canadian and Mexican auto imports. Although the quota is well above current rates, this provision likely will morph into an issue in future years.

Labor Laws

The USMCA includes an array of labor-focused provisions. One example is a requirement that the countries adopt and enforce labor laws consistent with the International Labor Organization. The signatories also agreed to effectively enforce labor laws, and not to waive or derogate from them. The USMCA also requires the countries to: (1) take measures to prohibit the importation of goods produced by forced labor; (2) address violence against workers exercising their labor rights; (3) address sex-based discrimination in the workplace; and (4) ensure that migrant workers are protected under labor laws.

The USMCA also includes an Annex on Worker Representation in Collective Bargaining in Mexico, under which Mexico commits to specific legislative actions to provide for the effective recognition of the right to collectively bargain. To fulfill this commitment, Mexico enacted historic labor reforms on May 1, 2019, and is implementing transformational changes to its labor regime, including new independent institutions for registering unions and collective bargaining agreements and new and impartial labor courts to adjudicate disputes.

The agreement also requires all businesses in Mexico to ensure that they are in compliance with all aspects of the USMCA, including the collective bargaining provisions. The United States and Mexico have established a Facility-Specific, Rapid Response Labor Mechanism (Labor Mechanism) to enforce the collective bargaining obligations through the imposition of remedies, which may include the suspension of the preferential tariff on goods manufactured by a breaching facility. The countries have already begun their appointments to these dispute-resolution bodies, and the US Trade Representative has testified that cases are already being identified for action in the fall of 2020.

Other Notable Changes

While NAFTA had no provisions relating to dairy, the USMCA increases the opportunity for dairy exports to Canada, long a contentious issue between the two countries, making the US Dairy industry a winner in the deal. As Alan Ross of Canadian law firm Borden Ladner Gervais LLP states “Under the new agreement, US dairy farmers receive access to about 3.5% of Canada’s $16 billion annual domestic dairy market. Operationally, Canada will provide new tariff rate quotas exclusively for the United States and eliminate certain milk price classes, changes which have proven unpopular with the Canadian dairy industry.”

Also, the USMCA (1) includes environmental obligations to, among other things, combat wildlife trafficking, address air and marine quality, and protect marine life and, as part of its environmental efforts, the USMCA provides funds for monitoring these environmental efforts; and (2) prohibits customs duties on digital products (i.e., products that are transmitted electronically, such as computer programs, videos, or music). This last issue alone merits further analysis and consideration, as digital taxes become de rigueur in Europe and elsewhere. Finally yet importantly, unlike NAFTA, the USMCA includes a sunset clause. The countries settled on a 16-year term for the deal, with a review to identify and fix problems and a chance to extend the deal after six years.

Monitoring and Enforcement

The signatories countries are to make every endeavor to arrive at a mutually satisfactory resolution of all disputes arising out of the USMCA.  However, if they are not able to reach a resolution, Chapter 31 of the USMCA provides the framework for dispute settlement. In it, the parties will first consult with technical experts in the hopes of resolving the dispute. Should that fail, a ministerial panel will review the dispute and submit a final report. If the final report finds that (1) the measure is inconsistent with a party’s obligation; (2) a party has failed to carry out its obligations under the USMCA; or (3) the measure is causing nullification or impairment of the scope, the disputing parties must try to agree on the proper resolution for the dispute within 45 days. If the disputing parties are unable to resolve the dispute within 45 days, the complaining party can suspend the responding party’s benefits of equivalent effect to the dispute.

The USMCA retains the binational panel reviews of unfair trade law matters. These include customs determinations, antidumping and countervailing duty determinations, government procurement, breach of the most-favored-nation treatment for investors (noting that Canada has opted out of the investment provision of the USMCA), and disputes involving public telecommunications services, digital trade, intellectual property, labor rights, and environmental obligations.

In a significant change from NAFTA, the investment chapter (Chapter 14) of the USMCA (1) only applies to the US and Mexico (given Canada’s withdrawal from investor-state dispute settlement regime – ISDS), and (2) narrows the circumstances under which cross-border investors can bring actions under the general rules of ISDS. For instance, the USMCA prevents many US and Mexican investors from asserting claims under the “fair and equitable treatment” standard, which is included in most international investment treaties and is a frequent basis for such claims. Exactly how this will impact cross-border activities remains to be seen.

