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COMMERCE SUSPENDS INVESTIGATION INTO FRESH TOMATO IMPORTS FROM MEXICO

tomato

COMMERCE SUSPENDS INVESTIGATION INTO FRESH TOMATO IMPORTS FROM MEXICO

On Sept. 19, Commerce finalized an agreement with Mexican tomato growers to suspend the AD investigation of fresh tomatoes from Mexico, halting the process for imposing antidumping duties on tomatoes from Mexico

“Today’s successful outcome validates the administration’s strong and smart approach to negotiating trade deals,” Secretary of Commerce Wilbur Ross said.  “The department’s action brought the Mexican growers to the negotiating table and led to a result that protects U.S. tomato producers from unfair trade. It also removes major uncertainties for the Mexican growers and their workers.”

The suspension agreement completely eliminates the injurious effects of unfairly priced Mexican tomatoes, prevents price suppression and undercutting, and eliminates substantially all dumping, while allowing Commerce to audit up to 80 Mexican tomato producers and U.S. sellers per quarter, or more with good cause. 

In addition, the agreement also closes loopholes from past suspension agreements that permitted sales below the reference prices in certain circumstances, and includes an inspection mechanism to prevent the importation of low-quality, poor-condition tomatoes from Mexico, which can have price-suppressive effects on the market. 

The probe came from a Nov. 14, 2018, request from the Florida Tomato Exchange.

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.

cotton-seed oil

Global Cotton-Seed Oil Market – Production Rose 2.7% to Reach 5.7M tonnes in 2018

IndexBox has just published a new report: ‘World – Cotton-Seed Oil – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global cotton-seed oil market revenue amounted to $8.2B in 2018, falling by -3.6% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). The market value increased at an average annual rate of +2.3% from 2007 to 2018; the trend pattern indicated some noticeable fluctuations being recorded in certain years. The pace of growth appeared the most rapid in 2011 with an increase of 13% y-o-y. The global cotton-seed oil consumption peaked at $8.9B in 2013; however, from 2014 to 2018, consumption stood at a somewhat lower figure.

Consumption By Country

The countries with the highest volumes of cotton-seed oil consumption in 2018 were India (1.6M tonnes), China (1.4M tonnes) and Pakistan (470K tonnes), together comprising 62% of global consumption. These countries were followed by Brazil, Australia, Uzbekistan, Turkey, the U.S., Burkina Faso and Myanmar, which together accounted for a further 25%.

From 2007 to 2018, the most notable rate of growth in terms of cotton-seed oil consumption, amongst the main consuming countries, was attained by Myanmar, while the other global leaders experienced more modest paces of growth.

In value terms, India ($3.5B) led the market, alone. The second position in the ranking was occupied by China ($1.5B). It was followed by Pakistan.

The countries with the highest levels of cotton-seed oil per capita consumption in 2018 were Australia (10,839 kg per 1000 persons), Uzbekistan (7,845 kg per 1000 persons) and Burkina Faso (4,923 kg per 1000 persons).

From 2007 to 2018, the most notable rate of growth in terms of cotton-seed oil per capita consumption, amongst the main consuming countries, was attained by Myanmar, while the other global leaders experienced more modest paces of growth.

Market Forecast 2019-2025

Driven by increasing demand for cotton-seed oil worldwide, the market is expected to continue an upward consumption trend over the next seven-year period. Market performance is forecast to retain its current trend pattern, expanding with an anticipated CAGR of +1.4% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 6.3M tonnes by the end of 2025.

Production 2007-2018

In 2018, the amount of cotton-seed oil produced worldwide stood at 5.7M tonnes, going up by 2.7% against the previous year. The total output volume increased at an average annual rate of +1.0% over the period from 2007 to 2018; the trend pattern remained relatively stable, with only minor fluctuations over the period under review. The pace of growth was the most pronounced in 2011 with an increase of 6.5% y-o-y. The global cotton-seed oil production peaked in 2018 and is likely to continue its growth in the immediate term.

In value terms, cotton-seed oil production stood at $7.4B in 2018 estimated in export prices. Over the period under review, the total output indicated a modest increase from 2007 to 2018: its value increased at an average annual rate of +1.0% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. The pace of growth appeared the most rapid in 2012 with an increase of 24% y-o-y. The global cotton-seed oil production peaked at $9.4B in 2013; however, from 2014 to 2018, production failed to regain its momentum.

Production By Country

The countries with the highest volumes of cotton-seed oil production in 2018 were India (1.6M tonnes), China (1.4M tonnes) and Pakistan (470K tonnes), together accounting for 61% of global production. These countries were followed by Brazil, Australia, Uzbekistan, the U.S., Turkey, Burkina Faso and Myanmar, which together accounted for a further 26%.

From 2007 to 2018, the most notable rate of growth in terms of cotton-seed oil production, amongst the main producing countries, was attained by Australia, while the other global leaders experienced more modest paces of growth.

Exports 2007-2018

In 2018, approx. 168K tonnes of cotton-seed oil were exported worldwide; picking up by 17% against the previous year. In general, cotton-seed oil exports, however, continue to indicate a mild slump. The most prominent rate of growth was recorded in 2008 when exports increased by 18% y-o-y. In that year, global cotton-seed oil exports reached their peak of 234K tonnes. From 2009 to 2018, the growth of global cotton-seed oil exports remained at a lower figure.

In value terms, cotton-seed oil exports amounted to $144M (IndexBox estimates) in 2018. In general, cotton-seed oil exports, however, continue to indicate a temperate deduction. The most prominent rate of growth was recorded in 2008 when exports increased by 18% year-to-year. In that year, global cotton-seed oil exports attained their peak of $237M. From 2009 to 2018, the growth of global cotton-seed oil exports remained at a somewhat lower figure.

Exports by Country

The U.S. (47K tonnes) and Australia (42K tonnes) represented the key exporters of cotton-seed oil in 2018, resulting at approx. 28% and 25% of total exports, respectively. Kazakhstan (16K tonnes) held a 9.7% share (based on tonnes) of total exports, which put it in second place, followed by Malaysia (5.7%). The following exporters – Benin (7,036 tonnes), Argentina (6,725 tonnes), Azerbaijan (5,989 tonnes), South Africa (5,630 tonnes), Burkina Faso (4,310 tonnes) and Brazil (3,637 tonnes) – together made up 20% of total exports.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by Australia, while the other global leaders experienced more modest paces of growth.

In value terms, the largest cotton-seed oil markets worldwide were the U.S. ($42M), Australia ($25M) and Kazakhstan ($14M), together accounting for 56% of global exports.

In terms of the main exporting countries, Australia experienced the highest growth rate of exports, over the last eleven years, while the other global leaders experienced more modest paces of growth.

Export Prices by Country

In 2018, the average cotton-seed oil export price amounted to $857 per tonne, declining by -2.4% against the previous year. In general, the cotton-seed oil export price continues to indicate a mild descent. The growth pace was the most rapid in 2010 an increase of 6.8% against the previous year. Over the period under review, the average export prices for cotton-seed oil attained their maximum at $1,012 per tonne in 2008; however, from 2009 to 2018, export prices stood at a somewhat lower figure.

Prices varied noticeably by the country of origin; the country with the highest price was South Africa ($1,396 per tonne), while Azerbaijan ($558 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Brazil, while the other global leaders experienced more modest paces of growth.

Imports 2007-2018

Global imports stood at 141K tonnes in 2018, picking up by 14% against the previous year. Overall, cotton-seed oil imports continue to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2011 with an increase of 36% year-to-year. The global imports peaked at 162K tonnes in 2013; however, from 2014 to 2018, imports failed to regain their momentum.

In value terms, cotton-seed oil imports totaled $132M (IndexBox estimates) in 2018. Overall, cotton-seed oil imports continue to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2011 when imports increased by 33% year-to-year. Over the period under review, global cotton-seed oil imports attained their peak figure at $155M in 2008; however, from 2009 to 2018, imports stood at a somewhat lower figure.

Imports by Country

In 2018, Mexico (16,353 tonnes), Malaysia (14,348 tonnes), Australia (13,963 tonnes), Saudi Arabia (12,915 tonnes), Tajikistan (11,277 tonnes), South Africa (8,493 tonnes), Nigeria (8,024 tonnes), Germany (6,365 tonnes), Canada (6,355 tonnes), India (6,036 tonnes), Uzbekistan (5,582 tonnes) and Kyrgyzstan (4,855 tonnes) were the major importers of cotton-seed oil in the world, achieving 81% of total import.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by Saudi Arabia (+85.1% per year), while the other global leaders experienced more modest paces of growth.

In value terms, Australia ($16M), Malaysia ($15M) and Mexico ($15M) appeared to be the countries with the highest levels of imports in 2018, with a combined 35% share of global imports. These countries were followed by Tajikistan, Nigeria, Canada, South Africa, Germany, India, Uzbekistan, Kyrgyzstan and Saudi Arabia, which together accounted for a further 40%.

In terms of the main importing countries, Tajikistan experienced the highest rates of growth with regard to imports, over the last eleven-year period, while the other global leaders experienced more modest paces of growth.