Generally speaking, Chapter 14 provides access to international arbitration for general investments and covered government contracts subject to satisfaction of certain pre-arbitration conditions and limitations (including the exhaustion of local remedies and certain statutes of limitation). Investors (post—established investment) may seek protection for breach of national treatment and most-favored-nation treatment under the general investments protections. Further, under the government-covered contracts protections, investors in oil and gas production, telecommunications, transportation, certain infrastructure, and power generation may also be entitled to protection under the USMCA. Lastly, it should be noted that (1) the participation of Mexico and Canada in the Trans-Pacific Partnership (otherwise known as the CPTPP) will force all investors to take a fresh look at their options when seeking relief from wrongdoing by another state, and (2) the consent by Canada to ISDS for legacy investment claims will elapse three years after NAFTA’s termination.

As mentioned above, the USMCA also created the Labor Mechanism as a way to deal with labor disputes. In particular, the Labor Mechanism enables the United States and Canada to bring a dispute against a facility in Mexico that they believe is not in compliance with Mexico’s new labor laws. The Labor Mechanism permits the suspension of the preferential tariff as a remedy, the imposition of penalties on goods or services from the violating facility, or the denial of entry of goods from the violating facility.

* * *

While we remain confident that member states are invested in the growth of the North America region as a whole, and the consensus is that the USMCA does address some of the most relevant concerns of the parties to the tri-lateral agreements during the NAFTA years, it will be hard to really measure the USMCA’s true effects (whether positive or adverse) in the short and possibly mid-term given, among other things, the political and economic turmoil that has seen it take its first steps.

usmca

Sizing up the USMCA Compromise Package – How Various Industries Will be Impacted

On December 10, Speaker Nancy Pelosi, the Trump administration, along with leaders in Mexico and Canada, announced a compromise to the new North American trade deal, known as the U.S. Mexico and Canada Agreement.  Eleventh-hour concessions by the Administration and Mexico are likely to result in a win for labor, President Trump, and ultimately market stability.

The final deal gives Democrats in Congress a few big wins in the pharmaceutical and labor industries, as well as environmental standards, and gives President Trump the victory of having his new trade deal on the path to ratification by all countries involved. Canada managed to receive much of what they requested, despite the slight opening of the Canadian dairy market to U.S. producers.

One of the biggest changes from the original draft USMCA in the compromise trade agreement is the negotiated labor monitoring and penalties for noncompliance. While the original draft required Mexico to change its laws to make it easier for workers to unionize, the compromise created an interagency committee that will monitor Mexico’s labor reform, established benchmarks and penalties for Mexico’s labor reform process, and established labor attachés in Mexico for on-the-ground reporting about Mexico’s labor practices.

Below is an outline of the changes to the USMCA – the House is expected to vote on the deal next week, though the Senate will likely not address the bill until the impeachment process has concluded:

For workers, language was removed that made it difficult to prove that trading partners are not protecting workers from violence in their respective countries. Now, Mexico has agreed to a “rapid-response labor mechanism” (see ANNEX 31-A) that allows independent, multinational three-person panels to investigate Mexican factories. Mexico, too, can have a panel investigate factories in the U.S. If a violation of union rights is found, a complaint can be filed, and the country making the accusation can determine the period of time that the accused county can have to address the concern. Provisions against Forced Labor also remain strong in the agreement. The deal is expected to also create 176,000 new jobs in the U.S. (See Article 23.3-23.4, ‘Labor Rights.)

For the environment, Democrats have promised that the deal has an added commitment that all the countries will have seven multilateral environment agreements (MEAs), alongside language that will allow the list to grow over time. Provisions include prioritization and monitoring of MEA commitments, and maintain and strengthen the protection of endangered species, the Montreal Protocol, prevention of pollution from ships, regulation of whaling, protection of the Ozone Layer and more (Article 1.3 Amendment and Article 24.9 Amendment)

For the pharmaceutical industry, the deal’s former provision that gave biologics a 10-year exclusivity period on the market is now entirely taken out. Democrats argued against the exclusivity period, concerned it could increase the cost of drugs, and succeeded in eliminating language that allows patent evergreening – when brand-name drug manufactures extend patents an additional to maintain power in the market when a new or related drug is created. (See the deletion of Article 20.49 ‘Biologics’)

For the internet, a Democratic concession led to maintained protections in the USMCA for technology companies, giving legal immunity for content posted by their users, as well as legal protections when these companies seek to moderate platforms. These provisions remain the same from Section 230 of the Communications Decency Act of the USMCA.

For the steel industry, while the deal already exempted the Canada and Mexico from steel and aluminum tariffs, the revised agreement has strict rules of origin in the automotive industry. The deal states that seven years after entry into the USMCA, all steel manufacturing must occur in one or more of the countries involved, except for the refinement of steel additives. Ten years after the agreement, the countries will consider appropriate requirements in the interest of all parties for aluminum to also be considered. (See Chapter 4, ‘Rules of Origin’)

For Canada and dairy, the U.S. will be able to export 3.6% of Canada’s dairy market, currently at 1%. Dairy companies in the U.S. can sell their products into Mexico duty-free, with access to common-named cheeses, while Canada is opening its market with more duty-free quotas for U.S. dairy products. The deal eliminates Canada’s 6/7 milk pricing system, and holds Canadian export of dairy to the standards of international trade rules.

And for the auto industry, in order to avoid tariffs, a car or truck must have 75% of its components made in the U.S., Mexico or Canada, up from 62.5% today.  Also, workers making the cars or trucks, at least 30% of the work, must be earning at least $16 an hour. By 2023, that number is 40% of the work done on cars.

With the United States positioning itself to negotiate several more trade deals, labor hopes that these last-minute changes set a benchmark for labor standards and enforcement moving forward and, likewise, the President hopes it demonstrates he can close a major trade deal.

___________________________________________________________

Note: Ryan Bernstein, formerly chief of staff to Senator John Hoeven (R-ND) is a senior vice president with McGuireWoods Consulting federal public affairs group.Mariam Eatedali is a research associate at McGuireWoods Consulting; she previously consulted with former representatives and senators to address foreign economic and diplomatic concerns while she was a fellow for the U.S. Association of Former Members of Congress

USMCA

Has Move to Impeach President Trump Pushed Aside the USMCA?

The momentum to impeach in Washington, D.C., is not only hurtling Congress and President Donald Trump toward a potential constitutional crisis, but the prospect of reaching a solution to the ongoing trade standoffs has dimmed considerably.

That’s the opinion of leading international trade lawyer Clifford Sosnow, who notes the time frame for passing the U.S.-Mexico-Canada Agreement (USMCA)—and thereby revamping the North America Free Trade Agreement (NAFTA)—is growing shorter by the day, denting plans for global companies that rely heavily on exports.

“With impeachment officially on the table and the hyper-partisan climate in the lead-up to next year’s elections, there is serious concern whether the USMCA is dead in the water,” says Sosnow, an Ottawa-based partner with Canadian law firm Fasken.

“It’s unclear how much of a window is even left for approval of the USMCA. There are also high odds of failure post-election, especially if the Democrats win. The party has not shown any enthusiasm for the USMCA in its current form.”

Sosnow is not shooting from the hip in an easy chair. He has appeared before NAFTA and WTO panels and the Canadian International Trade Tribunal, and he has numerous clients affected by tariffs as well as any decisions on NAFTA, including automobile manufacturers, banks, service companies, IT companies, large retailers, manufacturers, agriculture business, aerospace firms, and transportation companies.

business

Where do People Travel for Business?

When it comes to global business, the right transportation is essential. Getting talent from one side of the globe to another matters as much as ever it has – and perhaps even more so. But which cities are the most attractive for modern business? This is a question whose answers have remained more or less the same over the last four or five years, despite the fact that global business flights have more than doubled.

New York

The Big Apple leads the pack when it comes to inbound business flight, and it has done since 2014. This is largely thanks to its status as a centre of global finance, but it’s also because New York is among the most business-friendly states in the US, with a range of tax incentives offered to startups. Buzzfeed and WebMD originated here. Whether you’re taking a private jet or a commercial airliner, New York remains the world’s premier destination for business travellers.