Import Prices by Country

The average cotton-seed oil import price stood at $939 per tonne in 2018, dropping by -2.4% against the previous year. Over the period under review, the cotton-seed oil import price, however, continues to indicate a relatively flat trend pattern. The growth pace was the most rapid in 2008 an increase of 18% year-to-year. Over the period under review, the average import prices for cotton-seed oil reached their maximum at $1,116 per tonne in 2010; however, from 2011 to 2018, import prices failed to regain their momentum.

Prices varied noticeably by the country of destination; the country with the highest price was Canada ($1,220 per tonne), while Saudi Arabia ($6.6 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Mexico, while the other global leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

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.

__________________________________________________________-

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

Global Cinnamon Market 2019 – Imports to India Grow Robustly

IndexBox has just published a new report: ‘World – Cinnamon (Canella) – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global cinnamon market revenue amounted to $1.1B in 2018, dropping by -9% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). In general, the total market indicated a remarkable expansion from 2007 to 2018: its value increased at an average annual rate of +2.0% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the cinnamon consumption decreased by -19.8% against 2014 indices. The pace of growth appeared the most rapid in 2010, when the market value increased by 36% y-o-y. Global cinnamon consumption peaked at $1.3B in 2014; however, from 2015 to 2018, consumption failed to regain its momentum.

Production 2007-2018

Global cinnamon production totaled 237K tonnes in 2018, going up by 4% against the previous year. The total output volume increased at an average annual rate of +1.7% from 2007 to 2018; the trend pattern remained relatively stable, with only minor fluctuations being recorded throughout the analyzed period.

Exports 2007-2018

In 2018, approx. 145K tonnes of cinnamon (canella) were exported worldwide; declining by -18.1% against the previous year. In general, the total exports indicated a moderate increase from 2007 to 2018: its volume increased at an average annual rate of +2.2% over the last eleven year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. In value terms, cinnamon exports totaled $580M (IndexBox estimates) in 2018. Over the period under review, cinnamon exports, however, continue to indicate a remarkable expansion. The pace of growth was the most pronounced in 2011, when exports increased by 33% against the previous year. Over the period under review, global cinnamon exports reached their peak figure at $605M in 2017, and then declined slightly in the following year.

Exports by Country

In 2018, Viet Nam (44K tonnes) and Indonesia (41K tonnes) were the major exporters of cinnamon (canella) around the world, together accounting for near 59% of total exports. It was distantly followed by China (25K tonnes) and Sri Lanka (17K tonnes), together creating 29% share of total exports. The Netherlands (5.2K tonnes), Madagascar (2.7K tonnes) and the U.S. (2.3K tonnes) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by Madagascar, while the other global leaders experienced more modest paces of growth.

In value terms, the largest cinnamon markets worldwide were Sri Lanka ($191M), Indonesia ($141M) and Viet Nam ($118M), together accounting for 78% of global exports. These countries were followed by China, the Netherlands, the U.S. and Madagascar, which together accounted for a further 15%.

Export Prices by Country

The average cinnamon export price stood at $4,003 per tonne in 2018, surging by 17% against the previous year. Over the period under review, the export price indicated a remarkable increase from 2007 to 2018: its price increased at an average annual rate of +7.7% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the cinnamon export price increased by +104.6% against 2010 indices. There were significant differences in the average export prices amongst the major exporting countries. In 2018, the country with the highest export price was Sri Lanka ($11,358 per tonne), while China ($1,843 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of export prices was attained by Indonesia, while the other global leaders experienced more modest paces of growth.

Imports 2007-2018

In 2018, the global cinnamon imports stood at 167K tonnes, lowering by -4.7% against the previous year.In value terms, cinnamon imports stood at $587M (IndexBox estimates) in 2018.

Imports by Country

In 2018, India (39K tonnes), distantly followed by the U.S. (20K tonnes), Mexico (11K tonnes) and the Netherlands (7.7K tonnes) were the key importers of cinnamon (canella), together making up 47% of total imports. Bangladesh (7K tonnes), Saudi Arabia (5.5K tonnes), the United Arab Emirates (4.6K tonnes), Pakistan (4.4K tonnes), Iran (3.9K tonnes), Brazil (3.2K tonnes), Germany (3K tonnes) and Viet Nam (3K tonnes) held a relatively small share of total imports.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by Viet Nam, while the other global leaders experienced more modest paces of growth.

In value terms, the largest cinnamon importing markets worldwide were Mexico ($97M), India ($84M) and the U.S. ($72M), together accounting for 43% of global imports. The Netherlands, Bangladesh, Germany, Brazil, Saudi Arabia, the United Arab Emirates, Viet Nam, Pakistan and Iran lagged somewhat behind, together accounting for a further 17%.

Import Prices by Country

The average cinnamon import price stood at $3,510 per tonne in 2018, surging by 3.6% against the previous year. Over the period under review, the import price indicated a remarkable increase from 2007 to 2018: its price increased at an average annual rate of +6.8% over the last eleven year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the cinnamon import price increased by +39.1% against 2013 indices. Import prices varied noticeably by the country of destination; the country with the highest import price was Mexico ($8,610 per tonne), while Bangladesh ($1,717 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of import prices was attained by Brazil, while the other global leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

USMCA Sunset Clause Offers Potential Resolution to Ratification Impasse

Those who have been closely following the saga of revamped free trade in North America will know well that the fate of the United States-Canada-Mexico Agreement (USMCA) could very well be decided on the degree to which lawmakers are able to suspend their cynicism over labor reforms in Mexico to buy into the labor-enforcement provisions set out in the agreement.

Democrats in Congress want to see labor-enforcement provisions within the USMCA made stronger, clearer and part of the actual agreement (as opposed to a side letter). Their demands stem from the fear the USMCA will do little to curb the flight of manufacturing jobs from the United States and into Mexico where workers are paid less and there are fewer regulations with which to contend.

These concerns are fair and warranted, but both Mexico and Canada have unequivocally stated they do not intend to reopen negotiations. Mexico in particular, which just recently passed a labor reform bill that will allow workers to vote on unions and their labor contracts via secret ballot, has said no further concessions will be made.

All three parties have dug in their heels, making ratification of the USMCA seem unlikely in the near term. And yet the agreement’s ratification is crucial to the ongoing prosperity of all three countries’ economies and to North America’s status as the world’s largest trading bloc. Failure to ratify the USMCA won’t simply mean that free trade will revert back to NAFTA. The president has stated repeatedly that if the USMCA isn’t ratified, he will unilaterally withdraw from NAFTA, pitting himself against lawmakers in Congress and putting the future of free trade in North America in jeopardy.

Sunset can brighten gloomy outlook

While each party presents a valid position, digging in on labor provisions (and, more peripherally, environmental ones) that prolong trade uncertainty in the largest trading bloc in the world is entirely unnecessary.

There are valid mechanisms in place that Democrats can use to ensure the enacted labor reforms are enforced and that Mexico is holding up its end of the bargain with respect to labor practices.

When the USMCA was signed in November 2018, it included a sunset clause that had been a source of tension and controversy during the negotiation period. The purpose of the clause was to force the parties to revisit the deal periodically to ensure it is working as it should for all involved. In its final iteration, the clause would see the USMCA automatically terminated 16 years after its implementation. However, six years after implementation, a joint review of the agreement would take place, at which time the parties could unanimously choose to extend the sunset period to 16 years from the six-year review, with another joint review to follow six years later. Failure to achieve unanimity at any six-year interval would require additional reviews to take place each year thereafter until the initial 16-year period concludes or until a consensus is reached on how to address the complainant party’s concerns.

If that sounds awfully and unnecessarily complicated, that’s probably because it is, particularly since the USMCA allows for any one party to withdraw from the agreement at any time with a six-month notice, making a sunset clause gratuitous. Nevertheless, it is how the current text of the agreement reads and, barring the unlikely possibility of the USMCA’s renegotiation, is how the agreement will be implemented.

Drifting off into the sunset

Assuming no one party relents, the most obvious way around the impasse would be for Democrats to ratify the agreement as it is currently written with the intent to watch closely how its labor provisions are enforced in Mexico. (Precisely how the monitoring of enforcement will take place is a separate but related disagreement between the White House and Congressional Democrats.)

After six years, there will be an opportunity to review the agreement and put Mexico on notice that it will need either to better enforce the labor provisions set out in the USMCA or see the U.S. exit the agreement when the 16-year period closes. In the event the annual review gets bogged down in bureaucratic inefficiency, lawmakers and the president of the day will have the withdrawal clause at their disposal to expedite compliance.

Unfortunately this will put U.S. industry in a Catch 22 position. Those businesses invested heavily in Mexican production will have to choose either to remain steadfast in their support of Mexico’s existing cost-effective labor regime or align with USMCA detractors in Congress at that time to exert pressure on Mexico to improve enforcement of labor provisions with the understanding that their failure to do so could put free trade in North America in danger.