London

London has consistently run a close second, despite the uncertainty still lingering over Brexit. Among the biggest draws of the capital is the English language, which remains the second most widely-spoken language in the world (and probably claims the top spot when we count only the customers of international airports). London contains around 15 businesses per hundred residents; the figure for the rest of the UK is around 10.

Paris

Paris is something of a fast-climber, experiencing around twenty-per cent growth over the two-year spell from 2016-2018. It’s easy to see why a business might locate here; Paris has an enormous amount of culture and history to offer, and thus it’s easy to persuade would-be staff to settle here. While France might have something of a reputation for overbearing bureaucracy (the word, is, after all, derived from a French one), the business environment is competitive enough to tempt many international businesses and skilled employees looking to sample life on the continent.

Shanghai

With China having established itself as a global power, it’s probably no surprise that its busiest airport is so attractive to international business customers. While the city isn’t quite as attractive to western travellers as the other entries to this list, it’s a location that no globalised business can afford to neglect – and this is reflected in its rapid rise as a centre of international air traffic. 

Among the more interesting trends in global air traffic generally has been an increased spread between different continents, with five of the seven listed in the top twenty destinations. There is perhaps no better example of this than that of Shanghai.

Toronto

Toronto outranks many US cities, including San Francisco, Houston and LA. As with New York, there is a range of incentives to businesses looking to grow here. The combined rate of corporate and income tax sits at around 26.5%, which is lower than the US average by around thirteen percentage points.

Singapore

Like Dubai, Singapore claims a great deal of air travel thanks to its popularity as a stop-off for long-haul flights between Europe and Australia. But there’s more to Singapore than that. The country is widely regarded as an ideal place from which to tap into Asia’s emerging markets. The location is strategically attractive, the workforce is competitive and the economic policy is explicitly favourable to business. It’s also emerging as serious competition for Hong Kong’s financial centres. For the world’s business travellers, there’s no shortage of reasons to pay this part of the world a visit.

USMCA

How a Footnote in the USMCA Undermines Economic Liberty

House Democrats are holding up ratification of the U.S.-Mexico-Canada Agreement (USMCA) until U.S. Trade Representative Robert Lighthizer agrees to make some changes. While a number of the big concerns about the new NAFTA, such as enforcement, biologic drugs, and the implementation of Mexico’s labor laws have received a lot of attention, there is another issue that has flown under the radar, perhaps in part because it’s buried in a footnote.

Chapter 7 of the USMCA, “Customs Administration and Trade Facilitation,” includes a section on “Express Shipments.” These are goods of low or negligible value that are shipped by courier or express mail services in large volume. Think about that pair of shoes you just ordered from France. That’s an express shipment.

Because there are so many of these packages coming through customs facilities, and it’s such a burden to process them, most countries have what is called a de minimis threshold, that is a set value below which imported goods are both sales tax and duty free. The United States has the highest de minimis threshold in the world, allowing individuals and businesses to make purchases from abroad up to $800 with no duty or tax collected by customs.

As Gary Hufbauer, Euijin Jung, and Lucy Lu explain, high de minimis thresholds are not only good for consumers, who do not have to deal with the complexity and time delays in processing customs duties and sales tax on the things they buy, but also for small businesses, because of the importance of intermediate inputs, as well as cross-border sales for their profits.

As part of the USMCA, Canada and Mexico both raised their de minimis thresholds, which not only helps small businesses in the United States but also consumers in both countries as well. Canada raised its de minimis threshold to $150 CAD from its original $20 CAD limit, and sales tax cannot be collected until the value of the product reaches at least $40 CAD. Mexico increased its de minimis from $50 USD to $100 USD, with tax free de minimis on $50 USD.

While the U.S. did not alter its de minimis threshold in USMCA, there is a curious footnote in Chapter 7 that should be cause for concern. It reads:

Notwithstanding the amounts set out under this subparagraph, a Party may impose a reciprocal amount that is lower for shipments from another Party if the amount provided for under that other Party’s law is lower than that of the Party.