Relying on the sunset clause may seem to be the equivalent of kicking the can down the road. However, the interim period would offer tremendous benefit. It would provide businesses the opportunity to adapt to the agreement’s new provisions and reconfigure their supply chains to make optimal use of the USMCA. It would allow production practices in Mexico to adjust to new labor and environmental provisions. It would offer Mexican officials the chance to demonstrate to the U.S. government that they intend to honor their USMCA commitments (not just in spirit, but in practice), and would demonstrate to Mexican officials that U.S. lawmakers are willing to give them the benefit of the doubt. Most importantly it would allow for stability to return to North America’s trade environment and the businesses and consumers who rely on it for prosperity and cost efficiency.

It may not be a perfect solution, but it is a viable alternative to the current options of lingering trade uncertainty, or worse yet, quashing the USMCA altogether and potentially precipitating a presidential decree to withdraw from NAFTA and with it a lengthy legal battle over the president’s legal authority to do so.

Cora Di Pietro is vice president of Global Trade Consulting at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations. She can be reached at cdipietro@livingstonintl.com.

The USMCA – Beyond Labor & Autos

There’s been a tremendous amount of ink spilt as of late about the ongoing battle on Capitol Hill over the labor-enforcement provisions of the United States-Mexico-Canada Agreement (USMCA) and, more recently, about the degree to which the new Rules of Origin for autos will positively impact sector employment.

There is still no light at the end of the tunnel with respect to labor-enforcement impasse. While Mexico recently passed labor-reform legislation that will allow workers to vote on unions and their labor contracts through secret ballots, Democrats maintain the enforcement provisions within the USMCA are insufficient and are unlikely to create the conditions necessary to prevent the continued flight of American jobs south of the border. Republicans maintain the labor provisions are a cut above NAFTA and are America’s best chance of holding Mexican officials accountable (politically and financially).

Similarly, the White House maintains the automotive Rules of Origin, featuring significantly higher North American content requirements, will generate far more jobs the 28,000 highlighted by the U.S. International Trade Commission’s report released last month.

The result of the impasse is ongoing ambiguity over the fate of the beleaguered trade deal and, in turn, the fate of free trade in North America.

While there’s no question these are important considerations and that reconciling the impasse would serve to secure the longevity of the USMCA, there is significant danger in making these issues deal breakers.

There’s more to free trade than labor enforcement and auto-sector employment

The USMCA is about far more than updating or improving labor standards, or even refining Rules of Origin for North American automobiles. It’s is a wholesale modernization of a trade deal that has solidified North America’s position as the largest trading bloc in the world.

While impassioned pleas have been made by Republicans and Democrats, policymakers often fail to acknowledge the impact of the agreement and free trade in general across the broader U.S. economy.

The importance of free trade to America’s economy and industries presents an irrefutable argument for ratifying the USMCA and augmenting free trade in North America.

Canada and Mexico are among the top three export markets for 49 U.S. states, and either Canada or Mexico is the top trading partner for 39 U.S. states. Approximately two million American jobs are supported by manufacturing exports to Canada and Mexico alone.

Since NAFTA was enacted in 1993, U.S. services exports to Canada and Mexico have tripled from $27 billion to $91 billion. American farmers rely heavily on access to the Canadian and Mexican markets with one-third of U.S. agricultural exports going to their southern and northern neighbors.

Much of the prosperity generated by free trade in North America has directly benefitted small businesses in the U.S. which count Canada and Mexico as their top two export destinations.

Looking beyond labor provisions and automotive rules of origin

The aforementioned data should be reason enough to make the ratification of the USMCA a sure bet. And yet, the new deal has the potential to further expand trade across North America and provide real benefits to American businesses and workers.

The intellectual property protections will shield producers against counterfeit goods and spur activity in IP-intensive industries, which currently support 45.5 million jobs that generate 6.6 trillion in U.S. GDP, according the U.S. Chamber of Commerce.

The agreement also reduces red tape and puts forward fair and transparent regulatory procedures, further enabling America’s small businesses to engage in the import and export of goods.

And while the growth of e-commerce and digital products creates new challenges for international customs agencies and the World Customs Organization regarding the appropriate application of duties, the USMCA introduces new provisions for a digital economy that will help to secure cross-border data flows, prohibit customs duties on transmission of electronic products such as e-books, and see continental cybersecurity collaboration.

The USMCA streamlines customs procedures, harmonizes regulatory policies, promotes e-commerce, offers greater access to Canada’s dairy market and retains critical dispute-resolution provisions for country-to-country disputes.

Broadening Public Discourse of USMCA

Rarely are the benefits listed above mentioned in public discourse over the USMCA, which has become almost obsessively hinged to labor-enforcement provisions. This is not to suggest those provision aren’t important. Indeed, the very impetus behind renegotiating NAFTA was to level the playing field with respect to labor, particularly in the manufacturing sector.