Now we are all well aware of this administration’s distorted concept of reciprocity, and they seem to be applying it here as well. What this footnote suggests is that the U.S. could potentially lower its de minimis threshold to match what Canada or Mexico have agreed to. To put this in perspective, in 2016, the United States increased its de minimis level to $800 from $200. This footnote would allow the de minimis to drop even below the 2016 limit. This is not only an attack on economic liberty for American citizens, but it would be an enormous step backward on a policy where the United States has been a leader for liberalization.

Back in June, Robert Lighthizer was directly asked about this footnote by multiple members of the House Ways and Means Committee during a hearing on the 2019 trade policy agenda. While a number of excellent questions were raised, I highlight two below. First, Rep. David Schweikert (R-AZ), noting bipartisan support for the current de minimis threshold, stated:

In 2016, Congress raised the U.S. de minimis threshold to $800 in the bipartisan Trade Facilitation and Trade Enforcement Act. This change enjoys wide bipartisan support in Congress and throughout the e-commerce landscape. The current threshold benefits millions of American small businesses, across all sectors, including manufacturers, who rely on low-value inputs for the production of U.S. exports. As a result, American small businesses now enjoy more rapid border clearance, reduced complexities and red tape, and lower logistics costs, while American consumers benefit through faster, less expensive access to a wider range of goods.

Given the benefits of the current de minimis threshold to American small businesses and the U.S. economy as a whole, and that Congress legislated on the U.S. de minimis level only a few years ago, I remain extremely concerned over the Draft Statement of Administrative Action (SAA) on the U.S.- Mexico-Canada Agreement (USMCA) transmitted to Congress on May 30. This draft SAA includes language suggesting that you may seek changes to the U.S. de minimisthreshold through the USMCA implementing bill. As you know, last December, Rep. Kind and I led a bipartisan letter urging you not to seek to lower the U.S. de minimis threshold. My position has not changed.

I strongly oppose including any language in the USMCA implementing bill that would lower the U.S. de minimis level or that would delegate this authority to the Executive Branch. As you work with Congress to finalize the USMCA implementing legislation, will you commit to not seeking authority to lower the U.S. de minimis threshold?

Rep. Daniel Kildee (D-MI) also emphasized how this change would undermine Congress’s authority to regulate commerce:

In 2016, Congress raised the U.S. de minimis threshold to $800 in the bipartisan Trade Facilitation and Trade Enforcement Act. The current threshold benefits millions of American small businesses, across all sectors, including manufacturers, who rely on low-value inputs for the production of U.S. exports. As a result, American small businesses now enjoy more rapid border clearance, reduced complexities and red tape, and lower logistics costs, while American consumers benefit through faster, less expensive access to a wider range of goods.

Given the benefits of the current de minimis threshold to American small businesses and the U.S. economy as a whole, I was curious to see the Draft Statement of Administrative Action on the U.S. Mexico Canada (USMCA) includes language that you may seek authority for the Executive Branch to set U.S. de minimis thresholds. Congress must maintain its Constitutional authority to set tariffs – including de minimis thresholds.

As you work with Congress to finalize the USMCA implementing legislation, can you commit not to seek the derogation or authority to derogate from the current U.S. de minimis threshold?

Amb. Lighthizer’s comments to all questions on the de minimis threshold remained the same:

As noted in the Administration’s submission to Congress on changes to existing law and the draft Statement of Administrative Action, we identified this as an issue for consultation with the Committee on Ways and Means of the House and the Committee on Finance of the Senate. These consultations are underway. I look forward to continuing those conversations with you and other Members on this important issue.

Congress should continue to press the administration for the removal of this footnote from the USMCA. It may seem like a small part of the broader USMCA debate, but Congress should not be fooled. This is representative of the broader attempts by the executive branch under this administration to expand its power into areas where the Constitution gives Congress express authority. Congress should not give up its authority to regulate foreign commerce, and should actively push to rein in the abuses of the executive in trade policy. By pushing for this on de minimis, we can get one step closer to ensuring that the Trump administration’s trade policy remains as its own small footnote in the history of U.S. trade policy.

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Inu Manak is a visiting scholar at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.