Similarly, changes to the Rules of Origin for autos are important to consider. No other industry has seized on the benefits of NAFTA to create integrated, continental supply chains the way the automotive industry has. Changes to how these supply chains function will impact production and distribution models, as well as employment and consumption trends.

It’s critical to discuss these issues. But it’s equally important the many other wide-ranging reforms outlined in the USMCA aren’t lost or overshadowed by that discussion. Neglecting to consider these benefits would be a disservice not only to the many stakeholders and negotiators who fought hard to ensure their inclusion into the agreement, but to the millions of Americans who would stand to benefit from these inclusions. Given that these same Americans are the constituents of the men and women in Congress, failing to ratify the USMCA over any single provision would be a classic case of members of Congress cutting off their noses to spite their faces.

Candace Sider is vice president of Government and Regulatory Affairs North America at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

2020 Democratic Candidates Won’t Find It So Easy To Be Anti-Trade

Maybe this time around, a Democratic presidential candidate will have the courage to be honest about trade.

Hillary Clinton supported free trade in general and the Trans-Pacific Partnership in particular until she ran for president in 2016, when she made the cold political calculation that continuing to support the TPP would result in a net loss of votes. So, she ran away from it though it were radioactive.

You may remember seeing delegates at the 2016 Democratic Convention holding signs that said “TPP” with a red line through it.

Bernie Sanders kept carping about “job-killing trade agreements” during his 2016 campaign, but never said which trade agreements he was talking about or what jobs they had killed. That didn’t matter to his followers, who thought everything he said was prophetic.

In many parts of the country, particularly Appalachia and the Midwest, it’s a lot easier to go with popular sentiment and blame NAFTA for the decline in manufacturing jobs than it is to explain to voters why that’s not true. A candidate would have to explain that jobs started migrating to Mexico three decades before NAFTA took effect; that U.S. manufacturing jobs peaked at 19.5 million in 1979 and had fallen to 17 million in 1994, when NAFTA took effect; and that they increased in number for the remainder of that decade. That takes time and requires the use of statistics that bore people. Moreover, if someone believes something strongly, he or she will continue to believe it even in the face of proof that it’s wrong.

Anti-trade politicians don’t use statistics, because there aren’t any that bolster their argument. Instead, they use evocative imagery that elicit an emotional reaction – pictures of closed factories with broken windows and weeds climbing the walls, abandoned communities, welfare lines.

Well, things have changed. It used to be that Republicans supported free trade in much larger numbers than Democrats. But as the 2020 election cycle gets under way, polls show that Democratic voters are more open to trade than they used to be.

Gallup poll conducted in early February found that 74% of Americans saw foreign trade “as an opportunity for growth.” Three years earlier, the same question had gotten a 58% positive response rate.

An NBC/Wall Street Journal poll in July 2018 found that 50% of Americans thought trade “has helped the United States.” That was up from 31% in June 2016.

These polls and others have found that a plurality of Americans think increasing tariffs is bad for the United States, that President Trump’s trade policies in general are bad for the U.S. economy and bad for respondents’ “personal financial situation.”

Nowadays, it’s President Trump and his followers who think the U.S. had gotten the short end of the stick on trade policy. They think the poor little United States has been bullied by the likes of Mexico, Canada, the European Union and China.

Sanders also has the distinction of agreeing with Trump, whom he despises, on trade policy. Trump even said so.

“I like Bernie. He is the one person that, on trade, he sort of would agree (with me) on trade. I am being very tough on trade. He is tough on trade,” Trump said last month.

That’s probably the last thing Sanders wanted to hear.

It will be several months before the 2020 presidential race gets going in earnest. In the meantime, the Peterson Institute for International Economics has published a guide to how each of the announced and expected-to-announce democratic candidates stands on international trade. You can see it here.

Oh, and one other thing: Go UVa!

About the author

John Brinkley was a speechwriter for U.S. Trade Representative Michael Froman and for Korean Ambasador Han Duk-soo during the Korean government’s quest for ratification of the Korea-US Free Trade Agreement

This article originally appeared in Forbes.

Ratifying USMCA the Only Responsible Option at this Point

The fate of free trade in North America is hanging in the balance.

That sentiment would have been true 18 months ago when negotiations of NAFTA began. It would have been true six months later when the parties failed to meet their self-imposed first deadline. It would have been true last October when it appeared the U.S. was prepared to sign a bilateral deal with Mexico and exclude Canada. And it’s still true today as the agreement gets lost in the fracas of politicking in Washington.

The impending release of the U.S. International Trade Commission (ITC) report, which provides members of Congress with in-depth analysis of the potential economic impact of the proposed United States-Canada-Mexico Agreement (USMCA), may very well have minimal impact in swaying Congressional opponents of the deal.

According to a recent report in Politico, the ITC’s analysis is likely to suggest the USMCA will have a negligible impact to U.S. GDP, which won’t serve as a bulwark against complaints by House Democrats that the agreement is short on enforcement mechanisms for its labor provisions. If that weren’t threatening enough, Ottawa has now suggested it may not ratify the USMCA unless Washington removes the Section 232 tariffs on aluminum and steel imports.

Yet, regardless of the ongoing warfare on Capitol Hill and the potentially uninspiring data in the ITC report, the reality is that at this point in time the ratification of the USMCA is the best possible option. The handful of alternatives available will only serve to further destabilize confidence in and certainty around the future of trade within North America.

Renegotiation

Democrats have been demanding stronger enforcement of the USMCA’s labor provisions. These demands are in keeping with the party’s longstanding complaint that NAFTA offered Mexico’s low-wage, low-regulation economy a leg up on attracting manufacturers. While the USMCA’s new labor provisions are intended to address this, Democrats argue the agreement lacks teeth in ensuring Mexico holds up to its end of the agreement.

However, creating an enforcement mechanism means going back to the negotiating table, something none of the parties are interested in doing, particularly since it took a great deal of intense negotiation over more than a year to come up with the agreement that’s currently on the table. It’s quite likely Canada and Mexico will demand significant concessions in exchange for a stronger enforcement mechanism, which may negate some of the agreement’s other benefits.

The Trump card

Whether or not the agreement is negotiated is, in some ways, irrelevant. U.S. President Donald Trump has already threatened that if Democrats attempt to quash the USMCA – either before or after a renegotiation of its enforcement provisions – Washington will simply pull the U.S. out of NAFTA, pitting the administration against Congress in a legal battle over trade-agreement decision making that is certain to become a wedge issue in the 2020 presidential campaign. The president recently reiterated his threat to withdraw from NAFTA during a recent interview on the Fox Business Network.

The result would be a return to a trade environment of uncertainty that would surely result in reduced cross-border investment that would adversely impact the economies of all three USMCA countries and potentially stymie Washington’s efforts to negotiate bilateral trade deals with Japan, the European Union and the United Kingdom – all important trade partners.

Forget the whole thing

If the threat to withdraw from NAFTA is simply bluster on the part of the President and ratification of the USMCA ends up locked in a Congressional stalemate, the other alternative is to simply do away with the renegotiated agreement and revert back to the original NAFTA deal. While that would certainly be a viable – and minimally disruptive alternative – the truth is that the USMCA made substantial gains in modernizing free trade in North America, addressing critical issues such as regulatory harmonization, the digital economy and intellectual property protection and host of other aspects that are not addressed in NAFTA. Whether these updates result in tangible gains to GDP and/or employment only time will tell. But at the very least they serve to incentivize those engaged in cross-border trade to continue doing so and perhaps even broaden the scope of their activity. Given that North American trade represents more than a trillion dollars annually, it’s critical to – at the very least – maintain the gains already made over the past 25 years. The USMCA does exactly that and more.

It took very seasoned negotiators and trade experts more than a year of intense talks to arrive at the agreement that’s currently on the table, including the chapters that serve to bring free trade into the 21st century in a fair and equitable manner. It would be irresponsible to do away with these gainful additions in the name of partisanship, and voters would presumably hold their elected representatives to account should they choose to do so.

The best course of action

The responsible and most advantageous thing for Congress to do at this point would be to ratify the USMCA. That’s the opinion of approximately 400 businesses and business associations that are now part of the USMCA Coalition, a collective of like-minded enterprises that believe in the importance of free trade to the U.S. economy and to U.S. jobs, and of which Livingston International is a member.

Given the impressive gains made by the USMCA in fostering an environment of fair and free trade across the continent, and the risks associated with returning to the negotiating table and/or drawing out the ratification of the agreement into the political fray of the 2020 election campaign, it is critical that lawmakers on Capitol Hill make ratification of the new deal a key priority in the coming months.

Failing to do so would put into peril the advantages of free trade on which so many jobs rely, and would serve to reinforce the perception that lawmakers are all too eager to put partisanship ahead of effective representation. 

Candace Sider is vice president of Government and Regulatory Affairs North America at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

Five reasons the USMCA won’t be passed easily by Congress

In his recent State of the Union address, U.S. President Donald Trump described the North American Free Trade Agreement (NAFTA) as a “historic trade blunder” and a “catastrophe”. He recounted recent meetings with unemployed Rust Belt workers who have been on the front lines of America’s deindustrialization, imploring Congress to rid America of the NAFTA burden by passing the recently signed United States-Mexico-Canada agreement into law.

Ratification of the agreement, however, is far from certain, and not just because the government is divided along party lines. While it’s true Democrats are leveraging their newfound House majority power to insist on enhancements to the USCMA, there are other factors at play that could stymie the President’s efforts to ratify the trade deal, not least of which is the ongoing row over funding of a border wall, which forced the longest government shutdown in history.

Labor provisions

Perhaps one of the most controversial aspects of the USMCA are the labor provisions outlined in Chapter 23 of the new agreement. The USMA demands that all imports, but particularly automobiles, be manufactured using laborers that have the right to collective bargaining and representation by independent unions. Those labor provisions are critical as much of the impetus behind renegotiating NAFTA was the establishment of a more balanced labor environment between the U.S. and Mexico to minimize the flight of U.S. manufacturers to Mexico where labor wages are only a fraction of those in the U.S. Democrats have noted the Chapter 23 provisions lack enforceability and are unlikely to result in tangible reforms.

The challenge is that putting in place more robust enforcement provisions would require reopening negotiations with Mexico. The governing party in Mexico today is not the same as the one that had negotiated and signed the USMCA. In fact, the conclusion of the negotiations was hastened specifically to ensure the agreement could be signed by then Mexican Prime Minister Enrique Peña Nieto as incoming President Andrés Manuel López Obrador was less inclined to expend his political capital on the new trade deal. Since then, López Obrador’s administration has signalled its support for the USMCA but also that it has no desire to reopen negotiations.

Automotive Content Requirements

Democrats’ demands for stronger labor provision aren’t the only objection to the changes imposed on automotive trade. Republicans have also taken issue with the changes, noting the content requirements are too onerous and against the spirit of open trade.

The content provisions, which require automobiles to have 75% North American content and which prescribe minimums for the use of U.S. steel and aluminum, were the most hotly contested changes in the agreement. While both Canada and Mexico were keen to keep automotive content requirements fairly low and may be receptive to seeing some the changes clawed back, there’s likely little political appetite to reopen negotiations over an issue that was so divisive and which complicated the negotiations from beginning to end.

Section 232 Tariffs on Steel & Aluminum

One of the issues the USMCA agreement failed to address was that of the ongoing steel and aluminum tariffs the Trump administration has imposed on Canada and Mexico, and the associated countermeasures with which each of those countries reciprocated.

Now, Republicans such as Senator Patrick Toomey and Ron Johnson, who chairs the Senate Homeland Security and Governmental Affairs Committee, are echoing the concerns of many U.S. businesses about the impact of the tariffs and stressing their support for the USMCA will be contingent on the tariffs’ repeal. The President, however, has dug in his heels and refused to do away with the tariffs, suggesting instead that he will simply withdraw the U.S. from NAFTA if Congress refuses to ratify the USMCA.

Pharma

Politco Pro recently reported that a group of House Democrats have suggested they cannot support the USMCA if it maintains its current provisions over pharmaceutical intellectual property.

The USMCA increased the period for which drug makers can maintain a patent on high-cost biologics from eight years to 10 years. Democrats fear this will prolong what they see as a period of monopoly for drug makers, enabling them to keep costs high for life-saving drugs.

Environment

The USMCA was an improvement over the 1993 NAFTA agreement in terms of environmental protections. There is specific language about the protection of marine environment and reduction of marine litter and ship pollution, as well as recognition of fishing issues, air quality and the ozone layer. Furthermore, the removal of NAFTA Chapter 11 eliminated the ability for private corporations to sue governments and seek damages for the implementation of environmental laws and regulations that impeded their profits.

But environmental groups and many House Democrats aren’t happy the USMCA excludes mention of climate change and say that – much like the automotive labor provisions – the environment rules lack enforceability and they want to see more definitive language to ensure profit won’t supersede protection.

ITC Report

The aforementioned concerns are only those that have emerged from the text of the agreement itself. Congress has not yet seen the International Trade Commission’s report (the due date for which has been extended to April 19 due to the government shutdown), which will outline the economic impact of the agreement and which could conceivably raise a number of other unforeseen apprehensions.

Only time will tell precisely what sorts of volleys the parties will exchange over the course of the USMCA’s ratification process. What’s certain, however, is that the passing of the USMCA legislation won’t be easy and bi-partisan support may require concessions on the part of an administration that has hitherto been able to govern unimpeded on the trade file.

 

David Rish is president of Global Trade Management at customs brokerage, freight forwarding and trade consulting firm Livingston International. He can be reached at gtmleader@livingstonintl.com.